THINKING FORWARD – Ideas for your work from MIT Sloan School of Management

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FORWARD

Ideas for your work from
MIT Sloan School of Management | Office of Communications

+ THREE INSIGHTS FOR THE WEEK
February 14 – February 20, 2021

1. A banking crisis often evokes images of panic — most famously, people lined up to withdraw their money during the Great Depression.

But a new paper co-authored by MIT Sloan professor Emil Verner found that many banking crises are quieter: Even without customers panicking, banks can suffer losses serious enough to create subsequent economywide downturns.

To conduct the study, Verner and his co-authors constructed a new dataset of bank stock prices and dividends in 46 countries from 1870 through 2016, using existing databases and adding information from historical newspaper archives.

When there was a panic and bank run, the research found, a 30% decline in banking-sector equity predicted a 3.4% drop in real gross domestic product after three years.

But even without any creditor panic, a 30% decline in bank equity predicted a 2.7% drop in real GDP after three years.

“Panics are an important amplification mechanism for banking crises, but not a necessary condition,” Verner said. “Panics are not needed for banking crises to have severe economic consequences.”

2. As the U.S. begins to transition away from fossil fuels, innovators in the energy space are looking at social, economic, and health issues through the lens of racial and social justice. And they’re acknowledging that communities of color often bear the brunt of those issues, like higher utility bills and increased vulnerability to natural disasters.

This connection is giving rise to the growing field of energy justice, according to Shalanda Baker, the new deputy director for energy justice at the U.S. Department of Energy.

“Energy justice specifically focuses on the ways communities should have a say in shaping their energy futures through policy involvement … as well as ensuring that the policies that we’re developing don’t have unequitable impacts on the most marginalized communities,” said Baker, speaking last fall at a presentation hosted by the MIT Sloan Sustainability Initiative.

Baker, a professor of law at Northeastern University and co-founder of the Initiative for Energy Justice, cautioned against favoring urgency over equity. Climate issues are pressing, she said, “but in the rush to solve problems, we can’t overlook social justice.”

3. Mark Giordono was once described as having a “private sector head and public sector heart,” a reflection of his propensity for both business and social impact.

Giordono, MBA ’02, is vice president of development and alumni relations at For Inspiration and Recognition of Science and Technology (FIRST), a nonprofit that designs programs to encourage students to explore STEM education.

In a recent Q&A, Giordono talked about using the private sector to meet public sector goals and how he works with ideas:

On leading in a pandemic: I’ve become a better leader of my teams by having high expectations, demonstrating more empathy, and providing almost unlimited second chances.

On reconciling the private and public sectors: My day job as an executive in the nonprofit world basically involves taking significant corporate resources and putting them to work toward social impact goals.

The big idea I’m wrestling with now is whether the voluntary investments corporations make in “doing good” are meaningful enough to save the world; whether the private sector today can truly move the needle on public sector goals.

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