Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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


Monday, October 16, 2023

AI Summary. At age 25, workers in the top lifetime-earnings bracket average about $39,000 versus roughly $12,000 for the bottom bracket, a gap of about 3.25x. Top earners' pay rises 435% between ages 25 and 35 and over 150% between 35 and 45, exceeding $500,000 annually by age 45, while bottom earners gain about 15-16% per decade.

Serdar Ozkan Federal Reserve Bank of St. Louis
Date Posted:
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The top 2% of male earners in the United States see their annual earnings pull away from the median male workers starting at age 25; these workers see strong earnings growth until age 55. @serdarozkanEN

How does pay growth after age 35 differ across earnings brackets?

Core argument: Top lifetime-earnings workers saw earnings rise 435% between ages 25 and 35, versus over 65% for median earners and 16% for those at the bottom.

At age 25, individuals in the lowest lifetime earnings (LE) bracket earned an average of approximately $12,000, while those in the median and top brackets earned $28,000 and $39,000, respectively. As a result, the earnings gap between the highest and lowest earners—measured as the ratio of their average earnings—already stands at around 3.25 at the beginning of their working lives. Those at the top of the LE distribution witness a remarkable 435% surge in their incomes between ages 25 and 35. In contrast, median earners undergo a comparatively modest increase of over 65%, while those at the bottom experience minimal earnings growth, a mere 16% uptick. Interestingly, during the subsequent 10-year period (ages 35-45), the median LE group witnesses a significant deceleration in their earnings growth, plummeting from the previous decade’s 65% increase to approximately 15%. Meanwhile, the bottom LE group continues to undergo a gradual but consistent earnings growth of around 15%. The top LE group deviates substantially from the rest of the workforce. They once again experience surge in earnings, exceeding 150%, and by the time they reach age 45, they earned more than half a million dollars annually. Consequently, the earnings gap between the highest and lowest earners widens further, expanding from 15.3 to 33.1.

Takeaways by Macro Roundup® AI

  1. Top lifetime-earnings workers saw earnings rise 435% between ages 25 and 35, versus over 65% for median earners and 16% for those at the bottom.
  2. Between ages 35 and 45, top lifetime earners gained more than 150%, exceeding $500,000 annually by age 45, while median earners' growth slowed from over 65% to about 15% and bottom earners grew about 15%.
  3. The earnings ratio between the highest and lowest lifetime earners stands near 3.25 at age 25, when average earnings are about $39,000 versus $12,000, and widens from 15.3 to 33.1 by age 45.

Related Articles:

  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth
  • The Inheritance Of Social Status: England, 1600 to 2022 — Using a genealogical database of 422,374 English people with rarer surnames, the authors find social status persists strongly even among distant relatives, with status correlations declining by a constant factor of 0.79 per step in the lineage across all status measures and eras studied. The authors argue this constancy suggests social interventions have modest effects.

AI Summary. Analysts estimate higher interest rates will raise small businesses' interest burden from roughly 5.8% of revenues to about 7%, and eventually to just under 8% as term loans mature—above the pre-pandemic 6.8% but similar to the mid-1990s. Because small businesses are about 15% of private-sector gross output, they project a drag on economywide GDP growth of about 0.1pp.

Manuel Abecasis and Spencer Hill Goldman Sachs
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.@GoldmanSachs estimates interest expenses for small businesses will be up 1pp by 2024 from 5.8% of revenues in 2021 to around 7% in 2024. Despite that, the overall private sector is forecast to run a financial surplus of 4% of GDP.

How much do higher rates on small businesses slow GDP growth?

Core argument: Higher rates are estimated to raise small businesses' interest burden by just over 1pp by 2024, from roughly 5.8% of revenues in 2021 to around 7%.

We estimate that higher rates will increase the interest burden for small businesses by just over 1pp by 2024, from roughly 5.8% of revenues in 2021 to around 7% in 2024. Under our current rates forecasts, we forecast this share would increase further to just under 8% as term loans gradually mature—above the pre-pandemic share of 6.8% but similar to that of the mid-1990s. In 2023, we expect small business interest payments as a share of output to increase by a little under 1pp. Since this sector accounts for around 15% of private-sector gross output and the ratio between private-sector gross output and US GDP is a little under 1.6, this implies a drag on economywide GDP growth of around 0.1pp.

Takeaways by Macro Roundup® AI

  1. Higher rates are estimated to raise small businesses' interest burden by just over 1pp by 2024, from roughly 5.8% of revenues in 2021 to around 7%.
  2. Under current rates forecasts, the small business interest burden is projected to rise to just under 8% as term loans gradually mature, above the pre-pandemic share of 6.8% but similar to that of the mid-1990s.
  3. With small businesses accounting for around 15% of private-sector gross output and a private-output-to-GDP ratio a little under 1.6, the projected rise in interest payments implies a drag on economywide GDP growth of around 0.1pp.

Related Articles:

  • Higher Cost of Capital Continues — Higher costs of capital following Federal Reserve rate increases have pushed more companies into bankruptcy, as some firms cannot obtain new loans or refinance existing debt. The author argues this rise in bankruptcies will continue as long as interest rates stay high, which is the intended mechanism for slowing the economy to return inflation to 2%.
  • Credit Normalization — Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.
  • Soft Landing Summer — The estimated 12-month US recession probability has been cut to 15%, matching the postwar unconditional average implied by a recession occurring roughly once every seven years, and far below the 60% Bloomberg consensus. The authors expect interest rates to fluctuate in a higher range than in the post-2008 period.

AI Summary. One explanation for subdued high-yield bond spreads is that the lowest-quality borrowers, those most likely to default, have migrated from high-yield markets into private credit. Moody's reports the number of issuers with its lowest speculative-grade ratings has fallen, and that 62% of its rated universe is rated single-B or below.

Greg Obenshain Verdad
Date Posted:

Despite an uptick in Chapter 11 filings associated with the hiking cycle high-yield spreads have barely moved. @GregObenshain speculates lower quality borrowers have migrated to the private credit market.

Have the riskiest borrowers shifted from high-yield bonds to private credit?

Core argument: Moody's reports that 62% of its rated universe of loans and bonds carries a B2 rating or below, with the count of B3-rated issuers falling as those borrowers migrate to private credit.

One reason we believe high-yield spreads haven’t spiked yet is the migration of lower-quality borrowers—those most likely to default—out of high yield and into the private credit market. According to Moody’s, the number of issuers with B3 debt has fallen as these issuers have departed for private credit. According to Moody’s, 62% of its rated universe, which includes both loans and bonds, is rated B2 (also known as B) or below, and, “In general, the high-yield bond market favors better-quality Ba [Moody’s term for BB] issuers, while the leveraged loan market is concentrated in LBOs that have had liquidity constraints on the heels of the Federal Reserve’s aggressive tightening.”

Takeaways by Macro Roundup® AI

  1. Moody's reports that 62% of its rated universe of loans and bonds carries a B2 rating or below, with the count of B3-rated issuers falling as those borrowers migrate to private credit.
  2. The migration of lower-quality borrowers most likely to default out of high yield and into private credit is offered as one reason high-yield spreads have not spiked.
  3. Moody's states that the high-yield bond market favors better-quality Ba issuers while the leveraged loan market is concentrated in LBOs facing liquidity constraints following the Federal Reserve's aggressive tightening.

Related Articles:

  • Higher Cost of Capital Continues — Higher costs of capital following Federal Reserve rate increases have pushed more companies into bankruptcy, as some firms cannot obtain new loans or refinance existing debt. The author argues this rise in bankruptcies will continue as long as interest rates stay high, which is the intended mechanism for slowing the economy to return inflation to 2%.
  • Credit Normalization — Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.

AI Summary. Estimates for 10 advanced economies show natural interest rates have declined over the long run, though not steadily: as recently as the 1990s they ranged from 100 to 600 basis points, while by the end of the sample 4 of 10 countries had a negative natural rate and most others fell between 0 and 50 basis points.

Josh Davis, Cristian Fuenzalida, Leon Huetsch, Benjamin Mills, and Alan Taylor National Bureau of Economic Research
Date Posted:
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A new @nberpubs analysis documents that the natural interest rate moves in a very wide range of 400-500 basis points across advanced economies. There is a strong global factor in r*, such that natural rates tend to move together across countries.

Have natural interest rates declined across advanced economies over the long run?

Core argument: Natural rates of interest have fallen in all 10 advanced economies studied, from a range of 100–600 bps in the 1990s to negative levels in 4 of the 10 countries by the end of the sample, with most others between 0 and 50 bps.

The top panel in Figure 7 shows the r∗ estimates. Natural rates have fallen over time in all countries, but not monotonically, consistent with previous works documenting the decline of real rates over the long run. As recently as the 1990s, natural rates in these countries were between 100 and 600 bps. By the end of the sample 4 out of 10 countries have a negative r∗, and most others are between 0 and 50 bps. There is cross-country correlation, and natural rates have a positive correlation with the “global” component, and a considerable local component at high frequency. These comovements may reflect forces of market integration to some degree, as well as the effects of common factors.

Takeaways by Macro Roundup® AI

  1. Natural rates of interest have fallen in all 10 advanced economies studied, from a range of 100–600 bps in the 1990s to negative levels in 4 of the 10 countries by the end of the sample, with most others between 0 and 50 bps.
  2. The estimated natural rates decline over time but not monotonically, consistent with prior work documenting the long-run decline of real rates.
  3. Natural rates across the 10 economies are correlated with one another and positively correlated with a "global" component, alongside a considerable local component at high frequency, comovements that may reflect market integration and common factors.

Related Articles:

  • 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.
  • Hitch Your Wagon to R-Star — The neutral interest rate is argued to be low because investment demand tracks expected growth, and U.S. growth prospects are held down by stalled working-age population growth and slow productivity gains. Larger budget deficits and an industrial-policy-driven manufacturing investment boom could have raised it, though manufacturing is a small share of overall investment.

AI Summary. A return of bond yields to their 2010s lows is unlikely, though the author expects some mean reversion, guessing roughly 0.5 percentage points. Demand for US Treasuries from wealthy emerging-market investors, sovereign wealth funds, and exchange reserves continues to scale with global wealth, so the author argues the safe-asset shortage holding down Treasury rates is not over.

Brad DeLong Brad DeLong's Grasping Reality
Date Posted:

.@delong writes the increase in US Treasury rates is likely overdone. He sees a supply-demand shift, with higher rates here to stay, but he thinks that the role of US Treasuries as a global safe asset is unlikely to be over.

Will bond yields return to their previous lows?

Core argument: DeLong guesses bond rates will mean-revert by about 0.5 percentage points, plus whatever portion of the recent interest-rate rise is an overreaction to shifts in the fundamental flow-of-funds supply-demand balance.

What are the odds that bond rates are going to return to the 2010s normal? Low. But some mean-reversion is highly likely. How much? My guess is 0.5%-points, plus whatever in the recent interest-rate rise is an overreaction to shifts in the fundamental flow-of-funds supply-demand balance—but I run out of space here before I can even start analyzing that. Emerging market-rich, sovereign wealth fund, and exchange-reserve demand for US Treasuries continues to scale with the wealth of the world, or rather with the wealth of the world’s rich and the wealth and power of the world’s governments. I simply do not see the safe-asset shortage component of secular-stagnation low U.S. Treasury rates as being over.

Takeaways by Macro Roundup® AI

  1. DeLong guesses bond rates will mean-revert by about 0.5 percentage points, plus whatever portion of the recent interest-rate rise is an overreaction to shifts in the fundamental flow-of-funds supply-demand balance.
  2. DeLong puts low odds on bond rates returning to their 2010s norm, while judging some mean-reversion highly likely.
  3. Demand for US Treasuries from rich emerging markets, sovereign wealth funds, and exchange reserves continues to scale with the wealth of the world's rich and the wealth and power of governments, and DeLong does not see the safe-asset shortage as over.

Related Articles:

  • Why We Should, but Won’t, Reduce the Budget Deficit — High interest rates will likely crowd out private investment and weaken long-term growth prospects. Because Social Security, health care, other safety-net programs, defense, and interest payments make up most federal spending, leaving only a small and already squeezed slice of nondefense discretionary spending, deficit reduction requires either cutting popular benefits or raising taxes.
  • 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.
  • 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.

AI Summary. New York City retains advantages in sheer size, business diversification, and global financial dominance, with its labor force, airport use, and seated diners back to pre-pandemic levels and low residential and industrial vacancy rates. But mass transit use is 73% of prior levels, office vacancy is 18%, and about 35% of workdays are done from home.

Michael Cembalest J.P. Morgan
Date Posted:
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Michael Cembalest @jpmorgan notes NYC is above median on many measures of urban recovery since 2019, but nonetheless ranks only above Chicago/Detroit/San Francisco because of structural problems related to business conditions and fiscal health.

Has New York City fully recovered from the pandemic?

Core argument: New York City's office vacancy rate of 18% is the highest since the early 1990s, with substantial leased-but-underutilized space and roughly 35% of work days still done from home.

NYC has unique advantages regarding its outright size (output, labor force, purchasing power), business sector diversification, and global financial sector dominance. Many measures have now reached pre-pandemic levels, including the labor force, airport utilization, and seated diners. NYC residential and industrial vacancy rates are low, and NYC crime stats also compare favorably to other cities which sometimes comes as a surprise. But mass transit use is still 73% of 2019 levels, which is unsustainable given required capital and operating costs. NYC office vacancy rates of 18% are the highest since the early 1990s, leased-but-underutilized space is high and ~35% of work days are still done from home; office to residential conversions are unlikely to materially reduce the stock of underutilized office space given cost and complexity.

Takeaways by Macro Roundup® AI

  1. New York City's office vacancy rate of 18% is the highest since the early 1990s, with substantial leased-but-underutilized space and roughly 35% of work days still done from home.
  2. New York City mass transit use remains at 73% of 2019 levels, a level the author argues is unsustainable given required capital and operating costs.
  3. New York City's labor force, airport utilization, and seated diners have returned to pre-pandemic levels, while residential and industrial vacancy rates are low and crime statistics compare favorably with other cities.

Related Articles:

  • Central Business Districts: City Strugglers — Consumer spending in central business districts remains below pre-pandemic levels in northern and western US cities while southern city centers show strong growth, a gap attributed largely to migration patterns rather than differences in working from home. Cities with population gains show spending roughly 20% above pre-pandemic levels, while those with population losses are down about 20%.
  • 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.
  • Tax Data Reveals Large Flight of High Earners from Major Cities During the Pandemic — Internal Revenue Service migration data show net migration subtracted more than $68bn of taxable income from large urban counties in a single year, about 2% of their total, while adding to taxable income in all other county types. Manhattan lost over $16bn and San Francisco over $8bn, or 20%.

Tuesday, October 17, 2023

AI Summary. Treasury market liquidity has tracked its historical relationship with interest rate volatility, indicating liquidity has not been unusually poor given the level of rate volatility, though the two-year note shows somewhat higher-than-expected price impact. The market's capacity to smoothly handle large trading flows remains a concern for policymakers and market participants.

Michael Fleming Federal Reserve Bank of New York
Date Posted:

The @NewYorkFed finds U.S. Treasury liquidity is within the historical bounds implied by the current level of interest rate volatility.

Is Treasury market liquidity unusually poor given interest rate volatility?

Core argument: Treasury market liquidity in 2023 has tracked its historical relationship with interest rate volatility, indicating liquidity has not been unusually poor given the level of rate volatility.

The 2023 observations (in gray) fall in line with the historical relationship. That is, the association between liquidity and volatility in 2023 has been consistent with the past association between these two variables. This is true for the ten-year note as well, whereas for the two-year note the evidence points to somewhat higher-than-expected price impact given the volatility (as also occurred in fall 2008, March 2020, and 2022). While Treasury market liquidity has not been unusually poor given the level of interest rate volatility, continued vigilance by policymakers and market participants is appropriate. The market’s capacity to smoothly handle large trading flows has been of concern since March 2020.

Takeaways by Macro Roundup® AI

  1. Treasury market liquidity in 2023 has tracked its historical relationship with interest rate volatility, indicating liquidity has not been unusually poor given the level of rate volatility.
  2. The two-year Treasury note shows somewhat higher-than-expected price impact given volatility, as also occurred in fall 2008, March 2020, and 2022, while the ten-year note remains in line with the historical association.
  3. Continued vigilance by policymakers and market participants is appropriate, as the Treasury market's capacity to smoothly handle large trading flows has been of concern since March 2020.

Related Articles:

  • Liquidity Event — U.S. Treasuries remain the world's most liquid security, but daily cash trading volumes have not kept pace with the growth in issuance, leaving the market structurally less liquid. Principal trading firms account for 20% of cash market volumes yet withdraw when volatility rises, making their liquidity provision illusory.
  • 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.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.

AI Summary. Household surveys show median inflation expectations trending toward 2%, but the New York Federal Reserve's Survey of Consumer Expectations finds about 40% of respondents expect medium-term inflation above 4% — above pre-2020 levels and stable to rising. A commodity price spike could push median expectations above 2%.

Joseph Wang Fed Guy Blog
Date Posted:

While median inflationary expectations are settling close to 2%, @FedGuy12 writes that inflation expectations are at risk of becoming unanchored, as 40% of recent @NewYorkFed respondents think inflation will be > 4% in the medium term.

Are household inflation expectations less anchored than the median suggests?

Core argument: The New York Fed's Survey of Consumer Expectations, a monthly survey of a nationally representative group of 1,300, finds around 40% of respondents expect medium-term inflation above 4%, notably higher than pre-2020 levels.

Widely followed households surveys find that median inflation expectations are trending towards 2%, but they also show that the median is fragile. The New York Fed’s Survey of Consumer Expectations, a monthly survey of a nationally representative group of 1300, finds that around 40% of respondents expect inflation to be higher than 4% in the medium term. That result is notably higher than pre-2020 levels and has remained stable to rising over the past several months. A potential spike in commodity prices from geopolitical developments could very quickly push inflation upward and tip median expectations comfortably above 2%. A shift in expectations is not yet happening, but it would almost certainly prompt aggressive policy action.

Takeaways by Macro Roundup® AI

  1. The New York Fed's Survey of Consumer Expectations, a monthly survey of a nationally representative group of 1,300, finds around 40% of respondents expect medium-term inflation above 4%, notably higher than pre-2020 levels.
  2. Median household inflation expectations are trending toward 2% in widely followed surveys, but the share expecting inflation above 4% has held stable to rising over the past several months.
  3. A potential spike in commodity prices from geopolitical developments could quickly push inflation upward and tip median expectations comfortably above 2%, a shift that is not yet happening but would almost certainly prompt aggressive policy action.

Related Articles:

  • Inflation Expectations, the Phillips Curve, and Stock Prices — Professional economists' median one-year-ahead consumer price inflation forecast has become less sensitive to actual inflation: a regression slope of 0.71 from 1949 through 1998 fell to 0.18 from 1999 onward, implying forecasts now adjust very little in response to realized inflation.
  • What We’ve Learned About Inflation — US core inflation measures include the cost of owner-occupied housing by imputing what homeowners would pay to rent from themselves, while Europe's core measure leaves owner-occupied housing out entirely. Measured the European way, US inflation is already back to 2%, while European inflation remains well above target.
  • Rate Cuts — The Federal Reserve might refrain from cutting interest rates if inflation does not fall enough, or if economic growth runs above potential, unemployment pushes below its 50-year low, and financial conditions ease further. In that case, policymakers could argue the short-run neutral rate is higher than common estimates, making current policy less restrictive than assumed.

AI Summary. The authors estimate that firm owners bear roughly half the burden of state corporate tax changes, with workers bearing 35–40% and landowners 10–15%. Alternative identification strategies put the owners' share at about 52% to 62%.

Juan Carlos Suárez Serrato and Owen Zidar National Bureau of Economic Research
Date Posted:

Owners of firms bear half the incidence of state corporate taxes with workers and landowners paying 35-40% and 10-15% respectively. @J_C_Suarez @omzidar

Owners of firms bear half the incidence of state corporate taxes with workers and landowners paying 35-40% and 10-15%...

Who bears the burden of state corporate tax changes?

Core argument: The authors' central estimate is that firm owners bear roughly half the incidence of state corporate tax cuts, with workers bearing 35–40% and landowners 10–15%.

The strategy that identifies firms owner's incidence using the reduced-form effect on labor demand of incumbent firms delivers an estimate of 61.9% (SE = 11%). The second strategy that uses the effects of business taxes on local productivity (TFP) yields an estimate of the firm's owner share of 52.3% (SE = 34%). Our second main finding is that our extended structural model that incorporates these new moments delivers an estimate for firm owners of 53.3% (SE = 12%). Overall, our central estimate is that firm owners bear roughly half of the incidence, while workers and landowners bear 35-40 percent and 10-15 percent, respectively.

Takeaways by Macro Roundup® AI

  1. The authors' central estimate is that firm owners bear roughly half the incidence of state corporate tax cuts, with workers bearing 35–40% and landowners 10–15%.
  2. Identifying incidence from the reduced-form effect on labor demand of incumbent firms yields a firm owner share of 61.9% (SE = 11%), while the strategy using effects of business taxes on local total factor productivity yields 52.3% (SE = 34%).
  3. The authors' extended structural model incorporating these moments estimates the firm owner share at 53.3% (SE = 12%).

Related Articles:

  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.
  • Who Gains from Corporate Tax Cuts? — The authors estimate that corporate tax cuts boost overall investment and employment, with goods-producing firms such as manufacturers raising capital expenditure and wage bills without changing dividends, and a 1% cut in the marginal tax rate lifting their capital spending by as much as 8%. Service-sector firms instead direct most of the windfall to dividends.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. The US is restricting sales of Nvidia's A800 and H800 chips, designed specifically for the Chinese market, and curbing exports to two Chinese artificial-intelligence chip firms. The export controls aim to block China's access to advanced semiconductor technology with military uses.

Mackenzie Hawkins and Jenny Leonard Bloomberg
Date Posted:

The Biden Administration tightened export restrictions on advanced semiconductor technology, restricting the sale of Nvidia’s A800 and H800 chips to China. @markets

The Biden Administration tightened export restrictions on advanced semiconductor technology, restricting the sale of...

Is the US closing loopholes on China-specific AI chip exports?

Core argument: The US export rules target Nvidia's A800 and H800 chips, which Nvidia designed for the Chinese market after the Biden administration's initial October restrictions, according to a senior US official.

The US is restricting the sale of chips that Nvidia designed specifically for the Chinese market and curbing exports to two Chinese artificial-intelligence chip firms, as part of sweeping updates to export controls that are designed to block China’s access to highly advanced semiconductor technology. The tighter controls will target Nvidia’s A800 and H800 chips, a senior US official said, which the American firm created for export to the Asian country after the Biden administration introduced its initial restrictions last October. Those curbs, including the updated rules released Tuesday, aim to prevent China from accessing cutting-edge technology with military uses.

Takeaways by Macro Roundup® AI

  1. The US export rules target Nvidia's A800 and H800 chips, which Nvidia designed for the Chinese market after the Biden administration's initial October restrictions, according to a senior US official.
  2. The updated export controls also curb exports to two Chinese artificial-intelligence chip firms, part of sweeping updates aimed at blocking China's access to highly advanced semiconductor technology.
  3. The chip curbs, including the updated rules released Tuesday, are designed to prevent China from accessing cutting-edge technology with military uses.

Related Articles:

  • China AI & Semiconductors Rise: US Sanctions Have Failed — China's Kirin 9000S is a better-designed, leading-edge chip than the West realizes, developed without access to extreme ultraviolet lithography or cutting-edge US intellectual property, indicating existing export controls have not worked. The authors argue only decisive, full-scale measures—not half measures—could prevent China from mass-manufacturing chips needed for high-end military applications.
  • Huawei Building Secret Network for Chips, Trade Group Warns — Huawei has entered chip production, acquiring at least two existing plants and building at least three more, part of at least 23 fabrication facilities underway in China with planned investments of more than $100bn by 2030, according to the Semiconductor Industry Association. China is on track to hold more than half of global capacity in older-generation semiconductors by around 2030.
  • China Imports Record Amount of Chipmaking Equipment — Chinese customs data show semiconductor production tool imports reached nearly $5bn over two months, up 70% from $2.9bn a year earlier, a record high. Most of the equipment came from the Netherlands and Japan, which have imposed export restrictions on chipmaking equipment alongside the US.

AI Summary. Most of Russia's cumulative current account surplus reflects capital flight by Russians and non-Russians, with at most roughly a third ($90bn of $262bn) resembling accumulation of sovereign wealth or "shadow reserves." These persistent outflows help explain the ruble's depreciation by half against the US dollar after access to imports was restored.

Matt Klein The Overshoot
Date Posted:

Revisiting Russia’s current accounts, @M_C_Klein finds widespread capital flight. Cumulative current account surpluses were $262 billion in 2022Q1-2023Q2. During the period, Russian residents had net capital flight of $133 billion.

Does capital flight explain Russia's current account surplus and currency depreciation?

Core argument: At most roughly one-third of Russia's cumulative current account surplus, $90 billion out of $262 billion, reflects anything resembling accumulation of sovereign wealth or "shadow reserves," with the remainder reflecting capital flight by Russians and non-Russians.

Most of Russia’s cumulative current account surplus reflects capital flight by both Russians and non-Russians, with perhaps at most ~1/3 of the surplus ($90 billion out of $262 billion) reflecting anything resembling the accumulation of sovereign wealth or “shadow reserves”. Russia’s net international investment position, which accounts for changes in asset valuation, paints the same basic picture even more starkly. According to the CBR, the value of Russia’s foreign assets as of June 30 2023 was $100 billion lower than on December 31, 2021, while the value of Russia’s liabilities to the rest of the world was down by $432 billion. These persistent pressures help explain why the ruble has depreciated so much—down by half against the U.S. dollar since June 2022—after Russia’s access to imports was restored.

Takeaways by Macro Roundup® AI

  1. At most roughly one-third of Russia's cumulative current account surplus, $90 billion out of $262 billion, reflects anything resembling accumulation of sovereign wealth or "shadow reserves," with the remainder reflecting capital flight by Russians and non-Russians.
  2. Russia's foreign assets were $100 billion lower on June 30, 2023 than on December 31, 2021, while its liabilities to the rest of the world fell by $432 billion, according to the Central Bank of Russia.
  3. The ruble has depreciated by half against the U.S. dollar since June 2022, a decline that persistent capital outflows help explain after Russia's access to imports was restored.

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