➔ Phenomenal World

REMEDY EXERCISE

Legal frameworks for sovereign debt restructuring

Despite contributing towards a series of crises (from the third world debt crisis of the 80s to the Euro-crisis of 2010), sovereign debt is rising across low-, middle-, and high-income economies, leading to renewed discussions around the macroeconomic consequences of sovereign debt restructuring and default.

In addition to debates about the economic consequences of default, a large academic and policy literature explores the varying legal architectures of debt contracts. In a 2002 paper, LEE BUCHHEIT and G. MITU GULATI present a history of contractual provisions for sovereign bonds in the United States, focusing specifically on the absence of collective action clauses, which are mandated in the UK.

From the article:

"In most contracts, the parties know each other's identity beforehand, and they make a conscious decision to enter into a legal relationship. In a multi-creditor debt instrument, the borrower's identity is of course known by each investor, but what the investors don't know is the identity of each other. When the bond issuer runs into financial difficulties, the actions of any one bondholder can dramatically affect the interests of all the other lenders.

Bonds issued by both corporate and sovereign borrowers in the early nineteenth century rarely contained provisions that contemplated collective decisionmaking by the bondholders. Each bond was a freestanding debt instrument; its terms could not be changed without the consent of its holder, and, if not paid when due, each holder was free to pursue her individual remedies against the issuer. The instruments did not require a holder to consult with, much less to act in concert with, fellow bondholders before, during or after a default. Although this approach ensured that each bondholder's claim against the borrower could not be deranged without that bondholder's consent, it also had the consequence of forcing financially-distressed corporate borrowers into bankruptcy (which in those days meant liquidation). This was, is, and ever shall be the "holdout creditor problem" in a debt workout.

One hundred years on, the financial community is again confronted with a remarkably similar problem. A sovereign bond issuer of the early twenty-first century is in much the same spot as the distressed corporate or railroad bond issuer of the early twentieth century. The merits of including majority action clauses in sovereign bonds as a method of neutralizing the holdout creditor are being proposed in some circles today, just as they were in the 1920s and 1930s in the context of corporate bonds. It may be feasible to engage the equity powers of U.S. federal courts in the oversight of some sovereign bond workouts with the result that the bondholders can be homogenized into a single voting class, and any court-approved compromise of the action will bind all members of that class."

Link to the paper.

• "By noticeably intensifying distributional conflict over scarce public resources, sovereign debt crises tend to lay bare underlying power dynamics that, during normal times, are quietly at work beneath the surface." Jerome Roos's recently published book uncovers the global distributional politics underlying the financialization of sovereign debt. Link. See also Barry Eichengreen's 2003 comparative overview of debt restructuring proposals. Link.
• Two pieces by José Ángel Gurría on the recent history of Mexico's debt crises: from Coping with Capital Surges, a chapter on the historical trade-offs of foreign direct investment; and a 1995 paper on "The Mexican Debt Strategy" draws policy lessons from the crises of the '80s. Link, link.
• "The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief—over 50 per cent of 2012 GDP—with minimal financial disruption, but it did so at a cost." From 2013, "An Autopsy" of Greek debt restructuring, by Jeromin Zettelmeyer, Christoph Trebesch, and Mitu Gulati. Link. And a 2014 paper by Miranda Xafa assesses the drawbacks to delaying the restructuring after mid-2011. Link.
h/t reader Dominik L for several of these links

NON-ZERO PRICE

"Digital goods have created large gains in well-being that are missed by conventional measures of GDP and productivity"

A new paper by ERIK BRYNJOLFSSON et al. suggests using massive online choice experiments as a method to find the true impact of digital goods on well-being. The background section gives an example of the impact that is currently unmeasured:

“... [in] a number of sectors ... physical goods and services are being substituted with digital goods and services. An apropos example of such a transition good is an encyclopedia. Since the 2000s, people have increasingly flocked to Wikipedia to get information about a wide variety of topics updated in real time by volunteers. In 2012, Encyclopedia Britannica, which had been one of the most popular encyclopedias, ceased printing books after 244 years (Pepitone 2012). Wikipedia has over 60 times as many articles as Britannica had, and its accuracy has been found to be on par with Britannica (Giles 2005). Far more people use Wikipedia than ever used Britannica—demand and well-being have presumably increased substantially. But while the revenues from Britannica sales were counted in GDP statistics, Wikipedia has virtually no revenues and therefore doesn’t contribute anything to GDP other than a few minimal costs for running servers and related activities and some voluntary contributions to cover these costs…For such transition goods, consumer surplus increases as free access spurs demand, but revenue decreases as prices become zero. Hence GDP and consumer welfare actually move in opposite directions.”

One finding of note: “50% of the Facebook users in our sample would give up all access to Facebook for one month if we paid them about $50 or more.” Link to paper on NBER here popup: yes. A free draft is available here popup: yes. April 14th, 2018 Inventions that Changed the World METARESEARCH AND DEVELOPMENT Changes in R & D funding and allocation In a new report on workforce training and technological competitiveness, a task force led by former Commerce Secretary Penny Pritzker describes recent trends in research and development investment. Despite the fact that “total U.S. R&D funding reached an all-time high of nearly$500 billion in 2015, nearly three percent of U.S. gross domestic product,” the balance in funding has shifted dramatically to the private sector: “federal funding for R&D, which goes overwhelmingly to basic scientific research, has declined steadily and is now at the lowest level since the early 1950s.” One section of the report contains this striking chart:

Link to the full report. ht Will

• A deeper dive into the report's sourcing leads to a fascinating repository of data from the American Association for the Advancement of Science on the U.S. government's investments in research since the 1950s. Alongside the shift from majority federal to majority private R&D funding, the proportion of investments across different academic disciplines has also changed significantly. One table shows that the share of federal R&D funding for environmental science, engineering, and math/computer science has grown the most, from a combined 43.2% in 1970 to 54.8% in 2017. Meanwhile, funding for social science research has decreased the most. In 1970, the social sciences received 4.3% of the government's R&D funding; but in 2017, that share had fallen to 1.8%. Much more data on public sector R&D investments is available from the AAAS here.
• A March 2017 article in Science explains some of these shifts.
• A section of a 1995 report commissioned by the U.S. Senate Committee on Appropriations charts and contextualizes the explosion of federal research and development funding in the immediate aftermath of the Second World War.
• A study from the Brookings Institution finds that federal funding for research and development accounts for up to 2.8 percent of GDP in some of the largest metropolitan areas in America. The authors have fifty ideas for how municipalities can capture more of the economic impact generated by that R&D.
• Michael comments: "With the diminishing share (4.3% to 1.8% of total government research) of halved expenditures—and business not naturally inclined to conduct this kind of research (except in, as one would expect, instances of direct business application like surge pricing and Uber)—social science research appears to no longer have a natural home."

TARGET VARIABLE

Big data's effect on the credit-scoring industry

A lengthy 2016 article from the Yale Journal of Law and Technology delves into credit-scoring then suggests a new legislative framework.

Since 2008, lenders have only intensified their use of big-data profiling techniques. With increased use of smartphones, social media, and electronic means of payment, every consumer leaves behind a digital trail of data that companies—including lenders and credit scorers—are eagerly scooping up and analyzing as a means to better predict consumer behavior. The credit-scoring industry has experienced a recent explosion of start-ups that take an 'all data is credit data' approach that combines conventional credit information with thousands of data points mined from consumers' offline and online activities. Many companies also use complex algorithms to detect patterns and signals within a vast sea of information about consumers' daily lives. Forecasting credit risk on the basis of a consumer's retail preferences is just the tip of the iceberg; many alternative credit-assessment tools now claim to analyze everything from consumer browsing habits and social media activities to geolocation data.

Full article by MIKELLA HURLEY and JULIUS ADEBAYO here. ht Will

Tallying the gains of migration

We recently linked to a paper by LANT PRITCHETT that challenged development orthodoxy by pointing out that the income gains for the subjects of best practice direct development interventions are about 40 times smaller than those from allowing the same people to work in a rich country like the United States.

Link, again, to that paper.

That argument was built upon previous scholarship that attempted to put rigorous numbers to the obvious intuition that migration is beneficial for those drawn to wealthy countries by labor markets. From a 2016 paper by Pritchett and co-authors MICHAEL CLEMENS and CLAUDIO MONTENEGRO:

"We use migrant selection theory and evidence to place lower bounds on the ad valorem equivalent of labor mobility barriers to the United States, with unique nationally-representative microdata on both US immigrant workers and workers in their 42 home countries. The average price equivalent of migration barriers in this setting, for low-skill males, is greater than $13,700 per worker per year." March 31st, 2018 White Out URBAN WEALTH FUNDS | OWNERSHIP OF SOVEREIGN WEALTH | FILTER BUBBLE EFFECTS URBAN WEALTH FUNDS Social wealth funds on the municipal level Matt Bruenig, Roger Farmer and Miles Kimball, and Sam Altman have all pushed for versions of a US sovereign wealth fund for social good. Their work focuses on funds at the national level. But another version of the idea comes from Dag Detter and Stefan Fölster, whose 2017 book advocates for “urban wealth funds,” funded via better management of government land and other nonfinancial assets. A few such funds have already had success. Using Boston as an example of a city that could profit from an urban wealth fund, Detter writes for the World Economic Forum in February: “…Like many other cities, Boston does not assess the market value of its economic assets. Unlocking the public value of poorly utilized real estate or monetizing its transportation and utility assets – smarter asset management, in other words – would yield a return that would enable it to more than double its infrastructure investments. Through smarter asset management, Boston could improve its public transport system and other services without needing to opt for privatization, raise taxes or cut spending elsewhere. “What’s the catch? Actually, there isn’t one.” Link to the full post. A 2017 Brookings report showed how Copenhagen successfully implemented urban wealth fund policy: “This paper explores how the Copenhagen model can revitalize cities and finance large-scale infrastructure by increasing the commercial yield of publicly owned land and buildings without raising taxes. The approach deploys an innovative institutional vehicle—a publicly owned, privately run corporation—to achieve the high-level management and value appreciation of assets more commonly found in the private sector while retaining development profits for public use.” • Another successful version of urban value capture: Hong Kong’s metro (the MTR). “Hong Kong is one of the world’s densest cities, and businesses depend on the metro to ferry customers from one side of the territory to another. As a result, the MTR strikes a bargain with shop owners: In exchange for transporting customers, the transit agency receives a cut of the mall’s profit, signs a co-ownership agreement, or accepts a percentage of property development fees. In many cases, the MTR owns the entire mall itself.” Link. • Detter and Fölster’s previous book envisions better management of government assets on the national level. March 24th, 2018 Do I See Right? FAIRNESS IN MACHINE LEARNING | METARESEARCH | MICROSTRUCTURE OF VIOLENCE DISTINCT FUSION Tracking the convergence of terms across disciplines In a new paper, CHRISTIAN VINCENOT looks at the process by which two synonymous concepts developed independently in separate disciplines, and how they were brought together. “I analyzed research citations between the two communities devoted to ACS research, namely agent-based (ABM) and individual-based modelling (IBM). Both terms refer to the same approach, yet the former is preferred in engineering and social sciences, while the latter prevails in natural sciences. This situation provided a unique case study for grasping how a new concept evolves distinctly across scientific domains and how to foster convergence into a universal scientific approach. The present analysis based on novel hetero-citation metrics revealed the historical development of ABM and IBM, confirmed their past disjointedness, and detected their progressive merger. The separation between these synonymous disciplines had silently opposed the free flow of knowledge among ACS practitioners and thereby hindered the transfer of methodological advances and the emergence of general systems theories. A surprisingly small number of key publications sparked the ongoing fusion between ABM and IBM research.” Link to a summary and context. Link to the abstract. ht Margarita • Elsewhere in metaresearch, a new paper from James Evans’s Knowledge Lab examines influence by other means than citations: “Using a computational method known as topic modeling—invented by co-author David Blei of Columbia University—the model tracks ‘discursive influence,’ or recurring words and phrases through historical texts that measure how scholars actually talk about a field, instead of just their attributions. To determine a given paper’s influence, the researchers could statistically remove it from history and see how scientific discourse would have unfolded without its contribution.” Link to a summary. Link to the full paper. March 17th, 2018 Natatorium Undine STATE SCHOOL RECRUITMENT | JOB GUARANTEE | BLOCKCHAIN DEPENDENCE EXTERIOR State universities' reliance on out-of-state enrollment Research on enrollment patterns finds that shrinking state funds leads admissions departments to look for out-of-state tuition financing. "Fixed effects panel models revealed a strong negative relationship between state appropriations and nonresident freshman enrollment. This negative relationship was stronger at research universities than master’s or baccalaureate institutions. These results provide empirical support for assertions by scholars that state disinvestment in public higher education compels public universities to behave like private universities by focusing on attracting paying customers. We contribute to a growing body of evidence that showing that university revenue seeking behaviors are associated with a strong Matthew Effect. Cheslock and Gianneschi showed that only flagship research universities could generate substantial revenues from voluntary support. Therefore, increasing reliance on voluntary support increases the differences between ‘have’ and ‘have-not’ universities. Similarly, our results suggest that relying on nonresident enrollment growth to compensate for declines in state appropriations also increases the difference between the haves and the have-nots. Many public universities may desire tuition revenue from nonresident students. However, descriptive statistics suggest that only research universities are capable of generating substantial nonresident enrollment." Link to the full paper, by OZAN JAQUETTE and BRADLEY CURS. • An NBER working paper, from 2016, produces similar findings in the case of international student enrollment: "Our analysis focuses on the interaction between the type of university experience demanded by students from abroad and the supply-side of the U.S. market. For the period between 1996 and 2012, we estimate that a 10% reduction in state appropriations is associated with an increase in foreign enrollment of 12% at public research universities and about 17% at the most resource-intensive public universities." Link to the paper, link to a summary. March 10th, 2018 The One With Nothing On It CRIMINALIZATION OF DEBT | INTERNET CENSORSHIP | EQUALITY BRUTAL ATTACHMENTS A new report on the criminalization of debt Last week, the ACLU published a report entitled "A Pound of Flesh: The Criminalization of Private Debt." It details the widespread use of the criminal justice system in the collection of debts—including medical, credit card, auto, education and household—in many cases resulting in de facto debtor's jails. "In 44 states, judges—including district court civil judges, small-claims court judges, clerk-magistrates, and justices of the peace—are allowed to issue arrest warrants for failure to appear at post-judgment proceedings or for failure to provide information about finances. These warrants, usually called 'body attachments' or 'capias warrants,' are issued on the charge of contempt of court. At the request of a collection company, a court can enter a judgment against a debtor, authorize a sheriff to seize a debtor's property, and order an employer to garnish the debtor's wages.… In most of the country, an unpaid car loan or a utility bill that's in arrears can result in incarceration." Link to the full report. • The report was given a lengthy write-up at The Intercept. "Federal law outlawed debt prisons in 1833, but lenders, landlords and even gyms and other businesses have found a way to resurrect the Dickensian practice. With the aid of private collection agencies, they file millions of lawsuits in state and local courts each year, winning 95 percent of the time." Link. • A brief overview of the history of debtors' prisons, leading to the upward trend of collectors' leveraging criminal consequences against debtors. Link. • A 2011 paper titled "Creditor's Contempt" describes the procedural and doctrinal mechanisms linking collectors and courts, and the "difficult balance between the state's and creditors' interest in rigorous judgment enforcement and debtors' interest in imposing reasonable limitations on the coerciveness of debt collection." Link. And documentation of a Duke Law conference covers the criminalization of debt alongside discussions of credit scoring and consumer bankruptcy. Link. • The criminalization of private debt dovetails with the more widely discussed issue of criminal justice debt resulting from fines and fees, which also leads to de facto debtor incarceration. Often called "legal financial obligations" (LFOs), these revenue-raising fees are levied for everything from warrants and case processing to parole check-ins and electronic monitoring devices. For more, see this 2010 report from the Brennan Center for Justice, this 2015 investigation from NPR, and this 2016 reform guide from Harvard's Criminal Justice Policy Program. (Also from CJPP, an interactive criminal justice debt policy mapping tool. Link.) • In a 2014 post on their now-defunct blog House of Debt, Atif Mian and Amir Sufi (authors of a book by the same name) on the history of debt forgiveness. Link. (For attempts at exploiting the imperfections of debt markets to cancel various kinds of debt, see the Rolling Jubilee project, and its relative the Debt Collective.) March 3rd, 2018 New Fables IVORY MECHANICS Regional parochialism and the production of knowledge in universities "Scholarly understanding of how universities transform money and intellect into knowledge remains limited. At present we have only rudimentary measures of knowledge production's inputs: tuition and fees, government subsidies, philanthropic gifts, and the academic credentials of students and faculty. Output measures are equally coarse: counts of degrees conferred; dissertations, articles and books completed; patents secured; dollars returned on particular inventions. As for the black box of knowledge production in between: very little." From the introduction to a new book on American social science research that aims to uncover the institutional pathways that produce (and favor) certain areas of research. It continues: "The rise of 'global' discourse in the US academy has coevolved with fundamental changes in academic patronage, university prestige systems, and the international political economy. America's great research institutions are now only partly servants of the US nation-state. This fact has very large implications for those who make their careers producing scholarly knowledge." Link to the introduction. • A short interview with co-authors Mitchell L. Stevens and Cynthia Miller-Idris. "Sociology department chairs said frankly that they deliberately steer graduate students away from international study because such projects on non-U.S. topics are less likely to have purchase on the tenure-line job market.… The tenure process is largely mediated by disciplines, and because those disciplines prioritize their own theoretical abstractions, contextual knowledge loses out." Link. • A paper examines previous attempts to map the parochialism of a discipline, finding that “conventional measures based on nation-state affiliation capture only part of the spatial structures of inequality.” Employed therein: novel visualizations and mapping the social network structures of authorship and citation. Link. Relatedly, a September 2017 post by Samuel Moyn on parochialism in international law. Link. • And a link we sent last fall, by Michael Kennedy, on interdisciplinarity and global knowledge cultures. Link. February 24th, 2018 The Conquest of Space DEFERRED ACTION On the effects of DACA Last week we linked to a paper that outlines the effects of DACA status on educational attainment and productivity: "High school graduation rates increased by 15 percent while teenage births declined by 45 percent.… College attendance increased by 25 percent among women, suggesting that DACA raised aspirations for education above and beyond qualifying for legal status." Given reader interest in that paper, we've compiled an overview, inspired by current events, of DACA-related studies across a range of domains. • On the economic effects of legal status for DREAMers, including the modeled impact of the DREAM Act: “We estimate DACA increased GDP by almost 0.02% (about$3.5 billion), or $7,454 per legalized worker. Passing the DREAM Act would increase GDP by around 0.08% (or$15.2 billion), which amounts to an average of \$15,371 for each legalized worker.” Link.
• The Cato Institute estimates the fiscal impact of the elimination of DACA, inclusive of projected productivity declines and enforcement costs: “The United States economy would be poorer by more than a quarter of a trillion dollars.” Link.
• A study finds DACA moved 50 to 75 thousand unauthorized immigrants into the labor force while increasing incomes for immigrants at the bottom of the income distribution. Using these estimates, the author contends that the (now defunct) DAPA, which targeted unauthorized parents of US citizens and LPRs for legalization, would move over 250 thousand unauthorized individuals into employment. Link. Another finds a 38% reduction in the likelihood of poverty for DACA-eligible immigrants. Link.
• As a complement to the above linked paper on education investment, more fine-grained results on education outcomes for DACA recipients: “the effect of DACA on educational investments depends on how easily colleges accommodate working students.” Link.
• On the mental health outcomes of children of DACA recipients. Link. On the health outcomes for DACA recipients versus their unqualified DREAMer counterparts. Link. On Medicaid use in mixed-status families, and the effects of deportation risk thereon. Link.
• Again from Cato, a report on the IRCA (alias "Reagan amnesty") reviews several studies of the economic effects of that 1986 law, which paired legalization for close to three million unauthorized immigrants with increased border security and employer verification. Alongside specific takeaways regarding wages and tax revenues for/from the population that gained legal status (increases in both), a larger claim emerges: legalization programs are most sensible "within the context of comprehensive immigration reform." Link. For more on the Reagan Amnesty and its legacy, see this report from the DHS and this post from the Migration Policy Institute.
• Vox’s Dara Lind, one of the few reliably accurate mainstream reporters on immigration law and policy, gives an overview of the DREAMer generation: “It’s the combination of settledness and the difficulty of getting legal that make DREAMers generationally unique in the history of US immigration policy.” Link. An idea discussed in that post—that increased border enforcement paradoxically kept migrants in the U.S.—is given depth by Princeton sociologist Douglas Massey here and here. For more on the relationship between immigration law, increased enforcement, and the growth of the unauthorized population, see this paper, this book, and this article.