The Staycation Edition
Editor's Note: I feel like the typical "everyone is gone in August" thing hasn't been happening this year, but there is so much that's different that I can't really tell. And while I took some time off in July, and even went somewhere, it didn't feel like a vacation since there was still so much effort needed figuring out what the boys and I could do in a time of distancing and lockdowns. I hope you have had some time mentally away, but you know, not all of your time mentally away.
–Tim Ogden
1. Microfinance:
One of the great successes of the modern microfinance movement is the infrastructure that has been built out around it, infrastructure that is a big, but underappreciated, part of its success. Here I'm thinking about things like the European Microfinance Platform, M-CRIL, the many national microfinance associations, etc. You may notice that some prominent organizations are not in that list. Say the Microcredit Summit Campaign. Or the MIX. Or the Smart Campaign. In case you haven't picked up on the subtext, that's because each of those last three very prominent efforts are...not what they used to be. The Microcredit Summit Campaign merged itself into its parent organization, MIX has merged into CFI, and now CFI has decided to wind down the Smart Campaign. Here is FAI Visiting Fellow (and one of the founders of the Smart Campaign) Beth Rhyne on the decision. The key question is: what's the best way to encourage consumer protection in a rapidly growing and changing industry. Here's Chuck Waterfield's recent (negative) take on how the industry is changing--five years ago it would have been hard-to-believe that being compared to Facebook would be the ultimate insult.
Since I have very publicly expressed concerns about the future of the microfinance industry, let me say that I don't view any of these examples of formerly prominent parts of the movement winding down necessarily as evidence that the industry itself is in trouble. Every industry or movement changes as it matures and evolves--lack of change would be even more concerning.
Take for instance, this story on microcredit in Cambodia. If you follow microfinance at all, you know what is coming. As Dan Rozas says in the article, Cambodia "should have had a crisis by now". And yet, the loan portfolios continue to grow, and the script from earlier crises seems to keep marching on.
But the changes that are happening with those venerable "institutions" coincide with the retirement of a number of important figures from the early days of the movement (cf. Chuck Waterfield above), and with the challenges of the pandemic, and that does leave me worrying about the loss of experience and expertise in the fight to extend useful financial services to low-income households. After all, the modern microfinance movement grew out of close to nothing, not because no one had tried to lend to the poor in the past, but because all the many, many prior efforts had long faded from memory in the 1970s.
Back to more present day concerns. Here's the Economist on what is happening with microcredit globally and what should happen, which borrows, shall we say, liberally, from our recent paper and from Beth's posts (like this, this and this) on the crisis. On a brighter note, here's a new paper from Ghana (literally, it's an all Ghanaian research team) on positive effects of financial inclusion. It finds significant complementarities between credit, savings and insurance; but that credit is more important for middle-income households, while savings are more important for lower-income households. And here's an interview with Ira Lieberman building on the book The Future of Microfinance which recently came out--and which features a couple of chapters by yours truly.
2. Migration, Remittances and Household Finance:
My co-author Michael Clemens (I'll never get tired of saying that) has two new papers on migration and development. One with Mariapia Mendola looks at migration patterns of households in low-income countries; the other looks at national migration patterns over 200 years. Here is Michael's blog post summarizing the two papers (and here's the Twitter thread version). The very short version is that migration increases as income rises in low-income countries until they reach a fairly high level of income. You also shouldn't miss Michael's thread on the econometric mistakes that underlie a recent paper finding the opposite. There's also this important new paper finding that the cost of deterring one (1) migrant via aid is about $1.8 million (and here's Michael's thread on that paper).
One of the many reasons I care about migration, as detailed in my paper with Michael, is that migration is an investment in household finance--typically far and away the best investment available to a household. The return on that investment usually accrues not only to the migrant, but to an extended family through remittances. Since the pandemic started, I've been featuring articles worrying about the effects on remittances. It seemed fairly obvious that with lots of migrants losing jobs and/or returning home that there would be a dramatic fall in remittances with significant negative effects on consumption. So count me as very surprised to see that remittances from the US to Mexico and other Central American countries have actually increased since the pandemic started. And it's not just a feature of the US-Mexico corridor. Remittances have been increasing in Kenya. And in the Hrishipara diaries. But it's not totally uniform. The Philippines seems to be suffering from a precipitous drop in remittances.
All of that leads to a lot of questions about what is happening in remittances more systematically, where the increased remittances are coming from, what that implies about the labor markets in destination countries, and what it might tell us about savings of migrants and their propensity to send income home (Stuart Rutherford tells me that in follow-up interviews, the Hrishipara team discovered that overseas migrants did have substantial savings to draw from but didn't trust sending it home prior to the emergency). If you have any thoughts or data on any of that, please do be in touch.
Finally, if you are interested in migration policy, it's worth checking out the Netflix documentary Immigration Nation. Here's an interview with the filmmakers. Compare and contrast with New Zealand's new announcement that temporary worker visas will now allow holders to change jobs without penalty--a huge win for protecting those workers from abuse. Between this and New Zealand's success in the pandemic, well, God defend their free land.
3. US Inequality:
There's always plenty to say about US inequality--so much that the bigger part of the challenge is figuring out what to read. Here is an overview on "Racial Economic Inequality Amid the COVID-19 Crisis" from Bradley Hardy and Trevon Logan; it's a great place to get an overview perspective on what is happening now. Here's an overview of the "retirement race gap" and what to do about it. Here's McKinsey on the achievement gap in US education and the long-term damage of school shutdowns, further entrenching inequality.
But of course, what's happening now has a lot to do with has happened in the past, even the quite distant past. These past few weeks, I've been thinking about the long-term effects of American labor markets, via Suresh Naidu. Here's one (among several you can find via YouTube) video of a talk that Suresh has been giving about monopsony in US labor markets since slavery, and through Amazon Turk. Here's a paper version of the argument; it's all leading up to book to be called Terms of Service. Look for more about that here when it does arrive. The lens of monopsony, particularly for certain parts of the population is a really useful one, including as the ongoing drama of Lyft and Uber's labor policies and how they classify workers continues to play out. It also has made me think somewhat differently about reparations. Since I haven't linked it before, here is Sandy Darrity's new book on the long-view of racism and discrimination in America and the case for reparations, From Here to Equality.
4. Economics Profession:
In other manifestations of monopoly/monopsony in US labor markets, I give you the economics profession. Here is Berk Ozler with a thread on the monopsony power of various clubs in Economics, specifically NBER and BREAD. Monopsony is not what he was specifically writing about, but the power of the clubs is certainly an example.
The combination of the monopsonists overproducing future labor while denigrating most of the opportunities actually available to that future labor yields the kind of ongoing bad behavior that the profession is only starting to acknowledge. If you haven't read this long post from Claudia Sahm, you should. You need a monopoly/monopsony lens, I think, to understand why the bad behavior persists and why some of the things that Claudia details are such a problem.
Of course, questions about ethical behavior in economics extend well beyond the behavior within the profession. There's also the ethical dimensions of the work itself, brought into view by a very controversial study in Kenya. The basics: the study tests two approaches to get residential "compound" landlords to pay their delinquent water bills, an "encouragement" and a "hard threat" of disconnecting service. Understandably, when the paper became public, a lot of people had questions about the ethics of disconnecting poor people's access to clean water in order to get their landlords to pay up. The original paper had no discussion of the ethical issues and not much detail on why the study was done.
After a Twitter uproar, the authors of the paper published this comment on the ethical issues. The main defense, as it often is in such cases, is that the disconnection policy was going to happen anyway--the experiment actually reduced the number of people disconnected and generated knowledge about the possible negative effects of such disconnection to inform future policy. Here is Chris Prottas' long discussion of the many ethical issues and concerns that still apply. It's particularly worth the time because Chris doesn't assume bad faith or callousness on the part of the researchers, as is so easy in situations like this.
But Chris doesn't try to take on the big picture ethical issues that too often get short-shrift in economics. When is it OK to study a policy or program that "was going to happen anyway." For example, I understand why so many people were upset about this study. What I don't fully get is why there aren't similar concerns about widespread moves toward prepaid utilities. Isn't the net effect of disconnection based on ability to pay the same? Isn't it a little bit worse because prepaid requires ability to pay in the moment (and therefore ignores differential access to liquidity?)
Here is Macartan Humphreys with a perspective on the ethical issues of social experimentation from political science (and here, via Macartan, are the APSA guidelines). You can't talk about the ethics of experimentation without reference to Angus Deaton--here's a new version of his "Randomization in the Tropics Revisited", which includes the observation that many of the experiments--and this one certainly among them--in developing countries would never see the light of day in developed countries. I'll take a moment here for some more oblique self-promotion: Ariane Szafarz and Michel Abramowicz have a paper on the lack of consideration of equipoise in ethical discussions of experimentation in economics--it's a chapter in a forthcoming book on RCTs in economics that I also have a chapter in (as does Jonathan).
5. Nudges and Behavioral Finance:
Above I mentioned the mystery of migrant savings and the increase of remittances. I've seen a number of pieces in the personal finance vein about how to increase one's savings after the shock of the pandemic and lockdowns. Here for instance is one from the Wall Street Journal on "35 Ways to Jump-Start Your Emergency Savings." Now granted, the WSJ is not aiming for a low-income or even middle-income demographic, but the suggestions here are so pedestrian and so ludicrous (and manage to, like so many others, botch the SHED $400 emergency expense question) in the face of the real world emergency that, well, they really confirm my skeptical priors about the effectiveness of behavioral nudges in yielding anything meaningful in terms of real-life outcomes. To be clear, it's not that I doubt that some nudge can increase savings by say 18%, it's just that 18% is usually going to amount to literally 18 cents. Take for instance this example of a savings encouragement program in Indonesia that (probably spuriously) found the nudge decreased saving. I only note it because the basic idea--saving your small change--is at the heart of so much of what is out there in savings encouragement nudges--even the fintech apps that seem to generate so much excitement that I don't understand.
So with my skepticism noted, I was very pleased to see this recent piece from Common Cents Lab on avoiding what I think are the very frightening downsides of one of the hot trends in "financial inclusion": early access to paychecks. In case you're not familiar, the concept initially sounds really great: low-income people shouldn't have to wait for two weeks to collect the pay they have earned. Given the volatility and liquidity constraints they face, wouldn't it be great if they could access their paychecks early? But the bi-weekly paycheck is potentially an incredibly useful savings mechanism that helps those same households build up the lump sums they need for big expenses, like rent. In fact, a few years ago you would have seen that one of the most common sets of financial advice was that pay was received too often--and people should use envelopes to put aside their pay longer and make sure they did have the cash for those big monthly expenses. I think if you polled a lot of people in the developing world, you'd find they are not particularly fond of daily pay and it even has a negative effect on their total earnings.
