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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Jump-start the economy with public investments in science – Jonathan Gruber and Simon Johnson

MIT Sloan Professor Simon Johnson

MIT Sloan Professor of Economics Jonathan Gruber

From The Hill

The American engine of progress and prosperity is in serious trouble. Innovation has stalled. The number of good, middle-class jobs is dwindling. Wealth and opportunity are increasingly concentrated in a few coastal megacities. And cultural divides are widening. How do we turn this tide?

The answer lies in science — specifically, government-funded science. Investment in science is the ultimate pro-growth policy: It leads to more invention, higher productivity and broad-based economic development.

According to our research, if the U.S. government were to boost funding by $100 billion per year with strategic, geographically dispersed investments and initiatives, the result would be roughly 4 million new jobs.

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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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What countries and companies can do when trade and cybersecurity overlap – Stuart Madnick, Simon Johnson, Keman Huang

MIT Sloan Professor Stuart Madnick

MIT Sloan Professor Stuart Madnick

MIT Sloan Professor Simon Johnson

Postdoctoral Associate, Keman Huang

From Harvard Business Review 

Cybersecurity as a key issue for trade policy is a relatively new development. In the last few years there have been a number of news reports about various governments’ incorporating spyware, malware, or similar programs into computer-based products that are exported around the world. The governments typically have worked with private companies in their countries to do it. In the internet-of-things era, almost all products can be connected to the internet, and most of them can also be used for spying and other malicious activities. Furthermore, since data is considered a critical asset, services, from international banking to payment systems to consumer websites, are part of this too.

In late 2016 and 2017, for example, the voice-activated My Friend Cayla doll made headlines for its technology, which could be used to collect information on children or anyone in the room. In 2017 Germany banned the doll, alleging that it contained a surveillance device that violated the country’s privacy regulations. Another famous example is the 2010 Stuxnet attack on the Natanz nuclear enrichment facility in Iran. It was accomplished by planting malware, including Stuxnet, into industrial control systems that were shipped to Iran, resulting in the destruction of many centrifuges.

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Trumponomics is failing on growth – Simon Johnson

MIT Sloan Professor Simon Johnson

From Project Syndicate

WASHINGTON, DC – US President Donald Trump and his Secretary of the Treasury, Steven Mnuchin, have promised an economic miracle. They argue that when the United States adopts their policies, it will consistently achieve annual economic growth above 3%, or even above 4%. After a year of being in charge, pushing hard on deregulation, and getting what it wanted in terms of tax cuts, how is the Trump team doing?

We are still in the early days, but the results so far have been disappointing. And the US’s medium-term prospects for sustained growth could be endangered if Trump pursues the policies he claims to want.

Trump has repeatedly argued that America’s overall economic performance in 2017 should be seen as the direct result of his policies, and he has made a big deal out of the third-quarter growth rate, which was initially reported as 3.3%, then revised down to 3.2%. Yet, in the fourth quarter, growth was down to 2.6%, and initial estimates suggest that overall growth for the year will not surpass 2.3%. That is lower than what was achieved under former President Barack Obama in 2014 (2.6%) and 2015 (2.9%).

In fact, under Obama, the quarterly growth rate surpassed 3% seven times, and even reached 4.6% on two occasions. From the third quarter of 2009, growth was positive in every quarter, save two. But not only was headline growth sturdy under Obama; his administration also presided over considerable job growth – the economy added more than two million jobs annually in seven out of his eight years in office – as well as falling unemployment and higher labor-force participation. Read More »