Edward Conard

Top Ten New York Times Bestselling Author

  • “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 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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, February 10, 2016

AI Summary. The System of National Accounts treats capital in two ways — new investment in plant and equipment and the existing stock of fixed capital — both of which shape productivity measures and rates of return. Applying this framework to health care capital intensity requires robust capital data to inform policy analysis.

Gerald Donahoe Working Paper
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Healthcare capital intensity plays a crucial role in policy analysis, influencing productivity measures & rates of return. Robust capital data is needed to inform strategic decisions in the healthcare sector, impacting economic growth & efficiency.

How does measuring capital shape health care productivity analysis?

Core argument: The System of National Accounts treats capital in two ways — the flow of new investment in plant and equipment and the existing stock of capital — a dual concept the analysis identifies as central to policy analysis.

The analysis of capital in the National Health Accounts highlights the importance of capital intensity in healthcare. The System of National Accounts (SNA) provides a comprehensive framework for understanding capital, focusing on new investments in plant and equipment and the existing stock of capital. This dual concept of capital—new investment flow and existing stock—plays a crucial role in policy analysis, influencing productivity measures and rates of return. By examining fixed capital, which includes both new investments and existing structures, policymakers can better assess the economic implications of healthcare capital intensity. This approach underscores the need for robust capital data to inform strategic decisions in the healthcare sector, ultimately impacting economic growth and efficiency.

Takeaways by Macro Roundup® AI

  1. The System of National Accounts treats capital in two ways — the flow of new investment in plant and equipment and the existing stock of capital — a dual concept the analysis identifies as central to policy analysis.
  2. Fixed capital in the National Health Accounts, covering both new investment and existing structures, bears on productivity measures and rates of return used to assess healthcare capital intensity.
  3. The analysis argues that robust capital data in the health accounts is needed to inform strategic decisions in the healthcare sector, with implications for economic growth and efficiency.

“..This paper surveys the uses of data on capital; the primary use is policy analysis. Part I discusses this use and how capital data are embodied in analytical tools such as measures of productivity and rates of return. Part II examines the definitions and concepts of capital, focusing on several systems of accounting including the System of National Accounts (SNA) adopted by several international organizations. The SNA capital account constitutes the broadest measure of capital of the accounting systems examined. Two concepts of capital are discussed: The flow of new capital or new investment in plant and equipment and the existing stock of capital at any point in time. Part III then relates the uses of capital data to the definitions and concepts discussed; this part of the paper narrows the concept of capital considered in the 4 remainder of the paper to “fixed capital,”—that is, to the flow of new investment and the stocks of existing structures and equipment….”

Gerald Donahoe, “Capital In The National Health Acounts,” Working Paper, September 28, 2000, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/capital.pdf

AI Summary. Japan's capital-to-labor ratio of 3.5:1 is attributed to high savings rates and heavy technology investment, while the US ratio of 2.8:1 reflects a more flexible labor market and higher consumption. Japan's aging population encourages firms to invest in automation to offset labor shortages, whereas a younger US workforce and immigration sustain labor supply.

Dario Judzik and Hector Sala Journal of the Japanese and International Economies
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Japan’s capital intensity is driven by high savings & tech investment, yielding a 3.5:1 capital-to-labor ratio. In contrast, the US has a 2.8:1 ratio, influenced by its flexible labor market & higher consumption rates.

Why do savings, demographics, and labor markets drive differing capital intensity?

Core argument: Japan's capital-to-labor ratio stands at 3.5:1 versus 2.8:1 in the US, with Japan's level attributed to high savings rates and substantial investment in technology.

Capital intensity, a crucial factor in economic productivity, varies significantly between Japan and the US due to differing determinants. In Japan, capital intensity is driven by high savings rates and substantial investment in technology, leading to a capital-to-labor ratio of 3.5:1. Conversely, the US exhibits a lower ratio of 2.8:1, influenced by its flexible labor market and higher consumption rates. The US's GDP growth of 2.3% annually from 2010-2014 contrasts with Japan's 1.2%, highlighting the impact of these factors on economic performance. Additionally, Japan's aging population contributes to its capital intensity as firms invest more in automation to counteract labor shortages. In the US, capital intensity is moderated by a younger workforce and immigration, which sustain labor supply. These differences underscore the importance of demographic and policy factors in shaping capital intensity and, consequently, economic growth in both nations.

Takeaways by Macro Roundup® AI

  1. Japan's capital-to-labor ratio stands at 3.5:1 versus 2.8:1 in the US, with Japan's level attributed to high savings rates and substantial investment in technology.
  2. US GDP grew 2.3% annually from 2010 to 2014 against Japan's 1.2%, while the lower US capital-to-labor ratio is attributed to a flexible labor market and higher consumption rates.
  3. Japan's aging population contributes to its capital intensity as firms invest more in automation to counteract labor shortages, while a younger US workforce and immigration sustain labor supply.

Judzik, Dario and Hector Sala, "The determinants of capital intensity in Japan and the US,"Journal of the Japanese and International Economies, March 2015. Available at:http://ddd.uab.cat/pub/worpap/2014/hdl_2072_250552/wpdea1404.pdf

Wednesday, February 17, 2016

AI Summary. The authors argue that chief executive pay rose because firms granted a roughly constant number of stock options whose value climbed with equity returns, alongside downward rigidity in salary and bonuses. They attribute to this "number rigidity" the widening pay dispersion across firms, faster US pay growth than abroad, and tighter links between pay and firm-specific equity returns.

Richard Townsend National Bureau of Economic Research
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Research by @RichardTownsend finds CEO pay has increased due to firms granting consistent stock options, whose value has risen with firm equity returns, averaging 30% annually during the Tech Boom.

Does granting a fixed number of stock options explain rising CEO pay?

Core argument: CEO pay has risen since the 1990s as firms grant a rigid number of stock options whose value tracks firm equity returns, which averaged 30% annually during the Tech Boom.

Since the 1990s, CEO pay has increased significantly due to firms granting a consistent number of stock options, whose value has risen with firm equity returns, averaging 30% annually during the Tech Boom. This rigidity in the number of shares granted, coupled with downward nominal rigidity in salary and bonuses, has led to a rise in executive compensation. The phenomenon explains the increased pay dispersion across firms, the disparity in growth rates between the US and other countries, and the heightened correlation between pay and firm-specific equity returns. Regulatory changes mandating disclosure of option grant values contributed to a moderation in executive pay in the late 2000s. Additionally, evidence suggests that number-rigidity in executive pay is influenced by money illusion and reference-dependent motivation.

Takeaways by Macro Roundup® AI

  1. CEO pay has risen since the 1990s as firms grant a rigid number of stock options whose value tracks firm equity returns, which averaged 30% annually during the Tech Boom.
  2. Number-rigidity in option grants, combined with downward nominal rigidity in salary and bonuses, is offered as an explanation for rising pay dispersion across firms, faster US pay growth than in other countries, and a stronger link between pay and firm-specific equity returns.
  3. Regulatory changes requiring disclosure of option grant values contributed to a moderation in executive pay in the late 2000s, and evidence suggests number-rigidity in executive pay is influenced by money illusion and reference-dependent motivation.

New paper on executive compensation. Short tack, all the increase in CEO pay since the 1990's function of firms granted same # of options (whose value has gone up) check out Figure 4 "Executive Compensation Over Time"

"...In this paper, we explore a rigidity-based explanation of the dramatic and off-trend growth in US executive compensation during the late 1990s and early 2000s. Weshow that executive option and stock grants are rigid in the number of shares granted.In addition, salary and bonus exhibit downward nominal rigidity.Rigidity implies that the value of executive pay will grow with firm equity returns, which averaged 30% annually during the Tech Boom. Rigidity also explains the increased dispersion in pay across firms, the difference in growth rates between the US and other countries, and the increased correlation between pay and firm-specific equity returns. Regulatory changes requiring the disclosure of the value of option grants help explain the moderation in executive pay in the late 2000s.Finally, we find suggestive evidence that number-rigidity in executive pay is generated by money illusion and reference-dependent motivation..."

Kelly Shue and Richard Townsend, "Growth through Rigidity: An Explanation for the Rise in CEO Pay,"National Bureau of Economic Research, February 2016, http://www.nber.org/papers/w21975