By Robert Reich – Glass-Steagall’s key principle was to keep risky assets away from insured deposits. It worked well for more than half century. Then Wall Street saw opportunities to make lots of money by betting on stocks, bonds, and derivatives (bets on bets) – and in 1999 persuaded Bill Clinton and a Republican congress to repeal it.
Nine years later, Wall Street had to be bailed out, and millions of Americans lost their savings, their jobs, and their homes.
Why didn’t America simply reinstate Glass-Steagall after the last financial crisis? Because too much money was at stake. Wall Street was intent on keeping the door open to making bets with commercial deposits. So instead of Glass-Steagall, we got the Volcker Rule – almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.
Now those loopholes and exemptions are about to get even bigger, until they swallow up the Volcker Rule altogether. If the latest proposal goes through, we’ll be nearly back to where we were before the crash of 2008. more>
Posted in Banking, Business, CONGRESS WATCH, Economy, History, Leadership, Media, Net, Regulations
Tagged Banking reform, Capital, Congress Watch, Credit, Debt, Financial crisis, Regulations, United States
Why policy makers should nudge more
By Alex Verkhivker – When policy makers around the world want to influence their constituents’ behavior, they have a few options. They can offer a carrot, such as a tax incentive, stipend, or other reward. They can use the legislative stick by passing a mandate or a ban.
But research suggests they should turn more often to a third tool, a “nudge,” which in many cases is the most cost-effective option.
Nudging is the word used in behavioral science for structuring policies and programs in ways that encourage, but don’t compel, particular choices. For instance, requiring people to opt out of rather than into a program, such as a retirement savings plan, might nudge them toward participating. So might reducing the paperwork necessary to enroll. more>
Posted in Business, CONGRESS WATCH, Economic development, Economy, History, How to, Leadership, Regulations
Tagged Business improvement, Chicago Booth, Congress Watch, Government, Leadership, Organization, Productivity, Regulations
Why it’s so hard to simplify the tax code
By Dee Gill – Simplifying the tax code ostensibly has bipartisan backing. Both the Bush and Obama administrations advocated for simplification, in reports, as have House Speaker Paul Ryan (Republican of Wisconsin) and Senator Elizabeth Warren (Democrat of Massachusetts). But when the Senate passed a tax bill this past December, there was no postcard.
What happened? The same thing that always does, suggest researchers. While simplicity is a stated goal, complexity wins the day. Hence companies and individuals will hire accountants to wade through the latest bill, interpret the new rules, offer guidance, and help work through the inevitable corrections and amendments.
And this comes at an economic cost. Research by James Mahon and Chicago Booth’s Eric Zwick, and others, collectively indicates that the complexity leads individuals and companies to fail to take advantage of billions of dollars in offered breaks, many of them presumably intended to stimulate the economy. In this way, complexity undermines what tax incentives are purported to accomplish. more>
Posted in Business, CONGRESS WATCH, Economy, History, Media, Regulations
Tagged Chicago Booth, Complexity, Inequality, refunds, Tax deduction, Taxes
By David Dollar and Zhi Wang – Two-thirds of world trade now occurs through global value chains that cross at least one border during the production process, and often many borders. As a result, the typical “Chinese product” that the United States imports has a lot of value-added from countries other than China.
Furthermore, in computers and electronics, more than half of China’s exports come from multinational firms operating in China.
U.S. firms are also involved in production chains. Thirty-seven percent of U.S. imports from China are intermediate products used by American firms to make themselves more competitive. Putting tariffs on intermediate products is shooting oneself in the foot. The list of targeted products posted by the United States includes some intermediates, such as aircraft propellers.
Many of the targeted products are consumer goods such as televisions and dishwashers.
What all this means is that tariffs are a very poor instrument for punishing China for any unfair trading practices. Some of the cost will be borne by American consumers; some by American firms that either produce in China or use intermediate products from China; some by firms in countries (mostly U.S. allies) that supply China; and some by Chinese firms (mostly private ones). more>
Posted in Business, CONGRESS WATCH, Economic development, Economy, History, Net, Product, Regulations, Technology, Transportation
Tagged Business, Government, Jobs, Manufacturing, Regulations, Technology, Trade, United States
Why fake news is bad for business
By Rose Jacobs – Many social-media websites struggle to maximize user engagement while minimizing the amount of misinformation shared and re-shared. The stakes are high for Facebook, Twitter, and their rivals, which generate most of their revenue from advertising. Viral content leads to higher user engagement, which in turn leads to more advertising revenue.
But content-management algorithms designed to maximize user engagement may inadvertently promote content of dubious quality—including fake news.
The researchers’ models assume platform operators can tell the difference between factual and fictitious posts. They demonstrate that engagement levels fall when users aren’t warned of posts that contain misinformation—to levels lower than when users are discouraged from clicking on the dubious material.
A limitation of the research is the models’ assumption that the people using social networks and the algorithms running them know whether posts are true, false, or shaded somewhere in between. more>