CEGA Special Edition: A bit more from AEA

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

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

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

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

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

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

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

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

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

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

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

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

Week of January 8, 2018

Editor's Note: I took some time off from my time off to attend what is officially the Annual Convention of the Allied Social Sciences Associations, but I prefer to be transparent for people outside the economics profession and just call it the American Economic Association annual meeting. Herewith are some papers I encountered in the three days of the meeting, along with related thoughts and a few other items thrown in for good measure.

Next week, Sean Higgins of CEGA will be guest editing the faiV--Tim Ogden

1. The Economics Production Function: Over the last few years, papers on microenterprises generally shared a couple of remarkable--given the general narrative--findings: microenterprises (on average) didn't grow no matter what you did to try to boost them, and women-owned microenterprises performed worse than male-owned ones. Those findings led to plenty of yowls from practitioners whose work, livelihoods and in some cases core beliefs were based on the opposite. In many conversations I had, I got the impression that people outside the profession believed that economists would publish these findings and then move on. But that perception really misunderstands the motivations of economists and the way the field works. Economists don't leave puzzles alone once they find them--the field pursues them relentlessly.
The best session I attended this weekend was based on the particular puzzle of why female-owned microenterprises are less profitable. Natalia Rigol presented work following up on an earlier studies that documented the profitability gender gap, finding that the source of the gap is mostly due to lower returns from female-owned enterprises where there was another (male-owned) enterprise in the household. Those male-owned enterprises were in more profitable industries (something documented in the original studies), so the households were making quite rational decisions to allocate additional funds to the more profitable business (and making it look as if the female-owned business had 0 or negative returns). In households where there was only a female-owned business there is no gap in returns to capital. Leonardo Iacovone and David McKenzie presented on efforts in Mexico and Togo, respectively, to provide training to help women entrepreneurs improve their businesses with positive results--in both cases seemingly based on personal initiative training rather than business skills. And Gisella Nagy presented results (unfortunately there's nothing yet to point to on this one) that women tailors in Ghana show lower profitability than male tailors because there are more women tailors which drives down prices they can get in the market. This last finding is particularly important because it suggests that part of the way forward for microcredit aimed at building women's businesses is to do a much better job targeting, or as I've called it elsewhere, abandoning the vaccine (everyone gets one!) model of microcredit for an antibiotic (only people who really need it get one!) model.
And all of that is just a very small sample of work being done on the puzzle of heterogeneity of returns to microenterprises and what can be done about it. I'm now sorely tempted to write an overview on all these studies, but dammit I really want to get to "subsistence retail."

2. Causal Inference is Hard: Those two topics aren't orthogonal to each other of course. One way they are joined together is my common theme about how hard causal inference is for the average person, and in particular for the subsistence (or just above) operator of a microentrprise (whether farming or retail). That's what I kept thinking about when reading this new post from David McKenzie on "Statistical Power and the Funnel of Attribution". David is writing for economists trying to write convincing papers, but this point "Failure to see impacts on your ultimate outcome need not mean the program has no effect, just that the funnel of attribution is long and narrows" is equally important for the people being treated. If the funnel of attribution is long and narrows, then its approaching impossible for the individual (not gifted with a large sample size or a deep understanding of statistics) to figure out which of their actions actually matter.
There is a connection to AEA here. As I was perusing the poster displays (also known as "the saddest place on earth") I kept hearing people arguing with Jacob Cosman, the creator of a poster about how the opening of new restaurants in a neighborhood affects the behavior of existing restaurants. The answer: a very precisely estimated no effect at all. (Here's a link to an old version of the paper with somewhat different results) Economists walking by simply couldn't believe this and were constantly suggesting to the author things he must have done wrong. I was amused. My strong prior is that a person would not open one of these restaurants unless they believed that their restaurant was unique (otherwise, you would believe that your restaurant would quickly fail like the 90+% of other small restaurants and you wouldn't open in the first place). So when another new restaurant arrives, you don't actually see it as a threat that needs a response. You are, after all, different! But even if you did think you needed to respond, how would you possibly know what the right response was? Do prices matter? Menus? Advertising? Item descriptions? Coupons? The funnel of attribution on all of these is so long and imprecise we should assume that individual entrepreneurs have no idea what to do even if they wanted to do something. Which ultimately brings us back to why it's so hard to get microentrepreneurs to change their behavior in a lasting way, and why personal initiative training may work much better than business skills. Personal initiative training teaches you that what you do matters, even if you can't tell, while business skills training teaches you to do something even though you can't tell that it matters.  

3. More from the Saddest Place on Earth: There's more than a whiff of desperation about the poster display area at AEA, where you often find young economists-in-training doing their best impression of a street-corner evangelist/panhandler hybrid. The possibility of being accosted by a well-meaning but overly eager job-seeker seems to keep most attendees away from the area, which is a shame because I always find some quite interesting posters. Two of note this year were about microfinance loan officer behavior. Marup Hossain looked at the behavior of BRAC loan officers after the famous (at least in these parts) TUP experiment and found that they were using TUP participants relative performance in livestock husbandry in that program to determine who to approve for microcredit loans--and that this was a good way of targeting the loans to those most likely to achieve high returns. Sarah Wolfolds had a poster on performance pay in non-profit microfinance institutions in Latin America finding MFIs making smaller loans have smaller pay-for-performance payouts but more targets--I can't find a paper behind it but I always like to highlight work looking at principal-agent issues within MFIs since I don't think that gets nearly enough attention. 
Other "fun" posters amidst the sadness: Declining investment in infrastructure led to rebellions against the Qing dynasty; There's a lot less excess sensitivity to income than most measures suggest; eliminating a small debt account improves cognitive function of the poor more than paying off a larger amount of debt (but not fully paying it off); and digital (non-tangible) innovations tend to contribute more to income inequality than tangible innovations.

4. Our Algorithmic Overlords:  Due to a series of regrettable automotive incidents I missed several of the machine learning/AI/FinTech sessions at AEA on Friday morning that I was really looking forward to. Links to sessions here, here and here. To compensate, here are some completely different algorithmic overlords pieces to contemplate. Wired has a lengthy story about the growth of China's digital panopticon and social ratings. You should click on that and read it before coming back here to click on this link to an excerpt of Virginia Eubanks' forthcoming book Automating Inequality, so that you'll especially feel the bite of discovering how much Americans in poverty already live in an automated panopticon. I've just gotten a review copy of the book, so there will be more on this when I come back from vacation (which will be partially spent reading it). 

5. It's a Small World After All: There's another of my regular themes connecting those last two links: there's not so much difference between here and there. Want another example? At a session at AEA on savings and financial inclusion Simone Schaner presented research on a commitment savings account for serial checking account overdrafters in Ghana (hey, they have them in Ghana too!). The commitment account had shockingly high take-up (over 70% if I remember correctly) and savings in the accounts accumulated at an impressive rate. But decomposing the sample, and looking at savings outside the account, Schaner et. al. find that above median overdrafters drew down there other savings and took on debt, while below-median overdrafters actually built up savings. Oh, and here's Beshears et. al. taking a similar look at the big picture for people defaulted into the commitment savings account we in the US call 401(k)s. Defaulting people in raises the amount they save in the 401(k)substantially. But it also increases the amount of debt those people have 4 years later (though at least it's auto and mortgage loans and not revolving debt). 
There are of course some differences. Compare/Contrast these two pieces on solar home systems in Myanmar and the United States. First, here's a complaint that government subsidies ruined the business of a solar business in Myanmar, and a plea for governments to stop making it so cheap for people to get solar. Next, here's a complaint that government is making it too expensive for people to get solar home systems in the US with a plea for government to start making it cheaper. What brings the world together, apparently, is complaining about government interference in markets. That's something that would be right at home at AEA 2019.

There were a few sessions at AEA that were recorded and "webcast." Here's Alvin Roth's presidential address on  Markets and Marketplaces . Here's David Laibson on  Competition, Equilibrium, Freedom and Paternalism . Here's a session on the  Economics of AI and Robotics . And below there's a panel on Global Inequality and Policy.

There were a few sessions at AEA that were recorded and "webcast." Here's Alvin Roth's presidential address on Markets and Marketplaces. Here's David Laibson on Competition, Equilibrium, Freedom and Paternalism. Here's a session on the Economics of AI and Robotics. And below there's a panel on Global Inequality and Policy.

Week of December 4, 2017

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

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

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

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

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

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

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

Week of November 27, 2017

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

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

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

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


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

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

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

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

21:50 - The Tensions of Agent Networks

27:00 - Financial Inclusion and Silver Bullets

31:13 - The Consequences of Removing Frictions

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

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

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

Week of November 13, 2017

The Trolling Edition

Editor's Note: In this week's edition I'm using the world "trolling" broadly, and less negatively than it is often used. I'm using it to describe pieces that raise the ire or the fears of readers, not to suggest that the ideas are purposefully wrong or misleading. 
Thankfully (pun intended) I have some time to come down from the ire that writing this edition produced in me. There won't be a faiV the next two weeks because of vacation and travel, though I may produce a special edition coming out of European Microfinance Week which I'll be attending. If you're there, feel free to troll me--Tim Ogden

1. Our Algorithmic Overlords: I saw someone joke on Twitter recently that the best way to do a literature review was to complain on Twitter that "no one is studying..." and just use the incensed replies that come pouring in. It's an interesting form of trolling. This week Cathy O'Neil, author of Weapons of Math Destruction and perhaps better known as, had an Op-Ed in the New York Times saying, "Academics aren't paying attention to our algorithmic overlords." Of course, I agree with the need to pay attention--hence this regularly featured topic--but it's a curious framing that academics aren't paying attention. In fact, all of the examples she gives of areas where academics need to be paying attention to algorithms and their effects are areas of intense academic work. Say the use of sentencing algorithms. Or teacher assessments. Or dynamic scheduling.  
And it's not just the specific instances. There's also work on the big picture of the use of algorithms and big data in policy making. Or simply understanding how companies will approach gathering and using data and algorithms (How could I not link to a paper so excellently titled as "Seeing Like a Market"?). Or how about a whole academic center "examining the social implications of artificial intelligence"? The conspiracy theorist in me couldn't help noting that the center, at NYU, was officially announced the day after O'Neil's op-ed which proposes an academic center, though they have a 2nd annual report on the use of AI and 10 recommendations to guide research and accountability.  
I can hardly be opposed to academic research centers, but it seems to me that what's missing is not academics paying attention or research centers devoted to the topic, but a Consumer Algorithm Protection Board. Yes, this is a pipe dream given the dire outlook for the Consumer Financial Protection Board, but it is a pipe dream I'm particularly fond of. Anyone want to help me make the case for it?

2. Household Finance: Before the algorithmic overlords item gets ridiculously long, let's move on to something that could fit either under algorithms, protection boards, or household finance. Entrepreneurial Finance Lab, which uses psychometrics to assess creditworthiness, has a piece on the FICO blog about how their testing for personality traits like impulsiveness and delayed gratification predicts default rates. It's such a good example of why I've been a fan of EFL while being queasy at the same time, it almost felt like I was being trolled. On the positive side it's an operationally relevant way of assessing borrowers who otherwise would be shut out of access to credit. On the queasy side, there's apparently huge variation in different cultures (while the metric remains predictive), and real questions about the immutability of the features they are testing--which cuts both ways. If they're mutable there's a question about what we are measuring; if they're immutable, what do we do about people who lost the "present bias" lottery? It's a good thing to protect people from themselves by not offering them credit they are likely to default on, but it still leaves me queasy nonetheless.
In terms of others being trolled, here's a piece about Refinery29's ongoing series where women share a week-long financial diary, and then readers rip apart their life choices. I'm not entirely sure whether it's the ones sharing or the ones critiquing that are the trolls, perhaps both.
And since we're on the topic of diaries and I've already gone fishing for help on one research interest of mine, here's another: I read this week that more than 100,000 puertoriquenos have migrated to Central Florida since this fall's hurricanes. Wouldn't it be great to do financial diaries of those households? It's a really unique opportunity, wouldn't be very expensive to do, and it breaks my heart to see it go to waste. If you think so too, call me.

3. US Inequality: The big news this week in the US is the Republican tax plans. Here's Saez and Zucman's take. And here's Tyler Cowen arguing that argument that corporate tax cuts will lead to more investment is empirically sound (which some will undoubtedly believe is trolling on Cowen's part).
Beyond the current tax issues, here's a new paper that attributes growth in income inequality to relatively small-scale business owners (as opposed to corporate executive pay or passive investment income). And here's a thought-provoking post about a different impediment to fighting extreme inequality: the very high cost of investing in low-income neighborhoods because of land-use restrictions. And on that theme, this piece from Felix Salmon on who gets hired to lead organizations is also an important part of the story on inequality and mobility. 

4. Evidence-Based Policy and Methods: One could easily argue that this new paper from Alwyn Young is trolling the entire community of economists who "grew up" in the age of instrumental variables. It certainly has generated a lot of concerned responses about the need to reassess a lot of work relying on IV. Nancy Cartwright, meanwhile, has been similarly trying to punch holes in people's faith in the use of RCTs for guiding policy (and I'm sure some in the movement would think of her in trolling terms). Here's a new paper (with co-authors) on the challenge of moving "evidence-based policy" from ideas to local implementation
I know a lot of MFI executives who have felt trolled by the research community over the years. But for anyone who is ready for more on the question of who does microcredit help and who doesn't it help, here's a podcast with Alice Evans and Rachael Meager discussing Meager's paper (covered way back in January) on how to better understand the results of the microcredit impact evaluations.

5. Philanthropy and Social Investment: Finally, this week there were several pieces on philanthropic practice that felt like they were directly trolling me. First, Gabe Kleinman wonders "Why aren't foundation's actually helping their grantees like VCs?" Kleinman is apparently unaware this is an idea that is more than 20 years old. By the time I came into the space a little over 10 years ago, one of the first pieces I tried to commission was tentatively titled, "picking over the corpse of venture philanthropy" because it was already "old news" by then. And like Cathy O'Neil's piece, Kleinman gives lots of examples of things foundations "should be doing" where foundations are actually doing those things, he is simply unaware of them. Overall, it's a fine example of the annoyingly common, but intellectually bankrupt "non-profits should act more like businesses" idea that fails in two ways: it holds up how businesses operate in theory rather than reality; and shows a profound ignorance of the challenges of social investing. 
Speaking of the challenges of social investing, there is a new philanthropic effort (with big time funding including Gates) targeted at "systemic change," lamenting that it is hard to for funders to collaborate and there are few "big ideas" or non-profits able to effect systemic change. Again, grrrrrr. One of the reasons for the challenges noted is the "venture philanthropy" mindset which if taken at face value discourages collaboration and emphasizes short-term metrics. But it's also true that there have been (and continue to be) lots of collaborative efforts--these ideas are not new--and they often struggle because it's virtually impossible to arrive at agreement on how systems should change, who gets a seat at the table and what priorities should be. Co-Impact will make grants of up to $50 million for up to 4 years, which is nice, but hardly seems like the scale necessary for systemic change if those words mean what I think they mean. For comparison, the grants are at most half of 100&change, which has narrowed down to surprisingly prosaic ideas that I don't think anyone would describe as systemic.
Finally, to end on a positive note, here's a piece about how the Hewlett Foundation has retooled it's grant reporting process so that's its more useful for everyone. The trolling element? I'm not a Hewlett grantee.

Duck of Minerva  also known as Steve Saideman writes about the peer review process and who is doing the work in various social sciences. It's a whole new form of inequality!

Duck of Minerva also known as Steve Saideman writes about the peer review process and who is doing the work in various social sciences. It's a whole new form of inequality!

Week of November 6, 2017

The Conundrum Synthesis Edition

Editor's Note: This week I attended a 2-day AspenEPIC meeting on consumer debt (in the US) and then a day with the Filene Institute on the "Mind-Money Connection." This week's title is inspired by some of Ray Boshara's comments at EPIC about conundrums in understanding consumer debt. But both events once again illustrated the desperate need for more synthesis of ideas and experience between the developing world and the developed world on financial inclusion. Ray also pointed out to me that while I introduced myself when I took over writing the faiV nearly 2 years ago, it's not apparent on a regular basis who the "I" is. So from now on, I'm going to sign these notes each week--Tim Ogden

1. Appropriate Frictions and End-User Behavior: A key theme of the EPIC conversations on debt from my perspective was the importance of differential frictions in access to various kinds of debt. One example: it's much more time consuming to open a home equity line of credit than a credit card account. There are reasons for that of course: we want people to be careful about borrowing against their home, because we fear the consequences for people if they default. But the cost of unsecured credit is so much higher, and various forms of debt are so interlinked, that households can end up in worse straits precisely because we tried to protect them. The true conundrum of appropriate frictions is that the process of determining the best form of credit for a household is in itself a friction that drives consumers toward those willing to provide credit without a care for its impact on the household--a somewhat obtuse but accurate way of describing predatory lenders.
This is one of the lessons from microcredit. Demand for microcredit in most contexts is actually quite low, and rarely did microcredit have much of an impact on local moneylenders. The reason of course being that taking a microloan usually involves a lot of friction, while borrowing from a moneylender is low friction. Those operating in the US will immediately see the exact overlap with payday/auto-title lending vs. working with a community development credit union.
But it's not just a question of the behavior of consumers. Front-line staff also play a role; they are an under-recognized form of end-user that has to be taken into account. Here's some new work by Beisland, D'Espallier and Mersland on "personal mission drift" among credit officers of Ecuadorian MFIs. Now don't look away because this is about microcredit or Ecuador--it's directly applicable to any kind of financial service offered to any kind of customer anywhere. Beisland et al. find that as credit officers gain experience they tend to serve fewer "vulnerable" clients (e.g. smaller loans, young borrowers, disabled borrowers). Why? Because it takes too much time--there are those frictions again. Figuring out how to offer quality products, especially credit, with appropriate frictions for both the borrowers and the credit officer, is a conundrum everywhere.
For further evidence of this, check out the similarities between this piece from Bindu Ananth about conversations with newly banked customers in Indian cities, and this report on "Generational Money Chatter" in the US from Hope Schau and Ignacio Luri (especially from GenXers and Millennials). The common theme I perceive: lots of questions and uncertainties about products and providers, little faith in the "systems," and confusion about where to turn for trustworthy advice.    

2. Frictions, Temptation and Digital Finance: Those of you working in the digital finance world may already be thinking about how digital tools can lower frictions--after all, not only can FinTech tools more quickly and easily gather data from consumers, but they often cut the front-line staff right out of the equation! Take that, friction!
Oh but friction can be useful. This is one of those areas where I'm constantly baffled at the disconnect between the developed and developing worlds. In the developed world, it's generally understood that the goal of payment and digital finance innovation is usually to remove friction specifically for the purpose of getting people to spend more money, more often. Amazon didn't develop and patent one-click ordering out of concern for saving people time (Interesting side note, Amazon's patent on one-click expired last month--exogenous variation klaxon!). The sales pitch that credit card issuers make to merchants has always been that credit cards induce people to spend more.
Here's one of my favorite new pieces of research in a long time: a study of how people in debt management plans handled spending temptation (if that description is too dry to get you to click, try this one: "Target is the Devil!"). The sub-text, and sometimes text, is how hard retailers and some credit providers work to break down the frictions that prevent people from spending.
What's the connection to digital finance, particularly in developing countries. I'll enter there through this piece from Graham Wright based on a debate at the recent MasterCard Foundation Symposium on Financial Inclusion. Graham was asked to make the argument against the hope for digital finance serving poor customers. His list of five reasons why digital finance is "largely irrelevant" in the typical rural village is worth reading at face value. But it's also worth thinking about in terms of how much of digital finance is aimed at removing frictions, how it's failed to remove some of those frictions for poorer customers and what can (or will) happen to poor households when appropriate frictions are removed.

3. Quality Jobs: Another conundrum that deserves more global synthesis is the struggle to create quality jobs for low-income households. Certainly one factor of quality jobs is how much they pay. While there's little doubt that productivity has a big role to play in wages, it's not always clear, particularly since 1973 (the year I was born, coincidence?) how close that link is. Stansbury and Summers have a draft of a paper arguing that the link is still pretty strong. Josh Bivens and Larry Mishel push back, arguing that policies that undermined workers' power led to a divergence of wage growth and productivity growth, and a continuing decline in jobs that pay well enough to be quality jobs.
The stagnant wages for many workers since the 1970s is one of the reasons it's clear to me that it is no longer sufficient to look at having a job as binary. Here's a new review on jobs and recidivism that finds evidence that the quality of job is what matters in helping the formerly incarcerated stay out of prison. Here's a paper from Haltiwanger, Hyatt and McEntarfer on another aspect of job quality--a chance to move up the "job ladder"--and who is getting the opportunity to move up. The surprising news: less-educated workers are more likely to move from a low-productivity firm to a high-productivity one (which should lead to higher wages, but per Mishel et al above, perhaps not).
There's more than one way to take on raising the quality of jobs. Here's work from Akram, Chowdhury and Mobarak on the effect of people moving out of poor areas for better jobs. In short, they are studying a program that subsidizes rural Bangladeshi villagers migrating to cities during the low agricultural season. We already know that raises the wages of the migrants, but it also helps those who don't migrate by tightening the labor market in the villages. Here's where I have to mention that geographic mobility in the US is declining. Meanwhile, take the example of Chicago where segregation continues to shut people out of access to quality jobs, and more. Time for more programs to help Chicagoans migrate, I think, perhaps by reducing some of the frictions.

4. Evidence-Based Policy: Rachel Glennerster examines several cases where evidence led to scaling up programs, asking "When do innovation and evidence change lives?" She doesn't mention the scale-up of the seasonal migration program in Bangladesh mentioned above, but highlights several different models of research and scaling. For those more technically minded, Eva Vivalt has a new version of her paper and an accompanying blog post on research generalizability--how much we can expect a research finding to hold when it is tried elsewhere (or just scaled up). But if you're just looking for examples of research findings that did or didn't hold in differing contexts, take a look at this thread responding to Jess Hoel's appeal for examples to use in her teaching. 
Of course one factor in how generalizable research findings are is the contexts the research is conducted in. David Evans mapped the papers presented at the recent NEUDC conference in three ways (see the comments for the third one). Do you see too much concentration?

5. Neoliberalism: Finally, here's Dani Rodrik on the state of economics and the use of the term neoliberalism. I'm not going to pretend that I can do the piece justice in summary form, so I'll just provide the link and tell you to click on it. Here's the backstory of how the piece ended up in Boston Review.

In case you were too lazy to click on the link to  David Evans' mapping  of 2017 NEUDC papers, here's the first chart. To get the other two, you're going to have to click. And scroll. Via  Development Impact .

In case you were too lazy to click on the link to David Evans' mapping of 2017 NEUDC papers, here's the first chart. To get the other two, you're going to have to click. And scroll. Via Development Impact.

First Week of November, 2017

1. The Future of Microfinance: A few weeks ago I linked to a curious piece about the future of Indian microfinance, that seemed to be praising the swallowing of MFIs by traditional banks and justifying the extinction of MFIs that tried to go it alone. Dan Rozas wrote to point out some of the subtext: The pattern in India is similar to other countries, with the largest MFIs turning into banks. And while there are mergers and acquisitions, it is still largely the same organizations serving poor customers, "only now they're called banks." This week Barbara Magnoni tweeted from the Foromic conference that "microfinance is stale" so I asked her what she thought was next. Her response: "[B]ig MFIs win, digitize processes, poor too expensive to reach. Poor go back to cash/informal markets/ and consumer loans.YAY?:("
Between the two comments, I feel like the future of microfinance is already here, right here in the USA! Per Dan's note, the transition in India and elsewhere sounds a lot like the history of banking in the United States, right up through credit unions. And per Barbara's note, the next step is pulling back from poorer customers because they are more expensive to serve. So you end up with a system where even an institutional form whose original reason for being was to serve the excluded and put "clients at the center" (to borrow a phrase) has, aside from exceptional organizations, left the poorest behind. The global microfinance movement, I think, needs to spend a lot more time looking at the financial services landscape in the United States, because that is where, absent some major investment, are headed: nearly ubiquitous financial services, but very little quality available to lower-income customers, with plenty of predatory or just indifferent-to-the-effects-on-poor-customers actors ready to fill the gaps. I guess you could say that's the negative way of making the "Case for Social Investment in Microcredit".
To keep things from going too dark right off the bat, here's the story of how BRAC's MFIs in Liberia and Sierra Leone managed the Ebola crisis and it's aftermath (blog summary). And a shout-out to the Global Delivery Initiative for writing up stories like this in sufficient detail to be operationally useful. 
OK, that's enough optimism for me. You might be skeptical of my take on where microfinance is headed. So let me present this piece from Matthew Soursourian over at CGAP on what can happen when we push consumers toward digital merchant payments, drawing parallels to the US experience.

2. The Future of Digital Finance (and of us all): That last piece could just as easily have fit here, so to encourage you to read it, let me just say again: the future of digital finance is already here, and contrary to popular opinion, it's in operation in the United States
Still not buying it? Here's another CGAP piece drawing on the US experience: "How Developing Countries Can Prevent Their Own Equifax Breach." The encouraging thing is that this possibility is being considered; the discouraging thing is that David Medine is probably wrong: developing countries can't prevent their own breaches. At least there is no evidence so far that institutions are learning from examples like this, given how pedestrian the causes of such breaches are.
At a more macro level, Tyler Cowen and Matt Levine (a dreamteam if there ever was one) discuss where technology is taking finance. Pay special attention to the section in the middle where they discuss whether technology ultimately increases or decreases access to credit. While they don't mention it specifically, this is the big question mark about Lenddo and EFL, and their like, that I mentioned: while the algorithms will rescue lots of people who are good credit risks but can't prove it conventionally, they will also likely simultaneously lock bad credit risks out of the system permanently.
Speaking of being locked out, here are Charles Kenny and Cordelia Kenny reporting on a forum at CGD on women being locked out of FinTech companies and how that affects what services are being developed and who is served.

3. The Future of Our Algorithmic Overlords: One domain where the US is not the future is massive state infrastructure for identification and tracking. There the future is India (and China, but today we're talking about India after talking about China for the last several weeks). The best case scenario is that Aadhaar becomes a "societal platform" for delivering services much more efficiently and effectively. And there's evidence that it does. The worst case scenario is that Aadhaar is an insecure store of personal data that the state can nevertheless (or perhaps especially) use as a tool of control and coercion. And there's evidence of that too.

4. The Future of Household Finance: OK, this may be the only single link entry in the faiV in months, but I can't let this opportunity to bang on one of my pet drums pass by. In this edition of Matt Levine's newsletter he talks about evidence on the value of Morningstar's ratings of mutual funds (as usual you have to scroll way down to get to this section). Aside from a useful discussion of confounders in the data, he points out that Morningstar's ratings are worse predictors of future performance than some of the individual data points that make up the rating. In other words, Morningstar's ratings are negative information.
What does this have to do with household finance? Well, we're in a world where we broadly expect households to be able to compare financial services and make good choices about optimal products. But even the experts in stable industries with decades of detailed data produce ratings that are worse than useless. We should expect the future of household finance is lots of services to "help" households make financial decisions using algorithms and data, and that those ratings are going to be wrong.

5. The Future of Small Firms, Authoritarian Countries, and School Children: It wouldn't be the faiV if I didn't stretch the metaphor beyond all recognition at some point. Here's new work from David McKenzie on small firm death in developing countries. Remind me to produce some harangues about subsistence retail in the near future. Here's a newish paper on democratization that suggests that the transition from authoritarianism to democracy is almost always the result of mistakes, rationalized in hindsight. I suppose that's hopeful--we don't need authoritarian leaders to have a change of heart, but can expect that some number of them are just going to screw up and the results will be positive. And finally, the future of schoolchildren who are hungry is pretty easy to predict. So why aren't we doing more to feed them

What good design really means in today's FinTech world. Via  Tobias Van Schneider .

What good design really means in today's FinTech world. Via Tobias Van Schneider.

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 October 16, 2017

1. The Search for Truth: The New York Times Magazine has a long piece about Amy Cuddy, the social psychologist of "power posing" fame, and the messy process by which her research has been popularized and then discredited. The piece suggests that Cuddy (though it by no means holds her out as blameless) has been uniquely and personally targeted as the face of unreplicable and bad social science in an era of changing research practices and expectations, perhaps because she is a woman. More broadly it ponders whether the process and social conventions of communication around challenging social science research may do more harm than good. It points specifically to Uri Simonsohn, Joseph Simmons and Andrew Gelman and their roles in both calling out bad social science and in specifically highlighting Cuddy's power posing paper as an example.
It's well worth the long read, careful consideration but also some critical evaluation. The piece comes at a very interesting time, with the Weinstein saga, #MeToo, and more specifically the push back about Econ Job Market Rumors and bad behavior in economics. It's important to read the piece in the context of such things as EJMR and this anecdote from Rohini Pande (in an interview with David McKenzie this week) relating how a "senior male World Bank economist wrote to our senior male colleagues at MIT and Yale asking that they review our work and correct our mistakes" in one of her early papers (with Esther Duflo; see question 4 in the link, but read the whole thing, it's very good on a lot of topics).
But on reflection, I don't think the idea that Cuddy was uniquely targeted or treated more harshly than others holds water. It only appears so to a New York Times reporter because Cuddy's works is the kind that gets broad attention. Remember when Ben Goldacre kicked off "Worm Wars" with an amazingly condescending piece asking people not to point and laugh at Miguel and Kremer for the supposed "errors" in their Worms paper because they shared their data? Or the language and dudgeon around Reinhart and Rogoff's Excel error? Or the intemperate words flowing around the failure to replicate John Bargh's priming work? From another field, here's some pointed language challenging a recent result on gene editing alleging some pretty basic errors. 
Of course, the commonality of bad behavior in academic circles doesn't excuse it. But that cuts both ways. Cuddy has also been using this faulty logic in her own defense. As far as I can tell, her main defense has always been "everyone was engaging in bad research practices, so it's not my fault", and that's definitely the implication that the NYT article gives. I don't see much distance between that and people excusing sexual harassment because they were "raised in the '60s and '70s."
Could the practice of social science be better? There's no question, but it's also not clear exactly how, other than the obvious avoidance of misogyny, ad hominem and personal attacks. But that line is difficult to see sometimes because the nature of social science research requires a great deal of personal investment. It's hard not to feel attacked when one's research, quite literally one's life's work, is criticized.
To me, the most thought-provoking part of the NYT piece is when Simmons, reviewing an email he sent to Cuddy about follow-up work on whether the power posing research was reliable, says "that email was too polite" given how serious he thought the problems were. And there is a lot of bad science that needs to be called out. This week, there's yet another update to the Brian Wansink saga--several papers flat out misrepresent who the study participants were (e.g. a paper claiming participants were 8-11 when they were 4-5). Not calling bad science out, I think, is a real contributor to real world problems, like Chief Justice John Roberts being able to call good political science research "sociological gobbledygook."
Here's a Chris Blattman thread on his reactions. Here's Andrew Gelman's response to the NYT piece and for the sake of this topic it is one of the few posts anywhere on the internet where you should read the comments. Someone in one of the Twitter threads wondered about the responsibility of Gelman and other bloggers like Tyler Cowen to police their comments. I'm sympathetic to this idea, but I'm old enough to remember policing comments on my own blog. It's an incredibly time-consuming and soul sucking affair with lots of trade-offs. The "business model" of blogging just doesn't allow it. In fact, in some ways it was the business model required to police commentary, also known as paid journalism, that led to blogging: the gatekeepers of commentary shut out too many voices who should be heard. Science, and the pursuit of truth, is hard. 

2. Our Algorithmic Overlords: This isn't as much of a pivot as it might seem. Here's a fairly intemperate piece critiquing the "digital humanities." There's a good bit of whining but it's worth reading because much of the critique applies to the big data and machine learning movement in economics. And the critique is more palatable because it's not directly about those fields, and so no one, in those fields at least, will feel personally attacked. The bottom line is the same as above: even with shiny new tools, big data and algorithms the pursuit of truth is hard.
Now here's a pivot. The New Yorker has a long story (this is apparently the long reads week) about the evolving nature of factory jobs and "robot overlords." I couldn't help thinking about the distinction made in that piece about "premium mediocre" a few weeks ago: employment is bifurcating into jobs where you tell the robot what to do, or jobs where the robot tells you what to do. Still, the most compelling piece about the changing nature of jobs and employment this week isn't about robot overlords, it's this story of a worker in a ball bearing plant in Indiana losing her job. Highly, highly recommended.
Back to our algorithmic overlords. Here's some more in-depth reporting on the creation of a complete surveillance state, including AI, in China's Xinjiang province. They're not just monitoring phone and digital money use, as I noted a few weeks ago. There are now facial recognition cameras at gas pumps.
And finally, here's a chance to change your priors. Remember those papers that said that note-taking on laptops leads to less learning and poor student performance? Here's a paper that rigorously randomizes note-taking technology and finds that there isn't a difference between taking notes by hand and on a laptop, suggesting the earlier findings were primarily selection effects. And we're back to the theme of science being hard.  

3. Household Finance: OK, let's take a break from the long reads, but stay with the "quality of research" matters sub-theme. I continue to think financial literacy is the bellwether for whether "evidence-based" policy is making an impact. And apparently it's not. Betsy DeVos, the US Secretary of Education, officially announced this week that financial literacy taught in schools is number 4 of 11 priorities for the department. If only we didn't have good evidence that teaching math has an impact on financial outcomes, but financial literacy doesn't. Or how about some new work from Xavi Gine and colleagues that presenting key facts about financial products helps consumers make better choices than financial literacy does?
Here's some worthwhile reading for how households are dealing with their finances, that should sour anyone on the current financial literacy curricula. Check out these two reviews (one and two) of financial services providers in Google Maps. Remember how distributing food stamps twice a month cuts down on shoplifting in grocery stores? Less spiky delivery of benefits also changes how people spend the money they receive in a positive way. Unlikely that financial literacy in the classroom would have changed this person's perspective on money. Check out some insights from EARN on their users financial challenges and saving behavior.
Of course the most important read on household finance is The Financial Diaries. Here's a new review from Beth Rhyne of that book and Lisa Servon's Unbanking of America.

4. Digital Finance: Now let's tie these last two themes together. China is not only building a panopticon in Xinjiang, it's also ramping up it's efforts to track deadbeat borrowers with a national database and public shaming. I'm sure that's going to go well.
In other credit access news, I've long been a champion of Entrepreneurial Finance Lab, which uses psychometrics to assess credit-worthiness of small business owners, allowing more of them to get access to credit. At the same time, I've long been very wary of Lenddo, which uses alternative data, like social media connections, to assess credit-worthiness of individual borrowers. I've called it, I believe, "a tax on poor people's family ties." I've been able to avoid the cognitive dissonance of these two perspectives until this week. Lenddo and EFL announced that they are merging. Now I really don't know how to feel.
Finally, here's a story about the Gates Foundation funding fintech infrastructure software for interoperability of mobile money platforms? The one thing that's clear here is that the reporter doesn't understand the topic.

5. Global Development: To close us out, and hopefully make you feel slightly better about the state of research, here's a model of reasoned argument and debate on an important topic: will Africa experience a manufacturing boom, as wages creep up in former low-wage countries like Vietnam and Bangladesh. CGD has a paper that says no, because labor costs in many African countries are actually relatively high. That led to a lively debate which CGD has helpfully collated here. And here's a helpful overview of living standards in African cities and rural areas, that has some relevance.

I mentioned that I thought this week would be really off-topic. That's because there were a number of really terrific reads this week that are not within the traditional domain of the faiV. But you should read each of these. First,  a review of new research that shows bacteria communicating with each other via electrical signals .

I mentioned that I thought this week would be really off-topic. That's because there were a number of really terrific reads this week that are not within the traditional domain of the faiV. But you should read each of these.
First, a review of new research that shows bacteria communicating with each other via electrical signals.

A  bonkers story about how the mattress industry works . Never believe anything you read on the internet.

A bonkers story about how the mattress industry works. Never believe anything you read on the internet.

A long read about a Jewish refugee settlement in the Dominican Republic, one of the only places that was willing to welcome Jews fleeing Nazi Germany.  It didn't go particularly well .

A long read about a Jewish refugee settlement in the Dominican Republic, one of the only places that was willing to welcome Jews fleeing Nazi Germany. It didn't go particularly well.

Week of October 9, 2017

The Weah-dition

Editor's Note: This is one of those weeks that you get to learn a little more about me. The "Weah-dition" is a way of bringing together the sound that I, and many other of that rare species of die-hard American men's national soccer team fans, made as the US men were eliminated from the World Cup; the fact that famous footballer George Weah is leading the Liberian presidential elections; and to tie into one of our common themes on migration and labor mobility, that George Weah's son, Timothy, is currently in India starring for the US U-17 men's national team (while under contract for Paris St. Germain). You'll see these themes return in the items below.

1. Evidence-Based Policy: Yesterday I was at a workshop hosted at Yale SOM and funded by the Hewlett Foundation on how to better connect evidence to policy. The workshop was part of a bigger project and a series of reports are coming that I will share when they are available. There was a lot of good discussion, but I thought I would share two thoughts that I find to be missing appropriate weight in evidence-based policy discussions. First, there is often discussion of a mismatch in the time horizons of researchers, implementers and policy makers. While this is no doubt true, the mismatch between those groups is trivial in comparison to the mismatch all those groups have with the amount of time it takes for change that people can feel to occur. Deworming's important effects--on earnings, not school attendance--are only felt decades after treatment. Moving to Opportunity similarly has a decade-scale effect. Few if any of the researchers, implementers or policymakers are still going to be around when the world really is undeniably different because of them.
Which brings me to the second point. The enterprise of evidence-based policy is grounded in marginal improvements across large groups of people--and that's a good thing! I'm a big believer in the value of marginal improvements (QED). But people have a really, really hard time noticing or caring about marginal improvements. Human beings prefer stories about big changes for a few people with unclear causality a lot more than they do about marginal gains with sound causal inference. I'm more and more convinced (because of evidence!) that hope is a key ingredient for even marginal impact, but hope comes from Queen of Katwe, not from 1/10 a standard deviation improvement in average test scores. So the unanswered question for me in this conversation is, "How do we manage the tension between the policies that are good for people and the policies that people want?"
In other evidence-based policy news, here's a rumination on the difficulty of applying research to practice in democratization (specifically Myanmar). And here's Andrew Gelman on not waiting for peer review, particularly in Economics, to start putting evidence into practice.

2. Evidence-Based Operations: OK, so there's one more thought: the gap between policy and research, and operations. But rather than a long discussion on that topic, here's a very good new piece on the operational choices of front-line social workers and the gap between policy (whether evidence-based or not) and practice. The challenge in the spotlight is not the Marxist-style view of workers dissociated from their work by rules but workers dissociated because of having too many morally-fraught choices. More light-heartedly, here's a piece that illustrates how hard it is to go from evidence to operational choices, as reflected through the failure of the US men's soccer team (I told you it would return). There is growing attention to front-line staff and the "product" as actually experienced by the beneficiary in impact evaluations, but much more is needed as far as I'm concerned. 

3. Our Algorithmic Overlords: Speaking of operations, one of the areas where more attention is needed is the way that operations are being instantiated into algorithms that are opaque or entirely invisible. Ruben Mancha and Haslina Ali argue that that the unexamined algorithm is not worth using. Of course, they are arguing from ethics, not from business profits, where it's abundantly clear that unexamined algorithms are worth using.
Here's a piece about technology-related predictions from Gartner, a tech industry research and advisory company. Skip the first three to see some striking predictions about AI-generated false information, such as that people in "mature economies will consume more false information than true information." There's a threat to advancing evidence-based policy that definitely wasn't on the agenda yesterday. I started my career at Gartner way back in 1995 and I remember one of the first things we were given to read was an an article in Scientific American about the coming age of fake photography and video. Apparently that future has finally arrived. 

4. American (and other) Inequality: I've been meaning for awhile to mention Richard Reeves' newish book, Dream Hoarders (the thesis is that the upper middle class is passively and actively working to close the door to upward mobility for those below them). I'm finally getting around to it via a few recent pieces. First here's a look at the persistence of the American upper middle class, specifically how white it remains. And here's a piece about the perhaps surprising upward mobility in rural counties. Back to Dream Hoarders specifically, here's a review from Noah Smith that dwells on the "don't focus on how the pie is split, grow the pie" critique. I find I'm much more persuaded that the best way to grow the pie in America today is to change the way it's split.
Meanwhile, here's Eduardo Porter on the growing gap between big cities and small cities.
And moving beyond the US, but definitely applicable, here's the IMF(!) on using fiscal policy for redistribution and reducing inequality.

5. Migration: In an attempt to wrap everything up, here's a piece about Syrian refugees in Turkey, which paints a remarkably positive picture of business creation, job creation and economic growth. The Turkish economy and Turkish workers seem to be seeing substantial gains both in the short- and long-term from the presence of Syrian refugees. In fact, you could argue that changing the way the pie is split between the Syrians and Turks in terms of access to safety (and access to safety, by the way, is one of the things that the upper middle class in America is hoarding) is growing the pie for everyone. It's also similar to the benefits that George Weah's ability to flee violence in Liberia is benefiting America's soccer team and PSG over the long-term. Of course, most of the polity in both cases is focused on the short-term costs rather than the longer-term average marginal gains. 

Urban - racial wealth.png
Returning to the theme of inequality, the  Urban Institute  has updated it's 9 charts about wealth inequality in America.

Returning to the theme of inequality, the Urban Institute has updated it's 9 charts about wealth inequality in America.

Week of October 2, 2017

Editor's Note: I briefly had ambitions of making this week's faiV a real departure in terms of content and sources. But there's just too much good stuff in the faiV wheelhouse, so instead of "Now for Something Completely Different," we have some "Some Completely Different Things." I would still advise you to beware of Hell's Grannies, know what I mean? Still, I'm going to try to make this faiV different by being uncharacteristically laconic (except for the first item).

1. Abusive Practices: This is the part of the faiV that is different. But, perhaps contrary to the evidence, I have to hang onto the belief that making abusive practices in many domains more visible will in fact play a role in changing those practices. So first up is a piece about abuse of the elderly in Nevada where for years shady operators, aided and abetted by courts, legislators, medical professionals and other nominally civil servants have cooperated to revoke the rights and steal the assets of vulnerable people. That may seem an abstruse topic, but I think it has lots of parallels in many domains. Often, abuse of the vulnerable is tied to weak institutions or institutions that have no duty to those abused. Here we have strong institutions in many cases explicitly designed and supposedly devoted to protecting the vulnerable, which were turned against the people they were supposed to protect and which made challenging what was going on virtually impossible. As an aside, I have to commend Beth Rhyne of CFI who began talking years ago about the challenges that an aging global population would bring to financial inclusion and protection efforts.
At the other end of the age spectrum, here's a piece about the "1% winners/99% losers" labor market of young football/soccer players in England. It's a form of vocational school that consistently lies to 10 year-olds and their families and then dumps the vast majority of them at age 16.
Stretching even further afield, I'm hoping that many folks will find the time to read, or at least scan, the NY Times article on Harvey Weinstein, the movie mogul, and his decades of sexual harrassment and abuse and cover-ups. I'm particularly struck, if not surprised, because Weinstein moved in supposedly progressive circles. His behavior was apparently an open secret but did not dissuade many from working with him and for him and apparently participating in the glossing over of the abusive practices that let him continue. This piece about the lack of criticism coming from Hollywood is particularly pointed.
And now to connect this back to something more faiV-like: I hope the Weinstein saga provides further momentum behind efforts to reform practices and behavior in the social sciences, particularly when it comes to the academic job market. There is a rapidly growing effort particularly in Economics (with offshoots as far as I can tell in Political Science and Sociology) to make job market information more transparent, but more importantly move it away from sites like EconJobRumors which facilitate abusive behavior. Check out the hashtag #EJMinfo for more. This is a rare obvious opportunity to choose between the type of behavior that enabled Weinstein, and the type of behavior that will make such abusive practices and behavior impossible.

2. Economic History, History of Economics, and Evidence: Pseuderasmus, the pseudonym for an economic historian whose real name I don't know, has a long (long, long) post about the productivity gap that opened between India and Japan in the first 30 years of the 1900s. It's filled with fascinating historical details, so even a skim of it will be rewarding. The short version is that the power of unions in Japan was restrained by demographics, culture and the government which allowed manufacturers there to innovate far more quickly and increase productivity. This in turn left Japanese workers eventually far better off than Indian workers where labor unions exerted more power.
Beatrice Cherrier and Andrej Svorencik have a new paper examining the history and evolution of the Clark Medal and it's winners. Again there are plenty of interesting details to reward even a skim. I took particular note of the concentration of winners--eight universities account for all winners in terms of where their degree was earned, and 10 for all winners in terms of employment when they won. So economists are apparently uniquely good at identifying talent early, right? Right?
Finally, this week I stumbled on a newish site, Straight Talk on Evidence, that reviews not the evidence for various programs and policies (for instance as the Cochrane Collaboration, AidGrade or 3ie does), but the claims made by studies that are part of the evidence base. It's a project of the Laura and John Arnold Foundation. Here is their review of an evaluation of CCTs in the United States and of a Heckman paper on the long-run health impact of early childhood education.

3. Microfinance: Last week I wrote about the differences between US and global microfinance conversations that I am exposed to. This week there's a story from the Economic Times that illustrates more confluence than divergence, speculating that MFIs in India are struggling for survival, particularly in the face of increased competition from institutions that are banks or are at least more like banks than traditional MFIs. It feels like a Straussian reading is necessary to really understand what point is being made, but I'm not steeped enough in the politics of Indian microfinance to feel confident I'm correctly interpreting the only-semi-hidden advocacy in piece. Surely the writer doesn't actually believe that traditional banks are going to fall over themselves to provide quality services to the poorer sections of Indian society?

4. Our Algorithmic Overlords: How could I not include an item on the "seven deadly sins of predicting the future of AI"? Bonus points for those who can identify my sins in prior editions of the faiV. Super extra bonus points if anyone can identify some of the deadly sins in this video of Susan Athey, Larry Summers, and Austan Goolsbee discussing the impact of AI on policy from the NBER Economics of AI conference.

5. Philanthropy: The Chronicle of Philanthropy has a big new report on "How America Gives," finding that the percentage of Americans itemizing charitable deductions has fallen from 30% to 24% over the last decade. Other studies (using the PSID) have found a similar drop in the number of households reporting that they give to charity. The interpretation given is that growing inequality is the prime culprit: giving to charity is falling in the middle class and becoming the province of the wealthy, to the benefit of larger non-profits (with the skill and brand to recruit wealthy donors) and the detriment of mid-size ones. Perhaps this helps clarify Giving Tuesday's theory of change.

Caitlin Tulloch is frustrated that two different cash efficiency metrics are being used in papers/reports and they mean different things. She drew up this helpful explainer. For my part, I think we should all uniformly adopt the Cost-Transfer Ratio. Souce:  Cailtlin Tulloch , used by permission.

Caitlin Tulloch is frustrated that two different cash efficiency metrics are being used in papers/reports and they mean different things. She drew up this helpful explainer. For my part, I think we should all uniformly adopt the Cost-Transfer Ratio. Souce: Cailtlin Tulloch, used by permission.

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.

Week of September 4, 2017

1. Evidence-Based Policy and Methods: One of the reasons I took a few weeks off was in late August I was part of a panel at Stockholm International Water Week sponsored by on the "evidence base for WASH microfinance." If you've been following the evaluations of microfinance or of WASH you know that evidence base is thin (in more ways than one). Preparing for the panel got me thinking about the strange state of evidence-based interventions. [Warning: I'm going to oversimplify for the next few paragraphs; if you want not oversimplified I recommend the detailed write-ups GiveWell has on both deworming and WASH] Arguably deworming is the sine qua non of evidence-based interventions right now, but the arguably mostly comes not from whether there is some other intervention with a better claim, but that there are large swathes of people who don't believe the evidence for deworming: epidemiologists. Why? Because there isn't a plausible biological mechanism to explain where the gains from deworming come from. There is no consistent detectable effect of deworming on weight or anemia for instance.
In the meantime, there's no question that if you remove bacteria and viruses from water, people won't get sick and will have all sorts of positive short-term health gains. But the most rigorous evaluations of WASH interventions don't find detectable effects on incidence of diarrhea or other health or economic indicators. The most-likely story is that there are so many vectors for infection that people end up consuming contaminated water despite the WASH interventions (and given that doctors in US hospitals still won't wash their hands regularly, that's very plausible). In that way, WASH has a lot in common with microfinance--single point interventions in complex and broken systems are unlikely to produce large long-term effects.
So the state of play is that the intervention with a clear biological mechanism has no effect and the one with no clear biological mechanism has large effects. I hope I'm not the only one who finds that a bit discomfiting.
So what to make of all of this? The point I made at the conference is that building an evidence base isn't just about methodology but about what is being measured. In the WASH + microfinance space, I think the right metrics are about whether well-functioning markets are being created (see my rant about low-quality equilibria, or my "vaccine or antibiotic" theory of change for microfinance piece) where poor households have more actual ability to choose, including the option to not have to think about whether their water is clean.
A second important point is that there is a long way to go figuring out how to measure things we care about. To that point specifically, Rachel Glennerster and Claire Walsh have a post about the difficulty of measuring women's empowerment via surveys and the limitations of how empowerment is currently being measured. They have some useful specific suggestions for improving the current methods. Perhaps there will be some real traction here, as Glennerster was named the new Chief Economist of DfID this week.

Bonus Overflow Links: David McKenzie has a post about re-interviewing participants in unrelated evaluations. Kieran Healy is writing a book about Data Visualization for Social Science and posting most of the content as far as I can tell.

2. US Inequality: So now that I've brought up deworming and WASH, here is a story about the return of hookworm in the deep south of the US. Reading the story, I'm skeptical that hookworm ever really went away, but that these areas were as ignored in the early part of the 20th century as they are now. Dr. Peter Hotez who was a prime mover in getting Neglected Tropical Diseases on the global agenda and laying groundwork for deworming interventions has been leading efforts to document that many of these "diseases of poverty" remain endemic in poor communities in the US and his research here proves the point.
Another important factor in the ongoing story of inequality in the US is labor-force participation which remains at historically low levels despite falling unemployment. The Hamilton Project has a useful overview on Who Is Out of the Labor Force? A key fact to remember: 40% of non-participants are unpaid caregivers. Why is labor force participation falling? Alan Krueger has a new paper that suggests that opiod use is responsible for about 20% of the decline in men's participation. I have to say it's astounding to me that Vioxx was withdrawn from the market but that opiods remain widely available despite the overwhelming evidence of the damage they have done.
Finally, the JPMorgan Chase Institute has a new report on the differential effects of major healthcare expenses on US households. Unsurprisingly older households were more likely to have a major healthcare expense, and those expenses were larger. When younger families had these expenses they tended to make them when their income or liquidity was spiking, indicating that the expenses were hard to manage. Younger and older households turned to revolving credit to help finance these expenses and in some cases saw debt stay at higher levels and even increase a year after the medical payment. In yet more evidence that the US has a lot in common with much less "developed" countries, it reminds me of the story from Scarcity about the fruit vendors who fell back into debt because of health emergencies. Still bummed there's not a paper to link about that.

3. Financial Inclusion and Digital Finance: Now we're going to circle back around to the point about measurement from Item 1. Just like WASH and microfinance, it's been hard to find measurable effects of "access to illumination." That's the take-off point for Julie Zollman to critique the measures that are being used to evaluate the effect of financing asset purchases (like WASH systems or off-grid solar). She makes the excellent point that financial inclusion is rightly conceived as a "means to an end," but that we have to carefully think about what ends count in our calculus. I'd also point out that it has been equally difficult to find gains from IT in developed countries on these same measures, and that it took decades before there was a measurable gain in productivity from the electrification of factories.

Also at CGAP, here's a piece I missed about What Keeps People from Paying with their Phones? based on some work in Ghana. The most interesting part for me was the explication of the low-quality equilibrium that keeps the status quo of agent-intermediated transactions going. One of those factors of course is the user interface and the large number of people who struggle with numeracy and literacy on top of unfamiliarity with technology. Here's a story about the "end of typing" and the development of new user interfaces that do an end-run around literacy. That will require a whole new level of trust in technology though. It's something that's always puzzled me about claims about cryptocurrency being more secure. Supposedly the blockchain prevents counterfeit transactions, but unless you are a top-notch coder and mathematician, you still have to rely on someone to tell you to trust what the software interface is telling you. Matt Levine makes a similar point here (scroll down).

4. Philanthropy, Democracy and Disaster Aid: In a confluence of the interests of the faiV that I didn't see coming, Russ Roberts has a new episode of EconTalk interviewing Stanford political scientist Rob Reich (no not the Berkeley economist) about the undemocratic power of foundations. If there's one thing you listen to this week, it should be this.
One of the long-standing arguments about the value of foundations is that they, through expertise and experience, can do better with their money than the general public does. That argument is most compelling after disasters, when the general public reflexively sends boatloads of money to the Red Cross, or brand-new charities with no experience or mountains of stuff people don't need to charities without the logistics capabilities needed to manage it. Here's Marc Gunther with a useful overview of the situation after Hurricane Harvey. Of course, with Irma destroying Caribbean islands on the way to Miami, it seems like it's going to get worse.

5. Sort of:  I'm going to mix things up with a video and a graphic of the week because let's face it I've already overstayed my welcome, even if it is my birthday.

From VoxDev, which seems to be putting out an enormous amount of content, here is Paul Niehaus and James Ferguson in conversation about the delivery of aid. Source: VoxDev. (The prospect of a substantial expansion of social assistance programmes based on cash transfers is generating great enthusiasm across Africa and beyond.)

Back to the point about measurement being difficult, the Easterlin Paradox was a long-standing puzzle in economics--why don't people get happier when they get richer. That disconnection emerged from long-running surveys that included questions about "life satisfaction." It turns out that the questions being used to measure life satisfaction changed over time and so there wasn't a paradox after all. Here's a chart from Our World in Data/Stevenson & Wolfers showing the corrected data from Japan. Source:  Our World in Data

Back to the point about measurement being difficult, the Easterlin Paradox was a long-standing puzzle in economics--why don't people get happier when they get richer. That disconnection emerged from long-running surveys that included questions about "life satisfaction." It turns out that the questions being used to measure life satisfaction changed over time and so there wasn't a paradox after all. Here's a chart from Our World in Data/Stevenson & Wolfers showing the corrected data from Japan. Source: Our World in Data

Week of August 7, 2017

Editor's Note: It's the middle of August, so I thought it would be fun to change pace and have a faiV of just visualizations, graphics and videos. Or the most interesting things I saw this week all had visual elements.

The faiV will be off the next 2 weeks. See you in September.

1. The Global Middle Class: By now, Branko Milanovic's elephant chart should be quite familiar. Nancy Birdsall of CGD has a new post about the state of the global middle class that delves into the elephant chart and other data looking at the state of the middle class globally.

2. Global Inequality: Another chart that may be somewhat familiar but certainly should be top of mind these days. Our World in Data looks at inequality, from a lot of perspectives, here before and after taxes and benefits in developed countries.

3. US Inequality (and Debt): Speaking of inequality before and after redistribution, Catherine Rampell at the Washington Post has a couple of interesting recent posts on policy to help (or not) lower-income workers. The first chart here made lots of waves this week in a post by David Leonhardt, and provides the visceral oomph behind the need to reassess policy in the US. Although this data and similar charts have been circulating for quite awhile, it still thankfully grabs attention.

Whether or not the top chart is related to the bottom chart is one of the questions that Aspen's EPIC is taking on this year. Regardless of the direct connection between income inequality and rising debt, the fact that we are back to record levels of credit card debt seems concerning since it's likely not the .001 percent taking on this debt. That being said, rising debt could also be a sign that finally consumer confidence is returning and people feel that their incomes may start rising again.

Our Broken Economy, in One Simple Chart

Our Broken Economy, in One Simple Chart

U.S. Credit-Card Debt Surpasses Record Set at Brink of Crisis

U.S. Credit-Card Debt Surpasses Record Set at Brink of Crisis

4. Statistics GIFS: You can't say I don't know my audience--you guys go crazy for things like this, at least that's what the click data says. The two images at the top are from Rafael Irizarry at Simply Stats, in a post about teaching statistics and how to think about data. Helpfully, the post includes the code to recreate each of the images (and he's got a lot more where these came from).

This week there was also a revival of the Autodesk post about how visualizations can mislead that I featured a while back. It's here again because Jeff Mosenskis of IPA made an underappreciated awesome joke about also being wary of violin plots.


5. Low Quality Equilibria: I couldn't pass this one up when I saw it this week, given my recent rants. Who knew that removing frictions from sharing market information would make it impossible to ever tell if any product was good or not?

Week of August 1, 2017

1. More Ranting (Low-Quality Equilibria and Digital Currency): Following up on my rant last week about the prevalence of low-quality or sub-optimal equilibria because people have such a hard time figuring out what matters, here's another paper that caught my attention because it so thoroughly confirms my priors. The basics: a field experiment provided repair technicians with varying amounts and frequency of feedback. Performance suffered when feedback was weekly versus monthly because the technicians overreacted to each report. In other words, they had a hard time figuring out which details mattered to their own performance. The study could inspire another about "isomorphic mimicry" and the technology of management but I'll save that for another time.

Instead, I'll move on to a different rant about digital finance. In my world, there's only a tenuous connection between the digital finance groups and the cryptocurrency (e.g. BitCoin) groups, but the former certainly should be paying attention to the latter. As Matt Levine put it this week (again, he says this a lot): "The job of the cryptocurrency revolutionaries is to re-learn all of the old lessons of modern finance, one at a time, in public, in embarrassing ways." Right now those old lessons being re-learned seem particularly focused on how hard it is to manage and secure a money supply. I really hope that the digital finance advocates are paying attention to how often various "unhackable" and "secure" cryptocurrencies are being hacked. The spirit of Willie Sutton lives on, and as more "money" is stored in digital form, there will inevitably be more theft. And there's very little reason to believe that average users will employ security practices better than the supposed sophisticated users currently adopting cryptocurrencies. I fear though that the fate of much of digital finance is to "re-learn all of the old lessons of financial services, one at a time, in public, in especially embarrassing ways because they ignored the cryptocurrency movement's repeated mistakes."

2. Global Development (rants): On to more traditional faiV-ing. Kevin Starr has a new rant on the many outside groups making hay over government-funded private schools in Liberia (We need a hashtag to go along with #lantrant, I'm proposing #starrant). Someone once told me there were a lot less education experiments in the US than in other countries because more people were paying close attention and fighting any policy experiments where the outcomes were not already known. That may have been true, but it's certainly not true anymore in Liberia at least. Kevin's plea is to let the Education Minister do his job.

And here's a rant (with a link to another) against the "getting better" narrative that points out how much the world has improved, to the point where it is certainly the best time in history to be alive. I find the argument here pretty annoying, but not annoying enough to rant about myself. Pointing out that fewer children are dying of malnutrition and more people can read (for instance) in no way implies "this is fine."

In fact it's far more common for the "getting better" crowd to argue for more and for taking risks to make more progress, rather than settling for the status quo as Kottke says they are. In that vein, philosopher Peter Singer is probably the best known advocate for doing more, particularly associated with the "drowning child" thought experiment. Except it's not always an experiment. Last week, French philosopher Anne Dufourmantelle died while trying to rescue some actual drowning children. She was particularly known for her work on taking risks.

3. US Inequality: Much of the work on household finance either presumes that households desire to smooth consumption or tries to test how much smoothing they are able to do. Here's a new paper matching up food stamp receipt dates and standardized math test scores (and dates). There's already good data that shows that food stamp recipients aren't fully smoothing food consumption over a month--households often eat less in the last week of a monthly cycle. Here the authors look at how students from these households perform when test dates are toward the end of a benefit cycle and finds there is a material negative impact on performance. There are some other interesting patterns as well. At some point, I'll have a sort-of rant about a related issue: how we should think about whether the EITC lifts people out of poverty or not, given that it does so by delivering a lump sum on one day, but nothing the rest of the year.

Evidence like the food stamp study is used by safety net advocates to argue for more generous benefits, but just as often to say that the reasons people become and/or stay poor is their own choices. One of the frameworks for the latter is known as "the success sequence," originally proposed by Haskins and Sawhill. It lays out a set of choices that make escape from, or protection from poverty much more likely. Matt Bruenig has a new post about the "success sequence" which has been getting more attention of late. While the sequence has lots of advice, Bruenig points out that the only piece that seems to make a material difference is having a full-time job.

Finally, here's a profile of the current life of Rob Cordray, the embattled head of the CFPB

4. Theories, Methods and Models: It's getting late in the day already, so I'm going to pick up the pace a little here. Don't mistake that for disinterest or lack of endorsement. This is all good stuff. You should click on the links.
Michael Kremer and Gautam Rao presented on Behavioral Economics and Development at the NBER Summer Institute. Here are their very useful slides.

Are small studies ever worth it? Some people argue they do much more harm than good. I'm guessing they didn't factor in the damage avoiding small studies would do to the careers of academics-in-training. I'm particularly interested in how this applies in the business context, where unless you are one of the truly massive companies in your space, all the "data analytics" being done are small studies.

On the opposite end of the scale, Karthik Muralidharan and Paul Niehaus have a new version of their paper, "Experimentation at Scale", which points out that development RCTs have typically been "small" (though not in the same sense as the authors above use it), and offers lots of advice for dealing with the challenges of doing very large experiments.

5. Digital Finance: Most of the time when I discuss digital finance in the faiV it's about things like mobile money or digital credit. But there's a much bigger part of digital finance that is about what's happening on the back-end of digital commerce. Here's a profile of Patrick Collison, the founder of Stripe, an increasingly important player in that back-end globally. Stripe handles a lot of digital payments and is increasingly moving to add services to make all the other parts of digital commerce much easier. If you want to extrapolate wildly from Tavneet Suri's and Billy Jack's paper on the effect of M-Pesa on poverty, just imagine the impact of quickly and cheaply enabling developing world entrepreneurs to incorporate, set-up digital storefronts, manage inventory and get access to working capital. You may also recall that Patrick Collison recently interviewed Tyler Cowen and mentioned my book (even if he forgot the name) and so I have a strong positive bias toward anything he does. 

Finally, while Stripe is a big deal in digital finance even though you hardly ever hear about them, if you follow the finance space, you hear about robo-advisors all the time. For example, last week's faiV. But Josh Brown points out that "robo-advisor" already is a meaningless term. If everyone is a robo-advisor then no one is a robo-advisor.

Not particularly new, but new to me: a proportional chart of the use of languages in the world. Source: Search Reddit because I'm worried about filters catching the name of the Reddit forum where this is from.

Not particularly new, but new to me: a proportional chart of the use of languages in the world. Source: Search Reddit because I'm worried about filters catching the name of the Reddit forum where this is from.

Week of July 24, 2017

The ranting edition

1. Low Quality Equilibria: There's an important "new" (e.g. it's been circulating in working paper form for a while, but is now published) paper in QJE about why hobby woodworkers waste so much money...just kidding, it's about why people keep buying cheap Chinese knock-off tech products and IKEA furniture...actually it's about the persistent use of predatory financial products and poor financial decision making...OK, it's really about the bind that the evidence-based policy movement finds itself in. Well, truthfully it's actually about agricultural markets in Uganda and why adoption rates of fertilizer and improved seed are low, but not zero. Really, that's what the paper is about.

But it is also about all of those other things. Here's the basic story:
Fertilizer and improved seeds boost agricultural productivity substantially. But it's hard for farmers to tell whether the fertilizer or seeds they are buying are fake. So there are lots of people willing to sell low quality stuff claiming it's high quality--in Uganda, the fertilizer is regularly diluted (30% of nutrients are missing) and the "improved seed" is fake 50% of the time. Classical economics tells us that markets will drive out the low quality products as people learn who is a reliable seller; or that the market will collapse and no one will be willing to buy the fertilizer or seeds at all. But farming, like almost every other human endeavor depends on lots of factors, not just these inputs. And so it's not only hard for farmers to tell whether they were sold a "lemon" even even after using it. Did their crops underperform because the were sold fake inputs or because the weather was bad, or they used it wrong, or their land was too degraded, or there were too many of a certain kind of pest, or because they were sick during the planting season, etc.? After all, some people buying the fertilizer and seeds did get good stuff and have high yields, so it's even harder to tell where the problem lies. So the market doesn't collapse, and low-quality sellers/products don't get driven out of the market but farmers also--for good reason!--don't invest in the inputs as much as would make sense based on the theoretical productivity boost.

Here's where the rant, and the weird introduction to the item, comes in. This situation is incredibly common: in most of life it's hard to tell whether some input--be it technology, or practice, or advice, or an employee--is high quality before you use it, but also after you use it because of the complex nature of most of life. This basic fact seems to be ignored frequently as researchers, policymakers, and advocates try to explain behavior. In almost all our endeavors we are in a Dunning-Krueger low quality equilibrium. We don't know enough to tell high quality from low quality ex ante, or ex post (yes, I'm a Calvinist). Determining causality is hard--even the most highly trained economists and social scientists get it wrong all the time! What hope does the average human have of looking at a complex system and determining which of the hundreds of factors involved was responsible for what portion of the outcomes? Behavioral economics explanations for sub-optimal choices are tempting because they tend to skirt this core issue. True, cognitive biases and limited attention exacerbate these problems and nudges can yield improvement on the margin, but figuring out what matters is hard (an opportunity to link, yet again, to one of my favorite papers, [Not] Learning by Noticing [the wrong things].

This is why Amazon or any crowdsourced product reviews are worthless. And it's why most people, regardless of their financial literacy, can't consistently tell which financial products are good for them and their situation. And it's why evidence-based policy is such a hard sell--when a policy with strong evidence behind it fails to live up to expectations is that because the advice was bad, the implementation was bad or circumstances changed?

Low quality equilibria are everywhere, defeating them is hard, and that's the sobering challenge we face.

2. Digital Finance: Staying in the ranting realm, here's a piece about digital financial services in China that keeps making my eyebrows try to climb into my hairline. The opening point is spot on--digital finance is paying too much attention to Kenya and not enough to other places, particularly China where adoption and use is much, much higher. But the piece has a not veiled at all assumption that digital financial services are an unalloyed good, and an only thinly veiled praise of authoritarian structures.

China doesn't have the same financial exclusion problems that most other countries have (though of course the very poorest are also pretty permanently and even more completely excluded in a digital environment), where private sector providers ignore or actively discourage lower-income customers. But authoritarian structures--whether they are the government, or monopoly private providers like AliPay and WeChat--will exclude people on other criteria. And that will be very bad for those people. I feel like we need a new version of an old saying: the only thing worse than being excluded by capitalists is being excluded by authoritarian monopolies.

3. Our Algorithmic Overlords: Score one for the human beings, sort of?. Betterment, one of the original "algorithmic" financial advisors announced this week that it's adding (even) more human advisors. Apparently people like asking human beings questions, or at least having someone to talk to. That's a trend that Tyler Cowen sees as the actual outcome of increased use of AI and robots: the jobs that humans will do will all be marketing jobs (and honestly, that's what a financial advisor really is, a marketer).

That doesn't bode well for increasing productivity, or wages. Most marketing is a zero-sum game with a few big winners and mostly losers. Here's Neil Irwin on another way of looking at the productivity slump in developed countries and the low-quality jobs equilibrium we seem to be in. Reminds me of Lant's Rant about labor-saving robots (in Uganda!).

Meanwhile, Mark Zuckerberg and Elon Musk are arguing about AI risks and people are choosing sides.

4. Strugglin' in the USA: Prosperity Now, formerly CFED, has a new scorecard on the state of Americans' finances with the takeaway being, "getting by but not getting ahead, citing USFD research on income volatility as one of the key aspects of American financial lives today. One of the more interesting possibilities for helping people deal with volatility and balance short-term and long-term savings needs is now dead: the Trump Treasury is canceling MyRA. I would rant, but really, who has the energy to rant about the Trump administration right now? Note the article title focuses on retirement but the most interesting part of the MyRA was it's potential use as an emergency savings vehicle.

With the death of a savings vehicle, here's some news on a borrowing vehicle: Noah Smith writes on work suggesting people are much better off (consumption rises in all periods) when payday lending is banned. The implication is that very little payday borrowing is funding actual consumption emergencies and being used for reckless spending instead. If payday were banned, perhaps people would turn to Panhandlr (hattip to @matt_levine for the name). I suppose you could file that under digital finance as well, but that would have required putting two rants into one item.

5. Methods: Marc Bellemare, who is also responsible for pointing me to the Uganda paper in Item 1, has a nice post, building on a Twitter thread from Beatrice Cherrier, about the history of Agricultural Economics as a semi-separate discipline and applied economics. It's definitely worth reading all the way through.

And if applied economics wasn't hard enough for you, here's a proposal to make the cut-off for statistical significance p=.005 (10 times harder than the current standard). That sounds less useful to me than doing away with p-values entirely.

From the  DFSLab post described above --obviously not the original source, but I can't figure out where it originally came from. Minor rant: I get very frustrated by category errors in digital finance metrics which exclude card payments from fintech. Cards are fintech! There is nothing special about a phone!

From the DFSLab post described above--obviously not the original source, but I can't figure out where it originally came from. Minor rant: I get very frustrated by category errors in digital finance metrics which exclude card payments from fintech. Cards are fintech! There is nothing special about a phone!

Week of July 17, 2017

Editor's Note: The faiV is brought to you this week by the Aspen Intitute's Financial Security Program EPIC team: Joanna Smith-Ramani, David Mitchell, Katherine McKay, and Katie Bryan. Their views, etc. though YouTube links are probably mine. Check out their work on income volatility and on consumer debt at I'll be back next week. 

1. Weaponized Data and American Inequality (Part 3): We learned a lot in reading the faiV’s summary and corresponding links detailing the minimum wage debate consuming economists across the country. While we haven’t reached our own conclusion about whether a $13 minimum wage in Seattle is or isn’t too high, we are following how some state legislatures across the country are actively rolling back minimum wages established by municipal governments. Example? St. Louis was dealt a big blow and the city has received a lot of press this summer.  

(ICYMI the debate, here and here are the two papers that offer opposing outcomes of Seattle’s minimum wage increase. If you don’t have time to read the papers, here’s a fun breakdown from Vice.)

2. Living for the City: CityLab profiled recent research on the intersection of urban development and economic inequality, making us think back to Stevie Wonder’s “Living for the City.” Still relevant. And beautiful. A new study out of the University of Idaho looks at 639 urban counties in the US and the factors that determined when they felt the effects of the 2006-2010 recession. Rarely do we see the Gini coefficient being used in the context of domestic inequality – but we should use this metric more often. Consequently, we were really excited to see this interactive map of the Gini coefficients of counties across the US.

For more on cities, another CityLab piece looks at how housing policies worldwide will only exacerbate urban inequality and housing crises. And this story on how inefficient tax codes, high cost of living, and migration, by both companies and residents, are sending the state of Connecticut spiraling, makes us rethink how we view the fiscal policies of traditionally blue, wealthy states.

3. Income Volatility, Short-Term Savings, Retirement (Oh My): Over the last 18+ months, our team has conducted a deep dive on both the impact income volatility – large fluctuations in week-to-week and month-to-month income – has on US households and potential solutions for mitigating the problem. Our latest briefs look at the role wage insurance could play in helping families cope with job loss or reduced wages and how shortfall savings can serve as a buffer during financial emergencies.

Because we care about both short-term financial stability and long-term security, we also spend our days thinking about comprehensive policy solutions to help expand access to retirement savings opportunities. In our process learning about more about income volatility, we’ve realized it’s particularly hard to save for the long-term when short-term savings are lacking. This new paper looks at the effect income shocks have on retirement savings (the stats aren’t pretty: “96 percent of Americans experience four or more income shocks by the time they reach 70”), and *mark your calendars* later this fall, we’ll be publishing two papers on how volatility affects retirement savings. 

4. China, China, China:
Cash is king. Right? Hard currency has been with us for nearly three thousand years, after all. But maybe not for much longer. As one reporter details, visit urban China and you will likely, “have to deal with being locked out of China’s online payments infrastructure.” Sweden is also rapidly moving to a cashless economy. “Out of Sweden's 1,600 banks, 900 don’t do cash— you can’t deposit it or withdraw it.”

The advantages of going cashless? The claimed benefits tend to be 1) speed - for both consumers and banks, removing cash from transactions is faster 2) curbing illegal activity – Sweden saw a decrease in drug trafficking and illegal employment and 3) financial inclusion – this one needs to be fleshed out more, but we think and are hopeful that going cashless will require more people to open bank accounts, and the benefits of being “banked” are many.  That said, some are concerned that going cashless could undermine other financial inclusion efforts. We may be able to learn from how this plays out in India
, where recent moves toward becoming a cashless economy have disrupted many poor communities. 

5. Consumer Debt: EPIC’s new topic is consumer debt. Debt is back to pre-Recession levels, subprime auto lending is booming, and we have many many questions: how does income volatility impact people’s ability to manage their debt? And, will we pay off our student loans before our children apply to college? Maybe… if you’re one of thousands of distressed borrowers who learned this week that their private student loans may be forgiven. Because the investors who sued them are unable to prove ownership of nearly $5 billion in student loans. It’s like the foreclosure crisis all over again!

U.S. consumers now have a record $12.7 trillion in debt, leaving many wondering whether it’s time for concern. There’s no easy answer. Based on a new paper from UBS, Business Insider reports “The poorest Americans are suddenly worried about repaying their debts.” We don’t know about that “suddenly” part, but you can’t judge a story by its headline, and those making less than $40,000 are increasingly concerned.

Do you know what it means? Source:  via  The Basis Point  via . Apparently none of them know what it means either. I feel like it must have something to do with the serial linking but that's probably wrong. I'm more confident it might have something to do with the record-low labor force participation rate, not charted here.

Do you know what it means? Source: via The Basis Point via Apparently none of them know what it means either. I feel like it must have something to do with the serial linking but that's probably wrong. I'm more confident it might have something to do with the record-low labor force participation rate, not charted here.

Week of June 26, 2017

Weaponized Data Edition

1. Weaponized Data and American Inequality: Last week I linked to a paper finding minimal effects from minimum wage increases, unaware that a huge explosion of debate on this issue was about to occur. If you follow these things at all, you know that last Friday a paper on Seattle's minimum wage increase was released finding no job losses or cuts in hours. Monday, a different paper finding large losses for households with minimum wage jobs was released. There's a whole lot out there now on the two papers so I'm not going to rehash those arguments (if you need to catch up, try this or this or this or just scroll through Twitter). I want to focus on the backstory of why there were two papers released so close to each other because it's important for the future of research and policy-making. As detailed here, what appears to have happened is researchers at UW shared an early draft of their paper (using tax data that is rarely available in minimum wage studies) with the Seattle mayor's office. The mayor's office didn't like the conclusions so asked a different set of researchers to write their own paper--and release it just before the planned date for release of the UW paper. While I have no special insight into the exact details of what happened, the prospect that the report is accurate disturbs me a great deal. It's a blatant step toward what the author of the Seattle Weekly piece calls "weaponized data." Be afraid for evidence-based policy. Very afraid.   

In other American inequality news on topics that yield strong confirmation bias reactions, Justin Fox reports on new work suggesting that occupational licensing actually crowded-in historically disadvantaged workers--seemingly the transparent rules of licensing reduced formal and informal discrimination that kept these groups underemployed. That's a very plausible story to me, though I generally also buy the anti-licensure arguments.

There's also new work on school vouchers, from Indiana, finding short-term declines in test scores, but later (over four years) gains. It's worth noting how claims for vouchers have down-shifted to "no harm and some students gain." But keeping on the weaponized data theme, the paper is not publicly available and was only obtained by ChalkBeat through public records requests. Apparently the study authors don't think it should be public until it's peer-reviewed, which illustrates the difference in norms in sociology and economics.

2. Our Algorithmic Overlords: Also a few weeks ago I linked to a story about how to tell if borrowers on online lending platforms were going to default, and to the book, Everybody Lies, from which it came. I said I was going to read the book and I started this week--and was immediately dismayed. The opening of the book discusses what search data--particularly searches on pornography websites--can tell us about Americans' hidden desires. You can see a summary in this deeply disappointing Vox piece (isn't Vox supposed to be better at thinking critically about this stuff?). There is no discussion of how such data might be biased or inaccurate, how a site's interface may interact with what people search for, or why we should believe that search data closely corresponds to "real life." In other words, it's an object lesson in the dangers of using data and algorithms without understanding the data or the people, social structures and institutions that generate it. So of course it's a best seller. Suffice it to say that I have radically revised down my faith in any of the book's conclusions.

In other data-generating processes of uncertain usefulness news, Google will stop showing ads inside Gmail based on scans of email content (illustrating the sucker's game that is attention, I had no idea they were still doing this; I hadn't noticed an ad in years). The nominal reason is combating hesitance from corporates to adopt Gmail and Google's suite of web apps. As someone in my Twitter feed noted, the real reason is that Google already gets better information to drive ads to you than your email.

3. Development Economics: David Evans at the World Bank had to teach middle schoolers (6th to 8th grade, also known as Hell on Earth) what development economics is, in 20 minutes. How did he do? I mean, other than not handing out copies of Experimental Conversations.

On a more serious note, here's an interesting new study on the persistence of gains from agricultural extension programs, after those programs end. It's notable both for the cool design, but also for the positive results. I'm always happy to see results that suggest there's hope for getting poor households to adopt productivity-enhancing technology, whether they are farmers or retailers.

4. Household (and Drug Lord) Finance: Stay with me on this one, we'll get to the drug lords. One of the ongoing things I worry about in household finance is that it involves people and people make bad decisions so predictably. Case in point--a major mistake that people make is chasing investment returns via "hot" stock-pickers. There have been major gains in this area as low-cost index funds have grown enormously. But now comes the Quincy Jones Streaming Music Blah Blah Blah Index fund. Yes, you read that right. It's a new kind of index fund that is an arbitrary set of stocks marketed with the name of someone famous nominally connected to the stocks in the index. Yes, the cynicism of the people creating products like this is annoying and frustrating. But the real problem of household finance is the people that will buy them. The enemy is us. Sigh.

In a variety of forums I've complained about over-zealous regulation of remittance providers under Anti-Money Laundering efforts. There's generally been little evidence that this is a significant danger. But last week 11 people were arrested at Atlanta remittance shops for laundering $40 million of illegal drug proceeds and sending them on to Mexico. Here's the kicker: the people doing the laundering were the Anti-Money Laundering staff at the remittance shops. The problem is the people.

And finally, a quick report on planned up-coming M-Pesa outages, for up to 12 hours. It will be interesting to watch for customer behavior effects.

5. Evidence-Based X: Returning to the opening theme, how should (hopefully not weaponized) data be used for making policy decisions? Andrew Gelman has a short post on "clinical significance" and "statistical significance" that should inspire long thoughts. Here's your clickbait: "Forget the hypotheses and the p-values entirely." I should note that Andrew has a new book that I'm going to get to much sooner now that I know I can just skim Everybody Lies: Teaching Statistics: A Bag of Tricks

A reddit group put together a map about the data in maps, illustrating where data is missing. Source:  @maxcroser  and  reddit

A reddit group put together a map about the data in maps, illustrating where data is missing. Source: @maxcroser and reddit