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Viewing all FaiV posts with topic: Product Design  

Week of June 14, 2019

The Colorblind Edition

1. FinLit Redux: A few weeks ago I had an op-ed in the Washington Post bemoaning the ongoing emphasis on financial literacy training. David Evans had an issue with one particular sentence in that op-ed, not about financial literacy, but about the effectiveness of information interventions. Here's his list of 10 studies where providing information (alone) changes behavior. And I suppose my inclusion of this is another piece of evidence supporting his point? On the other hand, here's a long, rambling essay from the president of the (US) National Foundation for Financial Education which is one of the finest examples I've ever seen of not just moving the goalposts but denying they even exist. He's got all the greatest hits: don't evaluate based on current practice because we're changing; don't evaluate based on average practice, because of course there are bad programs; don't evaluate based on standard measures because programs vary; don't pay attention to negative stories because they are "old and tired"; and even, "hey look over there!" Is there an emoji for scream of helpless rage?
The reason I find such defenses so enraging is because the huge amount of resources being poured into financial literacy could be put to so much better use that actually are likely to help people. Here's a piece looking at one of the specific trade-offs: financial literacy distracts from the very real need to protect consumers from bad actors. That's not just theoretical. The (US) CFPB is actually shifting from consumer protection to education. Where's that scream of helpless rage emoji again?

2. Household Finance and Regulation: Thinking about consumer protection and the role and value of financial literacy requires thinking about household finance. Fred Wherry, Kristin Seefeldt and Anthony Alvarez have a short essay on how to think about these issues, with several sentences I wish I had written, including, "Stop treating the borrowers as if they are ignorant or irresponsible. And start treating the lenders as if they are inefficient (and sometimes malicious) providers of needed financial services."
There is a tension there, however, that I think too often gets short shrift. Consumer protection regulation necessarily involves removing some choices, and therefore some agency, from consumers. I hope to write more about this, but here is Anne Fleming, (author of City of Debtors which I've been citing frequently) writing about the trade-offs in the caps on interest rates proposed by some prominent Democrats. Making those trade-offs also requires regulators to decide what consumers really want. And that's not always so clear--for instance, here's a look at how "social meaning of money" sociological frameworks do a better job of predicting behavior in retirement accounts than behavioral or rational actor models. And of course the needs and desires of consumers vary so you're not just trading-off between choice and protection but between the needs and desires of different consumers. Yes, this is a bit of a stretch, but here's an article about how women are carving out their own niche in a bit of the household finance world that has been dominated by white men.
Now I recognize that all of this so far is about things going on in the US. But as I frequently argue, the US has a lot more relevance to global conversations than is generally recognized. For instance, here's a story about Facebook turning into a platform for the kind of informal insurance networks we talk about so often in developing countries.
  
3. Digital Finance: That's a reasonable segue into digital finance, especially since the piece quotes Mark Zuckerberg's ambition to make money as easy to send as a picture (which, y'know, isn't actually very ambitious given that a billion+ people can already do that). But in Hong Kong a lot of them are choosing these days not to do it. Well, at least not to use digital tools to make purchases. Why? Because they are worried that the government will use the data trail to identify who is participating in protests. It's a well-founded worry not just in Hong Kong but around the world, and one that digital finance advocates should be taking much more seriously. And no, cryptocurrency is not in any way a solution for this.
Aside from the arguments I've frequently featured on that issue, here's an op-ed andTwitter thread from Rebecca Spang nominally about Italian proposals for a currency alternative to the Euro but really about alternative currencies and good and bad money, and the effects on the poor. Another thing all of us, not just digital finance advocates, could do more of is relearn the lessons of the past--none of the problems of finance are new! 
That doesn't mean that I don't think there is value and promise in digital finance. I do! Here's a story about Nubank, Latin America's largest fintech, now expanding from Brazil to Mexico, offering digital bank accounts and credit cards. Yet more proof (like the report a few weeks ago that Bangladesh has more mobile money accounts than Kenya) that digital finance has taken hold globally. But more relevant to most readers, here's a new report from the European Microfinance Platform on the promise of digital pathways for boosting financial inclusion based on the experiences of practitioners using digital tools. And here's a review of some hearty debates from the launch event for the report. So I do believe in the potential of digital finance, I just take issue when it seems that people believe the problems of finance magically dissolve in the face of bits and bytes. 

4. Our Algorithmic Overlords: Speaking of problems that don't dissolve in the face of bits and bytes, how about the exploitation of children? YouTube is an app for that.
Meanwhile, Europe's data protection policies that were intended to help protect consumers seem to have further entrenched the power of BigTech.
Other problems that don't go away in the face of technology are the need for people to earn a living wage, and for businesses to have a business model that allows them to cover their costs. Uber is caught between those two problems and it increasingly appears that there isn't a way to navigate between the two. I'm increasingly convinced that the idea of negligible marginal costs in the digital realm is simply not true in most instances and that has huge implications for how we think about digital finance. Again, a topic I hope to return to.
In the meantime, here's a long essay from Vi Hart on how she has changed her mind about AI, UBI and the value of data. It's worth a close read. 

5. Global Development: I wasn't planning this but the transitions are really working today--since this is mostly going to be about cash transfers. In all of the stories about UBI and cash transfers, it had slipped my notice that Stockton, CA is running a test of a basic income guarantee. Stockton is one of those places that has a lot in common with many developing and middle-income countries, and very little in common with Silicon Valley, so the experiment is worth following.
In other transfer news, there's a new paper on a Targeting the Ultra-Poor experiment in Afghanistan which shows large effects. Of course, if I'm reading the charts right, the transfer was 5x ex-ante consumption so there darn well better have been large effects. Markus Goldstein has a nice write-up of the paper at Development Impact.
The big question about TUP, in my mind, is not about the near term impact of large transfers, but about the possibility of fade-out of effects, a la Blattman, Fiala and Martinez. Since TUP programs are very expensive, gains have to be sustained for quite a long time for them to be cost-effective. Imran Rasul notes that 4-year follow-up of one of the original TUP programs in Bangladesh showed sustained gains, and there is an 11-year follow-up forthcoming (though I'll admit I'm confused since the 4-year follow up was in 2016). But you should also read these results alongside this"different take on TUP programs" by Naila Kabeer (summary and further thoughtsfrom Berk Ozler) who does a qualitative study of two TUP programs.
Finally, late last week, Evidence Action announced that No Lean Season, a program to encourage seasonal migration in Bangladesh, based on a well-known impact evaluation finding large gains in income, was being shut down. There were two main issues: the discovery that the local implementer bribed local officials to get a license for the program, possibly with the knowledge of local Evidence Action staff, and that the program was not generating results at scale. Note that I have lots of ties here: I'm chairman of GiveWell who had recommended No Lean Season (here's their write-up), and I advised (pro-bono) Evidence Action on its communications.
 

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 is right up there with the most self-indulgent graphics I've ever included. I'm colorblind. Hence, I find most color-based charts enormously frustrating. So, a tear came to my (color-blind) eye when I came across this page for color patterns for use in R that are actually interpretable by the 10% of the male population that is like me. I promise that if you use this and then send me your chart/paper/whatever it will go in the faiV.  Source .

This is right up there with the most self-indulgent graphics I've ever included. I'm colorblind. Hence, I find most color-based charts enormously frustrating. So, a tear came to my (color-blind) eye when I came across this page for color patterns for use in R that are actually interpretable by the 10% of the male population that is like me. I promise that if you use this and then send me your chart/paper/whatever it will go in the faiV. Source.

Week of February 4, 2019

The Global Con Edition

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

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

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

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

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

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

The First Week of August, 2018

US Policy Edition

Editor's Note: The faiV hiatus continues. This week's edition is edited by John Thompson, Chief Program Officer at the Center for Financial Services Innovation. Next week, we'll have one more guest editor before I climb back in the saddle.--Tim Ogden

1. FinTech Charters: Just as the industry takes off for summer vacation, the US Treasury Department released its long-awaited fintech report and the OCC issued a call for fintech charter submissions. I’ve spent the past week sorting through scores of analyses and reactions. Here's American Banker on takeaways from the Treasury report and from the OCC's announcement. What does this mean for all things financial inclusion and innovation? Well, it certainly opens the door for many providers to expand their reach and their potential impact. It will likely be an expensive and involved path, but one that could ultimately give some fintechs much needed lift. However, this is still early in the game. I would expect to see lawsuits and challenges from incumbents now that the charter program is official.     


2. Financial Stress and the Lunar Cycle: For many consumers, the end of the month represents constant instability as accounts are reduced to zero and bills become due.  While income volatility is the umbrella issue, the specific actions that trigger this instability on a cyclical basis live both in our minds and in the products we use.  One of our Entreprenuers-in-Residence, Corey Stone, tackles some big thinking on the topic in his series End of the Month. Drop in regularly to learn more about how human behavior can lead to suboptimal decision making, why long accepted product standards lead to this paucity of funds at the end of the month, and other insights into our monthly budgeting woes.

3. The Gig Economy: The difference between 4% and 40% is pretty significant. And the fact that the US Government doesn’t know how big the gig economy is, in short, a problem. To be fair, it’s not all the government’s fault. The variance in numbers can be attributed to a wide range of perceptions about what constitutes gig employment: full-time, part-time, etc. But no matter what the measurement, the impact is real. Gig employees enjoy the benefits of self-determination, but can often miss out on many of the benefits of traditional employment like insurance, savings vehicles, and more. The result can be regular cash flow gaps and challenging financial tradeoffs. To better design products and create guardrails, it’s imperative that we all find a better – more credible – way to measure this new workforce reality.

4. Fintech Flyovers: Who knew that Dwolla was launching a Midwestern Movement way back in 2010 when it opened its doors in Des Moines. Since then, the Midwest has caught more than its fair share of attention for entrepreneurs, incubators and investors. Drawn by a low cost of living and a relaxed measure of success, companies can stretch a dollar further and pursue a longer term growth plan. Of course, it has its challenges with recruitment – but quality of life seems to be winning out. I can personally attest to the lure as CFSI is headquartered in Chicago and I am a fintech founder from and long-time resident Kansas City. This Midwestern potential will only gain steam with the new OCC fintech charter. Mary Wisniewski tracks this and much more in her most recent piece from American Banker.

5. What We're Slacking About at CFSI: Spies: they are just like us. Who knew that financial health is an issue for international agents? Summer means vacation time, but are you among the millions of US workers who feel like a week isn’t enough to truly dial down the stress of the workplace? Try scheduling vacation bookends. Wearables have made a huge impact on measuring physical health (and giving us all an excuse to get up and walk around throughout the day without looking thoroughly out of place). We’re carefully watching the launch of the “Fitbit for Financial Health” to track similar outcomes.

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).

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.

Week of June 5, 2017

It's Not What You Know... Edition

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

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

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


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

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

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

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

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

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


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

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

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

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

Week of July 11, 2016

Editor's Note: What would you rather do in the midst of a heat wave than read about social science methodological debates?

1. Meta-Analysis of Worms: When the dust settled in last year's #wormwars it was clear that a core issue was methodological and interpretive differences between epidemiologists and economists (see Humphrey's section 5). A new meta-analysis of deworming impact studies from Croke, Hicks, Hsu, Kremer and Miguel takes that issue head-on: it's as much an argument about how to evaluate evidence as it is an argument about the evidence on deworming in particular, concluding with, "Under-powered meta-analyses are common in health research..."   

2. Police Shootings: Another raging methodological debate on an issue of even greater emotional resonance broke out this week: are African-Americans more likely to be shot by police than whites? Roland Fryer has a new working paper that answers, "No [in some cities, though they are more likely to be physically accosted during a stop]." The initial critical reactions focused primarily on the fact that this is a working paper and not enough emphasis in reporting on the paper was given to the limited context (e.g. only a limited number of cities) of the results. The larger methodological issue though is about how to treat the data in the first place. Michelle Phelps looks at how bias in who gets stopped by police can substantially bias outcomes and puts the findings in context of other research. Radley Balko looks at how the source of the data--police reports--makes it questionable whether the data can be trusted at all.


3. Charter Schools: Completing the trifecta of emotionally resonant issues, how about some controversy over how to evaluate schools? The New York Times had a front page story about "chaos" resulting from Detroit's expansion of charter schools harming students, with this curious sentence: "But half the charters perform only as well, or worse than, Detroit's traditional public schools." Jay P. Greene argues that the piece misuses the little data on charter performance that it has. Here's an old post from Alexander Berger on understanding charter performance evaluations and what they actually measure. Meanwhile, here's David Evans rounding up some recent global research on education, teachers and how to measure them.

4. Study Design: Speaking of what studies are measuring, Bruce Wydick has a new post, with specific emphasis on microcredit impact evaluations, about how infrequently development impact evaluations start with a diagnosis of a problem before prescribing a treatment--and how to design better studies based on diagnosis.   

5. Prediction Markets: Finally, everyone's (n=1) favorite prolific blogger on statistics and causal inference, Andrew Gelman, has a couple of posts about why prediction markets and polls are diverging, with prediction markets seemingly on the losing end of accuracy.

Not new, but relevant to many current conversations and largely, it seems to me, unknown.  Source: Migration Policy Institute

Not new, but relevant to many current conversations and largely, it seems to me, unknown.
Source: Migration Policy Institute

Week of August 24, 2015

1. Digital Financial Inclusion: The 2015 Financial and Digital Inclusion Project (FDIP) evaluates 21 countries on various dimensions of financial inclusion. Four out of the top five of the top scorers are in sub-Saharan Africa and Kenya ranked number one. Brookings

2. Mobile Money: Speaking of Kenya, Uber began accepting cash in Nairobi and its fleet of 30 registered vehicles tripled since the policy change in January. Is cash still king in the country known for unprecedented mobile money success? Daily Nation

3. Product Design: Evelyn Stark brings us Part 2 of her examination of customer-centric product development, focusing on organizational strategy and demand-side factors of improving take up. CFI

4. Labor Policy: The Obama administration proposed new rules to overtime pay that could potentially increase incomes for more than 5 million workers. Pew Research

5. Payments: India's move to approve payment banks garnered a lot of media attention, but the central bank has a long list of "to do's" before it can make an impact for the poor and unbanked. NextBillion

Week of August 17, 2015

1. "War on Poverty": The bail process for petty crimes is leading to increasingly high incarceration rates for the poor.  Many are not able to access funds to cover even a comparatively low bail of a few hundred dollars.  In fact, 69% of the households below the poverty line in the US Financial Diaries project would not have emergency savings balances high enough to post a $500 bail. The New York Times

2. Mobile Banking: India's central bank "pre-approved" 11 applications for banks that would take deposits and handle cash transfers. While this could positively impact financial inclusion efforts, the real winners are the Indian telecomms who are set to launch digital services like mobile savings and remittances. The Wall Street Journal

3. Product Design: One Moroccan bank's attempt to offer savings accounts to the poor is a illustrative example of the importance of product design to the success of banking the unbanked... The Guardian 

4.  ...as is Evelyn Stark's examination of why being customer-centric is a supply-side strategy for the financial inclusion sector. CFI

5. Global Poverty: You won't believe how one blog post deftly analyzes this one amazing chart. Cherokee Gothic

Source: CSFI

Week of January 12, 2015

1. Microcredit:  At long last, many of the microcredit evaluations we've been talking about for the last few years are officially published. The new issue of AEJ: Appliedincludes six evaluations of microcredit and an overview from Abhijeet Banerjee, Dean Karlan, and Jonathan Zinman. (Ungated versions of the papers are available at each of the authors' websites.)  American Economic Journal

2. Medical Debt:  Nonprofit hospitals across the U.S. often use debt collection agencies to sue patients who can't or don't pay their bills, creating a compounded financial burden of legal fees and garnished wages for low-income patients.  ProPublica

3. Mobile Money:  Recently developments show Pakistan's new year's resolution might be to move from over-the-counter mobile transactions via agents to individual account expansion.  CGAP

4. American Middle Class:  For most middle-class families, the majority of their wealth is the value of their homes.  Can new policies and financial products be the key to diversifying (and growing) middle-class wealth?  The Atlantic

5. Banking:  A rural bank in Kansas seems an unlikely source of innovation but is positioning itself as a "financial testing ground" for newer, faster products and services.   The New York Times

The graph above shows the number of mobile payment users over the past four years and projections through 2016. Source:  pymnts.com

Week of October 20, 2014

1. Financial Inclusion: Dean Karlan asks: If microcredit has reached maturity, what's next for the financial inclusion movement? SSIR

2. Impact Evaluations:  It may take a long time, a really long time, to see the impact of development interventions. The World Bank - African Can End Poverty

3. Housing:  As much as 70 percent of the world’s population uses “incremental building,” a process of slowly improving shelter by adding components of a house. A new report looks at how to better serve these customers with housing-related financial products. SEEP Network

4. Wealth Inequality: The gender wage gap seems to be closing but the gap in wealthbetween men and women in the U.S. is a completely different story. Stanford Knowledgebase

5. Microfinance:  Carmen Velasco, founder of Pro Mujer, shares her thoughts on the future of microfinance and how much profit is too much for MFIs.  NextBillion

The image above is taken from Five Talents' recent  photo essay  on savings groups in Burundi.  Photo credit: Ross Oscar Knight for Five Talents

The image above is taken from Five Talents' recent photo essay on savings groups in Burundi.
Photo credit: Ross Oscar Knight for Five Talents

Week of August 4, 2014

1. Retail Banking: Banks may continue to go digital but this doesn’t mean the brick and mortar branch is disappearing.  Customers who use mobile and online banking more than once a week are over 60% more likely to be active retail-branch users than those who do not. McKinsey&Company 

2. Labor Trends: The increasingly common practice of scheduling workers' shifts just before they begin can wreak havoc on the financial and personal lives of many low-wage workers, leading to income volatility and difficulty in arranging childcare.  Al Jazeera America

3. Banking Transparency:  "Low-income consumers want to know not just what the prices are, but in some ways, how banks’ decisions are made. Banks’ failure to communicate a rationale makes clients feel cheated...Clients who feel cheated, often feel justified in 'cheating back.'" Center for Financial Inclusion

4. Poverty in the US: After following 800 children in Baltimore from first grade to their late 20's, researchers found the two factors most correlated with individual success and wealth are family strength and parents' financial status. NPR

5. Remittances:  New research highlights the relationship between remittances and financial inclusion in sub-Saharan Africa. The World Bank - All About Finance

Source:  http://katedimobiletech.com/

Source:  http://katedimobiletech.com/

Week of July 28, 2014

1. Language of Money: The nuances of financial jargon provide clarity in conversation, but exclude many. The New Yorker

2. Biometric Identification:  Many countries, including India and Nigeria, continue to roll out biometric identity cards which can improve access to financial services. Alliance for Financial Inclusion

3. Islamic Microfinance:  How can Sharia-compliant microfinance help bring financial tools to the 650 million Muslims living on less than $2 a day? The World Bank

4. Immigrant Finance: The prospect of comprehensive immigration reform highlights the opportunity for financial institutions to build long-term relationships with immigrants. Center for Financial Services Innovation

5. Financial Innovation:  In developing new products, when is it better to follow than to lead? Next Billion

A new report from   The Urban Institute   finds 5.3% of Americans have debt past due; the share is higher in the South. 

A new report from The Urban Institute finds 5.3% of Americans have debt past due; the share is higher in the South.