It was 2008. Paul Krugman had just been awarded the Nobel Prize in Economics — officially, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel — and he came to Copenhagen Business School shortly after. The room was charged with the particular energy that surrounds a newly minted laureate: part intellectual excitement, part celebrity adjacency.

When the floor opened for questions, someone from the political left in the audience pressed him on what many considered the defining challenge of our time: the environment. Climate change. The urgent need to invest in green technology — wind energy was the example — and to subordinate economic logic to ecological necessity.

Krugman’s answer was measured, but it landed like a chess move. Paraphrasing: the dot-com bubble bursting has had severe social consequences — especially for the most economically vulnerable groups in society. Those are the people who should be at the centre of our attention right now.

There was a moment of silence. It was, in retrospect, a checkmate. The political left, which had asked the question, defines itself precisely by its commitment to those vulnerable groups — the unemployed, the precarious, the people for whom an economic downturn is not an abstract statistic but a lost home or a skipped meal. Krugman had taken their own value system and used it to argue for a different set of priorities. Green technology could wait. People could not.

This was not the answer the questioner wanted. It felt, to some in the room, like a sleight of hand — a Nobel economist using the language of social concern to sidestep ecological urgency. But I want to argue that Krugman was doing something more interesting than being dismissive of environmental concerns. He was, perhaps without fully naming it, engaging in one of the deepest and most unresolved problems in economics: the question of how we prioritise among grand challenges.

It is a question that has only grown more urgent since.

What Do We Mean by Grand Challenges?

Grand challenges are large-scale, persistent problems that:

• Affect many people, often across national borders
• Cannot be solved by individual actors or market forces alone
• Require coordinated effort across institutions, sectors, and disciplines
• Play out over long time horizons under deep uncertainty
• Carry high stakes — in welfare, justice, or survival

The canonical list today includes:

Climate change and environmental sustainability — decarbonising the global economy while managing the consequences of warming already locked in.

Global health and pandemic preparedness — as COVID-19 demonstrated with devastating clarity, the world remains structurally unprepared for infectious disease at scale.

Poverty and economic inequality — both within and between nations, despite decades of development economics and billions in aid.

Food security — feeding nine to ten billion people by mid-century without destroying the agricultural systems that make feeding anyone possible.

Education and human capital — the persistent failure to provide quality education to hundreds of millions of children, with compounding intergenerational consequences.

Digital transformation and AI governance — ensuring that the most powerful general-purpose technologies in human history are developed in ways that distribute benefits rather than concentrate them.

Demographic change — ageing populations in rich countries, youth bulges in poor ones, and the fiscal and care systems struggling to absorb both.

Conflict, fragility, and governance failures — the roughly 1.8 billion people living in fragile or conflict-affected states, for whom all other challenges are compounded by institutional breakdown.

This is already an overwhelming list. And it is not exhaustive. Which brings us to the hard question: when you cannot do everything, what do you do?

What Economics Actually Says About Prioritisation

1. Opportunity Cost: The Inescapable Logic of Scarcity

This matters because a great deal of public discourse about grand challenges implicitly denies scarcity — as if we can and should address everything, fully and simultaneously, if only we have sufficient political will. Economics says: no. Prioritisation is not a failure of ambition. It is a precondition for coherence.

2. Marginal Analysis: The Question Is Never All-or-Nothing

This marginal logic matters because the returns to investment in any grand challenge are typically diminishing. The first billion dollars of pandemic preparedness investment buys far more security than the four-hundredth billion. Which means that even if climate change is the most important challenge in the abstract, there may be enormous value to be captured elsewhere at the margin — depending on where current investment levels sit.

3. Market Failure as a Prioritisation Heuristic

Consider three familiar failures:

Externalities occur when the costs (or benefits) of an action fall on parties not involved in the transaction. Climate change is the paradigm case — carbon emitters do not pay the full social cost of their emissions, so they emit too much. The market systematically underweights the future.

Public goods are non-excludable and non-rival — once produced, no one can be prevented from benefiting, and one person’s use doesn’t diminish another’s. Pandemic surveillance, basic scientific research, and biodiversity all fit this description. Because no one can be charged for benefiting from them, markets chronically underprovide them.

Coordination failures occur when individually rational actors get stuck in a bad equilibrium because they cannot credibly commit to changing their behaviour simultaneously. The clean energy transition is partly a coordination problem: no single firm or country can afford to move first if others free-ride.

The economic logic suggests prioritising where the wedge between private and social returns is largest — where, in other words, the market is most severely misdirecting resources.

4. The Discount Rate: The Deep Ethical Fault Line

The discount rate is the rate at which future costs and benefits get shrunk when translated into present-day terms. It sounds technical, but the stakes are enormous. A discount rate of 5% makes a catastrophe 50 years from now look relatively cheap to prevent today. A rate close to zero — as the economist Nicholas Stern argued in his influential 2006 review of climate economics — makes future catastrophe vastly more expensive, and dramatically raises the urgency of acting now.

What looks like a technical squabble over a number is really a philosophical argument about intergenerational justice: how much do we owe to people who haven’t been born yet? Economics frames the question precisely. It doesn’t answer it.

5. The Capability Approach: Whose Welfare Counts?

Amartya Sen’s capability approach offers a corrective. Rather than maximising aggregate welfare, it asks a more human question: are people actually able to live lives they have reason to value? This shifts prioritisation toward the distribution of capabilities, not just their total. A grand challenge that severely limits what a small, marginalised population can do with their lives may deserve more attention than its aggregate welfare weight would suggest.

It also asks who bears the cost of inaction — something aggregate analysis tends to paper over. On climate change, the answer is uncomfortable: the populations least responsible for emissions are generally the most exposed to their consequences.

6. Option Value and Platform Challenges

The development of mRNA vaccine technology — turbocharged by COVID-19 investment — is now a platform for attacking cancer, HIV, and future pandemics. Breakthroughs in energy storage have implications across the whole clean energy transition. Computing infrastructure has generated spillovers into virtually every corner of the economy.

This points toward a prioritisation logic built around platform challenges — problems whose solution generates outsized option value elsewhere. It is a logic that sits awkwardly inside standard cost-benefit analysis, but it may be one of the most important considerations for anyone thinking seriously about long-run resource allocation.

Back to the Lecture Hall

His instinct — social challenges now, environment later — captured something real. The dot-com bust was acute, visible, and hitting people with immediate force. Unemployment concentrates suffering in ways that diffuse environmental degradation, at that moment, did not. And crucially, he was speaking the left’s own language back at them: if your core commitment is to the vulnerable, then here, right now, are the vulnerable. The economic logic of present-biased prioritisation is not indefensible.

But the economics also pushes back. Climate change is precisely the kind of problem where delay is not neutral — where the costs of inaction compound over time, where we are dealing with irreversibilities, and where the gap between private and social returns is among the largest of any grand challenge. The market was not going to fix it while we attended to unemployment. And unemployment, terrible as it was, would eventually respond to conventional macroeconomic tools. Climate change would not.

What Krugman’s answer illuminated — perhaps more than he intended — is something that goes beyond who was right in that lecture hall in 2008. It is that most disagreements about grand challenges are not, at their root, disagreements about facts. They are disagreements about which economic lens to apply: how heavily to discount the future, whose welfare to weight most, where the most severe market failures lie, what counts as a platform investment versus a narrow one.

This matters enormously for how we conduct these debates. When someone argues that climate action should be subordinated to addressing poverty, they are not necessarily being cynical or captured by fossil fuel interests. They may be applying a high discount rate, or a capability-based distributional weighting that foregrounds present suffering. When someone argues the opposite, they are not necessarily being naïve about economic tradeoffs. They may be taking irreversibility seriously, or recognising that the populations most harmed by climate change are precisely the vulnerable groups the left claims to represent.

Understanding which framework your interlocutor is using — implicitly or explicitly — is the first step toward a more productive conversation. It transforms what often feels like a values clash into something more tractable: a structured disagreement about assumptions, weights, and time horizons that can, in principle, be examined and even partially reconciled.

Economics does not resolve the prioritisation problem. But it gives us a shared vocabulary for understanding why we disagree — and that, in debates as fractious as those surrounding grand challenges, may be the most valuable thing it offers. Genuine agreement is more likely to emerge from understanding the structure of a disagreement than from simply shouting louder about its conclusion.

The questioner in that Copenhagen lecture hall and Krugman were not, in the end, as far apart as the moment suggested. They shared the same underlying concern: the welfare of people who are vulnerable and marginalised. They differed on time horizon, on which vulnerabilities were most pressing, and on how much weight to give futures that had not yet arrived.

That is a conversation worth having. Economics shows us how.