Edward Conard

Top Ten New York Times Bestselling Author

  • “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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, March 19, 2019

AI Summary. Black and Hispanic students make up nearly 70% of New York City's public school enrollment but about 10% of admissions offers at its specialized high schools, where 7 Black students were admitted to Stuyvesant High School out of 895 seats. Asian-American students, roughly 15% of the school system, received 587 Stuyvesant offers.

Eliza Shapiro New York Times
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Only 7 Black students were admitted to Stuyvesant High School out of 895 slots, highlighting a persistent racial disparity in NYC’s specialized high schools.

How wide is the racial gap in specialized high school admissions?

Core argument: Stuyvesant High School admitted 7 Black students out of 895 spots, down from 10 the prior year and 13 the year before, continuing a two-decade decline.

The admission of only 7 Black students to Stuyvesant High School out of 895 slots highlights a persistent racial disparity in NYC's specialized high schools. This trend is part of a broader pattern, with Black and Hispanic students comprising nearly 70% of the city's public school system but only 10% of those admitted to specialized schools. The number of Black students admitted to Stuyvesant has been declining for two decades, with 10 admitted last year and 13 the year before. Across all specialized schools, 190 Black students were admitted this year out of nearly 4,800, down from 207 last year. Despite 5,500 Black students taking the admissions exam out of 27,500 applicants, the offers remain disproportionately low. In contrast, Asian-American students, who make up about 15% of the public school system, received 587 offers at Stuyvesant. This data underscores ongoing challenges in achieving racial equity in educational opportunities within NYC's elite public schools.

Takeaways by Macro Roundup® AI

  1. Stuyvesant High School admitted 7 Black students out of 895 spots, down from 10 the prior year and 13 the year before, continuing a two-decade decline.
  2. Black and Hispanic students make up nearly 70% of New York City's public school enrollment but only 10% of students admitted to its specialized high schools.
  3. Asian-American students, about 15% of New York City's public school system, received 587 of Stuyvesant's offers, while 190 Black students were admitted across all specialized schools out of nearly 4,800, down from 207.

"...At Stuyvesant High School, out of 895 slots in the freshman class, only seven were offered to black students. And the number of black students is shrinking: There were 10 black students admitted into Stuyvesant last year, and 13 the year before. Another highly selective specialized school, the Bronx High School of Science, made 12 offers to black students this year, down from 25 last year.....(At Stuyvesant, 74 percent of current students are Asian-American.)....Though black and Hispanic students make up nearly 70 percent of New York City’s public school system as a whole, just over 10 percent of students admitted into the city’s eight specialized high schools were black or Hispanic, according to statistics released Monday by the city. That percentage is flat compared to last year. Of the nearly 4,800 students admitted into the specialized schools, 190 are black — compared to 207 black students admitted last year out of just over 5,000 offers. About 5,500 black students took the admissions exam this year out of a total of about 27,500 applicants.Of the five specialized schools that were added under former Mayor Michael Bloomberg’s administration, only one, the Brooklyn Latin School, has a larger percentage of black applicants who were offered seats: 57 out of 540. Stuyvesant made 33 offers to Hispanic students, up slightly from 27 seats last year. Asian-American students received 587 offers, and white students were offered 194 seats. Asian-American and white students make up about 15 percent each of the total public school system. The percentage of black students at Stuyvesant has been declining for two decades. The number of Hispanic students who gained admission to Bronx Science also dropped from 65 last year to 43 today...."

Eliza Shapiro, "Only 7 Black Students Got Into N.Y.’s Most Selective High School, Out of 895 Spots,"New York Times, March 18, 2019, https://www.nytimes.com/2019/03/18/nyregion/black-students-nyc-high-schools.html

AI Summary. Households moving between US cities tend to pay rent closer to what they paid in their city of origin, a pattern the authors attribute to memory-based reference prices interacting with attention. Encountering rents that differ sharply from past experience surprises movers and shifts their spending, and the model's additional predictions are borne out in the data.

Pedro Bordalo National Bureau of Economic Research
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Research by @PedroBordalo shows households moving btw US cities often pay rent closer to their city of origin due to memory-based norms influencing their choices. This affects economic behavior across different urban markets.

Do past rents shape what movers pay in a new city?

Core argument: Households moving between US cities pay rent closer to the level prevailing in their city of origin, a memory-based reference-price effect documented by Simonsohn and Loewenstein (2006).

Households moving between US cities often pay rent closer to their city of origin due to memory-based norms influencing their choices. This phenomenon, as evidenced by Simonsohn and Loewenstein (SL 2006), is explained by the interaction between memory and attention. When a household encounters a rent significantly different from their past experiences, it surprises them and distorts their decision-making. For instance, rents in Pittsburgh may seem cheap compared to San Francisco, prompting movers to spend more. This model not only supports SL's findings but also predicts new outcomes confirmed by 20 years of data. The implications suggest that memory and reference prices play a crucial role in rental decisions, affecting economic behavior across different urban markets.

Takeaways by Macro Roundup® AI

  1. Households moving between US cities pay rent closer to the level prevailing in their city of origin, a memory-based reference-price effect documented by Simonsohn and Loewenstein (2006).
  2. The model treats the effect as an interaction between memory and attention: a rent far from a household's past experience surprises them and distorts their choice, so movers from San Francisco spend more in Pittsburgh, where rents seem cheap.
  3. The model reproduces Simonsohn and Loewenstein's findings and generates additional predictions borne out by 20 years of data, suggesting memory and reference prices shape rental decisions across urban markets.

"...Simonsohn and Loewenstein (SL 2006) present evidence that a household moving from one US city to another tends to pay a rent level that is closer to the city of origin, relative to comparable locals. Building on “Memory, Attention, and Choice” (BGS 2019), we show that these effects emerge from the interaction between memory and attention. In our model, memory is a database of experiences such as rents. The current rent cues recall of past rents, giving rise to a rental norm. A large discrepancy between the current rent and the memory-based norm surprises and attracts the mover’s attention, distorting choice. Thus, when rents in Pittsburgh cue recall of rent experiences in San Francisco, they look surprisingly cheap by comparison, leading the household to spend more. We revisit the SL evidence in light of the model. Besides generating the basic SL findings, our model yields two new predictions, which we test and confirm using 20 additional years of data...."
Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer, "Memory and Reference Prices: an Application to Rental Choice," National Bureau of Economic Research, March 2019, https://www.nber.org/papers/w25650

Wednesday, March 20, 2019

AI Summary. Across 16 advanced economies since 1870, long-run housing returns are comparable to equity returns but with lower volatility and lower covariance with consumption growth, implying risk aversion parameters for housing and total wealth at least 2x those implied by equities. The authors argue limited participation, idiosyncratic housing risk, transaction costs, and liquidity premiums do little to resolve this puzzle.

Òscar Jordà, Moritz Schularick, Alan Taylor National Bureau of Economic Research
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Housing returns in the long run are comparable to equities but exhibit lower volatility and lower covariance with consumption growth, according to @MoritzSchularick @AlanMTaylor @oscarjorda @nberpubsorg.

Do housing returns match equities while carrying less risk?

Core argument: Across 16 advanced economies from 1870 to the present, long-run housing returns are comparable to equity returns but with lower volatility and lower covariance with consumption growth.

Analyzing data from 1870 to the present across 16 advanced economies, housing returns in the long run are comparable to equities but exhibit lower volatility and lower covariance with consumption growth. This suggests that housing offers a more stable investment option with less risk exposure compared to equities. The findings indicate that the implied risk aversion parameters for housing wealth and total wealth are significantly larger than those for equities, often by a factor of 2 or more. This challenges traditional models and suggests that factors like limited participation, idiosyncratic housing risk, transaction costs, or liquidity premiums play minimal roles in resolving the risk premium puzzle. Consequently, housing emerges as a viable component of a diversified investment portfolio, offering substantial returns with reduced risk.

Takeaways by Macro Roundup® AI

  1. Across 16 advanced economies from 1870 to the present, long-run housing returns are comparable to equity returns but with lower volatility and lower covariance with consumption growth.
  2. Implied risk aversion parameters for housing wealth and total wealth are larger than those for equities, often by a factor of 2 or more, challenging traditional asset-pricing models.
  3. The findings suggest that limited participation, idiosyncratic housing risk, transaction costs, and liquidity premiums play minimal roles in resolving the risk premium puzzle.

"...The risk premium puzzle is worse than you think. Using a new database for the U.S. and 15 other advanced economies from 1870 to the present that includes housing as well as equity returns (to capture the full risky capital portfolio of the representative agent),standard calculations using returns to total wealth and consumption show that: housing returns in the long run are comparable to those of equities, and yet housing returns have lower volatility and lower covariance with consumption growth than equities.The same applies to a weighted total-wealth portfolio, and over a range of horizons. As a result, the implied risk aversion parameters for housing wealth and total wealth are even larger than those for equities, often by a factor of 2 or more. We find that more exotic models cannot resolve these even bigger puzzles, and we see little role for limited participation, idiosyncratic housing risk, transaction costs, or liquidity premiums...."

Òscar Jordà, Moritz Schularick, Alan Taylor, "The Total Risk Premium Puzzle," National Bureau of Economic Research, March 2019, https://www.nber.org/papers/w25653

AI Summary. 28% of China's cities—938 in total, the most of any country—showed contraction as measured by dimming night lights, yet urban planners are directed to keep expanding infrastructure. Continued construction in shrinking cities risks misallocating resources and raises questions about the sustainability of China's urban growth model.

Sidney Leng South China Morning Post
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China is experiencing a significant urban contraction, with 28% of its cities showing reduced activity as indicated by dimming night lights from 2013 to 2016. @SidneyLeng reports 938 cities shrinking, the highest number globally.

Are China's cities shrinking even as planners keep building?

Core argument: 28% of Chinese cities showed reduced activity as measured by dimming night lights from 2013 to 2016, amounting to 938 shrinking cities, the highest number of any country.

China is experiencing a significant urban contraction, with 28% of its cities showing reduced activity as indicated by dimming night lights from 2013 to 2016. This translates to 938 cities shrinking, the highest number globally. Despite this trend, urban planners are instructed to continue infrastructure development, reflecting a potential misalignment between urban policy and demographic realities. The persistence of construction in shrinking cities may lead to inefficient allocation of resources and exacerbate economic imbalances. This phenomenon raises concerns about the sustainability of China's urban growth model and its implications for future economic planning and resource management. As China navigates this urbanization peak, policymakers must reassess strategies to align with demographic shifts and optimize economic outcomes.

Takeaways by Macro Roundup® AI

  1. 28% of Chinese cities showed reduced activity as measured by dimming night lights from 2013 to 2016, amounting to 938 shrinking cities, the highest number of any country.
  2. Chinese urban planners are instructed to continue infrastructure development despite the contraction in urban activity.
  3. Continued construction in shrinking Chinese cities may lead to inefficient allocation of resources and exacerbate economic imbalances, raising concerns about the sustainability of China's urban growth model.

"...A research team from Tsinghua University used satellite imagery to monitor the intensity of night lights in more than 3,300 cities and towns between 2013 and 2016. In 28 per cent of cases, the lights had dimmed. China now has 938 shrinking cities, according to Long Ying, an urban planning expert at China’s Tsinghua University, who founded and led the research group, Beijing City Lab. This is more than any other nation on Earth...."
Sidney Leng, "Almost one-third of Chinese cities are shrinking, but urban planners told to keep building,"South China Morning Post, March 18, 2019, https://www.scmp.com/economy/china-economy/article/3002219/almost-one-third-chinese-cities-are-shrinking-city-planners

AI Summary. High housing costs in the Bay Area and New York City are pushing lower-productivity firms to relocate, with companies moving jobs not essential to the Bay Area elsewhere. California built about 80,000 homes annually over the past decade, far short of the roughly 180,000 needed to keep pace with population growth.

Nour Malas Wall Street Journal
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High housing costs in the Bay Area and NYC are pushing lower productivity firms to relocate, as seen with Core-Mark Holding Co. and McKesson Corp. moving to Texas. CEOs report that jobs not essential to the Bay Area are being placed elsewhere.

Are high housing costs pushing firms and jobs out of California?

Core argument: California built roughly 80,000 homes annually over the past decade, short of the 180,000 needed to match population growth through 2025, leaving housing supply behind a strong job market.

High housing costs in the Bay Area and NYC are pushing lower productivity firms to relocate, as seen with Core-Mark Holding Co. and McKesson Corp. moving to Texas. CEOs report that jobs not essential to the Bay Area are being placed elsewhere. Despite California's job market strength, housing supply lags significantly, with only 80,000 homes built annually over the past decade, far short of the 180,000 needed to match population growth through 2025. This housing shortfall exacerbates recruitment challenges and may force more companies to consider relocation, impacting local economic productivity and employment dynamics.

Takeaways by Macro Roundup® AI

  1. California built roughly 80,000 homes annually over the past decade, short of the 180,000 needed to match population growth through 2025, leaving housing supply behind a strong job market.
  2. High housing costs in the Bay Area and New York City are pushing lower-productivity firms to relocate, with Core-Mark Holding Co. and McKesson Corp. moving to Texas.
  3. CEOs report that jobs not essential to the Bay Area are being placed elsewhere, and California's housing shortfall compounds recruitment challenges that may drive further relocations.

"... Core-Mark Holding Co., which grew from a San Francisco tobacco shop in the 1800s to the second-largest distributor to convenience stores in the U.S., said last year it would relocate to a suburb of Fort Worth, Texas. CEO Scott McPherson said recruiting new employees to the Bay Area became challenging given housing prices and long commutes. McKesson Corp., the nation’s largest pharmaceutical distributor, in November said it would move its global headquarters from San Francisco to the Dallas suburb of Irving, Texas, bringing hundreds of jobs....Carl Guardino, chief executive of the Silicon Valley Leadership Group, said CEOs tell him “that any new job that doesn’t absolutely need to be in the Bay Area is located outside of the Bay Area.”The public-policy advisory group counts some 360 companies, including Silicon Valley’s largest, as members. There is no government data on how many companies and jobs have left California. An average of 80,000 homes were built each year in the past decade, far below the 180,000 homes needed year to keep up with population growth through 2025, according to state estimates...."

Nour Malas, "California Has the Jobs but Not Enough Homes,"Wall Street Journal, March 19, 2019, https://www.wsj.com/articles/california-has-the-jobs-but-not-enough-homes-11553007600

AI Summary. Labor force participation among older workers, particularly those aged 55 to 64, has nearly doubled, creating a labor supply shock that could raise potential output by up to 10% if their productivity matches other workers'. The authors argue this added slack has held down wage growth and moderated inflation.

Benoit Mojon Bank for International Settlements
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Increased LFP by older workers has nearly doubled, leading to a significant labor supply shock, suppressing wage growth & contributing to lower inflation, according to @BenoitMojon @Bank_for_International_Settlements.

Does rising labor force participation among older workers hold down inflation?

Core argument: Labor force participation among workers aged 55–64 has nearly doubled, a labor supply shock that could raise potential output by up to 10% if older workers' productivity growth matches that of other workers.

The increased Labor Force Participation (LFP) by older workers, particularly those aged 55 to 64, has nearly doubled, leading to a significant labor supply shock. This shift has contributed to a potential output increase of up to 10%, assuming productivity growth aligns with other workers. However, wages have responded negatively to this increased participation, as older workers aim to preserve lifetime purchasing power by delaying retirement. This dynamic has suppressed wage growth, contributing to lower inflation. Despite cyclical forces still driving wage inflation, the economy operates below its NAIRU [Non-Accelerating Inflation Rate of Unemployment] potential due to the larger slack created by this demographic shift. As a result, the ageing workforce plays a crucial role in moderating inflationary pressures, even as central banks influence cyclical wage and price dynamics.

Takeaways by Macro Roundup® AI

  1. Labor force participation among workers aged 55–64 has nearly doubled, a labor supply shock that could raise potential output by up to 10% if older workers' productivity growth matches that of other workers.
  2. Wages have responded negatively to rising participation by older workers, who delay retirement to preserve lifetime purchasing power, suppressing wage growth and contributing to lower inflation.
  3. The economy operates below its NAIRU potential because the demographic shift toward older workers creates larger slack, even as cyclical forces continue to drive wage inflation.

"...First, we observe major adjustments of labor supply in response to the ageing of the population. In this respect, the persistent call of central banks for reforms has been either anticipated or answered to by politicians, labor market institutions, employers and workers. This increase in participation implies that potential output should have increased. If the participation of 20% of the working population (population aged 55 to 64 over population aged 20 to 64) has nearly doubled, it means that aggregate output potential should increase as well. It would increase by roughly 10% if the productivity of older worker grows in line with the one of other workers. It should increase by less than 10% if the productivity of older workers is slower. It will in any case grow as long as the productivity growth of these older workers is not too negative.... wages have responded negatively to increased participation of older workers. Therefore, the change in the composition of the workforce is akin to a major labor supply shock by ageing workers. Most likely these aim to preserve their lifetime purchasing power through postponing their retirement....Second, (wage) inflation remains very much driven by cyclical forces and therefore it can be influenced by monetary policies. This result should be taken into account by those who fear that the “Phillips curve” transmission of monetary policy to inflation is broken. Central banks who spur activity and employment will eventually harvest domestic wage inflation, and, in all likelihood, inflation of goods and services. Third, it is not clear yet how high participation rates of older workers will go. We are probablundergoing a very long transition and we don’t know when it will end. But as long as this transition implies a larger slack than measured by the unemployment rate, the economy operates below its "NAIRU" potential. Taking a broader perspective, it seems that unemployement has not been a comprehensive indicator of labor market slack...."

Benoit Mojon and Xavier Ragot, " Can an ageing workforce explain low inflation?," Bank For International Settlements, March 2019, https://www.bis.org/publ/work776.pdf