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


Friday, March 10, 2023

AI Summary. US payroll growth remains strong, with a monthly gain of 311,000 jobs and a three-month average of 351,000, while average hourly earnings growth has slowed to a 3.6% three-month annualized rate from 4.6%. Job gains far above a steady-state pace of 75,000 are hard to reconcile with inflation falling to 2–3%.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman argues that it’s “hard to believe that jobs 275K above steady state of 75K is compatible with inflation falling to 2% or even 3%.”

Is strong payroll growth compatible with inflation falling to 2–3%?

Core argument: U.S. nonfarm payrolls rose 311,000 in February and averaged 351,000 over the last three months, a pace Jason Furman calls extraordinary and says does not look like anomalous data.

The American economy continues to create an extraordinary number of jobs--311,000 in February, an average of 351,000 over the last three months. This does not look like anomalous data. Average hourly earnings growth slowed a lot. Last month the three-month annualized average was 4.6%. Largely because of slow growth in February (but also small revisions) the 3-month growth rate is now 3.6%. The unemployment rate went up, but the participation rate also went up, so employment was unchanged. What does this mean? Hard to believe that jobs 275K above steady state of 75K is compatible with inflation falling to 2% or even 3%. My view was the default should be hiked by 50bp and the totality of this release should not change that. But the market disagrees with me with rates down on the news.

Takeaways by Macro Roundup® AI

  1. U.S. nonfarm payrolls rose 311,000 in February and averaged 351,000 over the last three months, a pace Jason Furman calls extraordinary and says does not look like anomalous data.
  2. Average hourly earnings growth slowed, with the three-month annualized rate falling to 3.6% from 4.6% a month earlier, largely because of slow February growth plus small revisions.
  3. Furman finds job gains 275,000 above a steady state of 75,000 hard to reconcile with inflation falling to 2% or even 3%, and maintains his default of a 50bp hike, while the market sent rates down on the news.

AI Summary. Among surveyed women, remote workers are more likely to be pregnant or trying to conceive, though the difference is not statistically significant overall. The association is larger and statistically significant among workers in relatively good circumstances, suggesting remote work helps them convert improving finances into family formation.

Lyman Stone and Adam Ozimek Economic Innovation Group
Date Posted:

.@lymanstoneky @ModeledBehavior find that remote work has had a positive impact on the likelihood of near-term pregnancy for women, particularly for those >35 whose financials are improving.

Does remote work make women more likely to pursue pregnancy?

Core argument: Remote workers are more likely to be pregnant or trying to conceive, but the authors find the difference is not statistically significant with their controls.

We assess whether women are pregnant or trying to become pregnant. This question is a good indicator of very near-term fertility outlooks, since respondents generally have a pretty clear and stable idea whether they are pregnant or trying to conceive, or not. When looking directly at the impact of remote work on this variable with the same controls, we find that remote workers are indeed more likely to be pregnant or trying; however, the difference is not statistically significant. When we focus on the subset of workers who are doing relatively well, we see a larger and more statistically significant impact of remote work on fertility. Remote work seems to help women in improving circumstances to capitalize on those improvements and convert financial success into family life.

Takeaways by Macro Roundup® AI

  1. Remote workers are more likely to be pregnant or trying to conceive, but the authors find the difference is not statistically significant with their controls.
  2. Among workers who are doing relatively well, the authors find a larger and more statistically significant effect of remote work on being pregnant or trying to conceive.
  3. The authors argue remote work helps women in improving circumstances convert financial success into family life, treating whether women are pregnant or trying as an indicator of very near-term fertility outlooks.

AI Summary. The share of British teens who do not consider themselves likable, think of themselves as a failure, or are dissatisfied with their lives has risen since 2010, with similar deterioration in US and French youth mental health. More time on social media is associated with worse mental health, with the steepest gradient for girls.

John Burn-Murdoch Financial Times
Date Posted:

An increase in time spent on social media is associated with a decline in mental health, with the gradient steepest for girls. @jburnmurdoch.

Is teen mental health deteriorating along with social media use?

Core argument: The share of British teens who do not consider themselves likable fell from 6% to 4% between 1994 and 2010, then more than doubled, alongside sharp rises in those feeling like a failure, worrying a lot, and being dissatisfied with life.

Something is going very wrong for teenagers. Between 1994 and 2010, the share of British teens who do not consider themselves likable fell slightly from 6% to 4%; since 2010 it has more than doubled. The share who think of themselves as a failure, who worry a lot, and who are dissatisfied with their lives also kicked up sharply. The same trends are visible across the Atlantic. The number of US high school students who say their life often feels meaningless has rocketed in the past 12 years. And it’s not just the anglosphere. In France, rates of depression among 15- to 24-year-olds have quadrupled in the past decade. The more time teens spend on social media, the worse their mental health is. The gradient is steepest for girls, who also spend much more time on social media than boys, explaining the sharper deterioration among girls’ mental health than boys’.

Takeaways by Macro Roundup® AI

  1. The share of British teens who do not consider themselves likable fell from 6% to 4% between 1994 and 2010, then more than doubled, alongside sharp rises in those feeling like a failure, worrying a lot, and being dissatisfied with life.
  2. Depression rates among French 15- to 24-year-olds quadrupled over the past decade, and the number of US high school students saying their life often feels meaningless rose sharply over the past 12 years.
  3. Teen mental health is worse the more time teens spend on social media, with the steepest gradient for girls, who also spend much more time on social media than boys.

AI Summary. Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.

Nicholas Eberstadt and Ashton Verdery Wall Street Journal
Date Posted:

Nicholas Eberstadt and Ashton Verdery @AEIecon make the case that a “crisis of the Chinese family” is underway. They project by 2050 living parents and in-laws will outnumber children for middle aged Chinese.

Will falling birth rates shrink Chinese families' protective role?

Core argument: China faces a "kin famine" unfolding over the next 30 years, in which prolonged sub-replacement fertility leaves rising generations with fewer living relatives than ever before in Chinese history, by the authors' reckoning.

China is now on the cusp of a severe and unavoidable “kin crash,” driven by prolonged sub-replacement fertility. The implosion of consanguineous family networks, by our reckoning, means that China’s rising generations will likely have fewer living relatives than ever before in Chinese history. A “kin famine” will thus unfold unforgivingly over the next 30 years—starting now. As it intensifies, the Chinese family—the most important institution protecting Chinese people against adversity in bad times and helping them seize opportunity in good times—will increasingly falter in both these crucial functions.

Takeaways by Macro Roundup® AI

  1. China faces a "kin famine" unfolding over the next 30 years, in which prolonged sub-replacement fertility leaves rising generations with fewer living relatives than ever before in Chinese history, by the authors' reckoning.
  2. The authors argue the implosion of consanguineous family networks will erode the Chinese family's two crucial functions: protecting people against adversity in bad times and helping them seize opportunity in good times.
  3. The authors describe China's "kin crash" as severe and unavoidable, with the implosion of family networks starting now rather than a distant prospect.

AI Summary. California landowners and water managers are rushing to capture storm runoff before it flows into the Pacific Ocean, after the state's three driest years on record drained reservoirs. Los Angeles officials say they diverted 25bn gallons in one winter, aided by deepened catch basins and streets redesigned to let water seep underground.

Jim Carlton Wall Street Journal
Date Posted:

California snowpack is nearly double average levels for this time of year and the state is racing to try to capture the precipitation to offset the record drought. @wsj

California snowpack is nearly double average levels for this time of year and the state is racing to try to capture the...

Can redesigned basins and streets capture storm runoff before it escapes?

Core argument: Los Angeles city officials say they have diverted 25 billion gallons of storm runoff this winter, enough to meet the annual needs of 308,000 households, aided partly by deepening pool-like basins in the San Fernando Valley.

California is nearing record precipitation this winter after the three driest years on record left reservoirs drained all over the state. Landowners along with state and local water managers are rushing to harvest as much runoff as they can before it escapes into the Pacific Ocean. Gov. Gavin Newsom in February ordered the state to accelerate its efforts to corral storm runoff, such as by facilitating projects to inject more water in underground aquifers. Los Angeles city officials say they have diverted 25 billion gallons so far this winter, or enough to meet the annual needs of 308,000 households. That was made possible partly by improvements such as deepening a group of pool-like basins in the San Fernando Valley so they could hold more rainwater. Runoff was also collected in streets that have been redesigned to include swales of open ground alongside to give water a place to seep underground.

Takeaways by Macro Roundup® AI

  1. Los Angeles city officials say they have diverted 25 billion gallons of storm runoff this winter, enough to meet the annual needs of 308,000 households, aided partly by deepening pool-like basins in the San Fernando Valley.
  2. California is nearing record precipitation this winter after its three driest years on record drained reservoirs statewide, with landowners and water managers racing to capture runoff before it escapes into the Pacific Ocean.
  3. Gov. Gavin Newsom in February ordered California to accelerate efforts to corral storm runoff, including facilitating projects that inject more water into underground aquifers.

AI Summary. Experiments at a geothermal startup's twin wells in Nevada found that pumping water underground and holding it builds pressure that flexes the rock, then produces higher-than-normal water output for hours once released. The results suggest geothermal plants could ramp electricity up or down and store energy for hours or days, acting like a large underground battery.

James Temple MIT Tech Review
Date Posted:

Texas-based @fervoenergy has conducted an experiment suggesting that geothermal power plants could provide long-term energy storage and play a critical role in a carbon-free electrical grid. @techreview

Texas-based @fervoenergy has conducted an experiment suggesting that geothermal power plants could provide long-term energy...

Can geothermal wells store energy like an underground battery?

Core argument: Fervo Energy pumped water thousands of feet underground in northern Nevada and held it there, with gauges in its twin wells showing pressure build as the trapped water flexed the surrounding rock.

Fervo Energy, a geothermal power startup, began conducting an experiment deep below the desert floor of northern Nevada. It pumped water thousands of feet underground and then held it there, watching for what would happen. The readings from gauges planted throughout the company’s twin wells showed that pressure quickly began to build, as water that had nowhere else to go actually flexed the rock itself. When they finally released the valve, the output of water surged, and it continued pumping out at higher-than-normal levels for hours. The results from the initial experiments suggest Fervo can create flexible geothermal power plants, capable of ramping electricity output up or down as needed. Potentially more important, the system can store up energy for hours or even days and deliver it back over similar periods, effectively acting as a giant and very long-lasting battery.

Takeaways by Macro Roundup® AI

  1. Fervo Energy pumped water thousands of feet underground in northern Nevada and held it there, with gauges in its twin wells showing pressure build as the trapped water flexed the surrounding rock.
  2. When Fervo released the valve, water output surged and continued at higher-than-normal levels for hours, results that suggest geothermal plants able to ramp electricity output up or down as needed.
  3. Fervo's initial experiments suggest the system could store energy for hours or even days and deliver it back over similar periods, effectively acting as a long-lasting battery.

Monday, March 13, 2023

AI Summary. Very high marginal tax rates reduce incentives to work and create wealth and encourage extensive efforts to avoid or evade taxes. Estimates of the revenue-maximizing top rate run about 70%–80%, above the 37% federal maximum but closer to the roughly 50% effective rate many high earners face once state and local taxes are included.

Paul Krugman Krugman Wonks Out
Date Posted:
Is Database:
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.@paulkrugman argues that higher marginal taxes rates won’t be enough to close the long-run fiscal gap. “We’ll eventually have to raise taxes, at least somewhat, on people making less than $400,000.”

How much additional revenue can higher taxes on the rich raise?

Core argument: Estimates of the revenue-maximizing top tax rate tend to fall in the range of 70 to 80 percent, well above the federal maximum of 37 percent, though state and local taxes raise many high earners' effective marginal rate to roughly 50 percent.

Very high marginal tax rates create problematic incentives. Conservatives emphasize how taxes reduce the incentive to work and create wealth; this effect is surely overrated, but it does exist. More important, high tax rates encourage extraordinary efforts to avoid taxes (which is legal) or evade them (which isn’t). Estimates of the revenue-maximizing top tax rate tend to be in the range of 70 percent to 80 percent, well above the federal maximum of 37 percent — but bear in mind that many high earners also face state and local taxes that raise their effective marginal rate to something like 50 percent. So, the amount of additional revenue we can raise from taxing the rich, while substantial, is considerably less than their remaining untaxed income.

Takeaways by Macro Roundup® AI

  1. Estimates of the revenue-maximizing top tax rate tend to fall in the range of 70 to 80 percent, well above the federal maximum of 37 percent, though state and local taxes raise many high earners' effective marginal rate to roughly 50 percent.
  2. High marginal tax rates encourage extraordinary efforts at legal tax avoidance and illegal evasion, an effect more important than the reduced incentive to work and create wealth that conservatives emphasize and that is surely overrated.
  3. The additional revenue obtainable from taxing the rich, while substantial, is considerably less than their remaining untaxed income.

AI Summary. Silicon Valley Bank's failure stemmed from a duration mismatch between high-quality assets and deposit liabilities rather than the credit risk that has historically caused most bank failures. Deposits at US banks rose by $5.4tn over roughly two years, and with weak loan demand only about 15% was lent out, with the rest held in securities portfolios or cash.

Michael Cembalist J.P. Morgan
Date Posted:

A research piece by Michael Cembalist @JPMorgan calculates capital ratios for key banks assuming that all unrealized securities losses were realized. Silicon Valley Bank (SIVB) was an outlier.

Did a duration mismatch, not credit risk, cause this bank failure?

Core argument: Deposits at US banks rose by $5.4 trillion between Q4 2019 and Q1 2022, and with weak loan demand only about 15% was lent out, leaving the rest in securities portfolios or cash.

The irony of SIVB [Silicon Valley bank] is that most banks have historically failed due to credit risk issues. This is the first major one I recall where the primary issue was a duration mismatch between high quality assets and deposit liabilities. As shown below, being flooded with deposits from fast-money VC firms and other corporate accounts at a time of historically low-interest rates might have been more of a curse than a blessing. Between Q4 2019 and the first quarter of 2022, deposits at US banks rose by $5.4 trillion and due to weak loan demand, only ~15% was lent out; the rest was invested in securities portfolios or kept as cash.

Takeaways by Macro Roundup® AI

  1. Deposits at US banks rose by $5.4 trillion between Q4 2019 and Q1 2022, and with weak loan demand only about 15% was lent out, leaving the rest in securities portfolios or cash.
  2. Silicon Valley Bank's failure stemmed primarily from a duration mismatch between high-quality assets and deposit liabilities rather than the credit risk issues behind most historical bank failures.
  3. Silicon Valley Bank's flood of deposits from fast-money venture capital firms and other corporate accounts at a time of historically low interest rates may have been more of a curse than a blessing.

AI Summary. Bank system liquidity is exceptionally high but is projected to decline as higher interest rates and the Federal Reserve's balance sheet runoff withdraw over $1tn from the banking system over two years. Higher rates reduce the market value of bank securities and loan portfolios, lowering the cash banks can raise against them.

Joseph Wang Fed Guy Blog
Date Posted:

.@Fedguy12 argues “there is little risk of a crisis in the banking sector” noting “SVB was particularly poorly run” but QT is set to pull over $1T of liquidity out of the banking system, challenging bank liquidity over the next two years.

Will higher rates and balance sheet runoff drain bank liquidity?

Core argument: Quantitative tightening is set to withdraw over $1 trillion of liquidity from the banking system over the next two years, from a level of bank liquidity that is exceptionally high.

The level of liquidity in the banking system is exceptionally high but is set to steadily decline from higher rates and QT. Higher interest rates reduce the market value of bank assets, which reduces the amount of cash that a bank can raise. A secular upward swing in interest rates can potentially impose huge losses on both the securities and loan portfolios of banks. At the same time, QT is set to steadily withdraw over a trillion in liquidity out of the banking system over the next two years. This is not a problem today, but it may be in the coming years.

Takeaways by Macro Roundup® AI

  1. Quantitative tightening is set to withdraw over $1 trillion of liquidity from the banking system over the next two years, from a level of bank liquidity that is exceptionally high.
  2. Higher interest rates reduce the market value of bank assets and thereby the cash a bank can raise, and a secular upward swing in rates could impose huge losses on both securities and loan portfolios.
  3. Declining bank liquidity from higher rates and quantitative tightening is not a problem today but may become one in the coming years.

AI Summary. Raising the Federal Deposit Insurance Corporation's $250,000 coverage limit would make the government appear to guarantee a much larger share of the financial system, inviting pressure to extend protection further. The author argues the resulting larger regulatory apparatus and higher bank premiums would push lending and deposit-taking outside the formal banking system.

Tyler Cowen Marginal Revolution
Date Posted:

.@tylercowen speculates that the SVB resolution will likely “push additional resources outside the formal banking system altogether,” as the formal banking system now has to accommodate increased regulations and higher deposit insurance premia.

.@tylercowen speculates that the SVB resolution will likely “push additional resources outside the formal banking system...

Would raising deposit insurance limits push lending outside the banking system?

Core argument: Raising the FDIC deposit insurance limit above $250,000 would make the FDIC appear to guarantee a much larger part of the financial system, and pressures to extend protection to yet more of it would grow over time, as they did after the 2008–2009 bailouts.

Raising the FDIC protection limit from $250,000 to ??? raises political eyebrows in a dramatic manner. For one thing, the FDIC would then be seen as guaranteeing a much larger part of the financial system. Over time, the pressures for the government to protect yet additional parts of the financial system will grow, just as they did after the bailouts from the 2008-2009 financial crisis. Furthermore, if the FDIC keeps on increasing its protections in the quest for financial stability, that means a larger FDIC, a larger regulatory apparatus, perhaps higher capital requirements, and over time higher premia for banks to pay to the FDIC.  As that scenario unfolds, there will be all the more incentives to supply more lending and also deposit-taking services outside the formal and more heavily regulated banking sector. Rather than pushing more resources into the larger banks, this policy would push additional resources outside the formal banking system altogether.

Takeaways by Macro Roundup® AI

  1. Raising the FDIC deposit insurance limit above $250,000 would make the FDIC appear to guarantee a much larger part of the financial system, and pressures to extend protection to yet more of it would grow over time, as they did after the 2008–2009 bailouts.
  2. Expanded FDIC protection in the quest for financial stability implies a larger FDIC, a larger regulatory apparatus, perhaps higher capital requirements, and over time higher premia for banks to pay the FDIC.
  3. As FDIC protections and premia expand, incentives would grow to supply lending and deposit-taking services outside the formal, more heavily regulated banking sector, pushing resources out of the formal banking system rather than into larger banks.

AI Summary. Each percentage point of higher real interest rates raises US federal interest costs by roughly $250bn, given debt roughly equal to GDP, and a rate-induced recession would invite more stimulus and bailouts of the kind that fed inflation. If duration risk has spread into too-big-to-fail banks, rate increases force a choice between further bailouts and financial turmoil.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane writes, “The Silicon Valley Bank failure strikes me as a colossal failure of bank regulation,” and argues that duration risk at banks will now be an additional constraint on the Fed’s hiking cycle.

.@JohnHCochrane writes, “The Silicon Valley Bank failure strikes me as a colossal failure of bank regulation,” and argues...

Do higher interest rates force a choice between bailouts and financial turmoil?

Core argument: Each percentage point of higher real interest rates raises U.S. federal interest costs by about $250 billion, reflecting 1 percent applied to a debt-to-GDP ratio of 100 percent.

The Fed faces many headwinds in its interest rate-raising effort. For example, each point of higher real interest rates raises interest costs on the debt by about $250 billion (1 percent x 100% debt/GDP ratio). A rate rise that leads to recession will lead to more stimulus and bailout, which is what fed inflation in the first place. But now we have another. If the Fed has allowed duration risk to seep in to the too big to fail banking system, then interest rate rises will induce the hard choice between yet more bailouts and a financial storm.

Takeaways by Macro Roundup® AI

  1. Each percentage point of higher real interest rates raises U.S. federal interest costs by about $250 billion, reflecting 1 percent applied to a debt-to-GDP ratio of 100 percent.
  2. A Fed rate rise that leads to recession would bring more stimulus and bailouts, the same response that fed inflation in the first place.
  3. If the Fed has allowed duration risk to seep into the too-big-to-fail banking system, interest rate rises would force a choice between further bailouts and a financial storm.