Editor's Note: Just as I was returning from an excellent but exhausting weekend running a conference for my older son's ultra-rare genetic syndrome, my younger son broke his leg. Nothing like recovering from exhaustion by spending several nights sleeping in the pull-out chair/bed in a hospital room. And then Debby arrived on the US East Coast bringing 5 to 20 inches of rain, so the raining, pouring joke I'd been making all week seemed predestined.
- Tim Ogden
1. Microfinance
There's a new book on microfinance: We Are Not Able to Live in the Sky by Mara Kardas-Nelson, a journalist whose work on development-related issues you may have seen in some high profile publications. The subtitle is “The Seductive Promise of Microfinance.” Here's a (paywalled) review from Bill Easterly that I haven't read, and a video of Kardas-Nelson at Politics & Prose in DC (which I haven't watched except for the shockingly bad intro).
I've only just started reading the book, fighting through my biases and priors (specifically, that little voice whispering “I'm the only one who's allowed to criticize microfinance!”; it's weirdly parental). Kardas-Nelson intersperses chapters on the history of modern microfinance with ones telling personal stories of borrowers in Sierra Leone. I can't bring myself to read the anecdote chapters (nor keep my eyes from rolling when she says that she spoke to “a hundred” borrowers in her research). The “historical” chapters do one of the better jobs I've seen on explaining the post-war (WWII, that is) history, context and evolution of development and aid in general and microfinance in particular. She gives equal weight and time to Hatch and Ashe as Yunus, and at least nods to the pre-history of informal and formal credit for the poor. I also really appreciate the effort to seriously discuss the reasons why the ideas of microfinance were so resonant in the 80's and 90's, and the pathways that ideas took. There is one passage where she quotes an unnamed early Accion staffer speaking of community development programs prior to credit programs as saying “If we just gave the money directly to the community, they would be better off,” that made me laugh out loud (see Item 3 below).
But having spent a lot of time in the last few years looking at the history of financial services for the poor, my main criticism of the book is that it doesn't take the history and context seriously enough. While noting some of the historical background there is a constant undertone that if not for the modern microfinance industry there would be no one offering credit to low-income households and therefore the movement is responsible for any and all ills of the low-income financial services sector. It feels like blaming Satoshi Nakamoto for NFT scams (and I use the Bitcoin/blockchain example advisedly as the ultimate benefits and costs of crypto remain uncertain). A few weeks ago on the FinDevGateway webinar on reassessing microfinance I noted that we have been having conversations about the purpose, value and direction of microfinance not for 40 years, but for 400 years—and that we have to be having those conversations to keep things on the rails. Right now my take on Kardas-Nelson's book is that it can be a useful part of that conversation but only if one takes it seriously but not literally. I'm likely to have more to say on this once I'm done with the book.
Speaking of taking the history of microfinance seriously, via David Roodman I found this excellent discussion of Jonathan Swift's creation of microfinance in Ireland in the 1600s, and the evolution of the microfinance industry in Ireland over the next 200 years (including regulation driven by traditional banks to shut down their highly successful micro-competitors). There was also a social venture fund set-up to invest in new microcredit ventures! Now I need to find a good history of the “friendly societies” in the UK in the 1800s (if you know of one, let me know).
I noted above that Kardas-Nelson's book provides a more comprehensive than usual telling of the modern threads of microfinance. There were several times during her discussion of Yunus' version of events that brought to mind the Kamala Harris coconut tree meme. Now, Yunus is being floated as the head of an interim government in Bangladesh after the toppling of Sheikh Hasina. If it comes to pass it will be very interesting how that affects perceptions of his role in modern microfinance.
2. (US) Household Finance
One of the ways that modern microfinance has evolved is a move toward “financial health” or “financial wellness” as the goal. Here's an interesting read on where the “medicalizing” of finance for the poor can lead—specifically on the possibility that “treating financial status as a health issue can pose significant risks to workers and society.” A major thread is that built into public health concepts is surveillance, and that surveillance of the poor has a history of unfortunate outcomes. It's strikingly similar to the threads of the book I keep recommending these days, The Ordinal Society.
PBS Frontline has a new documentary about the struggles of two low-income American families, one white, one black, over 30 years of trying to make ends meet after losing unionized factory jobs. It's certainly of a piece with the US Financial Diaries.
Watching the stories of these particular families, it's hard not to think that there are some obvious interventions that would make a meaningful difference. Max Tabarrok has a post providing a quick overview of four large RCTs in the US that belie that thinking. Forgiving medical debt? No measurable positive impact on finances or mental health. Unconditional transfers for the homeless? No average effect on homelessness. Large unconditional transfers for people in poverty? Lots of null effects (and again, see Item 3 below). Raising the minimum wage? Net effects are not meaningfully positive.
I think we're likely going to be talking about all this stuff for another 40 years at least. But it also suggests that many of the interventions in the workplace financial wellness push discussed above have very little chance of impact.
3. Basic Income
In the last faiV I covered the first set of papers on a large unconditional cash transfer experiment in the US, meant to provide some insight on the effects of a universal basic income. The next paper from the project, focused on the “financial health” effects, is now out. As noted above, the effects here are similar to those from the first two papers. In Eva Vivalt's summary: “Transfers largely financed consumption, with minimal savings and ~$0 impact on net worth.” The three year impact on financial health is also null. Here's co-author Alex Bartik's thread. There is some evidence that the households stabilized their spending (e.g. consumption was less volatile from month-to-month or quarter-to-quarter); it's also important to note that the consumption was not “vice goods” but core expenses of rent, food and transportation. The largest change was in increased amounts given to other family members and charity(!).
One of the things I'm looking forward to is thoughtful people writing about how, consistent with how GiveDirectly has sometimes discussed cash transfers, this can help us reset our priors on what kind of changes are plausible from other interventions. For instance, I expect that you, like me, would have guessed that forgiving medical debt would have a measurable impact on household finance before that paper came out. But if you had asked me for a prediction after this set of papers, I think I would have vastly revised my expectations downward. It will also be interesting to consider whether this set of papers changes beliefs/priors about the plausibility of effect sizes reported in other experiments on poverty interventions, much less, as noted above, the plausible impact of light touch interventions to nudge people toward better financial behaviors.
Two notes on that specifically. First, John Horton fed the first part of the abstract of the first of the papers into Chat-GPT and asked it to complete the abstract—and it's version claims large benefits (I'm not going to go into whether that's the convenient answer for an already sentient AI to give). This could be an interesting way to track how people's perceptions change. At what point do AIs start predicting null effects? Second, here's Matt Yglesias take on the experimental results (you have to scroll down a bit) and future policy.
4. Fraud
Oh, so much fraud. Here's a long read on a Brazilian woman who became a hub of helping other immigrants create fake accounts in order to become Uber, Lyft and DoorDash drivers. As with many examples from the long annals of fraud, it all starts fairly innocently—I'm just helping people get around unfair rules—but ultimately becomes intimately tied with serious criminals. Here's an article on the emerging network of fraud enablers—in this case a “face fraud factory” of the kind that was used in the above story.
Speaking of the path into criminal fraud, there is definitely an interesting pipeline around such “white collar” crime. I enjoyed this take on how the show “Real Housewives” is an ideal exposition of the pathway into financial crimes for people who aren't just scrapping by.
And for some additional levity, here's a quick video about a fake ramen restaurant.
5. Buffets & Birthrates & Beasts, Oh My!
Closing out with a grab bag of follow-ups to recent faiV items.
First, here's an excerpt from a forthcoming book that details the beginning and end of the Buffet-Gates partnership; apparently that involves Buffet perceiving that the Gates Foundation had become too institutional. But it also includes the idea that the new trust that Buffet is creating, to be overseen by his children, has to give away all of the bequest within 10 years of his death. I just don't see how that is remotely possible, even with a McKenzie Scott approach, barring just dropping money from the sky (honest question from someone who is not at all a macro-guy—would more than $125 Billion of windfall consumption over 10 years show up in inflation statistics?). I remain of the opinion that this is something that deserves a lot more attention.
Second, a few more things on declining birthrates. Here's a Vox explainer on pronatalists. Here's an essay from philosopher Victor Kumar on why pronatalism should be a progressive priority. Here's Ross Douthat on whether caring about birthrates is “weird.”
Finally I linked to a few things in the last edition, including a defense, related to Mr. Beast. Here's reporting that people involved in one of his newest stunts were abused and harmed. At least there seems to be some admission and apology there?
Statistic of the (16) Days
The Econo-verse is missing a trick not spending every Olympics loudly proclaiming that per-capita (or even better, per-capita + GDP) medal rankings are the only ones that anyone should ever look at. Over the last 3 Summer Olympics, New Zealand has been the only serious rival to Caribbean dominance. I see you David and Berk.
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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