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Viewing all FaiV posts with topic: Poverty  

Week of September 13, 2019

1. Digital Finance: Is a tide turning on digital credit? Old hands in the microfinance world like MicroSave and CGAP have been highlighting concerns about digital credit for the last few years, but the non-specialist community hasn't seemed to notice until recently. In late August Bloomberg had a quick hit piece with an eyebrow-raising headline, "This Nobel-Prize Winning Idea is Instead Piling Debt on Millions," which is likely the way the general public will perceive this despite the protests of insiders that telecoms/fintechs making instant loans at high rates with minimal customer engagement doesn't have much in common with traditional microcredit. A more serious treatment,"Perpetual Debt in the Silicon Savannah" was published in the Boston Review the same week, though it's frustrating in its own ways, notably the lack of engagement with the global/historical context of small dollar lending or with the research from financial diaries.
In both articles there are two additional issues that I wish received more attention. First, the value of liquidity management. The authors of the Boston Review piece, Emma Park and Kevin Donovan (both historian/anthropologists), spend a good deal of time talking about the "zero-balance economy" creating a situation where consumers can be exploited without engaging on the need for services to manage liquidity when you have low and volatile incomes. Second, the kind of default rates being hinted at in these articles raise serious questions about the business models and sustainability of digital lenders. Tala, one of the larger digital credit providers in Kenya (and elsewhere) just raised another $110 million. How much of that money is covering losses? I would love to see some analysis of what sustainable default rates are for digital credit.
Shifting gears a bit, the reason that the Kenya specifically and East Africa more generally remain in the spotlight on digital finance is the ubiquity of access. But ubiquity can't be assumed and in general I would say not enough attention is being paid to what happens when ubiquity fails. Here I don't mean places where everyone knows service is unreliable, but places and times where service is unexpectedly unavailable. Here's a story about the problems that can create in the US with ZipCar customers stranded in the "wilderness" because of a lack of signal leaves them unable to unlock or start the vehicles. More seriously, though, is the concern when access is limited because of political reasons. Here's a story about the rise in government-directed internet shutdowns. Of course there is the big concern of how these shutdowns would affect people who have adopted digital finance and find themselves unable to spend. But I also wonder if Tala investors have priced in the risk to the business model of internet shutdowns.
Internet shutdowns are a blunt tool. We should also be concerned about more fine-grained tools in the hands of governments or private companies. I'm old enough to remember when one of the highlighted "benefits" of digital finance was that it created an audit trail of transactions. Here's a story about how much data about you leaks to unknown parts of the internet when you use the Amazon Prime card and the Apple Card. And finally, here's a new report on cash as a public good from IMTFI, sponsored by the International Currency Association, which I am fascinated to discover exists (though I'm even more fascinated to discover the International Banknote Designers Association, which is one of its members).

2. Our Algorithmic Overlords: There is of course a lot of overlap between concerns about digital finance and privacy and digital everything and privacy. One of the standard mantras of those gathering and selling data is that much of it is anonymized, so we shouldn't be concerned. But, of course, not so much. That's not just a concern in the US, because digital data-gathering is becoming a thing worldwide. Here's a plea to stop "stop surveillance humanitarianism." And here's a story about how a high-tech surveillance approach to improving disaster responseturns out to have not been such a good idea (spoiler: garbage in/garbage out).
One of the major concerns about the use of algorithms in these situations is the garbage in/garbage out problem--combined with the gee-whiz veneer that technology provides obscuring that problem. I'm generally skeptical of that argument as a whole, because my experience is that people are far less likely to trust an algorithm than a human being (In some sense I wrote a whole book about it in a different application: the bogus fears that Toyotas were suddenly accelerating and trying to kill people). But there are other forms that algorithmic discrimination can take. Here's a story about a new US Housing and Urban Development regulation that would exempt landlords from responsibility for the discriminatory results of their screening practices as long as they don't understand the algorithm, which y'know is a given.
Finally, there is a new documentary about the 2016 US election, the Brexit referendum, Facebook/Cambridge Analytica, etc. called The Great Hack. Here's a piece about 7 things the documentary gets wrong which I find pretty convincing.

3. Behavioral Economics: Similar to the expanding skepticism about digital credit, I feel like I'm also seeing some growing skepticism about the efficacy of interventions built on behavioral insights, particularly the broad category of "nudges," (though there is clearly a lot of disagreement about what should be considered a nudge).
For instance, four recent impact evaluations on "behaviorally-informed" interventions in education have come up with not much. few significantly exceeds that of smaller programs. A scale up of a program to encourage completion of financial aid applications, that had been successful at the state-level, found no impact. A program to encourage low- and middle-income students to apply to more colleges found no impact overall (with a very small effect on the quality of schools applied to by African-American and Hispanic students). Nudging college students to study moredoesn't do anything either. But this last one encapsulates the issues for me because it's framed as a success. A program to use behaviorally-informed notices to parents about their kids missing school increased attendance by 40%! Except that amounts to .07 days, or by my rough calculation about 20 minutes.
If you're interested in more specifically finance related nudges, here's an experiment in the Netherlands to encourage more savings with a "social norm nudge." It succeeds in getting people to intend to save more but has a precisely estimated null effect on actual savings.
At a more theoretical level, Dmitry Taubinsky with various co-authors, has two new papers digging a bit deeper on how behavioral insights play out. In the first one they find that people will take up commitment contracts both to exercise more and exercise less! Even worse, educating people about self-control problems reduced demand for commitment contracts. Here's we show that with some uncertainty about the future, demand for commitment contracts is closer to a special case than to a robust implication of models of limited self-control." In the other paper, the authors find that people have "heterogeneous rules-of-thumb" for attention to costs, which complicates a lot of models of limited attention.
And it's not just the empirical research that is getting shakier--some of the key underlying premises of the whole idea that priming and nudging will be effective are also being shaken. Here is a defense of the limited willpower literature from Roy Baumeister, a defense that will shift most readers priors further against that literature being reliable. But more importantly, the neuroscience finding that most undermined classical concepts of free will (brain activity begins before a person makes a conscious decision) has been debunked as an artifact of background mental noise.

4. New Research: I mentioned that there is always a flood of new working papers that appear in late August and early September (and NEUDC is coming fast!). Here are a few that caught my eye. Martin Ravallion has a new paper on measuring global poverty. Closely related is a look at cyclical fluctuations in social indicator measures--some measures of welfare are reflections of global and national business cycles, while others are better measures of long term development. Here's a paper that looks at the longer-term effects of agricultural subsidies in Mozambique, finding thatspillovers account for most of the gains (spillovers are a particular interest of mine lately). An asset transfer program in the Philippines designed to reduce child labor actually increased child labor (as children were pulled out of school to put the asset to use). In Chicago, eviction is a consequence of financial distress not a significant cause of it, i.e. the majority of the negative consequences come before eviction rather than after. And finally, I had been wondering recently about replications of the Drexler, Fischer, Schoar rule-of-thumb experiment, and it turns out there was one recently (hat tip David Mckenzie): Irani Arraiz, Syon Bhanot and Carla Calero tested a similar program in Ecuador and find "significant and meaningful" effects on sales and profits, driven by women. They hypothesize that women have higher cognitive burdens (due to unequal household labor burdens) and therefore are more likely to adopt short-cuts and benefit from them.

5. Other Odds and Ends: Clearly I'm still getting back in the swing of writing the faiV and there are just a whole lot of things out there that I'd love to write about and link to, but it's already 5pm. So some more odds and ends.
The Netflix documentary about a US factory taken over by a Chinese company is getting rave reviews, from the New York Times and Planet Money. There's also a documentary about a factory in India that has been highly recommended but I haven't figure out a way to watch yet. The Economist has a long look at BRAC and it's future. I'm often baffled that BRAC isn't the most famous thing in the modern world. There's a new comprehensive look at "deaths of despair" in the United States that finds they have indeed risen but with a much more complicated story, suggesting that just focusing on opioid epidemic may be more fruitful than attention to "despair." And I'll close out with some confirmation bias--Lauren Willis pushes back on the CFPB's turn to education and calls out financial literacy as a dead end. And so does Caitlin Zaloom specifically on student debt, calling out Steve Mnuchin who is apparently calling for mandatory college financial literacy classes.

Week of July 12, 2019

The Research Production Process Edition

1. Research, Evidence, Policy and Politicians: We talk a lot around here about evidence-based policy and often about the political economy of adopting evidence-based policies. In the last faiV I featured some of the first evidence that elected officials (in this case 2000+ Brazilian mayors) are interested in evidence and will adopt policies when they are shown evidence that they work.
Far be it from me to let such encouraging news linger too long. Here's a new study on American legislators (oddly also 2000+ of them) that finds that 89% of them were uninterested in learning more about their constituents opinions even after extensive encouragement, and of those that did access the information, the legislators didn't update their beliefs about constituent opinions. Here's the NY Times Op-Ed by the study authors.
But wait, there's more! In another newly published study using Twitter data on American congresspeople, Barera et al. find that politicians follow rather than lead interest in public issues. But also that politicians are more responsive to their supporters than to general interest. Which perhaps goes some way to explaining the seeming contradictions between these two studies: American legislators are not interested in accurate data on all of their constituents' opinions, but will follow the opinions of their most vocal supporters.

2. Research Reliability: Two studies of the same population finding at least nominally opposing things published in the same week is kind of unusual, shining a brighter light on the question of research reliability than there normally is. But there have been plenty of other recent instances of the reliability of research being called into question for lots of different reasons:
* The difference between self-reported income and administrative data: the widely known finding that Americans living in extreme poverty (below $2 a day) was based on self-reported income. Re-running that analysis with administrative data that presumably does a better job of capturing access to benefits and other sources of income and wealth finds that only .11 percent of the population actually has incomes this low, and most are childless adults. Here's a Vox write-up of the findings and issues.
* A "pop" book on marriage from an academic claimed that most married women were secretly desperately unhappy. But that's because he misunderstood the survey data, believing that the code "spouse not present" meant that the husband was not in the room when the question was answered, when it really means that the spouse has moved out. Again, Vox does some good work explicating the specifics and the context: most books aren't meaningfully peer reviewed.
* But you probably should be very skeptical of any research on happiness regardless of whether it's peer reviewed because "the necessary conditions for...identification..are unlikely to ever be satisfied."
* And you should be skeptical of many papers studying the persistence of economic phenomena over time, and spatial regressions in general because of the possibility of inflated significance that is really just noise.
* You should also perhaps be skeptical of any claims based on Big 5 personality traits outside of WEIRD countries because the results are not stable across time or interviewers.
* And there are still a lot of issues with the applications of statistical techniques across the social sciences, including, for instance, the misapplication and misinterpretation of RDD designs, or conditioning on post-treatment variables (that's a paper from last year that finds 40% of experiments published in top 6 Political Science journals show evidence of doing so), or using estimated effect sizes to do ex post power calculations.
* Or this Twitter thread about a series of papers published in top medical journals that defies description, other than you really have to read it.
It's enough to make you despair.

3. The Research Production Process and Reliability: There's another aspect of research reliability in economics that doesn't get enough attention I think--how the research and publication process is set up in ways likely to create inadvertent errors. Now what follows is all speculation, but it is speculation informed by experience.
The bar for empirical research keeps going up--and that's a good thing--requiring more sophisticated experiments/analyses, with more data, bigger samples/datasets etc. But data is hard to deal with. It's messy and noisy and all sorts of other things that require a lot of time and attention that grows if not exponentially at least more than linearly as the amount and complexity of data increases. The research production process and the expectations of productivity from researchers hasn't changed though--you don't really get any more credit for a paper with a sample of 10 thousand than you do for a sample of 1000. So most of these more sophisticated projects with longer time frames and more data involve more and more collaborators and especially more and more of changing cast of RAs working on the data. And that's a recipe for inadvertent errors.
That is how I've been thinking about this recent "re-analysis" by Bedecarrats et al. of the Crepon et al. study of microcredit impact in Morocco (one of the famed 6 RCTs on microcredit impact) which incredibly ambitiously recreates the entire analysis from scratch, including rewriting all of the code into R. Bedecarrats et al. find plenty of errors in the analysis and code and question the reliability of the entire effort. I think they overstate the case, as it's not at all clear that the errors they uncover would yield a different conclusion than the original paper, but the variety of small mistakes is noteworthy.
Crepon et al. have now responded, acknowledging some errors, pushing back on others, finding some errors in the Bedecarrats et al. analysis etc. They also reiterate that the errors that are there are not sufficient to change the conclusions of the original paper.
If you follow microcredit research it's definitely worth looking at both the re-analysis and the response. But, clearly I think the more important thing is recognizing that these kinds of errors are likely common, are incredibly hard to notice, and are most likely going to become more common unless the research production process changes in some meaningful ways.
In that regard there is some good news and bad news. On the good news side, as Crepon et al. highlight in their response, J-PAL has recently launched a service for researchers where graduate students will attempt to replicate code and analysis, looking for errors. The French government has recently launched a new agency to certify the replicability of research that uses confidential administrative data, which until now hasn't been possible at all.
The bad news is that more and more data is going to become confidential as data tools allow exposing the identity of individuals involved in research. Which is going to make it even more difficult to find errors and mistakes in research.

4. Research Ethics: The reliability of research is an important question, but it's a second order one. The first order question is, "Should this research be done." There's been a lot of discussion of that question this week, as a new paper based on an experiment encouraging participation in protests in Hong Kong was released. Follow this thread for some reactions, this thread from Sheena Greitens for others (and check out her paper with co-authors on "Research in Authoritarian and Repressive Contexts"), and this thread that has some particular development econ perspectives. Spurred by the controversy, Andrajit Dube started a thread which raises the ethical questions up a level from this particular paper. And if you do a little searching there is a lot more out there.

5. Mortality: OK, we'll head in a different direction in closing. Here's an essay from Arthur Brooks that is hard but worthwhile reading: Your Professional Decline is Coming Much Sooner than You Think.

L-IFT , a diaries research firm, is a proud sponsor of the faiV. See our video on  diaries research with 800 women microentrepreneurs in Myanmar .

L-IFT, a diaries research firm, is a proud sponsor of the faiV. See our video on diaries research with 800 women microentrepreneurs in Myanmar.

This came across my Twitter feed yesterday and I thought it would be a nice diversion from all of the more serious topics above. It's a murmuration of starlings in Costa Brava, photographed by  Daniel Biber .  Source .

This came across my Twitter feed yesterday and I thought it would be a nice diversion from all of the more serious topics above. It's a murmuration of starlings in Costa Brava, photographed by Daniel Biber. Source.

Week of March 1, 2019

The Post-Neoliberal Edition

1. Economics: The dismal science doesn't often generate positive reviews from outside the discipline, so when it does happen it's worth noting. Julia Rohrer, who in addition to having one of the best titled blogs I've ever seen, is a psychology graduate student who procrastinated on her dissertation by attending a summer program in economics. Here is her list of things she appreciated in economics as a positive contrast to her experience in psychology.
On the other hand (hah!), economists typically have a lot to say about what is wrong with economics--certainly I encounter more "friendly-fire" in the econ literature than when I dip my toes in other disciplines (though this is perhaps my favorite example of the intra-disciplinary critique). There's an ongoing discussion about the future of economics going on in the Boston Review--I don't know if that counts as friendly-fire in terms of the outlet, but the participants are economists--starting with an essay by Naidu, Rodrik and Zucman, Economics after Neoliberalism. Then there are responses from Marshall Steinbaum, who notes that "every new generation proclaims itself to have discovered empirical verification for the first time," and from Alice Evans who focuses on the nexus of economics and political power in the form of unions.
But, because it's me writing this, I have to close on a new paper in JDE, that finds that communal land tenure explains half of the cross-country agricultural productivity gap. And here's a piece about how small teams of researchers are more innovative than large teams. generate much more innovation than big teams Neo-liberalism won't go down without a fight!

2. Migration: I haven't touched on migration for a while so it felt serendipitous that Michael Clemens and Satish Chand put out an update to their paper first released in 2008(!) on the effects of migration on human capital development in Fiji. The basic story is that in the late 80's formal discrimination against Indian-Fijians increased sharply, causing the community to both increase emigration and investment in human capital to aid emigration prospects. The net effect, rather than the dreaded "brain drain," was to increase the stock of human capital in Fiji. grapes
Cross-border migration is really the only option in Fiji, but in many countries, like Indonesia, there are lots of internal migration options. Since there is typically a large gap in productivity within countries as well as between countries, internal migrationhas always been a part of the development story. Bryan and Morten have a new article in VoxDev about this process in Indonesia, looking at the productivity gains possible from removing barriers to internal migration.
Since we started off talking about Economics, here's a post from David McKenzie considering the effects of migration on economists--or more specifically, how to think about job market papers about a candidate's country-of-origin. True to his style, David goes deep, including a model, and a survey. The post was inspired by a tweet from Pablo Albarcar who later noted it was mostly a joke about "brain drain" worries.
It is surprising to me how tenacious the brain drain idea is. When I have conversations about it, I try to cite the literature like Clemens and Chand, but I rarely find that makes a dent. People can always find an objection. So I've taken to just asking people how they feel about the "destruction" of Brazilian soccer/football culture and skill due to the mass emigration of the most skilled players. Typically, that leads to several moments of silent blinking. If you're interested here's a paper about "Rodar" the circular human capital investment, migration and development among Brazilian footballers
  
3. US Poverty and Inequality: I typically try to avoid the grab-bag approach to items of interest but I'll confess this one is a bit of a grab bag with a variety of connecting threads. We'll start by connecting to a piece I included last week about tax refunds and saving. If you haven't read that, you should. I noted I was grateful for the piece because it meant I could skip the annual ritual of linking to a piece I wrote for SSIR several years ago about rethinking tax refunds. But I should have known that the zombie idea of tax refunds being bad personal finance wouldn't die so easily. Here's Neil Irwin from the NYT on how people being angry about lower refunds shows that "humans are not always rational." I'm struck by the irony that the continuing common use of "rational" in economics requires zero-cost attention, while a foundational truth of the discipline is "nothing is zero-cost." There is nothing irrational about paying a very small fee (in foregone interest) for the valuable service of helping you to save when other services are ineffective. That's especially true if you include, as you should, the cost of the tax advisors and financial advisors required to accurately calculate the proper amount of withholding and to choose the right investment/savings account in which to store those savings. So I guess that connects to the thread about economics maybe not being post-neoliberalism quite yet. And here's a column from the Washington Post's personal finance columnist withpush back on the "refunds are bad" idea from readers who explain their rational choices in their own words.  
This week a 3 year project by the National Academy of Sciences to provide a "nonpartisan, evidence-based report" on the most effective ways to reduce child poverty in the United States was released. The summary that most everyone is latching on to is that work supports are not going to get the job done. The only way to cut child poverty by at least half is direct cash support to parents. Here's the Vox overview.
If you were thinking about intergenerational poverty, you were probably also thinking about education. The last few years have seen a proliferation of videos of "poor kids" getting into elite schools. Here's a piece about a new book on what happens to the lower-income students once they arrive at elite schools. It's not so joyous--"money remains a requirement for full citizenship in college, despite institutional declarations to the contrary."
Finally, how much do financial incentives and tax rates affect the incentives to innovate and invent? Not much--exposure to innovation matters much more

4. Management: This is a last minute "swap" of an item, since David McKenziemaligned managers in his weekly links tweet this morning. As some of you know, I have a semi-secret identity ghost-writing and editing management books, with several of them specifically about Toyota and lean process and management, so I couldn't let it lie. Of course, David's quip was a joke. The piece he links to is a terrific overview of the research on how management matters, a literature that David is a significant contributor to. It is a topic that I wish the development field paid much much more attention to (I really hope this is the most clicked link of the week), and this overview is a great introduction, both in content and structure/organization. I think I'll make some of my papers look more like this in the future.
And here's a piece about how middle managers deserve more respect. In my read of the literature above, it is middle management that is the actual missing middle in development. 

5. Digital Finance: I relinked the piece on why there's no reason to trust blockchain in the notes above. Here's another reason: "Once Hailed as Unhackable, Blockchains Are Now Getting Hacked." On the other hand, here's, "Bitcoin Has Saved My Family," from a Venezuelan economist.
One of the under-examined topics in the emergence of digital finance is the shift in the organizations and organizational structures that are providing financial services. The institutions and people in telecoms are systematically different than those in finance. That's something that always strikes me as I look at the GSMA's annual report on the state of the mobile money industry. Not because of something in the report specifically, but the fact that the report is from the GSMA.
And finally, a little curiosity that may only interest me. Uganda is opening up the purchase of government debt to individuals using mobile money, on the theory that it will reduce the government's dependence on commercial banks and institutional investors. It's historically sound, but I'm skeptical. For instance, it hasn't worked as well as hoped in Kenya.  

The musing on the quality of Brazilian football in the face of mass emigration gives me an excuse to include a video in support of my argument. If you're interested in falling down the rabbit hole a bit, here's  a short documentary on the 1982 Brazil team , which is my Platonic ideal of how the game is supposed to be played. Though that could have something to do with the fact that I was 9 that summer, and it was the first World Cup I watched. I still have a visceral rage reaction any time I see the Azurri take the field.  

The musing on the quality of Brazilian football in the face of mass emigration gives me an excuse to include a video in support of my argument. If you're interested in falling down the rabbit hole a bit, here's a short documentary on the 1982 Brazil team, which is my Platonic ideal of how the game is supposed to be played. Though that could have something to do with the fact that I was 9 that summer, and it was the first World Cup I watched. I still have a visceral rage reaction any time I see the Azurri take the field.  

Week of December 10, 2018

1. Targeting: I intended for the faiVLive conversation to spend more time on targeting than we did--it's a sort of rushed conversation at the end. Targeting is something that I've been thinking about a lot, but I'm not sure what I think yet. So forgive me for just ruminating on a few things here.
The whole concept of microcredit is based on targeting--every lender has to target not only those interested in taking a loan but those interested in repaying a loan. Hand-in-hand with targeting repayers was targeting borrowers who were "entrepreneurs," people who would start a business, since the belief was a new microenterprise was the only plausible way for these very poor households to repay. But since the rhetoric emphasized that the poor were natural entrepreneurs, targeting repayers substituted 1:1 for targeting entrepreneurs. Given the findings of microcredit impact studies--namely that while average impact is minimal, there are people who see large gains--the focus on targeting has returned. See for instance, asking middle men who the best farmers are, or surveying other microenterprises.
But if your aim is reducing poverty, then you have to care about more than just finding the borrowers who will repay and have the highest returns on capital--you have to care about equity as well and the effect on, or exclusion of, the poorest or least able to generate high returns. Earlier this year I linked to a paper by Hanna and Olken on the equity effects of targeted transfers vs. UBI. Here's an interview with the two that summarizes their findings: for most poor countries, targeted transfers far outperform a UBI in terms of total welfare. And by the way, here's new Banerjee et al paper from Indonesia showing limited distortions from proxy-means tests.
Of course, in targeting microcredit we are doing the opposite essentially: looking for a proxy-means test to exclude the least-able to generate high returns. What effects might that have? If we boost market efficiency, it could be good for most everyone. That's not just theoretical--here's an empirical finding from Jensen and Miller on improving market efficiency in Kerala boat-building finding higher aggregate quality, lower production costs and lower quality-adjusted prices. But maybe not. That paper above on using middle-men to target finds that traditional allocation of loans does better for the poorest. And as we discussed on the faiVLive conversation, there can be systematic differences in market structure that limits who can generate high returns (in this case, among women seamstresses in Ghana). It's why I worry about what exactly is being measured in targeting algorithms like EFL/Lenddo.
The possible gains and losses have to be measured against the cost of targeting. The cost of microcredit as it exists, without targeting, is pretty low. The median subsidy per loan is about $25, not much for spreading access to the liquidity management features of microcredit well beyond those with high returns to capital. And then there is reason to think about the effect of greater targeting on the microfinance business model. Here is one of the few economics papers to make me actually angry, suggesting that microcredit contracts were purposefully designed to limit the growth of borrower's businesses. While I wholly reject that claim, the underlying idea is worth considering: microcredit's low relative costs are based on a mass-lending business model and MFIs have largely failed to find a way to compete higher up the banking value chain. Altering that business model could have unintended consequences. That's not just based on that paper. As I mentioned last week, City of Debtors, a book about small sum lending in New York City during the 20th century confirms the business model problem is real and pervasive.
So I don't really know what I think. I'll keep thinking about it, but as always I appreciate your thoughts if you're willing to share them.
    
2. US Inequality: I haven't covered US Inequality for several weeks, and so things have been building up. And there's been a whole lot of new stuff in the last few weeks. Let's start with the state of median US income over the last 30 years. The widely held current view is that incomes for all but the top quintile or decile have been stagnant. But that's heavily dependent on all the adjustments that need to be made for taxes, transfers, inflation and innovation. Stephen Rose at the Urban Institute summarizes the past and new work trying to measure changes in median income, and then writes in more detail about the methodological issues. One thing that had particularly slipped by me: Picketty, Saez and Zucman have a newish paper updating the famous results that showed stagnation and find median incomes have increased about 30% over the last 30 years. That shifts the proportion of gains by the top decile from around 90% to around 50% (I'm intentionally rounding these numbers because they are so sensitive to methodological choices, that I think we're all better off not reporting precise numbers because of the illusion of certainty that goes along with them). Perhaps one of the reasons that these new findings didn't seem to get as much attention as the idea of stagnation for the middle class, is that the new paper also finds that stagnation is true for the bottom 50% of the income distribution.
This week the US Census also released it's "Small Area Income and Poverty Estimates" for 2017, with county-level data on incomes and poverty rates. They find that over the last 10 years, median incomes in 80% of US counties were unchanged, with 11% of counties seeing an increase and 8% seeing a decrease. When you look at the maps, it's apparent that a majority of the counties seeing an increase are related to the fracking boom (and thus mostly in places with very few people). On the poverty front, there's a whole lot of stagnation too, with almost 90% of counties seeing no change, but 8% seeing an increase and only 3% seeing a decrease. Not an encouraging picture.
Whenever you talk about incomes and poverty, it's worthwhile to think about the definition of poverty. Here's Noah Smith on updating the definition of poverty to include volatility (though he shockingly fails to mention the US Financial Diaries). And here's Angus Deaton on "How  America poverty became fake news"--with some more methodological detail and the horrid engagement of the present administration with international attempts to measure poverty.
There's plenty new on the policy front as well. Here's a new paper estimating the total budget effect of the EITC--finding that the program self-finances 87% of its cost by reducing use of other transfer programs and increasing taxes collected. And here's The Hamilton Project on the work histories of people receiving SNAP and Medicaid benefits, finding that the majority are working, but irregularly and a substantial portion would "fail to consistently meet a 20 hour per week-threshold" because their hours worked vary so much from week-to-week.

3. US Inequality, Part II: I told you things were building up. Here are a few more things that are a bit less connected, to each other at least. People born in the late 1920s have had consistently higher mortality rates beginning at age 55, "rendered vulnerable by being born during and just after the Great Depression."
The Federal government took over the public housing system in Wellston, MO, near St. Louis, 20 years ago because of chronic mismanagement. It didn't get any better and now it's being shut down. That means 20% of the town's population is going to receive vouchers to leave the town and find housing elsewhere. Here's a thread from Jenny Schuetz of Brookings on the issues. She's a lot more concerned about moving people than I am.
Finally, some new data on women's earnings. You probably saw the study that measures the wage gap not based on hourly earnings, but on what people earn cumulatively over 15 years, finding that women earn about 50% of what men do because of lower rates of participation (hey Stephen Rose is a co-author on this one too). It's an interesting way to look at the issue, but I haven't figured out how to think about it yet. But that finding very interestingly dovetails with new work on the effect of attending an elite college. The traditional finding is that on average, the selectivity (I'm purposely avoiding using the world "quality") of the college someone attends doesn't matter. But for women it does matter--it substantially increases wages through the labor participation rate. But it also decreases the chances of marriage.

4. Our Algorithmic Overlords: I haven't been neglecting this category as much as US Inequality but I have been curtailing the entries because of time. Which means that there's also plenty built up here too.
I've frequently covered stories about China's surveillance state, especially when it comes to Uyghurs in Xinjiang province where it's increasingly clear that hundreds of thousands of people are being sent to concentration camps. Here's a first person story about how that surveillance state works.
Most of what I feature here is from academics researching the application of AI or machine learning or skeptics. But I occasionally like to cast my eye over what the business world is saying. Here's how AI can make us more human. Though I have to confess, of late, I'm not sure I can fully endorse anything that makes us more human. For the more traditional, at least for the faiV, perspective here's the new AI Now Institute report. They use the phrase very differently than, say, Prosperity Now: the headline is 10 recommendations for immediate and significant regulation of tech companies in general and AI applications in particular.
The other frequent area of coverage in this heading is mocking blockchain. Was there ever a more perfect item than blockchain projects in development have a 0.0% success rate. Here's a post with more details and less snark, but the same scathing conclusions. In an attempt at a veneer of fairness, here's a thread for Vitalik Buterine making a case that as the transaction costs of blockchain entries fall, there are some compelling use cases. Your mileage may vary.

5. Methods and Evidence-Based Policy: A special edition of the faiV focused on these built-up items is coming later this week.

Very  relevant to the inequality conversation, and whether people should  move, here's new data from the US Census on the cratering rates of  Americans moving geographically. This remains to me one of the great  mysteries of the current US economy. Source:  Quartz

Very relevant to the inequality conversation, and whether people should move, here's new data from the US Census on the cratering rates of Americans moving geographically. This remains to me one of the great mysteries of the current US economy. Source: Quartz

Week of October 15, 2018

1. China: This is a very meta way of kicking things off, but I do think often of the gaps in knowledge that go along with the language gap between centers of academic inquiry and China (and to a lesser extent, India, Indonesia and Nigeria). It takes a lot of cognitive work to push back against the unconscious equation of value/quality with English-language facility, and that's just for the papers and stories that ever do appear in English (thank goodness for Jing Cai!). Anyway, here's a small attempt to address some of the knowledge gap.
The P2P lending industry in China continues to melt down in very scary ways, and in ways reminiscent of bank runs in the US around railroad bubbles in the late 19th century. The common ingredients--a working class population with enough income to start seriously saving and limited outlets for saving/investing and even more limited consumer protections. It's ugly and getting uglier as the authorities crack down on both the lenders and protestors who have lost their savings.
But that's not the only credit market problem in China. The head of a very large state-backed lender was pushed out of the party for corruption (and he's not the first and likely not the last). Meanwhile, local governments have been creating weird vehicles to borrow via private (or are they public? it's hard to know what's the right phrase to use when it comes to China's hybrid economy) markets. Current estimates suggest there is a $5.8 trillion dollar local government credit problem. Amidst the trade war, the Chinese economy seems to slowing just at the time these credit market problems are coming to light--I don't see anything in these stories about a causal effect--and there are other signs of bad news. If you are a Planet Money listener, you may recall a recent story about a rumored "vast postal conspiracy" that largely checked out. This week the Trump administration announced that it is withdrawing from the Universal Postal Union, a system that was set-up for the US' benefit post-WWII but became a huge boon to small Chinese manufacturers. Planet Money's "The Indicator" also did a series recently on China's social credit scoring system, including talking with someone who has been blacklisted.
Finally, here's a story to lead us into the next item: accusations of racism by Chinese firms are becoming increasingly common in Kenya and other African countries were China has been investing heavily.
 
2. Global Development: The gap (particularly the growth gap) between high-income and low-income countries is what the field is all about, indeed "it's hard to think about anything else." The gap has been stubbornly high and growing since World War II. Dev Patel, Justin Sandefur and Arvind Subramanian have a new post at CGD, reacting to a new paper about the lack of convergence, pointing out that cross-country convergence has been happening   since 1990. The authors of the paper respond on Twitter.
There's a curious connection that back when many of the original ideas of development economics posited that convergence should happen--e.g. poorer countries should grow faster than richer ones--while recognizing that it wasn't happening, one of the prescriptions was a "big push" to help poor countries escape a poverty trap. The idea of the big push eventually went into hibernation, but was revived around the time that the convergence did start happening (though we didn't know it yet). This time the big push was at the village level, not the country level. It didn't work any better there. Last week, the results of "the first independent impact evaluation" of Millenium Villages Project (of a village in Ghana) were released and the bottom-line is scathing. There was no gap-closing here--the only positive effects found, the study notes, could have been accomplished at dramatically lower cost. On a similar note, here's a look at another MVP-project village, Sauri, Kenya, and finding that locals did not believe in the benefits of MVP enough to bid up the prices for land in the village. Which honestly is kind of remarkable given all the money that was showering into the villages. You would think people would want to move there simply to benefit from the opportunities for corruption/patronage.
Finally, here's a really fascinating example of a growing gap--the gap in gender preferences grows with economic development and gender equality. This definitely feels like an "everything is obvious once you know the answer" example.

3. Formality: Another important gap is the lack of formal firms in lower-income countries. Campos, Goldstein and McKenzie have a new experiment from Malawi on inducing firms to formalize. They find high demand for formalization, but not for tax registration (shocked, shocked I say!). The most interesting part is that formalization doesn't seem to help the firms unless there is handholding to introduce them to banks, which does work to get them to open accounts and substantially boosts revenue and profits. But before you get too excited, here's a summary of new work by Gabriel Ulyssea finding that there isn't a gap between formal and informal firms in terms of productivity or welfare. Well, there's a lot more to it than that. Perhaps it's better put as the gap isn't between formal and informal firms but between productive and unproductive firms, and the two categories are not necessarily related.
And on the topic of informality, here's a new "note" from Ng'weno and Porteous about informal firms and "gig work" in Africa. There's a quite large gap between what they write and what I believe, once they get beyond "the informal sector is resilient but unproductive" but perhaps it's especially worth reading because of that.

4. Methods: Yes, this is continuing the theme on gaps. Here it's the gap between data and reality, and what that implies for how much we should believe just about any research. Let's start with a practical example: by comparing surveys (the supposedly reliable ones like the SIPP, ACS and CPS) and administrative records, this new paper finds that 23 to 50% of recipients of food stamps report that they have never received food stamps; and a substantial number of people who don't received them report receiving them. Here's the more general case from a paper by Xianchao Xie and Xiao-Li Meng that showed up in my Twitter feed this week courtesy of Stuart Buck. And via Alexander Berger, here's another paper from Meng showing how quickly the gap of reliability opens when straying away from true random sampling. The abstract closes with this gem: "the more the data, the surer we fool ourselves."

5. Our Algorithmic Overlords: That seems a great segue into the gap between the perceptions and realities of artificial intelligence. Just based on the recommendations I see daily from Google Now I've come to the conclusion that either machine learning and AI are way, way behind what I generally think, or Google is running a comically inept system in order to make me think the former. Here's "A Skeptic's Guide to Thinking about AI" based on this week AINow Symposium.
And to close us out, here's "The Automation Charade" which begins by pointing out that most "automation" we currently interact with is just about shifting work onto the (human) customer from the (human) employee, and gets more interesting from there.

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 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 April 23, 2018

1. Communications: Marc Bellemare has a new post on how to communicate research titled "The Goal of Scientific Communication Is Not to Impress But to Be Understood." To which I say, the goal of human beings is not to be understood but to impress (hence the faiV). But assuming that you aren't as Calvinist as I am, I've been collecting a few things over the last few weeks that broadly fit the theme of better communicating research and ideas. Here's an experiment on disaster relief communications testing negative and positive imagery for their effect on donations and on donors sense of that change was possible. Unfortunately, there are few conclusions to draw; these are hard experiments to run. Here's a piece from ODI on 9 things you are doing, but shouldn't in research communications. I'm guilty of at least five (with mitigating circumstances, e.g. the funders told me I had to).
But let's get specific. Here's something you should definitely not do: produce a set of guidelines for behavior that have no input from the most important people in the equation. You should also not try to write jargony, provocative headlines without really understanding the context, for instance, saying that "40% of Older Americans Will Experience Downward Mobility." Given that the standard models of retirement planning assume that everyone retiring will have a lower income (hello there Lifecycle theory!), and most people aren't close to saving enough for retirement according to those standard models, I'm willing to bet a lot of money that the figure will be a lot higher than 40%. Don't try to find some way to contextualize a massive ritual sacrifice of children. And finally, definitely don't be one of these Manhattanites caught on video expressing revealed preferences for segregation and inequality, but do be like the principal at the end of the video clip and communicate your disgust in no uncertain terms.


2. Global Convergence: But not in a good way. I often think about the divergence in outcomes (or put another way, growing income and wealth inequality, falling mobility) for Americans as a convergence: for the bottom ~40% of the income distribution, the American economy looks a lot more like the economy in, say South Africa or Brazil, than the economy experience by the upper half of the distribution. That clip above is one example of how far out of reach the tools for mobility can be. Justin Fox has a story about fee-based governance in the United States--government agencies funding themselves through fines and fees. Justin makes the connection to the Gilded Age in the US, but it's a mechanism that will be very familiar to people in developing and middle-income countries. For a ray of hope on that front, you can check out Tishuara Jones, Treasurer of St. Louis, who is fighting back against fines and fees as revenue in her city.

3. Household Finance: This week I guest-taught a class at Haverford on US microfinance. In the post-discussion I learned that students prefer off-campus jobs, because Haverford pays student workers only once-a-month, and those who need the paycheck from a job during the semester, need it more frequently. That makes sense. But people on low-incomes also often prefer infrequent payments, so as to get larger lump-sums. Dairy farmers in Kenya do according to this new work from Casaburi and Macchiavello. To the convergence point earlier, this isn't a difference between the US and developing countries. The demand for income spikes among people in the US can be seen in the low take-up rates for monthly EITC payments, and the high take-up of "overwithholding." It's also evident in the fintech Even's pivot away from consumption smoothing. The bottom line is we still have a long way to go to understand optimal income volatility and we should have weak priors about the interest in and benefits of say, on-demand income or a "rainy day EITC."

4. The Ridiculous: Perhaps a new category for the faiV. Presented without further comment: "Soon Blockchain Will Let Armies of Free Agents Run Companies" and the "leading expert" on student loans was just a front for a student loan consolidation company. . Oops.

5. US Poverty and Inequality: When William Julius Wilson writes, it's probably a good idea to read. And here's the best review of The Financial Diaries (and of The Unbanking of America) that I've seen.   

A very cool video (snippet) of the week, visualizing data on the learning gap. Via  Lee Crawfurd ,  Quartz , and from  Luis Crouch .

A very cool video (snippet) of the week, visualizing data on the learning gap. Via Lee Crawfurd, Quartz, and from Luis Crouch.

Week of April 9, 2018

Editor's Note: I'm very disappointed that no one commented on my clever pun in last week's editor's note. Given the beautiful weather outside, that's my only explanation for my perhaps snarkier-than-recently tone this week. --Tim Ogden

1. Global Development: Hey, does anybody remember the Millennium Villages Project? It seems an age ago in terms of development fads, now that we're all focused on cash grants and graduation programs, and according to some papers would fall into the "long-run" category. Andrew Gelman has a post about a new retrospective evaluation of the program (that he participated in), including a link to an evaluation of the evaluation. The results are surprisingly good, given what I expect most people's priors were at this point. Though I suppose the TUP evaluations should perhaps have shifted those priors in a positive direction. I guess I'm kind of surprised that the results don't seem to have gotten the attention I would have predicted. Of course, I don't think anyone has argued that the MVP should be a model for other programs since Nina Munk's book, so maybe I shouldn't be so surprised.
Lant Pritchett has a list of six other things in development that people aren't paying (enough) attention to, mostly variations on the continuing large gap between even the lower part of the income distribution in rich countries and the upper part of the distribution in poor countries.
Lant's first point is about the huge gains from moving. Here's a piece from a few weeks ago about the lack of geographic mobility, specifically rural to urban migration, in the United States where the overall tone is exasperation at these benighted people who stay in small towns (and ruin things for everyone else; it's an interview with Robert Wuthnow about his new book). It caught my eye because I can't imagine something like this being written about rural people in developing countries (without touching off a lot of blowback). But perhaps we should see more stuff like this about all forms of poor-to-rich geographic mobility. Speaking of those rural people, here's a new paper from Marc Bellemare about one of the dynamics that may be keeping the poorest people in rural areas (at least in Madagascar)--the intensification of income from agriculture.


2. Jobs: Last week I linked to the recent study of scheduling practices at The Gap that found that encouraging managers to set more stable schedules for retail employees led to higher productivity and sales for the firm. The exact mechanism for increased sales isn't completely clear, but it appears that managers shifted hours to more experienced workers, who unsurprisingly were more productive. While the study is encouraging overall--stable schedules are better for (most) workers and for employers--it also has a dark tinge. To see why, consider this Atlantic article about the future of jobs at Walmart (which, to its great credit, was well ahead of The Gap in experimenting with more stable schedules for its hourly workers, and other efforts to stabilize workers income). The macro trend is toward fewer jobs, at least in terms of how we used to define that term, for less-skilled and less-experienced employees, and declining job quality for those people. That's been happening at many companies (think of outsourcing of janitorial, security and similar jobs) for a long time. It seems an awful lot like what I understand has happened in European labor markets which are more regulated--stable jobs are limited, more workers, particularly the young pushed into contingent labor contracts with limited benefits, stability or security. From a distance this is fascinating: similar outcomes from radically different processes. But from a policy perspective it's frightening. In the economic development world, we've been talking for a long time about how to move more people into formal employment, like in developed economies. Meanwhile the developed economies are making great progress moving people into informal employment, like in developing countries. Maybe I should have called this item Global Undevelopment.
And to play to the academic part of my readership for a moment, here's a piece about how every effort to create better incentives in academic jobs makes things worse. I remain baffled at the general assumption in economics that managers know what they are doing, given the management they experience on a daily basis. While I can't vouch for the management abilities at the Open Philanthropy Project, chances are if you're a reader of the faiV you, or someone you know might be interested in these job openings.

3. MicroDigitalFinance: Is a neologism a step too far? Probably. But check out CFI's fellows program research agenda. There's a whole lot of "microdigital" there. Interestingly, to me at least, is that you could copy and paste these questions into a research agenda for the US financial services marketplace and no one would bat an eye, especially the ones about the changing nature of work.
A brief interruption for a public service announcement: If you're going to be in Uganda, for God's sake, DO NOT LOSE YOUR SIM CARD. Matt Levine has a line about fintech re-learning all the lessons of modern finance, painfully and in public. Seems that could apply equally well to a lot of actors in the financial inclusion space, but relearning the lessons of the need for explicitly pro-poor services, institutions and regulations. Take for instance this post from CGAP about pricing transparency for digital services. Who knew that digital finance providers might not be very upfront about their pricing without regulation?
There is still innovation and research happening in "traditional/nondigital" microfinance, thankfully. Here's a new paper from Burke, Bergquist and Miguel on lending to Kenyan farmers to enable them to buy low and sell high, rather than the inverse which is the status quo ex ante. The most interesting part is not that it does help farmers profitability but that they can track general equilibrium effects on prices of both inputs and outputs--and there are effects. It's another piece of evidence that microcredit can have positive general equilibrium effects that are missed in individual-focused impact evaluations (cf. Breza and Kinnan).

4. Our Algorithmic Overlords: With ongoing questions about how automation, AI, tightening labor markets, and shifting skills will affect employment, I suppose we can take some heart in this "against the run of play" piece claiming that progress in AI research has hit a wall. Maybe we have more time for structural adjustment than we thought. Of course, that may give more time for big tech companies to lobby for privacy laws that look tough but actually enable much of their ongoing gathering and use of data outside public view. And here's Lucy Bernholz on the need for civil society organizations to quickly come to terms with "the burden of data." I guess Lucy would be encouraged about CFI's research agenda, above. And I got through that without mentioning the Zuckerberg hearings. Oops.

5. US Poverty and Inequality: You may have already seen that Matthew Desmond and colleagues have "kicked on" from their work on evictions in Milwaukee and built a database of eviction records that covers a good portion of the US. Here's the NYTimes coverage of evictions in Richmond.
Here's a new report on the racial wealth gap and small business, that while useful continues my frustration at focusing on the idea that starting small businesses will directly address the wealth gap. Business ownership only increases wealth if there are buyers of those businesses at some point in the future. Given the pre-existing wealth gap, and the businesses that minorities are able to start, who is going to put a residual value on those businesses high enough to affect wealth? Perhaps we should consider the lessons of the global microfinance movement in building wealth through small business financing?
In case you were wondering, here's a new paper on immigrants and entrepreneurship in the US. First-generation immigrants create about 25% of the new businesses in the US, but this is as high as 40% in some regions. But, of course, those firms create fewer jobs and those jobs aren't as good as jobs in native-owned firms. In other words, they may be very good for boosting incomes (though in general there is no wage premium for entrepreneurs versus their likely earnings from employment) but likely not for building wealth.

Kieran Healy has a couple of blog posts in recent weeks looking at various ways to represent time series data,  using birth data in the US  and in other countries. In addition to my general interest in data viz, this caught my eye because, well, did you know how much birth rates varied from month-to-month? After contemplating whether there were some basic biologic facts I was unaware of, and soliciting help from a L&D nurse friend, I discovered that birth seasonality is a thing, is consistent across time, culture and geography, and  there is still lots of debate over what factors account for it . And I also discovered that  I have the most common birthday in the US (at least among people born 20 to 40 years after me) . You can see more of  Kieran's visualizations of the baby boom here , and some  cool animated population pyramids (with discussion and code) here .

Kieran Healy has a couple of blog posts in recent weeks looking at various ways to represent time series data, using birth data in the US and in other countries. In addition to my general interest in data viz, this caught my eye because, well, did you know how much birth rates varied from month-to-month? After contemplating whether there were some basic biologic facts I was unaware of, and soliciting help from a L&D nurse friend, I discovered that birth seasonality is a thing, is consistent across time, culture and geography, and there is still lots of debate over what factors account for it. And I also discovered that I have the most common birthday in the US (at least among people born 20 to 40 years after me).
You can see more of Kieran's visualizations of the baby boom here, and some cool animated population pyramids (with discussion and code) here.

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.

Book Review Special Edition: Automating Inequality

1. Algorithmic Overlords (+ Banking + Digital Finance + Global Development) book review: I'd like to call myself prescient for bringing Amar Bhide into last week's faiV headlined by questions about the value of banks. Little did I know that he would have a piece in National Affairs on the value of banks, Why We Need Traditional Banking. The reason to read the (long) piece is his perspective on the important role that efforts to reduce discrimination through standardization and anonymity played in the move to securitization. Bhide names securitization as the culprit for a number of deleterious effects on the banking system and economy overall (with specific negative consequences for small business lending). 
The other reason to read the piece is it is a surprisingly great complement to reading Automating Inequality, the new book from Virginia Eubanks. To cut to the chase, it's an important book that you should read if you care at all about the delivery of social services, domestically or internationally. But I think the book plays up the technology angle well beyond it's relevance, to the detriment of very important points.
The subtitle of the book is "how high-tech tools profile, police and punish the poor" but the root of almost all of the examples Eubanks gives are a) simply a continuation of policies in place for the delivery of social services dating back to, well, the advent of civilization(?), and b) driven by the behaviors of the humans in the systems, not the machines. In a chapter about Indiana's attempt to automate much of its human services system, there is a particularly striking moment where a woman who has been denied services because of a technical problems with an automated document system receives a phone call from a staffer who tries very hard to convince her to drop her appeal. She doesn't, and wins her appeal in part because technology allowed her to have irrefutable proof that she had provided the documents she needed to. It's apparent throughout the story that the real problem isn't the (broken) automation, but the attitudes and political goals of human beings.
The reason why I know point a) above, though, is Eubanks does such an excellent job of placing the current state in historical context. The crucial issue is how our service delivery systems "profile, police and punish" the poor. It's not clear at all how much the "high tech tools" are really making things worse. This is where Bhide's discussion is useful: a major driver toward such "automated" behaviors as using credit scores in lending was to do an end-run around the discrimination that was rampant among loan officers (and continues to this day, and not just in the US). While Eubanks does raise the question of the source of discrimination, in a chapter about Allegheny County, PA, she doesn't make a compelling case that algorithms will be worse than humans. In the discussion on this point she even subtly undermines her argument by judging the algorithm by extrapolating false report rates from a study conducted in Toronto. This is the beauty and disaster of human brains: we extrapolate all the time, and are by nature very poor judges of whether those extrapolations are valid. In Allegheny County, according to Eubanks telling, concern that case workers were biased in the removal of African-American kids from their homes was part of the motivation for adopting automation. They are not, it turns out. But there is discrimination. The source is again human beings, in this case the ones reporting incidents to social services. The high-tech is again largely irrelevant.
I am particularly sensitive to these issues because I wrote a book in part about the Toyota "sudden acceleration" scare a few years ago. The basics are that the events described by people who claim "sudden acceleration" are mechanically impossible. But because there was a computer chip involved, many many people were simply unwilling to consider that the problem was the human being, not the computer. There's more than a whiff of this unjustified preference for human decision-making over computers in both Bhide's piece and Eubanks book. For instance, one of the reasons Eubanks gives for concern about automation algorithms is that they are "hard to understand." But algorithms are nothing new in the delivery of social services. Eubanks uses a paper-based algorithm in Allegheny County to try to judge risk herself--it's a very complicated and imprecise algorithm that relies on a completely unknowable human process, that necessarily varies between caseworkers and even day-to-day or hour-to-hour, to weight various factors. Every year I have to deal with social services agencies in Pennsylvania to qualify for benefits for my visually impaired son. I suspect that everyone who has done so here or any where else will attest to the fact that there clearly is some arcane process happening in the background. When that process is not documented, for instance in software code, it will necessarily be harder to understand.
To draw in other examples from recent faiV coverage, consider two papers I've linked about microfinance loan officer behavior. Here, Marup Hossain finds loan officers incorporating information into their lending decisions that they are not supposed to. Here, Roy Mersland and colleagues find loan officers adjusting their internal algorithm over time. In both cases, the loan officers are, according to some criteria, making better decisions. But they are also excluding the poorest, even profiling, policing and punishing them, in ways that are very difficult to see. While I have expressed concern recently about LenddoEFL's "automated" approach to determining creditworthiness, at least if you crack open their data and code you can see how they are making decisions.
None of which is to say that I don't have deep concerns about automation and our algorithmic overlords. And those concerns are in many ways reinforced and amplified by Eubanks book. While she is focused on the potential costs to the poor of automation, I see two areas that are not getting enough scrutiny.
First, last week I had the chance to see one of Lant Pritchett's famous rants about the RCT movement. During the talk he characterized RCTs as "weapons against the weak." The weak aren't the ultimate recipients of services but the service delivery agencies who are not politically powerful enough to avoid scrutiny of an impact evaluation. There's a lot I don't agree with Lant on, but one area where I do heartily agree is his emphasis on building the capability of service delivery. The use of algorithms, whether paper-based or automated, can also be weapons against the weak. Here, I look to a book by Barry Schwarz, a psychologist at Swarthmore perhaps most well-known for The Paradox of Choice. But he has another excellent book, Practical Wisdom, about the erosion of opportunities for human beings to exercise judgment and develop wisdom. His book makes it clear that it is not only the poor who are increasingly policed and punished. Mandatory sentencing guidelines and mandated reporter statutes are efforts to police and punish judges and social service personnel. The big question we have to keep in view is whether automation is making outcomes better or worse. The reasoning behind much of the removal of judgment that Schwartz notes is benign: people make bad judgments; people wrongfully discriminate. When that happens there is real harm and it is not obviously bad to try to put systems in place to reduce unwitting errors and active malice. It is possible to use automation to build capability (see the history of civilization), but it is far from automatic. As I read through Eubanks book, it was clear that the automated systems were being deployed in ways that seemed likely to diminish, not build, the capability of social service agencies. Rather than pushing back against automation, the focus has to stay on how to use automation to improve outcomes and building capability.
Second, Eubanks makes the excellent point that while poor families and wealthier families often need to access similar services, say addiction treatment, the poor access them through public systems that gather and increasingly use data about them in myriad ways. One's addiction treatment records can become part of criminal justice, social service eligibility, and child custody proceedings. Middle class families who access services through private providers don't have to hand over their data to the government. This is all true. But it neglects that people of all income levels are handing over huge amounts of data to private providers who increasingly stitch all of that data together with far less scrutiny than public agencies are potentially subject to. Is that really better? Would the poor be better off if their data was in the hands of private companies? It's an open question whether the average poor person or the average wealthy person in America has surrendered more personal data--I lean toward the latter simply because the wealthier you are the more likely you are to be using digital tools and services that gather (and aggregate and sell) a data trail. The key determinant of what happens next isn't, in my mind, whether the data is held by government or a private company, but who has the power to fight nefarious uses of that data. Yes, the poor are often going to have worse outcomes in these situations but it's not because of the digital poorhouse, it's because of the lack of power to fight back. But they are not powerless--Eubanks stories tend to have examples of political power reigning in the systems. As private digital surveillance expands though, the percentage of the population who can't fight back is going to grow.
So back to the bottom line. You should read Automating Inequality. You will almost certainly learn a lot about the history of poverty policy in the US and what is currently happening in service delivery in the US. You will also see lots to be concerned about in the integration of technology and social services. But hopefully you'll also see that the problem is the people.

The First Week of February 2018: The Morduch Edition

Editor's Note: this week’s faiV is guest-edited by none other than Jonathan Morduch. I'll be back on regular faiV duty next week. --Tim Ogden

Guest Editor Jonathan Morduch's Note:
Thanks, Tim Ogden, for letting me take the wheel for this week’s faiV. Sean Higgins did a great job with last week’s faiV, and I’m feeling a bit of pressure to meet their high standards. Here we go:

1. Development Economics Superstars: You know by now that NYU economist Paul Romer is heading home to downtown NY, leaving his post as the World Bank Chief Economist. It’s good news for the NYU development economics community. Don’t worry about the World Bank, though – if this list of amazing seminar speakers is any indication, the World Bank continues to be a place to find exciting ideas and research. The first speaker was this week: MIT’s Tavneet Suri talking about digital products and economic lives in Africa (video).

2. Dueling Deatons: It would be embarrassing to let on just how much I’ve learned from reading Angus Deaton over the years. But there are different versions of Deaton. One of them is a careful analyst of income and consumption data with a no-BS attitude toward poverty numbers. Another wrote an op-ed in the New York Times last week.
Deaton’s op-ed argued (1) that there’s quite a lot of extreme poverty in the US, not just in poorer countries, and (2) perhaps we should move budget from anti-poverty efforts abroad to those at home. Development economists & allied cosmopolitans rose up. Princeton ethicist Peter Singer argues that argument #2 clearly fails a cost-benefit test: it’s simply much cheaper to address needs abroad. Charles Kenny and Justin Sandefur of the Center for Global Development reject the idea that spending more in Mississippi should mean spending less in India, and they take a good whack at the US poverty data. But if you’re going to read just one rebuttal, make it Ryan Brigg’s essay in Vox. It’s the rebuttal to “provocative Deaton” that “no-BS Deaton” would have written. The main argument is: no, actually, there isn’t much “extreme poverty” in the US once you look at the data more carefully. Deaton’s basic premise thus falls away.
On a somewhat more personal note: in recent years, I’ve spent time down the back roads of Mississippi with people as poor as you’ll find in the state. I’ve come to know the kinds of Mississippi towns that Kathryn Edin and Luke Shaefer describe in their powerful US book, $2 a Day (one of Deaton’s sources). At the same time, I’ve worked in villages in India and Bangladesh where many households are targeted as “ultrapoor”. So I think I have a sense of what Deaton’s getting at in a more visceral way. He’s right about the essential point: It’s hard not to be angry about our complacency about poverty – both abroad and in the US. We should be more aware (and more angry). But Deaton picked the wrong fight (and made it the wrong way) this time. 

3. Risk and Return (Revisited): A big paper published this week. It’s nominally about farmers in Thailand, but it challenges common ways of understanding finance and inequality in general. The study holds important lessons but is fairly technical and not so accessible. The paper is “Risk and Return in Village Economies” by Krislert Samphantharak and Robert Townsend in the American Economic Journal: Microeconomics (ungated).
Why does poverty and slow economic growth persist? A starting point is that banks and other financial institutions often don’t work well in low-income communities. One implication is that small-scale farmers and micro-enterprises can have very high returns to capital -- but (or because) they can’t get hold of enough capital to invest optimally. The entire microfinance sector was founded on that premise, and there’s plenty of (RCT) evidence to back it.
Samphantharak and Townsend use 13 years’ worth of Townsend’s Thai monthly data to dig deeper. The paper gathers many insights, but here are two striking findings: The Thai households indeed have high average returns to capital but they also face much risk. Making things harder, much of that risk affects the entire village or broader economy and cannot be diversified away. As a result, much of the high return to capital is in fact a risk premium and risk-adjusted returns are far, far lower. That means that poorer households may have high returns to capital but they are not necessarily more productive than richer households (counter to the usual microfinance narrative). The action comes from the risk premium.
What is happening (at least in parts of these Thai data) is that poorer farmers are engaged in more risky production modes than richer farmers. Once risk premia are netted out, the picture changes and richer farmers are in fact shown to have higher (risk-adjusted) returns.
A few implications (at least in these data): (1) better-off farmers are both more productive and have more predictable incomes. So inequality in wealth is reinforced by inequality in basic economic security, the kind of argument also at the heart of the US Financial Diaries findings. (2) Poorer farmers face financial constraints, but not of the usual kind addressed by microfinance. The problems largely have to do with coping with risk. That might explain evidence that microfinance isn’t effective in the expected ways. (3) The evidence starkly contrasts with arguments made by people (like me) who argue that rural poverty is bound up with the inability to take on riskier projects.

4. Our Algorithmic Overlords:
 Political scientist Virginia Eubanks has a new book, Automating Inequality, [Tim will have a review in next week's faiV] about poverty in the digital age. Eubanks argues that we’re creating “digital poorhouses” akin to the poorhouses of old. The basic story is that data-driven policy approaches hurt the most disadvantaged – but seem hard to understand and thus hard to criticize. Eubanks, though, says they’re not in fact so complicated. Eubanks is featured in an interesting interview in MIT’s Technology Review. One snippet on politics and activism:I do think it’s really interesting, the way we tend to math-wash these systems, that we have a tendency to think they're more complicated and harder to understand than they actually are. I suspect that there's a little bit of technological hocus-pocus that happens when these systems come online and people often feel like they don't understand them well enough to comment on them. But it’s just not true.” 
Bonus: Just learned the phrase “math-wash”. 

5. Paychecks as Commitment Devices: If you’re like me, you’re probably paid monthly by your employer. A 2016 working paper by Lorenzo Casaburi and Rocco Macchiavello (which I just saw Lorenzo present – I’m very late to the party) argues that – for members of a Kenyan dairy cooperative at least – being paid monthly has an advantage that is easy to take for granted: It helps overcome saving constraints. In effect, the cooperative is saving weekly earnings so the members don’t have to. What’s most striking is that members are willing to pay (by foregoing earnings) for the chance to be paid monthly. The result lines up with other (surprising) evidence that people are willing to pay for saving mechanisms that transform small cash inflows into meaningfully large sums (to take a phrase from Stuart Rutherford).

Week of October 23, 2017

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


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

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

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

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

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

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

Week of September 25, 2017

1. Basic Income: I haven't touched on basic income in what seems like months, but that's because there was little to report. This week Planet Money has an episode (adapted from 99% Invisible) on the details of what basic income is and how it might be delivered. And apparently last week, Y Combinator announced some more details of their US Basic Income study. If details matter to you, you'll be pleased to know that the work in Oakland that received a lot of attention last year was a feasibility study and now they are planning an RCT with 3000 individuals in two different states.

2. Methods and More: My next book of interviews is about big data and machine learning (If you have a better name than "Dated Conversations," let me know). Susan Athey is the first person I interviewed for the new book this past spring (I hope to have some excerpts of that interview available soon) in part because of some things Athey had written on how machine learning will change the field of economics. There's a new version of a (preliminary) paper on the topic. It has details.
More specifically on details and methods, here's a new paper on the use of randomization to study network effects, a quite tricky prospect. But when it comes to methods and details mattering, two items this week really hit the nail on the head. First, Buzzfeed of all places has a lengthy piece examining the myriad problems that have emerged as people examine the details of studies published by Brian Wansink's Food and Brand Lab at Cornell. Missing data, mis-described studies, statistical errors, it's stunning. This week also saw publication of what is many ways the exact opposite of what appears to be have happened at the Food and Brand Lab: David Roodman's incredibly detailed review and replication of the research on the relationship between incarceration (or decarceration) and crime rates for the Open Philanthropy Project. The starkest contrast for me isn't actually the attention to detail but the philosophy. The Wansink saga began with a blog post that indicated that the Lab was torturing data until it said what they wanted; the Roodman review and replication was done because they were concerned that their beliefs were wrong.


3. Microfinance, US and Global: My expertise and knowledge is definitely concentrated in global microfinance rather than microfinance in the US, but because of the work on the US Financial Diaries I'm learning a lot more about the US. This week for instance I got to hang around the outskirts of the Opportunity Finance Network meeting. There are no links here but a couple of things have really struck me and so I wanted to note them, and invite you to tell me what you think/have seen, etc.
First, I was really surprised about how open the US microfinance community is about the presence of and need for subsidy. Globally I see an almost totemic adherence to the idea of self-sustainability, even in the presence of compelling evidence of the prevalence of subsidy. I'm sure that's a consequence of how those industries have evolved but I'm curious about any ideas about the details of the US microfinance history that led to this.
Second, two parallel conversations really struck me. One was about "community investment" in order to create "quality jobs." The second was about how to use technology to cut down costs of making loans, costs that are mostly about staffing--or in other words, how to expand microfinance by lowering the need for quality employees in the lenders. I bring this up not to point fingers about hypocrisy, but to raise the inevitable trade-offs for MFIs everywhere about reach and cost. The tension doesn't seem to exactly be on the surface in the US but it is more apparent than in global conversations, where the value of the jobs created by the global microfinance movement seem to be ignored, especially in the rush to digital finance services.
Finally, I was quite surprised at the contrast in attention to borrower outcomes. Again, I'm a novice here, but whereas in international conversations I feel that everyone is talking about "impact" in terms of household incomes and consumption, in the US conversations I've been a part of, the focus seems to be much more operational--in other words, does the business continue to exist, repay and take another loan. That may be a consequence of starting from a more "antibiotic" theory of change and serving existing businesses with documented troubles accessing capital, but again I'm interested in any other perspectives.

4. US Inequality: The release of the Republican "tax plan" this week was the inspiration for the title of this week's edition but since there really is nothing there I'm not going to link to it. My go-to for keeping track of the details and what effect they will have is Lily Batchelder (NYU Law and former tax counsel for the Senate Finance Committee). Just scroll through her Twitter timeline to understand which details matter and how much.
If you are interested in details of Americans' financial situation, there are two notable reports this week. The Consumer Financial Protection Board published the first "Financial Well-Being in America" report. There's lots to digest but a broad summary might be: there are big racial and gender gaps in financial well-being, but also big gaps within groups so that no particular feature is a reliable predictor of well-being. The Fed released the 2016 Survey of Consumer Finances this week as well. Details galore, but here and here are some overviews which boil down to: "the biggest gains continue to flow to the richest Americans." And here is a bizarre misreading of the details from the Washington Post. It's as if no one had ever said "correlation is not causation."
Finally, here is a heartbreaking story about how the poisoning of Flint, MI's water system led to a huge spike in fetal deaths. Of course, the story is by the same person who did the "if you want to be wealthy, buy a house" story.

5. Education: Finally, in detailed reports released this week, the 2018 World Development Report (yes, the same week as the 2016 SCF, the actual year of publication is apparently a detail that doesn't matter) is out with a focus on education, particularly on the need to focus on learning rather than measures of schooling. Make sure to congratulate David Evans. My favorite take on the new WDR is from Justin Sandefur, who in this tweet stream points out that "all sides seem to embrace the learning crisis and still find justification for their previously chosen policies" (with linked examples). You'll have to check the details to see if you agree.

Frederica Frangapane and Alex Piacentini have created a site to visualize the stories of 6 migrants who arrived in Italy from four different countries in 2016, called  The Stories Behind a Line .

Frederica Frangapane and Alex Piacentini have created a site to visualize the stories of 6 migrants who arrived in Italy from four different countries in 2016, called The Stories Behind a Line.

Week of September 18, 2017

The New and the Old Edition

Editor's Note: Most of the items this week are in some way new additions to items that have been featured in the faiV the last few months, or at least updates on some long-running themes.

1. Microenterprise and Household Finance: I assume that most of you are familiar with David McKenzie's business plan competition in Nigeria (there's even a Planet Money episode about it!) and his cash drop work (I have to use this self-serving link of course). David and co-authors have a new paper in Science (summary/blog version here) testing the effectiveness of business training for microenterprises in Togo and find that a standard business curricula did not do much (in line with lots of other business training studies, though most are plagued by too little power) but a curriculum based on boosting personal initiative did have large effects.
I see this as lining up with a stream of research finding that boosting aspirations or "hope" can have meaningful impact in many different contexts (see for instance, this recent work on effects of watching Queen of Katwe) and through a variety of interventions (any one know of an overview of recent work in this vein?). It also helps explain why there seem to be only small effects of business training on businesses that objectively should have lots of gains from marginal improvements in operations--if you don't believe that running your microenterprise better will matter...
In other microenterprise/microcredit news, I learned this week about a study (new draft coming soon apparently) that tests allocating microcredit based on peer views of microenterprise owner business skills. Those ranked highly do in fact see large returns to a $100 cash drop (8.8 to 13% monthly returns). I heard about the study from this excellent thread from Dina Pomeranz on a talk by Abhijit Banerjee and Esther Duflo on what new they've learned since that "old" book Poor Economics came out.
Finally, here's a new piece from Bindu Ananth that should go on your "must read" list. I couldn't agree with this statement more: "[T]he field of household finance has failed to examine the financial lives of low-income families in sufficient detail." She examines specifically issues with how to think about insurance vs. savings, high frequency saving and borrowing, and financial complexity. I will continue to beat the drum on two points: 1) low-income households are having to make financial decisions that would challenge a finance MBA, with large consequences for sub-optimal choices, and 2) almost all the advice we have on making wise financial choices is built on an assumption that the life-cycle model holds true, and may not in fact be good advice if the life-cycle model doesn't hold.


2. Premium Mediocre and American Inequality: I'll lead this off with a concept that I'm not quite sure what to make of, but does have me thinking: Premium Mediocre. The post goes on way way too long, but it's worth reading at least through the first couple of scrolls for some new ways to think about the old problems of inequality and mobility, or lack thereof, and what it does to household decision making.
This summer I mentioned but failed to link to a study on how delivering food stamps more frequently lowered the rate of shoplifting in grocery stores in Chicago. Here's a new paper that shows a much larger and long-term effect of food stamp receipt. Children whose families received food stamps for more years (due to staggered roll out of the program in the 60s and 70s) were less likely to be convicted of any crime as an adult, with larger effects on violent crime.
The importance of such safety net programs in the United States is growing as we learn more about how household finances are changing. Not only is year-to-year volatility seemingly increasing, and month-to-month volatility seemingly spreading, but lifetime earnings aren't just stagnant--they're falling. Some new work indicates that since the late 1960's American men's expected lifetime earnings began falling each year (into the present). That can make premium mediocre a stretch for each new cohort. It also perhaps helps explain this new and fairly shocking chart, based on Case and Deaton's work discussed extensively in the faiV this spring, that has been circulating on Twitter this week.  


3. RCTs, observations and fieldwork: A new entry into the "value of RCTs" debate from well outside the development economics field: online advertising. Gordon et. al. look at data from 15 Facebook advertising experiments (500 million observations) and find significant differences in results using RCTs vs more post-hoc observational methods. The major conclusion as I see it: you're never going to figure out the unobservables well enough to control for them. In related news, here's a good piece about "researcher degrees of freedom" from the Monkey Cage Blog. And in only sort of related news, here's Tyler Cowen on the manifold harms of Facebook (besides making researchers jealous about the size of their n's)
Closer to home in development economics, here's 6 questions for Chris Udry about fieldwork and learning and teaching economics. I would have asked different questions but then you knew that.

4. Philanthropy and Systemic Change: Last week I linked to a piece about the return of hookworm in impoverished parts of the US. There's another side of that story: the supposed eradication of hookworm in the American South has long been the benchmark example of philanthropic success (and the gains from the eradication campaign are part of the evidence base for deworming today). Ben Soskis takes a look at what the persistence of hookworm, or the lack of persistence of the eradication campaign, says about the limits of public health philanthropy (or any kind of "systemic change" driven by philanthropy).
Here's Felix Salmon reporting from what was apparently definitely not a "premium mediocre" philanthropy conference, where the focus was apparently on "invisible causes and effects." If you have any interest in philanthropic strategy or a bent toward "evidence-based giving" it's worth a read.

5. Household Finance and American Inequality Redux: It's new and old all in the same edition. Here are a couple of things that I wanted to include before they got too out-of-date. First, PWC has a new report on the effects of financial stress on workers. It's almost comically bad, honestly, because they so often seem to miss the story. For instance, while focusing on how self-identified "stressed" workers are likely to withdraw early from their retirement funds (or not have made deposits in the first place), they miss the large percentage of "not stressed" employees who are acting the same way as the stressed ones. When 30% of "not stressed" people already know they are going to need to draw down their retirement savings early, you have a problem with your system.
Finally, here's a proposal to allow people to withdraw up to $500 from their Earned Income Tax Credit early in the year to help cope with financial emergencies. Alex Horowitz sounds the proper notes of skepticism on the Federal Government being able to deliver funds in anything like the amount of time that a financial emergency necessitates. One challenge the piece doesn't discuss is that people generally don't know what size their credit is going to be (or even that they qualify for it at all), a challenge exacerbated by income and other household volatility. That's the subject of a paper USFD co-authored with Urban and the topic of a panel next week at the Tax Policy Center. If you're in DC, come along.

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.