Week of September 11, 2017

1. Digital Finance: There's a regular theme I hit when it comes to digital finance--digital gives much more power to providers, government or private sector, than physical cash does. And that is something we should worry about. So my confirmation bias whet into overdrive when this crossed my feed this week: China is detaining ethnic and religious minorities in Xinjiang Province and one of the criteria for detention is people who "did not use their mobile phone after registering it." Brett Scott objects to cashlessness for both its inherent nature as a tool of surveillance and for more pecuniary reasons: unlike cash, every digital transaction generates fees. Which in turn gives power to the organizations that have a seemingly insatiable appetite for categorizing and controlling people. Hey, ever wonder why Facebook is pushing hard into payments, even into fundraising for non-profits?

Scott uses Sweden's progress toward cashlessness as a foil. Want to guess which other country beyond China and Sweden has made the most progress toward digital-only payments? Somaliland. Huh. Elsewhere, the progress of digital finance seems to have slowed to a crawl: 76% of mobile money accounts are dormant, and the average active user only conducts 2.9 transactions a month. Perhaps that's because of a huge gap in usability that will require a similarly large push in education (according to Sanjay Sinha).

Given the near unrelenting negativity above, I feel like I have to say for the record: I don't oppose digitisation. I oppose not recognizing and planning for the negative consequences of digitisation.

2. Global Finance: Digital finance and mobile money is generally about very local transactions. But another important use is long-distance transactions, particularly remittances. But international transfers of funds require banks to have relationships that cross borders. The technical term is "correspondent banks." What correspondent banks do is vastly simplify and accelerate the flow of funds across borders. So it's a problem that correspondent banking relationships are shutting down as a result of "de-risking," which is banking jargon for "avoiding anything that may draw the attention of regulators who have the somewhat arbitrary ability to impose massive fines." The IFC reports that more than a quarter of banks responding to their survey reported losing correspondent bank relationships with compliance costs the most common reason; and 78% expected compliance costs to increase substantially for 2017.

And now for a bit of levity, if you can call it that. Matt Levine has the incredible story of how the Batista brothers, owners of a large Brazilian meat-packing company, made money shorting the Brazilian Real--they knew recordings of their conversations with President Michel Temer about bribes were going to be released. Is that insider trading?

3. US Poverty and Inequality: This week the US Census Bureau released its report on income and poverty in the United States in 2016. The new was good, at least on a relative basis: incomes are growing across the board and poverty is down. But...the majority of gains are still going to upper income groups, and inequality continues to rise as a result. The bottom half of the distribution is only now getting back to where it was in 1999 or earlier. Here's Sheldon Danziger's take on the data and the policy implications. The Economic Progress Institute has a good overview (with good charts) of the poverty data specifically, which focuses on how safety net programs reduce the number of people below poverty by "tens of millions."

The 8+ million who are above the Supplmental Poverty Measure threshold because of refundable tax credits (e.g. the EITC and the Child Tax Credit) particularly caught my eye because of this profile of a US Financial Diaries household that I just finished. Amy Cox, for the year we followed her, is one of those people. For the year, she is above the SPM because of tax credits. But she receives all of that in one lump sum in February. So for 11 months of the year, she's poor. In 9 months of the year, she's around 75% of the SPM threshold. But officially, she's not poor. Makes me think it's time for a Supplemental Supplemental Poverty Measure that takes into account how many weeks a year someone is below the line.

In other US Financial Diaries news, here's Jonathan Morduch speaking about Steady Jobs without Steady Pay at TEDxWilmington this week (skip ahead to 1:30:00).

4. Social Investing: Is there any point to avoiding investments in "sin stocks." At least some people think so, giving the proliferation of mutual funds and other investment vehicles that screen companies based on environmental, social or governance criteria (referred to as a category as ESG). Cliff Asness doesn't think so. The summary version (also see Matt Levine) is that if avoiding "sin stocks" causes those companies cost of capital to rise (which is part of the theory of change of many ESG advocates), well that will just increase the returns of those who are willing to invest in sin. If avoiding those stocks doesn't change the cost of capital, then nothing has been accomplished.

Felix Salmon disagrees. The reason to avoid sin stocks isn't to punish bad companies or raise their cost of capital. It's because "it's the right thing to do," and "divestment is a political gesture" not an economic one. 

5. Education: A few weeks ago I linked to a "Starrant" about Liberia's experimentation with private schools. Last week the preliminary results of the RCT by IPA and CGD that Kevin mentions in his rant were published. There's a little something for everyone here: learning measures were way up, but there was significant heterogeneity among the school operators, and costs were way, way up and those are just the headlines. The biggest question is how to think about the cost-effectiveness, because for instance, this was the first year of the program and it's unclear how much of the increased costs were start-up costs or how scale efficiencies may change the figures.

Caitlin Tulloch has a very relevant tweet thread for education researchers and policymakers/influencers: "We don't lack methodology for costing ed. programs. We lack processes & culture of applying it!" Alejandro Ganimian has a blog post about why
RCTs of education programs that have shown impact haven't led to those programs being scaled up. And here's Attanasio, Cattan and Krutikova in VoxDev (how the hell are they generating so much quality content? Has Tavneet cloned herself in a secret lab at MIT?) on the evidence and the research agenda on early childhood development policies.

Week of September 4, 2017

1. Evidence-Based Policy and Methods: One of the reasons I took a few weeks off was in late August I was part of a panel at Stockholm International Water Week sponsored by on the "evidence base for WASH microfinance." If you've been following the evaluations of microfinance or of WASH you know that evidence base is thin (in more ways than one). Preparing for the panel got me thinking about the strange state of evidence-based interventions. [Warning: I'm going to oversimplify for the next few paragraphs; if you want not oversimplified I recommend the detailed write-ups GiveWell has on both deworming and WASH] Arguably deworming is the sine qua non of evidence-based interventions right now, but the arguably mostly comes not from whether there is some other intervention with a better claim, but that there are large swathes of people who don't believe the evidence for deworming: epidemiologists. Why? Because there isn't a plausible biological mechanism to explain where the gains from deworming come from. There is no consistent detectable effect of deworming on weight or anemia for instance.
In the meantime, there's no question that if you remove bacteria and viruses from water, people won't get sick and will have all sorts of positive short-term health gains. But the most rigorous evaluations of WASH interventions don't find detectable effects on incidence of diarrhea or other health or economic indicators. The most-likely story is that there are so many vectors for infection that people end up consuming contaminated water despite the WASH interventions (and given that doctors in US hospitals still won't wash their hands regularly, that's very plausible). In that way, WASH has a lot in common with microfinance--single point interventions in complex and broken systems are unlikely to produce large long-term effects.
So the state of play is that the intervention with a clear biological mechanism has no effect and the one with no clear biological mechanism has large effects. I hope I'm not the only one who finds that a bit discomfiting.
So what to make of all of this? The point I made at the conference is that building an evidence base isn't just about methodology but about what is being measured. In the WASH + microfinance space, I think the right metrics are about whether well-functioning markets are being created (see my rant about low-quality equilibria, or my "vaccine or antibiotic" theory of change for microfinance piece) where poor households have more actual ability to choose, including the option to not have to think about whether their water is clean.
A second important point is that there is a long way to go figuring out how to measure things we care about. To that point specifically, Rachel Glennerster and Claire Walsh have a post about the difficulty of measuring women's empowerment via surveys and the limitations of how empowerment is currently being measured. They have some useful specific suggestions for improving the current methods. Perhaps there will be some real traction here, as Glennerster was named the new Chief Economist of DfID this week.

Bonus Overflow Links: David McKenzie has a post about re-interviewing participants in unrelated evaluations. Kieran Healy is writing a book about Data Visualization for Social Science and posting most of the content as far as I can tell.

2. US Inequality: So now that I've brought up deworming and WASH, here is a story about the return of hookworm in the deep south of the US. Reading the story, I'm skeptical that hookworm ever really went away, but that these areas were as ignored in the early part of the 20th century as they are now. Dr. Peter Hotez who was a prime mover in getting Neglected Tropical Diseases on the global agenda and laying groundwork for deworming interventions has been leading efforts to document that many of these "diseases of poverty" remain endemic in poor communities in the US and his research here proves the point.
Another important factor in the ongoing story of inequality in the US is labor-force participation which remains at historically low levels despite falling unemployment. The Hamilton Project has a useful overview on Who Is Out of the Labor Force? A key fact to remember: 40% of non-participants are unpaid caregivers. Why is labor force participation falling? Alan Krueger has a new paper that suggests that opiod use is responsible for about 20% of the decline in men's participation. I have to say it's astounding to me that Vioxx was withdrawn from the market but that opiods remain widely available despite the overwhelming evidence of the damage they have done.
Finally, the JPMorgan Chase Institute has a new report on the differential effects of major healthcare expenses on US households. Unsurprisingly older households were more likely to have a major healthcare expense, and those expenses were larger. When younger families had these expenses they tended to make them when their income or liquidity was spiking, indicating that the expenses were hard to manage. Younger and older households turned to revolving credit to help finance these expenses and in some cases saw debt stay at higher levels and even increase a year after the medical payment. In yet more evidence that the US has a lot in common with much less "developed" countries, it reminds me of the story from Scarcity about the fruit vendors who fell back into debt because of health emergencies. Still bummed there's not a paper to link about that.

3. Financial Inclusion and Digital Finance: Now we're going to circle back around to the point about measurement from Item 1. Just like WASH and microfinance, it's been hard to find measurable effects of "access to illumination." That's the take-off point for Julie Zollman to critique the measures that are being used to evaluate the effect of financing asset purchases (like WASH systems or off-grid solar). She makes the excellent point that financial inclusion is rightly conceived as a "means to an end," but that we have to carefully think about what ends count in our calculus. I'd also point out that it has been equally difficult to find gains from IT in developed countries on these same measures, and that it took decades before there was a measurable gain in productivity from the electrification of factories.

Also at CGAP, here's a piece I missed about What Keeps People from Paying with their Phones? based on some work in Ghana. The most interesting part for me was the explication of the low-quality equilibrium that keeps the status quo of agent-intermediated transactions going. One of those factors of course is the user interface and the large number of people who struggle with numeracy and literacy on top of unfamiliarity with technology. Here's a story about the "end of typing" and the development of new user interfaces that do an end-run around literacy. That will require a whole new level of trust in technology though. It's something that's always puzzled me about claims about cryptocurrency being more secure. Supposedly the blockchain prevents counterfeit transactions, but unless you are a top-notch coder and mathematician, you still have to rely on someone to tell you to trust what the software interface is telling you. Matt Levine makes a similar point here (scroll down).

4. Philanthropy, Democracy and Disaster Aid: In a confluence of the interests of the faiV that I didn't see coming, Russ Roberts has a new episode of EconTalk interviewing Stanford political scientist Rob Reich (no not the Berkeley economist) about the undemocratic power of foundations. If there's one thing you listen to this week, it should be this.
One of the long-standing arguments about the value of foundations is that they, through expertise and experience, can do better with their money than the general public does. That argument is most compelling after disasters, when the general public reflexively sends boatloads of money to the Red Cross, or brand-new charities with no experience or mountains of stuff people don't need to charities without the logistics capabilities needed to manage it. Here's Marc Gunther with a useful overview of the situation after Hurricane Harvey. Of course, with Irma destroying Caribbean islands on the way to Miami, it seems like it's going to get worse.

5. Sort of:  I'm going to mix things up with a video and a graphic of the week because let's face it I've already overstayed my welcome, even if it is my birthday.

From VoxDev, which seems to be putting out an enormous amount of content, here is Paul Niehaus and James Ferguson in conversation about the delivery of aid. Source: VoxDev. (The prospect of a substantial expansion of social assistance programmes based on cash transfers is generating great enthusiasm across Africa and beyond.)

Back to the point about measurement being difficult, the Easterlin Paradox was a long-standing puzzle in economics--why don't people get happier when they get richer. That disconnection emerged from long-running surveys that included questions about "life satisfaction." It turns out that the questions being used to measure life satisfaction changed over time and so there wasn't a paradox after all. Here's a chart from Our World in Data/Stevenson & Wolfers showing the corrected data from Japan. Source: Our World in Data

Back to the point about measurement being difficult, the Easterlin Paradox was a long-standing puzzle in economics--why don't people get happier when they get richer. That disconnection emerged from long-running surveys that included questions about "life satisfaction." It turns out that the questions being used to measure life satisfaction changed over time and so there wasn't a paradox after all. Here's a chart from Our World in Data/Stevenson & Wolfers showing the corrected data from Japan. Source: Our World in Data

Week of August 7, 2017

Editor's Note: It's the middle of August, so I thought it would be fun to change pace and have a faiV of just visualizations, graphics and videos. Or the most interesting things I saw this week all had visual elements.

The faiV will be off the next 2 weeks. See you in September.

1. The Global Middle Class: By now, Branko Milanovic's elephant chart should be quite familiar. Nancy Birdsall of CGD has a new post about the state of the global middle class that delves into the elephant chart and other data looking at the state of the middle class globally.

2. Global Inequality: Another chart that may be somewhat familiar but certainly should be top of mind these days. Our World in Data looks at inequality, from a lot of perspectives, here before and after taxes and benefits in developed countries.

3. US Inequality (and Debt): Speaking of inequality before and after redistribution, Catherine Rampell at the Washington Post has a couple of interesting recent posts on policy to help (or not) lower-income workers. The first chart here made lots of waves this week in a post by David Leonhardt, and provides the visceral oomph behind the need to reassess policy in the US. Although this data and similar charts have been circulating for quite awhile, it still thankfully grabs attention.

Whether or not the top chart is related to the bottom chart is one of the questions that Aspen's EPIC is taking on this year. Regardless of the direct connection between income inequality and rising debt, the fact that we are back to record levels of credit card debt seems concerning since it's likely not the .001 percent taking on this debt. That being said, rising debt could also be a sign that finally consumer confidence is returning and people feel that their incomes may start rising again.

Our Broken Economy, in One Simple Chart

Our Broken Economy, in One Simple Chart

U.S. Credit-Card Debt Surpasses Record Set at Brink of Crisis

U.S. Credit-Card Debt Surpasses Record Set at Brink of Crisis

4. Statistics GIFS: You can't say I don't know my audience--you guys go crazy for things like this, at least that's what the click data says. The two images at the top are from Rafael Irizarry at Simply Stats, in a post about teaching statistics and how to think about data. Helpfully, the post includes the code to recreate each of the images (and he's got a lot more where these came from).

This week there was also a revival of the Autodesk post about how visualizations can mislead that I featured a while back. It's here again because Jeff Mosenskis of IPA made an underappreciated awesome joke about also being wary of violin plots.


5. Low Quality Equilibria: I couldn't pass this one up when I saw it this week, given my recent rants. Who knew that removing frictions from sharing market information would make it impossible to ever tell if any product was good or not?

Week of August 1, 2017

1. More Ranting (Low-Quality Equilibria and Digital Currency): Following up on my rant last week about the prevalence of low-quality or sub-optimal equilibria because people have such a hard time figuring out what matters, here's another paper that caught my attention because it so thoroughly confirms my priors. The basics: a field experiment provided repair technicians with varying amounts and frequency of feedback. Performance suffered when feedback was weekly versus monthly because the technicians overreacted to each report. In other words, they had a hard time figuring out which details mattered to their own performance. The study could inspire another about "isomorphic mimicry" and the technology of management but I'll save that for another time.

Instead, I'll move on to a different rant about digital finance. In my world, there's only a tenuous connection between the digital finance groups and the cryptocurrency (e.g. BitCoin) groups, but the former certainly should be paying attention to the latter. As Matt Levine put it this week (again, he says this a lot): "The job of the cryptocurrency revolutionaries is to re-learn all of the old lessons of modern finance, one at a time, in public, in embarrassing ways." Right now those old lessons being re-learned seem particularly focused on how hard it is to manage and secure a money supply. I really hope that the digital finance advocates are paying attention to how often various "unhackable" and "secure" cryptocurrencies are being hacked. The spirit of Willie Sutton lives on, and as more "money" is stored in digital form, there will inevitably be more theft. And there's very little reason to believe that average users will employ security practices better than the supposed sophisticated users currently adopting cryptocurrencies. I fear though that the fate of much of digital finance is to "re-learn all of the old lessons of financial services, one at a time, in public, in especially embarrassing ways because they ignored the cryptocurrency movement's repeated mistakes."

2. Global Development (rants): On to more traditional faiV-ing. Kevin Starr has a new rant on the many outside groups making hay over government-funded private schools in Liberia (We need a hashtag to go along with #lantrant, I'm proposing #starrant). Someone once told me there were a lot less education experiments in the US than in other countries because more people were paying close attention and fighting any policy experiments where the outcomes were not already known. That may have been true, but it's certainly not true anymore in Liberia at least. Kevin's plea is to let the Education Minister do his job.

And here's a rant (with a link to another) against the "getting better" narrative that points out how much the world has improved, to the point where it is certainly the best time in history to be alive. I find the argument here pretty annoying, but not annoying enough to rant about myself. Pointing out that fewer children are dying of malnutrition and more people can read (for instance) in no way implies "this is fine."

In fact it's far more common for the "getting better" crowd to argue for more and for taking risks to make more progress, rather than settling for the status quo as Kottke says they are. In that vein, philosopher Peter Singer is probably the best known advocate for doing more, particularly associated with the "drowning child" thought experiment. Except it's not always an experiment. Last week, French philosopher Anne Dufourmantelle died while trying to rescue some actual drowning children. She was particularly known for her work on taking risks.

3. US Inequality: Much of the work on household finance either presumes that households desire to smooth consumption or tries to test how much smoothing they are able to do. Here's a new paper matching up food stamp receipt dates and standardized math test scores (and dates). There's already good data that shows that food stamp recipients aren't fully smoothing food consumption over a month--households often eat less in the last week of a monthly cycle. Here the authors look at how students from these households perform when test dates are toward the end of a benefit cycle and finds there is a material negative impact on performance. There are some other interesting patterns as well. At some point, I'll have a sort-of rant about a related issue: how we should think about whether the EITC lifts people out of poverty or not, given that it does so by delivering a lump sum on one day, but nothing the rest of the year.

Evidence like the food stamp study is used by safety net advocates to argue for more generous benefits, but just as often to say that the reasons people become and/or stay poor is their own choices. One of the frameworks for the latter is known as "the success sequence," originally proposed by Haskins and Sawhill. It lays out a set of choices that make escape from, or protection from poverty much more likely. Matt Bruenig has a new post about the "success sequence" which has been getting more attention of late. While the sequence has lots of advice, Bruenig points out that the only piece that seems to make a material difference is having a full-time job.

Finally, here's a profile of the current life of Rob Cordray, the embattled head of the CFPB

4. Theories, Methods and Models: It's getting late in the day already, so I'm going to pick up the pace a little here. Don't mistake that for disinterest or lack of endorsement. This is all good stuff. You should click on the links.
Michael Kremer and Gautam Rao presented on Behavioral Economics and Development at the NBER Summer Institute. Here are their very useful slides.

Are small studies ever worth it? Some people argue they do much more harm than good. I'm guessing they didn't factor in the damage avoiding small studies would do to the careers of academics-in-training. I'm particularly interested in how this applies in the business context, where unless you are one of the truly massive companies in your space, all the "data analytics" being done are small studies.

On the opposite end of the scale, Karthik Muralidharan and Paul Niehaus have a new version of their paper, "Experimentation at Scale", which points out that development RCTs have typically been "small" (though not in the same sense as the authors above use it), and offers lots of advice for dealing with the challenges of doing very large experiments.

5. Digital Finance: Most of the time when I discuss digital finance in the faiV it's about things like mobile money or digital credit. But there's a much bigger part of digital finance that is about what's happening on the back-end of digital commerce. Here's a profile of Patrick Collison, the founder of Stripe, an increasingly important player in that back-end globally. Stripe handles a lot of digital payments and is increasingly moving to add services to make all the other parts of digital commerce much easier. If you want to extrapolate wildly from Tavneet Suri's and Billy Jack's paper on the effect of M-Pesa on poverty, just imagine the impact of quickly and cheaply enabling developing world entrepreneurs to incorporate, set-up digital storefronts, manage inventory and get access to working capital. You may also recall that Patrick Collison recently interviewed Tyler Cowen and mentioned my book (even if he forgot the name) and so I have a strong positive bias toward anything he does. 

Finally, while Stripe is a big deal in digital finance even though you hardly ever hear about them, if you follow the finance space, you hear about robo-advisors all the time. For example, last week's faiV. But Josh Brown points out that "robo-advisor" already is a meaningless term. If everyone is a robo-advisor then no one is a robo-advisor.

Not particularly new, but new to me: a proportional chart of the use of languages in the world. Source: Search Reddit because I'm worried about filters catching the name of the Reddit forum where this is from.

Not particularly new, but new to me: a proportional chart of the use of languages in the world. Source: Search Reddit because I'm worried about filters catching the name of the Reddit forum where this is from.

Week of July 24, 2017

The ranting edition

1. Low Quality Equilibria: There's an important "new" (e.g. it's been circulating in working paper form for a while, but is now published) paper in QJE about why hobby woodworkers waste so much money...just kidding, it's about why people keep buying cheap Chinese knock-off tech products and IKEA furniture...actually it's about the persistent use of predatory financial products and poor financial decision making...OK, it's really about the bind that the evidence-based policy movement finds itself in. Well, truthfully it's actually about agricultural markets in Uganda and why adoption rates of fertilizer and improved seed are low, but not zero. Really, that's what the paper is about.

But it is also about all of those other things. Here's the basic story:
Fertilizer and improved seeds boost agricultural productivity substantially. But it's hard for farmers to tell whether the fertilizer or seeds they are buying are fake. So there are lots of people willing to sell low quality stuff claiming it's high quality--in Uganda, the fertilizer is regularly diluted (30% of nutrients are missing) and the "improved seed" is fake 50% of the time. Classical economics tells us that markets will drive out the low quality products as people learn who is a reliable seller; or that the market will collapse and no one will be willing to buy the fertilizer or seeds at all. But farming, like almost every other human endeavor depends on lots of factors, not just these inputs. And so it's not only hard for farmers to tell whether they were sold a "lemon" even even after using it. Did their crops underperform because the were sold fake inputs or because the weather was bad, or they used it wrong, or their land was too degraded, or there were too many of a certain kind of pest, or because they were sick during the planting season, etc.? After all, some people buying the fertilizer and seeds did get good stuff and have high yields, so it's even harder to tell where the problem lies. So the market doesn't collapse, and low-quality sellers/products don't get driven out of the market but farmers also--for good reason!--don't invest in the inputs as much as would make sense based on the theoretical productivity boost.

Here's where the rant, and the weird introduction to the item, comes in. This situation is incredibly common: in most of life it's hard to tell whether some input--be it technology, or practice, or advice, or an employee--is high quality before you use it, but also after you use it because of the complex nature of most of life. This basic fact seems to be ignored frequently as researchers, policymakers, and advocates try to explain behavior. In almost all our endeavors we are in a Dunning-Krueger low quality equilibrium. We don't know enough to tell high quality from low quality ex ante, or ex post (yes, I'm a Calvinist). Determining causality is hard--even the most highly trained economists and social scientists get it wrong all the time! What hope does the average human have of looking at a complex system and determining which of the hundreds of factors involved was responsible for what portion of the outcomes? Behavioral economics explanations for sub-optimal choices are tempting because they tend to skirt this core issue. True, cognitive biases and limited attention exacerbate these problems and nudges can yield improvement on the margin, but figuring out what matters is hard (an opportunity to link, yet again, to one of my favorite papers, [Not] Learning by Noticing [the wrong things].

This is why Amazon or any crowdsourced product reviews are worthless. And it's why most people, regardless of their financial literacy, can't consistently tell which financial products are good for them and their situation. And it's why evidence-based policy is such a hard sell--when a policy with strong evidence behind it fails to live up to expectations is that because the advice was bad, the implementation was bad or circumstances changed?

Low quality equilibria are everywhere, defeating them is hard, and that's the sobering challenge we face.

2. Digital Finance: Staying in the ranting realm, here's a piece about digital financial services in China that keeps making my eyebrows try to climb into my hairline. The opening point is spot on--digital finance is paying too much attention to Kenya and not enough to other places, particularly China where adoption and use is much, much higher. But the piece has a not veiled at all assumption that digital financial services are an unalloyed good, and an only thinly veiled praise of authoritarian structures.

China doesn't have the same financial exclusion problems that most other countries have (though of course the very poorest are also pretty permanently and even more completely excluded in a digital environment), where private sector providers ignore or actively discourage lower-income customers. But authoritarian structures--whether they are the government, or monopoly private providers like AliPay and WeChat--will exclude people on other criteria. And that will be very bad for those people. I feel like we need a new version of an old saying: the only thing worse than being excluded by capitalists is being excluded by authoritarian monopolies.

3. Our Algorithmic Overlords: Score one for the human beings, sort of?. Betterment, one of the original "algorithmic" financial advisors announced this week that it's adding (even) more human advisors. Apparently people like asking human beings questions, or at least having someone to talk to. That's a trend that Tyler Cowen sees as the actual outcome of increased use of AI and robots: the jobs that humans will do will all be marketing jobs (and honestly, that's what a financial advisor really is, a marketer).

That doesn't bode well for increasing productivity, or wages. Most marketing is a zero-sum game with a few big winners and mostly losers. Here's Neil Irwin on another way of looking at the productivity slump in developed countries and the low-quality jobs equilibrium we seem to be in. Reminds me of Lant's Rant about labor-saving robots (in Uganda!).

Meanwhile, Mark Zuckerberg and Elon Musk are arguing about AI risks and people are choosing sides.

4. Strugglin' in the USA: Prosperity Now, formerly CFED, has a new scorecard on the state of Americans' finances with the takeaway being, "getting by but not getting ahead, citing USFD research on income volatility as one of the key aspects of American financial lives today. One of the more interesting possibilities for helping people deal with volatility and balance short-term and long-term savings needs is now dead: the Trump Treasury is canceling MyRA. I would rant, but really, who has the energy to rant about the Trump administration right now? Note the article title focuses on retirement but the most interesting part of the MyRA was it's potential use as an emergency savings vehicle.

With the death of a savings vehicle, here's some news on a borrowing vehicle: Noah Smith writes on work suggesting people are much better off (consumption rises in all periods) when payday lending is banned. The implication is that very little payday borrowing is funding actual consumption emergencies and being used for reckless spending instead. If payday were banned, perhaps people would turn to Panhandlr (hattip to @matt_levine for the name). I suppose you could file that under digital finance as well, but that would have required putting two rants into one item.

5. Methods: Marc Bellemare, who is also responsible for pointing me to the Uganda paper in Item 1, has a nice post, building on a Twitter thread from Beatrice Cherrier, about the history of Agricultural Economics as a semi-separate discipline and applied economics. It's definitely worth reading all the way through.

And if applied economics wasn't hard enough for you, here's a proposal to make the cut-off for statistical significance p=.005 (10 times harder than the current standard). That sounds less useful to me than doing away with p-values entirely.

From the DFSLab post described above--obviously not the original source, but I can't figure out where it originally came from. Minor rant: I get very frustrated by category errors in digital finance metrics which exclude card payments from fintech. Cards are fintech! There is nothing special about a phone!

From the DFSLab post described above--obviously not the original source, but I can't figure out where it originally came from. Minor rant: I get very frustrated by category errors in digital finance metrics which exclude card payments from fintech. Cards are fintech! There is nothing special about a phone!

Week of July 17, 2017

Editor's Note: The faiV is brought to you this week by the Aspen Intitute's Financial Security Program EPIC team: Joanna Smith-Ramani, David Mitchell, Katherine McKay, and Katie Bryan. Their views, etc. though YouTube links are probably mine. Check out their work on income volatility and on consumer debt at I'll be back next week. 

1. Weaponized Data and American Inequality (Part 3): We learned a lot in reading the faiV’s summary and corresponding links detailing the minimum wage debate consuming economists across the country. While we haven’t reached our own conclusion about whether a $13 minimum wage in Seattle is or isn’t too high, we are following how some state legislatures across the country are actively rolling back minimum wages established by municipal governments. Example? St. Louis was dealt a big blow and the city has received a lot of press this summer.  

(ICYMI the debate, here and here are the two papers that offer opposing outcomes of Seattle’s minimum wage increase. If you don’t have time to read the papers, here’s a fun breakdown from Vice.)

2. Living for the City: CityLab profiled recent research on the intersection of urban development and economic inequality, making us think back to Stevie Wonder’s “Living for the City.” Still relevant. And beautiful. A new study out of the University of Idaho looks at 639 urban counties in the US and the factors that determined when they felt the effects of the 2006-2010 recession. Rarely do we see the Gini coefficient being used in the context of domestic inequality – but we should use this metric more often. Consequently, we were really excited to see this interactive map of the Gini coefficients of counties across the US.

For more on cities, another CityLab piece looks at how housing policies worldwide will only exacerbate urban inequality and housing crises. And this story on how inefficient tax codes, high cost of living, and migration, by both companies and residents, are sending the state of Connecticut spiraling, makes us rethink how we view the fiscal policies of traditionally blue, wealthy states.

3. Income Volatility, Short-Term Savings, Retirement (Oh My): Over the last 18+ months, our team has conducted a deep dive on both the impact income volatility – large fluctuations in week-to-week and month-to-month income – has on US households and potential solutions for mitigating the problem. Our latest briefs look at the role wage insurance could play in helping families cope with job loss or reduced wages and how shortfall savings can serve as a buffer during financial emergencies.

Because we care about both short-term financial stability and long-term security, we also spend our days thinking about comprehensive policy solutions to help expand access to retirement savings opportunities. In our process learning about more about income volatility, we’ve realized it’s particularly hard to save for the long-term when short-term savings are lacking. This new paper looks at the effect income shocks have on retirement savings (the stats aren’t pretty: “96 percent of Americans experience four or more income shocks by the time they reach 70”), and *mark your calendars* later this fall, we’ll be publishing two papers on how volatility affects retirement savings. 

4. China, China, China:
Cash is king. Right? Hard currency has been with us for nearly three thousand years, after all. But maybe not for much longer. As one reporter details, visit urban China and you will likely, “have to deal with being locked out of China’s online payments infrastructure.” Sweden is also rapidly moving to a cashless economy. “Out of Sweden's 1,600 banks, 900 don’t do cash— you can’t deposit it or withdraw it.”

The advantages of going cashless? The claimed benefits tend to be 1) speed - for both consumers and banks, removing cash from transactions is faster 2) curbing illegal activity – Sweden saw a decrease in drug trafficking and illegal employment and 3) financial inclusion – this one needs to be fleshed out more, but we think and are hopeful that going cashless will require more people to open bank accounts, and the benefits of being “banked” are many.  That said, some are concerned that going cashless could undermine other financial inclusion efforts. We may be able to learn from how this plays out in India
, where recent moves toward becoming a cashless economy have disrupted many poor communities. 

5. Consumer Debt: EPIC’s new topic is consumer debt. Debt is back to pre-Recession levels, subprime auto lending is booming, and we have many many questions: how does income volatility impact people’s ability to manage their debt? And, will we pay off our student loans before our children apply to college? Maybe… if you’re one of thousands of distressed borrowers who learned this week that their private student loans may be forgiven. Because the investors who sued them are unable to prove ownership of nearly $5 billion in student loans. It’s like the foreclosure crisis all over again!

U.S. consumers now have a record $12.7 trillion in debt, leaving many wondering whether it’s time for concern. There’s no easy answer. Based on a new paper from UBS, Business Insider reports “The poorest Americans are suddenly worried about repaying their debts.” We don’t know about that “suddenly” part, but you can’t judge a story by its headline, and those making less than $40,000 are increasingly concerned.

Do you know what it means? Source: via The Basis Point via Apparently none of them know what it means either. I feel like it must have something to do with the serial linking but that's probably wrong. I'm more confident it might have something to do with the record-low labor force participation rate, not charted here.

Do you know what it means? Source: via The Basis Point via Apparently none of them know what it means either. I feel like it must have something to do with the serial linking but that's probably wrong. I'm more confident it might have something to do with the record-low labor force participation rate, not charted here.

Week of June 26, 2017

Weaponized Data Edition

1. Weaponized Data and American Inequality: Last week I linked to a paper finding minimal effects from minimum wage increases, unaware that a huge explosion of debate on this issue was about to occur. If you follow these things at all, you know that last Friday a paper on Seattle's minimum wage increase was released finding no job losses or cuts in hours. Monday, a different paper finding large losses for households with minimum wage jobs was released. There's a whole lot out there now on the two papers so I'm not going to rehash those arguments (if you need to catch up, try this or this or this or just scroll through Twitter). I want to focus on the backstory of why there were two papers released so close to each other because it's important for the future of research and policy-making. As detailed here, what appears to have happened is researchers at UW shared an early draft of their paper (using tax data that is rarely available in minimum wage studies) with the Seattle mayor's office. The mayor's office didn't like the conclusions so asked a different set of researchers to write their own paper--and release it just before the planned date for release of the UW paper. While I have no special insight into the exact details of what happened, the prospect that the report is accurate disturbs me a great deal. It's a blatant step toward what the author of the Seattle Weekly piece calls "weaponized data." Be afraid for evidence-based policy. Very afraid.   

In other American inequality news on topics that yield strong confirmation bias reactions, Justin Fox reports on new work suggesting that occupational licensing actually crowded-in historically disadvantaged workers--seemingly the transparent rules of licensing reduced formal and informal discrimination that kept these groups underemployed. That's a very plausible story to me, though I generally also buy the anti-licensure arguments.

There's also new work on school vouchers, from Indiana, finding short-term declines in test scores, but later (over four years) gains. It's worth noting how claims for vouchers have down-shifted to "no harm and some students gain." But keeping on the weaponized data theme, the paper is not publicly available and was only obtained by ChalkBeat through public records requests. Apparently the study authors don't think it should be public until it's peer-reviewed, which illustrates the difference in norms in sociology and economics.

2. Our Algorithmic Overlords: Also a few weeks ago I linked to a story about how to tell if borrowers on online lending platforms were going to default, and to the book, Everybody Lies, from which it came. I said I was going to read the book and I started this week--and was immediately dismayed. The opening of the book discusses what search data--particularly searches on pornography websites--can tell us about Americans' hidden desires. You can see a summary in this deeply disappointing Vox piece (isn't Vox supposed to be better at thinking critically about this stuff?). There is no discussion of how such data might be biased or inaccurate, how a site's interface may interact with what people search for, or why we should believe that search data closely corresponds to "real life." In other words, it's an object lesson in the dangers of using data and algorithms without understanding the data or the people, social structures and institutions that generate it. So of course it's a best seller. Suffice it to say that I have radically revised down my faith in any of the book's conclusions.

In other data-generating processes of uncertain usefulness news, Google will stop showing ads inside Gmail based on scans of email content (illustrating the sucker's game that is attention, I had no idea they were still doing this; I hadn't noticed an ad in years). The nominal reason is combating hesitance from corporates to adopt Gmail and Google's suite of web apps. As someone in my Twitter feed noted, the real reason is that Google already gets better information to drive ads to you than your email.

3. Development Economics: David Evans at the World Bank had to teach middle schoolers (6th to 8th grade, also known as Hell on Earth) what development economics is, in 20 minutes. How did he do? I mean, other than not handing out copies of Experimental Conversations.

On a more serious note, here's an interesting new study on the persistence of gains from agricultural extension programs, after those programs end. It's notable both for the cool design, but also for the positive results. I'm always happy to see results that suggest there's hope for getting poor households to adopt productivity-enhancing technology, whether they are farmers or retailers.

4. Household (and Drug Lord) Finance: Stay with me on this one, we'll get to the drug lords. One of the ongoing things I worry about in household finance is that it involves people and people make bad decisions so predictably. Case in point--a major mistake that people make is chasing investment returns via "hot" stock-pickers. There have been major gains in this area as low-cost index funds have grown enormously. But now comes the Quincy Jones Streaming Music Blah Blah Blah Index fund. Yes, you read that right. It's a new kind of index fund that is an arbitrary set of stocks marketed with the name of someone famous nominally connected to the stocks in the index. Yes, the cynicism of the people creating products like this is annoying and frustrating. But the real problem of household finance is the people that will buy them. The enemy is us. Sigh.

In a variety of forums I've complained about over-zealous regulation of remittance providers under Anti-Money Laundering efforts. There's generally been little evidence that this is a significant danger. But last week 11 people were arrested at Atlanta remittance shops for laundering $40 million of illegal drug proceeds and sending them on to Mexico. Here's the kicker: the people doing the laundering were the Anti-Money Laundering staff at the remittance shops. The problem is the people.

And finally, a quick report on planned up-coming M-Pesa outages, for up to 12 hours. It will be interesting to watch for customer behavior effects.

5. Evidence-Based X: Returning to the opening theme, how should (hopefully not weaponized) data be used for making policy decisions? Andrew Gelman has a short post on "clinical significance" and "statistical significance" that should inspire long thoughts. Here's your clickbait: "Forget the hypotheses and the p-values entirely." I should note that Andrew has a new book that I'm going to get to much sooner now that I know I can just skim Everybody Lies: Teaching Statistics: A Bag of Tricks

A reddit group put together a map about the data in maps, illustrating where data is missing. Source: @maxcroser and reddit

A reddit group put together a map about the data in maps, illustrating where data is missing. Source: @maxcroser and reddit

Week of June 19, 2017

Not Invisible Edition

1. Indebtedness: A few weeks ago I mentioned the wave of agricultural loan waivers in a variety of Indian states, a pattern that has been repeated over decades (and not just in India; and perhaps I should say repeated over millennia) with all sorts of moral hazard implications for lenders and borrowers (here's Xavi Gine explaining the impact of the 2008 agricultural debt relief program). Shamika Ravi looks at data from the current round of farmer distress examining how poverty, indebtedness and political power interact since straightforward explanations don't hold up to scrutiny. 

2. Our Algorithmic Overlords (and some Data Viz): Sometimes it's helpful to take a step back and see where artificial intelligence is still struggling. Reassuringly while AI can negotiate it still produces aphorisms like: Death when it comes will have no sheep. But maybe that's a negotiating tactic? Meanwhile, apparently machine learning still struggles to tell the difference between labradoodles and fried chicken (I suppose that would be more frightening than funny to chickens and labradoodles).

And while not about algorithms, here's another one of those cool illustrations of how data visualization influences how we interpret data that are so popular.

3. American Inequality: One of the clear themes of recent research on poverty and inequality in the United States is the rise of month-to-month and year-to-year volatility of incomes, while real wages have stagnated. The safety net in the US, such as it is, is especially unable to deal with income volatility. Here's the story of a family in Texas with volatile income who has adopted a number of medically fragile children: because of the way the state administers Medicaid the family has to re-certify eligibility almost every month. While this is somewhat unusual, the language of the Senate Republicans healthcare/Medicaid legislation would enable states to require all recipients to re-certify eligibility monthly.

Meanwhile here's Cengiz, Dube, Lindner and Zipperer with a new look at the perpetual question of what raising minimum wages does to jobs, finding little evidence for job losses or labor substitution. And here's a piece from HBR on the household effects of unstable work.

4. Entrepreneurship: The nature of modern American inequality makes me think that American policy analysts need to spend more time looking at middle income countries like Mexico and Brazil than at Germany or Denmark. There's less business competition, less mobility and more wealth and income inequality--that all seems descriptive of a developing economy not a developed one. A big factor is the emerging American "missing middle" of firms. Historically there have been more new employer firms starting and growing than there are today, and those firms accounted for a great deal of new, stable, middle income and mobility producing jobs. Here's a piece looking at the shift in American entrepreneurship toward the kind of rent-seeking businesses that have long been faulted for slow development in middle income countries.

5. Data, Knowledge and Wisdom: This week (I think) the Kenyan government launched a new effort to help borrowers make better decisions about credit by making it more clear what the relative costs of various sources of credit are. Definitely an effort to keep an eye on. Here's an experiment comparing data-based credit scores versus loan officers' judgment finding credit scores reject slightly more applicants but provides a net benefit to the bank through lower costs of lending. And here's a study of Ethiopian job fairs finding large gaps in knowledge among job seekers and hiring firms about wages, job requirements and quality of candidates. Meanwhile in the US a youth summer employment program does well at placing kids in jobs, but little for long-term outcomes.

A photo of a protestor against current proposed legislation to radically cut Medicaid, the US government program to provide healthcare services for the poor and disabled, being arrested. This is what I meant by "Not Invisible." May class action still get the goods.

A photo of a protestor against current proposed legislation to radically cut Medicaid, the US government program to provide healthcare services for the poor and disabled, being arrested. This is what I meant by "Not Invisible." May class action still get the goods.

Week of June 12, 2017

1. St. Monday, American Inequality and Class Struggle: One of my favorite things about writing the faiV is when I get the chance to point readers to something they would likely never come across otherwise. So how about a blog post from a woodworking tool vendor about 19th century labor practices, craft unions and the gig economy? Once you read that, you'll want to remind yourself about this piece from Sendhil Mullainathan about employment as a commitment device (paper here), and this paper from Dupas, Robinson and Saavedra on Kenyan bike taxi drivers' version of St. Monday.

Back to modern America, here's Matt Bruenig on class struggle and wealth inequality through the lens of American Airlines, Thomas Picketty and Suresh Naidu. I feel a particular affinity for this item this week having watched American Airlines employees for a solid 12 hours try to do their jobs while simultaneously giving up the pretense that they have any idea what is going on. 

2. Our Algorithmic Overlords: Facebook is investing a lot in machine learning and artificial intelligence. Sometimes that work isn't about getting you to spend more time on Facebook...or is it? With researchers at Georgia Tech, Facebook has been working on teaching machines to negotiate by "watching" human negotiations. One of the first things the machines learned was to "deceive." I use quotes here because while it's the word the researchers use, I'm not sure you can use the word deceive in this context. And that's not the only part of the description that seems overly anthropomorphic.

Meanwhile, Lant Pritchett has a new post at CGD that ties together Silicon Valley, robots, labor unions, migration and development. And probably some other things as well. If I read Lant correctly, he would approve of Facebook's negotiating 'bots since negotiation is a scarce and expensive resource (though outsourcing negotiation is filled with principal-agent problems). I guess that means a world where robots are negotiating labor contracts for low- and mid-skill workers would be a better one than the one we're currently in? 

3. Statistics, Research Quality and External Validity: Here's another piece from Lant on external validity and multi-dimensional considerations when trying to systematize education evidence. A simpler way to put it: He's got some intriguing 3-dimensional charts that allow for thinking a bit more carefully about likely outcomes of interventions, given multiple factors influence how much a child learns in school. It closely parallels some early conversations I've had for my next book with Susan Athey and Guido Imbens, so I'm paying close attention. And if you can't get enough Lant, you could always check out my current book. Yes, both of those sentences are shameless plugs.

4. Household Finance: If you read the faiV regularly you know I think about household finance a lot and how little we really know about household finance decisions. Viviana Zelizer is a sociologist who opened a lot of vistas on household finance--particularly on the importance of understanding that money has meaning. Money isn't just a store of value, it's a store of values. Here's Zelizer on new research into how households use money (which may mention a recent project I've been a part of) from the LA Review of Books. Here's a very different, but complementary, view on issues of household finance and values: how much should someone save for retirement. I usually hate pieces like this, but this one does a great job of showing how each of the standard pieces of advice could be wrong. And here's another form of values impinging on household finance: The "marriageable male" effect is breaking down.

5. Digital Finance: Ignacio Mas can't be digitized. At least not yet (I'm sure Facebook is working on it). And that's a problem that ultimately comes back to financial regulations, scale and the reasons that the poor are often shut out of quality financial services. Serving poor customers is expensive relative to the profits that can be generated, unless you can scale, which means standardization, which often equates to poor service because poor customers are not uniform.

And for something completely different, but definitely relevant to digital financial services and regulation, here's a story about pressures on Uber to allow repressive governments access to their data in return for access to markets. Hmmm...I wonder what other data repressive governments might want to have access to?


Billy Bragg and the Blokes performing St. Monday. Have a good weekend.

Week of June 5, 2017

It's Not What You Know... Edition

1. Social Enterprise: A few weeks ago I noted that Etsy was under pressure from an activist investor for behaving like a B Corp (which it is (was?)). I missed the notice that the investor won: Etsy layed off 80 employees and fired the CEO/Chairman. Here's a piece reflecting on the Etsy saga that is emblematic of much of what I think is wrong in social enterprise rhetoric. The argument that social enterprises have to be ruthless competitors may sound good (to some) but it ignores the exact issue that is at the heart of social enterprises: how do you manage the trade-offs. It's worthless--less than worthless, I should probably say "actively harmful"--to pretend there are no trade-offs or to imply that there is value in advice like "be ruthlessly competitive except for in these parts of your business model." It's why efforts like B Corporations that don't have any governance teeth are a distraction, and why even efforts like For Benefit Corporations that do have governance teeth are fraught.

In other social enterprise-ish news, I can't resist a story about a star rapper, off-grid solar power in Senegal and Chinese investors. You can't either can you? On a more practical level here's Devanshi Vaid on the lack of information flow on social enterprise in India.

And here's Felix Salmon with some remarkably clear reframing of an important wing of social investment: if a foundation endowment can't get high investment returns in the near term, don't cut back on grantmaking, accelerate it!

2. Our Algorithmic Overlords: The Atlantic has a long piece on how cryptocurrencies like Bitcoin, purportedly designed to limit centralized authority, actually can become tools of authoritarianism. You don't have to go all the way to cryptocurrencies though, as I try to frequently point out. Digital currency of any sort can easily become weaponized by authority, even authority that isn't fully authoritarian.

I wasn't sure whether to include this in "Social Enterprise" or "Our Algorithmic Overlords" because it's a bit of both, through an extraordinary lens: Venezuela's bonds. As Matt Levine relates, Goldman Sachs (sort-of) bought some bonds from Venezuela (sort-of) that (sort-of) prop up an authoritarian government apparently bent on starving people. But no one is really responsible for this decision because of the way governance of the investment funds is set-up and which all point back to an index by which fund manager performance is measured. (I know, this is confusing and complicated, but it's worth it). In this case everyone is pointing to some arbitrary set of decisions as responsible for their behavior and denying any responsibility for moral judgment. If we struggle with these issues already, how much worse are they going to get with the arbitrary set of decisions are made by an algorithm that we don't really understand?

But people are more worried about algorithms driving their cars, than about algorithms ruling their moral decisions.

3. Statistics, Research Quality and External Validity: Admittedly this is just going to be a hodge-podge of stuff loosely connected.
There's apparently some new work suggesting wide-spread errors or research misconduct in medical RCTs. I haven't had time to look at this much, so here's Andrew Gelman's thoughts which will be much better than anything I would have come up with.
Stuart Buck this week asked whether we're nearing the point of more papers about the 1970s pre-K experiments in the US than there were kids in the experiments. It got me thinking about external validity. Here's an honest question: to a first approximation, do you think there's more in common between, say, microenterprises in Zambia and the Philippines in 2017 or between Chapel Hill, NC in 1972 and Detroit in 2017?
Here's David Evans working through a framework for external validity judgments proposed by Mary Ann Bates and Rachel Glennerster. I'd have to say at this point that I'd lean toward applying lessons from Zambia to the Philippines more than from Chapel Hill to Detroit.

4. American Inequality: The major focus on inequality in America has been on income and wealth but it's not just the money, it's the instability. A substantial part of inequality of income, wealth and stability seemingly can be traced back to exclusionary zoning, which limits lower-income people from getting access to jobs and pushes up both the income and wealth of the already wealthy. Hsieh and Moretti estimate that exclusionary zoning has also "lowered aggregate US growth by more than 50% from 1964 to 2009."

And here's a review of The Financial Diaries--or alternatively, an essay on how to measure poverty--in the New York Review of Books.

5. It's Not What You Know...: Two weeks ago I made a big deal about the technology of management and how underrated it is within policy and economics. Here's a paper about spreading management technology among Indian tech start-ups, finding that peer networks work to change behavior. The authors seem to attribute this to knowledge diffusion--but based on other research I'm skeptical this is a "knowledge" story rather than a "behavior change" story.

It's not just a management knowledge story. In the energy space, product knowledge, even gained via product demonstrations from peers who are using and very satisfied with the product, fails to induce demand for solar home systems in India in another new paper. And Alcott and Greenstone show that information failures don't play a role in energy efficiency program results in the United States. I'm reminded of this earlier work by Meredith, Robinson, Walker and Wydick on health good purchasing that pretty conclusively demonstrates that the barrier to purchase isn't knowledge, it's not having the money that matters.

When will "high level machine intelligence" arrive? Is a 25% chance in the next 25 years scary or reassuring? Source

When will "high level machine intelligence" arrive? Is a 25% chance in the next 25 years scary or reassuring? Source

Week of May 29, 2017

Editor's Note: I've been traveling all week and so asked Caitlin Sanford (@caitlinsanford) and Maria May (@mariamayhem523) to fill in as "guest editors" for the faiV this week (thankfully they said "yes"). Caitlin is a User Experience Researcher at, Facebook's efforts to connect new users to the internet in emerging markets. Maria recently began to focus on organizational learning at BRAC in Bangladesh, after spending several great years in its financial inclusion and social innovation programs. You can find her on the internet or tweeting occasionally from. I bet you can guess who their views and recommendations belong to (hint: it's not me, FAI or their respective employers)

1. Income Instability and the Cost of Living: Those who have studied financial management among low-income people know that instability and unpredictability of income are a main source of difficulty. The U.S. Financial Diaries project and book bring this challenge to life. This week Jonathan Morduch is quoted in the New York Times examining how the norm of a steady paycheck has been replaced by turbulence, affecting pretty much everyone who makes under $105,000 per year. [I didn't tell them they had to include this, promise!--Tim]

Speaking of $105,000 being a new marker for financial challenges, according to the U.S. Department of Housing and Urban Development’s new income limits, in parts of the high cost Bay Area, a family of four earning $105,350 is considered low income. On the other extreme, in the recent CGAP national survey of smallholders in Bangladesh, 75% of households reported that an annual income of $1,524 would cover their household needs.

2. A Raise or More Frequent Paychecks?: Here’s an interesting fact: More than one in four millennials prefer real-time pay to a raise.  A report by the Aspen Institute’s Expanding Prosperity Impact Collaborative (EPIC), employers and governments are exploring new options for workers to collect their pay more frequently and when they need it. The jury is still out on the effects for managing household finances. We suspect this might be be helpful for short-term volatility management, but may result in difficulty with long-term savings and may diminish the commitment element that some people prefer in being able to keep money at a distance under some circumstances. Let’s hope Uber and Lyft are learning from all the data they have!

3. Global Tech Trends: TechCrunch summarized the 2017 Internet Trends report this week, and there are lots of great insights here. With over 700 million mobile internet users, the volume of mobile pay in China doubled last year to reach $5 trillion. There are 3.4 billion internet users in the world, up 10% since last year.  As consumers increasing look online for shopping and retailers offer customer service through “chat”, we are curious what these trends will mean for call centers, a big industry for several developing countries, like the Philippines. There are also increasing apps developed in emerging markets, such as Kampala’s fast-growing Safeboda which allows riders the convenience of the common motorcycle taxi with the promise of a trained and safe driver.

Meanwhile, on-demand car and bike services are exploding in China and throughout Southeast Asia. Bike-for-rent services experienced a 100% month on month growth, reaching 20 million users in 2016 (a scale which could mean meaningful reductions in CO2 emissions. Helpful given recent developments in US politics!).

4. Digital Identity: Digital identities are a new area where financial services providers are investing heavily; seeing this as an opportunity to leverage their extensive client data and experience in “know-your customer” analytics. Canada and the UK have already launched initiatives to start setting up digital identity platforms.

Globally, remote KYC and account opening can save customers who do have identification documents a lot of headache by using technology to make the process faster and to have better organization of records. But what happens to the 1.5 billion plus people globally who do not have an official national ID? Perhaps we work to get them one. Reportedly demonitization in India led to a 60% increase in enrollment in Aadhaar, the Indian government’s biometric national ID program.

As this data becomes more central in everyday purchases, we wonder whether these efforts will be net inclusive or exclusive--will it mean that those with limited financial access or bad credit now struggle to access basic services like gas and electricity?  We have to keep in mind that there are always “losers” in these moments of transition. With the recent scrutiny and Supreme Court ruling on the identification requirements to vote in North Carolina and other states, we should keep an eye on the various opportunities for mis-use and exclusion (financial or otherwise) of digitization.

5. Our Recommendations for the Weekend: There’s so much interesting stuff out there, it was a struggle to limit ourselves to five topics. So we’re taking the liberty to list a few materials that are similar in the fact that they are thoughtful and awesome!

Week of May 22, 2017

1. The Value of Management: If you pay any attention to the development economics world, you were probably already aware that there was unrest at the World Bank since Paul Romer became Chief Economist. Yesterday that unrest came out into full public view with stories about Romer being relieved of management responsibilities for the Development Economics Group. The news stories make everyone look bad, and don't reflect my experience with the parties involved (which is admittedly quite limited). But rather than adjudicate any of the issues, I'm going to pivot to my ongoing amazement that economists of all people seem to have so little appreciation of the value of management and specifically specialization in management. It's a learned skill! The idea that someone should be managing a department of more than 600 people because they happen to be a leading economist is bonkers.

Just look at what a little bit of management training for school principals can do for schools and test scores. Or what professional management training can do for quality of care in hospitals. That's right, management can save lives! Here's hoping that skilled management will advance the very legitimate goals of clear and useful communication in Bank reports. I can't be the only one glancing through the stories about the gender studies hoax paper and thinking it wouldn't be that hard to do the same thing for a World Bank research report.

In closing, I'm not good enough of a person to avoid noting that "and" is 16% of the World Bank's actual name and linking to Ryan Briggs' Drunk World Bank twitter account.

2. Immigration: If you weren't distracted by counting the number of "and"s in your latest piece of writing, you may have seen another controversy bubbling up in social media: Michael Clemens and Jennifer Hunt have a new paper suggesting that Borjas' finding of losses for low-wage workers from the Mariel boatlift are actually a result of a change in the composition of wage survey samples. Borjas responded first by accusing Clemens and Hunt of being tools of Silicon Valley open border enthusiasts--and essentially saying that no grant-supported research can be trusted--and only later with an attempt to defend his results with data. That attempt looks plausible until you realize that he ends up charting the outcomes for less than 20 people. David Roodman--whose earlier work on this specific issue Borjas also managed to slander by calling it "fake news"--weighs in with some typically substantive and clear points (maybe he could do some coaching for World Bank writers?). The major one from my perspective being: Borjas already had to pick through data to find a narrow slice of the population that might have been negatively affected by sudden mass immigration, and can only defend that result with a sample better suited to a local news broadcast than serious economic inquiry.

If this kind of thing fascinates you, rather than tires you, Borjas has an additional reply that is more substantive and ultimately arrives at a useful point. But the process to get there remains bizarre.

In other immigration news, here's a look at the effect of differing state approaches to immigration law enforcement, and here's an animation of Mushfiq Mobarrak making the case for the gains from migration.

3. The Precariat: The precariat is term for people in developed countries who are increasingly having to deal with volatility and instability with less protection. While I've obviously been more focused on issues related to volatility in the US because of the US Financial Diaries, the precariat is by no means confined to the United States. Here are some musings about the precariat in the UK and the implications there. Here's a piece about TD Bank/Ipsos finding substantial income volatility in Canada (which I have to note, makes no mention of the fact that they are replicating the work of USFD, Pew and/or JP Morgan Chase Institute).

Here's Carol Graham of Brookings on how the confluence of low-income and precarity lead the way to hopelessness. Here's Annie Lowery in the Atlantic examining Maine's safety net "reforms" which essentially specifically deny access to the safety net for the precariat and the poorest (making it more likely the former become the latter). Here's some wishful thinking that the Trump budget, which seeks to replicate Maine's "success" in cutting access to aid, will spur a conversation about what the safety net should look like in the age of the precariat. And of course I have to mention "The Power of Predictable Paychecks."

4. African Agriculture: You could say that there are few programs out there aimed at improving agriculture in Africa. If you were to ask the average faiV reader about issues to overcome, I think we would all rattle off a fairly similar list: lack of access to inputs, poor access to markets, limited availability of affordable credit, etc. How many of those are actually problems? Via Tavneet Suri, who is now on Twitter, here's a (wait for it) World Bank report on myths and facts about agriculture in Africa based on synthesizing a lot of recent research. As Eva Vivalt notes, it's important to think through your priors before considering new evidence (well not quite, but close enough for me) so make sure you think about your beliefs before reading.

5. Auto Audio: Since it's a holiday weekend in the US, I'm guessing that a number of readers could use something to listen to while sitting in traffic trying to get out of town. And even if you're not, here are some things worth listening to:
1) Tyler Cowen's "Conversations with Tyler" with Raj Chetty
2) Planet Money episode talking to Robert Gordon about The Rise and Fall of American Growth
3) The entire Revolutions podcast which features many fascinating hours about the American, English, French and Haitian revolutions...but let me especially recommend Series 5 on the Bolivar-led revolution in northern South America. Despite being raised in Colombia I learned for the first time the vital role Haiti played and that my great-great-great-great--more greats--grandfather funded an invasion of Venezuela in the early 1800s.


Week of May 15, 2017

Editor's Note: I really do wonder how many people are trying to measure the negative productivity shock to the American, and possibly global, economy. I mean, there those ridiculous annual stories about how the NCAA basketball tournament costs billions in lost productivity, so someone has to be doing this right?

1. Data (and Our Algorithmic Overlords): Many of you probably saw the Economist piece on data becoming the world's most valuable resource. It does a darn good job at producing conflicting reactions for me: Yes, we should be paying more attention to the accumulation and use of data among private companies! But governments aren't to be be trusted with this kind of data any more than private companies! And you're spending way too much time in Silicon Valley--we're a long long way from data being more valuable than physical resources for most of the people in the world!

So I'm going to use it mostly as a foil to introduce two pieces that you should read that you probably don't think are relevant to the faiV. First, here's a piece by Ted Knutson, a protagonist in the development and use of "advanced statistics" in football/soccer, about why he developed and continues to use a terrible visualization of data to evaluate player performance. Second, here's a piece about how adapting behavior based on data in baseball has helped some players but hurt others so that there is zero net gain. The point here being, understanding data is hard enough. Using data is even harder. Figuring out how to help people change based on data--without just turning everything over to our algorithmic overlords--is the toughest of all. And if you don't believe, that let me remind of you of one of my all-time favorite papers about seaweed farmers. Take that, "vast empirical literature"!

2. Theories of Change (and Demonetization): In my book of interviews of development economists on RCTs etc. the throughline is theory of change. How do ideas get translated into policy and into making the world a better place? I argue that a lot of debate about methodology is really debate about theory of change, particularly around the role of experts and the value of small vs. large changes. This Planet Money episode about the Indian demonetization has the most jaw-dropping "theory of change" story I think have ever encountered. The short version is an engineer developed--through divine inspiration--a model of the Indian economy, complete with cheesy illustrations, and just kept talking about it until a powerful politician took notice and decided to introduce one of the biggest economic shocks in modern history. If you know someone graduating from high school or college, perhaps you should make them listen to the episode rather than buying them a copy of Oh, The Places You'll Go. (Oh, and that feeling when you visit the Smithsonian with your kid and get to talk about how even our heroes fail us.)

3. Digital Finance: Over at CGAP, IPA has a post about fees for 21 mobile money services in seven different countries, with an eye to how the highest fees are paid on the smallest transactions, presumably serving as an effective tax on the poorest customers. This of course is the same issue we've been talking about in microfinance for decades: small transactions don't cost less to process than large ones and so small transactions are more expensive. While it's less of an issue in things like digital services than in-person services it doesn't entirely go away and so providers have to make decisions about whether they are going to over-charge their relatively wealthier clients to subsidize their poorer ones, or tax their poorer ones for their inability to transact in larger amounts. The problem with the former is that there is almost certainly going to be a competitor who is willing to take those wealthier clients by not asking them to subsidize costs for smaller transactions.

This also raises one of my long-term fascinations: people tend to react strongly to poor customers being charged more for financial services but not for telephone services--even when it's the same company doing it! The same poor customers who are paying more for mobile money transfers are almost certainly paying more for cellphone minutes by buying them in small increments, but I don't ever see that being charted.

4. Financial Advice: Speaking of fees for financial services, one of the things that chaos in Washington has swallowed is debate about how American investors should be charged for financial advice. There's long been concern that conflicts-of-interest lead financial advisers to push their clients into high-cost investments from which the adviser gets a commission. The Obama administration proposed changes to the rules governing financial adviser compensation and fiduciary duty that are now on hold. In the meantime, a WSJ reporter tried to figure out how much she was paying in fees on her investments. It was difficult, even though she worked with a flat-fee adviser, not one paid on commission. The answer in the end was 1.4%--Noah Smith illustrates how expensive that seemingly small number is (it's hard to interpret data!).

Matt Levine, meanwhile, illustrates how the story complicates efforts to reform financial advice and fees (scroll down to "Fiduciaries"): "If the fiduciary rule pushes investors from high-cost mutual funds recommended by commission-based advisers to medium-cost mutual funds recommended by expensive fee-based advisers -- and if investors' all-in costs aren't any lower -- then what have we gained?" Or as I would put it, financial decisions are complicated and getting good advice is going to be expensive especially for customers of modest means. Seems like households in the US, Kenya and India (for instance) may have more in common than often thought.

5. American Inequality: The new report on the Survey of Household Economics and Decision Making (SHED) is out from the Federal Reserve Board. I am, unsurprisingly, drawn immediately to the data on income and expense volatility--the survey asks more detailed questions in this area, due in part to the findings of the US Financial Diaries--on pages 23-25. Roughly a third of households report monthly income changes, with 43 percent saying the volatility comes from an irregular work schedule. Unsurprisingly, volatility is more common among blacks and Hispanics.

Speaking of the US Financial Diaries, here's my new favorite review of The Financial Diaries. And here are Jonathan and Rachel on Marketplace. And here's some counterprogramming on the state of the job market.

From the new SHED report, the reasons people say their income varies from month-to-month. Source: Federal Reserve Board

From the new SHED report, the reasons people say their income varies from month-to-month. Source: Federal Reserve Board

Week of May 8, 2017

Unintended Consequences Edition

1. American Inequality: The exceptionalism of the United States in promoting home ownership as the signifier of middle class status and/or upward mobility, and a generally accepted keystone of building wealth has persisted despite the Great Recession/housing crisis. But that doesn't mean that things haven't changed--the availability of housing that costs less than 30% of a household's income has dramatically decreased. Matt Desmond, author of Evicted, writes in the New York Times magazine that the American emphasis on home ownership has become one of the primary engines of inequality. Non-profits--or at least how we measure and fund them--are another (unintended) engine of inequality. In New York state, non-profits pay wages just above retail and food service (and 80 percent of these workers are women, and 50 percent people of color).

2. Our Algorithmic Overlords: The goal of machine-learning and using algorithms to analyze data is to yield better decisions, at least better than human beings would make given biases and the challenges of causal inference. A(nother) new book looking into the way this works is Everybody Lies. I haven't read it yet, but I'm looking forward to it. In the meantime, there's an excerpt in the Science of Us, taking a look at one of those areas that humans always struggle to make good decisions: who is credit-worthy. The substitution of bias against minorities (or at least people different from the loan officer) and the poor for careful judgment is well documented and wide-spread. Netzer, Lemaire and Herzenstein turn the machine loose on data from Prosper, an online platform for peer-to-peer lending, and find that the words that borrowers use are predictive of repayment behavior. You should read the whole excerpt because it does focus on the unintended consequences of using machine learning and big data. I, of course, immediately wonder how quickly borrowers and lenders will adapt to the findings.

Meanwhile, here's a Quora forum with Jennifer Doleac on the American criminal justice system, which dwells a lot on how machine learning is affecting decisions in another area humans have a lot of trouble with: who's guilty and who is a threat for recidivism. And of course, on the unintended consequences of our efforts to punish people. And here's a speculation that Donald Trump is a dynamic neural network/machine-learning algorithm with narrow goals. Here's an alternate version of the same argument, which in addition to being even more frightening, provides additional insight into the potential unintended consequences of data analysis without theory (of Mind).

3. Digital Finance: The item on Prosper and algorithms determining credit-worthiness based on language used by borrowers is about digital finance of course. But in the domain of more traditional ways of thinking about digital finance, here's a story about M-Pawa in Tanzania, interesting for it's integration of savings, lending and education. The bottom line: more savings, larger loans, better repayment. In other news, M-Pesa is supporting proposed regulations for cross-platform transfers in Kenya. And MicroSave has some ideas on how to enable digital finance among the illiterate, since traditional approaches to inclusion through digital have the unintended consequence of excluding the illiterate.

More specifically on the "unintended consequences" theme, though having relatively little to do with digital finance, here's some new research on how global de-risking in banking has cut the number of correspondent banking relationships (what makes cross-border payments even somewhat efficient) have declined by 25% since 2009, pushing whole regions out of the regulated banking sector.

4. Finance Frames: I couldn't come up with a pithy and clear intro to this item, so we're stuck with 'finance frames.' The point is that how we think about finance--the mental frames and analogies we use--have an often unintended impact on what happens in the real world. Here's a Twitter exchange that started from a discussion about how investment advice is provided to retail investors in the US (are financial advisors like store clerks?) but quickly moved on to something more globally relevant: how much financial advice is or should be like medical care. The exchange is a bit difficult to follow, but it's worth it.

I struggle with the appeal to the medical care analogy for a number of reasons, not least of which is that the comparison to health tends to idealize the provision of medical care. In fact, medical care the world over is delivered poorly, with bad or conflicting incentives, rife with misinformation and poor decisions. It's why when someone asked "do you really want a doctor that can't afford a Ferrari?" my answer is "Hell, yes." If the medical field is what finance is aspiring to, or taking it's lead from...

5. Charity and Philanthropy: Many years ago, one of the first things that got me some attention writing about charity and philanthropy was an on-going critique of "embedded giving", the jargony term for purchases that include a donation to charity. I even created a scoring mechanism for judging the campaigns! How naive I was back in my youth. A new paper from Gneezy, Gneezy, Jung and Nelson yet again proves why such schemes are suspect: they can drive up profits for businesses while driving down the amount donated. In this case people paid significantly more for products with a charitable donation but did not distinguish between 1% or 99% of the proceeds going to charity. If you were as cynical as I am, you would dispute that this is an unintended consequence. 

And here's Larry Kramer, president of the Hewlett Foundation on the unintended consequences of philanthropy's fad toward "big bets."

Economist William Baumol died last week. He did a lot of work on entrepreneurship but is probably best known for what he called "cost disease" which explains why the costs of goods and services can rise quickly in sectors with little productivity gains when there are large productivity gains in other sectors. One way of thinking about this is that we're spending too much time automating the wrong jobs (and relates back to "hell, yes" above. Source: Vox

Economist William Baumol died last week. He did a lot of work on entrepreneurship but is probably best known for what he called "cost disease" which explains why the costs of goods and services can rise quickly in sectors with little productivity gains when there are large productivity gains in other sectors. One way of thinking about this is that we're spending too much time automating the wrong jobs (and relates back to "hell, yes" above. Source: Vox

Week of May 1, 2017

1. Households Matter!:  If you've followed research on microfinance at all, you've probably come across work by de Mel, McKenzie and Woodruff about giving cash grants to microenterprises (in Sri Lanka and Ghana), finding that the returns to investment in women's firms is much lower (and close to 0) than in men's enterprises. It's a bit of puzzle for several reasons (e.g. why do women borrow if their returns are so low, and why don't men borrow more if their returns are so high?) and there have been various explanations tried out (you can see one of mine in this paper). Bernhardt, Field, Pande and Rigol (paper here, overview from Markus Goldstein here) have a new one that seems pretty compelling based on reanalyzing data from several experiments, including the cash grant experiments. It's an explanation that points back to Gary Becker and Robert Townsend ideas (household's maximizing returns across the household assuming money is fully fungible) about how households work, and away from Viviana Zelizer's (money is often not, in fact, fungible and different income streams in the household are treated differently) or in some ways against Yunus's idea of focusing on women. Bernhardt et al. see that in general when it appears that when women's enterprises show little or no return to capital it's often because the household has another microenterprise that the capital is invested in instead--and those enterprises (where data is available) show gains from the capital injection into the household. When women own the only microenterprise in the household, they see returns (and are often in similar industries) as men. 

This is a big deal and it emphasizes how far we still have to go in understanding household finance. This doesn't say that Zelizer's insights are wrong--they are clearly right in lots of cases--but we don't have a solid grasp on when we should think of households as a single utility-maximizing unit and when we should disaggregate.

2. Pre-K Matters? (and other scale-ups): One of the things that households--or if you read some of the charity marketing that has dominated the last decade or so, only women--invest in is their children's education. Unfortunately, it seems that they often under-invest in education and so a lot of effort is invested in getting children into and keeping them in school. In the United States, the current frontier is about universal Pre-K since most every child is enrolled through the beginning of secondary school. The idea is that children from poorer households start school already well behind their wealthier peers, those gaps persist and if we close them early, well the gaps will stay closed. There are some studies that suggest that's true and Jim Heckman in particular among economists has been a big advocate of significantly increasing investment in early childhood education programs. But there are other studies that suggest it's not. I called the arguments on this "Pre-K" wars in my book because a lot of the argument has been over experimental design and methodological issues in the studies.

Russ Whitehurst at Brookings has a new post on the Pre-K wars that I learned a lot from, including new data from Tennessee that shows the returns from pre-K there were negative and the randomization in the famous Abecedarian study was violated in ways that are impossible to correct for. The bottom line for Whitehurst is that while small-scale, intensive interventions with very high-skill staff can make a big difference, programs at scale don't have any solid evidence they work. Which sounds a lot like some of the things we're seeing from scale up of successful programs in other areas of development.

3. Governance Matters! (even in social enterprises): One of the weird things to emerge in social investment is B Corporations--a not-particularly-binding commitment a firm can make to values other than maximizing profits. That not-particularly-binding part is important because, well, it's not particularly binding while other corporate governance laws and regulations are quite binding. Etsy is learning that as an investor is advocating that the firm be sold, and/or management be replaced, complaining that management is failing in its duties to maximize profits by paying wages that are too high (or put another way, by adhering to the principles of being a B Corp) among other things. Because Etsy is a standard corporation that simply opted in to the voluntary requirements of being B Corp it's quite possible that Etsy's hand could be forced. There is a binding form of corporate governance that would resolve this--becoming a For Benefit corporation as defined by state regulations in about 30 states, but Etsy isn't one of those, yet.

And in other social investment governance news, here's a story about State Street's Fossil Fuel Free ETF held positions in Deepwater Horizon and coal-burning utilities (scroll down to "Who Picks the Index").

4. Regulation Matters! (or how the Indian government keeps undermining MFIs): When you think of India and microfinance, the Andhra Pradesh crisis almost certainly springs to mind. The industry has largely recovered from that regulation-induced shock. But now the industry is confronting a leap in non-performing loans due to regulatory changes that were not directly targeting the industry. Demonetization, by removing most of the paper bills in circulation, kind of had an impact on borrowers ability to repay their loans. And Uttar Pradesh recently announced a $5.6 billion loan forgiveness plan, which unsurprisingly has apparently convinced borrowers in neighboring states to stop repaying their loans to see if they can get the same deal. Andy Mukherjee argues that the net result is going to be the end of specialty microlenders, who will have to be absorbed into larger traditional banks in order to protect themselves from regulatory shocks. I have a theory as to what will happen to the zeal for serving poor customers once microlenders are absorbed.

5. Labor Markets Matter!: You've no doubt heard many times that in the modern era neither businesses nor employees are loyal and everyone will change jobs much more in the past. Justin Fox has heard it too, most recently at a conference on the Digital Future of Work and decided to do some digging. It tuns out that average job tenure in the United States has been rising over the last 20 years (though it's down slightly recently, though still almost a year longer than it was in 1996). Job tenure is especially high for supervisors and for government workers. It seems this is another feature of the much discussed "hollowing-out" of the labor market in the US, and likely a part of the increasing inequality in access to stability.

Statistical inference is hard. All these plots share the same basic data descriptors. Source: Autodesk

Statistical inference is hard. All these plots share the same basic data descriptors. Source: Autodesk

Week of April 24, 2017

1. Sweatshops:  You've probably seen the New York Times piece by Chris Blattman and Stefan Dercon about their experiment with Ethiopian factory employment--finding that while many people wanted the jobs initially, they quickly learned that they didn't want them after all. The jobs are dangerous and unpleasant, and people who didn't get the jobs did just as well if not better via self-employment. Meanwhile, Lee et. al. look at urban-to-rural remittances from Bangladesh factory workers and find large positive effects for the folks back home, while the factory workers were less likely to be poor, but also less healthy. Morduch (one of the et als) also notes the workers felt pressure to work more despite poor conditions in order to send money home. It's an interesting compare/contrast.

I'm of several minds about this. First, the Blattman/Dercon piece notes that much of the problem in the Ethiopian factories is that they were poorly run, not that the owners were deliberately trying to exploit workers. If you're a reader of the faiV you know I'm somewhat obsessed with the "technology of management" and how to spread it (and that there's a good bit of evidence that its a big problem, Google Nick Bloom for more). Second, there's the perennial issue of external validity: what do these experiments tell us about sweatshops more generally in other places and times. Here's an overview by Heath and Mobarak (HT Asif Dowla) on the impact of factory labor on Bangladeshi women; and here are some emerging financial diaries of garment workers in several different countries. Third, factory jobs have almost always been terrible, despite the romanticization of those jobs in developed countries of late--and they still are even in places like the United States. So what to make of the fact that they do seem instrumental in the process of countries and households becoming wealthier? And what of my strong prior that most people in developing countries are "frustrated employees and not frustrated entrepreneurs"?

2. Our Algorithmic Overlords: Continuing last week's theme on Seeing Like A State and algorithms, the Royal Society has a new report suggesting easier access to public data sets so that machine learning can help improve policy. You'll be shocked, shocked, to learn that Google DeepMind, Amazon and Uber leaders were all part of drafting the report. The New Inquiry has used data to create a predictive algorithm and heat map for people and places likely to commit white-collar crime. Here's the methodology behind it, which you should definitely at least glance through to see Figure 4 on page 4. On a related note, here's a story about racial and gender biases being "learned" by machine learning programs.

The white collar crime piece came via Matt Levine, and it's worth scrolling down to his item on Facebook for this gem: "What if human history isn't a video game at all?" Hopefully that will soon be a standard response to FinTech triumphalism: "What if people's financial lives aren't a video game at all?" It all brings to mind this piece from several years ago: The Reductive Seduction of Other People's Problems. You should definitely read it. It's about social entrepreneurs from developed countries traveling to developing countries but it does easily apply to algorithms, fintech and seeing like a state. Hat tip to Lee Crawfurd and Justin Sandefur for reminding me about it.  

3. American Exceptionalism: Chetty et al have a piece in Science on declining income mobility in the US since 1940. Here's Katz and Krueger's take on the policy options available. Matt Yglesias contends that the idea that the economy is becoming more concentrated is a myth. Opportunity however is becoming more concentrated in cities which have a declining share of the population because housing costs (due to limiting the housing supply) are too high. The Hamilton Project has an overview on the increasing gap in what you might call health opportunity as a consequence of decreasing access to economic opportunity.

4. Financial Inclusion: One of the long-standing discussions in microfinance is whether competition via the expansion of microcredit drives down interest rates. Hoffman et. al. see that microcredit via a subsidized self-help group does drive down informal lending rates in rural India. Meanwhile, the penetration of mobile money agents may be much smaller than estimated--the dominant way of counting agents may be doubling the number of actual agents.

5. Spring Cleaning: There was a reason for "spring cleaning" being in the title. Here are some things that I think are definitely worth your time that I've been either holding onto for awhile or don't really have a connection to the usual themes here. Here's the story of the first African American woman to earn an economics PhD (or a PhD at all apparently). Her doctoral thesis was a financial diaries project (there's nothing new under the sun!) of African American migrants to Philadelphia. And here's an essay on what might have been if she had been able to pursue a career in economics (she eventually became the first African American woman admitted to the Pennsylvania bar). Here's the story of 9 different attempts to create Wikipedia that failed before Wikipedia existed. Given all the attention to Wikipedia and the crowdsourcing-mania it inspired, this XKCD comic that's been making the rounds comes to mind. A few weeks ago there were a bunch of tributes to the first woman to run the Boston Marathon, who ran it again (and finished) at age 70. But she wasn't the first woman to run the Boston Marathon.

And this one I confess is pretty personal. At the 20 week ultrasound for our first-born, we were told our son had a birth defect that was "incompatible with life." It was about 2 weeks before further testing revealed he had a different rare disease (he's 11 now). Here's the heartbreaking and uplifting story of a family who heard the same thing--but the initial diagnosis was correct.

You don't have to learn anything in school for it to be good for you. Maybe what the world needs is more bad schools. Source: CGD

You don't have to learn anything in school for it to be good for you. Maybe what the world needs is more bad schools. Source: CGD

Week of April 17, 2017

1. FinTech Like a State:  Aadhaar, the Indian government's unique identifier system, is now ubiquitous with 99% of citizens over 18 having an ID. That makes it a powerful platform for delivering both government programs and digital financial services. But it also raises a lot of concerns about what the government might do--or what others could do if they gain access to or corrupt the system--when it can track and/or regulate citizen behavior at a detailed level. That certainly plays into the longer-term ramifications of Indian demonetization, especially since it appears that it has driven many more people to digital transactions. CGD held an event this week with Annie Lowery interviewing Arvind Subramanian about Aadhaar, demonetization and universal basic income. I haven't gotten all the way through it yet, so I don't know whether my pre-submitted question was asked, "Which governments should be trusted with the power to deny people the ability to transact legally?"

And for some reason I feel like this piece, nominally about why Silicon Valley keeps getting biotechnology wrong, is really about FinTech.

2. Financial Literacy Like A State (University): "Shut Up About Financial Literacy" says Sara Goldrick-Rab contemplating how higher education institutions blame a lack of financial literacy for the problems students have paying for college. Here's Helaine Olen documenting the head of Penn State University's FinLit program saying: "The real problem is not the rising cost of education, it is in the... lack of financial literacy..." Goldrick-Rab cites a new paper from Sandy Darity and Darrick Hamilton (and here's a Chronicle of Higher Education write-up) making the case that the financial literacy movement as a whole tends to blame the victim rather than acknowledging that many of the choices that look like "low financial literacy" are in fact choices born of poverty and the racial wealth gap. That's a key element of Scott's Seeing Like A State: The drive to solve problems at scale often leads to simplified measurement systems that obscure important distinctions, or miss reality altogether, and ultimately reinforce the problems they are meant to address or create worse ones.  

3. Financial Services Regulation: You pretty much have to do financial services regulation like a state. In the United States one of the main financial regulators is the Office of the Comptroller of the Currency (OCC). This week we learned that the OCC had received more than 700 whistleblower complaints about Wells Fargo's practice of opening accounts without customer knowledge or consent, but did nothing. Well not quite nothing. Matt Levine points to part of the OCC's report where it admits it focused too much on process and not enough on outcomes: "You spend so much time making sure that there are processes to stop bad things that you forget to actually stop the bad things." [You have to scroll past the amazing JuiceTech story] That's certainly another part of seeing like a state. And it's a particular concern when you get isomorphic mimicry, in Lant Pritchett's application, of financial services regulation.
On the bright side, I worry a bit less about the progress of our algorithmic overlords when apparently none of the deep learning programs noticed that videos about Wells Fargo like this or this (and many, many, many others) have been on YouTube since at least 2010. But then there's also this about how United's algorithms led to it's disastrous decision-making.

4. Behavioral Economics: If you squint real hard you can see several connections between item 2 and these papers, but it's probably not worth the effort. Here's a new paper looking at how quickly and how much social nudges wear off, in 38 different experiments. And here's a paper on an experiment in Senegal comparing time discounting in a hypothetical versus real exercise; "Our results show that hypothetical time preferences parameters are poor predictors of actual behavior."

5. Impact Investing Like A State: The most annoying version of impact investing is "negative screening," a choice not to invest in firms one doesn't like. Apparently it has started taking the Portland (OR, US) City Council too long to figure out (i.e. listen to complaints from activist citizens) which firms it doesn't like, so it recently voted to stop investing in corporate debt altogether. The city treasurer estimates the decision will cost the city $3 to $5 million a year via lower returns on its investments. I guess I have to give them credit for making trade-offs? (One of the more amazing parts of this story is that it allegedly costs Portland only $17500 for an "affordable housing unit" but $6000 to build a wheelchair ramp). And connecting to our other theme of nothing new under the sun, here's a blog post about impact investing in Victorian England, complete with "no tradeoffs!" marketing. The investment was in affordable housing and there was quite a robust market until complaints that the housing was still inaccessible to the poorest and profits were too high--and the state imposed even more trade-offs by stiffening building regulations--took the luster off.

A few weeks ago we talked about mortality wars. So I felt I had to include this interactive project from FiveThirtyEight that allows you to view the changing causes of death in every American county for the last 35 years. Source: Five Thirty Eight

A few weeks ago we talked about mortality wars. So I felt I had to include this interactive project from FiveThirtyEight that allows you to view the changing causes of death in every American county for the last 35 years. Source: Five Thirty Eight

Week of April 10, 2017

1. Social Investment Dissent:  Last week I had an item about "social investment wars"--unfortunately Felix Salmon's critical take ("How Not to Invest $1 Billion") on the Ford Foundation's announcement came out just a bit too late to be included. It does pair nicely with a video of Xav Briggs of the Ford Foundation talking about the decision and the future of impact investing.
In the item last week I criticized the sector for not acknowledging trade-offs, principal-agent problems and the like. To be fair, there are people in the sector talking about these issues. Here's a piece from Omidyar Network staff in SSIR about a "returns continuum" rather than "no tradeoffs." Here's a piece from Ceniarth staff concurring. And there are two recent pieces from the CFI blog on responsible exits from social investments: first, pointing out that who a social investor sells to should be part of the impact calculation, and second making an important point about the "missing middle" in social investment (though they don't use that term).

The missing middle they are pointing out is investors who are willing to buy on the secondary market but maintain social goals. This echoes a long-standing problem in foundation philanthropy: most large foundations want to be first movers and believe that there are "followers" who will come after them to support organizations or programs after the initial grants. It seems in both cases, the followers just don't meaningfully exist. 

2. Financial Literacy: April is financial literacy month in the United States at least. I continue to use financial literacy as my barometer for the evidence-based policy movement: if evidence isn't making an impact here, why should we expect to have an influence elsewhere? But on to the links. Here's perhaps the dumbest idea currently circulating--making financial literacy a requirement for high school graduation. Here's Graham Wright de-mythifying financial education in the developing world. And on a brighter note, here is IPA's review of what's been learned from impact evaluations of financial literacy programs around the world (it's not just "they don't work!").   

3. The Technology of Management: Having written a couple of books about Toyota, this is a particular fascination of mine--and of course I therefore think other people should be paying more attention to it. Management matters a lot to firm performance (explaining about 20% of firm-to-firm productivity gaps), which in turn matters a lot to wages and job creation/growth. Here's Nick Bloom in Harvard Business Review on rising firm inequality. Here's Bloom et al. on why the technology of management diverges (or alternatively, doesn't converge as much as expected given the returns).

My particular fascination is how to spread the technology of management to small firms and especially "subsistence retailers." Here's David McKenzie and Olga Puerto on an experiment training small-scale female firm owners (90% have no employees) and finding significant and lasting gains, and importantly, no evidence of negative consequences for untrained competitors. Though recall from this fall a paper on a mentoring program for male entrepreneurs in Kenya that found quick fade-out of gains from mentoring by more successful firm owners. I think there are important things to learn from the literature on subsistence agriculture interventions since this really is a similar problem--how do you get people to adopt productivity-enhancing 'technology' like better practices. In that spirit, here's an evaluation of the phase out of an agricultural extension program in Uganda, finding that demand for improved seeds does not decline, though supply does, and improved cultivation techniques are maintained.

4. Our Algorithmic Overlords: My next book of interviews is on big data and machine learning. I would say I'm paying more attention to articles on these topics but that would be reversing the causality. In Technology Review, Will Knight wonders how important it is that we understand how machine learning algorithms and neural networks work and why they reach the conclusions that they do. Fancy listening to some algorithmically-created singers? Or seeing what happens when a deep-learning algorithm tries to create children's book illustrations? On a more serious note, here's "10 simple rules for responsible big data research" in computational biology.

5. Financial Diaries: The official publication date for The Financial Diaries was this week. You really should buy and read the book, but I'm a realist, so here are some pieces to read if you're not going to do that. From Harvard Business Review, wide-spread financial vulnerability. From Marketwatch, households are saving more than it appears. From PBS Newshour, why families feel so insecure.

The gender imbalances in China and India (and elsewhere where son-preference continues to dominate) are well-known. But the actual situation is not as well understood--because families tend to hide or fail to register daughters until later in life. Source: Nikkei Asian Review

The gender imbalances in China and India (and elsewhere where son-preference continues to dominate) are well-known. But the actual situation is not as well understood--because families tend to hide or fail to register daughters until later in life. Source: Nikkei Asian Review

Week of April 3, 2017

War is Hell Edition

1. Cash vs Chickens Wars:  Within development circles, the most widely read point/counterpoint began with Chris Blattman's piece in Vox, written almost as a letter to Bill Gates. Blattman takes issue with Gates' idea to provide livestock, specifically chickens, to poor households and instead proposes a test of the benefit of just giving cash. To be clear Blattman isn't saying that cash is better, but that we don't know--and we do know that giving chickens is much more expensive (and everyone who's been involved in aid knows at least one story about how "the chickens all died")--so we should run a test and compare. Lant Pritchett responds on CGD's blog, saying in all his years in development, never once has the question of "chickens versus cash" arisen as a pressing question. One reason is that Pritchett believes the goal of development shouldn't be marginal improvements for the poorest but generating the kind of growth that has seen hundreds of millions escape poverty in China, Vietnam, Indonesia and other countries. Of course, Blattman responds and does a good job keeping the focus on what I would call the competing theories of change proposed by Chris and Lant. In fact, I have called it that, and if you're interested in a deeper dive into the issues in this debate, I know a good book you should read (or at least check out Marc Bellemare's and Jeff Bloem's review of it).

2. Mortality Wars: Those in the US policy community, on the other hand, have probably been too occupied following the "mortality wars" to even know there's a battle between cash and chickens happening next door. Here's the quick background: Anne Case and Angus Deaton have a new paper about mortality rates in the US--I would say more about their results but, of course, this wouldn't be a war if there wasn't vehement disagreement over what their results actually are. As with an earlier paper, Jonathan Auerbach and Andrew Gelman take issue particularly around the composition of Case's and Deaton's aggregate results, and provides charts decomposing mortality rates by race, gender and state. There are a lot of other critiques, including about the data visualization in Case's and Deaton's paper, but you can save yourself a lot of time by just reading Noah Smith's excellent post about the data and the debate which brings the attention squarely to where it should be: that mortality rates for white Americans stopped following the trajectory of other developed countries and a massive gap has opened up between the US and others. 
Then there's a secondary discussion of why this is happening and what it all means so here's some supplementary reading on that, courtesy of Jeff Guo at the Washington Post: An interview with Case and Deaton; "if white Americans are in crisis, what have black Americans been living through?"; and it's more than opioids. But if there's one related thing you aren't likely to read, but should, it's this article from Bloomberg on automobile manufacturing in the South.
This also seems like the best place to insert my favorite new aphorism: "Being a statistician means never having to say you are certain." (via Tim Harford)  

3. Social Enterprise and Investment Wars: So now we're progressing to the areas where there isn't so much of a war but there are some differing perspectives worth paying attention to. On the Center for Effective Philanthropy blog, Phil Buchanan has an incisive post decrying the idea of "sector agnosticism" between non-profits, for-profits and social enterprises: the legal form of an institution matters, not just its impact. For-profits have to make trade-offs that non-profits don't. In a similar vein, Miya Tokumitsu writes in the New York Times about accusations that a celebrated "social enterprise", Thinx, was treating employees in some less than socially conscious ways like substandard pay, verbal abuse and sexual harassment. What's notable about the piece is not only lines like, "[funds for social causes] will be taken from the same pool of funds from which her employees are paid," but that the writer is an art historian. The social investment world should be embarrassed that such fundamental concepts as fungibility, trade-offs and principal-agent problems seem to be better understood and articulated by non-profit executives and humanities teachers than by proponents. 
The other major news this week was the Ford Foundation's announcement that it will, over the next decade, move $1 billion from its corpus into "impact investing"--a nebulous term precisely because of the sector's general refusal to acknowledge such things as trade-offs. The funds will be specifically dedicated to affordable housing in the US and expanding access to financial services in developing countries. I have some ideas on how Ford should think about investing those international funds so that they spur innovation rather than the status quo in microfinance.

4. Migration Wars: If you've been reading the faiV for any length of time, you know I frequently include papers and related items on the benefits of migration. Like this new paper that looks at historical data and finds that areas with higher historical rates of immigration today have "higher income, less poverty, less unemployment..." and more. Or this piece on "The Case for Immigration" from Matt Yglesias. But there's also this new paper from Hamory Hicks, Kleeman, Li and Miguel that looks at longitidunal data from Indonesia and Kenya rural-to-urban migration and finds that the productivity gains from migration are primarily due to the individuals that migrate. That's a big concern. Right now I'm thinking through my Bayesian updating--in other words, I don't know yet how to think about this, other than possibly ratcheting down my own enthusiasm for migration." Also of note, here is Tyler Cowen on declining rates of migration in the United States

5. Microfinance Wars: Well at least there's something happening in Cambodia, where the government announced a new interest rate cap at 18 percent per year. Dan Rozas writes on how that will shut off access for many in rural Cambodia. I guess the format I've chosen for this week compels me to link to Milford Bateman's response in Next Billion in which he asserts that moneylenders care more about their communities than MFIs (really!) and explains the growth differences between Vietnam and Cambodia are materially a causal effect of lots of microcredit in Cambodia and much less in Vietnam (really! paging Lant Pritchett!).
Over the past month, however, I've been struck repeatedly by the lack of convergence about thinking about microfinance internationally and the credit and savings needs of lower income households in the US. I recently had a conversation with an executive at a US credit union, who said, "I'm so excited we finally have a 501(c)3 set-up so we can get into the payday lending business." Which seems like a very strange thing to say, but only in the United States. In related news, here's a story about SoFi's, short for Social Finance, Inc. (hmmmm....), a fintech heavy lender in the US, default rates rising rapidly. And here's an interesting paper following up on earlier work on a microcredit innovation detailing a potential trade-off (there's that word again!) between efficiency and equity in the operational choices of MFIs

Here's video of Jonathan Morduch and Rachel Schneider discussing their recently released book, The Financial Diaries and the research with David Leonhardt of the New York Times at the Aspen Institute's recent Summit on Opportunity and Inequality.

Here's video of Jonathan Morduch and Rachel Schneider discussing their recently released book, The Financial Diaries and the research with David Leonhardt of the New York Times at the Aspen Institute's recent Summit on Opportunity and Inequality.

Week of February 27, 2017

Money ain't Learnin' and the New Redlining

1. Mobile Money: The GSMA published it's annual mobile money "state of the industry" report, except that this time it's a review of the 2006-2016. Here's a summary (I know which one I would click on). As you'd expect, the GSMA heavily touts some impressive statistics on growth and usage. And I suppose you can't be surprised at the sometimes more than implied leaps from outputs to outcomes. But the more I look at things like this, the more I'm reminded of Lant Pritchett's book The Rebirth of Education: Schooling Ain't Learning and the history of using school enrollment as a very bad proxy for the outcome that everyone actually cares about, learning. Or to use a closer to the finance industry analogy, was there anyone tracking the spread of ATMs and debit cards and getting excited about how much it was going to help the poor?

2. The New Redlining: Fisman, Paravisini, and Vig have a new paper (and a summary) in AER on the effect of loan officer "cultural proximity" with borrowers in India. Loan officers who share religion, ethnicity and other traits with a borrower provide larger loans on better terms, and borrowers have higher repayment rates, meaning the loans are more profitable for the bank. The proposed mechanism is reduced "information frictions" in the lending process. It's a more subtle form of redlining--a systematic way that banks denied credit to minority communities in the United States. Fisman et. al. suggest hiring and promoting minority loan officers as the obvious way to combat the discrimination they document (that's a version of "immigrant" banks that you can still find in places like New York and San Francisco). It's also part of the reason that algorithmic approaches to credit, like this effort to use exam scores as a proxy for student lending in Kenya--remain appealing: you can simply skip past the bias inherent in human-to-human interactions! If only. The long battle against algorithmic redlining is only just beginning and will be much harder to win as long as we succumb to the fiction that algorithms fix bias. I wonder which socioeconomic class the people doing better on exams come from?  

3. Governance and Social Investment: If you pay attention to finance generally and tech in particular, you've surely come across stories about SnapChat's IPO--it's the first time in history that an IPO sold shares with no voting rights. That's right, buying a share of the company entitles you to nothing, not even a symbolic say in how the company is governed (such as at Facebook). Some of called this an absence of governance, but as Matt Levine at Bloomberg (citing John Plender) writes, its actually a shift of governance from shareholders to entrepreneurs (you'll have to scroll down) that is a logical consequence of an environment where capital is plentiful and the specialized labor of entrepreneurs is scarce. Which brings us to social investment. I'd argue that the specialized labor of social entrepreneurs who can build sustainable businesses with high levels of impact is even more scarce. And yet, social investors seem to still be able to, or at least want to, exert outsize control of firms they invest in. The Snap IPO suggests that may change. Why should a social entrepreneur seek social investment when regular old investors seemingly are willing to write blank checks?

4. Investment and Inequality: Most investment isn't social investment or even in tech (though sometimes it seems so). It also turns out that investment in the United States isn't from most people. Well, just barely most people. Only 52% of American adults owned any stocks in 2016, tied for the lowest figure since measurement began in 1998. But most of those people don't own very much stock at all--the top 20% of Americans own 92% of the stock held. In other words, while the stock markets are hitting record highs, that doesn't matter at all for most American households. 

5. Jobs: What does matter for most American households is the quality of jobs available to them. Here's Eduardo Porter on one of the reasons that even the jobs that are available are not nearly as stable, nor do they offer the same benefits, as they did before: outsourcing. No, not to other countries, just to other firms. In many large firms, much of the entry-level jobs are outsourced to specialty firms: receptionists, maintenance, food service and security. These jobs are routinely lower paying and offer fewer benefits than when an employee works directly for a firm--norms of fairness in wages no longer apply.

Bonus Updates: So maybe the next financial crisis isn't auto loans, empty retirement accounts or inflated valuations for tech companies with limited external governance, but pet leases? You have to click on a link that leads to, "Also this cat is ruining my credit score."

An amazing 1953 "explainer" about stock market investing narrated by Edward R. Murrow. The link is to a segment that talks about whether broad ownership of stock is a good or bad thing (see Item 4 above). Hattip to Morgan Housel.

An amazing 1953 "explainer" about stock market investing narrated by Edward R. Murrow. The link is to a segment that talks about whether broad ownership of stock is a good or bad thing (see Item 4 above). Hattip to Morgan Housel.