Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…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 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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, December 14, 2023

AI Summary. Revised estimates put core personal consumption inflation at 1.9% annualized in the second half of the year, down from 4% annualized in the first half, with some measures of the trend already at or near 2%. This pace of deceleration runs counter to the widely expected "last mile" problem in returning inflation to the 2% target.

David Mericle Goldman Sachs
Date Posted:

Noting inflation is likely to return to target faster than their September forecast, @GoldmanSachs now anticipates 25bp cuts in March, May, and June.

Is inflation slowing to the 2% target faster than expected?

Core argument: Under a revised estimate, core PCE inflation appears to have slowed from 4% annualized in 2023H1 to 1.9% annualized in 2023H2, rather than facing the widely expected "last mile" problem.

The pace of deceleration is even more striking under our revised forecast path, and by some measures, the trend is already at or near 2%. Far from facing a widely expected “last mile” problem, core PCE inflation appears to have slowed from 4% annualized in 2023H1 to 1.9% annualized in 2023H2, according to our revised estimate. We have also made small revisions to our forecasts of future months based on details of this week’s inflation data. A firmer November used car print means more payback later, and a faster pace of shelter inflation now means that more of the gap between continuing tenant rents and market rates has closed, meaning less catch-up and a somewhat faster deceleration later.

Takeaways by Macro Roundup® AI

  1. Under a revised estimate, core PCE inflation appears to have slowed from 4% annualized in 2023H1 to 1.9% annualized in 2023H2, rather than facing the widely expected "last mile" problem.
  2. A faster return to the 2% inflation target means faster rate cuts, with some measures of the inflation trend already at or near 2%.
  3. A firmer November used car print means more payback later, while a faster pace of shelter inflation now means more of the gap between continuing tenant rents and market rates has closed, leaving less catch-up and a somewhat faster deceleration later.

Related Articles:

  • 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.
  • Reflexivity — 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.
  • 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.

AI Summary. A critique argues that Auten and Splinter's methodology misallocates a large share of untaxed business and capital income to the bottom of the distribution, assuming the top 1% earns only about 15% of untaxed business income while tax data show they earn about 55% of business income overall.

Thomas Piketty, Emmanuel Saez, and Gabriel Zucman Working Paper
Date Posted:
Is Database:
Database
Is Important:
Important

Saez @PikettyWIL @gabriel_zucman respond to Auten and Splinter’s critique of their inequality findings. They claim AS underallocated a large share of untaxed business and capital income to the top 1%, singificantly understating the rise of inequality.

Does assuming untaxed business income is evenly distributed understate inequality?

Core argument: The comment argues that Auten and Splinter assume the top 1% of adult individuals earn only about 15% of untaxed business income, while tax data show the top 1% earns about 55% of business income.

In a nutshell: Auten and Splinter erroneously allocated a large and growing amount of untaxed business and capital income to the bottom of the distribution due to several clear and long-understood mistakes in their methodology. Business income is one of the most highly concentrated forms of income, and its concentration has sharply increased since the 1960s. The top 1% of adult individuals earn about 55% of it according to tax data today. But AS assume that untaxed business income is very equally distributed. According to them, the top 1% earns only around 15% of it (Figure 1). In other words, the observable income of doctors’ and dentist practices, retail chains, real estate firms, oil and gas partnerships, law firms, etc., might be extremely concentrated, but their untaxed income, according to AS, is much more equally distributed. Is this realistic? In recent years about 50%-60% of untaxed business income corresponds to tax evasion; the rest is due to provisions in the tax code that reduce taxable income below economic income. The key provisions are the full expensing of investment for certain investments and generous depreciation schedules for non-expensed assets. These provisions accrue overwhelmingly to the very top of the distribution – owners of capital-intensive closely held businesses. As for tax evasion, there is no evidence to support the assumption made by AS that it is concentrated at the bottom of the distribution.

Takeaways by Macro Roundup® AI

  1. The comment argues that Auten and Splinter assume the top 1% of adult individuals earn only about 15% of untaxed business income, while tax data show the top 1% earns about 55% of business income.
  2. About 50%–60% of untaxed business income corresponds to tax evasion, with the remainder arising from tax code provisions such as full expensing of certain investments and generous depreciation schedules, which the comment states accrue overwhelmingly to owners of capital-intensive closely held businesses.

Related Articles:

AI Summary. A new paper argues that persistent drought in southern California during the 1970s emptied swimming pools, turning them into de facto urban skateboard parks. The authors link this to the rise of skateboarding companies, skateboarding media, and a subculture that eventually became mainstream.

Paul Kedrosky Applied Complexity
Date Posted:

Describing how skateboarding evolved out of a prolonged southern California drought which emptied pools @pkedrosky theorizes “Humans are products of scarcity, not abundance….we are living in a world, one of abundance, to which we are poorly adapted.”

Did drought create skateboarding culture by emptying swimming pools?

Core argument: A paper argues that persistent drought in southern California during the 1970s emptied swimming pools, creating de facto urban skateboard parks that seeded skateboarding companies, skateboard media, and a subculture that later went mainstream.

There is a striking new paper on the origins of skateboarding. It shows how persistent drought in southern California in the 1970s caused the emptying of pools, giving rise to de facto urban skateboard parks. This, in turn, helped drive the rise of skateboarding companies, skateboard media, and an entire subculture that eventually became mainstream. You can see some of this in a graphic from the paper, where early skateboarding magazine covers showed pools as filled and part of the built urban environment, while later covers turned skateboarding into something that happened inside the objects formerly known as pools. Humans, it can be strongly argued, are products of scarcity, not abundance. We see this in everything from our metabolic response to fasting, to the rise of skateboarding in southern California. We are, to that way of thinking, living in a world, one of abundance, to which we are poorly adapted.

Takeaways by Macro Roundup® AI

  1. A paper argues that persistent drought in southern California during the 1970s emptied swimming pools, creating de facto urban skateboard parks that seeded skateboarding companies, skateboard media, and a subculture that later went mainstream.
  2. Early skateboarding magazine covers in the paper's graphic depicted pools as filled features of the built urban environment, while later covers depicted skateboarding taking place inside the objects formerly known as pools.
  3. Humans, on this argument, are products of scarcity rather than abundance, as seen in the metabolic response to fasting, and are poorly adapted to a world of abundance.

Related Articles:

  • Global Water Scarcity: H2O No! — Less than 1% of the planet's water is usable; water demand has risen about 40% over 40 years and is estimated to increase another 25% by 2050, while supply has more than halved since 1970. Some 57% of global freshwater aquifers are beyond their tipping point, and one-third of piped fresh water is lost to leakage.
  • Arizona Is Running Out of Cheap Water. Investors Saw It Coming — Phoenix-area suburbs are paying sharply higher prices for water rights from a basin west of the city, with one suburb approving $80m for 6,000 acre-feet — more than double the per-acre-foot price another suburb paid earlier. Arizona's groundwater replenishment assessments rose from $154 to $768 per acre-foot.
  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.

AI Summary. An analysis of value-added output in 10 strategically important advanced industries, together accounting for over $10tn in global production, found China was the leading producer in seven and produced more than all other nations outside the top 10 combined. The authors argue China's gains came at the expense of the US and other advanced economies.

Robert Atkinson and Ian Tufts Information Technology and Innovation Foundation
Date Posted:
Is Database:
Database

According to an @ITIFdc analysis of 10 strategic industries, including pharmaceuticals, transportation equipment, and IT, China is the leading producer in 7 of 10 industries and has 25% of global output vs. 21% for the US.

Is China the leading producer in most strategic advanced industries?

Core argument: As of 2020, China was the leading producer in 7 of the 10 strategic industries in ITIF's Hamilton Index, producing more than any other nation and more than all other nations outside the top 10 combined.

[We] examined changes in global shares of value-added output in 10 advanced industry sectors: pharmaceuticals; electrical equipment; machinery and equipment; motor vehicle equipment; other transport equipment; computer, electronic, and optical products; information technology and information services; chemicals (not including pharmaceuticals); basic metals; and fabricated metals. The 10 industries included in the Hamilton Index together accounted for more than $10 trillion in global production in 2020. As of 2020, China was the leading producer in seven of the ten strategically important industries in ITIF’s Hamilton Index. Overall, China was producing more than any other nation—and more than all other nations outside of the top 10 combined. Hamilton Index industries accounted for approximately the same share of the global economy in 2020 (11.8% ) as in 1995 (11.9% ), underscoring how the race for global advantage in these industries is a zero-sum competition. China’s gains have come at the expense of the United States and other G7 and OECD economies. From 1995 to 2020, China also captured more than 80% of non-OECD countries’ gains.

Takeaways by Macro Roundup® AI

  1. As of 2020, China was the leading producer in 7 of the 10 strategic industries in ITIF's Hamilton Index, producing more than any other nation and more than all other nations outside the top 10 combined.
  2. The 10 Hamilton Index industries accounted for more than $10 trillion in global production in 2020 and held roughly the same share of the global economy in 2020 (11.8%) as in 1995 (11.9%), which ITIF argues makes the race zero-sum.
  3. China's gains in the Hamilton Index industries came at the expense of the United States and other G7 and OECD economies, and from 1995 to 2020 China captured more than 80% of non-OECD countries' gains.

Related Articles:

  • China Notes, July ’23: On Technological Momentum — China's political environment poses a threat to its technological momentum, with Chinese undergraduates in the US reporting that their parents urge them not to return to the mainland. China retains strengths independent of slowing growth and demographic drags, chiefly an entrenched workforce that continues to advance manufacturing complexity.
  • Why Xi Can No Longer Brag About the Chinese Economy — China's shipyards build 46% of the world's ships, letting it produce several warships and submarines a year, while the U.S. holds under 1% of capacity and its Navy faces late, over-budget deliveries from a few yards lacking workers. China is also the largest drone producer.
  • Breaking Down China’s Manufacturing — About 40–45% of China's manufacturing output comes from exports and 55–60% from domestic demand, making the sector mainly domestically oriented while still relying substantially on external demand. Estimates extending the data beyond the available database suggest the export share has picked up, reflecting a pandemic-era export boom.

AI Summary. South Korea's statistical office projects the number of babies per woman will fall to 0.65, down from the world's lowest rate of 0.78, and that the population will decline about 30% to 36.2m by 2072. Low fertility threatens to shrink the workforce, slow consumption, and reduce the pool of men available for military service.

Sam Kim Bloomberg
Date Posted:

South Korea’s current fertility rate implies the population will decline 30% over the next 50 years from 51.7mm to 36.2mm. Beyond the economic headwind, this will also significantly impact the South’s ability to counter a North Korean invasion.

Will the world's lowest fertility rate fall even further?

Core argument: Statistics Korea estimates South Korea's fertility rate fell to 0.72 births per woman this year and will drop to 0.65 in 2025, down from 0.78 in 2022, already the world's lowest.

The number of babies expected per woman probably dropped this year to 0.72 and will continue to fall through 2025, when it’s expected to reach 0.65, the statistical office said Thursday in its latest population forecasts. South Korea already has the world’s lowest fertility rate at 0.78 as of 2022. Low fertility threatens to undermine South Korea’s economic future by shrinking its workforce and slowing consumption. It also casts a long shadow over national security by reducing the pool of men available to join the military to counter threats from North Korea. The latest forecast by Statistics Korea puts the population in 2072 at 36.2 million, a 30% decline from the current 51.7 million, even though the fertility rate may recover a bit to 0.68 in 2026. The population is expected to fall every year starting in 2025.

Takeaways by Macro Roundup® AI

  1. Statistics Korea estimates South Korea's fertility rate fell to 0.72 births per woman this year and will drop to 0.65 in 2025, down from 0.78 in 2022, already the world's lowest.
  2. Statistics Korea projects South Korea's population will fall to 36.2 million by 2072, a 30% decline from 51.7 million, with annual declines beginning in 2025 even as the fertility rate may recover to 0.68 in 2026.
  3. Low fertility threatens to undermine South Korea's economic future by shrinking its workforce and slowing consumption, and casts a shadow over national security by reducing the pool of men available to join the military to counter North Korean threats.

Related Articles:

  • Korea Finance Nominee Likens Aging Demographics to Titanic Iceberg — 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.
  • 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.
  • 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. A CNN poll of Michigan shows Trump leading among working-class voters without college degrees by 21 points and Biden leading among college-educated voters by 10 points. Since projections put Michigan at roughly 71% working-class eligible voters, and Biden lost that group by only 2 points in 2020, this 19-point swing is an unfavorable pattern for Democrats.

Ruy Teixeira The Liberal Patriot
Date Posted:

Ruy Teixeira @AEI notes Trump is on track to win Michigan and the White House in 2024; Biden’s path to victory is improving his margins with non-college voters, with whom he currently has a 21pp deficit, 19pp worse than in 2020.

Ruy Teixeira @AEI notes Trump is on track to win Michigan and the White House in 2024; Biden’s path to victory is improving...

Are Democrats losing working-class voters in a key swing state?

Core argument: CNN's Michigan poll shows Trump leading by 21 points among working-class (noncollege) voters, a 19-point swing from 2020, when States of Change data show Biden lost those voters by 2 points.

In CNN’s Michigan poll, Trump is ahead by 21 points among working-class (noncollege) voters, while Biden is ahead by 10 points among college-educated voters. But Michigan is an overwhelmingly working-class state—according to States of Change projections, Michigan should be around 71 percent working-class eligible voters in 2024—so this a very unfavorable pattern for the Democrats. Compared to Biden’s successful effort in 2020, the fall off in working-class support suggested here is precipitous. According to States of Change data, Biden lost these voters by a mere 2 points in 2020, so the current deficit of 21 points represents a massive 19-point swing against him. In contrast, the college-educated swing against him in the CNN poll looks quite small: a 12-point advantage among these voters in 2020, compared to a 10-point advantage now.

Takeaways by Macro Roundup® AI

  1. CNN's Michigan poll shows Trump leading by 21 points among working-class (noncollege) voters, a 19-point swing from 2020, when States of Change data show Biden lost those voters by 2 points.
  2. Biden leads by 10 points among college-educated voters in CNN's Michigan poll, compared with a 12-point advantage with that group in 2020.
  3. States of Change projects Michigan will be about 71 percent working-class eligible voters in 2024.

Related Articles:

  • Why Biden Is Behind, and How He Could Come Back — Polling shows a broad decline in President Biden's standing across virtually every demographic group, with the steepest losses among young, Black, and Hispanic voters. Biden holds only a narrow lead among nonwhite voters under 45, a group that reported backing him by nearly 40 points in the prior election.
  • Consistent Signs of Erosion in Black and Hispanic Support for Biden — Polling shows the Democratic presidential candidate's support among nonwhite voters running well below his prior election standing across racial groups, with leads of 72-11 among Black voters, 47-35 among Hispanic registrants, and 40-39 among other nonwhite voters. About 5% of his former nonwhite voters now back the Republican candidate, including 8% of Hispanic voters.
  • Why Trump Lost Georgia — An analysis attributes Georgia's 5.3 point Democratic shift between the 2016 and 2020 presidential elections to three factors: third-party voters switching, Black population growth alongside white population decline, and persuasion concentrated among high-income, high-education voters, with about 3.1 points from persuasion and 2.2 from electorate composition.

Friday, December 15, 2023

AI Summary. Revised historical data that correct for survivorship bias—most notably including the Second Bank of the United States, which reached nearly 30% of US market capitalization before collapsing—show 19th-century stock returns differed from 20th-century returns, with repeated periods in which stocks underperformed bonds.

Edward McQuarrie Financial Analysts Journal
Date Posted:

An analysis of US equity and bond returns since 1792 refutes the “stocks for the long run” theory: after correcting for survivorship bias, the equity risk premium comes and goes.

Do stocks always outperform bonds over the long run?

Core argument: The Second Bank of the United States accounted for almost 30% of total US market capitalization at its pre-Panic of 1837 peak, and its shares fell from $120 to $1.50 and never recovered; its omission left the pre-1871 stock record subject to survivorship bias.

Stock returns before 1871 look different now because of the reduction in survivorship bias. The old record omitted the largest stock that traded before the Panic of 1837, the 2nd Bank of the United States. At the peak before the Panic hit, the 2nd BUS accounted for almost 30% of total US market capitalization. It failed as the Panic proceeded, with shares dropping in price from $120 to $1.50, and never recovered. Bond returns look more positive now, due to inclusion of corporate bonds, inclusion of a broader selection of federal and municipal bonds, and an adjustment for the greenback price of interest paid in gold coin between 1862 and 1879. The new data indicate that “Stocks for the Long Run” was built on a faulty premise: that the strong returns on stocks seen after World War II, combined with the poor returns on bonds through 1981, reflected a stationary process. The old historical record appeared to show that stocks had always returned 6% to 7% real and there had always been a substantial equity premium. The new data show that the 19th century, particularly the antebellum era, saw quite different returns than the 20th century, with repeated equity deficits. Unfortunately, the new data remain vulnerable to dismissal by practical investors, who may deem the results too old to be relevant.

Takeaways by Macro Roundup® AI

  1. The Second Bank of the United States accounted for almost 30% of total US market capitalization at its pre-Panic of 1837 peak, and its shares fell from $120 to $1.50 and never recovered; its omission left the pre-1871 stock record subject to survivorship bias.
  2. Revised bond returns look more positive after including corporate bonds, a broader selection of federal and municipal bonds, and an adjustment for the greenback price of interest paid in gold coin between 1862 and 1879.
  3. The new data indicate that "Stocks for the Long Run" rested on a faulty premise of a stationary process, since the 19th century, particularly the antebellum era, saw repeated equity deficits rather than the 6% to 7% real returns and substantial equity premium the old record showed.

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.
  • 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.
  • 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. Interest-rate cuts should wait for clear evidence that inflation has been durably returned to 2%, rather than treating a brief touch of that level as success. The market view of a soft landing with 100 basis points of Federal Reserve cuts is possible but unlikely: without a recession cuts would likely be smaller, with one larger.

Robert Armstrong and Ethan Wu Financial Times
Date Posted:

.@LHSummers argues to @rbrtrmstrng that a soft landing is “a long way from assured,” “touching 2%” is not “achieving 2%” and the current market view of 100bps of cuts in 2024 is not his base case.

.@LHSummers argues to @rbrtrmstrng that a soft landing is “a long way from assured,” “touching 2%” is not...

Should rate cuts wait for durable evidence inflation has returned to target?

Core argument: Larry Summers says the market view of a soft landing with 100 basis points of Fed cuts over the next year is possible but not at the centre of his expectations.

I think I would be looking for very clear evidence that inflation was durably put down, because I would be very concerned that we would confuse touching 2% with achieving 2%, and even more concerned with touching 2.7% and regarding that as a basis for easing…I would be very much aware that if the transmission from monetary policy to inflation when there had been tightening was more direct, and involved output less than one might have expected, there was the risk of something parallel on the loosening side. So I would be in less of a hurry. The current market view that we will have a soft landing and the Fed will be able to cut rates by 100 basis points over the next year strikes me as possible, but it is not at the centre of my expectations. We may have no recession, in which case I rather doubt that the Fed will be able to cut rates by 100bp, or we may have a recession, in which case the Fed will cut rates by somewhat more than 100bp.

Takeaways by Macro Roundup® AI

  1. Larry Summers says the market view of a soft landing with 100 basis points of Fed cuts over the next year is possible but not at the centre of his expectations.
  2. Summers doubts the Fed could cut 100 basis points absent a recession, and expects somewhat more than 100 basis points of cuts if a recession occurs.
  3. Summers says he would look for very clear evidence that inflation was durably put down, warning against confusing touching 2%, or 2.7%, with achieving 2% as a basis for easing.

Related Articles:

  • US Daily: December FOMC Recap: A Faster Return to the 2% Target Means Faster Cuts — Revised estimates put core personal consumption inflation at 1.9% annualized in the second half of the year, down from 4% annualized in the first half, with some measures of the trend already at or near 2%. This pace of deceleration runs counter to the widely expected "last mile" problem in returning inflation to the 2% target.
  • 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%.

AI Summary. Consumer borrowing and bank lending showed signs of stabilizing or modest acceleration, which is not what one would expect if monetary policy were actually restrictive. Setting interest rates based on past inflation readings risks shifting policy from neutral to unnecessarily stimulative, since market-implied inflation expectations have not moved in over a year.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that rate cuts could be “unnecessarily stimulative” risking above-target inflation, given the ongoing rise in asset prices, continued wage growth, and strong private sector balance sheets.

Is monetary policy actually restrictive if borrowing and lending are accelerating?

Core argument: Consumer borrowing and bank lending quantities stabilized or modestly accelerated in the second half of 2023, which the author argues is not what would be expected if Federal Reserve policy were actually restrictive.

Beyond asset prices, the quantities of consumer borrowing and bank lending have also shown signs of stabilizing (or modest acceleration) in the second half of 2023. None of this is what one would expect if policy were actually “restrictive”. The argument from Fed officials is that none of this matters. As Governor Chris Waller put it recently, “if inflation goes down, you would lower policy the rate”. But the inflation data are telling us only what has already happened, while interest rates are supposed to be forward-looking. Setting the future price of money based on last year’s price increases is nonsensical. As it happens, inflation had always been expected to slow, which is why breakevens never went above 4%. Moreover, these market-implied inflation premiums have not budged in over a year. The danger is that they may instead be shifting from “neutral” to “unnecessarily stimulative” because they are calibrating policy with a faulty backward-looking model.

Takeaways by Macro Roundup® AI

  1. Consumer borrowing and bank lending quantities stabilized or modestly accelerated in the second half of 2023, which the author argues is not what would be expected if Federal Reserve policy were actually restrictive.
  2. Market-implied inflation breakevens never rose above 4% and have not budged in over a year, which the author cites as evidence that inflation had always been expected to slow.
  3. Fed Governor Chris Waller's position that "if inflation goes down, you would lower policy the rate" rests on backward-looking inflation data, which the author argues risks shifting policy from neutral to unnecessarily stimulative.

Related Articles:

  • Reflexivity — 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.
  • 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%.

AI Summary. The US produces more crude oil than any other country and, counting total petroleum products, more than Saudi Arabia and Russia combined, with crude and natural gas output at record highs and gas production up 7% from its 2019 peak. Net US energy exports reached $70bn over 12 months despite falling oil and gas prices.

Joseph Politano Apricitas Economics
Date Posted:

US net energy exports were at least $70B in the last 12 months, a number that is set to grow as the US economy decarbonizes allowing more exports to more hydrocarbon-intensive emerging markets. @JosephPolitano

Is US energy production at record highs and driving net exports?

Core argument: Net US energy exports reached $70bn over the last 12 months despite falling oil and gas prices, with American crude oil output setting a record high as of September.

The US produces more crude oil than any other country by a significant margin, and when looking at total petroleum products (including hydrocarbon gas liquids like propane and biofuels like ethanol) the US makes more than Saudi Arabia and Russia combined. As of September, American crude oil production has set a new record high, US natural gas production has continued setting new record highs and is now up 7% from its 2019 peaks. In other words, the US is now producing more energy than ever before, and that growing surplus is being sent abroad—net US energy exports have reached $70B over the last 12 months despite falling oil and gas prices. In fact, US supply growth has been a large factor behind those falling prices in a year where OPEC+ producers have seen significant ongoing production cutbacks.

Takeaways by Macro Roundup® AI

  1. Net US energy exports reached $70bn over the last 12 months despite falling oil and gas prices, with American crude oil output setting a record high as of September.
  2. The US produces more crude oil than any other country by a significant margin, and its total petroleum products output—including hydrocarbon gas liquids and biofuels such as ethanol—exceeds Saudi Arabia and Russia combined.
  3. US natural gas production has continued setting record highs and stands 7% above its 2019 peak, with US supply growth a large factor behind falling prices in a year of significant OPEC+ production cutbacks.

Related Articles:

  • Oil Market Caught By Surprise As US Output Surges — US crude oil production reached an all-time high of 13.2mn barrels a day, more than any other country and about one in eight barrels of global output, outpacing official forecasts. The International Energy Agency attributes 80% of this year's growth in global oil supply to the US, complicating OPEC+ efforts to prop up prices through output cuts.
  • The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications — The shale boom turned the United States into a net exporter of natural gas and of oil, altering how commodity prices relate to US trade. Where higher oil prices were historically associated with a deterioration in US terms of trade, they now correspond to an improvement.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.

AI Summary. GLP-1 medications act on receptors in the gut, liver, muscles, and brain, and studies report they reduce heart attacks and strokes, slow kidney disease progression, and shrink liver fat deposits. Users have also reported diminished cravings for alcohol, tobacco, gambling, and other compulsive behaviors, though anecdotal reports outpace clinical studies.

Dhruv Khullar New Yorker
Date Posted:

GLP-1 drugs like Ozempic may revolutionize healthcare in the US, especially for the economically disadvantaged. They offer notable weight loss benefits and, anecdotally, reduce cravings for alcohol and tobacco. @DhruvKhullar

How far do weight-loss drugs' effects extend beyond the gut?

Core argument: GLP-1 receptors exist in the gut, liver, muscles, and brain, and studies indicate some of these medications appear to reduce the incidence of heart attacks and strokes, slow kidney disease progression, and shrink dangerous liver fat deposits.

GLP-1 produces all sorts of cascading effects; the human body has receptors for it not only in the gut but also in the liver, muscles, and brain. Studies keep turning up surprises: some of the medications appear to reduce the incidence of heart attacks and strokes, slow the progression of kidney disease, and shrink dangerous fat deposits in the liver. People who take them have reported diminished cravings for alcohol and tobacco; some have reported feeling less compelled to gamble, compulsively pick at their skin, and engage in other addictive behaviors. “It’s an unprecedented situation,” Christian Hendershot, a University of North Carolina clinical psychologist who is studying semaglutide’s effect on alcohol use, told me. “The anecdotal reports of people saying these drugs are helping them cut back on drinking or smoking have come much faster than our clinical studies can confirm.” Lizard venom helped to turn an obscure hormone into potent diabetes medications, and then into the most promising weight-loss treatments in history. We’re still discovering how much they’ll change our lives.

Takeaways by Macro Roundup® AI

  1. GLP-1 receptors exist in the gut, liver, muscles, and brain, and studies indicate some of these medications appear to reduce the incidence of heart attacks and strokes, slow kidney disease progression, and shrink dangerous liver fat deposits.
  2. People taking GLP-1 medications have reported diminished cravings for alcohol and tobacco, and some report feeling less compelled to gamble, compulsively pick at their skin, and engage in other addictive behaviors.
  3. Christian Hendershot, a University of North Carolina clinical psychologist studying semaglutide's effect on alcohol use, calls the situation unprecedented, noting anecdotal reports of people cutting back on drinking or smoking have come faster than clinical studies can confirm.

Related Articles:

  • How Disadvantage Became Deadly in America — The author calculates that the average age of death among the shortest-lived 10% of Americans is 36, versus 55 in the Netherlands and 57 in Sweden, after falling by about eight years over the past decade. Wealthy Americans live equally long regardless of local opioid use and gun violence, while poor Americans in those areas live far shorter lives.
  • How Weight Loss Drugs Stopped a Danish Recession — Strong demand for the weight-loss and diabetes drugs Ozempic and Wegovy has kept Denmark out of recession: GDP is up about 1.1% over the past year but down 0.9% excluding pharmaceuticals, meaning drugmakers added roughly 2% to growth. Booming exports let Denmark's central bank hold rates lower while maintaining its euro peg.
  • Danish Weight Loss Drugs vs. Chinese Cars: Two Models of Export Booms — Denmark's weight-loss drug exports illustrate a positive-sum export boom in which new products create both supply and demand, while Chinese car exports reflect firms with persistent overcapacity fighting for market share. The US preempted Chinese electric vehicles through legislation that boosts demand while reserving a share for local producers; Europe remains more exposed.

AI Summary. Commonly reported "period" life expectancy assumes current age-specific death rates persist for a newborn's entire life, while "cohort" life expectancy better measures how long a child born today will actually live. Death rates from cancer, heart disease, and stroke have fallen substantially over the past two decades, and the author argues that progress should continue.

Josh Zumbrun Wall Street Journal
Date Posted:

Recent declines in US life expectancy based on historical data don’t account for future improvements in health care. A boy born last year is expected to live 82.2 years and a girl 86.5 years, 6 and 7 years longer than purely historical estimates.

Does the standard life expectancy measure understate how long newborns will live?

Core argument: About 95% of reported life expectancy figures use the period measure, which demographer Michel Guillot of the University of Pennsylvania describes as based on a synthetic or fictitious cohort.

“When you see life expectancy reported, about 95% of the time, it’s the period life expectancy measure,” said Michel Guillot, a demographer and professor of sociology at the University of Pennsylvania. “It is based on the concept of a synthetic or fictitious cohort.” The statistic looks at how many people died at each age in a given year, and then calculates how long a hypothetical infant would live if those age-specific death rates applied for that infant’s entire life. For example, if 1.5% of people aged 65 died in 2022, this calculation assumes 1.5% of babies born this year who are still alive in 65 years will die at that age. But, of course, today’s babies won’t actually turn 65 until the late 2080s, and that would be an extraordinarily long time for us to make no progress on mortality. The more relevant way to measure how long a child born today will actually live is with “cohort life expectancy.” In the past 20 years, death rates from cancer, heart disease, and stroke have all fallen dramatically. There is reason to think that should continue.

Takeaways by Macro Roundup® AI

  1. About 95% of reported life expectancy figures use the period measure, which demographer Michel Guillot of the University of Pennsylvania describes as based on a synthetic or fictitious cohort.
  2. Period life expectancy applies a single year's age-specific death rates across an entire lifetime, assuming, for example, that babies born today who reach 65 in the late 2080s will die at 2022's rate for 65-year-olds.
  3. Death rates from cancer, heart disease, and stroke have all fallen dramatically over the past 20 years, and cohort life expectancy is the more relevant measure of how long a child born today will actually live.

Related Articles:

  • Comments On: “Accounting For the Widening Mortality Gap Between American Adults With and Without a BA” By Anne Case and Angus Deaton — Selection plausibly accounts for most or all of the widening mortality gap between US adults with and without a bachelor's degree: high school achievement measures have not risen since the early 1970s while the share earning degrees rose, and national youth survey data show non-graduates increasingly negatively selected on aptitude scores.
  • Accounting for the Widening Mortality Gap Between American Adults With and Without a BA — The mortality gap between American adults with and without a four-year college degree widened across three periods—falling mortality for both with larger gains for graduates, then diverging, then rising faster for the less educated during the pandemic—reaching an 8.5-year difference in adult life expectancy. Americans with a degree, treated as a separate country, would rank just below Japan.
  • Who Won the Cold War? Part II — Americans born around 1990 had higher death rates in their 20s than peers in affluent allied countries, and the gap widened across young adulthood. By age 29, US mortality for that cohort was about 2x New Zealand's, 2.5x France's, 3x Japan's, and 4x Italy's or Spain's.