Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…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
  • “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


Friday, February 8, 2019

AI Summary. Foreign ownership of U.S. government debt has fallen from a peak of 55% during the 2008 financial crisis to below 40%, the first time since 2003, with China's share of outstanding Treasury debt down from 14% in 2011 to just over 7%. Domestic investors have absorbed the debt as foreign creditors retreat.

Daniel Kruger Wall Street Journal
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Foreign ownership of US debt has declined from 58% at 2008 peak to < 40%.

Do domestic investors absorb U.S. debt as foreign creditors retreat?

Core argument: Foreign ownership of U.S. government debt fell below 40% in November, the first time since 2003 and down from a peak of 55% during the 2008 financial crisis.

Foreign ownership of U.S. government debt has decreased significantly from a peak of 55% during the 2008 financial crisis to below 40% in November, marking the first time since 2003. This decline reflects a reversal from the 2000s when foreign investors heavily accumulated U.S. debt as the government shifted from surpluses to record deficits due to tax cuts and increased spending on wars and the financial crisis. Notably, China, once the largest foreign creditor, reduced its holdings from 14% of all outstanding Treasury debt in 2011 to just over 7% today. This shift has led domestic investors to increasingly pick up U.S. debt as foreign creditors retreat, highlighting a significant change in the composition of U.S. debt ownership and its implications for domestic financial markets.

Takeaways by Macro Roundup® AI

  1. Foreign ownership of U.S. government debt fell below 40% in November, the first time since 2003 and down from a peak of 55% during the 2008 financial crisis.
  2. China, once the largest foreign creditor, cut its holdings from 14% of all outstanding Treasury debt in 2011 to just over 7% today.
  3. Domestic investors have increasingly absorbed U.S. debt as foreign creditors retreat, reversing the 2000s pattern when foreign buyers accumulated Treasurys as the government moved from surpluses to record deficits driven by tax cuts, wars, and financial-crisis spending.

"...Foreign ownership of U.S. government debt has been decreasing since it reached a peak of about 55% during the financial crisis in 2008, falling below 40% in November for the first time since 2003, according to the most recent Treasury data. That marks a striking reversal from the substantial accumulation of U.S. debt by foreign investors during the 2000s, when the government swung from surpluses to record deficits tied to tax cuts and increased spending on the wars in Iraq and Afghanistan and, later, the financial crisis.China, the largest foreign creditor to the U.S., owned as much as 14% of all outstanding Treasury debt in 2011. Today the country owns a little more than 7% of U.S. debt...."

Domestic Investors Pick Up U.S. Debt When Foreign Creditors Wont: Extended Excerpt Image 1


Daniel Kruger and Kate Davidson, "Domestic Investors Pick Up U.S. Debt When Foreign Creditors Won’t,"Wall Street Journal, February 6, 2019, https://www.wsj.com/articles/domestic-investors-pick-up-u-s-debt-when-foreign-creditors-wont-11549454400

Monday, February 11, 2019

AI Summary. New York State devotes 51.2% of its budget to Medicaid, the highest share in the U.S., with $37.98bn borne by state taxpayers, while Florida spends $14.25bn — about 37% of New York's total — with a state share of 38.8%, near the U.S. average of 38.5%. The gap reflects demographic differences and the generosity of benefits.

Robert Mujica New York State Division of the Budget
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New York State’s Medicaid spending significantly surpasses Florida’s, with NYS allocating 51.2% of its budget to Medicaid, the highest in the U.S., resulting in $37.98bn spent by state taxpayers.

How much more does one state spend on Medicaid than another?

Core argument: New York State's state share of Medicaid costs is 51.2%, the highest in the U.S., amounting to $37.98bn borne by state taxpayers.

New York State's Medicaid spending significantly surpasses Florida's, with NYS allocating 51.2% of its budget to Medicaid, the highest in the U.S., resulting in $37.98bn spent by state taxpayers. In contrast, Florida spends only 37% of what NYS does on Medicaid, with a state share of 38.8%, slightly above the U.S. average of 38.5%, amounting to $14.25bn. This disparity is influenced by demographic factors and the generosity of benefits. For FY 2020, NYS's proposed budget was $102bn, with 22% dedicated to Medicaid, while Florida's proposed budget was $91.2bn, representing 89% of NYS's pre-cut budget. Florida's budget also combines Medicaid with Temporary Assistance for Needy Families (TANF) spending, complicating direct comparisons.

Takeaways by Macro Roundup® AI

  1. New York State's state share of Medicaid costs is 51.2%, the highest in the U.S., amounting to $37.98bn borne by state taxpayers.
  2. Florida spends 37% of what New York State spends on Medicaid, with a state share of 38.8%, just above the U.S. average of 38.5%, totaling $14.25bn.
  3. New York State's proposed FY 2020 budget was $102bn with 22% dedicated to Medicaid, while Florida's proposed budget of $91.2bn equaled 89% of New York's pre-cut budget and combines Medicaid with TANF spending.

Ed, The answer to your question on why NYS spends so much more then Florida bottom line, Florida spends overall 90% of what New York State does but Florida only spends 37% of what NYS does on Medicaid. According to the Kaiser family foundation in in 2017 Florida's 38.8% State share was slightly above the US average of 38.5% state share resulted in spent 14.25B being spent on Medicaid New York State's 51.2% State share, the highest in the country, resulted in 37.98B being spent on Medicaid by state taxpayers. Obliviously there are mix shift issues in terms of age/demographics that affect spending in addition to generosity. For current. This year the NYS FY 2020proposedbudget is 102B (though this does not reflect the ~ 3B in cuts the Governor is now recommending). 22% of which is Medicaid according to State. For contrast, Florida'sproposedbudget for the upcoming fiscal year is 91.2B (89% of NYS pre-cuts budget) however theymixState Medicaid spending with State TANF spending so I don't have a clean "official" Medicaid share of state budget. Can drill down on that if you would like. Robert Mujica, "FY 2020 Executive Budget," New York State Division of the Budget, January 2019, https://www.budget.ny.gov/pubs/archive/fy20/exec/book/briefingbook.pdfRon DeSantis, "2019-2020 Budget," Florida Office of Policy and Budget, January 2019, http://www.boldvisionforabrighterfuture.com/HomeFY20.htm"Federal and State Share of Medicaid Spending 2017," Kaiser Family Foundation, Accessed February 11, 2019, https://www.kff.org/medicaid/state-indicator/federalstate-share-of-spending/FY 2020 Executive Budget: Extended Excerpt Image 1

AI Summary. Restricting stock buybacks would likely push companies to reinvest in projects that fail to clear their return thresholds or in acquisitions, since firms chose buybacks for lack of lucrative opportunities. Tying buybacks to employee wages could temporarily raise pay while accelerating automation and shrinking workforces, especially for low-wage workers.

Aswath Damodaran Musing on Markets
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Restricting buybacks could lead to increased reinvestment, but often in projects that fail to meet hurdle rates, as companies initially opted for buybacks due to a lack of lucrative opportunities.

Would restricting stock buybacks lead to worse investment and fewer jobs?

Core argument: Restricting buybacks could push companies into reinvestment in projects that fail to meet hurdle rates, since firms opted for buybacks in the first place for lack of lucrative opportunities.

Restricting buybacks could lead to increased reinvestment, but often in projects that fail to meet hurdle rates, as companies initially opted for buybacks due to a lack of lucrative opportunities. This shift may result in investments in less promising sectors or acquisitions with poor corporate track records. Additionally, tying buybacks to employee wages might temporarily boost pay but could accelerate automation and reduce workforce size, particularly affecting low-wage workers. The Schumer-Sanders proposal may inadvertently exacerbate the issues it aims to resolve, as companies might invest in saturated markets or overseas, rather than enhancing domestic growth or wages.

Takeaways by Macro Roundup® AI

  1. Restricting buybacks could push companies into reinvestment in projects that fail to meet hurdle rates, since firms opted for buybacks in the first place for lack of lucrative opportunities.
  2. Tying buybacks to employee wages might raise pay temporarily but could accelerate automation and shrink workforces, with low-wage workers particularly affected.
  3. The Schumer-Sanders proposal may worsen the problems it targets, as companies redirect cash into saturated markets, overseas investment, or acquisitions by firms with poor corporate track records rather than domestic growth or wages.

"...I agree that wage stagnation and an unwillingness to invest into the industrial base are significant problems for US companies, but I think that buybacks are more a symptom of global economic changes, than a cause. In particular, globalization has made it more difficult for companies to generate sustained returns on investments, and has made earnings more volatile for all businesses. The lower returns on investments has led to more cash being returned, and the fear of earnings volatility has tilted companies away from dividends, which are viewed as more difficult to back out of, to buybacks. In conjunction, a shift from an Industrial Age economy to the economies of today has meant that our biggest businesses are less capital intensive and more dependent on investments in intangible assets, a trend that accounting has not been able to keep up with. You can ban or restrict buybacks, but that will not make investment projects more lucrative and earnings more predictable, and it certainly is not going to create a new industrial age. If you came into this article with a strong bias against buybacks it is unlikely that I will be able to convince you that buybacks are benign, and it is very likely that you will be in favor, like Senators Schumer and Sanders, on restricting not just buybacks, but cash returns (including dividends), in general. Playing devil’s advocate, let’s assume that you succeed and play out what the effects of these restrictions will be on how much companies invest collectively and employee wages On the investment front, it is true that companies that used to buy back large numbers of their own shares will now have more cash to invest, but in what? It could be in more internal investments or projects, but given that many of these companies were buying back stock because they could not find good projects in the first place, it would have to be in projects that don’t earn a high enough returns to cover their hurdle rates. Perhaps, it will be in acquisitions, and while that will make M&A deal makers happy, the corporate track record is woeful. In either case, you will have more reinvestment in the wrong segments of the economy, at the expense of investments in the segments that need them more. On the wage front, the consequences will be even messier. It is possible that tying buybacks to employee wages, as Senators Schumer and Sanders propose, will cause some companies to raise wages for existing employees, but with what consequences? Since they will now be paying much higher wages than their competitors, my guess is that these same companies will be quicker to shift to automation and will have smaller workforces in the future, and that those at the low end of the pay scale will be most hurt by this substitution. Illustrating my point about anecdotal evidence, the senators use Walmart and Harley Davidson to make their case, arguing that both companies should not have expended the money that they did on buybacks, and taken investments or raised wages instead. Assuming that Walmart had followed their advice and not bought back stock and invested instead, it is unlikely that Walmart would have opened more stores in the United States, a saturated market, but would have opened them instead in other countries, and I don’t believe that the senators would view more stores being built in Indonesia or India as the outcome they were hoping for. As for Harley Davidson, a company that serves a loyal, but niche market, building another factory may have created more jobs for the moment, but it is not at all clear that the demand exists for the bikes that would roll out. Would Walmart have raised wages, if they had not bought back stock? In a retail landscape, where Amazon lays waste to any competitor with a higher cost structure, that would have been suicidal, and accelerated the flow of customers to Amazon, allowing that company to become even more dominant. In a world where people complain about how the FANG stocks are taking over the world, you would be playing into their hands, by handcuffing their brick and mortar competitors, with buyback legislation. In short, restricting buybacks may lead to more reinvestment, but much of it will be in bad businesses, acquisitions of existing entities and often in other countries. Tying buybacks to employee wage levels may boost the pay for existing employees, but will lead to fewer new hires, increasing automation and smaller workforces over time. In short, the ills that the Schumer-Sanders bill tries to cure will get worse, as a result of their efforts, rather than better...."

Aswath Damodaran, "January 2019 Data Update 8: Dividends and Buybacks - Fact and Fiction,"Musing on Markets, February 8, 2019, http://aswathdamodaran.blogspot.com/2019/02/january-2019-data-update-8-dividends.html