“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“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
“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
“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
“…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“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
“…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
AI Summary.The author estimates Iran earned about $100m a day from crude sales before the war and roughly $175m a day afterward, so a US-enforced blockade would deal its economy a heavy blow. An earlier US maximum-pressure sanctions campaign cut Iranian crude earnings to no more than $10m a day without forcing Iran to yield.
Javier BlasBloomberg
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Before the war, Iran was earning ~$100mm a day from oil exports, which rose to ~$175mm during the war, before the blockade. The US “maximum pressure” campaign of 2018–2021 had reduced Iran’s oil revenue to ~$10mm a day without changing Tehran’s behavior.
Would cutting off oil revenue force Iran to negotiate?
Core argument: Iran's crude sales earned roughly $100 million a day before the war and have risen to about $175 million a day since Feb. 27, by the author's back-of-the-envelope calculations.
According to my back-of-the-envelope calculations, Iran was making about $100 million a day selling its crude before the war. Since Feb. 27, that’s risen to around $175 million a day. If the US enforces the blockade, the Iranian economy will suffer an enormous blow on top of the war destruction. But whether that economic hit translates into a softer negotiation approach remains to be seen. Targeting Iranian oil revenue has been tried before — and it failed. In 2020-2021, when Trump launched a maximum pressure campaign of sanctions, Iranian crude exports dropped to fewer than 250,000 daily barrels for several months just as oil prices were depressed due to the impact of the pandemic. Even allowing for some exports slipping under the radar, Iran was earning no more than $10 million a day selling crude — and it still didn’t buckle.
Takeaways by Macro Roundup® AI
Iran's crude sales earned roughly $100 million a day before the war and have risen to about $175 million a day since Feb. 27, by the author's back-of-the-envelope calculations.
Under Trump's 2020-2021 maximum pressure sanctions campaign, Iranian crude exports fell below 250,000 barrels a day for several months and revenue reached no more than $10 million a day, yet Iran did not buckle.
US enforcement of the Hormuz blockade would deal the Iranian economy an enormous blow on top of war destruction, though whether that translates into a softer negotiating approach remains to be seen.
Related Articles:
Are We Running Out Of Oil— An analysis of country- and product-specific oil markets identifies pockets of potential extreme tightness if the Strait of Hormuz remains effectively closed, with critically low supplies of the petrochemical feedstocks naphtha and liquefied petroleum gas in Asia and cross-product scarcity in multiple Asian countries.
Salem’s Lot: Gulf War Update; The Purge Of Senior US Military Officers; A US Fossil Fuel Reliance Fever Dream— The US is not insulated from market effects of a Strait of Hormuz closure: while US natural gas prices have declined this year, most other hydrocarbon and refined product prices have risen materially, with US crude oil, wholesale gasoline, naphtha, shipping fuel and some petrochemical increases exceeding those in Europe and Asia.
Shattered Assumptions And The Energy Quandary— The author argues that energy, rather than fixed income, now serves as the true hedge to equity positions, pushing investors, companies and countries to review their energy allocations and policies. Chinese government bonds diversified equity risk when no other major bond market did, which the author attributes to China being the only major economy without a meaningful inflation problem.
AI Summary.China leads in adding power to the grid, with more than 30,000 miles of ultra-high-voltage transmission lines versus zero in the US and lead times for large transformers of 48 weeks against a US average of 143 weeks. This positions China to accommodate new demand sources such as artificial intelligence.
Karen Karniol-Tambour, Ian Singer, Daniel Hochman and Jeremy NgBridgewater Associates
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China’s annual generation of electrical power is 2.5x that of the US. China is self-sufficient in electricity via coal and renewables, whereas the US is self-sufficient in terms of oil and gas but faces capacity constraints in generating electricity.
Is China better positioned than the US to power AI demand?
Core argument: China operates more than 30,000 miles of ultra-high-voltage transmission lines, which carry higher capacity at greater efficiency than traditional transmission, while the United States has zero.
China is a leader in scaling up and deploying power to the grid. China has invested massively in grid infrastructure to accommodate the increase in renewables generation capacity and is far more efficient on permitting and local regulations. China has more than 30,000 miles of UHV transmission lines that have much higher capacity and efficiency than traditional transmission; the US currently has zero. Large transformers, which are necessary for transmitting power between generation and end users, are available with a lead time of 48 weeks in China, about one-third the US average of 143 weeks. This has allowed China to build out its generation capacity to meet rising power needs, which have grown rapidly over the past few decades as a result of industrialization and electrification. And it has done so far more quickly than other regions like the United States, which puts it in a strong position to accommodate new sources of demand like AI.
Takeaways by Macro Roundup® AI
China operates more than 30,000 miles of ultra-high-voltage transmission lines, which carry higher capacity at greater efficiency than traditional transmission, while the United States has zero.
Large transformers, needed to move power from generation to end users, carry a 48-week lead time in China, about one-third the US average of 143 weeks.
China's grid investment and more efficient permitting and local regulation have let it expand generation capacity to meet demand from industrialization and electrification faster than the United States, putting it in a strong position to accommodate new demand such as AI.
Related Articles:
World Energy Outlook 2025— Global electricity demand is projected to rise roughly 40–50% by 2035, even though electricity currently accounts for only 21% of total final energy consumption worldwide. Electricity use by servers optimized for artificial intelligence is projected to rise fivefold by 2030, yet data centres are projected to account for less than 10% of global electricity demand growth through 2030.
Heliocentrism— An energy use must be electrified before green grid electricity can decarbonize it, and while US grid decarbonization continues at a steady pace, the electricity share of final US energy consumption has grown little. Transmission line growth runs well below Department of Energy targets for 2030 and 2035, and transformer delivery times have stretched from 4–6 weeks to 2–3 years.
Economic Growth Now Depends on Electricity, Not Oil— Average annual electricity load growth reached 3% and is projected to continue at that rate for five years, with utilities raising expected peak demand for 2029 by 12%, or 101 gigawatts, driven by data centers, new factories, electric vehicles, heat pumps, and hydrogen production.
AI Summary.An energy use must be electrified before green grid electricity can decarbonize it, and while US grid decarbonization continues at a steady pace, the electricity share of final US energy consumption has grown little. Transmission line growth runs well below Department of Energy targets for 2030 and 2035, and transformer delivery times have stretched from 4–6 weeks to 2–3 years.
Michael CembalestJ.P. Morgan
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Over the past 10 years, $9T has been spent globally on electrification, however Michael Cembalest points out that renewables’ share of final energy consumption is still advancing at only 0.3-0.6% per year.
What is holding back electrification's share of US energy consumption?
Core argument: US transformer delivery times have stretched from 4–6 weeks in 2019 to 2–3 years, straining a grid that relies on roughly 70 million transformers requiring special steel to limit power losses.
Remember this key aspect of the energy transition: until an energy use is electrified, it’s hard to decarbonize it using green grid electrons. And while grid decarbonization is continuing at a steady pace, the US has made little progress increasing the electricity share of final energy consumption. One major obstacle: transmission line growth is stuck in a rut, way below DoE targets for 2030 and 2035. Another obstacle: shortages of transformer equipment, whose delivery times have extended from 4-6 weeks in 2019 to 2-3 years. Around 70 million transformers step voltages up and down across the US grid and require special steel to reduce power losses. Half of all US transformers are near the end of their useful lives and will need replacing, along with replacements in areas affected by hurricanes, floods and wildfires. Transformer manufacturing investment by Schneider Electric and Hitachi North America should help, eventually.
Takeaways by Macro Roundup® AI
US transformer delivery times have stretched from 4–6 weeks in 2019 to 2–3 years, straining a grid that relies on roughly 70 million transformers requiring special steel to limit power losses.
US transmission line growth remains far below Department of Energy targets for 2030 and 2035, and the electricity share of final energy consumption has increased little even as grid decarbonization proceeds at a steady pace.
Half of all US transformers are near the end of their useful lives and will need replacing, alongside replacements in areas hit by hurricanes, floods and wildfires, with manufacturing investment by Schneider Electric and Hitachi North America helping eventually.
Related Articles:
Electravision— The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
Electricity 2025— US electricity demand is projected to grow about 2% annually over 2025-2027, an upward revision from an earlier 1% forecast. A study commissioned by the US Department of Energy found data centre electricity use rose from about 60 TWh in 2014 to 176 TWh in 2023, and could reach 325-580 TWh by 2028.
How Tariffs Could Shock America’s Power System— US electricity prices have risen at a compound annual rate of 5.7% over five years, after being roughly flat in the prior five years. Transformers could become a chokepoint: analysts estimate only about 20% of US transformer demand can be met domestically, with prices up 70%–100% on higher electrical steel and copper costs.
AI Summary.Europe paid 166.3% more for its primary energy mix than it would have using conventional sources, equal to 5.6% of GDP rather than 3.37%, which the author argues largely explains minimal European growth. European Union primary energy consumption has fallen 17.47% from its peak, with renewables at 16.6% of the mix and renewable electricity priced at 5x conventional.
Andrew LeesMacro Strategy Partnership
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.@MacrostrategyP argues that the EU has “traded growth for ideology” with “renewable electricity price 5x that of conventional electricity.” In March 2024 German businesses’ electricity prices were 1.7x prices in the US and 2.8x in China.
How much does Europe's costly energy mix explain its weak growth?
Core argument: Europe paid 166.3% more for its primary energy mix last year than it would have using conventional sources, equal to 5.6% of GDP rather than 3.37%, which the author argues largely explains minimal European GDP growth.
All other things being equal, Europe paid 166.3% more for its primary energy mix last year than had it used conventional energy sources. It paid 2.23 percentage points more of GDP – (5.6% rather 3.37%) - on primary energy than had its fuel mix not included renewables, which largely explains why European GDP growth has been minimal. As renewable electricity grows as a percentage of the mix, its high cost has reduced energy consumption. Since peaking in 2006, primary energy consumption across the European Union has fallen by a massive 17.47%. Renewable energy has risen to 16.6% of the primary energy mix, but in doing so, with renewable electricity price 5 times that of conventional electricity, it has reduced by a similar amount the overall energy the economy has been able to afford. Whilst GDP has held up, the economy has reshaped dramatically, with for example French and German industrial production down around 14% from their respective highs, and Italian down 25%. Beyond the reshaping of the economy to less energy intensive industries, it is also likely that the decline in primary energy use has been offset by the consumption of the internal energy gradient, and the resultant aging and loss of capital stock.
Takeaways by Macro Roundup® AI
Europe paid 166.3% more for its primary energy mix last year than it would have using conventional sources, equal to 5.6% of GDP rather than 3.37%, which the author argues largely explains minimal European GDP growth.
EU primary energy consumption has fallen 17.47% since peaking in 2006, as renewables rose to 16.6% of the primary energy mix at renewable electricity prices five times those of conventional electricity.
French and German industrial production are down around 14% from their highs and Italian production down 25%, which the author links to a reshaping of the economy toward less energy-intensive industries.
Related Articles:
The Future of European Competitiveness – A Competitiveness Strategy for Europe— A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.
Draghi is Trying To Save Europe From Itself— Real disposable income per head has grown almost twice as much in the US as in the European Union since 2000, with the EU trailing the US and China in the digital revolution and only four of the world's top 50 tech companies European. If average productivity growth since 2015 persists, EU output would merely stay constant until 2050.
Industry is Really Worried About IRA— The president of Germany's industry federation says more than a fifth of medium-sized German companies polled were considering leaving the country. With end-user energy prices not expected to return sustainably to pre-war levels, the authors anticipate not large-scale deindustrialization but a shift away from energy-intensive production, accompanied by friction and possibly lower growth.
AI Summary.Dominion Energy, which serves 6m customers, has raised its projected power needs for the coming decade, attributing the change to data center demand. McKinsey, BCG, and S&P Global all expect US power demand to grow 13%-15% annually through 2030, and rising transformer costs alongside electrification could make electricity scarcer.
Michael CembalestJ.P. Morgan
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Michael Cembalest @jpmorgan notes McKinsey, BCG, and S&P Global all expect American electric power demand to grow 15-30% annually until 2030, with previously unanticipated power demand from AI a major driver.
Is data center demand making electricity a scarcer resource?
Core argument: Dominion Resources, which serves 6 million customers across 15 states, sharply raised its projected power needs for the coming decade, attributing the change solely to increased demand from data centers.
Energy is a hot topic in AI circles. Dominion Resources which serves 6 million customers in 15 states has sharply increased its projected power needs for the coming decade. The sole reason for the change: increased demand from data centers. Dominion may not be representative of all utilities, but with the cost of transformer equipment already rising sharply, electrification of transport/heating and increased power demand from AI may turn electricity into a much scarcer resource. McKinsey, BCG, and S&P Global all expect US power demand to grow by 13%-15% per year until 2030. There were a lot of media articles on Amazon which acquired data centers and up to 40% of the output from the Susquehanna nuclear plant, both owned by Talen Energy. Amazon paid a premium of 50% over what Talen could earn from the grid. But these articles missed an important point: taking baseload power off an existing grid may not be feasible everywhere.
Takeaways by Macro Roundup® AI
Dominion Resources, which serves 6 million customers across 15 states, sharply raised its projected power needs for the coming decade, attributing the change solely to increased demand from data centers.
McKinsey, BCG, and S&P Global each expect US power demand to grow 13%–15% per year until 2030, while rising transformer equipment costs, electrification of transport and heating, and AI demand may make electricity a much scarcer resource.
Amazon acquired data centers and up to 40% of the output from Talen Energy's Susquehanna nuclear plant, paying a 50% premium over what Talen could earn from the grid, though taking baseload power off an existing grid may not be feasible everywhere.
Related Articles:
Electravision— The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
Electricity 2024— More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off— Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.
