Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, June 13, 2023

AI Summary. Core consumer inflation excluding food and energy has run at about a 5% annual rate for six straight months, but narrower measures that also exclude shelter and used cars are much lower, at 1.1% over one month and 4.2% over twelve. The author argues the standard core measure overstates underlying inflation.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman argues that, with core inflation running at a 5% annualized rate, the Fed shouldn’t pause. Even though today’s report does offer evidence inflation is falling, he has “no confidence it is falling to 3% let alone 2%.”

Does core inflation overstate underlying inflation?

Core argument: Core CPI rose at about a 5% annual rate for a sixth straight month, which Jason Furman argues almost certainly overstates current underlying inflation given the outsized importance of shelter and used cars.

Core inflation (which excludes food and energy) rose at about a 5% annual rate for a sixth straight month. But other measures of underlying inflation were much lower reflecting the outsized importance of shelter and used cars (again) this month. Some relief should be coming. Look at the BLS's most narrow measure, sometimes called "supercore," which also excludes shelter (which is lagging) and used cars (which are volatile and posted a big increase in May). At an annual rate: 1 month: 1.1% 3 months: 2.3% 6 months: 3.3% 12 months: 4.2%. What does all of this mean? The most standard measure of core inflation is running at a 5% rate. That almost certainly overstates current underlying inflation. But by how much? How much will it fall? I expect some but have no confidence it is falling to 3% let alone 2%. The Fed has strongly telegraphed a pause/skip & nothing about this will change that. But is mildly unfortunate. Over the last 3 months core CPI is 5.0% annual rate. The employment mandate is fine with 283K jobs per month. Both much hotter than expected. Ought to raise now.

Takeaways by Macro Roundup® AI

  1. Core CPI rose at about a 5% annual rate for a sixth straight month, which Jason Furman argues almost certainly overstates current underlying inflation given the outsized importance of shelter and used cars.
  2. The BLS's narrowest measure, sometimes called "supercore," which also excludes shelter and used cars, ran at annual rates of 1.1% over one month, 2.3% over three months, 3.3% over six months, and 4.2% over twelve months.
  3. Furman expects some decline in inflation but has no confidence it falls to 3% let alone 2%, and calls the Fed's telegraphed pause mildly unfortunate with core CPI at a 5.0% three-month rate and 283K jobs per month.

AI Summary. More than a dozen US states are triggering the Sahm rule, which ties the onset of recession to a three-month average unemployment rate at least half a percentage point above its 12-month low, a pattern that suggests labour market conditions have softened. The rule traditionally applies to national rather than state data, and the weakness is not yet broad-based.

Colby Smith Financial Times
Date Posted:

Unemployment rates have risen at least 0.5% above the prior 12 month low in DC and 18 states. Based on the “Sahm Rule,” which has been remarkably accurate at the national level, this would suggest these states have entered a recession.

Do state-level recession signals show the labor market has softened?

Core argument: Well over a dozen US states have triggered the Sahm rule, which ties recession onset to a three-month moving average unemployment rate rising at least 0.5 percentage points above its 12-month low.

Across the country, well over a dozen states are flashing warning signals, triggering the so-called Sahm rule, which links the start of a recession to when the three-month moving average of the unemployment rate rises at least half a percentage point above its low over the past 12 months. The Sahm rule traditionally applies to national unemployment — not state-level data, which can be distorted by small sample sizes — but the trend across the country suggests labour market conditions have softened. Still, the weakness is not yet broad-based and would need to intensify for the worst prognoses to be realised.

Takeaways by Macro Roundup® AI

  1. Well over a dozen US states have triggered the Sahm rule, which ties recession onset to a three-month moving average unemployment rate rising at least 0.5 percentage points above its 12-month low.
  2. The Sahm rule traditionally applies to national unemployment rather than state-level data, which can be distorted by small sample sizes, though the cross-state trend suggests labour market conditions have softened.
  3. US labour market weakness is not yet broad-based and would need to intensify for the worst prognoses to be realised.

AI Summary. A vector autoregressive model of economic growth, loan growth, and bank lending standards estimates that a one standard deviation tightening in bank lending standards takes six quarters to reach its maximum negative effect on economic growth. The authors argue the drag from tighter lending standards accumulates over that period because banks need time to repair their balance sheets.

Torsten Sløk Apollo
Date Posted:

According to a model by Torsten Sløk @apolloglobal, it takes a year and half for tighter credit to have its maximum impact on GDP, suggesting changes in banks behavior in the aftermath of SVB won’t peak until the second half of next year.

How long do tighter bank lending standards take to slow growth?

Core argument: A small vector autoregressive model of GDP growth, loan growth, and bank lending standards indicates that a one standard deviation shock to lending standards takes six quarters to reach its maximum negative impact on GDP.

We built a small vector autoregressive model with GDP growth, loan growth, and bank lending standards, and giving a one standard deviation shock to bank lending standards using a standard Cholesky decomposition shows that it takes six quarters before tighter credit conditions have a maximum negative impact on GDP, see chart below. In other words, the negative impact of the SVB collapse on tighter lending standards will continue to accumulate until the second half of 2024 because it takes time for banks to repair their balance sheets.

Takeaways by Macro Roundup® AI

  1. A small vector autoregressive model of GDP growth, loan growth, and bank lending standards indicates that a one standard deviation shock to lending standards takes six quarters to reach its maximum negative impact on GDP.
  2. Because banks need time to repair their balance sheets, the negative impact of the SVB collapse on tighter lending standards is expected to accumulate until the second half of 2024.
  3. The shock to bank lending standards in the model is identified using a standard Cholesky decomposition.

AI Summary. The authors estimate that a 1 percentage point increase in a firm's perceived cost of capital raises its discount rate by only 0.3 percentage points, with 40% of firms leaving discount rates unchanged even over a decade. Larger gaps between discount rates and the perceived cost of capital are associated with lower investment rates.

Niels Joachim Gormsen and Kilian Huber National Bureau of Economic Research
Date Posted:
Is Database:
Database

.@NielsGormsen shows that the average firm reduces its discount rate by only .3% in response to a 1% decline in perceived cost of capital. The implication is a lower level of capital spending relative to what the decline in cost of capital would imply.

How closely do corporate discount rates track the cost of capital?

Core argument: Using within-firm variation, the authors find that a 1 percentage point increase in a firm's perceived cost of capital raises its discount rate by 0.3 percentage points on average, in contrast to the stylized view.

We document that changes in the perceived cost of capital only modestly affect discount rates, in contrast to the stylized view. Using within-firm variation, we show that, on average, a 1 percentage point increase in the perceived cost of capital leads to a 0.3 percentage point increase in the discount rate. We show that discount rate wedges are associated with investment fluctuations at the firm level. A 1 percentage point increase in the wedge lowers the investment rate by 0.9 points. Many firms rarely change discount rates, so the relation becomes stronger over longer horizons. However, even at the 10-year horizon, 40 percent of firms maintain unchanged discount rates and, even if they change, adjust less than one-to-one with the perceived cost of capital.  These results suggest that discount rates have “a life of their own,” beyond the perceived cost of capital.  The average US firm in our sample has increased its discount rate wedge by 2.5 percentage points between 2002 and 2021.

Takeaways by Macro Roundup® AI

  1. Using within-firm variation, the authors find that a 1 percentage point increase in a firm's perceived cost of capital raises its discount rate by 0.3 percentage points on average, in contrast to the stylized view.
  2. Discount rate wedges are associated with firm-level investment fluctuations, with a 1 percentage point increase in the wedge lowering the investment rate by 0.9 points.
  3. Even at a 10-year horizon, 40 percent of firms leave discount rates unchanged and those that adjust move less than one-to-one with the perceived cost of capital, while the average US firm in the sample raised its discount rate wedge by 2.5 percentage points between 2002 and 2021.

AI Summary. US births declined steadily for years before the pandemic, with almost 600,000 fewer annual births in 2019 than in 2007, a 13% drop. The pandemic-related baby bust and subsequent rebound were short-term deviations from that longer trend, and 2022 birth counts remained below 2019 levels.

Melissa Kearney and Phillip Levine Brookings Institution
Date Posted:

During COVID, births fell dramatically, especially in states where case counts were high and unemployment spikes were relatively large. Births rebounded sharply in 2021 but are still below 2019 levels. @kearney_melissa @phil_wellesley

Are US births continuing their long-run decline after the pandemic swings?

Core argument: US annual births fell by almost 600,000 between 2007 and 2019, a 13% reduction, continuing a steady decline that preceded the pandemic.

Before the pandemic, births had been steadily declining for many years. There were almost 600,000 fewer annual births in 2019 relative to 2007—a 13% reduction. The size of the COVID-related baby bust, and subsequent rebound were meaningful in that context, but they also represent short-term deviations from an ongoing trend of considerably greater importance. Birth counts in 2022 are still below what they were in 2019.

Takeaways by Macro Roundup® AI

  1. US annual births fell by almost 600,000 between 2007 and 2019, a 13% reduction, continuing a steady decline that preceded the pandemic.
  2. The COVID-related baby bust and subsequent rebound were meaningful in size but represent short-term deviations from the longer-running downward trend in US births.
  3. US birth counts in 2022 remained below their 2019 level.

AI Summary. More than 500 active and planned submarine cables carry 99% of intercontinental data to roughly 1,400 coastal landing stations worldwide. US efforts have kept China from becoming a major supplier: Chinese firm HMN Tech accounts for 10% of existing and planned cables where the supplier is known, versus 41% for France's ASN and 21% for America's SubCom.

Anna Gross, Alexandra Heal, et al. Financial Times
Date Posted:

China is building its own parallel fiber optic network as the West increasingly locks Chinese firms out of the cable network that carries internet traffic.

Has the US kept China a minor supplier of undersea internet cables?

Core argument: Chinese supplier HMN Tech has supplied or is set to supply equipment for 10% of all existing and planned global submarine cables where the supplier is known, according to FT analysis of TeleGeography data.

There are more than 500 active and planned submarine cables, transporting 99% of intercontinental data, arriving at around 1,400 coastal landing stations around the world. The US has succeeded in preventing Beijing from becoming a major player in the global submarine cable market. Chinese supplier HMN Tech has provided or is set to provide the equipment to only 10% of all existing and planned global cables, where the supplier is known, FT analysis of data supplied by the consultancy TeleGeography shows. Meanwhile, French cable maker ASN has supplied 41 per cent and American company SubCom has supplied 21%. Neither ASN nor SubCom responded to requests for comment.

Takeaways by Macro Roundup® AI

  1. Chinese supplier HMN Tech has supplied or is set to supply equipment for 10% of all existing and planned global submarine cables where the supplier is known, according to FT analysis of TeleGeography data.
  2. French cable maker ASN has supplied 41% and American company SubCom 21% of existing and planned global submarine cables where the supplier is known, according to FT analysis of TeleGeography data.
  3. More than 500 active and planned submarine cables carry 99% of intercontinental data to around 1,400 coastal landing stations worldwide, and the US has succeeded in preventing Beijing from becoming a major player in that market.

Wednesday, June 14, 2023

AI Summary. A substantial rise in U.S. investment would likely require greater output from existing labor and capital plus higher imports, since there is little appetite to cut current consumption and little scope to export less. Foreign producers stand to benefit even where investment subsidies carry local-content restrictions.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that investment catalyzed by the CHIPS Act and Inflation Reduction Act will spill over globally, which will boost “global manufacturing demand, ease the supply constraints of the past few years, and support the green transition.”

Would a U.S. investment boom benefit foreign producers?

Core argument: Good investments should raise the capital stock and eventually make it easier to increase both investment and consumption, but that process takes time, leaving a mismatch between America's needs and its productive capabilities in the interim.

There is no appetite in the U.S. for boosting investment at the expense of current consumption by redirecting spending, workers, and capital. Nor is there much scope for American producers to export even less than they already do. This means that any realistic scenario in which U.S. investment rises substantially would mostly involve some combination of higher production out of existing labor and capital as well as higher levels of imports. In theory, good investments should boost the capital stock and eventually make it easier to further increase both investment and consumption, but that process takes time. Until then, there will be a mismatch between America’s needs and its productive capabilities that can only be bridged by drawing upon foreign production. Foreigners stand to benefit from this even if some of the specific subsidies encouraging U.S. investment have local-content restrictions.

Takeaways by Macro Roundup® AI

  1. Good investments should raise the capital stock and eventually make it easier to increase both investment and consumption, but that process takes time, leaving a mismatch between America's needs and its productive capabilities in the interim.
  2. Foreigners stand to benefit from a U.S. investment boom because the gap between American needs and domestic capacity can only be bridged by drawing on foreign production, even where subsidies carry local-content restrictions.
  3. Any realistic scenario of substantially higher U.S. investment would mostly involve higher production from existing labor and capital together with higher imports, given no U.S. appetite for cutting current consumption and little scope for exporting less.

AI Summary. U.S. industrial policies promoting semiconductors, renewable energy, and electric vehicles have catalysed an investment surge concentrated in the South, with S&P Global Market Intelligence calculating that about two-thirds of planned electric-vehicle jobs will be located there. More than 80% of announced electric-vehicle investment has gone to Republican-controlled districts.

Economist Staff The Economist
Date Posted:

S&P Global Markets Intelligence calculates 2/3 of planned EV jobs will be located in the American South, but @TheEconomist argues that the impact on Southern politics may be minimal.

Is the South capturing most new industrial policy investment?

Core argument: More than 80% of electric-vehicle investment announced in the 300 days after the Inflation Reduction Act's passage went to Republican-controlled districts, according to a database of EV investment announcements.

The industrial policies crafted by Mr. Biden’s administration—notably, incentives and rules to boost the production of semiconductors, renewable energy and electric-vehicles — have catalysed a surge in investment, much of it in the South. S&P Global Market Intelligence calculates that about two-thirds of planned EV jobs will reside there. Might the South’s manufacturing boom have political consequences? The investment surge resulting in part from Mr. Biden’s policies so far looks like the opposite of pork-barrel politics: most of the money has gone to places that do not favour him. According to a database of EV investments announced in the 300 days since the passage of the Inflation Reduction Act more than 80% has gone to Republican-controlled districts. As factories become more automated and less labour-intensive, their political weight may well diminish. Robots do not vote.

Takeaways by Macro Roundup® AI

  1. More than 80% of electric-vehicle investment announced in the 300 days after the Inflation Reduction Act's passage went to Republican-controlled districts, according to a database of EV investment announcements.
  2. S&P Global Market Intelligence calculates that about two-thirds of planned electric-vehicle jobs will be located in the South, where much of the investment catalysed by the Biden administration's semiconductor, renewable-energy and EV policies has landed.
  3. As factories become more automated and less labour-intensive, their political weight may diminish, since robots do not vote.

AI Summary. A list of standout US metropolitan growth areas spans Sun Belt boomtowns such as Austin and Nashville, Midwestern cities including Cincinnati and Columbus, and Philadelphia, but no Florida metros. All but Phoenix and Philadelphia sit in Republican-voting states, while all but Huntsville and Oklahoma City have Democratic or nonpartisan mayors.

Justin Fox Bloomberg
Date Posted:

.@foxjust highlights 15 cities that have 5-year job growth at a much faster pace than the rest of their states. He notes that, other than Phoenix and Philadelphia, all are in states that voted GOP in 2020 but all but two have Democratic mayors.

What do the fastest-growing US metro areas have in common?

Core argument: All but two of the standout metro areas — Phoenix and Philadelphia — are in states that voted Republican in the 2020 presidential election, while all but Huntsville and Oklahoma City have Democratic or Democratic-sounding nonpartisan mayors in their largest cities.

This list has a little of everything. It includes Indianapolis, of course, along with perennial powerhouses Dallas-Fort Worth and Phoenix, boomtowns Austin and Nashville and much-discussed up-and-comers Boise, Fayetteville-Springdale-Rogers, Oklahoma City and Raleigh. But there are also some under-the-radar growth stories (Charleston, Huntsville) moderate Midwestern successes (Cincinnati, Columbus, Des Moines) and one true surprise: Philadelphia? Really?! There is not, however, a single city from Florida. What unites the standouts? All but two, Phoenix and Philadelphia, are in states that voted Republican in the 2020 presidential election, while in all but two, Huntsville and Oklahoma City, the mayors of the largest cities are either Democrats or nonpartisan officials who sound a lot like Democrats.

Takeaways by Macro Roundup® AI

  1. All but two of the standout metro areas — Phoenix and Philadelphia — are in states that voted Republican in the 2020 presidential election, while all but Huntsville and Oklahoma City have Democratic or Democratic-sounding nonpartisan mayors in their largest cities.
  2. The list of standout metro areas spans Indianapolis, powerhouses Dallas-Fort Worth and Phoenix, boomtowns Austin and Nashville, up-and-comers Boise, Fayetteville-Springdale-Rogers, Oklahoma City and Raleigh, and Midwestern successes Cincinnati, Columbus and Des Moines.
  3. No Florida city appears on the list of standout metro areas, which includes under-the-radar growth stories Charleston and Huntsville along with the surprise of Philadelphia.

AI Summary. Larger investments in artificial intelligence are associated with workforce upskilling at firms, with rising shares of workers holding bachelor's, master's, and doctoral degrees and a falling share without college education. The authors estimate a one-standard-deviation increase in a firm's share of AI workers corresponds to a 7.2% decline in the share of non-college workers.

Tania Babina, Anastassia Fedyk, Alex He and James Hodson National Bureau of Economic Research
Date Posted:
Is Database:
Database

Between 2010 and 2018 firms that invested in AI shifted employment towards more junior employees with high educational attainment and technical expertise. @TaniaBabina @AnastassiaFedyk @AlexXiHe

Does AI investment shift firms toward more educated workers?

Core argument: A one-standard-deviation increase in a firm's share of AI workers is associated with a 7.2% decline in the share of workers without college education, alongside rising shares of degree-holding workers.

In terms of labor composition, we observe a general upskilling trend associated with larger AI investments. Firms that invest more in AI tend to increase their shares of workers with bachelors, masters, and doctoral degrees (correspondingly decreasing the share of workers without college education). For example, a one-standard-deviation increase in the firm’s share of AI workers translates into a 3.7% increase in the share of workers whose maximal educational attainment is an associates or bachelors degree, a 2.9% increase in the share of workers whose maximal educational attainment is a masters degree, and a 0.6% increase in doctoral degrees. These increases in educated workers correspond to a 7.2% decline in the share of workers without college education.

Takeaways by Macro Roundup® AI

  1. A one-standard-deviation increase in a firm's share of AI workers is associated with a 7.2% decline in the share of workers without college education, alongside rising shares of degree-holding workers.
  2. A one-standard-deviation increase in a firm's AI worker share corresponds to a 3.7% rise in the share of workers with an associate's or bachelor's degree, 2.9% for master's degrees, and 0.6% for doctorates.
  3. Firms making larger AI investments show a general upskilling trend in labor composition, tending to increase their shares of workers with bachelor's, master's, and doctoral degrees.

AI Summary. Analysts estimate that automating individual work activities could add 0.2%–3.3% a year to global productivity growth depending on adoption speed, with generative AI contributing 0.1–0.6 percentage points of that. Realizing the gain requires workers displaced by the technology to move into activities at least as productive as their current ones.

Michael Chui, Eric Hazan, et al. McKinsey & Company
Date Posted:

.@McKinsey forecasts that generative AI could accelerate US productivity growth to 3.6% CAGR between 2022-2040.

How much could generative AI add to global productivity growth?

Core argument: Automation of individual work activities could add 0.2 to 3.3 percent to annual global productivity growth from 2023 to 2040, depending on the rate of automation adoption, according to McKinsey's estimates.

The deployment of generative AI and other technologies could help accelerate productivity growth, partially compensating for declining employment growth and enabling overall economic growth. Based on our estimates, the automation of individual work activities enabled by these technologies could provide the global economy with an annual productivity boost of 0.2 to 3.3 percent from 2023 to 2040 depending on the rate of automation adoption—with generative AI contributing to 0.1 to 0.6 percentage points of that growth— but only if individuals affected by the technology were to shift to other work activities that at least match their 2022 productivity levels. In some cases, workers will stay in the same occupations, but their mix of activities will shift; in others, workers will need to shift occupations.

Takeaways by Macro Roundup® AI

  1. Automation of individual work activities could add 0.2 to 3.3 percent to annual global productivity growth from 2023 to 2040, depending on the rate of automation adoption, according to McKinsey's estimates.
  2. Generative AI could contribute 0.1 to 0.6 percentage points of that estimated annual productivity growth.
  3. The estimated productivity gains depend on individuals affected by these technologies shifting to other work activities that at least match their 2022 productivity levels, with some workers changing their mix of activities and others changing occupations.

AI Summary. IBM researchers report that a 127-qubit quantum processor simulated the magnetic behavior of 127 atom-scale bar magnets, a problem too complex for an exact answer on the largest supercomputers. Because quantum noise made each sub-millisecond calculation unreliable, the computation was repeated 600,000 times to converge on an answer.

Kenneth Chang New York Times
Date Posted:

IBM researchers have used a quantum processor and a process of error elimination to make a major step forward in quantum computing. The work may help in accelerating drug discovery and modeling fusion reactions. @NYT

IBM researchers have used a quantum processor and a process of error elimination to make a major step forward in quantum...

Can quantum computers solve problems beyond the reach of supercomputers?

Core argument: IBM researchers used a 127-qubit quantum processor to simulate 127 atom-scale bar magnets in a magnetic field under the Ising model, a problem too complex for a precise answer on the largest, fastest supercomputers.

The IBM researchers used a quantum processor with 127 qubits to simulate the behavior of 127 atom-scale bar magnets — tiny enough to be governed by the spooky rules of quantum mechanics — in a magnetic field. That is a simple system known as the Ising model, which is often used to study magnetism. This problem is too complex for a precise answer to be calculated even on the largest, fastest supercomputers. On the quantum computer, the calculation took less than a thousandth of a second to complete. Each quantum calculation was unreliable — fluctuations of quantum noise inevitably intrude and induce errors — but each calculation was quick, so it could be performed repeatedly. Altogether, the computer performed the calculation 600,000 times, converging on an answer for the overall magnetization produced by the 127 bar magnets.

Takeaways by Macro Roundup® AI

  1. IBM researchers used a 127-qubit quantum processor to simulate 127 atom-scale bar magnets in a magnetic field under the Ising model, a problem too complex for a precise answer on the largest, fastest supercomputers.
  2. Each quantum calculation on IBM's processor took less than a thousandth of a second, and the computer repeated it 600,000 times to converge on an answer for the overall magnetization of the 127 bar magnets.
  3. Individual calculations on IBM's quantum processor were unreliable because fluctuations of quantum noise inevitably intrude and induce errors, but each was quick enough to be performed repeatedly.