Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, June 1, 2023

AI Summary. The authors estimate that corporate tax cuts boost overall investment and employment, with goods-producing firms such as manufacturers raising capital expenditure and wage bills without changing dividends, and a 1% cut in the marginal tax rate lifting their capital spending by as much as 8%. Service-sector firms instead direct most of the windfall to dividends.

James Cloyne, Ezgi Kurt and Paolo Surico National Bureau of Economic Research
Date Posted:

Based on an analysis of U.S. federal tax changes between 1950 and 2006, goods-producing firms respond to tax cuts by expanding capex and employment while service firms largely used any tax windfall to increase dividend payouts. @NBERpubs

Do corporate tax cuts benefit workers or shareholders?

Core argument: A 1% cut in the marginal corporate tax rate raises capital expenditure for goods-producing firms by a peak of 8% in year two, while an increase in the investment tax credit produces a 5% peak rise.

Our main finding is that corporate tax cuts generate a significant boost in investment and employment for the economy overall, but the benefits are spread unevenly across sectors and groups. In particular, goods producing companies —such as manufacturing firms— expand both capital expenditure and wage bills following a cut in corporate taxes, but do not alter dividend payments. The left column [of Figure 1] shows that a 1% cut in the marginal tax rate stimulates an increase in capital expenditure for goods producing firms peaking at 8% and 5% in year two following a cut in the marginal tax rate and an increase in the investment tax credit. In contrast, firms in the service sector—which are far less capital-intensive—do not increase investment or employment at all but use most of their windfall to pay dividends. In short, we find important differences in the effect on workers vs. shareholders across sectors of the economy.

Takeaways by Macro Roundup® AI

  1. A 1% cut in the marginal corporate tax rate raises capital expenditure for goods-producing firms by a peak of 8% in year two, while an increase in the investment tax credit produces a 5% peak rise.
  2. Goods-producing companies such as manufacturers expand both capital expenditure and wage bills after a corporate tax cut without altering dividend payments.
  3. Service-sector firms, which are far less capital-intensive, do not increase investment or employment following a corporate tax cut and instead use most of the windfall to pay dividends.

AI Summary. An analysis of North American private equity- and venture-backed companies with public stock or debt finds they trade at 22.4x adjusted earnings, in line with small-cap growth stocks, but at 33.4x on standard accounting measures with net debt of 8.8x earnings. The authors describe the group as heavily leveraged and mostly cash-flow negative.

Daniel Rasmussen and Chris Satterthwaite Verdad
Date Posted:

.@verdadcap argues that given private equity’s high valuations (33.4x EBITDA) and high debt levels (8.8x net debt/EBITDA), returns going forward are likely to be low.

How do private equity-backed public companies look on standard accounting measures?

Core argument: PE/VC-owned North American companies that IPOed since 2018 and remain 30%+ sponsor-owned trade at 22.4x pro-forma EBITDA, roughly in line with the Russell 2000 Growth median of 20.7x.

We took a look at all PE/VC-owned public companies, or companies with public debt, that were 30%+ sponsor-owned, had IPOed since 2018, had a recognizable sponsor as the largest holder, and were headquartered in North America. Today, the entire sample trades at 22.4x pro-forma EBITDA, which is roughly in line with the Russell 2000 Growth, where the median company trades at 20.7x EBITDA. However, for companies in our sample that reported both pro-forma and GAAP EBITDA, this includes 500bps of adjustments. On a GAAP basis, these companies trade at 33.4x EBITDA with 8.8x net debt/EBITDA. The sample of companies we looked at is nearly unprofitable on an EBITDA basis, mostly cash flow negative, and extraordinarily leveraged (mostly with floating-rate debt that is now costing nearly 12%). These companies trade at a dramatic premium to public markets on a GAAP basis, only reaching comparability after massive amounts of pro-forma adjustments. And these are the companies that most likely reflect the better outcomes in private equity.

Takeaways by Macro Roundup® AI

  1. PE/VC-owned North American companies that IPOed since 2018 and remain 30%+ sponsor-owned trade at 22.4x pro-forma EBITDA, roughly in line with the Russell 2000 Growth median of 20.7x.
  2. On a GAAP basis, the same sample trades at 33.4x EBITDA with 8.8x net debt/EBITDA, reaching comparability with public markets only after pro-forma adjustments worth 500bps for companies reporting both measures.
  3. The sampled sponsor-backed companies are nearly unprofitable on an EBITDA basis, mostly cash flow negative, and carry mostly floating-rate debt now costing nearly 12%, and likely reflect the better outcomes in private equity.

AI Summary. About 3.66m babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the 2007 peak, with birthrates falling 3% among teens aged 15–19 and 2% among women aged 20–24. Increases were concentrated among women aged 35 to 44.

Anthony DeBarros Wall Street Journal
Date Posted:

If the fertility of younger Americans continues at its current pace, then the birth rate for women 35-39 might soon be higher than that of the 20-24 cohort.

Are American births stagnating as childbearing shifts to older women?

Core argument: About 3.66 million babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the peak reached in 2007.

About 3.66 million babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the peak hit in 2007. The trend of decreasing birthrates among younger women continued in 2022. For teens ages 15 to 19, the birthrate fell 3%, and for ages 20 to 24 it was down 2%. The rate for the next oldest group, 25 to 29, edged up only slightly. Increases were mainly seen among women 35 to 44. If trends continue, the birthrate for women ages 35 to 39 might soon eclipse the rate for ages 20 to 24.

Takeaways by Macro Roundup® AI

  1. About 3.66 million babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the peak reached in 2007.
  2. U.S. birthrates continued falling among younger women in 2022, down 3% for ages 15–19 and 2% for ages 20–24, while the rate for ages 25–29 edged up only slightly.
  3. Increases in U.S. birthrates were mainly among women ages 35 to 44, and if trends continue the rate for ages 35 to 39 might soon eclipse the rate for ages 20 to 24.

Related Articles:

  • Why Americans Are Having Fewer Babies — 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.

AI Summary. Labor cost growth does not appear to fuel inflation through higher demand, and estimates indicate labor costs affect non-housing services inflation more than goods or housing services inflation. A 1 percentage point rise in the employment cost index is estimated to add 0.15pp to non-housing services' contribution to core inflation over four years.

Adam Hale Shapiro Federal Reserve Bank of San Francisco
Date Posted:

The @sffed estimates that increased labor costs as measured by the employment cost index from 1988-2022 only contribute about .1pp to core inflation.

How much do labor costs drive inflation?

Core argument: A 1pp increase in the employment cost index raises the contribution of nonhousing services inflation to core PCE inflation by 0.15pp over four years, about 0.04pp per year.

Labor cost growth does not appear to fuel inflation through higher demand. The light blue bars in Figure 3 show the cumulative impact of a 1pp increase in the employment cost index (ECI) on the contribution of goods, housing services, and nonhousing services (NHS) inflation to core PCE inflation over a four-year time horizon. The estimates confirm that labor costs have a stronger impact on NHS inflation than either goods or housing services inflation. The impact of the ECI on NHS inflation is statistically significant, but the magnitude is quite small. A 1pp increase in the ECI increases the contribution of NHS inflation to core PCE inflation by 0.15pp over four years—an effect of 0.04pp per year.

Takeaways by Macro Roundup® AI

  1. A 1pp increase in the employment cost index raises the contribution of nonhousing services inflation to core PCE inflation by 0.15pp over four years, about 0.04pp per year.
  2. The estimates indicate labor costs have a stronger impact on nonhousing services inflation than on goods or housing services inflation, with the nonhousing services effect statistically significant but small in magnitude.
  3. Labor cost growth does not appear to fuel inflation through higher demand, based on estimated cumulative effects of employment cost index increases on core PCE inflation components.

AI Summary. Millennials have shifted toward the Republican party, with the move largest among the oldest millennials, who came of age in a different political era. The issues that drew young voters to Democrats, such as the Iraq War and same-sex marriage, may no longer be live issues.

Nate Cohn New York Times
Date Posted:

A composition shift has hidden the fact that over the past 15 years, every cohort of voters under the age of 50 has shifted to the right. @Nate_Cohn

Have millennials shifted toward the Republican party as they aged?

Core argument: Millennials have shifted to the right, with the millennial cohort of 2016 differing from that of 2008 rather than forming a permanent Democratic exception.

The millennials of 2008 are not the same as those of 2016. For instance: six additional years of even more heavily Democratic millennials became eligible to vote after the 2008 election, canceling out the slight Republican shift among older millennials. The shift to the right appears largest among the oldest “young” voters — the older millennials who came of age in a very different political era from today. Many of the issues that drew young voters to the Democrats in 2004 or 2008 — like the Iraq War or same-sex marriage — may no longer be issues at all.

Takeaways by Macro Roundup® AI

  1. Millennials have shifted to the right, with the millennial cohort of 2016 differing from that of 2008 rather than forming a permanent Democratic exception.
  2. Six additional years of more heavily Democratic millennials became eligible to vote after the 2008 election, canceling out the slight Republican shift among older millennials.
  3. The rightward shift appears largest among older millennials, who came of age in a political era when issues such as the Iraq War and same-sex marriage drew young voters to the Democrats.

Related Articles:

  • Millennials are Shattering the Oldest Rule in Politics — British "silent generation" and baby boomers grew more conservative with age, and Gen X is following the same path, but millennials, born 1981-1996, diverged from that trajectory. The most likely explanation is a cohort effect, with US survey data showing millennials favoring greater redistribution from rich to poor than earlier generations.
  • What Happened In 2022 — Young voters aged 18–29 backed Democrats by 65%, and in heavily contested states turnout among those eligible in two consecutive elections rose 6%. Women voters, for whom abortion rights were often the top issue, favored Democrats in close races, while "MAGA" Republicans underperformed in contested Senate, gubernatorial, and congressional contests.

Friday, June 2, 2023

AI Summary. Corporate research and development spending scales proportionately with sales, but evidence indicates firms produce fewer inventions per research dollar as they grow. Larger firms' innovation is more likely to improve existing products than create new ones, and patent evidence shows bigger firms engage in more incremental innovation and cite their own patents more often.

Matt Clancy and Arnaud Dyèvre What's New Under The Sun
Date Posted:
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.@mattsclancy and @ArnaudDyevre survey the innovation literature and conclude that large firms and small firms invest a similar percentage of sales in R+D, but large firms are less productive, with fewer innovations and less impact per research dollar.

Do larger firms produce less innovation per research dollar?

Core argument: Corporate R&D spending scales proportionately with sales — when a firm's sales double, its R&D spending doubles too — yet multiple lines of evidence show firms obtain fewer inventions per R&D dollar as they grow.

The first important fact about firm heterogeneity and innovation is that corporate R&D expenditures scale up proportionately with their sales. In other words, when sales double, money spent on R&D doubles too. A variety of different lines of evidence show that firms get fewer inventions per R&D dollar as they grow. Finally, when large and established firms actually do innovation resulting in observable products and services, it is more likely to be directed toward improving existing products rather than creating new ones. The bigger a firm is, the more it tries to improve its existing products. Patent evidence also points to larger firms engaging in more incremental innovation. Akcigit and Kerr also find that larger firms are more likely to cite their own patents, which is an indication that they are hewing close to the intellectual landscape they have previously explored.

Takeaways by Macro Roundup® AI

  1. Corporate R&D spending scales proportionately with sales — when a firm's sales double, its R&D spending doubles too — yet multiple lines of evidence show firms obtain fewer inventions per R&D dollar as they grow.
  2. Large and established firms direct innovation that yields observable products and services more toward improving existing products than creating new ones, with the tendency toward improvement rising with firm size.
  3. Akcigit and Kerr find that larger firms are more likely to cite their own patents, an indication they remain close to the intellectual landscape they have already explored, and patent evidence points to more incremental innovation at larger firms.

AI Summary. Payroll employment rose 339,000 in a month, leaving total jobs 1.3m above the Congressional Budget Office's pre-pandemic forecast, while the unemployment rate rose from 3.4% to 3.7% and average hourly earnings grew at a 4% annual rate, down from 5% earlier. The author argues this leaves the Federal Reserve free to focus on inflation rather than employment.

Jason Furman @jasonfurman
Date Posted:

Though the employment population ratio fell in May @jasonfurman notes for prime age workers it is still above its pre-pandemic level.

Does a strong jobs report free the Fed to focus on inflation?

Core argument: U.S. payrolls rose 339,000 in May, bringing total jobs to 1.3 million above CBO's pre-pandemic forecast, according to Jason Furman.

Another very strong headline jobs number of 339,000 in May. Bringing total jobs to 1.3 million above CBO's pre-pandemic forecast. But the unemployment rate rose from 3.4% to 3.7% which is the 94th percentile of historical one-month changes. The employment-population ratio fell a little in May but for prime age workers it remains above pre-pandemic rates. Finally, average hourly earnings (which are noisier than I would like) were up at a 4% annual rate--same as the rate for the last 3 months & lower than the 5% annual rate they had been running before. Note other indicators suggest some of this slowdown is spurious composition effects. But overall, this suggests the Fed does not need to be especially worried about the employment side of its mandate and should be willing and able to do what it needs to for the side of its mandate that is still very far from where it should be--namely the inflation side.

Takeaways by Macro Roundup® AI

  1. U.S. payrolls rose 339,000 in May, bringing total jobs to 1.3 million above CBO's pre-pandemic forecast, according to Jason Furman.
  2. The unemployment rate rose from 3.4% to 3.7% in May, which Furman places in the 94th percentile of historical one-month changes, while the prime-age employment-population ratio remains above pre-pandemic rates.
  3. Average hourly earnings rose at a 4% annual rate, matching the prior three months and below the earlier 5% pace, though Furman notes other indicators suggest some of the slowdown reflects spurious composition effects.

AI Summary. Interviews and a survey of about 700 businesses find average cost-to-price passthrough in the 60% range during a period of elevated inflation, with wide variation and some firms reporting passthrough above one. Firms report that demand strength, steady profit margins, labor and nonlabor costs, and competitors' prices shape pricing decisions.

Wändi Bruine de Bruin, Keshav Dogra, et al. Federal Reserve Bank of New York
Date Posted:

A @NewYorkFed survey of about 700 businesses finds an average 60% rate of cost-price passthrough over 2022-23. Survey responses show that managers often set prices as a fixed markup over costs.

How much of rising costs do firms pass into prices?

Core argument: Combining open-ended interviews with a quantitative survey of roughly 700 businesses, the authors find average cost-to-price passthroughs in the 60 percent range during a period of elevated inflation, when firms were intensely knowledgeable about and focused on prices and costs.

Using a research design that combines open-ended interviews with a quantitative survey of about 700 businesses, we find, on average, cost-to-price passthroughs in the 60 percent range during a period of elevated inflation—when firms were intensely knowledgeable about, and focused on, prices and costs. These estimates mask considerable heterogeneity, with some firms reporting a passthrough greater than one. Firms report that the key determinants of their pricing decisions include the strength of demand, maintaining steady profit margins, labor and nonlabor costs, and competitors’ prices.

Takeaways by Macro Roundup® AI

  1. Combining open-ended interviews with a quantitative survey of roughly 700 businesses, the authors find average cost-to-price passthroughs in the 60 percent range during a period of elevated inflation, when firms were intensely knowledgeable about and focused on prices and costs.
  2. The average passthrough estimates mask considerable heterogeneity across firms, with some businesses reporting passthrough greater than one.
  3. Firms report that the key determinants of their pricing decisions include the strength of demand, maintaining steady profit margins, labor and nonlabor costs, and competitors' prices.

AI Summary. Japan's fertility rate fell for a seventh consecutive year to a record low of about 1.26 children per woman, far below the 2.07 rate considered necessary to maintain a stable population. Births fell 5% to 770,747, a record low, while deaths rose 9% to a record 1.57m.

Reuters Staff Nikkei Asia
Date Posted:

Japan’s birthrate hit a record low in 2022 as the fertility rate hit 1.25 well under the replacement rate of 2.07. @NikkeiAsia

Japan’s birthrate hit a record low in 2022 as the fertility rate hit 1.25 well under the replacement rate of 2.07....

Is Japan's population shrinking as births fall and deaths rise?

Core argument: Japan's fertility rate fell to a record low of 1.2565 in 2022, its seventh consecutive annual decline, below the previous low of 1.2601 set in 2005 and far under the 2.07 rate considered necessary for a stable population.

Japan's birthrate declined for the seventh consecutive year in 2022 to a record low, the health ministry said on Friday, underscoring the sense of crisis gripping the country as the population shrinks and ages rapidly. The fertility rate, or the average number of children born to a woman in her lifetime, was 1.2565. That compares with the previous low of 1.2601 posted in 2005 and is far below the rate of 2.07 considered necessary to maintain a stable population. The number of newborns in Japan slid 5% to 770,747 last year, a new low, while the number of deaths shot 9% higher to a record 1.57 million, the data showed.

Takeaways by Macro Roundup® AI

  1. Japan's fertility rate fell to a record low of 1.2565 in 2022, its seventh consecutive annual decline, below the previous low of 1.2601 set in 2005 and far under the 2.07 rate considered necessary for a stable population.
  2. Newborns in Japan fell 5% to a record low of 770,747 in 2022, while deaths rose 9% to a record 1.57 million, according to health ministry data.

AI Summary. Chinese military scientists say they have improved the safety of CL-20, the most powerful non-nuclear explosive, by increasing its shock resistance five-fold, which they argue could accelerate its large-scale battlefield use. A US study commissioned by the Pentagon found China is the only country able to mass-produce CL-20.

Stephen Chen South China Morning Post
Date Posted:

Chinese researchers have significantly improved the safety of the world’s most powerful explosive, which will enable the Chinese military to deploy CL-20 explosives in more ordnance. @SCMPNews

Chinese researchers have significantly improved the safety of the world’s most powerful explosive, which will enable the...

Has China made the world's most powerful non-nuclear explosive safer to deploy?

Core argument: A Chinese research team says it engineered a five-fold increase in the shock resistance of CL-20, which the scientists describe as significantly improving the safety of the world's most powerful non-nuclear explosive.

A Chinese research team said they have significantly improved the safety of the world’s most powerful explosive by engineering a five-fold boost to its shock resistance capacity. The breakthrough could speed up the large-scale application of the explosive in battle, making Chinese weapons far superior in terms of destructive power, according to the scientists. CL-20 is the most deadly non-nuclear explosive in existence. When detonated, it can produce destructive shock waves with blast pressures many times higher than other common explosives like TNT and RDX. The mass production of CL-20 is extremely difficult. China is the only country so far to possess such industrial capability and has used the explosive in some of its newest weapons, according to a US Energetics Technology Centre study commissioned by the Pentagon in 2021.

Takeaways by Macro Roundup® AI

  1. A Chinese research team says it engineered a five-fold increase in the shock resistance of CL-20, which the scientists describe as significantly improving the safety of the world's most powerful non-nuclear explosive.
  2. The Chinese scientists say the improvement could speed large-scale battlefield application of CL-20, which produces blast pressures many times higher than common explosives such as TNT and RDX.
  3. China is the only country with the industrial capability to mass-produce CL-20, a process described as extremely difficult, and has used it in some of its newest weapons, according to a 2021 US Energetics Technology Centre study commissioned by the Pentagon.

AI Summary. The article argues that addiction to fentanyl and new forms of methamphetamine so impairs users' capacity to choose treatment that involuntary time away from the drugs is needed to restore their agency. It proposes drug courts and reimagined jails, alongside strong support for voluntary treatment, as foundations of addiction policy.

Sam Quinon The Atlantic
Date Posted:
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In light of synthetic drugs like fentanyl and methamphetamine flooding the US, @samquinones7 argues that treatment of drug users isn’t enough, and we need to use arrest and the threat of incarceration to break the hold such drugs have on their users.

Should addiction policy include involuntary treatment to restore users' agency?

Core argument: The author argues that people addicted to fentanyl or the new methamphetamine are not meaningfully free to choose treatment or any path out of addiction, and that time away from these drugs can help them regain agency.

Taking away a person’s freedom is never something to be done lightly. But once addicted to fentanyl or the new meth, many users are not “free” to choose treatment—or any path out of addiction—in any meaningful way. Time away from these drugs, I believe, can help them regain their agency. In an era of rampant fentanyl and meth use, drug courts and a reimagined jail—alongside robust support for voluntary treatment—should be foundations for that revival. An arrest can be an act of compassion when the odds are that, outside, meth will drive a user mad, and fentanyl will kill him.

Takeaways by Macro Roundup® AI

  1. The author argues that people addicted to fentanyl or the new methamphetamine are not meaningfully free to choose treatment or any path out of addiction, and that time away from these drugs can help them regain agency.
  2. The author proposes drug courts and a reimagined jail, alongside robust support for voluntary treatment, as foundations for reviving America's approach to addiction.
  3. The author contends an arrest can be an act of compassion when the odds outside are that methamphetamine will drive a user mad and fentanyl will kill him.