Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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 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
  • “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
  • “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
  • “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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Saturday, August 16, 2014

AI Summary. A collection of economists' essays attributes secular stagnation — a prolonged period of low economic growth in many advanced economies — to declining labor force participation, demographic shifts, and persistently low interest rates, alongside falling investment as a share of GDP and higher savings rates. The authors argue fiscal stimulus and structural reforms could mitigate these trends.

Coen Teulings and Richard Baldwin Centre for Economic Policy Research
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New Vox eBook by @CoenTeulings and @RichardBaldwin explores secular stagnation, a prolonged period of low economic growth, highlighting its causes and potential solutions.

What causes prolonged slow growth in advanced economies, and what remedies exist?

Core argument: The Vox eBook documents GDP growth below historical averages across many advanced economies, citing declining labor force participation, demographic shifts, and persistently low interest rates as contributing factors to secular stagnation.

Secular stagnation, a prolonged period of low economic growth, is explored in depth in the new Vox eBook, highlighting its causes and potential solutions. The eBook examines key economic indicators such as GDP growth rates, which have remained below historical averages in many advanced economies. It discusses factors like declining LFP [Labor Force Participation], demographic shifts, and persistent low interest rates that contribute to this stagnation. The analysis includes data showing that investment as a % of GDP has decreased, while savings rates have increased, leading to an imbalance. The eBook also addresses policy implications, suggesting that fiscal stimulus and structural reforms could mitigate these trends. By providing a comprehensive overview of secular stagnation, the eBook offers valuable insights for economists, policymakers, and business professionals seeking to understand and address this complex economic challenge.

Takeaways by Macro Roundup® AI

  1. The Vox eBook documents GDP growth below historical averages across many advanced economies, citing declining labor force participation, demographic shifts, and persistently low interest rates as contributing factors to secular stagnation.
  2. The Vox eBook presents data showing investment as a share of GDP has declined while savings rates have risen, producing an imbalance.
  3. The Vox eBook suggests that fiscal stimulus and structural reforms could mitigate secular stagnation trends.

Teulings, Coen and Richard Baldwin, "Secular stagnation: Facts, causes, and cures - a new Vox eBook," Centre for Economic Policy Research, 15 August, 2014. Available at:http://www.voxeu.org/article/secular-stagnation-facts-causes-and-cures-new-vox-ebook

Tuesday, August 19, 2014

AI Summary. Market pricing implies real interest rates gradually returning to about 1%, versus a pre-recession average of 1.5%, with most of the current low level attributable to short-term factors. That pattern suggests deleveraging and nominal-income shocks may explain past conditions without invoking secular stagnation as a separate framework.

Evan Soltas Evan Soltas Blog
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Markets expect real interest rates to return to 1%, but data suggests most of the current low rates are due to short-term factors, not secular stagnation.

Do market-implied real rates require a secular stagnation explanation?

Core argument: Markets price real interest rates gradually returning to 1%, below the pre-recession average of 1.5%, consistent with the secular stagnation hypothesis of persistently low real rates.

Markets anticipate that real interest rates will gradually return to 1%, down from the pre-recession average of 1.5%, reflecting a potential long-term trend towards lower rates. This aligns with the secular stagnation hypothesis, which suggests persistently low real interest rates. However, the data indicates that most of the current low rates are due to short-term factors. The implied real forwards for longer-term bonds suggest that future real interest rates will be similar to or slightly lower than historical levels. This raises questions about the necessity of secular stagnation as a unique explanatory framework, as deleveraging and nominal-income shocks may sufficiently account for past economic conditions.

Takeaways by Macro Roundup® AI

  1. Markets price real interest rates gradually returning to 1%, below the pre-recession average of 1.5%, consistent with the secular stagnation hypothesis of persistently low real rates.
  2. Implied real forwards on longer-term bonds point to future real interest rates similar to or slightly below historical levels, with most of the currently low rates attributable to short-term factors.
  3. Deleveraging and nominal-income shocks may account for past economic conditions, raising the question of whether secular stagnation is needed as a separate explanatory framework.

"...If real interest rates are going to be low for a long period of time, as secular stagnation implies, then the market should say that, and the way it would is through forward rates....Markets anticipate that real interest rates will return slowly to one percent. For reference, prior to the recession, these ratesaveragedabout 1.5 percent, at least on an ex-post basis. Another way to look at this is to figure out the implied real forwards for longer-term bonds. This builds in market views on what the term premium will be in the future, of course. The market's message is generally the same: Real interest rates will be the same as, or modestly lower than, where they have been in the past. Most of the depressed position of interest rates comes from the short run....There is nothing outrageously low about forward real interest rates. If secular stagnation is merely an organizing device, the problem is that it seems to want to say something about the future, whereas the base case of deleveraging and the nominal-income shock speak mainly about the past. That's why the issue must be cast in light of forward interest rates -- and why I remain sympathetic but unconvinced."
Secular Stagnation, Meet DataThere is a newe-bookout on secular stagnation, with contributions from Larry Summers, Barry Eichengreen, Paul Krugman, Olivier Blanchard, and others. It offers a lot to discuss, but I'm struck by something mostly missing:implied forward real interest rates.

This seems like it should be important data for the hypothesis, but it's only discussed briefly in the chapter by Frank Smets and two other economists. The graph, fittingly enough, is on the very last page of content.

If real interest rates are going to be low for a long period of time, as secular stagnation implies, then the market should say that, and the way it would is through forward rates. So what do we see?

The first graph shows the instantaneous forward real interest rate -- basically, what the market thinks the cost of overnight funding should be in real terms at some future date -- as derived fromTIPS yields. There aremore precise waysto do this, but it's close enough for a blog post.

Markets anticipate that real interest rates will return slowly to one percent. For reference, prior to the recession, these ratesaveragedabout 1.5 percent, at least on an ex-post basis.

Another way to look at this is to figure out the implied real forwards for longer-term bonds. This builds in market views on what the term premium will be in the future, of course. The market's message is generally the same: Real interest rates will be the same as, or modestly lower than, where they have been in the past. Most of the depressed position of interest rates comes from the short run.

It's early to come to any solid conclusions about what the secular-stagnation discussion has and hasn't accomplished. Yet the thought that lingers for me is: Why do we need "secular stagnation"?

For all the interesting discussion so far, much of it in this book, nothing has yet convinced me that secular stagnation is a necessary and unique component to my understanding -- my mental model -- of the post-recession global economy. What someone who is convinced needs to do is identify the key facts that cannot be explained by deleveraging and the huge shock to nominal income.

The closest anyone has come, in fact, was Summers when he discussed the mid-2000s as a period of mediocre growth despite pedal-to-the-metal monetary policy. Krugman's "observation #2," that there seems to be a long-term trend towards ever-lower real interest rates, is also getting there. The bar, generally speaking, for a new theory to get into a model is that the model's predictions must beotherwise inconsistent with reality.

There just doesn't seem to be such a need for an additional "secular stagnation" component, as I interpret the data above. There is nothing outrageously low about forward real interest rates. If secular stagnation is merely an organizing device, the problem is that it seems to want to say something about the future, whereas the base case of deleveraging and the nominal-income shock speak mainly about the past. That's why the issue must be cast in light of forward interest rates -- and why I remain sympathetic but unconvinced.
Soltas, Evan, "Secular Stagnation, Meet Data," Evan Soltas Blog, August 17, 2014. Available at:http://esoltas.blogspot.in/2014/08/secular-stagnation-meet-data.html