1. MicroDigitalFinance (and women): Questions about gender and financial inclusion have been a part of the modern microfinance movement since the beginning, when Yunus made those initial loans to women. For a long time, the accepted wisdom was that women were more responsible borrowers, repaid at higher rates, and did better things with their earnings than men. Then came several waves of research that called that into question--finding, for instance, that men had much higher returns to capital; that women didn't spend money that differently (outside of the social norms that constrained both their income-earning and -spending choices).
Recently there has been another swing. For me it started with suggestive evidence from Nathan Fiala's grants vs. loans to men and women in Uganda that women's average low returns were driven by the women who had the hardest time protecting money from male relatives--something that didn't make it into the published paper (so factor that into your Bayesian updating). Then Bernhardt, Field, Pande and Rigol re-analysed data from the original returns to capital work and found that women who operated the sole enterprise in their household had returns as high as men. Then Hardy and Kagy dug into why returns to men and women's tailoring businesses were so different in Ghana.
Now Emma Riley has a new paper going to back to Uganda and using mobile money accounts to give a much more definitive answer to the control of funds issue that Fiala's work hinted at. Working with BRAC (it occurred to me yesterday that I think all the subsidy to global microfinance could be reasonably justified just by BRAC), she provided female business owners with a separate mobile money account to receive their loan proceeds--the theory being, of course, that this would allow them to protect the funds much better. She finds that women who received the money in the private mobile accounts had 15% higher profits and 11% higher business capitalthan controls who received the money in cash. There are number of possible mechanisms, but she finds the best explanation is indeed the ability to protect money from the family. This is a big deal.
And last year when I posted a story about Uganda implementing a social media and mobile money tax, I didn't really take it seriously. It turns out I should have. The tax went into effect and Ugandans have behaved like good homo economicuses: mobile money use and social media use is down. Say, that suddenly sounds like a useful policy intervention.
Finally, this rang my confirmation bias bell so hard that there's no way I could leave it out or even wait another moment to put it in the faiV. Maybe I'll include it in every edition from here on out. There's No Good Reason to Trust Blockchain Technology.
2. Youth Unemployment: This wasn't supposed to be "the Uganda edition" but in other women in Uganda research news, here's a paper from a star-studded list of researchers starting with Oriana Bandiera (is it just me or has Selim Gulesci had a remarkably productive last 12 months?) forthcoming in AEJ:Applied on a program to empower adolescent Ugandan women with both vocational and sex/relationship education. They find large effects after 4 yours, boosting the number engaged in income-generating activities (all microenterprise) by 50% (5pp) and cutting teen pregnancy and reported unwanted sex by a third. That's impressive. But your homework assignment is to square these results with the five year follow-up results of Blattman and Fiala's grants to Ugandan teenagers (where all the effects fade out after 9 years) and Brudevold-Newman, Honorati, Jakiela and Ozier vocational training program for young Kenyan women where effects of training and grants dissipate after 2 years. Seriously, this is your homework. Email me with your theories. If you can work in Blattman and Dercon's Ethiopia follow-up (which as disappeared from the web, hopefully temporarily), any of the other papers from this session at ASSA2018, or McKenzie's review of vocational training programs, you get extra credit.
3. Economic History: I've mentioned a couple of times recently that I've been delving into Economic History to learn a bit more about financial system development and the history of banking and consumer financial services. It's been fascinating so I thought I would share a few links in that vein. There are two books that top the list, both of which I think I've mentioned, but since I now consider these as must-reads for anyone interested in financial services along with Portfolios of the Poor, The Poor and Their Money, Due Diligence, and, y'know, cough, cough cough, I'm going to mention them again. City of Debtors covers the tragically unknown history of microcredit in the United States from the 1890s on. Insider Lending is the story of how banking evolved in New England from the 1800s, specifically how economic and political forces turned something entirely self-serving for existing elites into a vital service for the masses.
Week of February 11, 2019
1. Our Algorithmic Overlords: I've long argued that teaching kids to code is as much of a waste of time as financial literacy. The simplified version of the argument is that most people are terrible programmers and computers are already better at coding than the average human. As a consequence I emphasize to my own kids and to others who are blinkered enough to ask my advice, that learning how to communicate/write is a much more important tool for the future (yes, yes, cognitive dissonance).
While I still think I'm right about the first part, it turns out I'm wrong about the second part. Yesterday OpenAI "released" work on an AI system that writes shockingly good text. I use scare quotes because, in another sign of things to come, OpenAI has only published a small subset of their work because they believe that the potential malicious use of the technology is great enough to restrict access. There are a bunch of news stories about this. Here's Wired, for instance. But the most interesting one I've come across is The Guardian because they had the algorithm write an article based on their lede.
Let's stick to the disturbing for a bit, because it's that kind of day. The World Food Program has formed a partnership with Palantir to analyse its data on food distributions, apparently with the main motivation being to look for "anomalies" that indicate that aid is being diverted or wasted. The idea of handing over data about some of the world's most vulnerable people to a private company that specializes in surveillance and tracking of people hasn't gone over well with a wide variety of people. As background, here's an article about what Palantir does for their biggest client, the NSA. Sometimes it seems like some people at the UN look at the one world government kooks and think, "What could we do to make their conspiracy theories more plausible?"
On a more theoretical level, Kleinberg, Ludwig, Mullainathan and Sunstein have a new paper on "Discrimination in the Age of Algorithms," arguing that despite fears of algorithmic discrimination, proving discrimination by algorithms is a lot easier than proving discrimination by humans. Of course, that requires putting regulations in place that allow algorithms to be examined. I'm going to flatter myself by pointing out it's similar to an argument I made in my review of Automating Inequality. So I feel validated.
Speaking of transparency, regulation and of algorithmic surveillance, here's David Siegel and Rob Reich arguing that it's not too late for social media to regulate itself, by setting up something like FINRA (Financial Industry Regulatory Authority, which polices securities firms). It's an argument that I would have given short-shrift to, but the FINRA example is credible.
Finally, I'll be dating myself in the Graphic of the Week below, but here's another way to figure out how old I am: when I was an undergrad, most of the "power imbalance" between developing countries and private firms literature was about GM. Here's a new piece from Michael Pisa at CGD on the new power imbalance and it's implications: the relationship between developing countries and tech giants.
2. Digital Finance: That feels like as reasonable a transition as I'm going to get to new data from Pew on the global spread of smartphones. Given limited consumer protections, regulatory and enforcement capability, and "digital literacy" in many developing countries, I will confess this worries me a lot, cf Chris Blattman's thread on "creating a 20th Century...system in an 18th Century state."
Here's a particular instance of that concern, tieing together the last few items: the rapidly growing use of "alternative credit scores" using things like digital footprints and psychometrics. You can make an argument that such things are huge boon to financial inclusion by tackling the thorny problem of asymmetric information. But there are big questions about what such alternative metrics are actually measuring. For instance, as the article above illustrates, the argument is that in lending, character matters and that psychometrics can effectively evaluate character. But it doesn't ask whether character is in-born or shaped by circumstance? No matter which way you answer that question, you're going to have a tough time arguing that discriminating based on character is fair. And that's all before we get to all the other possible dimensions of opaque discrimination.
The growing use of alternative data is starting to get attention from developed world regulatory agencies, but the first frontier of regulation is likely to be from securities regulators. I don't think they are going to be particularly interested in protecting developing world consumers. I guess that idea about self-regulation is starting to look more appealing, particularly if it's trans-national.
Meanwhile, the frontier of digital finance is advancing rapidly, even without alternative data. Safaricom introduced what is here called a "overdraft facility" in January, but I think of it more as a digital credit card. In the first month it was available, $620 million was borrowed. The pricing seems particularly difficult to parse but that may be just the reporting. One of the very first things I wrote for FAI was arguing for development of a micro-line-of-credit. Now that it's here, I confess it makes me very nervous.
3. Financial Inclusion: That's not to say that digital tools don't hold lots of promise for financial inclusion, just check the Findex. This week CGAP hosted a webinar with MIX on "What Makes a Fintech Inclusive?" There are some sophisticated answers to that question with some good examples, but I often return to the simplest answer: it cares about poor and marginalized people. And so I especially worry when I see answers to that question that lead with tech.
The financial inclusion field as a whole has been in something of a slow-moving existential crisis for the last few years. The best evidence of that is the number of efforts to define or map the impact of financial services and financial inclusion, several of which I'm a part of. Last week I linked to an IPA-led evidence review on financial inclusion and resilience. The week before that to a Cochrane Collaboration review of reviews of evidence on financial inclusion. This week, the UNCDF and BFA published their take on pathways for financial inclusion to impact the SDGs (full report here). I could say I expect there will be more, but I know there will be more in this vein, if I can finish revisions, etc.
Week of February 4, 2019
1. MicroDigitalHouseholdFinance:
I've had to cram what I usually break out into 2 categories into this first item. First, last week I featured a story about Kenyan MFIs being driven "to [an] early grave"and asked if any one had some additional knowledge of that situation. Thanks to David Ferrand (of FSDAfrica) and Alexandra Wall (of CEGA's Digital Credit Observatory), I'm reasonably confident that story is reasonably accurate (I do try to be good Bayesian). Meanwhile, with a broader perspective, Gregor Dorfleitner sent me a link to his recently published research looking at adoption of digital infrastructure by nearly 1000 MFIs globally. It's generally a more hopeful picture of evolution over disintermediation than what is happening in Kenya.
This week, coincidentally I had two conversations about household finances that revolved around individuals' willingness to hide their income from others in the household and that affects outcomes for good or ill. And then, up pops Fred Wherry and colleagues with a new paper on exactly on the mechanics intrahousehold bargaining around borrowing and lending based on research in California. I'm very impressed they avoided "Neither a borrower nor a lender be..." and I do kind of love "Awkwardness, Obfuscation and Negative Reciprocity." And in other new paper news, the titans of financial choice architecture, have a new paper on how use implicit defaults to spur people to make active choices--which seems a better form of nudging than much of what I see.
2. Banking (and Money Transfer Operators): I frequently talk about how financial system regulators in the developing world need to look to the US for a peek into their future. This week I learned that Australia is also a useful cautionary tale. Pretty much the entire banking sector in Australia is facing the prospect of criminal prosecutions after a wide ranging royal commission report that details rampant "fee for no service" practices were widespread.
Meanwhile there are some big changes happening in the global money transfer space, related to Chinese operators attempts to expand globally, and the Trump administrations general antipathy to such moves. Last year, Ant Financial tried to buy MoneyGram before regulators put a stop to the transaction. MoneyGram is now essentially moribund, having lost 83% of it's market value since then, and trying to sell itself to anyone who might have some cash. Ant Financial has moved on to a UK company, WorldFirst, which this week announced it was shutting down it's US operation so that American regulators have no say in the deal. Neither of those stories sound like the prospects for cutting the costs of global remittances are improving.
3. Global Inequality: Last week I purposely skipped over the ridiculous annual OxFam global wealth inequality brouhaha. Perhaps I should stick to my guns, but given the number of people I saw engaging with this Guardian piece from Jason Hickel, that somehow argues that global poverty hasn't been decreasing, and life was great in the 1820s, well...Here's pushback from Martin Ravallion. Here's Max Roser, who was a particular target in the Hickel op-ed.
Turning to doing something about global inequality rather than fantasies about the pastoral idylls of the 1820s, there's been a remarkable flourishing of pieces about tax avoidance by the wealthy. Here's the op-ed from the NYT that inspired the name of this week's edition on the Trump tax cuts enabling corporate tax dodging. Here's a new paper in the AER finding that globalization since 1994 has led to the labor income tax burden of the middle class rising, while that on the top 1 percent fell. Here's a new brief from Danny Yagan at SIEPR on how high earning wealthy entrepreneurs dodge taxes on labor income of about $1 trillion per year. And using data from Gabriel Zucman, here's a piece from the Washington Post on the new club of wealth inequality, with charter members China, Russia and the US.
Week of January 28, 2019
1. MicroDigitalFinance: Back before the holidays, I hosted the first faiVLive on how to think about microcredit impact based on recent evidence. If you missed it, you can watch it here (and people are still watching it, I'm happy to say). Here's Bruce Wydick's take on the proceedings if you prefer text to video.
Last week, there was some discussion of evidence gaps, and it's clear that I'm not the only one thinking in this direction. On the heels of that Campbell Collaborative review-of-reviews, IPA has a review of evidence (and gaps) on "Building Resilience through Financial Inclusion" that makes a lot more sense to me.
Okay, now to some less-meta items. Well only a little bit I guess. Remember that Karlan and Zinman paper about high-cost loans in South Africa that found positive effects? It was a lending for resilience story. Now there's a company in California offering high-cost loans to people via their landlords, specifically marketed to help them not miss a rent payment or to pay a security deposit. The article mostly ignores fungibility, presuming that the actual use of the loan proceeds are paying rent rather than covering some other emergency, but that seems unlikely to me. In the US Financial Diaries we saw that housing payments were much more erratic than other types of payments, though the data wasn't clean enough to really draw any firm conclusions. So is this a lending-for-resilience story or a new version of payday lending debt traps?
Speaking of payday lending debt traps, we usually use that phrase metaphorically. But there's a UK payday lender who is apparently eager to make it more literal. Yes, they are advocating for a return to debtors' prisons (darn that asymmetric information and moral hazard!). And even doubling down on the idea.
Finally, here's a story (HT Matthew Soursourian) about Kenyan MFIs being driven "to [an] early grave" as digital financial services allow commercial banks and non-banks to siphon off the customer base. Disintermediation was not exactly the story that early proponents of mobile money were hoping for, but it does fit with the historical record of financial systems development. If you know anything about this, or can vouch for the accuracy of the information in the article, I'd love to hear from you.
2. Global Development: I'm going to skip the on-going "shooting fish in a barrel" about OxFam's annual global wealth publicity/outrage stunt since there's nothing at all new there. Better to spend your limited attention on this NYTimes op-ed from Rohini Pande and colleagues on the "new home for extreme poverty."
If you follow these topics at all, you know that new home is middle-income countries like India. The Congress Party's proposal of a not-universal basic income to address the persistence of extreme poverty in the country has been getting a fair amount of attention. Apparently Angus Deaton and Thomas Piketty are advising Congress, though from my experience with politicians "advising" could mean "we read their books." Here's Maitreesh Ghatak's take on what it would take for the policy to work.
On the other side of the world, I've watched the evolving situation in Venezuela with a great deal of personal interest. I grew up in Colombia, a few hours from the Venezuelan border, and learned relatively recently that an ancestor of mine funded an invasion of Venezuela in the early 1800s. Particularly my interest has been caught by some economists volunteering to educate politicians and pop culture figures on what is going on, in the hopes of stopping bad takes. Here, by the way, courtesy of Chris Blattman, is a deeper background piece on the Maduro regime than you may find elsewhere. The macroeconomic quirks of access to gold reserves and of sovereign and not-so-sovereign bonds under sanctions have been pretty interesting too. And here's Cindy Huang of CGD on the potential for Colombia accessing concessional funding to help finance programs for Venezuelan refugees.
Finally, I'm happy to claim, without evidence, that my request for Rachel Glennerster to post her Twitter thread on what she's learned in her first year as DfID's chief economist as a blog post so that was easier to share, cite and archive caused this blog post compiling her Twitter thread.
3. Small Business: My fixation with breaking down the silo between financial inclusion in the US and internationally extends beyond household finance. The story of most small business in the US is the same as it is in developing countries--they are not high-growth "gung-ho" entrepreneurs but frustrated employees trying to generate an income in the face of labor market failures of various sorts. So the perennial development topic of how to increase lending to SMEs should be looking to the US, and those in the US should be looking internationally.
For most small and micro-businesses the biggest financial challenge isn't getting credit to invest, but managing cash flow and liquidity. Square, which has historically been focused on enabling retail consumer-to-business payments, recently announced a new product specifically to tackle this problem: a debit card that allows real-time access to balances. To put it in development-speak, Square is offering trade credit to small merchants to cover the trade credit they provide to customers. I'm super-interested in seeing how well it works.
Week of January 21, 2019
1. MicroDigitalFinance: Many of you will be familiar with the story of microcredit's rise and sort-of fall, and it's current state of--I don't know, existential angst? But if not, the story is ably told in a new Vox piece by Stephanie Wykstra, with some comments from Jonathan and I included. Not too long after that, the Campbell Collaborative and 3ie issued a "systematic review of reviews" of the impact of financial inclusion, led by Maren Duvendack. I have to say it's kind of weird. The one sentence conclusion is "Financial inclusion interventions have very small and inconsistent impacts." Which apart from appending an "s" to the perfectly plural "impact", I don't disagree with. But this format is a review of reviews which imposes some weird constraints. Ultimately only 11 of 32 identified studies were included, and only one of those was from an economics journal, two are earlier Campbell or 3ie publications, two are specifically only about women's empowerment, and three are about strangely specific topics like HIV prevention. So I'm left really uncertain what to think of it.
Of course, the hot topic isn't generic microfinance but digital finance. The Partnership for Finance in a Digital Africa has an updated "evidence gap map" of research on the impact of digital finance featuring 55 studies (which is more than I have had the time to delve into so I can't compare it to the Campbell/3ie inclusion set). There's a summary of the findings at Next Billion.
Finally, here's an interesting story about Econet, the Zimbabwean mobile money provider--interesting in that it is really about the evolution of mobile money providers from following M-Pesa to following Tencent.
2. US Inequality: A big part of the story of understanding US inequality specifically, and inequality in developed countries in general, is understanding what has happened to wages of low-skill workers. The NYTimes has a piece on how cities have shifted from being the "land of opportunity" for such workers to a trap, based on work that David Autor presented in his Ely Lecture at the AEAs (by the way, AEA, it's still a good time to rename the Ely Lecture!).
One policy option for addressing stagnant wages for low-skill workers is to raise the minimum wage. Cengiz, Dube, Lindner and Zipperer continue their long-running work on the effects of 138 minimum wage changes between 1979 and 2016. They find increased earnings and essentially no effect on number of low-wage jobs.
That's encouraging. Less encouraging is a new paper from Rodrik and di Tella finding that people are really, really happy to support protectionist policies, regardless of their politics, as a policy response to trade shocks.
3. Our Algorithmic Overlords: Speaking of people's attitudes, there's a big new report on Americans' attitudes on artificial intelligence from something called the Future of Humanity Institute, which as a name is somewhat creepy in my opinion. Maybe I've seen/read too much dystopian fiction. Anyway, they find that Facebook is the least trusted institution when it comes to AI development (no surprise) and the US military is tied for most trusted (big surprise, apparently these people haven't seen/read the same dystopian fiction I have). Also of interest, the median respondent thinks there's a 50% chance that robots will be able to fully replace human beings in less than 10 years. And just because, here's a Night Before Christmas style poem about the future of AI.
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.
Week of December 17, 2018
1. Economics? What Is It Good For?: It's hard to spend any time paying attention to methodological and disciplinary debates without thinking of the Planck/Samuelson dictum about science advancing via funerals. Here, I'm thinking of attitudes toward the value of field experiments specifically and the "credibility revolution" generally. Christopher Ruhm recently gave a speech, in paper form here, about the "credibly-answered unimportant questions" vs "plausibly-but-uncertainly-answered important questions" debate. I found it helpful because it makes the hollowness of this concern more evident than usual, but you'll have to wait on the book chapter I'm procrastinating on to read why. Noah Smith has a more charitable take on Ruhm's speech, with the added important note that one of the big problems of the field is that outsiders don't understand the difference at all.
On the credibility side of things, there are issues beyond just the identification strategy. Here's an interview with Ted Miguel on transparency and reproducibility, a neglected part of the credibility revolution as far as I'm concerned. David Roodman has resurfaced with two new papers doing the hard work of reproducing results. He looks at Bleakley's study of the effects of hookworm elimination in the US and of malaria control in the Americas, questioning the result of the first, but largely upholding the result of the second.
But there's yet another dimension of credibility that I feel like is even more neglected, hearkening back to Paul Romer's mathiness paper: the comprehensibility of methods and tools. Here's a recent example: Declare Design has a lengthy discussion of whether and when to cluster standard errors, inspired by questions posed by David McKenzie and Chris Blattman. It's great. But is anyone else concerned about how few people actually understand the statistical methods we rely on? And that problem is going to get worse, as more and more machine learning and AI techniques come to the fore, techniques that perhaps even fewer understand. And the people that do understand them often don't understand causal inference or the philosophical issues around such basic concepts as fairness.
I guess, therefore, in fairness I should point out that apparently economics is good for sports, specifically the NFL (at last), and it is good for showing that the Planck/Samuelson dictum is true.
2. A Clash of Civilizations: Part of the curious thing about the way the RCT debates in economics evolved is the frequent citing of the use of RCTs in medicine as justification for their use in economics. It's curious because seemingly the understanding of causal inference methods in medicine isn't great. Here's a piece from JAMA (trigger warning: it calls RCTs the gold standard) on why you shouldn't take people out of your treatment group and put them into your control group because the treatment didn't work for them. It's not quite that bad, but still. Here's a thread from Amitabh Chandra on that paper and the general lack of causal inference understanding in medicine.
And here is a fascinating piece of work about how causal claims in health research get steadily ratcheted up. The authors looked at the 50 most shared journal articles about the health effects of exposure to something, finding "that only 6% of studies exhibited strong causal inference, but that 20% of academic authors in this sample used language strongly implying causality." And then the general news media further ratcheted up the causal claims.
I include that as important background to the clash of civilizations that happened recently when Jennifer Doleac, Anita Mukherjee and Molly Schnell wrote about the causal effects of harm reduction strategies related to opioid addiction, reviewing the literature and especially their paper on the impact of naloxone distribution. They find that naloxone access reduces short-term mortality but increases long-term mortality. That doesn't sit well with a wide variety of people outside economics. This is one of the tamer reactions from outside economics (trigger warning: it also refers to RCTs as the gold standard), tamer in the sense that it actually attempts to grapple a bit with the issues. But it ultimately settles on a version of the trope that "we already know the answer, so your causal inference sucks" and "Here's a study of a different intervention that works, so your causal inference sucks." You have to admire (well, you don't, but I do) Doleac for continuing to wade into controversial topics where there are people with very strong priors such as whether bail-setting algorithms might in fact be fairer than judges.
Public Health and Medicine aren't the only areas where economics clashes with other disciplines. Perhaps that has something to do with how insular economics publishing is. Tying all this together, here's a thread from Jake Vigdor about economic publishing insularity (See Graphic of the Week below) linking to this very cool set of visualizations about cross-disciplinary references in academic journals. Suffice it to say Econ is not doing well at being noticed outside of Econ journals. Perhaps the Doleac et al paper may make a dent in the public health journals.
Week of December 10, 2018
1. Targeting: I intended for the faiVLive conversation to spend more time on targeting than we did--it's a sort of rushed conversation at the end. Targeting is something that I've been thinking about a lot, but I'm not sure what I think yet. So forgive me for just ruminating on a few things here.
The whole concept of microcredit is based on targeting--every lender has to target not only those interested in taking a loan but those interested in repaying a loan. Hand-in-hand with targeting repayers was targeting borrowers who were "entrepreneurs," people who would start a business, since the belief was a new microenterprise was the only plausible way for these very poor households to repay. But since the rhetoric emphasized that the poor were natural entrepreneurs, targeting repayers substituted 1:1 for targeting entrepreneurs. Given the findings of microcredit impact studies--namely that while average impact is minimal, there are people who see large gains--the focus on targeting has returned. See for instance, asking middle men who the best farmers are, or surveying other microenterprises.
But if your aim is reducing poverty, then you have to care about more than just finding the borrowers who will repay and have the highest returns on capital--you have to care about equity as well and the effect on, or exclusion of, the poorest or least able to generate high returns. Earlier this year I linked to a paper by Hanna and Olken on the equity effects of targeted transfers vs. UBI. Here's an interview with the two that summarizes their findings: for most poor countries, targeted transfers far outperform a UBI in terms of total welfare. And by the way, here's new Banerjee et al paper from Indonesia showing limited distortions from proxy-means tests.
Of course, in targeting microcredit we are doing the opposite essentially: looking for a proxy-means test to exclude the least-able to generate high returns. What effects might that have? If we boost market efficiency, it could be good for most everyone. That's not just theoretical--here's an empirical finding from Jensen and Miller on improving market efficiency in Kerala boat-building finding higher aggregate quality, lower production costs and lower quality-adjusted prices. But maybe not. That paper above on using middle-men to target finds that traditional allocation of loans does better for the poorest. And as we discussed on the faiVLive conversation, there can be systematic differences in market structure that limits who can generate high returns (in this case, among women seamstresses in Ghana). It's why I worry about what exactly is being measured in targeting algorithms like EFL/Lenddo.
The possible gains and losses have to be measured against the cost of targeting. The cost of microcredit as it exists, without targeting, is pretty low. The median subsidy per loan is about $25, not much for spreading access to the liquidity management features of microcredit well beyond those with high returns to capital. And then there is reason to think about the effect of greater targeting on the microfinance business model. Here is one of the few economics papers to make me actually angry, suggesting that microcredit contracts were purposefully designed to limit the growth of borrower's businesses. While I wholly reject that claim, the underlying idea is worth considering: microcredit's low relative costs are based on a mass-lending business model and MFIs have largely failed to find a way to compete higher up the banking value chain. Altering that business model could have unintended consequences. That's not just based on that paper. As I mentioned last week, City of Debtors, a book about small sum lending in New York City during the 20th century confirms the business model problem is real and pervasive.
So I don't really know what I think. I'll keep thinking about it, but as always I appreciate your thoughts if you're willing to share them.
2. US Inequality: I haven't covered US Inequality for several weeks, and so things have been building up. And there's been a whole lot of new stuff in the last few weeks. Let's start with the state of median US income over the last 30 years. The widely held current view is that incomes for all but the top quintile or decile have been stagnant. But that's heavily dependent on all the adjustments that need to be made for taxes, transfers, inflation and innovation. Stephen Rose at the Urban Institute summarizes the past and new work trying to measure changes in median income, and then writes in more detail about the methodological issues. One thing that had particularly slipped by me: Picketty, Saez and Zucman have a newish paper updating the famous results that showed stagnation and find median incomes have increased about 30% over the last 30 years. That shifts the proportion of gains by the top decile from around 90% to around 50% (I'm intentionally rounding these numbers because they are so sensitive to methodological choices, that I think we're all better off not reporting precise numbers because of the illusion of certainty that goes along with them). Perhaps one of the reasons that these new findings didn't seem to get as much attention as the idea of stagnation for the middle class, is that the new paper also finds that stagnation is true for the bottom 50% of the income distribution.
This week the US Census also released it's "Small Area Income and Poverty Estimates" for 2017, with county-level data on incomes and poverty rates. They find that over the last 10 years, median incomes in 80% of US counties were unchanged, with 11% of counties seeing an increase and 8% seeing a decrease. When you look at the maps, it's apparent that a majority of the counties seeing an increase are related to the fracking boom (and thus mostly in places with very few people). On the poverty front, there's a whole lot of stagnation too, with almost 90% of counties seeing no change, but 8% seeing an increase and only 3% seeing a decrease. Not an encouraging picture.
Whenever you talk about incomes and poverty, it's worthwhile to think about the definition of poverty. Here's Noah Smith on updating the definition of poverty to include volatility (though he shockingly fails to mention the US Financial Diaries). And here's Angus Deaton on "How America poverty became fake news"--with some more methodological detail and the horrid engagement of the present administration with international attempts to measure poverty.
There's plenty new on the policy front as well. Here's a new paper estimating the total budget effect of the EITC--finding that the program self-finances 87% of its cost by reducing use of other transfer programs and increasing taxes collected. And here's The Hamilton Project on the work histories of people receiving SNAP and Medicaid benefits, finding that the majority are working, but irregularly and a substantial portion would "fail to consistently meet a 20 hour per week-threshold" because their hours worked vary so much from week-to-week.
Week of December 3, 2018
1. faiVLive Background: The motivation for the faiVLive experiment is discussing what to think about microcredit impact given all the research in recent years. If you can't make it, or if you can, here's your quick cheat sheet to the recent research.
Of course it's starts with the average impact of microcredit being very modest. A Bayesian Hierarchical model look at the data confirms those findings. But there is important heterogeneity hidden within those average effects--"gung-ho" microborrowers do see substantial gains from increased access to credit. It's also true that these are mostly studies of expanding access to formal credit, not introducing it. That's hard to measure, but we can get a cleaner view of the value of credit when it gets taken away from most everyone--and that shows significant benefits, though through a somewhat unexpected channel: casual labor wages. Changes in labor wages can matter a lot for understanding the impact of a program, even entirely masking any benefits of an intervention with evidence that it makes a substantial difference in many contexts. And it's clear that changes in labor supply are quickly passed through into labor rates--in this case, the markets seem to be working fairly well. But it's not just labor markets. When microcredit affects local markets--by increasing or decreasing the supply of tradeable goods--the benefits may be substantial but mostly captured by the people who aren't using microcredit (what economists call general equilibrium effects). Which makes it all the more important to understand local market dynamics, especially when in many cases microenterprises are operating in sectors where supply exceeds demand. That being said, microcredit is a cheap intervention relative to other options. And it's possible we could increase the returns to microcredit for more reluctant microenterprise operators by boosting their aspirations. Or perhaps by doing better targeting of lending. But is it worth targeting? Households do seem to do a pretty good job of allocating access to capital to its most productive use within the household, and the gung-ho entrepreneurs are benefiting even without the expense of targeting.
2. MicroDigitalFinance and Household Finance: I suppose all of the above would qualify here as well, but here's a bunch of different new stuff, starting with the digital side of things. There are two new papers about the effects of SMEs adopting digital payments. In Kenya, an encouragement intervention led to 78% of treated restaurants and 28% of pharmacies adopting Lipa Na m-Pesa, and consequent increases in access to credit. In Mexico, a different kind of encouragement--the government distributed massive numbers of debit cards as part of the Progresa program--led small retailers to adopt POS terminals. That led to wealthier customers shifting some of their purchasing to these smaller retailers, and increased sales and profits for the retailers, but not an increase in employees or wages paid. On a side note, it's curious that the smaller shock of debit card distribution (pushing debit card ownership to 54% of households) had a large effect on retailers but the larger shock of m-Pesa being adopted by practically everyone has not led to more Lipa Na m-Pesa adoption.
A few weeks ago I featured a puzzle in savings from two savings encouragement experiments--the encouragement worked but savings plateau at a level well below what would seem optimal. Isabelle Guerin sent me a couple of papers that I'm still reviewing that might help explain why, but this week I stumbled across another example. The US CFPB, back in the days when it was allowed to do stuff and wasn't a hollow shell of existential dread, ran an experiment using American Express Serve cards and the "Reserve" functionality. They find that encouraging savings works--people boost their savings--but that the savings plateau after the 12 week encouragement and stay at roughly the same level for 16 months. That's consistent with the results from India and Chile but not with a model of accumulating lump sums or precautionary savings. You would expect among this population that they would experience a shock in that 16 month period and draw down the savings. Participants say they reduce payday loan use, but frankly I don't believe any claims about payday behavior that isn't based on administrative data (and it doesn't make sense if balances were stable).
And finally because I want to encourage this behavior, Maria May sent me an interesting new paper on offering microcredit borrowers flexibility in repayment--customers get two "skip payment" coupons to use during the term of their 12 month loan cycle. Consistent with the much earlier work from Field et al, it yields more investment from borrowers, better outcomes and lower defaults.
3. Evidence-Based Policy: I noted last week that GiveWell, where I have served on the board since it's founding, released it's Top Charity recommendations. One of those is GiveDirectly. GiveWell, as is it's wont, wrote up some details of it's analysis of GiveDirectly, particularly about spillovers from cash transfers. That analysis was significantly informed by a forthcoming paper on general equilibrium effects and spillovers from one of GiveDirectly's programs that GiveWell was given access to even though it is not yet public. Berk Ozler took issue with that. And GiveWell responded. I have nothing whatsoever to do with GiveWell's research process or conclusions, but I was heavily involved advising GiveWell on its response to Berk's questions.
Week of November 26, 2018
1. faiVYourJMP: Let's start there with a paper from Ryan Edwards on palm oil plantation expansion in Indonesia. That he finds trade-offs certainly shouldn't be surprising, much less astounding, but it is surprising how well he documents how the growth of export-led agriculture reduces poverty and increases consumption--including the specific channels by which that happens--and the connection to deforestation. Specifically, "each percentage point of poverty reduction corresponds to a 1.5-3 percentage point loss of forest area." Put another way, it's astounding to be able to see the price of poverty reduction outside of a carefully designed cash-based experiment.
And let me give a shout out to the Development Impact Blog team at the World Bank who were the inspiration to do this. Their crop of "Blog your JMP" posts is growing by the day and includes many entries worthy of your attention.
2. MicroDigitalFinance: Here's an astounding story about predatory lending and debt collection in New York (and from there, across the US). And I don't care how cynical you are, this is stunning because it's perfectly legal--so legal that there are registered investment companies gathering capital in public markets to do more of it.
That story then led me, via Rebecca Spang, to a book that came out at the beginning of this year that I'm embarrassed that I didn't know about, City of Debtors: A Century of Fringe Finance by Anne Fleming. It tells the story of small dollar credit in New York City and the attempts to regulate it and protect consumers, with lots of unintended consequences along the way. Although I've only begun to read it, what's astounding is how easily, if you changed the names of places and people, you could convince someone this was a book about modern microfinance. There's one chapter that could easily be pasted into Portfolios of the Poor with no one the wiser. Fleming is a law professor, and so she doesn't make the connection to the economics literature, past or present (at least that I've seen so far), which is frustrating but also assuages my guilt at being unaware of the book. Anyway, if you care about financial services for low-income households, regulation and/or consumer protection, you need to pick up this book.
It would be easy to make a snide and cliche comment about those who cannot learn from history, but is too much to ask to learn from present in other places? Here's a story about "neo-banks" in the US attempting to remake the banking industry, while confronting the hard reality that even without a physical presence, the margins on transactional accounts are razor thin. But, like Fleming's book, it's easy to read this as a story about how banks and MFIs are struggling to cope with the threat of digital financial services being provided by telecom firms which are built on a high-volume, low-margin business model.
That is a major theme of the e-MFPs new report on trends in microfinance/financial inclusion, released this week. It's the output of a survey of providers, funders, consultants and researchers on where the industry is headed. I was encouraged to read that other major challenges noted include "client protection, privacy...and preventing an erosion of the social focus of financial inclusion...in the face of new entrants." I'm betting those aren't on the list of very many people in the fintech/neobank space in the US.
Finally here's a story from September that somehow slipped by me: Kiva is working with the government of Sierra Leone to use blockchain to create a national ID/credit bureau. I'm still trying to wrap my head around this one but it definitely seems like the kind of thing that would benefit from and generate lots of opportunities to learn from other places. If any of the faiV readers at Kiva want to share more, please call me.
3. MicroSmallMediumFirms: I'm often frustrated that I don't get to spend more time thinking about firms--those of you who know me know I've been wanting to start a project on "subsistence retail" for years. Hope springs eternal--maybe next year is the year I get to do that.
But in the meantime, here's a job market paper from Gabriel Tourek featured on Development Impact that finds an astounding reaction to a tax cut in Rwanda: the firms pay more even though they owe less. What's going on?
