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


Friday, November 10, 2023

AI Summary. Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein estimates that Chinese capital flight is at least $500b annually; he suspects that the official Chinese current account surplus is understated by a similar amount.

Is capital flight offsetting China's understated current account surplus?

Core argument: Oddities in China's official balance of payments data suggest its actual current account surplus may be nearly 3x the reported figure, which would make it the largest ever in absolute terms and about as large as ever relative to world output.

There are enough oddities within China’s official balance of payments statistics to suggest that the country’s actual current account surplus may be nearly 3x the official figure. If so, that would make China’s current account surplus not just the largest that it has ever been in absolute terms, but about as large as it has ever been relative to the rest of the world’s economy. Perhaps surprisingly, the emergence of this massive surplus has coincided with downward pressure on the Chinese yuan, with the People’s Bank of China (PBOC) selling $43 billion in foreign exchange reserves in 2023 Q3. The likeliest explanation is that the Chinese are now pulling about $500 billion/year out of the country. In other words, capital flight pressures have intensified over the past few years, perhaps in response to the Chinese government’s increasingly arbitrary exercises of power against its subjects.

Takeaways by Macro Roundup® AI

  1. Oddities in China's official balance of payments data suggest its actual current account surplus may be nearly 3x the reported figure, which would make it the largest ever in absolute terms and about as large as ever relative to world output.
  2. China's current account surplus has coincided with downward pressure on the yuan, with the People's Bank of China selling $43 billion in foreign exchange reserves in 2023 Q3.
  3. The likeliest explanation is capital flight of roughly $500 billion a year out of China, pressure that has intensified in recent years, perhaps in response to the Chinese government's increasingly arbitrary exercises of power.

Related Articles:

  • Net Outflow of Funds from China Hits 7-Year High in September — China's State Administration of Foreign Exchange reported a net outflow of $53.9bn in monthly international financial transactions handled by domestic banks for businesses and households, the largest since a $55.8bn outflow tied to a sudden yuan devaluation. Outflows linked to direct investment, such as building manufacturing plants, were notable.
  • The Rise & Fall of Foreign Direct Investment in China — Net foreign direct investment into China has been negative for four consecutive quarters, as foreign investors shifted from reinvesting earnings from their Chinese operations to repatriating them. Whether this reflects cash management or signals a future slowdown in foreign direct investment is unclear, but the repatriation of profits is negative for China's currency.
  • China’s Age Of Malaise — More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.

AI Summary. In a randomized study, Boston Consulting Group consultants given access to GPT-4 completed tasks 25% faster, finished 12% more tasks, and produced work rated 40% higher in quality than colleagues without the tool. Gains appeared across the skill distribution but were largest among less highly skilled employees.

John Burn-Murdoch Financial Times
Date Posted:

.@jburnmurdoch cites evidence from separate studies showing that AI Tools boost performance most for less-skilled workers and that the introduction of ChatGPT negatively impacted opportunities for freelancers.

How does generative AI affect white-collar productivity and quality?

Core argument: Boston Consulting Group staff randomly assigned to use GPT-4 completed consulting tasks 25% faster, finished 12% more tasks, and produced work assessed as 40% higher in quality than colleagues without access to the tool.

Boston Consulting Group staff randomly assigned to use GPT-4 when carrying out a set of consulting tasks were far more productive than their colleagues who could not access the tool. Not only did AI-assisted consultants carry out tasks 25% faster and complete 12% more tasks overall, their work was assessed to be 40% higher in quality than their unassisted peers. Employees right across the skills distribution benefited, but in a pattern now common in generative AI studies, the biggest performance gains came among the less highly skilled in their workforce. This makes intuitive sense: large language models are best understood as excellent regurgitators and summarisers of existing, public-domain human knowledge. The closer one’s own knowledge already is to that limit, the smaller the benefit from using them.

Takeaways by Macro Roundup® AI

  1. Boston Consulting Group staff randomly assigned to use GPT-4 completed consulting tasks 25% faster, finished 12% more tasks, and produced work assessed as 40% higher in quality than colleagues without access to the tool.
  2. Employees across the skills distribution benefited from GPT-4 access in the Boston Consulting Group experiment, with the largest performance gains among the less highly skilled, a pattern common in generative AI studies.
  3. Large language models are best understood as regurgitators and summarisers of existing public-domain human knowledge, so the closer a worker's own knowledge is to that limit, the smaller the benefit from using them.

Related Articles:

  • Centaurs and Cyborgs on the Jagged Frontier — In a pre-registered experiment at Boston Consulting Group covering 18 realistic consulting tasks, consultants using ChatGPT-4 completed 12.2% more tasks, worked 25.1% faster, and produced 40% higher quality results than those without it. The tool acted as a skill leveler: the lowest-scoring consultants improved 43%, while top performers gained less.
  • AI, Mass Evolution, and Weickian Loops — Early consumer artificial intelligence applications have largely been wrappers around marketing copy, image generation, and office tasks like spreadsheets and presentations. In shared spaces such as the image generator Midjourney's Discord server, users can see each other's prompts and results and iterate on them in real time, producing rapid collective experimentation and greater sophistication.
  • The Short-Term Effects of Generative Artificial Intelligence on Employment: Evidence from an Online Labor Market — Freelancers in occupations most exposed to generative AI saw employment and earnings decline, with the authors estimating a 2% drop in jobs and a 5.2% drop in monthly earnings on an online labor platform. Offering high-quality service did not mitigate the effect, and top-rated freelancers appear disproportionately hurt.

AI Summary. Freelancers in occupations most exposed to generative AI saw employment and earnings decline, with the authors estimating a 2% drop in jobs and a 5.2% drop in monthly earnings on an online labor platform. Offering high-quality service did not mitigate the effect, and top-rated freelancers appear disproportionately hurt.

Xiang Hui, Oren Reshef, and Luofeng Zhouu Working Paper
Date Posted:

.@xianghui90 @oren_reshef and @Zhou_Yu_AI find that the release of ChatGPT led to a 2% drop in the number of jobs of freelancers’ on the Upwork platform and a 5.2% drop in their monthly earnings.

Does generative AI reduce freelancers' employment and earnings?

Core argument: The authors find that ChatGPT's release led to a 2% drop in the number of jobs and a 5.2% drop in monthly earnings for freelancers in the online labor market occupations most affected by AI.

Across the board, we find that freelancers who offer services in occupations most affected by AI experienced reductions in both employment and earnings. The release of ChatGPT led to a 2% drop in the number of jobs on the platform and a 5.2% drop in monthly earnings. The results are robust to several alternative tests, including a similar reduction in the employment outcomes of freelancers offering design and image-editing services following the introduction of image-focused generative AI. In addition, we find that offering high-quality service does not mitigate the negative effect of AI on freelancers, and in fact, present suggestive evidence that top employees are disproportionately hurt by AI.

Takeaways by Macro Roundup® AI

  1. The authors find that ChatGPT's release led to a 2% drop in the number of jobs and a 5.2% drop in monthly earnings for freelancers in the online labor market occupations most affected by AI.
  2. Freelancers offering design and image-editing services experienced a similar reduction in employment outcomes following the introduction of image-focused generative AI, one of several robustness tests the authors report.
  3. Offering high-quality service does not mitigate the negative effect of AI on freelancers, and the authors present suggestive evidence that top employees are disproportionately hurt by AI.

Related Articles:

  • Here’s What We Know About Generative AI’s Impact On White-Collar Work — In a randomized study, Boston Consulting Group consultants given access to GPT-4 completed tasks 25% faster, finished 12% more tasks, and produced work rated 40% higher in quality than colleagues without the tool. Gains appeared across the skill distribution but were largest among less highly skilled employees.
  • Centaurs and Cyborgs on the Jagged Frontier — In a pre-registered experiment at Boston Consulting Group covering 18 realistic consulting tasks, consultants using ChatGPT-4 completed 12.2% more tasks, worked 25.1% faster, and produced 40% higher quality results than those without it. The tool acted as a skill leveler: the lowest-scoring consultants improved 43%, while top performers gained less.
  • Generative AI at Work — A study of 5,179 customer support agents finds that access to a generative AI conversational assistant raised issues resolved per hour by 14% on average, with the largest gains for novice and low-skilled workers and minimal effect on experienced, highly skilled ones. The authors also find AI assistance improved customer sentiment, reduced requests for managerial intervention, and improved employee retention.

AI Summary. Card spending per household for those earning under $50k slowed to near zero year-over-year, down from +1.75% the prior month, while spending by households earning above $125k fell 0.2% year-over-year. Bank of America's internal data show after-tax wages and salaries up 2.6% year-over-year for lower-income households versus 0.4% for higher-income ones.

David Michael Tinsley, Anna Zhou, Taylor Bowley, and Liz Everett Krisberg Bank of America
Date Posted:

According to @BankofAmerica microtransaction data, consumer spending moderated in October with lower-income households seeing the biggest slowdown.

Is spending growth slowing across income groups?

Core argument: Card spending per household for those earning below $50k was close to zero Y/Y in October, down from +1.75% Y/Y in September, the biggest slowdown across income cohorts.

Lower-income households showed the biggest slowdown in Y/Y spending growth with card spending per household close to zero Y/Y for those with a household income below $50k, down from +1.75% Y/Y in September. In contrast, spending growth for higher-income households (above $125k) fell 0.2% Y/Y in October. from -0.1% Y/Y in the prior month. Some of this narrowing reflects falling gasoline prices, which tend to benefit lower-income cohorts relatively more as they have a higher weight of gasoline in their overall spending. One possible explanation for the narrowing gap between lower- and higher-income spending growth may be the converging after-tax wages and salary growth for these two cohorts. According to Bank of America's internal data, after-tax wages and salaries were up 0.4% Y/Y in October for higher-income households and grew by 2.6% Y/Y for lower-income households.

Takeaways by Macro Roundup® AI

  1. Card spending per household for those earning below $50k was close to zero Y/Y in October, down from +1.75% Y/Y in September, the biggest slowdown across income cohorts.
  2. Spending growth for households earning above $125k fell 0.2% Y/Y in October, compared with -0.1% Y/Y in the prior month.
  3. Bank of America's internal data show after-tax wages and salaries up 2.6% Y/Y in October for lower-income households versus 0.4% Y/Y for higher-income households, a possible explanation for the narrowing spending gap.

Related Articles:

  • U.S. Wage Growth Is Slowing, Somewhat — U.S. wage growth has slowed substantially without a large rise in joblessness, though wages are still rising faster than in the decade before the pandemic, at a pace comparable to the late 1990s and 2006-2007. The author argues much of the earlier outsized pay gains reflected one-off job market churn and sectoral shifts.
  • Inching Toward Equilibrium — With short-term interest rates far enough above zero, they are again the central bank's main lever for steering the economy toward equilibrium, a difficult task because policy changes affect spending, output, and inflation with lags that can span years. Equity yields have changed little while bond yields rose significantly, moving equity pricing further from equilibrium.
  • Why No Recession (Yet)? — Real interest rates have risen by almost 10 percentage points, compared with 4 points during the 2004–2006 tightening, yet activity has held up because households entered the episode with large savings accumulated during the pandemic. As those surplus savings are used up and borrowers refinance at higher rates, the full impact of tightening has not yet been felt.

Monday, November 13, 2023

AI Summary. The share of US income going to labor fell roughly 5 percentage points between 1929 and 2022, with declines across most US industries and in most countries of Europe, Asia, and emerging markets. The author argues the most plausible causes are technological, including the information age and automation.

Loukas Karabarbounis National Bureau of Economic Research
Date Posted:
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Analysis by Loukas Karabarbounis finds that labor’s share of US national income declined 5pp btw 1929-2022, and labor’s share globally has declined 6pp since 1980. He proposes capital-augmenting technology as the most likely driver of these declines.

Is technology the main cause of the falling labor share?

Core argument: The headline estimate for the United States is a labor share decline of roughly 5pp between 1929 and 2022, with a larger drop of about 7pp after World War II, and the great majority of U.S. industries showed declines in recent decades.

The headline estimate for the United States is a roughly 5pp decline of the labor share between 1929 and 2022. The decline after World War II is even larger, at around 7pp. The great majority of U.S. industries exhibited labor share declines in recent decades. The United States is not unique, as we observe labor share declines in most countries of Europe and Asia and in emerging markets. It helps to organize factors affecting the labor share in five categories: technology, product markets, labor markets, capital markets, and globalization. The factors that have contributed to the labor share decline are intertwined. My view is that the most plausible causes have technological origin. Developments such as the information age and automation, manifesting through changes in the cost of capital and the structure of product markets, caused the labor share to decline. If technological advancements continue to favor capital indefinitely, the natural outcome is a transition to a world in which capital on its own produces the entire global income.

Takeaways by Macro Roundup® AI

  1. The headline estimate for the United States is a labor share decline of roughly 5pp between 1929 and 2022, with a larger drop of about 7pp after World War II, and the great majority of U.S. industries showed declines in recent decades.
  2. Labor share declines appear in most countries of Europe and Asia and in emerging markets, so the United States is not unique.
  3. Factors affecting the labor share fall into five categories — technology, product markets, labor markets, capital markets, and globalization — and the most plausible causes are technological, with the information age and automation acting through the cost of capital and product market structure.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — The authors estimate that post-pandemic labor market tightness compressed the US wage distribution, reducing the college wage premium and offsetting roughly one-quarter of the four-decade rise in 90-10 wage inequality. They attribute this in part to greater labor supply elasticity facing firms in low-wage markets, which reduced employer market power as young non-college workers moved to higher-paying jobs.
  • Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends — Using administrative tax data with the Survey of Consumer Finances, the authors estimate the top 1% pre-tax income share fell from 11.1% in 1962 to 9.4% in 1979, then rose to 13.8% by 2019, a 3 percentage point rise over the full period. Their after-tax measure shows increases of only 1.4 points since 1979 and 0.2 points since 1962.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Cumulative growth in hourly compensation has outpaced inflation since the end of 2019, though it remains slightly below the strong trend of the latter half of the 2010s. The real wage distribution has compressed, with lower-wage workers gaining proportionally more, an effect tempered because low-income households faced greater inflation.

Joseph Politano Apricitas Economics
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Real hourly compensation is above 2019 levels but below the 2015-19 trend line. @JosephPolitano

Are real wages rising, and are lower-wage workers gaining most?

Core argument: Cumulative growth in hourly compensation has outpaced inflation since the end of 2019, though it remains slightly below the trend of strong growth recorded in the latter half of the 2010s.

Cumulative growth in hourly compensation has exceeded inflation since the end of 2019, though it remains slightly below the trend of strong growth seen in the latter half of the 2010s. The real wage distribution has compressed—that is, lower-wage workers have seen proportionally larger gains than higher-wage workers, although this effect is lessened by the fact that low-income households have faced greater inflation than high-income households.

Takeaways by Macro Roundup® AI

  1. Cumulative growth in hourly compensation has outpaced inflation since the end of 2019, though it remains slightly below the trend of strong growth recorded in the latter half of the 2010s.
  2. The real wage distribution has compressed, with lower-wage workers posting proportionally larger gains than higher-wage workers.
  3. The compression in real wages is lessened by low-income households facing greater inflation than high-income households.

Related Articles:

  • Have Workers Gotten A Raise? — Measures of typical and aggregate pay adjusted by personal consumption inflation have grown since 2019 and kept pace with or exceeded longer-term trends, while results are more mixed when deflated by the consumer price index, with average hourly earnings and total compensation below trend.
  • Is the Fed Peaking Too Soon? — Price increases have decelerated from about 6% to 3% a year while growth in the dollar value of spending and incomes has slowed much less, from about 7% to 6%, translating into faster growth in American living standards. The author argues real growth may slow, but it is less clear why nominal growth would.
  • The Economy Is Great. Why Are Americans in Such a Rotten Mood? — Consumer sentiment has been more depressed than historic correlations with the "misery index"—the sum of inflation and unemployment—would predict, even as consumer-price inflation fell from a 9.1% peak to 3.7%. The author argues much of this pessimism is "referred pain," reflecting dissatisfaction with the country as a whole rather than the economy.

AI Summary. Wage growth for workers in the bottom quarter of the wage distribution slowed from 7.2% to 5.9%, according to Federal Reserve Bank of Atlanta data based on a 12-month moving average of median hourly wage growth. Wage growth for workers overall declined by less, from 6.3% to 5.8%.

Amara Omeokwe Wall Street Journal
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Wage growth for workers in the bottom quartile dropped to 5.9% in October from 7.2% in January, according to data from the Federal Reserve Bank of Atlanta.

Is wage growth for the lowest-paid workers slowing faster than overall?

Core argument: Wage growth for workers in the bottom quarter of the U.S. wage distribution slowed to 5.9% in October from 7.2% in January, according to Federal Reserve Bank of Atlanta data.

Workers in the bottom quarter of the wage distribution received a 5.9% raise in October compared with a 7.2% increase in January, according to data from the Federal Reserve Bank of Atlanta. Workers overall saw a smaller decline over the same time frame, from growth of 6.3% to 5.8%. The measure is based on the 12-month moving average of median wage growth, on an hourly basis.

Takeaways by Macro Roundup® AI

  1. Wage growth for workers in the bottom quarter of the U.S. wage distribution slowed to 5.9% in October from 7.2% in January, according to Federal Reserve Bank of Atlanta data.
  2. Overall wage growth declined less over the same period, from 6.3% to 5.8%.
  3. The Atlanta Fed measure is based on the 12-month moving average of median wage growth on an hourly basis.

Related Articles:

  • Have Workers Gotten A Raise? — Measures of typical and aggregate pay adjusted by personal consumption inflation have grown since 2019 and kept pace with or exceeded longer-term trends, while results are more mixed when deflated by the consumer price index, with average hourly earnings and total compensation below trend.
  • Is the Fed Peaking Too Soon? — Price increases have decelerated from about 6% to 3% a year while growth in the dollar value of spending and incomes has slowed much less, from about 7% to 6%, translating into faster growth in American living standards. The author argues real growth may slow, but it is less clear why nominal growth would.
  • The Economy Is Great. Why Are Americans in Such a Rotten Mood? — Consumer sentiment has been more depressed than historic correlations with the "misery index"—the sum of inflation and unemployment—would predict, even as consumer-price inflation fell from a 9.1% peak to 3.7%. The author argues much of this pessimism is "referred pain," reflecting dissatisfaction with the country as a whole rather than the economy.

AI Summary. An analysis of gross profit relative to assets for US small-cap companies, defined as $400m–$4bn in market cap, finds a broad-based decline in quality from the early 2010s, with information technology, consumer discretionary, and industrials most affected. Health care was excluded because unprofitable pharmaceutical and biotech stocks rose from 5% to 16% of small stocks.

Chris Satterthwaite Verdad
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.@verdadcap uses Gross Profits/Assets as a proxy for quality, and notes that there has been a sharp deterioration in quality for US small caps. Chris Satterthwaite writes that foreign small caps have similar quality but lower price than US small caps.

Has the quality of US small-cap companies declined broadly across sectors?

Core argument: Unprofitable pharma and biotech stocks tripled as a share of US small caps, from 5% in 1995 to 16% in 2021, prompting exclusion of health care entirely from the gross profit/assets quality analysis.

Examined our favorite quality metric, gross profit/assets (GP/A), over time by sector for “small” US companies, which we define as between $400M and $4B in market cap today, or the equivalent percentile rank by market cap historically. We made the decision to exclude the health-care industry entirely given the significant proliferation of unprofitable pharma and biotech stocks, which tripled in proportion from 5% of small stocks in 1995 to 16% of stocks in 2021. We were curious whether the degradation in quality still held once we excluded this mix shift impact. The chart below shows the contribution to aggregate small-cap US GP/A by sector (e.g., IT GP/A multiplied by IT proportion of total market cap). Most notable is the broad-based decline in quality from the early 2010s to today. The most impacted sectors include IT, consumer discretionary, and industrials. We find it notable that US large caps trade at a premium to the rest of the world, while the median US small cap stock.

Takeaways by Macro Roundup® AI

  1. Unprofitable pharma and biotech stocks tripled as a share of US small caps, from 5% in 1995 to 16% in 2021, prompting exclusion of health care entirely from the gross profit/assets quality analysis.
  2. Aggregate gross profit/assets for US small caps, defined as $400M–$4B in market cap or the equivalent historical percentile rank, declined broadly across sectors from the early 2010s to today even excluding health care.
  3. IT, consumer discretionary, and industrials were the sectors most affected by the decline in small-cap gross profit/assets, measured as each sector's GP/A multiplied by its share of total market cap.

Related Articles:

  • Inching Toward Equilibrium — With short-term interest rates far enough above zero, they are again the central bank's main lever for steering the economy toward equilibrium, a difficult task because policy changes affect spending, output, and inflation with lags that can span years. Equity yields have changed little while bond yields rose significantly, moving equity pricing further from equilibrium.
  • Market Bipolarity: Exuberance versus Exhaustion — 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.
  • 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. With Europe's current account near balance and Japan back in surplus, the question of which economy absorbs China's current account surplus remains open, and the US external deficit exceeds what G-7 countries can finance. The global economy stays relatively integrated despite frictions, even as global politics is more fractured.

Brad Setser @Brad_Setser
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.@Brad_Setser argues “the right measure of Sino-American decoupling is when the United States is no longer the outlet for China’s surplus.” Cumulatively, global surpluses and deficits have to match, and the US is supplying the majority of global deficits.

Is talk of decoupling overstated while the US absorbs China's surplus?

Core argument: With Europe's current account back in balance and Japan back in surplus, the question of who balances China's current account surplus begs to be answered.

Now that Europe's current account is back in balance, and Japan is back in surplus, the question of who balances China's current account surplus begs to be answered. There is a risk here, namely that the global economy -- albeit with frictions -- remains relatively integrated. Global politics is far more fractured. There isn't an easy way to solve this dilemma so long as China and others need outlets for their surpluses and equally the US external deficit far exceeds what now can be financed by G-7 countries. Politics and economics diverge, even if the mechanics of measuring bilateral trade and financial flows don't quite capture it.

Takeaways by Macro Roundup® AI

  1. With Europe's current account back in balance and Japan back in surplus, the question of who balances China's current account surplus begs to be answered.
  2. The US external deficit far exceeds what G-7 countries can now finance, while China and others still need outlets for their surpluses.
  3. The global economy remains relatively integrated despite frictions while global politics is far more fractured, a divergence the mechanics of measuring bilateral trade and financial flows do not quite capture.

Related Articles:

  • Hidden Exposure: Measuring U.S. Supply Chain Reliance — The US buys at least 80% of industrial inputs domestically, so aggregate foreign supply chain exposure is limited, but disruptions occur at the sector level rather than the macro level. Accounting for Chinese inputs embedded in goods bought from other foreign suppliers, US exposure to China is almost 4x larger than it appears at face value.
  • How America Is Failing To Break Up With China — Research finds that countries with the strongest existing trade ties to China in a given industry have gained the most as direct Chinese exports to the US are redirected, suggesting Chinese supply chains remain central to American imports even in advanced-manufacturing goods officials most want to shield from China.
  • The Global Constraints To Chinese Growth — China accounts for 18% of global GDP but 13% of global consumption and 32% of global investment, with each dollar of Chinese investment offset by only $1.3 of consumption versus $4.1 outside China. If China grew 4-5% annually for a decade while relying on investment, its share of global investment would rise to 37%.

AI Summary. A prominent Chinese economist argues that analysis of provincial micro-data, past censuses, and 1% population sample surveys shows a shrinking and ageing population has no significant negative impact on economic growth. The argument holds that China is gaining a higher-quality human capital dividend conducive to technological innovation and industrial upgrading.

Josephine Ma South China Morning Post
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Justin Lin Yifu argues China’s rapidly aging population won’t be a headwind for economic growth as increasing levels of human capital will increase productivity growth. @scmpnews

Justin Lin Yifu argues China’s rapidly aging population won’t be a headwind for economic growth as increasing...

Does a shrinking, ageing population hurt China's economic growth?

Core argument: Justin Lin's analysis of provincial micro-data, prior censuses, and 1 percent population sample surveys found that a shrinking and ageing population has no significant negative impact on China's economic growth.

Our analysis of micro-data of the provinces and aggregate data from previous censuses, as well as sample surveys of 1 percent of the population, showed that a shrinking and ageing population has no significant negative impact on economic growth. In 2001, China officially entered an ageing society [with 7 percent of the population over 65 years old]. Since then, many people in China have become increasingly wary that they may ‘get old before becoming affluent.’ China is ushering in a new and higher-quality human capital dividend that is conducive to technological innovation and industrial upgrading.

Takeaways by Macro Roundup® AI

  1. Justin Lin's analysis of provincial micro-data, prior censuses, and 1 percent population sample surveys found that a shrinking and ageing population has no significant negative impact on China's economic growth.
  2. China officially entered an ageing society in 2001, when 7 percent of its population was over 65 years old, and since then many Chinese have grown wary of "getting old before becoming affluent.".
  3. Justin Lin argues that China is ushering in a new and higher-quality human capital dividend conducive to technological innovation and industrial upgrading.

Related Articles:

  • An Economic Hail Mary for China — A higher ratio of people aged 59 and over to children under 15 is strongly negatively correlated with GDP growth, as are higher median age and a larger share over 59. In China's northeastern provinces, where fertility fell a decade before the rest of the country, growth has stalled.
  • The Global Constraints To Chinese Growth — China accounts for 18% of global GDP but 13% of global consumption and 32% of global investment, with each dollar of Chinese investment offset by only $1.3 of consumption versus $4.1 outside China. If China grew 4-5% annually for a decade while relying on investment, its share of global investment would rise to 37%.
  • Can China Catch Up with Greece? — Declining contributions from labor and capital are projected to hold China's income growth below 4% unless total factor productivity growth accelerates, which the authors argue is unlikely given that China's productivity growth has already averaged 1.8% since 2009. Only five of the 43 countries that previously reached China's income level sustained that pace over the following 13 years.