Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, September 22, 2023

AI Summary. Stabilizing US federal debt at 100% of GDP would require non-interest savings starting at 2% of GDP and rising to 5% of GDP over three decades, assuming no new spending, tax cuts, or crises. Taxing the rich cannot close more than a small fraction of this gap.

Brian Riedl Manhattan Institute
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Stabilizing US federal debt at 100% of GDP will require increased tax revenue and non-interest spending cuts of 5% of GDP going forward. @Brian_Riedl suggests that increasing tax rates on the rich could yield at most 2% of GDP and likely less.

Can taxing the rich close the gap needed to stabilize federal debt?

Core argument: Stabilizing federal debt at 100% of GDP would require non-interest savings starting at 2% of GDP and rising to 5% of GDP over the next three decades, with interest savings from a smaller debt supplying the rest.

Stabilizing the federal debt at 100% of GDP over the long term—which would far exceed the post-1960 average of 45% of GDP—would require non-interest savings beginning at 2% of GDP and ramping up to 5% of GDP over the next three decades. (The resulting interest savings from a smaller debt would provide the rest of the savings.) These figures assume the renewal of the 2017 tax cuts (as there is strong bipartisan support for extending the tax cuts for the bottom-earning 98% of earners) but do not assume any additional spending expansions, tax cuts, or economic crises—all of which would also have to be fully offset to meet this debt target. In short, the non-interest savings required to stabilize the debt will almost surely rise past 5% of GDP when accounting for additional spending and tax-cut legislation. Taxing the rich cannot close more than a small fraction of this gap.

Takeaways by Macro Roundup® AI

  1. Stabilizing federal debt at 100% of GDP would require non-interest savings starting at 2% of GDP and rising to 5% of GDP over the next three decades, with interest savings from a smaller debt supplying the rest.
  2. The 100% of GDP debt target would far exceed the post-1960 average of 45% of GDP, and its savings estimates assume renewal of the 2017 tax cuts but no additional spending expansions, tax cuts, or economic crises.
  3. Required non-interest savings will almost surely rise past 5% of GDP once additional spending and tax-cut legislation are accounted for, and taxing the rich cannot close more than a small fraction of that gap.

Related Articles:

  • 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.
  • American Gothic — US tax increases since 1950 of 2% of GDP or more occurred when overall tax receipts were a much smaller share of GDP than today. Restoring the ratio of entitlement to non-defense discretionary spending to its earlier level of 2.2x would require tax increases larger than those historical precedents.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. The US 10-year Treasury yield rose above 4.5% for the first time since 2007, and the 30-year yield reached its highest level since 2011, amid concern that bonds face a combination of large US federal deficits and persistent inflation. Pershing Square Capital Management is short bonds, arguing 5.5% is an appropriate yield for 30-year Treasuries.

Garfield Reynolds and Ruth Carson Bloomberg
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The 10-year Treasury yield went above 4.5% for the first time since 2007. The 30-year yield is at the highest level since 2011.

Are large deficits and persistent inflation pushing long-term Treasury yields higher?

Core argument: The US 10-year Treasury yield rose above 4.5% for the first time since 2007 after a more hawkish Federal Reserve added to concern that bonds face large US fiscal deficits and persistent inflation.

Treasury 10-year yields rose above 4.5% for the first time since 2007 as a more hawkish Federal Reserve adds to concern the bonds face a toxic mix of large US fiscal deficits and persistent inflation. Bill Ackman of Pershing Square Capital Management says he remains short bonds because he expects long-term rates to rise further. “The long-term inflation rate plus the real rate of interest plus term premium suggests that 5.5% is an appropriate yield for 30-year Treasurys.” The yield on 30-year debt climbed as much as one basis point Friday to 4.59%, adding to the 13 basis-point jump on Thursday that took it to the highest since 2011.

Takeaways by Macro Roundup® AI

  1. The US 10-year Treasury yield rose above 4.5% for the first time since 2007 after a more hawkish Federal Reserve added to concern that bonds face large US fiscal deficits and persistent inflation.
  2. The 30-year Treasury yield climbed as much as one basis point Friday to 4.59%, following Thursday's 13 basis-point jump that took it to its highest level since 2011.
  3. Bill Ackman of Pershing Square Capital Management remains short bonds, expecting long-term rates to rise further, and argues that long-term inflation, the real rate of interest and term premium suggest 5.5% is an appropriate 30-year Treasury yield.

Related Articles:

  • 31% of All US Government Debt Outstanding Matures within 12 Months — 31% of outstanding US government debt, roughly $7.6tn in bonds, matures within the next 12 months, which the author identifies as a source of upward pressure on US interest rates.
  • Is a U.S. Debt Crisis Looming? Is it Even Possible? — A debt spiral requires the interest rate on government debt to exceed the economy's growth rate; with inflation-protected 10-year U.S. bond yields near 1.83%, close to most estimates of sustainable growth, any spiral would be slow-moving. Stabilizing debt at 100% of GDP would require a 2% primary surplus.
  • US Fiscal Alarm Bells Are Drowning Out a Deeper Problem — The Congressional Budget Office projects US federal debt held by the public at 98% of national income, within 7.6 percentage points of its 1946 wartime peak and on track to exceed it by 2028. International Monetary Fund forecasts show US debt surpassing Italy's by 2028 and Greece's by the end of the decade.

AI Summary. In a world of 2% real growth, 2% inflation, and healthy private sector balance sheets, it is unclear why interest rates would need to fall much. Real yields on 5-year inflation-protected Treasury securities sit about 0.5pp above 5-year real yields five years forward, versus roughly 1pp below forward rates before the pandemic.

Matt Klein The Overshoot
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.@M_C_Klein notes that the spot 5-year yield on TIPS is at levels not seen since before the financial crisis. He suggests that if term premia revert to historical levels, there would be negative implications for all asset prices.

Do steady growth and healthy balance sheets keep interest rates elevated?

Core argument: Real yields on 5-year TIPS sit about 0.5 percentage point above 5-year real yields starting five years forward, a reversal of the roughly 1pp discount that prevailed from 2003 until the pandemic.

Even if wage growth did normalize, it is not clear why interest rates would need to fall much, if at all, in a world of 2% real growth, 2% inflation, and healthy private sector balance sheets. Real yields on 5-year Treasury inflation-protected securities (TIPS) are currently about 0.5 percentage point higher than 5-year real yields starting five years from now. But from 2003 until the pandemic, spot 5-year real rates were about 1pp lower than forward rates. (This includes the flat curve years of 2006-7 and 2018-2019, when the spread was more or less zero.) If further-forward real yields were poised to revert to this longer-term average, then that would have implications for a range of asset prices.

Takeaways by Macro Roundup® AI

  1. Real yields on 5-year TIPS sit about 0.5 percentage point above 5-year real yields starting five years forward, a reversal of the roughly 1pp discount that prevailed from 2003 until the pandemic.
  2. In a world of 2% real growth, 2% inflation, and healthy private sector balance sheets, it is not clear why interest rates would need to fall much, if at all, even if wage growth normalized.
  3. A reversion of further-forward real yields to their longer-term average would carry implications for a range of asset prices.

Related Articles:

  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.
  • 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.
  • BIS Quarterly Review — Futures-market pricing of policy rates in major advanced economies moved closer to central banks' cautious messaging, with higher expected rates for 2024 and a higher, later expected peak. Investors still anticipated rate cuts beginning in the second quarter of 2024, deeper in the US than the euro area.

AI Summary. US households have purchased $1.5tn in Treasury securities since the Federal Reserve began raising interest rates, and US pension funds and insurers have also become buyers while the Federal Reserve has been a net seller. The pattern indicates households and long-term investors find current US yields attractive.

Torsten Sløk Apollo
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Torsten Sløk @apolloglobal notes that since the start of the hiking cycle, American households have bought $1.5 trillion in Treasuries.

Are households absorbing Treasuries as the central bank sells?

Core argument: US households have bought $1.5 trillion in Treasuries since the Federal Reserve began hiking rates.

Since the Fed started hiking rates last year, US households have bought $1.5 trillion in Treasuries, and over the past six months, US pension and insurance have also emerged as a buyer. Over the same period, the Fed has been doing QT and been a net seller of Treasuries. The bottom line is that US households and real money are finding current levels of US yields attractive.

Takeaways by Macro Roundup® AI

  1. US households have bought $1.5 trillion in Treasuries since the Federal Reserve began hiking rates.
  2. US pension funds and insurers have also emerged as Treasury buyers over the past six months.
  3. The Federal Reserve has been a net seller of Treasuries under quantitative tightening, while US households and real money find current US yield levels attractive.

Related Articles:

  • Demand for Treasuries — US households have been large buyers of US Treasury securities, while foreign demand has been more limited because of higher currency-hedging costs, with foreigners instead adding $3tn of equities during the pandemic. With a 5% budget deficit, the Federal Reserve shrinking its balance sheet, and the Treasury rebuilding its cash balance, attention will turn to who buys US government debt.
  • Trapped Liquidity — Changes in the financial system's underlying plumbing make it unlikely that the Federal Reserve's balance-sheet runoff can last its expected 2+ years, since an ideal runoff drains system-wide liquidity while keeping bank-sector liquidity above a minimum. Federal Reserve data show US households replaced money market funds as the marginal buyer of short-dated Treasuries, funding purchases from money held in banks.
  • 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.

AI Summary. Real interest rates have risen across the yield curve, and the flat real yield curve implies they are expected to stay near current levels of about 2%. Combined with inflation at the 2% target, that implies a long-run natural rate of 4–4.5%, above the highest estimate offered by any Federal Reserve policymaker.

Joseph Politano Apricitas Economics
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Real rates imply a long-run natural rate of between 4 and 4.5%, higher than the Fed’s projection. @JosephPolitano

Do market rates imply a higher long-run natural rate than policymakers expect?

Core argument: Real interest rates around 2% paired with inflation at the Fed's 2% target imply a long-run natural rate of 4–4.5%, after adjusting for the gap between CPI and PCE inflation measures.

Real interest rates have risen across the yield curve after stalling out between late 2022 and the first half of 2023. Importantly, the real yield curve remains relatively flat—implying that real interest rates are slated to remain at roughly their near-term levels for the foreseeable future. For real interest rates to stay around their current levels of about 2% and inflation to remain at the target of 2% would imply a long-run natural rate of between 4 and 4.5% (after accounting for the difference between CPI and the Fed’s preferred PCE inflation adjustments). Again, that is higher than even the highest estimate put forward by a FOMC participant yesterday.

Takeaways by Macro Roundup® AI

  1. Real interest rates around 2% paired with inflation at the Fed's 2% target imply a long-run natural rate of 4–4.5%, after adjusting for the gap between CPI and PCE inflation measures.
  2. The implied long-run natural rate of 4–4.5% exceeds even the highest estimate put forward by an FOMC participant.
  3. Real interest rates have risen across the yield curve after stalling between late 2022 and the first half of 2023, and the real yield curve remains relatively flat, implying real rates hold near current levels.

Related Articles:

  • 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.
  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.
  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.

AI Summary. Goldman Sachs analysis found average monthly growth in the US foreign-born labor force is about 65,000 higher than in 2022, with that labor force nearing 32m people. Foreign-born workers' share of the labor force reached a record 18% in 2022 and has averaged 18.5% this year.

Amara Omeokwe and Michelle Hackman Wall Street Journal
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32mm foreign-born workers made up 18% of the American labor force last year, the highest level since the series was initially published in 1996.

Is the foreign-born share of the US labor force rising?

Core argument: Average monthly growth in the U.S. foreign-born labor force is running about 65,000 higher this year than in 2022 on a seasonally adjusted basis, according to a Goldman Sachs analysis.

This year, average monthly growth in the foreign-born labor force is about 65,000 higher compared with 2022 on a seasonally adjusted basis, a Goldman Sachs analysis found. After plunging at the start of the pandemic, the size of the foreign-born labor force has rebounded, nearing 32 million people in August. Foreign-born workers’ share of the labor force—those working or looking for work—reached 18% in 2022, the highest level on record going back to 1996, according to the Labor Department. It has climbed further this year to an average of 18.5% through August, not adjusted for seasonal variation.

Takeaways by Macro Roundup® AI

  1. Average monthly growth in the U.S. foreign-born labor force is running about 65,000 higher this year than in 2022 on a seasonally adjusted basis, according to a Goldman Sachs analysis.
  2. The foreign-born labor force neared 32 million people in August, rebounding after plunging at the start of the pandemic.
  3. Foreign-born workers' share of the U.S. labor force reached 18% in 2022, the highest on record back to 1996 per the Labor Department, and averaged 18.5% through August this year, unadjusted for seasonal variation.

Related Articles:

  • 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%.
  • Immigration Playing a Key Role in the Labor Market — Immigration into the US labor market has added 4 million workers, returning the working-age immigrant population to its pre-pandemic trend. High immigration contributes to solid job growth, a higher participation rate, and limits upside pressure on wages, helping the Federal Reserve cool the labor market and slow inflation.
  • Immigration and U.S. Labor Market Tightness: Is There a Link? — The U.S. was missing an average of about 1.39m foreign workers relative to the pre-pandemic trend, a shortfall that has since recovered. Across industries and states, the authors find no statistically significant relationship between the number of missing foreign workers as a share of employment and changes in job vacancy rates.

AI Summary. Florida's average home insurance premium reached about $6,000, over 3x the national average and up 42% year-on-year, yet insurers are exiting, leaving the state-backed insurer of last resort with the largest market share and $608bn of insured assets. In California, consumer-protection rules prevent premiums from covering rising wildfire and reinsurance costs.

Economist Staff The Economist
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In Florida, the state-backed insurer of last resort is now the largest home insurer. California’s state-backed insurer almost doubled its policy count between 2018 and 2021.

Are private insurers withdrawing from high-risk housing markets despite rising premiums?

Core argument: Florida's average home insurance premium reached roughly $6,000 in 2023, more than three times the national average and up 42% year-on-year, yet insurers are leaving the state rather than expanding.

In Florida the average home insurance premium in 2023 is around $6,000, more than three times the national average and up 42% year-on-year. Yet rather than drooling over juicy profits, insurers are fleeing. With 1.3m policies, the state-backed insurer of last resort now has the highest market share in Florida and is insuring assets worth $608bn. The Golden State is following the Sunshine State into market failure, but for different reasons. Though California is a pricey place to live, property insurance is relatively cheap thanks to strict consumer-protection laws. Regulations prevent insurers from raising premiums high enough to cover inflation, increasing wildfire risk and rising reinsurance rates.

Takeaways by Macro Roundup® AI

  1. Florida's average home insurance premium reached roughly $6,000 in 2023, more than three times the national average and up 42% year-on-year, yet insurers are leaving the state rather than expanding.
  2. Florida's state-backed insurer of last resort holds the highest market share in the state, with 1.3m policies covering assets worth $608bn.
  3. California property insurance remains relatively cheap under strict consumer-protection laws, with regulations preventing insurers from raising premiums enough to cover inflation, increasing wildfire risk and rising reinsurance rates.

Related Articles:

  • Analyzing State Resilience to Weather and Climate Disasters — The real annual cost of U.S. weather and climate disasters has risen from about $20bn per year in the 1980s to nearly $95bn per year in 2010–19, reaching roughly $153bn in one year. Property insurers absorbed 48% of these costs, uninsured or underinsured homeowners, businesses and farms 37%, the federal government 11%, and state and local governments 4%.
  • How a Small Group of Firms Changed the Math for Insuring Against Natural Disasters — Reinsurance prices rose as much as 40% year over year, according to a report by brokerage Gallagher Re, prompting insurers to change where and what they cover. State Farm and Allstate cited reinsurance market conditions and costs in curtailing some California business, and agricultural reinsurers announced exits from Iowa.
  • Rising Insurance Costs Start to Hit Home Sales — A survey of house builders found that 31% in Florida and 29% in Southern California said buyers' home insurance concerns were somewhat slowing sales, versus 9% nationally. Researchers estimate that pricing in flood risk would reduce U.S. residential property values by at least $121bn, including over $50bn of overvaluation in Florida flood zones.

Monday, September 25, 2023

AI Summary. Survey data show average views in high-income countries have become 20% more zero-sum — the belief that people get rich only at others' expense — over the past century, with two rises in zero-sum attitudes coinciding with growth slowdowns in the 1970s and the past two decades.

John Burn-Murdoch Financial Times
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Americans and Britons have shifted from believing “wealth can grow so there’s enough for everyone” to “people can only get rich at the expense of others.” Democrats who voted for Trump in 2016 scored very high on zero-sum beliefs. @jburnmurdoch

Do slower growth periods make people more zero-sum in their thinking?

Core argument: Average responses in high-income countries on the World Values Survey's zero-sum-to-positive-sum wealth scale have become 20% more zero-sum over the last century.

Every five to 10 years, the World Values Survey asks people in dozens of countries where they would place themselves on a scale from the zero-sum belief that “people can only get rich at the expense of others”, to the positive-sum view that “wealth can grow so there’s enough for everyone”. The average response among those in high-income countries has become 20% more zero-sum over the last century. Moreover, two distinct rises in the prevalence of zero-sum attitudes have coincided with two slowdowns in gross domestic product growth, one in the 1970s and another in the past two decades. The same pattern holds within individual countries. Britons and Americans have become significantly more likely to believe that success is a matter of luck rather than effort precisely as income growth has slowed.

Takeaways by Macro Roundup® AI

  1. Average responses in high-income countries on the World Values Survey's zero-sum-to-positive-sum wealth scale have become 20% more zero-sum over the last century.
  2. Two distinct rises in zero-sum attitudes coincided with two slowdowns in GDP growth, one in the 1970s and another over the past two decades, a pattern that also holds within individual countries.
  3. Britons and Americans have become significantly more likely to believe success is a matter of luck rather than effort as income growth has slowed.

Related Articles:

  • Zero-Sum Thinking and the Roots of U.S. Political Divides — Zero-sum thinking — viewing gains for one group as losses for another — is associated with greater support for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party. The authors also find it linked to believing the QAnon conspiracy theory holds some truth and to sympathy for the attack on the U.S. Capitol.
  • Is the Surge to the Left Among Young Voters a Trump Blip or the Real Deal? — Data from the Cooperative Election Study show millennials and Gen Z have voted increasingly for Democratic House candidates over time, contrary to the adage that voters grow more conservative as they age. One political scientist notes such generational shifts translate slowly into vote share and can be offset by Republican gains elsewhere.
  • Millennials are Shattering the Oldest Rule in Politics — British "silent generation" and baby boomers grew more conservative with age, and Gen X is following the same path, but millennials, born 1981-1996, diverged from that trajectory. The most likely explanation is a cohort effect, with US survey data showing millennials favoring greater redistribution from rich to poor than earlier generations.

AI Summary. Zero-sum thinking — viewing gains for one group as losses for another — is associated with greater support for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party. The authors also find it linked to believing the QAnon conspiracy theory holds some truth and to sympathy for the attack on the U.S. Capitol.

Sahil Chinoy, Nathan Nunn, Sandra Sequeira and Stefanie Stantcheva National Bureau of Economic Research
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Zero-sum thinking in terms of political and policy views is strongly associated with lower levels of intergenerational upward mobility. @S_Stantcheva @DrNathanNunn

How does zero-sum thinking shape political views and party alignment?

Core argument: Zero-sum thinking is associated with greater preference for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party.

Zero-sum thinking is associated with more preference for liberal economic policies in general and with stronger political alignment with the Democratic Party and weaker alignment with the Republican Party. We also find that zero-sum thinking is linked empirically to important political crises experienced in the United States. Specifically, we find that individuals who view the world in zero-sum terms are more likely to believe that the conspiracy theory QAnon holds some truth for U.S. politics. We also find that zero-sum thinking is linked with empathy and understanding for the January 6, 2021 attack on the U.S. Capitol Building, an act that is more justifiable and seen as being less harmful if one presumes the world is zero-sum (rather than positive/negative sum).

Takeaways by Macro Roundup® AI

  1. Zero-sum thinking is associated with greater preference for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party.
  2. Individuals who view the world in zero-sum terms are more likely to believe the QAnon conspiracy theory holds some truth for U.S. politics.
  3. Zero-sum thinking is linked with empathy and understanding for the January 6, 2021 attack on the U.S. Capitol, an act seen as more justifiable and less harmful if one presumes the world is zero-sum.

Related Articles:

  • Are We Destined For A Zero-Sum Future? — Survey data show average views in high-income countries have become 20% more zero-sum — the belief that people get rich only at others' expense — over the past century, with two rises in zero-sum attitudes coinciding with growth slowdowns in the 1970s and the past two decades.
  • Is the Surge to the Left Among Young Voters a Trump Blip or the Real Deal? — Data from the Cooperative Election Study show millennials and Gen Z have voted increasingly for Democratic House candidates over time, contrary to the adage that voters grow more conservative as they age. One political scientist notes such generational shifts translate slowly into vote share and can be offset by Republican gains elsewhere.
  • Millennials are Shattering the Oldest Rule in Politics — British "silent generation" and baby boomers grew more conservative with age, and Gen X is following the same path, but millennials, born 1981-1996, diverged from that trajectory. The most likely explanation is a cohort effect, with US survey data showing millennials favoring greater redistribution from rich to poor than earlier generations.

AI Summary. The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.

Simeon Alder, David Lagakos, and Lee Ohanian Journal of Political Economy
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According to @lee_ohanian @AEIecon, labor market conflict explains half of the decline in the Rust Belt’s share of total manufacturing employment between 1950 and 2000.

How much of the Rust Belt's decline reflects labor conflict?

Core argument: Persistent labor market conflict in the Rust Belt's main industries accounts for around half of the decline in the region's share of manufacturing employment, according to the paper's quantitative model.

This paper hypothesizes that the decline of the Rust Belt was due in large part to the persistent labor market conflict that was prevalent throughout the region’s main industries. [Labor conflict] results in lower investment and productivity growth, which causes employment to move from the Rust Belt to the rest of the country. The model also features rising foreign competition as an alternative source of the Rust Belt’s decline. Quantitatively, labor conflict accounts for around half of the decline in the Rust Belt’s share of manufacturing employment. Consistent with the data, the model predicts that the Rust Belt’s employment share stabilizes by the mid 1980s, once labor conflict subsides. Rising foreign competition plays a more modest role quantitatively, and its effects are concentrated in the 1980s and 1990s, after most of the Rust Belt’s decline had already occurred.

Takeaways by Macro Roundup® AI

  1. Persistent labor market conflict in the Rust Belt's main industries accounts for around half of the decline in the region's share of manufacturing employment, according to the paper's quantitative model.
  2. In the model, labor conflict lowers investment and productivity growth in the Rust Belt, shifting employment to the rest of the country, with the region's employment share stabilizing by the mid-1980s once conflict subsides.
  3. Rising foreign competition plays a more modest quantitative role in the model, with effects concentrated in the 1980s and 1990s, after most of the Rust Belt's decline had already occurred.

Related Articles:

  • Autoworkers Have Good Reason to Demand a Big Raise — Inflation-adjusted average hourly pay for US production and nonsupervisory workers has risen 13% over 20 years, about 0.6% a year, while the average hourly wage for auto production-line workers has fallen 30%. General Motors, Ford and Stellantis earned a combined $42bn in net income over 12 months.
  • American Labor’s Real Problem: It Isn’t Productive Enough — U.S. manufacturing output per hour has grown about 0.2% a year since 2009, below the overall economy and peer economies in Europe and Asia except Japan, with motor vehicle manufacturing productivity falling 32% from 2012 through last year. Unlike warehouses and hospitals, manufacturers face foreign competition and cannot pass higher labor costs to customers.
  • EV Boom Remakes Rural Towns in the American South — Automakers have announced more than $110bn in electric-vehicle investments in the US, with about half directed to Southern states and most of the remainder to Great Lakes states including Michigan, Ohio and Indiana. Great Lakes auto employment, though still nearly double the South's, has fallen 34% over two decades to 382,000 workers.

AI Summary. Manufacturing average hourly wages, once about 3% above private-sector wages, have grown more slowly than private-sector wages, erasing the manufacturing wage premium for most manufacturing jobs. The authors estimate that declining unionization accounts for more than 70% of that drop, an effect that remains significant after controlling for worker and sector characteristics.

Kimberly Bayard, Tomaz Cajner, Vivi Gregorich, and Maria Tito Federal Reserve Board
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A @federalreserve analysis from last year finds the manufacturing wage premium has disappeared for most manufacturing jobs as of April 2018. The decline in unionization is responsible for “more than 70% of the drop in the manufacturing wage premium.”

Has declining unionization erased the manufacturing wage premium?

Core argument: Manufacturing average hourly wages stood 3% above private-sector wages in 2006 in the CES data, but that manufacturing wage premium has disappeared for most manufacturing jobs.

As measured in the CES data, manufacturing average hourly wages for all employees were 3% above wages in the private sector in 2006, a difference commonly known as the manufacturing wage premium. Since then, manufacturing wages have averaged gains of 2.3% per year, while wages in the private sector have risen 2.6% per year. While manufacturing workers used to receive a premium relative to workers in other sectors, that premium has disappeared in recent years for most manufacturing jobs. Our results indicate that the decline in unionization rates is responsible for more than 70% of the drop in the manufacturing wage premium. Notably, the unionization effect remains significant even after accounting for a large set of worker and sectoral characteristics.

Takeaways by Macro Roundup® AI

  1. Manufacturing average hourly wages stood 3% above private-sector wages in 2006 in the CES data, but that manufacturing wage premium has disappeared for most manufacturing jobs.
  2. Manufacturing wages have gained an average 2.3% per year since 2006, trailing the 2.6% annual pace of private-sector wages.
  3. Declining unionization rates account for more than 70% of the drop in the manufacturing wage premium, according to the authors' results, with the unionization effect remaining significant after accounting for a large set of worker and sectoral characteristics.

Related Articles:

  • American Labor’s Real Problem: It Isn’t Productive Enough — U.S. manufacturing output per hour has grown about 0.2% a year since 2009, below the overall economy and peer economies in Europe and Asia except Japan, with motor vehicle manufacturing productivity falling 32% from 2012 through last year. Unlike warehouses and hospitals, manufacturers face foreign competition and cannot pass higher labor costs to customers.
  • The World Is In The Grip Of A Manufacturing Delusion — Manufacturing's share of global economic output has fallen from 19% in 1997 to 16%, with the steepest declines in rich countries, and industry's share has slipped in recent years even in China and India. Among OECD countries in recent decades, there has been next to no relationship between economic growth and manufacturing's share of the economy.
  • Unpacking the Boom in U.S. Construction of Manufacturing Facilities — The computer and electronics segment is the dominant component of U.S. manufacturing facility construction, and its boom has not come at the expense of other segments, with chemical, transportation, and food and beverage construction also up, though by much less. Roughly comparable data show no similar surge in other advanced economies.

AI Summary. Hedge funds became a major buyer of US Treasuries after the Federal Reserve and commercial banks stepped back, financing those purchases through dealer repurchase agreements that grew rapidly and then stalled. If these leveraged buyers are hitting financing limits set by dealer balance sheet costs, a new marginal buyer must emerge to absorb upcoming issuance.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 writes that the Treasury market is likely to be volatile going forward. He speculates that rates are likely to go higher, as major recent buyers of Treasuries all seem to have exhausted their capacity to take on more Treasuries.

Are leveraged buyers of Treasuries reaching their financing limits?

Core argument: Hedge funds stepped in as buyers of cash Treasuries in size after the Federal Reserve and commercial banks stepped away, using the cash-futures basis trade financed through dealer repo, which grew rapidly and then stalled.

The Treasury market may be entering a period of volatility as leveraged investors have stalled in their purchases and the next marginal buyer has not yet arrived. When the Fed and commercial banks stepped away from the Treasury market, hedge funds stepped in and bought cash Treasuries in size as part of a cash futures basis trade. The financing for that trade is sourced through dealer repo, which grew rapidly and then stalled. While dealers themselves have access to virtually unlimited financing from the Fed, the size of their activity is constrained by balance sheet costs. If the leveraged buyers are reaching financing limits, then a new marginal Treasury buyer must emerge to absorb the sizable upcoming issuance.

Takeaways by Macro Roundup® AI

  1. Hedge funds stepped in as buyers of cash Treasuries in size after the Federal Reserve and commercial banks stepped away, using the cash-futures basis trade financed through dealer repo, which grew rapidly and then stalled.
  2. Dealers have access to virtually unlimited financing from the Federal Reserve, but balance sheet costs constrain the size of their activity.
  3. If leveraged buyers are reaching financing limits, a new marginal Treasury buyer must emerge to absorb sizable upcoming issuance, and the Treasury market may enter a period of volatility.

Related Articles:

  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • Who Has Been Buying U.S. Treasury Debt? — Net purchases of U.S. Treasury securities by the "households and nonprofits" category have soared, more than offsetting sales and redemptions by money market funds, the Federal Reserve, and banks; much of this buying likely reflects hedge funds. The composition of Treasury financing has shifted dramatically as bond prices fell.
  • 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.

AI Summary. US equities make up nearly 70% of the MSCI World index, and its 10 largest constituents — all US companies — exceed the combined market capitalization of Japan, the UK, France, Canada, and Germany. That depth and liquidity attracts new listings from both US and overseas issuers.

Philip Augar Financial Times
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US equities account for nearly 70% of the MSCI World index, and the 10 largest US equities are larger than the combined market capitalization of Japan, the UK, France, Canada, and Germany. European-based firms are looking at listing on US exchanges.

US equities account for nearly 70% of the MSCI World index, and the 10 largest US equities are larger than the combined...

Are US markets drawing listings away from European exchanges?

Core argument: US equities account for nearly 70% of the MSCI World index, while the next five largest markets — Japan, the UK, France, Canada, and Germany — together total less than 20%.

US equities account for nearly 70% of the MSCI World index; the next five largest — in Japan, UK, France, Canada, and Germany — total less than 20%. The top 10 constituent equities of the MSCI World index, which are all US companies including Apple at number one and ExxonMobil at number 10, aggregate to more than 20%. To put it bluntly, the 10 most valuable US equities are larger than the market capitalisations of Japan, UK, France, Canada, and Germany combined. In effect, the US has scaled up the largest companies in the world in its own public markets, creating a colossal pool of recyclable equity capital residing in domestic and non-US investor portfolios. This has created a virtuous cycle of new listings from US and overseas issuers attracted by the depth and liquidity of that equity pool.

Takeaways by Macro Roundup® AI

  1. US equities account for nearly 70% of the MSCI World index, while the next five largest markets — Japan, the UK, France, Canada, and Germany — together total less than 20%.
  2. The top 10 constituents of the MSCI World index are all US companies, led by Apple at number one and ExxonMobil at number 10, and aggregate to more than 20% of the index, exceeding the combined market capitalisations of Japan, the UK, France, Canada, and Germany.
  3. By scaling up the world's largest companies in its own public markets, the US has created a pool of recyclable equity capital held by domestic and non-US investors, producing a virtuous cycle of new listings from US and overseas issuers drawn by that depth and liquidity.

Related Articles:

  • Europe Has Fallen Behind America and the Gap is Growing — The EU economy was somewhat larger than the US in 2008 ($16.2tn versus $14.7tn), but by 2022 the US had grown to $25tn while the EU and UK combined reached only $19.8tn. The dollar's status as the world's reserve currency allows the US to finance its ambitions without unsettling markets.
  • Why Europe’s Stock Markets Are Failing to Challenge the US — The value of European stock market listings fell to its lowest level in a decade, with a single €75bn carmaker listing in Frankfurt accounting for 60% of the total raised. US outperformance in listing numbers and valuations reflects Silicon Valley's technology scene and ultra-loose monetary policy that pushed cash into equities.
  • From Strength To Strength — The US produced $25.5tn in GDP, about 25% of the world total—roughly its 1990 share—while China's share stands at 18%; the US share of the G7's nominal GDP rose from 40% in 1990 to 58%. Income per person is now about 30% above western Europe and 54% above Japan, adjusted for purchasing power.