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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, April 5, 2023

AI Summary. One estimate finds expanding imports hurt about 312,000 US workers a year on average between 2001 and 2015, under 2% of all spells of involuntary unemployment in those years. The author argues the appropriate response is fully funded labor adjustment programs rather than protection that would introduce rigidities and reduce competitiveness.

Alan Wolff, Robert Lawrence and Gary Clyde Peterson Institute for International Economics
Date Posted:

Alan Wolff, Robert Lawrence and Gary Clyde @PIIE make the case that job losses from trade should be offset by transfer payments. “The best answer is almost never long-term protection,” they conclude.

Alan Wolff, Robert Lawrence and Gary Clyde @PIIE make the case that job losses from trade should be offset by transfer...

Are labor adjustment programs a better response to import competition than protection?

Core argument: One estimate finds expanding imports hurt about 312,000 US workers a year on average between 2001 and 2015, a period covering the "China shock," though that represents under 2 percent of all spells of involuntary unemployment in those years.

According to one estimate, between 2001 and 2015—a period that covers the “China shock”—expanding imports hurt about 312,000 workers a year on average. This number is large. It calls for a meaningful response, even if it represents under 2 percent of the total number of periods of involuntary unemployment experienced by workers during those years. Almost 6 million manufacturing jobs were lost in the United States between 2000 and 2010. This loss was overwhelmingly caused by two recessions as well as relatively faster productivity growth, but trade did play a role.  The correct policy answer to job losses resulting from trade is having in place adjustment programs that are equal to the task of meeting dislocations. Two great strengths of the US economy are its flexible prices and flexible labor market. It would be a mistake to introduce rigidities through excessive protection that would make US industries less competitive when what is needed are more effective, fully funded, labor programs.

Takeaways by Macro Roundup® AI

  1. One estimate finds expanding imports hurt about 312,000 US workers a year on average between 2001 and 2015, a period covering the "China shock," though that represents under 2 percent of all spells of involuntary unemployment in those years.
  2. Almost 6 million US manufacturing jobs were lost between 2000 and 2010, a loss overwhelmingly caused by two recessions and relatively faster productivity growth, with trade also playing a role.
  3. The correct policy answer to trade-related job losses is fully funded, effective labor and adjustment programs equal to the dislocations, rather than excessive protection that would introduce rigidities and make US industries less competitive.

AI Summary. A screen of more than 1,000 global large-cap companies shows net profit margins returning to their long-run average of 13.5%, after being suppressed earlier and inflated during the later stages of the pandemic. On a company-by-company view, 52% still earn above their 10-year average margin, by an average of 2.15 percentage points.

Bryce Elder FT Alphaville
Date Posted:

Globally, large cap profit net profit margins are returning to their long run average of 13.5%. However, 52% of the firms are still earning above their 10-year mean margin with an average excess return of 2.15%. @FTAlphaville

Have corporate profit margins returned to their long-run average?

Core argument: A screen of more than 1,000 global large-caps shows net margins returning to a long-run average of 13.5 per cent, after being suppressed during 2017 and inflated through the late-stage pandemic.

Here’s a very simple screen of margins across more than 1,000 global large-caps. We’ve taken the quick and dirty approach and used only reported net profit, where the previous periods are the year-ago figure rather than annualised. Anyone contesting the value of this methodology is invited to share their own. The screen shows net margins recently returning to a long-run average of 13.5 per cent, having been suppressed during the 2017 tech nonsense then inflated through the late-stage pandemic. But on a granular view it also shows 52 per cent of global companies are still earning above their 10-year average margin, with the average excess of 2.15 percentage points.

Takeaways by Macro Roundup® AI

  1. A screen of more than 1,000 global large-caps shows net margins returning to a long-run average of 13.5 per cent, after being suppressed during 2017 and inflated through the late-stage pandemic.
  2. On a granular view, 52 per cent of the global companies screened still earn above their 10-year average net margin, with an average excess of 2.15 percentage points.
  3. The margin screen uses only reported net profit, with previous periods taken as the year-ago figure rather than annualised, an approach its authors call quick and dirty.

AI Summary. Apple is shifting some production out of China—iPhones and accessories to India, AirPods and Mac assembly to Vietnam, some Mac output to Malaysia, and simpler products to Ireland—while planning to retain extensive Chinese operations. Its leadership is concerned that moving too much capacity too quickly could prompt Chinese retaliation or nationalist consumer backlash.

Mark Gurman Bloomberg
Date Posted:

Apple’s decoupling strategy is increasingly focused on India. Apple plans to shift 25% of iPhone production to India by 2025.

Why are tech manufacturers shifting production out of China slowly?

Core argument: Apple is diversifying manufacturing to India for iPhones and accessories, Vietnam for AirPods and Mac assembly, Malaysia for some Mac production, and Ireland, where suppliers build the relatively easy-to-produce iMacs, for a range of simpler products.

The company is moving carefully. Apple’s leadership is concerned that China might retaliate if it moves too much capacity to other countries, or transitions too rapidly. Customers in China could turn against US-designed products amid heightened nationalism.  Apple’s efforts center on India as a location for production of iPhones and accessories, Vietnam for AirPods and Mac assembly, Malaysia for some Mac production, and Ireland—where suppliers currently build the relatively easy-to-produce iMacs—for a range of simpler products. Managers in Apple’s operations department have instructed employees to focus on sourcing additional components and locating production lines outside China for more new products coming in 2024, though the company also plans to retain extensive operations in the country.

Takeaways by Macro Roundup® AI

  1. Apple is diversifying manufacturing to India for iPhones and accessories, Vietnam for AirPods and Mac assembly, Malaysia for some Mac production, and Ireland, where suppliers build the relatively easy-to-produce iMacs, for a range of simpler products.
  2. Apple's leadership is concerned that China might retaliate if the company shifts too much capacity abroad or moves too rapidly, and that Chinese customers could turn against US-designed products amid heightened nationalism.
  3. Managers in Apple's operations department have instructed employees to source additional components and locate production lines outside China for more new products coming in 2024, while the company plans to retain extensive operations in China.

AI Summary. New research finds the average US workweek has fallen by more than half an hour over three years, letting some Americans spend more time on leisure and other activities. The authors estimate the reduction amounts to a labor shortfall equivalent to 2.4m employees.

Rich Miller Bloomberg
Date Posted:

Americans are working about 30 minutes less per week relative to before the pandemic. This is equivalent to a loss of 2.4 million employees. @markets

Are Americans working shorter weeks than before the pandemic?

Core argument: The average US workweek has fallen by more than half an hour over the past three years, according to research by former Bureau of Labor Statistics Commissioner Katharine Abraham and Lea Rendell.

The average US workweek has dropped by more than a half hour over the last three years, according to new research by former Bureau of Labor Statistics Commissioner Katharine Abraham and Lea Rendell. That’s enabled some Americans to emulate their European counterparts and spend more time on leisure and other activities. But it’s also meant a shortfall of labor – equivalent to 2.4 million employees, according to the paper.

Takeaways by Macro Roundup® AI

  1. The average US workweek has fallen by more than half an hour over the past three years, according to research by former Bureau of Labor Statistics Commissioner Katharine Abraham and Lea Rendell.
  2. Abraham and Rendell estimate the shorter workweek amounts to a labor shortfall equivalent to 2.4 million employees.
  3. The decline in hours worked has enabled some Americans to emulate their European counterparts by spending more time on leisure and other activities.

AI Summary. An analysis of 68 vertebrate species published in Nature found germline mutation rates varied about 40-fold per generation but roughly 120-fold per year, a wider range than earlier studies suggested. The authors found species with larger effective population sizes had lower mutation rates, evidence for the "drift-barrier hypothesis" that natural selection weakens against mutation in smaller populations.

Yasemin Saplakoglu Quanta Magazine
Date Posted:

.@QuantaMagazine reports on a @Nature study that tracked the tempo of evolution across 68 species and found that the mutation rate per year was higher than expected.

.@QuantaMagazine reports on a @Nature study that tracked the tempo of evolution across 68 species and found that the...

Does population size shape how fast species mutate?

Core argument: Germline mutation rates across 68 vertebrate species varied by about 40-fold per generation but roughly 120-fold per year, a wider range than previous studies had suggested, according to the analysis published in Nature.

A massive analysis of 68 diverse vertebrate species, from lizards and penguins to humans and whales, has made the first large-scale comparison of the rates at which species mutate — a first step toward understanding how quickly they can evolve. The findings, published in the journal Nature, unearthed surprising insights into how the tempo for mutations can change and what sets that pace. The most surprising finding that emerged from the data was the wide range of germline mutation rates. When the researchers measured how often the mutations occurred per generation, the species varied by only about fortyfold. But when they looked at the mutation rates per year rather than per generation, the range increased to about 120-fold, which was larger than previous studies had suggested. The study authors found that the higher the average effective population size for a species, the lower its mutation rate. That provided good evidence for the “drift-barrier hypothesis” devised a little over a decade ago. “Selection is relentlessly trying to reduce the mutation rate because most mutations are deleterious,” Michael Lynch, an evolutionary biologist at Arizona State University explained. But in species with smaller effective population sizes, natural selection gets weaker because genetic drift—the effect of pure chance on the spread of a mutation—gets stronger. That allows the mutation rate to rise.

Takeaways by Macro Roundup® AI

  1. Germline mutation rates across 68 vertebrate species varied by about 40-fold per generation but roughly 120-fold per year, a wider range than previous studies had suggested, according to the analysis published in Nature.
  2. The study authors found that species with larger average effective population sizes had lower mutation rates, which they report as evidence for the drift-barrier hypothesis.
  3. Michael Lynch, an evolutionary biologist at Arizona State University, explains that selection continually pushes mutation rates down because most mutations are deleterious, while in species with smaller effective population sizes stronger genetic drift weakens selection and allows mutation rates to rise.

Thursday, April 6, 2023

AI Summary. More than $2.2tn sits in the Federal Reserve's overnight reverse repurchase facility, which pays money-market funds and other firms a 4.8% annualized rate to park cash with the central bank overnight. Some analysts argue the program effectively drains funds from the banking system, where the money could otherwise be lent or invested.

Eric Wallerstein and Nick Timiraos Wall Street Journal
Date Posted:

Some analysts contend that the Fed’s reverse repo program, which pays a 4.8% annualized rate, presents an overly attractive alternative for money market funds that wish to park funds; the result has been a consumer shift from banks to money market funds.

Does the Fed's reverse repo facility drain deposits from banks?

Core argument: More than $2.2 trillion sat in the Federal Reserve's overnight reverse repurchase facility as of Wednesday, paying a 4.8% annualized rate to money-market funds and other firms on large cash balances.

Money-market fund assets are increasing at a record clip. Much of that cash is making its way to the Fed’s overnight reverse repurchase facility, which borrows from money funds and other firms in exchange for securities such as Treasurys and then returns the money the next day. The program, known on Wall Street as reverse repo, allows financial firms and others to earn interest on large cash balances. But some analysts contend it also is effectively draining funds from the banking system, where it otherwise could be invested or lent out. As of Wednesday, more than $2.2 trillion sat in the Fed’s reverse repo facility, paying a 4.8% annualized rate. Bank deposits have fallen $363 billion to $17.3 trillion since the beginning of March, Fed data show. Assets in money-market funds have risen $304 billion to a record $5.2 trillion, according to Investment Company Institute data.

Takeaways by Macro Roundup® AI

  1. More than $2.2 trillion sat in the Federal Reserve's overnight reverse repurchase facility as of Wednesday, paying a 4.8% annualized rate to money-market funds and other firms on large cash balances.
  2. Bank deposits have fallen $363 billion to $17.3 trillion since the beginning of March, according to Fed data, while money-market fund assets have risen $304 billion to a record $5.2 trillion, per Investment Company Institute data.
  3. Some analysts contend the Fed's reverse repo program effectively drains funds from the banking system, where the cash otherwise could be invested or lent out.

AI Summary. The S&P 500's rally has been driven by 20 stocks, with the combined market capitalization of the other 480 essentially flat. The author argues this indicates the market is being driven by interest rate moves rather than broad-based expectations of higher growth.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that the largest 20 stocks in the S&P 500 have gained $2T in value since the start of the year with the remaining 480 stocks gaining only $170B.

Is the market rally driven by rates rather than growth?

Core argument: The S&P 500's rally since the start of the year has been driven by just 20 stocks, with the combined market cap of the other 480 stocks essentially flat.

The rally in the S&P500 since the beginning of the year has been driven by 20 stocks, the market cap of the remaining 480 stocks has basically not gone up, see chart below. The implication for investors is that this market is not driven by broad-based higher growth expectations but instead by what has happened with rates, in particular after SVB went under.

Takeaways by Macro Roundup® AI

  1. The S&P 500's rally since the start of the year has been driven by just 20 stocks, with the combined market cap of the other 480 stocks essentially flat.
  2. The narrowness of the S&P 500 rally implies the market is not driven by broad-based higher growth expectations but by developments in rates, particularly after SVB's failure.

AI Summary. The equity risk premium — the gap between the S&P 500's earnings yield and the 10-year Treasury yield — stands near 1.59 percentage points, a level last seen in October 2007 and well below the roughly 3.5-point average since 2008. BlackRock research puts the average premium since 1957 at about 1.62 points.

Eric Wallerstein Wall Street Journal
Date Posted:

The S&P 500’s equity risk premium is currently at 1.59pp, its lowest level since October 2007. Since 2008 the mean ERP has been 3.5pp above its post 1957 mean of 1.62pp.

Are stocks unattractive relative to bonds, or merely back to historical norms?

Core argument: The equity risk premium — the S&P 500's earnings yield minus the 10-year Treasury yield — stands at about 1.59 percentage points, a low not seen since October 2007.

The equity risk premium—the gap between the S&P 500’s earnings yield and that of 10-year Treasurys—sits around 1.59 percentage points, a low not seen since October 2007. That is well below the average gap of around 3.5 points since 2008. The current equity risk premium is closer to the longer-term norm. The average premium since 1957 is around 1.62 points, BlackRock research shows.

Takeaways by Macro Roundup® AI

  1. The equity risk premium — the S&P 500's earnings yield minus the 10-year Treasury yield — stands at about 1.59 percentage points, a low not seen since October 2007.
  2. The 1.59-point gap sits well below the average premium of roughly 3.5 points since 2008.
  3. BlackRock research shows the average equity risk premium since 1957 is around 1.62 points, placing the current reading close to the longer-term norm.

AI Summary. Almost one in four US millennials say their lives are materially worse than their parents', and when wealth is deflated by house prices rather than consumer prices, millennials' assets go about half as far as baby boomers' once did. Measured against consumer prices alone, per capita wealth accumulation across the two generations tracks closely.

John Burn-Murdoch Financial Times
Date Posted:

.@jburnmurdoch checks the pulse of millennials and finds that their inflation-adjusted per capita wealth is tracking boomers, but “boomers got there first and bought the best houses in a cheaper market.”

Does deflating wealth by house prices change generational comparisons?

Core argument: Almost one in four US millennials, born 1981–1997, say their lives are materially worse than their parents', a record high for any American generation asked that question.

Today, almost one in four US millennials — the cohort born between 1981 and 1997 — say their lives are materially worse than their parents’ were, a record high for any generation of Americans asked that question. If we compare inflation-adjusted per capita wealth within each generation over time, millennials are in fact almost perfectly tracing boomers’ footsteps. So, are millennials wrong to complain? I fear not. The per capita measure is a beautifully simple rejoinder, but it misses one crucial detail. Wealth accumulation — just like income — matters primarily to millennials today as a means to home ownership, especially as we move into an era of high interest rates. If we deflate wealth by the index of house prices instead of the CPI, millennials’ assets only go about half as far as boomers’ once did. We’re left with a smaller millennial deficit than the original chart implied, but a deficit nonetheless. Millennials have no less money in their thirties than boomers did at the same age — but boomers got there first and bought the best houses in a cheaper market.

Takeaways by Macro Roundup® AI

  1. Almost one in four US millennials, born 1981–1997, say their lives are materially worse than their parents', a record high for any American generation asked that question.
  2. Measured as inflation-adjusted per capita wealth within each generation over time, millennials are almost perfectly tracing boomers' path, with no less money in their thirties than boomers had at the same age.
  3. Deflating wealth by an index of house prices rather than the CPI, millennials' assets go only about half as far as boomers' once did, leaving a smaller deficit than the per capita measure implied but a deficit nonetheless.

AI Summary. China invests roughly 42–44% of its GDP, while more mature, capital-intensive economies typically invest about 15–20%. Modeling a ten-year path that lowers China's investment share to 30% of GDP, the author argues the resulting growth rate depends mainly on how fast consumption grows.

Michael Pettis China Financial Markets
Date Posted:

.@michaelxpettis argues that without a significant rebalancing towards consumption China’s growth rate is unlikely to exceed 2-3% annually over the next decade.

What Determines China's Growth Rate as Its Investment Share Falls?

Core argument: China invests roughly 42–44% of GDP and has sustained similar or larger shares for decades, while more mature, capital-intensive economies typically invest about 15–20% of GDP.

China currently invests around 42–44 percent of its GDP, and it has invested similar or larger shares for decades. For more mature, capital-intensive economies, investment can comprise roughly 15–20 percent of GDP. China should probably bring investment levels closer to the 20 percent of GDP typical of highly-capital-intensive economies. For the purposes of this exercise, however, I will assume a more favorable path for China in which the appropriate goal is to reduce the investment share of GDP to 30 percent. As investment declines to 30 percent of GDP in ten years, China’s GDP growth rate depends mainly on the pace of consumption growth. We can model a simple but robust description of the Chinese economy by setting investment at 42 percent of GDP (a little better than the current 43–44 percent); net exports at 4 percent of GDP; and consumption at 54 percent of GDP. In this case, growth in China’s GDP over the ten-year period is just the weighted average growth of investment and consumption (assuming net exports are flat) and so will depend primarily on the assumptions we make for investment growth and consumption growth. I summarize below the five broad scenarios under which China can rebalance.

Takeaways by Macro Roundup® AI

  1. China invests roughly 42–44% of GDP and has sustained similar or larger shares for decades, while more mature, capital-intensive economies typically invest about 15–20% of GDP.
  2. The author argues China should bring investment closer to the 20% of GDP typical of highly capital-intensive economies, but assumes a more favorable path of cutting the investment share to 30% over ten years.
  3. Modeling China with investment at 42% of GDP, net exports at 4%, and consumption at 54%, GDP growth over the ten-year period equals the weighted average growth of investment and consumption, assuming flat net exports.

AI Summary. China is weighing rules that would ban or restrict exports of technology used to process and refine rare-earth elements and to make high-performance rare-earth magnet alloys. China accounts for roughly 70% of global rare-earth production, down from about 90% a decade earlier, and retains a tight hold on refining.

Shun Suke Nikkei Asia
Date Posted:

China is considering prohibiting exports of rare-earth magnet technology in an effort to retain control over the rare earth’s supply chain. @NikkeiAsia

China is considering prohibiting exports of rare-earth magnet technology in an effort to retain control over the rare...

Will China restrict exports of rare-earth processing and magnet technology?

Core argument: China is weighing revisions that would ban or restrict exports of technology used to process and refine rare-earth elements, as well as alloy technology for making high-performance rare-earth magnets.

China is considering prohibiting exports of certain rare-earth magnet technology in a move that would counter the U.S.'s advantage in the high-tech arena. The revisions would either ban or restrict exports of technology to process and refine rare-earth elements. There are also proposed provisions that would prohibit or limit exports of alloy tech for making high-performance magnets derived from rare earths. Washington has since moved to forge a rare-earth supply chain on U.S. soil. China's share of all rare earths produced globally dropped to roughly 70% last year from about 90% a decade earlier, according to the U.S. Geological Survey. At the same time, China still holds a tight grip on processing rare earths. Most rare earths extracted in the U.S. go to China for refining before being shipped back to the U.S.

Takeaways by Macro Roundup® AI

  1. China is weighing revisions that would ban or restrict exports of technology used to process and refine rare-earth elements, as well as alloy technology for making high-performance rare-earth magnets.
  2. China's share of global rare-earth production fell to roughly 70% last year from about 90% a decade earlier, according to the U.S. Geological Survey, while China retains a tight grip on processing.
  3. Most rare earths extracted in the U.S. are sent to China for refining before returning to the U.S., and Washington has moved to forge a rare-earth supply chain on U.S. soil.