Editor's Note: Thanks for the many kind notes on the return of the faiV last week. Let's see if I can get back in the swing of things. I am still interested in a) thoughts on how best to share the faiV, b) anything you see that should go into the faiV. So please share. Oh, and you have to read, then watch, to the end to get the Edition joke.
- Tim Ogden
1. The State of (Behavioral) Economics
I'll start out this item by noting my own uncertainty on this topic (a behavioral nudge!)—I'm genuinely unsure about what I should think about what is real and what is not in the world of behavioral economics. In the 10+ years I've now been hanging out in the world of economics research, I've eagerly consumed Predictably Irrational, Nudge and Thinking Fast and Slow. I've gotten excited about the possibility that small, cheap changes to the design of products and messages could have big impacts. But I've also watched with no small amount of schadenfreude as some of the core findings in behavioral science and economics have been found seriously wanting, whether from outright fraud, data manipulation, or poor research practices.
So when I read a piece like The Death of Behavioral Economics (note: I don't know when this was published), and then I receive an update from the Busara Center on their behavioral research, I'm really not sure what to think. I'm not likely to give up on "limited attention" given my own personal experience, but when even loss aversion seems to be on shaky ground, it's hard to know how to interpret any of the past work, much less current work in this area.
And I think that really is a problem. If we care about making better policies and products, I think we do need a lot more reckoning with the reliability of the core claims of behavioral economics, and the extent to which we should accept or be skeptical of findings that incorporate them. Here's a recent paper on six text-based informational interventions on agricultural practices in Kenya and Rwanda. The bottom line, which seems plausible, is that the interventions have a real but very small effect but could be cost-effective because they are so cheap. Is that how we should view all behavioral interventions now? If you have thoughts, I'd love to hear them.
On a more generalized note, two influential development economists have memoirs out this winter. Pranab Bardhan "provides a fascinating account of his richly varied and widely-travelled life, interwoven with thoughtful comments on politics and society both in India and abroad and on some major strands of international intellectual debates."
Angus Deaton's memoir Economics in America came out recently. There's a review in the Journal of Economic Literature, and here's a very positive review of the audiobook, which Angus reads himself, which I can agree, sound unheard, must be very entertaining. Apparently there's not much RCT critique in there--so if you're interested in that you'll just have to read my book (or read the Deaton chapter, free here, and then read my book).
2. Small Firms and Employment
Notes on small firms will be a regular part of the faiV now for obvious reasons—it's what I spend most of my time paying attention to. One of the reasons I became interested in small firms in the first place was the realization that working in small firms would seem to be an alternative for people targeted by microfinance. But there's very little that I know of focused on understanding the choice (or lack of choice) between starting one's own microenterprise and paid work in a slightly larger firm. There's Bauchet and Morduch from way back in 2013 on the lack of overlap between microfinance target customers and factory workers in Bangladesh, and Blattman and Dercon's experiment on microentrerprise versus factory work in Ethiopia, but both of those are looking at larger factories, not small firms. There's Banerjee, Breza, Duflo and Kinnan who with their "reluctant entrepreneur" category nod in this direction but that's not really designed to follow this thread. Last week I cited a new paper on an entrepreneurship program in Rwanda that is closer to looking at the direct comparison of work in a small firm versus microenterprise (and generally finding that perhaps people would be better off in paid work than starting their own enterprise).
I'm curious about this. I know I've got big blind spots because I come at this from the starting point of microfinance. Do you know of anything that really looks at the choices from the point of view of the potential worker? If so, send it my way, please.
In the meantime, Paddy Carter at BII has a new post about the dearth of research on small firms and employment, and how frustrating that is for those trying to generate impact. We should care a lot about whether investment in small firms generates a) net new jobs (not just shifting which firms provide jobs), and b) the quality of the jobs generated (it's possible to destroy good jobs and replace them with lots of bad jobs, a particular preoccupation in the developed world). There's a kind shout-out to the Small Firm Diaries research in Paddy's post because of our finding that most of the jobs in small firms are intermittent and temporary, which certainly are more likely to be characteristics of bad than good jobs.
Also don't miss the link in Paddy's post to a evidence review on SME (gritting my teeth as I write that, because my newest quixotic quest is to end the conflation of micro, small and medium firms, but for now I'll be happy that this is at least SME and not MSME) research from the IGC that BII commissioned, "Why Do SMEs Matter?"
If you are interested in the specific questions about the choices between microentrepreneurship, small firm paid work, and larger factory work, I'm trying to put together a project on exactly this question with the Global Worker Dialogue, so get in touch (cough cough, particularly if you're a funder, cough cough).
3. Other Things I'm Paying Attention To
Per the earlier comment on limited attention, I certainly have to deal with that everyday. But here are three things I'm paying attention to, but maybe not as much as I should be.
I've been learning on Twitter about the size and breadth of the fertility collapse worldwide. It's a little hard to wrap your head around when you grew up with The Population Bomb, the ongoing struggle to ensure every woman has access to birth control or even just because of the need to cut carbon emissions rapidly, but the number of countries which have fallen below replacement level fertility shocked me. Importantly, in many places, this is because women are having fewer children than they say they want, and that seems to be related to their inability to find jobs that support their desired level of fertility. I really wonder where the tipping point is when the crash in fertility rates shifts public perceptions toward the need to attract more people.
Which, if you are a regular faiV reader, you will know is a pivot to talking about migration. Did I mention above that the subtitle to Angus Deaton's book is "An Immigrant Economist Explores the Land of Inequality"? I mentioned last week some work we're (FAI) doing on rural-to-urban migration and digital remittances in South Asia. Here's a summary of some relatively recent work on the "Welfare Effects of Encouraging Rural-Urban Migration." But the thing that attracts all the attention these days is trans-national migration. Here's an argument that there should be much more policy and philanthropic focus on enabling more migration. And here's an argument from Alexander Berger of Open Philanthropy on why he's skeptical. And Charles Kenny has thoughts. There's one thing we can all agree on about migration though: as the World Bank helpfully charts global net migration has remained at a very low level since we started counting.
Finally, there's good news (and good news)and bad news about vaccines. More attention please!
4. US Consumer Finance
Most of the news on the US economy, and rightly so, has been focused on the remarkable success of macroeconomic policy in bringing down inflation with a soft-landing, and the still very positive news from the labor market.
Still, there are things that I worry about when I see them. Like a increasing loan delinquencies, particularly among younger borrowers. And the much larger role "subscriptions" have started to play in the consumer economy—I just don't know how those buying patterns will fit in to people trying to cut back on their spending by choice or necessity. While the development finance world seems to still be enamored of PayGo models, I think we really don't know enough about how mental budgeting works on subscription models and where they work and where they don't. If only I had more confidence in behavioral findings, sigh.
On that note, there are still home-spun "behavioral" methods that continue to resonate with people. This "envelope" method of saving seems to be a huge hit on YouTube and TikTok (HT: Barbara Magnoni), though of course there's good reason from experience to suggest that this won't work all that well in the end. But it does illustrate that their are big gaps in the financial services that are available in the market.
5. Fraud
A part of the consumer finance conversation that I feel like doesn't get enough attention these days is the crime and fraud dimension. This includes both direct attacks on consumers and attacks on the providers of financial services to those consumers. Perhaps I'm thinking about this a bit more this week as two of the non-work people I talk to most are both suffering through extended network outages (e.g. a week with no email or phones) at major institutions (one an urban hospital, another associated with the US DoD) due to hacking incidents. If those sorts of institutions can't effectively protect themselves, what chance do the rest of us have?
To wit, here's Cory Doctorow, a science fiction writer, pundit and anti-fraud activist(!) on how he was scammed. Again, if you can trick Doctorow, who isn't vulnerable? Especially since, as Doctorow notes, the way that financial services providers are starting to deploy AI means: [Bank's] AI will groom bank customers to be phishing victims."
And here's a story about another dimension of this issue, arguing that Block (formerly Square, the company behind Cash App) has built a big part of it's business and success on enabling fraud, crime and scams: "Core to the issue is that Block has embraced one traditionally very “underbanked” segment of the population: criminals." Some of the details here are just jaw-dropping, e.g. Block paid to promote a song called "Cash App" that is about using the app to pay to have someone killed; the artist was later arrested for attempted murder.
Of course, financial fraud isn't a new thing. From the archives, here's a fascinating story about an accomplished financial scammer in 1770s London. The subtext is that even hundreds of years of experience don't protect us from many of the same basic identity theft scams.
Video of the Day
The "I Hope Like Hell We Get This Grant" collection, including fundraising hits like "Why Do I Keep Applying?" and "New Strategy, Who Dis?"
The faiV is written by Timothy Ogden and produced by the Financial Access Initiative at NYU's Wagner Graduate School of Public Service.
Email: fai-wagner@nyu.edu
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