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.

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