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Viewing all FaiV posts with topic: Financial Inclusion  

Week of June 21, 2019

The Concentration Camp Edition

1. Concentration Camps: The United States is operating concentration camps again, and one soon will be at the site of one of the Japanese-American camps operated in the 1940s. The conditions are inhumane and unconscionable, both for children and for adults,and getting worse. People are dying. Babies are being denied medical care. Last week, I joked about a scream of helpless rage about financial literacy programs. This week, I'm not joking, and I don't know what else to do, except to do my best to not look away.

2. Philanthropy and Social Investment (and Microfinance): What would it look like if US philanthropy en masse decided the reappearance of concentration camps in the United States was a crisis that deserved all hands and funds on deck? I don't know, but I don't think historians would view that decision unkindly.
There is something going on in American philanthropy--for the first time since 1986, charitable giving did not track GDP, falling 1.7% last year. More specifically, giving by individuals fell 3.4% and for the first time (since the data has been tracked) made up less than 70% of total contributions. Here's the researchers' analysis of the new data. And here's Ben Soskis' Twitter thread on the important questions the decline in giving raises about giving culture and inequality. Several years ago I speculated about whether Giving Tuesday's hidden theory of change was to shore up American giving culture, and that question has new relevance.
On the social investment front, there's a new book out that I can recommend, A Research Agenda for Financial Inclusion and Microfinance. If you're wondering about the connection to social investment, Jonathan and I have the opening chapter, "The Challenge of Social Investment Through the Lens of Microfinance." Keeping on that theme, Beisland, Ndaki and Mersland have a new paper on agency costs for non-profit and for-profit microfinance firms, finding that CEO power determines whether residual losses are higher or lower in non-profit firms. Governance matters in social investment!
If you're one of those CEOs (or just any aspiring social entrepreneur), you may be interested in Alex Counts', founder of the Grameen Foundation, new book, Changing the World Without Losing Your Mind. Here's an interview with Alex about the book and the evolution of microfinance (which I'm including even though he says a couple of nice things about me).

3. Digital Finance, Part I: Libra: The news of digital finance this week was dominated by the announcement of Libra, Facebook's proposed...well, depending on what you read, either Facebook's "me too" derivative payments service masquerading as crypto, or Facebook's attempt to take over the world and replace all governments. Here's Vox's explainer.
My favorite immediate response was from Erik Hinton, which I have to quote in full: "God, grant me the confidence of Facebook, a company that has managed to lose most of the data that it's either stolen or extorted and has repeatedly been caught lying or miscounting its own analytics, deciding to create a global financial system."
As that response hints, there are a lot of questions. Here's a start at some of them and some answers about who is participating and why. Here are Tyler Cowen's questions about how exactly Libra will work as a currency without an underpinning banking and regulatory system. Here's a view that Facebook's main target in the near-term is remittances, but that it really does have ambitions to replace national currencies. One of the things I find most interesting about the whole thing is that this is a like Facebook building a giant sign to the world's governments saying: "Come seize all our data and regulate us heavily!" (and governments are indeed reading the sign!) I would guess that there will be approximately .1 seconds between the first cross-border transfer and an accusation of money laundering or terrorist financing. I was having a conversation this week about the main reason Amazon hasn't started consumer lending: it would never do something to invite regulator access to its data.
Here's a piece on the good and bad of Libra which I highlight because it's an odd mix of complete ignorance about how money works and evolved (did you know that before bitcoin there had never been money that wasn't controlled by a government?), with some actual engagement on the dangers of private digital monetary systems.

4. Evidence-Based Policy (and Information Interventions and FinLit Redux): I never intended for the faiV to become a regular discussion of financial literacy and information interventions, but here we are. In one of the most amazing tests I've seen of whether evidence can affect policy, Jonas Hjort, Diana Moreira, Gautam Rao and Juan Francisco Santini work with 2000+ Brazilian mayors and find that they are a) willing to pay to learn the results of impact evaluations, and b) change their beliefs, and c) are willing to implement new policies. The only thing missing is a test of whether they would be willing to shut down an existing program (say, financial literacy in schools). Score another one for David Evans' point from last week that information interventions do sometimes change behavior.
And here's a test of a financial literacy program in Colombia that delivered content through tablets to women recipients of a CCT program, with some social interactions built in. Attanasio, et. al. find that the program boosts not only knowledge but actual practices, with poorer, less educated and more rural women benefiting more. But still not impact on access to and use of formal services.

5. Financial Exclusion: This is so great it deserves its own item: a "visual essay" from the American Historical Review on how access to capital in 1800's New Orleans required getting yellow fever--and surviving. And how that channel led to many new migrants attempting to catch yellow fever as quickly as possible, despite the 50% chance it would kill them. Of course, that only applied to whites. While survival was a symbol of fitness for whites, blacks' relatively higher rates of survival was evidence that they were destined to be slave laborers in the fields.

Week of April 26, 2019

The Waste of Time and Money Edition

1. Household Finance: I'm as surprised as anyone that this piece I wrote on the waste of time and money that is mandatory financial literacy classes in the Washington Post seems to be getting as much traction as it is. It's the closest I've ever come to going viral on Twitter (if you want to, here's the tweet just ready and waiting for you to retweet and further drive up those numbers). The comments, by the way, are about what you would expect--and further evidence for Morgan Housel's "you have to live it to believe it" thesis on perspectives of finance. I'm not the only one banging the drum against financial literacy classes: here's Jen Tescher of CFSI imploring banks to stop funding finlit classes and focus on tools that actually help customers. 
One of the likely reasons (but certainly not the only one!) that finlit makes such little difference is the mismatch between what is taught and the actual financial lives of most households. Take for instance figuring out income taxes in the new economy. Most people in the US got a tax cut in 2018 but most of those think their taxes actually went up, because the connection between taxes and paychecks is so damned complicated in the US. And trying to figure it out if you're a contractor rather than an employee...
There is something worse than legislators mandating financial literacy. Intuit engaged in shockingly (even for cynical me) deceptive behavior by tricking people into using their paid product rather than the free product that they were eligible for--even going so far as to make sure that search engines didn't index the web page to use their regulatorily mandated free file service so it was for all intents and purposes invisible. No amount of financial literacy is going to fix that. If you were thinking that this sort of behavior was exactly why the CFPB was created you would be right, but since Mick Mulvaney has destroyed the agency, don't expect any meaningful action against Intuit.
This isn't just a US problem. This sort of thing--hiding the information customers need to make good financial decisions--happens everywhere. Think of the changes in transparency of pricing of M-Pesa. Or this audit study by Xavi Gine and Rafe Mazer finding bank personnel in Ghana, Mexico and Peru don't tell customers about the best account for them (the customers that is). This seems like the right time to bang on one of my pet drums: middle-income countries, look to the US to the see the future of your financial system and tremble.
Looking from the other side, the US has a lot to learn from international contexts about how households manage volatile financial lives. Stuart Rutherford has a fantastic write-up of the 3 years of ups-and-downs and coping strategies of a family in the Hrishapara Financial Diaries. Stop what you're doing and read it. But let me also call-out that Stuart is now funding the Hrishipara diaries out of his own pocket. Any funder who is reading this: send Stuart some money to keep up this remarkable work. Please. 
My friends at the Aspen Institute Financial Security Program have a new report on short-term financial stability and how important it is for any larger goals, based on the work of a number of organizations focused on the issue (NB: I'm a senior fellow of Aspen FSP and was involved in the early discussions that led to this report). Before you international folks keep scrolling...there is a lot of overlap between the insights here and the situation in middle-income and developing countries. And you could easily frame it in the same way that most on the international scene do: the importance of building resilience to shocks.

2. Financial Inclusion: I'm one of the retrogrades who refuses to give up on the term "financial inclusion" (while acknowledging the points made by advocates of "financial security" and "financial health"). Speaking of retrogrades, Matthew Soursourian at CGAP is even more retrograde than I am, making an argument that "access" is important and we shouldn't fetishize "usage." One of the reasons is that usage may be harmful--and Greta Bull argues that we need to talk about that, particularly around credit. Over at Next Billion, Graham Wright of MSC (formerly MicroSave--apparently I'm also retrograde in not changing FAI's name), has some speculation on the next 20 years in financial inclusion (which I take as explicit endorsement for "inclusion" whether Graham meant it or not). One of his key points is on the issue of consumer protection, which in addition to dovetailing with Greta's post, allows me to point out that in every other domain the word "inclusion" means fair and equitable participation and so we should make that part of the defacto definition of financial inclusion. Drawing things fully back to Matthew's post, the one thing I think he misses in the argument for access is network effects. The value of an account has a lot to do with who else has and uses accounts and we should expect usage to trail substantially behind access especially when less than, say, 60% of people have accounts.
Two quick hits on China and financial inclusion: Here's a piece that argues that China's "social credit score" is less coherent and more complex than it is usually portrayed. But then at the Avengers:End Game premiere, one of the trailers was a public shaming of delinquent debtors. I don't know if that's confirmatory or contradictory evidence.
Finally, there is a lot to learn from the history of financial systems and the way they include and exclude. Rebecca Spang reviews a new book (The Promise and Peril of Credit--which would have been a great title for Greta's post--by Francesca Trivellato) about the development of financial instruments in Europe and anti- and philo-semitism and how it shaped economies.
  
3. SMEs: I'll admit this is a bit of a stretch in the initial framing but it's something I've been thinking about a lot and I don't have a better place to put it. So to start, here's Gabriel Rossman live tweeting an overhead conversation in coffee shop where a couple is being recruited into Amway (one of the original multilevel marketing schemes if you're not familiar with Americana). The couple doing the recruiting keep returning to how inspirational the training is and how important it is to commit to the program. Like Gabriel, you're probably cringing and wishing there was a way to warn the "marks." But at the same time, the body of evidence finding that inspiration is effective is growing, and may work better than business training at driving positive outcomes.
Think about this with me a little more. Specifically think about Ubaydullah in Stuart's post mentioned above. Ubaydullah's main occupation is breaking bricks, and when asked what he thinks about while he is doing this, he replies, "mostly nothing." Now think about Blattman, Franklin and Dercon's sweatshops versus microcredit in Ethiopia experiment, recently updated, that finds that after five years all effects fade out--specifically that people leave their factory jobs and close their microenterprises. Or one of Stuart's earlier posts about Hrishipara diaries looking at why so many microenterprises don't grow--people don't want them to. Or this Pearls Before Swine comic this week. Or the findings from lots of studies of forced or semi-forced migration that makes people better off even though they didn't want to move. Or even the Gine, Goldberg and Yang experiment with fingerprinting leading to more investment by borrowers.
I don't have answers here, but I have a lot more questions than I used to about how to think about inspiration and the determinants of micro and SME growth. My current working model though is that people have a type and that type is hard to discover, particularly in developing contexts, and even when you have opportunities to do so, causality is really hard so people can't figure out if they are good at something or not, even when they are doing it, and that inevitably discourages effort...and maybe I should be shifting my priors about Amway.
Here's a semi-related piece on perceptions of risk among potential investors in SMEsand the (non-existent I have to note) "missing middle" and the need for social investors to reduce systemic risk. And here's a review of a book from last year that I missed (Big is Beautiful: Debunking the Myth of Small Business) arguing we should stop paying so much attention to small business. And here's Tyler Cowen's new book, Big Business, arguing roughly the same.

4. Our Algorithmic Overlords: Usually I try to draw in lots of sources in each item, but the New York Times is running a series on the topic beginning with "It's Time to Panic About Privacy." Other pieces cover how the police use Google Maps location data to do post-hoc identification of who was near a crime. How China'smass surveillance and detention of the Uighurs works. And how those surveillance systems that China has developed are being exported around the world to places like Ecuador, which is certainly a different take on One Belt, One Road. But it's not just China of course--the consequences of being caught in a digital dragnet or exposing one's digital data are especially dire for low-income households in the US (who are forced by state surveillance to put their private information on file in less than secure places). Which ties us back nicely to Graham's and Greta's posts and helps me reinforce the point about breaking down the silos of attention between the US and developing countries on these topics. And finally, here's an article at how hard it is to "fix" algorithmic bias from Vox, so I'm not completely unisourced. 

5. African Development: Is Africa industrializing in ways that will make it the next growth story? Here's Noah Smith in thread form and in article form arguing that it is, largely because of Chinese investment both directly in building factories and in infrastructure via the (actual) Belt and Road Initiative. By the way, today there's a big conference in Beijing where China seems to be offering some concessions on debt related to BRI. Here's Dani Rodrik arguing that it's not (in 2017, but he affirms this take). And a dose of realism on how far African countries have to go just to catch Latin America.
There are other parts of development than industrialization, like public health, and there's big news there too. Two different malaria vaccines are being rolled out--the first, which is about 40% effective in earlier trials, will be delivered to 360,000 people in Malawi, Ghana and Kenya. The other, which was 100% effective in a clinical trial, is moving to the first field trial next year on an island in Equatorial Guinea, where 2100 people will receiving the vaccine next year.

Week of April 5, 2019

1. Financial Inclusion: It's an "interesting" time in the world of financial inclusion, in the sense of that (apocryphal?) Chinese curse. There are arguments on whether to change the name of the "sector" accurately reflects the goals, the funding environment is uncertain, digital financial services are shifting business models and regulatory frameworks--all also indications that there is important convergence between "developed" and "developing" countries. But most importantly there are questions about whether the results from the work of the last 40 years (a rough approximation of the modern microfinance movement globally, and the asset-building movement in the US) justify further investment. 
You can see the tensions in two recent posts at Next Billion: first, Leora Klapper on the importance of investment in financial inclusion to meet the SDGs; and a fiery response from Phil Mader and Maren Duvendack, authors of the Campbell Collaborative/3ie "systematic review of reviews" that I've likely mentioned a couple of times. But the "interesting" times also explain, at least in part, the raft of other evidence reviews of various sorts that are appearing (IPADvaraUNCDF/BFA,Caribou DigitalCGAP). It's enough to get you to buy into Lant Pritchett's dictum that RCTs are "weapons against the weak."
CGAP asked me to write something about all this--and to do it in under 1000 words. You can guess how well that went, given that the summary for the evidence review I've been working on for CDC is more than 10 pages (you should also read that as an acknowledgement of a specific conflict of interest when it comes to talking about evidence reviews). Anyway, the final result is here. The bottom line is that I'm skeptical of what can be learned from systematic reviews--channeling some other Pritchett-thought on where policy-relevant insights come from.
By the way, if you're skeptical of the point about most interventions struggling to show meaningful impact, here's a new paper making the case that TB public health interventions in the early 20th century had little to do with declining TB-mortality; and here's a paper from the education sector so frustrated that they can't find evidence of impact that they propose doing away with credible large-scale impact evaluations. And here's an open letter to a hypothetical education minister with some useful statistics on how little learning happens in schools in most of the world.
  
2. Global Productivity: Plenty has been written about stagnant wages, slow growth, and rising inequality in developed countries (if you're based in the US, it might not be apparent that this is a global phenomenon, but it is.) But there's another important phenomenon that hasn't penetrated the popular consciousness nearly as much, probably because the impact isn't as immediately apparent: there's a global productivity slowdown. That's a problem because rising incomes come from growth, and growth comes from productivity gains.
Here's a new paper from Gordon and Sayed documenting the trans-Atlantic trend in slowing productivity, and how closely European productivity growth (or lack thereof) has mirrored that of the US, with a time lag. Their thesis is that the slowdown is related to a "retardation in technical change."
That probably sounds odd given that I know about the paper and you are reading about the paper on using technologies that were essentially unfathomable in 1980. But overall economic dynamism, including technical change has actually slowed dramatically since the post-war years. And there's emerging evidence that there is a single cause for all of these issues: the aging of the population
It's a fascinating thesis that makes a lot of intuitive sense, and there is growing evidence for it from lots of different directions. I'm sure there will be lots more papers on this in the years ahead, but in the meantime it suggests a few interesting thoughts: a) China has a big problem coming, and b) future productivity growth is going to come from India, Sub-Saharan Africa and Latin America, and c) we all have legitimate reasons to worry about millennials not having sex.  

3. (Mostly US) Household Finance: I'm going to open with an acknowledgment of severe cognitive dissonance related to item 1 above: my work reviewing evidence on investment in financial inclusion and financial systems, and reviewing others reviews, has changed my perspective on what is learned from such reviews. But one of my long-standing hobby horses is railing against financial literacy because of the lack of evidence that it accomplishes anything and systematic reviews that it accomplishes essentially nothing. So now as I read stories like this about more and more states in the US requiring financial literacy as a condition of high school graduation, not only do I get raging mad, but I also have to battle against my own arguments on how to understand research. To be clear, my perspective hasn't changed--current financial literacy programs are a waste of time and money. But I am more sanguine about investing in figuring out ways to provide meaningful financial literacy. 
Tying everything so far together, here's an article from SSIR on the "cost of financial precarity" which includes reduced worker productivity, suggests why financial literacy training doesn't work (it's about the wrong things) and argues for why investment in "financial well-being" (a phrase that's part of the debate over what to call financial inclusion now) is important. And here's a newish JPMorganChase Institute piece on another part of why financial literacy is about the wrong things: how families manage tax refunds and payments
For those interested in going deeper to understand to understand what is happening in the US families' finances over time, the Federal Reserve Board has created an amazing new dataset: Distributional Financial Accounts. They use a "more comprehensive measure of household wealth" and provide data quarterly to track wealth distribution. By the way, the early findings are quite consistent with the story of aging population driving asset accumulation among older and wealthier parts of the population.
How does wealth concentration happen in the US? It's not just inheritance. Ager, Boustan and Eriksson have a new paper looking at how wealthy slave-owning families quickly recovered their position at the top of the economic ladder after Emancipation, in economic terms a huge negative wealth shock. If you'd like the summary version, here's WaPo coverage of the paper with some interesting details on the work required to find and link 1800's data to track cross-generational outcomes. And before leaving the US, one more thing to tie all this together one more time. Here's a piece that leads with the idea that there are steps that individuals can take to do something about income and wealth inequality, but the ideas really are either the kind of things that are in financial literacy curricula around personal actions that don't lead to meaningful changes in outcomes, or actually systemic changes not individual actions. 
Finally, I'm going to shift gears radically to another part of household finance: intra-household bargaining. Here's a cool new paper that looks at the levels of cooperation, trust, altruism and transactional behavior in polygynous households (of note, 80% of authors are women). 

4. Bank (and other financial services) Behavior: More discouraging to me than any impact evaluation, or systematic review of impact evaluations, finding modest impact are stories about the behavior of banks and financial services firms. Walk with me on the mostly dark side for a while. 
A few weeks ago I covered the scandal in Australian banking after a government commission found widespread predatory behavior by banks. Fifty leading economists in Australia were surveyed about whether something could be done--they unanimously agreed that something could be done, but a substantial minority seem to think major changes are required (e.g. replacing Australian regulators with foreigners!). If Australian regulators are hopelessly compromised, what hope dodeveloping countries like Uganda have of maintaining regulator independence?
Sometimes the regulators do the right thing. Like reporting blatant attempts at bribery by the CEO of an insurance conglomerate looting its assets to fund his other businesses. But much of the bad behavior isn't really under the control of regulators.It's culture, and cultures don't change easily. That's not just a statement about Wells Fargo and unsavory behavior. Here's a new paper about how organizational culture at Indian banks inhibits the adoption of beneficial innovations that reduce the costs of borrowing.
How do the bad actors get away with it. It turns out that consumers enable some of the bad behavior by simply not paying attention. For instance consumers in the UKwon't pay enough attention to savings account disclosures that would allow them to save 123 pounds in the first year. Sigh. 

5. Procrastination: Perhaps the most important thing that I have ever linked to in the faiV: Procrastination isn't about laziness or self-control. And that's why the faiV is so late so often. 

Week of February 11, 2019

The Writing on the Wall Edition

1. Our Algorithmic Overlords: I've long argued that teaching kids to code is as much of a waste of time as financial literacy. The simplified version of the argument is that most people are terrible programmers and computers are already better at coding than the average human. As a consequence I emphasize to my own kids and to others who are blinkered enough to ask my advice, that learning how to communicate/write is a much more important tool for the future (yes, yes, cognitive dissonance).
While I still think I'm right about the first part, it turns out I'm wrong about the second part. Yesterday OpenAI "released" work on an AI system that writes shockingly good text. I use scare quotes because, in another sign of things to come, OpenAI has only published a small subset of their work because they believe that the potential malicious use of the technology is great enough to restrict access. There are a bunch of news stories about this. Here's Wired, for instance. But the most interesting one I've come across is The Guardian because they had the algorithm write an article based on their lede.
Let's stick to the disturbing for a bit, because it's that kind of day. The World Food Program has formed a partnership with Palantir to analyse its data on food distributions, apparently with the main motivation being to look for "anomalies" that indicate that aid is being diverted or wasted. The idea of handing over data about some of the world's most vulnerable people to a private company that specializes in surveillance and tracking of people hasn't gone over well with a wide variety of people. As background, here's an article about what Palantir does for their biggest client, the NSA. Sometimes it seems like some people at the UN look at the one world government kooks and think, "What could we do to make their conspiracy theories more plausible?"
On a more theoretical level, Kleinberg, Ludwig, Mullainathan and Sunstein have a new paper on "Discrimination in the Age of Algorithms," arguing that despite fears of algorithmic discrimination, proving discrimination by algorithms is a lot easier than proving discrimination by humans. Of course, that requires putting regulations in place that allow algorithms to be examined. I'm going to flatter myself by pointing out it's similar to an argument I made in my review of Automating Inequality. So I feel validated.
Speaking of transparency, regulation and of algorithmic surveillance, here's David Siegel and Rob Reich arguing that it's not too late for social media to regulate itself, by setting up something like FINRA (Financial Industry Regulatory Authority, which polices securities firms). It's an argument that I would have given short-shrift to, but the FINRA example is credible.
Finally, I'll be dating myself in the Graphic of the Week below, but here's another way to figure out how old I am: when I was an undergrad, most of the "power imbalance" between developing countries and private firms literature was about GM. Here's a new piece from Michael Pisa at CGD on the new power imbalance and it's implications: the relationship between developing countries and tech giants.

2. Digital Finance: That feels like as reasonable a transition as I'm going to get to new data from Pew on the global spread of smartphones. Given limited consumer protections, regulatory and enforcement capability, and "digital literacy" in many developing countries, I will confess this worries me a lot, cf Chris Blattman's thread on "creating a 20th Century...system in an 18th Century state."
Here's a particular instance of that concern, tieing together the last few items: the rapidly growing use of "alternative credit scores" using things like digital footprints and psychometrics. You can make an argument that such things are huge boon to financial inclusion by tackling the thorny problem of asymmetric information. But there are big questions about what such alternative metrics are actually measuring. For instance, as the article above illustrates, the argument is that in lending, character matters and that psychometrics can effectively evaluate character. But it doesn't ask whether character is in-born or shaped by circumstance? No matter which way you answer that question, you're going to have a tough time arguing that discriminating based on character is fair. And that's all before we get to all the other possible dimensions of opaque discrimination.
The growing use of alternative data is starting to get attention from developed world regulatory agencies, but the first frontier of regulation is likely to be from securities regulators. I don't think they are going to be particularly interested in protecting developing world consumers. I guess that idea about self-regulation is starting to look more appealing, particularly if it's trans-national.
Meanwhile, the frontier of digital finance is advancing rapidly, even without alternative data. Safaricom introduced what is here called a "overdraft facility" in January, but I think of it more as a digital credit card. In the first month it was available, $620 million was borrowed. The pricing seems particularly difficult to parse but that may be just the reporting. One of the very first things I wrote for FAI was arguing for development of a micro-line-of-credit. Now that it's here, I confess it makes me very nervous.
 
3. Financial Inclusion: That's not to say that digital tools don't hold lots of promise for financial inclusion, just check the Findex. This week CGAP hosted a webinar with MIX on "What Makes a Fintech Inclusive?" There are some sophisticated answers to that question with some good examples, but I often return to the simplest answer: it cares about poor and marginalized people. And so I especially worry when I see answers to that question that lead with tech.
The financial inclusion field as a whole has been in something of a slow-moving existential crisis for the last few years. The best evidence of that is the number of efforts to define or map the impact of financial services and financial inclusion, several of which I'm a part of. Last week I linked to an IPA-led evidence review on financial inclusion and resilience. The week before that to a Cochrane Collaboration review of reviews of evidence on financial inclusion. This week, the UNCDF and BFA published their take on pathways for financial inclusion to impact the SDGs (full report here). I could say I expect there will be more, but I know there will be more in this vein, if I can finish revisions, etc.

4. US Inequality: It's tax return/refund time in the US. So there's a lot of discussion of the size of tax refunds and how people should withhold less and save more of their refund etc. It's particularly an issue this year because refunds seem to be smaller because of last years tax law changes and perhaps pressure on the Treasury to reduce withholding so more people would see a quick boost in their paycheck. Justin Fox takes a look, using the US Financial Diaries and some related work to show what a dumb policy that was and saving me from reposting my annual tax time lament.
There are a few things here I've been meaning to include for a few weeks but haven't gotten to. Here's a look at how tech is "splitting the workforce in two" which has some big implications for inequality. Here's a look at how stacked against the young the US system has become, which has implications for the persistence of the current very high levels of inequality. And here's one of those very depressing looks at how well-intentioned policies to do something about inequality end up being churned up in the meatgrinder and making things worse, in this case having to do with pushing colleges to admit poorer kids. The latter two are why I have a problem with the proposed incremental approach to Medicaid-for-All by allowing people between 50 and 62 to buy in to the system. I'm usually a great fan of incremental, but that specific proposal seems likely to accelerate the transfers from young-to-old in many ways worse than we can imagine.

5. Evidence-Based Policy: Yes, it's a dark day. So I'm going to revel in it and continue that theme of well-intentioned not working out so well, in this case from the old scale problem. One of the staples of "evidence-based" interventions in the last decade or so has been home visitation for new mothers/infants. An evaluation of a scaled-up version of the program found "no statistically significant effect on the evaluations focal outcomes" and no significant heterogeneity of effects (e.g. no larger or smaller effects for ex-ante determined high-risk or low-risk families). Chile scaled up cognitive behavior therapy in schools to deal with disruptive kids. It made things mostly worse. Pittsburgh scaled up a "restorative justice" program in an attempt to deal with discriminatory discipline practices for disruptive students (African-American kids get suspended from school much more often than white kids). Some people are saying it made things worse, but I look at the results table and see "no effect" given the number of outcomes.
Andrew Gelman features an old Michael Crichton piece on why media depictions of research are so wrong with some actually, it seems to me, good advice on what to do about it. If anyone ends up creating the proposed organization to do rapid response to spurious reporting of research, hire me. I want to do that. I suppose in some small way, that is what the faiV does. So, I guess, sponsor the faiV?
And here's a report from the William Grant Foundation on "Reframing Evidence-Based Policy to Align with the Evidence" which seems a useful thing to do if you've clicked on the three links above.

This isn't new, but it's fun. Merriam Webster has a site where you can put in any year and see words that first appeared in that year. This is a snippet of my birth year. Source:  Merriam Webster Time Traveler

This isn't new, but it's fun. Merriam Webster has a site where you can put in any year and see words that first appeared in that year. This is a snippet of my birth year. Source: Merriam Webster Time Traveler

Week of February 4, 2019

The Global Con Edition

1. MicroDigitalHouseholdFinance: 
I've had to cram what I usually break out into 2 categories into this first item. First, last week I featured a story about Kenyan MFIs being driven "to [an] early grave"and asked if any one had some additional knowledge of that situation. Thanks to David Ferrand (of FSDAfrica) and Alexandra Wall (of CEGA's Digital Credit Observatory), I'm reasonably confident that story is reasonably accurate (I do try to be good Bayesian). Meanwhile, with a broader perspective, Gregor Dorfleitner sent me a link to his recently published research looking at adoption of digital infrastructure by nearly 1000 MFIs globally. It's generally a more hopeful picture of evolution over disintermediation than what is happening in Kenya. 
This week, coincidentally I had two conversations about household finances that revolved around individuals' willingness to hide their income from others in the household and that affects outcomes for good or ill. And then, up pops Fred Wherry and colleagues with a new paper on exactly on the mechanics intrahousehold bargaining around borrowing and lending based on research in California. I'm very impressed they avoided "Neither a borrower nor a lender be..." and I do kind of love "Awkwardness, Obfuscation and Negative Reciprocity." And in other new paper news, the titans of financial choice architecture, have a new paper on how use implicit defaults to spur people to make active choices--which seems a better form of nudging than much of what I see. 

2. Banking (and Money Transfer Operators): I frequently talk about how financial system regulators in the developing world need to look to the US for a peek into their future. This week I learned that Australia is also a useful cautionary tale. Pretty much the entire banking sector in Australia is facing the prospect of criminal prosecutions after a wide ranging royal commission report that details rampant "fee for no service" practices were widespread.
Meanwhile there are some big changes happening in the global money transfer space, related to Chinese operators attempts to expand globally, and the Trump administrations general antipathy to such moves. Last year, Ant Financial tried to buy MoneyGram before regulators put a stop to the transaction. MoneyGram is now essentially moribund, having lost 83% of it's market value since then, and trying to sell itself to anyone who might have some cash. Ant Financial has moved on to a UK company, WorldFirst, which this week announced it was shutting down it's US operation so that American regulators have no say in the deal. Neither of those stories sound like the prospects for cutting the costs of global remittances are improving.
  
3. Global Inequality: Last week I purposely skipped over the ridiculous annual OxFam global wealth inequality brouhaha. Perhaps I should stick to my guns, but given the number of people I saw engaging with this Guardian piece from Jason Hickel, that somehow argues that global poverty hasn't been decreasing, and life was great in the 1820s, well...Here's pushback from Martin Ravallion. Here's Max Roser, who was a particular target in the Hickel op-ed.
Turning to doing something about global inequality rather than fantasies about the pastoral idylls of the 1820s, there's been a remarkable flourishing of pieces about tax avoidance by the wealthy. Here's the op-ed from the NYT that inspired the name of this week's edition on the Trump tax cuts enabling corporate tax dodging. Here's a new paper in the AER finding that globalization since 1994 has led to the labor income tax burden of the middle class rising, while that on the top 1 percent fell. Here's a new brief from Danny Yagan at SIEPR on how high earning wealthy entrepreneurs dodge taxes on labor income of about $1 trillion per year. And using data from Gabriel Zucman, here's a piece from the Washington Post on the new club of wealth inequality, with charter members China, Russia and the US

4. Philanthropy and Social Enterprise: There's a good bit to catch up on here. Back in the fall, I featured several entries in an on-going discussion involving Rob Reich (the political scientist, not the economist), Phil BuchananAnand Ghiridharadasand Ben Soskis on the role of philanthropy in the US (each of those links is to their books/sites). Phil has a newish post trying to take stock of the various critiques and defenses.
Last summer, I took note of Just Capital, a newish organization trying to create an index of socially-responsible firms using criteria less laughable than most of the SRI indexes. Just Capital has partnered with Forbes Magazine to create a list of the US's 100 most "just" companies with the criteria determined by surveying (what I presume is a convenience sample) readers.
On the topic of philanthropy worth critiquing and just companies, the Pennsylvania Attorney General is suing one of the largest non-profits in the state, the University of Pittsburgh Medical Center, for being neither philanthropic nor just. And here's someVox reporting on the equally unphilanthropic and unjust Zuckerberg San Francisco General Hospital, with the added twist of the City of San Francisco playing the "man behind the curtain." The Vox critique has already had an effect; I'll be cheering for the PA Attorney General. As a side note, one of the problems I have with the concept of "financial health" is it makes an analogy to the only industry that is more of a mess of conflicting incentives and hidden bad behavior than the finance services industry.
Dramatically changing the topic, GiveWell has announced some changes to it's research focus, and as a consequence, is hiring. Full disclosure: I'm Vice-Chairman of GiveWell's board. I think it's likely that faiV readers know some people who might be interested in those jobs. So click and check them out.
Finally, this week Guidestar and the Foundation Center announced that they are merging. I'm not sure whether to think of this as evidence of maturing philanthropic infrastructure or further evidence of a market failure in data on philanthropy. Regardless, I have a lot of respect for Jacob Harold and Brad Smith, the respective CEOs of the two organizations for taking a step that many in the non-profit world avoid. 

5. Methods: Behold, the first ever "listicle" in the faiV. What should experimental economists do more of? These 12 things, according to John List. And here's a review of how field experiments have improved our understanding of labor markets (List again). Though I have to ask, is this use of "natural field experiments" standard outside of development economics or is it a Nature thing? One of the things that experimental economists should perhaps hesitate before doing more of are list experiments--that according to a new paper from Pascaline Dupas and co-authors(and do read the comments).

I had decided to make the graphic/video of the week a bit more fun and less on-topic. But then  Kieran Healy created something both fun and on-topic . The best of both worlds. Source:  Kieran Healy . 

I had decided to make the graphic/video of the week a bit more fun and less on-topic. But then Kieran Healy created something both fun and on-topic. The best of both worlds. Source: Kieran Healy

Week of January 28, 2019

1. MicroDigitalFinance: Back before the holidays, I hosted the first faiVLive on how to think about microcredit impact based on recent evidence. If you missed it, you can watch it here (and people are still watching it, I'm happy to say). Here's Bruce Wydick's take on the proceedings if you prefer text to video.
Last week, there was some discussion of evidence gaps, and it's clear that I'm not the only one thinking in this direction. On the heels of that Campbell Collaborative review-of-reviews, IPA has a review of evidence (and gaps) on "Building Resilience through Financial Inclusion" that makes a lot more sense to me.
Okay, now to some less-meta items. Well only a little bit I guess. Remember that Karlan and Zinman paper about high-cost loans in South Africa that found positive effects? It was a lending for resilience story. Now there's a company in California offering high-cost loans to people via their landlords, specifically marketed to help them not miss a rent payment or to pay a security deposit. The article mostly ignores fungibility, presuming that the actual use of the loan proceeds are paying rent rather than covering some other emergency, but that seems unlikely to me. In the US Financial Diaries we saw that housing payments were much more erratic than other types of payments, though the data wasn't clean enough to really draw any firm conclusions. So is this a lending-for-resilience story or a new version of payday lending debt traps?
Speaking of payday lending debt traps, we usually use that phrase metaphorically. But there's a UK payday lender who is apparently eager to make it more literal. Yes, they are advocating for a return to debtors' prisons (darn that asymmetric information and moral hazard!). And even doubling down on the idea.
Finally, here's a story (HT Matthew Soursourian) about Kenyan MFIs being driven "to [an] early grave" as digital financial services allow commercial banks and non-banks to siphon off the customer base. Disintermediation was not exactly the story that early proponents of mobile money were hoping for, but it does fit with the historical record of financial systems development. If you know anything about this, or can vouch for the accuracy of the information in the article, I'd love to hear from you.
  
2. Global Development: I'm going to skip the on-going "shooting fish in a barrel" about OxFam's annual global wealth publicity/outrage stunt since there's nothing at all new there. Better to spend your limited attention on this NYTimes op-ed from Rohini Pande and colleagues on the "new home for extreme poverty."
If you follow these topics at all, you know that new home is middle-income countries like India. The Congress Party's proposal of a not-universal basic income to address the persistence of extreme poverty in the country has been getting a fair amount of attention. Apparently Angus Deaton and Thomas Piketty are advising Congress, though from my experience with politicians "advising" could mean "we read their books." Here's Maitreesh Ghatak's take on what it would take for the policy to work
On the other side of the world, I've watched the evolving situation in Venezuela with a great deal of personal interest. I grew up in Colombia, a few hours from the Venezuelan border, and learned relatively recently that an ancestor of mine funded an invasion of Venezuela in the early 1800s. Particularly my interest has been caught by some economists volunteering to educate politicians and pop culture figures on what is going on, in the hopes of stopping bad takes. Here, by the way, courtesy of Chris Blattman, is a deeper background piece on the Maduro regime than you may find elsewhere. The macroeconomic quirks of access to gold reserves and of sovereign and not-so-sovereign bonds under sanctions have been pretty interesting too. And here's Cindy Huang of CGD on the potential for Colombia accessing concessional funding to help finance programs for Venezuelan refugees.
Finally, I'm happy to claim, without evidence, that my request for Rachel Glennerster to post her Twitter thread on what she's learned in her first year as DfID's chief economist as a blog post so that was easier to share, cite and archive caused this blog post compiling her Twitter thread.

3. Small Business: My fixation with breaking down the silo between financial inclusion in the US and internationally extends beyond household finance. The story of most small business in the US is the same as it is in developing countries--they are not high-growth "gung-ho" entrepreneurs but frustrated employees trying to generate an income in the face of labor market failures of various sorts. So the perennial development topic of how to increase lending to SMEs should be looking to the US, and those in the US should be looking internationally.
For most small and micro-businesses the biggest financial challenge isn't getting credit to invest, but managing cash flow and liquidity. Square, which has historically been focused on enabling retail consumer-to-business payments, recently announced a new product specifically to tackle this problem: a debit card that allows real-time access to balances. To put it in development-speak, Square is offering trade credit to small merchants to cover the trade credit they provide to customers. I'm super-interested in seeing how well it works.
But, yes, small businesses often need credit as well. Lending to them is as difficult, if not more so, than lending to low-income consumers. Here's a story in the FT on how digital platforms have filled, expensively, a gap left by a secular decrease in small business lending from banks. The key point is that technology is offering several new putative solutions to classic lending problems, including direct and immediate access to small businesses' bank accounts. Supposedly this will prevent the lenders from incurring large losses in a downturn, but you have to wonder about the macro effects of immediately cutting off the supply of credit to small businesses at the first sign of a recession.
Finally, as important as finance is for small business, I think the more important missing capital is human capital. Here's a piece from Next Billion advocating for more funding for human capital interventions which reviews some of the relevant literature.

4. New Year, New You: It's still January in faiV-land, so it's not too late to pledge to learn some new things this year. Say, for instance, practical deep learning (the pinnacle of meta--learning about deep learning). That's a new, free, online course from something called Fast AI. Or perhaps, you'd like to get a better grasp on econometrics (who wouldn't?). Marginal Revolution is rolling out a new free class from Josh Angrist. In the spirit of the source, I'll say it's self-recommending. But maybe you'd like go back to fundamentals. In that case, here's a playlist of Tyler Cowen's 9 most important ideas in economics

5. Our Algorithmic Overlords: Whenever you think it can't get any worse, that's a big signal that it's about to get worse. Not on topic, but since the story on the world's worst family was such a popular link, last week, here's something even worse. But back to the topic at hand: Facebook being even worse. In this case, by paying teenagers to let the company digitally stalk them. I'm sure all those parental consent forms were authentic. The Facebook stalking broke Apple's rules, and now Apple is the de facto Facebook regulator. Yay?
Central to these issues is the nature of digital identity and what can be done with it based on the necessarily not complete picture that digital tracking provides. You may be comforted sometimes by the thought that companies like Facebook, Google, Amazon and Apple don't know everything about you. But you should also be scared, because, the limited information is already shaping what you see. Here's a very insightful piece on the limited control you have over your digital identity and how it shapes your world.
And here's a curious effort called Good ID to ensure that digital identities are "good for people as well as for business and government." Which is an idea that I wholly support--even the acknowledgment of the issue is a breath of fresh air. But perhaps they could do a better job of revealing their own identity? This is one of the least informative "who are we"'s I've ever seen. The meta! It burns!

I've  decided that in general I'm going to try to make the graphic/video of  the week a bit more outside-of-the-box of the rest of the faiV. And this  is perfect for the meta theme.  People on reddit   are   painting   recursive pictures   of people holding their paintings . And there's a  github  for it. Make sure to click on the change layout button.  Source . 

I've decided that in general I'm going to try to make the graphic/video of the week a bit more outside-of-the-box of the rest of the faiV. And this is perfect for the meta theme. People on reddit are painting recursive pictures of people holding their paintings. And there's a github for it. Make sure to click on the change layout button. Source

Week of January 21, 2019

1. MicroDigitalFinance: Many of you will be familiar with the story of microcredit's rise and sort-of fall, and it's current state of--I don't know, existential angst? But if not, the story is ably told in a new Vox piece by Stephanie Wykstra, with some comments from Jonathan and I included. Not too long after that, the Campbell Collaborative and 3ie issued a "systematic review of reviews" of the impact of financial inclusion, led by Maren Duvendack. I have to say it's kind of weird. The one sentence conclusion is "Financial inclusion interventions have very small and inconsistent impacts." Which apart from appending an "s" to the perfectly plural "impact", I don't disagree with. But this format is a review of reviews which imposes some weird constraints. Ultimately only 11 of 32 identified studies were included, and only one of those was from an economics journal, two are earlier Campbell or 3ie publications, two are specifically only about women's empowerment, and three are about strangely specific topics like HIV prevention. So I'm left really uncertain what to think of it.
Of course, the hot topic isn't generic microfinance but digital finance. The Partnership for Finance in a Digital Africa has an updated "evidence gap map" of research on the impact of digital finance featuring 55 studies (which is more than I have had the time to delve into so I can't compare it to the Campbell/3ie inclusion set). There's a summary of the findings at Next Billion.
Finally, here's an interesting story about Econet, the Zimbabwean mobile money provider--interesting in that it is really about the evolution of mobile money providers from following M-Pesa to following Tencent.
  
2. US Inequality: A big part of the story of understanding US inequality specifically, and inequality in developed countries in general, is understanding what has happened to wages of low-skill workers. The NYTimes has a piece on how cities have shifted from being the "land of opportunity" for such workers to a trap, based on work that David Autor presented in his Ely Lecture at the AEAs (by the way, AEA, it's still a good time to rename the Ely Lecture!).
One policy option for addressing stagnant wages for low-skill workers is to raise the minimum wage. Cengiz, Dube, Lindner and Zipperer continue their long-running work on the effects of 138 minimum wage changes between 1979 and 2016. They find increased earnings and essentially no effect on number of low-wage jobs
That's encouraging. Less encouraging is a new paper from Rodrik and di Tella finding that people are really, really happy to support protectionist policies, regardless of their politics, as a policy response to trade shocks.

3. Our Algorithmic Overlords: Speaking of people's attitudes, there's a big new report on Americans' attitudes on artificial intelligence from something called the Future of Humanity Institute, which as a name is somewhat creepy in my opinion. Maybe I've seen/read too much dystopian fiction. Anyway, they find that Facebook is the least trusted institution when it comes to AI development (no surprise) and the US military is tied for most trusted (big surprise, apparently these people haven't seen/read the same dystopian fiction I have). Also of interest, the median respondent thinks there's a 50% chance that robots will be able to fully replace human beings in less than 10 years. And just because, here's a Night Before Christmas style poem about the future of AI.
Meanwhile, MIT Technology Review "analyzed 16,625" AI papers to predict directions of future research. As someone interested in the future of humanity who doesn't trust either Facebook or the US military to develop AI, I'm encouraged to see cyclical patterns of research consistent with over-confidence.
One of the questions about the development of AI and machine-learning is how it will integrate into existing procedures. Flint, MI is a particularly fascinating case study on those challenges--and they are large. In a community with every incentive possible (they are literally being poisoned by their water and have extreme budget constraints) except politics to adopt the most efficient approach, the machine-learning approach was abandoned. I guess that should make me re-think my attitude toward phrases like "The Future of Humanity."

4. Methods and Evidence-Based Policy: Back in the fall I featured a paper about the effect of political connections on business success because I was so impressed by the method: Abhit Bhandari set up an actual company in Senegal and had his salespeople vary their pitches to signal political connections. Turns out Bhandari is not alone. David McKenzie has a new post at Development Impact on the apparently hot new trend in experimental development economics: setting up your own firm so you can run experiments on it. If you thought the barriers to running and publishing an experiment were high before...
Eva Vivalt has a new paper on specification searching and significance inflation in impact evaluations (see, you don't need to add an "s" to impact!). She finds less bias in economics and health papers than what's been found in political science and sociology. She also finds significance inflation in RCTs is lower than other methods and has fallen over time.
Here's an article from Gelman, Goel and Ho on what statistics can't tell us about affirmative action at Harvard. I'm a sucker for experts writing about the limits of their field.
I mentioned new research earlier punching some gaps into existing evidence bases. Here we go. Money priming, like other forms of priming, doesn't actually have a meaningful effect on behavior. The charts in this one are particularly striking. And an at-scale implementation of CBT for disruptive kids in Chilean schools radically backfired.
And because I have no other place better to put it, but wanted to include it, here's Ray Fisman and Michael Luca on how free pens are killing so many people in the US that average lifespans are falling. And on a related note, ugh, ugh, ugh. There are some things that need to be re-named more urgently than the Ely Lecture.

5. Global Development: When you can write about industrial policy and subsistence agriculture in the same item, you have to take advantage. Thanks VoxDev! Dani Rodrick has an overview on the resurgent economics of industrial policy, which is a very helpful refresher if you've looked at David's post on setting up your own firm to run experiments and are thinking it may be time to change your topics of interest. But VoxDev also has a summary of work reviewing what's been learned about improving agricultural extension services from the Agricultural Technology Adoption Initiative. Which is a very helpful overview if you, like me, have long-standing plans to look at what we can learn from research on subsistence farming to design programs for subsistence retail.
But there's still a long way to go, because even after all this time studying small-scale agriculture we still don't know a lot. Like how much of the difference in productivity from farm-to-farm is real or just mismeasurement. That paper should also be of interest to anyone thinking about studying firms, by setting up their own or otherwise, or in industrial policy.

Apropos of nothing, I found this chart, and  the related blog post  looking at data from lots of different drugs, on the frequency of use of marijuana quite interesting.

Apropos of nothing, I found this chart, and the related blog post looking at data from lots of different drugs, on the frequency of use of marijuana quite interesting.

Week of January 7, 2019

1. The History of Banking: For a project I'm working on I've been thinking a lot about financial system development and have gotten a bit obsessed with the history of banking. You might think that with a topic so core to economic thinking there would be some consensus on things like what banks do and how they came to do them. But you would be wrong. I've had great fun reading conflicting accounts of the history of banking in the US and Germany over the last few weeks. At the AEA exhibit floor I stumbled on a new book about the history of banking in France, Dark Matter Credit. The short version is that informal banking was a massive part of the French economy, and worked better in many ways than French banks until World War I, and it took regulation to finally allow formal banks to displace the informal system. I also picked up Lending to the Borrower from Hell and just in the first few pages discovered that Italian "friars, widows and orphans" were buying syndicated loans to Charles the II of Spain in 1595. The bottom line is that informal finance was much more efficient and "thick" than I believed, and formal banking extended much further much earlier than I had known. There's also a new book on banking crises in the US before the Federal Reserve, Fighting Financial Crises, which is equally relevant to thinking about the much-more-grey-than-you-would-think borderland between formal and informal banking.
To tie this all more specifically to the AEA meetings than just what was on display at the book vendors' booths, one of my favorite sessions was Economics with Ancient Data. Though I'll confess I'm not sure whether to be heartened that things we are doing now can have persistent effects for thousands of years, or depressed that our present was determined by choices thousands of years ago.
   
2. MicroDigitalHouseholdFinance: There was of course a number of new(ish) papers on our favorite topics, further condensed here. Here's the session on financial innovation in developing countries and one specifically focused on South Asia. Some of these papers have appeared in recent editions of the faiV already, but I want to call out a couple specifically. Microcredit, I've argued, is in dire need of innovation. So I'm always pleased when I see papers on innovation in the core product terms, like this paper from India on allowing flexible repayment, and while it wasn't at AEA,this one in Bangladesh. In both cases, allowing borrowers to skip payments results in higher repayment rates and better business outcomes. I see these as part of an evolving understanding that microcredit is a liquidity-management product, not an investment product. Credit can also be a risk-management product, as long as you know it's going to be there when you need it. That's the story of this paper on guaranteed loans for borrowers in the event of a flood (in Bangladesh). Another cool innovation in microcredit. Of course, the next question is who is going to insure the MFI so that it has the liquidity to make good on emergency loan promises?
There was a session titled "Shaping Norms" that I almost missed out on because of the somewhat oblique title. There were some very interesting papers here on how household preferences get formed, and how they can be changed, including longer-term data on the experiment in Ethiopia that I think of as launching the "changing aspirations" theme that we see more and more of.
I was amused that there were simultaneous sessions on "Finance and Development" and "Financial Development" but the poor Chinese student beside me was very confused as apparently the translations in the official app did a poor job of differentiating between the two. Both had interesting papers, but I found this on the sale of a credit card portfolio from a department store to a bank (which has access to more credit bureau data) in Chile, and this on bank specialization in export markets particularly interesting.
But moving outside of the AEA realm, my confirmation bias prevents me from not including two other related items on Household Finance. First, Matthew Soursourian of CGAP has some pointed questions about the usefulness of "financial health" as a concept, questions I thoroughly endorse. Second, there is documentary evidence (for instance, here) that I've long been skeptical of the story about mothers in developing countries caring about their children while fathers don't. I find it more than vaguely racist as these stories typically only involve countries where the majority of fathers are black or brown. Anyway, at long last someone, specifically Kathryn Moeller, tried to track down one of the more common statistics on women spending more money on children and found that there is no source, and it was apparently made up as part of a marketing campaign. But that's just the start. Seth Gitter links to three studies that find no difference in investment in children (and I'll add the Spandana impact evaluation to his list) and Martin Ravallion points out that the "70% of world's poor are women" stat seems equally unsourced.
 
3. Entrepreneurship, Reluctant and Otherwise: Overall, the paper that left me thinking the most is a long-term update to the Blattman and Dercon experiment randomizing employment at factories in Ethiopia. If you need a catch-up, the original experiment had three arms: control, a $300 cash grant plus business training and a job in a "sweatshop"-type factory. While there were positive effects for the entrepreneurship group, the jobs didn't improve income and had negative effects on physical health. After five years, all the differences dissipate (hours worked, income, health, occupational choice). Pause to think about that for a moment--after several years of higher incomes from entrepreneurship, the average person in that arm shut down their business. And the control group started microenterprises and got factory jobs (filling the gaps left by the treatment arm participants who dropped out?). It's another piece of a growing puzzle about why microenterprises don't grow, or more specifically why people don't seem to invest in their microenterprises, even when the income is higher than the alternatives. Stuart Rutherford has been thinking about that too, and because it's Stuart, he went out and interviewed participants in the Hrishipara Diaries to try to get some answers.
If you're a regular reader of the faiV, you know that one of my standard soapboxes is the need to pay more attention to the commonalities between the US and developing countries. And this is anther example. At AEA, Fiona Grieg of the JP Morgan Chase Institute presented updated data on participation in the gig economy in the US (not publicly available yet, here's the older version). Of the various forms of gig work, driving is arguably the most similar to the low-skill self-employment options, which I generally term "subsistence retail", available in developing countries (indeed, that's one of the jobs Stuart discusses in his piece). In that sector, specifically, the striking finding is that participation is sporadic, irregular and incomes are falling, in part apparently because of competition but also because participants are spending fewer hours doing it. It's a pattern that looks to me much like the Ethiopia experiment, and Blattman's similar experiment in Uganda which also saw all effects dissipate after nine years. 
Here's a nascent explanatory theory, based on a new NBER paper about demographic change in the US. The authors show that all of the troubling changes in the US economy related to job creation, start-up rates and the labor share of income can be explained by the US's aging population. The basic idea is this: older people start fewer firms, particularly firms that grow and add employees, than young people. With fewer start-ups you get less creative destruction and more mature firms which tend hire fewer new workers and, at least partially as a consequence, have more unequal wages and less wage growth. Now apply those ideas to developing economies which tend to be quite young demographically. There young people are trying a lot of things to figure out what the best option for them is. Because of other market failures, the need for extraordinary entrepreneurial ability to succeed is much higher and therefore much fewer small firms grow to any size. And even survival takes a huge amount of effort, especially since there are so many other low-skill young people trying out the same things at the same time. So people drop out of microenterprises before learning enough to improve them, and then bounce through other options because none of them are particularly good. And that's what we are also now seeing in the US economy, with the gig economy as one example. The jobs just aren't good enough to justify investment. Any thoughts on this very welcome. 

4. Blind Spots and Privilege: The two things that generated the most attention at AEA this year had to do with blind spots. You've likely heard about the investigations into harassment and bullying of women by (former) superstar Roland Fryer. That gave real energy to the sessions on gender discrimination in the profession that were already on the agenda by the time the story broke. Here's video of a session featuring Susan Athey, Marianne Bertrand, Sebnem Kalemli-Ozcan and Janet Yellendiscussing their experiences being economists while female. The sessions and conversations certainly caught the attention of the news media with follow-up stories, from the NYT and NPR. The conversations have brought to light plenty of blind-spots and privilege. For instance, the AEA has not had any way to remove someone from the executive committee. There is now a code of conduct, but no mechanism for enforcing it. And the post-conference conversation on Twitter has been turning to more of the blind-spots, like the persistence of one-on-one job interviews in hotel rooms. It remains to be seen how much of a reckoning there will be. Case in point is the death this week of Harold Demsetz, an economist who, the consensus seems to be, should have won a Nobel (with Armen Alchian). The third comment on Marginal Revolution is a very credible story of years of harassment by Demsetz. But here's a Twitter thread lamenting his passing in which I can't help but notice an imbalance among the commenters who knew him personally.
OK, here's a huge pivot. The other session that inspired the most passionate response, at least as far as I could tell, was about coming changes to how the US Census Bureau anonymizes data. Here's some quick background: the ability to de-anonymize anonymous data is increasingly a concern in many areas of life; and the Census Bureau is moving toward something called "differential privacy" to make it harder to do, with unclear but probably negative effects on the ability of researchers to use Census Bureau data. Whether there are real threats to privacy and how the Census plan is being implemented are apparently deeply controversial. Here's a "live" thread from Gary Kimbrough, with follow-up responses from some of the participants, that reveals some of the tensions and problems. Something that emerges from the thread of particular note is an issue I was not aware of: Raj Chetty has more access to Census data than anyone else, apparently, and that is a source of a lot of tension among researchers. There is real concern that the Census' plan will create a hierarchy of who has access to useful data and put even more power in the hands of privileged researchers--and the extreme hierarchy that already exists in Economics is certainly a part of the culture problem. 

5. Replication and Causal Inference: OK, let's expand our horizons beyond things drawn directly from AEA. David Roodman has a new piece on the lessons from his work attempting to replicate two important public health economics papers over the last few years. Roodman doesn't see a replication crisis in economics similar to that in psychology, because "most...original results can be matched when applying the reported methods to the reported data." He thinks, though, that re-analysis is more important than replication and there economics has a "robustness" crisis.
There is a new study of "push button replication"--the ability to get the same results from the reported data and methods with the resources made available--of impact evaluations from low- and middle-income countries. Brown, Muller and Wood find that only 27 of the 109 studies they find are "push button replicable." Of those that were not, 59 did not provide the necessary data and code (similar to another paper from a few years ago that David cites); 30 of those were published in journals that nominally required the data and code to be posted. Not great, Bob
Finally, a clash of titans in the world of causal inference erupted this week, with Andrew Gelman posting a review of Judea Pearl's newish book, The Book of Why. AsSue Marquez notes, the comments are where it gets really interesting (which also got me to wondering, why are the comments on Gelman's blog must reads and the comments on Tyler Cowen's blog must-not-reads?). Pearl himself responds, (eventually in multiple places in the thread) and if you thought the culture in economics was unique, maybe not so much. Most of what is in the comment thread at Gelman's blog is statisticians. The economists got to discussing it on Twitter. I wish I could provide a useful guide to that, but the conversation got so fractured that even I was stymied trying to follow it. The best I can offer is to start with Marquez's tweet, and then click on various replies to see the conversation branching. It's frustrating but worth it, and if any faiV readers end up making sense of it (nudge, nudge Marc) and summarizing the conversation in a useful way, let me know.

There were a lot of things I considered including this week, but in the end I decided that everyone could use a smile to start the year with. So without further comment, click play.

There were a lot of things I considered including this week, but in the end I decided that everyone could use a smile to start the year with. So without further comment, click play.

Week of August 20, 2018

Editor's Note: I'm back on faiV duty. Many thanks to Alexander Berger, Jeffrey Bloem, John Thompson, and Rebecca Rouse for filling in. If you would be interested in being a guest editor of the faiV at some point, feel free to reach out.
This week, I'm casting my eye back over the many things I've been reading over the last few months. Don't worry, I'm not going to try to cover all of those in one faiV, though there will be, perhaps a bit less commentary than usual.--Tim Ogden


1. Financial Inclusion and Digital Finance: The last time I was writing the faiV, various takes on the Global Findex data were being featured prominently. So it only seems fitting to come back to that as I return. Greta Bull of CGAP has a two-part blog, part I and part II, reacting to Beth Rhyne's and Sonja Kelly's take (may I take a moment to smile at the inclusion that sentence reveals?) on the Hype vs. Reality of inclusion. Bull argues that the Findex data shows greater progress on inclusion than Rhyne and Kelly see. For what it's worth I lean to toward Bull in this debate. It would be surprising, given the incredibly rapid progress in access, if the access-use gap wasn't growing, especially in countries with relatively low levels or recent gains in access as network effects won't kick in for awhile.  
There is another concern beyond the use/access gap--does use of the available accounts make people better off. Here's a new paper from Kast and Pomeranz showing that providing free savings accounts in Chile led to lower debt burdens (and some additional evidence on rotten kin). On the other hand here's an open letter from Anup Signh to Kenyan Central Bank governor Patrick Njoroge making the case for urgent regulatory action on digital credit to protect borrowers. On the third hand (hat tip to Brad DeLong) mobile money seems to have saved lives (note no counterfactuals there, but it seems plausible) during Ebola outbreaks in Liberia and Sierra Leone during Ebola outbreaks by ensuring that response workers got paid.  
Of course, benefit depends not just on use, but on who is using the services. Microsave found that 80% of the "addressable LMI market" in India was not being served by fintechs, and, with CIIE's Bharat Inclusion Initiative, has launched a "Financial Inclusion Lab" to help Indian fintech's address that market.   

2. Our Algorithmic Overlords: If you've gotten out of the habit of reading the faiV, what better way to grab your attention back than sexbots! Here's Marina Adshade, an economist at UBC, with a thoroughly economic argument about how sexbots could make marriage better (by changing how it works and what it does). And here's Gabriel Rossman, a sociologist at UCLA, making the counterargument. Apparently he reads Justin Fox.
On a much more prosaic, and more urgent, front, there have been a raft of stories on the increasingly alarming situation in Northwest China where the tech-driven panopticon seems to be racing ahead in the service of persecution of Muslims and ethnic minorities. Here is the NYTimes "inside China's Dystopian Dreams". Here's Reuters on the "surveillance state spread[ing] quietly." MIT Technology Review asks, "who needs democracy when you have data?" And here's Foreign Affairs on the "coming competition between digital authoritarianism and liberal democracy." If I have a bone to pick it's the lack of attention to the possibility of "authoritarian democracy" that comes along with a surveillance state and AI overlords.

3. Global Development: If sexbots don't get your attention, what about hyperselectivity of migrants? I think, quite a while ago, I linked to Hicks, et al. on the systematic differences between those who migrate from rural to urban Kenya, and those who stay on the farm, finding that urban productivity is a factor of the traits of the workers who migrate. But if not, now they are in VoxDev with a great summary of the work. It's particularly interesting to read in conjunction with this new paper on the hyper-selectivity of migrants to the US--the fact that migrants to the US are both more likely to have a college degree than their compatriots, and than the US native-born population. That hyper-selectivity plays a role in second generation outcomes, but has mixed results for economic mobility of Asian, African and Latino migrants.
What to do for those who don't migrate? I really like this new paper from Beaman et al. on using Network Theory-Based targeting to determine how to deliver agricultural training. Why? Well, because I find technology adoption a particularly interesting set of questions, but mostly because they "identify methods to realize these gains at low cost to policymakers."

4. Philanthropy: There's an old saw that two data points are anecdotes, but three are a trend. It's mostly applied to journalism, but I originally heard it at my first job doing market research on the IT industry. Regardless of it's source, it definitely indicates there is a trend to looking much harder and more skeptically extreme wealth-driven philanthropy (or social investment, or impact investment, etc.). Anand Giridharadas expands a talk he gave at Aspen into a full length book called Winners Take All: The Elite Charade of Changing the World. Rob Reich, a political scientist at Stanford (who I have the temerity to call friend), has Just Giving: Why Philanthropy is Failing Democracy and How It Can Do Better, and David Callahan, founder of Inside Philanthropy, has The Givers: Wealth, Power, and Philanthropy in a New Gilded Age. None of them sound much like Philanthrocapitalism or Giving. I'm excited by all three, and I think you should buy and read them, but let's be realistic. You're much more likely to read this review of the three from Elizabeth Kolbert. The most interesting review--from a meta-perspective--though is this review in SSIR ofWinners Take All from Mark Kramer, clearly one of the targets of Giridharadas's book. Well done SSIR. 

5. US Inequality: Continuing on that theme, it's not just the billionaire philanthropists who are undermining American society and democracy, according to Matthew Stewart. If you're a US-based reader of this newsletter you are likely part of the problem. If you prefer the academic version of an argument like this, here's a new paper from Schneider, Hastings and LaBriola on income inequality and the growing, and amplifying, gap in parental investments in children. They also read Justin Fox (and enough with the cryptic link, that's a piece about sociologists engaging with the public more like economists, including making their papers open access.) Or if you prefer the academic version in summary form, here's Schneider's tweet thread. And since it's back-to-school time, here's the most depressing back-to-school news I can imagine: School districts in my area are hiring private detectives to follow kids and make sure they aren't crossing district lines in order to go to a good school. No arguing with Stewart's thesis allowed while this is how wealthy school districts are spending their money.

It's not just the US that has concerns about the influence of extreme wealth and inequality. Here's a 3 minute book preview of James Crabtree's book,  The Billionaire Raj .

It's not just the US that has concerns about the influence of extreme wealth and inequality. Here's a 3 minute book preview of James Crabtree's book, The Billionaire Raj.

Week of June 4, 2018

1. Financial Inclusion: I have no idea what your priors are about financial inclusion, but I think it still matters a lot and you'll be seeing more about that from me in the faiV and elsewhere in coming months. The best way to update your priors on the state of financial inclusion is the Global Findex of course. I've been including things in drips and drabs, but Sonja Kelly and Beth Rhyne of CFI have now published their reasonably comprehensive look at the data, complete with lots of charts, available for everyone (and Sonja definitely deserves a vacation after all her work on this and the Gallup data).
CFI is certainly onboard with the theme of updating priors. The title of the report is "Financial Inclusion Hype vs. Reality" and the Introduction invites you to "Recalibrate." The big message is that despite growth in account ownership, there's no growth in usage and lots of troubling signs, like falling savings rates. You can feel the exasperation in the report, an exasperation that I generally share, given what seems to be a general fatigue around financial inclusion. These data don't in any way support the idea that it's time to move on from financial inclusion. But I'm less concerned than Sonja and Beth about the growing gap between access and usage. Consumer banking does have network effects--value of usage increases rapidly with the number of other users--but those effects take time. The population being served was never likely to be heavy users, which increases the time before network effects surface and become self-reinforcing. So it makes sense to me that as we get better at access, the gap between access and usage should grow for a while.
One place I'm not updating my priors based on this data is showcased in their Figure 6, illustrating that rapid growth in digital payments is not showing up in borrowing or savings. I've always been puzzled by the idea that making it easier for people to spend was going to boost savings. 
Given that the empirics in Findex aren't very encouraging on progress in financial inclusion, here's a new paper from Besley, Burchardi and Ghatak laying out the benefits of inclusion. The most interesting thing about it is how well it aligns with what we've been seeing on general equilibrium effects of microcredit--it raises wages for the average worker. That's bad for impact evaluations, but good for more people and a powerful reason to continue investing in inclusion.

2. US Inequality: Speaking of average workers, a big reason for this week's theme is the new BLS numbers on contingent work that set the US Economy commentariat aflame yesterday. The big story is that contingent work--which includes freelancers, gig workers, temps, etc.--has not increased since 2005, the last time it was measured (here's a 2 minute overview). That's pretty remarkable since none of the gig platforms we hear so much about today existed back then. But the numbers are hard to interpret. Ben Casselman has a good overview of the issues here, chief among them being that the BLS asks about "primary" job and counts as non-contingent any regular job regardless of how steady the hours are. So the "no growth" data is consistent with findings from the SHED that 30 percent of Americans now rely on contingent work to make ends meet and from JP Morgan Chase Institute that gig work accounts for about 30% of income for those that do participate.
The bottom line: whatever your priors were, you should probably hold them more weakly than before.
But if you were looking forward to actually updating your priors, here's something I found surprising: income inequality in the US stopped growing some time ago (though the conclusions in that piece beg the question, in the logic sense of that term). And here's a paper from late last year that finds that what can be reasonably thought of as "freelance" professionals--doctors, accountants, lawyers--are responsible for most of the growth in income inequality since 2000.

3. Our Digital Overlords: Another inspiration for this week's theme was this piece by David Leonhardt, reviewing Reinventing Capitalism in the Age of Big Data, a new book that considers the benefits of a data-rich markets for consumers, and the danger that data-rich markets lead to monopolies and less employment. But the thing that most caught my eye, in terms of updating priors, is a casual reference to the story of the Kerala fishermen benefiting from cell phones. That's a story that is very much in doubt, but seemingly few people have updated their priors (see also this). As a side note, if anyone knows of more current research on the story or an effort to sort through the claims (beyond what is in the comments on that piece), please let me know. But searching for that link on the Kerala story, I noticed several other stories on the ICTworks site about surprising failures of digital tools to improve market functioning. My eye was specifically drawn to a story I remember blogging about at least a decade ago: sharing market prices with African farmers via text messaging didn't work out nearly as well as it seemed it would.
My bottom line here is influenced by two studies about police bodycams that were released this week, one in Milwaukee and one in Spokane, which seem to have found opposite effects on a major outcome measure (the number of self-initiated stops police make) without having much other effects. That bottom line is I shouldn't make predictions about how technology will change behavior, or even have strong beliefs after reading a paper about such things.

4. Social Enterprise: If you didn't update your priors about double-bottom-lines based on the recently linked paper from Karlan, Osman and Zinman, here's a new paper from Gine, Mansuri and Shrestha that finds that performance pay in a "mission-oriented nonprofit" has complicated effects that certainly make it hard for managers to use that particular incentive. 
This interview from the authors of the new book Unicorns Unite (really that's the title of the book) may change your priors about the value of a book with unicorns in the title, but also about how the world looks from the perspective of a non-profit fundraising or a grant officer evaluating proposals. Even if you don't think that sounds interesting, you should click because it is interesting, especially if you scroll down past the opening questions.

5. Methods, etc.: Updating priors is important, but sometimes they shouldn't be updated because the prior was correct. But those situations are hard to determine because the publication process is biased against confirmations of earlier findings. There's a new journal that aims to change that: The Series of Unsurprising Results in Economics.
For those of you not in the coding side of modern social science research, you may have wondered why everyone was making such a big deal about GitHub's acquisition by Microsoft. Allow me (well Paul Ford actually) to explain.
Moving on to some service journalism here for the economics and econometrics set, here is the first in a series of posts by Sylvain Chabe-Ferrer on hating p-values, and the alternatives. Here is a library of statistical software plug-ins though it doesn't appear to be updated all that often.

Aaron Klein is hoping that people will update their priors about "cashlessness" in the US , by pointing out that volumes of cash are still rising significantly year over year in the US. Read the replies of the Twitter thread, they are useful for figuring out how to update your priors. Source:  The Federal Reserve , via  Aaron Klein .

Aaron Klein is hoping that people will update their priors about "cashlessness" in the US, by pointing out that volumes of cash are still rising significantly year over year in the US. Read the replies of the Twitter thread, they are useful for figuring out how to update your priors. Source: The Federal Reserve, via Aaron Klein.

CEGA Special Edition: A bit more from AEA

Editor's Note: this week’s faiV highlights more research on financial inclusion and machine learning from the American Economic Association annual meetings, guest-edited by Sean Higgins, a Post-Doctoral Fellow at the Center for Effective Global Action at UC Berkeley, whose research focuses on financial inclusion.

Next week, I'm hoping Jonathan Morduch will fill in for me before I resume normal service the week of February 5th--Tim Ogden

1. Financial Inclusion: I [Sean] organized a session on savings and financial inclusion that looked at the impact of various savings interventions such as commitment devices, opt-out savings plans, and mobile money. Continuing last week’s theme on similarities between developed and developing countries, a savings intervention that has greatly increased savings in the US is opt-out savings plans or “default assignment,” such as being automatically enrolled in a 401(k) plan. In an experiment in Afghanistan, Joshua Blumenstock, Michael Callen, and Tarek Ghani explore why defaults affect behavior: some employees are defaulted into a savings program where 5% of their salaries are automatically deposited in a mobile money savings account, but they can opt out at any time. Those who were defaulted in were 40 percentage points more likely to contribute to the savings account, which is comparable to the effect of the employer matching 50% of employees’ savings contributions

Commitment savings accounts have also been tested in the US and in many other countries. In a study by Emily Breza, Martin Kanz, and Leora Klapper, employees in Bangladesh were offered a commitment savings account, with a twist: depending on the treatment arm, employers sometimes endorsed the product, and employees were sometimes told that their decision would be disclosed to the employer. Only the treatment arm that had both employer endorsement and disclosure of the employee’s choice led to higher take-up, suggesting that workplace signaling motivated employees to save. Another study by Simone Schaner et al. (covered in last week’s faiV) offered employees in Ghana a commitment savings product with the goal of building up enough savings to stop incurring overdraft fees, which are common. Take-up was high, but baseline overdrafters were more likely to draw down their savings before the commitment period ended -- meaning they benefited less from the intervention.
Two important barriers to financial inclusion in the US and around the world are transaction costs and low trust in banks. In a paper I coauthored with Pierre Bachas, Paul Gertler, and Enrique Seira, we study the impact of providing debit cards to government cash transfer recipients who were already receiving their benefits directly deposited into a bank account. Debit cards lower the indirect transaction costs -- such as time and travel costs -- of both accessing money in a bank account and monitoring the bank to build trust. Once they receive debit cards, beneficiaries check their balances frequently, and the number of checks decreases over time as their reported trust in the bank and savings increase"


2. Household Finance: Digital credit is a financial service that is rapidly spreading around the world; it uses non-traditional data (such as mobile phone data) to evaluate creditworthiness and provide instant and remote small loans, often through mobile money accounts. One of the concerns about digital credit is that customers’ credit scores can be negatively impacted, even for the failure to repay a few dollars. In turn, this can leave them financially excluded in the future. Andres Liberman, Daniel Paravisini, and Vikram Pathania find a similar result for “high-cost loans” in the UK (which we would call payday loans in the US). They use a natural experiment and compare applicants who receive loans with similar applicants who do not receive loans to study the impact of the loans on financial outcomes. For the average applicant, taking up a high-cost loan causes an immediate decrease in the credit score, and as a result the applicant has less access to credit in the future.  

3. Our Algorithmic Overlords: There were a number of sessions at the AEA meetings on big data and machine learning. My favorite of these showcased a variety of economic applications of machine learning, three of which use big data from mobile phones. Susan Athey et al. use high-frequency location data from mobile phones to estimate a consumer choice model over restaurants and travel time. There are a large number of variables going into each individual’s decision of where to go for lunch, and each individual is different; the benefit of using machine learning is that they can incorporate a large number of variables on both restaurants and consumer preferences into the model. Susan also has an excellent overview of applications of machine learning in economics here.


Mobile phone data can also be used to predict creditworthiness: in a middle-income Latin American country, Daniel Björkegren and Darrell Grissen find that mobile phone call detail records perform just as well at predicting creditworthiness as traditional credit bureau scores (although neither perform particularly well in this sample). The mobile phone data appears to be picking up useful information to predict creditworthiness, and could be especially useful for consumers with no formal credit history or traditional credit score. These data sources and models could also help low-income women, who face a bias in the amount lenders are willing to provide, higher interest rates, and legal frameworks which can make it more difficult for them to access credit.

4. More Machine Learning: After the meetings each year, the AEA offers two-day continuing education courses on a changing variety of topics. This year, one of the courses was Machine Learning and Econometrics taught by Susan Athey and Guido Imbens. The webcasts and slides from the course can be accessed here. As economics increasingly adopts methods from machine learning in the coming years, this class’s combination of practical tools, R code, intuition, and theory make it more than worth your time to watch the webcasts and peruse the course materials.

One of the gems was the intuitive descriptions of various machine learning techniques. I feel like I finally have an intuitive understanding of what stochastic gradient descent and neural nets do (and I had to explain it to a friend yesterday which is always a good test). For example, here’s Susan’s description of the “incredibly powerful” method of stochastic gradient descent (in minute 58 of this video). What we usually do: “Estimating a model is climbing a mountain. In economics the way we approached that problem historically, is if you were climbing up that mountain trying to find the parameters that maximize an objective function, at a particular point in climbing that hill there’s a gradient that tells you in which direction should I change my parameters to get up to the top of the hill and find the parameters that best fit my data. We might spend fifteen minutes of our computation computing the gradient at one point, and then climb up the hill a little bit and work really hard at computing the gradient at the next point.” 
The magic of stochastic gradient descent: “At each point in climbing the hill, you evaluate the gradient using just one data point from your data set…you just pick one data point and compute where you should go as if that data point was your only data point. It’s an unbiased estimate of the gradient but it’s incredibly noisy. But instead of doing 10,000 computations to figure out how to make one tiny step, instead 10,000 times you go up and down your hill, up-down-up-down, over here over there, but you’re always kind of going in the right direction. And 10,000 points later you’re almost at the top, while with our old methods you would have gone much more in the right direction but you would have just made one tiny step and you’re nowhere near the top of the mountain.” 

5. Inequality:
The World Wealth & Income Database group led by Thomas Piketty, Facundo Alvaredo, and Lucas Chancel at the Paris School of Economics and Emmanual Saez and Gabriel Zucman at UC Berkeley presented on global inequality and policy. Recently, the group has been combining data from household surveys, national accounts, and tax records to create more comprehensive measures of income and wealth inequality. One interesting finding they presented was that Brazil’s large reduction in inequality since 2001 -- which is based on income measured in household surveys -- goes away if we instead use a measure that combines data from household surveys, national accounts, and tax records. With the more comprehensive measure, income inequality in Brazil has been flat. They also reported that inequality is increasing in almost every region of the world, and the global top 1% have about 20% of global income. A webcast of this session is available here.

Default assignment into an opt-out automatic savings plan leads to a large increase in take-up of the savings account, comparable to the effect of a 50% savings match (from  Blumenstock, Callen, and Ghani ).

Default assignment into an opt-out automatic savings plan leads to a large increase in take-up of the savings account, comparable to the effect of a 50% savings match (from Blumenstock, Callen, and Ghani).

Week of November 27, 2017

Editor's Note: Two weeks ago, I told you that the faiV would be off for two weeks, and that's technically still true, because this isn't the faiV.--Tim Ogden

1-4. An Experimental Podcast: Every month or so someone asks me if I've considered doing the faiV as a podcast. The answer is not really, because the faiV doesn't lend itself to audio at least when I'm not ranting. Also because I rarely listen to podcasts because I don't commute and realistically I'm never going to sit at my desk and listen to audio for 30 minutes or more.

But because of the Thanksgiving holiday and travel this week to European Microfinance Week I wasn't able to the faiV. So I thought it was a good time to experiment with an addendum to the faiV in podcast form. Thankfully Graham Wright of Microsave agreed to experiment with me. So we recorded a conversation about digital finance, its potential and its pitfalls, inspired by Graham's post, "
Can Fintech Really Deliver On Its Promise For Financial Inclusion?"

We discuss whether mission matters, barriers to adoption, the tensions in building agent networks and why everyone who says "X is not a silver bullet" is lying. All in just over 30 minutes. Give it a listen and let me know if you'd like to hear more conversations like it.

 

Table of Contents:
1:45 - Can Digital Finance be Transformational for the Rural Poor?

3:51 - Does it matter that most DFS providers have never had a "pro-poor" mission?

7:54 - Does the US and microfinance experience foretell the future of digital finance?

13:42 - Biggest challenge for DFS: Lack of Education, Lack of Infrastructure or Lack of Consumer Protections?

21:50 - The Tensions of Agent Networks

27:00 - Financial Inclusion and Silver Bullets

31:13 - The Consequences of Removing Frictions

And because I can't stop myself, here are links to some of the things we talk about:

Graham's original post that inspired the conversation
Cathy O'Neil's book Weapons of Math Destruction
Cull, Demiguc_Kunt and Morduch: Microfinance Meets the Market and The Microfinance Business Model
[Note: Jonathan and I had a long email discussion today about whether my description of for-profits serving more poor customers overall, while non-profits are more likely to serve poorer customers and women is true given how the microfinance industry has rapidly evolved and the limitations to data. We didn't resolve the question.]
Mersland et. al. on loan officer "mission drift"
Don't Swipe the Small Stuff
MicroSave work on agents: Solving Agents' Liquidity Problems; Improving Agent Network Performance; Enhancing Agent Networks


5. the faiV Live: And if you really miss the faiV, the closest you'll get this week is the livestream of the closing session from European Microfinance Week where I'll be discussing the future of microfinance with Paul DiLeo, Renee Chao-Beroff and John Alex at 09:30 EST/15:30 CET.

Week of June 12, 2017

1. St. Monday, American Inequality and Class Struggle: One of my favorite things about writing the faiV is when I get the chance to point readers to something they would likely never come across otherwise. So how about a blog post from a woodworking tool vendor about 19th century labor practices, craft unions and the gig economy? Once you read that, you'll want to remind yourself about this piece from Sendhil Mullainathan about employment as a commitment device (paper here), and this paper from Dupas, Robinson and Saavedra on Kenyan bike taxi drivers' version of St. Monday.

Back to modern America, here's Matt Bruenig on class struggle and wealth inequality through the lens of American Airlines, Thomas Picketty and Suresh Naidu. I feel a particular affinity for this item this week having watched American Airlines employees for a solid 12 hours try to do their jobs while simultaneously giving up the pretense that they have any idea what is going on. 


2. Our Algorithmic Overlords: Facebook is investing a lot in machine learning and artificial intelligence. Sometimes that work isn't about getting you to spend more time on Facebook...or is it? With researchers at Georgia Tech, Facebook has been working on teaching machines to negotiate by "watching" human negotiations. One of the first things the machines learned was to "deceive." I use quotes here because while it's the word the researchers use, I'm not sure you can use the word deceive in this context. And that's not the only part of the description that seems overly anthropomorphic.

Meanwhile, Lant Pritchett has a new post at CGD that ties together Silicon Valley, robots, labor unions, migration and development. And probably some other things as well. If I read Lant correctly, he would approve of Facebook's negotiating 'bots since negotiation is a scarce and expensive resource (though outsourcing negotiation is filled with principal-agent problems). I guess that means a world where robots are negotiating labor contracts for low- and mid-skill workers would be a better one than the one we're currently in? 

3. Statistics, Research Quality and External Validity: Here's another piece from Lant on external validity and multi-dimensional considerations when trying to systematize education evidence. A simpler way to put it: He's got some intriguing 3-dimensional charts that allow for thinking a bit more carefully about likely outcomes of interventions, given multiple factors influence how much a child learns in school. It closely parallels some early conversations I've had for my next book with Susan Athey and Guido Imbens, so I'm paying close attention. And if you can't get enough Lant, you could always check out my current book. Yes, both of those sentences are shameless plugs.

4. Household Finance: If you read the faiV regularly you know I think about household finance a lot and how little we really know about household finance decisions. Viviana Zelizer is a sociologist who opened a lot of vistas on household finance--particularly on the importance of understanding that money has meaning. Money isn't just a store of value, it's a store of values. Here's Zelizer on new research into how households use money (which may mention a recent project I've been a part of) from the LA Review of Books. Here's a very different, but complementary, view on issues of household finance and values: how much should someone save for retirement. I usually hate pieces like this, but this one does a great job of showing how each of the standard pieces of advice could be wrong. And here's another form of values impinging on household finance: The "marriageable male" effect is breaking down.


5. Digital Finance: Ignacio Mas can't be digitized. At least not yet (I'm sure Facebook is working on it). And that's a problem that ultimately comes back to financial regulations, scale and the reasons that the poor are often shut out of quality financial services. Serving poor customers is expensive relative to the profits that can be generated, unless you can scale, which means standardization, which often equates to poor service because poor customers are not uniform.

And for something completely different, but definitely relevant to digital financial services and regulation, here's a story about pressures on Uber to allow repressive governments access to their data in return for access to markets. Hmmm...I wonder what other data repressive governments might want to have access to?

 

Billy Bragg and the Blokes performing St. Monday. Have a good weekend.

Week of June 5, 2017

It's Not What You Know... Edition

1. Social Enterprise: A few weeks ago I noted that Etsy was under pressure from an activist investor for behaving like a B Corp (which it is (was?)). I missed the notice that the investor won: Etsy layed off 80 employees and fired the CEO/Chairman. Here's a piece reflecting on the Etsy saga that is emblematic of much of what I think is wrong in social enterprise rhetoric. The argument that social enterprises have to be ruthless competitors may sound good (to some) but it ignores the exact issue that is at the heart of social enterprises: how do you manage the trade-offs. It's worthless--less than worthless, I should probably say "actively harmful"--to pretend there are no trade-offs or to imply that there is value in advice like "be ruthlessly competitive except for in these parts of your business model." It's why efforts like B Corporations that don't have any governance teeth are a distraction, and why even efforts like For Benefit Corporations that do have governance teeth are fraught.

In other social enterprise-ish news, I can't resist a story about a star rapper, off-grid solar power in Senegal and Chinese investors. You can't either can you? On a more practical level here's Devanshi Vaid on the lack of information flow on social enterprise in India.

And here's Felix Salmon with some remarkably clear reframing of an important wing of social investment: if a foundation endowment can't get high investment returns in the near term, don't cut back on grantmaking, accelerate it!


2. Our Algorithmic Overlords: The Atlantic has a long piece on how cryptocurrencies like Bitcoin, purportedly designed to limit centralized authority, actually can become tools of authoritarianism. You don't have to go all the way to cryptocurrencies though, as I try to frequently point out. Digital currency of any sort can easily become weaponized by authority, even authority that isn't fully authoritarian.

I wasn't sure whether to include this in "Social Enterprise" or "Our Algorithmic Overlords" because it's a bit of both, through an extraordinary lens: Venezuela's bonds. As Matt Levine relates, Goldman Sachs (sort-of) bought some bonds from Venezuela (sort-of) that (sort-of) prop up an authoritarian government apparently bent on starving people. But no one is really responsible for this decision because of the way governance of the investment funds is set-up and which all point back to an index by which fund manager performance is measured. (I know, this is confusing and complicated, but it's worth it). In this case everyone is pointing to some arbitrary set of decisions as responsible for their behavior and denying any responsibility for moral judgment. If we struggle with these issues already, how much worse are they going to get with the arbitrary set of decisions are made by an algorithm that we don't really understand?

But people are more worried about algorithms driving their cars, than about algorithms ruling their moral decisions.

3. Statistics, Research Quality and External Validity: Admittedly this is just going to be a hodge-podge of stuff loosely connected.
There's apparently some new work suggesting wide-spread errors or research misconduct in medical RCTs. I haven't had time to look at this much, so here's Andrew Gelman's thoughts which will be much better than anything I would have come up with.
Stuart Buck this week asked whether we're nearing the point of more papers about the 1970s pre-K experiments in the US than there were kids in the experiments. It got me thinking about external validity. Here's an honest question: to a first approximation, do you think there's more in common between, say, microenterprises in Zambia and the Philippines in 2017 or between Chapel Hill, NC in 1972 and Detroit in 2017?
Here's David Evans working through a framework for external validity judgments proposed by Mary Ann Bates and Rachel Glennerster. I'd have to say at this point that I'd lean toward applying lessons from Zambia to the Philippines more than from Chapel Hill to Detroit.

4. American Inequality: The major focus on inequality in America has been on income and wealth but it's not just the money, it's the instability. A substantial part of inequality of income, wealth and stability seemingly can be traced back to exclusionary zoning, which limits lower-income people from getting access to jobs and pushes up both the income and wealth of the already wealthy. Hsieh and Moretti estimate that exclusionary zoning has also "lowered aggregate US growth by more than 50% from 1964 to 2009."

And here's a review of The Financial Diaries--or alternatively, an essay on how to measure poverty--in the New York Review of Books.


5. It's Not What You Know...: Two weeks ago I made a big deal about the technology of management and how underrated it is within policy and economics. Here's a paper about spreading management technology among Indian tech start-ups, finding that peer networks work to change behavior. The authors seem to attribute this to knowledge diffusion--but based on other research I'm skeptical this is a "knowledge" story rather than a "behavior change" story.

It's not just a management knowledge story. In the energy space, product knowledge, even gained via product demonstrations from peers who are using and very satisfied with the product, fails to induce demand for solar home systems in India in another new paper. And Alcott and Greenstone show that information failures don't play a role in energy efficiency program results in the United States. I'm reminded of this earlier work by Meredith, Robinson, Walker and Wydick on health good purchasing that pretty conclusively demonstrates that the barrier to purchase isn't knowledge, it's not having the money that matters.

When will "high level machine intelligence" arrive? Is a 25% chance in the next 25 years scary or reassuring?  Source

When will "high level machine intelligence" arrive? Is a 25% chance in the next 25 years scary or reassuring? Source

Week of January 2, 2017

Pre-AEA/ASSA Edition

1. In Memoriam: The new year began with news of the deaths of two important thinkers on development, economist Tony Atkinson and philosopher Derek Parfit. Here's Tony Atkinson's view of his most important work. Here's a celebratory post from the World Bank's Let's Talk Development blog, here's Beatrice Cherrier's overview of his work as the "founder of modern public economics," and here's a Foreign Affairs piece of Tony's from late 2015, as always focused on inequality and what can practically be done about it. I'll save links for Parfit until next week.

2. Microcredit: I have a new post at Next Billion on what I consider to be one of the most important new research papers on microcredit, an examination of the size and prevalence of subsidy by Cull, Demirguc-Kunt and Morduch. It documents that subsidy is widespread but small--in other words, that delivering pro-poor financial services isn't free, but that it is cheap. Over at CGAP, Greta Bull offers her thoughts on the four drivers of change for financial inclusion in 2017. And here are the most influential posts of 2016 at Next Billion.

3. Cash Aid and Basic IncomeI'm trying not to turn the faiV into a cash and basic income newsletter, but it is a topic that is drawing a lot of attention lately. In the UK, one of the tabloids attacked aid for giving cash to poor people (as opposed to giving cash to rich people?). The Atlantic ran a piece about the history of cash aid in philanthropy and how it is changing current practice. Here's a short history of the idea of basic cash income and here's a round up of both history and current things going on. If you're at #ASSA2017, there's a reception Saturday night to learn more about the Y Combinator basic income experiment in Oakland.  

4. Kahneman and Tversky and Lewis: You've probably seen that Michael Lewis has a new book about Kahneman and Tversky. In case you haven't, here's Sunstein and Thaler's review of the book. Here's a piece by Walter Isaacson about Michael Lewis. And here's a piece from Slate about the irony of Kahneman, our teacher about how easy it is to be wrong, and his faith in results that depended on small samples and have ultimately not held up to replication.


5. Savings: On a more prosaic level, how and why people save remains an important question. Here's Guerin, Kumar and Venkatasubramanian on the use of ceremonial expenditures as a means of informal saving at the IMTFI blog. In related news, Bill Maurer of IMTFI has a book coming out this year on the artifacts of money and transactions (via Diane Coyle's round up of the spring catalogs from econ publishers)

Bonus Ad: Today is the official release date of my book Experimental Conversations: Perspectives on Randomized Trials in Development Economics. Check it out at the MIT Press booth at #ASSA2017 or order one from Amazon (though it now says temporarily out of stock. Is that good news or bad news?)

The  second post in David Roodman's epic review  of the evidence for deworming is now up at GiveWell. The first post looked specifically at some of the worms papers; this post looks at whether results from those papers can be reasonably applied to other contexts. It's a long read but thoroughly worth it. Source:  David Roodman/GiveWell

The second post in David Roodman's epic review of the evidence for deworming is now up at GiveWell. The first post looked specifically at some of the worms papers; this post looks at whether results from those papers can be reasonably applied to other contexts. It's a long read but thoroughly worth it. Source: David Roodman/GiveWell

Week of December 12, 2016

1. Effective Altruism: It's the right time of year to be talking about charitable giving--most US-based charities take in about 50 percent of their annual revenue during the month of December. Here is GiveWell's list of recommended charities this year (NB: I'm on the board of GiveWell). Jennifer Rubinstein has a new essay about the "hidden curriculum" of effective altruism, as seen in Peter Singer's and Will MacAskill's books. There's always a hidden curriculum isn't there?

2. Evidence-Based Policy: Effective Altruism shares a curriculum, hidden or not, with evidence-based policy. At Stanford Social Innovation Review, Jennifer Brooks of the Gates Foundation has a post making the case for evidence-based decision-making. I suspect that prior to November 8th most readers of this newsletter wouldn't have thought the case needed to be made. One of Brooks' key points is the need for better data from rigorous evaluations so that there is evidence not just on effectiveness of a particular program, but information on how to improve other programs' performance. That just so happens to be one of the points in the conclusion to my shortly to be available book on the use of RCTs in development economics. You're running out of time to buy a copy for a holiday gift. It won't arrive until January regardless, but it's the thought that counts right? Oh wait--the whole point of effective altruism and evidence-based policy is that it's not the thought that counts. 

3. African Bank FailuresIt doesn't make the global news, but there have been a number of bank failures in sub-Saharan Africa in the last few months: Kenya, Mozambique, Zambia, and Uganda have all closed banks since the beginning of October. At FSDAfrica, Mark Napier looks at whether there's a trend to be concerned about. He forecasts a "rocky ride" for African banks, and lots of work for bank regulators, in 2017.  

4. Cash, Cash, Cash (and Targeting): I've been trying to keep away from basic income and cash transfers for a few weeks. But some things are starting to build up. There's this new thing called the Economic Security Project (I'm not quite sure what it is) that seems to be organizing support for testing basic income in the US (but also making grants?). Here's their "Statement of Belief" with some notable signatories. Here's Rachel Schneider and Jennifer Tescher explaining their support, in part drawing on the US Financial Diaries research (yes, I'm biased to any argument from USFD research). And completely independently, here's Brown, Ravallion and de Walle looking at proxy-means testing approaches to target assistance to poor households. They find there are some methodological tweaks to standard approaches that would improve targeting, but that basic income performs as well at reducing poverty as any of the improved targeting approaches (but note that even still the best outcome is reducing poverty by 25%). And here's an Evansian review of Health CCTs if you haven't seen it yet--lots of good takeaways on program and study design.


5. Machine Learning: Back to evidence-based policy making. Well, perhaps I should say data-based policy implementation. Kleinberg, Ludwig, and the elusive Sendhil Mullainathan have a piece in Harvard Business Review--essentially a guide for policy makers on the possibilities and pitfalls of using machine learning for things like targeting. They discuss examples like setting bail and hiring police officers, but also how easy it is to be misguided by an algorithm if you don't understand it. I'm reminded of Matt Levine's phrase about algorithms being like genies, always taking instructions just a bit too literally. I've seen Sendhil present some of this work on how machine learning can be useful in improving targeting, but also dangerous by directing attention away from existing, undetected errors in the targeting process. Hopefully there will be papers available soon.

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Bonus Follow-Up: Last week I included some links to pieces that were widely circulating and getting a lot of attention with the idea that you didn't need such links from the faiV. I thought some of you might be interested in some data on that topic: David Roodman's blog on Worm Wars was 4th, Raj Chetty's data on mobility was 6th, and Gabriel Zucman's data on wages was 11th out of 20 links. 

There's a crisis of opioid addiction in the US, mostly concentrated in rural areas, serious enough that it's showing up in life expectancy statistics. But it's also affecting newborns, with cases of addicted newborns increasing rapidly enough to strain hospital budgets. Of note,  in the coverage of this issue  there is no mention of "super predators." I'm not sure whether to be encouraged or discouraged by that. Source:  J  AMA Pediatrics

There's a crisis of opioid addiction in the US, mostly concentrated in rural areas, serious enough that it's showing up in life expectancy statistics. But it's also affecting newborns, with cases of addicted newborns increasing rapidly enough to strain hospital budgets. Of note, in the coverage of this issue there is no mention of "super predators." I'm not sure whether to be encouraged or discouraged by that. Source: JAMA Pediatrics

Week of November 11, 2016

1. Demonetization in India: It doesn't seem like I'm the only one who's a bit confused by exactly what's happening in India and why this particular set of steps will yield the stated outcomes. Here's my current understanding: Last week, the government declared that 500 and 1000 Rupee notes would no longer be legal tender, effective immediately. Except that those notes could be exchanged for new notes until December 31 at banks and post offices. But only by people with official government ID. The purpose is to drive more of the economy into the formal sector and to clamp down on black market activity and corruption. Usually advocates of this sort of step talk about high denomination bills (which they say facilitates corruption by making it relatively easy--in terms of size and weight--to transport large sums) like $100 bills. But 1000 Rupees is roughly $15 and a new 500 Rupee note will be in use and other large denominations like 2000 Rupees will also continue to exist.

As you can imagine, when 86% of the currency in circulation by value has to be immediately exchanged, there are some problems. Of particular interest to faiV readers might be the effect on microfinance banks, which are not allowed (as of now) to accept or exchange the old notes. That apparently has caused repayment to plummet since people can't get their hands on legal notes to make their payments. There's also a surge in use of ATMs and people signing up digital finance systems. Of course, then there's the problem that roughly 30 percent of the population (a mere 300 million people) doesn't have official ID (not counting the additional millions who are short-term migrants and don't have their ID with them where they currently are). Lot's more to come on this story I'm sure.


2. Digital Payments and State Capacity: Dan Radcliffe of the Gates Foundation has a new paper (published by CGD) on the knock-on benefits of government-to-citizen digital payments infrastructure. Direct transfers have already shown significant benefits in terms of efficiency and effectiveness of social welfare programs. Radcliffe argues that other benefits also deserve attention, specifically "strengthening energy policy, food security, government transparency" and overall state capacity.    

3. Financial Inclusion for RefugeesCFI has been running a series on financial inclusion for refugees. The fourth and final installment is here, looking at the future of financial inclusion for refugees with specific advice for how donors, practitioners and governments can do better.

4. Goldman Sachs and Consumer Debt: I'm old enough to remember when Goldman Sachs was a "vampire squid" sucking the life out of the global economy. As of this week, GS is also your friendly (digital) neighborhood lender, here to help you manage life's demands and escape from credit card debt with low-interest loans. Beginning this week, GS is running ads for it's consumer lending business on Facebook and YouTube that "depict debt as an unavoidable nuisance of modern life." Given the amount of income and expense volatility documented in the US Financial Diaries, that sounds about right actually. The Goldman tagline is "Debt happens. It's how you get out that counts." I wonder if the Goldman loans will come with a "Don't Swipe the Small Stuff" sticker for credit cards?

In other consumer debt news, the former CEO of Lending Club, fired for potentially misleading investors, is already opening a new lending storefront. And here's an Urban report on how the overhang of bad credit scores from the Great Recession is continuing to hold back consumers and the US economy.


5. Obey the Evidence!: This week I happened across a review of the Milgram obedience experiments, which were conducted about 50 years ago. That led me to some more reading and research--there's a lot of recent material. Much of it is about what has been discovered by a close review of the Milgram archives and the difference between what actually happened in the experiments and what was reported--and what that means about how we should think about the results and the conclusions. It's interesting and thought-provoking reading, not only because it's about one of the foundational findings of behavioral science, but also because it should lead us to reflection on the conclusions we draw about the current generation of studies.

David Evans and Birte Snilstveit review what your paper should include so that it can be included in systematic reviews, including enough methodological details so that risks of bias can be assessed. Many papers don't. Source:  Development Impact Blog

David Evans and Birte Snilstveit review what your paper should include so that it can be included in systematic reviews, including enough methodological details so that risks of bias can be assessed. Many papers don't. Source: Development Impact Blog

Week of October 17, 2016

Editor's Note: I'm writing this week's faiV from Kigali and the MasterCard Foundation Symposium on Financial Inclusion. Last week's edition was supposed to be called "The Doha Round" which would make the name of this week's edition make much more sense.

1. News from Rwanda: An evaluation of the use of small-scale household solar panels in Rwanda finds that there are benefits but those are small and diffuse enough that subsidies will be needed to scale adoption. At the conference itself I learned that while 89% of Rwandans are "financially included" only 6% are "adequately served" according to recent FinScope data--a healthy reminder that heavy caveats are required when setting inclusion goals. The next step is to recognize (with a nod to James Scott) that in markets with high "inlcusion," under-served is a strategy not a condition. And while this isn't news about Rwanda, I learned about it in Rwanda: MFO is conducting garment worker financial diaries in southeast Asia which should help us understand a bit more of the difference between Blattman and Dercon's results in Ethiopia and Heath and Mobarak's results in Bangladesh. 


2. The Cost of Volatility: One of the common findings from financial diaries work around the world is the prevalence of income volatility, perhaps most surprisingly among US households. In the US Diaries data we see a lot of the volatility coming from variations in amount earned per week in the same job. There are lots of reasons to suspect that volatile schedules and the income volatility that flows from it is bad for households, but how bad? A new field experiment hints that it's really bad. Mas and Pallais randomize wage offers to potential staff for a national call center and find that workers aren't willing to sacrifice pay for a flexible schedule, but are willing to give up 20% of their wage to avoid having a schedule set by the employer with a week's notice.  

3. Measuring Poverty (over time):  Measuring poverty is tough and it's even harder to generate global estimates or cross-country comparisons. Some countries have official poverty lines, but use different methodologies to set them. Should those lines just be accepted? Should they be adjusted for purchasing power parity? If so, what data should be used to set the PPP? The World Bank's new report (commonly called the Atkinson report) with recommendations on how to handle these questions is out. Justin Sandefur interprets the recommendations as moving away from a global poverty line.

One of the reasons the World Bank cares about global poverty measures is to track poverty over time. Here's a new paper on the long-term (10 years) effects of cash transfers for households with children in Ecuador finding no improvement in test scores and only a 2% increase in school completion rates, which the authors say suggests that the cash transfers are not likely to affect intergenerational poverty (which seems a shockingly narrow channel for impact).

4. Reforming (Indian) Banking: Also in the realm of reports that may have an impact on more than a billion people, IFMR Trust has recommendations on modernizing India's banking system, primarily focused on changing how banks manage risk. Among the recommendations are allowing regional banks to use credit default swaps to hedge agricultural/commodity price risk and pushing the banking sector to use formal insurance against catastrophic weather risks rather than counting on the government to step in when large scale defaults occur.


5. Reform through Labor: Well, not quite. A few weeks ago we highlighted the Muralidharan and Niehaus work on NREGA. Here's a new paper on the effects of a public works jobs program for youth in Sierra Leone, finding big boosts in household income (e.g. not crowding out other income strategies), little increase in temptation goods and that many households use the increased income to set-up businesses. Reminds me a bit of Blattman et al in Uganda. Here's a new paper evaluating the effect of unemployment insurance requirements to be actively looking for new work on labor supply. It finds the requirements don't push people into lower wage jobs but do have a positive effect on lower-income workers speed to re-employment. 

Single papers shouldn't move your priors much, though. Here's a new systematic review of youth employment programs. It finds that about a third of programs succeed at helping youth get into the labor market, and that programs in middle- and low-income countries have a better success rate.

Bonus Update: Last week we had a piece on how hard it is to get people to buy insurance. Here's a new paper on pricing agricultural microinsurance. My tongue-in-cheek summary: Economists find that insurance companies and governments will need to hire economists ever year to figure out optimal pricing and subsidy.

In the midst of travel, conferencing and slow internet connections this week, I didn't come across any compelling graphics. So here's a picture of a mountain gorilla I took this weekend in Volcanoes National Park. I can highly recommend  gorilla trekking . Source: Me.

In the midst of travel, conferencing and slow internet connections this week, I didn't come across any compelling graphics. So here's a picture of a mountain gorilla I took this weekend in Volcanoes National Park. I can highly recommend gorilla trekking. Source: Me.

Week of October 3, 2016

1. The End of Cash?: Ken Rogoff has a new(ish) book arguing for the end of paper currency. In the New Yorker, Nathan Heller explores Stockholm, one of the most cashless cities on the planet. The move away from cash in Sweden was strongly influenced by high profile robberies of cash depots, making the insecurity and anonymity (for criminals) of cash much more salient. In Heller's piece, there are a few references to issues of privacy, regulation and insecurity of digital tools, but surprisingly little reference to digital payments in less developed countries, or issues in countries where government is less trusted and less trustworthy than Sweden.

2. Cashless in the USA: The US is a very long way away from cashlessness, but one of the primary mechanisms for movement in that direction is prepaid cards. In the last decade they have become increasingly popular alternatives to bank accounts, and as a mechanism for delivering government benefits like food stamps and unemployment and pay to workers without accounts. The Consumer Financial Protection Bureau has released new regulations for prepaid cards to increase consumer protections and bring prepaid cards more in line with credit cards. The regulations include limited liability for lost or stolen cards and new requirements that cards that allow overdrafts have to evaluate customers' ability to repay.

3. Cashless Benefits and Financial InclusionWhile the federal and state governments use prepaid cards to deliver benefits in the US, even to people with bank accounts, there has been a lot of advocacy for making "government-to-person" or G2P payments digitally in other countries to drive financial inclusion. At Next Billiion, Beth Rhyne and Sonja Kelly of CFI, write that G2P as a mechanism for inclusion just isn't working, citing recent work by Guy Stuart in Colombia and Pakistan. The type of "inclusion" that G2P enables doesn't do much for poor households, in part because the banks still have little interest in serving low-income account holders.

Of course, this is a problem not just with G2P as a means to inclusion, but with inclusion itself as a goal. More than 90% of US households are "included" if you define that as having a bank account, but it's tough to argue that lower-income consumers in the US are getting what they need from financial services. I'm often surprised there isn't more attention paid to the US financial services market as a picture, and a warning, of what is to come in the near future for middle-income countries when it comes to financial access and quality services for lower-income households.

Meanwhile, in the world of G2P, Arvind Subramanian, the chief economic advisor to the Indian government, is making an argument for basic income in India.

4. The (Cashless?) Future of Microfinance: In a new paper, and a summary piece in Harvard Business Review, researchers and Karlan, Pande, Suri and Zinman, with Rebecca Mann from the Gates Foundation and Jake Kendall from Caribou Digital, lay out a vision for the future of microfinance, emphasizing the need to return to the underlying market failures--asymmetric information, high transaction costs, barriers to entry--to chart a course for more effective delivery of financial services to poor households. They highlight the potential for digital tools to overcome some of those market failures.

5. Profits Matter: Whether they are counted in paper or digital currency, profits (or the lack thereof) matter for businesses, be they banks serving low-income customers or small businesses in South Africa. That's the subject of a new paper from Anderson, Chandy and Zia based on a trial of marketing versus finance training. They find that both approaches can lead to higher profits through different channels. Marketing training is more useful to younger and narrower businesses by helping them grow, while finance training is more helpful to more established businesses by helping them trim costs. The fact that profits can be increased is perhaps the most surprising finding of all, given the mixed evidence on other efforts in business training.

A new MicroSave report looks at  various models for cross-border remittances  in Indonesia.   Source: MicroSave

A new MicroSave report looks at various models for cross-border remittances in Indonesia. Source: MicroSave

Week of September 19, 2016

1. Microfinance Subsidy: Back before there were impact evaluations the heated discussions in microfinance were about costs and subsidies (and business model, which is really a conversation about cost and subsidy). Those conversations have died down as the focus shifted to impact evaluations--appropriately!--but cost and impact are equally important when it comes to policy choices. Cull, Demirguc-Kunt, and (our very own) Morduch have a new paper that does the painstaking work to accurately measure subsidy in microfinance. They find that subsidy is pervasive and long-lasting, but small: meaning the modest impact of microfinance has to be viewed in terms of even more modest cost. I could write the whole faiV this week just on findings from the paper which is another way of saying: read it! Bob Cull has a short overview of the findings here for those with short attention spans, or a day full of meetings.

2. But Wait, There's More Microfinance: While most eyes have been turned to tracking the growth of digital financial services, the microfinance industry in India is growing rapidly again. The industry association reports 60% year-over-year growth, with the majority coming from the large incumbents like SKS and Ujjivan. Apparently the banking correspondent model is playing a significant role in growth. Let me pause for a moment to roll my eyes at the finding that clients say that 94% of loans are for "income generating activities."
Meanwhile, Jonathan Morduch has a review of Lesley Sheratt's new book on achieving an ethical balance in microfinance, a balance that a 60 percent growth rate calls into question.  


3. Financial InclusionBack in August I noted a paper about low-take up of no-frills savings accounts in a number of countries. A new paper from Brune et al. using the Malawi commitment savings experiment data to look at what happens with account usage and spending composition when funds are direct deposited into accounts or delivered in cash, and the delay between when the household learns the deposit is coming and when it is delivered. Higher account balances for direct deposit persist for only a few weeks, and there is no meaningful effect on the composition of spending, which, they say, suggests "that households manage cash effectively without the use of formal financial products."
And in a connection that perhaps only my brain makes, here's a new paper about a job training program in Argentina that tracks effects on employment for 4 years. Gains are large in the short run but fade out over time. The effect seems to come from "persistence of employment." In case you're wondering here's the connection I make: financial inclusion matters most to those with income, and the benefits of financial inclusion are related to the volatility of income in the short- and long-term, which, of course, is affected by the persistence of employment.

4. Education: Like financial inclusion, education is about more than access. Liberia, where 60% of children aren't in school, and only 20% of women who reached fifth grade can read a sentence, is experimenting with turning over some schools to Bridge International Academies (not unlike charter schools in the US). Here's a story about an ActionAid visit to one of the schools and the aftermath. There is an external impact evaluation underway of Liberia's experiment. As Justin Sandefur notes in describing the situation and the evaluation, "when the status quo is unacceptable, experimentation is an obligation." But which educational experiments are obligated? 3ie is about to release a systematic review of education intervention evaluations. Here's a paper from David Evans from earlier this year where he notes there are a lot of "systematic reviews" that have little overlap in their systems and come to very different conclusions about which experiments to implement.

5. Evidence-Based PolicyIt always comes back to policy eventually, even among anarcho-capitalists. The Liberia situation makes me think of my interview with Angus Deaton where he talks about the issues of where, on whom and what types of experiments are conducted. Here's Deaton's and Cartwright's newest paper on RCTs. Here's the new second edition of Impact Evaluation in Practice (free!). And the Urban Institute is launching a new Evidence-Based Policymaking Collaborative (with Brookings, AEI and the Pew-MacArthur Results First-Initiative) "to create tools to inform evidence-based policymaking at all levels of government." I wonder if a primer on Deaton & Cartwright will be one of those tools? 

The JP Morgan Chase Institute has a new report  tracking cash flows  of small businesses in the US. This is a look at daily inflows and outflows of these businesses by industry.

The JP Morgan Chase Institute has a new report tracking cash flows of small businesses in the US. This is a look at daily inflows and outflows of these businesses by industry.