1. Economics: The dismal science doesn't often generate positive reviews from outside the discipline, so when it does happen it's worth noting. Julia Rohrer, who in addition to having one of the best titled blogs I've ever seen, is a psychology graduate student who procrastinated on her dissertation by attending a summer program in economics. Here is her list of things she appreciated in economics as a positive contrast to her experience in psychology.
On the other hand (hah!), economists typically have a lot to say about what is wrong with economics--certainly I encounter more "friendly-fire" in the econ literature than when I dip my toes in other disciplines (though this is perhaps my favorite example of the intra-disciplinary critique). There's an ongoing discussion about the future of economics going on in the Boston Review--I don't know if that counts as friendly-fire in terms of the outlet, but the participants are economists--starting with an essay by Naidu, Rodrik and Zucman, Economics after Neoliberalism. Then there are responses from Marshall Steinbaum, who notes that "every new generation proclaims itself to have discovered empirical verification for the first time," and from Alice Evans who focuses on the nexus of economics and political power in the form of unions.
But, because it's me writing this, I have to close on a new paper in JDE, that finds that communal land tenure explains half of the cross-country agricultural productivity gap. And here's a piece about how small teams of researchers are more innovative than large teams. generate much more innovation than big teams Neo-liberalism won't go down without a fight!
2. Migration: I haven't touched on migration for a while so it felt serendipitous that Michael Clemens and Satish Chand put out an update to their paper first released in 2008(!) on the effects of migration on human capital development in Fiji. The basic story is that in the late 80's formal discrimination against Indian-Fijians increased sharply, causing the community to both increase emigration and investment in human capital to aid emigration prospects. The net effect, rather than the dreaded "brain drain," was to increase the stock of human capital in Fiji. grapes
Cross-border migration is really the only option in Fiji, but in many countries, like Indonesia, there are lots of internal migration options. Since there is typically a large gap in productivity within countries as well as between countries, internal migrationhas always been a part of the development story. Bryan and Morten have a new article in VoxDev about this process in Indonesia, looking at the productivity gains possible from removing barriers to internal migration.
Since we started off talking about Economics, here's a post from David McKenzie considering the effects of migration on economists--or more specifically, how to think about job market papers about a candidate's country-of-origin. True to his style, David goes deep, including a model, and a survey. The post was inspired by a tweet from Pablo Albarcar who later noted it was mostly a joke about "brain drain" worries.
It is surprising to me how tenacious the brain drain idea is. When I have conversations about it, I try to cite the literature like Clemens and Chand, but I rarely find that makes a dent. People can always find an objection. So I've taken to just asking people how they feel about the "destruction" of Brazilian soccer/football culture and skill due to the mass emigration of the most skilled players. Typically, that leads to several moments of silent blinking. If you're interested here's a paper about "Rodar" the circular human capital investment, migration and development among Brazilian footballers.
3. US Poverty and Inequality: I typically try to avoid the grab-bag approach to items of interest but I'll confess this one is a bit of a grab bag with a variety of connecting threads. We'll start by connecting to a piece I included last week about tax refunds and saving. If you haven't read that, you should. I noted I was grateful for the piece because it meant I could skip the annual ritual of linking to a piece I wrote for SSIR several years ago about rethinking tax refunds. But I should have known that the zombie idea of tax refunds being bad personal finance wouldn't die so easily. Here's Neil Irwin from the NYT on how people being angry about lower refunds shows that "humans are not always rational." I'm struck by the irony that the continuing common use of "rational" in economics requires zero-cost attention, while a foundational truth of the discipline is "nothing is zero-cost." There is nothing irrational about paying a very small fee (in foregone interest) for the valuable service of helping you to save when other services are ineffective. That's especially true if you include, as you should, the cost of the tax advisors and financial advisors required to accurately calculate the proper amount of withholding and to choose the right investment/savings account in which to store those savings. So I guess that connects to the thread about economics maybe not being post-neoliberalism quite yet. And here's a column from the Washington Post's personal finance columnist withpush back on the "refunds are bad" idea from readers who explain their rational choices in their own words.
Viewing all posts with tag: Money Management
FAI's Jonathan Morduch on "The Hidden Tragedy of the Poor"
Recently Upsides sat down with FAI’s Jonathan Morduch to discuss his views on the current state of microfinance and his current project – US Financial Diaries. Morduch highlights that whether in the developing world or the US, the poor face many of the same financial struggles, which is why understanding money management strategies at the household level a crucial step to providing more effective financial services to the poor . . .
Read MoreThe Economist vs. The Snowball
Popular financial advice guru Dave Ramsey has long advocated for what he calls the “debt snowball” approach to repaying debt for financially stressed households: order your debts by amount, smallest to largest, and repay them in order, ignoring interest rates. This sounds decidedly unscientific, and from a classical economics perspective it is bad advice. Rational actors should settle debts with highest interest rates first, regardless of the size of debt, in order to minimize the total amount they will have paid when all debts are finally settled. But, argues the snowball, if the debt never gets paid off at all because the debtor is daunted to the point of paralysis by the prospect of paying off a huge debt, then the classical advice is irrelevant . . .
Read MoreWalmart is Coming for Your Banks
In April Walmart announced the launch of a new money transfer service. I did a double take on the service's low price: $9.50 to send up to $900 from one Walmart store to another – that’s as much as $66.50 cheaper than the price of competing services at Western Union and Money Gram.
This is just the latest example of Walmart's foray into the financial services industry. In 2012 the retailer launched the Bluebird prepaid card with American Express. The product has no monthly fees or minimum balance requirements, making it more affordable than the norm. The cost of cashing a check at Walmart's Money Center is a transparent flat rate, often cheaper than independent financial services centers that take a large percentage of a check's total. The big box store also offers car insurance “one stop shops” at a growing number of locations, and it houses bank branches with “convenient hours, free financial education and unusually forgiving account features”. All in all, Walmart seems to consistently deliver more budget-friendly financial tools than its competitors. And not only do its financial products come at a lower price for consumers; they are all offered in the same place, easing the burden on people who are squeezed for time and transportation . . .
Read MoreThe Life of the "Microentrepreneur"
There has been plenty written on the failure of microcredit-funded enterprises to grow or achieve more than minimal profitability. If you’re curious why microenterprises don’t grow, I recommend reading a new piece that provides some insight into the life of a microentrepreneur. It’s from an unexpected source: a Fast Company magazine article about the emerging world of task-based “entrepreneurship” in the United States. Companies like Uber, TaskRabbit, Postmates, AirBnB and Amazon (via its Mechanical Turk service) allow people to earn income by doing odd-jobs, renting out a room or running errands. The rosy view that all these companies present is that they are providing an opportunity for people to earn money on their own terms and in the hours that they are not otherwise occupied. And each prominently features stories of individuals who are doing quite well, even quitting regular jobs and substantially profiting from using these tools (not unlike, it should be noted, the stories that emanate from microcredit).
But that is not the experience of the average user . . .
Read MoreOverdraft as a Product, not a Penalty?
The Taylors overdraft their checking account every two weeks, on purpose.
As described in a recent issue brief published by the U.S. Financial Diaries, the Taylor family’s income level varies significantly from month to month. Sometimes it’s not enough to cover all of their expenses. So, they opened an account at a bank with a simple overdraft fee structure: One $35 charge per overdraft, no daily fees, and an allowance of up to $500 at a time. Since the Taylors typically make only one large cash withdrawal per paycheck – the entire amount of pay – this bank would charge them at most one $35 overdraft fee each cycle, if they happen to need more cash than the amount of that week’s direct deposit.
The Taylors use overdrafts as another household might swipe a credit card or take out a payday loan. Since their credit history eliminates the card option and they are already tied up with a payday lender, over-drafting becomes another logical – and probably more convenient – place for them to turn to stay on top of their bills. It’s clear that the family responded to and relies on their new bank's transparent behavior. They saw its fee policy, understood how they could manage it, and became a customer . . .
Read MoreSorry, Cash Only: Returning to the World of the Banked
My month-long experiment of surviving on cash only is at an end. One question I had hoped to answer was whether switching to purely cash transactions would cause me to spend less. To find out, I took three months of transaction data from last summer from Mint.com. After removing spending anomalies like an unusually large student loan payment and an airplane ticket, I averaged the expenses for this time period in a number of categories like “entertainment” and “groceries.” I compared the three-month averages with my one month of cash spending during Sorry, Cash Only.
I suspected that the numbers would reveal that I spent less during my cash month. Existing research shows that convenience, reduction of barriers to spending, and even perception of credit all contribute to higher spending with credit cards. However, I wasn’t prepared for how much less I spent . . .
Read MoreTradition and Trust: Reflections on Barriers to Mobile Payments from the IMTFI Conference
How would you describe a savings account where your money is occasionally stolen, eaten by mice, or washed away by floods? Merchants in Dharavi, the largest slum in Asia, describe it as “safe.”
That’s what Deepti KC and Mudita Tiwari found when they interviewed sellers, suppliers and buyers in Dharavi, home to 5,000 informal businesses that create goods worth more than 600 million dollars a year, in the heart of Mumbai.
Far from being poor peddlers of trinkets, the sellers of Dharavi—particularly those who make relatively expensive leather goods—routinely move thousands of dollars in a single day. They have sophisticated financial lives, often including formal bank accounts, and many have smart phones. KC and Tiwari—like many researchers studying financial inclusion in the developing world—posit that increasing take up of digital transactions “is essential to achieving inclusive financial growth in India” . . .
Read MoreSorry, Cash Only: Midway Reflections
Last Friday marked the halfway mark in my experiment to only use cash for 30 days. I still have a few weeks to go but I wanted to reflect on some of the major insights I’ve gained so far.
Increased Anxiety and Insecurity – Going into this month, I expected to feel an increased sense of worry around personal theft. However, I live in a relatively safe neighborhood, the cash under my proverbial mattress is decently secure, and never carry huge sums of cash on me so the threat of theft is not what has been causing anxiety. What has is the realization that dealing in cash means operating without a safety net. Having multiple payment options is not only convenient but functions as a form of personal insurance. If there is an emergency, if I do not correctly plan my financial day, if I forget cash at home, I am out of luck. (Of course, I realize that these feelings would be amplified if I also had the additional pressure of low income, which is one of the biggest distinctions between this project and the realities of the unbanked.)
Read MoreSorry, Cash Only
In the grand tradition of Morgan Spurlock’s Super Size Me, I’ve decided to do a 30 day experiment. I’m putting away the plastic, denying my debit card, and avoiding the ATM. I’m going unbanked for a month.
In work at FAI, I am constantly reading research on increasing financial inclusion. Recently, I read The Fletcher School’s Cost of Cash report that said it is more expensive for low-income, unbanked populations to use cash but paradoxically, they rely on cash the most! This (and many other influences including Lisa Servon’s recent investigative work on cash checking services) got me thinking. What would my life be like if I couldn’t use any of my banking services? What is it like to operate purely in cash, especially in a hyper-connected, fast-paced city like New York? I hope to gain some insight into those questions and others over the next month . . .
Read MoreA New Agenda on Remittances, Payments, and Development: 12 Better Research Questions
Migrants send a lot of money to developing countries—several times more than foreign aid. Researchers and policymakers have seized on these very large flows and built an agenda to understand how these remittances can foster development. Indeed, you most often hear remittance flows compared to aid flows.
Something fundamental is wrong with this agenda however. Researchers tend to study remittances as if they were windfall income, like aid or oil revenue, that arrives like manna from heaven. This leads researchers toward the kind of questions you might ask about windfall income: Are remittances spent on ‘good’ things like investment and education? Do families and countries become ‘dependent’ on remittances?
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