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, November 5, 2019

AI Summary. Official U.S. income inequality statistics exclude taxes and transfer payments; adjusting for them lowers the top quintile's share of national income from 52% to 34% and raises the bottom quintile's from 4% to 12%. The Gini coefficient, a standard inequality measure, falls from 0.48 to 0.34 after these adjustments.

Phil Gramm and John Early Wall Street Journal
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Income inequality in the US is often overstated due to exclusion of taxes & transfer payments. After accounting for these factors, the income gap narrows significantly. @PhilGramm @JohnEarly @WSJ.

Does accounting for taxes and transfers lower measured income inequality?

Core argument: The top quintile's share of U.S. national income falls from 52% to 34% once taxes and transfer payments are counted, while the bottom quintile's share rises from 4% to 12%.

Income inequality in the U.S. is often overstated due to the exclusion of taxes and transfer payments in official statistics. When accounting for these factors, the income gap between the top and bottom quintiles narrows significantly. The top quintile's share of national income drops from 52% to 34% after taxes and transfers, while the bottom quintile's share rises from 4% to 12%. This adjustment reveals that government policies play a crucial role in redistributing income and mitigating inequality. Furthermore, the Gini coefficient, a common measure of inequality, decreases from 0.48 to 0.34 when these adjustments are made, indicating a more equitable distribution than typically reported. These findings suggest that policy interventions have a substantial impact on reducing income disparities, challenging the prevailing narrative of widening inequality.

Takeaways by Macro Roundup® AI

  1. The top quintile's share of U.S. national income falls from 52% to 34% once taxes and transfer payments are counted, while the bottom quintile's share rises from 4% to 12%.
  2. The Gini coefficient for U.S. income declines from 0.48 to 0.34 after adjusting for taxes and transfers, indicating a more equitable distribution than official statistics report.
  3. Official U.S. inequality statistics exclude taxes and transfer payments, and accounting for them narrows the measured income gap, which challenges the prevailing narrative of widening inequality.

Phil Gramm and John Early, "The Truth About Income Inequality,"Wall Street Journal, November 3, 2019, https://www.wsj.com/articles/the-truth-about-income-inequality-11572813786

AI Summary. A critique argues that a Cato study overstates the effect of redistribution, claiming taxes and transfers cut the income ratio between the top and bottom fifths by 88.5%, while Congressional Budget Office data imply a 46% reduction. The critique attributes the gap to double counting and opaque allocation of transfers and taxes across income groups.

Phil Gramm and John Early Wall Street Journal
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Scott Winship critiques the methodology used by Gramm & Early, arguing their analysis overstates the impact of redistribution on income inequality.

Do some estimates overstate how much redistribution reduces income inequality?

Core argument: Scott Winship argues the Cato study's claim that redistribution cuts the top-to-bottom quintile income ratio by 88.5% is overstated, citing CBO data showing a 46% reduction instead.

Scott Winship critiques the methodology used by Gramm and Early in their analysis of income inequality, highlighting discrepancies in their findings. The Cato study claims redistribution reduces the income ratio between the top and bottom fifths by 88.5%, but Winship argues this is overstated, citing CBO data that shows a reduction of 46%. Before taxes and transfers, the lowest fifth received 2.2% of income, which increased to 12.9% after redistribution, while the middle fifth's share rose from 12.6% to 15.4%. Winship points out that the Cato study's approach involves double counting and lacks transparency in allocating transfers and taxes across income quintiles. He emphasizes the importance of using accurate data, noting that while the Cato study overstates redistribution, the actual impact is significant when measured correctly. Winship advocates for more effective redistribution policies that promote economic mobility without creating perverse incentives.

Takeaways by Macro Roundup® AI

  1. Scott Winship argues the Cato study's claim that redistribution cuts the top-to-bottom quintile income ratio by 88.5% is overstated, citing CBO data showing a 46% reduction instead.
  2. CBO data cited by Winship show the lowest fifth's income share rising from 2.2% before taxes and transfers to 12.9% after, while the middle fifth's share rose from 12.6% to 15.4%.
  3. Winship faults the Cato study by Gramm and Early for double counting and for lacking transparency in allocating transfers and taxes across income quintiles, while maintaining that correctly measured redistribution is significant.

Okay, so you'll see from his note that he's made some adjustments from his paper. This was Scott Winship's view on what that Cato analysis did (he seems to indicate the CBO numbers that you used in the book are a better baseline)

"....There's new Cato study on redistribution getting some attention. Headline finding: redistribution reduces the ratio of top fifth income to bottom fifth income by 88.5 percent. But that's overstating things. The latest CBO figures (for 2014) show that taxes and transfers reduce that ratio by 46%. That's a lot! But it's not 88.5%. Gramm and Ekelund cite the study's finding that before taxes and transfers the lowest fifth got 2.2% of 2015 income, vs the middle fifth's 12.6% while after taxes and transfers those figures narrowed to 12.9% and 15.4%. They say that resentment at redistribution drove Trump voters. I think that's true, but again, the Cato study considerably overstates things. In CBO data, pre-tax & -transfer shares are 7% for bottom fifth and 15% for middle fifth--not 13% and 15%. Why does the Cato study find so much more redistribution? It subtracts the transfer income received by households in the CBO data from federal, state, & local transfer *spending* and accounts for additional federal, state, and local taxes. Two issues here. First, while the NIPA data the reports uses involves transfers received by individuals, the CRS data it uses involves overall program spending. Early adds $200B in federal transfer spending to the amount missed by the CBO (boosting that amount by 22%). Some of that spending takes form of income received by people. But most of it involves administrative costs & payments to third parties to promote activity or service provision. A block grant might support local business intitiatives, eg. People get benefits from this spending in the form of government services or government-funded private activity, but those benefits can't be valued as $1 of income per $1 of spending. The direct "transfer" (income) part of this $200B that Early adds is mostly already *in* the NIPA estimate to which it is added--it's double counting. Second issue is how Early allocates the "transfers" missed by the CBO to income quintiles, and how he allocates the missed taxes. Concisely: he doesn't indicate how he does it. Unless I missed something. If a block grant costs $10B, how does one allocate the "income" between residents (at all income levels) who benefit from the resulting activity, the administrators whose compensation it covers, the shareholders who see higher business value as a result of subsidies, etc.? If you want to make provocative claims--which I support, when they're empirically supported!--you have to show your work. Period. If you're a liberal patting my head approvingly right now, I should emphasize the CBO numbers are very, very good, & too many of you don't take them seriously. The Cato study just *overstates* things, but the actual redistribution we do is significant when measured correctly. Guess that's it..... Oh wait: we should also distinguish between the amount of redistribution we do and how we do it. I'd favor spending more than we currently do if it promoted economic mobility better (by not having perverse incentives, by promoting work, etc.) & took more advantage of markets...."

Phil Gramm and John Early, "The Truth About Income Inequality,"Wall Street Journal, November 3, 2019, https://www.wsj.com/articles/the-truth-about-income-inequality-11572813786

"...The average bottom-quintile household earns only $4,908, while the average top-quintile one earns $295,904, or 60 times as much. But using official government data sources on taxes and all transfer payments to compute net income produces the more complete comparison displayed in the nearby chart....."

maybe in the book he will show the work

what I don't understand about this numbers (when I was trying to figure out what adjustments he made) is according to theCBO's 2016(so published this summer) market income numbers, the lowest quintile by household eared 5000 in 2016 (so ~ lines up with his number, 4,908) but BCO's highest quintile earns 158,600. which is half of his 300,000) number. and that market income measure is pretty wholesome, "...Market income consists of labor income; business income; capital income (including capital gains); income received in retirement for past services; and other nongovernmental income sources..."so it's capturing capital income.

It’s the gov transfers to the bottom quintile that interests me, not the market incomes.

AI Summary. Business investment growth slowed from 5.4% to 2.1% after the 2017 US tax cuts, with investment in structures falling 4% and equipment investment growth decelerating to 0.8%. The anticipated surge in capital spending has not materialized, raising questions about the effectiveness of tax incentives in driving corporate spending.

Greg Ip Wall Street Journal
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@greg_ip Tax cuts underperform, with business investment slowing to 2.1% in 2019, and investment in structures falling by 4%. This underperformance may embolden Democrats to reverse tax cuts.

Have corporate tax cuts delivered the expected surge in business investment?

Core argument: Business investment growth slowed from 5.4% in 2018 to 2.1% in 2019, indicating that the 2017 tax cuts did not sustain the expected boost to capital spending.

Despite the 2017 tax cuts aimed at boosting business investment, data shows a decline in investment in structures and equipment. Business investment, which initially rose by 5.4% in 2018, slowed to 2.1% in 2019, indicating that the tax cuts have not sustained the expected economic momentum. The anticipated surge in capital spending has not materialized, with investment in structures falling by 4% and equipment investment growth decelerating to 0.8% in Q3 2019. This underperformance suggests that the tax cuts have not effectively stimulated long-term economic growth as intended, potentially strengthening the position of Democrats advocating for a reversal of these policies. The lack of significant investment response raises questions about the efficacy of tax incentives in driving corporate spending and economic expansion, highlighting a disconnect between policy expectations and actual business behavior.

Takeaways by Macro Roundup® AI

  1. Business investment growth slowed from 5.4% in 2018 to 2.1% in 2019, indicating that the 2017 tax cuts did not sustain the expected boost to capital spending.
  2. Investment in structures fell 4% and equipment investment growth decelerated to 0.8% in the third quarter of 2019, with the anticipated surge in capital spending failing to materialize.
  3. The weak investment response to the 2017 tax cuts could strengthen the position of Democrats advocating reversal and raises questions about the efficacy of tax incentives in driving corporate spending.

Trumps Tax Cut Underdelivers, Which Could Embolden Democrats Who Want It Reversed: Extended Excerpt Image 1


Greg Ip, "Trump’s Tax Cut Underdelivers, Which Could Embolden Democrats Who Want It Reversed,"Wall Street Journal, October 30, 2019, https://www.wsj.com/articles/trumps-tax-cut-underdelivers-which-could-embolden-democrats-who-want-it-reversed-11572447580

Thursday, November 7, 2019

AI Summary. Federal Reserve research estimates that the equilibrium real interest rate — the rate consistent with a balanced economy — declined from about 2% in the mid-1990s to about 0% in 2019 across 13 advanced economies, with global shocks playing a significant role. The authors find the US rate is likely negative and that single-country models may overestimate it.

Michael Kiley Federal Reserve Board
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New Fed research suggests the US equilibrium real interest rate is likely negative, driven by global economic factors, with estimates showing a decline from ~2% in the mid-1990s to ~0% in 2019.

Has the equilibrium real interest rate declined across advanced economies?

Core argument: Fed research estimates the median equilibrium real interest rate across 13 advanced economies fell from roughly 2% in the mid-1990s to about 0% in 2019, with global shocks playing a significant role.

Recent Fed research indicates that the equilibrium real interest rate (r*) in the US is likely negative, driven by global economic factors. Estimates show a decline in the median equilibrium rate from ~2% in the mid-1990s to ~0% in 2019, with global shocks playing a significant role. This trend is consistent across 13 advanced economies, suggesting that the US rate may be lower than previously thought. The analysis highlights the importance of integrating global trends into models, as individual-country approaches may overestimate US rates. Persistently low real interest rates over the past decade have led economists and policymakers to anticipate that these rates will remain low. The global approach underscores the need to better incorporate term-structure and macroeconomic models to understand these dynamics, reflecting the low interest rates among advanced economies compared to US levels.

Takeaways by Macro Roundup® AI

  1. Fed research estimates the median equilibrium real interest rate across 13 advanced economies fell from roughly 2% in the mid-1990s to about 0% in 2019, with global shocks playing a significant role.
  2. Fed research indicates the US equilibrium real interest rate (r*) is likely negative and driven by global economic factors, and lower than previously thought.
  3. The analysis argues that individual-country approaches may overestimate the US equilibrium rate, and that term-structure and macroeconomic models need to better incorporate global trends.

New Fed research suggests that equilibrium interest rates (r*) in the US is likely negative. new support your point fromUnintendedthat a globalized economic increase risk adverse savings and drive down real rates of return on safe assets"....Two takeaways are apparent. All approaches show a decline in the equilibrium real interest rate. In addition,the decline is more significant for the two approaches that take a global perspective and use the entire set of countries to inform the estimate of the equilibrium real interest rate.For example, the simple approach—which is applied country-by-country—yields a decline in the central tendency of estimates (the median) from about 2 percent in the mid-1990s to a bit below 1 percent in 2019. Both the term structure and simple macroeconomic model approach yield a decline in the median estimate of the equilibrium real interest rate from about 2 percent in the mid-1990s to about 0 percent in 2019. Examination of the contribution of the global shocks to the evolution of the equilibrium real interest rate illustrates further the importance of a global perspective.Figure 3 presents the short term real interest rate for the United States (solid blue line) along with the estimate of the equilibrium real interest rate (black-dashed line) and the contribution of the global shock to the equilibrium real interest rate (red-dashed-dotted line) for the past 25 years and for both the term structure model and the small macroeconomic model. It is immediately apparent that the decline in the in the equilibrium real interest rate owes primarily to the global component...Real interest rates have been persistently below historical norms over the past decade, leading economists and policymakers to view the equilibrium real interest rate as likely to be low for some time. Various definitions and approaches to estimating the equilibrium real interest rate are examined, including approaches based on the term-structure of interest rates and small macroeconomic models. The individual-country approaches common in the literature are extended to allow for global trend and cyclical factors. The analysisfinds that global factors dominate the downward trend in the equilibrium interest rate across 13 advanced economies. A corollary of this finding is that the U.S. equilibrium rate may be substantially lower than estimated in U.S.-only studies.The analysis also highlights how the common global trend confounds empirical assessments of the determinants of movements in the equilibrium rate and the need to better integrate term-structure and macroeconomic approaches.....The global approach also suggests that the equilibrium real interest rate in the United States may be lower than appreciated, reflecting the low level of interest rates among advanced economies relative to U.S. levels...."

The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges: Extended Excerpt Image 1


The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges: Extended Excerpt Image 2


The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges: Extended Excerpt Image 3


Michael Kiley, "The Global Equilibrium Real Interest Rate: Concepts, Estimates, and Challenges," Federal Reserve Board, 2019, https://www.federalreserve.gov/econres/feds/files/2019076pap.pdf

AI Summary. Only 38% of venture capital funds tracked over two decades delivered returns above the traditional 8% hurdle rate. Average holding periods lengthened, with funds raised from 1999 to 2012 backing companies an average of 5.7 years before exit, versus 3.6 years for 1992–1998 vintages.

Christine Idzelis eFront
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Only 38% of VC funds tracked over two decades achieved returns exceeding the traditional 8% hurdle, highlighting challenges in the sector.

Do most venture capital funds clear their traditional hurdle rate?

Core argument: Only 38% of venture capital funds tracked over two decades returned more than the traditional 8% hurdle rate, which is typically calculated as a time-sensitive internal rate of return.

Only 38% of VC [Venture Capital] funds tracked over two decades achieved returns exceeding the traditional 8% hurdle, highlighting challenges in the sector. The hurdle rate, often calculated as an internal rate of return, is time-sensitive and reflects the performance expectations for investors. Average holding periods in VC have increased, with funds from 1999 to 2012 backing companies for an average of 5.7 years before exit, compared to 3.6 years for vintages from 1992 to 1998. This extended duration may impact the ability of funds to meet or exceed the hurdle rate, as longer holding periods can delay returns and increase risk exposure. The data suggests that despite the potential for high returns, a significant portion of VC funds struggle to deliver gains that surpass traditional benchmarks, posing questions about the efficiency and timing of investments in this asset class.

Takeaways by Macro Roundup® AI

  1. Only 38% of venture capital funds tracked over two decades returned more than the traditional 8% hurdle rate, which is typically calculated as a time-sensitive internal rate of return.
  2. Venture funds from vintages 1999–2012 held portfolio companies for an average of 5.7 years before exit, up from 3.6 years for 1992–1998 vintages.
  3. Longer holding periods may impair venture funds' ability to meet or exceed the 8% hurdle, since delayed exits push back returns and extend risk exposure.

"...Only 38 percent of VC funds tracked over two decades produced gains exceeding the traditional 8 percent hurdle, according to a statement Monday from the alternative-assets data provider. Hurdle rates are time sensitive as they’re typically calculated as an internal rate of return....The average holding periods in venture capital have risen, according to eFront. Funds created from 1999 to 2012 backed companies for an average 5.7 years before an exit, up from 3.6 years for vintages tracked from 1992 to 1998, the firm found...."
Christine Idzelis, "Venture Capital Struggles to Meet Hurdle Rate,"Institutional Investor, July 15, 2019, https://www.institutionalinvestor.com/article/b1g92ldh2p8k2r/Venture-Capital-Struggles-to-Meet-Hurdle-Rate

AI Summary. Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, and fewer than 4% of those investments returned 10x or more. Measured by number of financings rather than dollars, nearly two-thirds failed to generate profits for investors.

David Coats Medium
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51% of all capital invested into VC-funded firms lost money; <4% generated a 10x or greater return.

How often do venture capital investments lose money?

Core argument: Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, and less than 4% of those investments achieved a 10X or greater return.

Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, highlighting the high-risk nature of VC investments. Despite the allure of substantial returns, less than 4% of these investments achieved a 10X or greater return. When assessed by the number of financings rather than dollar amounts, the situation appears even more skewed, with nearly two-thirds of financings failing to generate profits for investors. This data underscores the competitive and unpredictable landscape of venture capital, where the "hit rate"—the percentage of invested dollars yielding significant returns—has been largely eroded as VC became a mainstream asset class post-dot-com bubble. The analysis of exit years since 1990 reveals a persistent challenge in achieving consistent high returns, emphasizing the need for strategic investment approaches in this volatile sector.

Takeaways by Macro Roundup® AI

  1. Over the past decade, 51% of capital invested in venture-funded firms resulted in losses, and less than 4% of those investments achieved a 10X or greater return.
  2. Measured by number of financings rather than dollars invested, nearly two-thirds of venture financings failed to generate profits for investors.
  3. The "hit rate," the share of invested dollars yielding significant returns, has been largely eroded as venture capital became a mainstream asset class after the dot-com bubble, according to an analysis of exit years since 1990.

VC returns (though this isn't risk adjusted) interesting point on the "hit rate" (% of invested dollars generating a 10X or greater return) seems it basically was competed away as VC became an asset class in the aftermath of the.com bubble bursting

Venture Capital - No, We're Not Normal: Extended Excerpt Image 1


Venture Capital - No, We're Not Normal: Extended Excerpt Image 2


"...About half (51%) of all of the capital invested into venture-funded companies exiting over the last decade lost money, whileless than 4% generated a 10X or greater multiple.When calculated as a percent of financings, rather than by dollars, the distribution is even more skewed: almost two thirds of financings lost money for investors....We were curious as to how the “hit rate” — which we defined as the percent of invested dollars generating a 10X or greater return — has changed over time, and how closely this tracks overall industry returns. The graph below plots the hit rate versus mean dollar-weighted realized multiple for the U.S. venture industry for each exit year since 1990..."
David Coats, "Venture Capital - No, We're Not Normal," Medium, September 11, 2019, https://medium.com/correlation-ventures/venture-capital-no-were-not-normal-32a26edea7c7

AI Summary. The authors estimate that venture capital investments in start-ups earn substantial positive risk-adjusted returns while venture capital funds' risk-adjusted returns are near zero. The systematic part of these payoffs resembles the negatively skewed returns from selling index put options; including those in the pricing model turns fund returns negative.

Arthur Korteweg andStefan Nagel National Bureau of Economic Research
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Research by @ArthurKorteweg and @StefanNagel finds VC start-up investments yield substantial positive abnormal returns, while VC fund returns are near zero when risk-adjusted.

Do venture capital funds deliver positive risk-adjusted returns to investors?

Core argument: Using adapted stochastic discount factor methods, the authors estimate that venture capital start-up investments yield substantial positive abnormal returns while VC fund abnormal returns are near zero, suggesting start-up investments outperform funds on a risk-adjusted basis.

Evaluating VC [Venture Capital] payoffs is complex due to infrequent, skewed returns realized over varying time horizons. Using adapted stochastic discount factor methods, we find that VC start-up investments yield substantial positive abnormal returns, while VC fund abnormal returns are near zero. This suggests that start-up investments outperform traditional VC funds when risk-adjusted. The systematic component of these payoffs resembles the negatively skewed returns from selling index put options, contrasting with the positive skewness of idiosyncratic payoffs. Incorporating index put option returns into the SDF results in negative abnormal returns for VC funds, yet start-up investments maintain large positive returns, highlighting their superior performance in risk-adjusted terms.

Takeaways by Macro Roundup® AI

  1. Using adapted stochastic discount factor methods, the authors estimate that venture capital start-up investments yield substantial positive abnormal returns while VC fund abnormal returns are near zero, suggesting start-up investments outperform funds on a risk-adjusted basis.
  2. The systematic component of venture capital payoffs resembles the negatively skewed returns from selling index put options, in contrast to the positive skewness of the idiosyncratic payoffs.
  3. Incorporating index put option returns into the stochastic discount factor turns venture capital fund abnormal returns negative, while start-up investments retain large positive abnormal returns.

“….Performance evaluation of venture-capital (VC) payoffs is challenging because payoffs are infrequent, skewed, realized over endogenously varying time horizons, and cross- sectionally dependent. We show that standard stochastic discount factor (SDF) methods can be adapted to handle these issues. Our approach generalizes the Public Market Equivalent (PME) measure commonly used in the private-equity literature.We find that the abnormal returns from both VC funds and VC start-up investments are robust to relaxing the strong distributional assumptions and implicit SDF restrictions from the prior literature: VC start-up investments earn substantial positive abnormal returns, and VC fund abnormal returns are close to zero.We further show that the systematic component of start-up company and VC fund payoffs resembles the negatively skewed payoffs from selling index put options, which contrasts with the call option-like positive skewness of the idiosyncratic payoffs. Motivated by this finding, we explore an SDF that includes index put option returns. This results in negative abnormal returns to VC funds, while the abnormal returns to start-up investments remain large and positive….”

Risk-Adjusting the Returns to Venture Capital: Extended Excerpt Image 1

Arthur Korteweg andStefan Nagel, “Risk-Adjusting the Returns to Venture Capital,” National Bureau of Economic Research, August 2013, https://www.nber.org/papers/w19347

AI Summary. The US and Israel lead in venture capital investment at over 0.4% of GDP, while many European countries report levels below 0.1%. Venture capital as a share of GDP serves as an indicator of entrepreneurial activity, and the gap reflects differing levels of support and infrastructure for startups.

OECD Staff OECD
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The US and Israel led with venture capital investments exceeding 0.4% of GDP in 2018, while many European nations reported figures below 0.1%.

How much more venture capital do the US and Israel attract?

Core argument: The United States and Israel led venture capital investment in 2018 at more than 0.4% of GDP, while many European countries reported levels below 0.1%.

Venture capital investments as a % of GDP provide a crucial indicator of entrepreneurial activity and economic dynamism. In 2018, countries like the US and Israel led with venture capital investments exceeding 0.4% of GDP, highlighting their robust startup ecosystems. In contrast, many European nations reported figures below 0.1%, indicating potential areas for policy intervention to stimulate innovation. The disparity underscores the varying levels of support and infrastructure available for startups across different regions. This data suggests that higher venture capital investment correlates with increased entrepreneurial activity, which can drive economic growth and job creation. Policymakers can leverage these insights to enhance their countries' competitiveness by fostering environments conducive to venture capital and entrepreneurship. As global competition intensifies, understanding these dynamics becomes essential for sustaining long-term economic development.

Takeaways by Macro Roundup® AI

  1. The United States and Israel led venture capital investment in 2018 at more than 0.4% of GDP, while many European countries reported levels below 0.1%.
  2. Higher venture capital investment correlates with increased entrepreneurial activity, which can drive economic growth and job creation.
  3. The gap in venture capital as a share of GDP reflects differing levels of support and infrastructure for startups across regions.

OECD, "Entrepreneurship at a Glance Highlights 2018," Organisation for Economic Co-operation and Development," October 10, 2018, https://www.oecd.org/sdd/business-stats/EAG-2018-Highlights.pdf

AI Summary. The US produces only about 15 startups a year with significant growth potential, despite lower costs of starting a firm. Over the past 30 years just 7% of venture capital investments returned 10x or more, yet those deals generated 65% of the industry's profits.

Economist Staff The Economist
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7% of VC investments yielded a 10x return, accounting for 65% of the industry’s profits, highlighting the high-risk, high-reward nature of VC funding.

Do a small number of startups drive venture capital profits?

Core argument: Over the past 30 years, only 7% of venture capital investments have returned tenfold, yet those deals accounted for 65% of the industry's profits.

Despite the lower costs of starting a firm today, the number of startups with significant growth potential in the US remains limited to about 15 annually. Over the past 30 years, only 7% of VC [Venture Capital] investments have yielded a tenfold return, yet these successful investments have been crucial, accounting for 65% of the industry's profits. This highlights the disproportionate impact of a small fraction of investments on overall profitability, underscoring the high-risk, high-reward nature of VC funding. The data suggests that while many startups may emerge, only a select few drive substantial economic gains, emphasizing the importance of strategic investment decisions in the VC landscape.

Takeaways by Macro Roundup® AI

  1. Over the past 30 years, only 7% of venture capital investments have returned tenfold, yet those deals accounted for 65% of the industry's profits.
  2. The number of US startups with significant growth potential remains limited to about 15 a year, despite the lower costs of starting a firm today.

"....It may be cheaper to start a firm today, but in America the startups with a chance of making it really big each year still number around 15. Over 30 years, just 7% of the industry’s investments brought a tenfold return, and these accounted for 65% of the industry’s profits, reckons Fred Giuffrida of Horsley Bridge Partners, a “fund of funds” that spreads its bets across many VC firms...."
Economist Staff, "Disrupters disrupted,"The Economist, May 14, 2015, https://www.economist.com/finance-and-economics/2015/05/14/disrupters-disrupted

AI Summary. The market capitalization of listed domestic companies as a share of GDP rose from 48% to 149% in the US between 1980 and 2018, from 34% to 107% in Japan, from 8% to 85% in France, and from 8% to 44% in Germany. The data exclude investment funds and companies that solely hold shares of other listed firms.

Steve Market The World Bank
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Market capitalization of listed domestic companies as a % of GDP has shown significant growth across major economies since 1980. US rose from 48% in 1980 to 149% by 2018.

How much has stock market value grown relative to GDP?

Core argument: US market capitalization of listed domestic companies rose from 48% of GDP in 1980 to 149% at the end of 2018, according to World Federation of Exchanges data.

The market capitalization of listed domestic companies as a % of GDP has shown significant growth across major economies since 1980. In the US, this figure rose from 48% in 1980 to 149% by the end of 2018, reflecting substantial market expansion. Japan experienced a similar trend, with market capitalization increasing from 34% to 107% over the same period. France saw an even more dramatic rise from 8% to 85%, while Germany's market capitalization grew from 8% to 44%. These changes highlight the increasing importance of equity markets in national economies, driven by factors such as financial market development and investor confidence. The data, sourced from the World Federation of Exchanges, excludes investment funds and companies solely holding shares of other listed firms, providing a focused view on domestic company performance. This trend underscores the growing role of stock markets in economic growth and capital allocation.

Takeaways by Macro Roundup® AI

  1. US market capitalization of listed domestic companies rose from 48% of GDP in 1980 to 149% at the end of 2018, according to World Federation of Exchanges data.
  2. Japan's market capitalization climbed from 34% to 107% of GDP between 1980 and 2018, while France's rose from 8% to 85% and Germany's from 8% to 44%.
  3. The World Federation of Exchanges data exclude investment funds and companies that solely hold shares of other listed firms.

Ed, The World Bank has a series, market capitalization of domestic firms as a % of GDP going back to 1975 (1980 for US). Note the data is annualized to the end of the year so that's why you see those swings (ie reflects the sellout in December of 2018, but not 2019 performances). In 1980 the US market as a percentage of GDP was 48%, as of the end of 2018 that's 149%. Over that same time period Japan went from 34% to 107%. France went from 8% to 85%. Germany went from 8% to 44%. This is what it captures, "...Market capitalization (also known as market value) is the share price times the number of shares outstanding (including their several classes) for listed domestic companies. Investment funds, unit trusts, and companies whose only business goal is to hold shares of other listed companies are excluded. Data are end of year values...."The data is from the World Federation of Exchanges. Steve

Market capitalization of listed domestic companies (% of GDP): Extended Excerpt Image 1


Market capitalization of listed domestic companies (% of GDP)," The World Bank, Accessed November 4, 2019, https://data.worldbank.org/indicator/cm.mkt.lcap.gd.zs