Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…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 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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, April 10, 2017

AI Summary. Measures of total income show rising top income shares while wage and salary measures show no increase, a divergence the authors attribute to S-corporation income that often reflects reclassification of income previously reported by C-corporations. Most of the increase is concentrated above the 99.99th percentile.

Greg Kaplan The Share Of Incomes Above
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Top income shares have barely changed in last 20yrs, excluding >99.99% 12,000 households. Share of incomes above 99% ~ $372,000 in 2012, but <99.99% ~ $7.2mm in 2012.

Does measured top income inequality reflect business income reclassification?

Core argument: Most of the post-2000 increase in top income shares is concentrated above the 99.99th percentile (~$7.2m in 2012), and excluding that group leaves top income shares with little growth over the past 20 years.

Since 2000, top income inequality trends have diverged based on income type. Total income measures show a rise in top income shares, while wage and salary income measures show no post-2000 increase. The key driver is S-corporation income, which complicates interpretation as it often represents income previously classified under C-corporations. This shift does not reflect new earnings but a reclassification of existing income. The majority of the increase in top income shares is concentrated at extremely high levels, specifically above the 99.99th percentile (~$7.2m in 2012). Excluding these, top income shares have seen little growth over the past 20 years, indicating that the perceived rise in inequality is largely due to changes at the very top of the income distribution.

Takeaways by Macro Roundup® AI

  1. Most of the post-2000 increase in top income shares is concentrated above the 99.99th percentile (~$7.2m in 2012), and excluding that group leaves top income shares with little growth over the past 20 years.
  2. Total income measures show rising top income shares since 2000 while wage and salary measures show no post-2000 increase, a divergence driven by S-corporation income.
  3. Growth in S-corporation income often represents income previously classified under C-corporations, a reclassification of existing income rather than new earnings, which complicates interpretation of top income inequality trends.

Change In Income Distrbution Driven By > 99.99% 12,000 Household. The Share Of Incomes Above The 99% ~ $372,000 in 2012 But < 99.99% ~ $7.2 Million in 2012) Has Barely Changed In Last 20 Years

Fatih Guvenen and Greg Kaplan, "Top Income Inequality in the 21st Century: Some Cautionary Notes," April 2, 2017, https://gregkaplan.uchicago.edu/sites/gregkaplan.uchicago.edu/files/uploads/top_income_inequality_web_April2_2017.pdf

"...Since 2000, different measures of top income inequality have exhibited very different trends. Top income shares based on measures of total income show a continued rise, whereas top income shares based on wage and salary income show no increase in inequality post-2000. The most important difference between these two measures of income is the income that accrues to S-corporations.... But interpreting trends in the S-corporation component is extremely difficult. Feenberg and Poterba (1993), Gordon and Slemrod (2002), and Cooper et al. (2016) warn that much of the recent increase in S-corporation income is income that previously accrued to C-corporations. Such income is not “new” income earned by top earners but is simply income that was previously labeled as corporate income rather than household income....Moreover, the majority of the recent increase in top income shares is due to an increase in average earnings at very high income levels, much higher than that assumed in typical discussions of top income inequality. Once incomes above the 99.99th percentile are excluded (around $7 million in 2012), we see that little continued growth in top income shares has taken place in the last 20 years. Put simply, so far in the 21st century, all the action in top income shares has been S-corporation income at very, very high income levels..."

Wednesday, April 19, 2017

AI Summary. The global savings glut is resurging with a shift toward Europe, as Western European surpluses rise and Germany's nominal current account surplus has nearly doubled since 2006 to top the global list, while surpluses of major oil exporters such as Saudi Arabia and Nigeria decline. East Asian economies still account for over 50% of the global surplus.

David Keohane Financial Times
Date Posted:
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The global savings glut is resurging, with a notable shift towards Europe. Western European surpluses, particularly Germany’s, have risen significantly, nearly doubling since 2006.

Is the global savings glut shifting from oil exporters to Europe?

Core argument: Germany's nominal current account surplus has nearly doubled since 2006, placing it atop the global surplus rankings as the savings glut that receded after the 2008 financial crisis resurges with a shift toward Europe.

The global savings glut, which had receded post-2008 GFC, is resurging with a notable shift towards Europe. Western European surpluses, particularly Germany's, have risen significantly, with Germany's nominal surplus nearly doubling since 2006, placing it at the top of the current account surplus list. This shift contrasts with the declining surpluses of major oil exporters like Saudi Arabia and Nigeria. Meanwhile, East Asian economies continue to contribute over 50% to the global surplus. The US, once dominant in current account deficits, has seen its share decrease. This evolving landscape suggests a reallocation of global savings, impacting bond yields and economic strategies. The euroglut thesis highlights Germany's role, despite challenges in boosting domestic spending and wages. As global savings patterns morph, policymakers must navigate these changes to address trade imbalances and economic growth.

Takeaways by Macro Roundup® AI

  1. Germany's nominal current account surplus has nearly doubled since 2006, placing it atop the global surplus rankings as the savings glut that receded after the 2008 financial crisis resurges with a shift toward Europe.
  2. East Asian economies continue to account for over 50% of the global current account surplus, while major oil exporters such as Saudi Arabia and Nigeria have seen their surpluses decline.
  3. The US share of global current account deficits has fallen from its former dominance, part of a reallocation of global savings with implications for bond yields and economic strategies.

"...The absolute level of East Asian current account surpluses in nominal US dollar terms has climbed beyond the previous high in 2006, while the rise of Western European surpluses has been striking...."

Finally, you’ll notice the Saudi (petrodollar) reversal, alongside the general presence of EMs hit by the commodity reversal, in the deficit chart. Hat tip to Russia for remaining at the bottom of the surplus chart above:

It’s also a reminder that China’s surplus is growing despite its domestic investment push, even if it’s not as big as its savings rate suggests it should be.

It’s a reminder, as Matt put it before, that the US shouldn’t blame Mexico for “losing” at trade — it should blame Germany. Of course, blame doesn’t help very much and solutions are hard to come by. Asking an ageing Germany to raise wages more quickly and to spend more on itself hasn’t worked so far but you never know…

You’ll notice the euroglut thesis in play, with Germany leading the way, in the SocGen charts:

"The global savings glut is reviving after a period of hibernation following the global financial crisis (GFC).The absolute level of East Asian current account surpluses in nominal US dollar terms has climbed beyond the previous high in 2006, while the rise of Western European surpluses has been striking… The global savings glut went into hibernation after the 2008 global financial crisis (GFC), but it is awakening. The phrase “global savings glut” was made famous by Ben Bernanke in 2005, when the yawning US current account imbalance drew widespread attention. The chief distinction between the pre-GFC glut and its current incarnation is that surpluses have become more concentrated in certain regions, while current account deficits have become relatively more diffused. In 2006, for example, the US accounted for the lion’s share of the world’s current account deficit in US dollar terms, but this dominance has receded markedly. The same three countries (China, Japan and Germany) headed the list of the Top 12 current account surplus countries in 2006 and 2016, but Germany climbed to the top spot in 2016 as its nominal surplus in dollar terms almost doubled. However, the contribution of the main East Asian surplus economies to the total global surplus has risen to over 50% currently (Chart 1). By contrast, major oil exporters such as Saudi Arabia, Kuwait, Norway and Nigeria that were on the 2006 list have dropped out of the 2016 list. Russia is the only major oil-producer that remains on the Top 12 surplus list (Table 1)."

From SocGen:

Bond yields be depressed for global savings appear to be re-glutted. If you’ve been paying attention you’ll probably have noticed.

Your morphing global savings glut

David Keohane, "Your morphing global savings glut,"Financial Times, April 19, 2017, https://ftalphaville.ft.com/2017/04/19/2187641/your-morphing-global-savings-glut/