Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
  • “…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
  • “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
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, October 21, 2019

AI Summary. About 75% of excess global savings flow into the US, UK, Canada, Australia, and New Zealand because of their open, sophisticated financial markets, which the author argues worsens global imbalances by leaving deficit countries with higher unemployment and rising debt. The author proposes addressing income inequality through tax reform and a one-off entry tax on foreign capital inflows.

Michael Pettis Foreign Policy
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75% of excess global savings flow to US/UK/AU/NZ/Canada due to their open & sophisticated financial markets, exacerbating global economic imbalances.

Do foreign capital inflows into open financial markets drive global imbalances?

Core argument: Roughly 75% of excess global savings flow into the US, UK, Canada, Australia, and New Zealand because of those countries' open and sophisticated financial markets.

Approximately 75% of excess global savings are directed towards the US, UK, Canada, Australia, and New Zealand due to their open and sophisticated financial markets. This influx exacerbates global economic imbalances, as bankers and capital owners benefit from suppressed wages and increased capital mobility, while workers in surplus countries face lower incomes and depreciated currencies. In deficit countries, the result is higher unemployment and rising debt. To address these imbalances, US policymakers must tackle income inequality through measures like tax reform and improved social infrastructure. A potential solution is a one-off entry tax on foreign capital inflows, which would address the current account deficit by targeting the capital account surplus. Without such measures, the economic tensions may escalate into trade wars, as historical precedents show that unresolved inequality and imbalances often lead to conflict.

Takeaways by Macro Roundup® AI

  1. Roughly 75% of excess global savings flow into the US, UK, Canada, Australia, and New Zealand because of those countries' open and sophisticated financial markets.
  2. These inflows worsen global imbalances, with bankers and capital owners gaining from suppressed wages and greater capital mobility, while surplus-country workers face lower incomes and depreciated currencies and deficit countries face higher unemployment and rising debt.
  3. A one-off entry tax on foreign capital inflows would address the US current account deficit by targeting the capital account surplus, alongside tax reform and improved social infrastructure, since unresolved inequality and imbalances have historically led to conflict.

new Pettis, 75% of excess global savings go to the US + UK/Canada/AU/NZ

"..Because the U.S. economy is the world’s largest and most diversified, and supports the most flexible and best-governed financial markets in the world, it has been the natural home for individuals, businesses, and governments looking to store wealth abroad that they cannot or will not invest at home. About half of the world’s excess savings tend to end up in the United States, with another quarter flowing to other economies with similarly open and sophisticated financial markets (such as the United Kingdom).....Today’s trade war is not really a conflict between the United States and China as countries, nor is it even a broader conflict between deficit countries and surplus countries. Rather, it is a conflict between economic sectors. Bankers and owners of capital in both the surplus and the deficit countries have benefited from suppressed wages, rising profits, and increased mobility of international capital. Workers in the surplus countries paid for the imbalances in the form of lower incomes and depreciated currencies. Workers in the deficit countries paid for the imbalances in the form of higher unemployment and rising debt. Reversing inequality and other distortions in income distribution in both the surplus and the deficit countries is therefore the only durable way to end the trade war. In the long run, future U.S. administrations will have to tackle income inequality either through tax reform or by tilting the playing field in favor of workers and the middle class—for example by reducing the costs of health and education, improving social infrastructure, raising minimum wages, or even strengthening labor unions.But before they can do that, they will have to fix the American role in the global imbalances by making it more difficult for foreigners to dump excess savings into U.S. financial markets. That could take many forms, but by far the most efficient would be a one-off entry tax on foreign capital inflows. Such a tax would eliminate the current account deficit by addressing it at its origin in the capital account surplus. It would have the additional benefit of forcing the cost of adjustment onto banks and financial speculators, unlike tariffs, which force the cost onto businesses and consumers. The alternative is ugly. As the British economist John A. Hobson argued in 1902, the economic driver of European imperialism at the end of the 19th century was extreme inequality that reduced domestic spending and lowered the returns on financial assets invested at home. Europe’s capitalists needed to find places to dump their excess savings and production. They did so by force, securing export markets abroad and guaranteeing returns on high-interest loans with armies and gunboats. That ended in imperialist conflict and, ultimately, war. Less than three decades later, the cycle repeated. In the 1920s, a new wave of globalized trade and capital flows coincided with soaring income inequality and rising debt. The party came to a halt between 1929 and 1931 and was followed by a vicious trade competition that also ended in war. In each case, a conflict between economic sectors—one in which banks and the owners of capital were able to benefit at the expense of the rest—was represented as a conflict between countries. It wasn’t a trade war then, and it isn’t now. Only when U.S. policymakers realize as much—and get ready to tackle income inequality—will they be able to head off the worst of the consequences...."

Michael Pettis, "Why Trade Wars Are Inevitable,"Foreign Policy, October 19, 2019, https://foreignpolicy.com/2019/10/19/trade-wars-inevitable-us-china-economic-imbalances/

AI Summary. Economists disagree over whether a wealth tax would reduce inequality, with critics arguing that the data underlying leading wealth tax proposals are largely inaccurate and misleading about how wealth is distributed. Critics contend that unreliable wealth statistics could lead to misguided tax policy decisions.

Saez, Summers, and Mankiw Peterson Institute for International Economics
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Summers argues that data supporting wealth tax proposals by Saez & Zucman are 98.5% inaccurate & misleading, raising concerns about effectiveness in reducing inequality.

Is the data behind wealth tax proposals reliable enough to guide policy?

Core argument: Summers argues that the data underpinning the Saez and Zucman wealth tax proposals are 98.5% inaccurate and misleading, questioning whether the economic models used reflect actual wealth distribution.

The debate on implementing a wealth tax to address inequality highlights significant disagreements among economists. Summers argues that the data supporting wealth tax proposals, particularly those by Saez and Zucman, are 98.5% inaccurate and misleading, suggesting that the economic models used may not accurately reflect wealth distribution. This raises concerns about the effectiveness of a wealth tax in reducing inequality. Critics emphasize the need for robust data to justify such fiscal policies, as inaccurate data could lead to misguided policy decisions. The discussion underscores the importance of reliable economic statistics in shaping tax policy and its potential impact on GDP growth and income distribution.

Takeaways by Macro Roundup® AI

  1. Summers argues that the data underpinning the Saez and Zucman wealth tax proposals are 98.5% inaccurate and misleading, questioning whether the economic models used reflect actual wealth distribution.
  2. Critics in the debate contend that reliable data are necessary to justify a wealth tax, since inaccurate statistics could produce misguided fiscal policy decisions.
  3. The debate among Saez, Summers, and Mankiw centers on whether a wealth tax would reduce inequality, and on its potential effects on GDP growth and income distribution.

Summer's on Saez (to his face)

"...I have made a very close study of the twitter wars of the last week surrounding the work of Saez and Zucman and I have to say I find myself about 98.5% persuaded by the critics that the data are substantially inaccurate and substantially misleading..."
"Would a “Wealth Tax” Help Combat Inequality? A Debate with Saez, Summers, and Mankiw," Peterson Institute for International Economics, October 18, 2019, https://www.youtube.com/watch

Thursday, October 24, 2019

AI Summary. Consumption-based poverty in the US fell from 13% to 2.8% over roughly four decades, while the official poverty rate declined just 1.2 percentage points. The authors attribute the gap to flaws in the official measure, which relies on a price index with documented problems and counts only cash income, excluding tax credits and in-kind transfers.

Bruce Meyer American Enterprise Institute
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Consumption poverty fell from 13% in 1980 to 2.8% in 2018, versus the official poverty decline of 1.2%.

Does measuring consumption instead of cash income show far less poverty?

Core argument: The US consumption poverty rate fell from 13% in 1980 to 2.8% in 2018, while the official poverty rate declined by just 1.2 percentage points over the same period.

The consumption poverty rate in the US has significantly decreased from 13% in 1980 to 2.8% in 2018, contrasting with a mere 1.2 percentage point decline in the official poverty rate over the same period. This discrepancy arises from flaws in the official poverty measure, which uses a price index with well-documented issues and considers only cash income, excluding tax credits and in-kind transfers. Adjusting for these factors, the poverty threshold today would be about $18,000 instead of $25,465 for a family of four. Additionally, under-reporting of certain income types skews the official measure. Using the 2015 standard, both income and consumption-based poverty fell by about 1 percentage point between 2017 and 2018, highlighting the importance of comprehensive resource measurement in assessing poverty accurately.

Takeaways by Macro Roundup® AI

  1. The US consumption poverty rate fell from 13% in 1980 to 2.8% in 2018, while the official poverty rate declined by just 1.2 percentage points over the same period.
  2. The official US poverty measure relies on a price index with documented problems and counts only cash income, excluding tax credits and in-kind transfers, and under-reporting of certain income types skews it further.
  3. Adjusting for those price index and resource measurement flaws would put the poverty threshold for a family of four at about $18,000 rather than $25,465.

“…..Simple adjustments to account for well-known flaws with the official poverty measure make clear that poverty in America has fallen sharply over the past 50 years….. Using the standard of living of the poor in 1980, the consumption poverty rate fell by more than 10 percentage points, from 13.0 percent in 1980 to 2.8 percent in 2018, while the official poverty rate fell by only 1.2 percentage points over that period…..If, on the other hand, one uses the standard of living of the poor in 2015, the consumption poverty rate fell from 32.9 percent in 1980 to 10.8 percent in 2018…..Three factors explain why consumption poverty shows a long-term decline but the official poverty measure does not. First, the official federal poverty line is adjusted over time using a price index with well-documented flaws. The official poverty line for a family of four in 1980 was $8,351. Today it is $25,465. If one corrects for the flaws in how the poverty line is adjusted for inflation, based on the 1980 standard, the threshold today would be about $18,000. Second, the official poverty measure is based on cash income only, which fails to capture all the resources available to a family including tax credits and in-kind transfers. Finally, the official measure of family resources is biased due to under-reporting of certain types of income that are commonly received by those with low reported income……Using the higher 2015 standard, both income and consumption based poverty fell by about 1 percentage point between 2017 and 2018….”

Bruce Meyer and James X. Sullivan, “Annual report on US consumption poverty: 2018,” American Enterprise Institute, October 18, 2019, https://www.aei.org/research-products/report/annual-report-on-us-consumption-poverty-2018/