“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“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
“A full-throated defense of economic dynamism.” - The Wall Street Journal
AI Summary.Regrouping US college majors to match Chinese disciplines yields a 2:1 ratio of science and engineering to humanities and social sciences, the same ratio as in China. The author argues America's building slowdown reflects structural economic shifts—urbanization reached 70% by 1960 and 85% by 2020, shifting needs toward maintenance—rather than a lawyerly culture.
Jonathon SineCogitations
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Jonathon Sine argues China “is moving beyond its breakneck industrial prime, facing similar dilemmas to those America confronted in the 1960s and 70s.” The ratio of science/engineering to humanities undergraduate majors is 2:1 in both the PRC and US.
Does America's building slowdown reflect structural shifts rather than lawyerly culture?
Core argument: Regrouping US college majors according to Chinese disciplines yields a 2:1 ratio of science/engineering to humanities/social sciences, the same ratio as in China when management is grouped with science/engineering in both.
Dan Wang’s “big idea” [is] “China is an engineering state, building big at breakneck speed, in contrast to the United States’ lawyerly society, blocking everything it can, good and bad.” I re-group US college majors according to Chinese disciplines to allow for rough comparison. Surprisingly, the ratio of science/engineering to humanities/social sciences is 2:1, the same as in China (if one groups management with science/engineering, as I also do for China). As with China today, America’s breakneck building phase was decidedly winding down by the 1960s. Urbanization went from 40% in 1900 to 70% by 1960, and grew much more incrementally over the next 60 years to 85% by 2020. The country simply did not need to continue building dams, expressways, and energy production facilities at breakneck pace. It became much more a matter of maintaining and upgrading (which has not gone well, at least according to the American Society of Civil Engineers’ report card). The American [building/investment slowdown that started after the 1970s] may be more about structural economic shifts than lawyers.
Takeaways by Macro Roundup® AI
Regrouping US college majors according to Chinese disciplines yields a 2:1 ratio of science/engineering to humanities/social sciences, the same ratio as in China when management is grouped with science/engineering in both.
US urbanization rose from 40% in 1900 to 70% by 1960, then grew more incrementally to 85% by 2020, with America's breakneck building phase winding down by the 1960s.
The US building and investment slowdown that began after the 1970s may owe more to structural economic shifts than to lawyers, qualifying Dan Wang's contrast between China's engineering state and America's lawyerly society.
Related Articles:
Industrial Colossus: China vs 1950s America— China's growth in its share of global manufacturing has slowed from roughly 1.5 percentage points per year in the early 2010s to just over 0.5 percentage points annually, about one-third the earlier pace. The author argues China's share of global manufacturing is likely near its peak.
The Real China Model— China generates more electricity annually than the United States and European Union combined, having added capacity equivalent to the United Kingdom's total supply each year. Electricity makes up nearly 30% of China's energy use, versus 22% in the US and 21% globally, and its share is growing about 6% a year.
America’s Housing Affordability Crisis and the Decline of Housing Supply— Housing production intensity has fallen substantially, especially in fast-growing Sunbelt markets once known for building, converging toward the low rates long seen on the coasts and in declining industrial centers. The authors argue incumbent-controlled regulation explains the weakening link between high prices, high demand areas, and new construction.
AI Summary.About a sixth of America's 2% real GDP growth over the past year came from investment in computer and communications equipment and data centres, and one estimate puts the artificial intelligence boom's total contribution to growth at 40%. Average electricity bills rose 7%, attributed in part to data-centre demand, while housebuilding and non-AI business investment slumped and real consumption flatlined.
Economist StaffThe Economist
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As AI-related investment has risen since 2023, residential and nonresidential investment have declined or flatlined. This may suggest that a relatively rate-insensitive AI buildout is crowding out more interest-sensitive forms of investment.
Is the AI investment boom crowding out the rest of the economy?
Core argument: Roughly a sixth of the 2% rise in American real GDP over the past year came from investment in computer and communications equipment, including chips, and data centres; one estimate puts the AI boom's contribution at 40% once grid upgrades and software intellectual property are included.
Something like a sixth of the 2% rise in American real GDP over the past year has come from investments in computer and communications equipment, including chips, and data centres. Add in the grid upgrades to power AI models, plus the intellectual-property value of the software itself, and one estimate puts the boom’s contribution to real GDP growth at 40%. The trouble is that the very sector powering so much of America’s economic growth is squeezing the rest of its output. Housebuilders, for instance, cannot afford to be blithe about higher borrowing costs. Data centres have also constrained the rest of the economy by keeping energy prices high. Average American electricity bills have risen by 7% so far in 2025, at least in part due to the extra strain data centres have put on the grid. Real consumption has flatlined since December. Housebuilding has slumped, as has non-AI business investment.
Takeaways by Macro Roundup® AI
Roughly a sixth of the 2% rise in American real GDP over the past year came from investment in computer and communications equipment, including chips, and data centres; one estimate puts the AI boom's contribution at 40% once grid upgrades and software intellectual property are included.
Average American electricity bills have risen by 7% so far in 2025, at least in part due to the extra strain data centres have put on the grid.
Related Articles:
Honey, AI Capex is Eating the Economy— Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.
Back to Our Regularly Scheduled Programming— The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.
The AI Boom’s Hidden Risk to the Economy— Net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91bn in a quarter two years on, while their combined free cash flow fell 30% to $40bn, as heavy AI investment absorbs cash these firms once recycled into financial markets. That spare cash previously helped hold down long-term interest rates despite large federal deficits.
AI Summary.The authors of an Institute for New Economic Thinking paper estimate that wealth gains among the top 10% of US households were large enough to explain the rise in total consumer spending above its longer-term trend, sustaining their spending even as their inflation-adjusted incomes shrank.
Jonnelle MarteBloomberg
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Americans earning over $250k/year now represent ~50% of US consumer spending, up from ~33% in the 1990s, supported in part by stock market gains. Recent equity market declines may have a disproportionate impact on spending relative to previous selloffs.
Does spending by the wealthiest households now drive the economy?
Core argument: Americans earning more than $250,000 a year account for half of all US consumer spending, up from about one-third in the 1990s, according to a Moody's Analytics analysis.
The increase in wealth experienced by the top 10% of households from 2020 to 2023 was almost without precedent, according to a paper published in May by the Institute for New Economic Thinking, enabling this cohort of “super rich” to keep spending even as their real incomes shrunk when adjusted for inflation. Gains among the wealthy were large enough to explain the rise in total consumer spending above its longer-term trend, according to the authors, economists Thomas Ferguson and Servaas Storm. A recent analysis by Moody’s Analytics found that Americans earning more than $250,000 a year now account for half of all US consumer spending, up from about one-third in the 1990s.
Takeaways by Macro Roundup® AI
Americans earning more than $250,000 a year account for half of all US consumer spending, up from about one-third in the 1990s, according to a Moody's Analytics analysis.
Economists Thomas Ferguson and Servaas Storm argue that wealth gains among the wealthy were large enough to explain the rise in total consumer spending above its longer-term trend.
The wealth increase for the top 10% of households from 2020 to 2023 was almost without precedent, according to a May paper from the Institute for New Economic Thinking, letting them keep spending as their inflation-adjusted incomes shrank.
Related Articles:
The U.S. Economy Depends More Than Ever on Rich People— Moody's Analytics estimates the top 10% of earners account for 49.7% of all U.S. consumer spending, a record in data going back to 1989, up from about 36% three decades ago, with their spending alone equal to almost one-third of gross domestic product.
Consumer Sentiment Deteriorating Rapidly— University of Michigan survey data show consumer sentiment declining for households earning both above and below $100,000, with job-loss worries at levels typically seen in recessions and a record-high share of consumers saying business conditions are worsening. Income expectations are falling while inflation expectations are rising rapidly.
The American Dream Is Not a Coin Flip, and Wages Have Not Stagnated— Using an alternative cost-of-living adjustment, the typical 40-year-old's pre-tax family income rose 52% between 1979 and 2019, or 73% adjusting for family size, versus 15% under the methods behind widely cited mobility estimates. Absolute mobility is down 20 percentage points since 1979 but stood at 72% in 2023.
AI Summary.Gallup polling finds that while roughly 80% of Americans say they are dissatisfied with the way things are going in the country, about 80% are satisfied with the way things are going in their own lives, including 90% satisfied with family life, 88% with housing, and 87% each with education and work.
Scott WinshipAmerican Enterprise Institute
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.@swinshi argues, “Whenever you read that 80% of Americans are dissatisfied with the way things are going in the US, you should remember that 80% are satisfied with the way things are going in their own life.”
Are Americans satisfied with their own lives but dissatisfied with the country?
Core argument: Gallup found in January 2023 that 90% of Americans were satisfied with their family life, 88% with their housing, 87% with their education, and 87% with their work.
Whenever you read that 80% of Americans are dissatisfied with the way things are going in the US, you should remember that 80% are satisfied with the way things are going in their own life. Gallup found in January 2023 that 90% were satisfied with their family life, 88% with their housing, 87% with their education, 87% with their work. These are mostly down from early 2019 but up from 1995.
Takeaways by Macro Roundup® AI
Gallup found in January 2023 that 90% of Americans were satisfied with their family life, 88% with their housing, 87% with their education, and 87% with their work.
While 80% of Americans report dissatisfaction with the way things are going in the US, 80% report satisfaction with the way things are going in their own life.
The January 2023 Gallup satisfaction readings on family life, housing, education, and work are mostly down from early 2019 but up from 1995.
Related Articles:
You Are Right to Worry About the Economy— The Federal Reserve describes the US as on an unsustainable fiscal path, with federal debt up from 70% of GDP after the financial crisis to nearly 100% and spending at 23% of GDP versus 19% before. Heavy tax increases on top earners are estimated to yield under 2% of GDP.
How Do Electoral Votes, Presidential Approval, and Consumer Sentiment Respond to Economic Indicators?— The authors estimate that unemployment, current inflation, and a set of noneconomic factors explain much of the variation in US presidential approval ratings since 1956, with the economic indicators' combined contribution almost always negative. Once noneconomic effects are included, the Michigan Consumer Sentiment Index loses its advantage over the economic variables.
The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly— Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
AI Summary.New business applications, including those likely to become employer firms, surged during the pandemic and were followed by a rise in establishment and firm creation, consistent with reallocation toward high-tech and pandemic-friendly industries and from city centers to suburbs and the South. Business formation remains elevated relative to pre-pandemic levels, though cooling.
Ryan Decker and John HaltiwangerWorking Paper
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.@JHaltiwanger_UM @UpdatedPriors document the continued high rate of new business formation by “likely employers” since 2020, and argue that “the pandemic and its aftermath featured a surge in genuine entrepreneurial employer business creation.”
Has the pandemic surge in new business creation held up?
Core argument: Applications for new businesses, including those with characteristics indicating potential to become employer businesses, surged beginning in the summer of 2020, followed in 2021 by a surge in employer entry measures covering both establishment and firm creation.
Applications for new businesses—including those with characteristics indicative of potential to transition to true employer businesses—surged starting in the summer of 2020. The surge in applications was followed in 2021 with a surge in measures of employer entry, including both establishment and firm creation, consistent with reallocation of economic activity toward pandemic-friendly and high tech industries and the geographic reallocation of activity from city centers to suburbs and from the northeast to the south and sunbelt regions. The high tech dimension has been particularly notable. Establishment births from the BLS Business Employment Dynamics (BED) through 2023:Q4. [which] include new establishments from both entirely new companies and existing firms opening new locations, started to rise late in 2020, rapidly increasing in 2021, and [remaining] elevated even while cooling recently. We provide overwhelming evidence that the pandemic and its aftermath featured a surge in genuine entrepreneurial employer business creation, and we show that measures of business formation have remained elevated relative to pre-pandemic levels even recently—though with clear signs of cooling.
Takeaways by Macro Roundup® AI
Applications for new businesses, including those with characteristics indicating potential to become employer businesses, surged beginning in the summer of 2020, followed in 2021 by a surge in employer entry measures covering both establishment and firm creation.
The surge in employer business creation is consistent with reallocation of activity toward pandemic-friendly and high tech industries and geographically from city centers to suburbs and from the northeast to the south and sunbelt regions.
Establishment births in the BLS Business Employment Dynamics data, which include new locations opened by existing firms as well as entirely new companies, rose late in 2020, increased rapidly in 2021, and remain elevated through 2023:Q4 while cooling.
Related Articles:
High Tech Business Entry In The Pandemic Era— High-tech industries accounted for a disproportionate share of the surge in net new business establishments after 2019, with net entry higher in tech than non-tech industries. The authors find suggestive evidence that tech establishment births rose more for existing firms than new firms, though both categories saw elevated openings.
Surging Business Formation in the Pandemic: Causes and Consequences?— Shifts in consumer demand and in preferences for work and lifestyle during the pandemic created entrepreneurial opportunities, and applications to start businesses produced new firms and establishments that hired workers in large numbers. The authors argue these new businesses drew in quitting workers as founders or hires, implying economic restructuring across industry, geography, and firm size and age.
The Economics of Inequality in High-Wage Economies— Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.
AI Summary.Venture capital fundraising has slowed sharply, from $555bn at its peak to about a third of that the following year, leaving venture investors on course for their worst fundraising year since 2015. Firms holding large pre-downturn funds have been reluctant to back start-ups whose valuations were hit by higher interest rates.
George HammondFinancial Times
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Last year global venture capital funds raised one-third of 2021’s record total of $555B. Funds are increasingly using their dry powder to support existing investments as opposed to making new investments.
Has venture capital fundraising slowed sharply since its peak?
Core argument: Venture capital firms raised roughly a third of their 2021 haul of $555bn last year, and continued slowing puts them on course for their worst fundraising year since 2015.
Fundraising activity has slowed sharply since 2021, when VCs hauled in $555bn. Last year, they raised a third of that total, and activity has continued to slow, putting venture investors on course for their worst fundraising year since 2015. In the US, just $9.3bn in capital was raised in the first three months of this year, roughly a tenth of the total raised in 2023. VCs that raised large funds before the market turned still have billions of dollars of “dry powder”, but have been reluctant to invest in start-ups whose valuations have been rocked by higher rates. Increasingly, they are focused on helping companies already in their portfolios towards exits which would then allow VCs to return capital to their own limited partners.
Takeaways by Macro Roundup® AI
Venture capital firms raised roughly a third of their 2021 haul of $555bn last year, and continued slowing puts them on course for their worst fundraising year since 2015.
US venture funds raised just $9.3bn in the first three months of this year, roughly a tenth of the total raised in 2023.
Venture investors holding billions in "dry powder" from funds raised before the market turned have been reluctant to back start-ups whose valuations were rocked by higher rates, focusing instead on steering portfolio companies toward exits that return capital to limited partners.
Related Articles:
It’s Mostly a Paper Moon: Alternative Investments Review— Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.
High-Interest Rates Crushed Startup Investment. Here Is What Could Revive It— U.S. venture funding for startups peaked above $300bn—more than double the prior year—before a series of steep interest-rate increases, the fastest in four decades, curbed appetite for risky startup bets and pushed funding down for a second straight year to $167bn.
Data Update 3 for 2024: A Rule-breaking Year for Interest Rates— Central bank influence on interest rates is strongest at the shortest maturities and decays at longer ones, so long-term rates are better understood through the Fisher decomposition of a nominal rate into expected inflation plus an expected real rate. Assuming the expected real rate converges on real economic growth yields an "intrinsic risk-free rate" estimated as inflation plus real growth.
AI Summary.The authors estimate that the weighted average cost of capital for Russell 3000 companies averaged 6.9% during the 2009-21 era of easy money versus 7.5% in the prior period, while the aggregate return on invested capital averaged 9.5% versus 9.2%. The resulting spread between returns and the cost of capital averaged 2.6 percentage points versus 1.7 points earlier.
Michael Mauboussin and Dan CallahanMorgan Stanley
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Between 2009 and 2021 Russel 3000 firms didn’t respond to low interest rates and a lower weighted average cost of capital by raising their investment in capex, M&A, and investment SG&A relative to 1996-2008. @mjmauboussin
Did easy money widen the gap between corporate returns and capital costs?
Core argument: The weighted average cost of capital for Russell 3000 companies is estimated to have fallen to 6.9% during the easy-money period of 2009–21, from 7.5% in the prior period, based on annual averages.
We estimate that the weighted average cost of capital (WACC) for companies in the Russell 3000 dropped to 6.9% in the time of easy money [2009-21] from 7.5% in the prior period, based on annual averages. Standard corporate finance dictates that companies fund projects that have a positive net present value (NPV), defined as when the present value of the future cash flows from an investment exceeds the initial outlay. The aggregate return on invested capital (ROIC), defined as net operating profit after taxes divided by invested capital, averaged 9.5% in the easy money period and 9.2% in the preceding time. Companies earn an ROIC in the aggregate that is roughly 50-60% of the hurdle rate they use. That means a lot of investments fail to earn the hurdle rate. But, on average, companies in the U.S. do earn an ROIC in excess of the actual cost of capital. The average spread between the ROIC and WACC was 2.6 percentage points in the easy money era and 1.7 percentage points in the prior period.
Takeaways by Macro Roundup® AI
The weighted average cost of capital for Russell 3000 companies is estimated to have fallen to 6.9% during the easy-money period of 2009–21, from 7.5% in the prior period, based on annual averages.
Aggregate return on invested capital averaged 9.5% in the 2009–21 easy-money era versus 9.2% earlier, with the average ROIC–WACC spread at 2.6 percentage points versus 1.7 percentage points.
Companies in aggregate earn an ROIC equal to roughly 50–60% of the hurdle rate they use, meaning many investments fail to earn that hurdle, though U.S. companies on average earn an ROIC above their actual cost of capital.
Related Articles:
Data Update 4 for 2024: Risk Enters the Equation— Across a universe of 47,698 companies, the median cost of capital for a US company is estimated at 7.9%, down from 9.6% a year earlier entirely because of declines in the price of risk, namely equity risk premiums and default spreads, though still above a historic low of 5.8%.
Cost of Capital— The average weighted average cost of capital for Russell 3000 companies, a proxy for the U.S. equity market, was 7.9% from 1985 to 2022, with an estimate of 8.8% at the end of 2022. Corporate finance executives rely on the capital asset pricing model, while quantitative investors use multifactor models.
The Corporate Debt Maturity Wall: Implications for Capex and Employment— The authors estimate the average interest rate on outstanding corporate debt will rise from 4.20% to 4.50%, lifting private sector interest expense as a share of gross output by 0.25 percentage points. They project this would reduce capital spending growth by up to 0.25 percentage points and labor cost growth by up to 0.15.
AI Summary.Real household net worth peaked at about $13tn above its pre-pandemic projected path before falling back to that path, while real financial assets peaked roughly $10tn above trend and then dropped to about $7.3tn below it. The shortfall in financial assets is attributed mainly to lower equity holdings, which fell 17%.
Hamza Abdelrahman, Luiz Edgard Oliveira, and Adam ShapiroFederal Reserve Bank of San Francisco
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According to a @sffed analysis, real household wealth, including unrealized capital gains, is back in line with pre-pandemic projections as of Q3 2023. @ah_shapiro
Has pandemic excess household wealth returned to its pre-pandemic trend?
Core argument: Real household financial asset holdings peaked at $10 trillion above their projected path in mid-2021 before returning to the projected trend in mid-2022.
Overall real household wealth has returned to its expected pre-pandemic projection. Real net worth (blue solid line) peaked in the last quarter of 2021 at about $13 trillion higher than the projected path (blue dashed line). Since then, net worth has decreased rapidly towards its projected path. As of the third quarter of 2023, household wealth was close to its expected pre-pandemic projection. Repeating this analysis to focus on financial assets (red line), we find that household real financial asset holdings peaked at $10 trillion above their projected path in mid-2021 before returning to the projected trend in mid-2022. Since then, the decline in financial assets to about $7.3 trillion below the projected path has been mainly attributable to lower equity holdings, which decreased by 17% in 2022.
Takeaways by Macro Roundup® AI
Real household financial asset holdings peaked at $10 trillion above their projected path in mid-2021 before returning to the projected trend in mid-2022.
Household real financial assets have fallen to about $7.3 trillion below their projected path, a decline mainly attributable to lower equity holdings, which decreased by 17% in 2022.
Related Articles:
Excess No More? Dwindling Pandemic Savings— Research on U.S. household savings after the pandemic recession points to rapid accumulation and then drawdown of excess savings, with cumulative drawdowns exceeding $1.9tn and less than $190bn of excess savings remaining in the aggregate economy. The authors estimate that if recent drawdown rates persist, aggregate excess savings would be depleted.
When Will There Be No More Excess Savings Left?— Post-pandemic excess savings and core consumer price inflation one year later track each other closely, with inflation rising, peaking, and declining roughly a year after excess savings did. The author argues fiscal stimulus that boosted disposable income and excess savings contributed to this inflation episode, alongside monetary policy and supply chain problems.
The Rich Have all the “Excess” Cash Now— Excess cash balances outside the top 1% have mostly disappeared, but the author argues their liquidation did little to finance consumer spending, which has been driven mainly by wage income. Relatively low household debt leaves many Americans room to spend above their income, potentially aided by lower interest rates.
