In 2022, purchases of US securities by Middle East oil exporters, China, India, and Mexico were significantly higher than their 2013-2021 averages, despite talk of “financial fragmentation.” @dismaleconomist
In 2022, foreign investors purchased nearly $670 billion of long-term U.S. securities and short-term Treasury bills. Not only were the purchases by China, India, and the Middle East oil exporters in 2022 large compared to those by other countries, they were also sizable when measured against these countries' average purchases over the previous nine years. Net purchases in 2022 were well above average annual net purchases from 2013-2021 in every case. As before, under increased financial fragmentation, one would not expect these countries to be making larger purchases of U.S. assets compared to purchases in previous years. Related: How Was the U.S. Current Account Deficit Financed In 2022? and The New Geopolitics of Global Finance and Saudi Arabia's PIF and the New Petrodollar Recycling
A new @AEIecon analysis suggests that, as a result of the low-productivity healthcare sector’s growing share of the economy, America’s debt-to-GDP ratio will be 134% in 2032 relative to CBO’s 115% projection.
Within the next ten years, the federal government budget deficit relative to national income will grow significantly beyond historical experience. We project that debt-to-GDP will be 134% in 2032 and 263% in 2052, compared to CBO’s 115% and 189%, respectively. Real interest rates rise in the long run in a ratcheting cycle of higher interest payments and growing deficits and debt. Our projection of national health expenditures relative to GDP in 2072 is 29.6%, compared to 28.4% by the Centers for Medicare & Medicaid Services used by the Medicare Trustees. These higher rates of healthcare inflation arise from labor shortage effects in an aging economy because healthcare is produced in a low productivity, labor-dependent sector. This rise in healthcare expenditures further deteriorates the federal budget and lowers consumer welfare. Related: The 2023 Long-Term Budget Outlook and US Fiscal Alarm Bells Are Drowning Out a Deeper Problem and Interest Costs Will Grow the Fastest Over the Next 30 Years
.@calculatedrisk argues that the shift of the American population’s center of gravity to the southwest is likely to slow if not reverse due to climate change and water supply issues.
Although most projections are for the southwestward trend for the median center of US population to continue, without additional sources of water, changes in housing policy, and progress on climate change the southwestward trend will slow - or maybe even reverse. Climate change might make some areas further north more desirable. Perhaps the Carolinas (away from the coast), TN, and KY will see more growth. And maybe even areas further north that have more affordable housing will experience new growth. Climate change might make those areas - from MO to WV on up to the Great Lakes - more attractive over the next 50 years. For the southwestward trend to continue, there will have to be an increase in water supply, progress on global warming, and changes to housing policies (to make housing more affordable). Related: What’s the Matter With Miami? and Climate Change and the Geography of the U.S. Economy and A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South
.@jasonfurman argues today’s CPI print which leaves core 12-month CPI at 4.7% leaves the Fed room to skip a rate hike in September, though more might be needed.
2-month CPI rose from 3.0% in June to 3.2% in July. Overall real average hourly earnings (both private and production and non-supervisory which excludes managers) continue to rise. But they are 4% and 3% below their immediate pre-pandemic trend respectively. Overall, assuming August is relatively moderate as well there is no reason for the Fed to raise rates at their September meeting. I outlined my views on this earlier. If some of the good news proves transitory, however, they'll need to go back & do more. Related: Settling Into 4% Inflation? and What We’ve Learned About Inflation and The Second Great Experiment Update
Chinese car exports are surging; China is now exporting more than 10,000 cars a day.
In 2021 China exported nearly 1.6m cars. By 2022 it hit 2.7m. International sales are set to rev up further in 2023. Customs data show that the country shipped nearly 2m cars in the first six months of the year, or more than 10,000 a day. For all its manufacturing might, China never mastered internal-combustion engines, which have hundreds of moving parts and are tricky to assemble. The arrival of battery-powered vehicles, which are mechanically simpler and easier to build, helped China catch up. State investment in the EV technology, an estimated $100bn between 2009 and 2019, put the country in pole position. Today battery-powered vehicles account for a fifth of car sales in China and a third of exports. In Japan and Germany only 4% and 20% of exports, respectively, are electric. Related: China’s Auto Export Wave Echoes Japan's in the ’70s and Can Volkswagen Win Back China? and The Chinese Carmakers Planning to Shake Up The European Market
Over the last year, FDI flows into China have turned negative, as foreign multinationals have repatriated Chinese earnings they had previously reinvested. @jnordvig @EtraAlex @martin_lynge
Net FDI into China has been negative for four consecutive quarters (from Q3 2022 to Q2 2023). The bottom line is that foreign investors have shifted in recent quarters from reinvesting their earnings on their Chinese operations to repatriating those earnings. Whether this simply reflects cash management and carry considerations or is a harbinger of a slowdown in future foreign direct investment in China is too soon to say. If the recent trend to repatriate earnings is a signal about future investment intentions, it could have implications for future Chinese production and export capacity and economic growth. Either way, the repatriation of foreign investors’ profits from their Chinese operations is negative for the CNY. Related: The Mysterious $300 Billion Flow Out of China and NYC Becomes One Billionaire Family’s Haven From China Property Crash and Singapore Asks Banks to Keep Quiet on Wealth Inflows During China Boom
.@greg_ip notes that the US will spend 10% of federal revenue on interest by 2025, compared with just 1% for the average triple-A-rated country and 4.8% for double-A rated.
The variable that best captures the change in circumstances is the real Treasury yield—what investors expect to earn on a 10-year note after inflation. It was around zero in August 2011, soon to go negative. Today, it is 1.7%, near the highest since 2009. One takeaway is that the global saving glut—the wall of money in search of safe assets that kept yields down a decade ago—is no more. independent economist Phil Suttle estimates private investors will be asked to absorb government debt worth 7.7% of developed economies’ GDP this year and 9.2% next, more than double the 4.3% of 2011. Private borrowers thus face competition from governments for capital, which in the long run hurts investment and growth. We got a taste of that last week when yields jumped on news of larger-than-expected quarterly Treasury auctions. Related: Raising Anchor and American Gothic and Is a U.S. Debt Crisis Looming? Is it Even Possible?
.@foxjust notes that the poorest regions of the US in 1949 largely remain poorest, even though their real median household income has doubled.
Only three of the 15 most affluent metro areas in 1949 (San Francisco, New York and Washington) are still in the top 15, two (Buffalo and Cleveland) have fallen into the bottom 15 and four (Toledo, Dayton, Akron and Youngstown) have median incomes low enough to make the bottom 15 but not enough inhabitants to qualify. So there seems to be a lot more persistence at the bottom than the top. There’s also regional persistence, with Southern metros in the majority on the least affluent list in 1949 and now. On a regional level, things weren’t always so static — from 1929 until the 1970s, there was a lot of convergence in the BEA's estimates of state and regional per-capita personal income (that is, average income, as opposed to the median incomes). But they stopped coming together after that, and the Southeast and Southwest were the country’s poorest regions in 2022 just as they were in 1929. Related: The Economics of Inequality in High-Wage Economies and Young Families Have Not Returned to Large Cities Post-Pandemic and Sunbelt Cities Nashville and Austin Are Nation’s Hottest Job Markets
.@gideonrachman argues Trump started a “lasting revolution” in America’s China, trade, and industrial policies, all of which Biden is building out in a more systematic way.
For many, Trump’s legacy will be his assault on the American democratic system. But, in important respects, Trump brought about a lasting revolution in US foreign and domestic policy. Trump repudiated the previous 40-yr pro-globalization consensus, argued that US policy towards China has failed, and that the Communist party will never be a “responsible stakeholder” in the int’l system. He made “great-power competition” with China the centerpiece of his approach to the world, pulled America out of the TPP, made a deliberate effort to hobble the WTO, imposed a raft of tariffs on China, and renegotiated NAFTA. The Biden administration has retained most of these Trump-era policies. Biden made no attempt to rejoin the TPP and continues to block the WTO's appellate court. Trump’s victory in 2016 also forced Democrats to take the plight and anger of US workers more seriously. “Bidenomics” are driven by a Trump-like desire to reindustrialize America and rebuild the middle class. Related: Bidenomics and Its Contradictions and Aukus Allies Unveil Plan to Supply Australia With Nuclear-Powered Submarines and US and India Launch Ambitious Tech and Defence Initiatives
China has massive economies of scale that have helped it corner the market on “clean tech.” China has 90% of rare earth production, 80% of all stages of solar panel construction, and 60% of wind turbines and electric-car battery production.
Even if Europe has a colder winter than 2022-2023 the continent is in a good position to get through this winter without major gas shortages according to a @federalreserve analysis.
We consider three scenarios for the one-year period spanning 2023:H2 and 2024:H1. The first scenario ("Baseline") assumes that Europe maintains gas imports from Russia and all other sources at the same average level as in 2022:H2 and that gas consumption in each month is the same as its 2015–2021 average level.4 The second scenario ("Harsh Winter") is the same as the baseline, except that it assumes that next winter will be historically cold and, as a result, gas consumption in each month reaches its maximum 2015–2021 level. The third scenario ("Adverse Scenario") is the same as the baseline, except that it assumes that Europe's imports from non-Russian sources fall back to their 2015–2021 average in each month, while natural gas imports from Russia are the same as in the baseline. Related: How Europe is Decoupling from Russian Energy and Germany Opens Floating Gas Terminal at North Sea Port and War in Ukraine Drives New Surge of U.S. Oil Exports to Europe
While there is evidence American firms are “decoupling” from mainland China, many of the alternatives are still Chinese-owned firms with production shifting to countries that have deep links with the PRC.
Look at the countries that benefit from reduced direct Chinese trade with America. Caroline Freund of the University of California, San Diego found that countries which had the strongest trade relationships with China in a given industry have been the greatest beneficiaries of the redirection of trade, suggesting that deep Chinese supply chains still matter enormously to America. This is even truer in categories that include the advanced-manufacturing products where American officials are keenest to limit China’s presence. When it comes to these goods, China’s share of American imports declined by 14pp between 2017 and 2022, whereas those from Taiwan and Vietnam—countries that import heavily from China—gained the greatest market share. In short, Chinese activity is still vital to the production of even the most sensitive products. Related: Setser On Rumors Of Decoupling and US-China Trade is Close to a Record, Defying Talk of Decoupling and Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing
.@SpaceX has launched just shy of 5,000 Starlink internet satellites since 2019, and more than 4,500 are currently working.
SpaceX launched 15 more of its Starlink internet satellites Monday night and landed the returning rocket on a ship at sea. A Falcon 9 rocket topped with the Starlink spacecraft lifted off from California's Vandenberg Space Force Base. The Falcon 9's first stage came back to Earth as planned, landing on the SpaceX drone ship Of Course I Still Love You about 9.5 minutes after launch. This was the second Starlink launch for SpaceX in as many days. A Falcon 9 lofted 22 of the satellites from Cape Canaveral Space Force Station in Florida on Sunday night. SpaceX has now launched 4,918 Starlink spacecraft to date, and more than 4,500 of them are currently functional. Related: Despite An Explosion, Elon Musk Is Closer to His New Space Age and SpaceX Rocket Explodes Before Reaching Orbit
Doug Sosnik documents that voting behavior has polarized around educational attainment resulting in a new political geography of eight battleground states which have educational levels near the national average.
In a sharp contrast to a previous era, college educated voters are now more likely to identify as Democrats, and those without college degrees - particularly white voters, but increasingly all Americans – support Republicans. Culturally, a person’s educational attainment increasingly correlates with their views on a wide range of issues, including abortion, attitudes about LGBTQ+ rights, and the relationship between government and organized religion. This educational sorting has made the vast majority of states no longer politically competitive. It is the battleground states in the middle - where education levels are neither disproportionately high nor low - that will decide the 2024 presidential election. Democrats will likely enter the General Election with 222 electoral votes, compared to 219 for Republicans. That leaves only eight states, with 97 electoral votes – Arizona, Georgia, Michigan, New Hampshire, North Carolina, Nevada, Pennsylvania, and Wisconsin – up for grabs. The education levels in these states are at or near the national average - Pennsylvania (23rd), Georgia (24th), North Carolina (25th), Wisconsin (26th), Arizona (30th), and Michigan (32nd) - not disproportionately highly educated nor toward the bottom.
Millennial wealth is now keeping pace with prior generations at this point in their life cycles. @jean_twenge
Millennials, as a group, are not broke—they are, in fact, thriving economically. That wasn’t true a decade ago, and prosperity within the generation today is not evenly shared. But since the mid-2010s, Millennials on the whole have made a breathtaking financial comeback. The Federal Reserve Bank of St. Louis made big headlines in 2018 when it announced that among families headed by people born in the 1980s (older Millennials), median wealth was 34 percent lower than what you’d expect based on the wealth of previous generations at the same age. The report, which analyzed data through 2016, theorized that Millennials might be a “lost generation” when it came to wealth. But when the St. Louis Fed updated its analysis of Millennial wealth a few years later, using 2019 data, it found significant progress. By then, older Millennials lagged only 11 percent behind previous generations at the same age. That progress was uneven: The gap was larger for Millennials without a college degree (19 percent) and even more so for Black Millennials (50 percent). Younger Millennials (born in the ’90s and still in their mid-20s at the time) also faced a bigger gap. Still, since 2019, both housing and the stock market have increased in value, last year’s swoon notwithstanding. Recent analysis by the Fed, including data through the middle of 2022, has shown average Millennial wealth to be neck and neck with the wealth of Gen X at the same age.
In real terms, the Case-Shiller national index (blue line) is 4.6% under its recent peak and 11% above the 2006 bubble peak. @calculatedrisk
In real terms (using CPI less Shelter), the National index is 4.6% below the recent peak, and the Composite 20 index is 6.4% below the recent peak in 2022. In real terms, national house prices are still above the bubble peak levels. There is an upward slope to real house prices, and it has been about 17 years since the previous peak, but real prices are historically high. Affordability was essentially unchanged in February as a slight increase in prices was offset by a slight decrease in mortgage rates. In October 2022, houses were the least “affordable” since 1982 when 30-year mortgage rates were over 14%.
New research shows that a major increase in federal student loan funding that started in 2006 had the effect of dramatically increasing tuition without improving either inclusion or the future earnings of graduates. @JeffDenning @Econ_Sandy @AEI
In 2006, the federal government essentially uncapped student borrowing for graduate programs with the introduction of the Graduate PLUS loan program. We find that access to additional federal loans increased previously constrained students’ borrowing and shifted the composition of their loans from private to federal debt. However, the increase in borrowing limits had no effect on graduate student enrollment or the racial and gender composition of entering graduate students. We find little evidence of short or longer-run effects on the human capital accumulation of students who were or would have been constrained by federal borrowing limits in the absence of Grad PLUS, even though cumulative debt significantly increased for these students when they gained access to Grad PLUS loans. This suggests that access to additional liquidity did not constrain graduate student borrowers’ human capital investments prior to the implementation of Grad PLUS. We also find little evidence of an impact on later earnings, consistent with no change in human capital accumulation. Where we do see effects ison program prices. Grad PLUS-driven increases in federal student loans significantly increased program prices.
.@tylercowen argues that the diffusion of AI will enable important companies to run with a small number of employees managing automated AI-based systems.
Consider ChatGPT, which has been described as the most rapidly growing consumer technology product in history. It is produced by OpenAI, headquartered in San Francisco. Byone recent estimate the company has about 375 employees. By contrast, Meta, even after some layoffs, currently has more than 60,000. OpenAI will make more hires. Still, it may be time to reset expectations for what a major tech company looks like. Important businesses with a small number of employees will need to hire exactly the right people to oversee the larger automated and AI-managed superstructures. Talent selection will rise in importance as a skill, and the people in these smaller units will command very high compensation. Investing will evolve as well, with Americans less likely to own businesses in their stock portfolios. If businesses become smaller overall, they will not have the same need to go public to raise capital for expansion. They will be privately held. Venture capital will rise in importance, but since most solo investors face SEC restrictions on making venture investments, they will have to put their money elsewhere.
According to the UN, India’s population will overtake China’s this year if it hasn’t already. India’s population isn’t expected to peak until 2063.
The United Nations has said India’s population is projected to surpass China’s sometime this year. Many demographers estimate it could happen this month, if it hasn’t already. India’s population is expected to reach 1.429 billion by the end of the year, according to the U.N. China will fall to second place, with 1.426 billion people. Both dwarf the U.S. at a projected 340 million. India’s population is expected to keep growing for the next four decades, peaking at nearly 1.7 billion in 2063.
Stock-based compensation was around 6-8% of total compensation for public American firms, up 5x from 2006. At approximately 1.2% sales, stock-based compensation was up 6X since 2000. @mjmauboussin
In 2006, the year that companies had to reflect SBC as an expense on the income statement, total SBC expense for companies in the Russell 3000 was about $25 billion. The Russell 3000 is an index that tracks the largest stocks by market capitalization in the United States. We estimate that SBC was about $270 billion in 2022, or 6- 8 percent of total compensation for public companies in the U.S. Sales over the same period went from $11.5 to $21.1 trillion. Stock-based compensation (SBC) in 2022 was nearly 5 times what it was in 2006, measured as a percentage of sales, although total SBC remains less than 10 percent of total employee pay.
Nationwide, the difference between Republican vote share in rural vs urban areas increased to 21 percentage points in 2020, up from 10 pp in 2000 and 2pp in 1996. @SuzanneMettler1
Throughout the mid-twentieth century and as recently as the 1970s and 1980s, presidential candidates received fairly equivalent support from rural and urban dwellers, nationwide. Since the 1990s, however, the rural-urban political cleavage has grown steadily as shown in Figure 1. Although the rural-urban political divide in presidential voting has increased the most in the South, by 27 points between 1976 and 2020, it has widened in all regions over the same period, by seven points in the Northeast, 18 points in the West, and a striking 20 points in the Midwest. Urban areas captured a full 97% of all employment growth between 2001 and 2016. As the economic conditions in rural and urban areas diverged, the rural-urban political divide emerged.
Growth in the US has outpaced growth in other advanced peer economies. In 1990, the US accounted for 40% of the nominal GDP of the G7, today it accounts for 58%. @TheEconomist
America’s $25.5trn in GDP last year represented 25% of the world’s total—almost the same share as it had in 1990. On that measure China’s share is now 18%. In 1990 America accounted for 40% of the nominal GDP of the G7, a group of the world’s seven biggest advanced economies, including Japan and Germany. Today it accounts for 58%. In PPP terms the increase was smaller, but still significant: from 43% of the G7‘s GDP in 1990 to 51% now. America’s outperformance has translated into wealth for its people. Income per person in America was 24% higher than in western Europe in 1990 in PPP terms; today it is about 30% higher. It was 17% higher than in Japan in 1990; today it is 54% higher. America’s labour-force participation rate has been falling this century, largely because of men dropping out of the workforce. But this American oddity is not large enough to make up for the country’s advantage in raw numbers. Even with lower participation, the past three decades have seen America’s labour force grow by 30%. In Europe the number is 13%, in Japan, just 7%. America’s working-age population—those between 25 and 64—rose from 127m in 1990 to 175m in 2022, an increase of 38%. Contrast that with western Europe, where the working-age population rose just 9% during that period, from 94m to 102m.
Chinese firms now make up 4 of the top 25 leading firms in research and development spending, according to a @foxjust analysis.
When I last compiled one of these lists five years ago, mobile infrastructure and device maker Huawei Investment & Holding Co. was in sixth place behind Microsoft, just as it is here, but it was the only Chinese company in the global top 25. It has been joined by TikTok owner ByteDance Ltd., WeChat owner and gaming giant Tencent Holdings Ltd. and e-commerce, payments and cloud-computing purveyor Alibaba Group Holding Ltd.
Torsten Sløk @apolloglobal writes that “it is getting more difficult to argue that the banking crisis is not having a negative impact on the economy,” given that credit conditions for small businesses are at their worst levels since 2012.
Credit conditions have tightened significantly for small businesses after SVB failed, and firms with less than 500 employees account for almost 50% of total employment in the US economy. Small businesses borrow from small banks, and it is getting more difficult to argue that the banking crisis is not having a negative impact on the economy.
Torsten Sløk @apolloglobal reports that last week saw the largest two-week cut in bank lending in US history. “In short, the credit crunch has started.”
Weekly Fed data released every Friday at 4:15 pm shows how banks are responding to the SVB collapse and subsequent deposit outflows. The largest 2-week cutback in bank lending in US history. The largest 2-week cutback in bank lending to corporates in US history. Largest decline in lending to real estate on record. Fed hikes were already cooling the economy, and the latest weekly Fed data shows that the banking sector response since SVB is magnifying the speed of the slowdown. The bottom line is that the immediate risks in the banking sector are starting to fade, but the behavioral change in the banking sector is beginning to weigh on the economic outlook.
The French government reported that France had much lower income mobility than the US btw 2003-2019, with little movement in the top and bottom quintiles. Among those in the top 1% in 2003, 41% were still there in 2019. @markets
According to the first long-term study by France’s statistics agency Insee, there was a 71% correlation between the position of French people on the income scale between 2003 and 2019, with the richest and poorest groups least likely to change bracket. That inertia is greater than in the US, where a deeper history of income mobility studies has shown a higher probability of ascending or descending, the authors of the French report said. Among the lowest 20% in terms of income in 2003, 62% were still in that group in 2019. Only 2% of the group rose to the level of the 20% highest incomes.
Michael Cembalest @jpmorgan argues that the banking system is now stabilizing, with the pace of drawdowns slowing from mid-March.
The presence of unrealized losses on bank balance sheets is not abnormal, and is entirely consistent with a rising interest rate cycle. The problem this time: some banks were flooded with so many stimulus-related deposits at a time of low rates that their balance sheets are stuffed with low-yielding assets. And to reiterate, this is only a problem when large deposit outflows cause unrealized losses to be realized. The Fed’s new rules for the Discount Window allow banks to borrow against securities at book value rather than market value, so that should help. But it doesn’t address banks with underwater, high-quality loans or the flood of deposits departing for higher money market fund yields. Many system indicators are now stabilizing, but one news story, one rating agency action or an announcement from a single bank could reignite market/depositor concerns.
.@martinwolf_ argues that a savings glut in Japan significantly constrains its policy options and makes loose monetary policy and high deficits its best overall option. Japan’s private sector gross savings averaged 29% of GDP from 2010-19 vs 22% in the US.
Ultra-low interest rates are, for example, intended to raise private investment and reduce private savings. But in practice, the private savings surplus, especially the corporate surplus, has remained huge. Loose monetary policy has facilitated crucial absorption (and offsetting) of surplus private savings via the excess of government investment over savings. These deficits averaged 5 per cent of GDP from 2010 to 2019. Finally, an average of 3 per cent of GDP went into net acquisition of foreign assets via Japan’s current account surpluses. So long as Japan continues to run huge excess private sector savings, policy has to find ways of either reducing or offsetting them. Japan’s economy is still trapped. It also has no easy way out.
Michael Cembalest @jpmorgan argues that effective load carrying capacity (ELCC) is a better metric than the levelized cost of energy (LCOE) since this metric reflects the intermittent availability of wind and solar power.
One example: assume that California builds a deeply decarbonized system with 20 GW of wind, 150 GW of solar and 75 GW of storage. This system would only have 50 GW of reliable load with which to meet demand (ELCC=50 GW). Alternatively stated: if this system needed 50 GW of reliable power and was designed with renewables only, it would need 245 GW of wind, solar and storage to make it work. The marginal ELCC of wind, solar and storage are at their highest when renewables are first added to the system; their contribution to system reliability falls rapidly after that. LCOE reflects none of these realities, which is why the ISOs and utilities shown in the text box look at ELCC instead.
.@TaxFoundation analysis finds that for every dollar earned by the lowest quintile of American households, they receive an additional $1.27 from the government. @tevermeer @ericadyork @alex_durante_ @JaredWalczak
The U.S. system of taxes and transfers is highly progressive. The lowest quintile experienced a combined tax and transfer rate of negative 127.0 percent, meaning that for each dollar they earned, they received an additional $1.27 from the government, netting transfers (gains) and taxes (losses), while the top quintile had a rate of positive 30.7 percent, meaning on net they paid just under $0.31 for every dollar earned. The top quintile funded 90.1 percent, or $1.6 trillion, of all government transfers in 2019. For each dollar of taxes paid, the top quintile received $0.11 in gross government transfers. Government transfers account for 59 percent of the bottom quintile’s comprehensive income. For each dollar of taxes paid by the bottom quintile, they received $6.17 in gross government transfers.
Over the past 25 years the number of Americans reporting “patriotism” was “very important” to them declined from 70% to 38% and “having children” declined from 59% to 30%. The number reporting “money” climbed from 31% to 43%. @WSJ
Patriotism, religious faith, having children and other priorities that helped define the national character for generations are receding in importance to Americans, a new Wall Street Journal-NORC poll finds. Some 38% of respondents said patriotism was very important to them, and 39% said religion was very important. That was down sharply from when the Journal first asked the question in 1998, when 70% deemed patriotism to be very important, and 62% said so of religion. The only priority the Journal tested that has grown in importance in the past quarter-century is money, which was cited as very important by 43% in the new survey, up from 31% in 1998.
John Fernald @sffed argues that slower total factor productivity growth is likely not a function of the business cycle or scarring due to the crisis, as growth slowed in advance of 2008 across advanced economies.
TFP is the main factor accounting for differences in labor productivity growth across countries and over time. Since the mid-2000s, TFP growth has been lackluster across the large economies we analyze here. At the level of the market economy, productivity slowed because the productivity frontier (the U.S.) slowed, with similar slowdowns elsewhere. At a more disaggregated level, the frontier economy is sometimes different, but the pattern of slow TFP growth since the mid-2000s is evident in both manufacturing and market services. Qualitatively as well as statistically, the evidence suggests that, following that mid-1990s pickup, U.S. TFP growth slowed before the Great Recession.
.@pkedrosky argues that AI like ChatGPT is going to bend the cost curve on software production allowing us to run off “immense, society-wide technical debt,” resulting in significant consumer surplus as better software diffuses through the economy.
There is immense hyperbole about recent developments in artificial intelligence, especially Large Language Models like ChatGPT. Observers are missing two very important things. Every wave of technological innovation has been unleashed by something costly becoming cheap enough to waste. Software production has been too complex and expensive for too long, which has caused us to underproduce software for decades, resulting in immense, society-wide technical debt. This technical debt is about to contract in a dramatic, economy-wide fashion as the cost and complexity of software production collapses, releasing a wave of innovation What if the cost of software production is following similar curves, perhaps even steeper curves, and is on its way to falling to something like zero?
.@johnauthers reports that we may have seen a trough in global liquidity, according to data from Crossborder Capital.
The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way.
According to research published by @NBER, higher productivity growth in 1989-2017 “is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.”
U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.
Over the past 12 months, only 20% of American workers have experienced real hourly earnings growth. Outside the leisure and hospitality, information and transportation, and warehousing sectors, wage gains fell short of 5.9% PCE price index inflation. @KarenDynan
Because of high inflation, most workers are experiencing declines in their real wages. Wages are growing most rapidly in the leisure and hospitality, information, and transportation and warehousing sectors, where gains over the past 12 months have been between 6.5 and 9% (figure 6). The wage gains for these industries—representing about 20% of employment—are above the 12-month change in consumer prices. In other sectors, wage increases have fallen short of consumer price increases (except for construction and utilities, where average wage growth has roughly kept up with inflation).
In October 2022, the retired share of the American population was 1½ percentage points above its pre-pandemic trend. These 3.5 million workers account for essentially all of the shortfall in labor force participation rates. @federalreserve
Despite some improvement in the labor force participation rate for the working-age population since the early stages of the pandemic, the LFPR in October 2022 remained nearly 1½ percentage points below its pre-pandemic, February 2020 level (after making adjustments for changes in population weights introduced from the 2020 Census). The importance of retirements in accounting for this shortfall is illustrated in Figure 1, which shows the percentage of the working-age population that is not in the labor force for different reasons (black line) relative to February 2020, based on responses to the Current Population Survey. While earlier in the pandemic, factors other than retirements were an important contributor to elevated non-participation (such as non-participation while caregiving, the orange line), the percent of the population that was not in the labor force and retired (the[MRH1] “retired share”) has steadily increased and in October 2022 was almost 1½ percentage points above its pre-pandemic level, representing an increase of more than 3½ million retirees and accounting for essentially all of the total shortfall in the LFPR.
.@EthanYWu at @ft shares Blackrock analysis forecasting declining American labor force participation rates driven by aging. This implies that economic activity “will need to run at a lower level to avoid persistent wage and price inflation,”
The participation rate, or the share of people aged 16 and over that have or are looking for work, nosedived when the pandemic hit [orange line above]. Some of that sharp decline has been made up as people return. But we don’t see it recovering further because the effects of an aging population account for most of the remaining shortfall. More people have hit 64 years old, the age at which most retire. That’s taken 1.3M out of the workforce as of October, we find. Another 630,000 left as the pandemic caused fewer people to work past retirement age and hastened retirement for people coming up to 64. That implies the workforce will keep shrinking relative to the population. Economic activity will need to run at a lower level to avoid persistent wage and price inflation, especially in the labor-heavy services sector.
.@fuxianyi at @ProSyn argues that political transformations tend to occur during a “youth boom” when the share of the population aged 15-29 exceeds 28%. The proportion of youth aged 15-29 in China stood at just 17% last year, and the median age was 42.
A country can be said to be having a “youth boom” when the proportion of people aged 15-29 exceeds 28%. When a country is experiencing a youth boom, it may also find itself on the path to political change – including, potentially, democratization. That was the case in Taiwan and South Korea. As the share of young people increased – from 25% in each country in 1966 to a peak of 31% in the early 1980s – so did economic growth and pro-democratic fervor. Both economies became democracies in 1987 when their populations’ median age was 26. In April 1989 – when the proportion of youth was at its peak of 31%, and the median age was 25 – student-led demonstrators occupied Tiananmen Square in Beijing. It took a bloody crackdown that June to crush the movement. The proportion of youth aged 15-29 in China stood at just 17% last year when the median age was 42.
.@Noahpinion reviews the shift of American innovation from corporate labs to university research and startups but notes that Google’s AI divisions have been an important driver of research in the frontier of machine learning innovation.
The successes of Bell Labs and other big corporate labs in the mid 20th century has many people thinking that maybe this is an important missing piece of our modern innovation ecosystem. Google’s AI divisions have been an important driver of research in the machine learning space — an extremely important frontier. All told, the research output of Google AI, Google Brain, DeepMind, etc. has been truly staggering: Big private companies (especially IBM) are also very active in quantum computing research. And some “startups” like SpaceX are big enough to do research in-house that pushes the boundaries of general-purpose technology instead of just making a quick buck.
In a survey of 1,200 millennials aged 26-41, one in four are currently living with their parent, and half of these moved in with family within the past year. @bloomberg
About one in four millennials are living with their parents, according to the survey of 1,200 people by Pollfish for the website PropertyManagement.com. That’s equivalent to about 18 million people between the ages of 26 and 41. More than half said they moved back in with family in the past year. Among the latter group, the surge in rental costs was the main reason given for the move. About 15% of millennial renters say that they’re spending more than half their after-tax income on rent. In September of 2020, a survey by Pew found that for the first time since the Great Depression, a majority of Americans aged between 18 and 29 were living with their parents.
.@GoldmanSachs forecasts that by 2075 both India and China will have slightly larger GDP than the US, but US real per capita GDP will rise from $69k in 2021 to $132k, vs. 2075 forecasts of $55k for China and $31k for India.
Exhibit 17 sets out our 2075 GDP level projections, broken down by population and GDP per capita levels. Two points are notable: First, there is a large gap between the largest three economies (China, India, and then the US) and all other economies (although the Euro area represents a fourth economic superpower, if it is treated as a single economy). Second, while China and India are projected to be larger than the US by 2075, our projections imply that the US will remain more than twice as rich as both (and five times as rich as countries such as Nigeria and Pakistan).
Change in their relative earnings accounted for 44% of the growth in labor force exits among non-college men between 1980-2019, suggesting a decline in social status is a likely factor driving the decline in prime-age labor force participation. @BostonFed
This paper investigates whether prime-age non-college men are more inclined to leave the labor force when their expected earnings fall relative to the earnings of other workers in their labor market. The empirical model takes into account that a job not only provides economic security but also affirms a worker’s social status, which is tied to their position relative to their age range peers. According to [a regression analysis] estimate, a 10% growth in expected earnings has an associated 0.12 percentage point decrease in the exit rate. Contrarily, a 10% growth in reference earnings has an associated 0.13 percentage point increase in the exit rate, fully discounting the earnings effect. These coefficients offer suggestive evidence that non-college men’s labor market exit behavior is tied to the relative values of their earnings. Over the course of the study period, non-college men’s relative earnings declined 30% on average. Based on the estimates, this decline in relative earnings had an associated 49 percentage point increase in the exit rate, accounting for 44% of the total growth in the exit rate among non-college men over this period. In contrast, changes in real earnings alone account for only 18% of the total growth in exit rate.
.@AEI’s @swinshi revisits Raj Chetty’s data and argues that contrary to Chetty’s findings, slower economic growth has been a much more important driver of the reduction of absolute mobility than the rise in inequality.
Higher growth would have raised absolute mobility from 50% to 81%, while lower inequality would have increased it to just 57%. This is almost the mirror image of the Chetty findings. Chetty also reported trends looking at absolute mobility for the 1970 cohort as of age 40 rather than for the 1980 cohort at age 30 (Figure S12 in their paper.) These analyses showed that in the “high growth” counterfactual, instead of 56% of the 1970 birth cohort experiencing absolute mobility, 67.5% would have. Meanwhile, in the “low inequality” counterfactual, the rate was 74%. However, using my approach, the “high growth” scenario produced an absolute mobility rate of 78.5%, while the “low inequality” scenario featured a rate of 63%. Again, the Chetty conclusion about the importance of growth versus inequality reverses.
.@PaulKrugman suggests that wage growth for lower-income families has more than offset inflation, even accounting for their higher food and energy consumption.
The labor economist Arindrajit Dube has estimated hourly wage changes — by decile rather than quartile — over a longer period since the beginning of the pandemic recession. He finds that real wages for the bottom 40 percent of workers have increased. Lower-income families spend a higher than average share of their income on food and energy, which are also the categories that have seen the most inflation recently. My rough calculations suggest that even when you take these food and energy costs into account, lower-income families have done better, not worse, than others, at least in terms of inflation’s effects. But it does lessen that difference somewhat.
There has been a sharp uptick in the number of men working as stay-at-home parents. Almost 5% of stay-at-home parents are men, compared to about 1% in the mid-1990s. @bloomberg @jordan_yadoo
[The Census Bureau defines stay-at-home males] as husbands in opposite-sex marriages with children under 15 who specifically say they’re not working so that they can care for family and whose wives are either working or looking for work. Under those terms, men accounted this year for 5% of the one-fifth of US families with a stay-at-home parent, up from about 1% in the mid-’90s and representing 239,000 fathers. According to a broader analysis by the Pew Research Center—which expands the pool to include any father of a child under 18 who hasn’t been working, regardless of reason or marital status, and also incorporates men in same-sex relationships—the number of stay-at-home dads had swelled to about 2.1M by 2021, equal to 18% of all stay-at-home parents, up from 10% in 1989.
Young adults in both the UK and US are spending more time alone and increasingly reporting feeling “lonely.” @ft
On average, 53% of Americans aged over 65 spend more than eight hours of waking time on their own every day, according to my analysis of data from the American Time Use Survey. The trend remains unchanged for people over 60. But compared with a decade ago, the rise in the number of young people who spend more than eight hours on their own is alarming. Time on your own is one thing; feeling lonely is quite another. And young people seem worse affected by the latter. A March 2022 ONS survey found that 40% of women aged 16 to 29 in the UK report “feeling lonely often, always or some of the time,” compared with 22% of women over 70. For men, some 22% of this age group report feeling lonely, compared with 13% of the over-70s. And, of course, the impact of Covid lockdowns cannot be ignored.
China’s trade surplus has continued to grow since the pandemic, with manufacturing exports ~ 14% of GDP. The trade surplus is poised to grow, as China’s bill for imported commodities falls. @Brad_Setser
The popular deglobalization narrative simply isn't in China's trade data -- manufacturing exports are up massively, and that has pushed the surplus up even as China's commodity import bill reached record levels (the commodity bill is poised to fall now, by the way.) China's currency is (still) managed (in my judgment, even if the PBOC's reported reserves don't change,) so movements reflect the interaction of market pressure and political decisions. But at some level, a weaker CNY, even with a massive trade surplus, reflects a judgment by China's policymakers that they need to sustain the rise in exports (relative to China's GDP) even as global demand for manufactures drops (to offset China's domestic weakness.)
2021 saw a record 48,953 gun deaths or 15 fatalities per 100,000 people. Black men aged 20-24 suffered 142 firearm homicides per 100,000 people in 2021, a 74% increase since 2014. @wsj
A record 48,953 deaths in the US, or about 15 fatalities per 100,000 people, were caused by guns last year, said the analysis published Tuesday in the journal JAMA Network Open. Since 1990, rates of gun-related homicide have been highest among Black men aged 20 to 24, the analysis said, with 142 fatalities per 100,000 people in this group in 2021—a 74% increase since 2014. Homicide rates are as much as 23 times higher among Black men, and as much as nearly four times higher among Hispanic men than among white men, the analysis said. Gun fatality rates from suicide were highest among white men aged 80 to 84 years, at 47 fatalities per 100,000 people in this group in 2021—a 41% increase since 2007, the analysis showed.
Companies with market capitalization of over $200B currently represent 30-35% of total capitalization, up from the 10-15% share that was normal until 2016. @policytensor
The polarization in favor of the biggest firms peaked at the end of last year. The megacap-to-midcap ratio of market cap has been cut from four to three in the course of 2022. But three is far from a collapse of the megacap boom. The 10-15% that was normal until 2016 has since given way to 30-35% of total capital controlled by the megacaps. I have used biweekly rolling averages for the graph. Note that this is a bottom-up census rather than an estimate. I am just adding up reliable third-party data at the granular level; every single ticker for which there is price and market cap data. This is the broadest possible universe of US equities for which I can find kosher data.
A 2019 RAND study found 60% of American men in the 26-35 cohort who failed to graduate from high school had been arrested by age 26, and their arrest rate has been going up over time, reports @adam_tooze
60% of young men in America with less than high-school education have been arrested at least once by age 26. Strikingly, the report’s author James P. Smith found that the arrest rate has increased dramatically over time. Black men were significantly more likely to have been arrested. Of black men aged 26-35 in the study, 33% had been arrested by age 26 versus 23% for white men. Education plays an outsized role in explaining racial arrest differences, especially for men in the 26–35 age group. The overall higher rate of arrests by 26 among black adults in the 26–35 age group correlates with lower education levels. The study also found that having a more educated father was associated with lower rates of arrests and convictions by 26.
The MSCI India Index has outperformed the MSCI China Index through April 2022, according to @Wellington_Mgmt research, as noted by @tylercowen
Figure 1 shows the cumulative total returns posted by the S&P 500 Index, the MSCI China Index, and the MSCI India Index from December 31, 1992, through April 20, 2022. Our clients have been uniformly surprised that China’s long-term performance has been so much lower than that of the US and India, especially given all the investor focus on China in recent years. And they’ve been even more surprised that India – a market many clients have more or less ignored – has fared so well over the long run.