Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…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
  • “…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
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, October 11, 2019

AI Summary. Private fixed investment has been weak in the US and Europe, with different drivers: US investment has run below what fundamentals predict, which the authors attribute to weaker competition, rising market concentration, and reduced antitrust enforcement. In Europe, investment tracks profitability, and concentration has been stable or declining amid stronger antitrust regulation.

Robin Dottling Social Science Research Network
Date Posted:
Is Database:
Database

US investment has been lower than predicted by fundamentals since 2000, driven by decreased competition & increased market concentration. Europe’s investment aligns with profitability & Tobin’s Q, except during crisis peaks.

Does weaker competition explain the US investment gap?

Core argument: Private fixed investment in the US and Europe has been weak over the past 20 years, with US investment falling below levels predicted by fundamentals since around 2000, attributed primarily to decreased competition, increased market concentration, and reduced anti-trust enforcement.

Over the past 20 years, private fixed investment in the US and Europe has been weak, with distinct regional drivers. In the US, investment has been lower than predicted by fundamentals since around 2000, primarily due to decreased competition and increased market concentration, alongside reduced anti-trust enforcement. Conversely, in Europe, investment aligns with profitability and Tobin's Q, except during crisis peaks in countries like Spain and Italy. Unlike the US, Europe has seen stable or declining concentration and enhanced anti-trust regulation. Intangible investment contributes to the investment weakness, with EU firms catching up to US counterparts in intangible capital, primarily through within-firm deepening.

Takeaways by Macro Roundup® AI

  1. Private fixed investment in the US and Europe has been weak over the past 20 years, with US investment falling below levels predicted by fundamentals since around 2000, attributed primarily to decreased competition, increased market concentration, and reduced anti-trust enforcement.
  2. European investment tracks profitability and Tobin's Q except at crisis peaks in countries such as Spain and Italy, and Europe has seen stable or declining concentration alongside strengthened anti-trust regulation, unlike the US.
  3. Intangible investment contributes to the investment weakness, with EU firms catching up to US counterparts in intangible capital primarily through within-firm deepening.

the Dottling/Gutierrez/Philippon you asked about (tracking investment using Q) not sure it's a better version of what we have

"...We analyze private fixed investment across European economies and in the US over the past 20 years, focusing on tangible and intangible investment and the role of competition and financial constraints. In both regions, we find that investment is weak, but we argue that the reasons are more cyclical in Europe and more structural in the US.In the US, we find that investment is lower than predicted by fundamentals starting around 2000, and that the gap is driven by industries where competition has decreased over time. The decline in US investment has coincided with increased concentration and decreased anti-trust enforcement. In Europe, on the other hand, investment is roughly in line with measures of profitability and Tobin’s 𝑄 for the majority countries, except at the peak of the crisis, most notably Spain and Italy.Unlike in the US, concentration has been stable or even declining in Europe, while product market regulation have decreased and anti-trust regulation has increased.Regarding intangible investment,we find that it accounts for some but not all of the weakness in measured investment. We also find that EU firms have been catching up with their US counterparts in intangible capital.The process of intangible deepening happens mostly within firms in Europe, as opposed to between firms in the US...."

Is There an Investment Gap in Advanced Economies? If So, Why?: Extended Excerpt Image 1


Is There an Investment Gap in Advanced Economies? If So, Why?: Extended Excerpt Image 2


Robin Dottling, German Gutierrez and Thomas Philippon, "Is There an Investment Gap in Advanced Economies? If So, Why?," Social Science Research Network, July 2017, https://papers.ssrn.com/sol3/papers.cfm

Tuesday, October 15, 2019

AI Summary. The ratio of safe assets to U.S. GDP has more than doubled since the 1950s, while safe assets have held steady at about 25% of total financial assets. Currency and bank deposits fell from 90% of financial-sector liabilities to roughly 30% before rebounding to 43%, as money-like instruments such as mutual funds, repurchase agreements, and agency-backed securities grew.

Fernando Martin On the Economy Blog
Date Posted:
Is Database:
Database

Safe assets/GDP ratio 2x higher since 1950s, surging in 1980s. Total financial assets now >12x GDP (post-2017), while safe assets hold steady at 25% of total – unchanged from 1955 average

How has the composition of safe assets in the economy changed?

Core argument: The U.S. ratio of safe assets to GDP has more than doubled since the 1950s, with a significant increase during the 1980s, while safe assets have averaged 25% of total financial assets since 1955.

The ratio of safe assets to GDP has more than doubled since the 1950s, with a significant increase during the 1980s. Since 2017, financial assets have exceeded 12 times GDP, yet the fraction of safe assets relative to total financial assets has remained stable, averaging 25% since 1955. In the 1950s, 90% of financial-sector liabilities were currency and bank deposits, a figure that declined to about 30% before the last recession but rebounded to 43% by Q2 2018. This shift reflects a transition from traditional currency and deposits to money-like debt instruments such as mutual funds, repos, and agency-backed securities. Corporate and foreign bonds issued by financial entities also contributed, albeit less prominently. This evolution highlights the changing landscape of financial assets and their implications for economic stability and policy-making.

Takeaways by Macro Roundup® AI

  1. The U.S. ratio of safe assets to GDP has more than doubled since the 1950s, with a significant increase during the 1980s, while safe assets have averaged 25% of total financial assets since 1955.
  2. Currency and bank deposits made up 90% of U.S. financial-sector liabilities in the 1950s, fell to about 30% before the last recession, and rebounded to 43% by the second quarter of 2018.
  3. U.S. financial assets have exceeded 12 times GDP since 2017, and the composition of safe assets has shifted from currency and deposits toward money-like debt instruments such as mutual funds, repos, and agency-backed securities.

interesting charts from St. Louis Fed updating some of Gordon's work, the ratio of safe assets to GDP has more than doubled since the 1950s. interesting pivot in 1980

"...Since 2017, financial assets have exceeded 12 times GDP. Despite this substantial growth, the fraction of safe assets relative to total financial assets has remained very stable, averaging 25 percent since 1955, as seen in the figure below.... Back in the 1950s, 90 percent of financial-sector liabilities were in the form of currency and bank deposits. This fraction dropped steadily until hitting about 30 percent right before the last recession. It has increased since, rebounding to about 43 percent in the second quarter of 2018. What took the place of traditional currency and deposits to support transactions are money-like debt (such as mutual funds and repos) and agency- and government sponsored enterprise-backed securities. Corporate and foreign bonds issued by financial entities also played a role, but not as prominently...."

Fernando Martin, "Safe Assets in the U.S. Economy," On the Economy Blog, December 10, 2018, https://www.stlouisfed.org/on-the-economy/2018/december/safe-assets-us-economy

AI Summary. An analysis of over 30,000 U.S. plants finds that management practices vary widely even within the same firm, with structured management practices associated with higher productivity, profitability, and innovation. Product market competition, the business environment, knowledge spillovers, and education together explain about a third of the variation in management practices.

Nicholas Bloom, Erik Brynjolfsson, Lucia Foster, Ron Jarmin, Megha Patnaik, Itay Saporta-Eksten and John Van Reenen American Economic Review
Date Posted:
Is Database:
Database

Research by @NicholasBloom finds management practices account for 40% of variation across plants within same firm, highlighting significant intra-firm differences. This variation is comparable to R&D & twice that of IT on productivity spread.

What explains differences in management practices across plants?

Core argument: Management practices account for 40% of the variation across plants within the same firm in an analysis of over 30,000 U.S. plants, a spread comparable to R&D's impact on productivity and twice that of IT.

A Analysis of over 30,000 U.S. plants reveals that management practices account for 40% of the variation across plants within the same firm, highlighting significant intra-firm differences. This variation is comparable to the impact of R&D and twice that of IT on productivity spread. Structured management practices are linked to higher productivity, profitability, and innovation, with plants adopting more such practices showing improved performance over time. The study identifies four key drivers of management practices: product market competition, business environment, knowledge spillovers, and education. These factors collectively explain about a third of the variation in management practices, suggesting substantial room for further research into the heterogeneity of management practices across firms.

Takeaways by Macro Roundup® AI

  1. Management practices account for 40% of the variation across plants within the same firm in an analysis of over 30,000 U.S. plants, a spread comparable to R&D's impact on productivity and twice that of IT.
  2. Structured management practices are linked to higher productivity, profitability, and innovation, with plants that adopt more such practices showing improved performance over time.
  3. Product market competition, the business environment, knowledge spillovers, and education collectively explain about a third of the variation in management practices.

supervision the limiting constraint?

Bloom, Brynjolfsson and Van Reenen take a look at management practices and find a 40% of this variation across plants within the same firm. they estimate this variation accounts for about a fifth of the spread of productivity, a similar fraction as that accounted for by R&D, and twice as much as explained by IT. they identity four "drivers" of management 1) product market competition, 2) business environment, 3) knowledge spillovers and 4) education

"....This paper analyzes a recent Census Bureau survey of structured management practices in over 30,000 plants across the U.S. Analyzing these data reveals large variation in management practices across plants, with strikingly about 40% of this variation being across plants within the same firm. This within-firm/across-plant variation in management cannot easily be explained by many classes of theories that focus on characteristics of the CEO, corporate governance or ownership (e.g., by family firms or multinationals) because these would tend to affect management across the firm as a whole. These management practices are tightly linked to performance, and they account for about a fifth of the cross-firm productivity spread, a fraction that is as large as or larger than technological factors such as R&D or IT.... First, there is enormous inter-plant variation in management practices. Although 18% of establishments adopt three-quarters or more of a package of basic structured management practices for performance monitoring, targets and incentives, 27% of establishments adopt less than half of such practices. Second, about 40% of the variation in management practices is across plants within the same firm. That is, in multi-plant firms, there is considerable variation in practices across units.5 The analogy for universities would be that variations in management practices across departments within universities are almost equally large as the variations across universities. Third, these variations in management practices are increasing in firm size. That is, larger firms have substantially more variation in management practices. This appears to be largely explained by the greater spread of larger firms across different geographies and industries....We find that plants using more structured management practices have greater productivity, profitability, innovation (as proxied by R&D and patent intensity) and growth. This relationship is robust to a wide range of controls including industry, education, plant and firm age, and possible survey noise. The relationship between management and performance also holds over time within plants (plants that adopted more of these practices between 2005 and 2010 saw improvements in their performance between 2005 and 2010) and across establishments within firms at a point of time (establishments within the same firm with more structured management practices achieve better performance outcomes). These management practices also have a highly significant predictive power for future growth and firm survival up to three years ahead (the current limit of our data after the MOPS survey)....The magnitude of this management-productivity relationship is large. Increasing structured management from the 10th to 90th percentile can account for about 18% of the comparable 90-10 spread in firm total factor productivity (TFP).6 Using the same dataset, we also examine the association of productivity with other common “drivers” and find that the 90-10 spread in R&D accounts for about 17% of the spread in firm TFP, employee skills about 11%, and IT expenditure per employee about 8%. Of course, all these magnitudes are dependent on a number of other factors, such as the degree of measurement error in each variable, but they do highlight that variation in management practices is likely a key factor accounting for variation in TFP. These factors are also interrelated- when we examine them jointly, we find they account for about 33% of the total variation in 90-10 productivity. Given estimates that about 50% of the variation in productivity is measurement error (Collard-Wexler, 2013 and Bloom, Floetotto, Jaimovich, Saporta and Terry, 2016), this suggests that these factors - management, innovation, IT and skills - together account for about two-thirds of the real spread in firm productivity....Examining the drivers of these management practices, we uncover four factors that are important for increasing the degree of implementation of structured management practices: product market competition, state business environment (as proxied by “Right to Work” laws), learning spillovers from the entry of Million Dollar Plants, and education. Although all of these drivers are qualitatively important, their quantitative size is not enormous, with our estimations suggesting they collectively account for about a third of the variation in management practices. This leaves ample room for new theory, data and designs to help understand one of the oldest questions in economics and business: why is there such large heterogeneity in management practices?..."

Nicholas Bloom, Erik Brynjolfsson, Lucia Foster, Ron Jarmin, Megha Patnaik, Itay Saporta-Eksten and John Van Reenen, "What Drives Differences in Management Practices,"American Economic Review (Forthcoming)," Fall 2018, https://www.aeaweb.org/articles

AI Summary. Research finds that U.S. national product market concentration rose while local concentration fell, with declines concentrated in services, retail trade, and finance, insurance and real estate. The authors attribute this to large firms expanding into new local markets: when a top firm opens a plant, local concentration falls and stays lower for at least 7 years.

Esteban Rossi-Hansberg Federal Reserve Bank of Richmond
Date Posted:
Is Database:
Database

National market concentration has risen, but local concentration has declined, particularly in services, retail trade, and FIRE sectors, according to @EstebanRossiHansberg @FederalReserveBankOfRichmond.

Does rising national concentration mean less local competition?

Core argument: National product market concentration rose from 1990 to 2014 while local concentration fell, with the decline concentrated in SIC 8 industries that account for 78% of employment and 72% of sales.

Recent research highlights a divergence in market concentration trends, with national concentration rising while local concentration declines. From 1990 to 2014, national product market concentration increased, but local concentration fell, particularly in SIC 8 industries, which account for 78% of employment and 72% of sales. This decline is more pronounced in services, retail trade, and FIRE sectors. Large firms have driven these trends by expanding into new local markets, reducing local concentration and enhancing competition. When a top firm opens a plant, local concentration decreases and remains lower for at least 7 years. This suggests that large firms do not dominate local markets but instead foster a more competitive environment. The findings indicate that while large firms grow nationally, their geographic expansion contributes to a more competitive local landscape.

Takeaways by Macro Roundup® AI

  1. National product market concentration rose from 1990 to 2014 while local concentration fell, with the decline concentrated in SIC 8 industries that account for 78% of employment and 72% of sales.
  2. The decline in local concentration was more pronounced in services, retail trade, and the finance, insurance, and real estate sectors, which research attributes to large firms expanding into new local markets.
  3. When a top firm opens a plant, local concentration decreases and remains lower for at least seven years, which researchers read as evidence that large firms' geographic expansion fosters local competition rather than local dominance.

Research from FRBR, while market concentration has risen nationally, concentration of smaller markets as gone down. "...We have shown...that the increase in market concentration observed at the national level over the last 25 years is being shaped by enterprises expanding into new local markets. This expansion into local markets is accompanied by a fall in local concentration as firms open establishments in new locations. These observations are suggestive of more, rather than less, competitive markets...."Counterintuitivey (figure 15) if you net out the largest firm, concentration is unchanged suggesting that either small business stay in business or when a big firm enters a market other big firms do as well.

"....Using U.S. NETS data, we present evidence that the positive trend observed in national product market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least 7 years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration, and a likely more competitive local environment....In this paper, we use the National Establishment Time Series (NETS) dataset to document four main facts regarding national and local product-market concentration in the U.S. economy between 1990 and 2014. Our first fact is that the observed positive trend in market concentration at the national level has been accompanied by a corresponding negative trend in average local market concentration.We measure concentration using the Her ndahl-Hirschman index (HHI), but our findings hold for a variety of statistics..... The second fact shows that local concentration is falling across SIC 8 industries that together account for 78% of employment and 72% of sales.Furthermore, conditioning on industries where national concentration is rising, industries where local concentration has declined account for the majority of employment overall (72% of employment and 66% of sales) across all major sectors. The presence of these diverging trends is always large but more pronounced in services, retail trade, and FIRE relative to wholesale trade and manufacturing. This ordering is natural given that transport costs are less relevant in the latter two sectors. Together, these first two facts underscore an unmistakable decline in local concentration on average that is pervasive across all sectors..... Our third fact shows that among SIC 8 industries that exhibit this pattern, top firms have accelerated these trends. That is, excluding the top firm in each industry (in terms of national sales in their SIC 8 industry in 2014), the national increase in concentration becomes naturally less pronounced.Perhaps more surprisingly, the decline in local concentration also becomes less pronounced. Put another way, large firms have materially contributed to the observed decline in local concentration.Among industries with diverging trends, large fi rms have become bigger but the associated geographic expansion of these firms, through the opening of more plants in new local markets, has lowered local concentration thus suggesting increased local competition. In the considerably smaller set of industries where we observe increases in both national and local concentration, top firms have also been responsible for both forms of concentration...... Our fourth fact establishes that among industries with falling local concentration, the opening of a plant by a top firm is associated with a decline in local concentration at the time of the opening, and that this lower level of concentration persists for at least the next 7 years.This observation provides further evidence that in those industries, large enterprises do not enter and dominate the local market but instead lower its concentration, either by competing with the previous local monopolist or by simply adding one more establishment that grabs a proportional market share from other local establishments. In any case, the notion that entry by large fi rms eliminates local producers to the point of increasing concentration is certainly not supported in the vast majority of industries where most of U.S. employment resides...."

Esteban Rossi-Hansberg, Pierre-Daniel Sarte and Nicholas Trachter, "Diverging Trends in National and Local Concentration," Federal Reserve Bank of Richmond, February 26, 2019, https://www.princeton.edu/~erossi/DTNLC.pdf

AI Summary. Analysis of US immigration using labor demand functions and elasticity estimates finds the average native wage rose 0.6%, wages of natives without a high school degree changed between -0.6% and +1.7%, and wages of earlier immigrants fell 6.7%. The estimates treat natives and immigrants with similar education and experience as imperfect substitutes.

Giovanni Peri National Bureau of Economic Research
Date Posted:
Is Database:
Database

Immigration btw 1990 and 2006 had a nuanced impact on US wages. Native workers with no high school degree saw a wage change of -0.6% to +1.7%, while average native wages increased by +0.6%. Previous immigrants’ wages declined by -6.7%.

Does immigration raise native wages while lowering earlier immigrants' wages?

Core argument: Immigration between 1990 and 2006 changed wages of native workers without a high school degree by between -0.6% and +1.7%, while the average native wage rose 0.6%.

Between 1990 and 2006, immigration had a nuanced impact on wages in the US. While native workers with no high school degree experienced a wage change between -0.6% and +1.7%, the average native wage saw a modest increase of +0.6%. However, the wages of previous immigrants faced a significant decline of -6.7%. This analysis uses labor demand functions and elasticity estimates to assess the substitutability between natives and immigrants with similar education and experience levels. The findings highlight the importance of considering both own-group and cross-group effects within a production function framework to understand the total wage effects of immigration on different worker groups.

Takeaways by Macro Roundup® AI

  1. Immigration between 1990 and 2006 changed wages of native workers without a high school degree by between -0.6% and +1.7%, while the average native wage rose 0.6%.
  2. Wages of previously arrived immigrants declined 6.7% as a result of immigration between 1990 and 2006.
  3. The analysis uses labor demand functions and elasticity estimates of substitutability between natives and immigrants with similar education and experience, arguing that both own-group and cross-group effects must be counted within a production function framework.

“…This paper calculates the effects of immigration on the wages of native US workers of various skill levels in two steps. In the first step we use labor demand functions to estimate the elasticity of substitution across different groups of workers. Second, we use the underlying production structure and the estimated elasticities to calculate the total wage effects of immigration in the long run. We emphasize that a production function framework is needed to combine own-group effects with cross-group effects in order to obtain the total wage effects for each native group. In order to obtain a parsimonious representation of elasticities that can be estimated with available data, we adopt alternative nested-CES models and let the data select the preferred specification. New to this paper is the estimate of the substitutability between natives and immigrants of similar education and experience levels. In the data-preferred model, there is a small but significant degree of imperfect substitutability between natives and immigrants which, when combined with the other estimated elasticities, implies that in the period from 1990 to 2006 immigration had a small effect on the wages of native workers with no high school degree (between 0.6% and +1.7%). It also had a small positive effect on average native wages (+0.6%) and a substantial negative effect (−6.7%) on wages of previous immigrants in the long run….”

--

Gianmarco Ottaviano and Giovanni Peri, "Rethinking The Effect Of Immigration On Wages," National Bureau Of Economic Research, May 2008, https://www.nber.org/papers/w12497