Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “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 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
  • “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 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
Date Posted:
Is Database:
Database

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

Thursday, December 8, 2016

AI Summary. The share of U.S. children earning more than their parents fell from 92% for those born in 1940 to 50% for those born in the 1980s, a decline found in all 50 states and steepest in the industrial Midwest. The authors attribute it to the uneven distribution of economic growth rather than slower growth.

Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robery Manduca and Jimmy Narang Reason
Date Posted:
Is Database:
Database

US absolute income mobility has declined significantly since 1940, with children earning more than their parents dropping from 92% to 50%. The decline is consistent across all 50 states. @RajChetty

Has the uneven distribution of growth driven declining income mobility?

Core argument: The share of U.S. children earning more than their parents fell from 92% for the 1940 birth cohort to 50% for those born in the 1980s, with declines in all 50 states and the steepest drops in the industrial Midwest.

Absolute income mobility in the U.S. has declined significantly, with the percentage of children earning more than their parents dropping from 92% for those born in 1940 to 50% for those born in the 1980s. This decline is consistent across all 50 states, with the steepest drops in the industrial Midwest. The fall in mobility is more pronounced for middle-class families and when comparing sons' earnings to their fathers'. The primary driver is the unequal distribution of economic growth rather than a slowdown in GDP growth. To revive high rates of absolute mobility, economic growth must be more evenly distributed across income groups, as higher GDP growth alone is insufficient.

Takeaways by Macro Roundup® AI

  1. The share of U.S. children earning more than their parents fell from 92% for the 1940 birth cohort to 50% for those born in the 1980s, with declines in all 50 states and the steepest drops in the industrial Midwest.
  2. The decline in absolute income mobility is more pronounced for middle-class families and when comparing sons' earnings to their fathers'.
  3. The fall in absolute mobility is attributed primarily to the unequal distribution of economic growth rather than slower GDP growth, with higher GDP growth alone deemed insufficient to revive high mobility rates.

Worth knowing about before you go into the Ryan meeting, came out today. Chetty just released a new paper showing that absolute mobility has fallen that contrast with his research showing relative mobility has remained unchanged. As always with Chetty the devil is in the details, "...we measure income inpre-taxdollars at the household level when parents and children are approximatelythirty years old, adjusting for inflation using the CPI-U-RS...."30 isn't what it once was in terms of the number of years in the workforce, and pretax. and he excludes immigrants"...The sample of children includes U.S.-born members of the 1940-84 birth cohorts who, at age 30, were present in the U.S. and not institutionalized. We exclude immigrants in order to have a consistent sample in which we observe both parents’ and children’s incomes..."which if fine for understanding the politics but isn't really fair for obvious reasons Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robery Manduca and Jimmy Narang, "The Fading American Dream: Trends in Absolute Income Mobility Since 1940," December 2016, http://www.equality-of-opportunity.org/papers/abs_mobility_paper.pdf"...We find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. The result that absolute mobility has fallen sharply over the past half century is robust to the choice of price deflator, the definition of income, and accounting for taxes and transfers.Incounterfactual simulations, we find that increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. In contrast, changing the distribution of growth across income groups to the more equal distribution experienced by the 1940 birth cohort would reverse more than 70% of the decline in mobility.These results imply that reviving the "American Dream" of high rates of absolute mobility would require economic growth that is spread more broadly across the income distribution...Using this methodology, we find that rates of absolute upward income mobility in the United States have fallen sharply since 1940. Under the benchmark of copula stability, the fraction of children earning more than their parents fell from 92% in the 1940 birth cohort to 50% in the 1984 birth cohort. Rates of absolute mobility fell the most for children with parents in the middle class...We find robust evidence of declines in absolute mobility across subgroups.Absolute mobility fell in all 50 states between the 1940 and 1980 cohorts, although the rate of decline varied, with the largest declines concentrated in states in the industrial Midwest states such as Michigan and Illinois.We also find substantial declines in absolute mobility for both sons and daughters when income is measured at the household level. The decline in absolute mobility is especially steep - from 95% in the 1940 cohort to 41% in the 1984 cohort - when we compare the individual earnings of sons to their fathers....The measures of absolute mobility we focus on in this study differ from relative mobility because they compare levels of earnings across generations by bringing in data on the marginal income distributions of parents and children. Absolute mobility has fallen over time while relative mobility has remained stable because income growth has stagnated across much of the income distribution in recent decades....Second, most of the decline in absolute mobility is driven by the more unequal distribution of economic growth in recent decades rather than the slowdown in GDP growth rates. In this sense, the rise in inequality and the decline in absolute mobility are closely linked. Growth is an important driver of absolute mobility, but high levels of absolute mobility require broad-based growth across the income distribution. With the current distribution of income, higher GDP growth rates alone are insufficient to restore absolute mobility to the levels experienced by children in the 1940s and 1950s. If one wants to revive the "American Dream" of high rates of absolute mobility, then one must have an interest in growth that is spread more broadly across the income distribution..."The Fading American Dream: Trends in Absolute Income Mobility Since 1940: Extended Excerpt Image 1