This week's faiV is book recommendations.
1. Entrepreneurship, Social Investment and Not-so-Social Investment: Scott Shane's The Illusion of Entrepreneurship is a great overview of entrepreneurship research in the US, a body of knowledge that is a lot more applicable to developing contexts than is generally acknowledged. For those wishing to spur social businesses, going to back to first principles of corporate finance and principal-agent problems is a good idea--check out Henry Hansmann's The Ownership of Enterprise. There's a lot of entrepreneurship in the secret spaces of the web, though its generally not what we think of when you use the word entrepreneur. Here's a guide to The Dark Net.
2. Memorial Day: The reason for the holiday in the US is it's Memorial Day, to commemorate the sacrifice of those in the Armed Forces--what's usually invoked is fighting for or defending freedom. I always tend to think of The Gettysburg Address. It's not just soldier and sailors who fight for freedom and to defend rights; Letter from a Birmingham Jail is a good reminder of other fighters. Sometimes you fight for your rights by leaving--The Warmth of Other Suns is the story of the Great Migration in the United States when African-Americans pursued freedom by moving out of the South en masse (I can't quite put my finger on what present situation it makes me think of...). The use of power in pursuing virtuous ends is tricky, and something we should think about more on weekends like this, perhaps by reading Reinhold Niebuhr's The Irony of American History.
Read More1. Microcredit Impact: One way to judge the impact of microcredit is randomizing access. Another way is to see what happens when microcredit is suddenly taken away. There are two new papers that use the latter approach based on the sharp reduction in lending that ensued from the Andhra Pradesh crisis in 2010 (has it really been that long ago?) by Emily Breza and Cynthia Kinnan, and Banerjee, Breza, Duflo and Kinnan. BK find decreases in wages, wage earnings and consumption concentrated among poorer borrowers when microcredit goes away. BBDK find sharp heterogeneity in effects on "gung-ho" entrepreneurs and "reluctant" entrepreneurs of access to and then loss of access to microcredit. Of course, that leaves the question of the underlying differences between gung-ho entrepreneurs and reluctant entrepreneurs. Could it be aspirations? You should ask Stefan Dercon or Bruce Wydick about that.
2. Income Volatility: This week, the Aspen Institute launched the website for the Emerging Prosperity Impact Collaborative, an ongoing effort to draw attention to emerging economic issues that affect household financial security in the United States. The first year is focused on income volatility, inspired in part by the US Financial Diaries. EPIC has an overview paper, some cool data viz, and videos (some better, some worse) of researchers and practitioners discussing income volatility and its effects.
Read More1. Online Lending: Lending is hard. And not just because of the difficulty of assessing creditworthiness. Lenders are intermediaries, matching borrowers and investors, which means there are lots of principal-agent problems and a thicket of rules, regulations and practices to manage them (in most places). When lending goes online it can dramatically increase access for both borrowers and investors, but principal-agent problems don't go away. (That's a report from the US Treasury Dept., but it's good! You should read it!) That's the sub-text of the downfall of Lending Club, perhaps the largest of the online lending "platforms" that have emerged in the US in recent years. This week the CEO was forced to resign after it emerged that he had approved misleading investors about how the company was managing some of those principal-agent problems in ways reminiscent of the sub-prime crisis.
2. Unexpected Regulators: Speaking of online lending and regulation, this week Google became a de facto financial services regulator by banning ads for online payday lenders. Perhaps that was in response to this unexpected regulator using Google to make terms and conditions of online payday lenders more transparent. Meanwhile, if you still need quick access to cash online, you may want to study more about the rules enforced by Reddit's volunteer lending regulators.
3. Savings: But perhaps you take a more conservative approach to building up lump sums: saving. If so, you won't have much company in the United States. But you'll also be pretty lonely in Korea (10,000 Won is less than $10USD). And in Japan. Time for me to update my priors about savings rates in Asia.
Read More1. Affordable Housing and Cities: The rising cost of housing is pushing lower income households out of US cities with the most job growth. Trulia, an online real estate information something or other, documents which US cities lower-income households are fleeing fastest. That's a perverse way to get the benefits that a higher proportion of economically stable households brings to cities.
2. Inequality: The new issue of the Journal of Economic Perspectives has a special section on inequality. Attanasio and Pistaferri consider consumption inequality vs. income inequality. Currie and Schwandt find that while mortality at age 40 and 50 has been falling more slowly in poorer counties in the US, mortality of children has been falling more quickly in poorer counties, reducing inequality. Mortality reductions have been especially large among African American men from 1990 to 2010.
Read More1. Children are the Future: The NY Times has a new data set and visualization on socioeconomic status and school achievement in the US. But it’s not just in poor neighborhoods in the US that children aren’t learning. The failure to measure learning in global education policy is a big problem. Of course, surviving to school age is the first step. Chen, et. al. look at why infant mortality is higher in the US than Europe (hint: mothers in poverty) and Amarante et. al. see cash transfers to such poor pregnant women leads to higher birth weight babies (which are less likely to die) in Uruguay. But perhaps the cash grants shouldn’t stop during pregnancy. Russ Whitehurst at Brookings argues that cash support to families has a bigger impact on learning outcomes than early childhood education programs.
2. Basic Income: Speaking of cash grants, basic income is apparently the story of the moment. FiveThirtyEight provides a pretty comprehensive overview, including upcoming experiments in Kenya, the Netherlands and Finland and a look back at the NIT experiments (which helped launch the modern era of RCTs). Meanwhile, Michael Strain at AEI thinks basic income is unworkable in practice and we’ll just end up back where we started.
Read More1. (American) Household Finance: The new issue of the Atlantic is all about Americans' finances. Some choice bits: Derek Thompson on why Americans (and many others) stopped saving; Bethany McLean on what comes after payday lending; and Neal Gabler on how he came to be one of the many American households who cannot come up with $400 for an emergency. And while we're at it, Esquire talks to 4 men with very different incomes about spending, saving and taxes.
2. (Healthcare) Household Finance: A new paper looks at how the Affordable Care Act has affected household finances and finds that access to insurance through Medicaid expansion reduced debt and collections for the poorest households. NBER
Read More1. Our Algorithmic Overlords: How will digital financial services, and the data that flows from them, affect our daily lives? It depends. Big data, combined with the low marginal cost of extending digital services can be used to dramatically expand access to quality financial services. But they can also be used to discriminate against the poor, empower dictators, punish political enemies and limit economic mobility. In other words, algorithms and the people that write them matter.
2. Digital Trust: Obviously a key factor in the reach of mobile money is trust. IMTFI has a new synthesis of studies examining how trust in mobile money systems is built or squandered, while the Helix Institute has thoughts on trends in mobile money fraud (the most prevalent and serious of which involve people with access to the algorithms) IMTFI and Helix Institute
Read More1. Poorest of the Poor: There's new data from the Bangladesh "graduation model" evaluation that provided livestock and training to very poor women. After three years, results were strikingly positive. Now there's a 7 year follow-up that suggests those gains hold for the long-term and may even continue to increase--importantly with no evidence of negative spillovers and some evidence of positive spillovers to others in the village. Development Impact
2. Debt vs Savings: If you get an influx of cash, should you pay down debt or build up savings? It's a hard question to answer. Allison Schrager argues that paying down debt is conventional wisdom (is it?) but that saving is better than paying down low-interest, long-term debt for millennials. Of course, by rough calculation only 30% of millennials have such debt while the average American household carries $15,000+ of credit card debt. Quartz
3. Efficient Markets: Omar Al-Ubaydli and John List review the findings of field experiments on markets, finding that while there are behavioral quirks that limit market efficiency, many of those quirks disappear when participants have the chance to learn. A useful reminder when thinking about the use of nudges and the application of behavioral economics. NBER
Read More1. Income Volatility: Churn in health insurance coverage imposes a lot of costs on individuals, administrators and providers. Dhruv Khullar illustrates howincome volatility is a major driver of churn and suggests some ideas for reducing the impact of income volatility on health insurance coverage. NYT
2. Digital Inclusion (or not): Direct digital payments to poor households can theoretically be a tool for financial inclusion, but not if the programs turn those households off. Silvia Baur and Jamie Zimmerman review risks in digital payments programs that can limit their effect on inclusion. CGAP
Read More1. Financial Diaries: Similar to the findings of the US Financial Diaries, the newly released results from the Mexican Financial Diaries report many families struggling with income volatility, even with employment opportunities. Households struggled to match income and expenses despite working an average of 7.3 different jobs per family. CFI
2. Savings: "The intriguing finding remains. Perhaps savings accounts don’t enable people to earn more, they inspire them to earn more." NextBillion
Read More1. Research Methodology: Jeffrey Mosenkis published a handy guide to debunking debunking news stories in light of Repligate, the 2016 version of Worm Wars. IPA
2. Mobile Money: In the days leading up to the recent presidential election, the Ugandan government imposed a shutdown of mobile money platforms in the country. While there was significant disruption and loss of revenue in the short-term, the long-term negative impact on trust in the system may be the true cause of worry. CGAP
Read More1. Informal Finance: Relying on friends and family for financial support can provide financial security, but it can also be a burden. Whether it helps or hurts differs by race, income, and marital status. Hispanic households feel most burdened. The Pew Charitable Trusts
2. Savings: A new saving product designed for farmers in Mali and Senegal is built around scratch cards, similar to those used to buy pre-paid phone minutes. The new product uses scratch cards to combine the convenience of mobile money with the transparency of cash. CGAP
3. Remittances: "If we can use Bitcoin to replace SWIFT during the international part of the journey, and employ the local mobile money network as our domestic transport, then we’ve really got something. Until then, associating Bitcoin so directly with cheaper remittances is perhaps missing the point." Medium
Read MoreThanks to the generosity of the Citi Foundation, the US Financial Diaries launched a blog and webinar series in partnership with Stanford Social Innovation Review. The series looks at the financial lives of working Americans and offer new insights for designing policies, programs, and products that can better meet their needs. Over the past month, there have been a number of exciting updates in the series...
Read MoreWe were glad when Mark Zuckerberg picked Portfolios of the Poor: How the World’s Poor Live on $2 a Day as one of his 23 picks for his book club, the Year of Reading...[but] Maddie Crum of the Huffington Post points out that there’s just one thing wrong with Zuckerberg’s list. Where are all the women?
Read More1. Racial Wealth Gap: La June Montgomery Tabron, President and CEO of the W.K. Kellogg Foundation, applies insights from the US Financial Diaries project to the economic realities of families of color in America, where a persistent racial wealth gap and structural impediments to equality remain. Stanford Social Innovation Review
2. Behavioral Economics: Behavioral "nudges" incorporated into policy design may produce some change but fall short of solving major issues like encouraging retirement savings among the poor. As Eduardo Porter puts it, "fancy cognitive tricks may fail to overcome the main obstacle faced by the poor: a lack of money." The New York Times
3. Cash Transfers: At a recent event, Nobel Laureate Angus Deaton touched on foreign aid, global and national inequality, and globalization. He also warned the development community of potential unintended consequences of cash transfers as the intervention grows in popularity. Center on Foreign Relations
Read More1. Financial Inclusion: FAI's Executive Director Jonathan Morduch discusses what the fight against poverty in the US can learn from the developing world and vice versa. Stanford Social Innovation Review
2. Racial Wealth Gap: "A quarter of black children will make less than 80 percent of what their parents did, meaning that even in this expanding economy with higher earnings, as adults they are not just worse off relatively, but objectively. Put simply, retaining middle class status is more difficult for black families across generations." Urban Institute
3. Consumer Protection: Customer protection initiatives like the Smart Campaign seek to protect the interests of microfinance clients. But how would customers define good and bad lending practices? A new compilation of client feedback seeks to find out. Center for Financial Inclusion
Read More1. Informal Finance: Savings clubs, money guards, and loans from family members are just a few ways many Americans are creating their own DIY financial services. Planet Money
2. Impact Evaluations: David Evans' reflections on zero effect results in educational interventions are a nice reminder of the lessons we can learn from the microcredit impact evaluations. The World Bank - Development Impact
3. Retirement Savings: Is the case against expanding social security simply the result of a math error? The Los Angeles Times
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1. Income Volatility: The Aspen Institute's Ida Rademacher explores policy solutions to providing families long-term financial security, Rachel Schneider and Nancy Castillo of CFSI highlight emerging fintech products, and Dave Prosser, SVP at Freedom First Credit Union, discusses responsible underwriting for SSIR's ongoing blog and webinar series. Stanford Social Innovation Review
2. Microfinance: Chris Dunford reviews microfinance's conventional theory of change and why the industry is in need of rebranding to showcase poverty alleviation as an achievement, not a consolation prize. NextBillion
Read More1. Housing Instability: Ellen Seidman, senior fellow at the Urban Institute, discusses the role of housing instability for the latest post in SSIR's ongoing blog and webinar series. Seidman points out that even if regulation helps to preserve America's limited stock of affordable housing, household income volatility requires changes to housing finance programs. Stanford Social Innovation Review
2. Digital Divide: The focus of the 2016 World Development Report is the economic impact (or lack thereof) of digital technologies. The report finds developing countries have on aggregate missed out on major economic gains from the rapid proliferation of mobile phones and other digital technologies, despite the promise of growth. The World Bank
3. Financial Inclusion: American Express announced plans to close most of its enterprise growth division, tasked with reaching lower income customers, with the exception of debit cards for the unbanked. Bloomberg Business
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Editor's Note:
If you were hoping that the faiV would be a pleasant distraction from the overwhelming flow of AI-related content, sorry. For the record, the faiV had “ai” built in before Anthropic existed. And a housekeeping note: we’ve finally jumped ship from Mailchimp to NYU’s mailing platform—I guess if you’re reading this it’s been a seamless transition and if you’re not, well, you’re not. Feedback on the faiV’s content and format and delivery methods is always welcome, just drop me an email.
- Tim Ogden