Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, 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
Date Posted:

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
Date Posted:

.@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
Date Posted:

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
Date Posted:

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.

Related Articles:

  • 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.
  • 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.
  • 2024 US Equity Outlook: “All You Had To Do Was Stay” — The seven largest US mega-cap technology stocks are projected to outperform the rest of the S&P 500, supported by faster expected sales growth, higher margins, greater reinvestment, and stronger balance sheets. Analysts expect these companies to grow sales at an 11% annual rate versus 3% for the other 493 companies, with net margins twice as high.

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.

Related Articles:

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.

Related Articles:

  • It’s Mostly a Paper Moon: Alternative Investments Review — 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%.
  • Private Equity Operational Improvements — Companies acquired by private equity firms average operating profit margins 0.5% above their industry in the three years before the deal, drop in the transaction year, and afterward recover only to the industry average. The authors argue this pattern reflects buying higher-performing companies that mean-revert rather than post-deal efficiency gains.
  • 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.

Tuesday, December 12, 2023

AI Summary. The factors that have pushed real interest rates down since the 1980s — demographic shifts, slower productivity growth, corporate market power, and demand for safe assets exceeding supply — do not appear likely to reverse enough to produce a large, durable rise in global real rates. The authors argue low equilibrium rates will keep complicating monetary policy and financial stability.

Maurice Obstfeld National Bureau of Economic Research
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Maurice Obstfeld argues that the drivers of declining interest rates since 1980, such as low productivity growth and high safe asset demand relative to supply, have not been offset enough to drive a “big and durable rise in global real interest rates.”

Will the forces that lowered real interest rates since the 1980s reverse?

Core argument: The factors that pushed real interest rates down since the 1980s and 1990s — demographic shifts, lower productivity growth, corporate market power, and safe asset demand relative to supply — do not appear poised to reverse enough to drive a large, durable rise in global real rates.

The main underlying factors that have pushed real interest rates down since the 1980s and 1990s – notably demographic shifts, lower productivity growth, corporate market power, and safe asset demand relative to supply – do not appear poised to reverse strongly enough to drive a big and durable rise in global real interest rates over the coming years. Low equilibrium interest rates may well continue periodically to bedevil monetary policy and financial stability. Figure 23 shows global rates of growth since 1980 as calculated by the IMF, with projections after 2022. It is hard to imagine real interest rates recovering substantially without a surge in global investment that would likely be associated with higher productivity and output growth. The forecasts in Figure 23 suggest that this is not in the cards in the near term. New technologies, for example, those based on artificial intelligence, could lead private investment to rise temporarily or longer term, and even increase the secular growth rate, but those predictions are contested and speculative at this point.

Takeaways by Macro Roundup® AI

  1. The factors that pushed real interest rates down since the 1980s and 1990s — demographic shifts, lower productivity growth, corporate market power, and safe asset demand relative to supply — do not appear poised to reverse enough to drive a large, durable rise in global real rates.
  2. Low equilibrium interest rates may continue periodically to bedevil monetary policy and financial stability, and a substantial recovery in real rates would likely require a surge in global investment associated with higher productivity and output growth.
  3. IMF global growth figures since 1980, with projections after 2022, suggest no such investment and growth surge in the near term, while claims that AI-based technologies will raise private investment or the secular growth rate remain contested and speculative.

Related Articles:

  • If Markets Are Right About Long Real Rates, Public Debt Ratios Will Increase For Some Time. We Must Make Sure That They Do Not Explode — Stabilizing public debt ratios would require cutting primary deficits to zero, which the author argues no government can do quickly without risking recession and boosting support for populist parties. With a US primary deficit around 4% and a dysfunctional budget process, the debt ratio is likely to keep rising for some time.
  • The Future Of r* — 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.
  • 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.

AI Summary. US government expenditures have risen 4.6 percentage points as a share of GDP since 2000 while receipts have fallen 3.8 percentage points, according to the Bureau of Economic Analysis. US tax revenue, once near the OECD average as a share of GDP in the 1960s, was 6.3 percentage points below it in 2022.

Justin Fox Bloomberg
Date Posted:

In 2000 government expenditures and receipts for all levels were roughly balanced at approximately 31% of GDP. In the first three months of 2023, expenditures were 35.3% of GDP and receipts were 27.2%. @foxjust

Is the US unusual in taxing little while spending much?

Core argument: Since 2000, when US government expenditures and receipts were roughly in balance, the Bureau of Economic Analysis estimates expenditures have risen 4.6 percentage points as a share of GDP while receipts have fallen 3.8 percentage points.

Since 2000, when the two were pretty much in balance, the US Bureau of Economic Analysis’ estimate of government expenditures is up 4.6 percentage points as a share of GDP, while receipts (which count interest, natural resources royalties, and other revenue in addition to taxes) are down 3.8 percentage points. In other words, it’s not just the spending. It’s also the taxes — which are, by international standards, low. This wasn’t always the case. In the 1960s, US tax revenue was right about at the OECD average as a share of GDP. In 2022, it was 6.3 percentage points lower.

Takeaways by Macro Roundup® AI

  1. Since 2000, when US government expenditures and receipts were roughly in balance, the Bureau of Economic Analysis estimates expenditures have risen 4.6 percentage points as a share of GDP while receipts have fallen 3.8 percentage points.
  2. US tax revenue as a share of GDP was 6.3 percentage points below the OECD average in 2022, compared with roughly matching that average in the 1960s.
  3. The US receipts measure counts interest, natural resources royalties, and other revenue in addition to taxes, and its decline indicates the fiscal gap reflects taxes as well as spending.

Related Articles:

  • 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.
  • 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.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.

AI Summary. Core consumer price inflation excluding food and energy ran at 4.0% over 12 months and 2.9% annualized over six months, while overall consumer prices were close to 0% for two consecutive months and 3.1% over the year. Core goods prices have been falling while core services inflation, driven substantially by shelter, remains faster than the Federal Reserve's target.

Jason Furman @jasonfurman
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With 12-month overall CPI at 3.1%, @jasonfurman believes “we’re basically at a soft landing with roughly symmetric risks around inflation reigniting and recession.”

Is core inflation still running above the Fed's target?

Core argument: November core CPI ran at a 3.5% annualized rate for the month and 4.0% over 12 months, a touch below expectations, while Jason Furman notes core PCE likely comes in near 2.5% annualized over the last six months.

Core CPI for the month of November came in high again (but a touch below expectations). Here are the annual rates: 1 month: 3.5% 3 months: 3.4% 6 months: 2.9% 12 months: 4.0% Note, core PCE (de facto Fed target) likely will be ~2.5% for last six months annualized. Economists look at core because it is a much better predictor of future inflation. But the inflation that matters to people is overall and that was close to 0% for the second month in a row. And 3.1% over the last year. Back to core, now breaking out core goods and core services. Goods prices have been falling (supply chains etc.) but core service price growth has still been faster than is consistent with the Fed's inflation target. Shelter inflation has been a big part of the story. It has come down a lot from its highs. But not nearly as much as some were hoping. People who follow closely think further slowdowns coming but probably not nearly as much as "new rent" indices would suggest.

Takeaways by Macro Roundup® AI

  1. November core CPI ran at a 3.5% annualized rate for the month and 4.0% over 12 months, a touch below expectations, while Jason Furman notes core PCE likely comes in near 2.5% annualized over the last six months.
  2. Overall CPI was close to 0% for the second consecutive month and 3.1% over the past year, though economists focus on core because it is a much better predictor of future inflation.
  3. Core goods prices have been falling, attributed to factors such as supply chains, while core services inflation has run faster than is consistent with the Fed's target, with shelter inflation down a lot from its highs but less than some hoped.

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  • Just How Bad Is the US Cost-of-Living Squeeze? We Did the Math — It now takes $119.27 to buy what $100 purchased before the pandemic, with prices rising about as much since early 2020 as in the preceding decade. Groceries and electricity are each up 25% since January 2020, used cars 35%, auto insurance 33%, and rents roughly 20%.
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AI Summary. About nine-in-ten U.S. teens ages 13 to 17 say they use YouTube, making it the most widely used platform in Pew Research Center's survey, followed by TikTok (63%), Snapchat (60%), and Instagram (59%). Facebook use among teens fell from 71% in 2014-2015 to 33%, and Twitter's teen user base also shrank over the past decade.

Monica Anderson, Michelle Faverio, and Jeffrey Gottfried Pew Research Center
Date Posted:
Is Database:
Database

71% of American teenagers aged 13-17 visit Alphabet’s YouTube daily, and 58% visit ByteDance’s TikTok daily, with 17% of respondents saying they were on TikTok “Almost Constantly.”

Which social media platforms do teens use most?

Core argument: Roughly nine-in-ten teens say they use YouTube, the most widely used platform measured in the survey of teens ages 13 to 17.

YouTube continues to dominate. Roughly nine-in-ten teens say they use YouTube, making it the most widely used platform measured in our survey. TikTok, Snapchat, and Instagram remain popular among teens: Majorities of teens ages 13 to 17 say they use TikTok (63%), Snapchat (60%), and Instagram (59%). For older teens ages 15 to 17, these shares are about seven-in-ten. Teens are less likely to be using Facebook and Twitter (recently renamed X) than they were a decade ago: Facebook once dominated the social media landscape among America’s youth, but the share of teens who use the site has dropped from 71% in 2014-2015 to 33% today. Twitter, which was renamed X in July 2023, has also seen its teen user base shrink during the past decade – albeit at a less steep decline than Facebook.

Takeaways by Macro Roundup® AI

  1. Roughly nine-in-ten teens say they use YouTube, the most widely used platform measured in the survey of teens ages 13 to 17.
  2. Majorities of teens ages 13 to 17 report using TikTok (63%), Snapchat (60%) and Instagram (59%), with shares of about seven-in-ten among older teens ages 15 to 17.
  3. The share of teens who use Facebook dropped from 71% in 2014-2015 to 33%, while Twitter, renamed X in July 2023, saw a less steep decline in its teen user base over the past decade.

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AI Summary. France has warned that the European Union's new artificial intelligence law would impose the world's toughest regime on the foundation models underpinning generative AI products and risk hampering innovation. The rules impose transparency requirements on powerful AI models, restrict facial recognition, and prohibit "social scoring" of people based on behavior or personal characteristics.

Javier Espinoza and Leila Abboud Financial Times
Date Posted:

Macron warns that new EU AI regulations will significantly harm Europe. “We can decide to regulate much faster and much stronger than our major competitors. But we will regulate things that we will no longer produce or invent. This is never a good idea.”

Macron warns that new EU AI regulations will significantly harm Europe. “We can decide to regulate much faster and...

Does Europe's new AI law risk hampering innovation?

Core argument: Emmanuel Macron said he was concerned that the EU's AI Act means the bloc will enforce the world's toughest regime on foundational models, the technology underpinning generative AI products such as OpenAI's ChatGPT.

Macron said he was concerned that the new law means the EU will enforce the world’s toughest regime on so-called foundational models, the technology that underpins generative AI products such as OpenAI’s ChatGPT. Macron’s comments may presage a new battle over the final terms of the AI Act, which still needs to be ratified by member states over the coming weeks. “The stakes are high and the French will try to block this,” said a person with knowledge of the talks, although they thought the text would ultimately be agreed despite opposition. French negotiators had tried to water down the proposed rules in marathon talks last week, but ultimately the bloc moved towards a tough regulatory regime that imposes new transparency requirements on powerful AI models as well as strict restrictions on the use of facial-recognition technology. The new rules, which will probably come into force in early 2025, also introduce prohibitions on the use of AI for “social scoring”, the use of metrics to classify people based on their behaviour or personal characteristics.

Takeaways by Macro Roundup® AI

  1. Emmanuel Macron said he was concerned that the EU's AI Act means the bloc will enforce the world's toughest regime on foundational models, the technology underpinning generative AI products such as OpenAI's ChatGPT.
  2. The EU's AI Act imposes new transparency requirements on powerful AI models, strict restrictions on facial-recognition technology, and prohibitions on "social scoring" that classifies people by behaviour or personal characteristics.
  3. French negotiators tried to water down the proposed AI rules in marathon talks, and a person with knowledge of the negotiations said the French will try to block the text, which member states must still ratify before it probably comes into force in early 2025.

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AI Summary. China's Huawei is proceeding with construction of its first European factory, a mobile phone network equipment plant in France with an initial investment of €200m ($215m), even as some European governments restrict use of the company's 5G equipment.

Reuters Staff South China Morning Post
Date Posted:

Huawei is building a manufacturing facility in France. In 2020 France started to phase Huawei kit out of their telecom network; however, over the summer, the French decided to extend Huawei 5G licences in some cities. @SCMPNews

Huawei is building a manufacturing facility in France. In 2020 France started to phase Huawei kit out of their telecom...

Is a Chinese telecom giant building its first European factory despite restrictions?

Core argument: Huawei will begin construction next year on its first European factory, a mobile phone network equipment plant in Brumath near Strasbourg, with an initial investment of 200 million euros (US$215 million) outlined in 2020 and delayed by the Covid-19 pandemic, a source said.

China’s Huawei will start building its mobile phone network equipment factory in France next year, a source familiar with the matter said, pressing ahead with its first plant in Europe even as some European governments curb the use of the firm’s 5G gear. The company outlined plans for the factory with an initial investment of 200 million euros (US$215 million) in 2020, but the roll-out was delayed by the Covid-19 pandemic. The source did not give a timeline for when the factory in Brumath, near Strasbourg, will be up and running. Huawei did not respond to a request for comment. In 2020, the French government told telecoms operators planning to buy Huawei 5G equipment that they would not be able to renew licences for the gear once they expire, effectively phasing Huawei out of mobile networks. But following a meeting with French Economy Minister Bruno Le Maire in Beijing in July, China’s Vice-Premier He Lifeng said France had decided to extend Huawei 5G licences in some cities.

Takeaways by Macro Roundup® AI

  1. Huawei will begin construction next year on its first European factory, a mobile phone network equipment plant in Brumath near Strasbourg, with an initial investment of 200 million euros (US$215 million) outlined in 2020 and delayed by the Covid-19 pandemic, a source said.
  2. France told telecoms operators in 2020 that licences for Huawei 5G equipment could not be renewed once they expire, effectively phasing the company out of French mobile networks.
  3. China's Vice-Premier He Lifeng said after meeting French Economy Minister Bruno Le Maire in Beijing in July that France had decided to extend Huawei 5G licences in some cities.

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