Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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 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
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a 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 should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, December 5, 2023

AI Summary. Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest @jpmorgan notes that reported returns by US venture capital are likely benefitting from stale valuations.

Are venture capital financing conditions tightening for startups?

Core argument: The incidence of venture capital "down rounds" rose from 8% in 2022 to nearly 20% in 2023, and down rounds in 2023 entailed post-money valuation declines of more than 50%.

The venture capital landscape is shifting. There is a rising median time between venture rounds. An increased number of startups terminated due to bankruptcy. There has been a large jump in “down rounds” between 2022 and 2023, and post-money valuations have declined (i.e., the company’s value after a new capital injection), particularly for Series C rounds. For example, from 2022 to 2023, the incidence of down rounds rose from 8% to almost 20%, and when down rounds occurred, in 2023 they entailed post-money valuation declines of more than 50% All of this is consistent with tightening financial conditions and a hangover from easy conditions prevailing in 2020 and 2021.

Takeaways by Macro Roundup® AI

  1. The incidence of venture capital "down rounds" rose from 8% in 2022 to nearly 20% in 2023, and down rounds in 2023 entailed post-money valuation declines of more than 50%.
  2. Median time between venture rounds is rising and more startups have terminated due to bankruptcy, with post-money valuations declining particularly for Series C rounds.
  3. The review reads the shifts in venture funding as consistent with tightening financial conditions and a hangover from the easy conditions that prevailed in 2020 and 2021.

Related Articles:

  • Private Equity Fundamentals — An analysis of North American private equity- and venture-backed companies with public stock or debt finds they trade at 22.4x adjusted earnings, in line with small-cap growth stocks, but at 33.4x on standard accounting measures with net debt of 8.8x earnings. The authors describe the group as heavily leveraged and mostly cash-flow negative.
  • The Grind Ahead — Higher short-term and long-term interest rates are flowing through to credit and interest costs, which the authors expect to produce "the grind" — a gradual decline in growth and in the health of corporate and household balance sheets — as a dominant driver of economies and markets over the next 12–18 months.
  • 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.

AI Summary. Growth in the number of households making mortgage escrow payments ran higher among Millennials than Baby Boomers and widened further when record low mortgage rates made buying more affordable. As affordability fell with rising interest rates, Millennial growth converged with that of Generation X and Baby Boomers, with the largest pullback among those aged 35-45.

Anna Zhou Bank of America
Date Posted:

There has been a decline in escrow payments for home purchases, according to @BankofAmerica internal data. The decline has been more significant for older millennials (35-45), who are slowing home purchases faster than other buyers.

Has falling housing affordability hit older millennial homebuying hardest?

Core argument: Older Millennials aged 35–45 saw the biggest pullback in year-over-year growth of households with an escrow payment as home affordability plummeted with rapidly rising interest rates in 2022.

We break down the data by generation and make three observations. First, prior to the pandemic, the % YoY growth in the number of households with an escrow payment among both younger and older Millennials was consistently higher than that of Baby Boomers (Exhibit 4). This makes sense given that Millennials were entering prime home-buying age in 2019. Second, this gap widened rapidly in 2020 and 2021 as record low mortgage rates made home buying more affordable, which allowed an uptick in homeownership, especially among younger generations. Third, as we entered 2022, and home affordability started to plummet with the rapid increase in interest rates, the % YoY growth rate of escrow payments among Millennials converged to that of Gen X and Baby Boomers, with older Millennials (age 35-45) seeing the biggest pullback.

Takeaways by Macro Roundup® AI

  1. Older Millennials aged 35–45 saw the biggest pullback in year-over-year growth of households with an escrow payment as home affordability plummeted with rapidly rising interest rates in 2022.
  2. Before the pandemic, year-over-year growth in households with an escrow payment was consistently higher among both younger and older Millennials than among Baby Boomers, consistent with Millennials entering prime home-buying age in 2019.
  3. The generational gap widened rapidly in 2020 and 2021 as record low mortgage rates made home buying more affordable and lifted homeownership among younger generations, before Millennial growth converged to that of Gen X and Baby Boomers.

Related Articles:

  • Inflation Adjusted House Prices 3.0% Below Peak — Inflation-adjusted US house prices are 3.0% below their peak, while housing affordability is the worst since 1982, when 30-year mortgage rates exceeded 14%. With mortgage rates at 7.20%, the principal-and-interest payment on a $500,000 house with 20% down is 16% higher than a year earlier and 88% higher than two years earlier.
  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.
  • With Housing, Millennials Have Much to Complain About — The Census Bureau's customary homeownership rate is measured by household, showing 52.7% of 25-to-34-year-old household heads own homes, but only 32.6% of all Americans in that age group do — down 20 percentage points from the late 1970s and nearly 10 points since the mid-2000s. Young-adult homeownership has seen a modest resurgence since 2016.

AI Summary. In international testing of 15-year-olds, U.S. students scored below peers in the United Kingdom, Australia, and Germany and well behind Singapore, South Korea, and Estonia, continuing a math underperformance that predated the pandemic. Globally, students lost the equivalent of three-quarters of a year of math learning, with larger declines where schools stayed closed longer.

Sarah Mervosh New York Times
Date Posted:

In the first PISA results since the pandemic, US students lost ground in math but held steady in reading and science. Just 7% of US students scored at the highest level in math, compared with 41% of students in Singapore.

In the first PISA results since the pandemic, US students lost ground in math but held steady in reading and science. Just...

Do U.S. students still trail other countries in math?

Core argument: Students globally lost the equivalent of three-quarters of a year of learning in math on the 2022 PISA test, the first administered since the coronavirus pandemic.

In the first Program for International Student Assessment (PISA) results since the coronavirus pandemic, 15-year-olds in the United States scored below students in similar industrialized democracies like the United Kingdom, Australia, and Germany, and well behind students in the highest-performing countries such as Singapore, South Korea, and Estonia — continuing an underperformance in math that predated the pandemic. Globally, students lost the equivalent of three-quarters of a year of learning in math, which was the primary focus of the 2022 test. And only a few countries — Singapore, Japan, South Korea, Switzerland, and Australia — maintained high levels of math performance through the pandemic. Countries that kept schools closed longer generally saw bigger declines. Even with its declines in math, the United States lost less ground than some European countries that prioritized opening schools more quickly.

Takeaways by Macro Roundup® AI

  1. Students globally lost the equivalent of three-quarters of a year of learning in math on the 2022 PISA test, the first administered since the coronavirus pandemic.
  2. U.S. 15-year-olds scored below peers in the United Kingdom, Australia, and Germany, and well behind Singapore, South Korea, and Estonia, continuing a math underperformance that predated the pandemic.
  3. Countries that kept schools closed longer generally saw bigger PISA math declines, though the United States lost less ground than some European countries that prioritized reopening schools more quickly.

Related Articles:

  • Krugman’s Misleading Scandinavian Comparison — Krugman’s Misleading Scandinavian Comparison
  • ACT Scores Fell for Class of 2023, Sixth Consecutive Decline — The average ACT college admissions test score fell to 19.5 out of 36, a 30-year low and a sixth consecutive annual decline, with scores down across English, math, reading and science. The testing organization says the results indicate fewer high-school seniors are ready for college.
  • NAEP Long-Term Trend Assessment Results: Reading and Mathematics — U.S. national assessment scores for 13-year-olds declined 4 points in reading and 9 points in mathematics from the prior assessment, and 7 and 14 points respectively compared with a decade earlier. Mathematics declines were larger for lower-performing students (12–14 points) than for middle- and higher-performing students (6–8 points).

AI Summary. South Korea's finance minister nominee argues the country's aging population requires immediate preparation, noting efforts to raise the world's lowest fertility rate would take at least 30 years to yield benefits. A shrinking workforce is a major cause of South Korea's declining potential growth rate, with births per woman at 0.78.

Jaehyun Eom and Sam Kim Bloomberg
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South Korea’s finance minister compared the country’s record low fertility of 0.78 births per woman last year, to the Titanic: “It’s already too late. A ship like the Titanic has no choice but to crash by the time it discovers a reef.”

Does an aging population require immediate preparation despite decades-long payoffs?

Core argument: South Korea's fertility rate fell to 0.78 babies per woman last year, the world's lowest, according to data released by the country's statistics office.

South Korea’s nominee for finance minister compared challenges posed by the country’s aging demographics to the iceberg that sank the Titanic, calling for immediate steps to cope with the situation. “It’s already too late,” Choi Sang-mok told reporters on Tuesday. “A ship like the Titanic has no choice but to crash by the time it discovers a reef.” It would take 30 years at the earliest to see the benefits of efforts to raise the world’s lowest fertility rate, so South Korea should be patient and thoroughly prepare for the implications of current demographic trends, he said. A shrinking workforce is a major cause of Korea’s declining potential growth rate. The number of babies expected per woman fell to 0.78 last year, according to data released by the statistics office.

Takeaways by Macro Roundup® AI

  1. South Korea's fertility rate fell to 0.78 babies per woman last year, the world's lowest, according to data released by the country's statistics office.
  2. Finance minister nominee Choi Sang-mok said efforts to raise South Korea's fertility rate would take 30 years at the earliest to yield benefits, urging the country to prepare thoroughly for the implications of current demographic trends.
  3. Choi Sang-mok compared South Korea's aging demographics to the iceberg that sank the Titanic, saying "it's already too late" and calling for immediate steps, while a shrinking workforce remains a major cause of the country's declining potential growth rate.

Related Articles:

  • World’s Lowest Birthrate Sinks Further Despite Cash Payouts to Parents — South Korea's fertility rate fell to 0.78 from 0.81, the lowest among wealthy OECD countries where the average is 1.58, and no other OECD member is below 1. Its population has been declining as deaths exceed births, and military conscripts are expected to shrink by nearly half over two decades.
  • South Korea Again Smashes Own Record for World’s Lowest Fertility Rate in 2022 — South Korea's fertility rate fell to 0.78 babies per woman, the lowest among more than 260 nations tracked by the World Bank, with newborns declining to 249,000 against about 373,000 deaths. Statistics Korea projects the working-age population, which peaked at 37.3m, will fall by almost half by 2070.
  • How a Vast Demographic Shift Will Reshape the World — In East Asia and Europe, growing numbers of retirees will depend on a shrinking working-age population, and some Asian countries are aging before becoming rich — China hit its peak working-age population at 20% of US income levels at the same point, Vietnam at 14%.

AI Summary. The US Commerce Department says its roughly $200m budget is inadequate to enforce semiconductor export controls aimed at limiting China's access to artificial intelligence chips, and has called for greater funding. It has warned that chips redesigned to fall just below existing thresholds will themselves be restricted, arguing national security outweighs chipmakers' short-term revenue.

Peter Martin Bloomberg
Date Posted:

Commerce Secretary Gina Raimondo expressed frustrations with Nvidia’s redesign of chips to in order to access the China market. She said, “If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day.”

Commerce Secretary Gina Raimondo expressed frustrations with Nvidia’s redesign of chips to in order to access the China...

Does enforcing semiconductor export controls require a bigger budget?

Core argument: Commerce Secretary Gina Raimondo said her department's $200 million budget for semiconductor export controls is "like the cost of a few fighter jets" and called for the operation to be funded as it needs to be funded.

Raimondo said American companies will need to adapt to US national security priorities, including export controls that her department has placed on semiconductor exports.“I know there are CEOs of chip companies in this audience who were a little cranky with me when I did that because you’re losing revenue,” she said. “Such is life. Protecting our national security matters more than short-term revenue.” Raimondo called out Nvidia Corp., which designed chips specifically for the Chinese market after the US imposed its initial round of curbs in October 2022. If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day,” Raimondo said. “I have a $200 million budget. That’s like the cost of a few fighter jets. Come on,” she said. “If we’re serious, let’s go fund this operation like it needs to be funded.”

Takeaways by Macro Roundup® AI

  1. Commerce Secretary Gina Raimondo said her department's $200 million budget for semiconductor export controls is "like the cost of a few fighter jets" and called for the operation to be funded as it needs to be funded.
  2. Raimondo said any chip redesigned around a control cut line in a way that enables AI would be controlled "the very next day," and called out Nvidia for designing chips for the Chinese market after the October 2022 curbs.
  3. Raimondo said American companies will need to adapt to US national security priorities, telling chip CEOs losing revenue from export controls that protecting national security matters more than short-term revenue.

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.
  • US Restricts Nvidia Made-for-China Chips in New Export Rules — 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.
  • Chinese Scientists Create Chip That Can Perform AI Task 3,000 Times Faster Than Nvidia’s A100: Study — Chinese researchers report developing a chip that performs certain AI tasks, such as image recognition and autonomous driving, faster and more energy efficiently than current high-performance AI chips. The authors write that while it cannot replace chips in computers or smartphones, it may be used in wearable devices, electric cars, or smart factories.

AI Summary. China accounts for 18% of global GDP, 13% of global consumption, and 31% of global manufacturing. The author estimates that if China grew 4–5% annually for a decade while keeping manufacturing's role in its economy, its share of global manufacturing would reach 36–39%, requiring the rest of the world to let manufacturing's share of its output fall by 0.5–1.0pp.

Michael Pettis China Financial Markets
Date Posted:

Unless China rebalances towards domestic consumption, @michaelxpettis shows that 4 to 5% growth over the next decade would cause China’s share of global investment and global manufacturing to rise by 5pp of global GDP to 37-38%.

Can the rest of the world absorb a rising Chinese manufacturing share?

Core argument: China accounts for 18% of global GDP and 13% of global consumption but 31% of global manufacturing.

While China accounts for 18% of global GDP and only 13% of global consumption, it currently accounts for an extraordinary 31% of global manufacturing. If China maintained annual GDP growth rates of 4–5% while also maintaining the role of manufacturing in its economy, its share of global GDP would rise by less than 3pp in a decade, to 21%, even as its share of global manufacturing would rise by more than 5pp, to 36%. What’s more, if—as a result of the massive shift in investment from the property sector to the manufacturing sector—the GDP share of China’s manufacturing sector rose above its current 28% to, say, 30%, China’s share of global manufacturing would rise to 39%. To accommodate this and prevent a global overproduction crisis, the rest of the world would have to allow its manufacturing share of GDP to drop between 0.5 and 1.0pp.

Takeaways by Macro Roundup® AI

  1. China accounts for 18% of global GDP and 13% of global consumption but 31% of global manufacturing.
  2. Sustaining 4–5% annual GDP growth while preserving manufacturing's role in its economy would lift China's share of global GDP by under 3pp to 21% in a decade, while its global manufacturing share rose more than 5pp to 36%.
  3. If a shift in investment from property to manufacturing raised manufacturing from 28% to 30% of China's GDP, its global manufacturing share would reach 39%, requiring the rest of the world to let its manufacturing share of GDP fall 0.5–1.0pp to prevent a global overproduction crisis.

Related Articles:

  • 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%.
  • EU To Launch Anti-Subsidy Probe into Chinese Electric Vehicles — The European Union is opening an anti-subsidy investigation into Chinese electric vehicles it says are distorting the EU market, one of its largest trade cases. Manufacturers found in breach of trade rules could face punitive tariffs, as the EU seeks to avoid a repeat of the insolvencies in its solar panel industry caused by cheap Chinese imports.
  • Managing Economic and Financial Entanglements With China — China's surplus in manufactured goods net of commodity imports has kept growing relative to trade partners' output and relative to China's own economic output, alongside weak consumer spending and falling homebuilding. U.S. federal spending financed largely by borrowing has supported private balance sheets and demand, muting attention to that surplus.

Wednesday, December 6, 2023

AI Summary. The official U.S. poverty measure has barely changed in over 50 years because most social benefits aren't counted as recipient income, even as benefits to the average household in the bottom 20% rose from $9,700 to $45,000 in inflation-adjusted dollars; counting all benefits puts poverty at 2.5%.

Phil Gramm and John Early Wall Street Journal
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Between 2019 and 2021 government spending on social benefits rose by 47% but the official poverty rate rose from 10.5% to 11.6%. Phil Gramm and John Early note that 88 social benefits are excluded from poverty measures.

Between 2019 and 2021 government spending on social benefits rose by 47% but the official poverty rate rose from 10.5% to...

Does counting all social benefits as income sharply lower measured poverty?

Core argument: Social benefit payments to the average household in the bottom 20% of income earners have risen from $9,700 to $45,000 in inflation-adjusted dollars, yet the official poverty measure has hardly changed in more than 50 years because most of those payments aren't counted as income.

The official poverty measure has hardly changed for more than 50 years, even as social benefit payments to the average household in the bottom 20% of income earners have risen from $9,700 to $45,000 in inflation-adjusted dollars, because most of these payments simply aren’t counted as income to the recipients. When all benefits are counted, the percentage of Americans living in poverty falls to only 2.5%. Bruce Meyer of the University of Chicago and James Sullivan of the University of Notre Dame arrived at a similar figure by comparing the actual goods and services consumed by poor households in 1980 with the actual level of consumption of households that were being counted as poor in 2017. They found that only 2.8% of households in 2017 were consuming at or below the actual poverty consumption level.

Takeaways by Macro Roundup® AI

  1. Social benefit payments to the average household in the bottom 20% of income earners have risen from $9,700 to $45,000 in inflation-adjusted dollars, yet the official poverty measure has hardly changed in more than 50 years because most of those payments aren't counted as income.
  2. Counting all benefits as income lowers the share of Americans living in poverty to 2.5%.
  3. Bruce Meyer of the University of Chicago and James Sullivan of the University of Notre Dame found that only 2.8% of households in 2017 consumed at or below the consumption level of households counted as poor in 1980.

Related Articles:

AI Summary. The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.

Ryan Cummings and Neale Mahoney Briefing Book
Date Posted:

The recent relationship between inflation and consumer sentiment implies that, if inflation slows to 2.5%, consumer sentiment will improve by 8pp, putting it at the level of mid-2021 by Election Day. @weakinstrument @NealeMahoney

How quickly does inflation's drag on consumer sentiment fade?

Core argument: A 10% inflation shock is estimated to reduce consumer sentiment by 35 index points in the current year, 16 points the following year, and 8 points the year after, a decay rate of about 50% per year.

We find that the impact of inflation on consumer sentiment fades out with a decay rate of about 50% per year, with a 10% inflation shock reducing sentiment by 35 index points in the current year, 16 index points the following year, and 8 index points the year after. The estimates imply that current sentiment is being dragged down by 16 index points by the inflation we have experienced over the last 3 years, down 40 percent from the peak negative impact of 27 index points in June 2022. If inflation next year slows to 2.5%, the negative impact on consumer sentiment from inflation would decline by another 50% relative to the current value.

Takeaways by Macro Roundup® AI

  1. A 10% inflation shock is estimated to reduce consumer sentiment by 35 index points in the current year, 16 points the following year, and 8 points the year after, a decay rate of about 50% per year.
  2. Inflation over the prior three years is estimated to be dragging consumer sentiment down by 16 index points, 40% below the peak negative impact of 27 index points in June 2022.
  3. If inflation slows to 2.5% next year, the estimates imply the negative impact of inflation on consumer sentiment would fall by another 50% from its current level.

Related Articles:

  • Asymmetric Amplification and the Consumer Sentiment Gap — Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.
  • 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.
  • The Pandemic Has Broken a Closely Followed Survey of Sentiment — A statistical model using 13 economic variables including inflation, unemployment, and petrol prices explained 86% of the variation in the monthly US consumer-sentiment index between 1980 and 2016, but the correlation between sentiment and both current and future spending has vanished since the pandemic began. The same variables retain their power to forecast consumer spending.

AI Summary. Warnings that the large US pandemic-era spending bill would be inflationary appeared vindicated by the subsequent inflation surge, but inflation rose in almost every country, not only in the US. That pattern suggests inflation had less to do with excess government spending than with pandemic-related disruptions.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman argues the uptick in inflation was mostly a story of the pandemic-related supply-side disruptions. He cites data on the surge of inflation globally to argue the American Rescue Plan was not the cause of inflation.

Was the inflation surge driven by government spending or pandemic disruptions?

Core argument: Economists who warned that the American Rescue Plan would be inflationary appeared vindicated by the 2021–22 inflation surge, though they may have been right for the wrong reasons.

Several economists had warned that the American Rescue Plan, the large spending bill passed early in the Biden administration, would be inflationary, warnings that appeared to be vindicated by the inflation surge of 2021-22. In retrospect, these economists may have been right for the wrong reasons, since inflation eventually surged, not only in America but almost everywhere. This suggests that inflation may have had less to do with overspending than it did with pandemic-related disruptions.

Takeaways by Macro Roundup® AI

  1. Economists who warned that the American Rescue Plan would be inflationary appeared vindicated by the 2021–22 inflation surge, though they may have been right for the wrong reasons.
  2. Inflation surged not only in the United States but almost everywhere, suggesting the episode had less to do with overspending than with pandemic-related disruptions.

Related Articles:

  • What We’ve Learned About Inflation — Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
  • Fiscal Arithmetic and the Global Inflation Outlook — Across advanced economies, core inflation is significantly positively associated with growth in government debt since the start of the pandemic, and the authors expect this decade's fiscal expansions to shift price levels permanently higher. They argue this differs from permanently higher inflation, projecting inflation to diminish as temporary deficits normalize, with medium-term inflation expectations still anchored near central bank targets.

AI Summary. On the international PISA student assessments, American Asian and White students ranked at the top, American Hispanic students outscored Hispanic students elsewhere, and American Black students performed well. In reading, American Asian students placed first and American White students third.

Crémieux @cremieuxrecueil
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Breaking down the 2022 PISA math results by subpopulation, @cremieuxrecueil finds that US Asians and whites topped the charts, scoring on par with top international performers.

Do US students rank at the top by subgroup?

Core argument: In PISA results broken out by subpopulation, American Asians and Whites topped the charts, American Hispanics outscored all other Hispanic groups, and American Blacks performed well, which the author argues shows the US has one of the smartest populations.

With the latest PISA results, America has proven once again that it has one of the smartest populations and, perhaps, the best education systems. American Asians and Whites topped the charts; American Hispanics beat all other Hispanics; American Blacks did well. Some people think the most important scale is mathematics, while others think it's reading, and a select few think it's science. They all indicate g, so there's no a priori rationale for favoring any particular scale. Regardless, look at how America did in mathematics! America's reading performance is perhaps its most laudable this year. American Asians came in first in this test, and American Whites came in third.

Takeaways by Macro Roundup® AI

  1. In PISA results broken out by subpopulation, American Asians and Whites topped the charts, American Hispanics outscored all other Hispanic groups, and American Blacks performed well, which the author argues shows the US has one of the smartest populations.
  2. On the PISA reading scale, American Asians ranked first and American Whites ranked third, a performance the author calls America's most laudable.
  3. The author contends that mathematics, reading, and science scales all indicate g, leaving no a priori rationale for favoring any particular scale.

Related Articles:

AI Summary. Two official Chinese data series—one measuring gross foreign direct investment inflows and one measuring inflows minus outflows—both show foreign direct investment exiting China. The author attributes most of the $113bn gap between the two measures to net sales of direct investment assets by foreign investors.

Nicholas Lardy Peterson Institute For International Economics
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.@PIIE estimates that at least $100B in FDI flowed out of China in 2023, as foreign firms are no longer reinvesting earnings, and are also selling their Chinese operations to local firms and repatriating the proceeds.

Is foreign direct investment leaving China?

Core argument: China's two official FDI series differed by $113 billion in the first three quarters of 2023, and most of that gap must result from the net sale of direct investment assets by foreign investors.

Two different official time series from the Ministry of Commerce (MOFCOM) and the State Administration of Foreign Exchange (SAFE) [show the same dynamic]. There are multiple differences between the two series, but the main one is that SAFE measures FDI on a net basis, i.e., FDI inflows minus FDI outflows, while MOFCOM only measures gross FDI inflows. Both agencies include greenfield investment and mergers and acquisitions (M&A) by foreign firms in their FDI data while SAFE also includes several other items. While these additional items were large a few years ago, as explained below, they are now likely quite small. Most of the $113 billion difference between the two numbers in the first three quarters of 2023 must result from the net sale of direct investment assets by foreign investors.

Takeaways by Macro Roundup® AI

  1. China's two official FDI series differed by $113 billion in the first three quarters of 2023, and most of that gap must result from the net sale of direct investment assets by foreign investors.
  2. SAFE measures FDI net of outflows while MOFCOM measures only gross inflows; both include greenfield investment and M&A by foreign firms, with SAFE adding several other items that are now likely quite small.
  3. The MOFCOM and SAFE time series show the same dynamic of foreign direct investment exiting China.

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AI Summary. European Union leaders are pressing China over its expansion of industrial capacity, particularly in renewable energy products, at a time of weak Chinese domestic demand and tightening access to markets such as the US, leaving Europe a target for excess exports. EU officials say the bloc's trade deficit with China is just below $400bn and has doubled within two years.

Joe Leahy, Henry Foy, Andy Bounds, and Andy Lin Financial Times
Date Posted:
Is Database:
Database

The EU is increasingly concerned about Chinese industrial overcapacity and the growing Sino-EU trade deficit, which has doubled in two years to just under $400B.

Is Europe becoming the main destination for China's excess exports?

Core argument: A senior EU official said the trade deficit with China is just below $400bn and has doubled within two years, calling its sustainability a matter of great concern.

EU leaders will stress their rising concerns about Chinese industrial overcapacity when they meet President Xi Jinping for a summit in Beijing on Thursday, amid signs China is pumping more funding into manufacturing. The EU is worried China is increasing its industrial capacity, particularly in renewable energy products, at a time when domestic demand is weak and other trading partners such as the US are limiting access to their markets. This leaves Europe as an important target for an overflow of China’s exports. “China’s trade deficit with us is growing. It’s just below $400bn at present. And as you can imagine, the doubling of the trade deficit within a matter of two years is a matter of great concern . . . particularly over its sustainability,” said a senior EU official ahead of the summit.

Takeaways by Macro Roundup® AI

  1. A senior EU official said the trade deficit with China is just below $400bn and has doubled within two years, calling its sustainability a matter of great concern.
  2. EU leaders will stress concerns about Chinese industrial overcapacity when they meet President Xi Jinping in Beijing, amid signs China is pumping more funding into manufacturing.
  3. The EU is worried China is increasing industrial capacity, particularly in renewable energy products, while domestic demand is weak and trading partners such as the US limit market access, leaving Europe an important target for an overflow of Chinese exports.

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