Week of August 16, 2019

The Dog Days Edition

1. The Great (Household Finance) Convergence: I've been teasing this for awhile and now it's finally out: my essay for Aspen's Financial Security Program laying out the convergence between the US and developing, especially middle-income, countries especially when it comes to financial inclusion. The essay also highlights areas where mutual learning and collaboration should prove particularly fruitful. While you're there check out the rest of Aspen FSP's work on financial inclusion and keep an eye out for my next essay on "Reinvigorating the Financial Inclusion Agenda" (or, y'know, just wait until it shows up in the faiV; or you could check out this piece I did for CDC (UK) on the value of investing in financial system development).
Now the work for that essay was done a while ago, but the evidence for the convergence thesis (and it's related "corrupted economy" thesis) keeps coming. The past few weeks there were several stories in this vein. For instance, the growing number of American families relying on debt to pay their bills. Sorry, I meant the growing number of Russian families relying on debt to pay their bills. Sorry, I meant the growing number of post-retirement Americans relying on debt to pay their bills and being forced into bankruptcy.

2. Moving to Convergence?/Evidence-Based Policy: Here's a different area of convergence--my interests in the Great Convergence and in evidence-based policy in general and the RCT movement in particular. Part of the argument of the Great Convergence/Corrupted Economy is that the bottom 40% of the American income distribution faces an economy characterized by limited opportunity, with poor jobs, poor education, poor healthcare and housing that closely resembles the economies of middle-income countries. Escaping from these circumstances requires something akin to winning the lottery (Oh, did you hear about Virginia's new program for automatic purchases of lottery tickets? Set it and forget it!). People do win, but it's hard to justify the mental, physical, emotional and economic investment in hard work and building human capital when you are facing a lottery economy (and frequently witness things like this which don't seem to horrify very many people beyond Paddy Carter).
Perhaps you heard about or read the new paper from Chetty et al. on an experiment to revive the Moving to Opportunity program that showed next-generation benefits (but not much in terms of short-term benefits) from moving from poor neighborhoods to wealthier neighborhoods. The results from the experiment were met with a good bit of enthusiasm--here's Nick Kristof, and here's Dylan Matthews.
But the whole thing leaves me pretty uncomfortable for four reasons. One, the whole thing really is a lottery. Jake Vigdor does a good job in this thread of laying out the issues. First, the underlying program is literally a lottery. In fact, all housing assistance in Seattle is the functional equivalent of lottery. So to benefit from the program you would have had to win the lottery of applying for housing assistance at the right time, when there were slots open, and then when the lottery to get one of these vouchers specifically for this type of move.
Second, the program isn't an anti-poverty program as they are traditionally conceived of--it's a test of a program to encourage people who win the double lottery to follow through and actually move to higher-income neighborhood. It turns out that a remarkably small number of people who get housing vouchers like this actually use them--see above on the difficulty of motivating action in a lottery economy. The program works on its own terms--it significantly increases the percentage of people who actually move. But the anti-poverty effects in the theory of change won't be felt until the children of these movers become adults--at least 10 to 15 years from now.
Which raises the third issue. To really consider this an anti-poverty success you have to believe that the things that made the high-income neighborhoods in Seattle good for generational mobility 20 years ago, remain true today, AND that the labor market faced by today's kids will be same in 10 to 15 years further into the future. Those seem to me to be large assumptions.
It's not just that they seem so, the fourth reason is that they are large assumptions. Because the underlying mechanisms that lead to next-generation income mobility haven't been identified in any meaningful way. Other work by Chetty et al has documented the clear existence of high-mobility and low-mobility neighborhoods in the US--that work is a big part of what informs my views on the Great Convergence/Corrupted Economy. But it doesn't make it clear why the good neighborhoods are good, and therefore you have to believe that those factors are invariant over time, which maybe you shouldn't.
Here's the connection to evidence-based policy, and the fourth : this work and the reactions to it seem to me to be a much clearer example of the criticisms of RCTs by folks like Lant Pritchett, Angus Deaton, Glenn Harrison and Martin Ravallion than anything I've seen in the economic development space. You've got black boxes, large unexamined assumptions, a suspension of disbelief due to the methodology, and ultimately the possibility of gains so small (e.g. once you narrow from the winners of the lottery to the people who follow through to the kids who benefit; and all of this is just in one county in the whole country) that you should say, "so what?" instead of cheering.
By the way if you're interested in a different critique of this body of work, and other takes on economic mobility in the US, check out this thread from Scott Winship.
Wrapping up on the evidence-based policy front, it turns out that policy-makers have a lot of behavioral biases.

3. SMEs: A few years ago David McKenzie had a couple of papers on the difficulty of assessing impact of interventions focused on small business: revenue was very noisy, and complicated by difficulty with recall, profits even more so. Anyone who is familiar with those papers will feel a bit of deja vu in this new report from the JP Morgan Chase Institute looking at how volatile cash flows are for US small businesses. It's no surprise, but important to document, that volatility of cash flows and firm survival are inversely correlated. Using high frequency data to better understand the variety of cash flow patterns and the importance of cash flow/liquidity management in relation to access to capital is very useful.
And here's a review of the effectiveness of programs to induce small businesses to formalize in low- and middle-income countries. In a twist on the common finding that effects dissipate at scale, in this case it seems that impact at scale significantly exceeds that of smaller programs.

4. Global Development: There's a lot of big news on the global health front lately. Let's get the bad news out of the way: malaria is back on the rise in Kenya (and based on the reasons, I suspect this is going to be largely true of any other country where malaria is endemic.) On the other hand, researchers seem to have found a treatment regimen that is highly successful for XDR-TB (though frustratingly the article doesn't talk much about the inevitable evolution of resistance to this regimen, into XXDR-TB(?)). And Ebola treatment trials are showing promising results, with one approach appearing to offer major improvement within a day which would be a huge benefit to overcoming trust issues that have plagued the Ebola response.
In keeping with my Great Convergence theme, I'm going to cover two new education papers in the US under the heading of global development because I think they are very relevant. First, here's Elizabeth Setren et. al. reporting the results of an RCT of "flipped classrooms" where instruction happens at home, while class time is spent on the sort of practice that would traditionally be "homework." It turns out that not only does this not have a sustained positive effect on learning, but it widens the achievement gap. From a global perspective this is an important paper for thinking about why "scripted" classrooms seem to work and for caution on technology-based approaches to pedagogy.
Another paper looks at the effects of technical high schools in Connecticut, and using an RD approach finds that male students have large (31%) increases in quarterly income, but no effects on female students. Given that vocational training is a big part of the global development story these days due to concerns about youth unemployment, this again seems quite relevant.

5. Jobs!: I'll close out with some "service journalism." The Gates Foundation has two new jobs in their Financial Services for the Poor team: a program officer focused on Bangladesh and a senior program officer focused on consumer protection (yay!).
While there is no posting/job description yet, I'm going to be hiring a Jill/Jack of all Trades to for FAI with duties including program administration, events management, communications and even the possibility to be included in our primary and secondary research. So feel free to reach out if that seems like something you might be interested in.

The reporter for the piece on retired Americans filing for bankruptcy has some wildly different priors than I do. Via  Financial Times .

The reporter for the piece on retired Americans filing for bankruptcy has some wildly different priors than I do. Via Financial Times.

Return to the Weekly faiV