Economic Theory Versus Economic Reality: Dealing with Pandemics and Other Global Public Goods and Bads

In democratic countries with market economies, there is the presumption that elections determine policies, including tax policies, to deal with expected, collective needs and with national public goods. However, the importance of global public goods and of global public "bads" has increased in a globalized world. Policies have continued to be made by national governments. This creates problems in dealing with pandemics, global warming and other global problems, that may come at times unexpectedly. This new reality has not led to changes in either the institutional setting of policies or the preparation for "uncertain events". National policies continue to be focused on normal developments. They tend to ignore the possible coming of" uncertain events", events the probability of which cannot be estimated statistically. Dealing with uncertain, unpredictable events is of course difficult. However, these events do occasionally materialize as history shows. This points to the need to reorient both economic theory and economic institutions more towards these uncertain, and often global, events. There is a need for developing a federalism literature at the global level.