Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a 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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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.

Monday, April 10, 2023

AI Summary. Chinese companies now hold several places in the global top 25 corporate research and development spenders — Huawei ranks sixth, behind Microsoft, alongside TikTok owner ByteDance, WeChat and gaming company Tencent, and e-commerce and cloud provider Alibaba — whereas Huawei was previously the only Chinese firm in that group.

Justin Fox Bloomberg
Date Posted:

Chinese firms now make up 4 of the top 25 leading firms in research and development spending, according to a @foxjust analysis.

Are Chinese firms rising among the world's top research spenders?

Core argument: Huawei, ByteDance, Tencent and Alibaba rank among the global top 25, compared with Huawei alone five years earlier.

When I last compiled one of these lists five years ago, mobile infrastructure and device maker Huawei Investment & Holding Co. was in sixth place behind Microsoft, just as it is here, but it was the only Chinese company in the global top 25. It has been joined by TikTok owner ByteDance Ltd., WeChat owner and gaming giant Tencent Holdings Ltd. and e-commerce, payments and cloud-computing purveyor Alibaba Group Holding Ltd.

Takeaways by Macro Roundup® AI

  1. Huawei, ByteDance, Tencent and Alibaba rank among the global top 25, compared with Huawei alone five years earlier.
  2. Huawei holds sixth place behind Microsoft, the same position it occupied five years earlier when it was the only Chinese company in the top 25.

AI Summary. US prime-age employment rates have fully recovered and now match or exceed pre-pandemic levels across nearly every age and demographic group, with the unemployment rate falling from nearly 15% at the pandemic's peak to about 3.5%. Even so, US employment rates trail peer countries including Japan, Germany, Canada, and Australia, which experienced smaller employment shocks and faster recoveries.

Joseph Politano Apricitas Economics
Date Posted:

Payrolls are now 3mm workers above the pre-pandemic level. Peer economies recovered from the pandemic even more rapidly; peak American prime-age employment still lags peer economies. @JosephPolitano

Has US employment recovered while still trailing peer countries?

Core argument: The US unemployment rate fell from nearly 15% in April 2020 to 3.5%, near historic lows.

Today, three short years after the first spike in unemployment caused by the COVID-19 pandemic, American prime-age employment rates have fully recovered and even exceeded 2020 levels. It marks one of the most rapid, comprehensive, and broad-based labor market recoveries in US history, with the unemployment rate dropping from nearly 15% in April 2020 to near-historic-lows of 3.5% today. Across nearly every relevant age and demographic group, as many or more people are working today than in 2019. America’s employment rates have fallen well behind those in peer countries over the last two decades, and during the pandemic that gap has only increased. Japan, Germany, Canada, Australia, and more saw smaller employment shocks from the initial effects of COVID and more rapid labor market expansions than the US over the last three years.

Takeaways by Macro Roundup® AI

  1. The US unemployment rate fell from nearly 15% in April 2020 to 3.5%, near historic lows.
  2. American prime-age employment rates have recovered and exceeded 2020 levels, with as many or more people working across nearly every relevant age and demographic group than in 2019.
  3. US employment rates have fallen well behind peer countries over the last two decades, and the gap widened during the pandemic as Japan, Germany, Canada, and Australia saw smaller employment shocks and faster labor market expansions.

AI Summary. Immigration into the US labor market has added 4 million workers, returning the working-age immigrant population to its pre-pandemic trend. High immigration contributes to solid job growth, a higher participation rate, and limits upside pressure on wages, helping the Federal Reserve cool the labor market and slow inflation.

Torsten Sløk Apollo
Date Posted:

The American working-age immigrant population is now back to its pre-pandemic trend. @Apolloglobal

How does high immigration help cool the labor market and inflation?

Core argument: Immigration added 4 million workers to the US labor market over the past 2½ years, returning the working-age immigrant population to its pre-pandemic trend.

Over the past 2½ years, immigration into the US labor market has increased by 4 million workers, and the working age immigrant population is now back at its pre-pandemic trend. High immigration contributes not only to solid job growth, including in leisure and hospitality, but also to increasing the participation rate and limiting the upside pressures on wages. The bottom line is that high immigration is helpful for the Fed as it tries to cool down the labor market and slow down inflation.

Takeaways by Macro Roundup® AI

  1. Immigration added 4 million workers to the US labor market over the past 2½ years, returning the working-age immigrant population to its pre-pandemic trend.
  2. High immigration contributes to solid job growth, including in leisure and hospitality, while raising the participation rate and limiting upside pressure on wages.
  3. High immigration is helpful for the Federal Reserve as it works to cool the labor market and slow inflation.

AI Summary. U.S. construction spending on manufacturing facilities reached $108bn in a single year, a record annual total and more than was spent building schools, healthcare centers or office buildings. Much of the growth is in electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives.

John Keilman Wall Street Journal
Date Posted:

Construction spending on American manufacturing facilities hit $108B in 2022, the highest level on record. @wsj

Is factory construction spending in the US hitting record highs?

Core argument: U.S. manufacturing-related construction spending reached $108 billion in 2022, the highest annual total on record according to Census Bureau data, exceeding spending on building schools, healthcare centers or office buildings.

Production at U.S. factories rose last year, but few things were produced at a more furious pace than factories themselves. Construction spending related to manufacturing reached $108 billion in 2022, Census Bureau data show, the highest annual total on record—more than was spent to build schools, healthcare centers or office buildings. Much of the growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives. Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home.

Takeaways by Macro Roundup® AI

  1. U.S. manufacturing-related construction spending reached $108 billion in 2022, the highest annual total on record according to Census Bureau data, exceeding spending on building schools, healthcare centers or office buildings.
  2. Much of the growth in U.S. factory construction is concentrated in electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives.
  3. Companies that once relied exclusively on lower-cost countries to manufacture eyeglasses, bicycles and bodybuilding supplements have found reasons to move production back to the U.S.

AI Summary. U.S. nonresidential construction spending reached $982bn, nearly 17% higher than a year earlier, while nonresidential construction employment rose 3.3%, or 149,100 workers. Contractors are ramping up hiring of entry-level laborers to compensate for shortages of other workers, and these less productive hires are contributing to bigger backlogs and longer job completion times.

Bob Tita Wall Street Journal
Date Posted:

As spending on nonresidential construction surges, contractors are increasingly constrained by their workforce. The number of construction-industry carpenters is under the 2019 pre-pandemic level, while the number of electricians is just above the 2019 level. @WSJ

As spending on nonresidential construction surges, contractors are increasingly constrained by their workforce. The number...

Are worker shortages slowing nonresidential construction despite rising spending and hiring?

Core argument: U.S. nonresidential construction spending totaled $982 billion in February, nearly 17% higher than a year earlier and steady with January, according to the U.S. Census Bureau.

Spending on nonresidential construction for February, the most recent month available, totaled $982 billion, nearly 17% higher than a year earlier and steady with January, according to the U.S. Census Bureau. The number of U.S. nonresidential construction workers in March increased by 3.3%, or 149,100 workers, from the same month last year, the Bureau of Labor Statistics said Friday. Contractors have been ramping up hiring of entry-level laborers in an attempt to compensate for shortages of other workers. These newer workers are contributing to bigger backlogs and jobs taking longer to finish because they are typically less productive than the older, higher-skilled workers they are replacing.

Takeaways by Macro Roundup® AI

  1. U.S. nonresidential construction spending totaled $982 billion in February, nearly 17% higher than a year earlier and steady with January, according to the U.S. Census Bureau.
  2. The number of U.S. nonresidential construction workers rose 3.3%, or 149,100 workers, in March from the same month a year earlier, the Bureau of Labor Statistics said.
  3. Contractors have ramped up hiring of entry-level laborers to compensate for shortages of other workers, and those newer workers are contributing to bigger backlogs and longer job completion times because they are typically less productive than the older, higher-skilled workers they replace.

AI Summary. The trust fund for Medicare hospital insurance for the elderly is projected to be exhausted by 2031 and the Social Security old-age benefits fund by 2033. These mandatory programs cost $2.2tn, or 8.6% of GDP, exceeding total discretionary federal spending including housing, education, and defense.

Economist Staff The Economist
Date Posted:

The Social Security and Medicare Board of Trustees estimate that the trust fund for Medicare will be exhausted by 2031. This is three years later than their previous estimate (due to savings from Covid deaths). The Social Security trust fund will be exhausted in 2033. @TheEconomist

Are the main US entitlement trust funds nearing exhaustion?

Core argument: Medicare's hospital insurance trust fund will run out of money by 2031, a reprieve from the previous estimate of 2028 attributed to the deadliness of covid-19, while Social Security's old-age benefits fund will be exhausted by 2033.

The trust fund that pays for hospital insurance for patients of Medicare, the health-insurance scheme for the elderly, will run out of money by 2031; that is actually a reprieve from the previous estimate of 2028, because of the deadliness of covid-19. The fund that pays old-age benefits for Social Security, the state pension scheme, will be exhausted by 2033. These mandatory programmes are the behemoths of federal spending, costing $2.2trn (8.6% of GDP) in total in 2022. This already eclipses the total of the discretionary spending approved in the federal budget—including on housing, education and even defence—that causes so much argument on Capitol Hill.

Takeaways by Macro Roundup® AI

  1. Medicare's hospital insurance trust fund will run out of money by 2031, a reprieve from the previous estimate of 2028 attributed to the deadliness of covid-19, while Social Security's old-age benefits fund will be exhausted by 2033.
  2. Medicare and Social Security, the behemoths of federal spending, cost $2.2trn in total in 2022, equal to 8.6% of GDP.
  3. Spending on Medicare and Social Security already eclipses the total discretionary spending approved in the federal budget, including housing, education and defence.

AI Summary. Comparing families that qualified for smaller and larger Child Tax Credit payments, the authors detect no significant differences in labor force participation or hours worked. Their confidence intervals rule out a 0.3 percentage point participation decline from a 10 percentile increase in the credit relative to income.

Brandon Enriquez, Damon Jones and Ernest Tedeschi National Bureau of Economic Research
Date Posted:

.@nomadj1s and @ernietedeschi present evidence showing that the expansion of the child tax credit in 2021 didn’t significantly reduce labor supply in the short term.

Does a larger child tax credit reduce parents' labor supply?

Core argument: The authors detect no significant differences in labor force participation or hours worked between families qualifying for smaller and larger expanded Child Tax Credit transfers, using difference-in-differences and triple difference comparisons before and after payout.

We compare labor market outcomes—labor force participation and hours worked—for families who qualified for smaller and larger Child Tax Credit (CTC) transfers, before and after the credit was paid out. Using a difference-in-differences and triple difference approach, we do not detect significant labor supply differences in response to variation in the size of the CTC. When framed as an increase in cash-on-hand, our confidence intervals rule out a labor force participation rate decline of 0.3 percentage points in response to a 10 percentile increase in CTC relative to income, or when cast as a change in the return to entering employment, we rule out an extensive labor supply elasticity of 0.005.

Takeaways by Macro Roundup® AI

  1. The authors detect no significant differences in labor force participation or hours worked between families qualifying for smaller and larger expanded Child Tax Credit transfers, using difference-in-differences and triple difference comparisons before and after payout.
  2. Framed as added cash-on-hand, the authors' confidence intervals rule out a labor force participation rate decline of 0.3 percentage points in response to a 10-percentile increase in Child Tax Credit relative to income.
  3. Cast as a change in the return to entering employment, the authors' estimates rule out an extensive labor supply elasticity of 0.005.