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


Tuesday, June 11, 2019

AI Summary. Net foreign investment inflows into the UK, including £8.3bn from China, can either raise domestic investment or lower the domestic savings rate, depending on how the capital is absorbed. Inflows that fund new projects and business expansion can support growth, while those that do not raise investment press down on savings.

Michael Pettis China Financial Markets
Date Posted:
Is Database:
Database
Is Important:
Important

@michaelxpettis: Countries with net foreign investment inflows necessarily see domestic investment rise or domestic savings drop. If capital inflows don’t cause investment to rise, they must force down the savings rate.

Do foreign investment inflows raise domestic investment or lower savings?

Core argument: Chinese investment in the UK reached £8.3bn in 2018, part of a broader rise in foreign direct investment inflows into the UK.

The UK has experienced significant net foreign investment inflows, particularly from China, which can lead to either an increase in domestic investment or a decrease in domestic savings. In 2018, Chinese investment in the UK reached £8.3bn, contributing to a broader trend of rising foreign direct investment (FDI) inflows. This influx of capital can stimulate economic growth by funding new projects and expanding existing businesses, potentially increasing the UK's GDP. However, if these inflows do not translate into higher domestic investment, they may exert downward pressure on the savings rate, as the capital must be absorbed into the economy. The balance between these outcomes is crucial for policymakers to consider when evaluating the long-term benefits of foreign investment, as it impacts both economic stability and growth prospects.

Takeaways by Macro Roundup® AI

  1. Chinese investment in the UK reached £8.3bn in 2018, part of a broader rise in foreign direct investment inflows into the UK.
  2. Net foreign investment inflows into the UK can either raise domestic investment, funding new projects and expanding existing businesses to lift GDP, or push down the domestic savings rate as the capital is absorbed.
  3. The balance between higher domestic investment and a lower savings rate is central to assessing the long-term benefit of foreign investment for the UK, affecting economic stability and growth prospects.

Michael Pettis, "Does the UK Benefit From Chinese Investment?,"China Financial Markets, June 5, 2019, https://carnegieendowment.org/chinafinancialmarkets/79261

Ed Comment:Obviously, I couldn't agree more. Shocking what a bunch of nitwits many mainstream economists are on this topic. They haven't rethought it since they read it in textbook in college 30 years ago based on thinking from 30 years before that. We let them damage our economy without giving it a second thought. It's too bad petiis can't see straight on inequality. That people have to earn the money before it can be redistributed and if it's redistributed it may never be earned in the first place."....While foreign investment usually benefits developing economies and creates local economic benefits in advanced economies, it generally does not benefit advanced economies on the whole except in very limited cases. On the contrary, foreign investment in advanced economies is more likely to lead to higher unemployment or rising debt....The idea that a country automatically benefits from foreign investment is based on the assumption that productive investment in any country is always constrained by a shortage of capital. That is why when foreigners promise to invest in a country, it is assumed that this will lead to an increase in productive investment. But like many other widely shared assumptions among economists about what is or isn’t good for the economy, this assumption is too rigid. Foreign capital inflows into any country can lead to an increase in productive investment only under certain circumstances. Under other circumstances, these inflows are more likely to lead to either more unemployment or more debt. What matters are the underlying conditions in a given country and, to a lesser extent, conditions in the country from which the investment originates. In fact, as I will show below, while Chinese investment can cause developing economies to grow faster, it is unlikely systematically to benefit the UK or other advanced economies. This extremely unintuitive conclusion seems to fly in the face of many years of policy direction and behavior, but it follows automatically from working logically through the ways in which foreign investment affects recipient countries.The key is to recognize that an assumption that implicitly governs much classical economics—that capital is a scarce resource—while probably true for most of modern economic history is now obsolete, at least for most advanced economies. Because countries like the UK do not suffer from a scarcity of investible capital, the benefits of foreign investment are not nearly what once was believed.... foreign investment inflows, as the obverse of current account outflows, can damage developed economies. Specifically, foreign investment inflows pose two potentially large costs to the UK. First, in the case of foreign direct investment, foreigners may buy British companies to acquire and transfer advanced technology. This may or may not harm British economic growth over the medium term and the long term depending on the specific circumstances, which I probably don’t need to rehash as journalists have discussed this issue quite a bit. The second cost is potentially even greater. Countries that receive net foreign investment inflows, whether direct investment or portfolio investment, by definition will necessarily see either domestic investment rise or domestic savings drop.2 If net foreign capital inflows don’t cause investment to rise in advanced economies like the UK, (and may even cause it to decline if these inflows export consumption demand), they must force down the domestic savings rate. This very important point is almost always misunderstood and so worth repeating. If any country sees an increase in its net foreign investment inflows, there are corresponding changes in three accounting identities which, precisely because they are accounting identities, must occur simultaneously and are simply different ways of saying the same thing: (1) the country’s capital account surplus will rise by the amount of the increase in net foreign investment, (2) its current account deficit will also rise by exactly the same amount, and (3) the excess of domestic investment over domestic savings will rise, again by exactly the same amount. Because the UK is an advanced economy in which investment is unconstrained by scarce capital, the country’s investment level will not rise with an increase in net foreign inflows, in which case its savings must automatically decline, as the gap between the two rises exactly by the amount of the net foreign investment inflow. Economists and policymakers still find it hard to understand how foreign capital inflows can automatically depress domestic savings. But as I have discussed several times before (for example, here, here, and here), there are many ways in which they can do so. These, broadly speaking, always result in either higher unemployment or higher debt, neither of which the UK is likely to see as a good thing.It isn’t a coincidence at all, by the way, that countries with the most open and flexible capital markets and the best financial-market governance (basically the Anglo-Saxon economies) have run permanent or nearly permanent deficits driven by low savings since the 1970s: capital inflows have depressed domestic savings. That is why when analysts argue that their low savings prove that the UK (and similar countries, like the United States) need foreign capital, they have it exactly backwards. If foreign capital does not drive up investment, it must drive down savings. These economies receive the excess savings generated abroad not because they need the money (in which case they would have been driven by rising interest rates) but rather because the excess savings were forced into countries that could best accommodate them (in which case they should drive down interest rates, as they seem to have done). This means that foreign capital inflows into the UK—whether from China, the United States, elsewhere in Europe, or anywhere else—force the UK to accept either rising debt or rising unemployment (or some combination)...."

AI Summary. Chinese foreign direct investment into the US fell about 90%, from $46bn to $5bn, a decline attributed to heightened US scrutiny and regulatory pressure on Chinese investment in technology sectors. State-backed Chinese investors nearly disappeared from the US market, leaving startups that relied on Chinese capital without that funding source.

Rolfe Winkler Wall Street Journal
Date Posted:
Is Database:
Database

Chinese Inbound US FDI Plunging 90% $5B in 2018 Versus $46B In 2016.

Has US scrutiny driven Chinese investment out of American tech?

Core argument: Chinese inbound US foreign direct investment fell 90% from $46bn in 2016 to $5bn in 2018, a decline attributed to heightened US scrutiny and regulatory pressure on Chinese investments, particularly in technology sectors.

Chinese inbound US FDI [Foreign Direct Investment] experienced a dramatic decline, plummeting 90% from $46bn in 2016 to $5bn in 2018. This sharp decrease is attributed to heightened US scrutiny and regulatory pressure on Chinese investments, particularly in technology sectors. The decline was marked by a significant reduction in state-backed Chinese investors, who nearly vanished by the end of 2018. This shift reflects broader geopolitical tensions and a strategic pivot by the US to protect its technological edge. The impact is particularly pronounced in Silicon Valley, where Chinese capital has become increasingly unwelcome, affecting startups reliant on foreign investment. The data underscores a significant realignment in global investment flows, with potential long-term implications for innovation and economic growth in the US tech industry.

Takeaways by Macro Roundup® AI

  1. Chinese inbound US foreign direct investment fell 90% from $46bn in 2016 to $5bn in 2018, a decline attributed to heightened US scrutiny and regulatory pressure on Chinese investments, particularly in technology sectors.
  2. State-backed Chinese investors nearly vanished from US inbound investment by the end of 2018.
  3. Silicon Valley shows the most pronounced effects of the retreat in Chinese capital, affecting startups reliant on foreign investment, with potential long-term implications for US tech innovation and economic growth.

".....After hitting record levels early last year, Chinese funding for U.S. startups slowed beginning in May 2018, according to research firm Rhodium Group. And state-backed Chinese investors all but disappeared by year-end, Rhodium said. Meanwhile,foreign direct investment from China, which includes acquisitions of U.S. companies, plunged 90% to $5 billion in 2018 from $46 billion in 2016....."

Rolfe Winkler, "Chinese Cash Is Suddenly Toxic in Silicon Valley, Following U.S. Pressure,"Wall Street Journal, June 11, 2019, https://www.wsj.com/articles/chinese-cash-is-suddenly-toxic-in-silicon-valley-following-u-s-pressure-campaign-11560263302

Monday, June 17, 2019

AI Summary. Critics note that wealth concentration in the U.S., where the top 10% hold nearly 70% of wealth, is similar to Sweden's 68.6%, even as Nordic countries praised for egalitarianism operate deregulated economies with flexible labor markets. Sweden ranks as the world's third healthiest democracy, and states tolerant of billionaires often rank high in democratic quality and personal freedom.

James Pethokoukis American Enterprise Institute
Date Posted:
Is Database:
Database

@JamesPethokoukis, American Enterprise Institute: Similar wealth concentration figures exist in Sweden (68.6%) as in the US, yet Sweden has deregulated economies & flexible labor markets, contradicting Bernie Sanders’ socialist ideals.

Does wealth concentration undermine democracy?

Core argument: Bernie Sanders cites the top 10% holding nearly 70% of U.S. wealth, yet Sweden's top decile holds a comparable 68.6%.

Bernie Sanders critiques the U.S. for wealth concentration, noting that nearly 70% of wealth is held by the top 10%, yet similar figures exist in Sweden (68.6%). While Sanders praises Nordic countries like Denmark and Sweden for their egalitarianism, these nations are known for deregulated economies and flexible labor markets, contradicting his socialist ideals. The U.S. surpasses Sweden in entrepreneur billionaires per capita, highlighting a culture of wealth creation through innovation rather than inheritance. Despite Sanders' warnings of oligarchy, Sweden ranks as the world's third healthiest democracy, challenging his narrative. The rise of billionaires is often seen as a sign of economic health, with billionaire-tolerant states frequently ranking high in democratic quality and personal freedom.

Takeaways by Macro Roundup® AI

  1. Bernie Sanders cites the top 10% holding nearly 70% of U.S. wealth, yet Sweden's top decile holds a comparable 68.6%.
  2. The Nordic countries Sanders praises, including Denmark and Sweden, are known for deregulated economies and flexible labor markets, at odds with his socialist prescriptions.
  3. The United States exceeds Sweden in entrepreneur billionaires per capita, while Sweden ranks as the world's third healthiest democracy, and billionaire-tolerant states frequently rank high in democratic quality and personal freedom.

"...If I were to tell you that in the United States a) nearly 70% of the total wealth is owned by the top 10% of the population and b) only a handful of countries — mostly tiny boutique economies such as Liechtenstein and Hong Kong — had more billionaires per person, you might think I cribbed the info from Bernie Sanders’ big speech Wednesday on democratic socialism. During that address, the Democratic presidential candidate warned of the “growing movement towards oligarchy and authoritarianism in which a small number of incredibly wealthy and powerful billionaires own and control a significant part of the economy and exert enormous influence over the political life of our country.” So America is getting it wrong, big time, according to Sanders. And he’s arguing it’ll take a democratic socialist president to turn things around in a country that has for too long allowed capitalism to run wild over the poor and middle class. Is there a model for a country that’s doing it better? Sanders thinks there is. Back in April, Sanders told a Burlington, Iowa audience that while Soviet-syle socialism was “not my thing,” he did think that countries like Denmark and Sweden do very well.” (Side note: By all means, let’s not be too judgy about the USSR.) Ah yes, the Nordic miracle, the egalitarian paradise powered by Sanders-style socialism. But just how egalitarian? Just how socialist?Admission: I’ve been a bit tricksy here. Those wealth inequality numbers from above are for Sweden, not the United States. In oligarchic America, the top 10% wealth inequality is only a bit higher (74.6% vs. 68.6%), while billionaires per capita (and millionaires, too, for that matter) is lower. What’s more, America’s superich tend to get that way via entrepreneurship — starting companies that produced goods and services that the rest of society greatly values — rather than inheritance, unlike Sweden. Indeed, no large economy has produced as many entrepreneur billionaires per capita as the US...."

James Pethokoukis, "The superficial socialism of Bernie Sanders," American Enterprise Institute, June 14, 2019, https://www.aei.org/economics/the-superficial-socialism-of-bernie-sanders/

The superficial socialism of Bernie Sanders

If I were to tell you that in the United States a) nearly 70% of the total wealth is owned by the top 10% of the population and b) only a handful of countries — mostly tiny boutique economies such as Liechtenstein and Hong Kong — had more billionaires per person, you might think I cribbed the info from Bernie Sanders’ big speech Wednesday on democratic socialism. During that address, the Democratic presidential candidate warned of the “growing movement towards oligarchy and authoritarianism in which a small number of incredibly wealthy and powerful billionaires own and control a significant part of the economy and exert enormous influence over the political life of our country.”

So America is getting it wrong, big time, according to Sanders. And he’s arguing it’ll take a democratic socialist president to turn things around in a country that has for too long allowed capitalism to run wild over the poor and middle class. Is there a model for a country that’s doing it better? Sanders thinks there is. Back in April, Sanders told a Burlington, Iowa audience that while Soviet-syle socialism was “not my thing,” he did think that countries like Denmark and Sweden do very well.” (Side note: By all means, let’s not be too judgy about the USSR.)

Ah yes, the Nordic miracle, the egalitarian paradise powered by Sanders-style socialism. But just how egalitarian? Just how socialist? Admission: I’ve been a bit tricksy here. Those wealth inequality numbers from above are for Sweden, not the United States. In oligarchic America, the top 10% wealth inequality is only a bit higher (74.6% vs. 68.6%), while billionaires per capita (and millionaires, too, for that matter) is lower. What’s more, America’s superich tend to get that way via entrepreneurship — starting companies that produced goods and services that the rest of society greatly values — rather than inheritance, unlike Sweden. Indeed, no large economy has produced as many entrepreneur billionaires per capita as the US.

So why doesn’t Sanders view Scandinavia — which he may not realize is known for having efficient, deregulated economies and flexible labor markets — as being on the cusp of wealth inequality-driven authoritarianism. Maybe because the idea is ridiculous. For instance, the Economist Intelligence Unit ranks Sweden as the world’s third healthiest democracy. Moreover, if Sanders can’t use Scandinavia as an example of socialism done right, then he’s left with nothing but theory and bad examples like the Soviet Union and Venezuela.

A 2018 Credit Suisse global wealth report correctly notes that the rise of the superrich“is often seen as a sign of a country’s economic health and its ability to generate opportunities for wealth creation.” Indeed, places crawling with billionaires tend to be great places to live. As Will Wilkinson wrote in a New York Times column earlier this year, “Inspect any credible international ranking of countries by democratic quality, equal treatment under the law, or level of personal freedom. You’ll find the same passel of billionaire-tolerant states again and again.”

But those realities are hardly the only ones that speech — one deserving of many fact-check Pinocchios on a variety of claims from wage stagnation to Big Tech monopoly — failed to deal with. From Yascha Mounk in The Atlantic:

Anybody who has studied the history of Europe — or, for that matter, Latin America — should know that some socialists crafted systems that left virtually no space to private enterprise and crushed the political freedoms of dissenters, while others combined government benefits with a robust market economy and the rule of law. … view, the threat of autocracy comes exclusively from the right. Just as in the 1930s, “America and the world are once again moving towards authoritarianism.” This danger is driven by “right-wing forces of oligarchy, corporatism, nationalism, racism, and xenophobia.” The only answer that will stave off fascism is, you guessed it, “democratic socialism.” Thus Sanders name-checked Adolf Hitler and Benito Mussolini but remained silent about Joseph Stalin and Mao Zedong. And while he rightly decried the autocratic tendencies of Russia’s Vladimir Putin, China’s Xi Jinping, Saudi Arabia’s Mohammed bin Salman, the Philippines’ Rodrigo Duterte, Brazil’s Jair Bolsonaro, and Hungary’s Viktor Orbán, he neglected to mention leftist autocrats such as Venezuela’s Nicolás Maduro, Cuba’s Raúl Castro, Nicaragua’s Daniel Ortega, Zimbabwe’s Emmerson Mnangagwa, or North Korea’s Kim Jung Un.