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


Tuesday, July 18, 2023

AI Summary. The positive association between extreme heat and U.S. county population growth weakened over recent decades and disappeared entirely in the 2010s, as hot counties grew hotter. Projected climate change is predicted to shift population from the Southeast and parts of the Southwest toward the North, Mountain West, and Pacific coast.

Sylvain Leduc and Daniel Wilson Federal Reserve Bank of San Francisco
Date Posted:

.@wilson_daniel_j @sffed argues that rising temperatures between now and 2050 will drive a shift in population and employment away from the Sunbelt and toward the North and Mountain West.

Will rising heat reverse population growth in hot U.S. counties?

Core argument: The U.S. county at the 90th percentile of heat averaged about 62 days per year above 80°F daily average temperature over 1951–1980, rising to 72 days over 1991–2020.

The link between extreme heat and population growth was strongly positive in the 1980s. That relationship weakened substantially over the subsequent two decades and vanished entirely over 2010-2020. The projections for the decades ahead show a continuation of this pivot. “Hot” climate counties have gotten considerably hotter - to a point where they are no longer as tolerable. The 90th percentile county over 1951-1980 averaged about 62 days per year of daily average temperatures above 80◦F. That number grew to 72 days from 1991-2020. The projected climate changes are predicted to cause a general shifting of population from the Southeast and parts of the Southwest to the North, the Mountain West, and most of the Pacific coastline.

Takeaways by Macro Roundup® AI

  1. The U.S. county at the 90th percentile of heat averaged about 62 days per year above 80°F daily average temperature over 1951–1980, rising to 72 days over 1991–2020.
  2. The strongly positive link between extreme heat and U.S. population growth in the 1980s weakened substantially over the following two decades and vanished entirely over 2010–2020.
  3. Projected climate changes are predicted to shift U.S. population from the Southeast and parts of the Southwest toward the North, the Mountain West, and most of the Pacific coastline.

Related Articles:

  • Sunbelt Cities Nashville and Austin Are Nation’s Hottest Job Markets — An assessment of about 380 U.S. metro areas ranked Nashville, Tennessee as the country's hottest job market, followed by Austin, Texas and Jacksonville, Florida. The rankings were based on five factors: the unemployment rate, labor-force participation rate, changes in employment levels, labor-force size, and wages.
  • Young Families Have Not Returned to Large Cities Post-Pandemic — The under-five population in large urban U.S. counties fell 6.1% while overall population in those counties fell 0.9%, with declines exceeding 10% in the largest counties including New York, Cook County, Illinois, and Los Angeles. Losses of young families were more severe in the Mid-Atlantic and West Coast, while the under-five population grew in Southeastern urban counties.

AI Summary. Artificial intelligence could exert downward pressure on consumer prices if it delivers a large, sustained boost to productivity growth, by lowering production costs and improving goods and services in qualitative ways. A technology-led productivity boom previously allowed the Federal Reserve to tolerate a historically tight labor market without an inflation problem.

David Mericle and Ronnie Walker Goldman Sachs
Date Posted:

David Mericle and Ronnie Walker @GoldmanSachs make the case that artificial intelligence, like the deflationary impact of the 1990s tech boom, might help offset inflationary drivers such as deglobalization and the green transition.

Can an AI productivity boom push consumer prices lower?

Core argument: Artificial intelligence would exert downward pressure on consumer prices if it delivers the large, sustained boost to productivity growth the authors expect, both by lowering production costs and by improving consumer goods and services in qualitative ways.

Artificial intelligence could exert downward pressure on consumer prices if it provides the sort of large, sustained boost to productivity growth that we expect. In the late 1990s and early 2000s, a similar productivity boom led by the technology sector enabled the Fed to let the labor market become quite tight by historical standards without running into an inflation problem. A future productivity boom should have similar effects. Artificial intelligence is likely to boost productivity by lowering production costs and improving consumer goods and services in more qualitative ways. These effects should also lower measured consumer prices.

Takeaways by Macro Roundup® AI

  1. Artificial intelligence would exert downward pressure on consumer prices if it delivers the large, sustained boost to productivity growth the authors expect, both by lowering production costs and by improving consumer goods and services in qualitative ways.
  2. In the late 1990s and early 2000s, a technology-sector-led productivity boom allowed the Federal Reserve to let the labor market become quite tight by historical standards without running into an inflation problem.
  3. The authors argue that a future productivity boom should have effects similar to the earlier technology-led boom, lowering measured consumer prices.

Related Articles:

  • Summers and Blanchard Debate the Future of Interest Rates — With expected inflation near 2.5%, a real interest rate of 1.5% to 2%, and some risk and term premium, short-term interest rates would average around 4%, one argument in a debate on the future of interest rates holds. If traditional spreads reassert themselves, longer-term rates would run about 1 percentage point higher, near 5%.
  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.

AI Summary. A study of France's amnesty program, which regularized undocumented workers making up 2.0% of workers in Paris and nearly 1% nationwide, finds positive effects on employment and wages, particularly for male, low-skill workers. The authors argue regularization reduces employers' wage-setting power in the undocumented labor market, and estimate a rise in total French GDP of around 1%.

George Borjas and Anthony Edo IZA Institute of Labor Economics
Date Posted:
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George Borjas finds that a 1981 French program giving legal status to undocumented workers who represented about 1% of all workers resulted in increased employment and wages for low-skill native and immigrant men and raised GDP 1%.

Does granting legal status to undocumented workers raise employment, wages, and output?

Core argument: France's July 1981 regularization program under President François Mitterrand covered undocumented workers making up 2.0% of workers in Paris and nearly 1% of all French workers, predominantly male, low-skill, and concentrated in the Paris region.

This paper documents the economic consequences of a large amnesty program implemented in France. In July 1981, the newly elected government of President François Mitterrand proposed to regularize all undocumented workers. The regularized workers were predominantly male, low-skill, and lived disproportionately in the Paris region. The regularized immigrants composed 2.0% of workers in Paris and nearly 1% of all workers in France. In short, by reducing monopsony power in the undocumented labor market, a regularization program improves labor market efficiency and can generate a substantial increase in output, a “regularization surplus.” Our empirical analysis of employment, wage, and output data in the French labor market confirms that the regularization program indeed had positive effects on the employment and wages of many groups, and particularly for male, low-skill workers. Moreover, there was a sizable jump in the growth rate of per-capita GDP in the affected region, suggesting an increase in total French GDP of around 1%.

Takeaways by Macro Roundup® AI

  1. France's July 1981 regularization program under President François Mitterrand covered undocumented workers making up 2.0% of workers in Paris and nearly 1% of all French workers, predominantly male, low-skill, and concentrated in the Paris region.
  2. The authors find the regularization had positive effects on employment and wages for many groups, particularly male low-skill workers, and attribute such gains to reduced monopsony power in the undocumented labor market.
  3. The authors document a sizable jump in the growth rate of per-capita GDP in the affected region, suggesting an increase in total French GDP of around 1%.

Related Articles:

  • Immigration to Drive All US Population Growth Within Two Decades — The Congressional Budget Office projects that immigration will account for all US population growth within two decades, with the population reaching 373m by 2053. Much of the growth is projected among prime-age adults aged 25 to 54, the core of the workforce, rising about 1.1m or 0.9% each year.
  • Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 — U.S. labor force data show immigrants accounted for 49% of labor force growth over roughly the past three decades and their children another 21%, together about 70% of an increase of nearly 32.8m workers. Immigrants rose from about 10% to 18% of the labor force, and immigrants plus their children from 18% to 29%.

AI Summary. Excess deaths in the US have fallen almost to zero across three separate measures, after exceeding 30% above normal during Covid's worst phases and staying above 10% for long stretches. The Human Mortality Database estimates slightly fewer Americans than normal have died, while The Economist and the Centers for Disease Control put excess deaths below 1%.

David Leonhardt New York Times
Date Posted:

Excess deaths in the United States have returned to pre-pandemic levels. According to the CDC, the weekly excess death level is less than 1%. @DLeonhardt

Have US excess deaths returned to normal levels?

Core argument: U.S. excess deaths have fallen almost to zero across three separate measures, after daily deaths from all causes ran more than 30% above normal during Covid's worst phases.

The total number of Americans dying each day — from any cause — is no longer historically abnormal. During Covid’s worst phases, the total number of Americans dying each day was more than 30% higher than normal, a shocking increase. For long stretches of the past three years, the excess was above 10%. But during the past few months, excess deaths have fallen almost to zero, according to three different measures. The Human Mortality Database estimates that slightly fewer Americans than normal have died since March, while The Economist magazine and the Center for Disease Control both put the excess-death number below 1% percent.

Takeaways by Macro Roundup® AI

  1. U.S. excess deaths have fallen almost to zero across three separate measures, after daily deaths from all causes ran more than 30% above normal during Covid's worst phases.
  2. The Human Mortality Database estimates slightly fewer Americans than normal have died since March, while The Economist and the CDC both put excess deaths below 1%.
  3. For long stretches of the past three years, total daily U.S. deaths from any cause exceeded normal levels by more than 10%.

Related Articles:

  • Our Model Suggests That Global Deaths Remain 5% Above Pre-Covid Forecasts — A model estimates global deaths remain about 5% above pre-Covid forecasts, though its confidence interval for the current excess-death rate stretches from near zero to mid-2020 levels. Relative to people aged 65 and over, excess-death rates in rich countries are three times lower than elsewhere, but older populations leave overall mortality rates similar.

AI Summary. Between 40% and 60% of US initial public offerings generate negative returns even in favorable periods, so average IPO returns far exceed median returns and depend on a small set of large winners. Excluding just the top 3% of IPOs turns average net returns negative and cuts average absolute returns by more than half.

Michael Ceblalest J.P. Morgan
Date Posted:
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Michael Cembalest @jpmorgan notes the 2020/20221 IPO class has performed extremely poorly relative to the overall equity market. IPO returns since 2010 were highly skewed; if the top 5% were removed, returns were strongly negative vs the market.

Do a small number of winners drive all IPO returns?

Core argument: Between 40% and 60% of IPOs generate negative returns even in good times, so the value proposition depends on a small subset of winners offsetting all the losers.

Since 40%-60% of IPOs generate negative returns even in good times, their value proposition is whether a small subset of winners offsets all the losers. A highly skewed investment universe is characterized by average returns that are much higher than median. As shown below, IPOs are an example of that; in many years, average net returns were positive while median net returns were close to zero. But these positive average returns are highly skewed: look how quickly they decline when excluding the best 3%, 5%, and 7% of IPOs. Even when only excluding the top 3%, average net returns become negative, and average absolute returns fall by more than half. In other words, long-term IPO survival odds are low and skewed to a small number of mega-winners.

Takeaways by Macro Roundup® AI

  1. Between 40% and 60% of IPOs generate negative returns even in good times, so the value proposition depends on a small subset of winners offsetting all the losers.
  2. Excluding only the top 3% of IPOs turns average net returns negative and cuts average absolute returns by more than half.
  3. In many years, average net IPO returns were positive while median net returns were close to zero, a characteristic of a highly skewed investment universe.

Wednesday, July 19, 2023

AI Summary. Federal R&D investment for the mission to send a crewed mission to the Moon peaked at over 0.7% of GDP for NASA. The authors estimate that NASA research-and-development contractor spending had a local economic impact similar to that of typical government expenditures, and note there is no credible empirical estimate of the space program's contribution to economic growth.

Shawn Kantor and Alexander Whalley National Bureau of Economic Research
Date Posted:
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New @NBERpubs paper finds that there is no empirical evidence that government spending related to the space race contributed to excess economic growth on the national level.

Does public R&D spending boost growth more than ordinary government spending?

Core argument: NASA received over 0.7 percent of GDP at the peak of the Space Race, an expansion of federal R&D investment large enough that local effects through a fiscal multiplier channel would be expected even absent technological spillovers.

Figure 1 shows that the ambitious mission to send a manned crew to the Moon led to a massive expansion of federal investment in R&D – NASA received over 0.7 percent of GDP at the peak of the Space Race.  Space Race spending was economically large so we might expect local effects through a fiscal multiplier channel even without technological spillovers. We compare the fiscal multiplier for NASA contractor spending implied by our estimates to the literature to get a sense of this. We find that R&D contractor spending on the Space Race had a similar impact as typical government expenditures. There is no credible empirical estimate of the space mission’s contribution to economic growth. The magnitudes of the estimated effects seem to align with those of other non-R&D types of government expenditures.

Takeaways by Macro Roundup® AI

  1. NASA received over 0.7 percent of GDP at the peak of the Space Race, an expansion of federal R&D investment large enough that local effects through a fiscal multiplier channel would be expected even absent technological spillovers.
  2. The fiscal multiplier implied by the authors' estimates for NASA R&D contractor spending during the Space Race was similar to that of typical government expenditures, with no credible empirical estimate of the space mission's contribution to economic growth.

AI Summary. The S&P 500 rose 15.91% in the first half of 2023 and the tech-heavy NASDAQ returned nearly twice that, while the expected return on stocks fell from 9.82% to 8.81% and the implied equity risk premium slipped from 5.94% to 5%. The author argues that premium, roughly its average since 2008, does not signal a bubble.

Aswath Damodaran Musings On Markets
Date Posted:

The S&P 500 equity risk premium fell back to 5% at the start of July, roughly the mean value since 2008. @AswathDamodaran

Does a strong first-half stock rally signal a bubble?

Core argument: The S&P rose 15.91% in the first half of 2023, with the NASDAQ delivering almost twice that return, reflecting its tech focus.

The S&P has had a strong first half of 2023, increasing 15.91%, the NASDAQ has delivered almost twice that return, with its tech focus.After a year for the record books, in 2022, when the expected return on stocks (the cost of equity) increased from 5.75% to 9.82%, the largest one-year increase in that number in history, we have had not just a more subdued year in 2023, but one where the expected return has come back down to 8.81%. In the process, the implied equity risk premium, which peaked at 5.94% on January 1, 2023, is back down to 5% at the start of July 2023. Even after that drop, equity risk premiums are still at roughly the average value since 2008. If the essence of a bubble is that equity risk premiums become "too low", the numbers, at least for the moment, don't seem to be signaling a bubble.

Takeaways by Macro Roundup® AI

  1. The S&P rose 15.91% in the first half of 2023, with the NASDAQ delivering almost twice that return, reflecting its tech focus.
  2. The expected return on stocks fell to 8.81% in the first half of 2023, following 2022's increase from 5.75% to 9.82%, the largest one-year rise in that number in history.
  3. The implied equity risk premium declined from a 5.94% peak on January 1, 2023 to 5% at the start of July 2023, roughly its average value since 2008, a level that does not appear to signal a bubble.

Related Articles:

  • Data Update 2 for 2023: A Rocky Year for Equities — The implied equity risk premium on the S&P 500 rose from 4.24% to 5.94% over the course of 2022, placing it near the top of its range since 1960, while the expected return on stocks of 9.82% is its highest since 1995. Whether the market is fairly valued turns on whether that risk premium is too high or too low.

AI Summary. 46m Americans owe student loan debt to the Department of Education, with three-quarters owing less than $40k and half owing under $20k. Borrowers with balances above $60k make up 16% of borrowers but hold the majority of outstanding student loan debt.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano argues the resumption of student loan payments will only have a minor impact on consumers’ balance sheets.

How is student loan debt distributed across American borrowers?

Core argument: Some 46 million Americans owe money to the Department of Education for student loans, with three-quarters of borrowers holding balances below $40,000 and half below $20,000.

46 million Americans owe some money to the Department of Education for their student loans. The vast majority of borrowers also have comparatively small balances remaining, with 3/4 of debtors having balances less than $40k and 1/2 having balances under $20k. The small contingent of borrowers with large balances holds a disproportionately large share of the outstanding debt—although they make up only 16% of total borrowers, those with balances in excess of $60,000 hold the majority of student loan debt.

Takeaways by Macro Roundup® AI

  1. Some 46 million Americans owe money to the Department of Education for student loans, with three-quarters of borrowers holding balances below $40,000 and half below $20,000.
  2. Borrowers with balances above $60,000 make up 16% of all student loan borrowers but hold the majority of outstanding student loan debt.

Related Articles:

  • Debt Moratoria: Evidence from Student Loan Forbearance — The authors estimate that borrowers whose student loan payments were frozen ended with about $1,500 more in student loan balances and $1,200 (3%) more in other household debt, including mortgage, auto, and credit card borrowing, than borrowers without a payment stoppage. The findings suggest the pause raised short-term consumption and overall leverage, with effects concentrated among borrowers never previously delinquent.

AI Summary. Widely publicized estimates put the US top 1% income share at 21% in 2019 versus 9% in 1970, while less-covered government researchers estimate 13.7% versus 9.2%, or 8.8% versus 6.8% after taxes and transfers. The author argues that media selectivity encourages academics to cater to journalists' beliefs.

Joshua Rauh and Gregory Kearney Wall Street Journal
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.@joshrauh & Gregory Kearney of @HooverInst argue academic research suffers from a feedback loop that encourages economists to produce left-leaning research to achieve widespread coverage in the mainstream media.

.@joshrauh & Gregory Kearney of @HooverInst argue academic research suffers from a feedback loop that encourages...

Does media selectivity push economists to cater to journalists' beliefs?

Core argument: Auten of the U.S. Treasury and Splinter of Congress's Joint Committee on Taxation find the top 1% income share rose to 13.7% in 2019 from 9.2% in 1970, while Saez, Zucman and Piketty's data put the rise at 9% to 21%.

Social sciences researchers hoping to become public influencers have one clear path: through the mainstream media. Unfortunately, journalists aren’t unbiased arbiters. For more than a decade, the media has praised economists Saez, Zucman and Piketty. Their data purport to show the income share of the top 1% of [US] earners climbed to 21% in 2019 from 9% in 1970. In a recent paper that has received far less attention, Auten of the U.S. Treasury and Splinter of Congress’s Joint Committee on Taxation find the income share of the top 1% climbed to 13.7% in 2019 from 9.2% in 1970. and, incorporating increases in redistributive government policy, the income share of the top 1% only increased to 8.8% in 2019 from 6.8% in 1970. In 2017, [Harvard’s Raj Chetty]  published findings that U.S. trends in the likelihood of children achieving a higher income status than their parents has grown progressively worse, a point that received intense media coverage. Research published by Scott Winship of the American Enterprise Institute shows the fall in mobility was a direct consequence, not of inequality, but of slowing economic growth that began in the 1970s. Journalists’ propensity to ignore research that refutes their beliefs encourages academics to pander to the liberal tilt of mainstream news organizations, leading to the general public’s misunderstanding of important policy issues.

Takeaways by Macro Roundup® AI

  1. Auten of the U.S. Treasury and Splinter of Congress's Joint Committee on Taxation find the top 1% income share rose to 13.7% in 2019 from 9.2% in 1970, while Saez, Zucman and Piketty's data put the rise at 9% to 21%.
  2. Incorporating increases in redistributive government policy, Auten and Splinter find the top 1% income share rose only to 8.8% in 2019 from 6.8% in 1970.
  3. Research by Scott Winship of the American Enterprise Institute argues the decline in U.S. intergenerational mobility reported by Harvard's Raj Chetty in 2017 stemmed from slowing economic growth that began in the 1970s rather than from inequality.

AI Summary. China's political environment poses a threat to its technological momentum, with Chinese undergraduates in the US reporting that their parents urge them not to return to the mainland. China retains strengths independent of slowing growth and demographic drags, chiefly an entrenched workforce that continues to advance manufacturing complexity.

Dan Wang The Secure Transport Of Light
Date Posted:

.@danwwang notes that China’s strength is its ability to manufacture complex goods. Wang is not worried about slowing growth and a demographic drag affecting China’s manufacturing dominance, but he does see China’s nonliberal environment as a threat.

.@danwwang notes that China’s strength is its ability to manufacture complex goods. Wang is not worried about slowing...

Does China's political environment threaten its technological momentum?

Core argument: Chinese undergraduates in the US told the author almost to a person that their parents urge them not to return to the mainland, part of a political environment he calls perhaps the greatest threat to China's technological momentum.

The general political environment poses perhaps the greatest threat to technological momentum. In the last few months, I’ve chatted with a good number of Chinese undergrads in the US, who almost to a person tell me that their parents are urging them not to return to the mainland. China retains considerable strengths, one which doesn’t depend so much on slowing economic growth or demographic drags. The main one is its entrenched workforce that continues to advance manufacturing complexity. I think about the humming engine that is outlined by Kevin Kelly’s concept of the “technium” that describes an ecosystem of intertwined, co-dependent, and complex technologies with a mind of its own. But I grow less certain that a third-Xi term China will sustain an innovative drive.

Takeaways by Macro Roundup® AI

  1. Chinese undergraduates in the US told the author almost to a person that their parents urge them not to return to the mainland, part of a political environment he calls perhaps the greatest threat to China's technological momentum.
  2. The author identifies China's entrenched workforce, which continues to advance manufacturing complexity, as a strength less dependent on slowing economic growth or demographic drags.
  3. The author invokes Kevin Kelly's "technium" concept, an ecosystem of intertwined, co-dependent, and complex technologies with a mind of its own, while growing less certain that China under a third Xi term will sustain an innovative drive.

Related Articles:

  • 2022 Letter — The author argues that China's economic growth will slow further, settling closer to US rates rather than returning to mid-single-digit levels, with successes in some technologies unable to offset broad deceleration. Fear of abrupt state interventions is dampening enthusiasm among businesspeople and young people, producing more foot-dragging and less initiative in response to centralized campaigns.
  • U.S. Bound Migrants Surge at Darien Jungle Crossing in Panama — Panamanian immigration data show 49,291 migrants crossed the Darien Gap rainforest between Colombia and Panama en route to the U.S. over a two-month span, more than a fivefold increase from 8,964 in the same period a year earlier. Chinese nationals accounted for about 2,200 of those crossings, up from 71.

AI Summary. China's economic output was 5.5% higher than a year earlier and grew 0.8% between the first and second quarters, below the 2017-2019 quarterly average of 1.6%, with some evidence output may have shrunk in the most recent quarter. Nominal consumer spending has grown about 3.9% a year since 2019, versus roughly 7.4% before the pandemic.

Matt Klein The Overshoot
Date Posted:

Despite the end of Covid Zero, Chinese growth remains anemic. There is no evidence of “revenge spending” from Chinese consumers. @M_C_Klein

Has China's economy failed to rebound after the pandemic?

Core argument: China's GDP grew 0.8% between 2023Q1 and Q2, half the 1.6% quarterly average of 2017–2019, with first-half 2023 output only 5.5% above the first half of 2022.

Chinese growth in 2023 has been anemic, especially relative to the starting point. So far this year, economic output was just 5.5% higher than in the first half of 2022, which in turn was up only 2.5% compared to the first half of 2021. Officially, China’s Gross Domestic Product (GDP) grew just 0.8% between 2023Q1 and Q2 compared to the 2017-2019 quarterly average of 1.6%. That would be bad enough, but there is also reason to think that output may actually have shrunk in the most recent quarter. Nominal spending in March-June 2023 was 16.6% higher than in March-June 2019, which corresponds to an average yearly growth rate of just 3.9%. Before the pandemic, Chinese consumer spending was rising about 7.4% a year.

Takeaways by Macro Roundup® AI

  1. China's GDP grew 0.8% between 2023Q1 and Q2, half the 1.6% quarterly average of 2017–2019, with first-half 2023 output only 5.5% above the first half of 2022.
  2. Nominal Chinese spending in March–June 2023 was 16.6% above the same months of 2019, an average annual rate of 3.9%, versus consumer spending growth of about 7.4% a year before the pandemic.
  3. Chinese output in the first half of 2022 was only 2.5% above the first half of 2021, and there is reason to think output may have shrunk in the most recent quarter.

Related Articles:

  • Can China’s Long-Term Growth Rate Exceed 2–3 Percent? — China invests roughly 42–44% of its GDP, while more mature, capital-intensive economies typically invest about 15–20%. Modeling a ten-year path that lowers China's investment share to 30% of GDP, the author argues the resulting growth rate depends mainly on how fast consumption grows.
  • The Neoclassical Growth of China — China's per capita GDP growth path closely tracks those of Japan, South Korea, and Taiwan from similar starting income levels, indicating nothing unusual about its growth rate. The authors' model projects China's per capita GDP will level off at about 41% of the US level, reflecting a slowdown in productivity catch-up.

AI Summary. The US current account deficit, the largest in the world, is financed mainly through portfolio debt flows and, increasingly, intermediated by financial centers rather than reserve accumulation by surplus countries. Balance-of-payments data show a declining role for China in financing it.

IMF Staff International Monetary Fund
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The American current account deficit is mainly financed via portfolio debt flows, a change from the pre-GFC period when the deficit was funded by reserve accumulation. @IMFNews data shows a declining role for China.

How is the US current account deficit financed today?

Core argument: The US current account deficit is the largest of all and is financed mainly through portfolio debt flows.

The US current account deficit, the largest deficit of all, is mainly financed via portfolio debt flows. Geographically, the financing of the US current account deficit has become increasingly mediated by financial centers in recent years. This contrasts with the pre-GFC period, when the US current account deficit was financed largely through reserve accumulation from surplus countries. Balance-of-payments data show a declining role for China.

Takeaways by Macro Roundup® AI

  1. The US current account deficit is the largest of all and is financed mainly through portfolio debt flows.
  2. Financing of the US current account deficit has become increasingly mediated by financial centers, in contrast with the pre-global-financial-crisis period, when it was financed largely through reserve accumulation by surplus countries.
  3. Balance-of-payments data show a declining role for China in financing the US current account deficit.

Related Articles:

  • Brad Sester On The Balance Of Payments — Foreign demand for US bonds remained strong on a trailing four-quarter basis, with mark-to-market losses on low-yielding bonds not appearing to impede total inflows, though official demand from foreign central banks and sovereign wealth funds fell and shifted toward agency debt. Overall demand for US assets tailed off faster than the goods deficit, a potential source of dollar weakness.
  • How Was the U.S. Current Account Deficit Financed In 2022? — As the Federal Reserve allowed some bonds to mature under quantitative tightening, new buyers of Treasury debt were needed, and money-market funds shifted from Treasury bills and coupons into reverse repurchase agreements with the Federal Reserve. The entire net issuance was absorbed by two opaque sectors: households and nonprofit organizations, and the rest of the world.