Election rage shows why America needs a new social contract to ensure the economy works for all — Thomas Kochan

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From The Conversation

The recent U.S. election exposed two major intersecting fault lines in America that, if left unchecked, could soon produce an era of social and economic upheaval unlike any in our history.

First, it revealed deep divisions across racial, ethnic and gender lines that led to a surge in hate crimes last year, particularly against Muslims. Addressing this will require a sustained effort to heal these growing divisions and will be very difficult to resolve without strong leadership and a renewed willingness to listen to each other’s concerns.

Second, it gave voice to the deep-seated frustrations and anger of those who feel left behind by economic forces and fear their children will experience a lower standard of living than they did.

Read More »

Reforming a corporate tax code that double taxes – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Real Clear Markets

Senator Orrin Hatch, chairman of the Senate Finance Committee, is focusing on an important aspect of the agenda for corporate tax reform — — allowing U.S. corporations to receive a deduction for dividends paid to their shareholders. That deduction would eliminate double taxation of corporate profits distributed as dividends; instead, these profits would be taxed only to shareholders, not at both the shareholder and corporate levels.

Although Senator Hatch has not disclosed the details of his proposal, a corporate deduction for dividends paid has several advantages. But such a proposal would raise financial and political challenges that would have to be addressed.

Read More »

Here’s why negative interest rates are more dangerous than you think — Charles Kane

MIT Sloan Senior Lecturer Charles Kane

MIT Sloan Senior Lecturer Charles Kane

From Fortune

Europe and other parts of the world are in for big risks.

Desperate times call for desperate and somewhat speculative measures. The European Central Bank (ECB) cut its deposit rate last Thursday, pushing it deeper into negative territory. The move is not unprecedented. In 2009, Sweden’s Riksbank was the first central bank to utilize negative interest rates to bolster its economy, with the ECB, Danish National Bank, Swiss National Bank and, this past January, the Bank of Japan, all following suit.

The ECB’s latest move, however, was coupled with the announcement that it would also ramp its Quantitative Easing measures by increasing its monthly bond purchases to 80 billion Euros from 60 billion Euros — a highly aggressive policy shift. The fact that the ECB has adopted this approach raises two key questions: What are the risks? And, if the policy fails, what other options are left?

Negative rates are an attempt by the ECB to prod commercial banks to lend more money to businesses and consumers rather than maintain large balances with the Central Bank. In essence, it is forcing the banks to leverage its balance sheet to a higher level or the ECB will penalize the banks by charging interest on their deposits. Historically, such a practice would be highly inflationary, however, with oil prices falling to record lows combined with a slowdown in global growth, inflation is not feared. In fact, inflation is desired at a manageable level, as this would promote near-term growth in the economic markets.

This does not mean, however, that the ECB’s policy does not present risks. First, if the commercial banks decide to pass on the cost of the negative rates to their customers — in other words, they charge customers for keeping their savings in the bank in the same way central banks are now charging the commercial banks for keeping their money – the customers might simply withdraw their savings. In a worst-case scenario, this could create a run on the banks in Europe with customers hoarding their money rather than paying interest on deposits. This would inhibit the free flow of funds through the financial system — ironically, the very reason that negative interest rates were implemented in the first place.

Read the full post at Fortune.

Charles Kane is a Senior Lecturer in Technological Innovation, Entrepreneurship and Strategic Management Goup and also in the Global Economics and Management at the MIT Sloan School of Management.

Would a ‘Brexit’ matter to America? A former British diplomat on what’s at stake — Phil Budden

MIT Sloan Senior Lecturer Phil Budden

MIT Sloan Senior Lecturer Phil Budden

From WBUR Cognoscenti

Given the decibel level of the current U.S. presidential elections, Americans can be forgiven for missing an equally lively debate underway in Britain over whether the country should remain in the European Union (EU) or not. A debate the press and financial markets have dubbed “Brexit” – short for “British exit.”

As dramatic as any Shakespeare play, the sound and fury from Britain in the run-up to the June 23 vote is sure to be deafening. And while Americans can be forgiven for favoring the latest pictures of the Royal Family or the pageantry of the Queen’s 90th birthday, over, say, the arcane details of the referendum to remain in the EU, make no mistake: Britain’s upcoming sovereign decision matters greatly to those in the U.S. Here’s why.

First, there are American interests in the EU, a club of 28 sovereign nations. Under British leadership, those nations created a single European market by linking their economies almost a quarter-century ago: America benefits from the openness of this rules-based single market, with its half a billionwestern consumers. Much is made of America’s investment in Asia, but the U.S. has invested more than three times as much in Europe, paying dividends in both jobs and economic returns.

Read More »

MIT competition addresses economic dislocation in the digital era — Irving Wladawsky-Berger

MIT Sloan Visiting Lecturer Irving Wladawsky-Berger

MIT Sloan Visiting Lecturer Irving Wladawsky-Berger

From The Wall Street Journal

Few topics are as critical, and as challenging to anticipate, than the future of jobs in the digital economy. Along with its many benefits, the digital revolution has resulted in enormous dislocations in labor markets and a sharp polarization in job opportunities over the past several decades.

Recently the Initiative on the Digital Economy, an effort at MIT started three years ago to better understand the broad changes brought about by the relentless advances of digital technologies, launched a competition inviting organizations to envision the future of work. The competition aims to identify, celebrate and award prizes to “organizations that are inventing a more sustainable, productive, and inclusive future for all by focusing on improving economic opportunity for middle- and base-level income earners.”

Read More »