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


Wednesday, August 2, 2023

AI Summary. Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.

John Cochrane Wall Street Journal
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.@JohnHCochrane takes a victory lap, arguing that the fiscal theory of the price level is the most descriptive theory of inflation.

.@JohnHCochrane takes a victory lap, arguing that the fiscal theory of the price level is the most descriptive theory of...

Does a one-time fiscal expansion cause a one-time price level rise?

Core argument: In fiscal theory, a one-time $5 trillion fiscal blowout produces a one-time rise in the price level just large enough to inflate away $5 trillion of debt value, after which inflation stops even if the Federal Reserve does nothing.

A one-time $5 trillion fiscal blowout causes a one-time rise in the level of prices, just enough to inflate away the value of the debt by $5 trillion. Then inflation stops, even if the Federal Reserve does nothing. The Fed is still important in fiscal theory. The Fed bought about $3 trillion of the new debt and converted it to interest-paying reserves. Giving people checks backed by reserves is arguably a more powerful inducement to spend than giving people Treasury bonds. Now, by raising interest rates, the Fed lowers current inflation but at the cost of more-persistent inflation. That smoothing is beneficial. These are core propositions of fiscal theory, stated ahead of time and at odds with conventional theories.

Takeaways by Macro Roundup® AI

  1. In fiscal theory, a one-time $5 trillion fiscal blowout produces a one-time rise in the price level just large enough to inflate away $5 trillion of debt value, after which inflation stops even if the Federal Reserve does nothing.
  2. The Federal Reserve bought about $3 trillion of the new debt and converted it into interest-paying reserves, and giving people checks backed by reserves is arguably a more powerful inducement to spend than giving them Treasury bonds.
  3. By raising interest rates, the Federal Reserve lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing that fiscal theory stated ahead of time and that is at odds with conventional theories.

Related Articles:

  • Waning Inflation, Supply and Demand — Inflation appears to be waning, but this does not vindicate the view that inflation was purely supply shocks, since a supply shock raises prices only temporarily and cannot permanently raise the price level. Cumulative inflation has shifted the price level up by roughly 10–20%, and under the fiscal or demand view that shift is permanent absent fiscal retrenchment.
  • The Second Great Experiment Update — Newer macroeconomic theory using forward-looking rather than adaptive expectations holds that inflation is stable under an interest rate target and can fade on its own even when interest rates sit below the inflation rate. Under the fiscal theory of the price level, a burst of inflation devalues government debt and ends once the real value of that debt is restored.

AI Summary. Arrests for minor "broken-windows" offenses—counted as misdemeanors, violations, and infractions per 100,000 residents—fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles over the period studied, declining steadily in New York and Los Angeles.

Charles Murray American Enterprise Institute
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.@charlesmurray argues that urban disorder has increased since 2013, when cities abandoned broken-windows policing.

How much have arrests for minor offenses fallen in major cities?

Core argument: Arrests for broken-windows offenses fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles between 2013 and 2022, measured as misdemeanor, violation, and infraction arrests per 100,000 population.

I created a “broken-windows arrest rate” analogous to the violent and property crime rates by summing arrests in the eight categories, dividing them by the size of the city’s population, and expressing the result as the number of arrests per 100,000 population. To ensure that all these qualified as minor crimes, I included only arrests that were charged as misdemeanors, violations, or infractions, excluding arrests charged as felonies. The graph below shows the proportional change in those arrest rates using 2013 as the baseline. In New York and Los Angeles, the fall in arrests for broken-windows offenses was steep and steady from 2013 to 2020. Washington is different, with a sudden rise in broken-windows arrests in Washington in 2019. The anomaly was created entirely by a one-year spike in arrests for prostitution and solicitation, the result of a policy decision to clear the streets of prostitutes near hotels. If arrests for prostitution and solicitation are deleted from the Washington data, the trendline of broken-windows offenses shows the same unbroken decline as the trendlines for New York and Los Angeles. As of 2022, arrests for broken-windows offenses since 2013 had fallen by 74% in New York, 77% in Washington, and 81% in Los Angeles. There was no apparent “Floyd effect” in New York or Los Angeles. A case for a small effect can be made for Washington.

Takeaways by Macro Roundup® AI

  1. Arrests for broken-windows offenses fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles between 2013 and 2022, measured as misdemeanor, violation, and infraction arrests per 100,000 population.
  2. No apparent "Floyd effect" appears in New York or Los Angeles, where broken-windows arrests declined steeply and steadily from 2013 to 2020, though a case for a small effect can be made for Washington, DC.
  3. Washington, DC's 2019 spike in broken-windows arrests was created entirely by a one-year rise in prostitution and solicitation arrests following a policy decision to clear the streets near hotels; excluding those arrests leaves an unbroken decline.

Related Articles:

  • Pandemic Murder Wave Has Crested. Here’s the Postmortem — Murders in 93 US cities fell 5% year over year after the increase that began in 2020, though homicides remained 4,764 (28.7%) above pre-pandemic levels, according to data compiled by AH Datalytics. US murder rates remain far higher than in other wealthy nations.

AI Summary. After spiking during the COVID-19 pandemic, the share of income US households save fell to near historic lows and remains around 4.6%, below its pre-pandemic level of roughly 9%. Households whose real income and wealth do not improve must either slow spending, particularly on goods, or finance it with more borrowing and risk deteriorating financial health.

Wendy Edelberg and Sofoklis Goulas Brookings Institution
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.@WendyEdelberg notes the current 4.6% personal savings rate and argues that households must either cut spending or undermine financial health by borrowing to maintain current spending levels.

Can a low household saving rate support strong consumer spending?

Core argument: The U.S. personal saving rate stood at 4.6% as of May 2023, below the roughly 9% rate that prevailed in 2019, after falling under 3% of disposable personal income in June 2022, close to a historic low.

The rate at which households saved out of income saw large fluctuations during the COVID-19 pandemic. In 2019 the saving rate hovered around 9%. After the saving rate spiked to unprecedented levels in 2020 and 2021, it fell dramatically in 2022. In June 2022 households saved less than 3% of DPI, which was close to a historically low level. As of May 2023, the saving rate remains low at 4.6%. Some households may be on a precipice where real income and real wealth do not show marked improvement. To maintain relatively healthy balance sheets, such households can moderate the pace of consumer spending (particularly goods spending). Alternatively, households can maintain the current trends in spending, increasingly financing spending with borrowing, and financial health could deteriorate in a worrying way.

Takeaways by Macro Roundup® AI

  1. The U.S. personal saving rate stood at 4.6% as of May 2023, below the roughly 9% rate that prevailed in 2019, after falling under 3% of disposable personal income in June 2022, close to a historic low.
  2. The saving rate spiked to unprecedented levels in 2020 and 2021 before falling dramatically in 2022, leaving some households possibly on a precipice where real income and real wealth do not show marked improvement.
  3. Households can moderate the pace of consumer spending, particularly on goods, to maintain relatively healthy balance sheets, or maintain current spending trends by increasingly financing them with borrowing, allowing financial health to deteriorate.

Related Articles:

  • Accumulated Savings During the Pandemic: An International Comparison with Historical Perspective — The authors construct measures of excess household savings accumulated during the COVID-19 pandemic and find they have been unwound in the United States, declined in advanced foreign economies, and slowed in emerging market economies. Past recessions featured smaller increases in excess savings and greater persistence in the accumulated stock.
  • The Rise and Fall of Pandemic Excess Savings — Researchers estimate US households accumulated about $2.1tn in excess savings above the pre-pandemic trend before drawing them down, with cumulative drawdowns of $1.6tn leaving roughly $500bn remaining. If recent drawdown rates persist, the authors project remaining excess savings would continue supporting household spending for several more months.

AI Summary. The US economy remained significantly depressed for roughly a decade after the financial crisis, a lost decade the author argues could have been avoided with different policies. The evidence offered is the post-Covid recovery, in which major federal spending programs helped the economy regain lost ground in just over three years.

Paul Krugman Krugman Wonks Out
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.@paulkrugman notes the slow recovery from the Great Recession cost Americans $4.5 trillion and argues that the rapid recovery from the post-pandemic recession suggests Great Recession fiscal policy was too constrained.

Could stronger federal spending have prevented a decade of depressed growth?

Core argument: The U.S. economy remained significantly depressed for roughly a decade after the financial crisis, a lost decade that Krugman argues could have been avoided with the right policies.

You can draw comparable charts for many other economic variables, some of them just showing levels like the two figures above, others showing deviations from the pre-2008 trend. Their consistent shapes all tell the same story: The U.S. economy remained significantly depressed for many years — indeed, a decade or so, after the financial crisis — and this lost decade could have been avoided with the right policies. How do we know that it could have been avoided? Because of what happened the past few years, when the U.S. economy, boosted by major federal spending programs, came roaring back from the Covid slump, regaining all the lost ground in just over three years. If America had done as well after the financial crisis, we would have been back on trend by mid-2011.

Takeaways by Macro Roundup® AI

  1. The U.S. economy remained significantly depressed for roughly a decade after the financial crisis, a lost decade that Krugman argues could have been avoided with the right policies.
  2. The U.S. economy, boosted by major federal spending programs, regained all ground lost in the Covid slump in just over three years, which Krugman treats as evidence the post-2008 shortfall was avoidable.
  3. Had the recovery from the financial crisis matched the post-Covid rebound's pace, Krugman writes, the U.S. would have been back on trend by mid-2011.

Related Articles:

AI Summary. Recent strike waves differ in composition: earlier ones were dominated by teachers and other state and local government workers, while current strikers are mostly private-sector employees, often organizing location-by-location in stoppages too small to appear in Bureau of Labor Statistics counts. The Cornell-ILR Labor Action Tracker recorded 224,000 workers in stoppages versus the Bureau's 120,600.

Justin Fox Bloomberg
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Between UPS reaching a tentative deal with the Teamsters and the Yellow Corp bankruptcy, August won’t be the “Summer of Stikes” but @foxjust notes recent labor activity is increasingly in the private, not the public sector.

Are official strike counts missing today's private-sector labor actions?

Core argument: The Cornell-ILR Labor Action Tracker counted 224,000 workers involved in work stoppages last year, nearly double the BLS tally of 120,600, since BLS counts exclude strikes involving fewer than 1,000 workers.

The strikers in 2018 and 2019 were mostly teachers and other state and local government employees, while this year most are employees of private companies. A lot of current private-sector organizing is on a location-by-location basis with strikes that don’t show up in the BLS counts because they involve fewer than 1,000 workers, with the more inclusive Cornell-ILR Labor Action Tracker counting 224,000 workers involved in stoppages last year, nearly double the BLS tally of 120,600. The 340,000 workers who didn’t go on strike at UPS because the company gave into their wage demands should probably count as a significant union victory even if doesn’t show up in the strike statistics. And according to the US BLS other main measure of strike activity, days on strike divided by total working time, this year may still prove a standout, at least by post-1980 standards.

Takeaways by Macro Roundup® AI

  1. The Cornell-ILR Labor Action Tracker counted 224,000 workers involved in work stoppages last year, nearly double the BLS tally of 120,600, since BLS counts exclude strikes involving fewer than 1,000 workers.
  2. Strikers in 2018 and 2019 were mostly teachers and other state and local government employees, while most of this year's strikers work for private companies, where organizing often proceeds location by location.
  3. The 340,000 UPS workers who did not strike after the company gave in to their wage demands arguably mark a significant union victory absent from strike statistics, and by the BLS measure of days on strike divided by total working time, this year may prove a standout by post-1980 standards.

Related Articles:

  • America Is Barreling Toward a Summer of Strikes — More than 650,000 US workers are on strike or threatening to strike, a level of union activity not seen in decades, with actors and writers already out and unions at UPS and Detroit's three largest automakers poised to join if contract talks fail. One Bank of America analyst put the odds of a United Auto Workers strike above 90%.
  • Unions Inflation Warning — The share of people aged 16 and over working or looking for work fell when the pandemic hit and has only partly recovered, with population aging accounting for most of the remaining shortfall. That implies economic activity must run at a lower level to avoid persistent wage and price inflation.

AI Summary. The Bank of Japan has signaled it will allow yields to trade toward 1% from roughly 0.5%, though its intervention in the market suggests that shift is not imminent. With Japanese domestic investors holding around $2.5tn of US stocks, bonds and credit, Wall Street is weighing volatile spillovers that could reinforce higher-for-longer interest rates.

Michael Mackenzie and Katherine Greifeld Bloomberg
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The end of the Bank of Japan’s yield control campaign will likely tighten financial conditions globally.

Will rising Japanese bond yields push global interest rates higher?

Core argument: The Bank of Japan has signaled it will allow yields to trade toward 1% from roughly 0.5% now, but its move to step into the market on Monday suggests that shift won't happen soon.

While the Bank of Japan has signaled it will let yields to trade toward 1% from roughly 0.5% now, its decision to step into the market on Monday suggests that won’t happen anytime soon. Still, with domestic investors holding around $2.5 trillion of US stocks, bonds and credit, the very idea that Japan will one day join the developed world in retreating from zero rates has Wall Street sizing up a volatile fallout that could add fuel to the higher-for-longer interest rate era.

Takeaways by Macro Roundup® AI

  1. The Bank of Japan has signaled it will allow yields to trade toward 1% from roughly 0.5% now, but its move to step into the market on Monday suggests that shift won't happen soon.
  2. Japanese domestic investors hold around $2.5 trillion of US stocks, bonds and credit, and Wall Street is sizing up a volatile fallout from Japan eventually retreating from zero rates.
  3. The prospect of Japan joining the developed world in exiting zero rates could add fuel to the higher-for-longer interest rate era.

Related Articles:

  • Raising Anchor — The Bank of Japan's low interest rate policy anchors global bond yields, and that anchor is set to move higher, making U.S. Treasury bonds less attractive to Japanese investors. With this marginal source of demand fading as Treasury supply is set to increase, U.S. yields are likely to drift higher.
  • 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.
  • The Case for “Higher for Longer”: Prices are Disinflating, But Not Wages (Yet) — Occupations with the fastest pay gains have seen wage growth normalize while pay growth elsewhere remains persistently faster, with only modest deceleration from the peak. The author argues the neutral policy rate has risen as an investment drought ends, making 5.5% short-term rates unremarkable and 4% 10-year Treasury yields potentially too low.

AI Summary. South Korea exported more goods to the United States than to China in 2022, the first time since 2004, according to the Bank of Korea. China's ambassador in Seoul publicly warned South Korea against "decoupling" from the Chinese economy under US influence.

Christian Davies Financial Times
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The United States is South Korea’s largest export market for the first time since 2004 as Korean firms quietly pivot away from China.

Is South Korea shifting its exports from China to the US?

Core argument: South Korea exported more goods to the US than to China in 2022, the first time since 2004, according to Bank of Korea data released in June.

In June, Xing Haiming, China’s ambassador in Seoul, publicly warned South Korea against “decoupling” from the Chinese economy under the influence of the US. South Korea has already embarked on an unmistakable — albeit untrumpeted — pivot away from the Chinese economy. According to data released by the Bank of Korea in June, South Korea exported more goods to the US in 2022 than it did to China for the first time since 2004 when China’s nominal gross domestic product was still less than that of the UK.

Takeaways by Macro Roundup® AI

  1. South Korea exported more goods to the US than to China in 2022, the first time since 2004, according to Bank of Korea data released in June.
  2. China's nominal GDP was still smaller than the UK's in 2004, the previous year in which South Korea's exports to the US exceeded those to China.
  3. Xing Haiming, China's ambassador in Seoul, publicly warned South Korea against "decoupling" from the Chinese economy under the influence of the US.

Thursday, August 3, 2023

AI Summary. The US corporate sector's financial balance remains in surplus, a condition that has never preceded a recession, and central banks have withdrawn only about one third of the $11tn in global liquidity they created. Excess US household savings are projected to run out in the following year, pointing to modestly weaker conditions rather than a significant contraction.

Michael Cembalest J.P. Morgan
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Michael Cembalest notes that, “There’s still plenty of liquidity in the system,” as central banks have removed only 1/3 of the $11 trillion in liquidity created during the pandemic period.

Why has the global economy withstood higher interest rates?

Core argument: The US corporate sector financial balance remains in surplus, a condition that has never preceded a recession, unlike the yield curve's recession signal.

While a simple read of the yield curve points to recession, the health of the US corporate sector does not: the corporate sector financial balance is still in surplus, a condition which has never preceded a recession. Central banks have only removed around one third of the $11 trillion in global liquidity they created in 2020/2021. There’s still plenty of liquidity in the system and the cost of money is not prohibitive. Excess US household savings are projected to run out sometime in 2024, and while current economic indicators are robust, there’s weakness in Conference Board leading indicators. The overall pulse does not point to a significant contraction, just to modestly weaker US conditions in 6-9 months.

Takeaways by Macro Roundup® AI

  1. The US corporate sector financial balance remains in surplus, a condition that has never preceded a recession, unlike the yield curve's recession signal.
  2. Central banks have withdrawn only about one third of the $11 trillion in global liquidity created in 2020–2021, leaving ample liquidity and a cost of money that is not prohibitive.
  3. Excess US household savings are projected to run out sometime in 2024, and with weakness in Conference Board leading indicators, the overall pulse points to modestly weaker US conditions in 6–9 months rather than significant contraction.

Related Articles:

  • Most Global Economies Remain in Disequilibrium, Requiring Policy Action — An investment framework holds that markets and economies are driven by three equilibriums — spending in line with output and capacity, incomes in line with debts, and normal risk premiums across assets — interacting with two policy levers, monetary and fiscal policy. When these conditions are absent, the resulting social, political, and business strains produce changes until equilibrium is restored.

AI Summary. The U.S. federal budget deficit has widened by about 3-4 percentage points of GDP, with lower revenues mostly attributable to a plunge in capital gains tax receipts after an earlier windfall and to the collapse in Federal Reserve payments to the Treasury. Higher outlays are almost entirely attributable to surging interest payments on Treasury debt.

Matt Klein The Overshoot
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The increase in the US federal deficit has been driven by higher net interest costs, lower remittances to the Treasury from the Federal Reserve, and lower capital gain income. @M_C_Klein

Is the wider federal deficit a hidden fiscal stimulus?

Core argument: The U.S. federal budget deficit has widened by roughly 3–4pp of GDP since the start of 2022, a shift attributed to falling revenues and rising interest costs rather than stealth fiscal stimulus.

The U.S. federal budget deficit has widened by about 3-4pp of GDP since the start of 2022. The downturn in revenues is mostly attributable to the plunge in capital gains tax receipts after the windfall of 2021/2022, as well as the collapse in dividends paid by the Federal Reserve to the Treasury. Meanwhile, the increase in outlays is almost entirely attributable to the surge in interest payments on Treasury debt.

Takeaways by Macro Roundup® AI

  1. The U.S. federal budget deficit has widened by roughly 3–4pp of GDP since the start of 2022, a shift attributed to falling revenues and rising interest costs rather than stealth fiscal stimulus.
  2. The revenue decline stems mostly from the plunge in capital gains tax receipts after the 2021/2022 windfall, together with the collapse in dividends the Federal Reserve pays to the Treasury.
  3. The increase in federal outlays since the start of 2022 is almost entirely attributable to the surge in interest payments on Treasury debt.

Related Articles:

  • Net Interest Payments On External US Debt — The US holds net external debt of about 50% of its GDP but earns roughly 4% on its foreign lending while paying about 3% on its borrowing, leaving an implied net interest rate of 2.4%. This slows, without eliminating, the balance-of-payments adjustment to higher interest rates as net interest payments rise further.
  • The Budget and Economic Outlook: 2023 to 2033 — The Congressional Budget Office projects the federal deficit rising to 6.9% of GDP in 2033, well above the 3.6% average of the past 50 years, with net interest costs a major contributor. Federal debt held by the public is projected to climb from 98% of GDP to 118% by 2033 and 195% by 2053.

AI Summary. Inflation functions as a partial default: cumulative inflation above the 2% target means US debt is repaid in dollars worth 12.4% less, economically equivalent to a 12.4% haircut for creditors. The author argues that borrowing and printing $5tn without a repayment plan makes future inflationary episodes more likely and reduces global appetite for US debt.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane argues that Fitch was right to downgrade the US as inflation is effectively a default. “If you only repaid 87.6% of your mortgage, you can be sure the bank would see you as a worse credit risk going forward.”

Is inflation above target economically equivalent to a partial default?

Core argument: Cumulative US inflation above the 2% target means outstanding debt is repaid in dollars worth 12.4% less than if inflation had been 2%, economically equivalent to a 12.4% haircut.

Inflation is the economic equivalent of a partial default. The debt was sold under a 2% inflation target, and people expected that or less inflation. The government borrowed and printed $5 Trillion with no plan to pay it back, devaluing the outstanding debt as a result. Cumulative inflation so far means debt is repaid in dollars that are worth 12.4% less than if inflation had been 2%. That's economically the same as a 12.4% haircut. If you only repaid 87.6% of your mortgage, you can be sure the bank would see you as a worse credit risk going forward. The probability that the US inflates again, that in the next crisis they do the same thing, is unquestionably larger. The world's appetite for boundless amounts of US debt is unquestionably smaller.

Takeaways by Macro Roundup® AI

  1. Cumulative US inflation above the 2% target means outstanding debt is repaid in dollars worth 12.4% less than if inflation had been 2%, economically equivalent to a 12.4% haircut.
  2. The US government borrowed and printed $5 trillion with no plan to pay it back, devaluing debt that had been sold under a 2% inflation target.
  3. The probability that the US inflates again in the next crisis is larger, and the world's appetite for boundless amounts of US debt is smaller.

Related Articles:

  • What We’ve Learned About Inflation — Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.

AI Summary. The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.

Michael Mauboussin and Dan Callahan Morgan Stanley
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As firms have stayed private longer wealth creation has shifted from public to private markets. @mjmauboussin

Are companies staying private longer shifting wealth creation away from public markets?

Core argument: Hendrik Bessembinder finds that of more than 28,000 U.S.-listed companies from 1926 to 2022, just under 60% destroyed $9.1 trillion of wealth while about 40% created $64.2 trillion, for a net $55.1 trillion.

The median age at IPO was 7.9 years from 1976 to 2000 and rose to 9.5 years from 2001 to 2022. One implication of companies staying private longer is that wealth creation has shifted to private markets from the public markets. To illustrate the point, Amazon’s market capitalization was $749 million when it went public in 1997 and $1.3 trillion as of June 30, 2023 (in 2022 dollars). The company was three years old when it did its IPO. Essentially all of its wealth creation occurred when it was public. Hendrik Bessembinder, a professor of finance, has measured the wealth creation of more than 28,000 U.S.listed companies since 1926. A company creates wealth if it generates returns in excess of one-month Treasury bill rates. He found that from 1926 to 2022, just under 60% of them destroyed $9.1 trillion and the other 40% or so created $64.2 trillion. Just 2% of the sample created $50 trillion of the net total of $55.1 trillion, and the top 3 firms (Apple, Microsoft, and ExxonMobil) created almost $6 trillion.

Takeaways by Macro Roundup® AI

  1. Hendrik Bessembinder finds that of more than 28,000 U.S.-listed companies from 1926 to 2022, just under 60% destroyed $9.1 trillion of wealth while about 40% created $64.2 trillion, for a net $55.1 trillion.
  2. Just 2% of Bessembinder's sample created $50 trillion of the $55.1 trillion net total, with Apple, Microsoft, and ExxonMobil accounting for almost $6 trillion.
  3. The median age at IPO rose from 7.9 years over 1976–2000 to 9.5 years over 2001–2022, one implication being that wealth creation has shifted from public to private markets.

Related Articles:

AI Summary. California is home to 113 billionaires, more than any country except China, and added over 116,000 millionaire taxpayers between the end of 2019 and 2021, according to the state's Department of Finance. The number of residents reporting income above $50m rose 158% to 3,182.

Eliyahu Kamisher and Biz Carson Bloomberg
Date Posted:

Despite net migration from California between 2019 and 2021, California added more than 116,000 millionaire taxpayers. The top 1% of earners account for roughly 50% of personal income tax revenue.

Is California's population of ultra-wealthy residents growing?

Core argument: California added more than 116,000 millionaire taxpayers from the end of 2019 through 2021, according to the state's Department of Finance, far outpacing any loss of high-net-worth taxpayers during the pandemic.

California has more billionaires — 113 — than in any country except China. The ranks of mere millionaires have grown as well, far outpacing any loss of high-net-worth taxpayers during the pandemic. From the end of 2019 through 2021, California added more than 116,000 millionaire taxpayers, according to the state’s Department of Finance. The number of residents making more than $50 million surged 158% to 3,182. And that likely underestimates the riches. While the tax data reflects salaries along with income from stock and real estate sales, the ultra-wealthy often avoid income taxes by borrowing against their wealth instead of selling assets that would incur a tax burden. In total, more than 288,000 Californians, or 0.7% of residents, reported over $1 million in income in 2021.

Takeaways by Macro Roundup® AI

  1. California added more than 116,000 millionaire taxpayers from the end of 2019 through 2021, according to the state's Department of Finance, far outpacing any loss of high-net-worth taxpayers during the pandemic.
  2. The number of California residents making more than $50 million surged 158% to 3,182, while more than 288,000 Californians, or 0.7% of residents, reported over $1 million in income in 2021.
  3. California is home to 113 billionaires, more than any country except China, and the tax data likely understates that wealth because the ultra-wealthy often borrow against their wealth rather than sell assets that would incur a tax burden.

Related Articles:

  • The Population of California Declined, Again — California's population fell by 138,443 to 38.94 million, a third consecutive annual decline, according to state data. The main driver has been residents moving to other states such as Texas, Nevada, Idaho and Oregon, with net outmigration reaching a record 407,000 people and now spanning every education and income group.
  • Taxes, Revenues, and Net Migration In California — California's top income tax bracket shows the highest net out-migration rate, with departing high earners not replaced by other high earners at the same rate. Potential net outflows of taxable income reached nearly $4bn in the year federal tax reform took effect and $10.7bn around the COVID-19 pandemic.
  • Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy — The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.

AI Summary. Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.

Economist Staff The Economist
Date Posted:

After remaining relatively stable and actually growing between 1976 to 2014, Antarctic sea ice is at a record low, six standard deviations below the 1991-2020 levels.

How does shrinking Antarctic sea ice threaten global sea levels?

Core argument: The west Antarctic ice sheet alone contains enough water to raise global sea level by 11 feet, and a collapse of the coastal ice shelves would open the way for continental ice to flow rapidly into the oceans.

One of the leading short-term explanations is unusual patterns of wind and waves. Throughout June and July, gusts traveling from the Bellingshausen Sea towards the South Pole prevented ice from forming near the Antarctic Peninsula. Weather systems emanating from storms in the Indian Ocean—brought about by shifts in two regular atmospheric fluctuations, the El Niño Southern Oscillation and the Southern Annular Mode—may also have broken up sea ice as it began to form in East Antarctica. The ring of sea ice around Antarctica holds in place the continent’s coastal ice shelves, which in turn do the same for its glaciers and ice sheets. If those ice shelves were to collapse—as the Conger shelf in east Antarctica did in 2022—the gates would open for continental ice to flow rapidly into the oceans. The west Antarctic ice sheet alone contains enough water to increase global sea level by 11 feet.

Takeaways by Macro Roundup® AI

  1. The west Antarctic ice sheet alone contains enough water to raise global sea level by 11 feet, and a collapse of the coastal ice shelves would open the way for continental ice to flow rapidly into the oceans.
  2. Antarctica's ring of sea ice holds the continent's coastal ice shelves in place, which in turn restrain its glaciers and ice sheets; the Conger shelf in east Antarctica collapsed in 2022.
  3. Gusts traveling from the Bellingshausen Sea toward the South Pole through June and July prevented ice from forming near the Antarctic Peninsula, one of the leading short-term explanations for the loss of Antarctic sea ice.

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AI Summary. The planet's average sea surface temperature reached a record high and the ocean has stayed exceptionally warm, with North Atlantic readings running more than 2°F above typical levels and one buoy recording 101.1°F, possibly a world record. Scientists expect warm ocean conditions to continue as El Niño intensifies.

Elena Shao New York Times
Date Posted:

Last week a buoy off the coast of Florida recorded a reading of 101.1°F which might be a record for sea surface temperature.

How warm have ocean temperatures become this year?

Core argument: The planet's average sea surface temperature spiked to a record high in April and has remained exceptionally warm since, with the North Atlantic consistently running more than 2°F above typical levels for this time of year.

The planet’s average sea surface temperature spiked to a record high in April and the ocean has remained exceptionally warm ever since. The North Atlantic has seen some of the most exceptional warmth, with recent temperatures consistently reaching more than 2°F higher than what is typical for this time of year. Last week, one reading from a buoy recorded a stunning 101.1°F, possibly a world record for sea surface temperatures. The eruption of an underwater volcano in the Pacific Ocean near Tonga last year, which spewed tens of millions of tons of water vapor into the stratosphere, may have also influenced this year’s ocean temperatures. Water vapor, like carbon dioxide, is a greenhouse gas that traps heat near Earth’s surface. Scientists expect warm ocean conditions to continue into the fall, with El Niño intensifying in the months ahead.

Takeaways by Macro Roundup® AI

  1. The planet's average sea surface temperature spiked to a record high in April and has remained exceptionally warm since, with the North Atlantic consistently running more than 2°F above typical levels for this time of year.
  2. A buoy recorded a sea surface temperature of 101.1°F, possibly a world record.
  3. Scientists expect warm ocean conditions to persist into the fall with El Niño intensifying, and the eruption of an underwater volcano near Tonga, which spewed tens of millions of tons of heat-trapping water vapor into the stratosphere, may have influenced this year's ocean temperatures.

Related Articles:

  • Florida Ocean Temperatures At ‘Downright Shocking’ Levels — Much of Florida is recording its warmest year on record, with temperatures 3–5 degrees above normal and coastal waters in the Florida Keys reaching 92–96 degrees versus the more typical upper 80s. The National Oceanic and Atmospheric Administration reports about 40% of the world's oceans face a marine heat wave, the highest share on record.