Week of September 24, 2018

1. Poverty and Inequality Measurement: How do you measure poverty, and by extension, inequality? Given how common a benchmark poverty is, it's easy to sometimes lose sight of how hard defining and measuring it is.
Martin Ravallion has a new paper on measuring global inequality that takes into account that both absolute and relative poverty (within a country) matter--for many reasons it's better to be poor in a high-income country than a low-income one, which is often missed in global inequality measures. Here's Martin's summary blog post. When you take that into account, global inequality is significantly higher than in other measures, but still falling since 1990. 
The UK has a new poverty measure, created by the Social Metrics Commission (a privately funded initiative, since apparently the UK did away with its official poverty measure?) that tries to adjust for various factors including wealth, disability and housing adequacy among other things. Perhaps most interestingly it tries to measure both current poverty and persistent poverty recognizing that most of the factors that influence poverty measures are volatile. Under their measure they find that about 23% of the population lives in poverty, with half of those, 12.1%, in persistent poverty.
You can think about persistence of poverty in several ways: over the course of a year, over several years, or over many years--otherwise known as mobility. There's been a lot of attention in the US to declining rates of mobility and the ways that the upper classes limit mobility of those below them. That can obscure the fact that there is downward mobility (48% of white upper middle class kids end up moving down the household income ladder, using this tool based on Chetty et al data). I'm not quite sure what to make of this new paper, after all I'm not a frequent reader of Poetics which is apparently a sociology journal, but it raises an interesting point: the culture of the upper middle class that supposedly passes on privilege may be leading to downward mobility as well.   
There's also status associated with class and income. On that dimension, mobility in the US has declined by about a quarter from the 1940s cohort to the 1980s cohort. That's a factor of "the changing distribution of occupational opportunities...not intergenerational persistence" however. But intergenerational persistence may be on the rise because while the wealth of households in the top 10% of the distribution has recovered since the great recession, the wealth of the bottom 90% is still lower, and for the bottom 30% has continued to fall during the recovery.
 
2. Debt: What factors could be contributing to the wealth stagnation and even losses of the bottom 90% in the US? Just going off the top of my head, predatory debt could be a factor. If only we had a better handle on household debt and particularly the most shadowy parts of the high-cost lending world. Or maybe it's the skyrocketing amount of student debt, combined with bait-and-switch loan forgiveness programs that are denying 99% of the applicants. I'll bet the CFPB student loan czar will be all over this scandal. Oh wait, that's right, he resigned after being literally banned from doing his job.

3. Banking, SMEs, US and Global: Given those links, you'd be forgiven for assuming that banks, and the financial system in general, are a big factor in driving inequality and downward mobility. But on a global and historical basis, financial system development lowers inequality (that's the classic paper on the topic, not anything new, but I didn't think I could say that without the citation). One way to measure financial system development is the cost of financial intermediation--more development, more intermediation, lower costs. The spread between interest rates for deposits and loans is a reasonable way to measure the costs of intermediation. Here's a new paper from Calice and Zhou measuring the spread in 160 countries (blog summary). They find, not unexpectedly but usefully nonetheless, that intermediation costs are higher in lower income countries, Latin America and Sub-Saharan Africa. Why? A combination of higher overhead, higher credit risk and higher bank profit margins. They also helpfully provide a guide for policymakers on where action will be most effective in lowering intermediation costs.
One way financial system development lowers inequality is by funneling capital to SMEs and entrepreneurs (along with, of course, to its most productive use, banking theory 101). Here's the OECD's 2018 Scoreboard for doing just that. The overall trend is a bit puzzling--falling rates of new lending, with a shift to longer-term lending and generally declining interest rates (though this is based on 2016 data). One striking data point: the most expensive places for SMEs to borrow are Mexico, Chile and...New Zealand? (What's going on there, Berk and David?)
Perhaps one factor in falling rates of new lending that the OECD report doesn't take into account is the closing of physical bank branches. In general, SMEs may depend more on relationship banking--getting to know the loan officer and developing trust through direct contact--than transaction (arms-length) banking: SMEs and start-ups financial statements are simply not going to look that impressive. That does seem to be the case, and it may particularly be a problem for women and minorities, somewhat counterintuitively. That's the finding from Sweden, in a new paper from Malmstrom and Wincent (blog summary). Without the ability to work with a loan officer, women-owned businesses don't look credit-worthy to the algorithms. Another reason to click on that Blumenstock piece in the Editor's Note.
In the US, one of the tools to drive funding of women- and minority-owned SMEs is the Community Reinvestment Act. But that's up for revision, and the two men overseeing that revision have a long-standing beef with the CRA and the non-profits who support it. Uh oh.

4. Unlearning: Last week I linked to a piece about how difficult it is to get even experts to change their minds with a second research finding, focused on doctors. It was criminally under-clicked so I'm specifically linking it again. But the universe seemed to want to prove the point, and so this week I saw a bunch of tweets about a PNAS piece that shows the famous finding of judges being more lenient on parole after a meal break rather than before doesn't hold up. The order of cases is not random. I was all set to include it, along with a snide comment about people (not) changing their minds and the fact the paper was from all the way back in 2011 and the original finding was still being repeated. Then I noticed that there was a response to the paper from the original authors, showing that their original findings did hold up despite the not completely random ordering. But a bunch of people were retweeting the 2011 critique this week, apparently without knowledge of the response. So now I'm confused about whether this whole sequence supports or contradicts the article about people not updating their beliefs.
So let me try again. Here's "Women in Agriculture: Four Myths" that takes on four widely repeated statements about women's role in agriculture that aren't true. Hopefully there is a chance for us to successfully unlearn something.

5. Philanthropy and Social Investment: I'll admit that it's not really clear that this belongs in this category, but then it's not really clear that it belongs anywhere else either. So without further ado: the disturbing parallels between modern accounting and the business of slavery. That's a story about the new book from Catilin Rosenthal, Accounting for Slavery: Masters and Management. Think of that the next time you hear there are "no tradeoffs" in impact investment. It's a stretch, but still--it will definitely throw the person off when you point out that their statement not only violates basic economic theory but is based on principles developed by slaveholders.
Finally, Brest and Harvey have a new edition of their book Money Well Spent, a guide to strategic philanthropy. Here is their reflection on what has changed in philanthropy since the first edition was published ten years ago. And here are several critical (re)views of the book and the concept of strategic philanthropy from a forum hosted by HistPhil blog.

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