Week of October 15, 2018

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

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

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

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