Edward Conard

Top Ten New York Times Bestselling Author

  • “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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
Date Posted:
Is Database:
Database

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

Friday, July 31, 2020

AI Summary. An analysis of 108 countries finds that larger government size is associated with slower growth in output per worker and lower GDP per capita, with government consumption linked to weaker output growth across advanced, emerging, and developing economies. The authors find the negative association is stronger where institutional quality, civil liberties, and political rights are lower.

Antonio Afonso and Joao Tovar Jalles European Central Bank
Date Posted:
Is Database:
Database

Government size has a significant negative impact on growth, reducing private consumption & output per worker. Analysis of 108 countries from 1970-2008 shows government consumption consistently hinders output growth.

Does larger government size slow growth in output per worker?

Core argument: An analysis of 108 countries over 1970–2008 finds a significant negative impact of government size on growth, with larger governments reducing optimal private consumption and output per worker, and government consumption hindering output growth across OECD, emerging, and developing nations.

Analysis of 108 countries from 1970-2008 reveals a significant negative impact of government size on growth, with larger governments reducing optimal private consumption and output per worker. Government consumption consistently hinders output growth across OECD, emerging, and developing nations. The negative effect of government size on GDP per capita is exacerbated by lower institutional quality, while better institutional quality enhances growth, especially with smaller governments. In the EU, improved fiscal and expenditure rules correlate with growth, though the negative impact of government size is less pronounced in Scandinavian legal origins and more severe with lower civil liberties and political rights.

Takeaways by Macro Roundup® AI

  1. An analysis of 108 countries over 1970–2008 finds a significant negative impact of government size on growth, with larger governments reducing optimal private consumption and output per worker, and government consumption hindering output growth across OECD, emerging, and developing nations.
  2. The negative effect of government size on GDP per capita is exacerbated by lower institutional quality, while better institutional quality enhances growth, especially where governments are smaller.
  3. In the EU, improved fiscal and expenditure rules correlate with growth, and the negative impact of government size is less pronounced in countries of Scandinavian legal origin and more severe where civil liberties and political rights are weaker.

Antonio Afonso and Joao Tovar Jalles, “Economic Performance And Government Size,” European Central Bank, November 2011, https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1399.pdf

“..Our results show a significant negative effect of the size of government on growth. Similarly, institutional quality has a significant positive impact on the level of real GDP per capita. Interestingly, government consumption is consistently detrimental to output growth irrespective of the country sample considered (OECD, emerging and developing countries). Moreover, i) the negative effect of government size on GDP per capita is stronger at lower levels of institutional quality, and ii) the positive effect of institutional quality on GDP per capita is stronger at smaller levels of government size….”

Note they find the quality of institutions matters,

“…We construct a growth model with an explicit government role, where more government resources reduce the optimal level of private consumption and of output per worker. In the empirical analysis, for a panel of 108 countries from 1970-2008, we use different proxies for government size and institutional quality. Our results, consistent with the presented growth model, show a negative effect of the size of government on growth. Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth. Moreover, the negative effect of government size on growth is stronger the lower institutional quality, and the positive effect of institutional quality on growth increases with smaller governments. The negative effect on growth of the government size variables is more mitigated for Scandinavian legal origins, and stronger at lower levels of civil liberties and political rights. Finally, for the EU, better overall fiscal and expenditure rules improve growth…”

Ed, the ECB paper you asked about, looking at the impact of the size of government on growth btw 1970-2008.

Page 24 of 44, “….In Table 7 we allow for both heterogeneous technology parameters and factor loadings as explained above, by running the CCEP, CCEMG and AMG estimators with and without interaction terms (where the institutional proxy variable is now given by the EMA_PCA variable as explained in Section 3). When running the AMG estimator for the OECD group we find some evidence of a statistically significant negative coefficient on the government size variable…”

page 24 of 44, “….In Table 6.b an equivalent set of results is presented but now with the integration term between government size and an institutional proxy of interest. In the case of the OECD the interaction term is negative and statistically significant for the polity indicator instance. However, the government size is not significant…..”

Page 21 of 44, “…..Particularly under the total government expenditure and government spending specifications (4,5, 7, 8) we find statistically significant positive coefficients on the overall rule index and the expenditure rule index, meaning that having these fiscal numerical rules improves GDP growth for these set of EU countries. However, the government size proxy is never significant when these rules are included as additional regressors. When these rules are interacted with a relevant government size proxy, Table 5b, no coefficient is statistically significant….”

On page 20 of 44, “…ii) for the OECD sub-group debt has a statistically significant negative coefficient estimate and its interaction with the Freedom House index results in a negative estimate significant at 5 percent level…”

Ed Comment: I am skeptical. Add these notes:

On page 18 of 44, “….The reverse is true for democratic countries, whose negative impact of government size is mitigated but remains mostly negative. The remaining proxies keep the statistically negative coefficient, but interaction terms lose economic and statistical relevance. For the OECD sub-group the individual effects of the different proxies of government size are similar but interaction terms are never statistically significant….”

AI Summary. Lighter regulation and lower taxes are argued to be necessary for innovation, because the precautionary principle's demand for proof that an innovation will not cause harm blocks breakthroughs that historically emerged through trial and error. Lower taxes let innovators self-fund the early, fragile stages that outside investors cannot properly evaluate.

James Pethokoukis American Enterprise Institute
Date Posted:
Is Database:
Database

Regulation and higher taxes can stifle innovation, argues @JamesPethokoukis in a long-read QA with Arthur Diamond, highlighting the need for lighter regulation and lower taxes to foster innovation.

Do lighter regulation and lower taxes drive innovation?

Core argument: Arthur Diamond argues that lighter regulation and lower taxes are needed to foster innovation and prevent economic stagnation, with lower taxes allowing innovators to self-fund the early, fragile stages of development.

Arthur Diamond highlights the need for lighter regulation and lower taxes to foster innovation. The growth of the precautionary principle, which demands proof that innovations will not cause harm, stifles potential breakthroughs. Historical innovations often emerged through trial and error, suggesting that strict regulations could prevent future advancements. Diamond argues that lower taxes are crucial for innovators to self-fund during the early, fragile stages of development, as only the innovator can truly assess the potential of their breakthrough. This approach aims to prevent economic stagnation and promote faster growth by enabling entrepreneurs to accumulate necessary resources.

Takeaways by Macro Roundup® AI

  1. Arthur Diamond argues that lighter regulation and lower taxes are needed to foster innovation and prevent economic stagnation, with lower taxes allowing innovators to self-fund the early, fragile stages of development.
  2. Diamond contends that the growth of the precautionary principle, which demands proof that an innovation will not cause harm, stifles breakthroughs that historically emerged through trial and error.
  3. Diamond holds that only the innovator can truly assess the potential of a breakthrough, which is why enabling entrepreneurs to accumulate resources promotes faster growth.

“…Well, I emphasize two sorts of policies as most important. I emphasize that we need lighter regulation. We have had a growth of something called the precautionary principle, where increasingly you have to prove that your innovation will not possibly cause any harm. But a large number of the great innovations of the past were ones that you didn’t know what harm there might be until you worked out the kinks and you tried it out. And so there’s a nice passage from a book by Cass Sunstein where he lists a whole bunch of important innovations that would never have existed if the precautionary principle had been in place at the time. And so it makes you wonder then, now that we’re increasingly having the precautionary principle, what innovations would exist that we’re not allowing ourselves to have because we’re enforcing this precautionary principle? So I emphasize less regulations, lighter regulations, as one of the key policy directions if we want more innovation, if we want to have faster growth, and if we don’t want to have stagnation. Another policy emphasis is we need to keep taxes lower. Part of what I argue is that the bigger the breakthrough innovation is, the more likely it is that people besides the entrepreneur are not going to be able to judge whether it’s plausible or not. Only the innovator behind that innovation will know. That means at the early, fragile, precarious stages of a breakthrough innovation, it’s going to almost inevitably have to be self-funded. For it to be self-funded, you have to allow the innovator to accumulate and have the funds to self-fund. And what that implies is you have to have a light tax policy to allow them to do that. So I also emphasized low taxation as a way to encourage the self-funding at these early precarious stages. There are other factors that matter too. Peter Thiel says entrepreneurs need to have more courage. So he’s emphasizing things that can be done. He thinks people are being too cautious in the projects they undertake….”

James Pethokoukis, "The case for ‘innovative dynamism’: My long-read Q&A with Arthur Diamond," American Enterprise Institute, July 30, 2020, https://www.aei.org/economics/making-the-case-for-innovative-dynamism-my-long-read-qa-with-arthur-diamond/

AI Summary. Economic data show a strong correlation between GDP per person and life satisfaction, with a 10% rise in GDP per person associated with a 0.5-point increase in life satisfaction on a 10-point scale. During economic downturns, life satisfaction scores in affected countries fell by an average of 1 point.

Economist Staff The Economist
Date Posted:
Is Database:
Database

A 10% rise in GDP/person is associated with a 0.5-point increase in life satisfaction on a 10-point scale, according to @TheEconomist. Recessions can drop life satisfaction scores by 1 point, highlighting the importance of economic growth & stability.

Does higher income raise life satisfaction, and do downturns lower it?

Core argument: A 10% rise in GDP per person is associated with a 0.5-point increase in life satisfaction on a 10-point scale.

Economic data reveals a strong correlation between GDP per person and life satisfaction, indicating that higher income levels often lead to increased happiness. Studies show that a 10% rise in GDP per person is associated with a 0.5-point increase in life satisfaction on a 10-point scale. Conversely, during economic downturns, such as the 2008 financial crisis, life satisfaction scores dropped by an average of 1 point in affected countries. This suggests that recessions not only impact financial stability but also significantly affect overall well-being. Policymakers should consider these findings when designing economic policies, as boosting GDP could enhance societal happiness, while mitigating recession impacts could preserve it. The data underscores the importance of economic growth and stability in improving quality of life across populations.

Takeaways by Macro Roundup® AI

  1. A 10% rise in GDP per person is associated with a 0.5-point increase in life satisfaction on a 10-point scale.
  2. Life satisfaction scores fell by an average of 1 point in countries affected by the 2008 financial crisis.
  3. Economic data suggests policymakers should weigh well-being when designing economic policy, as boosting GDP could enhance societal happiness and mitigating recession impacts could preserve it.

Economist Staff, "Money really can buy happiness and recessions can take it away,"The Economist, July 11, 2020, https://www.economist.com/graphic-detail/2020/07/11/money-really-can-buy-happiness-and-recessions-can-take-it-away

AI Summary. Bank loans have fallen from 40% to 30% of total U.S. non-financial business debt over the past decade, while non-bank loans and securities have risen from 60% to 70%, shifting credit provision from banks to capital markets.

Economist Staff The Economist
Date Posted:
Is Database:
Database

Banks are losing out to capital markets in credit provision. Non-financial business debt as a % of GDP is increasingly reliant on non-bank loans & securities, with bank loans declining from 40% to 30% over the past decade.

Are capital markets taking over business credit from banks?

Core argument: Bank loans' share of total non-financial business debt fell from 40% to 30% over the past decade, while non-bank loans and securities rose from 60% to 70%.

The shift in credit provision from banks to capital markets is evident as non-financial business debt as a % of GDP increasingly relies on non-bank loans and securities. Over the past decade, the share of bank loans in total business debt has declined from 40% to 30%, while non-bank loans and securities have risen from 60% to 70%. This trend highlights the growing role of capital markets in financing, driven by factors such as regulatory changes and the search for higher yields. The implications are significant for banks, which face increased competition and pressure to innovate, and for policymakers, who must consider the stability and efficiency of financial systems. As businesses diversify their funding sources, the resilience of the economy may improve, but it also raises questions about market volatility and the potential for systemic risks.

Takeaways by Macro Roundup® AI

  1. Bank loans' share of total non-financial business debt fell from 40% to 30% over the past decade, while non-bank loans and securities rose from 60% to 70%.
  2. The shift in credit provision from banks toward capital markets is attributed to factors such as regulatory changes and the search for higher yields, leaving banks facing increased competition and pressure to innovate.
  3. Diversification of business funding sources may improve economic resilience while raising questions for policymakers about market volatility and potential systemic risks.

Economist Staff, "Banks lose out to capital markets when it comes to credit provision,"The Economist, July 25, 2020, https://www.economist.com/finance-and-economics/2020/07/25/banks-lose-out-to-capital-markets-when-it-comes-to-credit-provision