What Trump and Pelosi can learn from a different kind of shutdown that crippled the nation – Tom Kochan, Joel Cutcher-Gershenfeld

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From The Conversation

Two sides of a dispute are at an impasse.

Both refuse to negotiate until the other side gives in to their central demand, with no reason to compromise. Animosity between the parties deepens as they hurl personal insults. The stalemate seems intractable as public costs mount.

While this may sound like it’s describing the government shutdown, it’s also what happens during an unsanctioned job action – sometimes called a “wildcat strike” – in which workers walk out or slow down work over a serious disagreement with management. The company won’t negotiate until the “illegal” action ends, while the workers want a solution to their core issues first.

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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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Give federal workers a voice to break the impasse – Thomas Kochan

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From The Hill 

One of the most dismaying aspects of President Trump’s speech on Saturday was that he showed total disregard for the federal workers and contractors who are not getting paid even though some of them are required to work, others are not able to go to work and some are neither working nor will ever get paid for the time lost.

It is time for all federal workers and contractors, and indeed for the American public they serve, to stand up and say enough is enough: Stop holding these workers hostage to a political impasse that good faith negotiations could easily resolve.

Federal employees may need to raise their own voices to make this happen. They should demand an immediate end to the shutdown and perhaps tak a play from the Google employees’ playbook and call for a day of action if the shutdown continues.

Moreover, like the Google employees, federal workers should demand a seat at the table in negotiations over how to best solve our border security and immigration problems once and for all.

This would be consistent with a basic principle of employment relations we study and teach and that wise managers and labor leaders know and practice: Those closest to the problem know the most about what additional supports they need to do their jobs well.

So here is an outline of a proposal I would urge the federal workforce to make.

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The math on why the Trump administration’s fuel standards report is seriously flawed – Christopher Knittel

Christopher Knittel, George P. Schultz Professor and Professor of Applied Economics, MIT Sloan

From San Francisco Chronicle 

Fuel economy standards are an important way for the U.S. to combat climate change. However, a 2018 study conducted by the Trump administration proposes hitting the pause button on regulations, potentially leaving billions of dollars in benefits on the table.

This is a significant change from the Obama administration, which ramped up prior fuel economy standards. That administration mandated the fleet-wide fuel economy of passenger vehicles and light trucks to reach 54.5 miles per gallon by 2025. The federal government’s cost-benefit analysis, completed in January 2017, concluded that this was technologically feasible and that benefits exceeded costs by over US$90 billion.

The current administration challenges that conclusion and recommends freezing standards at model year 2020 levels through 2025. Their analysis finds that the costs exceed the benefits by over $170 billion – a difference of over $260 billion from the previous report.

Who is right? The answer matters, because fuel economy standards are the last remaining major federal regulation to fight greenhouse gas emissions. The current administration has eliminated other regulations related to clean power and is promoting coal consumption. If the Obama administration’s analysis is correct, then pausing fuel standards will cost the economy money and impact the environment. If the Trump analysis is correct, then this may be the right call. There is a lot at stake.

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