“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
“…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 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
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“…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 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 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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…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
AI Summary.U.S. crude oil production rose from about 5m barrels per day in the late 2000s to nearly 14m by 2025, turning the country from a major petroleum importer into a net exporter. The authors estimate that adverse oil supply news shocks, which once contracted industrial production, now expand it.
Diego Känzig, James Stock and Luca ZanottiNational Bureau of Economic Research
Date Posted:
The US shifted from a large net oil importer to a net exporter around 2010. Computing separate impulse responses pre-and post-2010, Känzig, et al find that adverse global oil-supply news switches from reducing US industrial production to raising it by a similar magnitude.
Has becoming a net oil exporter reversed how supply shocks affect output?
Core argument: Before 2010, an adverse oil supply news shock produced a persistent contraction in U.S. industrial production of roughly -0.6 percent after a year, while from 2010 onward the point estimate turns positive over most horizons and peaks near +1 percent.
As Figure 2 shows, U.S. crude oil production rose from roughly 5 million barrels per day in the late 2000s to almost 14 million barrels per day by 2025. Over the same period, net imports of crude oil and petroleum products fell steeply and turned negative in 2019. The United States thereby went from being one of the world’s largest petroleum importers to a net petroleum exporter. We examine whether the U.S. response to oil supply news shocks differs in the post-shale period by allowing the impulse responses to change from January 2010 onward. Figure 7 reports the results. Before 2010, an adverse oil supply news shock produced a persistent contraction in industrial production, reaching roughly -0.6 percent after a year. From 2010 onward, the point estimate instead becomes positive over most horizons and reaches almost +1 percent at its peak. Both the pre-2010 contraction and the post-2010 expansion are economically large and statistically significant over a range of horizons. This contrast mirrors the evidence from the time-varying VAR.
Takeaways by Macro Roundup® AI
Before 2010, an adverse oil supply news shock produced a persistent contraction in U.S. industrial production of roughly -0.6 percent after a year, while from 2010 onward the point estimate turns positive over most horizons and peaks near +1 percent.
U.S. crude oil production rose from roughly 5 million barrels per day in the late 2000s to almost 14 million barrels per day by 2025, with net imports of crude oil and petroleum products turning negative in 2019.
The pre-2010 contraction and the post-2010 expansion in U.S. industrial production following oil supply news shocks are both economically large and statistically significant over a range of horizons, mirroring evidence from a time-varying VAR.
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U.S. Economy Less Vulnerable To Geopolitical Oil Price Shocks Than In The Past— The United States became a net oil exporter in late 2019, and oil and oil product spending fell from near 8% of GDP in 1980 to 3% in 2024. The authors estimate a 15% global oil supply disruption would now cut annualized U.S. real GDP growth by 0.3pp, versus 1.7pp in the rest of the world.
Fighting Words: The Energy Transition in 2026— Estimates based on primary energy overstate how much electricity is needed to replace oil in passenger cars, since electric motors convert 80%-90% of electricity into motion versus about 18% for gasoline cars. Measuring useful final energy net of waste heat avoids this "primary energy fallacy": the US consumed 45 exajoules of useful final energy versus 95 exajoules of primary energy.
Power Politics: Energy Self-Sufficiency in a Modern Mercantilist World— 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.
AI Summary.Historically, controlling for valuations, a 1% rise in the share of the market represented by initial public offerings has been associated with roughly a 4% decline in prices. With large artificial-intelligence company listings expected and share issuance exceeding buybacks, equity supply could shift from shrinking about 1% a year to growing near 5%, implying returns roughly 20% below average.
Ben Inker and John PeaseGMO
Date Posted:
GMO estimates net US equity supply could increase by ~5% or more of total market capitalization over the next year. Inker and Pease note that in 1999–2000, “IPOs peaked at ~5% of total market cap. It doesn’t take much new supply to overwhelm the market.”
How does rising equity supply from new listings affect stock returns?
Core argument: Controlling for valuations, a 1% increase in the market share of IPOs has historically led to an approximate 4% decrease in prices, a multiplier the author applies to a coming surge in equity supply.
Controlling for valuations, a 1% increase in the market share of IPOs has historically led to an approximate 4% decrease in prices [Exhibit 2 in gallery]. Consider what is happening to equity supply. SpaceX’s non-Elon sales alone exceed 1% of the U.S. stock market’s value. We are likely to see IPOs from both Anthropic and OpenAI—together valued at about 5% of the U.S. stock market’s total investable market cap —over the next 12 months. For the first time in twenty years, with the brief exception of the GFC, we are seeing net dilution in the U.S. stock market (i.e., share issuance exceeding share buybacks), as the hyperscalers continue their capital expenditure spree. In aggregate, we are going from a world where equity supply was shrinking by roughly 1% per annum (with buybacks exceeding primary or secondary issuance) to one in which equity supply will be increasing by close to 5%, if not more. If you believe the 4x multiplier [implied by the regression line in Exhibit 2], this means we should expect returns that are some 20% below average (roughly 6% real) over the next 12–18 months from the headwind of rising equity supply alone.
Takeaways by Macro Roundup® AI
Controlling for valuations, a 1% increase in the market share of IPOs has historically led to an approximate 4% decrease in prices, a multiplier the author applies to a coming surge in equity supply.
U.S. equity supply is shifting from shrinking roughly 1% a year, with buybacks exceeding issuance, to growing close to 5% or more, the first net dilution in twenty years apart from the Global Financial Crisis.
Anthropic and OpenAI, together valued at about 5% of U.S. investable market cap, are likely to go public within 12 months, while SpaceX’s non-Elon sales alone exceed 1% of the U.S. stock market’s value.
Related Articles:
Momentum, Rotation and the Value in Growth— After a fifteen-year stretch in which US equities, technology and growth stocks led, equity gains have broadened geographically, with the US the weakest of the major regions. The five largest US stocks now trade at a price-to-earnings ratio only marginally above the other 495, after holding a consistent premium since 2017.
SpaceX and OpenAI Are Ending Wall Street’s Era of Stock Scarcity— JPMorgan projects that share sales will add roughly $1.5tn of stock to the US equity market over the next two years even after buybacks, which would be the strongest net equity issuance since at least the late 1990s. Equity has grown cheaper relative to debt as a funding source.
One Hundred Years in the U.S. Stock Markets— Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.
AI Summary.The author argues that negative narratives, including pessimism about new technology, played an underappreciated role in the economic climate of the Great Depression, alongside more widely studied causes such as sweeping bank failures, a weak initial Federal Reserve response, and a tariff regime that reduced global trade.
Robert ShillerNew York Times
Date Posted:
Shiller argues that fears around the potential impact of AI – often fostered by the words of AI executives themselves – are reducing consumer confidence and risk a negative feedback loop. “There is a risk that fear can actually help birth the reality.”
Did pessimistic narratives about technology deepen the Great Depression?
Core argument: The Great Depression, the decade of economic ruin following the 1929 stock market crash, stemmed from multiple factors including a lack of banking regulation and monetary policy that led to sweeping bank failures.
Such pessimism was present in the Great Depression, the decade of economic ruin that followed the stock market crash of 1929. There were many factors that contributed to making that period as difficult as it was. A lack of banking regulation and monetary policy led to sweeping bank failures, the Federal Reserve’s initial response was weak and ineffective, and a punishing tariff regime reduced global trade. Many of these causes have been widely studied; less understood is the role I believe negative narratives, including negative narratives about new technology, had on the economic climate.
Takeaways by Macro Roundup® AI
The Great Depression, the decade of economic ruin following the 1929 stock market crash, stemmed from multiple factors including a lack of banking regulation and monetary policy that led to sweeping bank failures.
The Federal Reserve's initial response to the Great Depression was weak and ineffective, and a punishing tariff regime reduced global trade.
The author argues that negative narratives, including those about new technology, shaped the economic climate of the Great Depression, a role less understood than the widely studied causes.
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Emotions and Subjective Crash Beliefs— Using investor survey data and option prices, the authors decompose beliefs about stock market crashes into fundamental and subjective components, finding the subjective part is volatile and almost always positive. Investor sentiment, measured from survey narratives with a large language model, is correlated with this subjective component and with non-fundamental variation.
US Consumer Sentiment Picks Up on Easing Gasoline Prices— US consumer sentiment rose for the first time in four months as lower gasoline prices offered some relief from a surge in inflation, with the University of Michigan's preliminary sentiment index increasing to 48.9 from a record low of 44.8. The reading beat most economists' expectations but remains the second lowest in data going back to the 1970s.
Have We Entered an Era of High Productivity Growth?— Labor productivity has grown solidly while the San Francisco Federal Reserve's total factor productivity index, which adjusts for the equipment and technology workers use, has grown modestly, suggesting gains so far reflect better tools rather than broader advances. A regime-switching model puts the probability of a high-productivity regime at 57% using labor productivity and 21% using total factor productivity.
