Globalism is under siege. Here’s how to save it — and why. – JoAnne Yates and Craig N. Murphy

MIT Sloan Distinguished Professor of Management JoAnne Yates

MIT Sloan Distinguished Professor of Management JoAnne Yates

From The Washington Post

Over the past few years, world politics have been governed by a backlash against globalization. From the Brexit mess in Britain to restrictive immigration policies and tariffs in the United States and elsewhere, global economic integration is under assault.

But such integration offers many benefits: a greater variety of less expensive goods, greater opportunities for travel and cultural exchange, a more cosmopolitan world. In this climate, nongovernmental entities may be crucial to preserving them.

Thankfully, engineers have spent the past century building just such international bodies, because they believed that economic integration must remain above politics. These organizations have long set voluntary standards to ensure integration even when the political winds blow against them. This conception of global business standards will be crucial in the years to come as we struggle to preserve the benefits of cohesive systems for international trade, even as politicians battle over how interconnected they want to be.

It is ironic that the British should find themselves in the Brexit mess, because it was British engineers who created the first of the national standards bodies. Their project, a forerunner of today’s British Standards Institution (BSI), was a product of the expansive British Empire. It was founded in 1901 to ensure that industrial products and transportation networks within the United Kingdom and across its empire would be compatible with one another. Although some government representatives were included in its processes, the engineers leading the effort believed such standards should be voluntary, not government-mandated.

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The American populist reckoning – Simon Johnson

MIT Sloan Professor Simon Johnson

From Project Syndicate

Populism is an approach to government that relies on lavish promises that ultimately cannot be met. The most prominent historical cases since 1945 were, for a long while, mostly found in Latin America. There are always apologists who claim that a new source of economic miracle has been discovered. But the ending is always the same: some form of crisis and disaster. Populism today is again in the ascendancy, but now one of the most virulent forms is in the United States – and with the credibility of the central bank very much on the line.

Argentina under Juan Perón (1946-1955 and 1973-1974) and his successors is often held out as the canonical example of populist misrule. Each iteration of populism has its special features, but the general pattern is this: unsustainable wage increases, an overvalued exchange rate, and massive foreign borrowing (enabled by local recklessness and foreign short-sightedness). Critics are persecuted, experts disparaged, and ridicule piled onto anyone with any kind of reasonable concern. Central banks and other independent governmental bodies, such as courts, are always subverted through personnel changes and other pressures.

Then the reckoning comes, with some combination of inflation, significant exchange-rate devaluation, and a deep recession (or worse). All too often, the cycle then starts again with another round of promises that cannot possibly be met. The central bank’s credibility, once dismantled, does not easily return.

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Can citizens trust government if falsehoods are part of the story? – Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill 

While trust in government around the world has been trending downward for decades, trust in the U.S. government now appears to be in freefall as a host of half-truths and downright lies become entrenched in our political system. Playing fast and loose with the facts has long been a hallmark of politicians, so why be concerned with the counterfactual and scientifically dubious logic flowing from Washington these days?

When the leader of the free world cannot be trusted as an authoritative source of information on critically important topics, the world, already a dangerous place where bad things can and do happen, becomes riskier. Consider what would happen if any of the following were to occur: pandemics, financial crises, natural disasters, nuclear accidents, cyberattacks and/or military conflicts. Economists study the likelihood and impacts of these highly consequential but low probability events, called tail risks. Although unlikely, it’s bad, really bad, when one of these extreme, end-of-the-bell-curve events occurs.

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Closing the lending gap will help government and business thrive – Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill

With taxpayers at risk for $20 trillion in loans and insured obligations, worth more than the five largest American bank companies combined, the United States government is essentially the largest financial institution in the world. Lending is a risky business as we learned during the last financial crisis. Government activities in this regard are no less dangerous, and perhaps more so, given public policy complexities that extend well beyond profit. Given a bleak fiscal outlook, policymakers may want to consider ways to reduce taxpayer exposure by fortifying financial institutions and financial technology companies with an enormous infusion of loan performance data that only it can provide.

Through a set of more than 100 programs largely initiated or expanded in response to the Great Depression, the Great Society programs of the 1960s, and the 2008 financial crisis, the government has provided over 100 million direct loans and guarantees for home ownership, higher education, business assistance, and a variety of other purposes. As the government has increasingly turned to credit programs to accomplish a diverse set of objectives, with its loan portfolio more than doubling since 2008, it is challenged to keep pace with an increasingly sophisticated financial marketplace, which could actually help reduce the federal lending role.

Government forays into this realm are typically driven by a desire to extend the lending frontier, thereby achieving societal gains, by either closing information gap about borrower creditworthiness or by providing an explicit subsidy to borrowers who likely would not be granted a loan even if a private lender had full information. The government can increase credit availability under either of those conditions because, unlike private lenders, it is able to offer loans without regard for profit. Read More »

It’s time to found a new republic – Daron Acemoglu & Simon Johnson

MIT Sloan Professor Simon Johnson

MIT Professor Daron Acemoglu

From Foreign Policy

Most Americans tend to believe that they’ve lived under the same form of government, more or less, since the country was founded in late 1700s. They’re mistaken.

It’s true that there have been important continuities. The American conception of what government should and should not do is deeply rooted in clear thinking at the start of the republic; the country has long preferred limited government and effective constraints on capricious executive action. But this persistence of core ideas (and the consistent use of the same buildings in Washington, D.C.) obscures the dramatic changes that have taken place within the governing institutions themselves.

In fact, formidable challenges at the end of the 19th century were met by fashioning a transformation so thorough it could effectively be deemed a “Second Republic.” This new republic came with significantly different economic and political rules — and, as a result, enabled the American system to survive and even thrive for another century. Today, faced with serious economic and political dysfunction, we are in need of another round of deep institutional renewal: a Third Republic.

The conditions that brought about the first transformation of American society are strikingly similar to those we see today. At the root of the problems confronting the United States by 1900 was a wave of innovation that sped up growth. The direct benefits of these new technologies accrued to a few, while many others became more uncertain about their economic future.

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