Week of September 18, 2017

The New and the Old Edition

Editor's Note: Most of the items this week are in some way new additions to items that have been featured in the faiV the last few months, or at least updates on some long-running themes.

1. Microenterprise and Household Finance: I assume that most of you are familiar with David McKenzie's business plan competition in Nigeria (there's even a Planet Money episode about it!) and his cash drop work (I have to use this self-serving link of course). David and co-authors have a new paper in Science (summary/blog version here) testing the effectiveness of business training for microenterprises in Togo and find that a standard business curricula did not do much (in line with lots of other business training studies, though most are plagued by too little power) but a curriculum based on boosting personal initiative did have large effects.
I see this as lining up with a stream of research finding that boosting aspirations or "hope" can have meaningful impact in many different contexts (see for instance, this recent work on effects of watching Queen of Katwe) and through a variety of interventions (any one know of an overview of recent work in this vein?). It also helps explain why there seem to be only small effects of business training on businesses that objectively should have lots of gains from marginal improvements in operations--if you don't believe that running your microenterprise better will matter...
In other microenterprise/microcredit news, I learned this week about a study (new draft coming soon apparently) that tests allocating microcredit based on peer views of microenterprise owner business skills. Those ranked highly do in fact see large returns to a $100 cash drop (8.8 to 13% monthly returns). I heard about the study from this excellent thread from Dina Pomeranz on a talk by Abhijit Banerjee and Esther Duflo on what new they've learned since that "old" book Poor Economics came out.
Finally, here's a new piece from Bindu Ananth that should go on your "must read" list. I couldn't agree with this statement more: "[T]he field of household finance has failed to examine the financial lives of low-income families in sufficient detail." She examines specifically issues with how to think about insurance vs. savings, high frequency saving and borrowing, and financial complexity. I will continue to beat the drum on two points: 1) low-income households are having to make financial decisions that would challenge a finance MBA, with large consequences for sub-optimal choices, and 2) almost all the advice we have on making wise financial choices is built on an assumption that the life-cycle model holds true, and may not in fact be good advice if the life-cycle model doesn't hold.


2. Premium Mediocre and American Inequality: I'll lead this off with a concept that I'm not quite sure what to make of, but does have me thinking: Premium Mediocre. The post goes on way way too long, but it's worth reading at least through the first couple of scrolls for some new ways to think about the old problems of inequality and mobility, or lack thereof, and what it does to household decision making.
This summer I mentioned but failed to link to a study on how delivering food stamps more frequently lowered the rate of shoplifting in grocery stores in Chicago. Here's a new paper that shows a much larger and long-term effect of food stamp receipt. Children whose families received food stamps for more years (due to staggered roll out of the program in the 60s and 70s) were less likely to be convicted of any crime as an adult, with larger effects on violent crime.
The importance of such safety net programs in the United States is growing as we learn more about how household finances are changing. Not only is year-to-year volatility seemingly increasing, and month-to-month volatility seemingly spreading, but lifetime earnings aren't just stagnant--they're falling. Some new work indicates that since the late 1960's American men's expected lifetime earnings began falling each year (into the present). That can make premium mediocre a stretch for each new cohort. It also perhaps helps explain this new and fairly shocking chart, based on Case and Deaton's work discussed extensively in the faiV this spring, that has been circulating on Twitter this week.  


3. RCTs, observations and fieldwork: A new entry into the "value of RCTs" debate from well outside the development economics field: online advertising. Gordon et. al. look at data from 15 Facebook advertising experiments (500 million observations) and find significant differences in results using RCTs vs more post-hoc observational methods. The major conclusion as I see it: you're never going to figure out the unobservables well enough to control for them. In related news, here's a good piece about "researcher degrees of freedom" from the Monkey Cage Blog. And in only sort of related news, here's Tyler Cowen on the manifold harms of Facebook (besides making researchers jealous about the size of their n's)
Closer to home in development economics, here's 6 questions for Chris Udry about fieldwork and learning and teaching economics. I would have asked different questions but then you knew that.

4. Philanthropy and Systemic Change: Last week I linked to a piece about the return of hookworm in impoverished parts of the US. There's another side of that story: the supposed eradication of hookworm in the American South has long been the benchmark example of philanthropic success (and the gains from the eradication campaign are part of the evidence base for deworming today). Ben Soskis takes a look at what the persistence of hookworm, or the lack of persistence of the eradication campaign, says about the limits of public health philanthropy (or any kind of "systemic change" driven by philanthropy).
Here's Felix Salmon reporting from what was apparently definitely not a "premium mediocre" philanthropy conference, where the focus was apparently on "invisible causes and effects." If you have any interest in philanthropic strategy or a bent toward "evidence-based giving" it's worth a read.

5. Household Finance and American Inequality Redux: It's new and old all in the same edition. Here are a couple of things that I wanted to include before they got too out-of-date. First, PWC has a new report on the effects of financial stress on workers. It's almost comically bad, honestly, because they so often seem to miss the story. For instance, while focusing on how self-identified "stressed" workers are likely to withdraw early from their retirement funds (or not have made deposits in the first place), they miss the large percentage of "not stressed" employees who are acting the same way as the stressed ones. When 30% of "not stressed" people already know they are going to need to draw down their retirement savings early, you have a problem with your system.
Finally, here's a proposal to allow people to withdraw up to $500 from their Earned Income Tax Credit early in the year to help cope with financial emergencies. Alex Horowitz sounds the proper notes of skepticism on the Federal Government being able to deliver funds in anything like the amount of time that a financial emergency necessitates. One challenge the piece doesn't discuss is that people generally don't know what size their credit is going to be (or even that they qualify for it at all), a challenge exacerbated by income and other household volatility. That's the subject of a paper USFD co-authored with Urban and the topic of a panel next week at the Tax Policy Center. If you're in DC, come along.

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