Edward Conard

Top Ten New York Times Bestselling Author

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


Tuesday, September 17, 2019

AI Summary. Real median US household income rose 2.7% between 1999 and 2018, but adjusting for smaller average household size, median income per household member rose 5.9%. Holding earners fixed, real median income rose 7.6% for one-earner households and 12% for two-earner households, indicating household size and composition shape measured income trends.

Mark Perry American Enterprise Institute
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@MarkPerry Adjusting for household size, US income gains are robust: 1 earner real median income increased 7.6% btw 1999-2018, 2 earners 12%.

Do household size and composition understate US income gains?

Core argument: Real median US household income rose 2.7% between 1999 and 2018, but adjusting for the decline in average household size to 2.52 persons lifts median income per household member to 5.9%.

Between 1999 and 2018, real median household income increased by only 2.7%, but when adjusting for the decline in average household size to 2.52 persons, median income per household member rose by 5.9%. This adjustment highlights more robust income growth than the unadjusted figures suggest. For households with a fixed number of earners, the data is even more positive: one-earner households saw a 7.6% increase in real median income, nearly three times the overall household increase, while two-earner households experienced a 12% rise, more than four times the overall rate. These statistics underscore the importance of considering household size and composition when evaluating income trends, offering a more optimistic view of economic progress for US households.

Takeaways by Macro Roundup® AI

  1. Real median US household income rose 2.7% between 1999 and 2018, but adjusting for the decline in average household size to 2.52 persons lifts median income per household member to 5.9%.
  2. Holding the number of earners fixed, one-earner households saw real median income rise 7.6% between 1999 and 2018, nearly three times the overall household gain, while two-earner households rose 12%, more than four times that rate.
  3. Accounting for household size and composition yields a more optimistic picture of US income growth between 1999 and 2018 than unadjusted median household income figures suggest.

"...Between 1999 and 2018, it’s true that real median household income increased by only 2.7%. But adjusting for the ongoing decline in average household size, which fell to an all-time low last year of 2.52 persons, the increase in median household income per household member increased by 5.9% over that period, or more than twice the increase in unadjusted household income (see bottom chart). One way to overcome the evolving and changing nature and size of US households is to compare the real median household incomes over time for households with a fixed, constant number of earners. For households with one earner, their real median income increased by 7.6% between 1999 and 2018 (nearly 3 times the increase of 2.7% for all households) and the increase for two-earner households over that period was 12% (more than four times the increase for all households), see bottom chart above...."Mark Perry, "Income gains for US households and workers are much more upbeat than what’s being reported by the media," American Enterprise Institute, September 13, 2019, http://www.aei.org/publication/income-gains-for-us-households-and-workers-are-much-more-upbeat-than-whats-being-reported-in-the-media/

AI Summary. Fannie Mae and Freddie Mac, the US government-backed mortgage-guarantee firms, hold more than $5tn in housing-related securities and guarantees, close to half the total market, up from less than 10% of single-family mortgages decades earlier. That growth reflects an expanding government footprint in American housing finance.

Economist Staff The Economist
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Fannie and Freddie now hold nearly half of the US housing market, with over $5tn in securities and guarantees, reflecting the increasing scale of government support for American housing.

How large has the government footprint in housing finance grown?

Core argument: Fannie Mae and Freddie Mac hold more than $5tn in housing-related securities and guarantees, accounting for nearly half of the total U.S. market.

In the 1970s, Fannie Mae and Freddie Mac held less than 10% of single-family mortgages in the U.S., but their influence has grown significantly over time. Currently, they hold more than $5tn in housing-related securities and guarantees, accounting for nearly half of the total market. This expansion reflects the increasing scale of government support for the American housing market. The shift underscores the critical role these entities play in the financial system, necessitating reforms to ensure stability and efficiency. As Steven Mnuchin initiates reforms, understanding the macroeconomic implications of such a large government footprint in housing is essential for policymakers and economists. The evolution of Fannie and Freddie's market share highlights the broader trend of government intervention in housing finance, which has significant implications for economic stability and policy development.

Takeaways by Macro Roundup® AI

  1. Fannie Mae and Freddie Mac hold more than $5tn in housing-related securities and guarantees, accounting for nearly half of the total U.S. market.
  2. In the 1970s, Fannie Mae and Freddie Mac held less than 10% of U.S. single-family mortgages, a share that has grown substantially since.
  3. Steven Mnuchin has begun reforming Fannie Mae and Freddie Mac, whose expansion reflects the increasing scale of government support for the American housing market.

“…In the run-up to the financial crisis, that transfer started to balloon. In the 1970s Fannie and Freddie held less than 10% of single-family mortgages in America. Now they hold more than $5trn of housing-related securities and guarantees,nearly half the total(see chart)….”

Economist Staff, "Steven Mnuchin begins reforming America’s giant mortgage-guarantee firms,"The Economist, September 12, 2019, https://www.economist.com/finance-and-economics/2019/09/12/steven-mnuchin-begins-reforming-americas-giant-mortgage-guarantee-firms

AI Summary. In a study where undergraduates viewed photos of 50 CEOs from the largest US companies, students were able to identify the leaders of the most profitable firms based on appearance alone. The authors argue this suggests people with certain looks are more likely to be promoted rather than being more competent.

Economist Staff The Economist
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Research shows appearance significantly impacts perceptions of ability, influencing career advancement. Students can identify Fortune 1000 CEOs based on looks alone. This bias affects leadership selection & company performance.

Does appearance influence who gets promoted to top corporate leadership?

Core argument: Undergraduates shown photos of 50 Fortune 1000 CEOs identified the leaders of the most profitable companies from appearance alone.

Research indicates that appearance significantly impacts perceptions of ability, influencing career advancement. A study involving undergraduates who viewed photos of 50 Fortune 1000 CEOs found that students could identify leaders of the most profitable companies based on looks alone. This suggests that individuals with certain appearances are more likely to be promoted, rather than being inherently more competent. The implications for businesses are profound, as this bias could affect leadership selection and company performance. Understanding this dynamic is crucial for policymakers and economists aiming to foster merit-based advancement and reduce appearance-driven biases in the workplace.

Takeaways by Macro Roundup® AI

  1. Undergraduates shown photos of 50 Fortune 1000 CEOs identified the leaders of the most profitable companies from appearance alone.
  2. Research indicates that appearance shapes perceptions of ability, suggesting people with certain looks are more likely to be promoted rather than being inherently more competent.

"...One possibility is an evolved respect for those with a higher social position. This is not just about clothes or possessions. A further piece of research cited by the authors involved undergraduates who were shown photos of 50 chief executives from the Fortune 1000 list of big firms. Half of these bosses were from the most profitable groups and half from the least profitable. The undergraduates were asked to judge, on looks alone, which executives had qualities such as competence and dominance. Remarkably, the students tended to pick out those executives who led the most successful companies. It is hard to disentangle cause and effect. But it seems more probable that people with a certain type of appearance are likely to get promoted than it is to believe they are innately more competent than everyone else...."

Economist Staff, "The eyes have it,"The Economist, September 12, 2019, https://www.economist.com/business/2019/09/12/the-eyes-have-it

AI Summary. Japan's decades of low interest rates pushed Japanese investors to seek higher returns abroad, making Japan the world's largest creditor nation with net foreign assets above $3tn. That outflow of Japanese capital into European and US markets is argued to have helped spread low bond yields globally.

Economist Staff The Economist
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Japan’s international investment position has evolved significantly over time, with its rock-bottom bond yields influencing global financial markets. By 2019, Japan had become the world’s largest creditor nation, with net foreign assets exceeding $3tn.

Did Japanese capital outflows help spread low bond yields worldwide?

Core argument: Japan became the world's largest creditor nation by 2019, with net foreign assets exceeding $3tn, after decades of low domestic interest rates pushed Japanese investors to seek higher returns abroad.

Japan's international investment position has evolved significantly over time, with its rock-bottom bond yields influencing global financial markets. In the 1990s, Japan's economic stagnation led to a prolonged period of low interest rates, which in turn caused Japanese investors to seek higher returns abroad, increasing their foreign asset holdings. By 2019, Japan had become the world's largest creditor nation, with net foreign assets exceeding $3tn. This shift in investment strategy contributed to the global spread of low bond yields as Japanese capital flowed into foreign markets, driving down yields in Europe and the US. The Bank of Japan's aggressive monetary policy, including negative interest rates and quantitative easing, further reinforced this trend, prompting other central banks to adopt similar measures. Consequently, Japan's international investment position has not only reshaped its own economy but also exerted a profound influence on global financial dynamics.

Takeaways by Macro Roundup® AI

  1. Japan became the world's largest creditor nation by 2019, with net foreign assets exceeding $3tn, after decades of low domestic interest rates pushed Japanese investors to seek higher returns abroad.
  2. Japanese capital flowing into foreign markets contributed to the global spread of low bond yields, driving down yields in Europe and the US.
  3. The Bank of Japan's negative interest rates and quantitative easing reinforced the trend toward low yields and prompted other central banks to adopt similar measures.

How rock-bottom bond yields spread from Japan to the rest of the world: Extended Excerpt Image 1


Economist Staff, "How rock-bottom bond yields spread from Japan to the rest of the world,"The Economist, September 14, 2019, https://www.economist.com/finance-and-economics/2019/09/14/how-rock-bottom-bond-yields-spread-from-japan-to-the-rest-of-the-world

AI Summary. Yale's endowment grew from $1.3bn to $29.4bn under a strategy known as the "Yale Model," which diversified into alternative assets such as private equity, hedge funds, and real estate, exceeding 60% of the portfolio. The endowment averaged 12.4% annual returns over three decades, outperforming traditional stock and bond portfolios.

Drake Bennett Bloomberg Businessweek
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Yale endowment under Swensen: $1.3bn to $29.4bn (1985-2019), averaging 12.4% annual returns. Alternative assets >60% of portfolio by 2019, pioneering shift from traditional stock/bond mix

Can heavy diversification into alternative assets outperform traditional stock and bond portfolios?

Core argument: Yale's endowment delivered an average annual return of 12.4% over three decades under David Swensen, outperforming traditional stock and bond portfolios and growing from $1.3bn in 1985 to $29.4bn in 2019.

Under David Swensen's leadership, Yale's endowment grew from $1.3bn in 1985 to $29.4bn in 2019, reflecting a strategic shift in asset allocation. Swensen pioneered the "Yale Model," emphasizing diversification into alternative assets like private equity, hedge funds, and real estate, which constituted over 60% of the portfolio by 2019. This approach yielded an average annual return of 12.4% over three decades, significantly outperforming traditional stock and bond portfolios. The endowment's success not only bolstered Yale's financial stability but also influenced other institutions to adopt similar strategies, reshaping the landscape of institutional investing. The model's focus on long-term growth and risk management has been pivotal in sustaining Yale's academic and research initiatives, demonstrating the profound impact of innovative investment strategies on educational endowments.

Takeaways by Macro Roundup® AI

  1. Yale's endowment delivered an average annual return of 12.4% over three decades under David Swensen, outperforming traditional stock and bond portfolios and growing from $1.3bn in 1985 to $29.4bn in 2019.
  2. Swensen's "Yale Model" shifted the endowment toward alternative assets including private equity, hedge funds, and real estate, which made up over 60% of the portfolio by 2019.
  3. Yale's endowment success influenced other institutions to adopt similar strategies and helped sustain the university's academic and research initiatives.

How David Swensen Made Yale Fabulously Rich: Extended Excerpt Image 1


Drake Bennett, Janet Lorin and Michael McDonald, "How David Swensen Made Yale Fabulously Rich,"Bloomberg Businessweek,September 11, 2019, https://www.bloomberg.com/news/features/2019-09-11/david-swensen-made-yale-fabulously-rich-and-changed-endowments

Monday, September 23, 2019

AI Summary. Internal U.S. migration has declined, including moves for new jobs, and migration toward richer, more productive areas has virtually ceased while poorer regions no longer catch up economically. The authors argue high housing costs in productive areas now outweigh wage gains for lower-income workers, though not for high earners.

Daniel Shoag Brookings Institution
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Internal US migration has significantly decreased, with a notable decline in people moving for new jobs. This trend is not due to demographics but rather a breakdown in traditional migration patterns, as shown by @DanielShoag.

Do high housing costs stop lower-income workers from moving to productive places?

Core argument: Internal U.S. migration has fallen sharply, with moves for new jobs declining, a shift Ganong and Shoag (2017) attribute not to demographics but to a breakdown in traditional migration patterns.

Internal U.S. migration has significantly decreased, with a notable decline in people moving for new jobs. This trend is not due to demographics but rather a breakdown in traditional migration patterns, as shown by Ganong and Shoag (2017). Migration to richer, more productive areas has virtually ceased, and poorer regions are no longer catching up economically. In 1960, both lawyers and janitors benefited from moving to high-wage areas like New York, but today, only lawyers see net wage gains after housing costs. The high cost of living in productive areas now outweighs wage benefits for lower-income workers, highlighting the need to remove barriers to accessing these regions.

Takeaways by Macro Roundup® AI

  1. Internal U.S. migration has fallen sharply, with moves for new jobs declining, a shift Ganong and Shoag (2017) attribute not to demographics but to a breakdown in traditional migration patterns.
  2. Migration toward richer, more productive U.S. areas has virtually stopped, and poorer regions are no longer catching up economically.
  3. In 1960 both lawyers and janitors gained from moving to high-wage areas like New York, but today only lawyers see net wage gains after housing costs, as living costs in productive areas outweigh wage benefits for lower-income workers.

as requested looked at the Shoag paper you fwd for data on the migration patterns of native born middle class (note Shoag was co-author of the NEBR paper that showed income across states converge @ ~ 2% a year until 1990, this is based off of that, no new data)

"...Molloy, Smith, and Wozniak (2014), as well as Kaplan and Schulhofer-Wohl (2017), showed that internal U.S. migration has decreased significantly. They further showed that this decline cannot be explained by demographics, and that the largest component was a decline in the number of people moving for new jobs. Dao, Furceri, and Loungani (2017) demonstrated that mobility is less responsive to labor demand conditions than it was in the past. Ganong and Shoag (2017) also show that migration to the richer, more productive parts of the country has virtually ceased. Poor places are no longer catching up to rich ones, and people are no longer moving from poor places to rich ones. The traditional ways in which American society has ameliorated large gaps between places have broken down...In 1960 it made sense for both lawyers and janitors to move from the Deep South to the New York area, because both groups earned significantly higher wages even adjusting for housing costs (Ganong and Shoag 2017). Today, even though both groups earn higher wages in the New York metropolitan area, it no longer makes sense for janitors to move. Lawyers still earn more net of housing costs in the New York area, but the enormous housing costs mean that janitors’ wages net of housing costs are actually lower in the New York area than they are in the Deep South..."

However note that finding was based on PUMA's while it's granular it doesn't adjust for commuting from say the outer boroughs to Manhattan. You found it unconvincing

Daniel Shoag, "Removing Barriers to Accessing High-Productivity Places," Brookings Institution, January 31, 2019, https://www.hamiltonproject.org/papers/removing_barriers_to_accessing_high_productivity_places

AI Summary. An analysis of Earned Income Tax Credit expansions finds minimal effect on whether people work, attributing employment gains among single mothers mainly to welfare reform's work requirements and benefit time limits and a strong economy. The authors argue the credit's complexity and low awareness among potential recipients limit its power to raise labor supply.

Henrik Kleven National Bureau of Economic Research
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Analysis by @HenrikKleven reveals welfare reform, not EITC, drove significant employment gains for single mothers in the 1990s, with the EITC’s complex structure limiting its effectiveness in boosting labor supply.

Does the Earned Income Tax Credit increase whether people work?

Core argument: EITC reforms had minimal impact on labor supply at the extensive margin, with employment increases among single mothers driven primarily by welfare reform and a strong economy, according to the analysis.

Analysis of EITC [Earned Income Tax Credit] reforms reveals minimal impact on labor supply at the extensive margin, with significant employment increases for single mothers primarily driven by welfare reform and a robust economy. The 1993 EITC expansion coincided with welfare reform, which imposed work requirements and time limits on benefits, leading to increased employment among single mothers. Despite the EITC's role in poverty reduction, its complex structure and lack of awareness among potential recipients limit its effectiveness in boosting labor supply. Welfare reform's straightforward and widely publicized changes contrast with the EITC's intricate tax incentives, underscoring welfare reform's pivotal role in employment gains. The EITC remains a non-distortionary transfer to the working poor, but its employment effects are overstated, highlighting the need for policies that prioritize clear incentives and information dissemination.

Takeaways by Macro Roundup® AI

  1. EITC reforms had minimal impact on labor supply at the extensive margin, with employment increases among single mothers driven primarily by welfare reform and a strong economy, according to the analysis.
  2. The 1993 EITC expansion coincided with welfare reform's work requirements and time limits on benefits, changes the analysis credits with raising employment among single mothers.
  3. The EITC's complex structure and limited awareness among potential recipients constrain its effect on labor supply, though it remains a non-distortionary transfer to the working poor that reduces poverty.

Kleven paper on EITC. Though Scott Winship's thoughts on it were worth noting, "... I’ve come around on EITC employment effects being relatively small. I STILL think it plays a big role in poverty reduction, since it compensates for expenses single moms incur when they choose work instead of welfare. But yeah, needed welfare reform first & foremost..."

"....In this paper I have analyzed every EITC reform at the state and federal level within one modern empirical framework. From this comprehensive and long-run perspective, the EITC has not had any clear effects on labor supply at the extensive margin. Apart from the expansion enacted in 1993, EITC reforms are not associated with increases in the employment of single mothers relative to single women without children. The 1993 reform, on the other hand, is associated with very large employment increases, but these increases align closely with the confounding effects of welfare reform and a booming macroeconomy. Exploiting variation in these confounders across household type, space and time, I have shown that the effects are driven exactly by those affected most strongly by welfare reform and the business cycle. A stacked event study of all EITC reforms, controlling for welfare reform and the business cycle, produces a precisely estimated zero. There are two interpretations of this null result. One is that the extensive margin elasticity with respect to taxes is small, and perhaps especially the elasticity with respect to a highly nonlinear tax refund like the EITC. The other is that, even if the elasticity is not zero in general, the informational and psychological frictions specific to the EITC have reduced its impact. These frictions may be related to the complex nonlinear schedule or to the procedures for filing taxes and claiming the credit. As reviewed above, a number of studies have documented that most potential recipients are either unaware of the EITC or have a limited understanding of the schedule and eligibility requirements. Given these frictions, the EITC is not an a priori likely candidate for finding large labor supply impacts. While these frictions are widely acknowledged in the literature, they have been used mainly to explain the absence of intensive margin responses. The reasoning seems to be that extensive margin responses can be based solely on knowing about the existence of a tax refund without understanding the specifics of the schedule and eligibility rules. Even ignoring the fact that many potential recipients are unaware of the EITC, this argument is surprising. Economic theory predicts that intensive and extensive margin decisions are interdependent, and this interdependence is particularly strong for nonlinear incentives....The EITC is an incentive to enter the labor market around the refund-maximizing earnings range, which is relatively narrow and vary by family size. Without precise information about the location of the refund-maximizing earnings range and the size of the credit in that range, the extensive margin response is not very credible. By contrast, welfare reform is not subject to these concerns about salience and information. The debate about welfare reform and welfare culture was extremely prominent in the nineties, as exemplified by Bill Clinton’s famous campaign pledge to “end welfare as we know it.” State waivers and national TANF reform imposed drastic changes on existing program participants, so information was essentially automatic. What is more, the changes to welfare were mechanical and brute-force. They included lifetime limits on welfare receipt (down to two years in a number of states), work requirements, community service and training. Those who did not satisfy these requirements were kicked off the welfare rolls. These initiatives stand in sharp contrast to the complex tax refund incentives introduced by the relatively unknown EITC program. These findings do not necessarily imply that the EITC is a bad policy. Absent labor supply responses at either the extensive or intensive margins, the EITC is a non-distortionary transfer to the working poor.The optimality of such a transfer depends on the social welfare function and on who pays for it. For example, if the EITC is financed by a lump-sum tax on all individuals and if the government puts a larger weight on the working poor than on the average individual, then the policy is socially optimal. This is the reasoning underlying the results in Saez (2002).Conversely, if transfers to the working poor are financed by reducing welfare benefits to the poor, then the equity effect is negative under standard social preferences. In this case, the desirability of the EITC requires social preferences that put more weight on the working poor than on the non-working poor, even if the latter are worse off. Leaving aside these optimal tax considerations, the political argument for the EITC has relied heavily on its supposed employment effects. The empirical findings presented here do not lend support to this argument..."

Henrik Kleven, "The EITC and the Extensive Margin: A Reappraisal," National Bureau of Economic Research, September 2019, https://www.henrikkleven.com/uploads/3/7/3/1/37310663/kleven_eitc_sep2019.pdf

AI Summary. Global trade imbalances are driven by large surpluses in Europe and East Asia, with the U.S. absorbing them through a trade deficit roughly equal to those regions' combined current account surpluses. Global trade balance requires a sizable U.S. deficit as long as China, the euro area, and Japan run surpluses.

Brad Setser Council on Foreign Relations
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Global trade imbalances are driven by significant surpluses in Europe & East Asia, with the U.S. absorbing much of these surpluses. A large U.S. deficit is necessary for global trade to balance. @Brad_Setser

Does the US trade deficit reflect surpluses in Europe and East Asia?

Core argument: The U.S. trade deficit in manufactures is roughly equal to the combined current account surpluses of Europe and East Asia, which the U.S. absorbs through its deficit.

Global trade imbalances are primarily driven by significant surpluses in Europe and East Asia, with the U.S. absorbing much of these surpluses through its trade deficit. The U.S. trade deficit in manufactures is roughly equal to the combined current account surpluses of Europe and East Asia. While the U.S. runs a modest surplus on intellectual property trade and offshore investments, its total current account deficit remains below the combined surplus of these regions. For global trade to balance, a significant U.S. deficit is necessary, as China, the euro area, and Japan maintain substantial surpluses. This imbalance suggests that global trade imbalances could worsen before improving, as the structural need for a large U.S. deficit persists in the current economic landscape.

Takeaways by Macro Roundup® AI

  1. The U.S. trade deficit in manufactures is roughly equal to the combined current account surpluses of Europe and East Asia, which the U.S. absorbs through its deficit.
  2. The U.S. runs a modest surplus on intellectual property trade and offshore investments, leaving its total current account deficit below the combined surplus of Europe and East Asia.
  3. Global trade imbalances could worsen before improving, since balancing global trade requires a significant U.S. deficit while China, the euro area, and Japan maintain substantial surpluses.

Good chart, according to Brad East Asia's regional savings rate is 40%, in a low interest rate world.

Why Global Trade Imbalances Could Get Worse Before They Get Better: Extended Excerpt Image 1

"...As a result, trade imbalances run mostly along an east-west axis these days. Across the Atlantic, where the United States, Canada, and Mexico absorb a portion of Europe’s surplus. And across the Pacific, where the United States, Canada, and Mexico absorb East Asia’s surplus. It is of course too simple to reduce everything to a single number—but in very rough terms, the U.S. trade deficit in manufactures right now just happens to be about equal to the combined current account surpluses of Europe and East Asia....More importantly, looking only at manufacturing leaves out the surplus that the U.S. runs on intellectual property trade (which is fairly modest because of tax considerations) and the surplus the United States runs on its offshore investments (the entire surplus on foreign direct investment income comes from the seven main low tax jurisdictions these days, see Martin Wolf). The United States' total current account deficit is now below the combined surplus of Europe and East Asia—but it's still clearly the case that global trade cannot balance today without a sizable U.S. deficit. If China, the euro area and Japan all have significant surpluses, someone big needs to have a significant deficit for global trade to add up.

Brad Setser, "Why Global Trade Imbalances Could Get Worse Before They Get Better…," Council on Foreign Relations, September 20, 2019, https://www.cfr.org/blog/why-global-trade-imbalances-could-get-worse-they-get-better

AI Summary. Science, technology, engineering, and math graduates aged 23–25 earned an average of $61,744, 37% more than liberal arts peers at $45,032, but the gap narrows with age. By age 40, male social science and history majors averaged $131,154, above the $111,870 average for all male college graduates, aided by management, business, and law roles.

David Deming New York Times
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By age 40, male STEM graduates see salaries double to $124,458, yet liberal arts majors catch up, with social science & history majors surpassing $131,154, aided by roles in management, business & law.

Does the STEM earnings advantage over liberal arts narrow with age?

Core argument: Computer science and engineering majors aged 23–25 earned an average of $61,744 in 2017, 37% more than liberal arts peers at $45,032.

While STEM graduates initially earn more, with computer science and engineering majors aged 23-25 earning an avg of $61,744 in 2017 (37% higher than liberal arts peers at $45,032), the earnings gap narrows over time. By age 40, male STEM graduates see their salaries double to $124,458, yet liberal arts majors, benefiting from skills like problem-solving and adaptability, often catch up. The avg salary for all male college graduates at age 40 is $111,870, with social science and history majors surpassing this at $131,154, aided by roles in management, business, and law. This trend highlights the long-term value of a liberal arts education in diverse career paths, suggesting that initial salary advantages in STEM may diminish as liberal arts graduates leverage their broad skill sets for higher-paying opportunities later in their careers.

Takeaways by Macro Roundup® AI

  1. Computer science and engineering majors aged 23–25 earned an average of $61,744 in 2017, 37% more than liberal arts peers at $45,032.
  2. By age 40, male STEM graduates' salaries doubled to $124,458, while social science and history majors averaged $131,154, above the $111,870 average for all male college graduates at that age.
  3. Liberal arts majors often close the earnings gap over time, aided by roles in management, business, and law and by skills such as problem-solving and adaptability.

"...although liberal arts majors start slow, they gradually catch up to their peers in STEM fields. This is by design. A liberal arts education fosters valuable “soft skills” like problem-solving, critical thinking and adaptability. Such skills are hard to quantify, and they don’t create clean pathways to high-paying first jobs. But they have long-run value in a wide variety of careers. Computer science and engineering majors between the ages of 23 and 25 who were working full time earned an average of $61,744 in 2017, according to the Census Bureau’s American Community Survey. This was 37 percent higher than the average starting salary of $45,032 earned by people who majored in history or the social sciences (which include economics, political science and sociology). Large differences in starting salary by major held for both men and women. Men majoring in computer science or engineering roughly doubled their starting salaries by age 40, to an average of $124,458. Yet earnings growth is even faster in other majors, and some catch up completely. By age 40, the average salary of all male college graduates was $111,870, and social science and history majors earned $131,154 — an average that is lifted, in part, by high-paying jobs in management, business and law...."
David Deming, "In the Salary Race, Engineers Sprint but English Majors Endure,"New York Times, September 20, 2019, https://www.nytimes.com/2019/09/20/business/liberal-arts-stem-salaries.html