Viewing all posts with tag: Credit  

Week of December 6, 2019

1. Trends: Futurism has always come more easily to technologists than policy wonks (probably because it’s easier). But big gatherings are a good chance to look ahead to how the whole inclusive finance ecosystem, getting more complex each year, will evolve. e-MFP’s annual survey of financial inclusion trends – the Financial Inclusion Compass 2019 – was launched during EMW2019, and tries to do just this. If there were a single theme to this paper, it’s the disconnect between, on the one hand, individual stakeholders with their own interests and objectives, and on the other a collective confusion, a ‘soul-searching’ of sorts, for financial inclusion’s purpose amidst the panoply of initiatives and indicators in a sector of now bewildering complexity.

Digital transformation of institutions ranked top, a theme that dominated last year’s European Microfinance Award (EMA) and EMW, with Graham Wright’s keynote call for MFIs to “Digitise or Die!” (and see also the FinDev webinar series on the subject). Client protection remains at the forefront, (second in the rankings, see point 4 below for more going on here) and client-side digital innovations, despite the ubiquitous hype, is only in third overall – and only 7th among practitioners, who actually have to implement FinTech for clients. Do they know something that consultants and investors do not? Among New Areas of Focus (which looks 5-10 years down the track), Agri-Finance is clearly top. The Rural and Agricultural Finance Learning Lab, Mastercard Foundation and ISF Advisors’ Pathways to Prosperity presents the current state-of-the-sector. It’s worth looking at. Finally, Social Performance and/or Impact Measurement is 5th out of 20 trends. There’s too much to choose from here. But the CGAP blog on impact and evidence digs into the subject from a whole range of angles. And check out Tim’s CDC paper [No quid pro quo!--Tim] from earlier this year on the impact of investing in financial systems. Good to see that financial regulators are also giving this the attention it needs.

Finally, finance for refugees and displaced populations generated a lot of comments in the Compass - and was the biggest jumper in the New Area of Focus rankings. It’s been a big part of EMW for the last few years; climate migration was the theme of the excellent conference opening keynote by Tim McDonnell, journalist and National Geographic Explorer, and there’s lots of recent data (here in a World Bank blog) showing refugee numbers at (modern) record levels. Migration of course is inextricably linked to labor conditions. Low paid and low quality work drives migration [maybe we should have more research on migration as a household finance strategy--Tim]. For more on the ‘World of Work’ in the coming century, see below.

2. Climate Change: There may be more evolution in climate change/climate finance than any other area of financial inclusion today. From our side, the European Microfinance Award 2019 on ‘Strengthening Climate Change Resilience’ wrapped up last month, with APA Insurance Ltd of Kenya chosen as the winner for insuring pastoralists against forage deterioration that result in livestock deaths due to droughts . Forage availability is determined by satellite data, via the Normalized Difference Vegetation Index (NDVI). A short video on the program can be seen here.

The severity of climate change and the increasing impact it has on the world’s most vulnerable hardly needs outlining here. Progress has been excruciatingly slow. But a new report by the Global Commission on Adaptation, headed by Bill Gates and former U.N. Secretary-General Ban Ki-moon, aims to change that. Released in September 2019, it mapped out a $1.8 trillion blueprint to ready the world to withstand intensifying climate impacts. The Commission launched the report in a dozen capitals, with the overarching goal of jolting governments and businesses into action.

A bunch of recent publications illustrate the overdue acceleration of responses. The Economist Intelligence Unit’s Climate Change Resilience Index is pretty stark reading. Africa will be hit the hardest by climate change according to the Index – with 4.7% real GDP loss by 2050 (well supported by the rankings in the ND-Gain index from Notre Dame Global Adaptation Initiative (ND-GAIN), which summarizes countries’ vulnerability to (and readiness for) climate change. The EIU index shows that institutional quality matters a lot in minimising the effects. The paper also presents three case studies that highlight the importance of both economic development and policy effectiveness to tackle climate change. It’s worth a (fairly frightening) read. So is AFI’s new paper “Inclusive green finance: a survey of the policy landscape”, which asks and answers why financial regulators are working on climate change, how they have been integrating climate change concerns in their national financial inclusion policies and other financial sector strategies, and how they are collaborating with national agencies or institutions. Blue Orchard has also just published "Rethinking Climate Finance" which points to a US$400 billion shortfall by 2030 in climate finance, just to keep global temperatures within the 1.5 Celsius limit. The authors advocate various blended-finance products to encourage private sector investment, which, their survey reveals, is woefully low considering how significantly those investors perceive climate change risk to their portfolios.

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Week of January 7, 2019

1. The History of Banking: For a project I'm working on I've been thinking a lot about financial system development and have gotten a bit obsessed with the history of banking. You might think that with a topic so core to economic thinking there would be some consensus on things like what banks do and how they came to do them. But you would be wrong. I've had great fun reading conflicting accounts of the history of banking in the US and Germany over the last few weeks. At the AEA exhibit floor I stumbled on a new book about the history of banking in France, Dark Matter Credit. The short version is that informal banking was a massive part of the French economy, and worked better in many ways than French banks until World War I, and it took regulation to finally allow formal banks to displace the informal system. I also picked up Lending to the Borrower from Hell and just in the first few pages discovered that Italian "friars, widows and orphans" were buying syndicated loans to Charles the II of Spain in 1595. The bottom line is that informal finance was much more efficient and "thick" than I believed, and formal banking extended much further much earlier than I had known. There's also a new book on banking crises in the US before the Federal Reserve, Fighting Financial Crises, which is equally relevant to thinking about the much-more-grey-than-you-would-think borderland between formal and informal banking.
To tie this all more specifically to the AEA meetings than just what was on display at the book vendors' booths, one of my favorite sessions was Economics with Ancient Data. Though I'll confess I'm not sure whether to be heartened that things we are doing now can have persistent effects for thousands of years, or depressed that our present was determined by choices thousands of years ago.

2. MicroDigitalHouseholdFinance: There was of course a number of new(ish) papers on our favorite topics, further condensed here. Here's the session on financial innovation in developing countries and one specifically focused on South Asia. Some of these papers have appeared in recent editions of the faiV already, but I want to call out a couple specifically. Microcredit, I've argued, is in dire need of innovation. So I'm always pleased when I see papers on innovation in the core product terms, like this paper from India on allowing flexible repayment, and while it wasn't at AEA,this one in Bangladesh. In both cases, allowing borrowers to skip payments results in higher repayment rates and better business outcomes. I see these as part of an evolving understanding that microcredit is a liquidity-management product, not an investment product. Credit can also be a risk-management product, as long as you know it's going to be there when you need it. That's the story of this paper on guaranteed loans for borrowers in the event of a flood (in Bangladesh). Another cool innovation in microcredit. Of course, the next question is who is going to insure the MFI so that it has the liquidity to make good on emergency loan promises?
There was a session titled "Shaping Norms" that I almost missed out on because of the somewhat oblique title. There were some very interesting papers here on how household preferences get formed, and how they can be changed, including longer-term data on the experiment in Ethiopia that I think of as launching the "changing aspirations" theme that we see more and more of.
I was amused that there were simultaneous sessions on "Finance and Development" and "Financial Development" but the poor Chinese student beside me was very confused as apparently the translations in the official app did a poor job of differentiating between the two. Both had interesting papers, but I found this on the sale of a credit card portfolio from a department store to a bank (which has access to more credit bureau data) in Chile, and this on bank specialization in export markets particularly interesting.
But moving outside of the AEA realm, my confirmation bias prevents me from not including two other related items on Household Finance. First, Matthew Soursourian of CGAP has some pointed questions about the usefulness of "financial health" as a concept, questions I thoroughly endorse. Second, there is documentary evidence (for instance, here) that I've long been skeptical of the story about mothers in developing countries caring about their children while fathers don't. I find it more than vaguely racist as these stories typically only involve countries where the majority of fathers are black or brown. Anyway, at long last someone, specifically Kathryn Moeller, tried to track down one of the more common statistics on women spending more money on children and found that there is no source, and it was apparently made up as part of a marketing campaign. But that's just the start. Seth Gitter links to three studies that find no difference in investment in children (and I'll add the Spandana impact evaluation to his list) and Martin Ravallion points out that the "70% of world's poor are women" stat seems equally unsourced.

3. Entrepreneurship, Reluctant and Otherwise: Overall, the paper that left me thinking the most is a long-term update to the Blattman and Dercon experiment randomizing employment at factories in Ethiopia. If you need a catch-up, the original experiment had three arms: control, a $300 cash grant plus business training and a job in a "sweatshop"-type factory. While there were positive effects for the entrepreneurship group, the jobs didn't improve income and had negative effects on physical health. After five years, all the differences dissipate (hours worked, income, health, occupational choice). Pause to think about that for a moment--after several years of higher incomes from entrepreneurship, the average person in that arm shut down their business. And the control group started microenterprises and got factory jobs (filling the gaps left by the treatment arm participants who dropped out?). It's another piece of a growing puzzle about why microenterprises don't grow, or more specifically why people don't seem to invest in their microenterprises, even when the income is higher than the alternatives. Stuart Rutherford has been thinking about that too, and because it's Stuart, he went out and interviewed participants in the Hrishipara Diaries to try to get some answers.

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Week of November 12, 2018

1. Our Algorithmic Overlords: Since it hasn't featured for a few weeks, I'm going to lead with our old friends this week. If you're in development circles, you know about Aadhaar. And if you're a reader of the faiV you know about China's intrusive citizen monitoring and control (let's dispense with calling it a "social credit score"--this apologia for what's happening is frightening in its own right). But did you know that Venezuela is on the forefront of assigning every citizen an ID and tracking their behavior, including their votes (maybe)? Here's a Twitter thread with some additional details from the reporter of that piece. Guess who's providing the technology?
The frightening frontier in the US is from private technology companies, well, let's be honest, the frightening frontier is Facebook. Here's a New York Times investigation of the company's conduct that is jaw-dropping, over and over again. Where is Teddy Roosevelt when you need him? For now, we've got Kara Swisher's thoughts on cleaning up the "toxic smoke".
Tying the domestic and global back together, here's Susan Liautaud of CGD on how the perspective on the ethics of automation and AI may look different in developing countries.

2. Development Finance and Banking: Sticking with CGD, here's the polymath of development, Charles Kenny, on reforming the World Bank's Private Sector Window to comply with, y'know, the World Bank's guidance on appropriate design for private sector subsidies.
The big question for development finance (and social finance of all sorts) is whether it is crowding-in or crowding-out private sector investment, or neither. Here's Paddy Carter on the "Elusive Quest for Additionality" (have to love a shout-out to old school Bill Easterly) in summary form and in full length paper form (with van de Sijpe and Calel).
Let's say that there is additionality and DFIs are increasing capital flows to developing countries. The next big question is, what impact does that have? Here's Judith Tyson and Thorsten Beck on how those capital flows are affecting domestic financial system development. They conclude that the capital flows are too pro-cyclical and not doing enough to boost domestic capital markets.
There is a specific kind of capital flow that is actively undermining financial development specifically and development in general: regulations on anti-money-laundering and anti-terrorist-financing (regulations are a form of capital right?). Here's a brief from the Humanitarian Policy Group at ODI on how bad it's gotten in humanitarian relief. And just a reminder that this is a pervasive problem. No really,it's a pervasive problem.
Speaking of financial system development, here's an interesting post on what is happening in Ghana's banking sector--well, what's happening is consolidation, the post explains why and what's next. And here's a perspective on the liquidity crunch for Indian NBFCs.

3. MicroDigitalFinance: It feels like we might be hitting an inflection point on mobile money services, the point where it's no longer possible to talk about it without prominently noting the negatives. CGAP has a new report on digital credit in Kenya and Tanzania, which leads them to the conclusion that "It's Time to Slow Digital Credit's Growth in East Africa." Late payment and default rates are enough to make any MFI executive faint. One particularly interesting tidbit: loans taken in the morning are much more likely to be repaid than loans taken at night. That's not really surprising but it's amazing to have that level of insight. Of particular concern is that many borrowers don't understand the terms of the loans they are taking. All the progress made on consumer protection for MFIs doesn't matter much if the market shifts to getting credit elsewhere.

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Week of September 24, 2018

1. Poverty and Inequality Measurement: How do you measure poverty, and by extension, inequality? Given how common a benchmark poverty is, it's easy to sometimes lose sight of how hard defining and measuring it is.
Martin Ravallion has a new paper on measuring global inequality that takes into account that both absolute and relative poverty (within a country) matter--for many reasons it's better to be poor in a high-income country than a low-income one, which is often missed in global inequality measures. Here's Martin's summary blog post. When you take that into account, global inequality is significantly higher than in other measures, but still falling since 1990.
The UK has a new poverty measure, created by the Social Metrics Commission (a privately funded initiative, since apparently the UK did away with its official poverty measure?) that tries to adjust for various factors including wealth, disability and housing adequacy among other things. Perhaps most interestingly it tries to measure both current poverty and persistent poverty recognizing that most of the factors that influence poverty measures are volatile. Under their measure they find that about 23% of the population lives in poverty, with half of those, 12.1%, in persistent poverty.
You can think about persistence of poverty in several ways: over the course of a year, over several years, or over many years--otherwise known as mobility. There's been a lot of attention in the US to declining rates of mobility and the ways that the upper classes limit mobility of those below them. That can obscure the fact that there is downward mobility (48% of white upper middle class kids end up moving down the household income ladder, using this tool based on Chetty et al data). I'm not quite sure what to make of this new paper, after all I'm not a frequent reader of Poetics which is apparently a sociology journal, but it raises an interesting point: the culture of the upper middle class that supposedly passes on privilege may be leading to downward mobility as well.
There's also status associated with class and income. On that dimension, mobility in the US has declined by about a quarter from the 1940s cohort to the 1980s cohort. That's a factor of "the changing distribution of occupational opportunities...not intergenerational persistence" however. But intergenerational persistence may be on the rise because while the wealth of households in the top 10% of the distribution has recovered since the great recession, the wealth of the bottom 90% is still lower, and for the bottom 30% has continued to fall during the recovery.

2. Debt: What factors could be contributing to the wealth stagnation and even losses of the bottom 90% in the US? Just going off the top of my head, predatory debt could be a factor. If only we had a better handle on household debt and particularly the most shadowy parts of the high-cost lending world. Or maybe it's the skyrocketing amount of student debt, combined with bait-and-switch loan forgiveness programs that are denying 99% of the applicants. I'll bet the CFPB student loan czar will be all over this scandal. Oh wait, that's right, he resigned after being literally banned from doing his job.

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Week of September 17, 2018

1. MicroDigitalFinance: A few weeks ago I wrote that small-dollar short-term loans have always been the bane of the banking industry. We're getting a new test of that. US Bank is launching an alternative to payday loans: loans are between $100 and $1000 and repaid over three months. Interest rates are well below payday lending rates, but still around 70% APR--interestingly on US Bank's page about the loan they very clearly say: "Simple Loan is a a high-cost loan and other options may be available." All of that is good news. But the loans are only available to people with a credit rating (even if it's bad), who have had bank accounts with US Bank for 6 months and direct deposit for 3 months. It will be fascinating to watch take-up, repayment rates, and outcomes--those are where banks have always struggled in this market. Here's Pew's Nick Bourke's take on the US Bank move and the potential for others, with some more regulatory action, to follow suit.
I occasionally remark on insurance being the most amazing invention of all time. It's astounding that it works at all, even in the most developed, trusting and well-regulated markets (see this attempt by one of the US's oldest life insurance providers to collapse the market); it's not surprising that it's a struggle to make it work elsewhere, in the places where households face more risk and would most benefit from access to insurance. So I'm always interested in new work on insurance innovation. Here's a new paper on a lab-in-the-field insurance experiment in Burkina Faso. The basic insight is that many potential purchasers struggle with the certain cost of an insurance premium versus the uncertain payoff. It turns out that framing the premium around an uncertain rebate if there is no payout--which makes both premium and benefit uncertain--increases take-up, especially among those that value certainty most. Yes, you probably need to read that sentence again (and then click on the link to see that even that obtuse sentence is marginally clearer than the abstract). If we want to delve into the details of insurance contract construction, there's also a new paper that delves into how liquidity constraints--a huge factor that hasn't generally gotten enough attention--affect the perceived value of insurance contracts, and how to adjust the contracts accordingly.
And finally, William Faulkner's dictum that "The past is never dead. It's not even past." applies to fintech. A new paper finds that common law countries in sub-Saharan Africa have greater penetration of Internet, telecom and electricity infrastructure, and thus much greater adoption of mobile money and FinTech. That's consistent with history of banking literature that finds common law countries do better on financial system development, financial inclusion and SME lending.
For the record, I've clarified in my own mind the difference between the MicroDigitalFinance and Household Finance categories. The former provides perspective on providers, the latter on consumers. I reserve the right to break that typology as necessary or when it suits me.

2. Household Finance: I suppose another way to distinguish between the two categories is that MicroDigitalFinance features bad news only most of the time, while Household Finance is just all bad news. At least that's the way it feels when I come across depressing studies like this: Extending the term of auto loans (e.g. from 60 months to 72 months as has become increasingly common during this low-quality credit boom) leads to consumers taking loans at a) higher interest rates, and b) paying more for the vehicle. Liquidity constraints mean consumers pay much more attention to the monthly payment and get screwed.

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Week of March 4, 2018

1. Crappy Financial Products: The results are no surprise, but it remains troubling to see the numbers. “Color and Credit” is a 2018 revision of a 2017 paper by Taylor Begley and Amitatosh Purnanandam. The subtitle is “Race, Regulation, and the Quality of Financial Services.” Most studies of consumer financial problems look at quantity: the lack of access to financial products. But here the focus is on quality: You can get products, but they’re lousy. Too often, they’re mis-sold, fraudulent, and accompanied by bad customer service. These problems had been hard to see, but they’ve been uncovered via the Consumer Financial Protection Bureau Complaints database, a terrifically valuable, publicly accessible—and freely downloadable—database. (Side note: this makes me very nervous about the CFPB’s current commitment to maintaining the data.)

Thousands of complaints are received each week, and the authors look at 170,000 complaints from 2012-16, restricted to mortgage problems. The complaints come from 16,309 unique zipcodes – and the question is: which zipcodes have the most complaints and why? The first result is that low income and low educational attainment in a zipcode are strongly associated with low quality products. Okay, you already predicted that. On top of those effects, the share of the local population identified as being part of a minority group also predicts low quality. No surprise again, but you might not have predicted the magnitude: The minority-share impact is 2-3 times stronger then the income or education impact (even when controlling for income and education). The authors suspect that active discrimination is at work, citing court cases and mystery shopper exercises which show that black and Hispanic borrowers are pushed toward riskier loans despite having credit scores that should merit better options. So, why? Part of the problem could be that efforts to help the most disadvantaged areas are backfiring. Begley and Purnanandam give evidence that regulation to help disadvantaged communities actually reduces the quality of financial products. The culprit is the Community Reinvestment Act, and the authors argue that by focusing the regs on increasing the quantity of services delivered in certain zipcodes, the quality of those services has been compromised – and much more so in heavily-minority areas. Unintended consequences that ought to be taken seriously.

2. TrumpTown: Another great database. ProPublica is a national resource – a nonprofit newsroom. They’ve been doing a lot of data gathering and number-crunching lately. Four items today are from ProPublica. The first is the geekiest: a just-released, searchable database of 2,475 Trump administration appointees. The team spent a year making requests under the Freedom of Information Act, allowing you to now spend the afternoon getting to know the mid-tier officials who are busily deregulating the US economy. The biggest headline is that, of the 2,475 appointees, 187 had been lobbyists, 125 had worked at (conservative) think tanks, and 254 came out of the Trump campaign. Okay, that’s not too juicy. Still, the database is a resource that could have surprising value, even if it’s not yet clear how. Grad students: have a go at it. (Oh, and I’d like to think that ProPublica would have done something similar if Hilary Clinton was president.)

3. Household Finance (and Inequality): This ProPublica story is much more juicy, and much more troubling. Writing in the Washington Post, ProPublica’s Paul Kiel starts: “A ritual of spring in America is about to begin. Tens of thousands of people will soon get their tax refunds, and when they do, they will finally be able to afford the thing they’ve thought about for months, if not years: bankruptcy.” Kiel continues, “It happens every tax season. With many more people suddenly able to pay a lawyer, the number of bankruptcy filings jumps way up in March, stays high in April, then declines.” Bankruptcy is a last resort, but for many people it’s the only way to get on a better path. Even when straddled with untenable debt, it turns out to be costly to get a fresh start.

The problem will be familiar to anyone who has read financial diaries: the need for big, lumpy outlays can be a huge barrier to necessary action. Bankruptcy lawyers usually insist on being paid upfront (especially for so-called “chapter 7” bankruptcies). The problem is that if the lawyers agreed to be paid later, they fear that their fees would also be wiped away by the bankruptcy decision. So, the lawyers put themselves first. The trouble is that the money involved is sizeable: The lawyers’ costs plus court fees get close to $1500. The irony abounds. Many people tell Kiel that if they could easily come up with that kind of money, then they probably wouldn’t be in the position to go bankrupt. Bankruptcy judges see the problem and are trying to jerry-rig solutions, but nonprofits haven’t yet made this a priority. So, for over-indebted households, waiting to receive tax refunds turns out to be a key strategy.

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Week of February 5, 2018

1. Digital Finance: When I name an item "digital finance" you know I'm going to be talking about mobile money and fintech--but should you? Is there something that's particularly more digital about mobile money than about payment cards or plain-old ATMs (both of which are, of course, fintech). Arguably paying a vendor with a credit card requires fewer real world actions than using mobile money--there are certainly fewer keys to be pressed. That's the overriding thought I had when looking at this new research from CGAP and FSD Kenya on digital credit in Tanzania: digital credit looks like credit cards. It's being used to fill gaps in spending, not for investment; is mostly being used by people with other alternatives; it's mostly expanding the use of credit (on the intensive margin); and it's really unclear whether it's helping or hurting.
Perhaps the most striking thing is that digital credit is not being used for "emergencies." Part of the interest, I think, in mobile money and digital credit was that it might enable users to better bridge short-term liquidity gaps given the well-documented volatility of earnings. But that's not what seems to be happening. Again it seems to be mirroring other forms of digital finance that we don't really call "digital finance", namely payday loans (which after all typically involve an automated digital transfer out of the borrowers checking account). Borrowers are very likely to miss payments (1/2 of borrowers) or default (1/3 of borrowers, based on self-reports, not administrative data). Given that, these papers (one, two, three, four) on whether access to payday loans helps or hurts seem like they should be required reading for digital credit observers (and don't forget the links from Sean Higgins a few weeks ago). The gist--they do help when there really are emergencies like natural disasters, but hurt a lot when there aren't.

This week in the US is providing an unusual window into emergencies and digital finance. The sharp declines in the US stock market caused a lot of folks to go look at their portfolios, which brought down a new generation of digital finance websites like Wealthfront and Betterment. Even Fidelity and Vanguard had problems. There's an element there of concern about mobile money systems in developing countries: we really don't know what a "run" on a mobile money platform would look like and how systems and people would be able to handle outages whatever their cause. But the more important story is that the problems encountered were probably pretty good for consumers. Preventing people from accessing their accounts in the perceived emergency of stock prices dropping kept them from panic selling, which is a thing humans do a lot. In fact, for those customers that could log in, they found lots of artificial barriers to taking action. Digital finance's key contribution in this case wasn't expanding access, it was limiting it.

2. Household Finance: Which brings us back to the ever recurring theme of household finance: it's complicated and we really don't understand it very well. What we do understand is that it's very hard for people to make sound decisions (causal inference is hard!) when it comes to money. Here, at long last, is the write-up of work by Karlan, Mullainathan and Roth on debt traps for fruit vendors. You may remember this being referenced in the book Scarcity--but if not, the basics are that people in chronic debt who have their loans paid off fall quickly back into chronic debt. That also seems like something digital credit observers should be thinking about.

Here's another understudied puzzle: consumers do seem to react to stock market gyrations even though only a small portion of Americans have meaningful investments in stocks. Really, the figure is a lot lower than you likely think. But if it's not sold out yet, you can start investing in stocks at a big discount today--not because of the decline of the stock markets, but this curious offer to buy a "gift card" for $20 worth of stock in major companies for $10. I stared at this for a long time wondering, "Should I use this as a teaching tool for my kids? And if so, should the lesson be arbitrage or why not to invest in individual stocks?"
   
3. Our Algorithmic Overlords: I promised a review of Virginia Eubanks new book Automating Inequality this week, but I'm not ready yet. In the meantime, I'll point you to Matt Levine's discussion of how little of what we do matters and how big data is starting to illustrate that. It's a riff that starts from a new paper showing that what banks do doesn't seem to matter much, which I suppose is a big support to the point above about how hard household finance is--even highly paid professionals can't seem to do anything that makes a difference.

And the founder of the Electronic Frontier Foundation died this week. I found this reflection thought-provoking in a number of directions: "I knew it’s also true that a good way to invent the future is to predict it. So I predicted Utopia, hoping to give Liberty a running start before the laws of Moore and Metcalfe delivered up what Ed Snowden now correctly calls 'turn-key totalitarianism.'”

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CEGA Special Edition: A bit more from AEA

1. Financial Inclusion: I [Sean] organized a session on savings and financial inclusion that looked at the impact of various savings interventions such as commitment devices, opt-out savings plans, and mobile money. Continuing last week’s theme on similarities between developed and developing countries, a savings intervention that has greatly increased savings in the US is opt-out savings plans or “default assignment,” such as being automatically enrolled in a 401(k) plan. In an experiment in Afghanistan, Joshua Blumenstock, Michael Callen, and Tarek Ghani explore why defaults affect behavior: some employees are defaulted into a savings program where 5% of their salaries are automatically deposited in a mobile money savings account, but they can opt out at any time. Those who were defaulted in were 40 percentage points more likely to contribute to the savings account, which is comparable to the effect of the employer matching 50% of employees’ savings contributions

Commitment savings accounts have also been tested in the US and in many other countries. In a study by Emily Breza, Martin Kanz, and Leora Klapper, employees in Bangladesh were offered a commitment savings account, with a twist: depending on the treatment arm, employers sometimes endorsed the product, and employees were sometimes told that their decision would be disclosed to the employer. Only the treatment arm that had both employer endorsement and disclosure of the employee’s choice led to higher take-up, suggesting that workplace signaling motivated employees to save. Another study by Simone Schaner et al. (covered in last week’s faiV) offered employees in Ghana a commitment savings product with the goal of building up enough savings to stop incurring overdraft fees, which are common. Take-up was high, but baseline overdrafters were more likely to draw down their savings before the commitment period ended -- meaning they benefited less from the intervention.
Two important barriers to financial inclusion in the US and around the world are transaction costs and low trust in banks. In a paper I coauthored with Pierre Bachas, Paul Gertler, and Enrique Seira, we study the impact of providing debit cards to government cash transfer recipients who were already receiving their benefits directly deposited into a bank account. Debit cards lower the indirect transaction costs -- such as time and travel costs -- of both accessing money in a bank account and monitoring the bank to build trust. Once they receive debit cards, beneficiaries check their balances frequently, and the number of checks decreases over time as their reported trust in the bank and savings increase"

2. Household Finance: Digital credit is a financial service that is rapidly spreading around the world; it uses non-traditional data (such as mobile phone data) to evaluate creditworthiness and provide instant and remote small loans, often through mobile money accounts. One of the concerns about digital credit is that customers’ credit scores can be negatively impacted, even for the failure to repay a few dollars. In turn, this can leave them financially excluded in the future. Andres Liberman, Daniel Paravisini, and Vikram Pathania find a similar result for “high-cost loans” in the UK (which we would call payday loans in the US). They use a natural experiment and compare applicants who receive loans with similar applicants who do not receive loans to study the impact of the loans on financial outcomes. For the average applicant, taking up a high-cost loan causes an immediate decrease in the credit score, and as a result the applicant has less access to credit in the future. 

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Week of October 23, 2017

1. The Search for Truth, Part II: Last week's opening theme was about how hard social science is. I often find there's an unspoken wistfulness in social science research for the clear questions and clear answers of the "hard sciences."
But cheer up! It's just as bad on the other side of the fence. When you're frustrated that there doesn't seem to be a biological mechanism that explains the long-term positive outcomes of deworming, remember that we have no idea--literally, no idea--what causes "side stitch," that shooting pain we've all had in our abdomen during exercise. And when you're down in the dumps that so many development interventions don't seem to show much effect, remember that the universe shouldn't exist, and we don't know why it didn't explode nanoseconds after coming into being.
On the other hand, Ioannidis, Stanley and Doucouliagos' paper on how vastly underpowered most economics papers are has finally been published (it's been circulating for awhile). If that's not enough to send you back into despair, the fact that economists need to be reminded of basic good practice in presenting their ideas--per this slide deck from Rachael Meager--might do the trick. Don't get me wrong, it's good advice. But I was reminded of the time I attended a conference for PR "professionals" where the advice included such gems as, "Make sure the reporter you're pitching actually covers the topic" and "Read the last few articles the reporter wrote." Last year I was joking with Jessica Goldberg about starting a side-business editing the introductions and slide decks of job market papers. Perhaps I shouldn't have been joking.

2. The Mess that is US Higher Education (or Labor Markets are Broken All Over): Studying labor market inefficiencies is a common topic in development economics (yes, this is clickbait for David McKenzie). But as in so many domains, the problems we study in developing economies also exist in developed ones, just wearing a Halloween mask. Here's a new study on "credentialism" in the US labor market, the demand for college degrees for jobs that have no reason to require a college degree (as demonstrated by the fact that the vast majority of people currently in those jobs don't have one). That's bad for employers who pay some of the cost of the self-imposed mismatch in the labor market, but it's much, much worse for potential employees who are shut out of well-paying, stable jobs for no good reason. Unless, of course, they spend large amounts of money to get a credential. The large, and growing, lifetime earnings gap between those with a credential and those without has justified the incredible growth in student debt to finance these credentials. But if the credential is just an artifact of herd behavior among employers...
And why are those credentials so expensive? One reason is that the universities providing those credentials are spending, and borrowing, huge amounts themselves in order to attract the students who have to get the credential to apply for a job. So the students borrow, and borrow some more. And then they get shut out of programs for loan forgiveness that they are should be eligible for, because the system is a mess. But don't worry, if their debt gets too out of hand, they can discharge those loans in bankruptcy. Oh wait, we changed the bankruptcy law so they can't ever discharge those loans. Don't forget too that large numbers of the people we've pushed into needing a credential are entering universities, taking loans, but never getting the credential (e.g. 70% of single mothers who enroll).
And the advanced degree market may be worse. A few weeks ago I featured some work on English football academies juxtaposed with a paper about the Clark Medal. Perhaps my comparison was too oblique--so here's a piece from Nature making the connection explicit. The chances that a Ph.D. student will land a permanent academic job in the US or UK is well under 10%. The reason it's plausible to offer job market paper editorial consulting is that the premium for a well-written paper is so large. And it's large because there is massive over-supply.
For those newly minted Ph.D.'s taking adjunct teaching jobs just so they can stay marginally attached to academia and perhaps make enough to supplement their food stamps, I have bad news. Current students (bachelor's and master's students that is) teach just as well as adjuncts, suggesting that "student instructors can serve as an effective tool for universities to reduce their costs." Oh right, I was trying to avoid a novella.

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Week of August 7, 2017

This week's faiV is a fun change of pace of just visualizations & graphics - click through to see.

1. The Global Middle Class: By now, Branko Milanovic's elephant chart should be quite familiar. Nancy Birdsall of CGD has a new post about the state of the global middle class that delves into the elephant chart and other data looking at the state of the middle class globally.

2. Global Inequality: Another chart that may be somewhat familiar but certainly should be top of mind these days. Our World in Data looks at inequality, from a lot of perspectives, here before and after taxes and benefits in developed countries.

3. US Inequality (and Debt): Speaking of inequality before and after redistribution, Catherine Rampell at the Washington Post has a couple of interesting recent posts on policy to help (or not) lower-income workers. The first chart here made lots of waves this week in a post by David Leonhardt, and provides the visceral oomph behind the need to reassess policy in the US. Although this data and similar charts have been circulating for quite awhile, it still thankfully grabs attention.

Whether or not the top chart is related to the bottom chart is one of the questions that Aspen's EPIC is taking on this year. Regardless of the direct connection between income inequality and rising debt, the fact that we are back to record levels of credit card debt seems concerning since it's likely not the .001 percent taking on this debt. That being said, rising debt could also be a sign that finally consumer confidence is returning and people feel that their incomes may start rising again.

4. Statistics GIFS: You can't say I don't know my audience--you guys go crazy for things like this, at least that's what the click data says. The two images at the top are from Rafael Irizarry at Simply Stats, in a post about teaching statistics and how to think about data. Helpfully, the post includes the code to recreate each of the images (and he's got a lot more where these came from).

This week there was also a revival of the Autodesk post about how visualizations can mislead that I featured a while back. It's here again because Jeff Mosenskis of IPA made an underappreciated awesome joke about also being wary of violin plots.

5. Low Quality Equilibria: I couldn't pass this one up when I saw it this week, given my recent rants. Who knew that removing frictions from sharing market information would make it impossible to ever tell if any product was good or not?

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