Category: Economics

Trapped In Choice: How More Choices Make Us Less Happy 

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We live in an era of extraordinary abundance. At any moment, people are exposed to far more alternatives than previous generations did, across nearly every domain in life. The world has never offered so much choice, yet many individuals feel increasingly overwhelmed by it. 

Psychological research suggests that, while choice is essential for autonomy and well-being, too many options can have the opposite effect on decision-making quality and satisfaction. This phenomenon challenges the assumption of classical economics that more alternatives lead to better outcomes. 

The psychology of choice overload 

When confronted with a large number of alternatives, individuals often experience difficulty in making decisions, a tendency known in literature as choice overload or overchoice.  

One of the earliest and most cited demonstrations of this effect was the so-called “jam experiment” conducted by psychologists Sheena Iyengar and Mark Lepper. In their study, shoppers at a local market were presented with either 24 varieties of jam or just 6, and while more customers stopped at the larger display, far fewer made a purchase compared to those who saw fewer options.  

This counterintuitive result highlights a central paradox: abundance of choice can reduce the likelihood of a decision being made at all. The cognitive load associated with evaluating too many alternatives can lead to what psychologists identifiy as decision paralysis, where individuals delay or avoid making any choice due to overwhelming complexity.  

In this context, research points to additional consequences of choice overload, including increased stress, regret for forgone options, and lower confidence in the choices that are made.  

Figure 1: Illustration of the “jam experiment” showing how larger assortments attract more shoppers but lead to lower purchase rates compared to smaller assortments. Source: Your Marketing Rules 

The cognitive cost of choice overload  

From a neuroscientific perspective, decision-making consumes cognitive resources. In particular, the prefrontal cortex, often described as the brain’s executive center for planning and evaluation, plays a significant role in choosing among alternatives. As the complexity of options increases, so does the mental effort required to process information and make judgments, defined as cognitive load. When faced with an excessive number of alternatives, this increased load can exceed working memory capacity, leading to mental fatigue and suboptimal choices.  

In extreme cases, prolonged decision-making under such conditions can trigger what psychologists term decision fatigue, a decline in decision quality that arises after repeated cognitive exertion during choice tasks.  Importantly, decision fatigue often results in a shift toward simpler heuristics or impulsive reactions based on biases, rather than thoughtful deliberation.  

How the digital era multiplies our choices 

In the digital era, choice overload permeates everyday life: a typical online marketplace now offers thousands of products, each often presenting mulitple ratings, features, and reviews. Streaming services aggregate tens of thousands of titles, and users often report spending more time choosing what to watch than actually watching.  

Figure 2: Number of TV programs produced in the U.S. from 1950 to 2022, showing accelerated growth in the digital age. Source: IMDB

Even outside market-based decision environments, people face an ever-expanding range of alternatives in careers, travel destinations, social interactions, and financial decisions. Behavioral economists and psychologists note that this proliferation of options can paradoxically diminish overall satisfaction and confidence in one’s choices. This trend also shapes broader macroeconomic dynamics. When choices become overwhelming, people participate less actively in markets, often stepping back from decisions altogether. Evidence from e-commerce illustrates that when faced with an excess of product options, many consumers simply postpone or abandon their purchases. 

Figure 3: Proportion of subjects who bought any pens as a function of the number of choices available. Source: Ness Labs 

The human cost of abundance 

Although choice is often associated with autonomy and freedom, an excess of options may lead to psychological downsides. One well-studied distinction in literature differentiates between “maximizers”, individuals who seek the best possible option, and “satisficers”, those who settle for good enough. When faced with abundant choices, maximizers tend to experience higher levels of regret, lower satisfaction, and greater decision anxiety than satisficers.  

Further research suggests that an abundance of choice can even undermine self-control and promote impulsive behavior, particularly after making repeated decisions. This effect has been documented in studies showing that frequent decision-making can deplete mental resources, leading to cognitive and emotional fatigue.  

Beyond individual psychology, widespread choice overload may contribute to broader societal patterns of stress and dissatisfaction. Rather than eliciting joy, the freedom to choose can inflate expectations and intensify regret, particularly when people believe a better choice was possible.  

Toward smarter choices 

Despite its potential drawbacks, choice is still a fundamental part of our lives and need not be feared. A growing body of research indicates that individuals can navigate abundant options more effectively through strategic decision frameworks and environmental design. For example, consciously limiting the number of alternatives under consideration, a practice known as pre-filtering, has been shown to streamline decision-making and reduce cognitive strain. Other helpful approaches include setting clear criteria before engaging in selection, focusing on satisficing rather than maximizing when faced with many options, and using structured heuristics that prioritize key attributes over exhaustive comparison.  

Behavioral economists refer to these techniques collectively as part of choice architecture, which aims to structure decision environments in ways that support better outcomes without eliminating freedom of choice.  

Conclusion 

The paradox of choice illustrates a key tension in modern life: while freedom and autonomy are deeply valued, an excess of options can undermine the satisfaction and confidence individuals seek. Across consumer behavior, digital decisions, and everyday life, too many alternatives can lead to fatigue, regret, and disengagement. 

Understanding the psychological and neural mechanisms behind choice overload does not require rejecting freedom, but rather it leads to a more intentional relationship with our decisions.  

Sources: When Choice is Demotivating: Can One Desire Too Much of a Good Thing? by Iyengar & Lepper (Journal of Personality and Social Psychology); The Paradox of Choice: Why More Is Less by Schwartz; Why Do We Have a Harder Time Choosing When We Have More Options? by The Decision Lab; On the Advantages and Disadvantages of Choice: Future Research Directions in Choice Overload and Its Moderators by Misuraca, Nixon, Miceli, Di Stefano, Scaffidi, Abbate (Frontiers in Psychology); Choice Overload: A Conceptual Review and Meta-Analysis by Chernev, Böckenholt, Goodman (Journal of Consumer Psychology); Decision Fatigue in E-Commerce: How Many Product Options Are Too Many? by Winsome Writing Team (Winsome); The Paradox of Choice: How Too Many Options Affect Consumer Decision-Making by Winsome Writing Team (Winsome). 

Margherita Ottavia Serafini 

Writer

Why Gender Pay Gap Data Mislead Us: Understanding The Dynamics Behind The Numbers 

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Reading time: 8 minutes

The gender pay gap index is often perceived as a clear and straightforward indicator of inequality: the lower the gap, the more equal a society must be. Yet, when looking at European data, this assumption immediately breaks down. Countries widely recognized for their strong gender equality, such as Finland and Denmark, show some of the highest gender pay gaps in Europe, respectively of 16.8% and 14.0% in 2023. Conversely, Southern European countries, typically portrayed as less advanced in terms of labor equality, often show lower gaps, such as 2.2% in Italy, 5.1% in Malta and 8.6% in Portugal.

Figure 1: The unadjusted gender pay gap, 2023 (difference between average gross hourly earnings of male and female employees as % of male gross earnings). Source: Eurostat 
Figure 2: Gender Equality by Country, 2025. Source: World Population Review 

This counterintuitive pattern raises a key question: why do some of the most gender-progressive countries display such large pay gaps? 

Understanding the answer requires unpacking what the gender pay gap actually measures and how structural factors shape the interpretation of the data. 

A counterintuitive European puzzle: how labor participation affects the gender pay gap 

According to Eurostat, the gender pay gap represents the average difference between male and female hourly earnings across an entire economy. However, this “raw” indicator does not adjust for variables such as employment rate, seniority, working hours, occupation, or industry composition. As a result, countries with very different labor market structures can produce misleading pay gap figures. 

In the European context, Nordic countries display among the highest female labor participation rates in Europe. In Sweden and Finland, around 75-77% of working-age women are employed, compared to roughly 52% in Italy, according to the Eurostat data for 2021. This fundamental difference has two statistical consequences:  

(1) More women participate across many sectors, including high-paying but male-dominated private industries, where pay disparities are more apparent.  

(2) In low-participation countries, many women who would earn less or face structural disadvantages simply do not appear in the labor market statistics. 

This means that a “low pay gap” can reflect fewer women working, not more equal pay.

Figure 3: Female labor force participation rate in Europe, 2024 (the average for 2024 in the European countries was 54.19%.The indicator is available from 1990 to 2024). Source: The World Bank 

Structural factors shaping the gender pay gap  

A low pay gap may also reflect structural constraints, cultural norms, or barriers that discourage women from entering specific sectors, or even from participating in the workforce altogether. In Italy, for instance, women are underrepresented in high-earning private-sector roles but are comparatively overrepresented in stable public-sector professions, where pay scales are more regulated. This combination tends to compress wage differentials and therefore “artificially” decrease the gender pay gap. 

By contrast, in Nordic countries women participate across a wide range of sectors, including those with substantial wage dispersion. This results in a broader and more accurate representation of gender differences in earnings. 

In this sense as well, a low pay gap is not inherently a sign of gender parity. 

The role of part-time work and occupational segregation 

A third major factor explaining the higher gender pay gaps in Northern Europe is the prevalence of part-time employment among women. According to Eurostat, countries such as the Netherlands and Denmark have some of the highest female part-time rates in Europe, compared to Southern European countries like Portugal, Greece, or Spain. Part-time jobs tend to be paid less per hour, offer fewer opportunities for career progression, and limit access to high-responsibility roles. Although part-time work in these countries is often facilitated by supportive family policies and may be a voluntary choice, it nevertheless contributes significantly to the gender pay gap. 

This pattern results in greater salary divergence between genders, even in settings where equality norms are strong.

Figure 4: Part-time Employment in Europe, 2021. Source: Eurostat 

The Nordic Gender Equality Paradox: when generous policies widen the gap 

One of the most discussed phenomena in economic literature is the Nordic Gender Equality Paradox. Although, as previously mentioned, Nordic countries consistently lead global rankings on gender equality, research by the National Bureau of Economic Research (NBER) has shown that highly generous parental leave policies can unintentionally amplify long-term differences in earnings. 

In countries such as Sweden, Denmark, and Finland, parental leave systems are among the most comprehensive in the world. While these policies ensure high levels of family wellbeing, they often result in women taking longer leave periods than men, leading to a slower re-entry into the labor market. This does not suggest that generous welfare policies are harmful; rather, it highlights how well-intentioned reforms can produce unintended labor-market outcomes when uptake remains uneven across genders. 

In Nordic countries, despite continued efforts to encourage paternity leave, women still take the vast majority of parental-care responsibilities. This persistent imbalance shapes career progression and contributes to long-term differences in lifetime earnings trajectories. 

Why public perception gets it wrong 

Public understanding of the gender pay gap is often shaped by simplified narratives, headlines, or assumptions based on cultural stereotypes about specific regions. Surveys conducted by the Pew Research Center show that people tend to overestimate gender differences in some contexts and underestimate them in others. 

Many assume that Nordic countries must have both high labor equality and low pay gaps. While this is true in some dimensions, such as political representation, education, and labor participation, pay gaps capture a more complex picture involving sectoral structures, parental leave, part-time work, and long-term career dynamics. 

Similarly, countries with low pay gaps are often assumed to be more gender equal, even though low participation rates, lack of childcare infrastructure, or rigid labor markets may paint a very different picture. 

This disconnection between perception and reality underscores the importance of interpreting gender statistics with nuance and understanding what each indicator actually measures. 

Conclusion 

The gender pay gap is a useful measure, but understanding what underlies it is essential. As European data shows, a low gap does not automatically signal high equality, nor does a high gap inherently indicate poor conditions for women. Instead, the gender pay gap must be interpreted within the broader context of labor participation, occupational patterns, welfare policies, and family dynamics. 

Nordic countries exhibit higher raw pay gaps because their labor markets include almost all women, across all sectors, roles, and wage bands, and because generous parental leave policies influence long-term earnings. Southern European countries show lower raw gaps largely because fewer women work and those who do tend to be concentrated in more regulated sectors. 

A nuanced interpretation is therefore essential. Understanding the mechanisms behind the numbers allows policymakers, students, and future professionals to build a clearer picture of labor market inequalities. Only by looking beyond surface-level statistics can societies meaningfully address the structural causes of wage disparities and design interventions that move beyond appearances toward real equality. 

Sources: Eurostat; OECD; The World Bank; CEPR – VoxEU: The Nordic Model and Income Equality: Myths, Facts and Policy Lessons by Mogstad M., Salvanes K. G., & Torsvik G.; World Bank Group, Gender Data Portal; European Commission; The World Economic Forum, Global Gender Gap Report; The Economist: A Nordic Mystery; National Bureau Of Economic Research: The Child Penalty Atlas by Kleven H., Landais C., & Leite-Mariante G.; Pew Research Center, Global Attitudes on Gender Equality. 

Margherita Ottavia Serafini 

Writer

Female Exodus: Why U.S. Women Are Leaving The Labour Market 

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Since January 2025, more than 400,000 women have been leaving their jobs in the U.S., the steepest decline in over 40 years for mothers of young kids.  

A female exodus that is dangerously erasing years of hard-won advances women made, particularly coming out of the pandemic, when flexible work policies enabled unprecedented labour participation rates.  

Remote Work Trends And The Post-Covid Peak 

On the wave of lockdowns, in May 2020 pandemics pushed almost 40% of employed Americans into working remotely. An undeniable jump, if we consider that just 3 years earlier only about 9-10% of workers would be reported working remotely. Later on, as offices reopened, that number fell, dropping to around 5.2% by September 2022 for those working remotely due to COVID.  

However, remote work itself did not disappear. The pandemic left a mark in the labour market, as by early 2024 about 22.9% of U.S. employees were still teleworking. This shows how post-pandemic remote-hybrid work remained definitely more common than it was before, despite not reaching the emergency peak of 2020. 

Figure 1: Share of employment by gender in occupations that can be performed remotely. 
Source: U.S. Census Bureau and USDOL/ETA 

Flexibility, Remote Work, and Women’s Labour Force Participation 

Historically, women have been overrepresented in roles more adaptable to remote work, such as education, administration, and knowledge-based services. Thus, it is not surprising that when flexible work options arose, many women would capitalise on them.  

For both men and women, the possibility of working remotely decreased the likelihood of dropping out of work. But this effect was more visible for women. In fact, prime-age women’s labour force participation (ages 25-54) reached record levels in the U.S., hitting around 77-78% in 2023.  

Figure 2: Labor force participation of U.S. prime-age women (1982–2025), by age of youngest child. Mothers with children under 5 peaked at 71% in 2023, then dropped to 68% in 2025. 
Source: The Hamilton Project, Brookings. 

A Brookings analysis pointed out that since 2020 the group witnessing the fastest growth in labour force participation were those mothers with children under 5 years old. For most, indeed, remote and hybrid schedules created a bridge between work and family responsibilities, particularly also among highly educated or married women. Flexibility would not just retain workers, it actually unblocked participation from those groups previously precluded by rigid schedules.  

But numbers speak loud: nowadays, something is changing.  

Unaffordable Childcare and Caregiver Burnout 

What is happening in front of our eyes is a clear childcare crisis. The stress and pressure to manage both career and childcare leave women overwhelmed and exhausted. In the U.S., many women struggle to find affordable childcare in a country with one of the highest costs in the world, often 30% or more of an average family’s income.  

Figure 3: Cost of infant care as a share of median income across U.S. states in 2024. Darker shades indicate higher financial burden. 
Source: Economic Policy Institute, via CNN. 

Instead, countries such as Germany and Estonia have subsidised childcare, pushing down costs to near zero for many families. But many American mothers feel they have little choice but to quit their jobs. Similar story in the UK, where a recent survey has revealed that 43% of mothers revealed they had considered leaving their jobs due to childcare expenses.  

Years of underinvestment and the end of expiration of pandemic-era subsidies are leaving American childcare supply in crisis. Women who have fought for their careers are now forced to drop out to preserve their mental health and family well-being.   

Return-to-Office Mandates and Lost Flexibility 

In January 2025, President Donald Trump ordered federal employees back in-person five days a week, despite many had remote work arrangements and some had even moved far away from their offices. Major private employers, such as Amazon and JPMorgan, followed the same wave.  

It’s not a coincidence that women’s participation in the workforce is falling as flexibility disappears, says Julie Vogtman, senior director of job quality for the National Women’s Law Center. 

Yet, return-to-office policies are not proven to make companies more productive. For instance, one 2024 study Van Dijcke, Gunsilius, and Wright of resumes at Microsoft, SpaceX, and Apple found that return-to-office policies led to an exodus of senior employees, which posed a potential threat to competitiveness of the larger firm. In other words, employers are losing talented workers, whose skills and institutional knowledge are difficult to replace. A talent drain that can even weaken the overall economy’s productivity and innovation.  

To worsen things, women don’t feel respected in some workplaces, perceiving a clear cultural shift. Many have reported feeling less valued at work, with few diversity initiatives and a post-pandemic reversion to old norms.  

It’s a pure storm of fading flexibility, harsher office demands and eroded support systems.  

A McKinsey research suggests that women are even more likely to take on a lower-paying job if it implies benefits such as remote working and flexible schedules. If this trend increases, it will leave women disproportionately affected.  

Furthermore, as women leave their jobs, the Trump administration is looking for ways to encourage women to get married and have more children, so as to slow down the country’s decline in birth rate.  

Global Perspectives: Policies Matter 

“The U.S. is the only advanced economy that’s had declining female labor force participation in the last 20 years, and a lot of that is because of lack of social safety net and caregiving supports” – Kate Bahn 

Globally, about half of all women participate in the labour force, with huge regional disparities persisting.

Figure 4: Female labor force participation worldwide in 2024. Darker regions show higher shares of working-age women in the labor force, with stark contrasts between regions like Scandinavia and South Asia. 
Source: Our World in Data (2025), ILO Estimates. 

Deliberate policies have allowed women’s workforce participation to rise or held steady in many wealthy nations. Nordic countries like Iceland and Sweden lead in female employment, with gender gaps among the smallest in the world and a women’s participation rate of around 63-70%.  

These countries differ from the U.S. as they heavily invest in affordable childcare, generous parental leave, and flexible schedules. Even the UK, Canada, and China have recently improved childcare subsidies or free preschool hours to push mothers to work. France and the Netherlands have high part-time options keeping women in the labour force, whereas Japan is pushing for “women economics” incentivising female employment.  

On the other hand, countries that like the U.S. lack supportive policies see women pressed to choose between work and family, a choice that an emancipated society shouldn’t have.  

Conclusion 

Women leaving the workplace is not merely a personal or isolated decision. We are talking about a systematic problem depending on a complex interplay of societal norms, organisational practices and individual circumstances.  

Factors such as work-life balance, career progression opportunities, social norms and expectations shape many women’s career decisions. Understanding the multifaceted nature of this trend is essential for designing effective strategies to retain and support women, ultimately benefitting the overall society and economy.  

Sources: Bureau of Labor Statistics; Time Magazine; Allwork.Space; The Washington Post; University of Kansas (The Care Board/CBS News); Brookings Institution; Federal Reserve (FEDS Notes); World Economic Forum; Institute for Women’s Policy Research; KPMG; The Economist; The Hamilton Project; The New York Times; McKinsey Global Institute; Our World in Data; Qureos; Return to Office and the Tenure Distribution, Van Dijcke, Gunsilius & Wright, arXiv (2024) 

Rebecca Fratello 

Writer

Risk Repriced: How Political Instability Reshapes Market Confidence and Sovereign Costs 

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Reading time: 8 minutes

When Markets Look At Politics 

We are used to thinking of financial markets as driven only by economic principles such as inflation, interest rate expectations, and growth forecasts. In this context, politics is background noise: unpredictable, difficult to quantify, and irrelevant to asset pricing. Yet this perception increasingly misrepresents reality. 

Political developments have become central to how markets interpret risk, reprice assets, and allocate capital.  

Nowadays, headlines from governments regularly trigger revaluations. Political uncertainty is growingly emerging as a source of volatility and a key determinant of sovereign borrowing costs. Every new cabinet announcement, legislative halt or budget negotiation is a signal investors have to price, quickly and with little margin for error.  

The uncertainty about future government actions may have a dual effect on market prices. In rare cases, it may represent policy flexibility against shocks. But in the majority of cases, it may actually reflect growing doubts about institutional resilience and future fiscal tracks. 

The market impact is clear: as stock prices respond to political news, political uncertainty leads to higher equity risk premium, increased asset correlation and consequently lower diversification benefits. 

To better understand how political turmoil can flow into financial markets, we can have a look at the most recent case: France. 

The French Distress 

In October 2025, France dived into a serious political turbulence after the resignation of Prime Minister Sébastien Lecornu just one day after announcing his cabinet. It’s the collapse of the fifth prime minister in just two years, a statistic that points out not just instability but a deeper fracture in the French political system. 

Public surveys reveal despair, pessimism and distrust as the prevailing feelings in French citizens. Worrying symptoms representing the profound current democratic crisis, not even two years ahead of the next presidential election.  

Financial markets, never known for patience but for how quickly they react, are clearly reflecting investors’ sentiment. Not surprisingly, French equity indices dropped, and bond markets did not do differently. For instance, yields on the 10-year French government bonds skyrocketed by 7-8 basis points, reaching around 3.58%.  The spread between French and German bond yields broadens as investors demand a premium for holding what they see as riskier sovereign debt.  

Figure 1: The yield gap widened sharply amid French political turmoil, reflecting rising investor risk premia on French debt. 
Source: LSEG via Reuters. 

The reason for this reaction? The answer is not that straightforward. No single event triggers the repricing by itself, but the clear loss of confidence in France’s fiscal policies plays an unequivocal role. The situation in France is getting complicated, both politically and economically.  

The general feeling speaks loud: France looks unable to find its way out of this malaise.  

Shifting Benchmarks 

Historically, France was perceived as relatively safe within the Euro area bond markets. Italian bonds, instead, have been telling a different story so far. Yet, trends are changing.  

Figure 2: French (red) and Italian (green) 10-year government bond yields nearly converged in late 2025, reflecting France’s political turmoil (rising yields) versus relative stability in Italy (falling yields). Source: LSEG via Reuters. 

As French borrowing costs have risen, Italian yields have followed the opposite direction. This shows how perceptions around France, once considered a core market, and Italy, long seen as one of the weakest ones instead, have radically changed. Investors are concerned that France will not be able to improve its fiscal position due to its political instability, thus pushing up its bond yields. Different story for Italy, where relative political stability and downward debt forecast have caused its bond yields to decrease.  

But be careful. For some, the narrowing of the French-Italian bond spread has more to do with French fiscal and political distress than an improvement in Italy’s market.  

Italy has been afflicted by chronic problems that will take a long time to fix. We are still talking about the euro zone’s second-largest debt as a percentage of GDP after Greece, with a growth of the economy being obstructed by a concerning falling population and low female employment.  

Still, the convergence of French and Italian bond yields serves as a striking illustration of the implications of political stability and credible budgeting on investors’ confidence.  

Indeed, global investors nowadays look at governance quality in advanced economies pretty much as economic principles to adjust their required returns. 

Impact On Growth And Market Confidence 

Beyond market volatility, political instability carries important long-term economic costs. Empirical research on advanced economies has demonstrated that an uncertain politics can cause delayed investment decisions, hard policy execution, and undermined growth prospects. In fewer words, high levels of political instability can overall cause worse economic output. 

The reasons are pretty intuitive: when governments are fragile or policy direction is unclear, businesses and consumers lose confidence. Private sectors struggle to create expectations, while public institutions turn less effective in providing structural reforms.  

But as fragmented governments are not able to enact reform, public finances deteriorate. In France, the continuous change in leadership has paralysed the adoption of a new fiscal regime, delaying important decisions on expenditure and taxation. This creates a dangerous loop: as fiscal negligence decreases investor confidence, sovereign borrowing costs increase, which displace public spending, which in turn further constrains the ability to enact future reforms.  

France, for instance, has gone through five prime ministers in just two years, its national debt exceeding €3 trillion, and it seems unable to create a credible path towards fiscal balance.  

Figure 3: France holds the third-highest debt burden in the EU, after Greece and Italy, exceeding 110% of GDP. 
Source: Eurostat.

Globally, the political instability of an advanced economy as France can have both negative and positive spillover effects on other regions as well. On one hand, investors may require higher risk premiums also from other countries perceived as politically vulnerable. On the other hand, such instability may cause a flight-to-quality flows, as capital would flow towards safer bonds such as Germany Bunds or U.S. Treasuries.   

However, the coincident fiscal crises in multiple large economies, might result in a broader reallocation of global capital away from equities and emerging markets, thus potentially threatening global growth. 

Institutions such as the IMF and OECD have pointed out how political stability and consistent fiscal policies are not only priorities at the domestic level, but also the foundations of international market confidence and macroeconomic resilience. 

Conclusion 

What France is going through right now is not just a domestic drama. We are using this case as an understanding of what can be the costs of institutional fragility in a period of high debt and fiscal uncertainty. When governments and their reforms falter, consequences can be urgent: higher borrowing costs, downgraded credit ratings, eroded currencies, and constrained growth.  

If investors would once see political risk as background noise, now they price it in their models and we need to discuss it. The bond market has become a criterion of credibility, which rewards discipline and punishes obstructions.  

The message to policymakers is clear: good governance is capital. Stability, transparency, and consistency are no more mere abstract democratic values, but economic assets bringing yield. We are still in a post-pandemic context with high interest rates and insecurities, and policy incoherence is no longer tolerated. 

Preserving market trust is vital. Governments must now handle both budgets and expectations. Credibility can be the cheapest form of stimulus for those countries facing high debt and structural change. And as France is showing, once lost, it becomes the most expensive asset to restore. 

Sources: Reuters; Euronews; Financial Times; Fitch Ratings; Eurostat; LSEG via Reuters; IMF; OECD; ECB; Political Uncertainty and Risk Premia, by Lubos Pastor & Pietro Veronesi; European Journal of Political Economy; Political Instability and Economic Growth: Causation and Transmission, by Maximilian W. Dirks & Torsten Schmidt.

Rebecca Fratello 

Writer

The Economics of Mindfulness: Why Wellbeing Is a Business Case

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Reading Time: 5 minutes

Reframing Wellbeing in the Modern Workplace 

As the nature of work becomes increasingly complex, digital, and fast-paced, employee wellbeing has emerged as a critical driver of organizational success. Far from being a peripheral HR topic, psychological wellbeing directly impacts core business outcomes – from productivity and innovation to turnover and engagement. The notion that investing in wellbeing is costly or optional is increasingly contradicted by empirical evidence showing that it is, in fact, a smart economic decision. 

Workplaces where employees report higher levels of subjective wellbeing – particularly job satisfaction – demonstrate significantly better performance outcomes, including labor productivity, output quality, and profitability. These relationships persist even when controlling for other HR policies, highlighting wellbeing as a distinct and measurable source of competitive advantage. 

Moving Beyond Perks: Systemic Approaches to Wellbeing 

Workplace wellness initiatives often focus on individual-level solutions like meditation apps, fitness memberships, or lunchtime yoga. While these efforts may reduce short-term stress, they fail to address the structural conditions that give rise to chronic strain, disengagement, and mental health risks. 

Interventions are more effective at the organizational or group level. Changes to work schedules, job roles, or team dynamics – especially those that increase employees’ control and participation – have demonstrated a broader and more sustainable impact on wellbeing. Employees who have autonomy in their tasks and a voice in how work is structured consistently report higher levels of job satisfaction, lower stress, and improved work–life balance. These outcomes are amplified in environments that support open communication and shared decision-making. 

Such systemic approaches suggest that wellbeing is not the result of individual resilience, but of healthy, empowering work environments that are intentionally designed. 

Technology and the New Frontier of Workplace Wellbeing 

In response to hybrid and remote work environments, organizations are increasingly turning to digital tools to support mental health and wellbeing. From immersive virtual reality (VR) environments that simulate calming nature scenes to AI-based tools that monitor emotional states via facial expressions, biometric data, or tone of voice, technology now plays a growing role in the design of workplace wellbeing strategies. 

Virtual reality programs have shown promising results in reducing stress and promoting relaxation in various workplace settings. Even short VR interventions with nature-based visuals or guided breathing exercises have been associated with measurable improvements in employee wellbeing. These technologies can serve as accessible and time-efficient micro-breaks, particularly in demanding or high-pressure environments. 

At the same time, the use of emotional AI raises critical ethical concerns. While emotion-recognition systems promise to enhance management decisions and detect early signs of burnout, they also risk turning the workplace into a zone of surveillance. Monitoring affective states without transparent consent or context can undermine psychological safety rather than support it. If technologies are used to control rather than empower employees, they may backfire – reducing trust and increasing stress. 

The key lies in intentional design and ethical implementation. When used responsibly and transparently, digital wellbeing tools can extend access to support and complement systemic approaches to workplace culture. However, technology must remain a tool – not a substitute – for genuine human connection, autonomy, and care. 

Wellbeing as a Catalyst for Innovation 

Wellbeing not only prevents burnout – it enables innovation. Employees who perceive their work as meaningful and values-aligned are more likely to engage in creative thinking, share new ideas, and take initiative. When employees experience purpose and psychological safety, their engagement spills over into behaviors that benefit the organization as a whole. 

Studies indicate that this effect is strengthened when organizational values align with employees’ own spiritual or ethical beliefs. A sense of authenticity and shared purpose in the workplace fosters emotional connection, which in turn drives proactive contributions and innovative work behavior. 

Resilience as a Buffer to Emotional Strain 

In emotionally intense or high-stakes sectors, such as healthcare, workplace resilience plays a critical role in protecting psychological wellbeing. Employees working under high stress, such as nurses in mental health services, report substantially better wellbeing when they experience resilience-supportive conditions like strong team relationships, opportunities for growth, and autonomy in clinical decisions. Higher resilience levels are associated with lower levels of anxiety, depression, and mental distress – even when job demands remain high. 

These findings affirm multidimensional models of wellbeing, which emphasize not just happiness or the absence of illness, but the capacity to grow, feel connected, and exercise agency in the face of adversity. 

From Support Programs to Cultural Shift 

Employee Assistance Programs (EAPs) remain widely used and often valued as accessible tools for short-term counselling and support. However, their long-term effectiveness depends on integration with broader workplace strategies. EAPs that operate in isolation, without addressing organizational culture or workload issues, may offer limited benefits. When combined with systemic measures – such as leadership development, trauma-informed management, or inclusive policy changes – EAPs can serve as effective pillars within a comprehensive wellbeing strategy. 

Designing for Sustainable Human Performance 

The research is clear: organizations that invest in structural wellbeing – not just individual coping – unlock higher engagement, greater innovation, and stronger business outcomes. Mindfulness, autonomy, psychological safety, and meaningful work are not luxury goods; they are essential design principles for the future of work. 

The economics of mindfulness lies in creating environments where people can thrive – not just survive. In doing so, companies don’t just promote wellbeing – they build better, more adaptive organizations for the long term. 

Sources

Bryson, A., Forth, J., & Stokes, L. (2017). Does employees’ subjective well-being affect workplace performance? Human Relations, 70(8), 1017–1037. 

Delgado, C., Roche, M., Fethney, J., & Foster, K. (2021). Mental health nurses’ psychological well-being, mental distress, and workplace resilience. International Journal of Mental Health Nursing, 30, 1234–1247. 

Fox, K. E., Johnson, S. T., Berkman, L. F., Sianoja, M., Soh, Y., Kubzansky, L. D., & Kelly, E. L. (2022). Organisational- and group-level workplace interventions and their effect on multiple domains of worker well-being: A systematic review.Work & Stress, 36(1), 30–59. 

Kirk, A. K., & Brown, D. F. (2003). Employee assistance programs: A review of the management of stress and wellbeing through workplace counselling and consulting. Australian Psychologist, 38(2), 138–143. 

Riches, S., Taylor, L., Jeyarajaguru, P., Veling, W., & Valmaggia, L. (2024). Virtual reality and immersive technologies to promote workplace wellbeing: A systematic review. Journal of Mental Health, 33(2), 253–273. https://doi.org/10.1080/09638237.2023.2182428 

Mantello, P., & Ho, M. T. (2024). Emotional AI and the future of wellbeing in the post-pandemic workplace. AI & Society, 39, 1883–1889. https://doi.org/10.1007/s00146-023-01639-8 

Salem, N. H., Ishaq, M. I., Yaqoob, S., Raza, A., & Zia, H. (2022). Employee engagement, innovative work behaviour, and employee wellbeing: Do workplace spirituality and individual spirituality matter? Business Ethics, Environment & Responsibility, 32(3), 657–669.

Mara Blanz

Research Editor & Editor

Friendship and Social Capital

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Reading Time: 5 minutes

Human Features as Capital? A brief history 

    In 1776, Adam Smith wrote, in An inquiry into the nature and causes of the wealth of nations, that “The acquisition of talents during education, study, or apprenticeship, costs a real expense, which is capital in a person. Those talents are part of his fortune and likewise that of society”. This idea might seem quite intuitive for an inhabitant of the world in the 21st century, and even the greenest economist would associate these words with the foundation of Human Capital.  

    However, until the last century, this concept was actually quite unpopular. As Theodore Shultz points out in Investment in Human Capital (1961), investment in human is not devoid of moral and philosophical issues. His words, “It seems to reduce man once again to a mere material component, to something akin to property”, are especially evocative, considering the 13th Amendment to U.S. constitution, which abolished slavery, had entered into force not even one century before.  

    With the advent of statistics and nation-level measurements in the period of WW2, researchers started to observe that increases in national output could not be fully explained by increases in physical capital. It became possible to link the accumulation of skills, capabilities and knowledge humans with these unexplained variations in growth.  

    Today, the World Bank defines Human Capital as “The knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society.” 

    But what aspects of the multifaceted human being are included in this definition? Reading further, the WB specifies: “Investing in people through nutrition, health care, quality education, jobs and skills helps develop human capital, and this is key to ending extreme poverty and creating more inclusive societies.”  

    Human Relationships as Capital  

      After accepting the “capitalization” of individual’s traits, a more recent step has been recognizing that humans are social animals, and therefore, their relationships are a fortune too. The concept of Social Capital generally refers to social relationships between people that have productive outcomes. In a nutshell, Portes (1998) explains it as “whereas economic capital is in people’s bank accounts and human capital is inside their heads, social capital inheres in the structure of their relationships”.  

      Social capital is for sure a peculiar form of capital: it does not reside in any individual entity, but it’s embedded in society, it lies in relationships, it’s rooted in networks. However, just like any other type of capital, it requires investment and maintenance to yield returns. 

      If defining the determinants of human capital is not an obvious task, defining those of social capital is even more challenging. The Institute for Social Capital indicates a range of dimensions including trust, togetherness, volunteerism, generalized norms, everyday sociability, and neighborhood connections.

      In essence, applying this theory, helping an old lady cross the street, having a neighbor who looks after your child when you’re sick, or trusting the police—all of these actions contribute to a web of reciprocity that will eventually benefit either the individual or the broader society. 

      Just as human capital was initially controversial, social capital was—and perhaps still is—a contested concept. For sure, its reputation increased after the publication of Making Democracy Work: Civic Traditions in Modern Italy by the political scientist Robert Putnam. Focusing on Italian regional governments, he found how government performance was strictly linked to traditions of civic engagement.  

      Friendship as Social Capital 

        Within this broader framework, friendship emerges as a particularly powerful and personal expression of social capital — one that not only supports emotional well-being but also shapes long-term economic and social outcomes. 

        If friendship is part of human capital, then it somehow has impacts that extend beyond the individual to society at large. And it might be more powerful than one can think. In a 2022 study on networks and friendships, Raj Chetty’s and colleagues found that education, racial segregation, education, and family structure were not as important as cross-class connections in determining upward social-mobility. In fact, among all observed components of social capital, friendship across socioeconomic lines was the only one driving mobility. Social cohesion and civic engagement, by contrast, did not seem to play a role.  

        The relationship between friends also shapes the social tissue of communities. In Bowling Alone, Putnam describes how American society, one strong and civic engaged, is now degrading through the whimsical metaphor of bowling. The evocation of many lonely bowlers, with a nostalgic comparison to bowling leagues playing together, reflects the individualist derive of society.  From this point of view, friendship and social interactions are a sort of public good, and not just a private comfort. The weaking of these relationships has consequences that go beyond individual loneliness, but undermine the health of society. 

        Relationships and Policy Makers 

          Friendships, connections, networks, and trust — they all contribute to both individual well-being and a healthier, more cohesive society. Yet we rarely hear politicians or policymakers address these topics directly. In an era where society is becoming increasingly individualistic, the case for investing in social capital becomes even more urgent. Urban planning, for instance, can be intentionally designed to promote cross-class connections and neighborhood friendships. The creation of public and recreational spaces that facilitate meeting and incentive people to socialize, promotion of sports and community strengthening activities can be impactful policies for boosting social capital. Reinvesting in friendships and ways of making them happen it’s not just about enhancing well-being, it’s a necessary step to rebuild a strong social fabric, that can sometimes be as important as and educated or healthy community. 

          Sources:

          Chetty, R., (2022). Social capital I: measurement and associations with economic mobility https://www.nature.com/articles/s41586-022-04996-4 

          Goldin, C. (2016). Human Capital. https://scholar.harvard.edu/files/goldin/files/goldin_human_capital.pdf

          Institute for Social Capital. https://www.socialcapitalresearch.com/literature/evolution/

          Putnam, R. D., Leonardi, R., & Nonetti, R. Y. (1993). Making Democracy Work: Civic Traditions in Modern Italy. Princeton University Press. https://doi.org/10.2307/j.ctt7s8r7 

          Putnam, R. D., “Bowling Alone: America’s Declining Social Capital” Journal of Democracy, January 1995, pp. 65-78. 

          Schultz, T. W. (1961). Investment in Human Capital. The American Economic Review, 51(1), 1–17. http://www.jstor.org/stable/1818907 

          World Bank: The Human Capital Project https://www.worldbank.org/en/publication/human-capital 

          Veronica Guerra

          Research Editor & Writer

          The Impact of Donald Trump’s Tariffs on Markets and International Trade 

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          Tariffs have always been a contentious tool in global economic policy, and former President Donald Trump’s administration relied heavily on them to reshape America’s trade relationships. Trump’s approach to tariffs was characterized by the belief that they would protect American industries, reduce the trade deficit, and pressure foreign partners into negotiating more favorable deals for the United States. However, the actual effects of these tariffs have been complex and far-reaching, influencing everything from global supply chains to consumer prices. This article explores the potential and actual impacts of Trump’s tariffs on markets and international trade, offering examples, economic analysis, and perspectives from multiple sources. 

          What Are Tariffs and Why Did Donald Trump Use Them? 

          Tariffs are taxes imposed on imported goods. By making foreign goods more expensive, tariffs are intended to encourage consumers to buy domestic alternatives. Trump saw tariffs as a tool to reduce America’s trade deficit, particularly with China, and to protect domestic industries like steel, aluminum, and technology manufacturing. 

          Key Examples of Trump’s Tariffs: 

          • In 2018, Trump imposed a 25% tariff on steel imports and a 10% tariff on aluminum. 
          • In the same year, the administration slapped tariffs on $250 billion worth of Chinese goods, leading China to retaliate with tariffs on American products like soybeans, cars, and airplanes. 
          • In 2020, Trump threatened additional tariffs on European Union exports such as wine, cheese, and aircraft parts in retaliation for EU subsidies to Airbus. 

          How Tariffs Affect Domestic Markets 

          1. Higher Costs for Consumers 

          While tariffs target foreign producers, the actual cost burden often falls on domestic consumers. Importers pass higher costs onto consumers, making everything from cars to electronics more expensive. A study by the Federal Reserve Bank of New York estimated that by the end of 2019, Trump’s tariffs cost the average American household about $831 per year due to higher prices.  

          Example: When tariffs were imposed on washing machines in 2018, prices jumped nearly 12% within months, according to research published by economists at the University of Chicago and the Federal Reserve.  

          2. Disruption of Supply Chains 

          Many U.S. industries depend on imported components and raw materials. Tariffs on Chinese technology parts, for instance, disrupted the electronics and automotive sectors, which rely heavily on Chinese factories for affordable parts. This forced companies to either raise prices or absorb losses, weakening profit margins and investment. In the long run, some firms moved production out of China, but this led to higher transition costs and inefficiencies.  

          Impact on International Trade 

          1. Retaliatory Tariffs and Trade Wars 

          When the U.S. imposed tariffs, trading partners retaliated with their own tariffs. China targeted American agricultural exports, including soybeans, corn, and pork, hurting U.S. farmers who relied on the Chinese market. By mid-2019, U.S. agricultural exports to China had fallen by 53% compared to 2017. 

          Example: The American soybean industry suffered particularly harsh consequences. Before tariffs, China imported about $12 billion worth of U.S. soybeans annually. By 2019, that number dropped to under $3 billion. The U.S. government ended up subsidizing farmers to offset their losses, costing taxpayers billions. (Source: Bloomberg, 2019) 

          2. Erosion of Trade Alliances 

          Trump’s unilateral use of tariffs alienated key allies, including the European Union, Canada, and Mexico. When Trump imposed steel and aluminum tariffs, both Canada and the EU retaliated with tariffs on iconic American products, from Harley-Davidson motorcycles to bourbon whiskey. This strained long-standing trade relationships, particularly within the World Trade Organization (WTO) framework, which is built on predictable, rules-based trade.  

          Effects on Financial Markets 

          1. Market Volatility 

          Trump’s tariff announcements often led to immediate stock market swings. When tariffs on China were announced in March 2018, the Dow Jones Industrial Average plunged 724 points in a single day, reflecting investor fears of a full-blown trade war disrupting global economic growth.  

          2. Sectoral Winners and Losers 

          Some sectors benefited from protectionism, particularly domestic steel producers. However, industries reliant on steel (like automotive and construction) faced rising costs, eroding their competitiveness. Agricultural stocks, particularly in soybeans and pork, plummeted due to lost export markets.  

          Long-Term Economic Impacts 

          1. Reshoring vs. Offshoring Diversification 

          One goal of the tariffs was to bring manufacturing back to the U.S., a process called reshoring. Some companies did shift production, but many opted to diversify away from China to other low-cost countries like Vietnam, Mexico, and Thailand instead. This resulted in a fragmentation of global supply chains, increasing overall uncertainty.  

          2. Reduced Global Trade Growth 

          The uncertainty surrounding U.S. trade policy under Trump contributed to slower global trade growth. According to the World Bank, global trade growth fell from 5.4% in 2017 to just 1.1% in 2019, with tariffs playing a significant role.  

          Case Study: The U.S.-China Trade War 

          The most high-profile example of Trump’s tariff policy was the U.S.-China Trade War, which began in 2018. It involved escalating tariffs on hundreds of billions of dollars in goods on both sides. The conflict led to: 

          • Higher costs for American businesses and consumers. 
          • Reduced Chinese investment in the U.S.. 
          • A reshaping of Asian supply chains, with companies shifting production to Southeast Asia. 

          Ironically, despite Trump’s goals, the U.S. trade deficit with China actually increased in some sectors, as American companies stockpiled Chinese goods before tariffs took full effect.  

          Trump’s tariffs were a bold attempt to reset global trade dynamics, but the unintended consequences were significant. While they did pressure China into signing Phase One of a trade deal in 2020, they also: 

          • Raised prices for American consumers 
          • Hurt American exporters through retaliation 
          • Increased market volatility 
          • Weakened global trade growth 
          • Undermined trust in the international trade system 

          As the world moves with the Trump era, policymakers face the challenge of rebuilding stable trade relationships while addressing the legitimate grievances about unfair trade practices, especially concerning China’s industrial subsidies and intellectual property violations. Whether tariffs were the right tool for this job remains hotly debated, but their lasting impact on markets and international trade is undeniable. 

          Sources

          BBC, 2018; Peterson Institute for International Economics, 2020; Federal Reserve Bank of New York, 2019; Flaaen et al., 2019; Harvard Business Review, 2020; Congressional Research Service, 2020; CNBC, 2018; Reuters, 2018; Brookings Institution, 2020; Bloomberg, 2019; World Bank, 2020; Peterson Institute for International Economics, 2020.

          Afonso Freitas

          Research Editor & Writer

          Trump’s USAID Cuts: Humanitarian Disaster Or A Step Toward Self-Reliance? 

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          On March 10th, the Trump Administration announced that 83 percent of the programs run by the U.S. Agency for International Development (USAID) would be canceled. This decision follows a series of actions targeting USAID, including placing its officials on paid leave, discussing the agency’s potential shutdown, and labeling it as being run by “radical left lunatics” and a corrupt institution that misuses taxpayer money. The first major move came with a freeze on approximately 90% of USAID grants and contracts worldwide—making the latest cuts less surprising. 

          Feb. 28, 2025, Washington. A senior advisor at USAID, is consoled by a co-worker after having 15 minutes to clear out her belongings from the USAID headquarters, Friday. (AP Photo/Jacquelyn Martin) 

          In a speech to Congress on March 4th, Trump outlined his reasoning behind these decisions. Reducing “the flagrant waste of taxpayer dollars” is part of his broader strategy to combat inflation, purpose for which the DOGE, the brand-new Department Of Government Efficiency headed by Elon Musk, was created. Trump listed several specific cuts, such as “$8 million to promote LGBTQI+ initiatives in Lesotho, which nobody has ever heard of,” and “$250,000 to increase vegan local climate action innovation in Zambia.” He also mentioned “$47 million for improving learning outcomes in Asia,” sarcastically noting that “Asia is doing very well with learning. You know what we’re doing—could use it ourselves.” Many other initiatives were dismissed as “scams.” 

          However, while some projects may be debated, the impact of these cuts extends to critical humanitarian aid programs. Initiatives preventing malnutrition and combating diseases such as malaria, polio, and AIDS have been shut down, leaving millions vulnerable around the world. 

          From a broader perspective, the decision aligns with a reshaped U.S. national interest—one that takes a narrower, more domestic-focused approach. While foreign aid cuts may contribute to reducing inflation, they also risk undermining stability in conflict-prone regions and weakening diplomatic relations. It remains to be seen what the long-term consequences of this decision will be for the US. 

          Impact on Developing Countries 

          But what can poor countries’ economies expect from such an abrupt dismantling of USAID?  

          It is inevitable that many African countries will face a profound distress, especially in the healthcare sector. For instance, in South Africa, 17% of funding for AIDS treatment comes from PEPFAR (the President’s Emergency Plan for AIDS Relief), which also supports the salaries of more than 15,000 healthcare workers. The situation could be even more critical in Ethiopia, USAID’s largest beneficiary, which receives over $200 million annually to support its healthcare system. 

          However, some argue that heavy reliance on foreign aid is not beneficial for recipient countries. There is no consensus on its overall impact on economic development. Some scholars argue that aid fosters growth through infrastructure improvements, pioneering investments, and attracting foreign capital. Others counter that it distorts labor markets and fosters dependency. Some have also compared foreign aid effects on local economies to the ones of natural resources revenues: these inflows can lead to currency appreciation, making locally produced locally produced tradable goods relatively more expensive and less competitive internationally, triggering the so-called “Dutch Disease” and weaking local manufacturing. 

          Foreign Aid Received in 2023, in US Dollars and adjusted for inflation. Source: OECD, 2025.

          The Debate on Foreign Aid 

          Criticisms against aid arrive also from other Global South Activists, who claim that aid is just charity covering social injustice and perpetuating the colonialist “civilizing mission”.  

          One of the most prominent critics is Dambisa Moyo, a global economist born in Zambia and naturalized as an American. In her 2009 book, Dead Aid – Why Aid Is Not Working and How There Is a Better Way for Africa, she challenges the “greatest myths of our time: that billions of dollars in aid sent from wealthy countries to developing African nations has helped to reduce poverty and increase growth”. Moyo argues that foreign aid fuels corruption, distorts local markets, and creates a vicious cycle of dependency—ultimately increasing poverty rather than alleviating it. Moyo proposes the stop of aid funding, throughout the over a period of five years, as a solution to reduce poverty and improve economic growth and development in African countries.  

          Although Moyo’s plan differs significantly from Trump’s approach and underlying motivations, her perspective raises the question: Could these cuts ultimately push aid-receiving countries toward self-reliance? 

           Regardless of the answer to this question, Trump’s decision carries profound economic and humanitarian consequences for developing nations reliant on these funds, and challenges the West’s long-standing role in Global South development. If these cuts lead to reduced dependence on Western aid, they could open the door for alternative models and standards—ones that might ultimately foster more sustainable growth for recipient countries and prompt a reevaluation of an international cooperation system that has long been in need of reform. 

          Sources

          Al Jazeera, Trump’s USAID freeze must serve as a wake-up call for Africa, available at https://www.aljazeera.com/opinions/2025/3/13/trumps-usaid-freeze-must-serve-as-a-wake-up-call-for-africa 

          Al Jazeera, Why some in the Global South are not mourning the demise of USAID, available at https://www.aljazeera.com/opinions/2025/3/3/why-some-in-the-global-south-are-not-mourning-the-demise-of-usaid 

          AP News, USAID cuts are already hitting countries around the world. Here are 20 projects that have closed, available at https://apnews.com/article/usaid-cuts-hunger-sickness-288b1d3f80d85ad749a6d758a778a5b2 

          Arellano, C., Bulíř, A., Lane, T., &Lipschitz, L. (2009). The dynamic implications of foreign aid and its variability. Journal of Development Economics, 88(1), 87-102. 

          Our World in Data, Foreign Aid Received, available at https://ourworldindata.org/grapher/foreign-aid-received-net 

          The Guardian, Rubio says 83% of USAid programs terminated after six-week purge, available at: https://www.theguardian.com/us-news/2025/mar/10/marco-rubio-usaid-funding 

          The Guardian, ‘The impact has been devastating’: how USAid freeze sent shockwaves through Ethiopia, available at https://www.theguardian.com/global-development/ng-interactive/2025/feb/21/the-impact-has-been-devastating-how-usaid-freeze-sent-shockwaves-through-ethiopia 

          The New York Times, All of the Trump Administration’s Major Moves in the First 5151 Days, available at https://www.nytimes.com/interactive/2025/us/trump-agenda-2025.html?categories=Foreign+policy 

          The New York Times, U.S. Terminates Funding for Polio, H.I.V., Malaria and Nutrition Programs Around the World, available at https://www.nytimes.com/2025/02/27/health/usaid-contract-terminations.html 

          Cao, W., & Du, D. (2024). Does foreign aid play a role in promoting economic development? Evidence from US aid. Applied Geography, 171, 103394. 

          Zambisa Moyo, Dead Aid, https://dambisamoyo.com/books/ 

          Veronica Guerra

          Research Team Editor & Writer

          German Government’s Collapse: A Political and Economic Turmoil 

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          Reading time: 10 minutos

          On November 6th, German Chancellor Olaf Scholz announced in a speech to the media having dismissed Finance Minister Christian Lindner. This was followed by a wave of demissions in one of the three parties forming the ruling coalition, essentially making the government collapse. To understand this crisis, it is important to go back in time.  

          Indeed, Germany’s current political instability is deeply rooted in the nation’s economic challenges over the past decade, shaped by both internal policy decisions and global economic forces. To understand the collapse of the coalition government (a government formed jointly by more than one political party) and the broader political crisis, it is essential to explore the economic context that led to this pivotal moment. 

          Wirtschaftswunder – “Economic Miracle” 

          After World War II much of the country was in ruins. Allied Forces had attacked or bombed large parts of its infrastructure. The city of Dresden was completely destroyed, the population of Cologne had dropped from 750,000 to 32,00 inhabitants, Germany was a ruined state facing an incredibly bleak future. Nevertheless, by 1989, when the Berlin Wall fell and Germany was once again reunited, it was the envy and surprise of most of the world. 

          Germany had the third-biggest economy in the world, trailing only Japan and the United States in terms of GDP. Its post-World War II “economic miracle” was built on industrial excellence, a strong export sector, and a model of social capitalism that balanced growth with social welfare. 

          By the early 2000s, Germany had established itself as the world’s fourth-largest economy, heavily reliant on the automotive, mechanical engineering, chemical and electronic industries alongside having the most open economy of the G7 states. 

          Economic Challenges and Impact of Global Events  

          Even though the country’s growth was exponential and undeniable, flaws in the economic model began to arise. One of them lies with demographic pressures, given the fact that this country´s ageing population has strained its workforce and social welfare systems, particularly pensions and healthcare aligned with an increase in immigration that reduced innovative minds, falling behind in sectors like digital technology and artificial intelligence, sparkling political debates and polarisation. 

          Additionally, the overreliance on exports, particularly to China and the United States, left the economy vulnerable to external shocks, such as trade wars and global demand slowdowns. Proof and enhancement of this was the disruption of global supply chains due to Covid-19 Pandemic, that reduced demand for German exports, and forced the government to implement costly stimulus packages, increasing public debt. 

          Also, because this is a country moved and known for its industrial production, heavily relying on Russian energy, became a direct liability of when the 2022 invasion of Ukraine and subsequent sanctions. This energy crisis had severe industrial impacts on this country’s competitiveness. This conflict exacerbated Germany’s energy crisis, as Russia cut off gas supplies in retaliation for European sanctions, leading to skyrocketing energy costs, prompting a turn towards renewable energy (turn that has faced criticism for its slow implementation and high costs, intensifying debates over the viability of the transaction amid soaring energy prices and industrial pushback), and alternative suppliers but also driving inflation and recession fears. 

          The Economic Fallout: A Path to Political Crisis 

          Germany officially entered a period of recession in 2023, marking two quarters of negative GDP growth (-0.1% in Q2 2023 and -0.4% in Q4 2023). Along with high inflation (ranging from 8.7% to 3.7% in 2023), eroding consumer purchasing power, shrank the economy. 

          German industry leaders expressed frustration over rising taxes and regulatory hurdles, particularly regarding environmental policies, fuelling demands for more pro-business reforms. 

          This inability of the government to reconcile competing economic philosophies (fiscal austerity, backed by the FDP) with an increased public spending (supported by the SPD and the greens) has been a persistent source of pressure on Germany’s coalition government, reaching a breaking point in November of 2024. 

          Current crisis  

          Germany, which had already been facing a strenuous economic downturn as mentioned above, saw its government collapse on November 7th, after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner over budget disagreements, causing the breakup of the country’s ruling coalition. Since 2021, Germany had been governed by a three-party coalition, commonly referred to as the “traffic light” after the parties’ traditional colours, consisting of the Social Democratic Party of Germany (SPD), The Free Democratic Party of Germany (FDP), and The Greens. When Chancelor Scholz, leader of the SPD, fired Minister Lindner, leader of the FDP, a wave of resignations from the FDP and the party’s withdrawal from the coalition ensued, leaving the government without a majority and prompting a snap election to be scheduled for February of next year. Indeed, Scholz initially announced he would continue working with The Greens in a minority government and call a confidence vote for January 15th which, if lost, could allow elections to be held in March of 2025 instead of September when they would have happened without the turmoil. However, under pressure from the opposition party, the Christian Democratic Union of Germany (CDU), the vote of confidence was pushed to December 11th and, since the government is expected to lose the backing of the parliament, elections have been set for February 23rd according to statements lawmakers and officials from three major parties gave POLITICO. Scholz’s decision to fire Lindner came after months of tensions, mainly regarding the country’s budget policy, since Scholz and the SPD’s left-wing tendencies for government spending on social and environmental policies clash with Lindner and the FDP’s neoliberal advocacy for a free market and a conservative fiscal approach. The governance was therefore certainly not smooth. Last year, for instance, the country found itself in a fiscal scandal when it was discovered that the government had been unlawfully using “special funds” to spend outside the main budget and circumvent the constitutional “debt brake” put in place, which restricts the federal deficit at 35% of GDP, preventing the government from borrowing excessively and amassing debt. After this scandal, the relationships within the coalition kept worsening, as well as public opinion of the government. This year, a week before the events, in the midst of debate on ways to prevent a 10-billion-dollar gap in next year’s budget, a paper written by Lindner listing financial and economic proposals that had not been agreed upon with other parties, including cutting welfare payments, reducing climate protection measures and implementing tax cuts for companies, was made public. Lindner then rejected Scholz proposals for the 2025 budget, which included taking out additional debt to bring down energy prices, offer tax benefits to increase investment and increase support for Ukraine. When he addressed the media on the 6th of November, Scholz stated having dismissed Lindner for blocking his economic policies, telling reporters he “showed no willingness to implement any of our proposals” and highlighting the lack of “trust basis for any future cooperation” as he argued that Lindner’s “egoism is totally incomprehensible”. On his side, Lindner reproached Scholz for having demanded a pause on the debt brake. 

          This political crisis was kickstarted just hours after Donald Trump’s victory in the US elections was announced, an event which not only largely overshadowed the German crisis in the media but could also have even further implications for Germany and the rest of Europe.  

          Consequences on a national and international scale 

          Scholz’s government has grown increasingly unpopular in Germany, with Scholz being one of the least popular chancellors ever, according to a CNN opinion poll. In fact, in the European Parliament elections back in June, the traffic light coalition took a blow with Scholz SPD’s recording their worst result in a national vote in over a century, with less than 14% of votes for a party that has been central in the German political landscape for so long. The Greens and the FDP also saw bleak results with 12% and 5% of votes respectively, while the center-right Christian Democrats (CDU), former Chancellor Angela Merkel’s party, were clearly in the lead with more than 30% of the votes. The far-right Alternative for Germany (AfD) also emerged with strong results, finishing second with 16%, a gain of 5 percentage points compared to the 2019 EU election, even though the party’s top two candidates for the election were involved in a series of allegations of misconduct involving suspected espionage and potential Russian influence, and the party’s lead candidate, Maximilian Krah, was forced to stop campaigning after he defended members of Hitler’s Waffen-SS as not “automatically” criminals. Far-right AfD, as well as the recently formed and controversial populist far-left BSW, have increasingly captivated voters disappointed with the main parties. 

          Friedrich Merz, the leader of the opposition right-wing conservative CDU, was the one to pressure Scholz into holding his vote of confidence sooner. Merz is expected to win in the snap election, according to polls where CDU is leading with 32% of support. In contrast with his predecessor Angela Merkel, Merz has highlighted the need to close the country’s borders to asylum seekers and has used his X account to show his dislike for criminal immigrants as well as gender-inclusive vocabulary. The latter clearly benefits from an earlier election considering his party’s current popularity, while the SPD would need more time to improve its standing. In polls, the SPD stands at just 16 percent, behind the far-right AfD. However, because the CDU has vowed not to form a coalition with the AfD, it could be forced to turn to the SPD despite their different ideologies and views on issues like the financial support for the unemployed put in place by the center-left party or their spending on environmental protection, frowned upon by the CDU. Moreover, based on current fragmentation and polls, they will probably need a third party with which to rule with two main contestants being The Greens, who are not at all politically aligned with the CDU, and the FDP, who are a better fit for the latter with their free-market stance, but seemingly not for the SPD. Furthermore, the FDP is at risk as it stands below the threshold they need to make it into the parliament.  

          To sum all this up, Germany’s political turmoil seems to be set to last even past the election, which may lead to another bumpy coalition. 

          All the while this has been happening, Ukraine’s situation has worsened with the beginning of the winter months. Its main allies in the EU, France and Germany, are both dealing with political instability. Furthermore, Trump’s win in the US elections has also left Ukraine in a delicate position as the future president threatened to cut US aid to Ukraine and encouraged Russia to “do whatever the hell they want” to any NATO member that fails to pay its defence bills as part of the Western military alliance. Given these circumstances, Germany, who is the second biggest contributor of military aid to Ukraine after the US, is expected to increase its support as well as strengthen its own defence and influence other European nations to do the same. This seems a rather difficult task with the country’s recent political crisis and unpassed budget for 2025 despite both the CDU and the SPD sharing the same stance on increasing support for Ukraine, with the CDU being even more decisive on the matter.  

          Trump’s victory also has further implications for Germany as the politician has promised to increase tariffs on imported goods, including German cars, which would certainly worsen the already precarious economic situation. 

          Conclusion 

          Reflecting on Germany’s journey, makes evident that the nation has skilfully navigated a path from devastation to resilience, emerging as a powerhouse within Europe. However, its current political and economic state reflects the complexities of trying to maintain this status amidst evolving challenges. From shifts in global markets and energy policies to addressing societal issues like integration and climate change, this country finds itself in a difficult situation to get out of. The choices it makes now, grounded in its historical lessons and forward-thinking policies, will not only shape its domestic stability but also influence the broader European and global order.  

          Sources: “The Economy in Germany.” 2024.; “The German Economic Miracle Post WWII.” Thomasbeard; “Germany’s Economic Growth Challenges – Economist Intelligence Unit.” Economist Intelligence Unit; VisualEconomik; TRADING ECONOMICS; Fair Observer; “Germany Engulfed; The Guardian; IPS; ZDFheute Nachrichten; Dw.Com; POLITICO

          Laura Casanova

          Marta Nascimento

          Is Colonialism the Cause of Inequalities in the World or are there any other deep-rooted causes? 

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          Reading time: 8 minutes

          It is well known countries diverge in levels of development which lead us to a world full of inequalities, but did you ever wonder how we ended up in this situation? 

          Oded Galor argues that, even though there are factors that perpetuate inequalities, the deep-rooted factors that triggered (or not) development were related to population diversity and the geographical profile of each region. Let’s dive into his theory. 

          Geographical traits 

          Evidence of geographical differences in the world dates as far back as to when civilizations chose places like the Fertile Crescent, Mesoamerica, and the Yangtze River Valley to settle. These offered rich soils and favorable climates for the domestication of plants and animals, leading to stable food supplies and population growth. The unequal availability of domesticable species across regions meant some societies could develop agriculture more rapidly than others, creating early disparities in wealth and social organization. 

          Eurasia’s east-west orientation was another key factor, as it facilitated the spread of crops, technologies, and ideas across similar latitudes and climates, resulting in a more rapid and widespread agricultural advancements compared to the north-south axis of Africa and the Americas, where climate varied significantly. Furthermore, areas prone to diseases like malaria (especially in sub-Saharan Africa) which increased infant mortality rates and the sleeping disease which killed or weakened livestock and population, negatively impacted their economic trajectories compared to healthier regions. Later on, large civilizations would also choose not to settle in these regions due to the high mortality rates. 

          It was due to a lot of geographical traits that the European Miracle happened around the 18-19th century. Europe had proximity to the sea and navigable rivers which was advantageous for trade and many states with different languages which promoted competition and fostered economic growth while China was unified and had a uniform writing system, single language and central control. According to the hydraulic hypothesis by Karl Wittfogel, the fact that Europe depended largely on rainfall compared to China having a network of dams and canals with political centralization also fostered innovation and competition inside Europe. Other advantages of Europe were the Pyrenees, alps and Carpathian Mountains – hurdles that were natural buffers to invasion and the fractal shoreline which made it easy to defend from invaders and encouraged maritime trade. Comparably, China had mountain ranges that offered little protection from centralized imperial rule and no peninsulas apart from Korea which was independent.  

          Geographical roots of cultural traits 

          There are some cultural traits with geographical roots responsible for differences in development. For example, regions with higher return on crop cultivation would tend to be more long-term oriented and therefore invest in innovative agriculture or alternative methods even if that meant sacrificing present consumption. Also, in regions where the plough (which required massive upper body strength) was the main tool of agriculture, there was a division of labor (men would work on the fields and women would take care of the house) and a less egalitarian view on women would be passed along generations. Last but not least, areas with uniform climates would generally be more loss-averse and prepare their crops for possible harsh weather while areas with volatile climates between different regions and throughout the year would be more loss-neutral and risk a bit more while cultivating as they could just escape harsh weather by moving to a different region (they did not need to prepare their crops for hypothetical losses). 

          Population Diversity 

          Population size and composition were considered wheels of change. Larger populations were more likely to generate greater demand for new goods, tools and practices, as well as exceptional individuals capable of inventing them, and benefited from more extensive specialization, expertise and exchange of ideas through trade. Moreover, as stated in Darwin’s natural selection, any intergenerationally transmitted trait which makes an organism better adapted to their environment, generating more resources, would survive longer, setting human capital formation as a pertinent element of growth. 

          Social diversity can also explain some of today’s divergences. According to the Serial Founder Effect, the further a region is from Africa the less diverse it is. This happens because populations started settling in Africa 300k years ago and, as they migrated farther away, the less they would mingle with diverse species reducing variety in civilizations. Since social diversity has a contradictory effect, as it spurs cultural cross-pollination of ideas and enhances creativity, fostering tech progress but also provokes conflict and erodes the kind of social coherence necessary for investment in public goods, an intermediate level of diversity is the sweet spot conducive for economic development. That is why Latin America with lower level of diversity and Africa with higher levels of diversity are less developed than Europe which has intermediate levels of diversity. 

          Institutions  

          Institutions and cultural traits were not what triggered development, but rather what determined the speed of it. North and South Korea are a perfect example. They were both dictatorships, but while NK had massive nationalization of private property and centralized decision-making, SK had private property protections and decentralized political and economic power, making inclusive institutions promotive of development and extractive institutions a hindrance to it. 

          Other example is former British colonies which had common law systems compared to Portuguese and Spanish colonies with civil law systems. Or even South Italy with a feudal order and mafia, characterized by lower prosperity, strong family ties and less trust outside family environments which issued reduced cooperation, opposite to North Italy which was a democracy with higher social mobility. 

          How are the inequalities Deepened? 

          We have stated the possible deep-rooted foundations for the inequalities we face nowadays, but what about the causes that emphasise those already existing disparities in qualities of life? 

          We can adopt a different outlook on this topic, by saying that inequality deepens because of a rapidly changing world. By interacting with a range of factors, including economic systems, political factors, cultural influences, rapid technological change, but also the climate crisis, urbanization and migration, as well as gender, age, origin, ethnicity, disability, sexual orientation, class and religion. Addressing these facts requires a comprehensive understanding of both historical and contemporary factors.  

          By delving a little bit deeper on some of these topics, we gain a better understanding of how they are undeniably associated with an inevitable distinction between people and their lifestyles. 

          Technological progress came about as a revolution that became shocking because of its quickness to spread and develop. The unequal access to it can lead to disparities in access to information, skills and economic opportunities. Because of the previously stated deep-rooted causes, some nations are wealthier, disproportionally benefiting new technologies, while poorer communities may lack the resources to adopt them. This may lead to a whole new range of problems, as automatic and digital technologies can displace low-skilled workers, exacerbating unemployment and wage inequality, affecting those vulnerable populations who may, once again, not have the means to transition to these new jobs. Thus, a much larger bridge to connect these nations is imperative. 

          When we focus on Globalization, we can easily conclude that it has facilitated the flow of goods, services, and capital across borders, undisputably benefiting some economies. That does not exempt the fact that it ultimately marginalized developing countries who may struggle to compete on equal footing with those established markets, leading to uneven economic growth. Also, global supply chain often exploits labour in developing countries, where workers may face low wages accompanied with poor working conditions, which is the case of India, Bangladesh or Kenya, where there is an increasing population of “working poor”. Both poverty and a global workforce at risk of exploitation are socially created circumstances that drive the demand for inexpensive labour, which in turn sustains the profitability of labour-intensive industries. This will perpetuate cycles of poverty and inequality within those regions, as well as wealth concentration in the hands of multinational corporations and affluent individuals, often at the expense of local economies and communities.  

          Many developing countries rely heavily on the export of a few commodities, leaving them volatile and dependent of commodity price cycles. Price fluctuations can lead to economic instability. When the prices are risen, the benefits often accrue to a small elite or foreign investors rather than being distributed to the broader population. This can exacerbate existing inequalities and impose limits on economic mobility for local communities. Also, some countries that are considered resource-rich experience a so called “resource curse”, that believes that these countries rely exuberantly on those resources, neglecting the other sectors, hindering sustainable and equitable growth. 

          Figure 1- “resource curse” 

          Conclusion 

          In alignment with all that it was tackled, understanding global inequalities requires a comprehensive view that considers both historical contexts and current dynamics, revealing how deep-rooted factors continue to influence disparities in quality of life across the world, and what other factors carry on deepening it. 

          Sources: “ECCHR: Forced Labor in Global Supply Chains.”; “Causes of Inequality – Equality Trust.”; “Psychological Characteristics and Colonialism: Where the Deep Roots of International Inequalities Were Shaped – the Sustainable Development Watch.”; “The Resource Curse: The Political and Economic Challenges of Natural Resource Wealth”.

          Laura Casanova

          Teresa Catita