How globalization may explain consistently low inflation rates – Kristin Forbes

Kristin Forbes, Jerome and Dorothy Lemelson Professor of Management and Global Economics, MIT Sloan School of Management.

From The Hill

Weak inflation is one of the “major challenges” of our time, according to Federal Reserve Chairman Jerome Powell. Not only does persistently low inflation limit the scope of monetary policy, it may also have a damaging impact on the financial system. But the inflation forecasts used by the Federal Reserve to set monetary policy have not been performing very well lately. When the global financial crisis erupted in 2008 and growth collapsed around the world, why did inflation not fall further? As growth has picked up in the United States and unemployment has gone down, why has the inflation rate in this country remained so stubbornly low?

One key to the puzzle may be the forecasts themselves. The frameworks that macroeconomists have relied on to predict inflation primarily use domestic variables dating back to the “Phillips Curve” of the late 1960s which showed that inflation increases when unemployment falls. But the forces that drive our economy are not only confined within our national borders. The models miss what is happening across the rest of the world.

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With its belt and road projects, China risks falling into the biggest debt trap of all – Yasheng Huang

MIT Sloan Professor Yasheng Huang

Yasheng Huang, Epoch Foundation Professor of International Management and Faculty Director of Action Learning, MIT Sloan School of Management

From South China Morning Post

Critics often claim China is using its massive Belt and Road Initiative as a form of coercive debt-trap diplomacy to exert control over the countries that join its transnational infrastructure investment scheme. This risk, as Deborah Brautigam of Johns Hopkins University recently noted, is often exaggerated by the media. In fact, the initiative may hold a different kind of risk — for China itself.
At the recent belt and road summit in Beijing, Chinese President Xi Jinping seemed to acknowledge the “debt trap” criticism. In his address, Xi said that “building high-quality, sustainable, risk-resistant, reasonably priced, and inclusive infrastructure will help countries to utilise fully their resource endowments”.

This is an encouraging signal, as it shows that China has become more aware of the debt implications of the initiative. A study by the Centre for Global Development concluded that eight of the 63 countries taking part are at risk of “debt distress”.

But, as John Maynard Keynes memorably put it: “If you owe your bank a hundred pounds, you have a problem. But if you owe your bank a million pounds, it has.” In the context of the belt and road, China may turn out to be the banker who is owed a million pounds.

In particular, China may fall victim to the “obsolescing bargain model”, under which a foreign investor starts to lose bargaining power over time as it invests more in a host country. Infrastructure projects are a classic example, because they are bulky, bolted to the ground and have zero economic value if left incomplete.

Read the full post at South China Morning Post.

Yasheng Huang is the Epoch Foundation Professor of International Management and Faculty Director of Action Learning at the MIT Sloan School of Management. 

How helping disabled people find employment affects the job market – John Van Reenen, Barbara Petrongolo, Felix Koenig

John Van Reenen, Professor of Applied Economics at MIT Sloan School of Management

From OUP Blog

Policy makers have long been concerned with helping people on disability benefits find some employment as this group has grown dramatically in recent decades. In the UK, as in several other countries, there are now many more people on disability benefits than on unemployment benefits. The chances of leaving disability benefits once someone is enrolled is low and although many disabled people cannot work at all, many others would like to have some access to the labor market, such as part-time employment.

Introducing performance rewards for public employment service staff may be a cost-effective way to help the disabled find jobs. The UK Jobcentre Plus reform introduced modern management practices into the welfare system. Similar incentive schemes have been associated with substantial productivity gains in the private sector. The reform offered caseworkers greater career rewards if they successfully placed benefit recipients into work. Jobcentre Plus was introduced at different times in different districts between 2001 and 2008, so this staggered timing enabled researchers to implement a thorough examination of the impact of the policy.

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Homelessness and the high cost of living – Christos Makridis

Christos Makridis, digital fellow at the MIT Sloan Initiative on the Digital Economy

From The Hill

The recent spotlight on homelessness and poverty in BaltimoreLos Angeles and other major cities highlights a growing challenge in urban America: the rising cost of living.

The economy is booming by nearly all accounts. Year-to-year real GDP growth has been at least 2 percent since President Trump was elected, the unemployment rate is at its lowest point since 1969 and year-to-year nominal wages are growing faster than they have since the 2008-09 Great Recession. But a handful of metropolitan areas are experiencing growing rates of homelessness and labor market exits.

For example, California’s population growth in 2018 was the slowest in recorded history. And, while the overall number of homeless people is at its lowest point since 2007, according to the latest statistics from the U.S. Department of Housing and Urban Development (HUD), the number of unsheltered people has grown from 175,399 in 2014 to 194,467 in 2018.

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Transportation apps: How SP and NY deal with impacts – Jason Jackson

Jason Jackson, Ford Career Development Assistant Professor in Political Economy and Urban Planning, MIT

From NEXO

Professor Jason Jackson spoke at the MIT Sloan Latin American conference, “The Future of Work,” held on August 29, 2019 in São Paulo, Brazil.

Transportation apps like Uber and Lyft are rapidly transforming the market into cities around the world. But there are still debates about the social costs and benefits of the digital mobility revolution.

On the plus side, these apps – including Grab in Singapore; Hello in India, Bolt (formerly Taxify), based in Estonia; and 99 in Brazil – made it convenient to move around cities, at least for those who can afford it. They also opened new income generating opportunities for potential drivers.

But these apps also raise numerous questions. For workers, there is no guarantee that they will receive a decent wage. This is important since in major cities such as São Paulo and New York, most drivers work full time. These professionals must also provide their own vehicle and are responsible for all costs. In addition, while it was thought that these apps could improve public transportation, especially the “last mile problem” in cities like New York, people using public transportation migrated to them, resulting in increased congestion and carbon emissions.

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