“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
AI Summary.Persistent inflation has raised the implied probability of a Federal Reserve rate increase to ~90%, up from ~70%. Rising oil prices above $99/barrel add further upward pressure on inflation, complicating the rate decision.
Justin Lahart and Matt GrossmanWall Street Journal
Date Posted:
The implied likelihood of a September rate hike increased from 70% to 85% because the rate of inflation didn’t decline in August, headline and core CPI are 3.4% and 2.4% y/y, respectively.
Does persistent inflation force the Fed to raise rates sooner?
Core argument: A firm August inflation reading lifted Fed rate-hike odds to ~90% from ~70%, with three July dissenters already on record favoring tighter policy and others signaling they would join them.
The August inflation reading has big implications for a Fed that has been sharply divided over whether it should raise rates at its policy-setting meeting next week. At the Fed’s last meeting, in July, three officials dissented in favor of raising rates, and others have since said they could join them if inflation doesn’t improve. Interest-rate futures imply there is now about a 85% chance that the central bank will increase its target range on overnight rates by a quarter point. Prior to the report, the chances were about 70%. Further complicating the Fed decision, oil prices have surged this month, with crude lately fetching over $99 a barrel in Friday New York trading, versus $85.76 at the end of August.
Takeaways by Macro Roundup® AI
A firm August inflation reading lifted Fed rate-hike odds to ~90% from ~70%, with three July dissenters already on record favoring tighter policy and others signaling they would join them.
Crude oil’s surge past $99/barrel from $85.76 at end-August adds a fresh inflationary impulse that complicates the Fed’s rate decision by threatening to entrench elevated price pressures.
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Brooks argues rising yields in advanced economies this year are driven by market’s “high alert” regarding debt. The highest cumulative rise in yields this year is in high-debt countries, and yields have risen on days with debt-related bad news.
Markets are on high alert, which they wouldn’t be if they weren’t worried about debt. Markets are aggressively differentiating between high- and low-debt countries as global yields rise. The lowest cumulative rise in yields this year (relative to a global average) is in Switzerland, Norway, Sweden, New Zealand and Australia. High-frequency price action tells us exactly what markets think and they’re clearly agitated about deficits and debt. When Japan’s Takaichi said in January that she was done with “excessive” fiscal austerity, long-term yields spiked sharply. In fact, that spike was so big that it caused global contagion, with the NY Fed doing its infamous “rate check” a few days later to keep the Yen from collapsing. Then there's the US Treasury's surprise buyback announcement on August 19, which tanked the Dollar as precious metals rose.
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The Coming Great Repression?— Higher public debt is historically associated with lower, not higher, government bond returns, as financial repression forces banks to hold low-yield bonds and cheap reserves, suppressing borrowing costs. This mechanism reduced British public debt by ~91% of GDP in 1945–55, dwarfing the contributions from inflation or budget surpluses.
Rising Bond Yields Are Good, Actually— Higher interest rates remain low relative to nominal income and spending growth of ~7% annually, making current rate levels benign rather than restrictive. Elevated rates help reallocate spending away from consumption and housing toward productive investment, or attract foreign capital to fund that shift.
AI Summary.The share of AI queries requiring top-tier proprietary models has fallen from 60% to 25%, as open-weight models handle a growing proportion of tasks at lower cost.
Toby NangleFinancial Times
Date Posted:
Data on OpenRouter, an AI query triage service, show that at the start of the year, the share of queries routed to a closed-weight proprietary model was 60%. That share has declined to 24% as open-weight performance has improved relative to frontier models.
Are open-source models eroding the competitive moat of proprietary AI?
Core argument: OpenRouter data show closed-weight proprietary models’ share of routed queries collapsed from 60% to 25% in 2025, indicating open models now handle three-quarters of real-world AI traffic.
One way to see which way the wind is blowing on open-model versus closed-model usage is by looking at data from router firms like OpenRouter, the New York start-up that Stripe agreed to buy last month. AI routers work a bit like an AI query triage service with a toll booth strapped on. Clients rock up, basically model-indifferent, and rather than tie themselves to any given model, they just send their queries to the router, which then flips them on to the lowest-cost model that will produce a good enough response for whatever the task at hand. Asking really tough closed-end frontier-model-worthy questions? To a frontier model they go. Increasingly, the share of queries that are truly closed-weight frontier-model-worthy is declining.
Takeaways by Macro Roundup® AI
OpenRouter data show closed-weight proprietary models’ share of routed queries collapsed from 60% to 25% in 2025, indicating open models now handle three-quarters of real-world AI traffic.
AI routers structurally disadvantage hyperscalers by directing queries to the cheapest adequate model, reserving closed-weight frontier offerings only for tasks that demonstrably require them.
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The AI Price Wars and Their Consequences— AI model pricing is converging toward commodity levels, where an 80% annual price decline requires 400% unit growth just to maintain flat revenue. Ceding lower-tier markets to defend premium pricing has historically failed against low-cost competitors, making trillion-dollar valuations difficult to sustain alongside heavy capital spending.
OpenAI and Anthropic In Price War as Chinese AI Rivals Gain Ground— AI model pricing is falling as competition intensifies, with leading models cutting token costs by up to 80%. Higher-priced models can deliver lower total costs by completing tasks in fewer tokens or attempts.
The AI Trade Is Losing One of Its Key Signals— AI token prices have fallen over 90% while total spending has roughly doubled, expanding the market overall. However, a 46% gap between AI investment and actual sales — wider than the 32% divergence seen during the 2001 telecom collapse — raises the risk that current infrastructure spending is outpacing real
AI Summary.U.S. diesel prices have reached a record $6.06 per gallon, surpassing the previous record of $5.82 set after Russia's invasion of Ukraine. Diesel's central role in freight, agriculture, and food transport is feeding producer price inflation at a critical harvest season, squeezing farm margins on fuel and fertilizer costs.
Stephanie Findlay and Jamie SmythFinancial Times
Date Posted:
US retail diesel prices have climbed to an all-time nominal high of $6.06 per gallon. The previous nominal high in January 2022 would be $6.54 in current dollars.
Does diesel supply shock threaten farm profitability during harvest season?
Core argument: U.S. diesel prices hit a record $6.06/gallon, surpassing the prior peak of $5.82 set after Russia’s 2022 Ukraine invasion, as an Iran-driven supply shock tightens global fuel markets.
The diesel pump price has surged this year and rose to $6.06 on Friday, motorist group AAA said, above the previous record high of $5.82 in 2022 following Russia’s full-scale invasion of Ukraine. Diesel’s critical role in the transport supply chain is also feeding into surging producer prices, which can stoke inflationary pressures at a time when Americans increasingly feel squeezed by affordability. The jump in diesel comes ahead of the autumn high season, where the fuel is used to power agricultural equipment to harvest and transport crops. Grain farmers in America’s Corn Belt have said they are facing a crisis with rising fuel and fertiliser prices eating into profits.
Takeaways by Macro Roundup® AI
U.S. diesel prices hit a record $6.06/gallon, surpassing the prior peak of $5.82 set after Russia’s 2022 Ukraine invasion, as an Iran-driven supply shock tightens global fuel markets.
Diesel’s central role in freight and logistics transmits the price surge directly into producer prices, amplifying inflationary pressure on an already cost-squeezed American consumer.
The price spike arrives ahead of the autumn harvest season, compounding input-cost pressure on Corn Belt grain farmers already facing a profit squeeze from elevated fuel and fertilizer costs.
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US Diesel Prices Soar To Record High— U.S. diesel prices have reached a record $5.85 per gallon, surpassing the previous record set after Russia's invasion of Ukraine. Prices face further upward pressure from harvest season demand, early winter heating needs, and planned refinery maintenance, with transportation and agriculture accounting for the majority of diesel consumption.
Fighting Words: The Energy Transition in 2026— As measured by useful final energy consumption in 2024, nuclear provided 6% of America’s 44.5 exajoules, renewables 9%, and fossil fuels 85%. The corresponding…
AI Summary.A benchmark designed to measure fluid reasoning rather than memorized knowledge — where earlier AI models scored near zero — has been solved at human-level performance by a new AI system. The benchmark's creator now expects true artificial general intelligence to arrive before 2030.
Michael CembalestJ.P. Morgan
Date Posted:
Newly released Chat GPT-6 scored 62% on Francoise Chollet’s fluid human intelligence test when undirected by humans and 99% when directed.
Does solving one reasoning benchmark mean artificial general intelligence is near?
In 2019, Francois Chollet created the ARC-AGI, an exam designed to show the gulf between AI model memorized answers and the fluid intelligence that people have. The exam assesses the ability to quickly acquire skills and solve unfamiliar problems from first principles, rather than just memorizing enormous amounts of training data and regurgitating information. GPT3 scored a zero on ARC-AGI-1 (humans score 60%-70%), and OpenAI o1 scored just 3% on ARC-AGI-2. In March 2026, Chollet and the ARC Prize Foundation released ARC-AGI-3, a harder set of problems that shifted from static to dynamic interactive video challenges. GPT-6 Astra scored 62% with a standard harness and 99% with a Provider Adapter harness (which uses OpenAI’s context management features to preserve and reuse the model’s reasoning between interactions).
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Chart of the Day: Small Models are Closing the Gap to Frontier AI— Small AI models are closing the gap with large ones, achieving the same reasoning benchmarks with 142x fewer parameters than required two years ago. This makes on-device AI viable without data centers, compressing the economic case for cloud-based, per-query AI services.
Nat Malkus and Sam HollonAmerican Enterprise Institute
Date Posted:
A large sample of Indiana high school students shows a near-linear relationship between 8th grade math test scores and participation in varsity athletics. Academic success and participation in extracurriculars appear to be complementary.
We find large gaps in varsity sports participation by academic achievement, which we measure using students’ eighth-grade math test scores. Students who attended the smallest schools (first quintile) were 2.8 times as likely to participate in varsity sports as those who attended the largest schools (fifth quintile). We find that after adjusting for school size 35% of students in the top achievement quintile played varsity sports in 2025, compared with just 12% of students in the bottom quintile. In general, the relationship between achievement quintiles and varsity sports participation was remarkably linear. [The exception was football], the largest sport by participation [17% of all varsity athletes and overwhelmingly male]. Here the top quintile [in 8th grade math] had 20% lower odds of playing than students in the middle achievement quintile.
The Benefits of Scholastic Athletics— Heckman et al, using two longitudinal data sets with a rich set of controls, find that participation in varsity athletics raises rates of high school and…
AI Summary.U.S. Treasury yields have surged to multi-decade highs across maturities, with the 30-year yield reaching levels not seen since 2007 and the 10-year approaching 5%. Rising oil prices are driving inflation expectations, pushing markets to price in near-certain Federal Reserve rate hikes within months.
Elizabeth StantonBloomberg
Date Posted:
The 10-year Treasury yield rose 9bp to 4.92%, and the 30-year rose to ~5.35%. The increase in yields stoked demand at today’s 30-year auction, which cleared at 5.308%.
Are higher oil prices forcing the Fed to abandon its rate-cut plans?
Core argument: The 30-year Treasury yield reached its highest level since 2007 and the 10-year hit 4.93%, its highest since November 2023, as an oil-driven inflation surge pushed traders to price a Fed rate hike at 70% odds for next week.
Yields on US government debt rose to fresh multiyear highs — stoking demand for an auction of 30-year bonds. Treasury yields rose by five to 12 basis points across maturities, with the 30-year benchmark reaching levels last seen in 2007. The selloff lured investors to a $22 billion auction of 30-year bonds, which drew historically strong demand. The new securities were awarded at 5.308%, nearly three basis points lower than their yield in pre-auction trading just before the bidding deadline, meaning that bidders at higher yield levels missed out. Investor demand was so strong that a record low 2.2% of the sale went to Wall Street dealers. The auction’s 5.308% result was 2.7 basis points lower than the market level going in, the second-biggest negative gap on record in the past five years.
Takeaways by Macro Roundup® AI
The 30-year Treasury yield reached its highest level since 2007 and the 10-year hit 4.93%, its highest since November 2023, as an oil-driven inflation surge pushed traders to price a Fed rate hike at 70% odds for next week.
The $22 billion 30-year bond reopening carried an indicated yield of ~5.35%, exceeding every 30-year auction result back to 2001 and signaling a structural repricing of long-duration U.S. sovereign risk.
The two-year note yield surpassed 4.5% for the first time since 2024, with markets fully pricing a Fed hike by October rather than December, compressing the expected tightening timeline by two months.
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America’s Risky Debt: What Markets See That Policymakers Don’t— The safety premium that investors historically paid for US government bonds over equivalent alternatives has compressed toward zero and, at longer maturities, reversed — with global investors now pricing foreign government bonds as safer than US Treasurys.
How Might Fiscal Policy Respond to the Rise of Artificial Intelligence?— A 0.5% annual productivity growth boost would reduce publicly held federal debt by 39% of GDP over 30 years, cutting roughly half of the projected rise from 101% to 175% of GDP, through higher tax revenue, slower spending growth relative to GDP, and debt dilution that outweighs higher borrowing costs.
AI Summary.Prime-age (25–54) and older (55–64) employment rates in Europe exceed those in the U.S., disproving the claim that European welfare systems suppress work. Higher-welfare northern European countries tend to have higher employment rates than lower-welfare southern ones.
Chris GilesFinancial Times
Date Posted:
Is Database:
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Despite Europe’s high social spending relative to the US, Chris Giles notes that prime-age adult (25–54) labor force participation in the Eurozone has overtaken that of the US, and there has been a dramatic convergence in the LFP of older workers.
Does European welfare actually discourage work?
Core argument: Prime-age adults (25–54) and older workers (55–64) both achieve higher employment rates in Europe than in the U.S., refuting the premise that generous welfare systems suppress labor force participation.
It does not matter whether you use EU or Eurozone data, prime-age adults (between 25 and 54) in Europe are more likely to be in work than those in the US. Older people (between 55 and 64) also have higher employment rates in Europe. Younger people (between 15 and 24) are more likely to have a job in the US, but that results from Europeans educating themselves for longer. The proportion of young people not in education, employment or training is higher in the US than in Europe. So welfare is not stopping work. More than that, the higher-welfare north of Europe tends to have higher employment rates than the south, although there is convergence within the Eurozone. Spain, in particular, has enjoyed rapid improvements.
Takeaways by Macro Roundup® AI
Prime-age adults (25–54) and older workers (55–64) both achieve higher employment rates in Europe than in the U.S., refuting the premise that generous welfare systems suppress labor force participation.
The U.S. records a higher share of young people (15–24) not in education, employment, or training than Europe, indicating that lower U.S. youth employment reflects weaker human capital investment, not stronger labor markets.
Within Europe, higher-welfare northern economies consistently outperform lower-welfare southern ones on employment rates, though intra-Eurozone convergence is underway, led by rapid gains in Spain.
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Why Do Americans No Longer Work So Much More Than Non-Americans?— The gap in hours worked between Americans and non-Americans has narrowed by half since the 1990s, driven by declining U.S. work hours as expanded government health benefits reduced the need to work, while rising wages and lower barriers to employment increased hours worked in other advanced economies.
