“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.
Related Articles:
Global Views: They’re Not Hiking— The decline in unemployment has been driven by lower labor force participation, not an increase in employment. Hatzius stresses continued weakness in wage…
Home Alone: Inflation And The New Fed Chair— Current inflation conditions — including labor market tightness, price pressures, supply chain stress, and the output gap — align more closely with historical conditions that prompted the Federal Reserve to raise rates than to cut them. Averaging multiple monetary policy benchmarks points to an optimal interest rate range of 4.00%–4.85%
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.
Related Articles:
Global Debt Report 2026— Across the OECD last year, $13.5T of governmental debt needed refinancing, 70% ($9.5T) of which was US debt, up from 57% in 2020. The US and Japan were…
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.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.
Related Articles:
The Budget and Economic Outlook: 2026 to 2036— CBO projects a deficit of 5.8% of GDP in 2026, unchanged from 2025. Outlays, at 23.3% of GDP, will exceed their 50-year mean by 2.1pp; revenue of 17.5% is just…
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.Long-term interest rates have risen 45–79 basis points across major economies, with the AI investment boom—not fiscal or monetary policy—driving the surge in demand for capital. A comparable IT spending wave in the late 1990s coincided with even higher long-term rates despite low inflation and a budget surplus.
Paul KrugmanKrugman Wonks Out
Date Posted:
Noting long-term yields have risen across advanced economies, Krugman argues increased yields over the last 6 months “may not have much to do with policy at all,” but are more likely due to “the surge in demand for funds as a result of the AI boom.”
Is artificial intelligence investment driving up global borrowing costs?
Core argument: Bruegel finds 30-year sovereign yields rose 45–79 bps across the U.S., Germany, France, Italy, the U.K., and Japan in the six months to Aug. 28, with the U.S. at 58 bps, suggesting a global demand-for-capital driver rather than U.S.-specific fiscal policy.
What [has been] driving interest rates higher [in the six months to August 28]? The European think tank Bruegel notes “US, German, French, Italian, UK, and Japanese 30-year yields [all] rose by 45-79 basis points in the six months to 28 August, with the US in the middle at 58bp.” It may not have much to do with policy at all, [but is instead due to] the surge in demand for funds as a result of the AI boom. We are in the midst of a surge in spending on IT that is on track to be even bigger than the boom of the late 1990s, [when] long-term rates were even higher then than they are now, even though inflation was low and we had a budget surplus.
Takeaways by Macro Roundup® AI
Bruegel finds 30-year sovereign yields rose 45–79 bps across the U.S., Germany, France, Italy, the U.K., and Japan in the six months to Aug. 28, with the U.S. at 58 bps, suggesting a global demand-for-capital driver rather than U.S.-specific fiscal policy.
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.
Don’t Draw The Wrong Conclusion From Treasury Yields— Rising long-term bond yields reflect higher expected short-term interest rates over the next decade, not concerns about government debt sustainability, as both inflation expectations and the risk premium for holding long-term bonds have remained stable.
AI Summary.Deep-tech investment outside AI has exceeded $150bn since early 2024, surpassing the $133bn invested across the entire prior decade. Falling valuations for traditional software companies and outsized returns from early bets on capital-intensive ventures are pushing investors toward riskier, science-driven deals.
Tim BradshawFinancial Times
Date Posted:
Is Database:
Database
Since the start of 2024, more than $150B of venture capital has been invested into non-AI “deep tech” firms whose products are rooted in significant engineering advances, exceeding the $133B invested in such firms btw 2010 and 2019.
Are investors abandoning software for capital-intensive science bets?
Core argument: Deep-tech investment excluding AI exceeded $150bn since early 2024, surpassing the entire $133bn deployed across the prior decade (through end-2019), as falling valuations for traditional software push venture capital toward capital-intensive scientific bets.
The AI boom is fuelling a resurgence in ambitious “moonshot” bets, as early SpaceX backers’ huge returns and falling valuations for traditional software companies force tech investors to embrace riskier and more capital-intensive dealmaking. Excluding the giant sums ploughed into AI start-ups, global investment in “deep tech” — companies whose products are rooted in big scientific or engineering advances — has exceeded $150bn since the start of 2024, more than the $133bn in the entire decade to the end of 2019, according to Dealroom. This year’s deep-tech investments have not yet surpassed 2021’s peak, which was propelled by battery and electric vehicle deals for the likes of Rivian and Northvolt — many of which turned sour, highlighting the risks involved in moonshot dealmaking.
Takeaways by Macro Roundup® AI
Deep-tech investment excluding AI exceeded $150bn since early 2024, surpassing the entire $133bn deployed across the prior decade (through end-2019), as falling valuations for traditional software push venture capital toward capital-intensive scientific bets.
The 2021 deep-tech peak — driven by battery and electric vehicle deals including Rivian and Northvolt — has not yet been surpassed, and the subsequent losses from those deals underscore the capital destruction risk inherent in moonshot dealmaking.
Related Articles:
Capital Is Making a Comeback— Btw 1985-2021 the capital intensity of the American economy was relatively flat as a rise in intangible investment was offset by a decline in tangible…
Public to Private Equity in the United States: A Long-Term Look— Global venture capital returns are highly skewed: 62% of deals lose money, more than half lose 50–100% of invested capital, but fat-tailed outliers drive overall returns. This pattern mirrors historical whaling voyages, where payoffs were similarly variable and driven by rare outsized outcomes.
Gross and Net US Investment— Net investment has fallen from ~40% of gross investment in the 1970s to ~25% today, meaning three-quarters of gross investment merely replaces depreciating assets. The shift toward faster-depreciating information technology assets requires larger gross investment increases to achieve any given gain in productive capital per worker.
AI Summary.The U.S. Treasury tripled its debt buyback program to $6bn in longer-dated securities, but markets sold off anyway, pushing 10-year yields to their highest level since 2023.
Greg Ritchie and Alex HarrisBloomberg
Date Posted:
The 10-year Treasury yield rose to ~4.85%, its highest level since 2023, after the Treasury announced a planned buyback of $6B, less than many market participants had expected, despite being 3x the size of the previous operation.
Does buying back more debt actually reduce market anxiety about deficits?
Core argument: The Treasury’s $6 billion buyback of 10–20-year securities — triple the $2 billion initially signaled — failed to suppress borrowing costs, with the 10-year yield rising 5 basis points to 4.83%, its highest level since 2023.
The US Treasury tripled the initial size of its next buyback of longer-dated government debt, in an announcement that was met with initial disappointment by investors. The Treasury Department said it will buy up to $6 billion of outstanding securities set to mature in the 10- to 20-year sector. It’s the first such operation under an expanded buybacks program that showcases Secretary Scott Bessent’s resolve to stem the recent rise in borrowing costs. The new figure is triple the amount initially communicated to investors of $2 billion. Treasuries extended an earlier decline after the release, with the yield on 10-year notes up about 6 basis points to 4.85% as of 11:35 a.m. in New York — their highest level since 2023.
Takeaways by Macro Roundup® AI
The Treasury’s $6 billion buyback of 10–20-year securities — triple the $2 billion initially signaled — failed to suppress borrowing costs, with the 10-year yield rising 5 basis points to 4.83%, its highest level since 2023.
Investor disappointment with Secretary Bessent’s expanded buyback program indicates that fiscal-trajectory concerns are outpacing the Treasury’s ability to manage long-end yields through open-market operations.
Related Articles:
Bessent’s Bond Gains Wiped Out as Treasury Yields Jump Again— A Treasury buyback program that briefly suppressed long-term government borrowing costs has been fully reversed by renewed global bond selling, with 30-year yields back at 5.27% and 10-year yields ~10 basis points higher than before the intervention.
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.
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.Japan's era as a reliable source of cheap borrowing is ending as interest rates rise, unwinding decades of low-rate financial assumptions.
John AuthersBloomberg
Date Posted:
Authers pictures Japan exiting its ultra-low rate regime that helped drive the real effective yen to ~ half its 1990 level. Higher yields should curb yen carry, raise demand for Japanese assets, and force the “world …to do without Japanese funding.”
Is Japan's cheap money era finally coming to an end?
Core argument: Japan’s decades-long role as the world’s low-cost funding source is unwinding as rising interest rates erode the carry-trade economics that made yen borrowing the default strategy across global markets.
For decades, finance has treated Japan as the exception to all rules. While the rest of the world surged and collapsed, Japan trudged on with minimal interest rates and sluggish growth — a safe place to borrow money cheap, through any number of elaborate trades. Last week’s news that Norway’s Norges Fund, one of the biggest sovereign wealth pools, was reallocating its fixed income portfolio in a way that likely shifts from Treasuries to Japanese bonds prompted speculation that more international money would move back to Tokyo and its newly competitive yields. Overnight rates are now forecast to go up by a full percentage point over the next 12 months, to 1.9%, following a shift in perception of the economy.
Takeaways by Macro Roundup® AI
Japan’s decades-long role as the world’s low-cost funding source is unwinding as rising interest rates erode the carry-trade economics that made yen borrowing the default strategy across global markets.
The shift in Japan’s monetary regime forces investors to reprice risk across asset classes that were structured around the assumption of perpetually near-zero Japanese rates.
Related Articles:
Japan’s 10-Year Bond Yield Hits 3% for First Time Since 1996— Japan's 10-year government bond yield has reached 3% for the first time in roughly three decades, doubling within a year as the country's debt market exits its near-zero-rate era. The rapid rise is reverberating through Japan's economy and global financial markets.
Where is the Global Debt Crisis Most Acute?— Japan's long-term government bond market is the most distorted among major economies, with the gap between future rate expectations and current 10-year yields at an extreme outlier relative to its own history and G10 peers.
AI Summary.Net investment has fallen from ~40% of gross investment in the 1970s to ~25% today, meaning three-quarters of gross investment merely replaces depreciating assets. The shift toward faster-depreciating information technology assets requires larger gross investment increases to achieve any given gain in productive capital per worker.
Timothy TaylorConversable Economist
Date Posted:
Is Database:
Database
U.S. real net private domestic investment—which adds to the American capital stock—is now only ~25% as large as gross investment, down from ~40% in the 1970s. Taylor suggests the widening gap between gross and net investment reflects the relatively rapid depreciation of IT-related capital.
Does faster asset depreciation explain slowing productivity growth?
Core argument: Net investment has fallen from ~40% of gross investment in the 1970s to ~25% today, meaning three-quarters of gross investment now merely replaces depreciating capital rather than expanding the productive stock.
The figure divides net investment by gross investment. Back in the 1970s, net investment was often around 40% of gross investment, but the share has been slumping over time. For the last decade or so, net investment has been about 25% of the gross–that is, about three-quarters of gross investment is just making up for depreciation of the pre-existing capital stock. The likely reason for the growing gap between gross and net investment is that modern investment is more likely to be related to information technology [which] depreciates more rapidly and thus needs to be replaced and updated more often. If we want the average US worker to be using a greater amount of capital on the job–which was one of the key drivers of rising labor productivity in the past–it now takes a bigger rise in gross investment to lead to a given rise in net investment.
Takeaways by Macro Roundup® AI
Net investment has fallen from ~40% of gross investment in the 1970s to ~25% today, meaning three-quarters of gross investment now merely replaces depreciating capital rather than expanding the productive stock.
The shift toward information technology — which depreciates faster than physical machinery — is the primary driver of the widening gap between gross and net investment.
Raising capital per worker, a historic engine of labor productivity growth, now requires a substantially larger increase in gross investment than it did several decades ago.
Related Articles:
US Stock Market To Stop Shrinking For First Time In 23 Years— US equity supply is turning positive for the first time in over two decades, as a surge in IPOs and large share sales by major technology companies outweighs the buybacks and privatizations that have shrunk the stock market since 2003.
Capital Is Making a Comeback— Btw 1985-2021 the capital intensity of the American economy was relatively flat as a rise in intangible investment was offset by a decline in tangible…
The Transition to a Higher Cost of Capital— Bridgewater Associates co-CIO Karen Karniol-Tambour expects 10-year Treasury yields to rise from the current ~4.5% to compensate for structurally higher fiscal…
