Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 22, 2023

AI Summary. Strategists at JPMorgan Chase argue that deteriorated liquidity in the US Treasury market is not a financial stability concern and need not deter the Federal Reserve from continuing rate hikes. They note the price impact of each trade remains below crisis levels, with the largest dislocations in Treasuries maturing in 7 to 10 years.

Garfield Reynolds Bloomberg
Date Posted:

.@jpmorgan reports Treasury liquidity is at the lowest level since 2020; maturities between 7 and 10 years have been most impacted. However, JPM concludes “we do not see the low level of liquidity as a source of concern for financial stability.”

Should weak Treasury market liquidity stop the Fed from raising rates?

Core argument: JPMorgan strategists say Treasury market liquidity has deteriorated amid high volatility but do not see the low level of liquidity as a source of concern for financial stability, and argue the Federal Reserve can continue with rate hikes.

The Federal Reserve can look past low liquidity in the Treasuries market and continue with its rate hikes, according to strategists at JPMorgan Chase & Co. “The footprint of each trade in the market, as measured by price impact, has been elevated for the past year but has not risen appreciably in recent weeks and remains below crisis levels,” the analysts wrote. “Dislocations have increased but are far from distressed levels.” Treasuries with maturities between 7 and 10 years have seen the largest liquidity dislocations, suggesting that is where the bulk of liquidations are occurring. “Treasury market liquidity has deteriorated amid high volatility, but we do not see the low level of liquidity as a source of concern for financial stability,” they said.

Takeaways by Macro Roundup® AI

  1. JPMorgan strategists say Treasury market liquidity has deteriorated amid high volatility but do not see the low level of liquidity as a source of concern for financial stability, and argue the Federal Reserve can continue with rate hikes.
  2. JPMorgan analysts write that the price impact of each trade has been elevated for the past year but has not risen appreciably in recent weeks and remains below crisis levels, with dislocations far from distressed levels.
  3. Treasuries with maturities between 7 and 10 years have seen the largest liquidity dislocations, suggesting to JPMorgan strategists that the bulk of liquidations are occurring in that segment.

AI Summary. Banking turmoil is argued to tighten credit much like a Federal Reserve interest-rate increase, with estimates of the equivalent hike ranging from 0.25–0.5 percentage points (Goldman Sachs) to 1.5 percentage points (Apollo Global Management). Given that uncertainty, the argument is that the Federal Reserve should pause rate increases until the inflation and banking pictures are clearer.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman argues the Fed should pause its rate hikes, citing estimates from Goldman Sachs and Apollo Global Management that banking turmoil is equivalent to a hike of .25 to 1.5pp.

Should the Fed pause rate hikes while banking turmoil tightens credit?

Core argument: Goldman Sachs estimates the banking turmoil will amount to the equivalent of a Fed rate hike of 0.25 to 0.5 percentage points, while Torsten Slok of Apollo Global Management puts the effective tightening at 1.5 percentage points.

In effect, banking turmoil will act a lot like a rate hike by the Fed. But how big an effective rate hike? I’m seeing smart, well-informed people produce numbers that are all over the place. Goldman Sachs says we’ll see the equivalent of a rate hike of 0.25 to 0.5 percentage points; Torsten Slok of Apollo Global Management says 1.5 percentage points. I have no idea who’s right. What this probably means in practice is that the Fed should pause its rate hikes until there’s more clarity about both the inflation picture and the effects of the banking mess — and it should be clear that that’s what it is doing.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs estimates the banking turmoil will amount to the equivalent of a Fed rate hike of 0.25 to 0.5 percentage points, while Torsten Slok of Apollo Global Management puts the effective tightening at 1.5 percentage points.
  2. Krugman argues the banking turmoil will act much like a Fed rate hike, with estimates from well-informed analysts varying so widely that he declines to say which is right.
  3. Krugman concludes the Fed should pause rate hikes until there is more clarity on both inflation and the effects of the banking turmoil, and should make clear that a pause is what it is doing.

AI Summary. Two bank failures should not divert the Federal Reserve from raising interest rates, since tighter financial conditions may lower the peak policy rate but that peak was likely near 6% beforehand. A rate increase would signal confidence in the financial system's stability and resolve on inflation.

Michael Strain Project Syndicate
Date Posted:

.@MichaelRStrain argues that, while tighter financial conditions might bring down the ultimate terminal rate, the Fed should still hike 50bps today to signal that “its resolve in fighting inflation is unshakable.”

.@MichaelRStrain argues that, while tighter financial conditions might bring down the ultimate terminal rate, the Fed should...

Should bank failures stop the Fed from raising interest rates?

Core argument: The author argues the terminal federal funds rate was likely around 6% before Silicon Valley Bank's failure, leaving the Fed with some way to go even if tighter financial conditions lower that endpoint.

While the failures of Silicon Valley Bank (SVB) and Signature Bank are significant market events, they should not knock the Fed off course. Tighter financial conditions might reduce the terminal federal funds rate. But the terminal rate was likely around 6% before SVB failed. The Fed still has some way to go. A lower terminal rate is no reason to avoid a 25 or 50 bps increase at this week’s meeting. By raising rates this week, the Fed has the opportunity to send two important signals: first, that it has confidence in the stability of the financial system, and second, that its resolve in fighting inflation is unshakable.

Takeaways by Macro Roundup® AI

  1. The author argues the terminal federal funds rate was likely around 6% before Silicon Valley Bank's failure, leaving the Fed with some way to go even if tighter financial conditions lower that endpoint.
  2. A lower terminal rate is no reason for the Fed to avoid a 25 or 50 basis point increase, the author argues.
  3. Raising rates would let the Fed signal confidence in the stability of the financial system and unshakable resolve against inflation, the author argues, with the failures of Silicon Valley Bank and Signature Bank no reason to knock it off course.

AI Summary. Fentanyl or similar synthetic opioids were involved in two-thirds of roughly 107,000 US overdose deaths in a single year, with US drug agents seizing more than 50m fentanyl-laced pills and over 10,000 pounds of fentanyl powder. Methamphetamine flowing from Mexico, aided by cheap chemical inputs, has pushed wholesale prices to historic lows.

Sam Quinones Washington Post
Date Posted:

.@samquinones7 argues that the drug cartels’ shift to synthetics such as fentanyl and methamphetamine is allowing them to drive down prices, which has led to increased usage.

How large is the supply of synthetic drugs entering the US?

Core argument: Two-thirds of the 107,000 U.S. overdose deaths in 2021 involved fentanyl or similar synthetic opioids.

"Two-thirds of the 107,000 overdose deaths in 2021 involved fentanyl or synthetic opioids like it. Agents seized more than 50 million fentanyl-laced pills in 2022, the Drug Enforcement Administration announced in December, and over 10,000 pounds of fentanyl powder — enough to kill a quarter of the world’s entire population. The quantities of meth coming out of Mexico, spurred by easy access to ingredients from world chemical markets, have driven prices for the drug to historic lows. In Fresno, Calif., a wholesale pound of meth went for $20,000 in 2008; now it goes for $800. In Nashville six years ago, a pound wholesale sold for $16,000; today, it’s $2,000.

Takeaways by Macro Roundup® AI

  1. Two-thirds of the 107,000 U.S. overdose deaths in 2021 involved fentanyl or similar synthetic opioids.
  2. The Drug Enforcement Administration announced that agents seized more than 50 million fentanyl-laced pills and over 10,000 pounds of fentanyl powder in 2022, enough to kill a quarter of the world's population.
  3. Methamphetamine flowing from Mexico, spurred by easy access to ingredients from world chemical markets, has pushed wholesale prices to historic lows: a pound fell from $20,000 in 2008 to $800 in Fresno and from $16,000 to $2,000 in Nashville.

AI Summary. Swedish lottery data indicate that windfall wealth raises the short- and medium-run probability of marriage, an effect driven by male winners. When the winner is a married woman, the authors estimate that a 1M-krona windfall nearly doubles the short-run divorce rate, an effect that fades in the long run.

Thomas Edsall New York Times
Date Posted:

.@Edsall reports on new research disproving the conventional “basket of deplorables” narrative of Trump’s 2016 win: his supporters were “less xenophobic, less sexist, and [had] lower levels of racial resentment” than prior Republican candidates’.

How does windfall wealth affect marriage and divorce rates?

Core argument: The authors estimate that a 1M-SEK lottery windfall won by a married woman almost doubles the baseline short-run divorce rate, an effect that appears to fade in the long run.

We find that lottery wealth increases the short- and medium-run probabilities of marriage. The overall wealth effect on marriage formation is driven by male winners. While the overall average treatment effect on marriage dissolution is not statistically distinguishable from zero, there is a consistent pattern of divergence between the estimated effects for husbands and wives. Specifically, when the winning player is a married woman, our estimates suggest that a 1M-SEK windfall almost doubles the baseline short-run divorce rate. This estimated effect appears to fade away in the long-run. We speculate that the positive wealth shock accelerates the exit from marriages whose dissolution was already underway.

Takeaways by Macro Roundup® AI

  1. The authors estimate that a 1M-SEK lottery windfall won by a married woman almost doubles the baseline short-run divorce rate, an effect that appears to fade in the long run.
  2. Lottery wealth raises the short- and medium-run probability of marriage, with the overall wealth effect on marriage formation driven by male winners.
  3. The average treatment effect of lottery wealth on marriage dissolution is not statistically distinguishable from zero, though estimated effects for husbands and wives diverge consistently, which the authors speculate reflects windfalls accelerating exits from marriages already dissolving.

AI Summary. Using lottery winners, the authors estimate that wealth windfalls raise the short- and medium-run probability of marriage, an effect driven by male winners. The estimated average effect on marriage dissolution is not statistically distinguishable from zero, but for married women a 1M-SEK windfall nearly doubles the short-run divorce rate, with the effect fading over the long run.

David Cesarini, Erik Lindqvist, et al National Bureau of Economic Research
Date Posted:

In Sweden men who won the lottery saw an increase in marriage formation and lower divorce risk. Female winners saw a near doubling of short-term divorce rates. @eriklindqvist1 @robertostling @Asia_terskaya

In Sweden men who won the lottery saw an increase in marriage formation and lower divorce risk. Female winners saw a near...

How does a wealth windfall affect marriage and divorce?

Core argument: The authors estimate that a 1M-SEK lottery windfall won by a married woman almost doubles the baseline short-run divorce rate, an effect that appears to fade in the long run.

We find that lottery wealth increases the short- and medium-run probabilities of marriage. The overall wealth effect on marriage formation is driven by male winners. While the overall average treatment effect on marriage dissolution is not statistically distinguishable from zero, there is a consistent pattern of divergence between the estimated effects for husbands and wives. Specifically, when the winning player is a married woman, our estimates suggest that a 1M-SEK windfall almost doubles the baseline short-run divorce rate. This estimated effect appears to fade away in the long-run. We speculate that the positive wealth shock accelerates the exit from marriages whose dissolution was already underway.

Takeaways by Macro Roundup® AI

  1. The authors estimate that a 1M-SEK lottery windfall won by a married woman almost doubles the baseline short-run divorce rate, an effect that appears to fade in the long run.
  2. Lottery wealth raises the short- and medium-run probability of marriage, with the overall wealth effect on marriage formation driven by male winners.
  3. The average treatment effect of lottery wealth on marriage dissolution is not statistically distinguishable from zero overall, though estimated effects diverge consistently between husbands and wives.

Thursday, March 23, 2023

AI Summary. Evidence presented here challenges the widely accepted view that deindustrialization drove the postwar decline in U.S. male labor force participation, and suggests the manufacturing job losses tied to China's entry into the World Trade Organization were temporary rather than lasting.

Nicholas Eberstadt and Peter Van Ness National Affairs
Date Posted:
Is Database:
Database

Nicholas Eberstadt and Peter Van Ness @AEIecon find significant variation in labor force participation across metropolitan areas. Notably, they find no correlation between local LFP and the change in manufacturing jobs’ share of employment since 2000.

Did deindustrialization really drive the long-term decline in male labor force participation?

Core argument: The chart challenges the widely accepted view, held on both the left and the right, that deindustrialization drove down post-war labor force participation rates among American men.

For many years, a stylized fact floating in the economic policy ether (on both the left and the right) has been the now widely accepted notion that deindustrialization has driven down post-war LFPRs for American men. The figure above squarely challenges that assumption. Less ephemerally, careful studies by David Autor of the Massachusetts Institute of Technology and his colleagues have detailed the devastating impact of the "China shock" — the shift in worldwide trade patterns that followed China's accession into the World Trade Organization in 2001 — on the U.S. manufacturing sector. That immediate shock was, alas, very real, but our chart suggests it was also temporary. This figure, we believe, should be taken as an invitation to reexamine a matter many scholars and policymakers consider settled.

Takeaways by Macro Roundup® AI

  1. The chart challenges the widely accepted view, held on both the left and the right, that deindustrialization drove down post-war labor force participation rates among American men.
  2. David Autor of the Massachusetts Institute of Technology and his colleagues have detailed the devastating impact of the "China shock" on U.S. manufacturing following China's 2001 accession to the World Trade Organization.
  3. The chart suggests the China shock's impact on U.S. manufacturing was real but temporary, and is offered as an invitation to reexamine a matter many scholars and policymakers consider settled.

AI Summary. France's president defended both his unpopular pension reform and his decision to enact it without a parliamentary vote, calling for a return to calm and renewed engagement with labor unions and willing political parties amid nightly protests. An IFOP poll puts his approval at 28%, down 4 percentage points over the past month.

Leila Abboud Financial Times
Date Posted:

Though not yet at the scale of the 2018 gilets jaunes protest, France is facing widespread protest after President Macron pushed through an unpopular pension reform without a parliamentary vote. @FinancialTimes

Though not yet at the scale of the 2018 gilets jaunes protest, France is facing widespread protest after President Macron...

Can a leader defend pension reform passed without a parliamentary vote?

Core argument: Macron's approval rating fell 4 percentage points over the past month to 28%, according to an IFOP poll, its lowest level since the gilets jaunes crisis.

In his first public statement since ramming through his unpopular pensions reform without a parliamentary vote, Macron defended both the policy and the method and tried to calm public anger that has sparked spontaneous nightly protests from Paris to Rennes. “We must move forward,” he said in a televised interview on Wednesday. “We have to restore calm and rebuild a parliamentary and reform agenda by re-engaging with labor unions and any political parties who are ready to do so.” Macron’s approval ratings have fallen 4 percentage points in the past month to 28%, according to an IFOP poll, their lowest since the gilets jaunes crisis.

Takeaways by Macro Roundup® AI

  1. Macron's approval rating fell 4 percentage points over the past month to 28%, according to an IFOP poll, its lowest level since the gilets jaunes crisis.
  2. Macron called for restoring calm and rebuilding a parliamentary and reform agenda by re-engaging with labor unions and willing political parties, as spontaneous nightly protests ran from Paris to Rennes.

AI Summary. Strains in the $5.6tn US commercial real estate loan market have deepened as Federal Reserve rate increases raise borrowing costs and weaken property valuations. Small and medium-sized banks hold about 70% of these loans, which account for 43% of small banks' total lending versus 13% at the largest banks.

Jennifer Hughes, Harriet Clarfelt and Joshua Chaffin Financial Times
Date Posted:

Commercial property loans are an increasing risk for American banks with the stress falling on smaller banks, commercial real estate lending makes up 43% of small banks total lending versus 13% for large banks. @FinancialTimes

Are smaller banks more exposed to commercial real estate loan strains?

Core argument: Small and medium-sized US banks account for about 70% of the $5.6tn commercial real estate loan market, according to JPMorgan analysts, and most of these loans remain on banks' books rather than being securitized.

Strains in the $5.6tn market for commercial real estate (CRE) loans have deepened in recent months as the Federal Reserve’s year-long series of interest rate rises leads to sharply higher borrowing costs and weakening property valuations. Thousands of small and medium-sized banks that make up the bulk of US lenders account for about 70 per cent of so-called CRE loans, according to JPMorgan analysts. Most of the products are not repackaged for the asset-backed securitization markets so remain on banks’ books. CRE loans make up 43 per cent of small banks’ total lending, against just 13 per cent for the biggest banks. About 17 per cent of office loans are held in CMBS, according to Goldman Sachs, making the market joint-top funder alongside regional and local banks.

Takeaways by Macro Roundup® AI

  1. Small and medium-sized US banks account for about 70% of the $5.6tn commercial real estate loan market, according to JPMorgan analysts, and most of these loans remain on banks' books rather than being securitized.
  2. CRE loans make up 43% of small banks' total lending versus 13% at the biggest banks, as the Federal Reserve's year-long series of rate rises drives up borrowing costs and weakens property valuations.
  3. Goldman Sachs estimates that about 17% of office loans are held in commercial mortgage-backed securities, making that market a joint-top funder alongside regional and local banks.

AI Summary. North American trade in goods and services has quadrupled in nominal value since the North American Free Trade Agreement took effect, exceeding $7tn, or roughly 30% of GDP. Rising US-China tensions, pandemic-era supply chain disruptions, and US industrial subsidies for electric vehicles and clean energy are shifting production toward North America, with spillovers into Canada and Mexico.

Economist Staff The Economist
Date Posted:

North American trade in goods and services has quadrupled in nominal value since the North American Free Trade Agreement went into force in 1994. @TheEconomist argues that as the US pulls away from China, it needs its neighbors more than ever.

Are trade tensions and subsidies shifting production toward North America?

Core argument: North America's trade in goods and services has quadrupled in nominal value since NAFTA took effect in 1994, reaching more than $7trn, or roughly 30% of GDP.

North America's trade in goods and services has quadrupled in nominal value since the North American Free Trade Agreement (NAFTA) went into force in 1994, to more than $7trn, or roughly 30% of GDP. As tensions between the United States and China increase, companies that had come to rely on China for manufacturing are shifting to other bases. Production snafus during the covid-19 pandemic illustrated the fragility of globally dispersed supply chains. And the embrace by President Joe Biden’s administration of industrial policy, fueled by generous subsidies for electric vehicles (EVs) and clean energy, has super-charged investment in the United States. That inevitably is spilling over into Canada and Mexico.

Takeaways by Macro Roundup® AI

  1. North America's trade in goods and services has quadrupled in nominal value since NAFTA took effect in 1994, reaching more than $7trn, or roughly 30% of GDP.
  2. Rising U.S.-China tensions are pushing companies that had relied on China for manufacturing to shift to other production bases, while covid-19 production snafus illustrated the fragility of globally dispersed supply chains.
  3. The Biden administration's embrace of industrial policy, fueled by generous subsidies for electric vehicles and clean energy, has super-charged investment in the United States, spilling over into Canada and Mexico.

AI Summary. An index scoring 60,000 U.S. survey respondents from 0 to 100 on more than 50 policy questions finds that those who give the conservative or liberal answer more than 75% of the time backed their side's presidential candidate by margins above 98%. Voters below that consistency threshold shift between candidates on a sliding scale according to their policy views.

Patrick Ruffini The Intersection
Date Posted:

Citing data from Echelon Insights @PatrickRuffini argues political polarization is largely a white phenomenon particularly pronounced across college graduates and non-college republicans.

How closely do policy consistency levels predict presidential vote choice?

Core argument: Voters who gave the conservative or liberal answer on more than 75% of policy questions backed Trump or Biden in 2020 by margins exceeding 98%, a threshold above which they are not persuadable.

Here, we’re measuring policy views on a granular 0-100 scale based on how people answered more than 50 different policy questions on the 2020 CES. A score of 100 means that one gave the most conservative possible answer on all questions, and a score of zero would mean the same thing for the most liberal possible answer. The index itself was calibrated to reflect a rough 50-50 balance between right- and left-leaning voters, reflecting the reality of a closely divided politics. The original questions selected by the academic team behind the CES tended to yield more liberal-leaning responses. In spite of that, the CES is a very good survey for this kind of analysis, with 60,000 interviews that allow for robust subgroup analysis. Another way to boil this down is to bucket people into different ideological camps based on a 75-percent cutoff for ideological consistency. So, giving the conservative or liberal answer more than 75 percent of the time places you in each of those camps. Otherwise, you’re in a non-ideological middle ground. The 75 percent cutoff is an important one. Above we find Assad-like margins for Donald Trump or Joe Biden in 2020 of more than 98 percent. If you’re above this threshold, you’re not persuadable in the slightest. In the middle, your vote is basically up-for-grabs, progressing from one candidate to other in sliding scale fashion according to your policy views.

Takeaways by Macro Roundup® AI

  1. Voters who gave the conservative or liberal answer on more than 75% of policy questions backed Trump or Biden in 2020 by margins exceeding 98%, a threshold above which they are not persuadable.
  2. The analysis scores policy views on a 0–100 scale built from more than 50 policy questions in the 2020 CES, whose 60,000 interviews allow robust subgroup analysis.
  3. Voters below the 75% ideological-consistency threshold fall into a non-ideological middle ground whose votes shift between candidates on a sliding scale according to policy views.