Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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 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
  • “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
  • “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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, November 1, 2019

AI Summary. The labor force participation rate, adjusted for shifts in the population's age structure, has surpassed its 1999–2000 average, indicating more people are working or seeking work than demographic trends alone would predict.

Ernie Tedeschi @ernietedeschi
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Demographically-Adjusted LFPR Above 1999-2000 Average.

Is labor force participation stronger than age trends predict?

Core argument: The demographically-adjusted Labor Force Participation Rate has surpassed its 1999–2000 average, with the adjustment accounting for changes in population age structure.

The demographically-adjusted Labor Force Participation Rate (LFPR) has surpassed its 1999-2000 average, indicating a significant shift in workforce dynamics. This adjustment accounts for changes in population age structure, providing a clearer picture of labor market engagement. The increase suggests that more individuals are participating in the labor force than would be expected based solely on demographic trends. This trend has important implications for economic policy and planning, as it reflects a more robust labor market than traditional metrics might suggest. The rise in LFPR could influence GDP growth projections and inform decisions on interest rates and employment policies. Understanding these dynamics is crucial for economists and policymakers aiming to foster sustainable economic growth.

Takeaways by Macro Roundup® AI

  1. The demographically-adjusted Labor Force Participation Rate has surpassed its 1999–2000 average, with the adjustment accounting for changes in population age structure.
  2. More individuals are participating in the labor force than demographic trends alone would suggest, pointing to a more robust labor market than traditional metrics indicate.
  3. The rise in the demographically-adjusted participation rate carries implications for GDP growth projections and for decisions on interest rates and employment policy.

Good morning, Ernie's demographically-adjusted LFPR is now above it's 1999-2000 levels!

Demographically-adjusted LFPR: Extended Excerpt Image 1


Demographically-adjusted LFPR: Extended Excerpt Image 2

Ernie Tedeschi, "Demographically-adjusted LFPR," November 1 2019, https://twitter.com/ernietedeschi/status/1157274423508000769

Monday, November 4, 2019

AI Summary. Children of poor immigrants in the U.S. show higher upward economic mobility than children of similarly poor native-born parents, a pattern that holds across countries of origin.

Emily Badger New York Times
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Children of immigrants exhibit higher upward mobility than native-born counterparts, regardless of country of origin, according to data. @EmilyBadger

Do children of poor immigrants outperform children of poor native-born parents?

Core argument: Children of poor immigrants show higher upward mobility than children of native-born parents, and the pattern holds regardless of the immigrants' country of origin.

Data indicates that children of immigrants exhibit higher upward mobility compared to their native-born counterparts, regardless of their country of origin. This trend persists even as global immigration patterns evolve. Sons of immigrants from countries with significant migration to the U.S. consistently demonstrate greater intergenerational mobility than sons of native-born fathers. This suggests that the economic and social structures in the U.S. provide a conducive environment for immigrant families to improve their socioeconomic status over generations. The implications for policymakers include the potential benefits of supporting immigrant communities as a means to enhance overall economic growth and social mobility.

Takeaways by Macro Roundup® AI

  1. Children of poor immigrants show higher upward mobility than children of native-born parents, and the pattern holds regardless of the immigrants' country of origin.
  2. Sons of immigrants from countries sending significant numbers of migrants to the U.S. consistently display greater intergenerational mobility than sons of native-born fathers, a pattern that persists as global immigration patterns change.

, NYT writeup of paper we looked at showing immigrants have higher upward mobility than native born Americans.

"...The charts above suggest that sons of immigrants from nearly every country that sent large numbers to the United States had higher intergenerational mobility than sons of native-born fathers. And that picture remains true today, even as immigration patterns have shifted around the world...."

Emily Badger, "Children of Poor Immigrants Rise, Regardless of Where They Come From,"New York Times, October 28, 2019, https://www.nytimes.com/2019/10/28/upshot/immigration-america-rise-poor.html

AI Summary. Gross fixed capital formation averaged 21.7% of GDP in the US, 20.8% in Germany, and 20.5% in France over a two-decade span. Private investment made up 82.2% of the US total, 81.3% in Germany, and 89.5% in France, with business investment at 13%, 13.5%, and 13.2% of GDP respectively.

Office for National Statistics Staff Office for National Statistics
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US 21.7% private 82.2% biz 13%, France 20.5% private 89.5% biz 13.2%, Germany 20.8% private 81.3% biz 13.5%.

How do investment rates compare across major advanced economies?

Core argument: The US averaged a gross fixed capital formation to GDP ratio of 21.7% from 1997 to 2017, above Germany's 20.8% and France's 20.5%.

From 1997 to 2017, the average gross fixed capital formation, a key indicator of investment levels, varied significantly across major economies. The US maintained a gross investment to GDP ratio of 21.7%, with private investment accounting for 82.2% and business investment at 13%. France's gross investment to GDP was slightly lower at 20.5%, with private investment at 89.5% and business investment at 13.2%. Germany showed a similar pattern with a gross investment to GDP of 20.8%, private investment at 81.3%, and business investment at 13.5%. These figures highlight the varying emphasis on private and business investments across these economies, reflecting different economic strategies and priorities. The data underscores the importance of understanding national investment trends to inform policy decisions and economic forecasts.

Takeaways by Macro Roundup® AI

  1. The US averaged a gross fixed capital formation to GDP ratio of 21.7% from 1997 to 2017, above Germany's 20.8% and France's 20.5%.
  2. Private investment made up 89.5% of France's gross fixed capital formation over 1997–2017, above the US at 82.2% and Germany at 81.3%.
  3. Business investment averaged 13.5% in Germany, 13.2% in France and 13% in the US from 1997 to 2017.

https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/aninternationalcomparisonofgrossfixedcapitalformation/2017-11-02

*is dwelling a percent of total or private, this assumes % of private

20.8

81.3

20.1

13.5

us

21.7

82.2

27.3

13

france

20.5

89.5

28.3

13.2

germ

Gross invest/GDP

% private

% dwelling*

Biz invest/GDP

Country

AI Summary. Across major economies, corporate gross fixed capital formation excluding housing averaged 21.7% of GDP in the US, compared with 20.5% in France and 20.8% in Germany. Limited data coverage for Germany and Japan constrains comprehensive international comparisons of business investment.

Office for National Statistics Staff Office for National Statistics
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The corporate share of Gross Fixed Capital Formation (GFCF) net the dwelling share as a % of GDP varied significantly across major economies from 1980 to 2017. US: 21.7%, France: 20.5%, Germany: 20.8%.

How does US business investment as a share of GDP compare internationally?

Core argument: From 1980 to 2017, the corporate share of gross fixed capital formation excluding dwellings was 21.7% of GDP in the US, 20.8% in Germany and 20.5% in France.

From 1980 to 2017, the corporate share of Gross Fixed Capital Formation (GFCF) net the dwelling share as a % of GDP varied significantly across major economies. In the US, this share was 21.7%, while France and Germany recorded 20.5% and 20.8%, respectively. These figures highlight the varying levels of business investment relative to GDP, excluding residential investments, across different countries. The data suggests that while the US maintains a slightly higher corporate investment share, European counterparts like France and Germany also demonstrate robust business investment activity. This metric is crucial for understanding how different economies prioritize corporate investment in their growth strategies, impacting long-term economic development and competitiveness. The limited time series data for Germany and Japan indicates potential gaps in comprehensive international comparisons, emphasizing the need for more consistent data collection across countries.

Takeaways by Macro Roundup® AI

  1. From 1980 to 2017, the corporate share of gross fixed capital formation excluding dwellings was 21.7% of GDP in the US, 20.8% in Germany and 20.5% in France.
  2. Limited time series data for Germany and Japan constrains international comparisons of gross fixed capital formation, pointing to the need for more consistent cross-country data collection.

Ed, Played around with the OECD numbers and calculated the Corporate Share of Gross Fixed Capital Formation Net the Dwelling Share as a % of GDP. The time series for corporate share is limited for Germany and Japan.An international comparison of gross fixed capital formation: Comments Image 1

https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/aninternationalcomparisonofgrossfixedcapitalformation/2017-11-02

*is dwelling a percent of total or private, this assumes % of private

20.8

81.3

20.1

13.5

us

21.7

82.2

27.3

13

france

20.5

89.5

28.3

13.2

germ

Gross invest/GDP

% private

% dwelling*

Biz invest/GDP

Country

AI Summary. Germany's surplus of private savings over investment averaged 7% of GDP, with households supplying 72%, while Japan's averaged 8% of GDP, with companies supplying 76%. The argument is that the euro gave Germany a stable, competitive exchange rate and trade surpluses that absorbed its savings glut through capital outflows rather than fiscal deficits.

Martin Wolf Financial Times
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Btw 2010 and 2017, Germany’s surplus of private savings over investment averaged 7% of GDP, with households contributing 72% of this surplus.

How did a shared currency let Germany export its savings surplus?

Core argument: Germany's excess of private savings over investment averaged 7% of GDP in 2010–2017, with households supplying 72% of that surplus, while Japan's averaged 8% of GDP with the corporate sector supplying 76%.

Between 2010 and 2017, Germany's surplus of private savings over investment averaged 7% of GDP, with households contributing 72% of this surplus. In contrast, Japan's surplus was 8% of GDP, driven by the corporate sector at 76%. The eurozone provided Germany with a stable and competitive real exchange rate, facilitating its trade surpluses and allowing capital outflows to absorb the private savings surplus. This prevented the need for fiscal deficits, unlike Japan, where fiscal deficits absorbed the excess savings. The euro's structure helped Germany maintain economic stability and avoid the deflationary pressures that could have arisen from a strong Deutschemark, thus shielding it from Japan-like stagnation. The eurozone's benefits have been crucial in maintaining Germany's economic health despite its high savings rate and low domestic investment.

Takeaways by Macro Roundup® AI

  1. Germany's excess of private savings over investment averaged 7% of GDP in 2010–2017, with households supplying 72% of that surplus, while Japan's averaged 8% of GDP with the corporate sector supplying 76%.
  2. The eurozone gave Germany a stable and competitive real exchange rate that supported trade surpluses and capital outflows absorbing its private savings surplus, whereas fiscal deficits absorbed Japan's excess savings.
  3. Euro membership shielded Germany from the deflationary pressures a strong Deutschemark could have produced, helping it avoid Japan-like stagnation despite high savings and low domestic investment.

“…Between 2010 and 2017, the surplus of private savings over investment averaged some 7 per cent of gross domestic product in Germany and 8 per cent in Japan. The composition was different, however: the savings surplus of households was 72 per cent of Germany’s overall private surplus, while the corporate sector’s surplus was 76 per cent of Japan’s….”

Be ambitious. In today’s economy, it is the only prudent thing to do.

As a country, however, Germany could help to shift the balance of desired savings and investment worldwide. As the world economy slows and even Germany’s economy shows signs of weakness, as foreign demand lags, the case for this grows. Policymakers in Germany and elsewhere should promote public and private spending — investment, above all. Huge opportunities do seem to exist. Moreover, the chance to borrow at today’s ultra-low long-term interest rates is a blessing, not a curse.

Interest rates on German savings could not be significantly higher, whether it was inside or outside the eurozone. In today’s economy, the only way for German savers to enjoy higher returns is for them to take more risk.

What would have happened if the German economy had not been sheltered by the eurozone? The Deutschemark would surely have appreciated hugely, this time in a low-inflation world. That would have pushed German domestic inflation below zero, damaged the profitability and performance of exports and inflicted losses on German financial institutions, with their huge foreign assets. It would have made it impossible to preserve strongly positive nominal interest rates and probably impossible to avoid persistent fiscal deficits, too. In brief, the eurozone protected Germany from becoming another Japan. Germans should be thankful for what the euro has given them, praise Mario Draghi, outgoing ECB president, for his brave decisions to save the system from calamity and hope his successor Christine Lagarde will follow suit.

Germany, however, has a stable and competitive real exchange rate. Close to 40 per cent of its exports of goods go to other eurozone countries. Here, the competitive position that Germany achieved in the early years of the eurozone is mostly still locked in. Moreover, the euro’s exchange rate reflects the competitiveness of a weighted average of its users. These benefits have greatly facilitated Germany’s desired combination of private, fiscal and trade surpluses. The euro made prudence work.

The difference was not German fiscal virtue and Japanese fiscal vice. Japan was, instead, compelled towards fiscal deficits, because generating and sustaining current account surpluses of 8 per cent of GDP, which would have been required otherwise, was unworkable: the real exchange rate was too unstable and foreign partners too hostile.

Even at ultra-low interest rates, domestic private investment fell far short of private savings. As a matter of arithmetic, either fiscal deficits or capital flows abroad had to absorb these excess savings. Here is where the difference emerged. In Japan, net capital outflows (by definition, the mirror image of the current account surplus) absorbed just a third of the private surplus, with the rest ending up in fiscal deficits. In Germany, capital outflows absorbed all the private surplus, since the government too ran fiscal surpluses.

Not surprisingly, both countries also have huge surpluses of private savings over investments. Between 2010 and 2017, the surplus of private savings over investment averaged some 7 per cent of gross domestic product in Germany and 8 per cent in Japan. The composition was different, however: the savings surplus of households was 72 per cent of Germany’s overall private surplus, while the corporate sector’s surplus was 76 per cent of Japan’s.

What are the euro’s benefits to Germany? An answer comes from a comparison with the economy that it most closely resembles: Japan’s. Both were reborn from the ashes of the second world war as allies of the US and dynamic exporters of manufactures. They are the world’s third and fourth largest economies. They also have the world’s second and third highest median ages. Germany’s fertility rate ranks 204th in the world, while Japan’s ranks 209th. These then are relatively large and rapidly ageing high-income countries, with strong manufacturing.

I feared that the euro would end up dividing the EU politically when it was launched some three decades ago. But there is no easy way back. It has to work. For Germans, the necessary realisation has to be that the euro is already working to their benefit, by stabilising their economy, despite its huge savings surpluses. It cannot make those surplus savings highly remunerative, too, because the market does not need them. That is what it means to be in a global “liquidity trap”, with weak investment despite ultra-low interest rates: savings are not scarce but superabundant.

This partly explains widespread German hostility to the policies of the European Central Bank. Yet those policies will not fundamentally change. They may have to become even more aggressive. If so, the disaffection revealed in resignations by three German officials from the ECB board, most recently Sabine Lautenschläger, and in attacks by German policymakers, will worsen. This hostility could have long-run consequences not dissimilar to those of three decades of Euroscepticism in the UK. It could prove catastrophic. The EU can survive without the UK, but not without Germany, its core country.

To think that two and two are four/And neither five nor three/The heart of man has long been sore/And long ’tis like to be.” Anybody thinking about the economy needs to recall these lines by the English poet AE Housman. Things must add up. The question is how. People responsible for large economies cannot ignore this. A tragedy of the eurozone, especially of Germany’s role within it, is that the transition to thinking about how income and expenditure add up at eurozone and global levels has so far failed to occur.

Martin Wolf, "How the euro helped Germany avoid becoming Japan,"Financial Times, October 29, 2019, https://www.ft.com/content/04f48e1e-f97f-11e9-98fd-4d6c20050229

How the euro helped Germany avoid becoming Japan

AI Summary. Vacant niches — unused but potentially usable resources — remain contested in ecology because of definitional disagreements, but are less controversial in evolutionary biology, where the concept underpins the theory of adaptive radiation. Evolutionary studies suggest diversification both fills existing niches and creates new ones, affecting nutrient cycles and ecological pyramids.

Edmundas Lekevicius Centre for Ecology and Environmental Sciences
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Evolutionary studies suggest that diversification not only fills vacant niches but also creates new ones, impacting nutrient cycles and ecological pyramids, similar to market economies where untapped opportunities drive innovation and growth.

Do unused niches drive diversification and create new ones?

Core argument: The concept of vacant niches, defined as unused but potentially usable resources, has gained traction in ecological literature, particularly in disturbed ecosystems, though definitional disagreements keep it controversial within ecology.

The concept of vacant niches, defined as unused but potentially usable resources, has gained traction in ecological literature, particularly in disturbed ecosystems. Despite its controversial status in ecology due to definitional disagreements, it is less contentious in evolutionary biology, where it underpins the theory of adaptive radiation. Evolutionary studies suggest that diversification not only fills these niches but also creates new ones, impacting nutrient cycles and ecological pyramids. This dynamic can be likened to market economies where untapped opportunities drive innovation and growth, leading to the creation of new markets and economic structures. Understanding these processes can inform policy makers and business leaders about the potential for economic diversification and resilience in the face of environmental and market disturbances.

Takeaways by Macro Roundup® AI

  1. The concept of vacant niches, defined as unused but potentially usable resources, has gained traction in ecological literature, particularly in disturbed ecosystems, though definitional disagreements keep it controversial within ecology.
  2. Vacant niches are less contentious in evolutionary biology, where the concept underpins the theory of adaptive radiation, and evolutionary studies suggest diversification both fills niches and creates new ones, affecting nutrient cycles and ecological pyramids.
  3. Niche dynamics can be likened to market economies in which untapped opportunities drive innovation and growth, creating new markets and economic structures, with implications for economic diversification and resilience amid environmental and market disturbances.

"...The use of the term “vacant niches” (unused but potentially usable resources) has recently increased in ecological literature. According to some studies, vacant niches are quite numerous in nature, especially, but not exclusively, in disturbed ecosystems. However, the concept of “vacant niche” is still controversial in ecology because of the failure to reach an agreement on how to define a situation when an ecosystem is devoid of such niches. In evolutionary biology, as distinct from ecology, this concept arouses fewer controversies and has contributed to the creation of the ecological theory of adaptive radiation. Still other evolutionists have used this concept to describe the course and mechanisms of the evolutionary assembly of ecosystems (nutrient cycles and ecological pyramids). These evolutionists attempt to prove that in the course of diversification, vacant niches are not only occupied but are also created by newly evolved organisms....”

Edmundas Lekevicius, "Vacant niches in nature, ecology, and evolutionary theory: a mini-review," Centre for Ecology and Environmental Sciences, Vilnius University, 2009, http://www.gamtostyrimai.lt/uploads/publications/docs/486_e9b622f3dc011575fc9daf2d566e154f.pdf