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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
  • “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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, June 12, 2020

AI Summary. Households between the 80th and 99th percentiles saw their share of pretax income rise from 29% to 31%, while the top 1% share rose from 9% to 16% and the bottom 20% share fell from 7% to 5%.

CBO Staff Congressional Budget Office
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The share of pretax income for households in the 80th to 99th % increased modestly from 29% to 31% btw 1979 and 2016, @USCBOOffice reports.

How has the share of pretax income shifted across households?

Core argument: The top 1% of households saw their share of pretax income rise from 9% to 16% between 1979 and 2016.

Between 1979 and 2016, the share of pretax income for households in the 80th to 99th % increased modestly, reflecting a shift in income distribution. This group saw their share rise from 29% to 31%, indicating a gradual concentration of income among higher earners. In contrast, the bottom 20% experienced a decline in their share from 7% to 5%, highlighting growing income inequality. The top 1% saw a more significant increase, with their share rising from 9% to 16%, underscoring the disproportionate gains at the very top. These changes suggest that while the middle-upper income brackets have seen some growth, the most substantial gains have been concentrated among the wealthiest, raising concerns about economic disparity and its implications for economic policy and social equity.

Takeaways by Macro Roundup® AI

  1. The top 1% of households saw their share of pretax income rise from 9% to 16% between 1979 and 2016.
  2. Households in the 80th to 99th percentiles increased their share of pretax income from 29% to 31% between 1979 and 2016.
  3. The bottom 20% of households saw their share of pretax income fall from 7% to 5% between 1979 and 2016.

Congressional Budget Office (CBO). July 9, 2019. “The Distribution of Household Income, 2016.”https://www.cbo.gov/publication/55413

Monday, June 15, 2020

AI Summary. Private equity firms have collected $230bn in performance fees, while the industry's returns net of fees have tracked closely with public equity markets.

Chris Flood Financial Times
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Private equity firms have amassed $230bn in performance fees since 2006, reflecting their ability to generate returns comparable to public equities.

Do private equity returns after fees match public markets?

Core argument: Private equity firms have collected $230bn in performance fees, a figure reflecting returns broadly comparable to those of public equity markets.

Since 2006, net fee performance in private equity (PE) has aligned closely with public equity markets, underscoring the sector's robust growth. PE firms have amassed $230bn in performance fees, reflecting their ability to generate returns comparable to public equities. This alignment suggests that PE has become a significant player in the broader financial landscape, offering competitive returns that attract substantial capital inflows. The $230bn figure highlights the lucrative nature of PE investments, driven by strategic asset management and market timing. As PE continues to mirror public market performance, it underscores the sector's resilience and adaptability in varying economic climates. This trend has implications for investors seeking diversified portfolios, as PE offers an alternative avenue for achieving market-like returns with potentially different risk profiles.

Takeaways by Macro Roundup® AI

  1. Private equity firms have collected $230bn in performance fees, a figure reflecting returns broadly comparable to those of public equity markets.
  2. Private equity's net-of-fee performance has tracked closely with public equity markets since 2006.

Chris Flood, "Private equity barons grow rich on $230bn of performance fees,"Financial Times, June 15, 2020, https://www.ft.com/content/803cff77-42f7-4859-aff1-afa5c149023c

Ed Comment:I agree with the analysis but not the implications. Here’s a few thoughts: 1) no surprise investors try to outperform if it doesn’t cost them to try as it appears not to, notwithstanding risk-adjustments. 2) if everyone invested in only public equities and other less-liquids business investments, the economy would grow slower and more skewed since a large part of the economy is not large public companies. So it’s important that investors try to outperform in sectors other than large public companies. 3) I feel a moral obligation to try to do more than buy legal contracts to preexisting future cashflows, ie to make real investments. 4) from a macro perspective, If I buy a stock (i.e. a legal contractual right to already-existing future cashflows), the seller has to do something with their proceeds—either consume them or make real investments outside of the corporate sector where, inside the large public company sector, investment is largely funded by internal cashflows. So good thing investors are trying to invest and not just consume. 5) due diligence is essential to investing outside the corp sector where corporations do the due diligence. Otherwise, you get fleeced. So aren’t we lucky that there is enough return (above the corporate sector) to fund it and not end up with returns that are less than the corp sector? 6) in part that’s because, no surprise, the market is in equilibrium. The more you skew investment toward the corp sector, the lower the returns, and vice versa. People should start/stop skewing until the equilibrate. …and they have. 7) isn’t the guy’s opinion therefore a steaming pile of crap?

note Ivanshina/Lerner who the article also cites are cited in chapter (chart we cite attached)

"... a Analysis which estimates investors paid $230bn in performance fees over a 10-year period for returns that could have been matched by an inexpensive tracker fund costing just a few basis points....“The performance of PE funds, net of fees, matched that of public equity markets since 2006,” said Mr Phalippou....

AI Summary. An analysis projects a set of tax proposals aimed at high-income households would raise $3.8tn over a decade and reduce GDP by 0.06%. The top 1% of earners would see the largest increase, with after-tax income falling 17.8% and an average tax increase of $118,674.

Kyle Pomerleau, Jason DeBacker and Richard Evans American Enterprise Institute
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Biden tax proposals would raise $3.8tn from 2021 to 2030, primarily targeting high-income households. This plan would increase tax rates, leading to a 0.06% reduction in GDP over the next decade.

How much would taxing high-income households raise, and at what economic cost?

Core argument: Biden's tax proposals are projected to raise $3.8tn from 2021 to 2030, primarily targeting high-income households to make the tax code more progressive.

Biden's tax proposals are projected to raise $3.8tn from 2021 to 2030, primarily targeting high-income households to make the tax code more progressive. This plan would increase effective tax rates on individuals and businesses, leading to a 0.06% reduction in GDP over the next decade. The top 1% of earners would experience the largest tax increase, with their after-tax income decreasing by 17.8%, contributing 72% of new tax revenue in 2021. Despite reducing the debt-to-GDP ratio in the second decade, the plan would not stabilize it long-term, resulting in a 0.2% smaller economy. The average tax increase for the top 1% would be $118,674, and they would continue to face significant tax hikes through 2030.

Takeaways by Macro Roundup® AI

  1. Biden's tax proposals are projected to raise $3.8tn from 2021 to 2030, primarily targeting high-income households to make the tax code more progressive.
  2. The top 1% of earners would face the largest tax increase under Biden's plan, with after-tax income falling 17.8%, an average increase of $118,674, and 72% of new tax revenue in 2021.
  3. Biden's plan is projected to reduce GDP by 0.06% over the next decade and leave the economy 0.2% smaller, and while it lowers the debt-to-GDP ratio in the second decade, it would not stabilize it long-term.

AEI analysis of Biden’s tax proposal“…Biden’s tax proposals would raise roughly $3.8 trillion between 2021 and 2030. His proposals would primarily raise taxes on high-income households and make the tax code more progressive. Biden’s proposals would raise effective tax rates on both individuals and businesses, resulting in lower output in the first decade. His plan would reduce debt-to-GDP in the second decade, leading to slightly higher GDP. However, in the long term, his plan would not raise enough to stabilize debt-toGDP and would lead to a 0.2 percent smaller economy…. Under Biden’s tax proposals, the top 1 percent would face the largest tax increase. That group’s after-tax income would fall by 17.8 percent. Overall, 72 percent of new tax revenue in 2021 would come from the top 1 percent of tax filers. This group would face an average tax increase of $118,674. This group would continue to face the largest tax increase in 2030….”

Kyle Pomerleau, Jason DeBacker and Richard Evans, “An Analysis Of Joe Biden’s Tax Proposals,” American Enterprise Institute, June 2020, https://www.aei.org/wp-content/uploads/2020/06/An-Analysis-of-Joe-Bidens-Tax-Proposals.pdf

AI Summary. The authors find that U.S. wartime government research spending through the Office of Scientific Research and Development shaped post-war innovation by catalyzing local technology clusters and research ecosystems. Counties with a doubling of wartime government-funded patents in the 1940s are estimated to have seen 60-65% higher communications and electronics employment by the 1970s.

Daniel Gross, Bhaven Sampat National Bureau of Economic Research
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WWII R&D impact: Counties with 2x OSRD patents see +60-65% tech employment by 1970s. Wartime innovation clusters drive long-term regional economic specialization. @nberpub

Does wartime government research spending create lasting local technology clusters?

Core argument: Counties with a doubling of Office of Scientific Research and Development (OSRD) patents in the 1940s saw a 60–65% increase in Communications and Electronics employment by the 1970s.

The U.S. government's WWII R&D efforts, led by the OSRD [Office of Scientific Research and Development], significantly influenced post-war innovation and economic growth. By investing orders of magnitude more in science than before, the OSRD catalyzed the formation of technology clusters and local research ecosystems, including universities and federally-funded centers. These clusters not only boosted local invention but also spurred manufacturing employment in related industries. For instance, counties with a doubling of OSRD patents in the 1940s saw a 60-65% increase in Communications and Electronics employment by the 1970s. This demonstrates how wartime R&D efforts extended beyond technology creation, fostering broader economic development and specialization in high-tech industries.

Takeaways by Macro Roundup® AI

  1. Counties with a doubling of Office of Scientific Research and Development (OSRD) patents in the 1940s saw a 60–65% increase in Communications and Electronics employment by the 1970s.
  2. The OSRD invested orders of magnitude more in science than prior U.S. government efforts, catalyzing technology clusters and local research ecosystems including universities and federally funded research centers.
  3. The WWII research effort extended beyond technology creation, boosting local invention, manufacturing employment in related industries, and specialization in high-tech industries.

New NBER finds significant spillover effects from Government R&D efforts during the second world war beyond just creating technology clusters (ie positive spillover from the clusters the government spending put in motion)

“….During World War II, the U.S. government launched an unprecedented effort to mobilize science for war: the newly-established Office of Scientific Research and Development (OSRD) entered thousands of R&D contracts with industrial and academic contractors, spending one to two orders of magnitude more than what the government was previously investing in science. In this paper, we study the long-run effects of the OSRD-supported research effort on U.S. invention. Using data on all OSRD contracts, we show that these investments had large effects on the direction and location of U.S. invention and high-tech industrial employment, setting in motion agglomeration forces which shaped the technology clusters of the postwar era. Our results demonstrate the effects of a large, mission-driven government R&D program on the growth of domestic technology clusters and long-run technological progress…. Rather, it appears entire local research ecosystems sprung up in the locations and technology areas where OSRD activity was concentrated – including universities, federally-funded research centers, and private invention.The long-lived effects of the OSRD may in turn be reflected in higher-order patent citation linkages, and supported by university spillovers to local invention, federally-funded research centers, Cold War defense R&D spending, or other local research activities – all of which we are exploring in ongoing research. As it stands, the evidence suggests the OSRD built up local scientific and technological capabilities that allowed local innovation to thrive after the war. Our final set of results explores how the OSRD affected not just inventive output, but entire local economies. Using U.S. County Business Patterns (CBP) data, we take our analysis to county-level manufacturing employment in industries closely tied to the wartime research effort. We show that in counties with more OSRD-supported patents in electronics technology classes, employment in the Communications and Electronics industries is substantially higher after the war – even conditional on total related patenting. Empirically, a doubling of OSRD patents in the 1940s is associated with 60-65% higher employment in these industries in the 1970s. Our interpretation is that the OSRD not only deepened local technology clusters and increased local invention over the long-run, but also created jobs in associated manufacturing industries….Given that these effects are largest in columns controlling for total employment, our interpretation of this evidence is that counties where the wartime research was performed were subsequently more likely to be loci of electronics and communications manufacturing, and in turn more specialized in these high-tech industries versus others. The upshot, however, is that the seeds planted by the wartime research effort appears to have also sprouted local industrial activity, spilling over from the inventive sector to the local economy more broadly…”

Inventing the Endless Frontier: The Effects of the World War II Research Effort on Post-war Innovation: Extended Excerpt Image 1

Daniel Gross, Bhaven Sampat, “Inventing the Endless Frontier: The Effects of the World War II Research Effort on Post-war Innovation,” National Bureau Of Economic Research, June 2020, https://www.nber.org/papers/w27375