1. Financial Inclusion and Digital Finance: The last time I was writing the faiV, various takes on the Global Findex data were being featured prominently. So it only seems fitting to come back to that as I return. Greta Bull of CGAP has a two-part blog, part I and part II, reacting to Beth Rhyne's and Sonja Kelly's take (may I take a moment to smile at the inclusion that sentence reveals?) on the Hype vs. Reality of inclusion. Bull argues that the Findex data shows greater progress on inclusion than Rhyne and Kelly see. For what it's worth I lean to toward Bull in this debate. It would be surprising, given the incredibly rapid progress in access, if the access-use gap wasn't growing, especially in countries with relatively low levels or recent gains in access as network effects won't kick in for awhile.
There is another concern beyond the use/access gap--does use of the available accounts make people better off. Here's a new paper from Kast and Pomeranz showing that providing free savings accounts in Chile led to lower debt burdens (and some additional evidence on rotten kin). On the other hand here's an open letter from Anup Signh to Kenyan Central Bank governor Patrick Njoroge making the case for urgent regulatory action on digital credit to protect borrowers. On the third hand (hat tip to Brad DeLong) mobile money seems to have saved lives (note no counterfactuals there, but it seems plausible) during Ebola outbreaks in Liberia and Sierra Leone during Ebola outbreaks by ensuring that response workers got paid.
Of course, benefit depends not just on use, but on who is using the services. Microsave found that 80% of the "addressable LMI market" in India was not being served by fintechs, and, with CIIE's Bharat Inclusion Initiative, has launched a "Financial Inclusion Lab" to help Indian fintech's address that market.
2. Our Algorithmic Overlords: If you've gotten out of the habit of reading the faiV, what better way to grab your attention back than sexbots! Here's Marina Adshade, an economist at UBC, with a thoroughly economic argument about how sexbots could make marriage better (by changing how it works and what it does). And here's Gabriel Rossman, a sociologist at UCLA, making the counterargument. Apparently he reads Justin Fox.
On a much more prosaic, and more urgent, front, there have been a raft of stories on the increasingly alarming situation in Northwest China where the tech-driven panopticon seems to be racing ahead in the service of persecution of Muslims and ethnic minorities. Here is the NYTimes "inside China's Dystopian Dreams". Here's Reuters on the "surveillance state spread[ing] quietly." MIT Technology Review asks, "who needs democracy when you have data?" And here's Foreign Affairs on the "coming competition between digital authoritarianism and liberal democracy." If I have a bone to pick it's the lack of attention to the possibility of "authoritarian democracy" that comes along with a surveillance state and AI overlords.
3. Global Development: If sexbots don't get your attention, what about hyperselectivity of migrants? I think, quite a while ago, I linked to Hicks, et al. on the systematic differences between those who migrate from rural to urban Kenya, and those who stay on the farm, finding that urban productivity is a factor of the traits of the workers who migrate.
Read More1. Universal Basic Income (unpopular locale edition): In 2010, to replace massive energy and food subsidies, the Iranian government apparently implemented a cash transfer program that began covering over 95% of the population (75 million people) before targeting seems to have lowered coverage to less than 35 million. The story in two sentences: “In 2011, the first full year of the program, transfers amounted to 6.5% of the GDP and about 29% of the median household income. After three years of inflation, the amount transferred per person is down to less than 3% of GDP per capita.” New research finds minimal effects on labor supply or hours worked, though the short time horizon for the large transfers makes it hard to generalize. I suspect that the short time horizon is only part of the reason this policy hasn’t gotten more attention.
2. Our AI Overlords: Another AI benchmark falls. In a much-publicized practice event Sunday, an AI system developed by OpenAI beat a team of former pros at a mutliplayer video game called Dota (they had a livestream and posted a video that is totally inscrutable to me). This was expected given the rapidly-growing computation devoted to experiments like this, though it looks like the training required by this model (190 “petaflop/s-days,” whatever those are) was less than would be expected from extrapolating past large experiments. (The costs for those experiments are also growing by an order of magnitude every year and a half, which seems… unsustainable.) Apparently OpenAI are planning a Dota match against current pros later this month, so expect to hear more about this.
3. Cryptocurrency (or Weird Household Finance): Apparently “proxies for investor attention strongly forecast cryptocurrency returns,” which seems… a little obvious? And Matt Levine discovers a subculture of people who intentionally participate in pump and dump schemes in marginal cryptocurrencies as a form of gambling, which raises the question - what do the other people investing in marginal cryptocurrencies think they are doing?
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1. FinTech Charters: Just as the industry takes off for summer vacation, the US Treasury Department released its long-awaited fintech report and the OCC issued a call for fintech charter submissions. I’ve spent the past week sorting through scores of analyses and reactions. Here's American Banker on takeaways from the Treasury report and from the OCC's announcement. What does this mean for all things financial inclusion and innovation? Well, it certainly opens the door for many providers to expand their reach and their potential impact. It will likely be an expensive and involved path, but one that could ultimately give some fintechs much needed lift. However, this is still early in the game. I would expect to see lawsuits and challenges from incumbents now that the charter program is official.
2. Financial Stress and the Lunar Cycle: For many consumers, the end of the month represents constant instability as accounts are reduced to zero and bills become due. While income volatility is the umbrella issue, the specific actions that trigger this instability on a cyclical basis live both in our minds and in the products we use. One of our Entreprenuers-in-Residence, Corey Stone, tackles some big thinking on the topic in his series End of the Month. Drop in regularly to learn more about how human behavior can lead to suboptimal decision making, why long accepted product standards lead to this paucity of funds at the end of the month, and other insights into our monthly budgeting woes.
3. The Gig Economy: The difference between 4% and 40% is pretty significant. And the fact that the US Government doesn’t know how big the gig economy is, in short, a problem. To be fair, it’s not all the government’s fault. The variance in numbers can be attributed to a wide range of perceptions about what constitutes gig employment: full-time, part-time, etc. But no matter what the measurement, the impact is real. Gig employees enjoy the benefits of self-determination, but can often miss out on many of the benefits of traditional employment like insurance, savings vehicles, and more. The result can be regular cash flow gaps and challenging financial tradeoffs. To better design products and create guardrails, it’s imperative that we all find a better – more credible – way to measure this new workforce reality.
Read More1. Food Fights and Methods: First, over on the Economics That Really Matters blog, Paul Christian and Chris Barrett summarize their paper on US food aid and conflict. They call into question the results of an influential paper finding a causal link between US food aid and conflict. The authors follow up with a methodological note on the use of instrumental variables with panel data.
Next, the most recent issue of the American Journal of Agricultural Economics (AJAE) has a nice article, comment, and response. In the article Ore Koren finds that it is food abundance, rather than food scarcity, that causes conflict across Africa. Marshall Burke writes in a comment that the effect sizes are implausibly large and are at odds with previous research. Koren responds to these comments by offering three explanations for the "implausibly" large effect sizes.
2. Randomistas are our new Algorithmic Overlords: At the development economics section of the NBER Summer Institute, Esther Duflo delivered a lecture entitled, "Machinistas meet Randomistas: Some useful ML tools for RCT researchers". Slides from the lecture are available here, and Dina Pomeranz was live Tweeting the lecture. The paper it was based on is here. On the surface it may seem like machine learning and RCTs are interested in different parts of empirical research--the former focused on prediction and the latter focused on causal identification. Duflo highlights a couple areas where using machine learning when analyzing an RCT can be beneficial.
3. Informal Insurance: In a recent article on VoxDev, Kaivan Munshi and Mark Rosenzweig summarize some of the insights from their 2016 paper on the impact of rural informal insurance networks on rural-urban migration in India. The authors first point out that the rural-urban migration rate is relatively low in India compared to other similar countries. The explanation for this is the presence of well-functioning rural informal insurance markets. In order for these informal markets to function well, however, mechanisms must exist to prevent households from reneging on their obligations to their network. A key way this plays out is in restrictions on mobility. This raises a question: What would happen if formal insurance were introduced? Munshi and Rosenzweig run policy simulations and find formal insurance arrangements may increase rural-urban migration. Relatedly, in a new AJAE paper, Kazushi Takahashi, Chris Barrett, and Munenobu Ikegami study how the introduction of formal index insurance affects informal risk-sharing arrangements in rural Ethiopia. They find little evidence of a crowding out of informal insurance from formal insurance products.
Read More1. Women's Empowerment: Our friends at JPAL released their long-anticipated Practical Guide to Measuring Women’s and Girls’ Empowerment in Impact Evaluations. It comes with a set of questionnaires and examples of non-survey tools that can be more effective at capturing the useful and reliable data. This new study from the U.S. Census Bureau is timely, showing that when a woman earns more than her husband they both tend to exaggerate the husband’s earnings and diminish the wife’s on their Census responses. Gender norms still shape survey responses, no matter where you are. Seems like a good time to revisit IPA’s discussions on mixed methods approaches to women’s empowerment measurement with Nicola Jones and with Sarah Baird from last year. Finally, the US House passed the Women’s Entrepreneurship and Economic Empowerment Act of 2018 this week. The bill seeks to improve USAID’s work on women’s access to finance, and is notable first because of its attention to some (not all) non-financial gender-norms constraints that impact women’s prosperity, and also because it calls for improvements to outcome measurement methods.
2. Migration: The first ever Global Compact for Migration was approved by all 193 member states of the UN last week except for the United States (Hungary is now saying it won’t sign the final document), and one of its 23 high-level objectives is to “promote faster, safer and cheaper transfer of remittances and foster financial inclusion of migrants.” A lot of the language in here sounds like the same old story on remittances, and I am skeptical of the laser-sharp focus on reducing prices (it calls to eliminate remittance corridors with costs higher than 5% by 2030), promoting financial education, and investing in consumer product comparison tools that aren’t based on evidence. Dean Yang’s 2016 study on financial education for Filipino migrants failed to find any positive impact on financial product take-up or usage, for example.
3. Remittances: What about looking to the behavioral econ world to enhance the positive effects of remittances? Behavioral nudges that can leverage digital finance look promising – Harvard Business Review had a nice piece last month on Blumenstock, Callen, and Ghani’s test of mobile money defaults to save in Afghanistan. This experiment is exciting because it shows that, with the right tools, successful interventions from the developed world, like Thaler and Benartzi’s Save More Tomorrow, can achieve similar results in other contexts. Linking remittance transfers to digital finance in the receiving country can create additional opportunities to enhance impact beyond savings, for example using data for credit scoring. Here’s an op-ed from Rafe Mazer and FSD Africa on the opportunities and risks surrounding data sharing models in emerging markets.
Read More1. Migration: If you don't get the "edition" reference, I think I envy you. But I care, and in the absence of other specific ways to oppose cruelty and barbarism, I'll spend some time here sharing some useful information about migration. Such as the fact that the US has become a "low-migration" country. I think this is as significant a change to the nature of the country as the closing of the frontier, especially since so many people don't seem to realize how much migration, whether within the US or to the US from other countries, has dropped.
On to that other crucial fact about migration: it's very very good for the people migrating and doesn't harm the people who are already there. Here's the newly officially published in AER paper by Clemens, Lewis and Postel studying the effect of the end of the Bracero program which led to 1/2 a million Mexican workers leaving the country, without any detectable benefits for native workers (employers simply invested in labor-replacing technology it appears). Here's a new NBER paper on the forced migration of Poles after World War II finding that migrants invested more in human capital for three generations. That's consistent with other work that shows long-term positive, sustained effects for people who move, even those who don't have full choice. Here's a story about how migrants fleeing the US to Canada are finding employment and thriving.
If you're interested in the big picture on global migration, the 2018 OECD International Migration Outlook is out.
2. Banking: I talk a lot about the overlaps between US and global financial inclusion issues--from household finance to consumer protection to business models to regulation. So I think both of these next two items are relevant well-beyond the countries they are focused on.
First, here's New America with a new report on how local and community banks systematically charge people-of-color more for their accounts (here's the OpEd version), which doesn't exactly encourage these historically excluded populations to join the banking mainstream. Oh, and the consumer protection regulatory system is being undermined in more ways than you might realize. Not only is there direct deregulation, but recently the Supreme Court ruled that the way the SEC carries out many of its "trials" for investment fraud are unconstitutional--and the CFPB is too. Here's Arjan Schutte writing about being fired from the CFPB's consumer advisory board which, y'know, at least he's not being unconstitutional now.
On the other hand, in India, the RBI is working to turn urban cooperative banks into "small finance banks." This piece explains a bit about the history of Indian urban cooperative banks and the regulatory issues involved--it's not all good. It's worth reading for anyone thinking about productive ways forward for more inclusive banking systems.
3. Digital Finance: In most of the countries where digital financial services have made inroads among poor households, agents are playing a big role. But those agents are often basically the same folks we see running microenterprises that we can't figure out how to improve. And that probably means that their growth is being limited by the quality of services offered and decisions made by those agents.
Read More1. Household Finance: If you'll bear with me I'm going to write about household finance mostly with links to pieces about corporate finance. Corporate finance matters a lot, and it deserves the attention and resources invested in it (Channeling Willie Sutton: why do you write papers about corporate finance? Because that's where the money is). After several hundred years of lots and lots of resources and attention we've pretty much got this thing licked right? Well, maybe not the biggest questions but at least the basic questions like accounting and financial reporting, right? Right?
Here's Warren Buffet complaining about Generally Accepted Accounting (GAAP) rules being applied to his company. And here's an argument from several business school professors that GAAP rules aren't meaningful given changes in the economy--with the enticing tidbit that in many companies having a CPA, in other words having deep familiarity with the rules of corporate finance and accounting, is a disqualification for a senior-level job in the finance department. And here's Buffet again, this time with Jamie Dimon, arguing that quarterly financial reporting is broken.
Lest you think that this is some emerging consensus, here's Felix Salmon arguing they are wrong. Here's Matt Levine arguing they're wrong. And here (via Justin Fox, which we'll return to later) is a whole book about GAAP rules being wrong for entirely different reasons.
So all of this is interesting (OK, maybe not) but what does it have to do with household finance? We haven't even begun investing the kind of resources necessary to really understand household finance, but we act like we have all the important questions licked. Or at least that households should be able to, with a little financial literacy training perhaps, be able to get a grasp on their finances and make consistently sound decisions. The fact is, for the most part, we just don't know what we're talking about when we talk about household finance. Or loss aversion.
2. Digital Finance: In another brief diversion to start off an item, an astute reader pointed out that the way I had been writing about Findex made it seem like the Findex team did not have it's own report on the findings. They do, so click on it.
One read of the both the Global Findex team's report and the CFI report highlighted last week is that the promise of digital finance is largely unfulfilled. But there's still a lot of excitement over the promise in places like Egypt apparently. I found this piece particularly remarkable because I stumbled on it right after reading through the Findex analyses, and all I could think was "I don't think that data means what you think it means." Oh, and the note that moving to digital finance would allow the government to closely inspect everyone's spending habits, wheeee!
There's a different sort of excitement over digital finance in Uganda apparently where the parliament has approved taxing mobile money and social media(?!?). Apparently there was some concern that such taxes would be regressive, but some MPs objected that people shouldn't be exempted from paying taxes just because they were poor. Clearly those people don't read CGD/Vox.
In other CGD news related to digital finance, here's a piece about using blockchain in development projects--or perhaps more on point, *not* using the blockchain for development projects. There's a terrific decision tree graphic in the piece that is worth the click on its own, even though I disagree substantially with one part of it.
3. Firms, Productivity and Labor: Earlier this week I attended two days of the Innovation Growth Lab conference put on by Nesta. A number of interesting papers and research proposals were presented--the session I found most interesting was on the global productivity slowdown...
Read More1. Financial Inclusion: I have no idea what your priors are about financial inclusion, but I think it still matters a lot and you'll be seeing more about that from me in the faiV and elsewhere in coming months. The best way to update your priors on the state of financial inclusion is the Global Findex of course. I've been including things in drips and drabs, but Sonja Kelly and Beth Rhyne of CFI have now published their reasonably comprehensive look at the data, complete with lots of charts, available for everyone (and Sonja definitely deserves a vacation after all her work on this and the Gallup data).
CFI is certainly onboard with the theme of updating priors. The title of the report is "Financial Inclusion Hype vs. Reality" and the Introduction invites you to "Recalibrate." The big message is that despite growth in account ownership, there's no growth in usage and lots of troubling signs, like falling savings rates. You can feel the exasperation in the report, an exasperation that I generally share, given what seems to be a general fatigue around financial inclusion. These data don't in any way support the idea that it's time to move on from financial inclusion. But I'm less concerned than Sonja and Beth about the growing gap between access and usage. Consumer banking does have network effects--value of usage increases rapidly with the number of other users--but those effects take time. The population being served was never likely to be heavy users, which increases the time before network effects surface and become self-reinforcing. So it makes sense to me that as we get better at access, the gap between access and usage should grow for a while.
One place I'm not updating my priors based on this data is showcased in their Figure 6, illustrating that rapid growth in digital payments is not showing up in borrowing or savings. I've always been puzzled by the idea that making it easier for people to spend was going to boost savings.
Given that the empirics in Findex aren't very encouraging on progress in financial inclusion, here's a new paper from Besley, Burchardi and Ghatak laying out the benefits of inclusion. The most interesting thing about it is how well it aligns with what we've been seeing on general equilibrium effects of microcredit--it raises wages for the average worker. That's bad for impact evaluations, but good for more people and a powerful reason to continue investing in inclusion.
2. US Inequality: Speaking of average workers, a big reason for this week's theme is the new BLS numbers on contingent work that set the US Economy commentariat aflame yesterday. The big story is that contingent work--which includes freelancers, gig workers, temps, etc.--has not increased since 2005, the last time it was measured (here's a 2 minute overview). That's pretty remarkable since none of the gig platforms we hear so much about today existed back then. But the numbers are hard to interpret. Ben Casselman has a good overview of the issues here, chief among them being that the BLS asks about "primary" job and counts as non-contingent any regular job regardless of how steady the hours are. So the "no growth" data is consistent with findings from the SHED that 30 percent of Americans now rely on contingent work to make ends meet and from JP Morgan Chase Institute that gig work accounts for about 30% of income for those that do participate.
The bottom line: whatever your priors were, you should probably hold them more weakly than before.
But if you were looking forward to actually updating your priors, here's something I found surprising: income inequality in the US stopped growing some time ago (though the conclusions in that piece beg the question, in the logic sense of that term). And here's a paper from late last year that finds that what can be reasonably thought of as "freelance" professionals--doctors, accountants, lawyers--are responsible for most of the growth in income inequality since 2000.
3. Our Digital Overlords: Another inspiration for this week's theme was this piece by David Leonhardt, reviewing Reinventing Capitalism in the Age of Big Data, a new book that considers the benefits of a data-rich markets for consumers, and the danger that data-rich markets lead to monopolies and less employment. But the thing that most caught my eye, in terms of updating priors, is a casual reference to the story of the Kerala fishermen benefiting from cell phones. That's a story that is very much in doubt, but seemingly few people have updated their priors (see also this). As a side note, if anyone knows of more current research on the story or an effort to sort through the claims (beyond what is in the comments on that piece), please let me know. But searching for that link on the Kerala story, I noticed several other stories on the ICTworks site about surprising failures of digital tools to improve market functioning. My eye was specifically drawn to a story I remember blogging about at least a decade ago: sharing market prices with African farmers via text messaging didn't work out nearly as well as it seemed it would.
My bottom line here is influenced by two studies about police bodycams that were released this week, one in Milwaukee and one in Spokane, which seem to have found opposite effects on a major outcome measure (the number of self-initiated stops police make) without having much other effects. That bottom line is I shouldn't make predictions about how technology will change behavior, or even have strong beliefs after reading a paper about such things.
Read More1. Microfinance: There are things that make you feel old. Like discovering that KGFS, the Indian "wealth management for the poor" not-a-start-up-anymore is 10 years old. Here's Bindu Ananth's, one of the co-founders, reflections on what they've learned over those 10 years. There's apparently a Field and Pande impact evaluation on its way shortly, which will be must reading. I'm struck by a couple of points in Bindu's post: a) that their take-up rates are so high that they are seeing general equilibrium effects (further cementing for me that GE effects and household risk are the two most important things to be thinking about in microfinance, and financial inclusion more broadly, right now), and b) the attention paid to the behavior and bandwidth of front-line staff (OK, three most important things).
But there are other things to think about too--here's MicroSave's latest Low Income Living newsletter focused on microfinance and WASH.
2. Global Development: For as long as I've been paying attention to Global Development there have been big think pieces and agendas for transforming aid. Right behind me are some of the first books I was handed way back then: Inside Foreign Aid, A Bed for the Night, Lords of Poverty. Here's Jeremy Konyndyk of CGD's review of the reform agenda of the past decades, why they haven't worked, and the pros and cons of what's happening now. Since he's focused on incentives, of course I liked it. Here's Paul Currion's paper on Network Humanitarianism for ODI, which he calls the "other half" of Jeremy's paper.
But that's macro stuff. Micro matters too and any discussion of the macro has to make sense in light of micro-realities. Here's Helen Epstein's review of a new book about Rwanda, titled In Praise of Blood. Marc Gunther recently paid a visit to Rwanda--here's his initial reflections including a discussion with Josh Ruxin, the founder of the Kigali restaurant/hotel Heaven and author of a very different book about Rwanda, from 2013. Realizing that was only 5 years ago makes me feel almost as old as learning KGFS is 10. Marc promises a good bit of reporting on his visit in the weeks to come.
And here's a Nature story on the many trials of unconditional cash transfers that are one of the macro-trends that Konyndyk writes about.
3. Household Finance (and Data Redux): Or perhaps I should have called this item financial inclusion or even financial health. Hot on the heels of Findex, Gallup has a 10 country survey of households, sponsored by MetLife Foundation, called the Global Financial Health Study. It's a really interesting set of data on how households feel about their finances. You can get to the reports and the data via this page in a multi-step process which I'm sure Ideas42 had nothing to do with designing.
Here are Sonja Kelly of CFI and Evelyn Stark of MetLife's take on the results. I'm not a huge fan of the "financial health" terminology--though that's a story for another time--but I am a huge fan of the way Sonja and Evelyn take on the difficulties of all the different phrases we use--financial health, financial inclusion, financial access, etc. All of our terminology fails at some level to capture what we are really after, and so we need a combination of metrics and methodologies to make sure we don't lose our way (such as how the focus on measuring financial inclusion led to paying too much attention to account openings).
I also promised to pass along things that I found around Findex, and here are two that both focus on the problem that Sonja and Evelyn write about: access does not necessarily lead to usage which does not necessarily lead to positive outcomes.
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