Edward Conard

Top Ten New York Times Bestselling Author

  • “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 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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, July 27, 2020

AI Summary. White households hold 10x the wealth of Black households, and labor force participation is higher among white individuals than Black individuals. The argument is that antiracist policies expanding equitable access to education and capital could support economic growth by widening the talent pool and fostering entrepreneurship.

National Museum Of African American History And Culture National Museum Of African American History And Culture
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Whiteness often correlates with higher income levels, with white households holding 10x the wealth of Black households as of 2020. This disparity affects consumer spending, savings rates, & investment patterns, contributing to broader economic inequality.

Can antiracist policies expanding access to education and capital boost growth?

Core argument: White households held 10 times the wealth of Black households as of 2020, a disparity affecting consumer spending, savings rates, and investment patterns and contributing to broader economic inequality.

The economic implications of whiteness and white culture in the US are significant, influencing labor markets, wealth distribution, and access to resources. Whiteness often correlates with higher income levels, with white households holding 10x the wealth of Black households as of 2020. This disparity affects consumer spending, savings rates, and investment patterns, contributing to broader economic inequality. The labor force participation rate (LFP) for white individuals is consistently higher than for Black individuals, impacting GDP growth and productivity. Addressing these disparities through antiracist policies could enhance economic efficiency by increasing workforce diversity and innovation. Moreover, equitable access to education and capital for marginalized groups can stimulate economic growth by expanding the talent pool and fostering entrepreneurship.

Takeaways by Macro Roundup® AI

  1. White households held 10 times the wealth of Black households as of 2020, a disparity affecting consumer spending, savings rates, and investment patterns and contributing to broader economic inequality.
  2. The labor force participation rate for white individuals is consistently higher than for Black individuals, with implications for GDP growth and productivity.
  3. Antiracist policies, including equitable access to education and capital for marginalized groups, could enhance economic efficiency by expanding the talent pool, increasing workforce diversity, and fostering entrepreneurship and innovation.

“Being Antiracists,” National Museum Of African American History And Culture, Accessed July 27, 2020, https://nmaahc.si.edu/learn/talking-about-race/topics/being-antiracist

AI Summary. The share of US companies whose debt-servicing costs exceed their profits has risen, a trend attributed to Federal Reserve support and prolonged low interest rates. These "zombie firms" are less productive and are argued to crowd out investment and employment at more efficient companies, weighing on the economy's long-term growth rate.

Ryan Banerjee and Boris Hofmann Bank for International Settlements
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US companies with debt servicing costs exceeding profits have risen since the 2008 financial crisis, driven by Fed support & low interest rates.

Do low interest rates keep unproductive firms alive and slow growth?

Core argument: The share of US companies whose debt servicing costs exceed their profits has risen since the 2008 financial crisis, which the authors attribute to aggressive Federal Reserve support and prolonged low interest rates.

Since the 2008 financial crisis, the share of US companies with debt servicing costs exceeding profits has risen, driven by aggressive Fed support and prolonged low interest rates. This trend is expected to persist as the Fed remains committed to low rates and credit market support. The increasing prevalence of firms with an interest coverage ratio below one poses a macroeconomic challenge, as these "zombie firms" are less productive and hinder investment and employment in more efficient companies. Consequently, the long-term growth rate of the economy is adversely affected by the survival of these unproductive firms.

Takeaways by Macro Roundup® AI

  1. The share of US companies whose debt servicing costs exceed their profits has risen since the 2008 financial crisis, which the authors attribute to aggressive Federal Reserve support and prolonged low interest rates.
  2. Firms with an interest coverage ratio below one, labeled "zombie firms," are less productive and hinder investment and employment in more efficient companies, posing a macroeconomic challenge.
  3. The survival of unproductive zombie firms adversely affects the economy's long-term growth rate, and the trend is expected to persist as the Federal Reserve remains committed to low rates and credit market support.

Here is the full text of the note: “One consequence of aggressive Fed support to credit markets and long periods of low interest rates is that it interferes with the process of creative destruction and keeps companies alive that would otherwise have gone out of business. Since the 2008 financial crisis, leverage in the corporate sector has increased significantly, andthe share of companies in the United States which have debt servicing costs that are higher than profits has continued to increase, see chart below. This trend with a rising share of firms with an interest coverage ratio less than one is likely to continue going forward given the Fed’s commitment to keeping rates low and the ongoing support from the Fed to credit markets, see also here. This is a macroeconomic problem because zombie firms are less productive, and their existence lowers investment in and employment at more productive firms. In short, one side effect of central banks keeping rates low for a long time is that it keeps more unproductive firms alive, which ultimately lowers the long-run growth rate of the economy.”

Torsten Slok, “US: Rising Share Of Companies With Debt Servicing Costs That Are Higher Than Profits,” Deutsche Bank, June 14, 2020

Ryan Banerjee and Boris Hofmann, “The Rise Of Zombie Firms: Causes And Consequences,” Bank Of International Settelments, September 2018, https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf

Ed Comment:Add to database. Can you get the full report? I’d like to see what he describes as “profit.” Presumably he means operating profit or EBIT, not EBITDA, PBT or PAT. No matter the measure, it seems hard to believe. Presumably it’s power low distributed with many tiny/zombie firms. “This is a macroeconomic problem because zombie firms are less productive, and their existence lowers investment in and employment at more productive firms. In short, one side effect of central banks keeping rates low for a long time is that it keeps more unproductive firms alive, which ultimately lowers the long-run growth rate of the economy.” This would only be true if 1) capital was constrained or 2) the talent used by these firms could be deployed more productively elsewhere. He assumes the first but is mistaken and probably hasn’t thought about the second. My guess is talent moves away from these firms.

Steve Comment:Yes this looks like individual firms, not weighed by market cap. Its’ a very short note, Cathy pulled it for us. Note the definition he uses is firms are older than 10 years, and an interest coverage ratio of < 1 for three years in a row. Perhaps this is in large part driven by fracking and associated firms? Aside Emmanuel Farhi died over the weekend (non-covid) Note BIS has done some research (2018) on Zombie’s across advanced economies, as of 2016 BIS broader measure ~ lines up with Slok’ US number (See Graph 2): “…Here we apply two alternative zombie classifications to listed non-financial corporates in 14 advanced economies using the Worldscope database covering 32,000 companies. The first, broader measure…identifies a firm as a zombie if its interest coverage ratio (ICR) has been less than one for at least three consecutive years and if it is at least 10 years old. The second measure is narrower….and exploiting the fact that our database covers only listed companies for which we can observe stock market valuations, it adds the requirement that zombies should have comparatively low expected future growth potential. Specifically, zombies are required to have a ratio of their assets’ market value to their replacement cost (Tobin’s q) that is below the median within their sector in any given year….”

Tuesday, July 28, 2020

AI Summary. The global population is projected to peak at 9.73bn in 2064 as the total fertility rate falls to 1.66 by 2100, below the 2.1 replacement level, with 2.37bn people over 65 by 2100. China's population is projected to decline 48% by 2100, while the US population peaks at 336m in 2062.

Emily Goren MIT
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Global population projected to peak at 9.73bn in 2064, US population to peak at 336m in 2062, driven by declining TFR & aging population @EmilyGoren

Will the global population peak and decline before 2100?

Core argument: The global population is forecast to peak at 9.73bn in 2064 as the total fertility rate falls to 1.66 by 2100, well below the 2.1 replacement level.

The global population is projected to peak at 9.73bn in 2064, driven by a declining Total Fertility Rate (TFR) expected to reach 1.66 by 2100, well below the replacement level of 2.1. By 2100, the US population is forecasted to peak at 336m in 2062, reflecting broader demographic shifts with significant economic implications. The aging global population will see 2.37bn individuals over 65 years by 2100, impacting labor markets and economic growth. Meanwhile, China is projected to experience a 48% population decline by 2100, influencing its economic trajectory. Despite China's rise as the largest economy by 2035, the US is expected to reclaim this position by 2098. These demographic trends underscore the importance of policy interventions in education and healthcare to mitigate potential economic challenges associated with an aging population and declining workforce.

Takeaways by Macro Roundup® AI

  1. The global population is forecast to peak at 9.73bn in 2064 as the total fertility rate falls to 1.66 by 2100, well below the 2.1 replacement level.
  2. By 2100, 2.37bn people are projected to be over 65, a shift the authors link to effects on labour markets and economic growth.
  3. China's population is projected to decline 48% by 2100, and while China is forecast to become the largest economy by 2035, the US is expected to reclaim that position by 2098.

Study mentioned in WSJ:"... The global TFR in the reference scenario was forecasted to be 1·66 (95% UI 1·33-2·08) in 2100. In the reference scenario,the global population was projected to peak in 2064 at 9·73 billion(8·84-10·9) people and decline to 8·79 billion (6·83-11·8) in 2100. The reference projections for the five largest countries in 2100 were India (1·09 billion, Nigeria (791 million ), China (732 million ), the USA (336 million ), and Pakistan (248 million ). Findings also suggest a shifting age structure in many parts of the world, with 2·37 billion (1·91-2·87) individuals older than 65 years and 1·70 billion (1·11-2·81) individuals younger than 20 years, forecasted globally in 2100. By 2050, 151 countries were forecasted to have a TFR lower than the replacement level (TFR <2·1), and 183 were forecasted to have a TFR lower than replacement by 2100. 23 countries in the reference scenario, including Japan, Thailand, and Spain, were forecasted to have population declines greater than 50% from 2017 to 2100; China’s population was forecasted to decline by 48·0% (-6·1 to 68·4). China was forecasted to become the largest economy by 2035 but in the reference scenario, the USA was forecasted to once again become the largest economy in 2098. Our alternative scenarios suggest that meeting the Sustainable Development Goals targets for education and contraceptive met need would result in a global population of 6·29 billion (4·82-8·73) in 2100 and a population of 6·88 billion (5·27-9·51) when assuming 99th percentile rates of change in these drivers...."

Prof Stein Emil Vollset, Emily Goren, Chun-Wei Yuan, Jackie Cao, Amanda E Smith andThomas Hsiao, et al., "Fertility, mortality, migration, and population scenarios for 195 countries and territories from 2017 to 2100: a forecasting analysis for the Global Burden of Disease Study,"The Lancet, July 14, 2020, https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30677-2/fulltext