Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 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
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, January 6, 2023

AI Summary. US nonfarm payrolls rose 223,000, following a 256,000 gain the prior month, while average hourly earnings increased 0.3% on the month and 4.6% from a year earlier. The unemployment rate fell 0.1 percentage point to 3.5%, matching a five-decade low, as labor force participation ticked up to 62.3%.

Reade Pickert Bloomberg
Date Posted:

Nonfarm payrolls increased by 223,000 in December and the unemployment rate declined to 3.5%, matching a five-decade low. @Bloomberg

Is hiring staying solid while wage growth cools?

Core argument: U.S. nonfarm payrolls rose 223,000 in December, following a 256,000 gain in November and capping a near-record year for job growth, according to a Labor Department report released Friday.

Nonfarm payrolls increased 223,000 in December, capping a near-record year for job growth, a Labor Department report showed Friday. The advance followed a 256,000 gain in November. Average hourly earnings rose 0.3% from a month earlier and 4.6% from December 2021 after November’s previously eye-popping gain was revised lower. The unemployment rate decreased by 0.1 percentage point to 3.5%, matching a five-decade low, as participation inched higher. The labor force participation rate — the share of the population that is working or looking for work — ticked up to 62.3%, and the rate for workers ages 25-54 rose.

Takeaways by Macro Roundup® AI

  1. U.S. nonfarm payrolls rose 223,000 in December, following a 256,000 gain in November and capping a near-record year for job growth, according to a Labor Department report released Friday.
  2. Average hourly earnings rose 0.3% in December and 4.6% from December 2021, after November's previously reported gain was revised lower.
  3. The U.S. unemployment rate fell 0.1 percentage point to 3.5%, matching a five-decade low, as labor force participation ticked up to 62.3% and the rate for workers ages 25-54 rose.

AI Summary. Consumer price index inflation of 7.1% over 12 months reflects a 10.6% annualized rate over the first seven months and 2.5% over the last five, with personal consumption prices showing a similar split. Core inflation excluding food and energy ran higher over the recent five months, at 4.7% and 3.7%.

Alan Blinder Wall Street Journal
Date Posted:

Alan Blinder notes that November’s 12-month CPI was 7.1%, however, between June-November 2022 CPI inflation ran at only a 2.5% annualized rate. Blinder concludes, “the inflation future does indeed look brighter than the inflation past.

Alan Blinder notes that November’s 12-month CPI was 7.1%, however, between June-November 2022 CPI inflation ran at only a...

Has inflation already slowed sharply over recent months?

Core argument: CPI inflation of 7.1% over the past 12 months combined a 10.6% annualized rate over the first seven months with just 2.5% over the last five months.

The CPI inflation rate over the past 12 months has been an alarming 7.1%. But the U.S. economy got there by averaging an appalling 10.6% annualized inflation rate over the first seven months and a mere 2.5% over the last five. The PCE price index tells a similar story, though a somewhat less dramatic one. The 5.5% inflation rate over the past 12 months came from a 7.8% rate over the first seven months followed by a 2.4% rate over the last five. If you concentrate instead on “core” inflation, which excludes food and energy prices, annual inflation over the past five months has run higher: a 4.7% annual rate for the CPI and 3.7% for the PCE. So the Fed’s fight against inflation isn’t over.

Takeaways by Macro Roundup® AI

  1. CPI inflation of 7.1% over the past 12 months combined a 10.6% annualized rate over the first seven months with just 2.5% over the last five months.
  2. The PCE price index shows a similar pattern, with its 5.5% 12-month rate composed of 7.8% annualized over the first seven months and 2.4% over the last five.
  3. Core inflation excluding food and energy ran higher over the past five months, at a 4.7% annual rate for the CPI and 3.7% for the PCE, leaving the Fed's inflation fight unfinished.

AI Summary. A recession predictor based on the rate of change and acceleration of the smoothed unemployment rate is nearly as accurate as the yield curve slope and more accurate at shorter horizons. The unemployment rate does not currently signal an impending recession, though the same method suggests the business cycle is at a maturing stage when expansions typically end.

Thomas Mertens Federal Reserve Bank Of San Francisco
Date Posted:

.@sffed analysis of the jobless unemployment rate finds that it is an effective recession forecaster and that “the jobless rate does not currently signal an impending recession.”

Can unemployment rate momentum predict recessions as well as the yield curve?

Core argument: Plotting the first and second derivatives of the smoothed jobless unemployment rate, with recession months as red dots and expansion months as green, yields a predictor nearly as accurate as the yield curve slope and more accurate at shorter horizons.

[The above chart] plots the change in the smoothed jobless unemployment rate (first derivative) on the horizontal axis and the change in the change (second derivative) on the vertical axis. Recession months are depicted as red dots and expansion months as green dots. This predictor is almost as accurate as the slope of the yield curve but is more accurate at shorter horizons. The jobless rate does not currently signal an impending recession, nor do other macroeconomic time series analyzed using the same methodology. In general, however, examining these series suggests that the business cycle is at a maturing stage when expansions typically come to an end.

Takeaways by Macro Roundup® AI

  1. Plotting the first and second derivatives of the smoothed jobless unemployment rate, with recession months as red dots and expansion months as green, yields a predictor nearly as accurate as the yield curve slope and more accurate at shorter horizons.
  2. The jobless rate does not signal an impending recession, and neither do other macroeconomic time series analyzed with the same first- and second-derivative methodology.
  3. Examination of these series suggests the business cycle is at a maturing stage at which expansions typically come to an end.

AI Summary. The Global Supply Chain Pressure Index peaked at 4.3 standard deviations above its historical mean before declining substantially toward normal levels. The slowdown in that return to average is attributed partly to worsening supply conditions in China, which have spilled over into its neighboring trade partners.

Ozge Akinci, Gianluca Benigno, Hunter Clark, et al Federal Reserve Bank Of New York
Date Posted:

.@NewYorkFed measure of supply chain stress was 1.18 in December, up from .94 in September, as deteriorating conditions in China have led to a pause to improvements.

Are worsening supply conditions in China slowing global supply chain normalization?

Core argument: The Global Supply Chain Pressure Index peaked at 4.3 standard deviations above its historical mean at the end of 2021 before falling to 2.8 by March 2022 and reaching a low of 0.9 in September.

The Global Supply Chain Pressure Index peaked at 4.3 standard deviations above its historical mean at the end of 2021, after which it declined substantially. The initial period of decline saw it drop to 2.8 by March 2022, after which it temporarily increased in April, primarily due to pandemic lockdowns in China and the Russia-Ukraine war. The GSCPI then experienced five consecutive months of declines, reaching a low of 0.9 in September. However, the past three months have witnessed a pause in the reversion to the historical average, with the index increasing by a total of 0.29 points in October and November before declining by 0.05 points last month, leaving the total three-month increase at about a quarter point. We can partly attribute the recent slowdown of the GSCPI’s return to its historical average to worsening supply conditions in China, which have also spilled over into its neighboring trade partners.

Takeaways by Macro Roundup® AI

  1. The Global Supply Chain Pressure Index peaked at 4.3 standard deviations above its historical mean at the end of 2021 before falling to 2.8 by March 2022 and reaching a low of 0.9 in September.
  2. After five consecutive monthly declines through September, the GSCPI rose by a combined 0.29 points in October and November and fell 0.05 points in the following month, a net three-month increase of about a quarter point.
  3. The pause in the GSCPI's return to its historical average is partly attributable to worsening supply conditions in China, which have spilled over into its neighboring trade partners.

AI Summary. Changes in the financial system's underlying plumbing make it unlikely that the Federal Reserve's balance-sheet runoff can last its expected 2+ years, since an ideal runoff drains system-wide liquidity while keeping bank-sector liquidity above a minimum. Federal Reserve data show US households replaced money market funds as the marginal buyer of short-dated Treasuries, funding purchases from money held in banks.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 questions the sustainability of the QT regime, noting that American households are the current marginal buyer of short-dated Treasuries. He thinks that this pattern cannot continue without bringing banking reserves to untenable levels.

Can the Fed's balance-sheet runoff last its expected course?

Core argument: Federal Reserve data show U.S. household purchases of Treasuries surged to record levels on a seasonally adjusted annual basis, while money market funds notably shrank their holdings.

A change in the underlying plumbing of the financial system is making it unlikely that QT can run its expected 2+ year course. An ideal QT would drain liquidity in the overall financial system while keeping liquidity in the banking sector above a minimum threshold. The marginal buyer of short-dated Treasuries over 2022 Q3 appears to surprisingly be U.S. households. Federal Reserve data show that household purchases of Treasuries surged to record levels on a seasonally adjusted annual basis as [money market funds] notably shrank their holdings. Households appear to have replaced money market funds as the marginal buyer of bills and are funding their purchases out of funds held in the banking sector.

Takeaways by Macro Roundup® AI

  1. Federal Reserve data show U.S. household purchases of Treasuries surged to record levels on a seasonally adjusted annual basis, while money market funds notably shrank their holdings.
  2. Households appear to have replaced money market funds as the marginal buyer of short-dated Treasury bills, funding those purchases out of funds held in the banking sector.
  3. A change in the plumbing of the financial system makes it unlikely that quantitative tightening can run its expected 2+ year course, as an ideal QT would drain systemwide liquidity while keeping bank-sector liquidity above a minimum threshold.

Monday, January 9, 2023

AI Summary. Total weekly wage income paid to US employees—workers on payroll times average hours times average hourly pay—is rising at under 4% annually, down from about 7.5% annualized earlier, a deceleration the author argues would bring even the most persistent inflation components into line. Rising quits suggest limited further slowing in wage growth.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein reports that the latest revisions show that annualized average hourly pay growth was less than 4% in December, down from the 7.5% average from March-Sept. 2022. Klein argues that the high quit rate makes further near-term reductions unlikely.

Does slowing total wage income signal inflation coming back into line?

Core argument: Total weekly wages paid to U.S. employees—payroll count times average workweek times average hourly pay—is rising at a yearly rate below 4%, down from about 7.5% annualized in March–September 2022.

Total weekly wages paid to employees—the number of workers on payroll times the average workweek times average hourly pay—is now rising at a yearly rate of less than 4%. That is a dramatic deceleration from March-September 2022, when aggregate wage income was still rising about 7.5% annualized. If this holds up, even the most persistent components of inflation should quickly come back into line. The number of people quitting rose so much in November—the latest month for which we have data—that the proportion of workers quitting their jobs for better prospects elsewhere rose for the first time since the spring. Until that changes, it is hard for me to imagine (nominal) wage growth slowing down much more than it already has, even if nominal labor income growth has already decelerated sharply thanks to the slowdown in hours worked.

Takeaways by Macro Roundup® AI

  1. Total weekly wages paid to U.S. employees—payroll count times average workweek times average hourly pay—is rising at a yearly rate below 4%, down from about 7.5% annualized in March–September 2022.
  2. If the sub-4% pace of aggregate wage income growth holds, even the most persistent components of inflation should quickly come back into line, the author argues.
  3. Quitting rose enough in November that the share of workers leaving jobs for better prospects elsewhere increased for the first time since the spring, which the author says makes a further slowdown in nominal wage growth hard to envision.

AI Summary. Comparing children's adult incomes with the inflation-adjusted income quintiles of their childhood rather than contemporaneous quintiles produces much higher measured upward mobility: only 28% of children raised in the bottom quintile remained below that childhood threshold as adults, while 26% reached the top childhood quintile, which required $111,416 (2016 dollars) for a family of four.

Phil Gramm and John Early Wall Street Journal
Date Posted:
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Phil Gramm and John Early report on @MichaelRStrain analysis that found robust absolute mobility in America. Only 28% of children raised in the bottom quintile had adult incomes that were in the same quintile and 26% reached the top quintile. @AEIecon

Phil Gramm and John Early report on @MichaelRStrain analysis that found robust absolute mobility in America. Only 28% of...

Does measuring mobility against childhood income thresholds show much greater upward mobility?

Core argument: Measured against the real income quintiles of their childhood in 1982–86, only 28% of children raised in the bottom quintile had adult incomes that would place them in that bottom childhood quintile.

When the income of the children is compared with the inflation-adjusted income of their parents using the real income quintiles of their childhood in 1982-86 rather than the income quintiles of 2013-17, measured mobility is dramatically greater. Only 28% of children reared in the bottom quintile had adult incomes that would put them in the bottom childhood quintile, and 26% rose all the way to the childhood top quintile, which required a minimum income of only $111,416 (in 2016 dollars) for a family of four in 1982-86. A family of four with that income in 2013-17 would have been in the middle quintile based on 2013-17 income distribution.

Takeaways by Macro Roundup® AI

  1. Measured against the real income quintiles of their childhood in 1982–86, only 28% of children raised in the bottom quintile had adult incomes that would place them in that bottom childhood quintile.
  2. Some 26% of children reared in the bottom quintile rose to the top childhood quintile, which required a minimum income of $111,416 (in 2016 dollars) for a family of four in 1982–86.
  3. A family of four with an income of $111,416 in 2013–17 would have been in the middle quintile of the 2013–17 income distribution.

Phil Gramm and John Early report on a Michael Strain analysis that found robust absolute mobility in America. Only 28% of children raised in the bottom quintile had adult incomes that were in the same quintile and 26% reached the top quintile. “When the income of the children is compared with the inflation-adjusted income of their parents using the real income quintiles of their childhood in 1982-86 rather than the income quintiles of 2013-17, measured mobility is dramatically greater. Only 28% of children reared in the bottom quintile had adult incomes that would put them in the bottom childhood quintile, and 26% rose all the way to the childhood top quintile, which required a minimum income of only $111,416 (in 2016 dollars) for a family of four in 1982-86. A family of four with that income in 2013-17 would have been in the middle quintile based on 2013-17 income distribution.”

Phil Gramm and John Early, “Upward Mobility Is Alive and Well in America,” Wall Street Journal, January 6, 2023, https://www.wsj.com/articles/upward-mobility-income-quintiles-growth-chetty-strain-parents-work-income-inequality-equity-equitable-11673014583

Upward Mobility Is Alive and Well in America

Is the American Dream in peril? Collectivists say yes and point to rising inequality of income. But they don’t understand the question. A commitment to equality of outcomes in life is totally alien to the American ethos. In the words of Abraham Lincoln, America is committed to “an open field and a fair chance for your industry, enterprise and intelligence.” Recognizing that, in the words of Will Durant, “freedom and equality are sworn and everlasting enemies and when one prevails the other dies,” America has always chosen freedom.

The American Dream is of individual upward mobility, not social progress toward uniformity. Analysts for the Pew Charitable Trusts in 2012 quantified the economic advancement of American families. They compared the inflation-adjusted income of parents with that of their children some 30 years later. (The parents in the study were 41 years old on average and the children 45 when their incomes were measured.)

Measured by inflation-adjusted household income, 93% of children who grew up the bottom income quintile were better off than their parents. Of children in the middle three-fifths, 86% grew up to live in families with higher incomes than their parents. Even among those in the top income quintile, 70% were better off.

This upward mobility across all income classifications was possible because of the growth of the American economy. Over the 35 years of the study, real median family income rose by 89%. This American cornucopia was spread across the entire income distribution—with the exception of the prime work-age adults in the bottom quintile who dropped out of the workforce as government transfer payments exploded beginning in the mid-1960s. They benefited from the growth in transfer payments, but their ability to rise further was stunted by the incentive not to work.

Without accounting for this overall income growth, three independent research efforts have measured relative mobility—the extent to which children reared in families in one income quintile stayed in the same income quintile, rose to a higher quintile, or fell to a lower quintile. The first, an extension of the Pew Charitable Trusts study cited above, looked at parental income from 1967-71, when the children were younger than 18, and 2000-08 when the children were 32 to 58.

The second study, by Raj Chetty of Harvard, looked at parental income from 1996-2000, when children were 15 to 20, and adult children’s income in 2011-12, when the children were in their early 30s. The final study, by Michael Strain of the American Enterprise Institute, compared the income of children who were in their 40s in 2013-17 with that of their parents in their 40s.

Since the findings of these three studies covering the past half-century were extraordinarily similar, we have averaged them in the nearby chart. For each parental income quintile, the chart shows the percentage of adult children from those families who grew up to live in each income quintile.

You might expect that children would tend to end up in the same income quintile as their parents. Parents impart their genes and values to their children. Those with high incomes are generally highly educated and give their children every advantage, such as private schools, tutors and counselors. Poor families often lack the knowledge and resources to provide those advantages.

Yet the share of adult children who grow up to live in a household in the same income quintile as their parents is surprisingly small. The chart shows that for the middle three quintiles, only 22.6% to 24.4% of children remain in their parents’ quintile—barely more than the 20% that would result if income quintiles were assigned at random. On average, 39% of those children as adults rose to a higher quintile and 37% fell to a lower one. The harshest critics of mobility in America can find little to fault in the income mobility of the three central quintiles.

They focus instead on the top and bottom quintiles—but miss substantial mobility there too. Of children reared in the top quintile, 62% fell to one of the lower quintiles, including more than 9% to the bottom quintile. A significant number of the children reared in the top quintile who stayed in the top quintile as adults had incomes far greater than their parents, but statistically they could not rise out of the top quintile.

With few advantages and often trapped in failing public schools, 63% of children who grew up in bottom quintile families rose to a higher quintile, 6.1% rising all the way to the top quintile. A significant number of those who failed to rise would have been the adult children who didn’t work as public assistance soared. The share of the bottom quintile who worked fell from 68% in the parents’ generation to 36% in the children’s generation.

But even these impressive numbers understate real income mobility in America. These studies measure relative mobility by comparing the children’s income quintile then and now. Relative mobility is a zero-sum game—by definition, 20% of households are in the lowest quintile and only 20% in the highest—but income growth isn’t. The vast majority of adult children had higher real incomes than their parents. To rise out of the bottom quintile, children’s inflation-adjusted income had to increase by more than the growth of the income ceiling for the bottom quintile during the years between generations—35% in Mr. Strain’s study. Children reared in any other quintile had to see their real income as adults rise on average by roughly 50% above their parents’ income simply to avoid falling into a lower quintile than their parents. The climb to a higher quintile is steeper still.

Fortunately, data from the Strain study can be used to measure mobility in a way that takes into account the extraordinary income growth in America between the parents’ generation and the adult children’s generation. When the income of the children is compared with the inflation-adjusted income of their parents using the real income quintiles of their childhood in 1982-86 rather than the income quintiles of 2013-17, measured mobility is dramatically greater. Only 28% of children reared in the bottom quintile had adult incomes that would put them in the bottom childhood quintile, and 26% rose all the way to the childhood top quintile, which required a minimum income of only $111,416 (in 2016 dollars) for a family of four in 1982-86. A family of four with that income in 2013-17 would have been in the middle quintile based on 2013-17 income distribution.

During the 35 years of the study, adult children who worked rode up the American economic escalator as average incomes rose dramatically. Those who climbed as the escalator rose moved up faster. Those who stood still or stumbled down rose more slowly, and those who stayed off the escalator by not working missed the ride. The mobility studies shown in the chart capture the effect of climbing, stumbling and choosing not to ride, but they miss the escalator effect, which came from the growth of the American economy. Many of today’s middle-income adults have a real standard of living that would have put them in the top quintile in their parents’ era.

This incredible income mobility is measured only over one generation. Parents struggle and sacrifice to provide their children with education and opportunities they themselves lacked. Millions of parents have lived out their dreams through the achievements of their children, generation after generation. As a result, America’s real mobility is most visible over multiple generations. Many historians believe George Washington’s grandmother came to America as an indentured worker. Washington became one of the richest men in colonial America and, in the words of King George III, “the greatest man in the world.”

It is better to be born rich, brilliant and beautiful, but poor, ordinary and homely people succeed in America every day. The American dream is alive and well.

AI Summary. Measured in energy content rather than dollars, US energy exports now exceed imports, moving the country out of its long-running post-war energy trade deficit into a small surplus. US liquefied natural gas shipments to Europe illustrate the leverage this position provides.

Gregor Macdonald The Gregor Letter
Date Posted:

The United States has been a net exporter of energy since 2019, a trend that is poised to accelerate with increasing LNG exports. @GregorMacdonald

Has the US moved from an energy trade deficit to surplus?

Core argument: The US has moved out of its post-war energy deficit into a small surplus, with net energy imports now negative when the trade balance is measured in energy content rather than dollars.

In recent years, however, the amount of energy that the US exports has actually started to blot out the energy it still imports. Enough so, that the US has finally moved out of its post-war energy deficit, into a small surplus. In other words, from a trade balance perspective, its current account in energy terms is now positive. Here, we examine this trade balance not in dollar terms, but in energy content terms. And as you can see, after running in the red for a long time (certainly longer than is covered in the chart) the US has now moved into the black. Net imports, which used to be positive, are now negative. That’s a powerful position to be in, and we saw an example of this power just this year, when American LNG started making its way to Europe, during Putin’s war of aggression.

Takeaways by Macro Roundup® AI

  1. The US has moved out of its post-war energy deficit into a small surplus, with net energy imports now negative when the trade balance is measured in energy content rather than dollars.
  2. US energy exports have grown enough to blot out the energy the US still imports, shifting a long-running energy trade deficit into surplus.
  3. American LNG shipments to Europe during Putin's war of aggression illustrate the power conferred by the US energy trade surplus.

AI Summary. Semiconductor manufacturing requires workers of above-average intelligence, with the most demanding roles needing IQs in the top 1 in 1,000 — a pool of about 164,000 people in the US, of whom perhaps 100,000 can be placed in such professions. The author argues this scarcity explains reliance on high-IQ workers abroad and on smarter tools and non-human intelligence.

Alex Tabarrok Marginal Revolution
Date Posted:
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.@ATabarrok uses semiconductor manufacturing to argue that properly trained talent is the limiting constraint to growth at the technological frontier. He notes that only 164,000 potential American workers have the IQ needed to manage the process.

.@ATabarrok uses semiconductor manufacturing to argue that properly trained talent is the limiting constraint to growth at...

Does a shortage of very high-IQ workers limit domestic chipmaking?

Core argument: The top tiers of semiconductor manufacturing require workers with IQs at or above the 1-in-1,000 threshold, a pool of only 164,000 people in the United States, of whom perhaps 100,000 can be placed in high-IQ professions.

Although not everyone in semiconductor manufacturing requires a PhD, pretty much everyone has to be of above-average intelligence, and many will need to be in the top echelons of IQ. At the very top of semiconductor manufacturing, you are going to need workers with IQs at or higher than 1 in a 1000 people and there are only 164,000 of these workers in the United States, and US might be able to place only say 100,000 high-IQ workers in high-IQ professions. It’s very difficult to run a high-IQ civilization of 330 million on just 100,000 high-IQ workers. To some extent, we can economize on high-IQ workers by giving lower-IQ workers smarter tools and drawing on non-human intelligence. But we also need to draw on high-IQ workers throughout the world–which explains why some of the linchpins of our civilization end up in places like Eindhoven or Taiwan.

Takeaways by Macro Roundup® AI

  1. The top tiers of semiconductor manufacturing require workers with IQs at or above the 1-in-1,000 threshold, a pool of only 164,000 people in the United States, of whom perhaps 100,000 can be placed in high-IQ professions.
  2. Running a high-IQ civilization of 330 million people on roughly 100,000 high-IQ workers is very difficult, and while not everyone in semiconductor manufacturing needs a PhD, pretty much everyone must be of above-average intelligence.
  3. Economizing on scarce high-IQ workers can involve giving lower-IQ workers smarter tools and drawing on non-human intelligence and on high-IQ workers worldwide, which explains why linchpins of civilization end up in places like Eindhoven or Taiwan.

Alex Tabarrok uses semiconductor manufacturing to argue that properly trained talent is the limiting constraint to growth at the technological frontier. He notes that only 164,000 potential American workers have the IQ needed to manage the process. “…Although not everyone in semiconductor manufacturing requires a PhD, pretty much everyone has to be of above-average intelligence, and many will need to be in the top echelons of IQ. At the very top of semiconductor manufacturing, you are going to need workers with IQs at or higher than 1 in a 1000 people and there are only 164,000 of these workers in the United States, and US might be able to place only say 100,000 high-IQ workers in high-IQ professions. It’s very difficult to run a high-IQ civilization of 330 million on just 100,000 high-IQ workers. To some extent, we can economize on high-IQ workers by giving lower-IQ workers smarter tools and drawing on non-human intelligence. But we also need to draw on high-IQ workers throughout the world–which explains why some of the linchpins of our civilization end up in places like Eindhoven or Taiwan….”

Alex Tabarrok, “The Extreme Shortage of High IQ Workers,” Marginal Revolution, January 9, 2023, https://marginalrevolution.com/marginalrevolution/2023/01/the-extreme-shortage-of-high-iq-workers.html

The Extreme Shortage of High IQ Workers

At first glance it seems peculiar that semiconductors, a key item of national strategic interest, should be produced in only a few places in the world, most notably Taiwan, using devices produced only in Eindhoven in the Netherlands by one firm, ASML. Isn’t the United States big enough to be able to support all of these technologies domestically? Yes and no.

Semiconductor manufacturing is the most difficult and complicated manufacturing process ever attempted by human beings. A literal spec of dust can ruin an entire production run. How many people can run such a factory? Let’s look at the United States. The labor force is approximately 164 million people which sounds like a lot but half of the people in the labor force have IQs below 100. More specifically, although not everyone in semiconductor manufacturing requires a PhD, pretty much everyone has to be of above average intelligence and many will need to be in the top echelons of IQ.

In the entire US workforce there are approximately 3.7 million workers (2.3%) with an IQ greater than two standard deviations above the mean. (Mean 100, sd, 15, Normal dist.) Two standard deviations above the mean is pretty good but we are talking professor, physician, attorney level. At the very top of semiconductor manufacturing you are going to need workers with IQs at or higher than 1 in a 1000 people and there are only 164 thousand of these workers in the United States.

164 thousand very high-IQ workers are enough to run the entire semiconductor industry but you also want some of these workers doing fundamental research in mathematics, physics and computer science, running businesses, guiding the military and so forth. Moreover, we aren’t running a command economy. Many high-IQ workers won’t be interested in any of these fields but will want to study philosophy, music or English literature. Some of them will also be lazy! I’ve also assumed that we can identify all 164 thousand of these high-IQ workers but discrimination, poverty, poor health, bad luck and other factors will mean that many of these workers end up in jobs far below their potential–the US might be able to place only say 100,000 high-IQ workers in high-IQ professions, if we are lucky.

It’s very difficult to run a high-IQ civilization of 330 million on just 100,000 high-IQ workers–the pyramid of ability extends only so far. To some extent, we can economize on high-IQ workers by giving lower-IQ workers smarter tools and drawing on non-human intelligence. But we also need to draw on high-IQ workers throughout the world–which explains why some of the linchpins of our civilization end up in places like Eindhoven or Taiwan–or we need many more Americans.

AI Summary. The US and Japanese militaries are integrating their command structures and scaling up combined operations on territory they would have to defend in a conflict with China. A US Marine Forces Japan commander described this as "setting the theatre" in Japan, the Philippines and other locations, comparable to preparations made with Ukraine after Russian aggression.

Kathrin Hille Financial Times
Date Posted:

The US and Japanese armed forces have “seen exponential increases…just over the past year” in their joint preparations for a possible conflict with China, according to Lieutenant General James Bierman, the commanding general of Marine Forces Japan. @ft

The US and Japanese armed forces have “seen exponential increases…just over the past year” in their joint preparations...

Is the US integrating allied commands to prepare for China?

Core argument: The US and Japanese militaries are integrating their command structures and scaling up combined operations on territory they would have to defend as Washington and its Asian allies prepare for a possible conflict with China.

The US and Japanese armed forces are rapidly integrating their command structure and scaling up combined operations as Washington and its Asian allies prepare for a possible conflict with China. The two militaries have “seen exponential increases . . . just over the last year” in their operations on the territory they would have to defend in case of a war, Lieutenant General James Bierman, commanding general of Marine Forces Japan, told the Financial Times in an interview. “Why have we achieved the level of success we’ve achieved in Ukraine? A big part of that has been because after Russian aggression in 2014 and 2015, we earnestly got after preparing for future conflict: training for the Ukrainians, pre-positioning of supplies, identification of sites from which we could operate support, sustain operations,” he said. “We call that setting the theatre. And we are setting the theatre in Japan, in the Philippines, in other locations.”

Takeaways by Macro Roundup® AI

  1. The US and Japanese militaries are integrating their command structures and scaling up combined operations on territory they would have to defend as Washington and its Asian allies prepare for a possible conflict with China.
  2. Lieutenant General James Bierman, commanding general of Marine Forces Japan, told the Financial Times that the two militaries have seen "exponential increases" in such operations over the past year.
  3. Bierman attributed the level of success achieved in Ukraine to preparations after Russian aggression in 2014 and 2015 — training Ukrainians, pre-positioning supplies and identifying operating sites — and said the US is "setting the theatre" in Japan, the Philippines and other locations.

AI Summary. Commodities strategists at TD Securities argue that large purchases by China and official-sector buyers may have caused a $150/oz mispricing in gold markets. The strategists say the motive is unclear, citing possibilities including reopening demand, restocking ahead of the Lunar New Year, and strategic rather than economic aims.

Tracy Alloway and Joe Weisenthal Bloomberg
Date Posted:

A TD Securities analysis suggests that the recent uptick in gold price has been driven by buying by the Chinese official sector. @tracyalloway @TheStalwart

Are large official-sector gold purchases driving a mispricing in gold?

Core argument: TD Securities commodities strategists write that Chinese and official sector gold purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets, based on a flows-based approach they say presents strong evidence.

Commodities strategists at TD Securities are on the case, speculating in a note published on Monday that the gold whale could be the Chinese official sector. “Armed with a flows-based approach, we present strong evidence that behemoth Chinese and official sector purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets. What is less clear is what has driven these massive purchases.” While TD might be able to trace buying to China, it’s not entirely clear to them what’s driving those purchases. Here, the strategists theorize about a number of possibilities stretching from extra demand stemming from recent reopening measures as well as restocking ahead of China’s Lunar New Year. But there’s also the possibility that China is purchasing gold for strategic, rather than strictly economic factors.

Takeaways by Macro Roundup® AI

  1. TD Securities commodities strategists write that Chinese and official sector gold purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets, based on a flows-based approach they say presents strong evidence.
  2. TD Securities strategists speculate that the gold whale could be the Chinese official sector, while saying it is less clear what has driven the purchases.
  3. Among possible drivers of the Chinese buying, TD Securities strategists theorize about extra demand from recent reopening measures, restocking ahead of China's Lunar New Year, and strategic rather than strictly economic factors.

AI Summary. Using an index of how papers and patents alter citation networks, the authors find that scientific papers and patents have become less disruptive across all fields, with declines of 91.9%–100% for papers and 78.7%–91.5% for patents. Rates of decline are steepest early in the series, with patents appearing to stabilize.

Michael Park, Erin Leahey and Russell Funk Nature
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A new @nature study documents a decline in the average “disruptiveness” of science and technology across both papers and patents, but notes that the absolute number of highly disruptive works remains stable. @michae1park

Are papers and patents becoming less disruptive across all fields?

Core argument: Average CD5 disruptiveness for papers fell 91.9–100% between 1945 and 2010, from 0.52 to 0.04 in social sciences and from 0.36 to 0 in physical sciences.

Across fields, we find that science and technology are becoming less disruptive. Figure 2 plots the average CD5 [an index that characterizes how papers and patents change networks of citations in science and technology] over time for papers (Fig. 2a) and patents (Fig. 2b). For papers, the decrease between 1945 and 2010 ranges from 91.9% (where the average CD5 dropped from 0.52 in 1945 to 0.04 in 2010 for ‘social sciences’) to 100% (where the average CD5 decreased from 0.36 in 1945 to 0 in 2010 for ‘physical sciences’); for patents, the decrease between 1980 and 2010 ranges from 78.7% (where the average CD5 decreased from 0.30 in 1980 to 0.06 in 2010 for ‘computers and communications’) to 91.5% (where the average CD5 decreased from 0.38 in 1980 to 0.03 in 2010 for ‘drugs and medical’). For both papers and patents, the rates of decline are greatest in the earlier parts of the time series, and for patents, they appear to begin stabilizing between the years 2000 and 2005. For papers, since about 1980, the rate of decline has been more modest in ‘life sciences and biomedicine’ and physical sciences, and most marked and persistent in social sciences and ‘technology’.

Takeaways by Macro Roundup® AI

  1. Average CD5 disruptiveness for papers fell 91.9–100% between 1945 and 2010, from 0.52 to 0.04 in social sciences and from 0.36 to 0 in physical sciences.
  2. For patents, average CD5 declined 78.7–91.5% between 1980 and 2010, from 0.30 to 0.06 in computers and communications and from 0.38 to 0.03 in drugs and medical.
  3. Declines in CD5 are greatest in the earlier parts of both series, with patents appearing to stabilize between 2000 and 2005, while for papers since about 1980 the decline is most marked and persistent in social sciences and technology.

AI Summary. Annual hours worked per person fell 3% between 2019 and 2022, and more than half of that decline came from people working fewer hours rather than from lower employment and participation rates. The participation rate of young men without a bachelor's degree is up to 7 percentage points below that of older cohorts at the same age.

Dain Lee, Jinhyeok Park and Yongseok Shin National Bureau Of Economic Research
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New @nberpubs research finds that Americans are working 3% fewer hours annually in the aftermath of the pandemic. This reduction in hours worked means labor markets are even tighter than LFP would imply.

Is the decline in labor supply driven by shorter hours?

Core argument: More than half of the 3% decline in annual hours worked per person between 2019 and 2022 is accounted for by the intensive margin rather than by lower employment and participation rates.

The negative impact of the Great Recession on aggregate hours worked and the ensuing slow recovery through 2019 materialized almost exclusively along the extensive margin. However, of the 3% decline in annual hours worked per person (including those who do not work) between 2019 and 2022, more than half is accounted for by the intensive margin. That is, focusing only on the extensive margin (lower employment and participation rates) will underestimate the total decline in labor supply by more than half. The most striking fact is the lower participation of young male cohorts without a bachelor's degree, whose participation rate is up to 7pp below that of older cohorts at the same age. The Great Recession seems to be casting a very long shadow, even on those who were in their teens when it happened.

Takeaways by Macro Roundup® AI

  1. More than half of the 3% decline in annual hours worked per person between 2019 and 2022 is accounted for by the intensive margin rather than by lower employment and participation rates.
  2. Focusing only on the extensive margin of lower employment and participation rates underestimates the total decline in labor supply between 2019 and 2022 by more than half.
  3. Participation rates of young male cohorts without a bachelor's degree run up to 7pp below those of older cohorts at the same age, suggesting the Great Recession casts a long shadow even on those who were teenagers at the time.

Brandon Adams Comment: Fig 10 is interesting. Higher earners work more, and that was true in all years (07, 13, 19, 22). I only see one violation of monotonicity in all four years, which is remarkable (in 2022, 8th decile earners worked more than 9th decile workers). So in 39 of 40 observations, higher earners worked more. Individual labor supply curves are unknowable. When, if ever, they backward-bend is largely unknowable. It is interesting, though, that for 9th and 10th decile earners, working hours were greatest in 2007, followed by ’13, then ’19, then ’22. Research finds that Americans are working 3% fewer hours annually in the aftermath of the pandemic. This reduction in hours worked means labor markets are even tighter than LFP would imply. “…The negative impact of the Great Recession on aggregate hours worked and the ensuing slow recovery through 2019 materialized almost exclusively along the extensive margin. However, of the 3% decline in annual hours worked per person (including those who do not work) between 2019 and 2022, more than half is accounted for by the intensive margin. That is, focusing only on the extensive margin (lower employment and participation rates) will underestimate the total decline in labor supply by more than half. The most striking fact is the lower participation of young male cohorts without a bachelor’s degree, whose participation rate is up to 7pp below that of older cohorts at the same age. The Great Recession seems to be casting a very long shadow, even on those who were in their teens when it happened…”

Description automatically generated Bottom line, “To better understand the tight post-pandemic labor market in the US, we decompose the decline in aggregate hours worked into the extensive (fewer people working) and the intensive margin changes (workers working fewer hours). Although the pre-existing trend of lower labor force participation especially by young men without a bachelor’s degree accounts for some of the decline in aggregate hours, the intensive margin accounts for more than half of the decline between 2019 and 2022. The decline in hours among workers was larger for men than women. Among men, the decline was larger for those with a bachelor’s degree than those with less education, for prime-age workers than older workers, and also for those who already worked long hours and had high earnings. Workers’ hours reduction can explain why the labor market is even tighter than what is expected at the current levels of unemployment and labor force participation.”

Core findings

“…The negative impact of the Great Recession on aggregate hours worked and the ensuing slow recovery through 2019 materialized almost exclusively along the extensive margin. However, of the 3 percent decline in annual hours worked per person (including those who do not work) between 2019 and 2022, more than half is accounted for by the intensive margin. That is, focusing only on the extensive margin (lower employment and participation rates) will underestimate the total decline in labor supply by more than half….”

“…The decline in labor force participation is a continuation of a trend that existed before the pandemic. The most striking fact is the lower participation of young male cohorts without a bachelor’s degree, whose participation rate is up to 7 percentage points below that of older cohorts at the same age. The Great Recession seems to be casting a very long shadow, even on those who were in their teens when it happened….”

“…The decline in hours worked per worker (excluding those who do not work) between 2019 and 2022 was larger for men than for women. Among male workers, the decline was larger for those with a bachelor’s degree than those with less education, and for prime-age workers than older workers. Furthermore, the hours declined by more for workers who already worked longer hours and had higher earnings…”

“…Circumstantial and direct evidence indicates that the hours reduction among workers is voluntary. In addition, although the reduction may have been caused by the pandemic situation, it is expected to persist…”

Evidence

“…To understand the role of education in the difference in participation rates across cohorts, we construct the analogue of Figure 3 separately for the two education groups. In the left panel of Figure 4, we plot the deviation of the participation rates of younger male cohorts in the SMC- category from those of the 1966-67 cohort in the SMC- category. In the right panel, we do the same for those in the BA+ category. It is clear that the lower participation rates of younger male cohorts are largely driven by those with less education. Compared with the SMC- group of the 1966-67 cohort, the SMC- group of the 1991-92 and the 1986-87 cohorts has participation rates that are on average 7 percentage points lower. While the BA+ group of younger cohorts also has lower participation rates than the BA+ group of the 1966-67 cohort, the gap is smaller, 3 percentage points on average…”

“…Figure 5 is for women, the left panel for the SMC- group and the right for the BA+ group. The two education groups paint very dierent pictures. For the less educated, younger female cohorts have lower participation rates than the 1966-67 cohort, after they turn 30. To the contrary, the BA+ group of younger cohorts has higher participation rates than the BA+ group of the 1966-67 cohort, after they turn 30. These opposing patterns of the two education. group roughly offset each other, generating the that pattern around zero in the right pane of Figure 3….”

“…In the left panel of Figure 7, we repeat the decomposition, but separately for men and women. During the first period, men recorded more than double the fall in annual hours worked than women. The recovery during the second period was more even between men and women. In both periods, most of the adjustments occurred along the extensive margin. During the last period, it was again men who experienced a much larger drop in annual hours worked per person. For both men and women, the drop along the intensive margin was at least as large as along the extensive margin. The right panel shows the annual hours worked per worker (i.e., excluding those not working) for men and women since 2007. Working men log longer hours than working women, but the drop in hours since 2019 is much larger for men than for women. In addition, we see that working women’s hours actually increased since 2007, unlike working men’s….”

Decline of Hours Worked among Male Workers

“…In Table 1, we report selected percentiles of the annual hours worked distribution among men who worked in a given year. Because people report weekly hours, which we then multiply by 52, the values cluster to certain integers. For example, in all four years, the 25th percentile and the median are 2,080 hours of work during the year. Nevertheless, it is clear that those who work very long hours cut back on their hours between 2019 and 2022, evidenced by the signicant hours reduction at the 75th and the 90th percentiles, but not at the median. In 2019, one had to work for at least 2,860 hours to rank in the top 10 percent of workers working longest hours. In 2022, he needed to work only 2,600 hours to win this dubious honor. We can also examine the reduction in annual hours across the earnings distribution. For each year, we construct earnings deciles and compute the average hours worked of male workers in each decile. The result is in Figure 10….”

“..We make two observations. First, the average hours worked in a given earnings decile remained fairly stable between 2007 and 2019. Second, the average annual hours worked between 2019 and 2022 declined in all deciles except the lowest two, but declined more at the higher end of the earnings distribution. Male workers in the ninth and the top deciles of the 2022 earnings distribution worked 67 and 77 fewer hours than those in the respective earnings decile in 2019. In summary, it is male workers working long hours and earning more that reduced their annual hours worked between 2019 and 2022….”

Dain Lee, Jinhyeok Park and Yongseok Shin, “Where Are the Workers? From Great Resignation to Quiet Quitting,” National Bureau Of Economic Research, January 2023, https://www.nber.org/papers/w30833

AI Summary. A study estimates that the average "disruptiveness" of research papers fell 91.9%–100% and of patents 78.7%–91.5% between 1945 and 2010, with the largest paper declines in the social and physical sciences and the largest patent declines in computers, communications, drugs, and medical fields. The absolute number of highly disruptive works remained stable.

Michael Park, Erin Leahey and Russell Funk Nature
Date Posted:
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Research papers & patents have become less disruptive over time. Btw 1945 & 2010, mean disruptiveness of papers declined 91.9%-100%, patents 78.7%-91.5%.

Are research papers and patents becoming less disruptive over time?

Core argument: Mean "disruptiveness" of research papers fell 91.9%–100% from 1945 to 2010, with the steepest declines in the social and physical sciences, according to the study.

A recent study highlights a significant decline in the average "disruptiveness" of research papers and patents from 1945 to 2010. For papers, the mean disruptiveness decreased by 91.9%-100%, with the most pronounced declines in social and physical sciences. Patents saw a 78.7%-91.5% reduction, particularly in computers, communications, drugs, and medical fields. The decline was steepest in the early years, with patents stabilizing between 2000-2005. Despite this trend, the absolute number of highly disruptive works remains stable, suggesting a shift in innovation dynamics rather than a complete stagnation. This trend may have implications for economic growth and technological advancement, as less disruptive innovations could lead to incremental rather than transformative changes in industries.

Takeaways by Macro Roundup® AI

  1. Mean "disruptiveness" of research papers fell 91.9%–100% from 1945 to 2010, with the steepest declines in the social and physical sciences, according to the study.
  2. Patent disruptiveness declined 78.7%–91.5% from 1945 to 2010, concentrated in computers, communications, drugs, and medical fields, with patents stabilizing between 2000 and 2005.
  3. The absolute number of highly disruptive papers and patents remained stable despite the decline in average disruptiveness, suggesting a shift in innovation dynamics rather than complete stagnation.

A new Nature study documents a decline in the average "disruptiveness" of science and technology across both papers and patents but notes that the absolute number of highly disruptive works remains stable. "...Across fields, we find that science and technology are becoming less disruptive. Figure 2 plots the average CD5over time for papers (Fig. 2a) and patents (Fig. 2b). For papers, the decrease between 1945 and 2010 ranges from 91.9% (where the average CD5 dropped from 0.52 in 1945 to 0.04 in 2010 for ‘social sciences’) to 100% (where the average CD5 decreased from 0.36 in 1945 to 0 in 2010 for ‘physical sciences’); for patents, the decrease between 1980 and 2010 ranges from 78.7% (where the average CD5 decreased from 0.30 in 1980 to 0.06 in 2010 for ‘computers and communications’) to 91.5% (where the average CD5 decreased from 0.38 in 1980 to 0.03 in 2010 for ‘drugs and medical’). For both papers and patents, the rates of decline are greatest in the earlier parts of the time series, and for patents, they appear to begin stabilizing between the years 2000 and 2005. For papers, since about 1980, the rate of decline has been more modest in ‘life sciences and biomedicine’ and physical sciences, and most marked and persistent in social sciences and ‘technology’...."

Papers and patents are becoming less disruptive over time Nature: Extended Excerpt Image 1


Michael Park, Erin Leahey and Russell Funk, "Papers and patents are becoming less disruptive over time,"Nature, January 4, 2023, https://www.nature.com/articles/s41586-022-05543-x