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, December 8, 2023

AI Summary. A study using U.S. mortality and import data finds a positive state-level association between imports per resident and drug overdose death rates, driven by fentanyl and accounting for an estimated 15,000–20,000 deaths per year. The authors estimate that 10% higher imports per resident is associated with an 8.1% higher fentanyl death rate.

Timothy Moore, William Olney, and Benjamin Hansen National Bureau of Economic Research
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There is evidence the opioid epidemic was a supply shock: states with higher levels of imports, and more opportunities for smuggling, saw higher levels of fentanyl deaths between 2017 and 2020. @benconomics

Do states with higher imports per resident have higher fentanyl overdose deaths?

Core argument: Using CDC mortality and U.S. Census import data for 2008–2020, the authors find a positive relationship between states' imports per resident and drug overdose death rates that begins in 2013 and accounts for 15,000–20,000 deaths per year over 2017–2020.

Legal trade is a key factor driving fentanyl supply. We assess the empirical relationship between imports and fentanyl overdoses at the state level, with the idea that supply frictions result in overdoses disproportionately occurring near smuggling locations. Specifically, using CDC mortality data and U.S. Census import data for 2008-2020, we show that there is a positive relationship between states’ imports per resident and drug overdose death rates that begins in 2013. The relationship increases over time and accounts for 15,000-20,000 deaths per year over the 2017-2020 period. Results show that states with above-and below-median imports have similar drug overdose trends in the first five years of the sample period (2008-2012). Their drug overdose rates diverge sharply thereafter; by 2017, drug overdose deaths per resident are approximately 40% higher in states with above-median import levels than in other states. These differences, which persist through 2020, are driven by fentanyl overdoses. Summary estimates for the 2017-2020 period imply that a 10% higher value of imports per resident is associated with a 5.5% higher opioid death rate and an 8.1% higher fentanyl death rate.

Takeaways by Macro Roundup® AI

  1. Using CDC mortality and U.S. Census import data for 2008–2020, the authors find a positive relationship between states' imports per resident and drug overdose death rates that begins in 2013 and accounts for 15,000–20,000 deaths per year over 2017–2020.
  2. States with above-median imports per resident had drug overdose deaths per resident roughly 40% higher by 2017 than other states, a gap that persists through 2020 and is driven by fentanyl overdoses.
  3. For 2017–2020, the authors estimate that a 10% higher value of imports per resident is associated with a 5.5% higher opioid death rate and an 8.1% higher fentanyl death rate.

Related Articles:

  • The Global Network Behind The Fentanyl Crisis — Nearly 110,000 Americans died of drug overdoses in a year, with more than two-thirds of those deaths caused by fentanyl, a synthetic opioid 50x as potent as heroin. A kilogram of precursor chemicals bought from Chinese manufacturers for about $800 can produce 415,000 fentanyl pills, which sell wholesale for as little as 50 cents each.
  • How Fentanyl Changed The Game For Mexico’s Drug Cartels — Fentanyl causes most of the more than 85,000 annual opioid overdose deaths in the US and Canada, and has become the leading cause of death for young US adults. Researchers at Rand Corporation estimate a full year's US fentanyl supply weighs about 5 tonnes, versus roughly 125 tonnes for heroin.
  • The Rise in American Pain: The Importance of the Great Recession — The authors find that the rise in reported pain among Americans was almost entirely concentrated in the 2007–2010 recession period rather than following a smooth upward trend, with the disproportionate increase among the less educated also occurring primarily then. The authors state they find this jump difficult to explain.

AI Summary. In a survey experiment with 7,426 respondents across Australia, France, Germany, Switzerland, the UK, and the US, exposure to a media narrative framing inequality as the result of a system rigged in favor of the rich significantly increased support for redistributive policies in five countries, with no effect in the US.

Pepper Culpepper, Ryan Shandler, Jae-Hee Jung, and Taeku Lee Working Paper
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After exposure to a narrative that “the economy is rigged,” survey participants in Australia, France, Germany, Switzerland, and the United Kingdom showed increased support for redistribution, but no effect in the US. @jung_jaehee_

Does hearing that the economy is rigged increase support for redistribution?

Core argument: A "rigged system" media treatment administered to 7,426 online survey respondents significantly increased support for redistributive policies in five of six countries — Australia, France, Germany, Switzerland, and the United Kingdom — consistent with the authors' pre-registered expectation.

We investigate empirically and cross-nationally whether a media treatment featuring a narrative about inequality as the result of a system rigged in favor of the rich increases preferences for redistribution. We administer this “rigged system” treatment to 7,426 online survey respondents in six countries: Australia, France, Germany, Switzerland, the United States, and the United Kingdom. Our experimental treatments include indicators of inequality in the six countries – including the ratio of CEO pay to average worker pay and the assets of the wealthiest one percent of the population – nested within a common media frame that emphasizes these facts as indicative of a fundamentally unfair system that favors the rich. We then probe respondents’ views on a variety of redistributive policies, which we combine into a single indicator of redistributive attitudes. Consistent with our pre-registered expectation, we find that the rigged system treatment significantly increases redistributive preferences in five of the countries. In the sixth – the United States – our treatment has no effect.

Takeaways by Macro Roundup® AI

  1. A "rigged system" media treatment administered to 7,426 online survey respondents significantly increased support for redistributive policies in five of six countries — Australia, France, Germany, Switzerland, and the United Kingdom — consistent with the authors' pre-registered expectation.
  2. The rigged-system treatment had no effect on redistributive preferences in the United States, the sole exception among the six countries studied.
  3. The experimental treatments presented country-specific inequality indicators, including the ratio of CEO pay to average worker pay and the assets of the wealthiest one percent, nested in a media frame emphasizing a fundamentally unfair system that favors the rich.

Related Articles:

  • Does the American Dream Foster Inequality? — Survey data show Americans are more likely than people in other Western countries to see themselves as upwardly mobile and to say hard work is essential to getting ahead. Americans are the most likely to call income inequality unfair, yet fewer than half see addressing it as the government's responsibility, versus two-thirds or more in the UK, France and Germany.
  • 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. Survey data show Americans are more likely than people in other Western countries to see themselves as upwardly mobile and to say hard work is essential to getting ahead. Americans are the most likely to call income inequality unfair, yet fewer than half see addressing it as the government's responsibility, versus two-thirds or more in the UK, France and Germany.

John Burn-Murdoch Financial Times
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Noting Americans are less likely to want to address inequality via redistribution, @jburnmurdoch wonders if “seeing inequality can equate to seeing opportunity, the American dream makes US society more tolerant of large disparities.”

Do beliefs about mobility and hard work shape American views on inequality?

Core argument: Fewer than half of Americans see addressing income inequality as the government's responsibility, compared with two-thirds or more in the UK, France and Germany, even though Americans are the most likely to call their country's inequality unfair.

Why the exceptionalism? I think there are two dynamics at play. The first is what I call the two sides of the American dream. Data show that Americans see themselves as more upwardly mobile than people from other western countries, and are more likely to say hard work is essential for getting ahead in life. The second dynamic is Americans’ distrust of government, and in particular, their belief that government is inefficient. While Americans are the most likely to say income inequality in their country is unfair, fewer than half see this as the government’s responsibility to address. This compares with two-thirds or more in the UK, France and Germany. Where other societies see inequality as something that is done to people and must be tackled by helping them, Americans see it as something that people are responsible for themselves.

Takeaways by Macro Roundup® AI

  1. Fewer than half of Americans see addressing income inequality as the government's responsibility, compared with two-thirds or more in the UK, France and Germany, even though Americans are the most likely to call their country's inequality unfair.
  2. Americans see themselves as more upwardly mobile than people in other Western countries and are more likely to say hard work is essential for getting ahead, a dynamic the author calls the two sides of the American dream.
  3. The author attributes American exceptionalism on inequality partly to distrust of government and a belief that government is inefficient, with Americans viewing inequality as something people are responsible for themselves rather than something done to them.

Related Articles:

AI Summary. Barclays estimates that excluding Evergrande, an average 30% haircut on total interest-bearing debt at 26 privately owned Chinese property developers may be required to restore sustainable earnings coverage and leverage ratios. If only offshore creditors bear the cost, the required haircut on offshore debt would rise to around 70%.

Bryce Elder Financial Times
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China’s “slow motion financial crisis” wasn’t that slow, as highlighted by a recent Barclays report. In the aftermath of Evergrande half of China’s major developers have defaulted on at least $140bn of dollar bonds.

How large a debt haircut would restore Chinese developers' sustainability?

Core argument: Barclays estimates an average 30% haircut on total interest-bearing debts across 26 privately owned Chinese developers, excluding Evergrande, would be required to lift EBITDA coverage above 1.5x and cut debt/EBITDA to 8x or below.

Barclays argues, "Stripping out Evergrande, we estimate that an average 30% haircut of the total interest-bearing debts for the other 26 POE developers may be required to: 1) improve EBITDA coverage ratios to more than 1.5x; and 2) lower debt/EBITDA ratios to 8x or below, assuming 6% average interest costs, 15% EBITDA margin, and normalised contracted sales at the 2022 level. Moreover, if only offshore creditors have to bear the cost of the restructuring (ie, no haircuts on onshore debts), then we estimate the potential debt haircuts would need to increase to around 70% for offshore debts, assuming offshore debt accounts for 50% of interest-bearing debts."

Takeaways by Macro Roundup® AI

  1. Barclays estimates an average 30% haircut on total interest-bearing debts across 26 privately owned Chinese developers, excluding Evergrande, would be required to lift EBITDA coverage above 1.5x and cut debt/EBITDA to 8x or below.
  2. Barclays' estimate assumes 6% average interest costs, a 15% EBITDA margin, and contracted sales normalised at the 2022 level for the 26 privately owned developers.
  3. If only offshore creditors bear restructuring costs with no haircuts on onshore debt, Barclays estimates required offshore haircuts would rise to around 70%, assuming offshore debt accounts for 50% of interest-bearing debts.

Related Articles:

  • The Debt Supercycle Comes to China — China's property sector, which accounts for 23% of GDP (26% counting imports), is yielding diminishing returns after a construction boom driven by the country's massive post-2008 investment stimulus. The author argues this debt supercycle is the best explanation for China's faltering economy and what comes next.
  • China Begins Nationwide Push to Reveal Hidden Government Debt — China's Ministry of Finance reported governments across the country held 37tn yuan ($5.1tn) in on-book debt, with no official tally of hidden debt or who owes it. The International Monetary Fund estimated local government financing vehicles held 66tn yuan ($9.2tn) of hidden debt at end-2022, up from 40tn yuan in 2019.
  • 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. A senior political officer in China's People's Liberation Army has warned that "erroneous ideological trends" and hostile "cognitive penetration" are spreading into military camps, and called for a culture of "absolute loyalty" to the Communist Party and a "dare to fight" spirit.

Amber Wang South China Morning Post
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The CPP is concerned about “hostile forces” spreading misguided ideas inside the Chinese military. The political leadership of the Southern Theater Command Air Force called for “absolute loyalty” to the CCP and a “dare to fight” spirit. @SCMPNews

The CPP is concerned about “hostile forces” spreading misguided ideas inside the Chinese military. The political...

Is China's military warning about ideological threats within its ranks?

Core argument: Chen Zuosong, director of the political work department for the Southern Theatre Command Air Force, wrote that "various erroneous ideological trends and arguments" have spread into military camps, and called for a culture of "absolute loyalty" to the Communist Party.

Under the headline “Build cultural soft power that is compatible with a world-class military”, Chen Zuosong, director of the political work department for the Southern Theatre Command Air Force outlined the ideological risks facing the PLA and called for a culture of “absolute loyalty” to the ruling Communist Party and a “dare to fight” spirit. “Thoughts and sentiments in our country’s society are becoming increasingly active and complex. The changes in information technology have brought an increasing number of variables and hidden dangers to the ideological field,” Chen wrote. “Hostile forces have increased cognitive penetration and destruction, and various erroneous ideological trends and arguments have … spread into military camps.”

Takeaways by Macro Roundup® AI

  1. Chen Zuosong, director of the political work department for the Southern Theatre Command Air Force, wrote that "various erroneous ideological trends and arguments" have spread into military camps, and called for a culture of "absolute loyalty" to the Communist Party.
  2. Chen Zuosong wrote that thoughts and sentiments in Chinese society are becoming increasingly active and complex, and that changes in information technology have brought more variables and hidden dangers to the ideological field.
  3. Writing under the headline "Build cultural soft power that is compatible with a world-class military," Chen Zuosong wrote that hostile forces have increased cognitive penetration and destruction, and called for a "dare to fight" spirit.

Related Articles:

  • Taiwan ‘Most Dangerous’ Issue in China-US Relations, Xi Tells Biden In Meeting — China's leadership has called Taiwan the most dangerous issue in US-China relations, urging the US to stop arming the island and denying that Beijing has imminent plans for military aggression. According to a senior US official, China stated a preference for peaceful reunification while also describing conditions under which force could be used.
  • US To Provide Taiwan With Weapons From Its Stockpiles For First Time — The US will provide Taiwan with $345mn in weapons drawn directly from American military stockpiles, the first such transfer under an annual $1bn presidential drawdown authority approved by Congress. Previous US support for Taiwan came through approved arms sales rather than direct provision from US stocks.
  • US To Link Up With Taiwan and Japan Drone Fleets To Share Real-Time Data — The US, Taiwan and Japan plan to share real-time data from naval reconnaissance drones, with Taiwan's four MQ-9B Sea Guardian drones integrated into the same system used by US forces in the region and Japan's Self-Defense Force. The arrangement would let the US and its allies view the same drone-gathered information simultaneously.

Monday, December 11, 2023

AI Summary. Long-run equilibrium interest rates are argued to stay low relative to recent decades' historical average but above pre-pandemic lows, implying rates only slightly below current levels, with a nominal neutral rate near 3.5% offered as illustration. Rising government debt, particularly in the US, is identified as the main risk to that view.

Jesper Rangvid Rangvid's Blog
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Jesper Rangvid examines links between trend growth and future equilibrium interest rates and concludes that “a nominal r* of around 3.5 is probably not a super crazy assumption,” with a risk of higher rates from unprecedented levels of government debt.

Will long-run neutral interest rates stay low but above pre-pandemic levels?

Core argument: The author argues long-run interest rates will be low relative to the historical average of recent decades but not as low as immediately before the pandemic, implying rates slightly below today's levels rather than much lower.

Let me emphasise what I am saying so that I am not misunderstood. I am saying that rates are likely to be low in the long run, compared to the historical average of recent decades, but not as low as immediately before the pandemic. That means we should not expect rates to be very much lower than they are today, a little lower, but not very much. An example, which is not a prediction but is meant to illustrate the point, is that a nominal r* of around 3.5 is probably not a super crazy assumption. With the 10-year Treasury bond currently trading at just over 4%, this implies slightly lower rates than today, but not much lower rates. At the same time, I think there is in particular one thing that could alter this picture: very high debt levels. I think exploding debt, particularly in the US, is probably the biggest risk to the base case scenario of low equilibrium interest rates in the future.

Takeaways by Macro Roundup® AI

  1. The author argues long-run interest rates will be low relative to the historical average of recent decades but not as low as immediately before the pandemic, implying rates slightly below today's levels rather than much lower.
  2. A nominal r* of around 3.5 is offered as an illustration rather than a prediction, which against a 10-year Treasury bond trading at just over 4% implies only slightly lower rates.
  3. Exploding debt levels, particularly in the US, are identified as probably the biggest risk to the base case of low equilibrium interest rates in the future.

Related Articles:

  • Have Interest Rates Risen Fundamentally? — The underlying equilibrium level of real interest rates cannot be observed and must be estimated, and two Federal Reserve estimates disagree: one suggests it remains very low while the other suggests it has been rising. If the equilibrium rate has not risen, monetary policy is currently tight, and interest rates should fall significantly once inflation is controlled.
  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.
  • Measuring the Natural Rate of Interest After COVID-19 — Model estimates for the United States, Canada, and the Euro Area place the natural rate of interest within a few tenths of a percentage point of pre-pandemic estimates, with the main longer-term consequence of the pandemic a reduction in the natural rate of output. The authors find no evidence that the era of historically low natural rates has ended.

AI Summary. Interest rates will likely stay higher over the next decade than in the decade after the 2008 financial crisis, reflecting factors including high debt levels, deglobalization, higher defense spending, the green transition, populist demands for income redistribution, and persistent inflation. Aging populations may also push developed countries to increase spending.

Ken Rogoff Project Syndicate
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.@krogoff argues “soaring debt levels, deglobalization, increased defense spending, the green transition, populist demands for income redistribution, and persistent inflation” means higher interest rates than the post-2008 period and future tax increases.

.@krogoff argues “soaring debt levels, deglobalization, increased defense spending, the green transition, populist...

Will interest rates stay higher over the next decade?

Core argument: Interest rates will likely remain higher over the next decade than in the decade following the 2008 financial crisis, even if inflation declines, according to the author.

Even if inflation declines, interest rates will likely remain higher for the next decade than they were in the decade following the 2008 financial crisis. This reflects a variety of factors, including soaring debt levels, deglobalization, increased defense spending, the green transition, populist demands for income redistribution, and persistent inflation. Even demographic shifts, often cited as a rationale for perpetually low interest rates, may affect developed countries differently as they increase spending to support rapidly aging populations. While it is feasible to expand social programs or boost military capabilities without running large deficits, doing so without raising taxes is not costless. We are likely to find out the hard way that it never was.

Takeaways by Macro Roundup® AI

  1. Interest rates will likely remain higher over the next decade than in the decade following the 2008 financial crisis, even if inflation declines, according to the author.
  2. Soaring debt levels, deglobalization, increased defense spending, the green transition, populist demands for income redistribution, and persistent inflation are cited as factors keeping interest rates elevated.
  3. Demographic shifts, often invoked to justify perpetually low rates, may affect developed countries differently as they increase spending to support rapidly aging populations, the author argues.

Related Articles:

AI Summary. A sharp decline in interest rates amid benign economic conditions could re-accelerate credit growth and economic activity, limiting the number of future Federal Reserve rate cuts. Despite a large rise in rates, credit quality measures show only modest deterioration to pre-2020 levels and households and corporations remain financially sound, leaving borrowers capacity to take on more debt.

Joseph Wang Fed Guy Blog
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Noting strong private sector balance sheets and credit quality, @FedGuy12 argues lower rates could easily rekindle growth and inflation “that would limit the number of future Fed cuts.”

Could falling rates revive credit growth and limit future rate cuts?

Core argument: A sharp decline in interest rates amid benign economic conditions opens the possibility of a re-acceleration in economic activity that would limit the number of future Fed rate cuts.

A sharp decline in interest rates in benign economic conditions opens up the possibility of a re-acceleration in economic activity that would limit the number of future Fed cuts. One mechanism through which higher interest rates slow the economy is through reduced lending, where higher rates discourage borrowers and prompt lenders to retrench on credit concerns. Despite an aggressive rise in rates, a wide range of measures on credit quality show only modest deterioration to levels prevailing before 2020. At the same time, households and corporates remain financially sound. This suggests that a decline in rates could potentially lead to a re-acceleration of credit growth that rekindles inflationary pressures. The recent normalization of credit quality shows that borrowers have capacity to lever up, and suggests that a re-acceleration in lending would limit the number of rate cuts.

Takeaways by Macro Roundup® AI

  1. A sharp decline in interest rates amid benign economic conditions opens the possibility of a re-acceleration in economic activity that would limit the number of future Fed rate cuts.
  2. Despite an aggressive rise in rates, a wide range of credit quality measures show only modest deterioration, back to levels prevailing before 2020, while households and corporates remain financially sound.
  3. Higher rates slow the economy partly by reducing lending, as borrowers are discouraged and lenders retrench on credit concerns; normalized credit quality suggests borrowers have capacity to lever up, potentially rekindling inflationary pressures.

Related Articles:

  • 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.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • Credit Normalization — Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.

AI Summary. The article argues that government spending is constrained by the physical capacity of supply, and that demand in excess of that capacity is the proper definition of inflation. It contends economies that are not self-sufficient must build dynamic export industries to pay for needed imports, and that Argentina did the reverse and paid the price.

Matt Klein The Overshoot
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While “fiscal space” is amorphous @M_C_Klein notes that all countries, including the US, face hard budget constraints based on productive capacity. Argentina demonstrates that breaching these limits “can reduce future capacity for decades.”

Does the physical capacity of supply limit government spending?

Core argument: Keynes did not believe governments could spend without limit on welfare or public works, arguing instead for respecting supply limits and investing in productive capacity to change them.

[Keynes observed] "Anything we can actually do we can afford." But Keynes was wise enough to understand that the inverse was also true. We cannot afford what we cannot actually do: "[We must] prevent a demand in excess of the physical possibilities of supply, which is the proper meaning of inflation. For the physical possibilities of supply are very far from unlimited." Keynes did not believe that governments could spend whatever they wanted on welfare, nor did he believe that societies could build whatever public works they desired without concern for the cost. Rather, he believed in the importance of respecting limits and investing in productive capacity to change those limits. Economies that are not self-sufficient—almost all, with the possible exception of NAFTA—need to develop dynamic export industries to pay for needed imports. Argentina has essentially followed the reverse of this advice and paid the price.

Takeaways by Macro Roundup® AI

  1. Keynes did not believe governments could spend without limit on welfare or public works, arguing instead for respecting supply limits and investing in productive capacity to change them.
  2. Argentina followed the reverse of the prescription that economies lacking self-sufficiency must develop dynamic export industries to pay for needed imports, and has paid the price.

Related Articles:

  • Milei’s Challenge — Interest on Argentina's central bank securities exceeds 100% annualized, at 133%, putting its interest bill at nearly 20% of GDP. The central bank must create more local currency to cover that bill, which in turn requires still more borrowing to absorb the new money.
  • U.S. Deficit Explodes Even As Economy Grows — The Committee for a Responsible Federal Budget projects the federal deficit will roughly double to about $2tn for the fiscal year, driven by higher interest payments and lower tax receipts despite robust economic growth. After falling from close to $3tn to roughly $1tn in its largest-ever decline, the deficit turned upward rather than returning to pre-pandemic levels.
  • R versus G and the National Debt — National debt is considered sustainable when it grows more slowly than gross domestic product, so when the average interest rate on government debt (R) is below the economy's growth rate (G), debt can be sustainable even if non-interest spending exceeds revenue. R has been below G over the past 15 years.

AI Summary. Nvidia's founder says that had he known how hard building the company would be, he would not have started it, calling entrepreneurs' ignorance of the coming difficulty their "superpower." He argues a company is always on the way to going out of business, and internalizing that sensibility is necessary for survival.

Ben Cohen Wall Street Journal
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A @WSJ interview with Jensen Huang, founder of @Nvidia, highlights why motivating properly trained talent to bear risk is foundational to growth. Failure is by far the most likely outcome of high-impact entrepreneurial efforts.

Is not knowing how hard building a company is entrepreneurs' superpower?

Core argument: Jensen Huang said he would not have founded Nvidia, now one of the world's most valuable companies, had he known three decades ago that building it would turn out to be "a million times harder" than he expected.

Had Huang known three decades ago what he knows today, he never would have founded Nvidia, one of the world’s most valuable companies. “The reason is simple,” Huang said recently. “Building Nvidia turned out to be a million times harder than I expected. If you realized the list of all the things that will go wrong, the challenges you’re going to endure, and the pain and suffering, vulnerability, embarrassment, and shame you’re going to feel, nobody in their right mind would do it. That’s the superpower of an entrepreneur. They don’t know how hard it is going to be. He didn’t know that the original business plan had no chance of success, how many times he would fail, and how much he didn’t know. “You’re always on the way to going out of business. If you don’t internalize that sensibility, you will go out of business.”

Takeaways by Macro Roundup® AI

  1. Jensen Huang said he would not have founded Nvidia, now one of the world's most valuable companies, had he known three decades ago that building it would turn out to be "a million times harder" than he expected.
  2. Huang described entrepreneurs' "superpower" as not knowing how hard the undertaking will be, since no one aware of the challenges, pain and suffering, vulnerability, embarrassment, and shame ahead would do it.
  3. Huang said Nvidia's original business plan had no chance of success, and that a founder who fails to internalize the sensibility of being "always on the way to going out of business" will go out of business.

Related Articles:

  • 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.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. The 10 largest stocks in the S&P 500 account for 35% of the index, the highest concentration since the tech bubble of 2000.

Torsten Sløk Apollo
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Torsten Sløk @apolloglobal notes the 10 largest stocks in the S&P 500 make up 35% of the index, the highest level since the tech bubble.

Is stock market concentration at its highest since the tech bubble?

Core argument: The 10 largest stocks in the S&P 500 account for 35% of the index, the highest concentration since the tech bubble in 2000, according to Torsten Sløk of Apollo Global.

The concentration in the S&P 500 continues to increase, and the ten largest stocks now make up 35% of the index, the highest level since the last tech bubble in 2000.

Takeaways by Macro Roundup® AI

  1. The 10 largest stocks in the S&P 500 account for 35% of the index, the highest concentration since the tech bubble in 2000, according to Torsten Sløk of Apollo Global.
  2. Concentration in the S&P 500 continues to increase, with the ten largest stocks' 35% share the highest since the 2000 tech bubble.

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  • A Few Stocks Drive the Stock Market: Dot.com Vs. Today Vs. the Last 100 Years — Seven large technology stocks account for nearly 30% of the S&P 500's total value, but the rise of both hyped stocks and the broader market was more extreme during the dot-com era. Historically, only a few stocks have generated most of the stock market's value creation in the US and internationally.
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AI Summary. Research by federal government economists estimates that after adjustments for taxes and government benefit programs, top income shares are about the same as in the early 1960s, and that after-tax, after-transfer income of the bottom half rose by two-thirds rather than remaining unchanged. The authors argue this weakens the case for further redistribution.

Mark Warshawsky American Enterprise Institute
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Citing Gerald Auten and David Splinter’s recent work that found after taxes and transfers the income of the bottom half of the distribution has increased by two-thirds, Mark Warshawsky @AEIecon argues the case for further redistribution is weak.

Has income inequality actually risen after accounting for taxes and transfers?

Core argument: Federal government economists Gerald Auten and David Splinter estimate that after corrections and adjustments accounting for taxes and government benefit programs, top income shares are now about the same as in the early 1960s.

New research by federal government economists Gerald Auten and David Splinter show that after making many sensible corrections and adjustments and considering taxes and government benefit programs, top income shares are now about the same as in the early 1960s. When one also considers strong evidence that the top one percent group is not static, but that there is substantial mobility into and out of various income groups over time, and that, contrary to Picketty’s result that the after-tax and transfer income of the bottom half of the income distribution remained unchanged, but that, rather, according to Auten and Splinter, it increased by two-thirds, similar to the higher income groups, the case for yet more redistribution efforts, such as increasing Social Security benefits, is considerably weakened.

Takeaways by Macro Roundup® AI

  1. Federal government economists Gerald Auten and David Splinter estimate that after corrections and adjustments accounting for taxes and government benefit programs, top income shares are now about the same as in the early 1960s.
  2. Auten and Splinter find that after-tax and transfer income of the bottom half of the distribution rose by two-thirds, similar to higher income groups, contrary to Piketty's result that it remained unchanged.
  3. Evidence of substantial mobility into and out of income groups indicates the top one percent is not a static group, weakening the case for further redistribution such as increasing Social Security benefits.

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AI Summary. In simulations of 20-stock micro-cap portfolios used as a comparison for private equity median returns, the authors find value characteristics appear to have the largest effect, raising the median return from 10% in a random sample to 18% in a value-ranked sample. Ranking on profitability raises the median return to 14%.

Brian Chingono and Dan Rasmussen Verdad
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.@verdadcap @verdadcap_quant argue that private equity returns are primarily driven by the small cap asset class returns showing that random samples of the cheapest 5% and the most profitable 5% levered micro-cap stocks produce similar returns to private equity.

How much do value and profitability screens raise micro-cap portfolio returns?

Core argument: Selecting 20 micro-cap stocks from the cheapest 5% of companies raised the median simulated return to 18%, versus 10% for a totally random sample.

We compare the median returns of private equity against simulated micro-cap portfolios of 20 stocks that are selected from the cheapest 5% and the most profitable 5% of companies within each year. Within our micro-cap data, there are typically 30-50 stocks in the top 5% of any given year, and the factor-ranked simulations randomly select from this opportunity set when forming the 20-stock micro-cap portfolios over the course of three years (at a pace of 6-7 investments per year). For context, there are over 2.3 million businesses with more than five employees in the United States. So if the private equity industry focuses on the top 5% of that universe, the PE opportunity set would have plentiful investment targets, with over 116,000 firms. This target list represents more than 6x the 18,000 firms actually owned by PE today. Therefore, we believe our 5% sampling provides a good representation of the opportunities available to PE. Value characteristics appear to have the biggest impact on micro-cap returns, boosting the median return from 10% in a totally random sample to 18% in a value-ranked sample of 20 stocks. Quality also seems to matter, with an improvement of 4pp in the median return from 10% in a totally random sample to 14% in a profitability-ranked sample of 20 stocks.

Takeaways by Macro Roundup® AI

  1. Selecting 20 micro-cap stocks from the cheapest 5% of companies raised the median simulated return to 18%, versus 10% for a totally random sample.
  2. Ranking micro-cap portfolios on profitability lifted the median simulated return by 4 percentage points, from 10% in a random sample to 14% in a profitability-ranked sample of 20 stocks.
  3. More than 2.3 million U.S. businesses have over five employees, so a top-5% private equity opportunity set would hold over 116,000 firms, more than 6x the 18,000 firms private equity owns today.

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