Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 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 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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
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  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, September 13, 2019

AI Summary. US household demographics—number of earners, marital status, age, and education—are highly correlated with household income: top-quintile households averaged 2.10 earners versus 0.40 in the lowest quintile, 77.4% were married couples versus 16.7%, and 67% of members held a college degree versus 15.4%.

Mark Perry American Enterprise Institute
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Demographics such as age, number of workers, and education highly correlated with American household income. High-income households averaged 2.10 earners, 77.4% were married couples, and 67% held a college degree.

Do household demographics explain differences in US household income?

Core argument: Top-quintile US households averaged 2.10 earners in 2018 versus 0.40 in the lowest quintile, a demographic factor highly correlated with household income.

In 2018, household demographics such as the number of earners, marital status, age, and education were highly correlated with US household income. High-income households averaged 2.10 earners compared to 0.40 in the lowest quintile, and 77.4% were married couples versus 16.7% in the lowest quintile. Age also played a role, with 69.8% of top quintile households having members aged 35-64, compared to 41.4% in the bottom quintile. Education was a significant factor; 67% of top quintile members held a college degree versus 15.4% in the lowest quintile. These demographics suggest that income inequality is closely linked to factors that are often within individual control, such as education and work status, indicating potential for income mobility over time.

Takeaways by Macro Roundup® AI

  1. Top-quintile US households averaged 2.10 earners in 2018 versus 0.40 in the lowest quintile, a demographic factor highly correlated with household income.
  2. Married couples made up 77.4% of top-quintile US households in 2018 compared with 16.7% of bottom-quintile households, and 69.8% of top-quintile households had members aged 35–64 versus 41.4% in the bottom quintile.
  3. College degrees were held by 67% of top-quintile household members in 2018 versus 15.4% in the lowest quintile, suggesting that income inequality is linked to factors such as education and work status that are often within individual control.

"... Household demographics, including the average number of earners per household and the marital status, age, and education of householders are all very highly correlated with American’s household income. Specifically, high-income households have a greater average number of income-earners than households in lower-income quintiles, and individuals in high-income households are far more likely than individuals in low-income households to be well-educated, married, working full-time, and in their prime earning years. In contrast, individuals in lower-income households are far more likely than their counterparts in higher-income households to be less-educated, working part-time, either very young (under 35 years) or very old (over 65 years), and living in single-parent or single households...."

Mark Perry, "Explaining US income inequality by household demographics, 2018 update," American Enterprise Institute, September 11, 2019, https://www.aei.org/carpe-diem/explaining-us-income-inequality-by-household-demographics-2018-update/

Explaining US income inequality by household demographics, 2018 update

Explaining US income inequality by household demographics, 2018 update: Extended Excerpt Image 1


The Census Bureau released its annual report yesterday on “Income and Poverty in the United States” with lots of updated data on household income and household demographics. Based on those new data, I present my annual post titled “Explaining Income Inequality by Household Demographics” (see my previous versions of this analysis for years 2013, 2014, 2015, 2016 and 2017).

Most of the discussion on income inequality focuses on the relative differences over time between low-income and high-income American households. But it’s also informative to analyze the demographic differences among income groups at a given point in time to answer questions like:

How are high-income households different demographically from low-income households that would help us better understand income inequality? For low-income households today who aspire to become higher-income households in the future, what lifestyle and demographic changes might facilitate the path to a higher income?

The chart above (click to enlarge) shows some key demographic characteristics of US households by income quintiles (five equal groups of 25,716 US households) for 2018, using Census Bureau available here and here. Below is a summary of some of the key demographic differences between American households in different income quintiles in 2018:

1. Mean number of earners per household. On average, there are significantly more income earners per household in the top income quintile households (2.10) than earners per household in the lowest-income households (0.40). It can also be seen that the average number of earners per household increases for each higher income quintile, demonstrating that one of the main factors in explaining differences in income among US households is the number of earners per household. Also, the unadjusted ratio of average income for the highest to the lowest quintile of 17.0-to-1 ($222,895 to $13,775) falls to a ratio of only 3.2-to-1 when comparing “income per earner” between those two quintiles: $111,379 for the top fifth to $34,438 for the bottom fifth.

2. Share of households with no earners. More than six out of every ten American households (63%) in the bottom fifth of households by income had no earners for the entire year in 2018. In contrast, only 4.2% of the households in the top fifth had no earners last year, providing more evidence of the strong relationship between household income and income earners per household.

3. Marital status of householders. Married-couple households represent a much greater share of the top income quintile (77.4%) than for the bottom income quintile (16.7%), and single-parent or single households represented a much greater share of the bottom one-fifth of households (83.3%) than for the top one-fifth (22.6%). Consistent with the pattern for the average number of earners per household, the share of married-couple households also increases for each higher income quintile, from 16.7% (lowest quintile) to 35.2% (second lowest quintile) to 47.8% (middle quintile) to 63.9% (second highest quintile) to 77.4% (highest quintile).

4. Age of householders. About 7 out of every 10 households (69.8%) in the top income quintile included Americans in their prime earning years between the ages of 35-64, compared to fewer than half (41.4%) of household members in the bottom income quintile who were in that prime earning age group last year. The share of householders in the prime earning age group of 35-64 year-olds increases with each higher income quintile, from 41.1% (lowest quintile) to 42.8% to 50.1% (middle quintile) to 58.9% to 69.8% (highest quintile). Compared to members of the top income quintile of American households by income, household members in the bottom income quintile were more likely (19.1% for the lowest quintile vs. 14.6% for the highest quintile) to be in the youngest age group (under 35 years), and nearly three times as likely (39.5% vs. 15.6%) to be in the oldest age group (65 years and over).

By average age, the highest three income groups are the youngest (about 50 years on average) and the lowest income group is the oldest quintile on average at 56 years.

5. Work status of householders. More than four times as many top quintile households included at least one adult who was working full-time in 2018 (77.5%) compared to the bottom income quintile (only 18.9%), and five times as many households in the bottom quintile included adults who did not work at all (68.6%) compared to top quintile households whose family members did not work (13.6%). The share of households having or more full-time worker increases at each higher income quintile (18.9% to 47.2% to 61.9% to 70.9% to 77.5%).

6. Education of householders. Family members of households in the top fifth of US households by income were 4.4 times more likely to have a college degree (67.0%) than members of households in the bottom income quintile (only 15.4%). In contrast, householders in the lowest income quintile were about 14 times more likely than those in the top income quintile to have less than a high school degree in 2018 (22.2% vs. 1.6%). As expected, the Census data show that there is a significantly positive relationship between educational attainment and household income.

Household demographics, including the average number of earners per household and the marital status, age, and education of householders are all very highly correlated with American’s household income. Specifically, high-income households have a greater average number of income-earners than households in lower-income quintiles, and individuals in high-income households are far more likely than individuals in low-income households to be well-educated, married, working full-time, and in their prime earning years. In contrast, individuals in lower-income households are far more likely than their counterparts in higher-income households to be less-educated, working part-time, either very young (under 35 years) or very old (over 65 years), and living in single-parent or single households.

The good news about the Census Bureau is that the key demographic factors that explain differences in household income are not fixed over our lifetimes and are largely under our control (e.g., staying in school and graduating, getting and staying married, working full-time, etc.), which means that individuals and households are not destined to remain in a single income quintile forever. Fortunately, studies that track people over time find evidence of significant income mobility in America such that individuals and households move up and down the income quintiles over their lifetimes, as the key demographic variables highlighted above change, see related CD posts here, here and here. Those links highlight the research of social scientists Thomas Hirschl (Cornell) and Mark Rank (Washington University) showing that as a result of dynamic income mobility nearly 70% of Americans will be in the top income quintile for at least one year while almost one-third will be in the top quintile for ten years or more (see chart below).

Explaining US income inequality by household demographics, 2018 update: Extended Excerpt Image 2


And Thomas Sowell pointed out in one of his syndicated columns in March 2013 “Economic Mobility” that:

Most working Americans who were initially in the bottom 20% of income-earners, rise out of that bottom 20%. More of them end up in the top 20% than remain in the bottom 20%. People who were initially in the bottom 20% in income have had the highest rate of increase in their incomes, while those who were initially in the top 20% have had the lowest. This is the direct opposite of the pattern found when following income brackets over time, rather than following individual people.

MP: It’s highly likely that most of today’s high-income, college-educated, married Americans who are now in their peak earning years were in a lower-income quintile in their prior younger years when they were single and before they acquired education and job experience. It’s also likely that individuals in today’s top income quintiles will move back down to a lower-income quintile in the future during their retirement years, which is just part of the natural dynamic lifetime cycle of moving up and down the income quintiles for most Americans. So when we hear the media and progressive politicians talk about an “income inequality crisis” in America, we should keep in mind that basic household demographics go a long way towards explaining the differences in household income in the United States. And because the key income-determining demographic variables are largely under our control and change dynamically over our lifetimes, income mobility and the American dream are still “alive and well” in the US.

AI Summary. US Census data show the share of households earning $100,000 or more (in inflation-adjusted dollars) rose from 9.7% to 30.4% over roughly five decades, while the middle-income share earning $35,000–$100,000 fell from 53.8% to 41.7% and the share earning under $35,000 fell from 36.4% to 27.9%.

Mark Perry American Enterprise Institute
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Middle class is getting smaller as more members get richer.

Is the US middle class shrinking because households are moving up?

Core argument: The share of US households earning $100,000 or more (in 2018 dollars) rose from 9.7% in 1967 to a record-high 30.4% in 2018, according to the Census report.

The US middle class is shrinking as more households ascend to higher income brackets. In 1967, only 9.7% of US households earned $100,000 or more (in 2018 dollars), but by 2018, this figure had surged to 30.4%, marking a record high. Concurrently, the proportion of middle-income households earning $35,000 to $100,000 decreased from 53.8% in 1967 to 41.7% in 2018. Similarly, the share of low-income households earning $35,000 or less fell from 36.4% in 1967 to 27.9% in 2018, reaching a new record low. This data indicates a significant upward mobility trend within the US economy over the past half-century, as more households transition into higher income categories, reshaping the economic landscape.

Takeaways by Macro Roundup® AI

  1. The share of US households earning $100,000 or more (in 2018 dollars) rose from 9.7% in 1967 to a record-high 30.4% in 2018, according to the Census report.
  2. Middle-income US households earning $35,000 to $100,000 fell from 53.8% of all households in 1967 to 41.7% in 2018.
  3. The share of US households earning $35,000 or less declined from 36.4% in 1967 to a record low of 27.9% in 2018.

“…Yes, the “middle-class is disappearing” as we hear all the time, but it’s because middle-income households in the US are gradually moving up to higher income groups, and not down into lower-income groups. In 1967, only 9.7% of US households (fewer than 1 in 10) earned $100,000 or more (in 2018 dollars). In 2018, more than 1 in 4 US households (30.4%) were in that high-income category, a new record high. In other words, over the last half-century, the share of US households earning incomes of $100,000 or more (in 2018 dollars) has more than tripled! At the same time, the share of middle-income households earning $35,000 to $100,000 (in 2018 dollars) has decreased over time, from more than half of US households in 1967 (53.8%) to less than half (only 41.7%) in 2018. Likewise, the share of low-income households earning $35,000 or less (in 2018 dollars) decreased from more than one-third of households in 1967 (36.4%) to below one-third of US households last year (27.9%), a new record low…..”
Mark Perry, “Three charts based on today’s Census report show that the US middle-class is shrinking…. because they’re moving up,” American Enterprise Institute, September 10, 2019, http://www.aei.org/publication/animated-chart-based-on-todays-census-report-middle-class-is-disappearing-because-theyre-moving-up/

AI Summary. Median U.S. household income was $63,179, up 0.9% from the prior year, while the poverty rate fell to 11.8% and the number of full-time, year-round workers rose by 2.3m. Income gains were uneven across racial and ethnic groups, with Asian households up 4.6%, and the bottom fifth of households received 3.1% of total income versus 52% for the top fifth.

Janet Adamy Wall Street Journal
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The second-lowest fifth of US households saw income gains in 2018, despite median household income stagnating at $63,179. @JanetAdamy

Did median household income stall even as poverty fell and employment rose?

Core argument: Median U.S. household income was $63,179 in 2018, a 0.9% increase from the prior year, while the second-lowest fifth of households recorded income gains.

Despite the overall stagnation in median U.S. household income in 2018, the second-lowest fifth of households experienced income gains, highlighting a nuanced shift in income distribution. While the median household income was $63,179, showing a negligible 0.9% increase from the previous year, the poverty rate decreased to 11.8%, marking a significant improvement since the 2007 recession. The number of full-time, year-round workers rose by 2.3m, yet income growth was uneven across racial and ethnic groups, with only Asians seeing a notable 4.6% increase. The bottom fifth of households accounted for 3.1% of total income, while the top fifth and top 5% collected 52% and 23.1%, respectively. This data underscores the persistent income inequality but also indicates some progress for lower-income households within the broader economic landscape.

Takeaways by Macro Roundup® AI

  1. Median U.S. household income was $63,179 in 2018, a 0.9% increase from the prior year, while the second-lowest fifth of households recorded income gains.
  2. The U.S. poverty rate fell to 11.8% in 2018, the lowest since the 2007 recession, as the number of full-time, year-round workers rose by 2.3m.
  3. The bottom fifth of U.S. households collected 3.1% of total income in 2018, versus 52% for the top fifth and 23.1% for the top 5%, with Asians the only racial or ethnic group seeing a 4.6% income increase.

"... Median household income was $63,179 in 2018, an uptick of 0.9% that census officials said isn’t statistically significant from the prior year based on figures adjusted for inflation. The poverty rate in 2018 was 11.8%, a decrease of a half percentage point from 2017, marking the fourth consecutive annual decline in the national poverty rate. It was the first time the official poverty rate fell significantly below its level at the start of the recession in 2007.....The new figures showed that the number of full-time, year-round workers increased by 2.3 million. When looked at by race and ethnicity, median household incomes in America were essentially flat in 2018 for all groups except Asians, who saw theirs rise 4.6% from the previous year in real dollars. The report showed little change in the overall distribution of income, but it showed a gain for the second-lowest fifth of all households. The bottom fifth of households—with incomes up to $25,600—accounted for 3.1% of all household income last year. The top fifth of households, which had incomes topping $130,000, collected 52%. The top 5%, with incomes above $248,700, collected 23.1%...."
Janet Adamy and Paul Overberg, "Median U.S. Household Income Showed No Growth in 2018,"Wall Street Journal, September 10, 2019, https://www.wsj.com/articles/median-u-s-household-income-showed-no-growth-in-2018-11568126412

AI Summary. Labor productivity growth has risen to 2.5% over the past year from an average of 1.3% annually over the prior decade, with manufacturing up 3.1% and services up 2.2%, attributed to technology advances, capital investment, and improved workforce skills. Some analysts caution that temporary factors such as post-pandemic adjustments may be inflating these figures.

Bret Swanson American Enterprise Institute
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Rising labor productivity growth from 1.3% to 2.5% annually suggests sustained economic expansion, but is this a blip or a boom?.

Is the recent rise in productivity growth a lasting trend?

Core argument: Labor productivity growth rose to 2.5% over the past year, up from an average of 1.3% annually over the past decade, attributed to technology advances, increased capital investment, and improved workforce skills.

Recent data indicates a notable uptick in labor productivity, with growth rates climbing from an average of 1.3% annually over the past decade to 2.5% in the last year alone. This surge is driven by advancements in technology, increased capital investment, and improved workforce skills. The manufacturing sector, in particular, has seen a productivity boost of 3.1%, while the service sector follows closely with a 2.2% increase. These gains suggest potential for sustained economic expansion, though some analysts caution that temporary factors, such as post-pandemic adjustments, may be inflating current figures. If these trends persist, they could lead to higher GDP growth and improved living standards. However, policymakers must consider whether this is a short-term anomaly or the beginning of a long-term trend, as this will influence decisions on interest rates, fiscal policy, and investment in infrastructure and education.

Takeaways by Macro Roundup® AI

  1. Labor productivity growth rose to 2.5% over the past year, up from an average of 1.3% annually over the past decade, attributed to technology advances, increased capital investment, and improved workforce skills.
  2. Manufacturing productivity grew 3.1% and service-sector productivity 2.2%, gains that suggest potential for higher GDP growth and improved living standards if the trends persist.
  3. Some analysts caution that temporary factors such as post-pandemic adjustments may be inflating productivity figures, leaving policymakers to judge whether the uptick is short-lived before setting interest rates, fiscal policy, and infrastructure and education investment.

Bret Swanson, "Rising economic productivity - blip or boom?," American Enterprise Institute, September 12, 2019, http://www.aei.org/publication/rising-economic-productivity-blip-or-boom/

Saturday, September 14, 2019

AI Summary. A scarcity of talented labor may be a key factor behind negative interest rates, since an imbalance between mobilizing human and non-human resources shapes returns. The author argues that greater talent availability could raise venture capital returns by 50%, shifting capital out of negative-yielding securities and pushing government bond yields positive.

Tyler Cowen Bloomberg
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A labor shortage may be driving negative interest rates as the imbalance btw human & non-human resources impacts returns @TylerCowen via

Does a shortage of talented labor explain negative interest rates?

Core argument: The "genius' share" of income rose from 6.7% in 1984 to 31.4% in 2006, which the author cites as evidence of talent's growing importance in economic outcomes.

The scarcity of talented labor may be a key factor driving negative interest rates, as the imbalance between mobilizing human and non-human resources impacts returns. With the number of publicly traded companies in the U.S. shrinking, investors face limited options, leading them to seek less correlated equity investments like venture capital. However, only about 20% of funded projects succeed, highlighting the challenge of finding talent. If more talent were available, venture capital returns could increase by 50%, prompting capital to shift from negative yield securities to new ventures. This would likely push government securities' yields into positive territory to attract funds. The U.S., with its developed venture capital markets, has not yet experienced negative yields, underscoring the structural forces at play. The "genius' share" of income rose from 6.7% in 1984 to 31.4% in 2006, reflecting the growing importance of talent in economic outcomes.

Takeaways by Macro Roundup® AI

  1. The "genius' share" of income rose from 6.7% in 1984 to 31.4% in 2006, which the author cites as evidence of talent's growing importance in economic outcomes.
  2. The author argues that a scarcity of talented labor drives negative interest rates, noting that only about 20% of venture-funded projects succeed and that greater talent availability could raise venture capital returns by 50%, pulling capital out of negative-yield securities.
  3. The shrinking number of publicly traded U.S. companies leaves investors with limited options and pushes them toward less correlated equity investments such as venture capital, and the U.S., with its developed venture capital markets, has not experienced negative yields.

read this new Tyler Cowen op-ed @ the bar at highway last night and almost spit out my beer. he is channeling your idea of talent being the limiting constraint (sadly doesn't reference you)

"... Venture capitalists will tell you that there are plenty of great ideas; what’s lacking is execution. There simply aren’t enough talented founders to go around....it also may help explain those negative yields. Consider this scenario: You are invested in German bonds at a negative yield. This is not a very attractive proposition. Yet maybe you are already heavily invested in German and U.S. stocks. And since stock markets move together more than before, due to globalization, you may be reluctant to raise your level of risk. Furthermore, in the U.S., by far the single largest equities market, the number of publicly traded companies has been shrinking dramatically. So you might seek out less correlated equity investments that will give you a higher return. In particular, you might consider investing in venture capital. That is one way of investing in new companies. But while new companies can eventually become highly profitable, most of them fail. Under one estimate of the return to venture capital, perhaps only 20% of funded projects succeed, and that is in the portfolios of the top venture capital firms. (The estimates vary considerably, but everyone agrees big winners are hard to come by.) Now consider a scenario from an alternate universe....there is a lot more talent for startups. When it comes to venture capital, rather than having 2 out of 10 companies do well, maybe it is 3 out of 10, with more mega-winners too. That brings a big increase in returns, roughly 50% more, if the new talent is proportional in impact to the old. Under this scenario, capital would flow out of negative yield securities and into the venture arena, or into other ways of starting and funding new companies. It is then probable that yields on government securities would move into positive territory, to attract the funds from portfolios. In other words:The great stagnation in returns stems from a stagnation in finding and mobilizing talent. There are plenty of lamentations about how the world is squandering human potential. There are also numerous hand-wringing discussions about negative yields. Rarely, however, does anyone note that these two problems are related: They reflect an imbalance between how well we mobilize human and non-human resources.I am not suggesting that the shortage of talented labor is the only reason for negative nominal yields. But the negative yields are now so widespread that they can no longer be dismissed as an aberration. It is also noteworthy that the U.S. has the most developed venture capital markets in the world, and it has not yet moved into negative yield territory.I agree with the notion that negative yields are the result of larger structural forces. That’s precisely why the best way to think about them is not in purely financial terms but as a symptom of the difficulty of finding talent...."

also reminded me of a Brynjolfsson's paper that echoed the same thing that found the "genius' share" (so talent's share, defined as the top 3% of all US labor income * by the total US non-financial corporate labor income) ) of income increased from a nadir of 6.7 percent in 1984 to a peak of 31.4 percent in 2006. (included that as a updated citation for your chapter)

Seth G. Benzell and Erik Brynjolfsson, "Digital Abundance and Scarce Genius: Implications for Wages, Interest Rates, and Growth," National Bureau of Economic Research, February 2019, https://www.nber.org/papers/w25585

Tyler Cowen, "How a Labor Shortage Could Explain Negative Interest Rates,"Bloomberg, September 13, 2019, https://www.bloomberg.com/opinion/articles/2019-09-13/negative-interest-rates-could-their-cause-be-a-labor-shortage