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, May 3, 2023

AI Summary. The shale boom turned the United States into a net exporter of natural gas and of oil, altering how commodity prices relate to US trade. Where higher oil prices were historically associated with a deterioration in US terms of trade, they now correspond to an improvement.

Boris Hofmann, Deniz Igan and Daniel Rees Bank for International Settlements
Date Posted:

Higher oil prices are now a tailwind for the American trade deficit as the US is a net energy exporter. Since June 2021, the dollar has been moving in the same direction as the oil price, which is a reversal of the long-term relationship. @BIS_org

Has energy export status flipped how oil prices affect US trade?

Core argument: The United States became a net exporter of natural gas in 2017 and of oil in late 2019, following the shale oil boom that began in the early 2010s and substantially expanded US energy production.

A more structural determinant of the change in the commodity price-dollar nexus is the changing composition of US trade. Historically, the United States has been a net oil and gas importer. This pattern has changed recently. The shale oil boom that began in the early 2010s expanded US energy production substantially. The country became a net exporter of natural gas in 2017 and of oil in late 2019 (Graph 2.B).  These changing trade patterns have altered the relationship between commodity prices and the US terms of trade (ie the ratio of US export prices to US import prices). Historically, higher oil prices were associated with a deterioration in the US terms of trade. But as US oil production rose, the relationship between the two series flipped, so that higher oil prices now correspond to an improvement in the US terms of trade.

Takeaways by Macro Roundup® AI

  1. The United States became a net exporter of natural gas in 2017 and of oil in late 2019, following the shale oil boom that began in the early 2010s and substantially expanded US energy production.
  2. Higher oil prices were historically associated with a deterioration in the US terms of trade, but as US oil production rose that relationship flipped, so higher oil prices now correspond to an improvement in US terms of trade.
  3. The changing composition of US trade, from net oil and gas importer toward exporter, is a structural determinant of the change in the commodity price–dollar nexus.

AI Summary. Brent crude fell below $75 a barrel, down from as high as $87 after several OPEC+ members announced output cuts of more than 1m barrels a day. A softening US economy, fragility among US banks, and weak Chinese manufacturing data have turned investors bearish and slumped refining margins.

Paul Wallace Bloomberg
Date Posted:

Oil has fallen almost 14% since OPEC+ surprise production cuts on April 2, as investors bet on a slowing global economy. @markets

Are oil prices falling despite OPEC+ production cuts?

Core argument: Brent crude fell below $75 a barrel for the first time since March, down from as high as $87 in mid-April, as traders worry about the health of the global economy.

Brent crude futures fell below $75 a barrel for the first time since March as traders fret about the health of the global economy. The benchmark was as high at $87 a barrel as recently as mid-April, shortly after several members of the OPEC+ producers group said they’d cut production by more than 1 million barrels a day. But a softening US economy and continued fragility among its banks, as well as weak manufacturing data in China, have turned investors much more bearish and caused refining margins to slump.

Takeaways by Macro Roundup® AI

  1. Brent crude fell below $75 a barrel for the first time since March, down from as high as $87 in mid-April, as traders worry about the health of the global economy.
  2. Brent traded as high as $87 a barrel in mid-April, shortly after several OPEC+ members said they would cut production by more than 1 million barrels a day.
  3. A softening US economy, continued fragility among US banks, and weak Chinese manufacturing data have turned oil investors much more bearish and caused refining margins to slump.

AI Summary. Analysts at Wood Mackenzie estimate a greener world will be short about 6m tons of copper by next decade, requiring a dozen new mines on the scale of Rio Tinto's Oyu Tolgoi in Mongolia. BloombergNEF projects demand for refined copper will grow 53% by 2040 while mine supply rises only 16%.

James Fernyhough Bloomberg
Date Posted:

Bloomberg estimates demand for refined copper with grow by 53% in the next 17 years, but supply is on pace to grow by only 16% as greenfield investment in mining has declined. @markets

Will copper supply fall short of the demand from greener energy?

Core argument: Wood Mackenzie analysts estimate a greener world will be short about six million tons of copper by next decade, equivalent to needing 12 new mines the size of Rio Tinto's expanded Oyu Tolgoi in Mongolia's Gobi Desert.

Analysts at Wood Mackenzie estimate a greener world will be short about six million tons of copper by next decade, meaning 12 new Oyu Tolgois [an expanded Rio Tinto copper mine in Mongolia's Gobi Desert] need to come online within that period. But they aren’t — there are simply not enough new mines, much less enough large ones. The result is a gap: BloombergNEF estimates appetite for refined copper will grow by 53% by 2040, but mine supply will climb only 16%.

Takeaways by Macro Roundup® AI

  1. Wood Mackenzie analysts estimate a greener world will be short about six million tons of copper by next decade, equivalent to needing 12 new mines the size of Rio Tinto's expanded Oyu Tolgoi in Mongolia's Gobi Desert.
  2. BloombergNEF estimates appetite for refined copper will grow 53% by 2040 while mine supply climbs only 16%, leaving a gap.
  3. Too few new copper mines, and too few large ones, are coming online to close the projected shortfall.

AI Summary. Chile has moved to take state control of key lithium projects, and the combined market value of its two incumbent lithium producers has fallen by $8.5bn. Mining executives and analysts argue the strategy will erode the appeal of the world's second-largest lithium producer as an investment destination, benefiting Australia, Argentina and several African countries.

Harry Dempsey and Edward Financial Times
Date Posted:

Chile has moved to take substantial state control of key lithium projects, which own the largest lithium reserves in the world. New supply is coming online in Australia, Canada, the US, and Argentina.

Does state control of lithium projects reduce a country's investment appeal?

Core argument: Chile's two incumbent lithium producers have lost a combined $8.5bn in value since the government announced its move to take state control of key lithium projects.

Chile has moved to take state control of key lithium projects in an attempt to develop its vast resources of the key electric car battery metal after decades of two industry leaders dominating production. The value of the country’s two lithium incumbents has slumped by a collective $8.5bn since the announcement. But mining executives and analysts believe the strategy unveiled last month will have the opposite effect, further eroding the attractiveness of the world’s second-largest lithium producer as an investment destination, to the benefit of Australia, Argentina and several African countries. With alternative supply set to flourish in Australia, Canada, the US and Argentina, and uncertainty over the longevity of lithium’s boom as work proceeds on alternatives like sodium-ion batteries, the west’s need for Chile’s supplies is not assured.

Takeaways by Macro Roundup® AI

  1. Chile's two incumbent lithium producers have lost a combined $8.5bn in value since the government announced its move to take state control of key lithium projects.
  2. Mining executives and analysts argue Chile's state-control strategy will erode the attractiveness of the world's second-largest lithium producer as an investment destination, benefiting Australia, Argentina and several African countries.
  3. With alternative lithium supply set to flourish in Australia, Canada, the US and Argentina and work proceeding on alternatives such as sodium-ion batteries, the west's need for Chile's lithium is not assured.

AI Summary. US age-adjusted drug overdose death rates involving fentanyl more than tripled, from 5.7 to 21.6 per 100,000, while rates involving methamphetamine more than quadrupled (2.1 to 9.6) and cocaine more than doubled (3.5 to 7.9). Rates involving heroin fell 40.8% (not statistically significant) and oxycodone fell 21.0%.

Merianne Rose Spencer, Margaret Warner, Jodi Cisewski, Arialdi Miniño, David Dodds, Janaka Perera, and Farida Ahmad National Center for Health Statistics
Date Posted:

Between 2016 and 2021, drug overdose deaths involving fentanyl went from 5.7 per 100,000 to 21.6 per 100,000. During the same period drug overdose deaths involving methamphetamine more than quadrupled and cocaine deaths more than doubled.

How have US overdose death rates shifted across different drugs?

Core argument: The age-adjusted U.S. rate of drug overdose deaths involving fentanyl more than tripled from 5.7 per 100,000 in 2016 to 21.6 in 2021, rising 55.0% from 2019 to 2020 and 24.1% from 2020 to 2021.

The age-adjusted rate of drug overdose deaths involving fentanyl more than tripled over the study period, from 5.7 per 100,000 standard population in 2016 to 21.6 in 2021, with a 55.0% increase from 2019 (11.2) to 2020 (17.4), and a 24.1% increase from 2020 to 2021 (21.6). The rate of drug overdose deaths involving methamphetamine more than quadrupled, from 2.1 in 2016 to 9.6 in 2021. The rate of drug overdose deaths involving cocaine more than doubled, from 3.5 in 2016 to 7.9 per 100,000 in 2021. The rate of drug overdose deaths involving heroin decreased by 40.8%, from 4.9 in 2016 to 2.9 in 2021, although this decrease was not statistically significant. The rate of drug overdose deaths involving oxycodone decreased 21.0%, from 1.9 in 2016 to 1.5 in 2021.

Takeaways by Macro Roundup® AI

  1. The age-adjusted U.S. rate of drug overdose deaths involving fentanyl more than tripled from 5.7 per 100,000 in 2016 to 21.6 in 2021, rising 55.0% from 2019 to 2020 and 24.1% from 2020 to 2021.
  2. U.S. overdose death rates involving methamphetamine more than quadrupled from 2.1 per 100,000 in 2016 to 9.6 in 2021, while cocaine-involved rates more than doubled from 3.5 to 7.9.
  3. U.S. overdose death rates involving oxycodone fell 21.0% from 1.9 per 100,000 in 2016 to 1.5 in 2021, and heroin-involved rates fell 40.8% from 4.9 to 2.9, a decrease that was not statistically significant.

AI Summary. Americans broadly support abortion access and oppose onerous restrictions, but that does not mean such voters will back the party sharing that view. Democrats' wins in the three "Blue Wall" states partly reflect Republicans nominating candidates outside the mainstream on abortion, while some governors who signed strict abortion laws still won re-election.

Michael Baharaeen The Liberal Patriot
Date Posted:

Democratic success may have more to do with the Republican nominees than abortion as mainstream GOP governors who signed restrictive abortion laws were reelected last year in Ohio and Georgia. @mbaharaeen

Democratic success may have more to do with the Republican nominees than abortion as mainstream GOP governors who signed...

Does support for abortion access translate into votes for Democrats?

Core argument: Americans broadly support abortion access and oppose onerous restrictions, yet holding that view does not mean those voters will support the party that mostly shares it.

While Americans are fairly supportive of abortion access and largely oppose onerous restrictions on the procedure (and encroachments on their personal rights more broadly), it does not follow that all voters who hold this view will turn around and vote for the party that mostly shares it. Overall, Democrats have found success in their three Blue Wall states in part because Republicans have nominated candidates whose views on abortion fall way outside the mainstream. Yet, some GOP governors who signed strict abortion laws managed to successfully fashion themselves as moderates and secured re-election in 2022, signaling that while abortion may work to the advantage of Democratic candidates under the right circumstances, they should not view the issue as a silver bullet.

Takeaways by Macro Roundup® AI

  1. Americans broadly support abortion access and oppose onerous restrictions, yet holding that view does not mean those voters will support the party that mostly shares it.
  2. Democrats' success in the three Blue Wall states came in part from Republicans nominating candidates whose abortion views fall far outside the mainstream.
  3. Some Republican governors who signed strict abortion laws fashioned themselves as moderates and won re-election in 2022, suggesting abortion is not a silver bullet for Democratic candidates.

Thursday, May 4, 2023

AI Summary. The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.

Enrico Moretti and Daniel J. Wilson American Economic Journal
Date Posted:
Is Database:
Database

Enrico Moretti and @wilson_daniel_j find 35% of billionaires leave states that have an estate tax. However, for the average state the additional revenues from an estate tax exceed the loss of revenues from forgone income taxes by 31 percent.

Do state estate taxes raise revenue despite billionaires moving away?

Core argument: The authors estimate that $80.7 billion of 2001 Forbes 400 wealth escaped estate taxation in subsequent years as billionaires moved away from estate tax states, with the response stronger as billionaires grew older.

We find that billionaires responded strongly to geographical differences in estate taxes by increasingly moving to states without estate taxes, especially as they grew older. Our estimated elasticity implies that $80.7 billion of 2001 Forbes 400 wealth escaped estate taxation in the subsequent years due to billionaires moving away from estate tax states. Yet despite the high elasticity of geographical location with respect to the estate tax, we find that for most states the benefit of additional revenue from the estate tax exceeds the cost of forgone income tax revenue by a significant margin. Adoption of an estate tax implies a one-time tax revenue gain for the state when a resident billionaire dies, but it also reduces its billionaire population and thus their flow of income tax revenue over remaining lifetimes. For the average state the benefit of additional revenue from the estate tax exceeds the cost of forgone income tax revenue by 31 percent. While the cost-benefit ratio varies substantially across states, most states that currently do not have estate taxes would experience revenue gains if they adopted estate taxes. California, which has the highest personal income top tax rate, is the main exception In California, the cost-benefit ratio is 1.45, indicating that if California adopted the estate tax on billionaires, the state would lose revenues by a significant margin. (Currently, California does not have an estate tax.) An earlier version of this research was cited in my chapter The Economics of Inequality in High-Wage Economies in Oxford University Press's United States Income, Wealth, Consumption, and Inequality

Takeaways by Macro Roundup® AI

  1. The authors estimate that $80.7 billion of 2001 Forbes 400 wealth escaped estate taxation in subsequent years as billionaires moved away from estate tax states, with the response stronger as billionaires grew older.
  2. For the average state, the authors find that added estate tax revenue exceeds the cost of forgone income tax revenue by 31 percent, implying most states without estate taxes would gain revenue by adopting them.
  3. California, which has the highest personal income top tax rate and no estate tax, is the main exception, with a cost-benefit ratio of 1.45 indicating it would lose revenues by adopting an estate tax on billionaires.

AI Summary. Greater Silicon Valley's share of US venture capital investment has fallen to 29.9% on a trailing-12-month basis, down from more than 40%, while the share going to the rest of the US outside the top four destinations has risen from 29.9% to 38.6%. This shift is occurring alongside an overall collapse in venture investment.

Justin Fox Bloomberg
Date Posted:

Silicon Valley’s share of venture investment has fallen from more than 40% in 2018-19 to 29.9% in the 12 months ending March. New York/LA/Boston have maintained share, while the rest of the US rose from 29.9% at the end of 2019 to 38.6%. @foxjust

Is venture capital investment spreading beyond Silicon Valley?

Core argument: Greater Silicon Valley took 29.9% of US venture investment over the 12 months ending in March, down from more than 40% in 2018 and 2019, measured on trailing-12-month data to smooth lumpy quarterly flows.

The quarterly investment flows are pretty lumpy, so to measure market share I’ll use trailing-12-month data. Over the 12 months ending in March, 29.9% of US venture investment flowed to Greater Silicon Valley — down from more than 40% in 2018 and 2019. The combined share of the next three VC destinations held more or less steady, while the share for the rest of the US rose from 29.9% at the end of 2019 to 38.6% as of March. It looks a bit like the “rise of the rest” egged on by venture capitalist and AOL co-founder Steve Case, only it’s happening amid an overall collapse in VC investment that’s probably not exactly what he had in mind.

Takeaways by Macro Roundup® AI

  1. Greater Silicon Valley took 29.9% of US venture investment over the 12 months ending in March, down from more than 40% in 2018 and 2019, measured on trailing-12-month data to smooth lumpy quarterly flows.
  2. The share of US venture investment going to regions outside the top four destinations rose from 29.9% at the end of 2019 to 38.6% as of March, while the next three destinations' combined share held roughly steady.
  3. The shift toward regions outside Silicon Valley resembles the "rise of the rest" promoted by venture capitalist and AOL co-founder Steve Case, but is occurring amid an overall collapse in venture capital investment.

AI Summary. California's population fell by 138,443 to 38.94 million, a third consecutive annual decline, according to state data. The main driver has been residents moving to other states such as Texas, Nevada, Idaho and Oregon, with net outmigration reaching a record 407,000 people and now spanning every education and income group.

Soumya Karlamangla New York Times
Date Posted:

California’s population shrank for the third year in a row with a net change of -138,443 in 2022 primarily driven by migration to other states like Texas, Nevada, Idaho and Oregon.

California’s population shrank for the third year in a row with a net change of -138,443 in 2022 primarily driven by...

Is outmigration driving California's population decline across all income groups?

Core argument: California's population fell by 138,443 in 2022 to 38.94 million, a third consecutive annual decline, according to state data.

It was big news a few years ago when, for the first time in more than a century, California’s population shrank. The small but still startling decline in 2020 was driven by Covid-19 deaths and falling immigration and birth rates, and it was something of a turning point for a huge state founded on rapid growth and long accustomed to it.  The state’s population dipped yet again in 2022, for the third year in a row. The number of people living in California fell by 138,443 last year, to 38.94 million, according to state data released this week. The primary driver of the state’s population loss has been Californians moving to other states, like Texas, Nevada, Idaho or Oregon, according to Hans Johnson, a senior fellow at the Public Policy Institute of California. Between July 2021 and July 2022, the net movement out of California was a record 407,000 people, he said. “In the past, California had continued to gain college graduates and people who had higher incomes, even as we were losing a very large number of less educated adults,” he said. “And then in the most recent couple years we’ve seen an outflow for every group.”

Takeaways by Macro Roundup® AI

  1. California's population fell by 138,443 in 2022 to 38.94 million, a third consecutive annual decline, according to state data.
  2. Net out-migration from California reached a record 407,000 people between July 2021 and July 2022, with residents moving to states including Texas, Nevada, Idaho and Oregon, according to Hans Johnson of the Public Policy Institute of California.
  3. Hans Johnson said California previously gained college graduates and higher-income residents while losing large numbers of less educated adults, but in the most recent couple of years has seen an outflow for every group.

AI Summary. PacWest Bancorp said its core deposits have increased and confirmed it is in talks with several potential investors after a 60% drop in its share price, and Western Alliance Bancorp said it had seen no unusual deposit outflows while reaffirming guidance for higher quarterly deposits. Shares of regional lenders including Comerica and Zions fell nonetheless.

Emily Cadman, Abhishek Vishnoi and Matthew Monks Bloomberg
Date Posted:

Several regional bank stocks, most notably PacWest Bancorp, are still under stress.

Are regional bank shares falling despite reports of stable deposits?

Core argument: PacWest Bancorp said core deposits have increased since March and confirmed it is in talks with several potential investors, after a 60% stock rout made it the focal point of concern over US regional lenders.

PacWest Bancorp said core deposits have increased since March and confirmed it’s in talks with several potential investors, seeking to calm markets after a 60% stock rout that made it the new focal point of concern over the health of US regional lenders. Western Alliance Bancorp also said Wednesday that it had seen no unusual deposit outflows and reaffirmed its guidance deposits would rise quarter-over-quarter. Yet the stock slumped 18% in premarket trading, set to add to a 20% drop this week. Comerica Inc. and Zions Bancorp were also poised to extend steep weekly losses.

Takeaways by Macro Roundup® AI

  1. PacWest Bancorp said core deposits have increased since March and confirmed it is in talks with several potential investors, after a 60% stock rout made it the focal point of concern over US regional lenders.
  2. Western Alliance Bancorp said it had seen no unusual deposit outflows and reaffirmed guidance that deposits would rise quarter-over-quarter, yet its stock slumped 18% in premarket trading, set to add to a 20% drop this week.
  3. Comerica Inc. and Zions Bancorp were poised to extend steep weekly losses.

AI Summary. Small and medium-sized businesses have underperformed in the stock market, which suggests investors are worried about the impact of a credit crunch on middle-market companies.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes since the SVB collapse both the Russell Microcap Index and S&P Midcap 400 Index have underperformed the S&P suggesting investors think credit conditions could impact middle market firms.

Are investors worried a credit crunch will hurt smaller businesses?

Core argument: Small and medium-sized businesses have underperformed in the stock market since the collapse of Silicon Valley Bank.

Small and medium-sized businesses have been underperforming in the stock market since the SVB collapse, suggesting investors are worried about the negative impact of the ongoing credit crunch on middle market companies, see chart below.

Takeaways by Macro Roundup® AI

  1. Small and medium-sized businesses have underperformed in the stock market since the collapse of Silicon Valley Bank.
  2. The underperformance of smaller companies' shares suggests investors are worried about the impact of the ongoing credit crunch on middle market firms.

AI Summary. An award-winning mathematician is leaving a US assistant professorship at the University of Pennsylvania for an appointment at Peking University's Beijing International Centre for Mathematical Research. Academics from Harvard, Princeton, and MIT report that at least 1,400 US-based ethnic Chinese scientists switched their affiliation from American to Chinese institutions in 2021.

Holly Chik South China Morning Post
Date Posted:

A prominent mathematician is leaving the University of Pennsylvania for Peking University joining at least 1,400 US-based ethnic Chinese scientists who returned home in 2021. @SCMPNews

A prominent mathematician is leaving the University of Pennsylvania for Peking University joining at least 1,400 US-based...

Are top Chinese scientists leaving US universities for Chinese institutions?

Core argument: At least 1,400 US-based ethnic Chinese scientists switched their institutional affiliation from American to Chinese institutions in 2021, according to a joint report by academics from Harvard, Princeton, and MIT.

Sun Xin, now an assistant professor in mathematics at the University of Pennsylvania, will take up a new appointment at the Beijing International Centre for Mathematical Research at his alma mater, Peking University, although the university did not specify Sun’s new role. At least 1,400 US-based ethnic Chinese scientists switched their affiliation in 2021 from American to Chinese institutions, according to a joint report by academics from Harvard and Princeton universities and MIT. Life scientist Yan Ning, for example, made headlines in China when she gave up a permanent post at Princeton. After five years in the US, the structural biologist returned to China last year to establish and serve as dean of the Shenzhen Medical Academy of Research and Translation.

Takeaways by Macro Roundup® AI

  1. At least 1,400 US-based ethnic Chinese scientists switched their institutional affiliation from American to Chinese institutions in 2021, according to a joint report by academics from Harvard, Princeton, and MIT.
  2. Sun Xin, an assistant professor of mathematics at the University of Pennsylvania, will take up an appointment at the Beijing International Centre for Mathematical Research at his alma mater, Peking University, which did not specify his new role.
  3. Structural biologist Yan Ning gave up a permanent post at Princeton after five years in the US and returned to China to establish and serve as dean of the Shenzhen Medical Academy of Research and Translation.

AI Summary. The Congressional Budget Office estimates a Republican debt-ceiling bill would cut discretionary federal spending by $129bn in a fiscal year relative to current law, lowering federal spending to 23.1% of GDP and reducing economic growth by about half a percentage point. With unemployment at 3.5% and inflation near 5%, slower growth could help the Federal Reserve cool excess demand.

Greg Ip Wall Street Journal
Date Posted:

.@greg_ip argues that the Republican debt ceiling proposal would provide fiscal support to the Fed’s monetary policy actions to get inflation back to target.

Can cutting federal spending help the central bank reduce inflation?

Core argument: The CBO estimates the Republican debt-ceiling bill would cut discretionary federal spending by $129 billion in the fiscal year ending Sept. 30, 2024, relative to current law, lowering federal spending to 23.1% of GDP.

Team Biden might have learned the wrong lesson from 2011. Back then, the unemployment rate was 9%. The Fed was holding interest rates near zero and buying bonds to stimulate growth and raise inflation, then running below its 2% target when food and energy are excluded. Today the problem is just the opposite. Unemployment, at 3.5%, is arguably too low given there are 64% more vacant jobs than job seekers. Inflation, at around 5%, is far above 2%. The Fed could use some help. The CBO says the Republican debt-ceiling bill would reduce discretionary federal spending by $129 billion in the fiscal year ended Sept. 30, 2024, relative to current law. (Discretionary spending must be reauthorized regularly, unlike mandatory programs such as Social Security and Medicare.) That would lower federal spending to 23.1% of GDP, enough to knock about half a percentage point off economic growth. Lower growth is normally a bad thing, but not when demand is too hot.

Takeaways by Macro Roundup® AI

  1. The CBO estimates the Republican debt-ceiling bill would cut discretionary federal spending by $129 billion in the fiscal year ending Sept. 30, 2024, relative to current law, lowering federal spending to 23.1% of GDP.
  2. That spending reduction would take about half a percentage point off economic growth, which the article argues is beneficial rather than harmful when demand runs too hot.
  3. Conditions differ from 2011, when unemployment was 9% and inflation excluding food and energy ran below the Fed's 2% target; unemployment is now 3.5% with 64% more vacant jobs than job seekers and inflation around 5%.