Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 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
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, November 29, 2023

AI Summary. The authors estimate that an absolute full-income poverty measure, which counts a fuller set of income sources and adjusts thresholds only for inflation, fell from 19.5% to 1.6%, versus an official decline to 10.5%. They also find relative poverty reductions modest and government dependence more than doubled among working-age adults.

Richard Burkhauser, Kevin Corinth, James Elwell, and Jeff Larrimore Journal of Political Economy
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The US won the War on Poverty on LBJ’s terms, cutting the absolute full-income poverty rate from 19.5% in 1963 to 1.6% in 2019. During these years the share of working-age adults who earned < half of their income from market sources more than doubled.

Has absolute poverty nearly disappeared while government dependence has risen?

Core argument: The authors' absolute full-income poverty measure, which uses a fuller income measure and updates thresholds only for inflation, fell from 19.5% in 1963 to 1.6% in 2019, versus an official poverty rate decline from 19.5% to 10.5%.

We evaluate progress in the War on Poverty as President Lyndon B. Johnson defined it, which established a 20% baseline poverty rate and adopted an absolute standard. While the official poverty rate fell from 19.5% in 1963 to 10.5% in 2019, our absolute full-income poverty measure—which uses a fuller income measure and updates thresholds only for inflation—fell from 19.5% to 1.6%. However, we also show that relative poverty reductions have been modest. Additionally, government dependence increased over this time, with the share of working-age adults receiving under half their income from market sources more than doubling.

Takeaways by Macro Roundup® AI

  1. The authors' absolute full-income poverty measure, which uses a fuller income measure and updates thresholds only for inflation, fell from 19.5% in 1963 to 1.6% in 2019, versus an official poverty rate decline from 19.5% to 10.5%.
  2. Reductions in relative poverty were modest, in contrast to the decline measured against the absolute standard President Lyndon B. Johnson adopted alongside a 20% baseline poverty rate.
  3. Government dependence increased, with the share of working-age adults receiving under half their income from market sources more than doubling.

Related Articles:

  • Work Requirements and the Lost Lessons of 1996 — New York City's cash welfare rolls fell from 1.1m to about 360,000 even as its population grew, after shifting from signing people up for benefits to helping them into work; labor-force participation among never-married single mothers rose from roughly 50% to 65-70%. Polling shows about two-thirds of Americans back work requirements.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.

Jeremy Horpedahl Economist Writing Every Day
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“Are you better off than you were four years ago?” @jmhorp finds that PCE-adjusted average wages for nonsupervisory workers are up 5% since Jan. 2020. By Nov. 2024, he expects average real wages to be up 4% vs. the start the Biden administration.

Have inflation-adjusted wages grown as fast as before the pandemic?

Core argument: CPI-adjusted wages rose about 3% over the past four years, compared with roughly 4% over 2015–2019, while PCE-adjusted wages grew about 5% cumulatively over four years, on track with the pre-pandemic pace.

The data are quite clear: over the past 4 years, inflation-adjusted wages are up! This is also true if you start roughly right before the pandemic (December 2019 or January 2020 or thereabouts). And not only are inflation-adjusted wages up, they are up roughly the same amount as they were in the years before the pandemic. CPI-adjusted wages are a touch below: about 3% growth over 4 years, versus roughly 4% from 2015-2019. But PCE-adjusted wages are right on track, at around 5% cumulative 4-year growth. It’s true right now that if we start the data in January 2021, at the beginning of the Biden Presidency, CPI-adjusted wages are down slightly: about 1%. But PCE-adjusted wages are up slightly: also about 1%. But unless there is a major reversal of the trajectory of either wage or price growth, by next year these will both be positive (even if only slightly).

Takeaways by Macro Roundup® AI

  1. CPI-adjusted wages rose about 3% over the past four years, compared with roughly 4% over 2015–2019, while PCE-adjusted wages grew about 5% cumulatively over four years, on track with the pre-pandemic pace.
  2. Measured from January 2021, CPI-adjusted wages are down about 1% while PCE-adjusted wages are up about 1%.
  3. Absent a major reversal in wage or price growth, both CPI- and PCE-adjusted wage measures starting from January 2021 will turn positive by next year, if only slightly.

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.
  • Are Real Wages Rising? — 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.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. The Employment Cost Index, which adjusts for shifts in the mix of jobs and industries, shows inflation-adjusted wages have fallen 3.7% since the end of 2020, erasing the gains of the late 2010s. Real wages stand at 2015 levels, so American paychecks buy no more than they did eight years earlier.

Stephen Miran City Journal
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.@SteveMiran when examining the change in real wages, argues that taking into account the changing composition of the labor force is absolutely essential; when he does so, he finds that inflation-adjusted wages and salaries are down 3.7% since 2020.

Have real wages stagnated despite headline economic growth?

Core argument: The BLS National Compensation Survey's Employment Cost Index, which accounts for changes in the composition of the workforce across job types and industries, shows inflation-adjusted wages shrinking by 3.7% since the end of 2020.

To get a clearer picture of the economy, therefore, we need to adjust for the changing composition of the workforce and consider changes to wages in each type of job and industry. A BLS statistic, the National Compensation Survey’s Employment Cost Index, does just this. According to ECI, inflation-adjusted wages have shrunk by 3.7% since the end of 2020. While real wages rose in response to falling energy prices late last year, they have been roughly flat since. Worse, the drop in real wages erased all gains made in the late 2010s. Real wages today stand at 2015 levels, meaning Americans’ paychecks don’t go any further now than they did eight years ago.

Takeaways by Macro Roundup® AI

  1. The BLS National Compensation Survey's Employment Cost Index, which accounts for changes in the composition of the workforce across job types and industries, shows inflation-adjusted wages shrinking by 3.7% since the end of 2020.
  2. Real wages stand at 2015 levels, erasing the gains made in the late 2010s, leaving Americans' paychecks going no further than they did eight years ago.
  3. Real wages rose as energy prices fell but have since remained roughly flat.

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.
  • Are Real Wages Rising? — 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.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. The National Center for Health Statistics reported nearly 50,000 U.S. suicide deaths in a provisional tally, a rate of 14.3 per 100,000 people that is the highest since 1941, with the agency saying the final count would likely be higher. Suicide rates fell 18% among children aged 10-14 and 9% among people aged 15-24, returning those groups to pre-pandemic levels.

Julie Wernau Wall Street Journal
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Almost 50,000 people killed themselves in the United States in 2022. At 14.3 deaths per 100,000, that’s the highest rate since 1941. Suicide rates for young people declined to their pre-pandemic level.

Have U.S. suicide rates reached their highest level since 1941?

Core argument: Nearly 50,000 people in the U.S. died by suicide in 2022, according to a provisional tally from the National Center for Health Statistics, which said the final count would likely be higher.

Nearly 50,000 people in the U.S. lost their lives to suicide in 2022, according to a provisional tally from the National Center for Health Statistics. The agency said the final count would likely be higher. The suicide rate of 14.3 deaths per 100,000 people reached its highest level since 1941. Suicide rates for children 10-14 and people 15-24 declined by 18% and 9%, respectively, last year from 2021, bringing suicide rates in those groups back to prepandemic levels.

Takeaways by Macro Roundup® AI

  1. Nearly 50,000 people in the U.S. died by suicide in 2022, according to a provisional tally from the National Center for Health Statistics, which said the final count would likely be higher.
  2. The U.S. suicide rate of 14.3 deaths per 100,000 people in 2022 was the highest since 1941.
  3. Suicide rates fell 18% among children aged 10–14 and 9% among people aged 15–24 in 2022 from 2021, returning both groups to prepandemic levels.

Related Articles:

  • Suicide Rates Are up for Gen Z Across the Anglosphere, Especially for Girls — Rates of self-harm episodes among adolescents in the U.S., UK, Canada, Australia, and New Zealand have increased since 2010, especially for girls, reaching record-high levels in all five countries. The author links this to a five-year period in which adolescents shifted from basic phones to smartphones with continuous internet and social media access.
  • Comments On: “Accounting For the Widening Mortality Gap Between American Adults With and Without a BA” By Anne Case and Angus Deaton — Selection plausibly accounts for most or all of the widening mortality gap between US adults with and without a bachelor's degree: high school achievement measures have not risen since the early 1970s while the share earning degrees rose, and national youth survey data show non-graduates increasingly negatively selected on aptitude scores.
  • How Disadvantage Became Deadly in America — The author calculates that the average age of death among the shortest-lived 10% of Americans is 36, versus 55 in the Netherlands and 57 in Sweden, after falling by about eight years over the past decade. Wealthy Americans live equally long regardless of local opioid use and gun violence, while poor Americans in those areas live far shorter lives.

AI Summary. European-made batteries and cars do not straightforwardly qualify for U.S. consumer electric-vehicle subsidies, and U.S. national security tariffs apply even to close security allies, while the European Union prefers responding to Chinese trade distortions only through measures clearly permitted by the World Trade Organization. These competing approaches have fractured transatlantic markets for clean energy goods and steel.

Brad Setser Council on Foreign Relations
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.@Brad_Setser argues the US and EU should harmonize trade and industrial policy specifically in terms of EV and steel to create domestic manufacturing capacity and offset Chinese mercantilism.

Can the US and EU harmonize trade approaches on EVs and steel?

Core argument: European batteries and cars do not qualify straightforwardly for U.S. consumer EV subsidies, though the "leased vehicle" exception leaves ample ground for transatlantic trade.

Europeans are frustrated that European batteries and cars don’t qualify for U.S. consumer EV subsidies in a straightforward way (though the “leased vehicle” exception provides ample ground for trade), as well as the persistence of national security tariffs that apply to close security allies. Americans are frustrated by the contortions created by the EU’s desire to respond to China's distortions by only using measures that fit within the narrow confines clearly allowed by the WTO (The U.S. also takes a more expansive view than the EU about what the WTO allows). These competing approaches to managing the Chinese threat have led to the fracturing of the transatlantic markets for not only clean energy goods, but also dirty goods like steel that need to become clean to lower global carbon emissions.

Takeaways by Macro Roundup® AI

  1. European batteries and cars do not qualify straightforwardly for U.S. consumer EV subsidies, though the "leased vehicle" exception leaves ample ground for transatlantic trade.
  2. Americans object to the EU's insistence on countering Chinese distortions only through measures clearly permitted by the WTO, while the U.S. takes a more expansive view of what WTO rules allow.
  3. Competing U.S. and EU approaches to managing the Chinese threat, alongside U.S. national security tariffs applied to close security allies, have fractured transatlantic markets for clean energy goods and for steel.

Related Articles:

  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.
  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.
  • Danish Weight Loss Drugs vs. Chinese Cars: Two Models of Export Booms — Denmark's weight-loss drug exports illustrate a positive-sum export boom in which new products create both supply and demand, while Chinese car exports reflect firms with persistent overcapacity fighting for market share. The US preempted Chinese electric vehicles through legislation that boosts demand while reserving a share for local producers; Europe remains more exposed.

AI Summary. The China-aligned bloc holds about half of the world's land mass and 46% of its population but generates 27% of world GDP and 38% of industrial output, against 67% and 55% for the US-aligned bloc. The author argues the fastest way to shift this balance would be a US decision to dismantle its alliances.

Martin Wolf Financial Times
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Martin Wolf notes that the US and its close allies remain relatively dominant with 67% of global GDP and absolutely dominant in finance and capital flows.

Does the US-aligned bloc still outweigh China's economically?

Core argument: The China bloc generates 27% of world GDP, nearly all of it in China itself, against 67% for the US bloc, despite holding half the world's non-Antarctic land mass and 46% of its people.

The China bloc accounts for half of the world’s (non-Antarctic) land mass, compared with 35% for the US bloc. It is also home to slightly more of the world’s people (46%, against 43%). But it still generates only 27% of the world’s GDP, nearly all of that in China itself, compared with 67% in the US bloc. Unsurprisingly, the China bloc is more important in industry than in GDP. Thus, its share of world industrial output was 38% in 2022, against 55% for the US bloc. Many countries wish to see the US and its allies, the dominant powers of the last two centuries, taken down more than just a peg or two. But they are more united and economically powerful than China’s group of malcontents. The event likely to change this balance quickly would be a US decision to tear its alliances to pieces.

Takeaways by Macro Roundup® AI

  1. The China bloc generates 27% of world GDP, nearly all of it in China itself, against 67% for the US bloc, despite holding half the world's non-Antarctic land mass and 46% of its people.
  2. The China bloc's share of world industrial output was 38% in 2022, compared with 55% for the US bloc, a larger share than its share of GDP.
  3. The US and its allies are more united and economically powerful than China's group of malcontents, and the event likely to change that balance quickly would be a US decision to tear its alliances to pieces.

Related Articles:

  • Why Xi Can No Longer Brag About the Chinese Economy — China's shipyards build 46% of the world's ships, letting it produce several warships and submarines a year, while the U.S. holds under 1% of capacity and its Navy faces late, over-budget deliveries from a few yards lacking workers. China is also the largest drone producer.
  • China Slowdown Means It May Never Overtake US Economy, Forecast Shows — Bloomberg Economics projects China's growth slowing to 3.5% by 2030 and near 1% by 2050, below its earlier forecasts of 4.3% and 1.6%. On that path, China's economy would surpass the US only in the mid-2040s, by a small margin, before falling back behind; US potential growth is projected to drift down to 1.5% by 2050.
  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.

Thursday, November 30, 2023

AI Summary. Accounting for Black families, who historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked United States census data from 1850 to 1940. The author argues historical mobility was lower than previously estimated, implying greater equality of opportunity today than in the past.

Zachary Ward American Economic Review
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Intergenerational income mobility in US is greater than in the 19th and early 20th century, as previous estimates overestimated historical mobility due to bad samples and measurement error.

Was historical economic mobility lower than earlier estimates suggested?

Core argument: Accounting for Black families, whom historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked U.S. census data from 1850 to 1940, the author finds.

This paper’s main message is that historical mobility was lower than previously estimated in linked data. To show why, I account for two measurement issues: unrepresentative samples and measurement error. First, I account for unrepresentative samples by adding Black families, who historical studies routinely drop. Second, I address measurement error by using multiple father observations to more accurately capture his permanent economic status. Using linked census data from 1850 to 1940, I show that accounting for race and measurement error can double estimates of intergenerational persistence. Updated estimates imply that there is greater equality of opportunity today than in the past, mostly because opportunity was never that equal.

Takeaways by Macro Roundup® AI

  1. Accounting for Black families, whom historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked U.S. census data from 1850 to 1940, the author finds.
  2. The author addresses measurement error by using multiple observations of a father to more accurately capture his permanent economic status.
  3. The updated estimates imply greater equality of opportunity in the United States today than in the past, mostly because historical opportunity was never that equal.

Related Articles:

AI Summary. The wealth of the richest person on the Forbes 400 list rose from 85,000x median family income to 2,500,000x, a roughly 30x increase in that ratio. The author argues this gap is hard to reconcile with research finding little change in after-tax top income shares, and presumes those figures contain errors.

Brad DeLong Brad DeLong's Grasping Reality
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.@delong cites evidence that wealth inequality has increased markedly since 1982, and argues that, since wealth and income fluctuate together, it’s implausible that top-income shares have not risen.

How can top wealth rise 30x while top income shares stay flat?

Core argument: Elon Musk's $251 billion atop the 2023 Forbes 400 equals 2,500,000 times the median family income of $98,705, versus Daniel Ludwig's $2 billion in 1982 at 85,000 times the then-median family income of $23,430.

Here is my take: In the US in 1982, the top of the first Forbes 400 list was Daniel Ludwig with nominal $2 billion. That was 85,000 times the then-median nominal family income of $23,430. In 2023, the top of the Forbes 400 was Elon Musk with nominal $251 billion. That was 2,500,000 times the now-median nominal family income of $98,705. Now: ($251B/$99K)/($2B/$23K) = 29.8 How the f*** is the ratio of the top to the median to explode by a factor of 30 while the Auten/Splinter measures show “little change in after-tax top income shares”? Until someone comes up with an explanation for how this could be—how a 30x multiplication since 1982 of the ratio of the top of the Forbes 400 to median household income is consistent with “top income shares are lower and have increased less since 1980 than other studies… increasing government transfers and tax progressivity have resulted in… little change in after-tax top income shares…”—I am going to presume the chances are 99% that there are big things wrong in the numbers in Auten/Splinter.

Takeaways by Macro Roundup® AI

  1. Elon Musk's $251 billion atop the 2023 Forbes 400 equals 2,500,000 times the median family income of $98,705, versus Daniel Ludwig's $2 billion in 1982 at 85,000 times the then-median family income of $23,430.
  2. The ratio of the Forbes 400 leader's wealth to median family income rose by a factor of 29.8 between 1982 and 2023.
  3. Brad DeLong argues that a roughly 30-fold rise in that ratio is hard to reconcile with Auten and Splinter's finding that government transfers and tax progressivity have left after-tax top income shares little changed, and puts 99% odds on errors in their numbers.

Related Articles:

AI Summary. U.S. health spending fell to 17.1% of GDP from 17.5% a year earlier and 17.9% the year before, the smallest share since 2014 and below the pre-pandemic level. Adjusted for overall and medical inflation the share was largely unchanged, with the decline driven by higher inflation outside health and lagging medical inflation.

Victoria Udalova Briefing Book
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Victoria Udalova notes that, according to the Bureau of Economic Analysis, the share of American GDP spent on health care declined for the second straight year to 17.1% in 2022, the lowest level since 2014.

Is falling health spending as a share of GDP just inflation?

Core argument: New BEA estimates put U.S. health spending at 17.1% of GDP in 2022, down from 17.5% in 2021 and 17.9% in 2020, a second consecutive annual decline.

According to the new BEA estimates, the share of GDP spent on health in 2022 declined to 17.1% from 17.5% in 2021 and 17.9% in 2020. This marks the second consecutive year of decline in health spending as a share of GDP. The estimated share in 2022 represents the smallest share of the economy spent on health since 2014 and a smaller share that was spent on health in 2019, before the start of the pandemic. Adjusting for differences in overall and medical inflation, the share of GDP spent on health in 2022 was largely unchanged from 2020 and 2021. As such, the decline in health spending as a share of GDP in 2021 and 2022 was primarily driven by high inflation in sectors outside of health and a lagging medical inflation.

Takeaways by Macro Roundup® AI

  1. New BEA estimates put U.S. health spending at 17.1% of GDP in 2022, down from 17.5% in 2021 and 17.9% in 2020, a second consecutive annual decline.
  2. The 2022 health share of GDP is the smallest since 2014 and below the share spent on health in 2019, before the start of the pandemic.
  3. Adjusting for overall and medical inflation, the health share of GDP in 2022 was largely unchanged from 2020 and 2021, with the declines in 2021 and 2022 driven primarily by high inflation outside health and lagging medical inflation.

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. The Federal Reserve records losses as a "deferred asset" and suspends payments to the Treasury until it is paid down, having accumulated roughly $117bn. The authors estimate the Federal Reserve will carry this deferred asset until mid-2027 before resuming transfers to the Treasury.

Miguel Faria e Castro and Samuel Jordan-Wood Federal Reserve Bank of St. Louis
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According to @mfariacastro @samajordanwood, the Federal Reserve should return to positive net income in 2025 and will resume transfers to the Treasury in 2027.

When will the Fed resume sending its profits to Treasury?

Core argument: The Fed had accumulated a deferred asset of $116.9 billion as of Nov. 8, 2023, which it will pay down once net income turns positive before resuming remittances to the Treasury.

Remittances rose considerably in the aftermath of the balance sheet expansion following the global financial crisis of 2007-08; they went from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015. Remittances then fell due to the 2015-18 tightening cycle, but they rose again in 2020 as the Fed slashed interest rates and resumed its balance sheet expansion (additionally, GDP fell in 2020, which partly explains the positive jump). Between 2021 and 2022, remittances as a percent of GDP dropped from 0.5% to 0.3%. Once the Fed returns to earning a positive net income, it will pay down the value of the deferred asset until it reaches zero, at which point the Fed will resume sending remittances to the Treasury. As of Nov. 8, 2023, the Fed had accumulated a deferred asset of $116.9 billion. In April 2023, the New York Fed estimated that the Fed will return to positive net income in 2025. Combining those New York Fed projections with the latest data on net income, we estimate that the Fed will carry this deferred asset until mid-2027, after which it will resume transfers to the Treasury.

Takeaways by Macro Roundup® AI

  1. The Fed had accumulated a deferred asset of $116.9 billion as of Nov. 8, 2023, which it will pay down once net income turns positive before resuming remittances to the Treasury.
  2. Fed remittances rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4% in 2015 following the post-crisis balance sheet expansion, then fell during the 2015-18 tightening cycle.
  3. The New York Fed estimated in April 2023 that the Fed will return to positive net income in 2025, and combining those projections with recent net income data suggests the deferred asset persists until mid-2027.

Related Articles:

  • There Is No “Stealth Fiscal Stimulus” — The U.S. federal budget deficit has widened by about 3-4 percentage points of GDP, with lower revenues mostly attributable to a plunge in capital gains tax receipts after an earlier windfall and to the collapse in Federal Reserve payments to the Treasury. Higher outlays are almost entirely attributable to surging interest payments on Treasury debt.

AI Summary. Most workers' wages have risen significantly more than prices since the pandemic began, and private data show Thanksgiving dinner costs 4.5% less than a year earlier while gasoline prices are down more than 30% from their peak. The author argues the narrative that inflation is still running wild is not true.

Paul Krugman Krugman Wonks Out
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.@paulkrugman notes that Average Hourly Earnings have outpaced CPI since 2019, and argues “most workers’ wages have risen significantly more” than inflation.

Have wages outpaced prices since the pandemic began?

Core argument: Most workers' wages have risen significantly more than prices since the pandemic began, and the U.S. economy is doing very well — better than even optimists expected a year ago.

What we can say, with considerable certainty, is that while prices have gone up a lot since the pandemic began, most workers’ wages have risen significantly more. I’m told that real people know that inflation is still running hot, whatever the government numbers may say. Actually, the American Farm Bureau Association, a private group, tells us that Thanksgiving dinner cost 4.5% less this year than last. Gasbuddy.com, another private group, tells us that prices at the pump are down more than 30% since their peak last year. Neither turkeys nor gas prices are good measures of underlying inflation, but both show that the narrative of inflation still running wild is just not true. While the public’s negative view of the economy is a major puzzle, acknowledging that puzzle is no reason to soft-pedal the evidence that the U.S. economy is currently doing very well — indeed, much better than even optimists expected a year ago.

Takeaways by Macro Roundup® AI

  1. Most workers' wages have risen significantly more than prices since the pandemic began, and the U.S. economy is doing very well — better than even optimists expected a year ago.
  2. The American Farm Bureau Association reports Thanksgiving dinner cost 4.5% less this year than last, and Gasbuddy.com reports pump prices are down more than 30% from their peak last year.
  3. Turkey and gasoline prices are not good measures of underlying inflation, but both indicate the narrative of inflation still running wild is not true, leaving the public's negative view of the economy a major puzzle.

Related Articles:

  • 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.
  • Are You Better Off Than You Were Four Years Ago? — Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.
  • Why Americans Dislike the Economy — The Employment Cost Index, which adjusts for shifts in the mix of jobs and industries, shows inflation-adjusted wages have fallen 3.7% since the end of 2020, erasing the gains of the late 2010s. Real wages stand at 2015 levels, so American paychecks buy no more than they did eight years earlier.