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


Wednesday, April 12, 2023

AI Summary. Underlying inflation is running at about a 4.5% pace on the personal consumption measure the Federal Reserve targets and about 4% on the consumer price index, with wage growth signals ranging from 2–5%. Lagged shelter costs and possible labor cooling could slow inflation, but it would be a mistake to extrapolate a further slowdown from recent deceleration.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman argues that inflation is running at ~4% pace, and that the FOMC should lean towards a 25bp increase in the fed funds rate.

Is underlying inflation still running near 4% despite recent deceleration?

Core argument: Furman puts underlying PCE inflation at about 4.5% and CPI at roughly a 4% equivalent pace, preferring PCE because the Fed focuses on it and it is less sensitive to the treatment of housing.

In sum, the PCE has been running at about a 4.5% underlying pace, is preferable because it is what the Fed focuses on and is less sensitive to the treatment of housing. The CPI has been running at about a 4% (equivalent) underlying pace.  Wages telling us anything from 2-5%. Some reasons to expect inflation to slow, like lagged shelter & possibly labor cooling. But would be a mistake to extrapolate from the fact that inflation is slower now than 6 months ago to predict it will be even slower 6 months from now. Best to think of a ~4% pace. As for what the Fed should do in May, I lean towards a 25bp increase but I'm not 100% sure of it because I would want to understand better what is happening to credit conditions and how much work that is doing to cool the economy.

Takeaways by Macro Roundup® AI

  1. Furman puts underlying PCE inflation at about 4.5% and CPI at roughly a 4% equivalent pace, preferring PCE because the Fed focuses on it and it is less sensitive to the treatment of housing.
  2. Furman says wages indicate anything from 2-5%, and argues it would be a mistake to extrapolate from inflation being slower than six months ago to predict further slowing, settling on a roughly 4% pace.
  3. Furman leans toward a 25bp Fed increase in May but is not fully certain, wanting to better understand credit conditions and how much work they are doing to cool the economy.

AI Summary. Unrealized losses on bank balance sheets are consistent with a rising interest rate cycle and become a problem only when large deposit outflows force those losses to be realized. Lending rules allowing banks to borrow against securities at book value help, but do not address underwater loans or deposits leaving for higher money market yields.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest @jpmorgan argues that the banking system is now stabilizing, with the pace of drawdowns slowing from mid-March.

Do unrealized bank losses become a problem only when deposits flee?

Core argument: Unrealized losses on bank balance sheets are consistent with a rising interest rate cycle and become a problem only when large deposit outflows force those losses to be realized.

The presence of unrealized losses on bank balance sheets is not abnormal, and is entirely consistent with a rising interest rate cycle. The problem this time: some banks were flooded with so many stimulus-related deposits at a time of low rates that their balance sheets are stuffed with low-yielding assets. And to reiterate, this is only a problem when large deposit outflows cause unrealized losses to be realized. The Fed’s new rules for the Discount Window allow banks to borrow against securities at book value rather than market value, so that should help. But it doesn’t address banks with underwater, high-quality loans or the flood of deposits departing for higher money market fund yields. Many system indicators are now stabilizing, but one news story, one rating agency action or an announcement from a single bank could reignite market/depositor concerns.

Takeaways by Macro Roundup® AI

  1. Unrealized losses on bank balance sheets are consistent with a rising interest rate cycle and become a problem only when large deposit outflows force those losses to be realized.
  2. Banks flooded with stimulus-related deposits during a period of low rates hold balance sheets stuffed with low-yielding assets, while deposits depart for higher money market fund yields.
  3. The Federal Reserve's new Discount Window rules let banks borrow against securities at book value rather than market value, but do not address banks holding underwater, high-quality loans.

AI Summary. Despite ultra-low interest rates intended to lift private investment and reduce private saving, Japan's private savings surplus—especially its corporate surplus—has remained large. Government deficits averaging 5% of GDP and net foreign asset purchases via current account surpluses averaging 3% of GDP absorbed those excess savings.

Martin Wolf Financial Times
Date Posted:

.@martinwolf_ argues that a savings glut in Japan significantly constrains its policy options and makes loose monetary policy and high deficits its best overall option. Japan’s private sector gross savings averaged 29% of GDP from 2010-19 vs 22% in the US.

Do ultra-low interest rates shrink a large private savings surplus?

Core argument: Japan's government deficits averaged 5 per cent of GDP from 2010 to 2019, absorbing and offsetting surplus private savings through an excess of government investment over government savings.

Ultra-low interest rates are, for example, intended to raise private investment and reduce private savings. But in practice, the private savings surplus, especially the corporate surplus, has remained huge. Loose monetary policy has facilitated crucial absorption (and offsetting) of surplus private savings via the excess of government investment over savings. These deficits averaged 5 per cent of GDP from 2010 to 2019. Finally, an average of 3 per cent of GDP went into net acquisition of foreign assets via Japan’s current account surpluses. So long as Japan continues to run huge excess private sector savings, policy has to find ways of either reducing or offsetting them. Japan’s economy is still trapped. It also has no easy way out.

Takeaways by Macro Roundup® AI

  1. Japan's government deficits averaged 5 per cent of GDP from 2010 to 2019, absorbing and offsetting surplus private savings through an excess of government investment over government savings.
  2. An average of 3 per cent of Japan's GDP went into net acquisition of foreign assets via the country's current account surpluses.
  3. Ultra-low interest rates were intended to raise private investment and reduce private savings, but Japan's private savings surplus, especially the corporate surplus, has remained huge, leaving the economy trapped with no easy way out.

AI Summary. China has one of the lowest retirement ages among major economies, letting women retire at 50 and men at 60 under a policy unchanged since the 1950s. Its labor ministry estimates more than 40m Chinese will retire over a five-year period while the working-age population falls by 35m.

Liyan Qi Wall Street Journal
Date Posted:

China is aging rapidly and local government pension systems are under extreme stress; retirement ages will likely hike quickly as pension funds are depleted. @WSJecon

Can China sustain one of the world's lowest retirement ages?

Core argument: China's Ministry of Human Resources and Social Security estimates more than 40 million Chinese—more than Canada's population—will retire over the five-year period ending in 2025, while the working-age population, those aged 16 to 59, is expected to drop by 35 million in the same period.

China has one of the lowest retirement ages among major economies. Under a policy unchanged since the 1950s, it allows women to retire as early as at age 50 and men at 60. Now, local governments are running out of money just as a wave of retirees hits. The Ministry of Human Resources and Social Security estimates that more than 40 million Chinese—more than the population of Canada—will retire over the five-year period ending in 2025. The working-age population—usually defined in China as those between 16 and 59—is expected to drop by 35 million in the same period, illustrating the lack of young people to make up for the shortfall in older workers. In February, a reform that threatens to cut into retirees’ medical benefits drew protests in the central Chinese city of Wuhan.

Takeaways by Macro Roundup® AI

  1. China's Ministry of Human Resources and Social Security estimates more than 40 million Chinese—more than Canada's population—will retire over the five-year period ending in 2025, while the working-age population, those aged 16 to 59, is expected to drop by 35 million in the same period.
  2. China's retirement policy, unchanged since the 1950s, allows women to retire as early as 50 and men at 60, among the lowest retirement ages of major economies.
  3. Chinese local governments are running out of money as a wave of retirees hits, and a reform threatening to cut retirees' medical benefits drew protests in Wuhan in February.

AI Summary. Melius Research has tabulated roughly $380bn of North American manufacturing "mega-projects" — investments above $1bn each — with nearly 60% of those planned facilities already under construction. In China, credit is flowing mainly to large state-owned firms, crowding out small and medium-sized private manufacturers whose margins are squeezed as the country's labor cost advantage erodes.

Brooke Sutherland and Anjani Trivedi Bloomberg
Date Posted:

As the cost of capital rises and supply chains restructure, small and medium-sized manufacturers in both China and the US are “at risk of becoming collateral damage.”

Does the manufacturing boom leave smaller companies behind?

Core argument: Melius Research has tabulated roughly $380 billion of North American manufacturing "mega-projects," each an investment greater than $1 billion, with almost 60% of those planned facilities already breaking ground.

The factory renaissance in North America is real: Melius Research has tabulated some $380 billion of “mega-projects” — defined as an investment greater than $1 billion — with almost 60% of those planned facilities already breaking ground. In China, while credit is flowing hard and fast, it’s mostly going toward large state-owned firms. That’s crowding out small and medium-sized manufacturers in the private sector, which account for a significant chunk of China’s industrial might. While the performance of these companies has improved in recent months, they remain on weaker financial footing and their profit margins are getting squeezed as China’s labor cost advantage erodes and larger companies seek to protect their own bottom lines by turning the screws on suppliers. It’s hard to see how global supply chains will bifurcate without pain, but the brunt of the financial strain may be felt by smaller companies just trying to keep up.

Takeaways by Macro Roundup® AI

  1. Melius Research has tabulated roughly $380 billion of North American manufacturing "mega-projects," each an investment greater than $1 billion, with almost 60% of those planned facilities already breaking ground.
  2. Credit in China is flowing mostly to large state-owned firms, crowding out small and medium-sized private manufacturers that account for a significant chunk of the country's industrial might.
  3. Profit margins at China's smaller manufacturers are being squeezed as the country's labor cost advantage erodes and larger companies press suppliers to protect their own bottom lines.

AI Summary. Japan's Defense Ministry signed four missile-development and procurement contracts with Mitsubishi Heavy Industries, including development of a submarine-launched cruise missile and mass production of a hypersonic glide vehicle for island defense. The ministry allocated more than ¥1.4tn ($10.5bn) to missile capabilities and is also set to buy US-made Tomahawk and Joint Air-to-Surface Standoff missiles.

Isabel Reynolds Bloomberg
Date Posted:

Japan is planning to increase its defense budget by 60% in the next five years. It authorized the development of four new missile, including a new submarine-launched cruise missile and a hypersonic glide vehicle. @markets

Japan is planning to increase its defense budget by 60% in the next five years. It authorized the development of four new...

Is Japan expanding its missile capabilities through domestic and foreign procurement?

Core argument: Japan's Defense Ministry allocated more than ¥1.4 trillion ($10.5 billion) in this year's budget to develop missile capabilities and has signed four missile-development and procurement contracts with Mitsubishi Heavy Industries, the country's biggest defense firm.

The Japanese Defense Ministry has signed four missile-development and procurement contracts with the country’s biggest defense firm, Mitsubishi Heavy Industries. The contracts include one for development of a submarine-launched cruise missile and another for mass production of a hypersonic glide vehicle for island defense, which is expected to be delivered in 2026-27.  In this year’s budget, the Defense Ministry set aside more than ¥1.4 trillion ($10.5 billion) to develop its missile capabilities. Japan is also set to buy Raytheon Technology Corp.’s Tomahawk missiles and Lockheed Martin Corp.’s Joint Air-to-Surface Standoff Missile as part of its build-up.

Takeaways by Macro Roundup® AI

  1. Japan's Defense Ministry allocated more than ¥1.4 trillion ($10.5 billion) in this year's budget to develop missile capabilities and has signed four missile-development and procurement contracts with Mitsubishi Heavy Industries, the country's biggest defense firm.
  2. The Mitsubishi Heavy contracts cover development of a submarine-launched cruise missile and mass production of a hypersonic glide vehicle for island defense, with delivery of the glide vehicle expected in 2026-27.
  3. Japan is also set to buy Raytheon Technology Corp.'s Tomahawk missiles and Lockheed Martin Corp.'s Joint Air-to-Surface Standoff Missile as part of its military build-up.

Thursday, April 13, 2023

AI Summary. The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.

Economist Staff The Economist
Date Posted:

Growth in the US has outpaced growth in other advanced peer economies. In 1990, the US accounted for 40% of the nominal GDP of the G7, today it accounts for 58%. @TheEconomist

Has the US maintained its share of global output since 1990?

Core argument: America's $25.5trn of GDP last year was 25% of the world total, nearly the same share as in 1990, while China's share now stands at 18%.

America’s $25.5trn in GDP last year represented 25% of the world’s total—almost the same share as it had in 1990. On that measure China’s share is now 18%. In 1990 America accounted for 40% of the nominal GDP of the G7, a group of the world’s seven biggest advanced economies, including Japan and Germany. Today it accounts for 58%. In PPP terms the increase was smaller, but still significant: from 43% of the G7‘s GDP in 1990 to 51% now. America’s outperformance has translated into wealth for its people. Income per person in America was 24% higher than in western Europe in 1990 in PPP terms; today it is about 30% higher. It was 17% higher than in Japan in 1990; today it is 54% higher. America’s labour-force participation rate has been falling this century, largely because of men dropping out of the workforce. But this American oddity is not large enough to make up for the country’s advantage in raw numbers. Even with lower participation, the past three decades have seen America’s labour force grow by 30%. In Europe the number is 13%, in Japan, just 7%. America’s working-age population—those between 25 and 64—rose from 127m in 1990 to 175m in 2022, an increase of 38%. Contrast that with western Europe, where the working-age population rose just 9% during that period, from 94m to 102m.

Takeaways by Macro Roundup® AI

  1. America's $25.5trn of GDP last year was 25% of the world total, nearly the same share as in 1990, while China's share now stands at 18%.
  2. America's share of G7 nominal GDP rose from 40% in 1990 to 58% today, and from 43% to 51% in purchasing-power-parity terms.
  3. America's working-age population aged 25 to 64 rose 38%, from 127m in 1990 to 175m in 2022, against a 9% rise in western Europe, from 94m to 102m.

AI Summary. Credit conditions have tightened significantly for small businesses, which borrow from small banks and employ nearly 50% of the US workforce at firms with fewer than 500 employees. The author argues it is increasingly difficult to claim banking-sector stress is not weighing on the economy.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal writes that “it is getting more difficult to argue that the banking crisis is not having a negative impact on the economy,” given that credit conditions for small businesses are at their worst levels since 2012.

Is tighter credit for small businesses weighing on the economy?

Core argument: Credit conditions have tightened significantly for small businesses following the failure of Silicon Valley Bank, and small businesses borrow from small banks.

Credit conditions have tightened significantly for small businesses after SVB failed, and firms with less than 500 employees account for almost 50% of total employment in the US economy. Small businesses borrow from small banks, and it is getting more difficult to argue that the banking crisis is not having a negative impact on the economy.

Takeaways by Macro Roundup® AI

  1. Credit conditions have tightened significantly for small businesses following the failure of Silicon Valley Bank, and small businesses borrow from small banks.
  2. Firms with fewer than 500 employees account for almost 50% of total employment in the US economy.
  3. Tighter small-business credit makes it increasingly difficult to argue that the banking crisis is not having a negative impact on the economy.

AI Summary. In 29% of U.S. opposite-sex marriages both spouses earn about the same, 55% have a husband as primary or sole earner, and 16% have a primary-earning wife. The share of marriages in which the husband is the sole provider fell from 49% to 23% over the past 50 years.

Richard Fry, Carolina Aragao, Kiley Hurst and Kim Parker Pew Research Center
Date Posted:

According to Pew, the husband is the primary or sole breadwinner in 55%, of marriages down from 85% in 1972. In 16% of marriages, the wife is the primary breadwinner. @pewresearch

Are more married couples now earning about the same?

Core argument: In 29% of U.S. opposite-sex marriages both spouses earn about the same amount, and the share of wives earning as much as or significantly more than their husband has roughly tripled over the past 50 years.

While men remain the main breadwinner in a majority of opposite-sex marriages, the share of women who earn as much as or significantly more than their husband has roughly tripled over the past 50 years. In 29% of marriages today, both spouses earn about the same amount of money. Just over half (55%) of marriages today have a husband who is the primary or sole breadwinner and 16% have a breadwinner wife. Far fewer husbands are the sole breadwinner in their marriage these days. The share of marriages where the husband is the primary or sole breadwinner has fallen steadily in recent decades, driven mainly by the declining share of marriages where the husband is the sole provider – this was the arrangement in 49% of marriages in 1972, while today that share is 23%.

Takeaways by Macro Roundup® AI

  1. In 29% of U.S. opposite-sex marriages both spouses earn about the same amount, and the share of wives earning as much as or significantly more than their husband has roughly tripled over the past 50 years.
  2. Husbands remain the primary or sole breadwinner in 55% of U.S. opposite-sex marriages, while 16% have a breadwinner wife.
  3. Marriages in which the husband is the sole provider fell from 49% in 1972 to 23% today, the main driver of the decline in husband-as-primary-or-sole-breadwinner arrangements.

AI Summary. The federal government has proposed setting aside legal precedent and evenly cutting Colorado River water allotments, reducing water delivered to California, Arizona and Nevada by as much as one-quarter after negotiations among the states failed. The river's flows have fallen by one-third compared with historical averages.

Christopher Flavelle New York Times
Date Posted:

The Biden administration is likely to cut the water allocations of California, Arizona and Nevada by 25% each. The Colorado’s flows are down 1/3 relative to its historical average.

Should water allotments be cut evenly when states fail to agree?

Core argument: The Biden administration proposed cutting water delivered to California, Arizona and Nevada by as much as one-quarter, setting aside legal precedent to preserve what remains of the shrinking Colorado River.

After months of fruitless negotiations between the states that depend on the shrinking Colorado River, the Biden administration proposed to put aside legal precedent and save what’s left of the river by evenly cutting water allotments, reducing the water delivered to California, Arizona and Nevada by as much as one-quarter. The size of those reductions and the prospect of the federal government unilaterally imposing them on states have never occurred in American history. The river’s flows have recently fallen by one-third compared with historical averages.

Takeaways by Macro Roundup® AI

  1. The Biden administration proposed cutting water delivered to California, Arizona and Nevada by as much as one-quarter, setting aside legal precedent to preserve what remains of the shrinking Colorado River.
  2. The Colorado River's flows have fallen by one-third compared with historical averages, and months of negotiations among the states that depend on it produced no agreement.
  3. Reductions of this size, and the prospect of the federal government unilaterally imposing them on states, have never occurred in American history.

AI Summary. China is leading commercialization of sodium-ion batteries, which replace lithium with sodium, a chemically similar material selling for 1–3% of lithium's price; 16 of 20 sodium battery factories planned or under construction worldwide are in China. Consultancy Benchmark Minerals projects China will hold nearly 95% of global sodium battery capacity within two years.

Keith Bradsher New York Times
Date Posted:

Sodium-ion batteries might be around the corner. Sodium is 1-3% of the price of lithium. The US has 90% of the world’s readily mined soda ash reserves, the primary source of sodium.

Is China set to dominate global sodium battery production?

Core argument: Of 20 sodium battery factories planned or under construction worldwide, 16 are in China, and Benchmark Minerals projects China will hold nearly 95 percent of global sodium battery capacity within two years.

China is positioning itself to command the next big innovation in rechargeable batteries: replacing lithium with sodium, a far cheaper and more abundant material. Sodium, found all over the world as part of salt, sells for 1 to 3 percent of the price of lithium and is chemically very similar. Recent breakthroughs mean that sodium batteries can now be recharged daily for years, chipping away at a key advantage of lithium batteries. The energy capacity of sodium batteries has also increased. Research into using sodium for batteries began in earnest in the 1970s, led then by the United States. Japanese researchers made crucial advances a dozen years ago. Chinese companies have since taken the lead in commercializing the technology. Out of 20 sodium battery factories now planned or already under construction around the world, 16 are in China, according to Benchmark Minerals, a consulting firm. In two years, China will have nearly 95 percent of the world’s capacity to make sodium batteries. Lithium battery production will still dwarf sodium battery output at that point, Benchmark predicts, but advances in sodium are accelerating. The United States accounts for over 90 percent of the world’s readily mined reserves for soda ash, the main industrial source of sodium. Deep under the southwestern Wyoming desert lies a vast deposit of soda ash, formed 50 million years ago. Soda ash there has long been extracted for America’s glass manufacturing industry.

Takeaways by Macro Roundup® AI

  1. Of 20 sodium battery factories planned or under construction worldwide, 16 are in China, and Benchmark Minerals projects China will hold nearly 95 percent of global sodium battery capacity within two years.
  2. Sodium sells for 1 to 3 percent of the price of lithium, is chemically very similar and is found worldwide as part of salt, and recent advances allow sodium batteries to be recharged daily for years with greater energy capacity.
  3. The United States holds over 90 percent of the world's readily mined reserves of soda ash, the main industrial source of sodium, including a deposit formed 50 million years ago under the southwestern Wyoming desert long mined for glass manufacturing.

AI Summary. Berkshire Hathaway reduced its stake in Taiwan Semiconductor Manufacturing by 86%, a sale that could have fetched $3.7bn at the average share price over the period. The decision was attributed to concerns over geopolitical tensions between China and Taiwan, not to any reassessment of the business or its management.

Max Reyes Bloomberg
Date Posted:

Warren Buffett sold his stake in Taiwan Semiconductor Manufacturing Company, citing geopolitical risk. @markets

Warren Buffett sold his stake in Taiwan Semiconductor Manufacturing Company, citing geopolitical risk. @markets

Do geopolitical tensions over Taiwan drive investors to cut chipmaker stakes?

Core argument: Berkshire Hathaway cut its stake in Taiwan Semiconductor Manufacturing Co. by 86% in the fourth quarter, a sale that could have fetched $3.7 billion assuming shares were sold at the period's average price.

The billionaire investor took credit for Berkshire’s investment in TSMC amid speculation that one of his investing deputies picked the stock. He said the decision to reduce its stake in the business by 86% in the fourth quarter—which could have fetched $3.7 billion assuming the shares were sold at the average price over the period—resulted from concerns over geopolitical tensions between China and Taiwan, conditions he described as being outside of the company’s control. “I re-evaluated that part of it,” Buffett said. “I didn’t re-evaluate the business, the management, or anything of the sort.”

Takeaways by Macro Roundup® AI

  1. Berkshire Hathaway cut its stake in Taiwan Semiconductor Manufacturing Co. by 86% in the fourth quarter, a sale that could have fetched $3.7 billion assuming shares were sold at the period's average price.
  2. Warren Buffett attributed the TSMC sale to concerns over geopolitical tensions between China and Taiwan, conditions he described as outside Berkshire's control, saying he re-evaluated that part rather than the business or management.
  3. Buffett took credit for Berkshire's TSMC investment amid speculation that one of his investing deputies picked the stock, and praised both TSMC and BYD after selling shares of both firms.