Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, December 16, 2022

AI Summary. US data on foreign holdings of Treasury securities does not reliably identify the true owners, since several of the largest reported holders — including Belgium, the Cayman Islands, Luxembourg, and Ireland — are financial and custodial centers rather than real holders. Adjusting for Belgian accounts, China's visible holdings of US bonds have held near $1.6tn.

Brad Setser @Brad_Setser
Date Posted:

China’s visible holdings of US bonds have stayed constant over the past 5 years at ~ $1.6T, according to an analysis by @Brad_Setser. However, he notes that Japan’s holdings have dropped by $226B since December 2021.

Do official data reveal who actually owns US Treasury securities?

Core argument: China's visible holdings of US bonds have stayed constant at roughly $1.6 trillion over the past five years after adjusting for Belgian holdings, which appear to be a Euroclear account used by the People's Bank of China.

The most important thing to know about the US data on foreign holdings of US Treasury securities is that the US doesn't really know who holds US Treasuries. US Treasury holders, in rank order, Japan, China, the UK, Belgium, the Caymans, Luxembourg, Switzerland, and Ireland Only Japan and China (and, to a degree Switzerland) are real holders; the rest are financial and custodial centers. The second most important thing to know -- apart from the continued (apparent) purchases of Treasuries from private investors abroad (even if the buyers are the Caymans and the UK in the transactional data) -- is that China isn't selling. It is, in fact, rather remarkable that after adjusting for the Belgian holdings (a euroclear account used by the PBOC it seems), China's visible holdings of US bonds have stayed constant for the last 5ys (at ~ $1.6 trillion).

Takeaways by Macro Roundup® AI

  1. China's visible holdings of US bonds have stayed constant at roughly $1.6 trillion over the past five years after adjusting for Belgian holdings, which appear to be a Euroclear account used by the People's Bank of China.
  2. US data on foreign holdings of Treasuries does not reliably identify who holds them, as the ranked holders — Japan, China, the UK, Belgium, the Caymans, Luxembourg, Switzerland, and Ireland — include financial and custodial centers.
  3. Among the largest reported holders of US Treasuries, only Japan and China, and to a degree Switzerland, are real holders, while apparent purchases by private investors abroad continue, with the Caymans and the UK appearing as buyers in transactional data.

AI Summary. Capacity to convert natural gas into liquefied form for shipping has run below the carrying capacity of the tanker fleet, with the gap projected to widen, suggesting liquefaction will be an important bottleneck for growth in liquefied natural gas trade. Investment in both tankers and liquefaction terminals has increased.

Fernando Leibovici and Jason Dunn Federal Reserve Bank Of St. Louis
Date Posted:

Until recently, international trade of natural gas had been largely restricted to the use of cross-country pipelines, but recent investments in liquefied natural gas infrastructure will increase the global tradability of natural gas. @stlouisfed

Is liquefaction capacity the bottleneck for growth in natural gas trade?

Core argument: Global LNG liquefaction capacity has run below LNG fleet capacity for roughly the past 18 years, with a gap projected to widen through 2027, suggesting liquefaction will likely be an important bottleneck for future growth in LNG trade.

Liquefaction capacity has been below fleet capacity for the past 18 years or so, with a growing gap that is projected to widen through 2027. These patterns suggest that liquefaction will likely be an important bottleneck for the future growth of LNG trade. Figure 3 shows that, after Russia's invasion of Ukraine, there have been increased investments in LNG fleets (new orders in Panel A) and LNG liquefaction terminals (number of terminals expected to be completed in Panel B).

Takeaways by Macro Roundup® AI

  1. Global LNG liquefaction capacity has run below LNG fleet capacity for roughly the past 18 years, with a gap projected to widen through 2027, suggesting liquefaction will likely be an important bottleneck for future growth in LNG trade.
  2. Following Russia's invasion of Ukraine, investment rose both in LNG fleets, measured by new vessel orders, and in LNG liquefaction terminals, measured by the number of terminals expected to be completed.

AI Summary. Public filings to Norway's population registry show at least 30 billionaires and millionaires with a combined fortune of NKr29bn ($3bn), who paid NKr550m in tax, moved from Norway to lower-tax Switzerland in a single year, more than in the previous 13 years combined. Norway levies a wealth tax on net fortunes above NKr1.7m ($173,000), at 1.1% for the richest.

Richard Milne Financial Times
Date Posted:

In 2022, 30 Norwegians with a net worth of $3B have expatriated themselves to Switzerland to avoid Norway’s wealth tax of 1.1% on net worth annually, including unrealized capital gains. @ft

In 2022, 30 Norwegians with a net worth of $3B have expatriated themselves to Switzerland to avoid Norway’s wealth tax...

Does a wealth tax push a country's richest residents to emigrate?

Core argument: At least 30 Norwegian billionaires and millionaires with a combined fortune of NKr29bn ($3bn) moved to Switzerland in 2022, according to public filings to Norway's population registry.

Public filings to Norway’s population registry show that at least 30 billionaires and millionaires swapped the prosperous Scandinavian nation for the lower-tax Alpine jurisdiction in 2022. The group of rich Norwegians who left for Switzerland this year had a combined fortune of NKr29B [$3B] and paid NKr550M in tax [$550M], according to the country’s open-access annual tax returns. The 2022 exodus is greater than in the previous 13 years combined, newspaper Dagens Naeringsliv calculated. At the heart of the debate is Norway’s wealth tax which is levied on all net fortunes greater than NKr1.7M ($173,000) at a rate of 1.1 per cent for the richest. Switzerland also has a wealth tax but offers deals for foreigners.

Takeaways by Macro Roundup® AI

  1. At least 30 Norwegian billionaires and millionaires with a combined fortune of NKr29bn ($3bn) moved to Switzerland in 2022, according to public filings to Norway's population registry.
  2. The Norwegians who left for Switzerland in 2022 paid NKr550m in tax, and newspaper Dagens Naeringsliv calculated that the year's exodus exceeded the previous 13 years combined.
  3. Norway levies its wealth tax on all net fortunes above NKr1.7m ($173,000), at a rate of 1.1 per cent for the richest, while Switzerland has a wealth tax but offers deals for foreigners.

AI Summary. Japan plans to spend ¥43tn ($313bn) over five years on defense, raising military spending to roughly 2% of current gross domestic product, including ¥5tn for Tomahawk cruise missiles, longer-range domestic missiles and hypersonic weapons, and ¥3tn for integrated air and missile defense. The largest share, ¥15tn, goes to basic needs such as ammunition stockpiles and fuel.

Kana Inagaki Financial Times
Date Posted:

Scraping its “pacifist” post-Second World War defense strategy, Japan plans to spend $313B over the next five years to bring military expenditure to roughly 2% of GDP. @ft

Scraping its “pacifist” post-Second World War defense strategy, Japan plans to spend $313B over the next five...

How is Japan reshaping its defense spending to counter China?

Core argument: Japan plans to spend ¥43tn ($313bn) over five years to strengthen its defense capabilities, bringing military expenditure to roughly 2% of its current GDP as it scraps its pacifist post-war defense strategy to counter China.

Over the next five years, Tokyo plans to spend ¥43tn ($313bn) to strengthen its defense capabilities, bringing military expenditure to roughly 2% of its current gross domestic product.  The budget includes ¥5tn to buy Tomahawk cruise missiles from the US, expand the range of its domestic surface-to-ship cruise missiles and develop hypersonic weapons, according to the medium-term Defence program. Another ¥3tn will be spent on enhancing integrated air and missile defense capabilities, including a radar upgrade for the Patriot missile system to counter hypersonic weapons. The largest portion of the military spending, ¥15tn, will be designated to strengthening the SDF’s basic needs, including ammunition stockpiles and fuel tanks, reflecting concerns that Japan’s armed forces will not have the capability to persevere in a prolonged conflict such as one over Taiwan.

Takeaways by Macro Roundup® AI

  1. Japan plans to spend ¥43tn ($313bn) over five years to strengthen its defense capabilities, bringing military expenditure to roughly 2% of its current GDP as it scraps its pacifist post-war defense strategy to counter China.
  2. The medium-term Defence program allocates ¥5tn to buy US Tomahawk cruise missiles, extend the range of Japan's domestic surface-to-ship cruise missiles and develop hypersonic weapons, plus ¥3tn for integrated air and missile defense including a Patriot radar upgrade.
  3. The largest share of Japan's military spending, ¥15tn, goes to the Self-Defense Forces' basic needs such as ammunition stockpiles and fuel tanks, reflecting concerns the armed forces could not persevere in a prolonged conflict such as one over Taiwan.

AI Summary. Federal Reserve remittances flow one way: earnings are sent to the Treasury, but losses are not reimbursed by the Treasury and are instead paid with newly created dollars. The Federal Reserve records those losses cumulatively and must recoup them from future earnings before remittances to the Treasury resume.

The Last Bear Standing The Last Bear Standing
Date Posted:

From 2011 through early 2022, the Fed remitted $1 trillion in QE portfolio earnings to the US Treasury. Current rate mismatches mean these remittances will no longer be available, putting further stress the Treasury market. @LastBearStandng

How does the central bank cover its losses?

Core argument: Federal Reserve remittances to the Treasury flow only one way: positive earnings are sent to the Treasury, but the Treasury is not required to reimburse the Fed for losses.

First, remittances are a one-way street. If the Fed has positive earnings, it remits the earnings to the Treasury. But if the Fed incurs losses, the Treasury isn’t required to cut a check to the Fed to cover those losses. Instead, the Fed “prints” the difference. It simply pays the excess interest expense with newly created dollars, in the same way that it prints dollars to buy bonds in QE. The Fed keeps track of its cumulative losses, and when the Fed starts earning money again in the future, it will first go to recoup those losses before remittances to the Treasury resume. In other words, the positive balances shown in the graph above are in-period (since earnings are constantly swept to the Treasury), while the losses over the past several months are cumulative, since they accrue over time.

Takeaways by Macro Roundup® AI

  1. Federal Reserve remittances to the Treasury flow only one way: positive earnings are sent to the Treasury, but the Treasury is not required to reimburse the Fed for losses.
  2. When the Fed's interest expense exceeds its earnings, the Fed pays the difference with newly created dollars, the same mechanism by which it prints dollars to buy bonds under quantitative easing.
  3. The Fed tracks its losses cumulatively and will apply future earnings to recouping those losses before resuming remittances to the Treasury, while reported positive earnings are in-period because they are constantly swept to the Treasury.

AI Summary. House Republicans secured their majority by a combined 6,670 votes across the five closest districts, or 0.006% of the nationwide popular vote, meaning an additional 6,671 Democratic votes in those races would have flipped control. A prior Democratic majority of 222 seats similarly rested on a combined 34,734-vote margin in its five closest wins.

Jacob Rubashkin Inside Elections
Date Posted:

House races are getting more competitive according to an analysis by @JacobRubashkin. The Republican house majority rests on 6,670 votes, the cumulative margin of the 5 closest seats the Democrats lost that would have allowed them to hold the house.

How narrow were the vote margins deciding House majority control?

Core argument: House Republicans won the majority by 6,670 votes, equal to 0.006 percent of the nationwide popular vote.

The historical narrowness of the incoming GOP majority becomes clear when comparing this cycle to previous elections over the past decade. House Republicans won the majority by 6,670 votes, or 0.006 percent of the nationwide popular vote. Had Democrats won an additional 6,671 votes across five districts, they would have maintained their majority. In 2020, Democrats won 222 seats. But their majority rested on the 34,734-vote combined margin of victory in their five closest victories. Those decisive votes were just 0.023 percent of the 152,576,055 ballots cast nationwide.

Takeaways by Macro Roundup® AI

  1. House Republicans won the majority by 6,670 votes, equal to 0.006 percent of the nationwide popular vote.
  2. An additional 6,671 Democratic votes across five districts would have left Democrats in control of the House.
  3. The 222-seat Democratic majority in 2020 rested on a combined 34,734-vote margin in the party's five closest victories, or 0.023 percent of the 152,576,055 ballots cast nationwide.

AI Summary. Fusion progress is tracked by Q, the ratio of energy released to energy used: one experiment delivered 3.15 megajoules from 2.05 megajoules of laser energy, a Q of about 1.5, but the full reactor consumed roughly 300 megajoules, putting whole-system Q near 0.01, about 1% of break-even.

Josh Zumbrun Wall Street Journal
Date Posted:

According to the chief research officer at Princeton Plasma Physics Laboratory “If you gain a factor of 10 on the fusion and 10 on the efficiency,” fusion achieves energy breakeven. With government support, this could be achieved in 10-20 years. @WSJ

According to the chief research officer at Princeton Plasma Physics Laboratory “If you gain a factor of 10 on the...

How far is fusion from whole-system energy break-even?

Core argument: The fusion experiment put in 2.05 megajoules and released 3.15 megajoules, yielding a Q ratio of about 1.5, where Q is energy released divided by energy used.

A simple ratio known as Q provides an easy and intuitive way to understand if scientists are making progress: It’s energy released divided by energy used. A Q below one means the reaction consumed more energy than it produced. A Q above one means more energy was produced than consumed. In this latest experiment, scientists put in 2.05 megajoules of energy and got 3.15 megajoules out. Q was 3.15 divided by 2.05, or about 1.5. To generate 3.15 megajoules of energy, the lab consumed about 300 megajoules of energy to fire its laser. The Q value for the entire reactor is about 0.01—roughly 1% of break-even. “If you gain a factor of 10 on the fusion and 10 on the efficiency, that gives you a factor of 100 roughly,” said Jonathan Menard, chief research officer at Princeton Plasma Physics Laboratory. “That would be in the ballpark of break-even. Both of those are theoretically possible.” With government support that could take one to two decades, he said.

Takeaways by Macro Roundup® AI

  1. The fusion experiment put in 2.05 megajoules and released 3.15 megajoules, yielding a Q ratio of about 1.5, where Q is energy released divided by energy used.
  2. Counting the roughly 300 megajoules the lab consumed to fire its laser, the entire reactor's Q was about 0.01, or roughly 1% of break-even.
  3. Jonathan Menard, chief research officer at Princeton Plasma Physics Laboratory, said gaining a factor of 10 on fusion and 10 on efficiency would be in the ballpark of break-even, is theoretically possible, and with government support could take one to two decades.

AI Summary. An analysis argues that an aging population has lowered the share of people working or seeking work, meaning economic activity must run lower to avoid persistent wage and price inflation. Union activity is increasing, with a 10% rise in strikes and protests and more new union applications, suggesting worker leverage and wage growth may persist.

Ethan Wu Financial Times
Date Posted:
Is Database:
Database

BlackRock analysis argues declining LFP means economic activity ‘will need to run at a lower level to avoid persistent wage and price inflation.’

Does an aging workforce plus rising union activity sustain wage inflation?

Core argument: BlackRock's analysis notes that 1.3m individuals have exited the US workforce upon reaching retirement age, with another 630,000 retiring earlier than planned because of the pandemic.

Blackrock's analysis highlights a declining Labor Force Participation (LFP) rate, driven by an aging population, which necessitates lower economic activity to prevent persistent wage and price inflation. The participation rate, representing those aged 16 and over who are working or seeking work, plummeted during the pandemic and has not fully recovered due to demographic shifts. As of October, 1.3m individuals have exited the workforce upon reaching retirement age, with an additional 630,000 retiring earlier than planned due to the pandemic. This shrinking workforce relative to the population suggests that economic activity must adjust, particularly in labor-intensive sectors, to mitigate inflationary pressures. Despite this, union strength is rising, with a 10% increase in strikes and protests and a notable rise in new union applications, indicating that worker leverage may persist even amid potential recessions. This dynamic could contribute to sustained inflationary pressures as wage growth remains robust.

Takeaways by Macro Roundup® AI

  1. BlackRock's analysis notes that 1.3m individuals have exited the US workforce upon reaching retirement age, with another 630,000 retiring earlier than planned because of the pandemic.
  2. BlackRock argues the declining labor force participation rate, driven by an aging population, requires lower economic activity, particularly in labor-intensive sectors, to prevent persistent wage and price inflation.
  3. Strikes and protests have risen 10% alongside a rise in new union applications, which BlackRock reads as worker leverage that may persist even amid potential recessions and sustain wage growth.

Blackrock analysis forecasting declining American labor force participation rates driven by aging. This implies that economic activity“will need to run at a lower level to avoid persistent wage and price inflation.”,“…The participation rate, or the share of people aged 16 and over that have or are looking for work, nosedived when the pandemic hit. Some of that sharp decline has been made up as people return. But we don’t see it recovering further because the effects of an aging population account for most of the remaining shortfall. More people have hit 64 years old, the age at which most retire. That’s taken 1.3M out of the workforce as of October, we find. Another 630,000 left as the pandemic caused fewer people to work past retirement age and hastened retirement for people coming up to 64. That implies the workforce will keep shrinking relative to the population. Economic activity will need to run at a lower level to avoid persistent wage and price inflation, especially in the labor-heavy services sector…”

This is, in our judgment, one of the most important macro questions right now. We wish we knew for sure what’ll happen. But the uptick in union strength suggests that workers’ leverage isn’t going away, even if a recession interrupts. We suspect that this strength can coexist with 2 per cent inflation, but with low confidence. Let us know what you think.

Ethan Wu, "Unions’ inflation warning?"Financial Times, December 8, 2022, https://www.ft.com/content/96a5dba9-da0b-4af9-a7cc-94636ad98698

Unions’ inflation warning?

Are unions a bellwether of sticky inflation?

We wrote on Monday about the resilience of US wage growth, which, with inflation above 7 per cent, scares investors. You hear different formulations for why (“cost-push spiral”, “wage-price persistence”), but the throughline is the same. Prices and wages are linked and once both are rising, both must be forced down together.

That’s worth thinking about, but it’s also worth appreciating that most US observers don’t suspect a 1970s-style wage-price spiral is on the cards. That is, notably, not so in the UK, where the wage-price spiral debate is very much alive. This chart probably has something to do with it:

Unions inflation warning?: Extended Excerpt Image 1


The argument here is that the 1970s spiral depended on cost-of-living wage adjustments written into union contracts, creating a fixed relationship between wages and prices. Everyone figured out pay and prices would keep rising, and acted that way. Inflation expectations soared.

But now, US organised labour is weak, cost-of-living adjustments aren’t widespread and businesses can be more judicious about price increases.

Could that change? On the margins, it already is. From rail workers and teaching assistants to Starbucks and Amazon, this year’s surge in labour action has been hard to miss. Cornell’s tracker finds a 10 per cent bump in strikes and protests, while National Labor Relations Board data show a sharp rise in new union applications. Some combination of a post-lockdown bounceback and a tight labour market probably explains the shift, but that doesn’t necessarily mean it’s temporary. Tight labour markets could be here to stay. BlackRock’s in-house think-tank has been banging the drum on this: "A smaller share of the US population is in the workforce than pre-Covid. That’s unlikely to change, we think. Why? The participation rate, or the share of people aged 16 and over that have or are looking for work, nosedived when the pandemic hit and people left the workforce. Some of that sharp decline has been made up as people return. But we don’t see it recovering further because the effects of an ageing population account for most of the remaining shortfall. More people have hit 64-years-old, the age at which most retire. That’s taken 1.3mn out of the workforce as of October, we find. Another 630,000 left as the pandemic caused fewer people to work past retirement age and hastened retirement for people coming up to 64... That implies the workforce will keep shrinking relative to the population. Economic activity will need to run at a lower level to avoid persistent wage and price inflation, especially in the labour-heavy services sector."

Here’s their chart:

Unions inflation warning?: Extended Excerpt Image 2


We spoke recently to Ian de Verteuil, a managing director at CIBC, who made the case that investors are not thinking enough about this. He concedes that, in general, organised labour’s position is diminished. But he points to the wage increases already pencilled into union agreements. From a database of union contracts covering 350,000 workers, he calculates that an average of 4 per cent wage growth is locked in for each of the next three years (except 2023, at 6.7 per cent): " are the only place where you can see one, two or three years out. A lot of wage expectations data is backward-looking. But if someone negotiates a contract in the third quarter of 2022 at 6.7 per cent... then we’re starting to lock in these higher levels. Why are still hiring if you can see the slowdown? Part of it is, ‘Gee whiz, we fired everyone during Covid, and couldn’t get them back.’ So even if I have a slowdown, do I let the worker go?... In an environment where we don’t have enough workers now, where we’re bringing manufacturing back to the United States, where unions are starting to demand more and more, where employers are still trying to hire, that is an environment that makes inflation stickier than you think."

The unionisation rate, de Verteuil said, doesn’t have to budge for wage pressures to persist; what unions are demanding is indicative of labour conditions more broadly.

Along similar lines, Claudia Sahm of Sahm Consulting noted to us that fear of unions could matter as much as unions themselves: "We’ve had this labour shortage long enough that you can see companies pulling these levers. Because the thing they want to avoid more than anything else is a union, because a union makes them pull the levers."

But Sahm welcomes the recent burst of wage growth, and is not very worried about any wage-price feedthrough, citing recent IMF research that found such episodes are historically uncommon. She points out that rising wages will probably eat into margins, but that companies are often loath to increase prices quickly, for fear of losing customers.

Monday, December 19, 2022

AI Summary. Britain's economy has grown 7% per person in real terms since 2007, ahead of Canada and France at 6% but behind the US, Australia, and Germany at 13-16%. British labor productivity rose just 4% over 15 years, compared with 6% in France and double-digit gains elsewhere.

Economist Staff The Economist
Date Posted:

Britain has seen a relative decline in GDP per person, growing only 7% between 2007 and 2022 relative to 15% growth in the United States. UK GDP per hour worked productivity grew 4% during that period relative to 18% in the United States @Economist

Has Britain's per-person growth lagged most peer economies?

Core argument: Britain's real GDP per person has grown 7% since 2007, just ahead of Canada and France at 6% but behind America, Australia, and Germany at 13–16%.

On a per-person basis, Britain’s economy has grown by 7% in real terms since 2007. That is just ahead of Canada and France, both at 6%, but behind America, Australia, and Germany, which sit at 13-16%. Unfortunately, much of Britain’s meager growth has come not from working more efficiently but rather from working more. Over the past 15 years, British labor productivity has climbed by just 4%, slightly behind France’s 6% and far worse than the other countries’ double-digit gains.

Takeaways by Macro Roundup® AI

  1. Britain's real GDP per person has grown 7% since 2007, just ahead of Canada and France at 6% but behind America, Australia, and Germany at 13–16%.
  2. British labour productivity has risen 4% over the past 15 years, behind France's 6% and far below the double-digit gains of America, Australia, and Germany.
  3. Much of Britain's growth since 2007 has come from working more rather than working more efficiently.

AI Summary. Britain's National Health Service has 6.8m people on waiting lists, up from 4.2m before the pandemic, and has 2.9 doctors per 1,000 people compared with an average of 3.7 across European Union countries in the OECD and 5.4 in Austria.

Catherine Nixey The Economist
Date Posted:

Britain’s National Health Service is under increasing stress, with 6.8mm people on its waiting lists, up from 4.2mm prior to the pandemic. Britain has 2.9 doctors per thousand people, vs. 3.7 average for the OECD. @Economist

Britain’s National Health Service is under increasing stress, with 6.8mm people on its waiting lists, up from 4.2mm prior to...

Is Britain's health service understaffed and overwhelmed by waiting lists?

Core argument: Britain's NHS has 6.8m people on waiting lists, up from 4.2m before the pandemic.

The NHS is in poor shape. It has 6.8m people on waiting lists, up from 4.2m before the pandemic. EU countries in the OECD, a club of mostly rich countries, have an average of 3.7 doctors per 1,000 people (Austria has 5.4). Britain has 2.9.

Takeaways by Macro Roundup® AI

  1. Britain's NHS has 6.8m people on waiting lists, up from 4.2m before the pandemic.
  2. Britain has 2.9 doctors per 1,000 people, below the 3.7 average across EU countries in the OECD, a club of mostly rich countries, and Austria's 5.4.

AI Summary. A survey of consumer expectations finds the average reservation wage — the lowest pay respondents say they would accept for a new job — has risen for both employed and non-employed respondents, with a larger increase for the employed (19.4% versus about 12%). Among employed respondents, those without a college degree showed the largest rise, 27%.

Felix Aidala and Gizem Kosar Federal Reserve Bank Of New York
Date Posted:

According to the @NewYorkFed, the reservation wage continues to climb, with the average now $73,667. Since March 2020, that’s a 19.4% increase for employed workers and 12% for the unemployed.

Is the lowest pay workers will accept still rising?

Core argument: The average reservation wage in the SCE Labor Market Survey rose 19.4% for employed respondents between March 2020 and November 2022, versus about 12% for non-employed respondents over the same period.

When we look at the series for employed and non-employed (unemployed or out of the labor force) respondents separately, as in the chart below, we observe that the average reservation wage has been increasing for both groups since late 2017, but more so since the onset of the pandemic. In addition, the chart displays the increase since the onset of the pandemic (since March 2020) to be more pronounced for employed respondents. Specifically, while the average reservation wage increased by 19.4% between March 2020 and November 2022 for employed respondents, it increased by around 12 percent for non-employed respondents in the same time period. Among the employed respondents, we observe the highest rise in this time period for those without a college degree (a 27% increase).

Takeaways by Macro Roundup® AI

  1. The average reservation wage in the SCE Labor Market Survey rose 19.4% for employed respondents between March 2020 and November 2022, versus about 12% for non-employed respondents over the same period.
  2. Among employed respondents, those without a college degree recorded the largest increase in average reservation wage between March 2020 and November 2022, at 27%.
  3. Average reservation wages have risen for both employed and non-employed respondents since late 2017, with the increase more pronounced since the onset of the pandemic.

AI Summary. Market pricing for interest rates diverges from the Federal Reserve's own projection of holding the federal funds rate at 5.125%. The author argues the jobs market is not weakening, and the Federal Reserve will not shift course without unmistakable signs of labor market weakness.

Jim Bianco Bianco Research
Date Posted:

.@biancoresearch sees two scenarios for equities, both bad: either the stock market declines on weak recessionary earnings and the Fed pivots, or the economy stays hot, and the market declines on higher-than-expected rates.

Will the Fed cut rates without clear signs of labor market weakness?

Core argument: The Fed projects holding the federal funds rate at 5.125% next year, a level markets have not priced in, and this divergence will define trading in the first part of 2023.

As this chart shows, there is a big difference between what the market and the Fed thinks. And this divergence will define the first part of 2023 trading. What does the Fed see causing the funds rate to stay at 5.125% next year? Start with the labor market. The simple truth is the jobs market is NOT weakening. And the Fed is not changing unless it shows UNMISTAKABLE signs of weakening.

Takeaways by Macro Roundup® AI

  1. The Fed projects holding the federal funds rate at 5.125% next year, a level markets have not priced in, and this divergence will define trading in the first part of 2023.
  2. The jobs market is not weakening, which underpins the Fed's expectation that the funds rate stays at 5.125% next year.
  3. The Fed will not change course unless the labor market shows unmistakable signs of weakening.

AI Summary. A New York Federal Reserve survey shows consumers expect elevated inflation over the next year while medium-term inflation expectations remain low, which the author reads as showing no sign that inflation is becoming entrenched.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman notes that, despite high inflation, there is a continued absence of evidence that inflation has become entrenched, with median one, three, and five-year-ahead inflation expectations declining to 5.2%, 3.0%, and 2.3%, respectively.

Do inflation expectations show inflation becoming entrenched?

Core argument: The New York Fed's ongoing survey shows respondents expect elevated inflation over the next year while medium-term inflation expectations remain quite low, which the author reads as no sign of inflation becoming entrenched.

We do, however, have some direct evidence on inflation expectations. For example, here are the results of an ongoing survey by the New York Fed. People do expect elevated inflation over the next year, probably because they’re extrapolating from elevated gas prices earlier this year. But medium-term inflation expectations are quite low. There’s just no sign of inflation getting entrenched.

Takeaways by Macro Roundup® AI

  1. The New York Fed's ongoing survey shows respondents expect elevated inflation over the next year while medium-term inflation expectations remain quite low, which the author reads as no sign of inflation becoming entrenched.
  2. The author suggests elevated one-year inflation expectations in the New York Fed survey probably reflect respondents extrapolating from elevated gas prices earlier in the year.

AI Summary. Acceleration in wage growth over the past year appears connected to faster inflation in services excluding housing and energy. Though that category includes prices not necessarily tied to wages—health care billed to insurers, imputed financial and insurance services, and social assistance—excluding those categories makes core services inflation look substantially worse.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that inflation is unlikely to decline until nominal wage growth slows, which it has not to this point.

Is faster wage growth driving accelerating core services inflation?

Core argument: Wage growth acceleration appears connected to faster inflation in services excluding housing, electricity, and gas.

There does seem to be a connection between the acceleration in wage growth over the past year or so and the acceleration in the inflation rate of services other than housing, electricity, and gas. One could reasonably quibble that “services excluding housing and energy services” is 32% health care prices charged by providers to insurers (including Medicare and Medicaid), 13% imputed financial and insurance services, plus 9% “social assistance” (excluding child care) and non-profits. None of those prices are necessarily linked to wages. But these problematic categories do not explain why inflation has accelerated. In fact, excluding those categories, along with other non-market PCE, makes core services inflation looks substantially worse, as can be seen in the difference between the green line and the orange line in the chart above.

Takeaways by Macro Roundup® AI

  1. Wage growth acceleration appears connected to faster inflation in services excluding housing, electricity, and gas.
  2. The "services excluding housing and energy services" category comprises 32% health care prices charged by providers to insurers, 13% imputed financial and insurance services, and 9% social assistance excluding child care plus non-profits, none necessarily linked to wages.
  3. Excluding those categories along with other non-market personal consumption expenditures makes core services inflation look substantially worse, so they do not explain the acceleration.

AI Summary. How firms respond to an expected decline in demand is the central question for the economic outlook: whether they announce substantial layoffs as usual, or whether difficulty finding and retaining qualified workers leads them to sacrifice short-run profits to keep workers on the payroll.

Michael Boskin Project Syndicate
Date Posted:

Michael Boskin notes that tight labor markets may cause firms to respond to declining demand with fewer layoffs than in a typical recessionary cycle. @AEIecon @ProjSyn

Michael Boskin notes that tight labor markets may cause firms to respond to declining demand with fewer layoffs than in a...

Will firms lay off workers or retain them as demand falls?

Core argument: The single biggest factor in the 2023 economic outlook is how firms respond to a likely reduction in demand.

The single biggest factor in the 2023 outlook is how firms will respond to a likely reduction in demand. Will businesses announce substantial layoffs, as usual? Or will the difficulties in finding and retaining qualified workers lead them to sacrifice short-run profits to keep people on the payroll? (Many have already been laid off in the tech sector, but that is because those companies binge-hired in 2020 and 2021.)

Takeaways by Macro Roundup® AI

  1. The single biggest factor in the 2023 economic outlook is how firms respond to a likely reduction in demand.
  2. Businesses face a choice between announcing substantial layoffs, as is usual, or sacrificing short-run profits to keep workers on the payroll given difficulties finding and retaining qualified staff.
  3. Tech-sector layoffs already made stem from those companies' binge-hiring in 2020 and 2021.

AI Summary. The US workforce of employed PhD scientists and engineers has aged, with the mid-career share (ages 40–55) falling from about half to just under 40% and the late-career share (55–75) rising, and the share over 65 more than doubling to 27%. Researchers find a sharp drop in productivity and citations to top papers after 25 years of career experience.

Matt Clancy What's New Under The Sun
Date Posted:

.@mattsclancy notes that American scientist are aging and notes research that found a sharp fall in productivity after 25 years.

How does an aging scientific workforce affect research productivity?

Core argument: The share of employed US PhD scientists and engineers in mid-career (ages 40–55) fell from about 50% to just under 40% between 1993 and 2019, with most of that decline offset by a rising share of late-career (ages 55–75) scientists.

Scientists are getting older. Above is the share of employed US PhD scientists and engineers in three different age ranges: early career (under 40), mid-career (ages 40-55), and late career (ages 55-75). The figure covers the 26 years from 1993-2019. Over this period, the share of mid-career scientists fell from about half to just under 40%. Most (but not all) of that decline has been offset by an increase in the share of late career scientists. And within the late career group, the share older than 65 has more than doubled to 27% over this time period. Yu and coauthors still find a sharp fall off in both productivity and citations to top papers after 25 years of career experience. For a scientist who first published at the age of 25, that’s 50 years old. The share of scientists who fall into this “late career” demographic has been on the rise.

Takeaways by Macro Roundup® AI

  1. The share of employed US PhD scientists and engineers in mid-career (ages 40–55) fell from about 50% to just under 40% between 1993 and 2019, with most of that decline offset by a rising share of late-career (ages 55–75) scientists.
  2. Within the late-career group of US PhD scientists and engineers, the share older than 65 more than doubled to 27% between 1993 and 2019.
  3. Yu and coauthors find a sharp fall-off in both productivity and citations to top papers after 25 years of career experience, which corresponds to age 50 for a scientist who first published at 25.

AI Summary. Vietnam is on track to displace Britain from the US's top seven goods trading partners for the first time in records going back at least to 2004, with the UK's share of US merchandise trade at 2.6% and Vietnam's at 2.7%. China's share stood at 13.2%, down from a full-year peak of 16.4% in 2017.

Brendan Murray Bloomberg
Date Posted:

Vietnam will displace Britain as one of the US’s top seven trading partners. Vietnam’s share of US goods trade is now 2.7%. The US’s largest trading partners are Canada at 15%, Mexico at 14.7%, and China at 13.2%. @Bloomberg

Is Vietnam displacing Britain among top US goods trading partners?

Core argument: Vietnam's share of US merchandise trade rose to 2.7% through the first 10 months of this year while the UK's slid to 2.6%, according to Census Bureau data.

Vietnam is on track this year to bump Britain from its long-time place among the US’s top seven goods trading partners, which would be the first time the UK hasn’t been in that group in records going back at least to 2004. The UK’s share of the US merchandise trade slid to 2.6% through the first 10 months of this year, while Vietnam’s rose to 2.7%, according to Census Bureau data. The numbers reflect trends that both predate the pandemic and were accelerated by it. China’s share of US goods trade, which stood at 13.2% in October, has been edging down since it peaked on a full-year basis at 16.4% in 2017.

Takeaways by Macro Roundup® AI

  1. Vietnam's share of US merchandise trade rose to 2.7% through the first 10 months of this year while the UK's slid to 2.6%, according to Census Bureau data.
  2. Britain is on track to fall out of the US's top seven goods trading partners for the first time in records going back at least to 2004, displaced by Vietnam.
  3. China's share of US goods trade stood at 13.2% in October, edging down since peaking on a full-year basis at 16.4% in 2017.

AI Summary. Germany has opened a floating liquefied natural gas terminal at the North Sea port of Wilhelmshaven as part of its effort to end energy dependence on Russia. The government has contracted five floating storage and regasification units, each able to handle 5bn cubic meters of gas a year, and approved new permanent import terminals.

Guy Chazan Financial Times
Date Posted:

Germany has opened the first of five floating storage and regasification units, each with a capacity of 5B cubic meters per year of gas. Overall, Germany will soon have LNG import capacity of half the total volume of Russian gas imported last year. @FT

Germany has opened the first of five floating storage and regasification units, each with a capacity of 5B cubic meters per...

Can floating gas terminals replace Russian pipeline supplies?

Core argument: Germany opened its floating LNG terminal at the North Sea port of Wilhelmshaven, a milestone in its quest for energy independence from Russia.

Germany has opened its floating liquefied natural gas terminal in the North Sea port of Wilhelmshaven, marking a crucial milestone in its quest for energy independence from Russia. Since the start of the year, the government contracted five floating storage and regasification unit, each with a capacity of 5bn cubic meters a year of gas. It also pushed through the construction of new permanent LNG import terminals, one of which will be built in Wilhelmshaven. Germany would soon have an LNG import capacity of 30B cubic meters per year on its northern coasts. “That is equivalent to more than half of the entire volume of pipeline gas that flowed to Germany from Russia last year,” Olaf Scholz, the chancellor, said.

Takeaways by Macro Roundup® AI

  1. Germany opened its floating LNG terminal at the North Sea port of Wilhelmshaven, a milestone in its quest for energy independence from Russia.
  2. Germany contracted five floating storage and regasification units since the start of the year, each with capacity of 5bn cubic meters of gas annually, and pushed through construction of new permanent LNG import terminals, including one at Wilhelmshaven.
  3. Chancellor Olaf Scholz said Germany's coming LNG import capacity of 30bn cubic meters a year on its northern coasts equals more than half the entire volume of pipeline gas that flowed from Russia to Germany last year.