michael.johnson’s blog

Christian E. Weller, Department of Public Policy and Public Affairs, University of Massachusetts Boston

There are few puzzles in economic policy. The trend in corporate cash holdings, though, has analysts scratching their heads. Cash has been rising by 29.2% from December 2008 to June 2010, continuing a growth trend since the early 1980s and pushing cash to its highest level since the early 1960s.

Why should policymakers care? Mainly, because it is a lot of money, $1.8 trillion to be exact. Some of it could be spend more productively than sitting in some account. Companies could spend the money either on hiring more people, on investing in new equipment and commercial construction, or on keeping stockowners happy by paying more dividends and by buying back their own shares and thus propping up share prices.

The problem is that policymakers would need a good explanation for this cash growth before they could design appropriate responses and get companies to spend the money on other, presumably more productive undertakings. There is no single explanation for corporations’ desire to hold more cash, though. Some pundits have speculated that political uncertainty over recently enacted legislation may have led corporations to hold more cash. But, cash holdings have been trending upward since the 1980s, coinciding with deregulation in a range of industries, more global trade and investment flows, increased global financial instability, but also more income inequality within countries and across countries—the rich getting richer and the poor staying largely in place. Corporations face more global challenges and less certain demand for their products, but they may also see more opportunities to enter new markets and invest in new ventures (other companies and new innovations).

Policy analysts, who care about strong job growth, faster investment, and more innovation, will need to engage in the current conversation over corporate cash, even if it may seem a little farfetched to our usual research. Do companies hold more cash to be ready for the vagaries of an increasingly globally integrated, deregulated, and less and less certain economy? Policymakers then could focus on increasing economic certainty and get companies to let go of some of their cash holdings. Or, do companies want to be ready when the opportunities arise? Policymakers could then help to foster those opportunities and get companies to spend the money sooner than they otherwise would. This will be a rich field of policy research for years to come.

Michael P. Johnson, Department of Public Policy and Public Affairs, University of Massachusetts Boston

The recent housing foreclosure crisis has had devastating impacts on individuals, communities, organizations and government. Detailed data on characteristics of the foreclosure crisis, and its impacts on communities, is available from www.foreclosure-respoonse.org, especially here. My current research addresses the activities of community-based organizations which acquire foreclosed properties to support neighborhood stabilization and revitalization. These actions have the potential to minimize blight, reduce unanticipated housing mobility, and provide affordable housing opportunities.

However, the cost of pursuing any or all of these strategies to their fullest extent far exceeds the resources available to typical community-based organizations. I believe that decision science, or ‘analytics’ can help practitioners and researchers address the following difficult problem: what subset of a large number of available foreclosed properties should be acquired for neighborhood stabilization and revitalization? What activities should be pursued with which properties? When should these activities be pursued, and to what degree?

I’ve recently received funding from the National Science Foundation to address this problem. This project draws on a recently-published paper that on developing portfolios of alternative development strategies that reflect different emphases put on multiple social objectives, such as minimizing costs, maximizing the quality of neighborhoods chosen for new housing development, and minimizing the perception of inequality. My colleagues on this project (Jeff Keisler of the UMass Boston College of Management, Senay Solak of the UMass Amherst School of Management, and David Turcotte of the UMass Lowell Economic & Social Development of Regions Program) reflect complementary disciplinary perspectives. We’ll learn best practices of Boston-area community-based organizations; identify requirements for decision models to improve organization operations and strategy; design and implement decision models in collaboration with community partners, and evaluate the impact of these models on partner organizations and their communities.

The policy/decision models we develop will yield acquisition policies that are, relative to current operations and procedures: (1) more efficient, i.e. they make better use of organization resources and social subsidies, (2) more effective, i.e. they help organizations make more rapid progress towards social goals related to affordable housing and community development, and (3) more equitable, i.e. they ensure that stakeholder groups and the communities see the foreclosure acquisition process as more transparent, consistent and fair.

Do you have experiences in foreclosed housing redevelopment? What role do you think analytics and quantitative methods could play in helping community organizations leverage their expertise and resources to fight the foreclosure problem, house by house and block by block? I’d like to learn about your perspectives on this difficult problem.