Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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
  • “…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 full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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 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
  • “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
  • “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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 27, 2019

AI Summary. A Gallup study drawing on input from nearly 2m employees and more than 300,000 business units finds that middle manager quality accounts for 70% of the variance in company productivity. The study reports that manager quality outweighs other factors such as pay levels and employees' perceptions of senior leadership.

Jim Clifton Wall Street Journal
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Middle managers play a critical role in driving team performance, with quality accounting for 70% of variance in company productivity, according to a Gallup study.

Does middle manager quality drive most of the variance in productivity?

Core argument: Gallup finds that middle manager quality accounts for 70% of the variance in company productivity, based on input from nearly 2m employees across more than 300,000 business units.

A comprehensive Gallup study involving input from nearly 2m employees and over 300,000 business units reveals that middle manager quality accounts for 70% of the variance in company productivity. This finding underscores the critical role middle managers play in driving team performance, surpassing other factors like compensation levels and senior leadership perception. The study highlights that hiring the right manager is nearly three-fourths of the battle in achieving superior team outcomes. This data-driven insight positions middle managers as pivotal to economic success, emphasizing their potential to significantly influence productivity and, by extension, macroeconomic stability.

Takeaways by Macro Roundup® AI

  1. Gallup finds that middle manager quality accounts for 70% of the variance in company productivity, based on input from nearly 2m employees across more than 300,000 business units.
  2. Gallup's study ranks manager quality above compensation levels and employee perception of senior leadership as a driver of team performance.
  3. Gallup concludes that hiring the right manager is nearly three-fourths of the battle in achieving superior team outcomes.

"...Five years ago, the Gallup organization embarked on one of the most ambitious deep dives it has ever conducted; an analysis of the future of work based on a decade of input from nearly 2 million employees and more than 300,000 business units. The results confirmed something Gallup had seen before:a company’s productivity depends, to a high degree, on the quality of its managers. What no one saw coming, however, was the sheer size of that correlation—something Gallup calls “the single most profound, distinct and clarifying finding” in its 80-year history. The study showed that managers didn’t just influence the results their teams achieved, they explained a full 70% of the variance.In other words, if it’s a superior team you’re after, hiring the right manager is nearly three-fourths of the battle. No other single factor, from compensation levels to the perception of senior leadership, even came close. “That blew me out of my chair,” says Jim Clifton, Gallup’s chief executive...."
Sam Walker, "The Economy’s Last Best Hope: Superstar Middle Managers,"Wall Street Journal, March 24, 2019, https://www.wsj.com/articles/the-economys-last-best-hope-superstar-middle-managers-11553313606

AI Summary. Automation can reduce labor demand even as it raises productivity, because displacement of workers comes with only modest productivity gains, lowering labor's share of industry value added and leaving wage growth behind productivity growth. The authors attribute stagnant labor demand to faster automation, particularly in manufacturing, alongside slower creation of new labor-intensive tasks.

Daron Acemoğlu National Bureau of Economic Research
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Automation technologies often reduce labor demand despite increasing productivity, as they displace workers with only modest productivity gains.

Does automation reduce labor demand even as it raises productivity?

Core argument: Automation technologies can reduce labor demand even while raising productivity, because displacing workers with technology only marginally better than cheap labor yields modest productivity gains, lowering labor's share of industry value added and slowing wage growth relative to productivity.

Automation technologies often reduce labor demand despite increasing productivity, as they displace workers with only modest productivity gains, especially when the automated technology is marginally better than cheap labor. This results in a reduced labor share in industry value added and slower wage growth compared to productivity growth. The recent stagnation in labor demand is attributed to accelerated automation, particularly in manufacturing, and a slowdown in new task creation, which has also contributed to sluggish productivity growth. The future of work hinges on the balance between automation and the creation of new tasks that enhance labor's role in production. This balance is influenced by factors such as innovation capabilities, skill supply, demographic changes, and policy interventions.

Takeaways by Macro Roundup® AI

  1. Automation technologies can reduce labor demand even while raising productivity, because displacing workers with technology only marginally better than cheap labor yields modest productivity gains, lowering labor's share of industry value added and slowing wage growth relative to productivity.
  2. The authors attribute stagnant labor demand to accelerated automation, particularly in manufacturing, combined with a slowdown in the creation of new tasks that reinstate labor in production, which has also contributed to sluggish productivity growth.
  3. The future of work depends on the balance between automation and new task creation, which is shaped by innovation capabilities, skill supply, demographic changes, and policy interventions.

"....This paper develops a task-based model to study the effects of different technologies on labor demand..... Our conceptual framework offers several lessons. First, the presumption that all technologies increase (aggregate) labor demand simply because they raise productivity iswrong. Some automation technologies may in fact reduce labor demand because theybring sizable displacement effects but modest productivity gains (especially when substituted workers were cheap to begin with and the automated technology is only marginallybetter than them). Second, because of the displacement effect, we should not expect automation to create wage increases commensurate with productivity growth. In fact, aswe noted already, automation by itself always reduces the labor share in industry valueadded and tends to reduce the overall labor share in the economy (meaning that it leadsto slower wage growth than productivity growth). The reason why we have had rapidwage growth and stable labor shares in the past is a consequence of other technological changes that generated new tasks for labor and counterbalanced the effects of automation on the task content of production. Some technologies displaced labor from automated tasks while others reinstated labor into new ones. On net, labor retained a key role in production. By the same token, our framework suggests that the future of work depends on the mixture of new technologies and how these change the task content of production..... At the center of our framework is the task content of production—measuring the allocation of tasks to factors of production. Automation, by creating a displacement effect, shifts the task content of production against labor, while the introduction of new tasks in which labor has a comparative advantage improves it via the reinstatement effect. These technologies are qualitatively different from factor-augmenting ones which do not impact the task content of production. For example, automation always reduces the labor share and may reduce labor demand, and new tasks always increase the labor share.We then show how changes in the task content of production and other contributors to labor demand can be inferred from data on labor shares, value added and factor prices at the industry level. The main implication of our empirical exercise using this methodology is that the recent stagnation of labor demand is explained by an acceleration of automation, particularly in manufacturing, and a deceleration in the creation of new tasks. In addition, and perhaps reflecting this shift in the composition of technological advances, the economy also experienced a marked slowdown in productivity growth, contributing to sluggish labor demand.Our framework has clear implications for the future of work too. Our evidence and conceptual approach support neither the claims that the end of human work is imminent nor the presumption that technological change will always and everywhere be favorable to labor. Rather, it suggests that if the origin of productivity growth in the future continues to be automation, the relative standing of labor, together with the task content of production, will decline. The creation of new tasks and other technologies raising the labor intensity of production and the labor share are vital for continued wage growth commensurate with productivity growth.Whether such technologies will be forthcoming depends not just on our innovation capabilities but also on the supply of different skills, demographic changes, labor market institutions, tax and R&D policies of governments, market competition, corporate strategies and the ecosystem of innovative clusters. We have also pointed out a number of reasons why the balance between automation and new tasks may have become inefficiently tilted in favor of the former, with potentially adverse implications for jobs and productivity and some directions for policy interventions to redress this imbalance.

Daron Acemoğlu and Pascual Restrepo, "Automation and New Tasks: How Technology Displaces and Reinstates Labor," National Bureau of Economic Research, March 5, 2019, https://www.nber.org/papers/w25684

AI Summary. Exurban housing markets are recovering, with rapid home-price growth in areas such as Phoenix, though prices remain below their pre-crisis 2006 peaks — just over 6% below in Phoenix and more than 22% below in Maricopa, where the bust erased nearly 65% of home values.

Laura Kusisto Wall Street Journal
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Exurban housing market shows signs of recovery, but home values in Phoenix remain 6% below 2006 peak, while Maricopa’s values are still 22% below. @LauraKusisto

Are exurban home prices recovering to pre-crisis peaks?

Core argument: Phoenix home values remain just over 6% below their 2006 pre-crisis peak even as the exurban housing market rebounds with rapid home-price growth.

The exurban housing market is showing signs of recovery, with areas like Phoenix experiencing rapid home-price growth. Despite this, home values in Phoenix remain just over 6% below their pre-crisis 2006 peak, while Maricopa's values are still more than 22% below their 2006 high. The housing bust had previously erased nearly 65% of home values in Maricopa. This resurgence is marked by genuine buyer interest, contrasting with the speculative exuberance of the past. The current market dynamics suggest a more sustainable growth trajectory, driven by real demand rather than speculative bubbles. This recovery, while significant, indicates that exurban housing prices have yet to fully return to their pre-crisis levels, highlighting ongoing challenges in achieving complete market stabilization.

Takeaways by Macro Roundup® AI

  1. Phoenix home values remain just over 6% below their 2006 pre-crisis peak even as the exurban housing market rebounds with rapid home-price growth.
  2. Maricopa home values are still more than 22% below their 2006 high, after the housing bust erased nearly 65% of home values there.
  3. The exurban recovery is marked by genuine buyer interest rather than the speculative exuberance of the prior cycle.

This time is different!

"....Homes in the Phoenix metropolitan area, including the suburbs, lost 55% of their value from the peak in 2006 to 2011, according to Zillow. Today Phoenix is experiencing some of the fastest home-price growth in the country. Home values are now just over 6% below their precrisis 2006 peak. The housing bust erased nearly 65% of the value of homes in Maricopa over the same period, according to Zillow. Home values there remain more than 22% below their 2006 high.... Jordan Rose, an attorney who represents many developers and home builders in the area, said during the last boom, she used to work in her car using a portable modem because she didn’t have time to make it back to the office between zoning meetings. She is even busier now. “It feels like 2006 without the fake high at the end of the rainbow,” she said. “There’s the same exuberance, but the buyer is real.”..."
Laura Kusisto, "A Decade After the Housing Bust, the Exurbs Are Back,"Wall Street Journal, March 26, 2019, https://www.wsj.com/articles/a-decade-after-the-housing-bust-the-exurbs-are-back-11553610771

AI Summary. Median annual household income reached $63,378, up 1.9% from a year earlier, 5.1% above the $60,287 level at the onset of the Great Recession and 15% above the post-recession low of $55,134. Adjusted for inflation, this pre-tax measure stands 3.9% above its level of $61,004 at the start of 2000.

Gordon Green Sentier Research
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Median annual household income reached $63,378 in February 2019, a 1.9% increase Y/Y from February 2018, according to @SentierResearch.

Is median household income rising above its pre-recession level?

Core argument: Median annual household income reached $63,378 in February 2019, up 1.9% from February 2018 and 5.1% above the $60,287 recorded in December 2007 at the onset of the Great Recession.

In February 2019, median annual household income reached $63,378, marking a 1.9% increase year-over-year from February 2018. This figure is 5.1% higher than the median income of $60,287 recorded in December 2007, the onset of the Great Recession, and 15% above the post-recession low of $55,134 in June 2011. Despite consistent monthly gains since the June 2011 trough, the February 2019 median income was only 3.9% higher than the January 2000 level of $61,004, after adjusting for inflation. These figures reflect pre-tax income and highlight the gradual recovery and growth in household income over the past decade, underscoring the resilience of the economy in the post-crisis period.

Takeaways by Macro Roundup® AI

  1. Median annual household income reached $63,378 in February 2019, up 1.9% from February 2018 and 5.1% above the $60,287 recorded in December 2007 at the onset of the Great Recession.
  2. February 2019 median household income stood 15% above the post-recession low of $55,134 in June 2011, with consistent monthly gains since that trough.
  3. Adjusted for inflation, February 2019 median household income was 3.9% higher than the January 2000 level of $61,004, with all figures measured pre-tax.

New Sentier numbers, median annual household income was $63,378 in February of this year. The February 2019 median was 1.9 percent higher y/y (February 2018.) Median household income for February 2019 was 5.1 percent higher than the median of $60,287 for December 2007, the official start of the Great Recession and 15.0 percent above the post-recession low point of $55,134 in June 2011. Despite numerous monthly increases following the June 2011 post-recession low for median income, the February 2019 median was just 3.9 percent above the January 2000 level of $61,004 (first year in this monthly series) after adjusting for changes in prices. Note all dollar figures are expressed in February 2019 purchasing power. Their income measure is before federal and state income taxes and mandatory payroll taxes.

Gordon Green and John Coder, "Household Income Trends February 2019," Sentier Research, March 26, 2019, http://www.sentierresearch.com/reports/Sentier_Household_Income_Trends_Report_February_2019_03_26_19.pdf

Friday, March 29, 2019

AI Summary. Bay Area home prices have risen in dollar terms, with Palo Alto's median price going from $1.3m to $3.1m over a decade, but have become cheaper when priced in technology stocks, which grew faster. For households whose wealth is held in tech equities, housing has become relatively less expensive.

Alex Rampell Andreessen Horowitz
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Great @arampell insight on asset relativity and Bay Area Housing CHART LINK Bay Area Housing Has Gotten Cheaper If You Base Housing To Index Of Tech Stocks – @arampell, Andreessen Horowitz.

Has Bay Area housing become cheaper when priced in tech stocks?

Core argument: Palo Alto's median home price rose from $1.3m to $3.1m over the past decade, a gain in USD terms that lags the growth of tech stocks.

While Bay Area housing prices have surged in USD terms, with the median home price in Palo Alto rising from $1.3m to $3.1m over the past decade, they have become relatively cheaper when indexed against tech stocks. This phenomenon highlights the "gravity distorting" effects of technology stocks on asset valuation. As tech stocks have outpaced housing price growth, the relative cost of housing has decreased for those whose wealth is tied to tech equities. This shift underscores the importance of asset relativity in understanding real estate affordability, particularly in tech-driven economies like Silicon Valley. The implications are significant for investors and policymakers, as they suggest that traditional currency-based assessments may not fully capture the economic dynamics at play in regions heavily influenced by tech sector performance.

Takeaways by Macro Roundup® AI

  1. Palo Alto's median home price rose from $1.3m to $3.1m over the past decade, a gain in USD terms that lags the growth of tech stocks.
  2. Indexed against tech stocks rather than dollars, Bay Area housing has become relatively cheaper for buyers whose wealth is tied to tech equities.
  3. Traditional currency-based assessments of real estate affordability may not fully capture the economic dynamics of tech-driven regions such as Silicon Valley.

Alex Rampell, "Data: Asset Relativity (and the Case of Bay Area Housing)," Andreessen Horowitz, March 28, 2019, https://a16z.com/2019/03/28/asset-theory-of-relativity-housing-example-everything-is-correlated-assets-vs-currency-tech-stock-index/

According to Cathy Rampell’s brother, housing prices in Silicon Valley have risen in USD terms but have dramatically fallen in terms of tech stocks, "...Take the example of housing prices in the Bay Area. In the last decade, the median home price of $1.3M in Palo Alto has popped to $3.1M. If you look at prices as a function of the “gravity distorting” effects of technology stocks, however, it turns out housing has gotten much cheaper… that is, IF your base unit of currency is an index of tech stocks....."

Ed Comment:Worth sending to me but I wouldn't publish this if I were him. "80%" of the housing is occupied by people who don't owe these stocks including all the people working in failed, not so successful, and not yet successful startups. The marginal product of their labor largely drives the amount they can pay for rent. A restricted supply of labor via a restricted supply of housing will allow them to earn more but their pay (and the rent they can afford) is still largely pegged to their marginal product of labor. As we know, the value of those stocks represent the highest and currently fastest growing marginal product of labor, much of which is not captured by even the most skillful workers. Most workers' marginal product of labor is growing slower. Most companies, even most in San Francisco, are falling further off the tech frontier not catching up to it. No surprise, so is the value of their real estate (ie their rent).

AI Summary. Broadening the tax base by closing loopholes, improving compliance, eliminating shelters, and partially repealing prior tax cuts is projected to raise more revenue than proposals for a wealth tax or sharply higher top rates. The authors argue this approach is also more politically feasible and would improve economic efficiency and fairness.

Larry Summers Boston Globe
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@LHSummers @BostonGlobe: Summer’s tax reform plan emphasizes base broadening & closing loopholes, projected to generate more revenue than Ocasio-Cortez & Warren’s proposals. This strategy aims to enhance economic efficiency & fairness in the tax system.

Would broadening the tax base raise more revenue than a wealth tax?

Core argument: Summers argues that broadening the tax base and closing loopholes would raise more revenue than the proposals advanced by Ocasio-Cortez and Warren.

Summer's tax reform plan emphasizes a traditional approach of base broadening and closing loopholes, which is projected to generate more revenue than the proposals by Ocasio-Cortez and Warren. By improving compliance and eliminating shelters, along with partially repealing the Trump tax cut, this strategy aims to enhance economic efficiency and fairness in the tax system. The plan is considered more politically feasible than implementing a wealth tax or significantly increasing top rates. While additional measures may be necessary to address the revenue challenge, starting with base broadening is deemed the most effective initial step.

Takeaways by Macro Roundup® AI

  1. Summers argues that broadening the tax base and closing loopholes would raise more revenue than the proposals advanced by Ocasio-Cortez and Warren.
  2. Summers' plan combines improved compliance, elimination of tax shelters, and partial repeal of the Trump tax cut, aiming to improve economic efficiency and fairness.
  3. Summers considers base broadening more politically feasible than a wealth tax or significantly higher top rates, and the most effective first step even if additional revenue measures prove necessary.

1/2 Summer's foreshadowing a tax reform plan

"....Where we differ from Warren and Ocasio-Cortez is in our belief that the best way to begin raising additional revenue from highest income tax payers is with a traditional tax reform approach of base broadening and loophole closing, improved compliance, and closing of shelters. We show that these measures, along with partial repeal of the Trump tax cut, can raise far more than recent proposals. These measures will increase economic efficiency, make our tax system more fair, and are perhaps more politically feasible than a wealth tax or large hikes of top rates. It may be that measures beyond base-broadening are appropriate and desirable given the magnitude of the revenue challenge we face. But base-broadening is the right place to begin...."

Natasha Sarin and Lawrence Summers, "A broader tax base that closes loopholes would raise more money than plans by Ocasio-Cortez and Warren,"Boston Globe, March 27, 2019, https://www.bostonglobe.com/opinion/2019/03/28/broader-tax-base-that-closes-loopholes-would-raise-more-money-than-plans-ocasio-cortez-and-warren/Bv16zhTAkuEx08SiNrjx9J/story.html

AI Summary. Raising top tax rates to 70% would raise less than one-third the revenue of a base-broadening approach, the author argues, because a 1% increase in top rates is associated with a 0.6% decline in reported taxable income as taxpayers shift to avoidance. Broadening the tax base lowers that responsiveness, making income harder to shield.

Larry Summers Boston Globe
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@LHSummers argues that traditional tax reform, focusing on efficient & progressive revenue generation through base broadening, should precede any consideration of wealth taxes or high-income rates, avoiding a confrontational approach with successful individuals.

Does broadening the tax base raise more revenue than higher top rates?

Core argument: Raising top tax rates to 70% would generate less than one-third of the revenue produced by a base-broadening approach, indicating inefficiency in targeting high earners.

Increasing top tax rates to 70% would raise less than one-third of the revenue compared to a base-broadening approach, highlighting inefficiencies in targeting high earners. The elasticity of taxable income suggests a 1% increase in top rates reduces reported income by 0.6%, as individuals engage in tax avoidance. This results in high economic distortion relative to revenue raised, especially with proposals pushing rates over 80% in areas like NYC. Broadening the tax base can lower elasticities, making it harder for the wealthy to shield income. Thus, traditional tax reform, focusing on efficient and progressive revenue generation through base broadening, should precede any consideration of wealth taxes or high-income rates, avoiding a confrontational approach with successful individuals.

Takeaways by Macro Roundup® AI

  1. Raising top tax rates to 70% would generate less than one-third of the revenue produced by a base-broadening approach, indicating inefficiency in targeting high earners.
  2. The elasticity of taxable income implies that a 1% increase in top rates reduces reported income by 0.6% as individuals engage in tax avoidance, creating high economic distortion relative to revenue raised where proposed rates exceed 80% in places like New York City.
  3. Broadening the tax base lowers elasticities and makes it harder for the wealthy to shield income, so traditional tax reform focused on efficient, progressive revenue generation should precede any consideration of wealth taxes or high top rates.

2/2 from Summers, with a warning for the left about class warfare

"... Even increasing top rates to 70 percent would raise less than one third as much revenue as our base-broadening approach....Justifications for substantial increases in tax burdens as a tool to address “oligarchic drift” are problematic. First, given that most outlays to promote a political agenda are tax deductible, approaches like wealth taxation may actually increase oligarchic forces. But more broadly: If America had had more figures like Bill Gates, Warren Buffett, and Steve Jobs over the last generation, it would have been a good thing, associated with a stronger economy even if measured inequality increased. Bill Clinton was right when he said that he wanted to see an economy with more millionaires, because that meant an economy with more job-creating successful businesses. Turning the tax code into a vehicle for confronting what some call “oligarchic drift” would undermine business confidence, reduce investment, degrade economic efficiency, and punish success in ways unlikely to be good for the country or even to be appealing to most Americans.....Moreover, unless a base-broadening approach was adopted first, dramatic rate increasing would be quite inefficient.An important parameter in tax analysis is the “elasticity of taxable income” — which measures how the tax base changes as tax rates change. The reported income of high-income taxpayers responds to tax changes in part because it changes how much income they generate but more so because it increases sheltering incentives. Economics literature suggests that a 1 percentage point increase in top income rates decreases reported taxable income by perhaps 0.6 percent. So more than half of the potential income from raising rates is dissipated as individuals increase their tax avoidance activities and perhaps also reduce their income earning. As a result, the ratio of economic distortion to revenue raised is likely to be very high for rates pushed up to 70 percent, especially when one recognizes that Ocasio-Cortez’s proposal would mean a top income tax rate of well over 80 percent for residents of New York City.One benefit of the approaches we advocate is that broadening the income tax base may lead to lower elasticities by making it more difficult for the wealthy to shield income from taxation. Increasing top tax rates will have more potency in a world where the elasticity of the tax base to rate changes is lower.....The traditional tax reform approach of using the tax code to raise necessary government revenue as efficiently and progressively as possible, starting with base broadening, is the right first step forward. It may be that wealth taxes or very high-income tax rates are necessary to adequately fund appropriate government activities. But that is a conclusion should be reached carefully only after full exploitation of traditional alternatives, rather than in a spirit of joyous confrontation with the successful...."

Natasha Sarin and Lawrence Summers, "Fair, comprehensive tax reform is the right path forward,"Boston Globe, March 28, 2019, https://www.bostonglobe.com/opinion/2019/03/28/fair-comprehensive-tax-reform-right-path-forward/DwzX8IbqbRY5zxaCy2DoBI/story.html