Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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 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 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
  • “…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 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, November 21, 2016

AI Summary. Between 1940 and 1980 the wage gap between poorer and richer U.S. cities narrowed by about 1.4% a year, but that cross-city convergence stopped after 1980. The authors attribute the halt to skill-biased technical change and agglomeration economies, with skill-biased technical change accounting for roughly 80% of the decline.

Elisa Giannone University of Chicago
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Research by @ElisaGiannone shows that skill-biased technical change (SBTC) significantly impacted urban clusters more than smaller cities, contributing to reduced geographic mobility & regional divergence.

Why did wage convergence between poorer and richer U.S. cities stop?

Core argument: Wage gaps between poorer and richer U.S. cities narrowed at roughly 1.4% annually between 1940 and 1980, but that cross-city convergence stalled after 1980.

Starting in 1980, skill-biased technical change (SBTC) significantly impacted urban clusters more than smaller cities, contributing to reduced geographic mobility. Between 1940 and 1980, the wage gap between poorer and richer U.S. cities shrank at an annual rate of ~1.4%, but post-1980, regional convergence stalled. SBTC and agglomeration economies largely explain the cessation of cross-city wage convergence from 1980 to 2010, with SBTC accounting for ~80% of the decline. The skill premium rose in educated cities post-1990, and high-skill workers increasingly migrated to these areas, intensifying the wage differential. This shift highlights the role of SBTC in altering migration patterns and skill concentration, leading to a divergence in regional economic outcomes.

Takeaways by Macro Roundup® AI

  1. Wage gaps between poorer and richer U.S. cities narrowed at roughly 1.4% annually between 1940 and 1980, but that cross-city convergence stalled after 1980.
  2. Skill-biased technical change and agglomeration economies largely explain the halt in cross-city wage convergence from 1980 to 2010, with skill-biased technical change accounting for about 80% of the decline.
  3. The skill premium rose in educated cities after 1990, and high-skill workers increasingly migrated to those areas, intensifying wage differentials.

starting in 1980 skill-based technical change helped the big urban clusters to a greater degree than smaller cities, has the effect of lowering geographic mobility. Elisa Giannone, "Skilled-Biased Technical Change and Regional Convergence," University of Chicago, November 20, 2016, http://home.uchicago.edu/~elisagiannone/files/JMP_ElisaG.pdf"...Between 1940 and 1980 the wage gap between poorer U.S. cities and richer ones was shrinking at an annual rate of roughly 1.4%. After 1980, however, there was no further regional convergence overall.This paper quanties the contributions of skill-biased technical change (SBTC) and agglomeration economies to the end of cross-city wage convergence within the U.S. between 1980 and 2010. I develop and estimate a dynamic spatial equilibrium model that looks at the causes of regional convergence and divergence. The model choice is motivated by novel empirical regularities regarding the evolution of the skill premium and migration patterns over time and across space. The model successfully matches the quantitative features of the U.S. regional wage convergence. Moreover, the model also reproduces changes in the skill ratio across U.S. cities, as well as, migration patterns after 1980. Finally, the counterfactual analysis suggests that SBTC explains much of change in cross-city wage deferential. I provide a novel dynamic spatial equilibrium model with heterogeneous agents, local agglomeration spillover, skill-biased productivity shocks and selective migration. I motivate the assumptions of the models with three novel empirical facts that link together the skill premium, skill concentration and internal migration:1) Wage convergence declined only among high-skill workers after 1980; 1) The skill premium is higher in educated cities after 1990; 2) Over time, high-skill workers begin to migrate relatively more than low-skill workers to educated cities. Decomposing this relationship, I nd that this pattern is stronger for high-skill workers than for low-skill workers..... The main findings suggest that SBTC explains approximately 80% of the decline in cross-MSA wage convergence in the U.S. after 1980..."

Skilled-Biased Technical Change and Regional Convergence: Extended Excerpt Image 1

Wednesday, November 30, 2016

AI Summary. The population of U.S. public corporations has become fewer, larger, older, and less profitable, with a small number of firms accounting for most market capitalization, net income, cash, and payouts. Many public firms do not earn profits in a given year, delisting rates are high, and firms return more capital to investors rather than investing for growth.

Kathleen Kahle National Bureau of Economic Research
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American public corporations have seen significant volatility in equity value since 1999, with a notable shift towards fewer, larger, older, and less profitable firms.

Are U.S. public corporations becoming fewer, larger, older, and less profitable?

Core argument: The equity value of American public corporations fell from $22tn in 1999 to $11tn in 2008 before recovering to nearly $22tn by 2015, while the population of public firms became fewer, larger, older, and less profitable.

From 1999 to 2015, the equity value of American public corporations experienced significant volatility, dropping from $22tn in 1999 to $11tn in 2008, before rebounding to nearly $22tn by 2015. Despite this recovery, the landscape of public firms has shifted dramatically; they are fewer, larger, older, and less profitable. A small number of firms dominate market capitalization, net income, cash reserves, and payouts. The industry has seen a rise in service firms and those prioritizing R&D over capital expenditures. Many public firms are fragile, with a notable fraction not earning profits annually, contributing to high delisting rates. Accounting standards inadequately reflect intangible assets' importance, potentially hindering long-term investment. Overall, public firms seem to lack ambition and are more focused on returning capital to investors than on growth through investment.

Takeaways by Macro Roundup® AI

  1. The equity value of American public corporations fell from $22tn in 1999 to $11tn in 2008 before recovering to nearly $22tn by 2015, while the population of public firms became fewer, larger, older, and less profitable.
  2. A small number of American public firms account for the bulk of market capitalization, net income, cash reserves, and payouts, and service firms and those prioritizing R&D over capital expenditures have grown in number.
  3. A notable fraction of American public firms do not earn profits annually, contributing to high delisting rates, while accounting standards inadequately reflect the importance of intangible assets, potentially hindering long-term investment.

I suspect much of what they are describing in such bearish terms is a function of technological change as opposed to Jensen's agency problem (private equity being a better model then public), but some striking numbers, think you will enjoy it. Kathleen Kahle and Rene Stulz, "Is the American Public Corporation in Trouble?"National Bureau of Economic Research, November 1, 2016, https://papers.ssrn.com/sol3/papers.cfm"...From 1999 through 2015, the equity value of American public corporations is on a rollercoaster, falling from $22 trillion in 1999 to $11 trillion at the end of 2008, before increasing to close to $22 trillion at the end of 2015....Americanpublic firms are very different now compared to 1975 or 1995.There are fewer of them, but they are larger and older.They are not more levered, but they are somewhat less profitable. They have much more intangible capital. They invest less. Manufacturing and small public firms are scarcer. Service firms are more important and so are firms for which R&D investments exceed capital expenditures. This evolution appears to have been little affected by the credit crisis in that trends that are in place before this crisis eventually resume after the crisis..... American firms that remain public are survivors. Few firms want to join their club.A small number of firms account for most of the market capitalization, most of the net income, most of the cash, and most of the payouts of public firms.At the industry level, revenues are more concentrated, so there are fewer public firms competing for customers. There is a large fraction of firms that do not earn profits every year and that fraction is especially large at the end of the sample period. The importance of firms that make losses shows that many public firms are fragile and helps explain the high level of delists. Accounting standards do not reflect the importance of intangible assets for these firms and appear to be biased against investments in intangible assets. Such a bias may make it harder for executives to invest for the long run. As a whole, public firms appear to lack ambition, proper incentives, or opportunities. They are returning capital to investors and hoarding cash rather than raising funds to invest more...."

Is the American Public Corporation in Trouble?: Extended Excerpt Image 1

Is the American Public Corporation in Trouble?: Extended Excerpt Image 2