Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, February 7, 2023

AI Summary. The U.S. annual trade deficit rose 12.2% to $948.1bn, the widest on record, as the U.S. relied heavily on imports to meet domestic demand while exports also rose. A dollar rally raised the cost of U.S. goods and helped widen the gap, a pattern consistent with the U.S. economy growing faster than other parts of the world.

Harriet Torry and Jason Douglas Wall Street Journal
Date Posted:

The US trade deficit hit a record $948.1B in 2022 as a strong dollar hurt American exporters and encouraged Americans to buy more imported goods. @WSJ

Does a widening trade deficit reflect faster U.S. growth than abroad?

Core argument: The U.S. trade deficit widened 12.2% in 2022 to a record $948.1 billion, as the U.S. continued to depend heavily on imports from other countries to meet domestic demand.

The U.S. trade deficit for all of 2022 rose 12.2% to $948.1 billion, the widest gap on record, as the U.S. continued to depend heavily on imports from other countries to meet domestic demand. Exports also rose last year as global demand for U.S.-made products picked up. A U.S. dollar rally last year drove up the cost of U.S. goods and helped widen the annual deficit. A wider trade deficit is consistent with a U.S. economy growing faster than other parts of the world, as people with higher incomes in the U.S. buy more imported goods.

Takeaways by Macro Roundup® AI

  1. The U.S. trade deficit widened 12.2% in 2022 to a record $948.1 billion, as the U.S. continued to depend heavily on imports from other countries to meet domestic demand.
  2. U.S. exports also rose in 2022 as global demand for U.S.-made products picked up, while a dollar rally drove up the cost of U.S. goods and helped widen the annual deficit.
  3. A wider U.S. trade deficit is consistent with an economy growing faster than other parts of the world, as people with higher incomes in the U.S. buy more imported goods.

AI Summary. US measured imports have shifted toward other Asian trade partners on a broad-based rather than Vietnam-only basis, yet aggregate US trade with China is basically unchanged. The author argues there is not yet evidence of a significant shift away from Chinese supply chains and expects traditional drivers, including the strong dollar, to reassert themselves.

Brad Setser @Brad_Setser
Date Posted:

.@Brad_Setser notes while measured imports have shifted towards other Asian trading partners, US trade with China is “basically unchanged (in aggregate) despite the pandemic and trade war.”

Have US supply chains actually shifted away from China?

Core argument: Brad Setser argues that despite intensified Trump tariffs and a global pandemic, aggregate US trade with China is basically unchanged, leaving him unconvinced that a significant shift away from Chinese supply chains has yet occurred.

The persistence of the pandemic distortions makes assessing broad structural shifts - notably with respect to China - difficult. There is no doubt that measured imported (on the US side) have shifted toward other Asian trade partners.  There is no doubt that the increase in imports from Asia (setting China aside) is actually pretty broad based. Vietnam has outperformed but it is far from alone. On the other hand I don‘t think anyone would have forecast back in early 2019 that the intensification of Trump‘s tariffs and a global pandemic would leave US trade with China basically unchanged (in aggregate). So while there is no doubt that the post-pandemic surge in US goods demand (which is now fading) led to a large increase US demand for a host of imports, I at least am not convinced that there has (yet) been a significant shift away from the Chinese supply chain. And I do expect the traditional drives of US trade -- including the (still) strong dollar -- to reassert themselves in 2023.

Takeaways by Macro Roundup® AI

  1. Brad Setser argues that despite intensified Trump tariffs and a global pandemic, aggregate US trade with China is basically unchanged, leaving him unconvinced that a significant shift away from Chinese supply chains has yet occurred.
  2. Measured US imports have shifted toward other Asian trade partners on a broad basis, with Vietnam outperforming but far from alone, according to Setser.
  3. Setser attributes the large increase in US demand for imports to the post-pandemic surge in US goods demand, which is now fading, and expects traditional drivers of US trade, including the still-strong dollar, to reassert themselves in 2023.

AI Summary. The authors estimate that broadband internet expansion shortened posted vacancy durations by 9%, cut unsuccessful hiring attempts by 13%, and raised job-finding rates 2.4% and starting wages 6% among the unemployed, with no change in job-to-job mobility. They calculate it may have lowered the steady-state unemployment rate by 14%.

Manudeep Bhuller, Domenico Ferraro, et al National Bureau of Economic Research
Date Posted:
Is Database:
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Evidence from Norway shows internet expansion reduced friction associated with finding a job and reduced the steady state unemployment rate by 14%. @AndreasKostol @nberpubs

How does broadband internet affect job search and unemployment?

Core argument: The authors estimate that broadband internet expansion cut the duration of posted vacancies by 9% and reduced unsuccessful hiring attempts by 13%, as more firms shifted to recruiting online.

We found that the internet led more firms to recruit online. It further caused a 9% decline in the duration of posted vacancies and 13% fewer unsuccessful hiring attempts. Next, we showed that the expansion increased job finding rates by 2.4% and starting wages by 6% among the unemployed. However, we found no evidence of changes in job-to-job mobility or wage growth for the employed. Through the lens of the calibrated model, we found that search technology is the primary mechanism behind the quasi-experimental evidence. Our calculations indicated that the broadband internet expansion may have caused a 14% decline in the steady-state unemployment rate. Our paper sheds light on two recent macroeconomic trends. First, the falling rates of worker mobility in the US have fueled a concern about the causes and consequences of declining labor market mobility. Our results suggest that online job search and recruitment may have improved match quality by providing more information about potential jobs and better tools to screen potential candidates. In turn, this improvement may have reduced the need to switch employers in search for a better match – consistent with a more optimistic view of recent trends in job mobility. Second, our evidence helps explain the inward shift in the Beveridge curve observed in Norway and in other countries from the 1990s to the early 2000s. Our evidence suggests that without the near-universal internet adoption rates, the unemployment rate after the Great Recession would have reached even higher levels.

Takeaways by Macro Roundup® AI

  1. The authors estimate that broadband internet expansion cut the duration of posted vacancies by 9% and reduced unsuccessful hiring attempts by 13%, as more firms shifted to recruiting online.
  2. Among the unemployed, the internet expansion raised job finding rates by 2.4% and starting wages by 6%, with no evidence of changes in job-to-job mobility or wage growth for the employed.
  3. The authors calculate that broadband expansion may have caused a 14% decline in the steady-state unemployment rate, and suggest that without near-universal internet adoption, unemployment after the Great Recession would have reached even higher levels.

AI Summary. Americans saved 16.8% of disposable income in 2020, up from 8.8% in 2019, but the saving rate fell to 3.3% in 2022. Goldman Sachs estimates households have spent about 35% of their excess pandemic savings and projects roughly 65% will be exhausted by year-end.

Joe Pinsker Wall Street Journal
Date Posted:

Goldman Sachs estimates that American’s monthly savings rate will rise to 4.5% by end of year from 2022’s 3.3%. Wage gains and declining inflation will reduce pressure to tap savings to maintain real consumption levels @wsj

Goldman Sachs estimates that American’s monthly savings rate will rise to 4.5% by end of year from 2022’s 3.3%. Wage gains...

How much of their excess pandemic savings have households spent?

Core argument: Goldman Sachs estimates Americans had spent about 35% of their excess pandemic savings as of mid-January and forecasts they will have exhausted roughly 65% of that money by year-end.

Early in the pandemic, Americans were socking away money at unprecedented rates. In 2020, they collectively saved 16.8% of their disposable income, well above the 8.8% they saved in 2019. But in 2022, the saving rate fell to 3.3%. Americans have spent down about 35% of the extra savings they accumulated during the pandemic as of mid-January, according to an estimate from Goldman Sachs. By the end of the year, the company forecasts that they will have exhausted roughly 65% of that money.  “At the exact same moment you lost the government transfer payments, you got hit with very high inflation, which made your real spending power lower,” said David Mericle, Goldman Sachs’s chief U.S. economist.“ You shouldn’t need to tap your wealth as much, hopefully, in 2023 as you needed to in 2022 in order to avoid a big decline in your real consumption level,” he said. His team at Goldman Sachs estimates that the monthly saving rate will rise modestly by the end of the year, to about 4.5%.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs estimates Americans had spent about 35% of their excess pandemic savings as of mid-January and forecasts they will have exhausted roughly 65% of that money by year-end.
  2. The U.S. personal saving rate fell to 3.3% in 2022 from 16.8% in 2020, which itself was well above the 8.8% saved in 2019.
  3. Goldman Sachs chief U.S. economist David Mericle said the loss of government transfer payments coincided with very high inflation that lowered real spending power, and his team estimates the monthly saving rate will rise modestly to about 4.5% by year-end.

AI Summary. US broad money measures are falling, with M2 down 2.5% from its peak, which suggests inflation could fall faster than expected and that policy may be too tight if the aim is only to stabilize inflation rather than reverse price rises. A monetary overhang remains, and inflation could still prove sticky on the way down.

Martin Wolf Financial Times
Date Posted:

.@martinwolf_ notes that M2 is now 2.5% under its March 2022 peak which suggests inflation could soon fall – but notes by most measures core inflation remains “sticky” and suggests a “monetary overhang.”

Does falling broad money mean inflation will drop faster than expected?

Core argument: US M2 stood 2.5 per cent below its March peak in December 2022, and broader money measures from the Center for Financial Stability show the same picture, suggesting inflation might fall faster than expected.

Measures of US broad money are now actually falling. In December 2022, for example, US M2 was 2.5 per cent below its peak in March. Data on broader measures provided by the Center for Financial Stability show the same picture. This suggests that inflation might fall faster than expected. It is even possible that if the aim is only to stabilize inflation rather than make the price level fall back, policy is too tight. Yet there still seems to be a monetary overhang. Inflation might also prove stickier downwards than hoped. Whatever happens, do not repeat what happened in the 1970s: get inflation down and then keep it down.

Takeaways by Macro Roundup® AI

  1. US M2 stood 2.5 per cent below its March peak in December 2022, and broader money measures from the Center for Financial Stability show the same picture, suggesting inflation might fall faster than expected.
  2. If the aim is only to stabilise inflation rather than make the price level fall back, policy may be too tight, though a monetary overhang still appears to remain.
  3. Inflation might prove stickier downwards than hoped, and policymakers should avoid repeating the 1970s by getting inflation down and then keeping it down.

AI Summary. Obituaries published by China's state-backed Chinese Academy of Engineering and Chinese Academy of Sciences spiked in a period coinciding with the coronavirus's rapid spread across the country, though the notices attributed deaths only to "illness." The Harbin Institute of Technology announced 29 deaths of professors and staff over three months, versus one to three in comparable earlier months.

Pablo Robles, Vivian Wang and Joy Dong New York Times
Date Posted:

An analysis of obituaries of elite Chinese scientists and engineers finds that during December 2022 and January 2023 they were dying at 4x the rate of the previous four years, giving a glimpse into the scale of Chinese covid surge. @nytimes

Do obituaries of prominent scholars reveal hidden pandemic death tolls?

Core argument: The Harbin Institute of Technology announced 29 deaths of professors and staff members between December and last month, compared with one to three obituaries in those same months from 2019 to 2021.

We examined the obituaries published over the past four years by the state-backed Chinese Academy of Engineering and the Chinese Academy of Sciences. The academies’ members, who are drawn from research institutions across the country, help shape national policy and steer research priorities. The engineering academy currently has about 900 members, and the science academy about 800, according to their websites. The obituaries did not specify the scholars’ causes of death beyond “illness,” and the academies did not answer requests for more specifics. But the spike late last year coincided with the coronavirus’s rapid spread across the country. From 2019 to 2021, the Harbin Institute of Technology, one of the top engineering schools in the world, had published between one and three obituaries for professors and staff members in those months. Between December and last month, it announced 29 deaths.

Takeaways by Macro Roundup® AI

  1. The Harbin Institute of Technology announced 29 deaths of professors and staff members between December and last month, compared with one to three obituaries in those same months from 2019 to 2021.
  2. Obituaries from the Chinese Academy of Engineering and the Chinese Academy of Sciences, with about 900 and 800 members respectively, spiked late last year, coinciding with the coronavirus's rapid spread across China.
  3. The academies' obituaries attributed deaths only to "illness" without specifying causes, and the academies did not answer requests for more specifics.

Wednesday, February 8, 2023

AI Summary. An analysis of Federal Reserve tightening cycles finds the rise in the 10-year Treasury rate ranks as the second largest across cycles, with the fastest pace of increase on record. Closing a historically large negative real federal funds rate gap — the policy rate minus inflation and the real neutral rate — will hinge on substantially reducing inflation.

Simon Kwan and Louis Liu Federal Reserve Bank Of San Francisco
Date Posted:

According to @sffed, the pace of the current tightening cycle has been unprecedented, and the magnitude of the tightening cycle ranks second in the postwar era (as proxied by the increase in the 10-year Treasury rate), with possibly more to run.

How large and fast is the current tightening cycle's rate increase?

Core argument: The increase in the 10-year Treasury rate during this tightening cycle is the second largest of all tightening cycles, and the speed of that increase has been unprecedented.

The current increase in the 10-year Treasury rate is the second largest increase of all tightening cycles, shown by the blue bars. Moreover, the green bars show that the speed of this increase has been unprecedented. Current increases in the federal funds rate are expected to reverse a historically large negative real funds rate gap at the beginning of the cycle. We compute the real funds rate gap by subtracting the inflation rate and the real neutral rate from the nominal federal funds rate. The smaller or more negative the real funds rate gap is, the more monetary accommodation is in the economy. Successfully closing the real funds rate gap will hinge on substantially reducing the inflation rate.

Takeaways by Macro Roundup® AI

  1. The increase in the 10-year Treasury rate during this tightening cycle is the second largest of all tightening cycles, and the speed of that increase has been unprecedented.
  2. Increases in the federal funds rate are expected to reverse a historically large negative real funds rate gap present at the start of the cycle, computed by subtracting the inflation rate and the real neutral rate from the nominal federal funds rate.
  3. Closing the real funds rate gap, where smaller or more negative values indicate more monetary accommodation in the economy, will hinge on substantially reducing the inflation rate.

AI Summary. The Chicago Federal Reserve's National Financial Conditions Index has eased considerably from very tight readings, driven mainly by improved risk sentiment alongside better mortgage rates and bond spreads. Longer-term real interest rates have fallen and the real yield curve remains very flat, indicating weak growth expectations and relatively tight short-run monetary policy.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano argues that financial conditions might be loosening, citing the decline in the Chicago Fed’s National Financial Conditions Index since October 2022.

Are financial conditions easing even as monetary policy stays tight?

Core argument: The Chicago Fed's National Financial Conditions Index has eased considerably from very tight readings in early October, with improvements in risk sentiment contributing more than credit conditions.

Over the last four months, the Chicago Fed’s National Financial Conditions Index has eased considerably from its very tight readings in early October. While there have been some improvements in credit conditions, thanks in part to improvements in mortgage rates and bond spreads—the bigger contributor has been the improvements in risk sentiment. Longer-term real interest rates have fallen slowly over the last couple of months, and are now only a bit above early-2019 levels. The real yield curve is still very flat, with 5-year real yields moving alongside 30-year real yields, indicating weak growth expectations and relatively tight short-run monetary policy, but the fact that real rates are declining alongside corporate bond spreads suggests a partial easing of financial conditions.

Takeaways by Macro Roundup® AI

  1. The Chicago Fed's National Financial Conditions Index has eased considerably from very tight readings in early October, with improvements in risk sentiment contributing more than credit conditions.
  2. Longer-term real interest rates have fallen slowly and now sit only slightly above early-2019 levels, with mortgage rates and bond spreads also improving.
  3. The real yield curve remains very flat, with 5-year real yields moving alongside 30-year real yields, indicating weak growth expectations and relatively tight short-run monetary policy.

AI Summary. Chinese production of critical manufactured goods covers more than 81% of domestic demand, up from 67% in 2004, a shift toward self-sufficiency achieved through forced technology transfer, large subsidies for domestic producers, and often hidden import restrictions. Combined with an investment slowdown, this cut total Chinese trade from nearly 65% of GDP to under 40%.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein notes that China has been pursuing successful import substitution for some time. As of 2018 (the last year with comprehensive data), China could domestically produce 81% of critical manufactured goods, up from 67% in 2004.

Has China's push for self-sufficiency shrunk its trade share of GDP?

Core argument: Chinese production of critical manufactured goods covered more than 81% of domestic demand as of 2018, up from 67% in 2004, a shift toward self-sufficiency unmatched by any other major economy, developing or advanced.

As of 2018—the last year for which we have comprehensive data—Chinese production of critical manufactured goods is now sufficient to cover more than 81% of its domestic demand, up from 67% in 2004. The Chinese shift towards self-sufficiency since 2004 was unmatched by any of the other major economies, developing or advanced. China’s transition was achieved via forced technology transfer (including theft), massive subsidies for domestic producers, and a range of (often hidden) restrictions on imports. Combined, China’s investment slowdown and its push for self-sufficiency have driven down total trade (exports plus imports) from nearly 65% of Chinese GDP in 2007 to less than 40% as of 2022.

Takeaways by Macro Roundup® AI

  1. Chinese production of critical manufactured goods covered more than 81% of domestic demand as of 2018, up from 67% in 2004, a shift toward self-sufficiency unmatched by any other major economy, developing or advanced.
  2. China's total trade (exports plus imports) fell from nearly 65% of GDP in 2007 to less than 40% in 2022, driven by its investment slowdown combined with its push for self-sufficiency.
  3. China achieved its transition toward self-sufficiency through forced technology transfer including theft, subsidies for domestic producers, and a range of often hidden restrictions on imports.

AI Summary. Temporary Protected Status, which shields people from countries destabilized by war or disaster from deportation and grants work permits, has been extended to more than 700,000 immigrants in the U.S. illegally, primarily Venezuelans and Haitians. H-2B visas for seasonal low-wage foreign workers have increased but remain far below employer demand.

Santiago Pérez and Michelle Hackman Wall Street Journal
Date Posted:

Tight labor markets are causing employers to pay premium wages for migrant workers. The World Bank estimates that remittances to Latin America from workers in the United States grew by more than 9% in 2022. @WSJ

Do work permit programs meet employer demand for foreign workers?

Core argument: The Biden administration has granted Temporary Protected Status to more than 700,000 immigrants already in the U.S. illegally, primarily from Venezuela and Haiti, according to an analysis by the Migration Policy Institute.

The Biden administration has also vastly expanded a program known as Temporary Protected Status, which protects people from countries destabilized by wars or natural disasters from being deported, and gives them work permits. The administration has granted such protection to more than 700,000 immigrants already in the country illegally, primarily from Venezuela and Haiti, according to an analysis by the Migration Policy Institute.  The U.S. has increased the number of H-2B visas, which allow employers to hire low-wage foreign workers for seasonal positions, in recent years because of the shortage of workers, but the numbers are still vastly below the demand by employers.

Takeaways by Macro Roundup® AI

  1. The Biden administration has granted Temporary Protected Status to more than 700,000 immigrants already in the U.S. illegally, primarily from Venezuela and Haiti, according to an analysis by the Migration Policy Institute.
  2. The U.S. has increased the number of H-2B visas, which let employers hire low-wage foreign workers for seasonal positions, because of the worker shortage, but the totals remain far below employer demand.
  3. U.S. business owners are paying a premium to hire migrant workers in an extremely tight labor market.

AI Summary. Taiwan's leading weapons maker has test-fired an extended-range version of the Hsiung Feng IIE surface-to-surface missile, believed capable of striking mainland China. The missile can reportedly hit targets up to 1,200km away, far enough to reach major mainland cities such as Qingdao on the east coast and Wuhan in the center.

Lawrence Chung South China Morning Post
Date Posted:

Taiwan is testing a domestically developed cruise missile with the capacity to hit targets in mainland China. @SCMPNews

Taiwan is testing a domestically developed cruise missile with the capacity to hit targets in mainland China. @SCMPNews

Is Taiwan developing missiles able to strike mainland Chinese cities?

Core argument: Taiwan's top weapons builder test-fired an extended-range version of the Hsiung Feng IIE surface-to-surface missile, believed capable of striking targets up to 1,200km (746 miles) away on mainland China.

Taiwan’s top weapons builder has test-fired a missile believed to be capable of hitting mainland China, as cross-strait tensions show no sign of abating. The surface-to-surface missile is an extended-range version of the Hsiung Feng IIE, which is able to hit targets up to 1,200km (746 miles) – far enough to reach major mainland cities such as Qingdao on the east coast or Wuhan in the center.

Takeaways by Macro Roundup® AI

  1. Taiwan's top weapons builder test-fired an extended-range version of the Hsiung Feng IIE surface-to-surface missile, believed capable of striking targets up to 1,200km (746 miles) away on mainland China.
  2. The missile's 1,200km range places major mainland Chinese cities within reach, including Qingdao on the east coast and Wuhan in the country's center.
  3. Cross-strait tensions between Taiwan and mainland China show no sign of abating.

AI Summary. A model of endogenous technology argues that differences in markups, externalities, and other social considerations can systematically distort which technologies markets develop, linking the direction of innovation to market sizes, input prices, markups, and regulations. The author offers suggestive evidence that such distortions are substantial in industrial automation, health care, and energy.

Daron Acemoglu National Bureau of Economic Research
Date Posted:

.@DrDaronAcemoglu finds that negative externalities and excessive focus on high-margin technologies can distort the path of innovation and reduce welfare gains by 10-50%. @nberpubs

Do markups and externalities distort which technologies markets develop?

Core argument: Markup differences, externalities, and other social considerations can systematically distort the equilibrium direction of innovation, according to a model of endogenous technology that generalizes existing comparative static results.

In the presence of markup differences, externalities and other social considerations, the equilibrium direction of innovation can be systematically distorted. This paper builds a simple model of endogenous technology, which generalizes existing comparative static results and characterizes potential distortions in the direction of innovation. From a positive perspective, the framework links the direction of technology to relevant market sizes (supplies of factors of production working with these technologies and consumer demand), the price of other inputs into the production process (for example, natural resources used in different sectors), markups and regulations. I show that empirical findings across a number of different areas are consistent with this framework's predictions and I use data from several studies to estimate its key parameters. Combining these numbers with rough estimates of differential externalities and markups, I provide suggestive evidence that equilibrium distortions in the direction of technology can be substantial in the context of industrial automation, health care, and energy, and correcting these distortions could have sizable welfare benefits.

Takeaways by Macro Roundup® AI

  1. Markup differences, externalities, and other social considerations can systematically distort the equilibrium direction of innovation, according to a model of endogenous technology that generalizes existing comparative static results.
  2. The framework links the direction of technology to market sizes, including factor supplies and consumer demand, the price of other inputs such as natural resources, markups, and regulations, with empirical findings across several areas consistent with its predictions.
  3. Combining parameters estimated from several studies with rough estimates of differential externalities and markups yields suggestive evidence that distortions in the direction of technology can be substantial in industrial automation, health care, and energy, and that correcting them could have sizable welfare benefits.