Brexit does not matter outside UK – Simon Johnson

MIT Sloan Professor Simon Johnson

From The Business Times

THE contours of the 19th and early 20th century were defined in part by a series of consequential British foreign policy and economic decisions. As recently as 2007-2009, British policy affected global outcomes: whereas deregulation of the City of London contributed to the severity of the global financial crisis, British leadership at the London G-20 summit in April 2009 ultimately proved a stabilising influence. Today, however, despite all the political theatre and dramatic rhetoric, Britain’s impending exit from the European Union – Brexit – really does not matter for the world.

The global economy may have hit a patch of uncertainty, but this is more due to the mercurial actions of US President Donald Trump, self-proclaimed “Tariff Man”, who seems intent on undermining the credibility of the Federal Reserve, disrupting supply chains, and negotiating through random pronouncements. The eurozone is struggling to break out of its prolonged agonies, but the fundamental problem is still bad banking practices and potentially unsustainable public finances in some member countries. While Brexit may well prove an unfortunate idea for many inhabitants of the United Kingdom, the likely impact is lower British growth, not a significant disruption of regional – let alone global – trade.

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Empty outrage will not do – Kritarth Yudhish

Kritarth Yudhish, MBA Candidate, MIT Sloan School of Management

From Daily News and Analysis 

On the eve of the 2019 Lok Sabha results, the New York Times published an article titled “How Narendra Modi Seduced India with Envy and Hate”. A little before the election, Time magazine featured NaMo on their cover and in bold letters labelled him as the “Divider in Chief”. Kapil Komireddi’s analysis of the Indian political landscape for The Guardian went on to call Indians “intellectually vacant” and the country a “make believe land of fudge and fakery”.

These scathing remarks from the international community crystallized national support for Modi and May 23, 2019 put the debate to rest, telling the world what India really is – an exemplary democracy that does not seek validation from a few writers in Manhattan or London to create the ideological roadmap for our future.

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Why the Fed lowering interest rates would be a mistake – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

Robert Pozen, Senior Lecturer, MIT Sloan School of Management

From Fortune

Equity investors are euphoric about the Federal Reserve’s expected move to lower interest rates, after its four small increases in 2018. However, rates are still far below normal levels, so this move would create serious problems for government policy and investor choice.

By keeping interest rates so low for so long, the Federal Reserve is losing its best monetary tool for fighting the next recession, and implicitly undermining Congressional efforts to constrain spending and preserve fiscal firepower. During this extended period, the Fed’s suppression of interest rates is also taking a heavy toll on bond investors: They can’t find relatively safe bonds with reasonable yields, so they are reaching for higher yields by buying very risky bonds.

When the U.S. economy falls into the next recession, as it inevitably must, the Federal Reserve needs to respond by sharply lowering interest rates. This is the main monetary tool the Fed has to push the economy back into a growth mode. However, U.S. interest rates are now so low that the Fed has little dry powder in its arsenal. For example, rates on 10-year U.S. Treasury bonds have dropped to 2%, as compared to a 5% average before the last financial crisis in 2008.

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The unending pain of student debt: effect of risk preferences – Debarshi Nandy, Birzhan Batkeyev, Karthik Krishnan

Debarshi Nandy, Visiting Associate Professor, MIT Sloan School of Management

From The Finance Lab

The dangerous and sometimes disastrous consequences of student loan debt are well known. We know for a fact that students with high debt levels are less likely to be entrepreneurs, less likely to own a home when they are 45, and less likely to find an ideal job.  The value of a college education is therefore reduced dramatically for those who need to service the debt to pay for it.

However, until recently, few have studied the long-term effects of student debt on the net worth of families burdened by the loans.  With my colleagues, Birzhan Batkeyev and Karthik Krishnan, I recently set out to address this gap—showing once again that the very loans that are supposed to help students get a leg up on their financial future, hamper them in myriad ways instead.

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How departing leaders can pass along their wisdom to employees – Hal Gregersen

Hal Gregersen, Executive Director of the MIT Leadership Center

Hal Gregersen, Executive Director of the MIT Leadership Center

From Harvard Business Review

Earlier this spring I had the chance to witness two of the “farewell talks” that Ed Catmull gave to the people of Pixar. Catmull, the company’s cofounder and long-time leader (and also president of Disney Animation Studios since the Disney acquisition of Pixar over a decade ago) had announced his retirement in late 2018. He chose to spend his last day on Pixar’s Emeryville campus not being celebrated by his colleagues but, instead, sharing thoughts about the challenges they would face in the years to come.

Each “farewell talk” was a separate, hour-long session with a different team in the company, but the content wasn’t tailored to specific departments. Catmull shared — over and over again — what he believed the whole company should be thinking about as it looks ahead.

Catmull has always been unusually reflective about the challenges of leading creative organizations, and generous in sharing the practices he finds effective. In his 2014 book Creativity, Inc. (which he’s now updating with new learnings), for example, he shares useful insights and learnings aimed at helping other leaders succeed. In his farewell talks, he showed the same level of thoughtfulness. He decided to:

Make the sessions inclusive. It’s not uncommon for departing CEOs to have transitional talks with their top teams. But how many consider it important to talk with every team in the company? Catmull talked to everyone, including hundreds of people who had never sat in meetings focused on high-level strategic issues — but whose efforts make Pixar films possible. As a result, his parting act was immensely unifying.

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