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Viewing all FaiV posts with topic: Impact Investing  

Week of August 2, 2019

The Attention is a Suckers' Game Edition

Editor's Note: Nothing particularly new to report this week, other than the faiV will be off the next two weeks. Oh and that Imbens paper on potential outcomes vs. DAGs is at least as good as expected, and there's now an NBER version.
--Tim Ogden


1. Financial Systems: I've referenced several times over the last year some work I've been doing for the CDC (the UK DFI, not the one in Atlanta) on investing in financial systems. The first public version of that work, a summary of a much longer paper that I'm still hoping to finish in the next few weeks, is now available. As a summary, it necessarily elides a lot but it does capture what I think are the essential points on the topic right now. The main one I want to highlight here is a somewhat esoteric one: the question in front of us in the sector is not whether or not financial systems matter for the poor, it's whether we know how to intervene in the development of those systems in ways that specifically benefit target populations we care about, in the timeframes and manner in which we can measure. It's an important distinction that I think is missing in too many current conversations about where we are on financial inclusion. Please do read it, and let me now what you think.
In related financial system development and development ideas, Paddy Carter from CDC pointed me to this paper from Paula Bustos, Gabriel Garber and Jacopo Ponticelli on how the financial system in Brazil channeled a productivity shock in agriculture into other sectors (which apparently is on its way to appearing in the QJE) which is exactly what one hopes a financial system accomplishes from a development perspective.
The longer paper for CDC and my research for it emphasizes the history of financial system development. A couple of 2018 books on the topic, specifically on John Lawand Walter Bagehot, are reviewed in the New Yorker by John Lanchester. Rebecca Spang has some thoughts on the continuing focus on the "great man" approach to the history of financial systems and how that misleads. Again, I hope that my work for CDC takes this into account by spotlighting what we know about informal financial systems and how to factor that into thinking about investing in financial system development.
Finally on this topic, two papers that I've had sitting in open tabs for quite some time but have never found a place for in the faiV. First, here's Anginer,Demirgüç-Kunt, and Mare on how institutions affect how much bank capital influences systemic risk (and here's the blog summary). The bottom line is that bank capital matters less when there are well functioning regulatory institutions, but higher capital requirements can substitute for quality institutions in reducing risk. Of course, those higher capital requirements limit the outreach and inclusion of those banks. Trade-offs forever. And here's Ben-David, Palvia and Stulz on how banks in the US react under distress finding that the banks generally reacted prudently rather than gambling in an attempt to revive their sick balance sheets. Which is a further argument for higher capital requirements in weak institutional settings, but creating an alternative system for financial inclusion that isn't bank-based.

2. The Corrupted Economy: My comments a few weeks ago on the "great convergence" and the "corrupted economy" in the US got more positive feedback than I was expecting. So we may now have a new regular section of the faiV.
Unequal access to a quality education is one of the areas where the US increasingly looks like middle income countries. Here's a minor, but infuriating, version of the corrupted system: wealthy parents giving up their children to "guardians" so those children can in turn apply for financial aid as if they don't have any resources. And here's a less blatantly evil version of a similar corruption: children who receive extra time on tests due to some psychological/medical diagnosis are disproportionately white and wealthy--because those are the parents who can afford the thousands of dollars required to pay a private psychologist to deliver such a diagnosis. And the issue is much broader than that because the article only briefly touches on the systemic impact on families and school districts, one I'm acutely aware of personally. I know the educational outcomes for my son, with a rare disease, are almost certainly going to be much better than many other kids in this country with the same disease, because we can afford to live in a school district that isn't so strapped for cash that they have to cut back on services, and I can be an intimidating presence in meetings with the district when necessary.
Here's a story about how the "adjustment" payments for farmers negatively affected by Trump's trade war are all going to the largest, wealthiest farmers. Here's a story about how minor criminal offenses are turned into profits and debtors prison. And here's a story about the actual labor market conditions faced by the lower half of the income distribution: a few days in the life of a meal-delivery bicyclist in NYC. Marvel at how DoorDash preys on income volatility to take tips away from riders. And how the riders' existence is pushed to margins with minimal and shrinking interaction with the customers, how they acknowledge that they are being used to generate data so they can be replaced by drones, and in the meantime how they are subject to the capricious whims of NYC police who can confiscate their bikes on a pretext at any time. And how the riders are grateful that this is a step above working directly for the restaurants. This is America.
And speaking of the Great Convergence, check out this trailer for a new Indian movie about a heroic effort to help kids break out of their corrupted economy. Then think about the long history of American movies with essentially the same plot:Stand and Deliver, Dangerous Minds, Lean on Me, etc. etc. And they are all essentially a distraction from the systemic issues.

3. FinTech and Social Investment: The systemic issues are something I really struggle with, and it came up this week as I was asked to review some applications for a FinTech incubator. I'm not going to name either the incubator/investor or the applicants, but it was impossible to miss the disjuncture between the systemic issues that were the motivation for the program and the proposed solutions. Those solutions ultimately boil down to a theory of change that rests on individuals being primarily responsible for their financial distress--and therefore apps that get their attention or "gamify" savings are somehow "solving" the problem. Now, I think there are some people that are going to be helped by an app that draws their attention to not missing payments and harming their credit, or who aren't saving not because their wages are volatile and well below what they need to afford housing and healthcare, but because it's not fun enough. But I have a hard time caring much about those people. Especially when the business models of many of the FinTech apps I see seem to be built on gaining trust of users and then profiting from referral fees paid by other financial services. I have to wonder: what kinds of financial services firms are going to be interested in paying for access to these kinds of customers? I doubt it's going to be ones that are offering high-quality, low cost services that are good for people--for no other reason than those products aren't going to be profitable enough to pay referral fees.
Many of these apps also raise an issue I've been concerned about in the application of behavioral science since I wrote a review of Scarcity: if everyone recognizes limited attention and behavioral barriers and tries to address those, where do we end up? I think it's likely that attention-focused interventions are going to be revealed as a sucker's game: you constantly have to do more and spend more to compete with all the other people trying to grab attention. Case-in-point: a large scale intervention to grab students attention and redirect it to studying shows no effect. But if you look back at the article about delivery riders, you'll notice that those apps are doing a great job of using behavioral tricks to take advantage of riders. The takeaway from the "studying" study is that you should shift your priors toward high-touch financial coaching and away from FinTech.
One more quick related rant: the whole process reminds me that there is a long way to go in thinking rigoroulsy about social investment and social capital, and I feel better that this chapter Jonathan and I wrote on that topic is worthwhile. (By the way, I took advantage of a plane ride earlier this week to read through most of the rest of the chapters and the whole book is worthwhile.)

4. SMEs: While filling out my evaluations for the FinTech incubator I couldn't help linking to the now published (and open access for a limited time) paper from David McKenzie on how hard it is to pick winners in business competitions, and that experts and machine learning are both bad at it. Inspired by David's earlier work on management, here's a piece on how management consulting could be the best form of foreign aid (factor into your research theories of change how long it's been since the research cited in that article was done).
And here are two recent articles from Next Billion on SMEs--on the difficulties of scaling up local manufacturing in Uganda, and from TechnoServe on building links between SMEs and foreign firms.

5. Global Development Miscellany: I'll confess this is self-indulgent, but it's on topic: the NYT covers the rising tensions in northern Colombia as Wayuu people cross the border fleeing from Venezuela. The village in the story is a couple of hours from where I grew up and only a few miles from where my mother was born--and for the record the descriptions ring very true to me.
Here's a story that I hope gets attention in proportion to it's past history. Prospera, that staple of CCT discussions, and of evidence-based policy, is being abolished. The story seems to be a political economy one combined with fairly significant mistargeting. I hope to read a lot more about this.
There were concerns that DFID was on the verge of a major demotion under Boris Johnson, but that didn't come to pass, yet. Large concerns remain about the future of the British development agency, though not as large, of course, as concerns about the future of British anything.
And finally, you can consider this a global development story if you squint hard, but it's fascinating never-the-less: there is a form of communicable canine cancer that has spread all over the world, and biologists have mapped that process of globalization with remarkable similarities to economic development.

Historical context really does change perspective, as Matt Yglesias suggests that too many of today's policymakers "spent their formative years in a period of anomalously high interest rates." Though I would argue that the long term perspective also means that short-term rates really are concerningly anomalous. Via  Matt Yglesias .

Historical context really does change perspective, as Matt Yglesias suggests that too many of today's policymakers "spent their formative years in a period of anomalously high interest rates." Though I would argue that the long term perspective also means that short-term rates really are concerningly anomalous. Via Matt Yglesias.

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 March 22, 2019

1. Social Investment: You've of course seen many stories about the US college admissions bribery scandal. And if you pay any attention to the world of impact investment you likely have seen that Bill McGlashan, the very public face of one of the world's largest impact investment funds, was one of the people arrested for participating in the scheme. Anand Giridharadas, who has become the very public face of criticism of modern philanthropy and social investment, discusses why McGlashan is "the most important fish" in the storyHere's the Twitter thread versionif you prefer that over a 4 minute video.
Trevor Neilson, co-founder of the Global Philanthropy Group, says that McGlashan's behavior should not be seen as a reflection on impact investing as a whole, because...well apparently because he wrote a Medium post saying that it shouldn't. There's really no argument there other than "Our goals are too important to be worried about means!" if you consider that an argument. Here's Jed Emerson, who may have an argument, but I just don't understand what is happening in this piece. Lauren Cochran, managing director of an impact investing firm, actually has a few arguments attempting to make the same point, including that McGlashan himself was a figurehead chosen to attract investors, but who wasn't involved in actual investment decisions.
She has a nice line about Giridharadas: "using one man’s ethical failings to grab the mic is characteristically self-serving, but as usual, he forgot that there might be a baby in the bath water." It's catchy but wrong. Giridharadas whole point is that there may be a baby in the bath water, but the bathwater is toxic and everyone will be better off, even the baby, if you toss the whole thing. Moreover, the fund that Cochran administers uses this language: "dual expectation of best-in-class financial returns and maximum positive social and environmental impact." And that, to me, is a big part of the toxic nature of the current impact investment environment. On reflection, that statement illuminates what is really happening in Neilson's piece--the fear that if the myth of "no tradeoffs" is exposed then the money will dry up.
To be clear, I'm not in Giridhradas' camp but I certainly appreciate how his perspective keeps putting the "no tradeoffs" crowd on the defensive, and illustrates the inconsistency if not hypocrisy hidden there.
Kristin Gillis Moyer of Mulago points to a terrific example of the inherent tension: the new Catalytic Capital Consortium funded by MacArthur, Rockefeller and Omidyar. It aims to invest in businesses with low profit potential and/or high risk. I find it an incredibly refreshing approach--it explicitly acknowledges that the no tradeoff myth is leaving many social enterprises in the lurch. But as Gillis Moyer points out, it's not clear how catalytic it can be since there are unlikely to be that many other investors chomping at the bit to invest in low-profit, risky businesses. I'd like to think the catalytic part will be creating space for more funds and investors to say that they prioritize impact over financial returns, and that's OK. 

2. Our Algorithmic Overlords: Because the faiV was so full I'd been holding on to a few things on this topic, and events have made them all the more relevant. Platforms for open sharing seemed like such a good idea for a long time. But the cost of open sharing is so so much higher than most anticipated. Not only does it enable evil, but attempting to stop evil exacts a huge toll on human beings. This is a story about the Facebook contractors whose job it is to stop the New Zealand murderer's live stream. And a Twitter thread from someone in a similar position at Google. I'm guessing many of those folks are inching toward Calvinism.
Evgeny Morozov has a different take on the costs that open platforms and big tech exact, and why the global white nationalist movement has very different views on that front. It is a helpful reminder of the costs of the old system and the structures that the liberal order created to try to limit those costs, structures that seem to not work so well in this age, and are under attack from many directions. That's in part the theme of a new book reviewed by Noah SmithThe Revolt of the Public by Martin Gurri. I haven't read the book but the review is certainly influencing my thinking on the above.
Oh, and Chinese firms are working on facial recognition of pigs, while US police forces are using bad data to train their facial recognition and other AI systems. Andwhat about "behavioral recognition"? Note that this has quite obvious connections to the use of psychometrics and other "alternative data" for creditworthiness evaluations. 

3. Household Finance: There's a huge amount of new stuff here, so I'm going to be particularly eccentric this week. There's a lot more coming in the following weeks that will be more serious. 
One of the questions that fascinates me these days is what is good financial advice for households that face a lot of income volatility. The foundation of virtually everything in the financial advice world is the lifecycle model--and we know that doesn't apply to a very large proportion of households. That doesn't stop the financial advice industry from thriving--but like so many other things, the internet has disrupted that world a great deal. And that disruption creates perverse incentives. Here's the story of the "Fall of America's Money Answers Man", a once-respectable financial advice columnist who turned into a con artist. 
Advice on how to retire early by spending virtually nothing (while having a high-paying job, natch) has been growth industry. Here's a personal narrative from a Vice columnist who tried to follow the advice and decided the misery wasn't worth it.
Here's a new paper on the possible connection between credit availability and depression (the mental health kind). It finds that increased availability of credit to firms leads to less depression among low-income households. I'll note that this kind of paper is what made the RCT movement so attractive (see below).  

4. Research, Methods, Evidence: I was at a conference in Paris for a new book on RCTs and development economics this week, part of my travels. Drafting my chapter for that book turned out to be much more difficult than I had anticipated--the useful ways of saying something on this topic are much more limited than you might imagine. One thing that became clear to me, probably far later than it should have, is how often argumentation in research methods follows a pattern of: "Individual A made Proposition P at t1. Proposition P is wrong in context X. Therefore Group G is wrong at t2." That's a hard construct to argue with constructively. The other thing that became clear to me was that it would be very useful to have a more structured (in the economic sense) story about the use of RCTs in development economics. I plan on doing that in the next draft of my chapter, but while I was in the midst of pulling a near all-nighter in France to finish my draft before the conference began, Susan Athey produced an inadvertant history of the rise of RCTs in a single tweet: "Just think the most effective way to evangelize a new method is to demonstrate its effectiveness in a first-rate empirical application where the method clearly leads to a better quality and more credible result. Researchers will mimic a fully worked out, successful example."
That tweet was part of a "conversation" with Judea Pearl about Directed Acyclic Graphs, Pearl's preferred method for approaching causality. If you know anything about Pearl, you now why conversation is in quotes--if you don't, the whole thing begins with Pearl wondering why economists don't care about causality, as evidenced by the fact that they don't use his DAGs. If you, like me, don't really understand DAGs, here are a couple of useful tweet threads: one for those who don't mind the use of animated GIFs to provide pointless meta-commentary, andone for those who do. Just to be clear I recommend the second one which is from Scott Cunningham. Scott makes a reasonable case for the utility of DAGs--but Susan's point still stands: when someone/s start publishing papers using DAGs that are higher quality and more convincing than current practice is when their utility will be proven. And then they will quickly become ubiquitous.
Scott also pointed me to a very useful tutorial on another tool making headway in research practice: GitHub. I'm trying to wrap my head around the possibility of using GitHub for the kind of writing I do, which is often very iterative and splinters off into different directions. If anyone has used GitHub, or any other tool, that way let me know.
Here's a thread from Beatrice Cherrier on the historical debates within economics of the role of theory and data. It's worth reading for the reminder of how often the basic issues in these debates repeat. I'll be drawing on it as part of my discussion on the rise of RCTs.
Finally, here's a fun little exercise showing how bad humans are at randomizationeven when we are trying our damnedest to be random. I fully suspect someone is going to respond to this by referencing Fisher vs. Student on the value of randomization. 

5. Management and SMEs: I freely admit that management, particularly in the case of SMEs and development is something of an obsession of mine. Did you remember to click on the review of evidence on management from a few weeks ago? Here's a newish paper that looks at the determinants and consequences of management practices among SMEs in Ethiopia from Abebe and Tekleselassie--of note, Ethiopians working at an Ethiopian research center. They find, consistent with the other literature that good management shows up in productivity, is distinct from human capital, and is a learned skill.
Here is an overview of two recent reports on SME financing in developing countries, that unfortunately uses the "missing middle" concept. I'm quite sympathetic to these efforts, particularly one of the reports segmentation of business types, but I generally think these things are premature. We know very very little about how these small enterprises run on a daily basis, and designing "solutions" for them before we have a better handle on that doesn't seem optimal to me. That being said, it is striking that the conclusions of both reports are essentially exclusively about improving financial systems not about interventions targeted at the firms. That's a welcome change.
In terms of better understanding small firms, there are people working on that. I didn't get to go Oxford CSAE's conference or even pay much attention to it as a consequence of my trip to Paris, but there were a number of papers on the topic that I'll be trying to catch up on in the coming weeks. For instance, an experiment on equity-style investment in microenterprises in Pakistan. Here's one on spillover effects on micro and small enterprises of infrastructure investment. Here's more evidence on heterogeneity of impact of business training and credit on micro- and small enterprises, this time in Ethiopia. The operative differences here being gender, but I think we can safely say at this point that gender, opportunity and aspirations collide (to borrow a Pearl term). And here's more reanalysis of the de Mel et al capital grants research, modeling TFP and learning effects to explain differences in outcomes and capital accumulation. But my favorite example of our collective ignorance is this paper about whether electricity shortages and outages induce firms to innovate more or less. The results aren't particularly convincing to me, but the question is important: on so many dimensions we should be very humble about what the constraints to firms are and what decisions and choices those constraints lead to.
If anyone is interested in funding a very (very) small scale, and possibly idiosyncratic experiment on small firms, technology, productivity and management in order to generate some better hypothesis on these topics, let me know.

Someone recently created a new tool for creating these time-lapse bar charts--that's the only explanation I can find for why they have suddenly been showing up everywhere. Here's one on  global cities' population  that is pretty interesting. And here's  an explanation and one tool for creating them . But in keeping with my effort to keep these a bit lighter, here is one on leading goalscorers by age.

Someone recently created a new tool for creating these time-lapse bar charts--that's the only explanation I can find for why they have suddenly been showing up everywhere. Here's one on global cities' population that is pretty interesting. And here's an explanation and one tool for creating them. But in keeping with my effort to keep these a bit lighter, here is one on leading goalscorers by age.

Week of September 24, 2018

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

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

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

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

Week of September 10, 2018

The ThreeV Edition

Editor's Note: I found it very hard to even start writing this week's faiV because there's so much stuff. Yesterday alone I feel like I saw enough things to do two entire editions of the faiV, and it was the 2nd day of the week like that. I don't want to degenerate into list of "here are some more interesting links that I didn't have time for" so I'm just going to start writing and see where I get.--Tim Ogden

1. US Inequality: I talk a lot about congruence between the US and developing countries, but usually in the context of sharing lessons in the financial inclusion domain. But there are other domains where there is a lot more commonality. For instance radically corrupt policing. While this paper has been circulating for awhile, it's worth revisiting over and over again, and it's acceptance for publication is a convenient excuse. US cities and towns, when faced with budget deficits, ramp up arrests and fines of and property seizures from black and brown citizens but not white ones. Here's the easy to share Twitter thread version so you can send it to your not so economics-paper-inclined friends. To be clear, it's only second-order racism. The reason seems to be it's much easier to get away with stealing from people of color because of systemic racism.
Systemic racism like the premium that blacks pay for apartments, a premium that rises with the fraction white a neighborhood is. Lucky that the place you live has little effect on the quality of your education or your future job market opportunities. Oh, wait
The US is still deeply segregated (cool visualization klaxon) and there has been virtually no progress on that front in decades. Part of the reason is exclusionary zoning which puts a floor on home prices well above the reach of black and brown households. Apparently though, the Department of Housing and Urban Development is planning on tying future grants to cities to cutting zoning restrictions on multi-family dwellings. That would be a rare bright light in the current administration's deregulation push.
  
2. Cash: I haven't done anything on cash transfers, universal, conditional or otherwise in quite a while. This week we got a flood. I'm going to try to cover the landscape first, before some summary thoughts. Blattman, Fiala and Martinez have an update on their cash grants to youth clubs in Uganda paper--the one that found large gains after four years. After nine years, the controls have caught up. Chris used the analogy of "a tightly coiled spring" as an explanation for why the gains in the first four years were so surprisingly large--and that analogy may still hold. No matter how high the spring jumps, it eventually returns to baseline. Here's Chris's Twitter thread on how his thinking has changed. Here's a Vox article by Dylan Matthews. At this point, if you pay any attention at all, you should expect Berk Ozler to have some thoughts. He does.
Meanwhile, IPA pulled off the greatest unintentional (I'm told by reliable sources--hi Jeff!) mass market advertisement for the release of a development economics working paper in history when the NYTimes Fixes column ran a long-delayed piece by Marc Gunther on using cash as a benchmark for development programs on Tuesday. The paper was being released Thursday. That paper, a comparison of a Catholic Relief Services program to a cost-equivalent cash grant, and a much larger cash grant, by McIntosh and Zeitlin is here. The IPA brief is here. The Vox article is here. And Berk's thoughts (about the Vox coverage really) are here. And Tavneet Suri's. But I'll give Craig and Andrew the last word--here's their post on Development Impact on how they think about the study and the issues.
Before moving on to some thoughts of my own, here's a video clip of Felix Salmon highjacking an appearance on a Fox News show to advocate Universal Basic Income.
There's so much here to talk about--9 year follow-ups in Northern Uganda! A highly regarded charity willing to compare itself to cash! A cost-to-donor comparison between two programs! Nothing works over the long term!--but in the interest of this actually getting out today, I'm going to limit myself to only talking about one aspect of the benchmarking issues.
Marc Gunther, in his NYT piece, does a pretty great job of highlighting the difference in measuring "money that gets to the poor" from traditional charity overhead discussions, where the dividing line between program and overhead costs is utterly arbitrary and no one ever talks about how much of program costs are reaching recipients. One of the most fascinating things to watch as cash benchmarking makes waves is how it affects the overhead debate and how charities market themselves. Particularly because while there is by no means a consensus on cash, the general direction of this work is toward minimal programs (see an example in Berk's tweets). The overwhelming majority of the discussion on why considering overhead costs is wrong is that those costs are necessary to run programs well. It's not clear how to adjust that argument when the counterfactual is, "what if you didn't really run a program?" Of course, a huge chunk of those costs, whether they are classified as program costs or overhead costs are imposed by the donors (be they individuals or official aid agencies), and that's another variable in how these discussions will change.
 
3. Social Investing and Philanthropy: But they may not change much, because branding is everything in charity. Regardless of demographic characteristics, 50% of people in a survey asked what charity they would support if they could support only one, picked one of the largest charities.
On the other hand, giving by small and medium donors--the kind presumably most likely to go with the branding flow and pick a charity by branding--is declining. I'll quickly note that this article claims that overall giving is way up, in inflation adjusted dollars. I haven't had time to dig into that, but when I've done similar calculations before, I've found that giving has been flat for the last 20 years or so.
You may have heard that Jeff Bezos announced that he'll be giving $2 billion to organizations fighting homelessness (perhaps he should consider cash [I was going to link to a study about emergency cash grants to people that helped prevent eviction but I can't find it]? or perhaps not.) and apparently starting the world's largest Montessori franchise to serve low-income kids. There are plenty of takes out there. Here's Rob Reich interrogating. Here's Ben Soskis on how the plan doesn't fit any of the current stereotypes of ultra-wealthy/tech philanthropy.

4. and 5. The First Ever Split faiV?: Apparently I only got to 3.

Long time readers of the faiV may remember that my son Nathanael has a rare disease, the most notable symptom of which is loss of vision. He crossed the threshold of legal blindness this year. Nathanael and I raise funds for research--there's more known than ever before about this syndrome, but we're still a long way from treatments, much less cures--by riding 36 miles from our home to the Philadelphia Museum of Art, and running up the famous Rocky steps. We call it the Rocky Ride. If you'd like to contribute, in lieu of a subscription fee for the faiV, we would deeply appreciate it. And for any readers in the New York to DC corridor who would like to ride along, join us!

Week of September 3, 2018

Editor's Note: In case you needed a break from using game theory and textual analysis to guess at the author of the anonymous NYT Op-Ed or debate whether it represents a coup, here's the faiV. If you like the faiV, by the way, please do share it and encourage others to subscribe.--An Anonymous Senior Official at the Financial Access Initiative

1. Social Investing: Calling out the bland and meaningless rhetoric in social and impact investing almost seems unsporting--it's just too easy but it's Friday after a long week so I'm going to do it anway. Take this piece from John Elkington, who coined the term "triple bottom line," (Please), saying it's time to "rethink" or "recall" or "give up on" it (all his phrases). Why? Because the term has been misunderstood and misappropriated for uses well short of what he intended. Instead he thinks we need "a triple helix for value creation, a genetic code for tomorrow’s capitalism." But apparently not a clear definition or a recognition of trade-offs under scarcity.
Then there's this piece from the Wall Street Journal on the meaninglessness of words like "ethical", "impact" and "sustainable" in the mutual fund world. It's a treasure for the sheer density of laugh out loud snippets. For instance, Deutsche Bank switched out the word "dynamic" in the title of a family of funds and replaced it with "sustainable." Vanguard's bar for a company being "socially responsible" is literally not enslaving people or manufacturing weapons banned by international treaty. But my favorite is probably this quote about buyers of "ESG" funds: "We do hear from investors that have bought funds that they never realized did something." (Protip for non-WSJ subscribers who may not otherwise take the trouble to read this gem, search the title in an incognito window, click on the result link and close the invitation to subscribe and you'll be able to read it.) 

2. Household Finance, Part I, Theory: Not realizing that funds did something is a good transition to Matt Levine's musings about the relationship between financial services providers and customers (scroll down to "How much should an FX trade cost?"). Matt is writing specifically about investment and corporate banking but the theory fully applies. In short, 'smart' large customers treat banks like commodity providers and ruthlessly push margins toward zero. Banks have to go along because these are large customers and economies of scale matter in financial services. So the banks make up those margins by charging 'loyal' customers much more than 'smart' customers. Which is, shall we say, not what 'loyal' customers think the banks should be doing and they rightly get very angry when they find out. So loyal customers should be more like smart customers and treat banks like commodity providers. The application of faiV interest is the Catch-22 for lower-income households: they only very rarely have the time and choice to treat financial services like a commodity, so they are almost inevitably left subsidizing wealthier customers. And even banks with good intentions struggle to do otherwise, because if you don't have the large customers, you can't drive costs down through scale.
In other theory news, one of the common motivating theories on helping low-income households is helping them plan. Planning is hard when facing scarcity. There's been encouraging evidence of the value of specific planning for getting people to follow through on their intentions. Here's a new paper testing the value of planning for one of the only two intention-action gaps that can rival the intention-action gap on savings: exercise (the other being dieting). It finds that careful detailed planning of an exercise routine has a precisely zero effect on follow-through.
Finally, here's a piece that at face value seems to be talking about the empirical transition away from cash (in the US). But look closely and it's really musing on the theory about the costs of cashlessness for lower-income households, something that deserves a lot more attention, on theory and empirics, than we seem to be getting right now. And it features Lisa Servon and Bill Maurer so you should definitely click.      


3. Household Finance, Part II, Practicum: I don't remember how I stumbled across this paper about how US households respond to high upfront medical costs. It's not new, but it was new to me, though I suppose you can also say it's very old to anyone who has paid attention to healthcare consumption in low-income countries. The authors find a large decrease in spending, but no evidence that households are price shopping or making any differentiation between high-value and low-value services. Something to think about--how much of what we call "shocks" for low-income households are actually "spikes" that they didn't have the tools and bandwidth to manage (liquidity) for?
A great tool for managing liquidity is a bank account--something a lot of people still don't have. Leora Klapper has a piece trying to draw people's attention back to the core value of bank accounts, something that feels like it's fallen somewhat out of favor.
You can't get any more practical on Household Finance than reading Stuart Rutherford. Here's a new piece he has based on the Hrishipara Diaries on how the poor borrow. Some of the numbers are staggering, especially for those of us old enough to remember the idea that poor households had no access to credit: Over the course of 8 months, 43 households took out 201 discrete loans, making an average of 75 loan repayments each. The value of their repayments was equal to 83% of their income. Clearly a huge part of what they are doing is managing liquidity in the absence of bank accounts.
There's some justified criticism of the practices of MFIs in Stuart's piece--pushing unwanted loans, overlending, etc.--but one thing the microfinance industry has not done much of, despite the various crises caused by such behavior at scale, is lose depositors money. Not so in the equivalent of an MFI crisis in China. Over the last few years $200 billion of cash from small investors has flowed into P2P lenders. There have been stories here and there about the negative consequences for borrowers from those lenders. But now the small investors are feeling the pain--a huge number of the P2P firms have shut down in the face of tighter controls, and the investors have no recourse (unless you count being shipped to a detention center for protesting the lack of government action to protect the small investors). Of particular note is the explanation of why so many small investors put money into these P2P schemes--banks offered no alternatives for investment other than negative real interest rate savings accounts; and the government has no regime for investor protections. I expect we'll see more stories like this, though obviously at much smaller scale, coming from other countries with a growing middle class--something perhaps consumer protection advocates should be keeping their eye on.

4. Methods and Evidence-Based Policy : There are other ways to be a smart consumer of social science research than faithfully reading the faiV. Eva Vivalt has some tips on that at HBR. It's good stuff though I'm a bit skeptical how much the audience at HBR is interested in accurate research claims. In any case it's a bold move from HBR to provide a guide to why you shouldn't believe the majority of management literature.
For an audience that has far more professional interest in arguing about accurate research claims (not how carefully I phrased that) David McKenzie, Lant Pritchett, Chris Blattman and Karthik Muralidharan (where are the women?) debate whether experimental studies have displaced descriptive studies in economics journals on the Development Impact blog.
Here's a really interesting new paper from Guiteras, Levinsohn and Mobarak on an experiment with subsidies for latrine construction--appearing here because the most interesting thing about it is the work to establish policy relevant answers by combining a structural model with experimental data: to maximize your budget, who should you give subsidies to, and is it better to give a small subsidy to a lot of people or a large subsidy to a few people.
And if I'm not linking to a new paper from Athey and Imbens on (diff-in-diff) methods, or an (88 page!) interview with Chuck Manski then what am I even doing with this category?

5. US Inequality: Lest you think that regulatory malfeasance is an emerging financial system issue, and China is just catching up, here's a few stories about Mick Mulvaney's willfull decision to encourage the destruction of the financial lives of the better part of a generation. The CFPB's student loan ombudsman's resignation letter. And why it matters so much. And a story about the consequences.
Here's some new work on the experience of low-income parents and children in dealing with the welfare system and social workers. And here's a very thoughtful piece on the inversion of American poverty from something hidden to something under constant surveillance, complete with lots of user fees for being poor. Call it the anti-welfare system.

Two Twitter-savvy academics ( @shrewshrew  and  @sbarolo ) have created a handy guide to the men who reply to women calling out systemic discrimination and harassment in the sciences. To see the detailed explanations of the nine types, follow  #9replyguys .   

Two Twitter-savvy academics (@shrewshrew and @sbarolo) have created a handy guide to the men who reply to women calling out systemic discrimination and harassment in the sciences. To see the detailed explanations of the nine types, follow #9replyguys.   

Week of August 27, 2018

Editor's Note: I'm still playing catch-up this week, and perhaps you are too. It's the "end of summer" in the Northern Hemisphere after all, that week we all get to, in a panic, confront all those things we had put off to the Fall AND all those things we thought we would get done during the "less busy" summer. Catching up notwithstanding, this is a somewhat truncated edition of the faiV, as I head into a weekend of labor related to the above.--Tim Ogden

1. Small Dollar Financial Services: I've been doing a lot of reading the last few weeks about the history of consumer banking (Hi Julia!), and by history I mean going back to the Middle Ages and before. From that reading, it's clear that small dollar lending has always been the bane of the banking system--and there is nothing new under the sun (thanks, David Roodman!). Which certainly colors my view when I see stories about overhauling the overdraft system in the US. Not that I don't think there is room for significant improvement. Overdraft is perhaps the worst possible way to manage small dollar lending--by pretending it's something else while still charging exorbitant fees that would make many microfinance institutions blush. There are plenty of ideas, like this story on a non-profit payday alternative lender which charges roughly half the fees of its competitors. The intent of the story seems to be offering this as a real alternative, but the details keep getting in the way. The nonprofit really is nonprofit in the literal sense of the word, not even being able to pay its CEO a $60,000 per year salary regularly, and facing "four near-death experiences" in 9 years--that sounds about par for the course in small dollar lending from the historical record.    


2. Algorithmic Overlords: Yuval Noah Hariri has a new piece in the Atlantic, the title of which is just candy-coated confirmation bias for me, so how could I resist putting it in the faiV: "Why Technology Favors Tyranny". I'm feeling validated that I started reading Asimov's I, Robot to my kids this week. But back to Hariri, two thoughts: a) borrowing a category from Tyler Cowen, this is a very interesting sentence: "At least in chess, creativity is already considered to be the trademark of computers rather than humans!", and b) the picture Hariri paints bears a remarkable resemblance to the Allende plan in Chile specifically, and to almost every example in Seeing Like A State, it's just that the technology is finally catching up to the political ideology. The big question, of course, is whether the technology will yield any better results.
One more item I couldn't resist is this piece about blockchain and supposed complacency toward technological innovation in development. The most important thing to know is that the two examples given of the benefits of a decentralized ledger (e.g. blockchain) are two of the most centralized and highly policed ledgers in existence: SWIFT and Visa payment networks. It continues with a few potshots at small dollar fintech lenders and then some ersatz blockchain evangelism about power to the people. Let's hope the author reads many of the pieces linked above, but especially Hariri's. And just because, here's a story about the very first blockchain hiding in an ad in the New York Times in 1995.

3. Methods and Evidence: You've likely seen the uproar over ridiculous nutrition studies (on alcohol and dairy--clearly the message is to only drink dairy-based cocktails this weekend) this week. I saw someone on Twitter commenting on how the credibility revolution seems to have passed right by nutritional epidemiology, probably because it would mean that no studies ever got published.
Part of the credibility revolution is the emphasis on open data and replication. Here's a report on the latest large scale replication effort (of 21 social science studies published in Nature and Science). Thirteen of the 21 were generally replicated, but the effect size was roughly half of that originally reported. Of course, this raises the question of what "successful replication" means again. Here's a Twitter thread from Stuart Buck of the Laura and John Arnold Foundation on the difficult distinction between failed replication being a part of the scientific learning process and a failed replication as part of identifying shady research and publishing practices.  
Here's a troubling story about unreliable administrative data. The US Department of Education asked school districts to start reporting "school-related shooting" incidents. There were 240 reported. But follow-up reporting was only able to verify 11 of those incidents and 161 were explicitly denied. Don't let the emotional subject of school shootings distract entirely from the reminder that there are always problems with data gathered like this, no matter what the subject. And pause for a moment to remember that it is data like this that Hariri fears will be used to automate administrative regimes.
The point of these studies, whether ridiculous nutritional ones, or administrative-data based ones, is most often to influence behavior and policy. Here's Jean Dreze on the challenge of evidence-based policy, and the need for economists "to be cautious and modest when it comes to giving policy advice, let alone getting actively involved in 'policy design.'"

4. Global Poverty: On the topic of evidence-informed policy choices, one of the most hotly debated questions in the field right now is what is happening with global poverty. At face value it seems like this is just a question of going to look at the data. But as with so many other areas, different people see very different things in the data (even if it is accurate). It all depends on how you measure poverty and whether you care more about absolute or relative numbers. There was a glimmer of detente in this debate this week as Jason Hickel and Charles Kenny published "12 Things We Can Agree On About Global Poverty." But that only lasted a day before Martin Ravallion chimed in with this Twitter thread, which begins, "it seems they only agree on the obvious, and ignore some less obvious things that really matter."
If you're looking for another way into these debates and the various issues that arrive, here's a Washington Post story about Nigeria displacing India as home to the largest number of people in absolute poverty. Maybe

5. Social Investment and Philanthropy: I highlighted a couple reviews of Anand Giridharadas' new book Winners Take All  last week. Here's another, from Ben Soskis, which I include because it's the best one yet. The theme of Giridharadas' book (and Rob Reich's new book as well) is being skeptical of the power of large-scale philanthropy or social investment. Here's a thread from Chris Cardona, of the Ford Foundation, on the multitudes contained in the word philanthropy, which is certainly important to take into account when considering the critiques. But the question of who is a philanthropist, who is abusing their power, and the trade-offs of institutionalization of philanthropy are always messy. Here's a story about a viral GoFundMe campaign to help a homeless man in Philly who gave his last $20 to rescue a stranded motorist. If you have Calvinist sympathies like me, you'll probably guess what happened next. Finally, here's Ed Dolan of the Niskanen Center on whether we need the charitable deduction.

Returning to the topic of methods and evidence-based policy, two images popped up in my Twitter thread this week that I couldn't get out of my head. One is a snippet from a peer reviewer of the social science replication paper highlight above, explaining why it was not published in Nature or Science even though it was replications of papers from those journals. And second is a picture taken from a talk John List was giving this week about his career. You have to ask, does science advance via replication or via funerals? Via  Brian Nosek  and  Ben Grodeck  respectively.

Returning to the topic of methods and evidence-based policy, two images popped up in my Twitter thread this week that I couldn't get out of my head. One is a snippet from a peer reviewer of the social science replication paper highlight above, explaining why it was not published in Nature or Science even though it was replications of papers from those journals. And second is a picture taken from a talk John List was giving this week about his career. You have to ask, does science advance via replication or via funerals? Via Brian Nosek and Ben Grodeck respectively.

Week of June 11, 2018

1. Household Finance: If you'll bear with me I'm going to write about household finance mostly with links to pieces about corporate finance. Corporate finance matters a lot, and it deserves the attention and resources invested in it (Channeling Willie Sutton: why do you write papers about corporate finance? Because that's where the money is). After several hundred years of lots and lots of resources and attention we've pretty much got this thing licked right? Well, maybe not the biggest questions but at least the basic questions like accounting and financial reporting, right? Right?
Here's Warren Buffet complaining about Generally Accepted Accounting (GAAP) rules being applied to his company. And here's an argument from several business school professors that GAAP rules aren't meaningful given changes in the economy--with the enticing tidbit that in many companies having a CPA, in other words having deep familiarity with the rules of corporate finance and accounting, is a disqualification for a senior-level job in the finance department. And here's Buffet again, this time with Jamie Dimon, arguing that quarterly financial reporting is broken.
Lest you think that this is some emerging consensus, here's Felix Salmon arguing they are wrong. Here's Matt Levine arguing they're wrong. And here (via Justin Fox, which we'll return to later) is a whole book about GAAP rules being wrong for entirely different reasons
So all of this is interesting (OK, maybe not) but what does it have to do with household finance? We haven't even begun investing the kind of resources necessary to really understand household finance, but we act like we have all the important questions licked. Or at least that households should be able to, with a little financial literacy training perhaps, be able to get a grasp on their finances and make consistently sound decisions. The fact is, for the most part, we just don't know what we're talking about when we talk about household finance. Or loss aversion


2. Digital Finance: In another brief diversion to start off an item, an astute reader pointed out that the way I had been writing about Findex made it seem like the Findex team did not have it's own report on the findings. They do, so click on it.
One read of the both the Global Findex team's report and the CFI report highlighted last week is that the promise of digital finance is largely unfulfilled. But there's still a lot of excitement over the promise in places like Egypt apparently. I found this piece particularly remarkable because I stumbled on it right after reading through the Findex analyses, and all I could think was "I don't think that data means what you think it means." Oh, and the note that moving to digital finance would allow the government to closely inspect everyone's spending habits, wheeee!
There's a different sort of excitement over digital finance in Uganda apparently where the parliament has approved taxing mobile money and social media(?!?). Apparently there was some concern that such taxes would be regressive, but some MPs objected that people shouldn't be exempted from paying taxes just because they were poor. Clearly those people don't read CGD/Vox.
In other CGD news related to digital finance, here's a piece about using blockchain in development projects--or perhaps more on point, *not* using the blockchain for development projects. There's a terrific decision tree graphic in the piece that is worth the click on its own, even though I disagree substantially with one part of it.

3. Firms, Productivity and Labor: Earlier this week I attended two days of the Innovation Growth Lab conference put on by Nesta. A number of interesting papers and research proposals were presented--the session I found most interesting was on the global productivity slowdown. The conclusion I came away with--though this wasn't what any of the papers were about--is that the big policy problem is insufficient labor mobility. And by that I don't mean geographic mobility (though I do think more of that would be great) but more firm-to-firm labor mobility. 
But while I was sitting in the research meeting discussing a) whether its possible to boost productivity of small firms, and b) whether the adoption of Toyota Way principles could be an effective proxy for increasing experimentation in firms, this new paper from Tanzania popped up in my Twitter feed via David Evans. It's an experiment introducing Toyota-style problem-solving training for small garment firms--three years after training they find significantly higher profits (though no short-run gains). I can't imagine a paper designed to more efficiently challenge my priors--which are/were a) Toyota has developed an incredibly productive system for sustaining and improving performance, b) it is incredibly hard to improve performance of small businesses.
I mentioned returning to Justin Fox's piece earlier--the column is about how firms behave from a theoretical and empirical perspective, especially how well Friedman's perspective is holding up. It's definitely worth one of your precious Bloomberg-pay-wall-exception clicks (though you may want to open it in an incognito tab anyway). The column will make one more appearance before we're through.

4. Our Algorithmic Overlords: In the interests of time I'm going to hit you with several links and very little commentary. The NY Times Magazine has a feature on differing perspectives on the future of AI among the titans of Silicon Valley. I feel like some very close analog of this piece was done last year but I don't have an AI assistant handy to find it for me.
Here are two new NBER papers on the impact of AI and policy: from Jason Furman and Robert Seamans and from Ajay Agrawal, Josh Gans and Avi Goldfarb.
And two stories about surveillance--of crowds looking for violent behavior, and of Chinese school students looking for boredom.

5. Social Investing: Finally, this week a new Exchange Traded Fund focused on "just" corporations launched--it's a collaboration between hedge fund billionaire Paul Tudor Jones II and Goldman Sachs, exactly who you would expect to be arbiters of socially-positive corporate behavior (if only they could have had an actor portraying Milton Friedman at the launch event!). But the methodology for the index is actually quite interesting and the basis for the rankings are remarkably transparent. There are a number of interesting perspectives to read on it. Here's a positive take. A neutral one. And a skeptical one. (And that's why you want to save your Bloomberg clicks)

Here's the last return to that Justin Fox piece because he features one of the greatest faiV-style videos ever: the Stockholm School of Economics choir signing an original composition based on Friedman's view of firm's social responsibilities.

Week of April 2, 2018

April Showers on Parade Edition

Editor's Note: Joan Robinson once said, "The purpose of studying economics is not to acquire ready-made answers to economic questions, but to learn how to avoid being deceived by economists." I often feel like the more modern description would be, the purpose of studying economics is not to acquire ready-made answers, but to learn how to rain on as many parades as possible. Or maybe that's just my natural disposition. Anyway, the recurring theme this week is the reining in of optimistic expectations.  --Tim Ogden

1. Global Development: To start us off, how about some rain on the "rising Kenyan middle class" parade? The core point--that gains from rising incomes that don't translate into durable assets can rapidly be erased, a perspective that should sound familiar to anyone with a passing knowledge of anti-poverty policy in the US. 
But the real parade in global development in recent years has been on the value of delivering cash to poor households. This is a train that's been picking up steam for a long while. I would date the current push back to the first studies of Progresa/Opportunidades, the Mexican conditional cash transfer program. Momentum has steadily built around both the positive impact of cash transfers--that recipients don't waste the money, that they use the money productively--and dropping conditions. That momentum was built on many studies, but probably the two most well known in international circles are Blattman, Fiala and Martinez on cash transfers in Uganda, and Haushofer and Shapiro/GiveDirectly in Kenya. Both showed significant gains by recipients of unconditional cash.
Both of those papers were about relatively short-term effects. Both studies included longer-term follow-ups. And you know what's coming: the large positive effects seem to have disappeared in the medium term. Berk Ozler of the World Bank is currently playing the role of Deng (it's the closest I could get geographically) with two lengthy blog posts. The first, keying off comments from Chris Blattman in the recent Conversations with Tyler, but really delving into the recently released update to the Haushofer and Shapiro/GiveDirectly update is the important one for non-specialists. The second is very useful for understanding the specific details of interpretation. The posts also kicked off a number of useful Twitter conversations (here, here, here, here and here, though that's just a sample; just scroll through Chris's and Berk's timelines for more). Berk's first post also takes on the role that academics have played in stoking that momentum and is worth a close read.
I think it's also important to think through what is happening with cash transfers in light of not only other studies of cash (like this one finding positive effects on the personality of Cherokee Native American kids whose families receive cash that was just officially published) but also other interventions. Deworming is one example--one big source of the controversy over the effects of deworming is that there isn't a medium-term biological effect to explain the long-term economic effects. The Moving to Opportunity study is another--no short-term or medium-term gains, only long-term ones. And I have to note that the Native American paper is a frustrating example of Berk's critique of the role academics can play in raising expectations too high--the paper's title and abstract simply reference a large positive effect of cash transfers with no indication of when (now? 10 years ago? 30 years ago?), where or who the participants are, or even the size or mechanism of the transfers.


2. Social Investment and Philanthropy: In one of those Twitter conversations sparked by Berk's posts, Chris gave Berk the endearing nickname "naysaying grumpy pants" (it's a compliment, honest!). This week I had my own "grumpy pants" moment tied to the release of Henry Timms' just published book New Power. Henry is the main force behind Giving Tuesday--and apparently I am the designated Scrooge on that topic, going back to a few posts I wrote for Stanford Social Innovation Review years ago. In the Chronicle of Philanthropy's long profile of Henry and the new book, I get to say things like, "I can't imagine a more useless number than the amount of money given on Giving Tuesday." Without context, that may sound like hard-hearted parade-raining. And I suppose I am parade-raining on the way that Giving Tuesday is mostly being talked about--as a wildly successful movement based on the amount of money given tied to Giving Tuesday campaigns. But what we really should care about is whether Giving Tuesday is leading to people becoming more generous, not whether their donations happen in response to a specific campaign. I'll write some more about Henry's book and New Power in the coming weeks.
In other social investment parade raining, I've been known to get riled about about the social investment rhetoric about "no trade-offs" and "double bottom lines." Here's a new paper from Karlan, Osman and Zinman that explores the trade-offs of a double bottom line in detail. It finds negative consequences for both social and financial performance. Now that's some first-class parade-raining.

3. Methods: I suppose you could call this recent work on whether regression discontinuity designs are reliable--and finds that they are--to be raining on the parades of other methdological approaches. But for good measure, here's Andrew Gelman, well-known parade-raining statistician, with some notably restrained and subtle raining on everyone's parade in response to the RDD paper. My summary: lots of methods are reliable if you do them right, but you're probably not doing them right.
But tying back to the first item and Berk's discussion of the role of academics in miss-setting expectations, here are two useful pieces from outside economics that are worth thinking about if we think of methods as not just the way a study is done or the analysis conducted but the way the results are communicated (and obviously I think that's the right way to think about methods). First, how the continuing enthusiasm for vitamins came to be. Second, Slate Star Codex takes on adult neurogenesis in humans which is particularly fascinating because it's an example of how commonly held beliefs were overturned by new research, and then more new research overturned the new beliefs. Seems particularly relevant to the conversations about cash transfers, no?

4. Microfinance and Digital Finance: Here are two related pieces raining on crypto-parades, which admittedly isn't that hard these days. But neither is about the crazy part of the crypto world. They are raining on some of the fundamental ideas that are used to justify the ultimate value of crytocurrencies. First, here's a story about Ripple and it's struggles with banks who like the idea of a simplified payments infrastructure but don't see any need for a cryptocurrency to be part of that. Second, here's a story about how crypto trades are actually happening--with a trusted intermediary using Skype, because you know having a trusted intermediary is a useful thing in markets.
In other non-parade-raining news, Walmart is getting into the global remittances game, by partnering with MoneyGram(!?!). I suppose that will rain on lots of other global remittance providers parade. And here's a story about why, after all this time, remittances are still so costly and none of the efforts to bring down the cost have worked. Of course, that was before Walmart got involved.
Finally, it's not often I get to feature some US-based microfinance stuff. Here's a new paper from Aspen FIELD on pricing in US microfinance and why it makes sense for lenders to raise interest rates (Note: I played an role advisory role developing the paper). I think a lot of people in international microfinance will sympathize.

5. US Poverty and Inequality: The role of health care costs in driving bankruptcies got a lot of attention a few years ago and was a big part of the push for the ACA. Since the ACA passage though, there hasn't been a meaningful change in bankruptcy rates even though there was a big increase in the number of people insured. Now there's a reassessment of the data on bankruptcy and health care costs that radically revises down the number of bankruptcies that can be attributed to health care costs directly resulting in papers in the New England Journal of Medicine and in AER. Here's a summary of the work, but the very short version is the culprit is loss of income from poor health more than the costs of health care.
And because it's spring temporarily this afternoon, I feel compelled to leave on some good news--or at least my version of good news. The Gap engaged in a rigorous randomized study (!) to determine if their scheduling practices--which as in most US retail leads to erratic and volatile schedules for retail workers--were helpful to the bottom line. The answer is no. Volatile schedules are bad for workers and bad for business (summary; full report). Hey, did I just suggest there was no trade-off to treating workers better?

Week of March 12, 2018

Editor's Note: I keep telling myself that I'm going to start fighting back against the tyranny of the new, but it never seems to happen. But this week I'm taking a small step by pulling stuff I've been accumulating for the last month that hasn't made it into the faiV. Plus some new stuff of course. Get ready for a link heavy faiV. And in case any of you are wondering what I look like, I'll be interviewing Fred Wherry about the sociology of debt in the United States on Tuesday, the 20th. Register to watch the live stream here.--Tim Ogden

1. Microfinance and Digital Finance: Apparently the "farmer suicide over indebtedness" hype train is kicking up again in India. That's not to imply that farmer suicides are not a serious issue. But Shamika Ravi delves into the data and points out that indebtedness doesn't seem to be the driver of suicides and so attacking lenders or forgiving debts isn't going to fix the problem. Certainly poverty and indebtedness add huge cognitive burdens to people that affect their perceptions and decisions in negative ways, including despair. Here's a new video about poverty's mental tax--there's nothing new here, but a useful and simple explanation of the concepts.
Last year (or the year before) I noted Google's decision to play a role in safeguarding people in desperate straits from negative financial decisions: the company banned ads from online payday lenders, in effect becoming a de facto financial regulator. This week, Google announced another regulatory action. Beginning in June it will ban ads for initial coin offerings (if you don't know what those are, congratulate yourself). While I'm all for the decision, it's strange for Google to conclude that these ads are so dangerous to the public that they should be banned, but not for three more months. Cryptocurrency fraudsters, get a move on! Meanwhile, the need for Google and Apple (and presumably Facebook, Amazon, Alibaba and every other tech platform) to step up their financial regulation game is becoming clearer. In an obviously self-promotional, but still concerning survey web security firm Avast found that 58% of users thought a real banking app was fraudulent, while 36% thought a fraudulent app was real. I don't really buy the numbers, but my takeaway is: people have no idea how to identify digital financial fraud. I wish that seemed more concerning to people in the digital finance world.


2. Our Algorithmic Overlords: I've had a couple of conversations with folks after my review of Automating Inequality, and had the chance to chat quickly with Virginia Eubanks after seeing her speak at the Aspen Summit on Inequality and Opportunity. My views have shifted a bit: in her talk Eubanks emphasized the importance of keeping the focus on who is making decisions, and that the danger that automation can make it much harder to see who (as opposed to how) has discretion and authority. A big part of my concern about the book was that it put too much emphasis on the technology and not the people behind it. Perhaps I was reading my own concerns into the text. I also had a Twitter chat with Lucy Bernholz who should be on your list of people to follow about it. She made a point that has stuck with me: automation, at least as it's being implemented, prioritizes efficiency over rights and care, and that's particularly wrong when it comes to public services.
I closed the review by saying that "the problem is the people"; elsewhere I've joked that "AI is people!" Well at least I thought I was joking. But then I saw this new paper about computational evolution--an application of AI that seeks to have the machine experiment with different solutions to a problem and evolve. And it turns out that while AI may not be people, it behaves just like people do. The paper is full of anecdotes of machines learning to win by gaming the system (and being lazy): for instance, by overloading opponents' memory and making them crash, or deleting the answer key to a test in order to get a perfect score. I think the latter was the plot of 17 teen movie comedies in the '80s. Reading the paper is rewarding but if you just want some anecdotes to impress your friends at the bar tonight, here's a twitter thread summary. It's funny, but honestly I found it far scarier than that video of the robot opening a door from last month. Apparently our hope against the robots is not the rules that we can write, because they will be really good at gaming them, but that the machines are just as lazy as we are.
To round out today's scare links, here's a news item about a cyberattack against a chemical plant apparently attempting to cause an explosion; and here's a useful essay on our privacy dystopia.

3. US Poverty and Inequality: Definitely just trying to catch up here on things that have been building up. Here's a new paper on studying income volatility using PSID data, with a review of prior work and finding that male earnings volatility is up sharply since the Great Recession. There's been a bunch of worthwhile things on US labor force participation in the last few weeks. First here's Abraham and Kearney with "a review of the evidence" on declining participation. Here's a comparison of the UK and US considering why US has fallen behind in participation from Tedeschi. And here's a story from this week about how falling unemployment is affecting hiring and participation.
Returning to the theme of volatility, here's a short video from Mathematica Policy Research on how income volatility affects low-income families. Jonathan is following up on the US Financial Diaries research into income volatility and looking at how it disproportionately affects African-American households, and interacts with the racial wealth gap. But it turns out that even though African-American households are disproportionately income, asset and stability poor, they are even more disproportionately depicted as poor in media

4. Social Investment and Philanthropy: I mentioned above that you should be following Lucy Bernholz. Via Lucy, here's a report on the massive challenge of digital security for civil society organizations. I'll take a moment to editorialize--funders are way way behind in recognizing how big a change digitization is when it comes to their own and nonprofits operations. It's not just security, though that's likely the first place that a crisis will strike. But beyond that, it's crazy that major foundations do not have CIOs on their boards of directors, and that grant applications don't include a technology infrastructure review. The ability to use technology is already a major factor in nonprofits ability to have an impact (either directly by how they deliver services or indirectly in how they can track their activities and improve), while most funders are still viewing IT as an overhead cost to be minimized. That has to change. 
In other worrying trends in philanthropy that aren't getting enough attention--the explosive growth of Donor Advised Funds continues. Recently information about Goldman Sachs' DAF leaked--which is significant because part of the reason DAFs are popular is because they shield information about who donors are. Which makes it particularly interesting that Steve Ballmer and Laurene Powell Jobs, and others among the list of wealthiest people in the world are using Goldman's DAF, because the justification for DAFs is allowing those not wealthy enough to fund their own foundations to gain some of the benefits. Sounds like a gaming of the rules that an AI would be proud of.

5. Methods and Statistics: I feel like I couldn't show my face around here anymore if I didn't link to the world's largest field (literally) experiment. It was in China of course. I feel like this instance satisfies all of the objections raised by Deaton or Pritchett or Rozenzweig, but I'm sure I've missed something. By the way, anybody else have a feeling that relatively soon people are going to be questioning the importance of any study that wasn't done in China or India? 
So you better jump on the chance to read about how to measure time series share of GDP in the United States (and how hard it is to say anything about manufacturing's changing role in the economy). After all it only affects about 350 million people, not enough to really care about. 
Meanwhile, Andrew Gelman of all people makes the case for optimism about statistical inference and replication. I'm not sure of whether to interpret the kerfuffle over Doleac and Mukherjee's paper on moral hazard and naloxone access as bolstering or undermining Gelman's point. I'm going to choose to be optimistic for now though, against my nature.
And finally, here's a visual, interactive "textbook" on probability that has some really cool stuff. But I don't think what it's doing is going to help the problem of people not understanding causal inference.

Figuring out how to do the right thing is hard. This table is from  a Danish government study  of climate change impact of various methods of carrying stuff. Apparently if you properly use, re-use and dispose of a standard plastic bag, it has much less climate impact than reusable cotton bags. If I'm interpreting it correctly, it means that you'd have to use an organic cotton bag something like 20,000 times before net climate impact was the same as the plastic bag's. Of course, that all depends on whether the plastic bag is properly used and disposed of. I bet neither estimate incorporates virtue compensation. 

Figuring out how to do the right thing is hard. This table is from a Danish government study of climate change impact of various methods of carrying stuff. Apparently if you properly use, re-use and dispose of a standard plastic bag, it has much less climate impact than reusable cotton bags. If I'm interpreting it correctly, it means that you'd have to use an organic cotton bag something like 20,000 times before net climate impact was the same as the plastic bag's. Of course, that all depends on whether the plastic bag is properly used and disposed of. I bet neither estimate incorporates virtue compensation. 

Week of March 4, 2018

Editor's Note: I again triumphantly wrestled the faiV from Tim Ogden’s clutches this week. Well, actually, he asked me to take over while he’s in transit today. Inspired by this week's amazing Pooh noir Twitter thread, I decided to dedicate this faiV to some powerful investigations (of the journalistic, not private eye, not private eye type). --Jonathan Morduch

1. Crappy Financial Products: The results are no surprise, but it remains troubling to see the numbers. “Color and Credit” is a 2018 revision of a 2017 paper by Taylor Begley and Amitatosh Purnanandam. The subtitle is “Race, Regulation, and the Quality of Financial Services.” Most studies of consumer financial problems look at quantity: the lack of access to financial products. But here the focus is on quality: You can get products, but they’re lousy. Too often, they’re mis-sold, fraudulent, and accompanied by bad customer service. These problems had been hard to see, but they’ve been uncovered via the Consumer Financial Protection Bureau Complaints database, a terrifically valuable, publicly accessible—and freely downloadable—database. (Side note: this makes me very nervous about the CFPB’s current commitment to maintaining the data.)

Thousands of complaints are received each week, and the authors look at 170,000 complaints from 2012-16, restricted to mortgage problems. The complaints come from 16,309 unique zipcodes – and the question is: which zipcodes have the most complaints and why? The first result is that low income and low educational attainment in a zipcode are strongly associated with low quality products. Okay, you already predicted that. On top of those effects, the share of the local population identified as being part of a minority group also predicts low quality. No surprise again, but you might not have predicted the magnitude: The minority-share impact is 2-3 times stronger then the income or education impact (even when controlling for income and education). The authors suspect that active discrimination is at work, citing court cases and mystery shopper exercises which show that black and Hispanic borrowers are pushed toward riskier loans despite having credit scores that should merit better options. So, why? Part of the problem could be that efforts to help the most disadvantaged areas are backfiring. Begley and Purnanandam give evidence that regulation to help disadvantaged communities actually reduces the quality of financial products. The culprit is the Community Reinvestment Act, and the authors argue that by focusing the regs on increasing the quantity of services delivered in certain zipcodes, the quality of those services has been compromised – and much more so in heavily-minority areas. Unintended consequences that ought to be taken seriously.

2. TrumpTown: Another great database. ProPublica is a national resource – a nonprofit newsroom. They’ve been doing a lot of data gathering and number-crunching lately. Four items today are from ProPublica. The first is the geekiest: a just-released, searchable database of 2,475 Trump administration appointees. The team spent a year making requests under the Freedom of Information Act, allowing you to now spend the afternoon getting to know the mid-tier officials who are busily deregulating the US economy. The biggest headline is that, of the 2,475 appointees, 187 had been lobbyists, 125 had worked at (conservative) think tanks, and 254 came out of the Trump campaign. Okay, that’s not too juicy. Still, the database is a resource that could have surprising value, even if it’s not yet clear how. Grad students: have a go at it. (Oh, and I’d like to think that ProPublica would have done something similar if Hilary Clinton was president.)

3. Household Finance (and Inequality): This ProPublica story is much more juicy, and much more troubling. Writing in the Washington Post, ProPublica’s Paul Kiel starts: “A ritual of spring in America is about to begin. Tens of thousands of people will soon get their tax refunds, and when they do, they will finally be able to afford the thing they’ve thought about for months, if not years: bankruptcy.” Kiel continues, “It happens every tax season. With many more people suddenly able to pay a lawyer, the number of bankruptcy filings jumps way up in March, stays high in April, then declines.” Bankruptcy is a last resort, but for many people it’s the only way to get on a better path. Even when straddled with untenable debt, it turns out to be costly to get a fresh start.

The problem will be familiar to anyone who has read financial diaries: the need for big, lumpy outlays can be a huge barrier to necessary action. Bankruptcy lawyers usually insist on being paid upfront (especially for so-called “chapter 7” bankruptcies). The problem is that if the lawyers agreed to be paid later, they fear that their fees would also be wiped away by the bankruptcy decision. So, the lawyers put themselves first. The trouble is that the money involved is sizeable: The lawyers’ costs plus court fees get close to $1500. The irony abounds. Many people tell Kiel that if they could easily come up with that kind of money, then they probably wouldn’t be in the position to go bankrupt. Bankruptcy judges see the problem and are trying to jerry-rig solutions, but nonprofits haven’t yet made this a priority. So, for over-indebted households, waiting to receive tax refunds turns out to be a key strategy.

4. Municipal Finance and Household Finance (and Inequality): In a related vein, check out this Mother Jones/ProPublica investigation of bankruptcy in Chicago. The title says it all: “How Chicago Ticket Debt Sends Black Motorists Into Bankruptcy. A cash-strapped city employs punitive measures to collect from cash-strapped residents — and lawyers benefit.” The focus is on the city’s reliance on fees from parking tickets to help balance the books – which can add up for residents and lead to bankruptcy. Even a single unpaid parking ticket can create havoc for poorer households. The situation is hard not to connect to Ferguson, Missouri, the scene of the riots after the shooting of Michael Brown, where, among other abuses of the citizenry, the city used the courts and police as revenue-generating mechanisms.)

Ticket debt in Chicago is concentrated in areas that are predominantly poor and black, because there isn’t slack to pay the initial tickets, making it more likely that debt results. A fairer system would impose fines on a scale connected to individuals’ income and ability-to-pay. But, for now, we have a decidedly regressive system in which the least-able-to-pay face disproportionately large penalties.

5. Social Investment: The final ProPublica story is a collaboration with the New York Times. Many have reported on the rising cost of drugs, but we don’t often see deep reporting on those who pay the price. The personal stories are both familiar and shocking. Two common threads: many people are too poor to easily pay the drug prices but not so poor that they have access to generous public benefits. They’re caught in between. The result is that individuals end up juggling which medicines to take in the same way that cash-strapped families juggle which bills to pay each month – only with much higher stakes.
 
A second theme is (again) problems posed by large, lumpy, upfront costs. For example: “…Novo Nordisk, the company that sells her fast-acting insulin, Novolog, and her diabetes medication, Victoza, requires low-income Medicare beneficiaries to first spend $1,000 on drugs in each calendar year before they can qualify for free drugs through its program. In a cruel twist, Ms. Johnson doesn’t have that $1,000 to spend, so she resorts to not taking some drugs for months until she reaches the company’s threshold.” The stories highlight ways in which health problems are often financial problems.
 
In a related way, JPMorgan Chase Institute analysis shows that many people defer health spending until they get tax refunds. (Out-of-pocket health spending increased by 60% in the week after getting a tax refund.) Tax refund season is one of the few moments when families have big, lumpy sums to spend on doctors (if they don’t spend them all on filing for bankruptcy).

First Week of March, 2018

1. Global Development: One of the more encouraging trends in development economics as far as I'm concerned is the growth of long-term studies that report results not just once but on an on-going basis. Obviously long-term tracking like the Young Lives Project or smaller scale work like Robert Townsend's tracking of a Thai village (which continues to yield valuable insights) falls in this category, but it's now also happening with long term follow-up from experimental studies. Sometimes that takes the form of tracking down people affected by earlier studies, as Owen Ozier did with deworming in Kenya. But more often it seems, studies are maintaining contact over longer time frames. A few weeks ago I mentioned a new paper following up on Bloom et. al.'s experiment with Indian textile firms. The first paper found significant effects of management consulting in improving operations and boosting profits. The new paper sees many, but not all, of those gains persist eight years later. Another important example is the on-going follow up of the original Give Directly experiment on unconditional cash transfers. Haushofer and Shapiro have new results from a three year follow-up, finding that as above, many gains persist but not all and the comparisons unsurprisingly get a bit messier.
Although it's not quite the same, I do feel like I should include some new work following up on the Targeting the Ultra Poor studies--in this case not of long-term effects but on varying the packages and comparing different approaches as directly as possible. Here's Sedlmayr, Shah and Sulaiman on a variety of cash-plus interventions in Uganda--the full package of transfers and training, only the transfers, transfers with only a light-touch training and just attempting to boost savings. They find that cash isn't always king: the full package outperforms the alternatives.


2. Our Algorithmic Overlords: If you missed it, yesterday's special edition faiV was a review of Virginia Eubanks Automating Inequality. But there's always a slew of interesting reads on these issues, contra recent editorials that no one is paying attention. Here's NYU's AINow Institute on Algorithmic Impact Assessments as a tool for providing more accountability around the use of algorithms in public agencies. While I tend to focus this section on unintended negative consequences of AI, there is another important consideration: intended negative consequences of AI. I'm not talking about SkyNet but the use of AI to conduct cyberattacks, create fraudulent voice/video, or other criminal activities. Here's a report from a group of AI think tanks including EFF and Open AI on the malicious use of artificial intelligence.

3. Interesting Tales from Economic History: I may make this a regular item as I tend to find these things quite interesting, and based on the link clicks a number of you do too. Here's some history to revise your beliefs about the Dutch Tulip craze, a story it turns out that has been too good to fact check, at least until Anne Goldgar of King's College did so. And here's work from Judy Stephenson of Oxford doing detailed work on working hours and pay for London construction workers during the 1700s. Why is this interesting? Because it's important to understand the interaction of productivity gains, the industrial revolution, wages and welfare--something that we don't know enough about but has implications as we think about the future of work, how it pays and the economic implications for different levels of skills. And in a different vein, but interesting none-the-less, here is an epic thread from Pseudoerasmus on Steven Pinker's new book nominally about the Enlightenment.

4. Household Finance: I want you to look at two pieces that are about household finance, one from the US and one Ghana and tell me if you react to them the same or differently and whether that reaction is positive or negative. I feel like these two stories are one of the most effective rohrshach tests you could imagine to get at people's feelings about financial services for poor households. First we have a blog post from CGAP about PayGo Water--in other words, rather than paying a monthly water service bill retroactively, using digital payments to enforce payment before the water is delivered. Second, this blog post from Aaron Klein about hidden price discrimination based on what payment methods consumers use--in other words the poor pay more.

5. Social Investment: Here are a few other pieces that similarly may spark conflicting responses. Ross Douthat has an editorial on the trade-offs in the behavior of corporate America as it seems to more explicitly blend socially liberal but economic-inequality-boosting policies. Fast Company reviews the state of Social Impact Bonds, a facet of social investment that seems to have fallen out of the spotlight as people realize how complicated they (and the world) are. I'm a long-term critic of the idea that social investing has "no trade-offs." If you're getting market-rate returns you're just investing as far as I'm concerned, not social investing. But this longform critique of the "doing well by doing good" rhetoric seems to me to really be talking about making grants not investments. And finally this piece doesn't truly fit here unless you really squint and cock your head to the side, but it does induce conflicting feelings. It's about continuing large-scale discrimination against borrowers of color by US banks (and in that sense it fits fairly well with the piece above), and the stories they tell will likely leave you seething. But the evidence isn't that strong since they can only see a small portion of the data you would need to really determine creditworthiness. Don't get me wrong, I'm not saying there isn't discrimination. But it seems much more likely to me that the source of the discrimination is the pre-existing racial wealth gap and biases in credit scoring, not purposeful discrimination by the banks or loan officers.

Week of December 4, 2017

In terms of this week's through-line, I figured I might as well get in on the Star Wars jokes that are going to plague us all, apparently, for the rest of time--Tim Ogden

1. Social Investment: Last week I was at European Microfinance Week. Video of the closing plenary I participated in is here. My contribution was mainly to repeat what seems to me a fairly obvious point but which apparently keeps slipping from view: there are always trade-offs and if social investors don't subsidize quality financial services for poor households, there will be very few quality financial services for poor households.
Paul DiLeo of Grassroots Capital (who moderated the session at eMFP) pointed me to this egregious example of the ongoing attempt to fight basic logic and mathematics from the "no trade-offs" crowd. This sort of thing is particularly baffling to me because of the close connection that impact investing has to investing--a world where everything is about trade-offs: risk vs. return; sector vs. sector; company vs. company; hedge fund manager vs. hedge fund manager. The logic in this particular case, no pun intended, is that a fund to invest in tech start-ups in the US Midwest is an impact investment, even though the founder explicitly says it isn't, because it is "seeking potential return in parts of the economy neglected by biases of mainstream investors." If that's your definition of impact investing you're going to have a tough time keeping the Koch Brothers, Sam Walton and Ray Dalio out of your impact investment Hall of Fame. Sure, part of the argument is that these are investments that could create jobs in areas that haven't had a lot of quality job growth. But by that logic, mining BitCoin is a tremendous impact investment. You see, mining BitCoin and processing transactions is enormously energy intensive. And someone's got to produce that energy, and keep the grid running. Those electrical grid jobs are one of the few high paying, secure mid-skill jobs. Never mind that BitCoin mining is currently increasing its energy use every day by 450 gigawatt-hours, or Haiti's annual electricity consumption. And, y'know, reversing the trend toward more clean energy. Hey anyone remember the good old days of "BitCoin for Africa"?


2. Philanthropy: There are plenty of trade-offs and questions about impact in philanthropy, not just in impact investing, and not just in programs. Here's a piece I wrote with Laura Starita about making the trade-offs of foundations investing in weapons, tobacco and the like more transparent.
I could have put David Roodman's new reassessment of the impact of de(hook)worming in the American South in early 20th century under a lot of headings (for instance, Roodman once again raises the bar on research clarity, transparency and data visualizations; Worm Wars is back!; etc.). The tack I'm going to take, in keeping with the prior item, is the impact of philanthropy. The deworming program was driven by the Rockefeller Sanitary Commission and is frequently cited, not only as evidence for current deworming efforts, but as evidence for the value and impact of large scale philanthropy. Roodman, using much more data than was available when Hoyt Bleakley wrote a paper about it more than 10 years ago, finds that there isn't compelling evidence that the Rockefeller program got the impact it was looking for. Existing (and continuing) trends in schooling and earnings appear unaltered. 
Ben Soskis has a good overview of the seminal role hookworm eradication had in the creation of American institutional philanthropy. His post was spurred by an article I linked back in the fall about the return of hookworm in many of the places it was (supposedly?) eradicated from by Rockefeller's philanthropy. We may need to rewrite a lot of philanthropic history to reflect that the widely cited case study in philanthropic impact didn't eradicate hookworm and may not have had much effect. And while we're in the revision process, it may be useful to reassess views on the impact of the Ford Foundation-sponsored Green Revolution: a new paper that argues that there was no measurable impact on national income and the primary effect was keeping people in rural farming communities (as opposed to migrating to urban areas). Given what we now generally know about the value to rural-to-urban migration, that means likely significant negative long-term effects.
If you care about high quality thinking about philanthropy, democracy and charitable giving in general, which I of course think you should, you should also be paying attention to some of Ben Soskis' other current writing. Here he is moderating a written discussion of Americans' giving capacity. And here's a piece about how the Soros conspiracy theories are damaging real debate about the role of large scale philanthropy in democratic societies.
In the spirit of the holidays, I feel like I should wrap up an item on philanthropy with some good news. In the last full edition of the faiV I mentioned the MacArthur Foundation's 100&Change initiative, which is picking one idea to get $100 million to "solve" a problem. For all the problems I have with that, the program is doing something really interesting, thanks to Brad Smith and the Foundation Center. All of the proposals, not just the finalists, are now publicly available for other foundations to review.

3. Frustrated Employees: One of the core conceits of the microfinance movement is the idea that many (most?) poor people are frustrated entrepreneurs, with lots of ideas and opportunities available if only they had access to credit. It's one of the reasons that we didn't get the impact we were looking for from massive expansion of microcredit.
The idea of frustrated entrepreneurs still lives on for a lot of the general public, but I think (hope?) it's been largely abandoned within the core of the industry. But just in case, I thought I would pass along some more evidence that the poor are frustrated employees, not frustrated entrepreneurs. Here's a paper looking at small enterprise owners in Mexico, who shrink their businesses when jobs come to town, in anticipation presumably of giving up the grind of entrepreneurship for the dream of a paycheck. And here's a look at Thai entrepreneurs operating multiple micro-enterprises that concludes that it's not lack of credit that's holding back their businesses, but their own lack of skills.
One of the paradoxes of the microfinance movement was that co-existing with the idea that the poor were frustrated entrepreneurs just waiting to be unleashed was the emphasis on providing a loan with conditions that made entrepreneurial risk-taking difficult if not impossible. Field and Pande showed quite a while ago that if you relaxed the constraints on loan payment, some borrowers would make riskier investments and gain from it. Here's a recent follow-up to that work which adds further evidence--again finding that borrowers with a more flexible contract end up with higher business sales, but also that the contract does a good job of inducing self-selection of borrowers who do have more of the necessary characteristics for entrepreneurial success.
It's not just people in lower income countries that are frustrated employees. Many employees are frustrated employees--frustrated that the jobs they have are terrible. Here's Zeynep Ton on the case for relieving that frustration and creating better jobs.

4. Our Algorithmic Overlords: A couple of quick hits here. First, the Illinois Department of Children and Family Services tried to use big data and algorithms to predict which children were at most risk. They're scrapping the program "because it didn't seem to be predicting much."
And here's Zeynep Tufecki on the dystopia we're building "just to make people click on ads." Definitely not the impact we were looking for.

5. Household Finance: If there's any impact the microfinance movement was not looking for, it was to replicate the troubling situation with debt that we see in many lower income American (and European, though to a lesser extent) households. It's one of the reasons the industry was so fixated on emphasizing that they were making entrepreneurial loans not consumption loans. The Urban Institute has a new interactive map on debt in America, with data down to the county level. There's a lot to explore there--CityLab has a nice summary overview if you just want some takeaways. The Mimosa Index is doing something conceptually similar for microfinance, albeit at a much grosser level due to data constraints. Hey, MicroSave what about doing something like this for digital credit in Kenya?
And to tie everything together, from trade-offs to impact, here's some new work from Emily Gallagher and Jorge Sabat (via Ray Boshara's blog post) on the trade-offs households have to make between savings and debt--finding (in the US) that the short-term sub-optimal choice of saving at low interest rates while carrying high-interest debt pays off in the medium-term. The mechanism is having some liquidity to meet shocks without running up more debt. I have some ideas (and some organizations willing to try them) about how to maintain liquidity while reducing debt, so if you'd be interested in funding a pilot, just let me know. 
Ray's post is motivated by thanking his dad for giving him advice as a teenager to always have some savings on hand, even if it meant ultimately paying more in interest on loans, advice that now has an empirical basis. I can't let that opportunity for one of my standard harangues pass by: the state of personal finance advice is horrific. Here's a piece from the NY Times this week which under the heading of getting "better at money in 2018" advises readers that cutting out small indulgences can add up and that they should spend more on take-out to be happy. Gosh I wonder which of those pieces of advice is more likely to be taken?  

Via Barbara Magnoni of EA Consultants, a little video about international remittances to hopefully brighten your weekend. It's certainly better than a Star Wars joke.

Week of September 11, 2017

1. Digital Finance: There's a regular theme I hit when it comes to digital finance--digital gives much more power to providers, government or private sector, than physical cash does. And that is something we should worry about. So my confirmation bias whet into overdrive when this crossed my feed this week: China is detaining ethnic and religious minorities in Xinjiang Province and one of the criteria for detention is people who "did not use their mobile phone after registering it." Brett Scott objects to cashlessness for both its inherent nature as a tool of surveillance and for more pecuniary reasons: unlike cash, every digital transaction generates fees. Which in turn gives power to the organizations that have a seemingly insatiable appetite for categorizing and controlling people. Hey, ever wonder why Facebook is pushing hard into payments, even into fundraising for non-profits?

Scott uses Sweden's progress toward cashlessness as a foil. Want to guess which other country beyond China and Sweden has made the most progress toward digital-only payments? Somaliland. Huh. Elsewhere, the progress of digital finance seems to have slowed to a crawl: 76% of mobile money accounts are dormant, and the average active user only conducts 2.9 transactions a month. Perhaps that's because of a huge gap in usability that will require a similarly large push in education (according to Sanjay Sinha).

Given the near unrelenting negativity above, I feel like I have to say for the record: I don't oppose digitisation. I oppose not recognizing and planning for the negative consequences of digitisation.


2. Global Finance: Digital finance and mobile money is generally about very local transactions. But another important use is long-distance transactions, particularly remittances. But international transfers of funds require banks to have relationships that cross borders. The technical term is "correspondent banks." What correspondent banks do is vastly simplify and accelerate the flow of funds across borders. So it's a problem that correspondent banking relationships are shutting down as a result of "de-risking," which is banking jargon for "avoiding anything that may draw the attention of regulators who have the somewhat arbitrary ability to impose massive fines." The IFC reports that more than a quarter of banks responding to their survey reported losing correspondent bank relationships with compliance costs the most common reason; and 78% expected compliance costs to increase substantially for 2017.

And now for a bit of levity, if you can call it that. Matt Levine has the incredible story of how the Batista brothers, owners of a large Brazilian meat-packing company, made money shorting the Brazilian Real--they knew recordings of their conversations with President Michel Temer about bribes were going to be released. Is that insider trading?


3. US Poverty and Inequality: This week the US Census Bureau released its report on income and poverty in the United States in 2016. The new was good, at least on a relative basis: incomes are growing across the board and poverty is down. But...the majority of gains are still going to upper income groups, and inequality continues to rise as a result. The bottom half of the distribution is only now getting back to where it was in 1999 or earlier. Here's Sheldon Danziger's take on the data and the policy implications. The Economic Progress Institute has a good overview (with good charts) of the poverty data specifically, which focuses on how safety net programs reduce the number of people below poverty by "tens of millions."

The 8+ million who are above the Supplmental Poverty Measure threshold because of refundable tax credits (e.g. the EITC and the Child Tax Credit) particularly caught my eye because of this profile of a US Financial Diaries household that I just finished. Amy Cox, for the year we followed her, is one of those people. For the year, she is above the SPM because of tax credits. But she receives all of that in one lump sum in February. So for 11 months of the year, she's poor. In 9 months of the year, she's around 75% of the SPM threshold. But officially, she's not poor. Makes me think it's time for a Supplemental Supplemental Poverty Measure that takes into account how many weeks a year someone is below the line.

In other US Financial Diaries news, here's Jonathan Morduch speaking about Steady Jobs without Steady Pay at TEDxWilmington this week (skip ahead to 1:30:00).

4. Social Investing: Is there any point to avoiding investments in "sin stocks." At least some people think so, giving the proliferation of mutual funds and other investment vehicles that screen companies based on environmental, social or governance criteria (referred to as a category as ESG). Cliff Asness doesn't think so. The summary version (also see Matt Levine) is that if avoiding "sin stocks" causes those companies cost of capital to rise (which is part of the theory of change of many ESG advocates), well that will just increase the returns of those who are willing to invest in sin. If avoiding those stocks doesn't change the cost of capital, then nothing has been accomplished.

Felix Salmon disagrees. The reason to avoid sin stocks isn't to punish bad companies or raise their cost of capital. It's because "it's the right thing to do," and "divestment is a political gesture" not an economic one. 

5. Education: A few weeks ago I linked to a "Starrant" about Liberia's experimentation with private schools. Last week the preliminary results of the RCT by IPA and CGD that Kevin mentions in his rant were published. There's a little something for everyone here: learning measures were way up, but there was significant heterogeneity among the school operators, and costs were way, way up and those are just the headlines. The biggest question is how to think about the cost-effectiveness, because for instance, this was the first year of the program and it's unclear how much of the increased costs were start-up costs or how scale efficiencies may change the figures.

Caitlin Tulloch has a very relevant tweet thread for education researchers and policymakers/influencers: "We don't lack methodology for costing ed. programs. We lack processes & culture of applying it!" Alejandro Ganimian has a blog post about why
RCTs of education programs that have shown impact haven't led to those programs being scaled up. And here's Attanasio, Cattan and Krutikova in VoxDev (how the hell are they generating so much quality content? Has Tavneet cloned herself in a secret lab at MIT?) on the evidence and the research agenda on early childhood development policies.

Week of May 1, 2017

1. Households Matter!:  If you've followed research on microfinance at all, you've probably come across work by de Mel, McKenzie and Woodruff about giving cash grants to microenterprises (in Sri Lanka and Ghana), finding that the returns to investment in women's firms is much lower (and close to 0) than in men's enterprises. It's a bit of puzzle for several reasons (e.g. why do women borrow if their returns are so low, and why don't men borrow more if their returns are so high?) and there have been various explanations tried out (you can see one of mine in this paper). Bernhardt, Field, Pande and Rigol (paper here, overview from Markus Goldstein here) have a new one that seems pretty compelling based on reanalyzing data from several experiments, including the cash grant experiments. It's an explanation that points back to Gary Becker and Robert Townsend ideas (household's maximizing returns across the household assuming money is fully fungible) about how households work, and away from Viviana Zelizer's (money is often not, in fact, fungible and different income streams in the household are treated differently) or in some ways against Yunus's idea of focusing on women. Bernhardt et al. see that in general when it appears that when women's enterprises show little or no return to capital it's often because the household has another microenterprise that the capital is invested in instead--and those enterprises (where data is available) show gains from the capital injection into the household. When women own the only microenterprise in the household, they see returns (and are often in similar industries) as men. 

This is a big deal and it emphasizes how far we still have to go in understanding household finance. This doesn't say that Zelizer's insights are wrong--they are clearly right in lots of cases--but we don't have a solid grasp on when we should think of households as a single utility-maximizing unit and when we should disaggregate.


2. Pre-K Matters? (and other scale-ups): One of the things that households--or if you read some of the charity marketing that has dominated the last decade or so, only women--invest in is their children's education. Unfortunately, it seems that they often under-invest in education and so a lot of effort is invested in getting children into and keeping them in school. In the United States, the current frontier is about universal Pre-K since most every child is enrolled through the beginning of secondary school. The idea is that children from poorer households start school already well behind their wealthier peers, those gaps persist and if we close them early, well the gaps will stay closed. There are some studies that suggest that's true and Jim Heckman in particular among economists has been a big advocate of significantly increasing investment in early childhood education programs. But there are other studies that suggest it's not. I called the arguments on this "Pre-K" wars in my book because a lot of the argument has been over experimental design and methodological issues in the studies.

Russ Whitehurst at Brookings has a new post on the Pre-K wars that I learned a lot from, including new data from Tennessee that shows the returns from pre-K there were negative and the randomization in the famous Abecedarian study was violated in ways that are impossible to correct for. The bottom line for Whitehurst is that while small-scale, intensive interventions with very high-skill staff can make a big difference, programs at scale don't have any solid evidence they work. Which sounds a lot like some of the things we're seeing from scale up of successful programs in other areas of development.

3. Governance Matters! (even in social enterprises): One of the weird things to emerge in social investment is B Corporations--a not-particularly-binding commitment a firm can make to values other than maximizing profits. That not-particularly-binding part is important because, well, it's not particularly binding while other corporate governance laws and regulations are quite binding. Etsy is learning that as an investor is advocating that the firm be sold, and/or management be replaced, complaining that management is failing in its duties to maximize profits by paying wages that are too high (or put another way, by adhering to the principles of being a B Corp) among other things. Because Etsy is a standard corporation that simply opted in to the voluntary requirements of being B Corp it's quite possible that Etsy's hand could be forced. There is a binding form of corporate governance that would resolve this--becoming a For Benefit corporation as defined by state regulations in about 30 states, but Etsy isn't one of those, yet.

And in other social investment governance news, here's a story about State Street's Fossil Fuel Free ETF held positions in Deepwater Horizon and coal-burning utilities (scroll down to "Who Picks the Index").

4. Regulation Matters! (or how the Indian government keeps undermining MFIs): When you think of India and microfinance, the Andhra Pradesh crisis almost certainly springs to mind. The industry has largely recovered from that regulation-induced shock. But now the industry is confronting a leap in non-performing loans due to regulatory changes that were not directly targeting the industry. Demonetization, by removing most of the paper bills in circulation, kind of had an impact on borrowers ability to repay their loans. And Uttar Pradesh recently announced a $5.6 billion loan forgiveness plan, which unsurprisingly has apparently convinced borrowers in neighboring states to stop repaying their loans to see if they can get the same deal. Andy Mukherjee argues that the net result is going to be the end of specialty microlenders, who will have to be absorbed into larger traditional banks in order to protect themselves from regulatory shocks. I have a theory as to what will happen to the zeal for serving poor customers once microlenders are absorbed.


5. Labor Markets Matter!: You've no doubt heard many times that in the modern era neither businesses nor employees are loyal and everyone will change jobs much more in the past. Justin Fox has heard it too, most recently at a conference on the Digital Future of Work and decided to do some digging. It tuns out that average job tenure in the United States has been rising over the last 20 years (though it's down slightly recently, though still almost a year longer than it was in 1996). Job tenure is especially high for supervisors and for government workers. It seems this is another feature of the much discussed "hollowing-out" of the labor market in the US, and likely a part of the increasing inequality in access to stability.

Statistical inference is hard. All these plots share the same basic data descriptors. Source:  Autodesk

Statistical inference is hard. All these plots share the same basic data descriptors. Source: Autodesk

Week of April 17, 2017

1. FinTech Like a State:  Aadhaar, the Indian government's unique identifier system, is now ubiquitous with 99% of citizens over 18 having an ID. That makes it a powerful platform for delivering both government programs and digital financial services. But it also raises a lot of concerns about what the government might do--or what others could do if they gain access to or corrupt the system--when it can track and/or regulate citizen behavior at a detailed level. That certainly plays into the longer-term ramifications of Indian demonetization, especially since it appears that it has driven many more people to digital transactions. CGD held an event this week with Annie Lowery interviewing Arvind Subramanian about Aadhaar, demonetization and universal basic income. I haven't gotten all the way through it yet, so I don't know whether my pre-submitted question was asked, "Which governments should be trusted with the power to deny people the ability to transact legally?"

And for some reason I feel like this piece, nominally about why Silicon Valley keeps getting biotechnology wrong, is really about FinTech.


2. Financial Literacy Like A State (University): "Shut Up About Financial Literacy" says Sara Goldrick-Rab contemplating how higher education institutions blame a lack of financial literacy for the problems students have paying for college. Here's Helaine Olen documenting the head of Penn State University's FinLit program saying: "The real problem is not the rising cost of education, it is in the... lack of financial literacy..." Goldrick-Rab cites a new paper from Sandy Darity and Darrick Hamilton (and here's a Chronicle of Higher Education write-up) making the case that the financial literacy movement as a whole tends to blame the victim rather than acknowledging that many of the choices that look like "low financial literacy" are in fact choices born of poverty and the racial wealth gap. That's a key element of Scott's Seeing Like A State: The drive to solve problems at scale often leads to simplified measurement systems that obscure important distinctions, or miss reality altogether, and ultimately reinforce the problems they are meant to address or create worse ones.  

3. Financial Services Regulation: You pretty much have to do financial services regulation like a state. In the United States one of the main financial regulators is the Office of the Comptroller of the Currency (OCC). This week we learned that the OCC had received more than 700 whistleblower complaints about Wells Fargo's practice of opening accounts without customer knowledge or consent, but did nothing. Well not quite nothing. Matt Levine points to part of the OCC's report where it admits it focused too much on process and not enough on outcomes: "You spend so much time making sure that there are processes to stop bad things that you forget to actually stop the bad things." [You have to scroll past the amazing JuiceTech story] That's certainly another part of seeing like a state. And it's a particular concern when you get isomorphic mimicry, in Lant Pritchett's application, of financial services regulation.
On the bright side, I worry a bit less about the progress of our algorithmic overlords when apparently none of the deep learning programs noticed that videos about Wells Fargo like this or this (and many, many, many others) have been on YouTube since at least 2010. But then there's also this about how United's algorithms led to it's disastrous decision-making.

4. Behavioral Economics: If you squint real hard you can see several connections between item 2 and these papers, but it's probably not worth the effort. Here's a new paper looking at how quickly and how much social nudges wear off, in 38 different experiments. And here's a paper on an experiment in Senegal comparing time discounting in a hypothetical versus real exercise; "Our results show that hypothetical time preferences parameters are poor predictors of actual behavior."


5. Impact Investing Like A State: The most annoying version of impact investing is "negative screening," a choice not to invest in firms one doesn't like. Apparently it has started taking the Portland (OR, US) City Council too long to figure out (i.e. listen to complaints from activist citizens) which firms it doesn't like, so it recently voted to stop investing in corporate debt altogether. The city treasurer estimates the decision will cost the city $3 to $5 million a year via lower returns on its investments. I guess I have to give them credit for making trade-offs? (One of the more amazing parts of this story is that it allegedly costs Portland only $17500 for an "affordable housing unit" but $6000 to build a wheelchair ramp). And connecting to our other theme of nothing new under the sun, here's a blog post about impact investing in Victorian England, complete with "no tradeoffs!" marketing. The investment was in affordable housing and there was quite a robust market until complaints that the housing was still inaccessible to the poorest and profits were too high--and the state imposed even more trade-offs by stiffening building regulations--took the luster off.

A few weeks ago we talked about mortality wars. So I felt I had to include this interactive project from FiveThirtyEight that allows you to view the changing causes of death in every American county for the last 35 years. Source:  Five Thirty Eight

A few weeks ago we talked about mortality wars. So I felt I had to include this interactive project from FiveThirtyEight that allows you to view the changing causes of death in every American county for the last 35 years. Source: Five Thirty Eight

Week of April 10, 2017

1. Social Investment Dissent:  Last week I had an item about "social investment wars"--unfortunately Felix Salmon's critical take ("How Not to Invest $1 Billion") on the Ford Foundation's announcement came out just a bit too late to be included. It does pair nicely with a video of Xav Briggs of the Ford Foundation talking about the decision and the future of impact investing.
In the item last week I criticized the sector for not acknowledging trade-offs, principal-agent problems and the like. To be fair, there are people in the sector talking about these issues. Here's a piece from Omidyar Network staff in SSIR about a "returns continuum" rather than "no tradeoffs." Here's a piece from Ceniarth staff concurring. And there are two recent pieces from the CFI blog on responsible exits from social investments: first, pointing out that who a social investor sells to should be part of the impact calculation, and second making an important point about the "missing middle" in social investment (though they don't use that term).

The missing middle they are pointing out is investors who are willing to buy on the secondary market but maintain social goals. This echoes a long-standing problem in foundation philanthropy: most large foundations want to be first movers and believe that there are "followers" who will come after them to support organizations or programs after the initial grants. It seems in both cases, the followers just don't meaningfully exist. 


2. Financial Literacy: April is financial literacy month in the United States at least. I continue to use financial literacy as my barometer for the evidence-based policy movement: if evidence isn't making an impact here, why should we expect to have an influence elsewhere? But on to the links. Here's perhaps the dumbest idea currently circulating--making financial literacy a requirement for high school graduation. Here's Graham Wright de-mythifying financial education in the developing world. And on a brighter note, here is IPA's review of what's been learned from impact evaluations of financial literacy programs around the world (it's not just "they don't work!").   

3. The Technology of Management: Having written a couple of books about Toyota, this is a particular fascination of mine--and of course I therefore think other people should be paying more attention to it. Management matters a lot to firm performance (explaining about 20% of firm-to-firm productivity gaps), which in turn matters a lot to wages and job creation/growth. Here's Nick Bloom in Harvard Business Review on rising firm inequality. Here's Bloom et al. on why the technology of management diverges (or alternatively, doesn't converge as much as expected given the returns).

My particular fascination is how to spread the technology of management to small firms and especially "subsistence retailers." Here's David McKenzie and Olga Puerto on an experiment training small-scale female firm owners (90% have no employees) and finding significant and lasting gains, and importantly, no evidence of negative consequences for untrained competitors. Though recall from this fall a paper on a mentoring program for male entrepreneurs in Kenya that found quick fade-out of gains from mentoring by more successful firm owners. I think there are important things to learn from the literature on subsistence agriculture interventions since this really is a similar problem--how do you get people to adopt productivity-enhancing 'technology' like better practices. In that spirit, here's an evaluation of the phase out of an agricultural extension program in Uganda, finding that demand for improved seeds does not decline, though supply does, and improved cultivation techniques are maintained.

4. Our Algorithmic Overlords: My next book of interviews is on big data and machine learning. I would say I'm paying more attention to articles on these topics but that would be reversing the causality. In Technology Review, Will Knight wonders how important it is that we understand how machine learning algorithms and neural networks work and why they reach the conclusions that they do. Fancy listening to some algorithmically-created singers? Or seeing what happens when a deep-learning algorithm tries to create children's book illustrations? On a more serious note, here's "10 simple rules for responsible big data research" in computational biology.


5. Financial Diaries: The official publication date for The Financial Diaries was this week. You really should buy and read the book, but I'm a realist, so here are some pieces to read if you're not going to do that. From Harvard Business Review, wide-spread financial vulnerability. From Marketwatch, households are saving more than it appears. From PBS Newshour, why families feel so insecure.

The gender imbalances in China and India (and elsewhere where son-preference continues to dominate) are well-known. But the actual situation is not as well understood--because families tend to hide or fail to register daughters until later in life. Source:  Nikkei Asian Review

The gender imbalances in China and India (and elsewhere where son-preference continues to dominate) are well-known. But the actual situation is not as well understood--because families tend to hide or fail to register daughters until later in life. Source: Nikkei Asian Review

Week of April 3, 2017

War is Hell Edition

1. Cash vs Chickens Wars:  Within development circles, the most widely read point/counterpoint began with Chris Blattman's piece in Vox, written almost as a letter to Bill Gates. Blattman takes issue with Gates' idea to provide livestock, specifically chickens, to poor households and instead proposes a test of the benefit of just giving cash. To be clear Blattman isn't saying that cash is better, but that we don't know--and we do know that giving chickens is much more expensive (and everyone who's been involved in aid knows at least one story about how "the chickens all died")--so we should run a test and compare. Lant Pritchett responds on CGD's blog, saying in all his years in development, never once has the question of "chickens versus cash" arisen as a pressing question. One reason is that Pritchett believes the goal of development shouldn't be marginal improvements for the poorest but generating the kind of growth that has seen hundreds of millions escape poverty in China, Vietnam, Indonesia and other countries. Of course, Blattman responds and does a good job keeping the focus on what I would call the competing theories of change proposed by Chris and Lant. In fact, I have called it that, and if you're interested in a deeper dive into the issues in this debate, I know a good book you should read (or at least check out Marc Bellemare's and Jeff Bloem's review of it).

2. Mortality Wars: Those in the US policy community, on the other hand, have probably been too occupied following the "mortality wars" to even know there's a battle between cash and chickens happening next door. Here's the quick background: Anne Case and Angus Deaton have a new paper about mortality rates in the US--I would say more about their results but, of course, this wouldn't be a war if there wasn't vehement disagreement over what their results actually are. As with an earlier paper, Jonathan Auerbach and Andrew Gelman take issue particularly around the composition of Case's and Deaton's aggregate results, and provides charts decomposing mortality rates by race, gender and state. There are a lot of other critiques, including about the data visualization in Case's and Deaton's paper, but you can save yourself a lot of time by just reading Noah Smith's excellent post about the data and the debate which brings the attention squarely to where it should be: that mortality rates for white Americans stopped following the trajectory of other developed countries and a massive gap has opened up between the US and others. 
Then there's a secondary discussion of why this is happening and what it all means so here's some supplementary reading on that, courtesy of Jeff Guo at the Washington Post: An interview with Case and Deaton; "if white Americans are in crisis, what have black Americans been living through?"; and it's more than opioids. But if there's one related thing you aren't likely to read, but should, it's this article from Bloomberg on automobile manufacturing in the South.
This also seems like the best place to insert my favorite new aphorism: "Being a statistician means never having to say you are certain." (via Tim Harford)  

3. Social Enterprise and Investment Wars: So now we're progressing to the areas where there isn't so much of a war but there are some differing perspectives worth paying attention to. On the Center for Effective Philanthropy blog, Phil Buchanan has an incisive post decrying the idea of "sector agnosticism" between non-profits, for-profits and social enterprises: the legal form of an institution matters, not just its impact. For-profits have to make trade-offs that non-profits don't. In a similar vein, Miya Tokumitsu writes in the New York Times about accusations that a celebrated "social enterprise", Thinx, was treating employees in some less than socially conscious ways like substandard pay, verbal abuse and sexual harassment. What's notable about the piece is not only lines like, "[funds for social causes] will be taken from the same pool of funds from which her employees are paid," but that the writer is an art historian. The social investment world should be embarrassed that such fundamental concepts as fungibility, trade-offs and principal-agent problems seem to be better understood and articulated by non-profit executives and humanities teachers than by proponents. 
The other major news this week was the Ford Foundation's announcement that it will, over the next decade, move $1 billion from its corpus into "impact investing"--a nebulous term precisely because of the sector's general refusal to acknowledge such things as trade-offs. The funds will be specifically dedicated to affordable housing in the US and expanding access to financial services in developing countries. I have some ideas on how Ford should think about investing those international funds so that they spur innovation rather than the status quo in microfinance.

4. Migration Wars: If you've been reading the faiV for any length of time, you know I frequently include papers and related items on the benefits of migration. Like this new paper that looks at historical data and finds that areas with higher historical rates of immigration today have "higher income, less poverty, less unemployment..." and more. Or this piece on "The Case for Immigration" from Matt Yglesias. But there's also this new paper from Hamory Hicks, Kleeman, Li and Miguel that looks at longitidunal data from Indonesia and Kenya rural-to-urban migration and finds that the productivity gains from migration are primarily due to the individuals that migrate. That's a big concern. Right now I'm thinking through my Bayesian updating--in other words, I don't know yet how to think about this, other than possibly ratcheting down my own enthusiasm for migration." Also of note, here is Tyler Cowen on declining rates of migration in the United States


5. Microfinance Wars: Well at least there's something happening in Cambodia, where the government announced a new interest rate cap at 18 percent per year. Dan Rozas writes on how that will shut off access for many in rural Cambodia. I guess the format I've chosen for this week compels me to link to Milford Bateman's response in Next Billion in which he asserts that moneylenders care more about their communities than MFIs (really!) and explains the growth differences between Vietnam and Cambodia are materially a causal effect of lots of microcredit in Cambodia and much less in Vietnam (really! paging Lant Pritchett!).
Over the past month, however, I've been struck repeatedly by the lack of convergence about thinking about microfinance internationally and the credit and savings needs of lower income households in the US. I recently had a conversation with an executive at a US credit union, who said, "I'm so excited we finally have a 501(c)3 set-up so we can get into the payday lending business." Which seems like a very strange thing to say, but only in the United States. In related news, here's a story about SoFi's, short for Social Finance, Inc. (hmmmm....), a fintech heavy lender in the US, default rates rising rapidly. And here's an interesting paper following up on earlier work on a microcredit innovation detailing a potential trade-off (there's that word again!) between efficiency and equity in the operational choices of MFIs

Here's  video  of Jonathan Morduch and Rachel Schneider discussing their recently released book,  The Financial Diaries  and the research with David Leonhardt of the New York Times at the Aspen Institute's recent Summit on Opportunity and Inequality.

Here's video of Jonathan Morduch and Rachel Schneider discussing their recently released book, The Financial Diaries and the research with David Leonhardt of the New York Times at the Aspen Institute's recent Summit on Opportunity and Inequality.

Week of February 27, 2017

Money ain't Learnin' and the New Redlining

1. Mobile Money: The GSMA published it's annual mobile money "state of the industry" report, except that this time it's a review of the 2006-2016. Here's a summary (I know which one I would click on). As you'd expect, the GSMA heavily touts some impressive statistics on growth and usage. And I suppose you can't be surprised at the sometimes more than implied leaps from outputs to outcomes. But the more I look at things like this, the more I'm reminded of Lant Pritchett's book The Rebirth of Education: Schooling Ain't Learning and the history of using school enrollment as a very bad proxy for the outcome that everyone actually cares about, learning. Or to use a closer to the finance industry analogy, was there anyone tracking the spread of ATMs and debit cards and getting excited about how much it was going to help the poor?

2. The New Redlining: Fisman, Paravisini, and Vig have a new paper (and a summary) in AER on the effect of loan officer "cultural proximity" with borrowers in India. Loan officers who share religion, ethnicity and other traits with a borrower provide larger loans on better terms, and borrowers have higher repayment rates, meaning the loans are more profitable for the bank. The proposed mechanism is reduced "information frictions" in the lending process. It's a more subtle form of redlining--a systematic way that banks denied credit to minority communities in the United States. Fisman et. al. suggest hiring and promoting minority loan officers as the obvious way to combat the discrimination they document (that's a version of "immigrant" banks that you can still find in places like New York and San Francisco). It's also part of the reason that algorithmic approaches to credit, like this effort to use exam scores as a proxy for student lending in Kenya--remain appealing: you can simply skip past the bias inherent in human-to-human interactions! If only. The long battle against algorithmic redlining is only just beginning and will be much harder to win as long as we succumb to the fiction that algorithms fix bias. I wonder which socioeconomic class the people doing better on exams come from?  

3. Governance and Social Investment: If you pay attention to finance generally and tech in particular, you've surely come across stories about SnapChat's IPO--it's the first time in history that an IPO sold shares with no voting rights. That's right, buying a share of the company entitles you to nothing, not even a symbolic say in how the company is governed (such as at Facebook). Some of called this an absence of governance, but as Matt Levine at Bloomberg (citing John Plender) writes, its actually a shift of governance from shareholders to entrepreneurs (you'll have to scroll down) that is a logical consequence of an environment where capital is plentiful and the specialized labor of entrepreneurs is scarce. Which brings us to social investment. I'd argue that the specialized labor of social entrepreneurs who can build sustainable businesses with high levels of impact is even more scarce. And yet, social investors seem to still be able to, or at least want to, exert outsize control of firms they invest in. The Snap IPO suggests that may change. Why should a social entrepreneur seek social investment when regular old investors seemingly are willing to write blank checks?

4. Investment and Inequality: Most investment isn't social investment or even in tech (though sometimes it seems so). It also turns out that investment in the United States isn't from most people. Well, just barely most people. Only 52% of American adults owned any stocks in 2016, tied for the lowest figure since measurement began in 1998. But most of those people don't own very much stock at all--the top 20% of Americans own 92% of the stock held. In other words, while the stock markets are hitting record highs, that doesn't matter at all for most American households. 


5. Jobs: What does matter for most American households is the quality of jobs available to them. Here's Eduardo Porter on one of the reasons that even the jobs that are available are not nearly as stable, nor do they offer the same benefits, as they did before: outsourcing. No, not to other countries, just to other firms. In many large firms, much of the entry-level jobs are outsourced to specialty firms: receptionists, maintenance, food service and security. These jobs are routinely lower paying and offer fewer benefits than when an employee works directly for a firm--norms of fairness in wages no longer apply.

Bonus Updates: So maybe the next financial crisis isn't auto loans, empty retirement accounts or inflated valuations for tech companies with limited external governance, but pet leases? You have to click on a link that leads to, "Also this cat is ruining my credit score."

An amazing 1953 "explainer" about stock market investing narrated by Edward R. Murrow. The link is to a segment that talks about whether broad ownership of stock is a good or bad thing (see Item 4 above). Hattip to  Morgan Housel.

An amazing 1953 "explainer" about stock market investing narrated by Edward R. Murrow. The link is to a segment that talks about whether broad ownership of stock is a good or bad thing (see Item 4 above). Hattip to Morgan Housel.

Week of February 13, 2017

1. F*ck Nuance: I know what you're thinking, but that's not what this item is about. It's actually about Kieran Healy's forthcoming paper in Sociological Theory called, well, F*ck Nuance. He argues that the rising demand for "nuance" in sociological theories inhibits clear thinking and useful research. It reminds me of what I've heard a lot of economists say about the demand for complicated formal models in economics papers. It's not what Healy intended, but here's a story about a FinTech start-up ditching FICO scores while offering "the fastest [credit] on the market," which certainly doesn't bother with any nuance like whether the product is good for customers.

2. F*ck Impact: So that's not what Jishnu Das's blog post is actually titled, but it might as well have been. Das (quite ironically, as David McKenzie noted) blogs about how researchers being held accountable for having impact beyond academia, for instance by writing blog posts, is a drag. It's worth reading because there are some valuable nuggets especially about the "poorly specified model" of impact in use and the breakdown of trust between funders and researchers. If you were interested in hearing the thoughts of some development economists who care a lot about having an impact, you could do worse than checking this out. On a different note, the subdued reaction to the post convinces me that the development blogosphere really is dead.   

3. Commitment Savings: In the WSJ, Bernartzi and Beshears argue that evidence from commitment savings evaluations suggest that restrictions around retirement accounts should get even more severe, particularly citing the original Ashraf, Karlan, Yin work in the Philippines. It's true that retirement accounts in the US are very leaky, but the cause isn't just temptation or present bias as Benartzi and Beshears imply. Volatility of incomes and expenses seems to play a large role. Here's a video of Dean Karlan discussing the possibility that less restrictive accounts may work better.

4. Mobility: Kevin Williamson writes in National Review that more should be done to help the poor move to better opportunities. Of course, he's only talking about mobility for the poor within the United States (and he weirdly cites the circa 2000 early evaluations of Moving to Opportunity which were contradicted by later work, but then overturned again by the more recent, more comprehensive work from Chetty et al) and never seems to consider the implications of his argument for trans-national mobility. Here's what I wrote not too long ago about philanthropy stepping in to help the people of Flint, MI move (and here, channeling Hirschman). Speaking of philanthropy, I was disappointed to see that the semifinalists for the MacArthur 100&Change $100 million grants didn't include anyone working on mobility. They're described as "eight bold solutions" but mostly seem to be scaling up ideas with mixed evidence that have been around for a quite a while.


5. Nuance Lives!: At least for Daniel Kahneman, who responds to a blog post analyzing the Replicability Index of the papers on priming cited in Kahneman's Thinking Fast and Slow. Kahneman explains what he missed and how he came to believe too much in the priming results. The nuance comes at the end where Kahneman states that he has not "unbelieved" the individual studies and that he still believes that priming is possible, but has changed his views about the size and robustness of priming effects.

Credit Suisse's 2016 Global Wealth Report provides some perspective on why trans-national mobility is so attractive, and why it's meeting more resistance than in the recent past.  Source :  Credit Suisse Research Institute

Credit Suisse's 2016 Global Wealth Report provides some perspective on why trans-national mobility is so attractive, and why it's meeting more resistance than in the recent past. Source: Credit Suisse Research Institute