Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…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 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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, May 25, 2023

AI Summary. The authors estimate New York City office values fell 45% in 2020 and 39% in the longer run, a $453bn value destruction, with lower-quality buildings hit hardest as tenants shifted to higher-quality space. They argue this has implications for local public finances and financial sector stability.

Arpit Gupta, Vrinda Mittal and Stijn Van Nieuwerburgh National Bureau of Economic Research
Date Posted:

.@arpitrage @VrindaMittal2 @SVNieuwerburgh update their research on the pandemic’s impact on New York City commercial office space and find a 39% long run decline in overall office values, representing $453B in value destruction.

How much office value has remote work destroyed?

Core argument: The authors estimate New York City office values fell 45% in 2020 and 39% in the longer run, the latter amounting to $453 billion of value destruction after accounting for pandemic-induced cash flow and discount rate effects.

We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 45% decline in office values in 2020 and 39% in the longer-run, the latter representing a $453 billion value destruction. Higher quality office buildings were somewhat buffered against these trends due to a flight to quality, while lower quality office buildings see much more dramatic swings. These valuation changes have repercussions for local public finances and financial sector stability.  The decline in office values and the surrounding CBD retail properties, whose lease revenues have been hit at least as hard as office, has important implications for local public finances. For example, the share of real estate taxes in NYC’s budget was 53% in 2020, 24% of which comes from office and retail property taxes.

Takeaways by Macro Roundup® AI

  1. The authors estimate New York City office values fell 45% in 2020 and 39% in the longer run, the latter amounting to $453 billion of value destruction after accounting for pandemic-induced cash flow and discount rate effects.
  2. Higher quality office buildings were somewhat buffered by a flight to quality, while lower quality office buildings show much more dramatic valuation swings, according to the authors' revaluation.
  3. Real estate taxes made up 53% of New York City's budget in 2020, with 24% of that from office and retail property taxes, and the authors argue declines in office and central business district retail values carry implications for local public finances and financial sector stability.

AI Summary. Internal Revenue Service data on taxpayers who moved between filing years show New York losing affluent taxpayers, a trend that would be disastrous for a state that draws almost half its revenue from income taxes paid by those making $200,000 or more. Rising stock, housing, and other asset prices offset those losses.

Justin Fox Bloomberg
Date Posted:

The rise in asset prices in 2020-21 shielded New York state from the consequences of the flight of higher income workers. @foxjust

Does the loss of affluent taxpayers threaten New York's revenue?

Core argument: New York relies on income taxes paid by those making $200,000 or more a year for almost half its revenue, so continued outmigration of affluent taxpayers, even in less extreme form, would be disastrous for the state's finances.

The 2020-21 numbers here were released in late April by the Internal Revenue Service. They sort taxpayers by whether and where they moved between filing their taxes in 2020 and filing them in 2021; the adjusted gross incomes are for the 2020 tax year. It has been two years since May 17, 2021 — that year’s belated income tax filing deadline — and a lot has changed. But New York has continued to lose population, and if the trend depicted above were to continue, even in less extreme form, it would be disastrous for the finances of a state that relies on income taxes paid by those making $200,000 or more a year for almost half its revenue. That the loss of affluent taxpayers didn’t lead to disaster during the pandemic mainly had to do with how much the prices of stocks, houses and other assets rose in 2020 and 2021.

Takeaways by Macro Roundup® AI

  1. New York relies on income taxes paid by those making $200,000 or more a year for almost half its revenue, so continued outmigration of affluent taxpayers, even in less extreme form, would be disastrous for the state's finances.
  2. IRS data released in late April sort taxpayers by whether and where they moved between filing in 2020 and 2021, with adjusted gross incomes reported for the 2020 tax year.
  3. New York's loss of affluent taxpayers did not produce a fiscal disaster during the pandemic mainly because prices of stocks, houses and other assets rose in 2020 and 2021.

AI Summary. When nominal interest rates exceed nominal growth, the revenues, wages and tax receipts that borrowers earn grow more slowly than the interest accumulating on their debt, giving debt levels the potential to explode. Surveyed economists project the US is about to cross that threshold, after a stretch in which nominal growth exceeded nominal rates.

Economist Staff The Economist
Date Posted:

Since the end of 2009 US nominal GDP growth has been higher than nominal rates, outside of the acute pandemic period. Based on current forecasts, this is about to change, creating increasing risks for private and public debtors. @TheEconomist

Are US interest rates about to outpace nominal growth?

Core argument: America is about to cross into an i > g world, where nominal interest rates exceed nominal growth, based on a panel of economists surveyed by Bloomberg.

In an i > g world [nominal interest rates higher than nominal growth,] growth in the revenues, wages or tax receipts that a debtor earns will be slower than the interest accumulating on their borrowing, meaning debt levels have the potential to explode. An i > g world is unfamiliar to America and most of the West. Since the end of 2009 nominal growth has been higher than nominal rates (aside from the first half of 2020, when the covid-19 pandemic crashed the economy). Now America is about to cross the threshold, [based on a panel of economists surveyed by Bloomberg.]  It is far easier to swallow a high cost of capital when it is matched by high returns on said capital. And that will not be the case for much longer.

Takeaways by Macro Roundup® AI

  1. America is about to cross into an i > g world, where nominal interest rates exceed nominal growth, based on a panel of economists surveyed by Bloomberg.
  2. Since the end of 2009, US nominal growth has exceeded nominal rates, aside from the first half of 2020 when the covid-19 pandemic crashed the economy, leaving an i > g world unfamiliar to America and most of the West.
  3. When interest accumulates faster than a debtor's revenues, wages or tax receipts grow, debt levels have the potential to explode, and a high cost of capital is far easier to swallow when matched by high returns on that capital.

AI Summary. Food and energy shocks do not explain core inflation, which the author attributes predominantly to excess demand rather than unpredictable shocks, with only the excess of headline over core inflation due to accident. Shortages are consistent with demand increases supporting higher overall consumption, and a soft landing to 2% inflation is unlikely.

Jason Furman Brookings Institution
Date Posted:

.@jasonfurman differs from @benbernanke and @ojblanchard1, arguing that core inflation was primarily driven by the “original sin” of excessive fiscal stimulus.

Was core inflation driven by excess demand rather than supply shocks?

Core argument: The author argues core inflation was predominantly "original sin," or predictable, while the excess of headline over core inflation stemmed from an unfortunate accident.

Was inflation the result of unpredictable shocks (i.e., unfortunate events) or was it predictable (i.e., original sin)? My view: core predominantly original sin but excess of headline was due to an unfortunate accident. An elegant paper but it does not answer whether inflation was “a series of unfortunate events” or “original sin”. The paper does suggest that food and energy shocks do not explain core inflation. Shortages are consistent with demand increases—and demand supporting higher overall consumption. It may be more fruitful to ignore the labor market in assessing large non-linear shocks. Regardless, we all agree about the present situation--and the unlikelihood of a soft landing to 2% inflation.

Takeaways by Macro Roundup® AI

  1. The author argues core inflation was predominantly "original sin," or predictable, while the excess of headline over core inflation stemmed from an unfortunate accident.
  2. The paper suggests food and energy shocks do not explain core inflation, though the author holds that it does not settle whether inflation resulted from a series of unfortunate events or original sin.
  3. The author contends shortages are consistent with demand increases supporting higher overall consumption, that ignoring the labor market may be more fruitful in assessing large non-linear shocks, and that a soft landing to 2% inflation is unlikely.

Related Articles:

  • What Caused the U.S. Pandemic-Era Inflation? — The authors estimate that food and especially energy price shocks, along with increased demand for durable goods combined with supply-chain shortages, accounted for much of U.S. pandemic-era inflation, while the contribution of tight labor markets was small or negative early on. They estimate that tight labor-market conditions became an increasingly important, though not dominant, source of inflation over time.

AI Summary. Global defence spending rose nearly 4% in real terms to over $2tn, and new commitments and forecast increases, if implemented, are estimated to add more than $200bn a year worldwide. If countries below 2% of GDP reached that level and others added half a percentage point, outlays would rise by close to $700bn annually.

Economist Staff The Economist
Date Posted:

In 2022, global defense spending increased 4% to at least $2T a year. @TheEconomist argues this won’t be inflationary as the spending is still low relative to Cold War levels.

How much would rising military commitments add to global defense spending?

Core argument: Global defence spending rose nearly 4% in real terms last year to over $2trn, and share prices of defence firms are outperforming the overall stockmarket.

Last year defence spending worldwide increased by nearly 4% in real terms to over $2trn. The share prices of defence firms are performing better than the overall stockmarket. We estimate that total new defence commitments and forecast spending increases, if implemented, will generate over $200bn in extra defence spending globally each year. It could be a lot more. Imagine that countries which currently spend less than 2% of GDP per year meet that level and that the remainder increase spending by half a percentage point of GDP. Global defence outlays would rise by close to $700bn a year. There is little reason to believe that the new cold war will be sharply inflationary. Not even the fiercest hawks are calling for defence spending, as a share of GDP, to return to the levels of the 1960s or 1970s.

Takeaways by Macro Roundup® AI

  1. Global defence spending rose nearly 4% in real terms last year to over $2trn, and share prices of defence firms are outperforming the overall stockmarket.
  2. Total new defence commitments and forecast spending increases, if implemented, are estimated to generate over $200bn in extra defence spending globally each year.
  3. If countries spending below 2% of GDP reached that level and the rest added half a percentage point of GDP, global defence outlays would rise by close to $700bn a year.

AI Summary. Microsoft has identified stealthy intrusions by Volt Typhoon, a Chinese state-sponsored actor, against US critical infrastructure organizations spanning communications, manufacturing, utilities, transportation, maritime, government, information technology, and education. Microsoft assesses with moderate confidence that the campaign is developing capabilities that could disrupt critical communications infrastructure between the US and Asia during future crises.

Microsoft Threat Intelligence Microsoft
Date Posted:

Microsoft uncovered a Chinese attack on American infrastructure that would enable the Chinese government to disrupt communication between the US and Asia during a crisis.

Is a Chinese state-sponsored actor prepositioning inside US critical infrastructure?

Core argument: Microsoft assesses with moderate confidence that Volt Typhoon, a Chinese state-sponsored actor active since mid-2021, is pursuing development of capabilities that could disrupt critical communications infrastructure between the United States and the Asia region during future crises.

Microsoft has uncovered stealthy and targeted malicious activity focused on post-compromise credential access and network system discovery aimed at critical infrastructure organizations in the United States. The attack is carried out by Volt Typhoon, a state-sponsored actor based in China that typically focuses on espionage and information gathering. Microsoft assesses with moderate confidence that this Volt Typhoon campaign is pursuing development of capabilities that could disrupt critical communications infrastructure between the United States and Asia region during future crises. Volt Typhoon has been active since mid-2021 and has targeted critical infrastructure organizations in Guam and elsewhere in the United States. In this campaign, the affected organizations span the communications, manufacturing, utility, transportation, construction, maritime, government, information technology, and education sectors. Observed behavior suggests that the threat actor intends to perform espionage and maintain access without being detected for as long as possible.

Takeaways by Macro Roundup® AI

  1. Microsoft assesses with moderate confidence that Volt Typhoon, a Chinese state-sponsored actor active since mid-2021, is pursuing development of capabilities that could disrupt critical communications infrastructure between the United States and the Asia region during future crises.
  2. Volt Typhoon has targeted critical infrastructure organizations in Guam and elsewhere in the United States, spanning the communications, manufacturing, utility, transportation, construction, maritime, government, information technology, and education sectors.
  3. Microsoft found Volt Typhoon activity focused on post-compromise credential access and network system discovery, with observed behavior suggesting the actor intends to perform espionage and maintain undetected access for as long as possible.

Friday, May 26, 2023

AI Summary. Core personal consumption inflation, which excludes food and energy, rose at a 4.7% annual rate in April and a 4.3% annual rate over three months, moving sideways. Noisy items and imputed prices drove much of the high reading, but nothing suggests inflation will fall to 3.5% or below without further labor-market easing.

Jason Furman @jasonfurman
Date Posted:

According to @jasonfurman there is “nothing” in the PCE numbers that suggest inflation is on track to fall < 3.5% without further deterioration in the labor market.

Will inflation fall further without additional labor-market easing?

Core argument: Core PCE inflation rose at a 4.7% annual rate in April and a 4.3% annual rate over the past three months, which Jason Furman describes as a sideways move.

Another high reading for core PCE inflation, up 4.7% at an annual rate in April--and a 4.3% annual rate over the last three months, continuing its sideways move. But, under the hood it looks a little better as noisy items and imputations drove a lot of the extra high reading. Overall where does this leave us? The 4.7% annual rate for core PCE in April is too pessimistic a read of the inflation situation. But there is nothing in this report that would give any comfort that inflation is on track to fall to 3.5% or below without a further easing of the labor market.

Takeaways by Macro Roundup® AI

  1. Core PCE inflation rose at a 4.7% annual rate in April and a 4.3% annual rate over the past three months, which Jason Furman describes as a sideways move.
  2. Furman argues the 4.7% April reading is too pessimistic a read of the inflation situation, as noisy items and imputations drove much of the extra-high figure.
  3. Furman finds nothing in the PCE report offering comfort that inflation is on track to fall to 3.5% or below without further easing of the labor market.

AI Summary. A one standard deviation rise in the Kansas City Federal Reserve's Financial Stress Index historically precedes a 0.7 percentage point increase in unemployment and a roughly 0.4 percentage point fall in consumer price inflation over the first year — about half the 0.65 point disinflation estimated to follow comparable monetary tightening.

Brent Bundick, Johannes Matschke and A. Lee Smith Federal Reserve Bank of Kansas City
Date Posted:

An analysis from the @KansasCityFed examined the impact of monetary tightening and financial stress from banking instability, and found that financial stress is only about “half as disinflationary as monetary tightening.”

How much does financial stress reduce inflation compared with monetary tightening?

Core argument: A one standard deviation increase in the Kansas City Fed's Financial Stress Index historically portends a 0.7 percentage point rise in the unemployment rate and a roughly 0.4 percentage point decline in CPI inflation in the first year.

A spike in the Kansas City Fed’s Financial Stress Index historically leads to higher unemployment and somewhat lower inflation. A one standard deviation increase in financial stress typically portends an increase in the unemployment rate of 0.7 percentage points.  Financial stress historically reduces inflation as well: inflation, as measured by the consumer price index (CPI), falls by about 0.4 percentage points in the first year following an increase in financial stress.  By this metric, financial stress is about half as disinflationary as monetary tightening. Could the recent increase in financial stress generate the same disinflationary effects as tighter monetary policy? The left panel in Chart 2 shows that monetary policy tightening, as measured by an unexpected increase in the expected path of the federal funds rate (blue line), slows economic activity and raises the unemployment rate, similar to an increase in financial stress. However, despite a similar increase in the unemployment rate, inflation falls by 0.65 percentage points in the first year following monetary tightening (right panel), a considerably larger decline than we estimate following an increase in financial stress.

Takeaways by Macro Roundup® AI

  1. A one standard deviation increase in the Kansas City Fed's Financial Stress Index historically portends a 0.7 percentage point rise in the unemployment rate and a roughly 0.4 percentage point decline in CPI inflation in the first year.
  2. Monetary policy tightening historically lowers inflation by 0.65 percentage points in the first year, a considerably larger decline than the roughly 0.4 percentage points estimated after a rise in financial stress, making financial stress about half as disinflationary.
  3. An unexpected increase in the expected path of the federal funds rate slows economic activity and raises unemployment similarly to a rise in financial stress, yet produces a larger fall in inflation.

AI Summary. Work requirements are an imperfect substitute for the work incentive that social programs remove, and Europe applies such incentives more strictly than the US. An alternative would limit assistance by time rather than by income, as unemployment insurance does, allowing recipients to keep each extra dollar earned.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane argues in favor of work requirements and writes that the debate would be more productive if “we talked about the constraint posed by incentives, rather than the usual moral mudslinging.”

Should aid be limited by time rather than by income?

Core argument: Work requirements are an imperfect substitute for the work incentive that social programs eliminate, paralleling other U.S. policies that transfer income while containing disincentives, such as subsidizing gas and then regulating against its use.

Work requirements are an imperfect method to try to replace the incentive to work that social programs eliminate. Our government does this sort of thing all over to transfer income but contain the disincentives: Subsidize gas, and then regulate against its use for example. By the way, supposedly socialist Europe, after its experience with "the dole" in the early 1990s, is much more heard-hearted about these sorts of incentives than we are. Is there a better way? I've long played with the idea of limiting help by time rather than by income. That's how unemployment insurance works. We understand that replacing people's paycheck forever if they lose their job has bad incentive effects. Unemployment is understood as a temporary misfortune, and understanding the incentives, you get unemployment checks for a limited amount of time. Could not many other programs aimed at misfortune also be limited by time -- but then allow you to keep each extra dollar of earnings? Perhaps even unemployment should be a fixed amount of time, and you can keep receiving it for the full (normally) 26 weeks even if you get a job.

Takeaways by Macro Roundup® AI

  1. Work requirements are an imperfect substitute for the work incentive that social programs eliminate, paralleling other U.S. policies that transfer income while containing disincentives, such as subsidizing gas and then regulating against its use.
  2. One alternative is limiting assistance by time rather than by income, as unemployment insurance does with its normally 26 weeks, letting recipients keep each extra dollar of earnings.
  3. Europe, after its experience with "the dole" in the early 1990s, is more hard-hearted about these incentives than the United States.

Related Articles:

  • The Real Stakes of the Debt-Ceiling Fight — Average inflation-adjusted transfer payments to the lowest-income 20% of US households have grown from $9,677 to $45,389, while the share of prime working-age adults in that group who worked fell from 68% to 36%. Congressional Budget Office estimates put discretionary spending 10% higher in real terms than pre-pandemic projections, with nondefense outlays up 18.8% and defense down 0.28%.

AI Summary. Americans born around 1990 had higher death rates in their 20s than peers in affluent allied countries, and the gap widened across young adulthood. By age 29, US mortality for that cohort was about 2x New Zealand's, 2.5x France's, 3x Japan's, and 4x Italy's or Spain's.

Nicholas Eberstadt American Enterprise Institute
Date Posted:

Nicholas Eberstadt @AEI notes that the age-adjusted mortality rates for Americans born in 1990, the year after the Berlin Wall fell, is now higher than for those born in 1960, and 4X higher than Italy and Spain.

Do young American adults die at higher rates than allied peers?

Core argument: By age 29 in 2019, before the pandemic, mortality for America's Class of 1990 was nearly twice New Zealand's, two and a half times France's, three times Japan's, and four times that of Italy or Spain.

Compare mortality in young adulthood for America’s Class of 1990 with their counterparts from affluent Cold War allies. Since breakdown by sex does not add much information here, we display overall mortality rates at ages 20 through 31 for the US and select Western European allies in Figure 3. Death rates at age 20 were universally lower for the treaty allies than Americans in the Class of 1990—usually much lower. Further, mortality curves for these allies generally remained much “flatter” over the course of their 20s than for the US. Consequently, the divergence in mortality risks between the US and the allies tended to increase over young adulthood for the Class of 1990, even before COVID. By age 29—i.e., in 2019, before the pandemic—mortality rates for the Class of 1990 were almost twice as high in the US as in New Zealand; two and a half times higher than in France; three time higher than in Japan; four times higher than in Italy or Spain.

Takeaways by Macro Roundup® AI

  1. By age 29 in 2019, before the pandemic, mortality for America's Class of 1990 was nearly twice New Zealand's, two and a half times France's, three times Japan's, and four times that of Italy or Spain.
  2. Death rates at age 20 were lower for the affluent Cold War treaty allies than for Americans in the Class of 1990, usually much lower.
  3. Mortality curves for the allied countries generally remained much flatter across the 20s than the US curve, so the US–ally gap in mortality risk tended to widen over young adulthood for the Class of 1990.

Related Articles:

  • Who Won the Cold War? Part I — The Federal Reserve puts American households' net worth at nearly $140tn, an average of over $400,000 per person and over $1m per household of 2.5 people. Estimates of median wealth per adult in current US dollars across 170 countries and places allow this record to be compared with America's Cold War treaty allies in Europe and Asia.

AI Summary. Sociologists find that US women born in the late 1980s had, on average, about one child fewer by their early 30s than they had intended, roughly double the shortfall for women born two decades earlier. The median age at which women give birth is 30, three years older than in 1990.

Janet Adamy Wall Street Journal
Date Posted:
Is Database:
Database

In 2021 the US birth rate was 1.66/woman vs the “replacement rate” of 2.1. If the US rate had continued at its at 2007 peak, there would be 9.6mm more children in the US.

Are Americans having fewer children than they intend?

Core argument: Sociologists Karen Benjamin Guzzo and Sarah Hayford found that women born in the late 1980s had, by their early 30s, given birth to about one child fewer than they had planned, roughly double the shortfall for women born two decades earlier.

Sociologists Karen Benjamin Guzzo and Sarah Hayford found that when millennials (born 1981 to 1996) and the oldest members of Generation Z (starting in 1997) were surveyed in their late teens and early 20s, they said, on average, that they wanted to have at least two children. But the gap between women’s intended number of children and their actual family size has widened considerably. The researchers found that by the time women born in the late 1980s were in their early 30s, they had given birth, on average, to about one child less than they planned. That is roughly double the size of the shortfall for women born two decades earlier, and it is likely too large to be erased by a spurt of childbearing in their late 30s. The median age at which women give birth is 30, three years older than it was in 1990. Despite advances in fertility treatments, women who delay having kids until their final childbearing years reduce their chances of doing so—not just because it narrows their biological window but because other priorities and roadblocks can more easily derail their plans.

Takeaways by Macro Roundup® AI

  1. Sociologists Karen Benjamin Guzzo and Sarah Hayford found that women born in the late 1980s had, by their early 30s, given birth to about one child fewer than they had planned, roughly double the shortfall for women born two decades earlier.
  2. Millennials born 1981 to 1996 and the oldest members of Generation Z, born starting in 1997, said in surveys during their late teens and early 20s that they wanted at least two children on average.
  3. The median age at which women give birth is 30, three years older than in 1990, and women who delay childbearing to their final childbearing years reduce their chances of having children, through both a narrower biological window and competing priorities and roadblocks.