Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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 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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, December 2, 2022

AI Summary. A reassessment estimates that higher economic growth would have raised the share of children earning more than their parents from 50% to 81%, while lower inequality would have raised it only to 57% — reversing earlier findings that attributed declining absolute mobility mainly to rising inequality.

Scott Winship American Enterprise Institute
Date Posted:
Is Database:
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.@AEI’s @swinshi revisits Raj Chetty’s data and argues that contrary to Chetty’s findings, slower economic growth has been a much more important driver of the reduction of absolute mobility than the rise in inequality.

.@AEI’s @swinshi revisits Raj Chetty’s data and argues that contrary to Chetty’s findings, slower economic growth has been a...

Is slower growth, not rising inequality, behind falling absolute mobility?

Core argument: Under the author's reassessment, higher growth would have raised absolute mobility from 50% to 81%, while lower inequality would have raised it to only 57%, nearly the mirror image of Chetty et al. (2017).

Higher growth would have raised absolute mobility from 50% to 81%, while lower inequality would have increased it to just 57%. This is almost the mirror image of the Chetty findings. Chetty also reported trends looking at absolute mobility for the 1970 cohort as of age 40 rather than for the 1980 cohort at age 30 (Figure S12 in their paper.) These analyses showed that in the “high growth” counterfactual, instead of 56% of the 1970 birth cohort experiencing absolute mobility, 67.5% would have. Meanwhile, in the “low inequality” counterfactual, the rate was 74%. However, using my approach, the “high growth” scenario produced an absolute mobility rate of 78.5%, while the “low inequality” scenario featured a rate of 63%. Again, the Chetty conclusion about the importance of growth versus inequality reverses.

Takeaways by Macro Roundup® AI

  1. Under the author's reassessment, higher growth would have raised absolute mobility from 50% to 81%, while lower inequality would have raised it to only 57%, nearly the mirror image of Chetty et al. (2017).
  2. For the 1970 birth cohort measured at age 40, Chetty et al. reported absolute mobility of 56%, rising to 67.5% under a high-growth counterfactual and 74% under a low-inequality counterfactual.
  3. Applying the author's approach to the 1970 cohort yields absolute mobility of 78.5% under high growth versus 63% under low inequality, reversing the Chetty conclusion about the relative importance of growth and inequality.

Scott Winship revisits Chetty data and argues that slower economic growth has been much more important than the rise in inequality in terms of explaining the reduction of absolute mobility. Recall Chetty “found that while the vast majority of American kids born in 1940 ended up better off at age 30 than their parents fared at the same age, that was only true of half of kids born in 1980. Moreover, the paper found that rising income inequality was much more to blame for this falling “absolute mobility” than slower economic growth.”

Chetty’s claim, “…Chetty et al. report that absolute mobility fell from 91.5 percent for children born in 1940 to 50 percent for those born in 1980. In their counterfactual simulations, they found that if the economic growth rates prevailing for the 1940 cohort had been experienced by the 1980 cohort, with inequality nonetheless rising as much as it actually did, the absolute mobility rate for the 1980 cohort would have been 62 percent rather than 50 percent. However, if the adulthood inequality experienced by the 1980 cohort had been what the 1940 cohort saw, with economic growth increasing as slowly as it actually did, 80 percent of the most recent cohort would have experienced absolute mobility….”

This is a relative technical debate but Winship noted a methodological flaw in Chetty’s work, “…The central point at issue here is that incorporating GDP per working-age person into the counterfactual analyses introduces potentially problematic assumptions into the Chetty analyses. Dividing average income for each percentile of the distribution of 30-year-olds by GDP per working-age person is different than dividing average income for each percentile by total income measured the same way as in the numerator. In the latter case, the ratios would sum to 100 across percentiles. The ratios Chetty et al. compute only sum to 44.3. What that means is that most GDP per working-age individual is not allocated to the incomes of 30-year olds. That is appropriate in that the Chetty team later compares the counterfactual incomes of these adults to parental income, with average parental income also smaller than GDP per working-age person in 1980. If all of GDP per working-age individual were allocated to 30-year-olds, these amounts would automatically tend to be larger than parental incomes, artificially inflating absolute mobility…“

“…Section III.B. of their paper acknowledges that “a significant portion of the increase in absolute mobility in our [lower inequality] counterfactual is driven by the fact that 30 year olds today earn a smaller fraction of GDP than in the past.” That means their counterfactual analyses must assume not only that the 1980 cohort of 30-year-olds have the within-30-year-old distribution of the 1940 cohort but that they have the 30-year-old-to-everyone-else distribution of the 1940 cohort too. In his correspondence with me, Chetty confirmed that the team prefers making this assumption and incorporating GDP per working-age person into the analyses to the alternative of simply using parental and 30-year-old incomes in their data. As they note in Section III.B., the income in their data misses an increasing share of national income, so using it alone to simulate a counterfactual of lower inequality seems unwarranted….”

His alternative approach “…There is a simpler alternative approach to modeling counterfactual absolute mobility rates for the 1980 cohort if growth had been stronger. We can look at the intergenerational increase in income (as measured in the Chetty data) for the 1940 birth cohort (comparing average 30-year-old income in 1970 to average parental income). Then we can apply that growth to the 1980 birth cohort’s parental income and assume that 30-year-old incomes would still have been distributed as unequally as they really were. The income growth calculations need only use the parental and 30-year-old income estimates from the Chetty data (not GDP per working-age person), and the income distribution of the 30-year-olds likewise need only use the 30-year-old income estimates..”

Winship’s results, “…implemented this strategy. The result? If the 1980 birth cohort had experienced the same intergenerational income growth as the 1940 cohort did (an increase of 204 percent rather than 5 percent), while the fruits of that income growth had been distributed as unequally in 2010 as really occurred, the absolute mobility rate would have been 81 percent instead of 50 percent. Again, Chetty et al. report an estimate of just 62 percent for their “higher growth” simulation.…”

Winship bottom line is that slower economic growth is much more important than inequality is understanding absolute mobility , “…my results indicate the opposite: higher growth would have raised absolute mobility from 50 percent to 81 percent, while lower inequality would have increased it to just 57 percent. This is almost the mirror image of the Chetty findings. Chetty also reported trends looking at absolute mobility for the 1970 cohort as of age 40 rather than for the 1980 cohort at age 30 (Figure S12 in their paper). These analyses showed that in the “high growth” counterfactual, instead of 56 percent of the 1970 birth cohort experiencing absolute mobility, 67.5 percent would have. Meanwhile, in the “low inequality” counterfactual, the rate was 74 percent. However, using my approach, the “high growth” scenario produced an absolute mobility rate of 78.5 percent, while the “low inequality” scenario featured a rate of 63 percent. Again, the Chetty conclusion about the importance of growth versus inequality reverses…”

What’s Robert Lucus line? “Once one starts to think about [growth] it is hard to think about anything else

Scott Winship, “Was Rising Inequality behind Falling Absolute Mobility?” American Enterprise Institute, December 1, 2022, https://www.aei.org/wp-content/uploads/2022/12/Was-Rising-Inequality-Behind-Falling-Absolute-Mobility.pdf?x91208

AI Summary. US nonfarm payrolls rose 263,000, following an upwardly revised 284,000 gain the prior month, while the unemployment rate held at 3.7% as labor force participation eased. Average hourly earnings rose 0.6% on the month and 5.1% from a year earlier, a pace inconsistent with the Federal Reserve's 2% inflation target.

Reade Pickert Bloomberg
Date Posted:

Today’s job report showed average hourly earnings rose twice what was forecast, now up 5.1% year-over-year and running at a 6% annual rate. @bloomberg

Is wage growth running too fast for the Fed's inflation target?

Core argument: U.S. nonfarm payrolls rose 263,000 in November after an upwardly revised 284,000 gain in October, while the unemployment rate held at 3.7% as labor force participation eased, according to the Labor Department.

Nonfarm payrolls increased 263,000 in November after an upwardly revised 284,000 gain in October, a Labor Department report showed Friday. The unemployment rate held at 3.7% as participation eased. Average hourly earnings rose twice as much as forecast after an upward revision to the prior month. The jobs report showed average hourly earnings rose 0.6% in November in a broad-based gain that was the biggest since January and was up 5.1% from a year earlier. Wages for production and nonsupervisory workers climbed 0.7% from the prior month, the most in almost a year. The pace of pay raises is inconsistent with the Fed’s 2% inflation target.

Takeaways by Macro Roundup® AI

  1. U.S. nonfarm payrolls rose 263,000 in November after an upwardly revised 284,000 gain in October, while the unemployment rate held at 3.7% as labor force participation eased, according to the Labor Department.
  2. Average hourly earnings rose 0.6% in November, twice as much as forecast and the biggest broad-based gain since January, leaving wages up 5.1% from a year earlier.
  3. Wages for production and nonsupervisory workers climbed 0.7% from the prior month, the most in almost a year, a pace of pay raises inconsistent with the Fed's 2% inflation target.

AI Summary. Upward revisions to average hourly earnings for prior months, plus a strong latest reading, lifted the three-month annualized pace of wage growth from 3.8% to about 6%, undercutting evidence that nominal wage growth was cooling. That pace is consistent with roughly 5% inflation, about the same or slightly worse than the employment cost index suggests.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman argues that the uptick in average hourly earnings should “dash hopes” for a soft landing: 6% growth is consistent with a 5% inflation rate.

Is nominal wage growth cooling?

Core argument: Average hourly earnings growth on a three-month average basis has been revised up from a 3.8% annual rate to a 6% annual rate, following large upward revisions for September and October plus a big November number, according to Jason Furman.

The biggest news in this release is large upward revisions in wage growth for September and October and a big number for November. This is the second time this year we’ve seen AHE revisions like this dashing the hopes that maybe nominal wages growth was cooling. You can’t understate how huge this is. Last month the data showed average hourly earnings grew at a 3.8% annual rate (three-month average). With revisions and one month of data, this is now a 6% annual rate. I was allowing myself to get more hopeful about a soft landing (2nd time this year), but this pretty much dashed that hope. This pace of average hourly earnings growth is consistent with about 5% inflation. About the same or slightly worse than the story the ECI is telling.

Takeaways by Macro Roundup® AI

  1. Average hourly earnings growth on a three-month average basis has been revised up from a 3.8% annual rate to a 6% annual rate, following large upward revisions for September and October plus a big November number, according to Jason Furman.
  2. Furman notes this is the second time this year that average hourly earnings revisions have dashed hopes that nominal wage growth was cooling, undercutting his own growing optimism about a soft landing.
  3. Furman argues the current pace of average hourly earnings growth is consistent with about 5% inflation, about the same or slightly worse than the story told by the Employment Cost Index.

AI Summary. The share of Americans working or actively looking for work fell to 62.1%, and the rate for prime-aged workers aged 25 to 54 fell to 82.4% from 82.5%, with both remaining below pre-pandemic levels. Participation declined for both men and women, with a larger share of female workers leaving the labor force.

Catarina Saraiva Bloomberg
Date Posted:

Prime-age labor force participation dropped to 82.4%, still under its pre-pandemic level of 83.1% in January 2020. @catarinasaraiva @bloomberg

Is labor force participation still falling below pre-pandemic levels?

Core argument: The U.S. labor force participation rate fell to 62.1% from 62.4% in August, when it had matched a post-pandemic high reached in March, and remains well below its pre-pandemic level, according to government data released Friday.

The share of Americans either working or actively looking for a job fell to 62.1%, according to government data released Friday. The rate had risen to 62.4% in August, matching a post-pandemic high reached in March, but remains significantly below where it was before the pandemic. The participation rate for so-called prime-aged workers, those aged 25 to 54, also dropped to 82.4% from 82.5%. And it, too, remains below its pre-pandemic levels. While participation declined for both men and women, a larger share of female workers left the labor force last month.

Takeaways by Macro Roundup® AI

  1. The U.S. labor force participation rate fell to 62.1% from 62.4% in August, when it had matched a post-pandemic high reached in March, and remains well below its pre-pandemic level, according to government data released Friday.
  2. Participation among prime-age workers aged 25 to 54 slipped to 82.4% from 82.5%, also remaining below pre-pandemic levels.
  3. Labor force participation declined for both men and women, with a larger share of female workers leaving the workforce.

AI Summary. Lake Powell, the second-largest US reservoir along the drought-stricken Colorado River, is already a quarter of its former size, and a further 38-foot drop would bring its surface near the intake openings of Glen Canyon Dam. Federal projections indicate the dam's turbines, which supply electricity to 4.5m people, could be forced to shut down to avoid damage.

Joshua Partlow Washington Post
Date Posted:

Due to the rapidly dropping waters level of Lake Powell, the Glen Canyon (Hoover) Dam may have to be shut down next summer due to the risk posed by whirlpool formation @partlowj

Due to the rapidly dropping waters level of Lake Powell, the Glen Canyon (Hoover) Dam may have to be shut down next summer...

Does falling reservoir water threaten hydroelectric power for millions?

Core argument: Lake Powell, the second-largest U.S. reservoir, has shrunk to a quarter of its former size, and a further 38-foot drop in its surface would approach the tops of eight underwater openings in the 710-foot Glen Canyon Dam.

The first sign of serious trouble for the drought-stricken American Southwest could be a whirlpool. It could happen if the surface of Lake Powell, a man-made reservoir along the Colorado River that’s already a quarter of its former size, drops another 38 feet down the concrete face of the 710-foot Glen Canyon Dam here. At that point, the surface would be approaching the tops of eight underwater openings that allow river water to pass through the hydroelectric dam. The normally placid Lake Powell, the nation’s second-largest reservoir, could suddenly transform into something resembling a funnel, with water circling the openings. If that happens, the massive turbines that generate electricity for 4.5 million people would have to shut down — after nearly 60 years of use — or risk destruction from air bubbles. The federal government projects that day could come as soon as July.

Takeaways by Macro Roundup® AI

  1. Lake Powell, the second-largest U.S. reservoir, has shrunk to a quarter of its former size, and a further 38-foot drop in its surface would approach the tops of eight underwater openings in the 710-foot Glen Canyon Dam.
  2. The federal government projects that as soon as July, Lake Powell's surface could fall low enough to force the shutdown of Glen Canyon Dam turbines that generate electricity for 4.5 million people after nearly 60 years of use.
  3. If Lake Powell's surface approaches the dam's underwater openings, the reservoir could resemble a funnel with water circling the openings, and air bubbles could destroy the turbines.

AI Summary. Across the US, UK, Canada, and Euro area, longer-run neutral interest rates declined by 2.1 to 2.8 percentage points before the 2008 financial crisis, with all identified drivers pushing them down. The authors estimate that rising government debt accounts for most of the recent increase in neutral rates, though this upward pressure has likely been modest.

Thiago Ferreira and Carolyn Davin Federal Reserve Board
Date Posted:

Despite a sharp increase in sovereign debt levels, the upward pressure on neutral rates has been modest. @FederalReserve

Does rising government debt explain higher neutral interest rates in advanced economies?

Core argument: Neutral rates in the US, UK, Canada, and Euro area declined by 2.1 to 2.8 percentage points in the run-up to the 2008 financial crisis, with all drivers pushing neutral rates down.

Leading up to the 2008 financial crisis, neutral rates in these four economies saw declines of between 2.1 and 2.8 percentage points, with all drivers pushing down neutral rates. Between 2008 and 2019, the positive contribution of the increased sovereign debt supply modestly offset the negative contributions from other drivers. Since the pandemic, the rise in government debt accounts for most of the recent rise in neutral rates in [the US, UK, Canada, and Euro area], with other factors exerting largely offsetting effects. All told, while the sharp rise in government indebtedness since the pandemic may have put upward pressure on neutral rates abroad, we estimate that this pressure has been likely modest.

Takeaways by Macro Roundup® AI

  1. Neutral rates in the US, UK, Canada, and Euro area declined by 2.1 to 2.8 percentage points in the run-up to the 2008 financial crisis, with all drivers pushing neutral rates down.
  2. Between 2008 and 2019, the positive contribution of increased sovereign debt supply modestly offset negative contributions from other drivers of neutral rates in the four economies.
  3. Since the pandemic, the rise in government debt accounts for most of the rise in neutral rates in the US, UK, Canada, and Euro area, with other factors largely offsetting each other and the estimated upward pressure likely modest.

Monday, December 5, 2022

AI Summary. Interest-rate futures imply traders expect the Federal Reserve to lift its benchmark rate to about 5%, but one economist argues the peak could reach 6%, making 5% a poor best guess. He also argues against raising the 2% inflation target, citing credibility concerns after inflation was allowed to surge.

Chris Anstey Bloomberg
Date Posted:

.@LHSummers suggests that the Fed will need to boost rates by more than the futures market expectation of 5% by May 2023, vs. the current 3.75-4.0%. “6% is certainly a scenario we can write…five is not a good best-guess.” @bloomberg

.@LHSummers suggests that the Fed will need to boost rates by more than the futures market expectation of 5% by May 2023,...

Will the Fed need to raise rates higher than markets expect?

Core argument: Interest-rate futures price the Fed's benchmark reaching about 5% by May 2023, up from the current target range of 3.75% to 4%.

Interest-rate futures suggest traders expect the Fed to raise rates to about 5% by May 2023, compared with the current target range of 3.75% to 4%. “Six is certainly a scenario we can write,” Larry Summers said with regard to the peak percentage rate for the Fed’s benchmark. “And that tells me that five is not a good best-guess.” Summers reiterated that he didn’t think the Fed ought to change its inflation target to, say, 3% from the current 2% -- in part because of potential credibility issues after having allowed inflation to surge so high the past two years.

Takeaways by Macro Roundup® AI

  1. Interest-rate futures price the Fed's benchmark reaching about 5% by May 2023, up from the current target range of 3.75% to 4%.
  2. Larry Summers opposes raising the Fed's inflation target from 2% to 3%, citing in part potential credibility issues after inflation was allowed to surge over the past two years.

AI Summary. Aggregate weekly payrolls have been rising about 7% annually, up from about 4.5% before the pandemic. Wage growth can run 1–3 percentage points above or below consumer price growth, but larger gaps are historically rare, and U.S. wages exceeded price growth by at least 4 percentage points for two consecutive years only in 1941–1943.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that 7% annualized growth in nominal employee pay, up from 4.5% before the pandemic, implies that inflation “will probably persist around 4-5% a year.”

Can wage growth greatly outpace price growth for long?

Core argument: U.S. aggregate weekly payrolls have risen about 7% annually since the start of this year with minimal variation, up from roughly 4.5% annually before the pandemic.

Aggregate weekly payrolls has been rising about 7% annually since the beginning of this year, with minimal variation.  That’s up from about 4.5% a year before the pandemic. Wages can rise 1-3 percentage points faster or slower than consumer prices for a variety of reasons—including but not limited to compositional and definitional differences—but larger gaps between the growth rates of wages and prices basically don’t exist outside of WWII and Korean War rationing, the late 1990s productivity boom, and the first year of the pandemic. The only time U.S. wages rose at least 4 percentage points faster than prices for at least two years in a row was 1941-1943.

Takeaways by Macro Roundup® AI

  1. U.S. aggregate weekly payrolls have risen about 7% annually since the start of this year with minimal variation, up from roughly 4.5% annually before the pandemic.
  2. Wage growth can run 1–3 percentage points faster or slower than consumer price growth for reasons including compositional and definitional differences, but larger gaps have occurred only during WWII and Korean War rationing, the late 1990s productivity boom, and the pandemic's first year.
  3. The only stretch in which U.S. wages rose at least 4 percentage points faster than prices for at least two consecutive years was 1941–1943.

AI Summary. Modest positive inflation makes relative price and wage adjustments easier, since cutting prices or wages outright is difficult and rising prices elsewhere can accomplish the same shift. On this basis, some economists argue it is acceptable to stop disinflation at a 3% inflation rate rather than 2%.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman agrees with @ojblanchard1’s case for an inflation target of 3% vs. 2%, perhaps without officially announcing the policy.

.@paulkrugman agrees with @ojblanchard1’s case for an inflation target of 3% vs. 2%, perhaps without officially announcing...

Is stopping disinflation at 3% instead of 2% acceptable?

Core argument: The author sides with Blanchard and others in arguing it is acceptable to stop disinflation at 3% inflation, possibly without admitting it.

Many economists believe that a little bit of inflation helps to “lubricate” the economy. An ever-changing economy often requires that prices of some goods (and wages for some workers) fall relative to prices and wages elsewhere. But price and wage cuts are hard to achieve. If the price of widgets needs to fall relative to the price of gizmos, it’s easier to do this with rising gizmo prices rather than falling widget prices, so adjustment is easier if overall inflation is somewhat positive. On the other hand, there’s a lot to be said for more or less stable prices, and in particular for an inflation rate low enough that people don’t have to think about it much. I’m with Blanchard and others in believing that it’s OK to stop at 3, maybe without admitting that we’re doing it.

Takeaways by Macro Roundup® AI

  1. The author sides with Blanchard and others in arguing it is acceptable to stop disinflation at 3% inflation, possibly without admitting it.
  2. Many economists hold that mildly positive inflation "lubricates" the economy, since relative price and wage adjustments are easier through faster increases elsewhere than through outright cuts, which are hard to achieve.
  3. The case for low inflation rests on the value of more or less stable prices, with inflation low enough that people need not think about it much.

AI Summary. About half of global trade is invoiced in US dollars despite the United States accounting for just over a tenth of global trade, a share that has hardly changed in recent years. The dollar's role in official foreign exchange reserves has shrunk to under 60%, one of the lowest shares in two decades and below the 65% period average.

BIS Staff Bank for International Settlements
Date Posted:

Half of global trade is invoiced in dollars despite the United States accounting for just 10% of the trade. The dollar’s role in official foreign exchange reserves has declined to less than 60%, well under its 20-year mean of 65%. @BIS_org

Is the dollar's dominance in trade invoicing holding while reserve share declines?

Core argument: About half of global trade is invoiced in USD even though the United States accounts for just over a tenth of global trade, with the invoicing share varying widely across regions.

Approximately half of global trade is invoiced in USD, although this share varies widely across regions. This disproportionately large reliance on the USD is in spite of the United States accounting for just over a 10th of global trade. These shares have hardly changed since 2019. One area where the role of the USD has been shrinking to some degree is official foreign exchange reserves, even though it remains the foremost reserve currency. As of the second quarter of 2022, the USD accounted for less than 60% of official foreign exchange reserves. This is one of the lowest shares in the past 20 years and is well below the average of 65% for the period.

Takeaways by Macro Roundup® AI

  1. About half of global trade is invoiced in USD even though the United States accounts for just over a tenth of global trade, with the invoicing share varying widely across regions.
  2. The USD accounted for less than 60% of official foreign exchange reserves as of the second quarter of 2022, one of the lowest shares in the past 20 years and below the 65% average for the period.
  3. USD shares of global trade invoicing have hardly changed since 2019, and the USD remains the foremost reserve currency despite its shrinking share of official foreign exchange reserves.

AI Summary. US policy encouraging companies to shift supply chains toward allied countries and away from China has coincided with increased trade between the US and its traditional European allies. Semiconductor companies are projected to spend more than $110bn over five years building new fabrication plants outside China.

Bryce Baschuk Bloomberg
Date Posted:

The United States is now importing more goods from Europe than from China. @bloomberg

Are geopolitical rivalries shifting supply chains toward allied countries?

Core argument: Semiconductor companies will collectively spend more than $110 billion over five years building fabrication plants outside of China.

As the pandemic snarled global supply chains, US policymakers urged companies to look at ways to reinforce their supply chains and reduce American economic dependence on China and other authoritarian regimes. The Biden administration’s push toward “friend-shoring” production and manufacturing has steadily resulted in increased US trade between the US and its traditional allies in Europe. Over the next five years semiconductor companies will collectively spend more than $110 billion building new semiconductor fabrication plants outside of China.

Takeaways by Macro Roundup® AI

  1. Semiconductor companies will collectively spend more than $110 billion over five years building fabrication plants outside of China.
  2. The Biden administration's push toward "friend-shoring" production and manufacturing has steadily increased US trade with traditional US allies in Europe.
  3. US policymakers, after the pandemic snarled global supply chains, urged companies to reinforce those supply chains and reduce American economic dependence on China and other authoritarian regimes.

AI Summary. Apple has accelerated plans to shift some production out of China, telling suppliers to plan for assembling products elsewhere in Asia, particularly India and Vietnam, and seeking to reduce dependence on Taiwanese assemblers led by Foxconn. Advisers note Vietnam lacks workers for the largest sites and India lacks consistent rules.

Yang Jie and Aaron Tilley Wall Street Journal
Date Posted:

Apple will have problems moving higher-end iPhone production to Vietnam as the former lacks China’s scale of potential workers, and India is a very difficult business environment for imports and exports. @WSJ

Apple will have problems moving higher-end iPhone production to Vietnam as the former lacks China’s scale of potential...

Can major electronics makers shift production from China to other Asian countries?

Core argument: Apple has accelerated plans to shift some production outside China, telling suppliers to plan more actively for assembling products elsewhere in Asia, particularly India and Vietnam, and seeking to reduce dependence on Taiwanese assemblers led by Foxconn.

In recent weeks, Apple has accelerated plans to shift some of its production outside China. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led by Foxconn. Dan Panzica, a former Foxconn executive who now advises companies on supply-chain issues, said Vietnam’s manufacturing was growing quickly but was short of workers. The country has just under 100 million people, less than a 10th of China’s population. It can handle 60,000-person manufacturing sites but not places such as Zhengzhou that reach into the hundreds of thousands, he said. “They’re not doing high-end phones in India and Vietnam,” said Mr. Panzica. “No other places can do them. India is the Wild West in terms of consistent rules and getting stuff in and out.”

Takeaways by Macro Roundup® AI

  1. Apple has accelerated plans to shift some production outside China, telling suppliers to plan more actively for assembling products elsewhere in Asia, particularly India and Vietnam, and seeking to reduce dependence on Taiwanese assemblers led by Foxconn.
  2. Vietnam's population of just under 100 million is less than a tenth of China's, and former Foxconn executive Dan Panzica said the country can handle 60,000-person manufacturing sites but not places such as Zhengzhou that reach into the hundreds of thousands.
  3. Dan Panzica said high-end phones are not being made in India or Vietnam and no other places can do them, describing India as "the Wild West in terms of consistent rules and getting stuff in and out.".

AI Summary. U.S. Border Patrol agents made roughly 127,000 arrests of illegal border crossers over a three-week period, mainly Mexicans, Cubans, and Nicaraguans, with a public-health expulsion authority applied to about 32% and the rest allowed to remain and pursue asylum claims. Officials are weighing a rule denying asylum to migrants who transited another country without applying there first.

Ban Michelle Hackman Wall Street Journal
Date Posted:

Biden is considering adopting a 2019 Trump policy to deny asylum to migrants if they failed to apply for asylum in countries they had moved through, such as Mexico, on their way to the American border. @WSJ

Biden is considering adopting a 2019 Trump policy to deny asylum to migrants if they failed to apply for asylum in countries...

Will the U.S. deny asylum to migrants who transited another country?

Core argument: Border Patrol agents made roughly 127,000 arrests of illegal border crossers in the first three weeks of November, primarily Mexicans, Cubans, and Nicaraguans, according to internal government data viewed by The Wall Street Journal.

Through the first three weeks of November, Border Patrol agents made roughly 127,000 arrests of people crossing the border illegally, according to internal government data viewed by The Wall Street Journal, primarily of Mexicans, Cubans, and Nicaraguans. The administration was able to use Title 42 against roughly 32% of those crossing, with the rest allowed to remain in the country and pursue asylum claims. The ban under discussion would prevent migrants from winning asylum in the U.S. if they moved through another country, such as Mexico, on the way and didn’t first apply for asylum in that country. The policy would be issued, so it would take effect in conjunction with the end of Title 42.

Takeaways by Macro Roundup® AI

  1. Border Patrol agents made roughly 127,000 arrests of illegal border crossers in the first three weeks of November, primarily Mexicans, Cubans, and Nicaraguans, according to internal government data viewed by The Wall Street Journal.
  2. The Biden administration applied Title 42 to roughly 32% of those crossing the border, with the remainder allowed to stay in the U.S. and pursue asylum claims.
  3. The asylum ban under discussion would bar migrants from winning U.S. asylum if they transited another country, such as Mexico, without first applying for asylum there, and would take effect alongside the end of Title 42.

AI Summary. NATO members' defense ministries are finding that dormant weapons production lines cannot be restarted quickly, and that expanding capacity requires investment that depends on securing long-term production contracts. These countries had cut military spending, downsized defense industries, and shifted to lean "just-in-time" production with low inventories of munitions and other equipment.

John Paul Rathbone, Sylvia Pfeifer, and Steff Chávez Financial Times
Date Posted:

The demands of the Ukraine war have significantly stressed the West’s defense industrial base. Increasing capacity will require investments supported by long-term production contracts, vs. the “just in time” model adopted after the Cold War era. @ft

The demands of the Ukraine war have significantly stressed the West’s defense industrial base. Increasing capacity will...

Can Western defense industries quickly expand weapons production capacity?

Core argument: William LaPlante, the Pentagon's chief weapons buyer, told a George Mason University conference that Ukraine has focused attention on what matters, saying "What matters is production. Production really matters.".

“Ukraine has focused us . . . on what really matters. ” William LaPlante, the Pentagon’s chief weapons buyer, told a recent conference at George Mason University. “What matters is production. Production really matters.” NATO members’ defense ministries are discovering that dormant weapons production lines cannot be switched on overnight. Increasing capacity requires investment which, in turn, depends on securing long-term production contracts. Since the end of the cold war, these countries have reaped a peace dividend by slashing military spending, downsizing defense industries, and moving to lean, “just-in-time” production and low inventories of equipment such as munitions.

Takeaways by Macro Roundup® AI

  1. William LaPlante, the Pentagon's chief weapons buyer, told a George Mason University conference that Ukraine has focused attention on what matters, saying "What matters is production. Production really matters.".
  2. NATO members' defense ministries are finding that dormant weapons production lines cannot be switched on overnight, since increasing capacity requires investment that depends on securing long-term production contracts.
  3. Since the end of the cold war, NATO countries have reaped a peace dividend by slashing military spending, downsizing defense industries, and shifting to lean "just-in-time" production with low inventories of equipment such as munitions.

AI Summary. China has long used credit expansion to stabilize its economy, with stimulus during the global financial crisis reaching 25% of Chinese GDP. As China's weight in the world economy has grown, its credit policies have become globally significant, with each of its last three stimulus episodes equal to about 1.5% of global GDP.

William Barcelona, Danilo Cascaldi-Garcia, et al Federal Reserve Board
Date Posted:

New research from @FederalReserve quantifies the likely spillovers from the three rounds of Chinese stimulus, which each accounted for 1.5% of global GDP

Do China's credit stimulus episodes now move the global economy?

Core argument: China's credit impulse during the global financial crisis reached 25% of Chinese GDP, standing out as a period of massive credit stimulus among the country's repeated uses of credit to stabilize its economy.

Panel A in figure 1 illustrates the credit impulse as a share of China’s GDP. It highlights that the Chinese authorities have long used credit to stabilize the economy as they have long faced a tradeoff between strong economic growth and financial stability objectives. That said, the GFC stands out as a period of massive credit stimulus, amounting to 25% of GDP. To size China’s credit measures in a global context, panel B in figure 1 illustrates China’s credit impulse as a share of global GDP. It shows that prior to the GFC, China’s credit measures represented a small share of global GDP. However, with China’s rise in the global economy, the quantitative importance of China’s credit policies has risen as well. Indeed, China’s last three stimulus episodes each accounted for around 1.5% of global GDP.

Takeaways by Macro Roundup® AI

  1. China's credit impulse during the global financial crisis reached 25% of Chinese GDP, standing out as a period of massive credit stimulus among the country's repeated uses of credit to stabilize its economy.
  2. China's last three stimulus episodes each accounted for around 1.5% of global GDP, up from a small share before the global financial crisis, as China's weight in the world economy rose.
  3. Chinese authorities have long faced a tradeoff between strong economic growth and financial stability objectives, and have long used credit to stabilize the economy.

AI Summary. European Union gas demand ran 24% below its five-year average, according to provisional data from commodity analytics firm ICIS, even as temperatures fell. The decline is evidence the bloc is reducing its reliance on Russian energy.

Shotaro Tani Financial Times
Date Posted:

Germany cut its gas demand by 23% in November even as temperatures fell, with the EU cutting demand by 24% overall. @FT

Is Europe reducing its reliance on Russian gas?

Core argument: EU gas demand in November ran 24% below the five-year average, according to provisional data from commodity analytics company ICIS, even as temperatures fell.

EU countries cut gas demand by a quarter in November even as temperatures fell, in the latest evidence that the bloc is succeeding in reducing its reliance on Russian energy since Moscow’s full-scale invasion of Ukraine. Provisional data from commodity analytics company ICIS showed gas demand in the EU was 24% below the five-year average last month, following a similar fall in October.

Takeaways by Macro Roundup® AI

  1. EU gas demand in November ran 24% below the five-year average, according to provisional data from commodity analytics company ICIS, even as temperatures fell.
  2. The November drop in EU gas demand followed a similar fall in October, taken as evidence the bloc is succeeding in reducing its reliance on Russian energy since Moscow's full-scale invasion of Ukraine.