Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…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
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, December 13, 2022

AI Summary. US consumer prices excluding food and energy rose 0.2% in a month and 6% from a year earlier, below the 0.3% monthly increase economists surveyed had expected. Overall consumer prices rose 0.1% monthly and 7.1% annually, as lower energy prices offset rising food costs.

Reade Pickert Reade Pickert Bloomberg
Date Posted:

According to the new CPI report, Core-CPI rose by 0.2% in November to 6% year-over-year, coming in under the 0.3% median estimate of a @Bloomberg survey of economists.

Is core inflation slowing more than economists expected?

Core argument: Core CPI, excluding food and energy, rose 0.2% in November and 6% from a year earlier, according to a Labor Department report, below the 0.3% monthly increase economists surveyed by Bloomberg had expected.

Excluding food and energy, the consumer price index rose 0.2% in November and was up 6% from a year earlier, according to a Labor Department report Tuesday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure. The overall CPI increased 0.1% from the prior month and was up 7.1% from a year earlier, as lower energy prices helped offset rising food costs. The median estimates in a Bloomberg survey of economists called for 0.3% monthly increases in both the core and overall measures.

Takeaways by Macro Roundup® AI

  1. Core CPI, excluding food and energy, rose 0.2% in November and 6% from a year earlier, according to a Labor Department report, below the 0.3% monthly increase economists surveyed by Bloomberg had expected.
  2. The overall CPI increased 0.1% in November and 7.1% from a year earlier, as lower energy prices helped offset rising food costs, against a median forecast of a 0.3% monthly gain.
  3. Economists see core CPI as a better indicator of underlying inflation than the headline measure.

AI Summary. An alternative core consumer inflation measure that substitutes spot rents from private sources such as Apartment List and Zillow shows core inflation at its lowest in several years. The author argues this is not a good cost-of-living gauge but may better indicate where inflation is heading, and that some of the improvement is probably transitory.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman on today’s CPI report, which saw Headline CPI up ticking 0.1% and Core CPI 0.2%. “Some of this good news is probably transitory. But still a lot of good news.”

Do spot rents show core inflation at its lowest in years?

Core argument: Jason Furman's adjusted core inflation measure, which substitutes spot rents from Apartment List and Zillow for all rents, shows the lowest core reading since the summer of 2021, which turned out to be a false dawn.

Terrific CPI report. This is my own concept that swaps in spot rents for all rents using the private measures from Apartment List and Zillow. This is NOT a good measure of the cost of living but may be a better way to think about where inflation is going. Overall lowest core since what turned out to be the false dawn in the summer of 2021. I feel better about it now because of what we’re seeing with commodity prices, supply chains, inventories, and housing. Some of this good news is probably transitory. But still a lot of good news.

Takeaways by Macro Roundup® AI

  1. Jason Furman's adjusted core inflation measure, which substitutes spot rents from Apartment List and Zillow for all rents, shows the lowest core reading since the summer of 2021, which turned out to be a false dawn.
  2. Furman describes the spot-rent measure as not a good gauge of the cost of living but possibly a better way to think about where inflation is going.
  3. Furman cites commodity prices, supply chains, inventories, and housing as reasons he feels better about the reading, while noting some of the good news is probably transitory.

AI Summary. Core consumer price inflation excluding shelter has slowed to 5.2% year over year from 5.9% the prior month, and fell at a 1.5% annualized rate on a one-month basis. The author argues inflation will ease faster than the Federal Reserve expects and that a pause in rate hikes should be considered.

Bill McBride Calculated Risk
Date Posted:

.@calculatedrisk notes that excluding shelter, the annualized one-month change in Core-CPI was negative in both October and November and suggests inflation is easing faster than the Fed currently is projecting.

Is core inflation excluding shelter slowing enough to justify a rate pause?

Core argument: Core CPI excluding shelter rose 5.2% year-over-year in November, down from 5.9% in October.

This graph shows the year-over-year change in Core CPI ex-Shelter (blue) and the one-month change annualized (red). The year-over-year change was at 5.2% in November, down from 5.9% in October. And the annualized one-month change was negative in both October and November! Core CPI ex-shelter fell at a 1.5% annual rate in November. My view is inflation will ease quicker than the Fed currently expects, and a pause in rate hikes should be considered.

Takeaways by Macro Roundup® AI

  1. Core CPI excluding shelter rose 5.2% year-over-year in November, down from 5.9% in October.
  2. Core CPI excluding shelter fell at a 1.5% annual rate in November, with the annualized one-month change negative in both October and November.
  3. The author argues inflation will ease faster than the Federal Reserve currently expects and that a pause in rate hikes should be considered.

AI Summary. Global public and private debt reached a record $235tn while falling to 247% of world economic output, according to International Monetary Fund data — 10 percentage points below the prior year's level but the second-highest share on record.

Ana Monteiro Bloomberg
Date Posted:

The US’s debt-to-GDP ratio dropped last year to 128% from a peak of 135% in 2020, but remains well above the pre-pandemic level of 109%, according to new research from the IMF. @IMFNews @bloomberg

Is global debt falling relative to economic output?

Core argument: Total global public and private debt fell to 247% of global GDP last year, 10 percentage points below 2020 but still the second-highest reading in history, according to IMF data.

While total public and private debt hit a record $235 trillion last year, it plummeted when expressed as a percentage of economic output, which rebounded last year after the steep Covid-19 recession of 2020. Total debt fell to 247% of global gross domestic product last year, IMF data showed. That’s 10 percentage points less than in 2020 but is still the second-highest reading in history.

Takeaways by Macro Roundup® AI

  1. Total global public and private debt fell to 247% of global GDP last year, 10 percentage points below 2020 but still the second-highest reading in history, according to IMF data.
  2. Total world debt reached a record $235 trillion last year even as the debt-to-GDP ratio declined, with economic output rebounding from the steep Covid-19 recession of 2020.
  3. The global debt-to-GDP ratio remains above its pre-Covid level despite falling from its 2020 reading.

AI Summary. U.S. regression results show a high correlation between wage growth and productivity growth by skill level: productivity in high-education industries grew over .34 log points versus .20 in low-education industries, while wages grew .26 and .24 log points respectively. The authors argue these productivity differences are more than sufficient to explain the faster wage growth of more educated workers.

Edward Lazear, Kathryn Shaw, Grant Hayes and James Jedras National Bureau Of Economic Research
Date Posted:
Is Database:
Database

According to research published by @NBER, higher productivity growth in 1989-2017 “is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.”

Does productivity growth by skill explain faster wage growth for educated workers?

Core argument: Productivity in U.S. high-education industries grew by over 0.34 log points between 1989 and 2017, versus 0.20 log points in low-education industries over the same 30-year period.

U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.

Takeaways by Macro Roundup® AI

  1. Productivity in U.S. high-education industries grew by over 0.34 log points between 1989 and 2017, versus 0.20 log points in low-education industries over the same 30-year period.
  2. Wages grew 0.26 log points in high-education industries and 0.24 log points in low-education industries during 1989–2017, a narrower gap than the corresponding difference in productivity growth.
  3. U.S. regression results show a high implicit correlation between the rise of wages by skill level and the rise of productivity by skill level, suggesting productivity growth differences are more than sufficient to explain the greater wage growth of more educated workers.

Higher productivity growth in 1989-2017 “is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers….U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers…”

Key Conclusions

1. “Using economy-wide data, over a long span of time and across countries, aggregate productivity gains appear to be passed on as aggregate wage gains.”

2. “A rising tide lifts all boats. High, middle, and low wage earners experience growth in wages when productivity grows for the aggregate economy.”

3. “The industries that have experienced the most rapid growth in productivity are those that use the most skilled and educated workers.”

4. “Thus, educated, and thus skilled. workers have also enjoyed the most wage growth and productivity growth over time, which is consistent with productivity increases being the source of wage growth rather than primarily monopoly power, institutions, taxes, or other policies.”

“…In sum, it is well known that the wage distribution has spread out more over time – the 90th percentile of wages has grown more than the 50th percentile of wages. This is also true of the productivity distribution. It has stretched out. Using our proxy for productivity by education level, productivity among more educated workers is higher and has grown more rapidly than productivity of less educated workers. This is consistent with growing wage dispersion, where the wages of highly educated workers have pulled away from wages of less educated workers….”

Their Evidence

Productivity and Wages By Worker Skill Levels

Note they use education as a proxy for skill, “…we are going to use education as a proxy for skill, assuming the highly educated are more skilled….”

“…The heart of the analysis is an examination of three-digit industry data to infer productivity growth by skill level in order to explain wage growth by skill level. We start by looking at the determinants of productivity levels as a function of skill, and then turn in subsection B to the determinants of productivity growth rates as a function of skill. Education is used as the primary measure of skill. The most important finding regarding the spreading out of the productivity distribution over time is summarized in Figure 9. We use data on the forty 3-digit industries for which complete productivity, wage and education data are available over the period 1989-2017. Industries are ranked by their skill level, or by their educational level. Figure 9 compares the productivity growth and wage growth, from 1989 to 2017, for the “low education in 1989” (blue bars) industries to the productivity growth and wage growth for the “high education in 1989” (red bars) industries. Productivity in the high-education industries grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries grew only .20 log points during that same 30-year period (the two bars on the left side of Figure 9). The same pattern holds for wages, but not with the same force. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear in Figure 9 that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. Productivity grew considerably more for the more highly educated. This simple comparison in Figure 9 suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers….”

“…Overall, productivity gains for the highly skilled across industries have been greater than the wage gains for the highly skilled. Regression results replicate the simple results in Figure 9….These results tell us that the spreading out over time of the wage distribution across skill groups of workers is concurrent with the spreading out of the productivity distribution across skill groups. Given the magnitudes of the coefficients, if wages were a direct function of productivity, the wages of the highly educated would have risen even more over time….Wages have spread out over time, but productivity has spread out even more. Generally, the least educated workers have experienced the poorest wage growth from 1989 to 2017. The change in log real wage for those without any high school was -.04 over the period while those with graduate education enjoyed gains of .07 in logs. The least educated workers have also experienced the poorest productivity growth, based on the industry-based estimates of productivity by education level. Overall, the differential growth in productivity across education levels exceeds the differential growth in wages. This is most easily seen in the columns 8 and 9 of Table 6….”

Conclusions

“…Looking across people, we also find that increases in aggregate productivity, or in GDP per person, increase wages for those earners at the lowest and at the highest parts of the wage distribution, or at the 10th and 90th percentiles of pay. This implies that increases in aggregate productivity are shared by earners at all skill levels, and this applies across countries….Thus, wages have spread out over time and productivity has spread out over time. Or, the main conclusion is that changes in productivity at different educational levels are more than sufficient to account for changes in the wage distribution….”

Edward Lazear, Kathryn Shaw, Grant Hayes and James Jedras, “Productivity and Wages: What Was the Productivity-Wage Link in the Digital Revolution of the Past, and What Might Occur in the AI Revolution of the Future?” National Bureau Of Economic Research, December 2022, https://www.nber.org/papers/w30734

AI Summary. China is preparing a support package of more than 1tn yuan ($143bn) over five years for its semiconductor industry, consisting mainly of subsidies and tax credits, according to sources. Most of the assistance would subsidize Chinese firms' purchases of domestic chipmaking equipment, chiefly by fabrication plants.

Julie Zhu Reuters
Date Posted:

.@Reuters reports that China will shortly announce a $143B package to support their semiconductor industry, largely via subsidies for the purchase of domestically-produced semiconductor equipment.

.@Reuters reports that China will shortly announce a $143B package to support their semiconductor industry, largely via...

Is China subsidizing domestic chipmaking equipment purchases to counter export controls?

Core argument: China is preparing a support package of more than 1 trillion yuan ($143 billion) for its semiconductor industry over five years, three sources said, as a step toward chip self-sufficiency and a counter to U.S. curbs on its technological advances.

China is working on a more than 1 trillion yuan ($143 billion) support package for its semiconductor industry, three sources said, in a major step towards self-sufficiency in chips and to counter U.S. moves aimed at slowing its technological advances. Beijing plans to roll out what will be one of its biggest fiscal incentive packages over five years, mainly as subsidies and tax credits to bolster semiconductor production and research activities at home, said the sources. The majority of the financial assistance would be used to subsidize the purchases of domestic semiconductor equipment by Chinese firms, mainly semiconductor fabrication plants, or fabs, they said.

Takeaways by Macro Roundup® AI

  1. China is preparing a support package of more than 1 trillion yuan ($143 billion) for its semiconductor industry over five years, three sources said, as a step toward chip self-sufficiency and a counter to U.S. curbs on its technological advances.
  2. The Chinese package, one of Beijing's biggest fiscal incentive programs, would be delivered mainly as subsidies and tax credits to bolster domestic semiconductor production and research, according to the sources.
  3. Most of the financial assistance would subsidize Chinese firms' purchases of domestic semiconductor equipment, primarily by fabrication plants, the sources said.

AI Summary. The retired share of the US population stood 1.5 percentage points above its pre-pandemic trend, with roughly 3.5m retirees accounting for nearly all of the shortfall in labor force participation and about 2.1m counted as excess retirements. Because most excess retirees are 65 or older, the elevated retired share is unlikely to reverse soon.

Joshua Montes, Christopher Smith, and Juliana Dajon Federal Reserve Board
Date Posted:
Is Database:
Database

The retired share of the US population was 1.5pp above pre-pandemic trend in Oct 2022, with 3.5mm retirees accounting for nearly all of the shortfall in LFP rates.

Do excess retirements explain most of the shortfall in labor force participation?

Core argument: The retired share of the US population stood 1.5 percentage points above its pre-pandemic trend in October 2022, with 3.5m retirees accounting for nearly all of the shortfall in labor force participation.

In October 2022, the retired share of the US population was 1.5 percentage points above its pre-pandemic trend, with 3.5m retirees accounting for nearly all of the shortfall in Labor Force Participation [LFP] rates. Despite some recovery in LFP since the pandemic's onset, it remained 1.5 percentage points below February 2020 levels. The increase in retirements, driven by the aging Baby Boomer cohort, was exacerbated by the pandemic, resulting in excess retirements of about 2.1m people. This surge in retirements is unlikely to reverse soon, as most excess retirements are among those aged 65 and older, who would likely retire in greater numbers regardless. Consequently, the retired share may remain elevated, impacting LFP rates and posing challenges for economic policy and labor market dynamics.

Takeaways by Macro Roundup® AI

  1. The retired share of the US population stood 1.5 percentage points above its pre-pandemic trend in October 2022, with 3.5m retirees accounting for nearly all of the shortfall in labor force participation.
  2. US labor force participation remained 1.5 percentage points below its February 2020 level despite partial recovery, with excess retirements of about 2.1m people attributed to an aging Baby Boomer cohort and exacerbated by the pandemic.
  3. The retirement surge is unlikely to reverse soon because most excess retirements are among people aged 65 and older, who would likely retire in greater numbers regardless, leaving the retired share elevated.

In October 2022, the retired share of the American population was 1½ percentage points above its pre-pandemic trend. These 3.5 million workers account for essentially all of the shortfall in labor force participation rates., “…Despite some improvement in the labor force participation rate for the working-age population since the early stages of the pandemic, the LFPR in October 2022 remained nearly 1½ percentage points below its pre-pandemic, February 2020 level (after making adjustments for changes in population weights introduced from the 2020 Census). The importance of retirements in accounting for this shortfall is illustrated in Figure 1, which shows the percentage of the working-age population that is not in the labor force for different reasons (black line) relative to February 2020, based on responses to the Current Population Survey. While earlier in the pandemic, factors other than retirements were an important contributor to elevated non-participation (such as non-participation while caregiving, the orange line), the percent of the population that was not in the labor force and retired (the “retired share”) has steadily increased and in October 2022 was almost 1½ percentage points above its pre-pandemic level, representing an increase of more than 3½ million retirees and accounting for essentially all of the total shortfall in the LFPR….”

The Great Retirement Boom": The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation: Extended Excerpt Image 1

The Evidence

The pre-pandemic trend, “…Even in the absence of the pandemic, the retired share would likely have risen, albeit more gradually, due to shifts in the age distribution of the population toward ages traditionally associated with higher retired shares (primarily, the movement of the Baby Boomer cohort into older ages). As one illustration of the importance of population aging, Figure 2 plots the retired share (solid line) alongside a counterfactual trend (dashed line)….”

“…. This trend is an estimate of how the retired share would have evolved in the absence of the pandemic and is derived by assuming the continuation of pre-pandemic, age-specific trends in retired shares, assuming the state of the business cycle remained similar to pre-pandemic levels, and accounting for the actual changes in the age distribution over this period (in section III, we discuss in more detail the calculation of this and other counterfactual retired shares). Over the five years prior to the pandemic, the retired share increased about 0.2 percentage point per year, and plausibly would have continued increasing at a similar pace in the absence of the pandemic. As of October 2022, the retired share remained 0.6 percentage point above the pre-pandemic expected trend, or about 1.6 million people (Figure 2). This gap between the actual and expected lines is an estimate of “excess retirements,” and the excess retirements gap remains sizeable. In fact, the retired share was slightly below trend just prior to the pandemic (about 0.2 percentage point), implying that excess retirements as a share of the population have increased by about 0.8 percentage point since February 2020, or about 2.1 million people. That increase in excess retirements explains a little more than half of the 1.4 percentage point increase the total retired share since February 2020, whereas the increasing expected retired share explains the rest (see Figure 3)….”

“…Thus, less than half of the increase in the retired share to date would likely have occurred even in the absence of the pandemic, suggesting that more than half of the current LFPR shortfall is a direct result of the pandemic on retirement….First, as discussed above, more than half of the increase in the retired share relative to February 2020 is due to an increase that would have been expected in the absence of the pandemic. Second, about two-thirds of the total increase in the excess retired share is attributable to those who were age 65 and older at the start of the pandemic, with a particularly sharp increase in excess retirements among those age 70 and older. The remaining one-third of the increase in the excess retired share is attributable to those age 55 to 64 when the pandemic began. Third, there is also substantial heterogeneity across education, race, and ethnic groups, with retired shares for those age 65 and older increasing more than expected for Whites relative to Blacks and Hispanics, and for those with a college education relative to those without….…Because the retired share has remained significantly elevated since increasing substantially at the start of the pandemic and has shown little sign of converging towards its ex-pandemic counterfactual, it may take some years for retirement behavior to normalize relative to pre-pandemic norms and for the retired share of the population to converge toward what it would be in the absence of pandemic-related influences. We view it as unlikely, however, that the retired share will fall substantially towards its pre-pandemic trend and that those who retired early will return to the labor force in large numbers, since most of the excess retirements are concentrated among people who are 65 and older who (given their age) would likely be retiring in greater numbers anyway over the next few years. That assessment is supported by the stabilization of the unretirement rate at its pre-pandemic level, well below the level it would need to reach for the retired share to fall substantially…”

Joshua Montes, Christopher Smith, and Juliana Dajon, " "The Great Retirement Boom": The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation,"Federal Reserve Board, November 2022, https://www.federalreserve.gov/econres/feds/the-great-retirement-boom.htm

Brandon Adams Comment:"This is a great paper. I think the labor force participation rate could converge toward its pre-pandemic trend line faster than envisioned in this paper. The paper ignores asset markets altogether, and it seems clear to me that rapidly inflating retirement accounts in 2021 was a big part of this story. Towards the tail end of the time period covered in this paper, retirees met the unwelcome duo of rapidly decreasing asset prices and rapidly increasing consumer prices. This might or might not bring people in their 60s or 70s out of retirement, but it will almost surely slow the exit rate of those aged 40-60, and it might also bring back into the labor force some people in that age range who are currently sitting out."

Wednesday, December 14, 2022

AI Summary. Inflation has continued to moderate even though interest rates, while rising, remain below the current inflation rate. Conventional "adaptive expectations" models hold that inflation spirals away unless the Federal Reserve raises rates above inflation, while "rational expectations" models hold that inflation is stable and eventually subsides on its own absent fiscal stimulus.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane argues that the current trajectory of inflation is coming in on the “rational expectations” side, inflation is stable. He also notes that 1975 might be good precedent – inflation did fade – but took off again with new shocks.

Can inflation moderate without interest rates rising above inflation?

Core argument: November CPI shows inflation continuing to moderate even though interest rates, while rising, remain below the current rate of inflation.

The November CPI is in, and inflation continues to moderate despite interest rates that, while rising, are still below current inflation. In the conventional "adaptive expectations" view, inflation is unstable unless the Fed moves interest rates quickly, and inflation will spiral away unless interest rates rise above the current rate of inflation. In the more radical "rational expectations" view, inflation is stable and will eventually go away on its own even if the Fed does nothing. (So long as fiscal policy doesn't add fuel to the fire. Also, it allows for more dynamics; inflation can go up before coming back, and the long run can take a long time.)

Takeaways by Macro Roundup® AI

  1. November CPI shows inflation continuing to moderate even though interest rates, while rising, remain below the current rate of inflation.
  2. Under the conventional adaptive-expectations view, inflation is unstable and will spiral away unless the Fed raises interest rates quickly above the current rate of inflation.
  3. Under the rational-expectations view, inflation is stable and eventually subsides on its own even if the Fed does nothing, provided fiscal policy adds no fuel, with inflation possibly rising before falling over a long horizon.

AI Summary. U.S. consumer price inflation is running around 4-5% on a near-term basis, both overall and excluding food, energy, shelter, and used vehicles — slower than in the first half of 2022 but faster than before the pandemic. Prices for services other than energy and shelter are still rising relatively quickly.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that this week’s CPI release is consistent with inflation holding steady at 4-5% a year. “The basic problem is that the prices of services other than energy and shelter are still rising relatively quickly.”

Is inflation slowing but still running above pre-pandemic rates?

Core argument: U.S. prices are rising around 4–5% in the near term on both total CPI and a measure excluding food, energy, shelter, and used vehicles, substantially slower than in the first half of 2022 but faster than pre-pandemic rates.

Total CPI inflation does not look that different from CPI inflation, excluding food, energy, shelter (which weirdly includes hotels and dorms in addition to housing), and used vehicles. In both cases, the near-term picture is that prices are rising around 4-5%, which is substantially slower than in the first half of 2022 but still faster than before the pandemic. The basic problem is that the prices of services other than energy and shelter are still rising relatively quickly.

Takeaways by Macro Roundup® AI

  1. U.S. prices are rising around 4–5% in the near term on both total CPI and a measure excluding food, energy, shelter, and used vehicles, substantially slower than in the first half of 2022 but faster than pre-pandemic rates.
  2. Prices of services other than energy and shelter are still rising relatively quickly, the basic problem behind continued U.S. inflation.
  3. Total CPI inflation looks little different from CPI inflation excluding food, energy, shelter, and used vehicles, with the shelter category covering hotels and dormitories in addition to housing.

AI Summary. Widespread labor shortages coexist with falling after-inflation wages, suggesting employers are unwilling to agree to higher pay. If a labor shortage does not raise real wages, a permanently higher inflation target may also fail to, leaving lower real wages and a risk that workers disengage or exit the labor force.

Tyler Cowen Bloomberg
Date Posted:

Citing the fall in labor force participation and anecdotes of “quiet quitting,” @tylercowen worries that letting inflation run at higher rates and driving down real wages will shrink the labor force and decrease productivity. @bloomberg

Citing the fall in labor force participation and anecdotes of “quiet quitting,” @tylercowen worries that letting...

Does higher inflation risk lowering real wages rather than raising them?

Core argument: A widespread labor shortage, evidenced by "Help Wanted" signs, coexists with falling after-inflation wages, a combination economists cannot fully explain.

There is a widespread labor shortage, as evidenced by the “Help Wanted” signs everywhere, yet there are also falling after-inflation wages. We economists cannot fully explain these circumstances. But they may suggest that employers simply are not willing to agree to higher wages, perhaps due to business uncertainty. And if a labor shortage won’t push them to increase real wages, perhaps a higher rate of inflation won’t either. In short, one of the main effects of a permanently higher inflation target may be lower real wages. A lot of workers may not be too happy with their situation. There remains a risk that these workers, in lieu of bargaining for higher wages, will quit the labor force entirely, or perhaps just further disengage from their jobs.

Takeaways by Macro Roundup® AI

  1. A widespread labor shortage, evidenced by "Help Wanted" signs, coexists with falling after-inflation wages, a combination economists cannot fully explain.
  2. Employers may simply be unwilling to agree to higher wages, perhaps due to business uncertainty, suggesting that if a labor shortage does not raise real wages, higher inflation may not either.
  3. A permanently higher inflation target may produce lower real wages, with the risk that workers, rather than bargaining for raises, quit the labor force entirely or further disengage from their jobs.

AI Summary. Using the 25th percentile of pretax earnings among married sole-breadwinner fathers aged 25–29 as a marriageability threshold, the author estimates the share of young single men earning below it moved from 63% to 58% over four decades. Using an earlier baseline year instead yields a larger change, from 72% to 57%.

Scott Winship American Enterprise Institute
Date Posted:

.@swinshi argues that the changes in family formation have not been driven by changes in men’s relative earnings, as the percent of all men aged 25-29 earning at least the post-tax comp of the 25th percentile of young married fathers falls only from 63% in 1979 to 58% in 2021.

Have young men's earnings become less adequate for supporting a family?

Core argument: Using 1979 rather than 1969 as the reference point, marriageability among single men falls only from 63% to 58% by 2019, rather than from 72% to 57% as measured from 1969.

I use, as a marriageability threshold, the 25th percentile of pretax earnings among married fathers aged 25–29 who were sole breadwinners. The other choice involves what year to use as a reference point for “the past.” [The available data] is poorly suited for [estimating the tax burdens of young male sole breadwinners] before 1979. For that reason, I use 1979 as my reference point. Rather than [the share of single men earning pretax incomes less than the 25th percentile of married men] falling from 72% to 57%  from 1969 to 2019, marriageability [only] falls … from 63% to 58% [from 1979 to 2019].

Takeaways by Macro Roundup® AI

  1. Using 1979 rather than 1969 as the reference point, marriageability among single men falls only from 63% to 58% by 2019, rather than from 72% to 57% as measured from 1969.
  2. The marriageability threshold is the 25th percentile of pretax earnings among married fathers aged 25–29 who were sole breadwinners.
  3. Available data are poorly suited to estimating the tax burdens of young male sole breadwinners before 1979, the stated reason for using 1979 as the reference point for "the past.".

AI Summary. The U.S. government allocated $36bn to the Central States Pension Fund, one of the country's largest multi-employer plans, aiding 350,000 union workers and retirees who otherwise faced benefit cuts estimated at 60%.

Akayla Gardner, Jenny Leonard, and Nancy Cook Bloomberg
Date Posted:

The White House announced a $36B bailout for the Central States Pension Fund, which will avoid benefit cuts for 40,000 workers and retirees in Michigan, 40,000 in Ohio and 22,000 in Wisconsin. Biden won WI by a 20,682 margin. @bloomberg

The White House announced a $36B bailout for the Central States Pension Fund, which will avoid benefit cuts for 40,000...

Should taxpayers fund a $36 billion bailout of union pension plans?

Core argument: President Joe Biden announced a $36 billion bailout for the Central States Pension Fund, one of the nation's biggest multi-employer plans, which he said would help 350,000 union workers and retirees who faced estimated benefit cuts of 60% over the next few years.

President Joe Biden announced a $36 billion bailout for the Central States Pension Fund, one of the nation’s biggest multi-employer plans, touting the help for union workers and retirees as he looks to mend ties with organized labor after a contentious rail deal. Biden said the aid would help 350,000 union workers and retirees, who would have faced benefit cuts estimated at 60% over the next few years. The Central States bailout would help 40,000 workers and retirees in Michigan, 40,000 in Ohio and 22,000 in Wisconsin.

Takeaways by Macro Roundup® AI

  1. President Joe Biden announced a $36 billion bailout for the Central States Pension Fund, one of the nation's biggest multi-employer plans, which he said would help 350,000 union workers and retirees who faced estimated benefit cuts of 60% over the next few years.
  2. The Central States bailout would help 40,000 workers and retirees in Michigan, 40,000 in Ohio and 22,000 in Wisconsin.
  3. Biden touted the pension aid for union workers and retirees as he looks to mend ties with organized labor after a contentious rail deal.

AI Summary. Markets have shifted from the low-return environment of 2009–21 to a full-return environment in which credit instruments can offer solid returns, reducing investors' need to rely as heavily on riskier assets to hit return targets. High-yield bonds that yielded 4–5% now yield roughly 8%.

Howard Marks Oaktree Capital
Date Posted:

Howard Marks notes the S&P 500 delivered a 10.3% compound return from August 1982 through the start of 2022. Marks suspects that the 2000 basis point decrease in interest rates over the past forty years is the primary driver of this performance.

Howard Marks notes the S&P 500 delivered a 10.3% compound return from August 1982 through the start of 2022. Marks...

Do higher credit yields reduce investors' need for riskier assets?

Core argument: High-yield bonds yield roughly 8%, up from 4–5% a year earlier, when many issues came to market with yields in the 3s and at least one carried a 2-handle.

We've gone from the low-return world of 2009-21 to a full-return world, and it may become more so in the near term.  Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Here's one example: In the low-return world of just one year ago, high-yield bonds offered yields of 4-5%. A lot of issuances was at yields in the 3s, and at least one new bond came to the market with a "handle" of 2. Today these securities yield roughly 8%.

Takeaways by Macro Roundup® AI

  1. High-yield bonds yield roughly 8%, up from 4–5% a year earlier, when many issues came to market with yields in the 3s and at least one carried a 2-handle.
  2. The shift from the low-return world of 2009–21 to a full-return world means investors can potentially achieve solid returns from credit instruments rather than relying as heavily on riskier investments to hit overall return targets.

AI Summary. A US fusion experiment produced about 3.15 megajoules of energy from 2.05 megajoules delivered by its lasers, achieving energy gain long seen as a key step toward commercial fusion power. That comparison excludes the 330 megajoules of electricity drawn to power each shot, and scientists estimate commercial fusion requires reactions yielding 30x to 100x the energy put in.

Tom Wilson Financial Times
Date Posted:

The fusion reaction achieved at Lawrence Livermore energy gain of 150% was greater than initially reported by the @FT, though they note that 330 MJ of electrical energy was used to produce 3.15 MJ of fusion energy.

The fusion reaction achieved at Lawrence Livermore energy gain of 150% was greater than initially reported by the @FT,...

Does achieving fusion energy gain mean commercial fusion power is ready?

Core argument: The US fusion reaction produced about 3.15 megajoules of energy versus the 2.05 megajoules delivered by the lasers, roughly 150% of the laser energy input, an energy gain long seen as a crucial step toward commercial fusion power stations.

The reaction produced about 3.15 megajoules of energy, which was about 150 percent of the 2.05MJ of energy in the lasers. Does this mean they have cracked fusion power? No. Achieving energy gain has been seen for decades as a crucial step in proving that commercial fusion power stations are possible. However, there are still several hurdles to overcome. First, energy gain in this context only compares the energy out to the energy in the lasers, not to the total amount of energy pulled off the grid to power the system. In fact, each shot requires 330MJ of electrical energy, delivered in a 400-microsecond burst. Scientists estimate that commercial fusion will require fusion reactions that generate between 30 and 100 times the energy going in.

Takeaways by Macro Roundup® AI

  1. The US fusion reaction produced about 3.15 megajoules of energy versus the 2.05 megajoules delivered by the lasers, roughly 150% of the laser energy input, an energy gain long seen as a crucial step toward commercial fusion power stations.
  2. Each shot requires 330 megajoules of electrical energy delivered in a 400-microsecond burst, and the reported energy gain compares output only with laser energy, not with the total energy drawn from the grid.
  3. Scientists estimate commercial fusion will require reactions generating between 30 and 100 times the energy going in.

AI Summary. Researchers in China report producing hydrogen directly from seawater without first desalinating or purifying it, using a waterproof, breathable membrane that admits only pure water vapor into the electrolyser and draws in replacement vapor as hydrogen is made. A prototype produced over 1mn liters of hydrogen across 133 days with no reported deterioration.

Anjana Ajuja Financial Times
Date Posted:

The @FT reports a claim by Chinese researchers that they have produced hydrogen directly from seawater, without the need to desalinate or purify the seawater first, advancing a long-term goal of hydrogen power.

The @FT reports a claim by Chinese researchers that they have produced hydrogen directly from seawater, without the need to...

Can hydrogen be produced from seawater without desalination first?

Core argument: A prototype seawater electrolyser installed in China's Shenzhen Bay produced more than 1mn liters of hydrogen over 133 days without any reported deterioration, according to results published in Nature.

Researchers in China claim to have produced hydrogen by splitting seawater without the need to desalinate or purify it first.  Heping Xie at Shenzhen University and Zongping Shao at Nanjing Tech kept the electrolyser separate from the seawater with a waterproof, breathable membrane. A bit like a sieve, the membrane keeps anything other than pure water vapor from entering the electrolyser. As the water vapor is drawn in and converted to hydrogen, more is pulled in from the seawater to take its place. It is, they reported recently in the journal Nature, a self-sustaining system. The scientists installed a prototype in China’s Shenzhen Bay and produced more than 1mn liters of hydrogen over 133 days without any reported deterioration.

Takeaways by Macro Roundup® AI

  1. A prototype seawater electrolyser installed in China's Shenzhen Bay produced more than 1mn liters of hydrogen over 133 days without any reported deterioration, according to results published in Nature.
  2. Heping Xie of Shenzhen University and Zongping Shao of Nanjing Tech separated the electrolyser from seawater with a waterproof, breathable membrane that admits only pure water vapor, which they say allows hydrogen production without desalination or purification.
  3. The researchers report that as water vapor is drawn through the membrane and converted to hydrogen, more vapor is pulled in from the seawater to replace it, which they describe as a self-sustaining system.