Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…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
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, October 5, 2023

AI Summary. The equity risk premium fell over the first half of the year and then held relatively steady, leaving the expected return on equities higher as risk-free rates rose. The author argues that quarterly moves in stock and corporate bond prices came largely from rising interest rates rather than a heightened fear of risk.

Aswath Damodaran Musings on Markets
Date Posted:

.@AswathDamodaran writes that recent weakness in equities has primarily been driven by the change in the risk-free rate. He notes that the equity risk premium has declined from 5.9% in January of this year to 4.8% at the start of October.

Are rising interest rates, not risk fears, driving stock price moves?

Core argument: The equity risk premium fell from 5.94% on January 1, 2023 to 5.00% on July 1, 2023, then held relatively stable through the third quarter at 4.84% on October 1, 2023.

The equity risk premium declined in the first half of the year, from 5.94% on January 1, 2023, to 5.00% on July 1, 2023, but has been relatively stable in the third quarter, albeit on top of higher risk-free rates. Thus, the equity risk premium of 4.84% on October 1, 2023, when added to the ten-year T.Bond rate of 4.58% on that day yields an expected return on equity of 9.42%, up from 8.81% on July 1, 2023. Put simply, notwithstanding the ups and downs in stock prices and interest rates in the third quarter of 2023, there is little evidence that changes in the pricing of risk had much to do with the volatility. Much of the change in stock and corporate bond prices in the third quarter has come from rising interest rates, not a heightened fear factor.

Takeaways by Macro Roundup® AI

  1. The equity risk premium fell from 5.94% on January 1, 2023 to 5.00% on July 1, 2023, then held relatively stable through the third quarter at 4.84% on October 1, 2023.
  2. The expected return on equity rose to 9.42% on October 1, 2023 from 8.81% on July 1, 2023, as the 4.84% equity risk premium was added to a ten-year Treasury bond rate of 4.58%.
  3. Much of the third-quarter 2023 change in stock and corporate bond prices came from rising interest rates rather than a heightened fear factor, with little evidence that shifts in the pricing of risk drove the volatility.

Related Articles:

  • A Few Stocks Drive the Stock Market: Dot.com Vs. Today vs. the Last 100 Years — Seven large technology stocks account for nearly 30% of the S&P 500's total value, but the rise of both hyped stocks and the broader market was more extreme during the dot-com era. Historically, only a few stocks have generated most of the stock market's value creation in the US and internationally.
  • Mr. Toad’s Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs — 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.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. US Treasury auction sizes are projected to rise an average of 23% across maturities under the Treasury Borrowing Advisory Committee's neutral issuance scenario, including 37% for 3-year notes and 28% for 5-year notes. The analysis argues this growth in government debt supply pulls investor dollars away from other fixed-income assets such as investment grade credit.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that Treasury auction sizes in 2024 will increase 23% on average across the yield curve.

Does rising Treasury issuance crowd out demand for other fixed income?

Core argument: Treasury auction sizes will rise an average of 23% across the yield curve in 2024, according to the Treasury Borrowing Advisory Committee's neutral issuance scenario.

Treasury auction sizes will increase on average 23% in 2024 across the yield curve. This forecast comes from the Treasury Borrowing Advisory Committee’s neutral issuance scenario. The 37% increase in issuance of 3-year notes and the 28% increase in issuance of 5-year notes will in 2024 stress-test demand for Treasuries in the belly of the curve. This dramatic growth in the supply of the risk-free asset is “pulling dollars away” from other fixed-income assets, including investment grade credit, as investors substitute away from spread products toward Treasuries. The bottom line is that the world only saves a limited amount of dollars every year, and the significant growth in the size of the Treasury market is at risk in 2024 of crowding out demand for other types of fixed income.

Takeaways by Macro Roundup® AI

  1. Treasury auction sizes will rise an average of 23% across the yield curve in 2024, according to the Treasury Borrowing Advisory Committee's neutral issuance scenario.
  2. Issuance of 3-year notes will increase 37% and 5-year notes 28% in 2024, stress-testing demand for Treasuries in the belly of the curve.
  3. Growth in the supply of Treasuries is pulling dollars away from other fixed-income assets, including investment grade credit, and risks crowding out demand for other fixed income in 2024.

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.
  • Maxing Out — 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.
  • The High Cost of Borrowing at Low Rates — The authors estimate that nearly 60% of US debt originated when the average ten-year Treasury rate was below 3%, and 75% when three-month Treasuries paid below 3%. That debt is now being rolled over into Treasuries paying 4.5%–5.6%, a rollover risk the authors argue policymakers failed to account for.

AI Summary. Most of the increase in Treasury yields comes from the term premium, a component unrelated to inflation or short-term rates, and wide government deficits are a leading suspected cause. Real, inflation-adjusted Treasury yields of 2.4% are comparable to the mid-2000s and below 1990s levels, when U.S. debt and deficits were much lower.

Greg Ip Wall Street Journal
Date Posted:

Despite a growing long-term Federal deficit as a share of GDP, @greg_ip notes at 2.4% real Treasury yields are still lower than during the 1990s, when the U.S. government’s debt level and deficits were significantly lower.

Are wide government deficits pushing up long-term Treasury yields?

Core argument: Most of the rise in Treasury yields comes from the term premium, a component unrelated to inflation or short-term rates, with widening government deficits named as a prime suspect among the numerous factors affecting it.

Most of the increase is due to the part of yields, called the term premium, which has nothing to do with inflation or short-term rates. Numerous factors affect the term premium, and rising government deficits are a prime suspect. Deficits have been wide for years. There’s not much sign that this has yet imposed a penalty. Investors still project that the Fed will get inflation down to its 2% goal. At 2.4%, real (inflation-adjusted) Treasury yields are comparable to those in the mid-2000s and lower than in the 1990s, when the U.S. government’s debts and deficits were much lower.

Takeaways by Macro Roundup® AI

  1. Most of the rise in Treasury yields comes from the term premium, a component unrelated to inflation or short-term rates, with widening government deficits named as a prime suspect among the numerous factors affecting it.
  2. Real, inflation-adjusted Treasury yields of 2.4% are comparable to those of the mid-2000s and lower than in the 1990s, when U.S. government debts and deficits were much lower.
  3. Deficits have been wide for years with little sign of a penalty so far, and investors still project that the Federal Reserve will bring inflation down to its 2% goal.

Related Articles:

  • Interest Expense: A Bigger Impact on Deficits than Debt — The US is running a primary deficit—excluding interest costs—much larger than its historical norm, at a point in the business cycle when deficits would normally be smaller than usual. The average interest rate on federal debt is projected to remain at or below the rate of nominal GDP growth over the next decade.
  • Will A.I. Transform the Economy, and if So, How? — During the 1995-2005 information technology boom, productivity ended about 12% above the trend implied by growth from 1973 to 1995, and a comparable or larger gain of around 15% from artificial intelligence is plausible. If such optimistic estimates hold, growth would exceed conventional long-run estimates such as the Federal Reserve's roughly 1.8%, lifting revenue and easing debt concerns.
  • 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.

AI Summary. Average annual real per capita spending growth in the US Medicare program fell from 5.2% in 1987-1996 to 2.7% in 1996-2005 and 0.7% in 2006-2022, a slowdown most plausibly attributed to congressionally mandated payment reforms and cuts. With enrollment projected to rise from 66m to 83m by 2040, aggregate costs are expected to grow rapidly.

James Capretta American Enterprise Institute
Date Posted:

James Capretta @AEIecon notes while the increase in per-capita Medicare spending has slowed, there are reasons for pessimism going forward, as congressionally mandated cuts in Medicare reimbursement rates leave them 40-60% below private rates.

Has slowing per-person Medicare spending growth solved the program's cost problem?

Core argument: Medicare's average annual real per capita spending growth fell from 5.2% in 1987–1996 to 2.7% in 1996–2005 and 0.7% in 2006–2022, according to National Health Expenditure data.

According to NHE data, between 1987 and 1996, the average annual real per capita growth rate within Medicare was 5.2%. From 1996 to 2005, the rate was cut roughly in half, to 2.7%. From 2006 to 2022, it dropped again, to 0.7%. Why did the downward trend begin nearly three decades ago and not in 2011? While there are likely many explanations, the most obvious is the steady implementation of congressionally mandated payment reforms (and cuts). The reasons for the current slowdown may not be sustainable: For example, payments per service under current law are not expected to keep up with inflation and therefore may not be sufficient to ensure full access to care for the program’s beneficiaries. By 2040, Medicare’s payments for physician services and hospital care are expected to be just 40% and 55-60%, respectively, of the average amounts paid by commercial insurers. With aging baby boomers pushing enrollment up from 66 million today to 83 million by 2040, aggregate costs will grow very rapidly over the coming three decades.

Takeaways by Macro Roundup® AI

  1. Medicare's average annual real per capita spending growth fell from 5.2% in 1987–1996 to 2.7% in 1996–2005 and 0.7% in 2006–2022, according to National Health Expenditure data.
  2. The most obvious explanation for Medicare's spending slowdown, which began nearly three decades ago rather than in 2011, is the steady implementation of congressionally mandated payment reforms and cuts.
  3. By 2040, Medicare payments for physician services and hospital care are expected to be 40% and 55–60%, respectively, of average commercial insurer payments, while enrollment rises from 66 million to 83 million.

Related Articles:

  • A Huge Threat to the U.S. Budget Has Receded. And No One Is Sure Why — Spending per Medicare beneficiary in the US has nearly leveled off over more than a decade, though total enrollment has grown as baby boomers age. Policy changes including cuts to hospital and private plan payments explain some savings, but the Congressional Budget Office attributes most of its lowered forecasts to "technical adjustments" in public health and medical practice.
  • Why Medicare and Social Security Are Sustainable — Growth in U.S. health spending above GDP growth has slowed considerably, and the Congressional Budget Office projects social insurance spending will eventually rise by about 5 percentage points of GDP, half of that from assumed health cost increases. The author argues better incentives for medically effective care could hold cost growth well below those projections.

AI Summary. Adjusted for purchasing power, the EU's GDP is roughly 95% of America's, the same share as a decade earlier, while at market exchange rates US prices went from 5.4% above EU levels to 46% higher, largely because of a strong dollar. GDP per person has still grown faster in America than in most of Western Europe.

Economist Staff The Economist
Date Posted:

Adjusting for purchasing-power parity (PPP) the EU’s GDP is ~ 95% of the US, unchanged over the past decade. GDP per person at PPP has grown faster in the US than in most of the EU, but on a per-hour basis, several EU nations are more productive.

Does Europe's economic gap with America shrink when adjusting for purchasing power?

Core argument: U.S. prices stood just 5.4% above EU prices at market exchange rates in 2012, but the gap has widened to 46%, largely thanks to a strong dollar.

Europe’s economic performance looks far better at PPP than in nominal terms. In 2012 prices in America were just 5.4% higher than in the EU at market exchange rates. Today, the gap is 46%, largely thanks to a strong dollar. Adjusting for PPP, the EU’s GDP is roughly 95% of America’s, the same as it was ten years ago. Still, PPP-adjusted GDP per person has grown faster in America than in most of Western Europe.

Takeaways by Macro Roundup® AI

  1. U.S. prices stood just 5.4% above EU prices at market exchange rates in 2012, but the gap has widened to 46%, largely thanks to a strong dollar.
  2. Adjusted for purchasing power parity, the EU's GDP is roughly 95% of America's, the same share as ten years ago.
  3. PPP-adjusted GDP per person has grown faster in America than in most of Western Europe.

Related Articles:

  • 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.
  • Fully Grown – European Vacation! — Europe's growth slowdown reflects a widespread drop in productivity growth rather than changes in physical capital accumulation, with human capital growth also mattering but varying by country. The productivity decline is larger than in the US: in countries such as the UK and France, productivity growth fell from about 2% to near zero or negative.
  • 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.

AI Summary. The Copernicus Climate Change Service reported a September global average temperature of 16.38C, 0.5C above the previous warmest September and 1.75C above the pre-industrial 1850-1900 baseline, putting the year on course to be the hottest on record. The service also found Antarctic sea ice at record lows for the time of year.

Attracta Mooney, Steven Bernard, Chris Campbell, and Aime Williams Financial Times
Date Posted:

2023 was the hottest September on record. The mean global temperature in September was 1.75°C warmer than the pre-industrial period.

Are global temperatures setting new records by unusually wide margins?

Core argument: September's global average temperature of 16.38C was 0.5C above the previous warmest September in 2020, a margin described as extraordinary, and 0.93C above the 1991–2020 September average.

Scientists at the Copernicus Climate Change Service said 2023 was on course to be the hottest on record, after the average global temperature in September was 1.75C degrees warmer than the pre-industrial period of 1850-1900 before human-induced climate change began to take effect. The monitoring service also found Antarctic sea ice levels remained at record lows for the time of year. Last month’s global average temperature of 16.38C was 0.5C above the previous warmest September in 2020, it said, and 0.93C above the 1991-2020 average for the month.

Takeaways by Macro Roundup® AI

  1. September's global average temperature of 16.38C was 0.5C above the previous warmest September in 2020, a margin described as extraordinary, and 0.93C above the 1991–2020 September average.
  2. Copernicus Climate Change Service scientists said September's average global temperature ran 1.75C warmer than the pre-industrial period of 1850–1900, putting 2023 on course to be the hottest year on record.
  3. Antarctic sea ice levels remained at record lows for the time of year, according to the Copernicus Climate Change Service.

Related Articles:

  • Missing Ice and Bleached Coral: The Sudden Warming of the Oceans — Average global sea surface temperatures have risen by just over 0.1C (0.2F) per decade since 1970, about half the pace of the atmosphere, with the increase over the past year closer to 0.2C (0.4F) and far more intense marine heatwaves in some regions. Europe's Copernicus Climate Change Service reported a record average sea surface temperature just short of 21C (70F).
  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — 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.
  • What Happens in Antarctica, Doesn’t Stay in Antarctica — Antarctic sea-ice extent reached a level three times further from the average than any previously recorded in July, and only 0.2–0.4% of the continent is currently exposed above the ice. Further warming is likely to expose more land, reducing the surface's reflectivity and increasing the heat the planet absorbs.

AI Summary. Progressive is dropping 100,000 home insurance policies in Florida, cutting half of its home policies in the state. The Insurance Information Institute anticipates the reduction will include 47,000 policies typically used for second homes and 53,000 policies covering high-risk properties.

Real Deal Staff The Real Deal
Date Posted:

Progressive is dropping at least 100,000 home insurance policies in Florida, half of its current home policies in the state. Florida’s state-backed Citizens, intended as an insurer of last resort, currently has an 18% market share.

Progressive is dropping at least 100,000 home insurance policies in Florida, half of its current home policies in the state....

Are insurers pulling back from high-risk home coverage in Florida?

Core argument: Progressive confirmed it is dropping 100,000 home insurance policies in Florida, half of its home policies in the state, with a first wave of non-renewal notices going out in December.

Another insurer is pulling back from the Sunshine State. Progressive confirmed it is dropping 100,000 home insurance policies across Florida, with a first wave of non-renewal notices going out in December. The move will cut half of Progressive’s home policies in the state. The Insurance Information Institute anticipates Progressive will cut 47,000 DP3 policies, which are typically used for second homes, and 53,000 policies for “high-risk properties,” the publication reported. The latest cut of 100,000 policies adds to the heap of 56,000 policies Progressive didn’t renew last year in Florida.

Takeaways by Macro Roundup® AI

  1. Progressive confirmed it is dropping 100,000 home insurance policies in Florida, half of its home policies in the state, with a first wave of non-renewal notices going out in December.
  2. The Insurance Information Institute anticipates Progressive's cut will include 47,000 DP3 policies, typically used for second homes, and 53,000 policies for "high-risk properties.".
  3. Progressive's 100,000-policy reduction follows 56,000 Florida policies the insurer declined to renew last year.

Related Articles:

  • Farmers Insurance Limits Sales in Florida, California Amid Storm, Wildfire Risks — Farmers Insurance is limiting homeowners policy sales in Florida and California, hurricane- and wildfire-prone states, joining other large insurers in pulling back. In Florida it is ending sales of home, auto, and umbrella policies under its own brand — about 30% of the policies it sells there, affecting roughly 89,000 policies.
  • Why California and Florida Have Become Almost Uninsurable — Wildfires in California and hurricanes in Florida have generated large volumes of insurance claims, while higher housing prices and construction and repair costs have made each claim more expensive. Insurers have also faced costlier reinsurance, with worldwide average reinsurance rates up about a quarter in one year and another third the next, according to reinsurance broker Howden Tiger.
  • Parts of America are Becoming Uninsurable — 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.

Friday, October 6, 2023

AI Summary. The US economy added 336K jobs with labor force participation remaining high and average job gains of 266K over the prior three months, well above the pace needed to absorb population growth. Nominal wage growth moderated for a second consecutive month, with a 3-month annualized rate of 3.4% that the author argues is consistent with inflation in the 2–3% range.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman was shocked by news of 336,000 jobs created in August, but noted that average hourly earnings are consistent with inflation “in the 2-3% range.”

Can strong job growth coexist with wage growth consistent with 2–3% inflation?

Core argument: The U.S. economy added 336K jobs, with three-month average job growth of 266K, which Jason Furman notes is well above replacement and above the pace earlier in the year, despite widespread expectations of moderation.

336K jobs, participation remains high, wage growth moderated further. We could be in the middle of a sustainable increase in labor supply. Just about everyone expected job growth to moderate. Moreover, we had had a series of downward revisions and good reason to expect more. But instead, we have 266k jobs on average over the last three months. Way above replacement and what was happening earlier this year. The market is pricing in a higher chance of future hikes. But frankly, I wouldn't. This is the second month in a row of lower nominal wage growth. Doesn't make it a new trend but still the 3-month annualized growth rate is 3.4%, fully consistent with inflation in the 2-3% range.

Takeaways by Macro Roundup® AI

  1. The U.S. economy added 336K jobs, with three-month average job growth of 266K, which Jason Furman notes is well above replacement and above the pace earlier in the year, despite widespread expectations of moderation.
  2. Furman points to continued high labor force participation in suggesting the U.S. could be in the middle of a sustainable increase in labor supply.
  3. Nominal wage growth moderated for a second consecutive month, with the 3-month annualized rate at 3.4%, which Furman calls fully consistent with inflation in the 2–3% range, and he would not price in higher odds of future hikes as the market has.

AI Summary. States that ended expanded pandemic unemployment benefits early saw the flow of unemployed workers into employment rise by roughly 12-14 percentage points and unemployment rates fall, according to difference-in-difference estimates. The authors also find early termination reduced the share of households reporting no difficulty meeting expenses, leaving welfare implications ambiguous.

Michael Strain, Glenn Hubbard, and Harry Holzer American Enterprise Institute
Date Posted:

.@MichaelRStrain Glenn Hubbard and @HolzerHarry find that in states that terminated pandemic-era UI benefits early, the flow of unemployed workers into employment increased by around 12-14pp following early termination. @AEIecon

Did ending expanded unemployment benefits early raise employment?

Core argument: Difference-in-difference estimates using CPS data indicate that the flow of unemployed workers into employment rose by roughly 12–14 percentage points in states that terminated pandemic UI benefits (FPUC and PUA) early in 2021, relative to states that did not.

We provide estimates of the impacts of the early termination of pandemic-era UI benefits in several states in 2021 that had expanded their generosity (FPUC) and the groups of workers eligible for benefits (PUA), relative to those that did not terminate those benefits early. Using CPS data, we present difference-in-difference estimates that the flow of unemployed workers into employment increased by around 12-14pp following early termination. Among prime-age workers, the effect is about two-thirds the size of the unemployed-to-employed flow among control states during the February–June 2021 period. We show that state-level unemployment rates fell following early exit from FPUC and PUA. Finally, we present evidence that early termination reduced the share of households that had no difficulty meeting expenses. The welfare implications of the early termination of FPUC and PUA are therefore ambiguous.

Takeaways by Macro Roundup® AI

  1. Difference-in-difference estimates using CPS data indicate that the flow of unemployed workers into employment rose by roughly 12–14 percentage points in states that terminated pandemic UI benefits (FPUC and PUA) early in 2021, relative to states that did not.
  2. Among prime-age workers, the estimated effect is about two-thirds the size of the unemployed-to-employed flow in control states over February–June 2021, and state unemployment rates fell following early exit from FPUC and PUA.
  3. Evidence indicates that early termination of FPUC and PUA reduced the share of households reporting no difficulty meeting expenses, leaving the welfare implications of ending the benefits ambiguous.

Related Articles:

  • Unemployment Is Low, Welfare High. What Gives? — Welfare enrollment continued growing even as unemployment fell from a 14.7% peak to 3.7%, with food-stamp recipients up 1.4m and Medicaid recipients up 18.5m. One major reason is that eligibility rules excluded over $1tn in pandemic stimulus checks, expanded child tax credits, and enhanced unemployment benefits from counting as income.
  • Calomiris on Gramm Ekelund and Early on Income Distribution — Transfer benefits phase out so quickly that the effective marginal tax rate in the lowest three income quintiles approaches 100%, meaning an extra dollar earned can cost roughly a dollar of benefits. Hours worked in the lower quintiles have plummeted, though the authors stop short of asserting a causal link.

AI Summary. The federal government is 43% larger than four years earlier, and more than a third of the surge in investment spending traces to government subsidies, credits, and handouts. The author argues the supply of Treasury securities needed to fund deficits will be substantially larger than official estimates, pushing buyers to demand higher yields.

Kevin Warsh Wall Street Journal
Date Posted:

Noting the federal government has grown 43% over the past four years, Kevin Warsh forecasts higher Treasury yields until the business cycle turns.

Noting the federal government has grown 43% over the past four years, Kevin Warsh forecasts higher Treasury yields until the...

Will rising Treasury supply force bond buyers to demand higher yields?

Core argument: The U.S. federal government is 43% larger than it was four years ago, and its reach is expanding.

The U.S. is courting trouble. The federal government is 43% larger than it was four years ago, and its reach is expanding mightily. More than a third of the surge in investment spending can be traced to government subsidies, credits, and handouts. The coming supply of Treasury securities required to fund U.S. government deficits will likely be substantially larger than official estimates. And purchasers of Treasury debt will demand higher yields, at least until something breaks in the economy.

Takeaways by Macro Roundup® AI

  1. The U.S. federal government is 43% larger than it was four years ago, and its reach is expanding.
  2. More than a third of the surge in U.S. investment spending traces to government subsidies, credits, and handouts.
  3. The supply of Treasury securities needed to fund U.S. deficits will likely be substantially larger than official estimates, and purchasers of Treasury debt will demand higher yields, at least until something breaks in the economy.

Related Articles:

  • Maxing Out — 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.
  • 23% Increase in Treasury Auction Sizes in 2024 — US Treasury auction sizes are projected to rise an average of 23% across maturities under the Treasury Borrowing Advisory Committee's neutral issuance scenario, including 37% for 3-year notes and 28% for 5-year notes. The analysis argues this growth in government debt supply pulls investor dollars away from other fixed-income assets such as investment grade credit.
  • The Real Stakes of the Debt-Ceiling Fight — Average inflation-adjusted transfer payments to the lowest-income 20% of US households have grown from $9,677 to $45,389, while the share of prime working-age adults in that group who worked fell from 68% to 36%. Congressional Budget Office estimates put discretionary spending 10% higher in real terms than pre-pandemic projections, with nondefense outlays up 18.8% and defense down 0.28%.

AI Summary. Interest is the fastest-growing part of the federal budget, and at current rates it is projected to exceed defense spending and the net cost of Medicare within a few years and reach a record share of the economy. Projections put interest costs above $13tn over a decade, or $1.9tn annually.

CFRB Staff Committee For A Responsible Federal Budget
Date Posted:

According to a @BudgetHawks analysis, if long-term interest rates remain at their current level, interest will be the second-largest expense by 2026.

Will interest costs soon exceed defense and Medicare spending?

Core argument: Assuming interest rates remain near record highs and absent corrective action, federal interest costs would total more than $13 trillion over the next decade and reach $1.9 trillion per year by 2033.

Interest was already the fastest-growing part of the budget. Assuming these higher rates, interest costs would exceed defense spending by 2025 and exceed the net cost of Medicare by 2026. Under this scenario, interest would reach a record share of the economy within three years, at which point it would become the second-largest federal program. Although most of our national debt was issued when interest rates were low, that debt is quickly rolling over into a high-rate debt environment, and further borrowing continues. Without corrective action, interest costs could total more than $13 trillion over the next decade and $1.9 trillion per year by 2033.

Takeaways by Macro Roundup® AI

  1. Assuming interest rates remain near record highs and absent corrective action, federal interest costs would total more than $13 trillion over the next decade and reach $1.9 trillion per year by 2033.
  2. Under this rate scenario, interest costs would exceed defense spending by 2025 and the net cost of Medicare by 2026, reaching a record share of the economy within three years and becoming the second-largest federal program.
  3. Most U.S. national debt was issued when interest rates were low but is rolling over into a high-rate environment while further borrowing continues, with interest already the fastest-growing part of the budget.

Related Articles:

  • Increase in Treasury Auction Sizes in 2024 — US Treasury auction sizes are projected to rise an average of 23% across maturities under the Treasury Borrowing Advisory Committee's neutral issuance scenario, including 37% for 3-year notes and 28% for 5-year notes. The analysis argues this growth in government debt supply pulls investor dollars away from other fixed-income assets such as investment grade credit.
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AI Summary. Domestic demand for major US crops and livestock is projected to grow 2–10% over the next decade, with rising meat consumption—requiring over 4x the acreage of a vegetarian diet—adding pressure on feed crops. With global population projected to rise by about 2bn by 2050, agriculture must produce more food in 30–40 years than in the past 8,000.

Taylor Bowley and Vanessa Cook Bank of America
Date Posted:

Demand for American agricultural products is forecasted to grow between 2-10% over the next ten years according to @BankofAmerica. The sector currently exports 20% of production.

How much more food must agriculture produce as demand grows?

Core argument: Domestic demand for major US crops and livestock is expected to grow 2–10% over the next decade, with rising meat consumption — requiring more than 4x the acreage of a vegetarian diet — adding pressure on feed crops.

Domestic demand for the US’ major crops and livestock is expected to grow between 2-10% over the next decade. Increasing consumption of meat, which requires >4x more acreage than a vegetarian diet, will further increase the demand pressure on feed crops. The US agricultural sector exports more than 20% of the value of its production, meaning that the sector will be impacted by the growing global population and increased demand for diversified diets and protein. The global population, which is expected to grow by an additional ~2 billion people by 2050 will require the global agriculture industry to produce more food in the next 3-4 decades than was produced in the last 8,000 years.

Takeaways by Macro Roundup® AI

  1. Domestic demand for major US crops and livestock is expected to grow 2–10% over the next decade, with rising meat consumption — requiring more than 4x the acreage of a vegetarian diet — adding pressure on feed crops.
  2. The US agricultural sector exports more than 20% of the value of its production, tying it to global population growth and increased demand for diversified diets and protein.
  3. The global population is expected to grow by roughly 2 billion people by 2050, requiring global agriculture to produce more food in the next 3–4 decades than was produced in the last 8,000 years.

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AI Summary. US states with the largest increases in the income share of the top 10% of earners also tended to see the largest declines in small-firm job creation relative to large firms; the authors estimate a 10pp rise in the top 10% share is associated with a 1.6pp lower net job creation rate at small firms.

Donggyu Lee, Thomas Drechsel, and Sebastian Doerr Federal Reserve Bank of New York
Date Posted:

The increase in income inequality is associated with a decline in the employment share of small firms. @NewYorkFed

Does rising income inequality reduce job creation at small firms?

Core argument: The authors estimate that a 10pp increase in the top 10% income share is associated with a 1.6pp decline in the net job creation rate of small firms relative to large firms.

In 1980, the average income share of earners in the top 10% was around 30%. However, by 2015, it had surpassed 45%. The employment share of small firms has also declined, with a decrease of approximately 5pp over the same period. We use variation across states to show a correlation between these two developments, with states having the greatest increase in the upper-income share also tending to be those with the biggest job creation declines in small firms compared to large firms. One explanation for this correlation is that the increase in the income share of the highest income earners reduced deposits in small and medium-sized banks from what they otherwise would have been. In doing so, this shift in income reduced the available credit for small firms, putting them at a disadvantage relative to large firms. A 10pp increase in the top 10% income share results in a decline of 1.6pp in the net job creation rate of small firms compared to large firms.

Takeaways by Macro Roundup® AI

  1. The authors estimate that a 10pp increase in the top 10% income share is associated with a 1.6pp decline in the net job creation rate of small firms relative to large firms.
  2. The average income share of the top 10% of earners rose from about 30% in 1980 to above 45% in 2015, while the employment share of small firms fell roughly 5pp over the same period.
  3. The authors offer as one explanation that the shift of income toward top earners reduced deposits at small and medium-sized banks, curtailing credit available to small firms relative to large firms.