1. Arbitrary and Biased: I feel like "arbitrary and biased" should have been the tagline for the faiV but it'll have to do as just the name this week's edition (I won't make the obvious joke). The reference here specifically is an update to my post at CGAP on impact evaluations and systematic reviews of financial inclusion interventions. Duvendack and Mader, authors of a systematic review of reviews that I've mentioned in the faiV and in that post, responded. And then I responded to them. The short version, if you don't want to click on all those links or do a lot of scrolling, is that we disagree substantially (though in good faith!) and particularly on the issues of arbitrariness and bias. My perspective on these issues have been substantially influenced by Deaton's and Pritchett's critiques of RCTs, which feels a bit ironic. Systematic reviews are useful, but they are no less arbitrary nor less biased than other attempts to synthesize the literature--they're just arbitrary and biased in different ways, albeit generally more transparent ways (though what we know about how disclosure affects people's trust leaves a question about the benefits of that disclosure).
Reveling in the arbitrarily biased essential nature of the research enterprise, here are a couple of papers that raise different questions about how the literature on microcredit may be biased. Bedecarrats, Guerin, Morvant-Roux and Roubaudreplicate the Al-Amana microcredit impact study and find errors and issues with the data and code--though exactly how much it matters to the big picture conclusion isn't clear. Meanwhile Dahal and Fiala review the microcredit RCTs focusing on whether they have sufficient power to detect likely magnitude of effects (and find that they aren't) and find significant and meaningful effects on profits when the data is pooled. I need to read both these papers more closely, but they are interesting enough that I didn't want to wait before including them in the faiV.
2. Evidence-Based Policy/Methods: Speaking of arbitrarily biased research, the 5% statistical significance threshold is perhaps the most influential arbitrarily biased feature of modern academic research. Some people are trying to change that--well more than 800 who signed onto a letter in Nature protesting the cutoff. Before you come to a conclusion on whether that letter will make a difference, I must note, as many on Twitter did, that it's not a statistically significant portion of scientists who have signed on.
Another arbitrary bias, according to Nick Lea, deputy chief economist at DfID, is the need to run regressions in economics papers. David Evans, now ensconced at CGD, responds with a defense of regressions and some ideas on how development economics can be better.
Here's a reminder that "purely evidence-based policy doesn't exist" though I'm not sure how many people thought it did. And here's a reminder from Straight Talk on Evidence that short-term impact often fades out, something evidence-based policy really needs to take into account.
And finally, here's an interesting piece from mathemetician Aubrey Clayton adjudicating a long-running dispute between Nate Silver and Nassim Taleb over probabilities, finding that Taleb "overplays his hand."
3. Household Finance: The mythology of Spanish colonialism in the Americas centered heavily on cities of gold (anybody remember this?). Here's a story about the reverse--Dominicans searching Spain (and Switzerland) for lost troves of gold. It's all a scam of course, of the sort immediately recognizable by anyone who has spent time in Latin America. It's a fascinating read because of how the story delves into the psychology that has led so many Dominicans to believe (and continue to believe) an ancestor secreted billions of dollars of gold in Spanish and Swiss banks that they stood to inherit--to the point that they quit jobs and made all sorts of other bad financial decisions. When there is little hope, believing that slow, steady abstemious frugality will matter may seem as much magical thinking as hidden inheritances. Here's a piece from Morgan Housel on how much our (macro)financial experiences affect our later decision making.
Week of April 5, 2019
1. Financial Inclusion: It's an "interesting" time in the world of financial inclusion, in the sense of that (apocryphal?) Chinese curse. There are arguments on whether to change the name of the "sector" accurately reflects the goals, the funding environment is uncertain, digital financial services are shifting business models and regulatory frameworks--all also indications that there is important convergence between "developed" and "developing" countries. But most importantly there are questions about whether the results from the work of the last 40 years (a rough approximation of the modern microfinance movement globally, and the asset-building movement in the US) justify further investment.
You can see the tensions in two recent posts at Next Billion: first, Leora Klapper on the importance of investment in financial inclusion to meet the SDGs; and a fiery response from Phil Mader and Maren Duvendack, authors of the Campbell Collaborative/3ie "systematic review of reviews" that I've likely mentioned a couple of times. But the "interesting" times also explain, at least in part, the raft of other evidence reviews of various sorts that are appearing (IPA, Dvara, UNCDF/BFA,Caribou Digital, CGAP). It's enough to get you to buy into Lant Pritchett's dictum that RCTs are "weapons against the weak."
CGAP asked me to write something about all this--and to do it in under 1000 words. You can guess how well that went, given that the summary for the evidence review I've been working on for CDC is more than 10 pages (you should also read that as an acknowledgement of a specific conflict of interest when it comes to talking about evidence reviews). Anyway, the final result is here. The bottom line is that I'm skeptical of what can be learned from systematic reviews--channeling some other Pritchett-thought on where policy-relevant insights come from.
By the way, if you're skeptical of the point about most interventions struggling to show meaningful impact, here's a new paper making the case that TB public health interventions in the early 20th century had little to do with declining TB-mortality; and here's a paper from the education sector so frustrated that they can't find evidence of impact that they propose doing away with credible large-scale impact evaluations. And here's an open letter to a hypothetical education minister with some useful statistics on how little learning happens in schools in most of the world.
2. Global Productivity: Plenty has been written about stagnant wages, slow growth, and rising inequality in developed countries (if you're based in the US, it might not be apparent that this is a global phenomenon, but it is.) But there's another important phenomenon that hasn't penetrated the popular consciousness nearly as much, probably because the impact isn't as immediately apparent: there's a global productivity slowdown. That's a problem because rising incomes come from growth, and growth comes from productivity gains.
Here's a new paper from Gordon and Sayed documenting the trans-Atlantic trend in slowing productivity, and how closely European productivity growth (or lack thereof) has mirrored that of the US, with a time lag. Their thesis is that the slowdown is related to a "retardation in technical change."
That probably sounds odd given that I know about the paper and you are reading about the paper on using technologies that were essentially unfathomable in 1980. But overall economic dynamism, including technical change has actually slowed dramatically since the post-war years. And there's emerging evidence that there is a single cause for all of these issues: the aging of the population.
It's a fascinating thesis that makes a lot of intuitive sense, and there is growing evidence for it from lots of different directions. I'm sure there will be lots more papers on this in the years ahead, but in the meantime it suggests a few interesting thoughts: a) China has a big problem coming, and b) future productivity growth is going to come from India, Sub-Saharan Africa and Latin America, and c) we all have legitimate reasons to worry about millennials not having sex.
Week of March 22, 2019
1. Social Investment: You've of course seen many stories about the US college admissions bribery scandal. And if you pay any attention to the world of impact investment you likely have seen that Bill McGlashan, the very public face of one of the world's largest impact investment funds, was one of the people arrested for participating in the scheme. Anand Giridharadas, who has become the very public face of criticism of modern philanthropy and social investment, discusses why McGlashan is "the most important fish" in the story. Here's the Twitter thread versionif you prefer that over a 4 minute video.
Trevor Neilson, co-founder of the Global Philanthropy Group, says that McGlashan's behavior should not be seen as a reflection on impact investing as a whole, because...well apparently because he wrote a Medium post saying that it shouldn't. There's really no argument there other than "Our goals are too important to be worried about means!" if you consider that an argument. Here's Jed Emerson, who may have an argument, but I just don't understand what is happening in this piece. Lauren Cochran, managing director of an impact investing firm, actually has a few arguments attempting to make the same point, including that McGlashan himself was a figurehead chosen to attract investors, but who wasn't involved in actual investment decisions.
She has a nice line about Giridharadas: "using one man’s ethical failings to grab the mic is characteristically self-serving, but as usual, he forgot that there might be a baby in the bath water." It's catchy but wrong. Giridharadas whole point is that there may be a baby in the bath water, but the bathwater is toxic and everyone will be better off, even the baby, if you toss the whole thing. Moreover, the fund that Cochran administers uses this language: "dual expectation of best-in-class financial returns and maximum positive social and environmental impact." And that, to me, is a big part of the toxic nature of the current impact investment environment. On reflection, that statement illuminates what is really happening in Neilson's piece--the fear that if the myth of "no tradeoffs" is exposed then the money will dry up.
To be clear, I'm not in Giridhradas' camp but I certainly appreciate how his perspective keeps putting the "no tradeoffs" crowd on the defensive, and illustrates the inconsistency if not hypocrisy hidden there.
Kristin Gillis Moyer of Mulago points to a terrific example of the inherent tension: the new Catalytic Capital Consortium funded by MacArthur, Rockefeller and Omidyar. It aims to invest in businesses with low profit potential and/or high risk. I find it an incredibly refreshing approach--it explicitly acknowledges that the no tradeoff myth is leaving many social enterprises in the lurch. But as Gillis Moyer points out, it's not clear how catalytic it can be since there are unlikely to be that many other investors chomping at the bit to invest in low-profit, risky businesses. I'd like to think the catalytic part will be creating space for more funds and investors to say that they prioritize impact over financial returns, and that's OK.
2. Our Algorithmic Overlords: Because the faiV was so full I'd been holding on to a few things on this topic, and events have made them all the more relevant. Platforms for open sharing seemed like such a good idea for a long time. But the cost of open sharing is so so much higher than most anticipated. Not only does it enable evil, but attempting to stop evil exacts a huge toll on human beings. This is a story about the Facebook contractors whose job it is to stop the New Zealand murderer's live stream. And a Twitter thread from someone in a similar position at Google. I'm guessing many of those folks are inching toward Calvinism.
Evgeny Morozov has a different take on the costs that open platforms and big tech exact, and why the global white nationalist movement has very different views on that front. It is a helpful reminder of the costs of the old system and the structures that the liberal order created to try to limit those costs, structures that seem to not work so well in this age, and are under attack from many directions. That's in part the theme of a new book reviewed by Noah Smith, The Revolt of the Public by Martin Gurri. I haven't read the book but the review is certainly influencing my thinking on the above.
Oh, and Chinese firms are working on facial recognition of pigs, while US police forces are using bad data to train their facial recognition and other AI systems. Andwhat about "behavioral recognition"? Note that this has quite obvious connections to the use of psychometrics and other "alternative data" for creditworthiness evaluations.
3. Household Finance: There's a huge amount of new stuff here, so I'm going to be particularly eccentric this week. There's a lot more coming in the following weeks that will be more serious.
One of the questions that fascinates me these days is what is good financial advice for households that face a lot of income volatility. The foundation of virtually everything in the financial advice world is the lifecycle model--and we know that doesn't apply to a very large proportion of households. That doesn't stop the financial advice industry from thriving--but like so many other things, the internet has disrupted that world a great deal. And that disruption creates perverse incentives. Here's the story of the "Fall of America's Money Answers Man", a once-respectable financial advice columnist who turned into a con artist.
Week of March 8, 2019
1. The OGs: I can't think about who influences me without beginning with Esther Duflo, Erica Field, Rohini Pande, Tavneet Suri (special links to two new papers that would have been in the faiV in a normal week--on the impact of digital credit in Kenya, and UBI in developing countries) and Rachel Glennerster.
2. New Views on Microcredit: Because I'm framing this around research that has influenced me and appeared in the faiV, I've organized these into topical buckets that make sense to me. But keep in mind, that may not be the only thing these economists work on. Cynthia Kinnan and Emily Breza have dug into the Spandana RCT to understand heterogeneity of results, and to used the AP repayment crisis and fallout to understand the general equilibrium effects of microcredit. Natalia Rigol with some of the OGs above followed up on the differential returns to capital between men and women from earlier studies finding the differences are largely due to intrahousehold allocation, not gender; she's also looked into how to better target microcredit to high-ability borrowers. Gisella Kagy and Morgan Hardy uncoverbarriers that women-owned microenterprises face. Rachael Meager creatively usesstatistical techniques to better understand heterogeneity in microcredit impact results. Isabelle Guerin provides insight on why microcredit can go wrong.
3. Savings: I will confess that I have a lot of questions about the savings literature. But that's mainly because of the work of these economists. Pascaline Dupas, of course. Silvia Prina tests encouraging savings in Nepal, while Lore Vandewalle tries to build savings habits in India. Jessica Goldberg runs very creative experiments to understand how savings affects decisions. Simone Schaner studies intrahousehold choices around savings.
Week of March 1, 2019
1. Economics: The dismal science doesn't often generate positive reviews from outside the discipline, so when it does happen it's worth noting. Julia Rohrer, who in addition to having one of the best titled blogs I've ever seen, is a psychology graduate student who procrastinated on her dissertation by attending a summer program in economics. Here is her list of things she appreciated in economics as a positive contrast to her experience in psychology.
On the other hand (hah!), economists typically have a lot to say about what is wrong with economics--certainly I encounter more "friendly-fire" in the econ literature than when I dip my toes in other disciplines (though this is perhaps my favorite example of the intra-disciplinary critique). There's an ongoing discussion about the future of economics going on in the Boston Review--I don't know if that counts as friendly-fire in terms of the outlet, but the participants are economists--starting with an essay by Naidu, Rodrik and Zucman, Economics after Neoliberalism. Then there are responses from Marshall Steinbaum, who notes that "every new generation proclaims itself to have discovered empirical verification for the first time," and from Alice Evans who focuses on the nexus of economics and political power in the form of unions.
But, because it's me writing this, I have to close on a new paper in JDE, that finds that communal land tenure explains half of the cross-country agricultural productivity gap. And here's a piece about how small teams of researchers are more innovative than large teams. generate much more innovation than big teams Neo-liberalism won't go down without a fight!
2. Migration: I haven't touched on migration for a while so it felt serendipitous that Michael Clemens and Satish Chand put out an update to their paper first released in 2008(!) on the effects of migration on human capital development in Fiji. The basic story is that in the late 80's formal discrimination against Indian-Fijians increased sharply, causing the community to both increase emigration and investment in human capital to aid emigration prospects. The net effect, rather than the dreaded "brain drain," was to increase the stock of human capital in Fiji. grapes
Cross-border migration is really the only option in Fiji, but in many countries, like Indonesia, there are lots of internal migration options. Since there is typically a large gap in productivity within countries as well as between countries, internal migrationhas always been a part of the development story. Bryan and Morten have a new article in VoxDev about this process in Indonesia, looking at the productivity gains possible from removing barriers to internal migration.
Since we started off talking about Economics, here's a post from David McKenzie considering the effects of migration on economists--or more specifically, how to think about job market papers about a candidate's country-of-origin. True to his style, David goes deep, including a model, and a survey. The post was inspired by a tweet from Pablo Albarcar who later noted it was mostly a joke about "brain drain" worries.
It is surprising to me how tenacious the brain drain idea is. When I have conversations about it, I try to cite the literature like Clemens and Chand, but I rarely find that makes a dent. People can always find an objection. So I've taken to just asking people how they feel about the "destruction" of Brazilian soccer/football culture and skill due to the mass emigration of the most skilled players. Typically, that leads to several moments of silent blinking. If you're interested here's a paper about "Rodar" the circular human capital investment, migration and development among Brazilian footballers.
3. US Poverty and Inequality: I typically try to avoid the grab-bag approach to items of interest but I'll confess this one is a bit of a grab bag with a variety of connecting threads. We'll start by connecting to a piece I included last week about tax refunds and saving. If you haven't read that, you should. I noted I was grateful for the piece because it meant I could skip the annual ritual of linking to a piece I wrote for SSIR several years ago about rethinking tax refunds. But I should have known that the zombie idea of tax refunds being bad personal finance wouldn't die so easily. Here's Neil Irwin from the NYT on how people being angry about lower refunds shows that "humans are not always rational." I'm struck by the irony that the continuing common use of "rational" in economics requires zero-cost attention, while a foundational truth of the discipline is "nothing is zero-cost." There is nothing irrational about paying a very small fee (in foregone interest) for the valuable service of helping you to save when other services are ineffective. That's especially true if you include, as you should, the cost of the tax advisors and financial advisors required to accurately calculate the proper amount of withholding and to choose the right investment/savings account in which to store those savings. So I guess that connects to the thread about economics maybe not being post-neoliberalism quite yet. And here's a column from the Washington Post's personal finance columnist withpush back on the "refunds are bad" idea from readers who explain their rational choices in their own words.
Week of February 18, 2019
1. MicroDigitalFinance (and women): Questions about gender and financial inclusion have been a part of the modern microfinance movement since the beginning, when Yunus made those initial loans to women. For a long time, the accepted wisdom was that women were more responsible borrowers, repaid at higher rates, and did better things with their earnings than men. Then came several waves of research that called that into question--finding, for instance, that men had much higher returns to capital; that women didn't spend money that differently (outside of the social norms that constrained both their income-earning and -spending choices).
Recently there has been another swing. For me it started with suggestive evidence from Nathan Fiala's grants vs. loans to men and women in Uganda that women's average low returns were driven by the women who had the hardest time protecting money from male relatives--something that didn't make it into the published paper (so factor that into your Bayesian updating). Then Bernhardt, Field, Pande and Rigol re-analysed data from the original returns to capital work and found that women who operated the sole enterprise in their household had returns as high as men. Then Hardy and Kagy dug into why returns to men and women's tailoring businesses were so different in Ghana.
Now Emma Riley has a new paper going to back to Uganda and using mobile money accounts to give a much more definitive answer to the control of funds issue that Fiala's work hinted at. Working with BRAC (it occurred to me yesterday that I think all the subsidy to global microfinance could be reasonably justified just by BRAC), she provided female business owners with a separate mobile money account to receive their loan proceeds--the theory being, of course, that this would allow them to protect the funds much better. She finds that women who received the money in the private mobile accounts had 15% higher profits and 11% higher business capitalthan controls who received the money in cash. There are number of possible mechanisms, but she finds the best explanation is indeed the ability to protect money from the family. This is a big deal.
And last year when I posted a story about Uganda implementing a social media and mobile money tax, I didn't really take it seriously. It turns out I should have. The tax went into effect and Ugandans have behaved like good homo economicuses: mobile money use and social media use is down. Say, that suddenly sounds like a useful policy intervention.
Finally, this rang my confirmation bias bell so hard that there's no way I could leave it out or even wait another moment to put it in the faiV. Maybe I'll include it in every edition from here on out. There's No Good Reason to Trust Blockchain Technology.
2. Youth Unemployment: This wasn't supposed to be "the Uganda edition" but in other women in Uganda research news, here's a paper from a star-studded list of researchers starting with Oriana Bandiera (is it just me or has Selim Gulesci had a remarkably productive last 12 months?) forthcoming in AEJ:Applied on a program to empower adolescent Ugandan women with both vocational and sex/relationship education. They find large effects after 4 yours, boosting the number engaged in income-generating activities (all microenterprise) by 50% (5pp) and cutting teen pregnancy and reported unwanted sex by a third. That's impressive. But your homework assignment is to square these results with the five year follow-up results of Blattman and Fiala's grants to Ugandan teenagers (where all the effects fade out after 9 years) and Brudevold-Newman, Honorati, Jakiela and Ozier vocational training program for young Kenyan women where effects of training and grants dissipate after 2 years. Seriously, this is your homework. Email me with your theories. If you can work in Blattman and Dercon's Ethiopia follow-up (which as disappeared from the web, hopefully temporarily), any of the other papers from this session at ASSA2018, or McKenzie's review of vocational training programs, you get extra credit.
3. Economic History: I've mentioned a couple of times recently that I've been delving into Economic History to learn a bit more about financial system development and the history of banking and consumer financial services. It's been fascinating so I thought I would share a few links in that vein. There are two books that top the list, both of which I think I've mentioned, but since I now consider these as must-reads for anyone interested in financial services along with Portfolios of the Poor, The Poor and Their Money, Due Diligence, and, y'know, cough, cough cough, I'm going to mention them again. City of Debtors covers the tragically unknown history of microcredit in the United States from the 1890s on. Insider Lending is the story of how banking evolved in New England from the 1800s, specifically how economic and political forces turned something entirely self-serving for existing elites into a vital service for the masses.
Week of February 11, 2019
1. Our Algorithmic Overlords: I've long argued that teaching kids to code is as much of a waste of time as financial literacy. The simplified version of the argument is that most people are terrible programmers and computers are already better at coding than the average human. As a consequence I emphasize to my own kids and to others who are blinkered enough to ask my advice, that learning how to communicate/write is a much more important tool for the future (yes, yes, cognitive dissonance).
While I still think I'm right about the first part, it turns out I'm wrong about the second part. Yesterday OpenAI "released" work on an AI system that writes shockingly good text. I use scare quotes because, in another sign of things to come, OpenAI has only published a small subset of their work because they believe that the potential malicious use of the technology is great enough to restrict access. There are a bunch of news stories about this. Here's Wired, for instance. But the most interesting one I've come across is The Guardian because they had the algorithm write an article based on their lede.
Let's stick to the disturbing for a bit, because it's that kind of day. The World Food Program has formed a partnership with Palantir to analyse its data on food distributions, apparently with the main motivation being to look for "anomalies" that indicate that aid is being diverted or wasted. The idea of handing over data about some of the world's most vulnerable people to a private company that specializes in surveillance and tracking of people hasn't gone over well with a wide variety of people. As background, here's an article about what Palantir does for their biggest client, the NSA. Sometimes it seems like some people at the UN look at the one world government kooks and think, "What could we do to make their conspiracy theories more plausible?"
On a more theoretical level, Kleinberg, Ludwig, Mullainathan and Sunstein have a new paper on "Discrimination in the Age of Algorithms," arguing that despite fears of algorithmic discrimination, proving discrimination by algorithms is a lot easier than proving discrimination by humans. Of course, that requires putting regulations in place that allow algorithms to be examined. I'm going to flatter myself by pointing out it's similar to an argument I made in my review of Automating Inequality. So I feel validated.
Speaking of transparency, regulation and of algorithmic surveillance, here's David Siegel and Rob Reich arguing that it's not too late for social media to regulate itself, by setting up something like FINRA (Financial Industry Regulatory Authority, which polices securities firms). It's an argument that I would have given short-shrift to, but the FINRA example is credible.
Finally, I'll be dating myself in the Graphic of the Week below, but here's another way to figure out how old I am: when I was an undergrad, most of the "power imbalance" between developing countries and private firms literature was about GM. Here's a new piece from Michael Pisa at CGD on the new power imbalance and it's implications: the relationship between developing countries and tech giants.
2. Digital Finance: That feels like as reasonable a transition as I'm going to get to new data from Pew on the global spread of smartphones. Given limited consumer protections, regulatory and enforcement capability, and "digital literacy" in many developing countries, I will confess this worries me a lot, cf Chris Blattman's thread on "creating a 20th Century...system in an 18th Century state."
Here's a particular instance of that concern, tieing together the last few items: the rapidly growing use of "alternative credit scores" using things like digital footprints and psychometrics. You can make an argument that such things are huge boon to financial inclusion by tackling the thorny problem of asymmetric information. But there are big questions about what such alternative metrics are actually measuring. For instance, as the article above illustrates, the argument is that in lending, character matters and that psychometrics can effectively evaluate character. But it doesn't ask whether character is in-born or shaped by circumstance? No matter which way you answer that question, you're going to have a tough time arguing that discriminating based on character is fair. And that's all before we get to all the other possible dimensions of opaque discrimination.
The growing use of alternative data is starting to get attention from developed world regulatory agencies, but the first frontier of regulation is likely to be from securities regulators. I don't think they are going to be particularly interested in protecting developing world consumers. I guess that idea about self-regulation is starting to look more appealing, particularly if it's trans-national.
Meanwhile, the frontier of digital finance is advancing rapidly, even without alternative data. Safaricom introduced what is here called a "overdraft facility" in January, but I think of it more as a digital credit card. In the first month it was available, $620 million was borrowed. The pricing seems particularly difficult to parse but that may be just the reporting. One of the very first things I wrote for FAI was arguing for development of a micro-line-of-credit. Now that it's here, I confess it makes me very nervous.
3. Financial Inclusion: That's not to say that digital tools don't hold lots of promise for financial inclusion, just check the Findex. This week CGAP hosted a webinar with MIX on "What Makes a Fintech Inclusive?" There are some sophisticated answers to that question with some good examples, but I often return to the simplest answer: it cares about poor and marginalized people. And so I especially worry when I see answers to that question that lead with tech.
The financial inclusion field as a whole has been in something of a slow-moving existential crisis for the last few years. The best evidence of that is the number of efforts to define or map the impact of financial services and financial inclusion, several of which I'm a part of. Last week I linked to an IPA-led evidence review on financial inclusion and resilience. The week before that to a Cochrane Collaboration review of reviews of evidence on financial inclusion. This week, the UNCDF and BFA published their take on pathways for financial inclusion to impact the SDGs (full report here). I could say I expect there will be more, but I know there will be more in this vein, if I can finish revisions, etc.
Week of February 4, 2019
1. MicroDigitalHouseholdFinance:
I've had to cram what I usually break out into 2 categories into this first item. First, last week I featured a story about Kenyan MFIs being driven "to [an] early grave"and asked if any one had some additional knowledge of that situation. Thanks to David Ferrand (of FSDAfrica) and Alexandra Wall (of CEGA's Digital Credit Observatory), I'm reasonably confident that story is reasonably accurate (I do try to be good Bayesian). Meanwhile, with a broader perspective, Gregor Dorfleitner sent me a link to his recently published research looking at adoption of digital infrastructure by nearly 1000 MFIs globally. It's generally a more hopeful picture of evolution over disintermediation than what is happening in Kenya.
This week, coincidentally I had two conversations about household finances that revolved around individuals' willingness to hide their income from others in the household and that affects outcomes for good or ill. And then, up pops Fred Wherry and colleagues with a new paper on exactly on the mechanics intrahousehold bargaining around borrowing and lending based on research in California. I'm very impressed they avoided "Neither a borrower nor a lender be..." and I do kind of love "Awkwardness, Obfuscation and Negative Reciprocity." And in other new paper news, the titans of financial choice architecture, have a new paper on how use implicit defaults to spur people to make active choices--which seems a better form of nudging than much of what I see.
2. Banking (and Money Transfer Operators): I frequently talk about how financial system regulators in the developing world need to look to the US for a peek into their future. This week I learned that Australia is also a useful cautionary tale. Pretty much the entire banking sector in Australia is facing the prospect of criminal prosecutions after a wide ranging royal commission report that details rampant "fee for no service" practices were widespread.
Meanwhile there are some big changes happening in the global money transfer space, related to Chinese operators attempts to expand globally, and the Trump administrations general antipathy to such moves. Last year, Ant Financial tried to buy MoneyGram before regulators put a stop to the transaction. MoneyGram is now essentially moribund, having lost 83% of it's market value since then, and trying to sell itself to anyone who might have some cash. Ant Financial has moved on to a UK company, WorldFirst, which this week announced it was shutting down it's US operation so that American regulators have no say in the deal. Neither of those stories sound like the prospects for cutting the costs of global remittances are improving.
3. Global Inequality: Last week I purposely skipped over the ridiculous annual OxFam global wealth inequality brouhaha. Perhaps I should stick to my guns, but given the number of people I saw engaging with this Guardian piece from Jason Hickel, that somehow argues that global poverty hasn't been decreasing, and life was great in the 1820s, well...Here's pushback from Martin Ravallion. Here's Max Roser, who was a particular target in the Hickel op-ed.
Turning to doing something about global inequality rather than fantasies about the pastoral idylls of the 1820s, there's been a remarkable flourishing of pieces about tax avoidance by the wealthy. Here's the op-ed from the NYT that inspired the name of this week's edition on the Trump tax cuts enabling corporate tax dodging. Here's a new paper in the AER finding that globalization since 1994 has led to the labor income tax burden of the middle class rising, while that on the top 1 percent fell. Here's a new brief from Danny Yagan at SIEPR on how high earning wealthy entrepreneurs dodge taxes on labor income of about $1 trillion per year. And using data from Gabriel Zucman, here's a piece from the Washington Post on the new club of wealth inequality, with charter members China, Russia and the US.
Week of January 28, 2019
1. MicroDigitalFinance: Back before the holidays, I hosted the first faiVLive on how to think about microcredit impact based on recent evidence. If you missed it, you can watch it here (and people are still watching it, I'm happy to say). Here's Bruce Wydick's take on the proceedings if you prefer text to video.
Last week, there was some discussion of evidence gaps, and it's clear that I'm not the only one thinking in this direction. On the heels of that Campbell Collaborative review-of-reviews, IPA has a review of evidence (and gaps) on "Building Resilience through Financial Inclusion" that makes a lot more sense to me.
Okay, now to some less-meta items. Well only a little bit I guess. Remember that Karlan and Zinman paper about high-cost loans in South Africa that found positive effects? It was a lending for resilience story. Now there's a company in California offering high-cost loans to people via their landlords, specifically marketed to help them not miss a rent payment or to pay a security deposit. The article mostly ignores fungibility, presuming that the actual use of the loan proceeds are paying rent rather than covering some other emergency, but that seems unlikely to me. In the US Financial Diaries we saw that housing payments were much more erratic than other types of payments, though the data wasn't clean enough to really draw any firm conclusions. So is this a lending-for-resilience story or a new version of payday lending debt traps?
Speaking of payday lending debt traps, we usually use that phrase metaphorically. But there's a UK payday lender who is apparently eager to make it more literal. Yes, they are advocating for a return to debtors' prisons (darn that asymmetric information and moral hazard!). And even doubling down on the idea.
Finally, here's a story (HT Matthew Soursourian) about Kenyan MFIs being driven "to [an] early grave" as digital financial services allow commercial banks and non-banks to siphon off the customer base. Disintermediation was not exactly the story that early proponents of mobile money were hoping for, but it does fit with the historical record of financial systems development. If you know anything about this, or can vouch for the accuracy of the information in the article, I'd love to hear from you.
2. Global Development: I'm going to skip the on-going "shooting fish in a barrel" about OxFam's annual global wealth publicity/outrage stunt since there's nothing at all new there. Better to spend your limited attention on this NYTimes op-ed from Rohini Pande and colleagues on the "new home for extreme poverty."
If you follow these topics at all, you know that new home is middle-income countries like India. The Congress Party's proposal of a not-universal basic income to address the persistence of extreme poverty in the country has been getting a fair amount of attention. Apparently Angus Deaton and Thomas Piketty are advising Congress, though from my experience with politicians "advising" could mean "we read their books." Here's Maitreesh Ghatak's take on what it would take for the policy to work.
On the other side of the world, I've watched the evolving situation in Venezuela with a great deal of personal interest. I grew up in Colombia, a few hours from the Venezuelan border, and learned relatively recently that an ancestor of mine funded an invasion of Venezuela in the early 1800s. Particularly my interest has been caught by some economists volunteering to educate politicians and pop culture figures on what is going on, in the hopes of stopping bad takes. Here, by the way, courtesy of Chris Blattman, is a deeper background piece on the Maduro regime than you may find elsewhere. The macroeconomic quirks of access to gold reserves and of sovereign and not-so-sovereign bonds under sanctions have been pretty interesting too. And here's Cindy Huang of CGD on the potential for Colombia accessing concessional funding to help finance programs for Venezuelan refugees.
Finally, I'm happy to claim, without evidence, that my request for Rachel Glennerster to post her Twitter thread on what she's learned in her first year as DfID's chief economist as a blog post so that was easier to share, cite and archive caused this blog post compiling her Twitter thread.
3. Small Business: My fixation with breaking down the silo between financial inclusion in the US and internationally extends beyond household finance. The story of most small business in the US is the same as it is in developing countries--they are not high-growth "gung-ho" entrepreneurs but frustrated employees trying to generate an income in the face of labor market failures of various sorts. So the perennial development topic of how to increase lending to SMEs should be looking to the US, and those in the US should be looking internationally.
For most small and micro-businesses the biggest financial challenge isn't getting credit to invest, but managing cash flow and liquidity. Square, which has historically been focused on enabling retail consumer-to-business payments, recently announced a new product specifically to tackle this problem: a debit card that allows real-time access to balances. To put it in development-speak, Square is offering trade credit to small merchants to cover the trade credit they provide to customers. I'm super-interested in seeing how well it works.
Week of January 21, 2019
1. MicroDigitalFinance: Many of you will be familiar with the story of microcredit's rise and sort-of fall, and it's current state of--I don't know, existential angst? But if not, the story is ably told in a new Vox piece by Stephanie Wykstra, with some comments from Jonathan and I included. Not too long after that, the Campbell Collaborative and 3ie issued a "systematic review of reviews" of the impact of financial inclusion, led by Maren Duvendack. I have to say it's kind of weird. The one sentence conclusion is "Financial inclusion interventions have very small and inconsistent impacts." Which apart from appending an "s" to the perfectly plural "impact", I don't disagree with. But this format is a review of reviews which imposes some weird constraints. Ultimately only 11 of 32 identified studies were included, and only one of those was from an economics journal, two are earlier Campbell or 3ie publications, two are specifically only about women's empowerment, and three are about strangely specific topics like HIV prevention. So I'm left really uncertain what to think of it.
Of course, the hot topic isn't generic microfinance but digital finance. The Partnership for Finance in a Digital Africa has an updated "evidence gap map" of research on the impact of digital finance featuring 55 studies (which is more than I have had the time to delve into so I can't compare it to the Campbell/3ie inclusion set). There's a summary of the findings at Next Billion.
Finally, here's an interesting story about Econet, the Zimbabwean mobile money provider--interesting in that it is really about the evolution of mobile money providers from following M-Pesa to following Tencent.
2. US Inequality: A big part of the story of understanding US inequality specifically, and inequality in developed countries in general, is understanding what has happened to wages of low-skill workers. The NYTimes has a piece on how cities have shifted from being the "land of opportunity" for such workers to a trap, based on work that David Autor presented in his Ely Lecture at the AEAs (by the way, AEA, it's still a good time to rename the Ely Lecture!).
One policy option for addressing stagnant wages for low-skill workers is to raise the minimum wage. Cengiz, Dube, Lindner and Zipperer continue their long-running work on the effects of 138 minimum wage changes between 1979 and 2016. They find increased earnings and essentially no effect on number of low-wage jobs.
That's encouraging. Less encouraging is a new paper from Rodrik and di Tella finding that people are really, really happy to support protectionist policies, regardless of their politics, as a policy response to trade shocks.
3. Our Algorithmic Overlords: Speaking of people's attitudes, there's a big new report on Americans' attitudes on artificial intelligence from something called the Future of Humanity Institute, which as a name is somewhat creepy in my opinion. Maybe I've seen/read too much dystopian fiction. Anyway, they find that Facebook is the least trusted institution when it comes to AI development (no surprise) and the US military is tied for most trusted (big surprise, apparently these people haven't seen/read the same dystopian fiction I have). Also of interest, the median respondent thinks there's a 50% chance that robots will be able to fully replace human beings in less than 10 years. And just because, here's a Night Before Christmas style poem about the future of AI.
