Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, April 18, 2023

AI Summary. The prime-age labor force participation rate, which took more than a decade to recover after the Great Recession, has returned to those high levels, indicating that the "missing workers" discussed during the pandemic recovery are largely back in the labor market.

CEA Staff Council of Economic Advisors
Date Posted:

.@WhiteHouseCEA argues that the 0.7% decline in labor force participation since February 2020 is a function of population aging, not Covid. Prime age LFP is above pre-pandemic levels, and overall LFP is back at its pre-pandemic forecast.

Have the pandemic's "missing workers" returned to the labor force?

Core argument: The prime-age labor force participation rate has returned to pre-Great Recession levels, a recovery that had previously taken more than a decade to achieve.

The prime-age labor force participation rate, which had taken more than a decade to recover to pre-Great Recession levels, has now returned to those very high levels. Throughout the economic recovery from the pandemic, there was much speculation about the “missing workers” who had not yet returned to the labor market. Numerous theories were offered to explain this apparent shortfall of workers. Analysts speculated that an epidemic of long Covid was keeping workers on the sidelines, that individuals were sitting out the labor market due to excess savings built up during the pandemic, that a “Great Resignation” was occurring as workers reassessed work/life balance or that the country had experienced a collective loss of work ethic. Yet despite the enormous disruptions of the pandemic, these “missing workers” are now largely back in the labor market.

Takeaways by Macro Roundup® AI

  1. The prime-age labor force participation rate has returned to pre-Great Recession levels, a recovery that had previously taken more than a decade to achieve.
  2. The "missing workers" who had not returned to the labor market during the pandemic recovery are now largely back, despite the pandemic's disruptions.
  3. Theories offered to explain the apparent worker shortfall included an epidemic of long Covid, excess pandemic savings, a "Great Resignation" driven by work/life reassessment, and a collective loss of work ethic.

AI Summary. Discounted growth, inflation, discount rates, and risk premiums have diverged widely between Western blocs and Asia, with North America and Europe correlated but differing in magnitude. Such divergences are likely to persist as Europe and Asia, with China at its center, become more independent economic blocs with their own monetary policies.

Bob Prince, Aaron Goone and Gurchit Chatha Bridgewater Associates
Date Posted:

.@Bridgewater notes a geographical divergence in markets, as their calculation of discount rates and risk premiums have declined sharply in the US and Europe, while remaining relatively steady in Asia.

Does deglobalization make geographic diversification more valuable for investors?

Core argument: Differences in discounted growth, discounted inflation, discount rates, and risk premiums have been very large between the Western blocs and Asia since the onset of the global tightening cycle.

Looking at the past year since the onset of the global tightening cycle, differences in discounted growth, discounted inflation, discount rates, and risk premiums have been very large between the Western blocs and Asia. And while the discounting has been correlated between North America and Europe, the magnitudes of the changes have been quite different, especially in discounted inflation and changes in risk premiums. Are these divergences likely to persist? Structurally, the rising independence of Europe and Asia (with China at its center) as economic blocs with their own monetary policies makes that highly likely. Whereas in the past the US dominated globalized economic and capital flows and the business cycles were more aligned, today each bloc is in a different cyclical position due to its response to the pandemic. And these cyclical differences are being compounded by today’s policy decisions and how that will influence future conditions.

Takeaways by Macro Roundup® AI

  1. Differences in discounted growth, discounted inflation, discount rates, and risk premiums have been very large between the Western blocs and Asia since the onset of the global tightening cycle.
  2. Discounting has been correlated between North America and Europe, but the magnitudes of the changes have differed considerably, especially in discounted inflation and changes in risk premiums.
  3. The rising independence of Europe and Asia, with China at its center, as economic blocs with their own monetary policies makes persistent divergence highly likely, in contrast to past US dominance of globalized economic and capital flows.

AI Summary. Realized volatility in 10-year US Treasury notes rose nearly four standard deviations, reaching levels previously seen only during major financial crises, while the two-year Treasury note posted its largest weekly move in over a decade at -72 basis points. The authors argue such volatility can chill corporate credit issuance, much of which is priced off Treasurys.

Chris Satterthwaite Verdad
Date Posted:

Chris Satterthwaite notes that Treasury volatility is at a level that was previously seen only during crises. He notes, “High volatility—and therefore high uncertainty about credit availability—can have pernicious downstream consequences.”

Does Treasury market volatility chill corporate credit issuance?

Core argument: Realized volatility in 10-year Treasurys rose nearly four standard deviations, reaching levels previously seen only in March 2020, the Eurozone debt crisis, and the 2008 financial crisis.

Treasurys—the same safe-haven asset that might have brought down Silicon Valley Bank—saw a nearly four standard deviation rise in volatility. Figure 1 below shows realized volatility in 10-year Treasurys reaching levels previously only seen in March 2020, during the Eurozone debt crisis, and during the 2008 financial crisis. The failure of Silicon Valley Bank caused a significant downward shift in the forward implied curve. We believe this led a strong rally in Treasurys as rate expectations came down. In fact, the two-year Treasury note had the single largest weekly move (-72bps) in over 10 years. This kind of Treasury volatility can have a chilling effect on corporate credit issuance, much of which is priced off Treasurys. High volatility—and therefore high uncertainty about credit availability—can have pernicious downstream consequences.

Takeaways by Macro Roundup® AI

  1. Realized volatility in 10-year Treasurys rose nearly four standard deviations, reaching levels previously seen only in March 2020, the Eurozone debt crisis, and the 2008 financial crisis.
  2. The two-year Treasury note moved -72 basis points in a single week, its largest weekly move in over 10 years, amid a Treasury rally that followed Silicon Valley Bank's failure as rate expectations came down.
  3. Treasury volatility of this magnitude can chill corporate credit issuance, much of which is priced off Treasurys, by raising uncertainty about credit availability.

AI Summary. Stock-based compensation for companies in the Russell 3000 index of large U.S. stocks is estimated at about $270bn in 2022, up from roughly $25bn in 2006, while sales rose from $11.5tn to $21.1tn. As a share of sales it was nearly 5x its 2006 level, though it remains 6–8% of total compensation at U.S. public companies.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

Stock-based compensation was around 6-8% of total compensation for public American firms, up 5x from 2006. At approximately 1.2% sales, stock-based compensation was up 6X since 2000. @mjmauboussin

How much has stock-based compensation grown relative to sales?

Core argument: Stock-based compensation for Russell 3000 companies is estimated at about $270 billion in 2022, up from roughly $25 billion in 2006, the year companies had to reflect SBC as an expense on the income statement.

In 2006, the year that companies had to reflect SBC as an expense on the income statement, total SBC expense for companies in the Russell 3000 was about $25 billion. The Russell 3000 is an index that tracks the largest stocks by market capitalization in the United States. We estimate that SBC was about $270 billion in 2022, or 6- 8 percent of total compensation for public companies in the U.S. Sales over the same period went from $11.5 to $21.1 trillion. Stock-based compensation (SBC) in 2022 was nearly 5 times what it was in 2006, measured as a percentage of sales, although total SBC remains less than 10 percent of total employee pay.

Takeaways by Macro Roundup® AI

  1. Stock-based compensation for Russell 3000 companies is estimated at about $270 billion in 2022, up from roughly $25 billion in 2006, the year companies had to reflect SBC as an expense on the income statement.
  2. Measured as a percentage of sales, stock-based compensation in 2022 was nearly 5 times its 2006 level, while sales over the same period rose from $11.5 trillion to $21.1 trillion.
  3. Stock-based compensation is estimated at about 6–8 percent of total compensation for U.S. public companies in 2022, remaining under 10 percent of total employee pay.

AI Summary. Taiwan is purchasing as many as 400 land-launched Harpoon anti-ship missiles from Boeing, intended to repel a potential Chinese invasion, under a contract issued on Taiwan's behalf by the US Naval Air Systems Command. Taiwan had previously bought only ship-launched versions of the missile.

Anthony Capaccio Bloomberg
Date Posted:

Taiwan is buying up to 400 land-launched Harpoon missiles intended to repel a potential Chinese invasion. @markets

Taiwan is buying up to 400 land-launched Harpoon missiles intended to repel a potential Chinese invasion. @markets

Is Taiwan buying land-launched US anti-ship missiles to repel an invasion?

Core argument: Taiwan will buy as many as 400 land-launched Harpoon anti-ship missiles intended to repel a potential Chinese invasion, completing a deal Congress approved in 2020, according to a trade group's leader and people familiar with the issue.

Taiwan will buy as many as 400 land-launched Harpoon missiles intended to repel a potential Chinese invasion, completing a deal that Congress approved in 2020, according to a trade group’s leader and people familiar with the issue. Taiwan has previously purchased ship-launched versions of the Harpoon, which is made by Boeing Co. Now, a contract with Boeing issued on Taiwan’s behalf by the US Naval Air Systems Command marks a first for the mobile, land-launched version, according to Rupert Hammond-Chambers, president of the US-Taiwan Business Council. Three other people familiar with the deal, including an industry official, confirmed the contract is for Taiwan.

Takeaways by Macro Roundup® AI

  1. Taiwan will buy as many as 400 land-launched Harpoon anti-ship missiles intended to repel a potential Chinese invasion, completing a deal Congress approved in 2020, according to a trade group's leader and people familiar with the issue.
  2. The contract with Boeing, issued on Taiwan's behalf by the US Naval Air Systems Command, marks a first for the mobile, land-launched Harpoon version, according to Rupert Hammond-Chambers, president of the US-Taiwan Business Council.
  3. Taiwan has previously purchased ship-launched versions of the Boeing-made Harpoon, and three other people familiar with the deal, including an industry official, said the contract is for Taiwan.

Wednesday, April 19, 2023

AI Summary. Expected US inflation of about 2.1%, measured by the Federal Reserve Bank of Cleveland, sits nearly in line with the 2% target, with an estimated inflation risk premium of 0.5 percentage points consistent with historic levels. Two arguments suggest this is too optimistic: less elastic supply of key inputs, and weaker public concern about inflation.

Martin Wolf Financial Times
Date Posted:

.@martinwolf_ predicts that inflation will decline to 2-3% with an equilibrium real rate of interest of 0-2%; this implies short rates between 2-5% and long rates between 3-6%.

Are market expectations of a return to 2% inflation too optimistic?

Core argument: US expected inflation stands at 2.1 per cent according to the Federal Reserve Bank of Cleveland, almost exactly in line with the target, which the author reads as confidence that the target will be delivered.

We are, in my view, more likely than not to return to inflation at around 2 per cent a year, or perhaps just a little bit higher. This is also what markets expect: according to the Federal Reserve Bank of Cleveland, US expected inflation is 2.1 per cent, almost exactly in line with the target. This shows confidence that the target will be delivered. The inflation risk premium is also estimated at 0.5 percentage points, which is in line with historic valuations. There are two (overlapping) arguments why this might prove too optimistic. One is that supply conditions have become more inflationary. De-globalisation and other shocks have permanently lowered the elasticity of supply of key inputs. That will raise the costs of keeping inflation down. The other is that the political economy of curbing inflation has worsened. Thus, the public cares less about inflation now, partly because it has no memory of a long period of high inflation.

Takeaways by Macro Roundup® AI

  1. US expected inflation stands at 2.1 per cent according to the Federal Reserve Bank of Cleveland, almost exactly in line with the target, which the author reads as confidence that the target will be delivered.
  2. The inflation risk premium is estimated at 0.5 percentage points, in line with historic valuations, alongside the author's view that a return to inflation of around 2 per cent a year, or a little higher, is more likely than not.
  3. Two overlapping arguments against that optimism are that de-globalisation and other shocks have permanently lowered the elasticity of supply of key inputs, raising the cost of keeping inflation down, and that the public now cares less about inflation.

AI Summary. Corporate profits as a share of total economic output vary around a stable mean in US national accounts data, consistent with competition pushing profits toward equilibrium relative to output. Talk of margins being too high or low only makes sense if profits revert to a mean, and no comparable economic account exists for profits as a share of sales.

Robert Armstrong Financial Times
Date Posted:

.@rbrtrmstrng examines Andrew Smithers’ view that profits are reverting to long-term means. This analysis projects that profit margins for all companies are likely to fall from 26.1% in 2022 to 22.0%.

Do corporate profits revert to a stable share of economic output?

Core argument: Andrew Smithers argues that claims about corporate profit margins being too high or too low only make sense if profit levels revert to a stable mean, which US national accounts data suggest holds for profits as a share of total economic output.

Andrew Smithers makes the simple point that it only makes sense to talk about corporate profit margins being too high or too low if profit levels revert to a stable mean. And interpreted in one straightforward way, they do. This is corporate profits as a proportion of total economic output. It makes sense, broadly, that competition would force profit into a stable equilibrium relative to output, and data from the US national accounts does seem to suggest that this ratio varies around a stable mean. There is not (as far as I know of) a good economic account of why profit as a percentage of sales — the more usual sense of “margins” — should revert to a stable mean.

Takeaways by Macro Roundup® AI

  1. Andrew Smithers argues that claims about corporate profit margins being too high or too low only make sense if profit levels revert to a stable mean, which US national accounts data suggest holds for profits as a share of total economic output.
  2. Competition would broadly force corporate profit into a stable equilibrium relative to output, and US national accounts data appear to show that ratio varying around a stable mean.
  3. No good economic account explains why profit as a percentage of sales, the more usual sense of "margins," should revert to a stable mean.

AI Summary. A report from the non-profit Society of Family Planning estimates there were 31,180 fewer abortions than prior rates would suggest over a six-month period, a 6% decline, even as abortions administered by virtual clinics rose. Abortions fell 63% across the 22 states that enacted new restrictions and rose 12% in more permissive states.

Economist Staff The Economist
Date Posted:

.@TheEconomist reports on a new study that quantified the impact of Dobbs. Between July and Dec 2022 there were 31,180 fewer abortions relative to pre-Dobbs, a national decline of 6% but there are major variations between states.

How much have state abortion restrictions reduced total abortions nationwide?

Core argument: The Society of Family Planning counted 31,180 fewer abortions from July to December 2022 than pre-Dobbs rates would suggest, a decline of 6%, despite a rise in abortions administered by virtual clinics prescribing drugs like mifepristone.

A report released this month by the Society of Family Planning (SFP), a non-profit, quantifies the effect of the Dobbs ruling. From July to December 2022 there were 31,180 fewer abortions than pre-Dobbs rates would suggest, a decline of 6%. That is despite a rise in abortions administered by virtual clinics, which prescribe abortifacient drugs like mifepristone. The overall decline understates the effect Dobbs has had in much of the country. Across the 22 states where new restrictions took effect following the ruling, the number of abortions fell by 67,040 (63%). Even in states with tight pre-Dobbs restrictions, the decision’s impact has been vast. After Texas implemented a law in 2021 that banned abortions once a fetal heartbeat could be detected, its abortion rate fell from 5,400 per month to 2,200. In April 2022 SFP recorded 2,700 abortions in the state. But between July and December 2022 it has logged fewer than 100. Abortion has also all but disappeared in seven other states, including four in the South.  In states with more permissive rules, in contrast, abortions rose by 35,860 (12%). This suggests that slightly more than half of women who would have had abortions in restrictive states before Dobbs travelled elsewhere to obtain them. The remaining 31,180 either carried their pregnancies to term, or obtained abortions by methods that do not appear in SFP’s data.

Takeaways by Macro Roundup® AI

  1. The Society of Family Planning counted 31,180 fewer abortions from July to December 2022 than pre-Dobbs rates would suggest, a decline of 6%, despite a rise in abortions administered by virtual clinics prescribing drugs like mifepristone.
  2. Across the 22 states where new restrictions took effect after Dobbs, abortions fell by 67,040 (63%), while states with more permissive rules recorded an increase of 35,860 (12%).
  3. Texas's abortion rate fell from 5,400 per month to 2,200 after its 2021 fetal-heartbeat law, and the Society of Family Planning logged fewer than 100 abortions there between July and December 2022.

AI Summary. A shortage of rocket motors is constraining U.S. missile production at makers including Lockheed Martin and Raytheon, with Northrop Grumman brought in to supplement former sole supplier Aerojet Rocketdyne. The Pentagon's acquisition chief says rebuilding and expanding munitions stocks for a potential conflict with China over Taiwan would take five or six years.

Doug Cameron Wall Street Journal
Date Posted:

Unfilled orders for defense capital goods are approaching $200B, as American arms makers are taking longer than expected to expand production of arms and munitions. @WSJ

Is a rocket motor shortage limiting U.S. missile production?

Core argument: Pentagon acquisition chief Bill LaPlante said rebuilding and expanding U.S. munitions stocks to prepare for any potential conflict with China over Taiwan would be a five- or six-year effort.

Big U.S. arms makers are taking longer than expected to boost production despite billions of dollars in support from the Pentagon. Defense-company executives said rocket motors continue to be a problem for missile makers including Lockheed Martin and Raytheon Technologies Corp. Northrop Grumman Corp. has now been hired to produce more rocket motors and supplement one-time sole supplier Aerojet Rocketdyne Holdings Inc. Pentagon acquisition chief Bill LaPlante said last month it would be a five- or six-year effort to rebuild and expand munitions stocks to prepare for any potential conflict with China over Taiwan.

Takeaways by Macro Roundup® AI

  1. Pentagon acquisition chief Bill LaPlante said rebuilding and expanding U.S. munitions stocks to prepare for any potential conflict with China over Taiwan would be a five- or six-year effort.
  2. Defense-company executives said rocket motors remain a problem for missile makers including Lockheed Martin and Raytheon Technologies, with large U.S. arms makers taking longer than expected to raise production despite billions of dollars in Pentagon support.
  3. Northrop Grumman has been hired to produce more rocket motors, supplementing Aerojet Rocketdyne, previously the sole supplier.