Poor Economics: TED Talk by Esther Duflo

This is part of the DR Book Collection.

Image result for poor economicsIf readers couldn’t tell, economics and the condition of the global poor are topics dear to my heart. Overall, I believe that globalization–particularly free trade and liberal immigration–benefits the least well off. But this largely looks at the problem from a broad, institutional standpoint. Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by economists Abhijit Banerjee and Esther Duflo looks at the nitty-gritty details of the world’s poorest, providing the on-the-ground data necessary for constructing successful anti-poverty policies. The authors find five key factors that keep the poor trapped in poverty:

  1. Information deficiency: the poor often lack information, such as the benefits of immunization or early education.
  2. Lack of access: the poor lack access to things taken for granted by the non-poor: clean water, financial institutions, etc. They therefore bear the responsibility for all of these aspects.
  3. Missing markets: the conditions for favorable markets to emerge are often lacking, thus depriving the poor of their benefits.
  4. The Three ‘I’s: it’s not conspiratorial elites, but the ignorance, ideology and inertia of policymakers that lead to failing policies.
  5. Self-fulfilling prophecies: low expectations of both politicians and the poor themselves provide no incentive to improve and thus create self-fulfilling prophecies.

The book was eye-opening to say the least. You can see a TED talk by Esther Duflo below.

Fixed-Pie Fallacies and Tax Loopholes

Closing tax “loopholes” has been a major talking point of both presidential candidates as of late. But this kind of language distorts the conversation from the get go. As columnist David Harsanyi explains,

Basically, all of life is a giant loophole until [politicians] come up with a way to regulate or tax it. In its economic usage, “loophole”—probably more of a dysphemism—creates the false impression that people are getting away with breaking the law. It’s a way to skip the entire debate portion of the conversation and get right to the accusation.

So when Hillary Clinton promises to close the loophole of corporate inversion, what she means to say is that Democrats disapprove of this completely legal thing that corporations do to shield their money from the highest corporate tax rate in the developed world. Loopholes are like giveaways, monies that D.C. has yet to double and triple tax.

…But Bernie Sanders, bless him, just skips the entire perception game and just comes out with it by tweeting: “The offshore tax haven network isn’t something that we need to reform or refine. It’s a form of legalized tax fraud that must end.”

“Legalized tax fraud” is a revealing statement about the progressive belief system. For progressives, taxation is moral. So when you fail to pay an imaginary tax that doesn’t exist but Democrats think should, you are by default engaged in fraud. The law has just to catch up with sin.

Megan McArdle has lamented the “regrettable tendency” of legislators “to view their citizens, and particularly their corporate citizens, as a species of tax cattle.” She points out that the first-time-homebuyer tax credit is morally no different than tax-exempt municipal bonds or your 401(k). She points out that if we were to, say, get rid of tax-free bonds, “[i]t would be more expensive for local governments to borrow money. Rich people are paying for that tax benefit by accepting a lower interest rate on municipal bonds than they would if they had to pay taxes on that money. The net effect is a federal subsidy for local spending. If we remove the deduction, local governments will find their budgets pinched[.]” She also points to charitable deductions and corporate tax rate shopping at the local and international level. “Unless,” she writes, “you want the kind of government enjoyed by the majority of the people of the world — and to ship most of your money to those places, while getting little in return — then stop complaining that other countries exist, and that their existence makes it hard to keep the local tax cattle properly penned in.”

When groups like Americans for Tax Fairness complain about tax “loopholes” and demand that we should “end tax breaks for corporations that ship jobs and profits offshore,” they are ignoring the points above as well as the following evidence. Harvard’s Mihir Desai has done extensive work on this subject. “When American firms grow abroad,” he writes in The Wall Street Journal,

Image result for fixed pie economicsthey also grow domestically, as demonstrated by research I conducted with C. Fritz Foley of Harvard and James R. Hines Jr. of the University of Michigan (published in the American Economic Journal: Economic Policy, 2009).

The data do not support the crude, fixed-pie intuition that firms either invest abroad or at home. Ten percent growth in American firms’ foreign investment is associated with 3% growth in their domestic investment. And when firms grow abroad, their domestic exports and R&D activities grow especially…Vilifying or penalizing American businesses for their global operations will only lead them to consider leaving the U.S.—or consider being bought by foreign companies. Such moves would hurt America by removing valuable headquarter jobs.

The fixed-pie fallacy breeds protectionism. And protectionism manifests itself in many forms.

Prison Time and the Rise of the NILFs

“About 7 million American men of prime working age (25 through 54) are not in the labor force, according to the Bureau of Labor Statistics,” writes Bloomberg View columnist Justin Fox.

That means they don’t have a paid job and haven’t been actively looking for one.

This figure does not include those in jail or prison. It does include students and men staying home to take care of children or other family members — but, as Nicholas Eberstadt estimates in his important new book, “Men Without Work,” these two categories seem to account for less than 15 percent of what he calls the NILFs (for not in labor force). And the NILF share of the U.S. prime-age male population has been growing and growing.

Why? The usual suspects like technology, trade and a lack of motivation (“immigrants and married men are under-represented in the NILF ranks”) are listed along with the novel suggestion that value of leisure time has increased. “The percentage of NILFs has risen since the 1970s all over the developed world, which definitely fits with the technology-displacing-jobs explanation. But the trajectory has been much steeper in the U.S. than in other rich countries.” Why? In short, prison time:

Image result for no work prison[T]he great incarceration wave that began in the 1970s has produced millions of ex-convicts who are ill-prepared for jobs or are discriminated against by employers even when they are prepared. Eberstadt cites an unpublished study that estimates that 12 percent of the adult male civilian non-institutional population (that is, men not in jail) in the U.S. has been convicted of a felony, and figures the percentage must be even higher for prime-age men given that the “incarceration explosion” didn’t start till the 1970s.

This is on the one hand tragic: Millions of American men who were imprisoned in the 1970s through 1990s have been thrust into a labor market that really doesn’t want them. On the other hand, it is at least potentially fixable. Job displacement by technology is probably unstoppable, but how we punish crime is a public-policy choice. Incarceration rates have already been falling with the big declines in crime since the early 1990s, and the past few years have seen the growth of a bipartisan consensus (interrupted by the current presidential campaign, to be sure) that the U.S. throws too many people in prison for too long and doesn’t do nearly enough to rehabilitate them. Prison and sentencing reform might actually be the country’s best shot at thwarting that “linear trend” that would put a quarter of prime-age men out of work by 2050.

The scarlet-F strikes again.

Mobile Phones, Broadband, and the Poor

The Telecommunication Development Sector (ITU-D) released their 2016 ICT Facts and Figures with the following chart:


Technology analyst Benedict Evans tweeted the chart with the tongue-in-cheek caption “The evils of capitalism.” He followed up with, “That 5bn people have a phone & 2.5bn already have a smartphone is a huge achievement of, mostly, free markets and permissionless innovation…It’s been clear for a decade that access to communications transforms prospects for the poorest. A phone *does* put food in your belly.”

People are sometimes skeptical of this last claim, but they shouldn’t be. For example, a 2016 World Bank report found that “[a]lmost every study, despite the methodology and whether it was cross-country or single country, found a positive economic impact from fixed broadband” (pg. 11). A 2016 report from the McKinsey Global Institute found “that widespread adoption and use of digital finance could increase the GDPs of all emerging economies by 6 percent, or a total of $3.7 trillion, by 2025. This is the equivalent of adding to the world an economy the size of Germany, or one that’s larger than all the economies of Africa. This additional GDP could create up to 95 million new jobs across all sectors of the economy.” A 2012 report prepared by Deloitte for the GSM Association found that “[o]n average, across the sample of 14 countries considered, if countries doubled their consumption of mobile data per 3G connection between 2005 and 2010, they would have experienced a growth rate of GDP 0.5 percentage points higher each year” (pg. 7). A 2014 report from the Gates Foundation notes that “mobile data has been used by researchers, mobile operators and governments to help plan emergency response after natural disasters, enhance access to financial services for the poor, track the spread of infectious disease, and understand migration patterns of vulnerable populations. Indeed the full range of ways that mobile data can be used to improve the lives of poor people is only beginning to be explored” (pg. 4). A 2015 study found “evidence that the use of mobile money increases the use of formal savings accounts and allows for more effective risk sharing. In recent research, we show another important channel through which mobile money can enhance economic development. Namely, by allowing easier access to larger amounts of trade credit, mobile money allows firms higher production, with important macroeconomic repercussions.” The situation of Kerala fisherman also demonstrates the impact of mobile phones. As The Economist reports,

Dividing the coast into three regions, [economist Robert] Jensen found that the proportion of fishermen who ventured beyond their home markets to sell their catches jumped from zero to around 35% as soon as [phone] coverage became available in each region. At that point, no fish were wasted and the variation in prices fell dramatically. By the end of the study coverage was available in all three regions. Waste had been eliminated and the “law of one price”—the idea that in an efficient market identical goods should cost the same—had come into effect, in the form of a single rate for sardines along the coast.

This more efficient market benefited everyone. Fishermen’s profits rose by 8% on average and consumer prices fell by 4% on average. Higher profits meant the phones typically paid for themselves within two months. And the benefits are enduring, rather than one-off. All of this, says Mr Jensen, shows the importance of the free flow of information to ensure that markets work efficiently. “Information makes markets work, and markets improve welfare,” he concludes.

A 2008 World Bank study found that the mobile sector and use of mobile phones (1) boost GDP, (2) create jobs, (3) increase productivity, (4) increase tax revenue, (5) enable entrepreneurship and job search, (6) reduce information asymmetries, (7) correct market inefficiencies, (8) reduce transportation costs, (9) create consumer surplus, (10) aid disaster relief, (11) disseminate educational and health information, and (12) promote social capital and social cohesion. Other sources point to access to money and banking, improved governance, and disseminated agricultural, health, and educational information.

These various studies and reports confirm what economist Andreas Bergh found about globalization: larger information flows reduce poverty. If we want to help the poor, we need to integrate them into the global economy.

Infographic: Mobile Phones Tackling Poverty

Ignorance Is Not a Virtue

This is part of the General Conference Odyssey.

Nathaniel quoted from Elder Haight’s talk, saying, “Modern man must replace uncertainties and doubt with a desire to know more of Jesus.”

I thought this went hand-in-hand with Franklin D. Richards’ talk on testimony:

[T]o obtain a testimony one must have a real desire to know the truth and must be willing to exert considerable effort.

The interested person must study the gospel, and the gospel is to be found primarily in the Bible, Book of Mormon, Doctrine and Covenants, and Pearl of Great Price, the four standard works of The Church of Jesus Christ of Latter-day Saints.

In this dispensation the Lord has counseled us to “seek … out of the best books words of wisdom: seek learning, even by study. …” (D&C 88:118.)

Jesus said, “… know the truth, and the truth shall make you free.” (John 8:32.)

I feel sure that part of this freedom Jesus refers to must be freedom from ignorance, as ignorance is a deterrent to happiness, growth, and development.

Through study of the scriptures we can understand our relationship to God and how the basic gospel principles apply to our daily lives. Our study, however, should be constant and intensive, for the gospel of Jesus Christ embraces all truth.

Hugh B. Brown once wrote,

We should all be interested in academic research. We must go out on the research front and continue to explore the vast unknown. We should be in the forefront of learning in all fields, for revelation does not come only through the prophet of God nor only directly from heaven in visions or dreams. Revelation may come in the laboratory, out of the test tube, out of the thinking mind and the inquiring soul, out of search and research and prayer and inspiration. We must be unafraid to contend for what we are thinking and to combat error with truth in this divided and imperiled world, and we must do it with the unfaltering faith that God is still in his heaven even though all is not well with the world.

As much as the scriptures warn against “the learned [who] think they are wise” (2 Nephi 9:28), modern leaders also preach against ignorance. The difficulty is finding the balance between continual learning and intellectual humility. Nonetheless, it should be clear that ignorance is not a virtue.

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The Opposite of Uncertainty

This post is part of the General Conference Odyssey.

Modern man must replace uncertainties and doubt with a desire to know more of Jesus.

This statement, from Elder Haight’s talk What Does Jesus Mean to Modern Man?, has been stuck in my brain for days now. It confounds expectations. Certainty is the opposite of uncertainty, right? But we can’t manufacture certainty.

Or rather, we can, but it’s a terrible idea. Manufacturing certainty preempts faith and precludes growth. Pretending to know—when really you don’t know—is worse than blind belief, it’s like gouging out your spiritual eyes. Real conviction is not something we claim. It’s something we’re given. And—like any blessing—it’s not the kind of thing that we are necessarily given right away, the moment we ask for it.

And so if you are struggling with doubt and uncertainty, you can’t just replace them with knowledge and certainty because you want to. So, from a practical standpoint, what can you do?

I can think of no better approach than what Elder Haight suggests.

Check out the other posts from the General Conference Odyssey this week and join our Facebook group to follow along!

The Consequences of Minimum Wage: Youth Edition

Time for yet another study on the minimum wage, this time by economist Charlene Marie Kalenkoski from March of this year. Do minimum wage laws have negative effects on youth employment and income?

Wait for it…

Yes. Yes they do.

Image result for die from not surprise gif


Kalenkoski writes,

Policymakers often propose a minimum wage as a means of raising incomes and lifting workers out of poverty. However, improvements in some young workers’ incomes as a result of a minimum wage come at a cost to others. Minimum wages reduce employment opportunities for youths and create unemployment. Workers miss out on on-the-job training opportunities that would have been paid for by reduced wages upfront but would have resulted in higher wages later. Youths who cannot find jobs must be supported by their families or by the social welfare system. Delayed entry into the labor market reduces the lifetime income stream of young unskilled workers (pg. 1).

A few selections on employment:

There is a substantial body of empirical evidence on the effects of a minimum wage on youth employment. Most of the studies have found negative effects on youth employment. A 1992 study of youth employment in the US found that a 10% increase in the minimum wage led to a 1–2% decline in the employment of teenagers and a 1.5–2% decline in the employment of young adults. A 2014 study of youth employment in the US showed a decline of 1.5% for teenagers. Thus, the estimated negative effect of minimum wages on employment in the US has been fairly consistent over time. However, these estimates are national averages, which obscure regional effects. A 10% increase in the minimum wage has been found to reduce regional employment by as much as 7%. One study that looked at teenage unemployment rates in the US instead of employment found that minimum wages indeed increase teen unemployment rates, as the standard economic model predicts (pg. 3).

Minimum wages reduce US teenage employment

And income:

How might the imposition of a minimum wage affect whether grocery store employers offer on-the-job training? If the minimum wage were set at W1 in Figure 3, for example, grocery store employers would be unable to offer on-the-job training to their grocery bagger employees. Workers would find themselves on the horizontal age-earnings profile at W1 and would thus earn less income over a lifetime than they might have had they been able to receive on-the-job training (pgs. 6-7).

On-the-job training changes the relationship between age and earnings

Kalenkoski concludes,

Rather than using a minimum wage to increase youths’ current incomes, policymakers should consider policies that improve the labor market opportunities of youths but do not increase the cost to employers of hiring young workers. Policies that would achieve both goals include providing cash welfare payments to youth if their earned income falls below some guaranteed level and providing in-kind support, such as food or housing assistance. Such policies create their own distortions (for example, causing some benefit recipients to choose not to work) but would not reduce the total number of jobs available or create unemployment (pg. 9).

Check out the full publication.

What Are the Reasons Behind Late-Term Abortions?

Trump has been catching a lot of heat for his rather bungled remarks about abortion. Clinton in turn defended late-term abortions by claiming that these cases are often due to the mother’s health being jeopardized or complications with the pregnancy. There was even a heartbreaking story by a Mormon woman going viral that relayed the horrific experience of late-term abortion due to pregnancy complications. It turns out that the majority of Americans would likely approve of abortion in her situation. Gallup has found that 50% of Americans think abortion should be legal only under some circumstances, while 29% think it should be legal in all cases and a mere 19% think it should be illegal in all cases. When specifics are given, they found that 82% believe it should be legal when the mother’s physical health is endangered and 75% believe it should be in cases of rape or incest. Even the official stance of the LDS Church would fall under the “legal only under some circumstances” category (though members should realize just how seriously Church leadership takes this subject).

Nonetheless, the American population of women has basically been split in half on this matter for over a decade. The latest Gallup poll found the percentage of pro-choice women to be 54 percent, though it’s averaged at about 48.5% between 2001-2015. This squares with Pew’s finding that 50% of women view abortion as morally wrong. However, a 2016 Marist poll found that 82% of women would restrict abortion to the first three months of pregnancy (this is much closer to a large number of European countries).

Why would so many women object to late-term abortions if these are so often due to complications as Clinton said? There are probably many reasons, but one of them could have to do with the fact that Clinton’s reasoning is misleading. Granted, the majority of abortions take place early on in the pregnancy. As The Washington Post reported,

One-third take place at six weeks or pregnancy or earlier; 89 percent occur in the first 12 weeks, according to the Guttmacher Institute, which supports abortion rights. Only 1.2 percent of abortions—about 12,000 a year– take place after 21 weeks. (The Supreme Court has held that states may not prohibit abortions “necessary to preserve the life or health” of the mother.)

On top of that, Guttmacher says that 43 states already prohibit some abortions after a certain point in pregnancy, such as fetal viability, in the third trimester or after a certain number of weeks. So this is already a rare procedure that is prohibited in much of the country.

So are late-term abortions mainly due to later complications? A 2013 study by the Guttmacher Institute may suggest otherwise. Writing at the pro-life Charlotte Lozier Institute, Elizabeth Johnson expounds on Guttmacher’s data:

For many years, abortion-rights advocates have asserted that abortions after 20 weeks are performed because of maternal health complications or lethal fetal anomalies discovered late in pregnancy. However, wider data from both the medical literature and late-term abortion providers indicates that most late-term procedures are not performed for these reasons. Previous survey studies of late-term abortion patients have confirmed that most late-term abortions are performed because of a delay in pregnancy diagnosis and for reasons similar to those given by first-trimester abortion patients:  financial stressors, relationship problems, education concerns or parenting challenges.

A recent paper entitled, “Who seeks abortion at or after 20 weeks?” supports these conclusions. The study, published in Perspectives on Sexual and Reproductive Health, a journal of the Guttmacher Institute, marks a notable departure from previous statements by abortion rights advocates that late-term abortions were rarely elective.  Authors Foster and Kimport highlight the characteristics of women seeking abortion at or after 20 weeks gestation.  The authors acknowledge that, in fact, wider “data suggests that most women seeking later terminations are not doing so for reasons of fetal anomaly or life endangerment.” The study explores reasons for delay in seeking abortion services, comparing first-trimester and late-term abortion groups.  While there are numerous limitations to the study, the authors suggest that the characteristics of women who seek both first-trimester and late-term abortions are substantially similar.

She concludes,

The characteristic similarities and delay commonalities observed across first trimester and late-term abortion groups suggest that women who seek abortion share similar characteristics across gestational ages.  The stressful circumstances of unprepared pregnancy, single-motherhood, financial pressure and relationship discord are primary concerns that must be addressed for these women.  However, these circumstances are not fundamentally alleviated or ameliorated by late-term abortion.  Indeed, late-term abortion places these women at greater risk of surgical complications, subsequent preterm birth, and mental health problems, while simultaneously ending the life of an unborn child. As a medical profession and society, we rightly seek alternative, compassionate responses for the women seeking late-term abortion procedures for such challenging yet elective reasons.

It is reasons like this that some fact checkers have called Clinton out on her previous late-term abortion comments. It is interesting that in Reason‘s useful rundown of late-term abortions in America there are no figures provided to support the claim that these abortions “are generally a last resort” and “involve situations where the mother’s life or health is in jeopardy.” The blog Secular Pro-Life Perspectives drew on a couple studies to further demonstrate the rarity of health problems as a reason for abortion:

This 1988 study surveyed 399 women seeking abortion at 16+ weeks. The study found women were obtaining late-term abortions instead of earlier-term abortions (i.e. reasons for delaying) because:

  • 71% Woman didn’t recognize she was pregnant or misjudged gestatio
  • 48% Woman found it hard to make arrangements for abortion
  • 33% Woman was afraid to tell her partner or parents
  • 24% Woman took time to decide to have an abortion
  • 8% Woman waited for her relationship to change
  • 8% Someone pressured woman not to have abortion
  • 6% Something changed after woman became pregnant
  • 6% Woman didn’t know timing is important
  • 5% Woman didn’t know she could get an abortion
  • 2% A fetal problem was diagnosed late in pregnancy
  • 11% Other

It continues:

According a 2004 study by Guttmacher, 1,160 women seeking abortion (not just late-term) gave overall reasons for obtaining an abortion at all stages (may list more than one):

  • 74% Having a baby would dramatically change my life
  • 73% Can’t afford a baby now 
  • 48% Don’t want to be a single mother or having relationship problems
  • 38% Have completed my childbearing
  • 32% Not ready for a(nother) child
  • 25% Don’t want people to know I had sex or got pregnant
  • 22% Don’t feel mature enough to raise a(nother) child
  • 14% Husband or partner wants woman to have abortion
  • 13% Possible problems affecting the health of the fetus
  • 12% Physical problem with my health
  • 6% Parents want me to have an abortion
  • 1% Woman was victim of rape 
  • <0.5% Became pregnant as a result of incest

The same Guttmacher study has statistics for later term abortion (13+ weeks gestation). According to Guttmacher, 21% of women who had abortion at or past 13 weeks were doing so for fetal health concerns, and 10% for personal health concerns. 

Abortion is a complex issue, especially when it comes to the legal aspects. But accuracy is important. While better data may indeed show that health complications are the culprits behind late-term abortions, the current evidence suggests that they are not.

Image result for abortion parks rec gif

UPDATE: Thanks to Margot in the comments for pointing out this 2014 study. She summarizes: “A more recent study (published in 2014) on all women referred to the Yale hospital for late-term abortions from 2002 to 2011 found that 69% were for a poor prenatal diagnosis–fetal anomaly (41.6%), aneuploidy (15.7%) or multiple anomalies (12.7%)–and another 9.6% were for pregnancy complications or maternal disease. Just over 20% were for unwanted pregnancies, perhaps where the mother either didn’t know she was pregnant earlier or had problems accessing abortion.” This is the kind of evidence mentioned above that could help identify health complications as the main culprit. Good data are hard to come by, so this was an excellent find. For the pro-life crowd, the near 21% of late-term abortions performed because the pregnancy was “unwanted” will still be alarming. But if this study is generalized, it could provide more weight for Clinton’s remarks. However, it is worth pointing out that these numbers are taken from Yale New Haven Hospital between 2002 and 2011. Multiple demographic factors (income, education, marital status, etc.) are at play when it comes to the numbers of a single hospital, which should make us cautious about drawing broad conclusions from them. Other numbers tell a different story. For example, since 2012, 91% of 14-20 week and 80% of 21+ week abortions in Arizona have been elective (i.e., not due to maternal or fetal medical conditions). In Florida, 87% of 13-24 week abortions have been elective since 2013 (it’s even higher when you consider the fact that things like “emotional/psychological health of the mother” and “social or economic reasons” are filed under “non-elective”). Diana Greene Foster–one of the authors of the 2013 Guttmacher study above–told FactCheck.org “that “[t]here aren’t good data on how often later abortions are for medical reasons.” She said based on limited research and discussions with researchers in the field that abortions for fetal anomaly “make up a small minority of later abortions,” and that those for life endangerment are even harder to characterize. This is because many of the women who fall into that category would be treated under emergent circumstances at hospitals rather than at a dedicated abortion clinic, making numbers harder to obtain, Foster said.” In other words, better data and research are needed.

The Importance of Consumer Credit

I recently reread a 2014 Forbes article by GMU law professor Todd Zywicki and former Fed economist Thomas Durkin based on their Oxford-published Consumer Credit and the American Economy and thought it was worth sharing. The authors explain that despite the claims of people like Elizabeth Warren,

economists have long understood why consumers borrow. Although there are exceptions to any rule, for most it bears little resemblance to Senator Warren’s picture of hapless victims goaded into debt by rapacious credit card issuers. Instead, consumers borrow for essentially the same reasons that businesses borrow: for capital investments and to smooth disruptions in income and expenses. And paternalistic regulations that make credit more expensive and less available typically makes people poorer.

Zywicki and Durkin use the example of a washing machine:

A washing machine is no frivolous bauble; its value is in not having to schlep to the laundromat every Saturday with a pocket full of quarters. While a washing machine costs much more on the front end to acquire, it generates a stream of benefits over years. In that sense, it is no different from a construction company that borrows money to purchase a backhoe to dig a ditch instead of hiring ten guys with shovels. 

The “hand-wringing about how other people use consumer debt is as old as debt itself. For example, the New York Times warned in the 70s that American consumers were “borrowing trouble”—the 1870s, that is.” They point out that

40 years ago if you needed $400 for a car repair, you would visit your bank, credit union, or a local personal finance company for a loan to be repaid over 12-24 months. If you bought a refrigerator or new bedroom set, you would finance it through the appliance store or department store and repay it “on time.” Today, you likely would just put it on your credit card. In fact, even despite the astonishing surge of student loan debt over the past two decades (it now exceeds credit card debt), the non-mortgage debt repayment obligation as a share of income is actually lower today for the typical household, including the typical low-income household, than in 1980 (see chart below).


while well-designed regulation can improve competition and consumer choice, economic history demonstrates that heavy-handed regulations that restrict product offerings frequently harm their intended beneficiaries. For example, who uses payday lending? Those who don’t have access to credit cards or would max out their cards if they used them. So what happens when well-intentioned regulators take away payday lending? Many payday lending customers shift to other alternatives, such as bank overdraft protection or pawnbrokers, which are often even more expensive. Eliminating options for low-income consumers (especially those options that they are actually using) doesn’t eliminate their need for credit.

The whole article is worth reading. Check it out.

The Future of Technological Advancement

Image result for technological progress
Not the most profound example, but it works.

Many critics today believe the notion that the days of economic growth and technological innovation are behind us. Yet, Oxford’s Ian Goldin and Chris Kutarna argue that these critics are mistaken. The critics, they argue, imagine “technological innovation to be like pulling balls from an urn, each ball representing a new idea. In the beginning, the urn was full and the spheres were large, but each time we’ve gone back to the urn, we’ve had to reach deeper than the last, and the spheres have dwindled into marbles.” In their view, however,

this metaphor, while intuitive and compelling, is backwards (Goldin and Kutarna 2016). Innovation is more like mixing compounds in an alchemist’s lab. Each compound is an existing idea or technology, and in the beginning we had just a few – maybe some salt, sugar, and common liquids. But then we tried mixing them together, and some of them reacted with one another to form new compounds…This metaphor is far closer to the present experience in research laboratories. Across the sciences, the pace of discovery is generally rising, not falling. For reliable evidence, consider the pharmaceuticals industry (a good litmus test because it invests more into R&D than any other industry, except aerospace). The year 2013 set a new record for total drugs launched world-wide (48) – a record that was promptly beaten in 2014 (61). With another 46 drugs launched in 2015, the last three years have been the industry’s three most productive in its history. Recent major discoveries include new weapons against heart failure, which in an aging world is now the leading cause of death; immunotherapies, which help to defeat cancers by boosting the body’s own immune response; and a viable pathway to effective Alzheimer’s medications within a decade. In part thanks to the accelerating pace of pharmaceutical achievements like these, average life expectancy across advanced economies is now rising an unprecedented four to five hours per day.

Goldin and Kutarna defend their view in a way that would make Julian Simon smile:

The broader cause for these emerging paradigm shifts is the inflation in human brainpower that has taken place over the past 25 years. Thanks to giant medical successes against childhood disease and aging over the past quarter-century, the present global cohort of adults is humanity’s largest and healthiest ever. It is also the best-educated. In just a generation, illiteracy has fallen from nearly half to just one-sixth of humanity. In 30 years, we’ve added three billion literate brains to our ranks. Meanwhile, the rapid expansion of higher learning in Asia means that the number of people alive right now with a university degree is greater than the total number of degrees awarded in history prior to 1980. Most importantly, the present generation is history’s best-connected, thanks principally to a quartet of big events – the end of the Cold War, waves of democratisation across Latin America, much of Asia and sub-Saharan Africa, China’s emergence from autarky, and the advent of digital communications.

Neither history, nor the present-day pace of scientific discovery supports the notion of diminishing returns to technological innovation. The challenge for growth economists is that analytic models are poorly suited to capture, and set society’s expectations for, these impending disruptions…Growth economics is powerful. At its best, it is an empirical science that helps determine how to lift human wellbeing – one of civilisation’s most important tasks. But it is unable to capture the dynamism of our new age of discovery for a reason. Much that matters is still beyond its sight.

We need an economy and a government that support dynamism and provide fertile ground for innovation.