Week of October 23, 2017

1. The Search for Truth, Part II: Last week's opening theme was about how hard social science is. I often find there's an unspoken wistfulness in social science research for the clear questions and clear answers of the "hard sciences."
But cheer up! It's just as bad on the other side of the fence. When you're frustrated that there doesn't seem to be a biological mechanism that explains the long-term positive outcomes of deworming, remember that we have no idea--literally, no idea--what causes "side stitch," that shooting pain we've all had in our abdomen during exercise. And when you're down in the dumps that so many development interventions don't seem to show much effect, remember that the universe shouldn't exist, and we don't know why it didn't explode nanoseconds after coming into being.
On the other hand, Ioannidis, Stanley and Doucouliagos' paper on how vastly underpowered most economics papers are has finally been published (it's been circulating for awhile). If that's not enough to send you back into despair, the fact that economists need to be reminded of basic good practice in presenting their ideas--per this slide deck from Rachael Meager--might do the trick. Don't get me wrong, it's good advice. But I was reminded of the time I attended a conference for PR "professionals" where the advice included such gems as, "Make sure the reporter you're pitching actually covers the topic" and "Read the last few articles the reporter wrote." Last year I was joking with Jessica Goldberg about starting a side-business editing the introductions and slide decks of job market papers. Perhaps I shouldn't have been joking.

2. The Mess that is US Higher Education (or Labor Markets are Broken All Over): Studying labor market inefficiencies is a common topic in development economics (yes, this is clickbait for David McKenzie). But as in so many domains, the problems we study in developing economies also exist in developed ones, just wearing a Halloween mask. Here's a new study on "credentialism" in the US labor market, the demand for college degrees for jobs that have no reason to require a college degree (as demonstrated by the fact that the vast majority of people currently in those jobs don't have one). That's bad for employers who pay some of the cost of the self-imposed mismatch in the labor market, but it's much, much worse for potential employees who are shut out of well-paying, stable jobs for no good reason. Unless, of course, they spend large amounts of money to get a credential. The large, and growing, lifetime earnings gap between those with a credential and those without has justified the incredible growth in student debt to finance these credentials. But if the credential is just an artifact of herd behavior among employers...
And why are those credentials so expensive? One reason is that the universities providing those credentials are spending, and borrowing, huge amounts themselves in order to attract the students who have to get the credential to apply for a job. So the students borrow, and borrow some more. And then they get shut out of programs for loan forgiveness that they are should be eligible for, because the system is a mess. But don't worry, if their debt gets too out of hand, they can discharge those loans in bankruptcy. Oh wait, we changed the bankruptcy law so they can't ever discharge those loans. Don't forget too that large numbers of the people we've pushed into needing a credential are entering universities, taking loans, but never getting the credential (e.g. 70% of single mothers who enroll).
And the advanced degree market may be worse. A few weeks ago I featured some work on English football academies juxtaposed with a paper about the Clark Medal. Perhaps my comparison was too oblique--so here's a piece from Nature making the connection explicit. The chances that a Ph.D. student will land a permanent academic job in the US or UK is well under 10%. The reason it's plausible to offer job market paper editorial consulting is that the premium for a well-written paper is so large. And it's large because there is massive over-supply.
For those newly minted Ph.D.'s taking adjunct teaching jobs just so they can stay marginally attached to academia and perhaps make enough to supplement their food stamps, I have bad news. Current students (bachelor's and master's students that is) teach just as well as adjuncts, suggesting that "student instructors can serve as an effective tool for universities to reduce their costs." Oh right, I was trying to avoid a novella.

3. Household Finance: Returning to bankruptcy, the looming problem of shunting all the risk of paying for a college education onto students and barring them from ever discharging the risk we've laid on them, isn't the only issue. Here's a ProPublica series on racial discrimination in bankruptcy filings. In short, African Americans are being guided into a form of bankruptcy that costs more and is more likely to end in failure.
In other household finance news, American consumers are taking on ever more credit card debt, and carrying more balances. Meanwhile in England, banks are planning to cut back on lending to consumers, causing concern of a "squeeze." This feels like a movie we've seen before. Whether growing or constricting consumer credit is more of a problem remains a mystery but it's worth looking back at this 2014 piece from Claudia Sahm on deleveraging and how much we didn't know then (and still don't know now).
And now taking the theme overly literally, here's a new project by Paige Glotzer at the Harvard Joint Center for History and Economics looking at the sources of financing for the building of segregated suburbs in the US from the 1890s to the 1960s.

4. Digital Finance: The digital finance revolution was built on the stunning success and expansion of mPesa in Kenya. Safaricom launched a new incubator in Nairobi with the purpose of mining mPesa data for ideas for new products. Is it a sign of a new style of "networked innovation" or that Safaricom is out of ideas of it's own? Or both?
There's certainly a dearth of pro-poor ideas, or even motivations, in FinTech as a whole. Here's a piece from American Banker on four areas where FinTech companies could actually help low-income people. Maybe they should talk to Safaricom. While it's not a FinTech idea, getting cash to people affected by natural disasters quickly, FinTech is certainly part of the infrastructure to do so. Here's a story about GiveDirectly doing just that in Houston (interestingly by pulling some staff from East Africa where they had excess capacity).

5. Global Development: Whether an idea is pro-poor does in part depend on how you define who is poor. The World Bank's new poverty lines are now official--the poverty lines that do more than adjust for purchasing power parity and take into account relative incomes within countries. So the same level of PPP income will mean you are poor in some countries, but not poor in others. Charles Kenny is not a fan.

Here's a look at those new  World Bank poverty  lines, via NPR's Goats and Soda.

Here's a look at those new World Bank poverty lines, via NPR's Goats and Soda.

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