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


Wednesday, January 3, 2024

AI Summary. The authors defend their estimates of top income shares against a critique, arguing that the critique misrepresents how differing methods explain gaps in top 1% income shares and omits relevant context. They argue their estimates are consistent with other high-quality inequality studies and that audit studies find higher income misreporting outside the top 1%.

David Splinter DavidSplinter.com
Date Posted:
Is Database:
Database
Is Important:
Important

David Splinter argues that @WilliamGale2 John Sabelhaus @samthorpe__ critique of AS misrepresents some of the results and AS’s headline finding that the US’s long-run top 1% after-tax income share being relatively flat stands.

Do methodological critiques of top income share estimates hold up?

Core argument: Auten and Splinter respond to Gale, Sabelhaus, and Thorpe by arguing that the critique misrepresents how differing methods in Auten–Splinter and Piketty–Saez–Zucman explain top 1% income share gaps and omits the reasons for those methodological differences.

This note responds to an article by Gale, Sabelhaus, and Thorpe (GST) recently posted that comments on Auten and Splinter. GST discuss levels and trends of top income shares in AS and Piketty, Saez, and Zucman. The GST analysis, however, fails to include relevant context and misrepresents some AS results. In contrast to eight points raised or implied in GST, this note explains that: (1) GST misrepresent how different approaches in AS and PSZ explain top 1% gaps and fail to discuss the reasons for those different approaches, (2) the AS estimates are consistent with other high-quality inequality studies, (3) GST ignore crucial differences between survey and tax data when considering the distribution of underreporting in tax data, (4) GST ignore the results of special audit studies that find significantly higher misreporting rates among those with negative reported incomes or in the bottom 99% relative to the top 1%, (5) the suggested limitations of the audit studies are unsubstantiated or have little impact, (6) AS presented estimates with alternative allocations of government consumption, (7) the AS allocation of deficits is more consistent with historical precedent, and (8) the implication that AS estimates are inconsistent with financial wealth inequality trends is incorrect.

Takeaways by Macro Roundup® AI

  1. Auten and Splinter respond to Gale, Sabelhaus, and Thorpe by arguing that the critique misrepresents how differing methods in Auten–Splinter and Piketty–Saez–Zucman explain top 1% income share gaps and omits the reasons for those methodological differences.
  2. Auten and Splinter contend their estimates are consistent with other high-quality inequality studies, and that special audit studies find significantly higher misreporting rates among those with negative reported incomes or in the bottom 99% than in the top 1%.
  3. Auten and Splinter state that they presented estimates using alternative allocations of government consumption, that their deficit allocation is more consistent with historical precedent, and that their estimates are not inconsistent with financial wealth inequality trends.

Related Articles:

  • Measuring Income Inequality: A Primer On The Debate — Competing studies estimate the top 1%'s share of US after-tax-and-transfer national income rose by either 6pp or 1pp, with differing estimates of pre-tax income shares explaining part of the gap and differing estimates of tax and transfer effects explaining the rest. The preponderance of evidence suggests income inequality has increased.
  • Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends — Using administrative tax data with the Survey of Consumer Finances, the authors estimate the top 1% pre-tax income share fell from 11.1% in 1962 to 9.4% in 1979, then rose to 13.8% by 2019, a 3 percentage point rise over the full period. Their after-tax measure shows increases of only 1.4 points since 1979 and 0.2 points since 1962.
  • Comment on Auten and Splinter (2023) — 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.

AI Summary. Across 93 countries, the authors find that the redistribution preferences of the lowest socioeconomic group are most predictive of actual government redistribution, with middle- and top-group preferences adding no further explanatory power once bottom-group preferences are accounted for. This contrasts with assumptions that median or upper strata preferences shape policy.

Michel Marechal, Alain Cohn, Jeffrey Yusof, and Raymond Fisman National Bureau of Economic Research
Date Posted:
Is Database:
Database

Based on cross-sectional data from 93 countries, low-income individuals’ redistributive preferences are more predictive of redistribution policy than elite preferences. @alain_cohn @RFisman

Whose preferences best predict how much governments redistribute?

Core argument: Across cross-sectional data from 93 countries, the redistribution preferences of the lowest socioeconomic status group are the most predictive of actual government redistribution.

Using cross-sectional data from 93 countries, we investigate the relationship between the desired level of redistribution among citizens from different socioeconomic backgrounds and the actual extent of government redistribution. Our focus on redistribution arises from the inherent class conflicts it engenders in policy choices, allowing us to examine whose preferences shape policy formulation. Our main finding is that the lowest socioeconomic status (SES) group’s preferences are most predictive of redistribution. Controlling for preferences at the bottom of the SES distribution, neither the middle nor the top SES group’s preferences have any additional explanatory power. Contrary to prevailing assumptions regarding political influence the preferences of the lower socioeconomic group, rather than those of the median or upper strata, are most predictive of realized redistribution.

Takeaways by Macro Roundup® AI

  1. Across cross-sectional data from 93 countries, the redistribution preferences of the lowest socioeconomic status group are the most predictive of actual government redistribution.
  2. Controlling for preferences at the bottom of the socioeconomic distribution, neither middle nor top socioeconomic group preferences add explanatory power for realized redistribution.
  3. The finding that lower-status preferences, rather than those of the median or upper strata, best predict realized redistribution runs contrary to prevailing assumptions about political influence.

Related Articles:

  • ‘The Economy is Rigged’: Inequality Narratives, Fairness, and Support for Redistribution in Six Countries — In a survey experiment with 7,426 respondents across Australia, France, Germany, Switzerland, the UK, and the US, exposure to a media narrative framing inequality as the result of a system rigged in favor of the rich significantly increased support for redistributive policies in five countries, with no effect in the US.
  • Does the American Dream Foster Inequality? — Survey data show Americans are more likely than people in other Western countries to see themselves as upwardly mobile and to say hard work is essential to getting ahead. Americans are the most likely to call income inequality unfair, yet fewer than half see addressing it as the government's responsibility, versus two-thirds or more in the UK, France and Germany.
  • Calomiris on Gramm Ekelund and Early on Income Distribution — Transfer benefits phase out so quickly that the effective marginal tax rate in the lowest three income quintiles approaches 100%, meaning an extra dollar earned can cost roughly a dollar of benefits. Hours worked in the lower quintiles have plummeted, though the authors stop short of asserting a causal link.

AI Summary. Recent disinflation likely reflected both improved supply and weaker demand, but supply improvements are largely complete and an anticipated Federal Reserve pivot could revive demand at home and abroad. A weaker dollar eases global financial conditions and is typically associated with higher commodity prices, putting upward pressure on inflation.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 argues that recent disinflation in the US has been driven by one-off improvements in supply chains and higher labor force participation and that any easing of financial conditions might lead to higher demand and above-target inflation.

Is recent disinflation temporary as supply gains fade and demand revives?

Core argument: Disinflation likely stemmed from both improved supply and weaker demand, but both effects are fading, as supply improvements are largely over and the anticipated Fed pivot may rekindle demand domestically and abroad.

The recent bout of disinflation likely occurred from both improvements in supply and decreases in demand, but both effects are fading away. Supply improvements are largely over, and the Fed’s anticipated pivot may rekindle demand both domestically and abroad. In addition to raising asset prices and lowering interest rates, the anticipated Fed pivot has also eased global financial conditions by weakening the dollar. A weaker dollar is globally stimulative because it improves the balance sheets of foreign corporations borrowing in dollars and foreign banks that lend dollars. More directly, a weaker dollar is also usually directly associated with a rise in global commodity prices. Both of these effects place upward pressure on inflation. Inflation data may look very benign in the near term, but a return to a steady 2% inflation regime seems unlikely.

Takeaways by Macro Roundup® AI

  1. Disinflation likely stemmed from both improved supply and weaker demand, but both effects are fading, as supply improvements are largely over and the anticipated Fed pivot may rekindle demand domestically and abroad.
  2. The anticipated Fed pivot has eased global financial conditions by weakening the dollar, which improves the balance sheets of foreign corporations borrowing in dollars and foreign banks lending dollars, and usually accompanies rising global commodity prices.
  3. Near-term inflation data may look benign, yet a return to a steady 2% inflation regime seems unlikely given the upward pressure from a weaker dollar and reviving demand.

Related Articles:

  • The Fed Prepares for Rate Cuts. But Why? — 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.
  • 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.
  • The Case For A Mistake — Because monetary policy affects inflation with long and variable lags, much recent tightening has yet to have its full effect, and the collapse in global credit creation points to weak money growth ahead. The author argues central banks over-tightened by reacting to incoming inflation rather than looking through a one-off pandemic price-level adjustment, shifting the risk toward undershooting inflation targets.

AI Summary. U.S. Citizenship and Immigration Services data show that after the agency revised its guidance for two visa categories open to science, technology, engineering, and math workers, approvals of O-1A "extraordinary ability" visas rose nearly 30% to 4,570 and STEM green cards granted under a "national interest" waiver rose 55% to 70,240, with both holding at those levels the following year.

Jeffrey Mervis Science
Date Posted:

2022 changes to American immigration policy have led to a 30% increase in O-1A visas for foreign nationals “of extraordinary ability” to 4,570, and a 55% increase in STEM EB-2 visas to 70,240.

2022 changes to American immigration policy have led to a 30% increase in O-1A visas for foreign nationals “of...

Does revised visa guidance increase approvals for STEM workers?

Core argument: O-1A visas for "aliens of extraordinary ability" rose nearly 30% to 4,570 in the first year of revised USCIS guidance and held steady in fiscal year 2023, according to USCIS data reported by ScienceInsider.

According to newly released data from the U.S. Citizenship and Immigration Services (USCIS), more foreign-born workers in science, technology, engineering, and math (STEM) fields are enjoying happy endings. The jump comes after USCIS in January 2022 tweaked its guidance criteria relating to two visa categories available to STEM workers. One is the O-1A, a temporary visa for “aliens of extraordinary ability” that often paves the way to a green card. The second, which bestows a green card on those with advanced STEM degrees, governs a subset of an EB-2 (employment-based) visa. The USCIS data, reported exclusively by ScienceInsider, show that the number of O-1A visas awarded in the first year of the revised guidance jumped by almost 30%, to 4,570, and held steady in fiscal year 2023, which ended on 30 September. Similarly, the number of STEM EB-2 visas approved in 2022 after a “national interest” waiver shot up by 55% over 2021, to 70,240, and stayed at that level this year.

Takeaways by Macro Roundup® AI

  1. O-1A visas for "aliens of extraordinary ability" rose nearly 30% to 4,570 in the first year of revised USCIS guidance and held steady in fiscal year 2023, according to USCIS data reported by ScienceInsider.
  2. STEM EB-2 green cards approved after a "national interest" waiver climbed 55% over 2021 to 70,240 in 2022 and remained at that level in 2023, according to USCIS data.
  3. USCIS altered its guidance criteria in January 2022 for the O-1A temporary visa, which often paves the way to a green card, and for the EB-2 subset covering advanced STEM degree holders.

Related Articles:

AI Summary. North American grid reliability assessments project electricity capacity deficits over the next decade in areas where generator retirements are expected before replacement resources are in service to meet rising demand. Ten-year peak demand and energy growth forecasts are higher than at any point in the past decade, contributing to lower reserve margins.

NAERC Staff North American Electric Reliability Corporation
Date Posted:

A study from the North American Electric Reliability Corporation reports that the US and Canada will likely soon face a risk of significant shortfall of electrical generation in the face of increased demand, particularly during severe weather conditions.

Will the North American grid face electricity capacity deficits this decade?

Core argument: Electricity peak demand and energy growth forecasts over the 10-year assessment period are higher than at any point in the past decade, with peak season compound annual growth rates rising in nearly all assessment areas since the 2022 Long-Term Reliability Assessment and contributing to lower reserve margins.

Capacity deficits are projected [over the next 10 years] in areas where future generator retirements are expected before enough replacement resources are in service to meet rising demand forecasts. Energy risks are projected in areas where the future resource mix could fail to deliver the necessary supply of electricity under energy-constrained conditions. For example, subfreezing temperatures can create energy-limiting conditions by disrupting the natural gas fuel supplies to generators, leading to fuel-related derates or outages and potentially insufficient electricity supply. Electricity peak demand and energy growth forecasts over the 10-year assessment period are higher than at any point in the past decade. Since the 2022 LTRA, peak season CAGR has risen in nearly all assessment areas, contributing to an overall trend to lower reserve margins. Some of the sharpest peak demand forecast increases and growth rates can be seen in winter seasons as heating system and transportation electrification influence forecasts.

Takeaways by Macro Roundup® AI

  1. Electricity peak demand and energy growth forecasts over the 10-year assessment period are higher than at any point in the past decade, with peak season compound annual growth rates rising in nearly all assessment areas since the 2022 Long-Term Reliability Assessment and contributing to lower reserve margins.
  2. Capacity deficits are projected in areas where generator retirements are expected before enough replacement resources are in service to meet rising demand forecasts, while energy risks are projected where the future resource mix could fail to deliver sufficient electricity under energy-constrained conditions.
  3. Subfreezing temperatures can disrupt natural gas fuel supplies to generators, causing fuel-related derates or outages and potentially insufficient electricity supply, with some of the sharpest peak demand forecast increases occurring in winter seasons as heating system and transportation electrification influence forecasts.

Related Articles:

  • Elon Musk’s Latest Mission: Rev Up the Electricity Industry — U.S. electricity demand has grown at an average of 1% a year over the past 20 years, but McKinsey projects it will double by 2050 and PG&E expects a 70% rise over the next 20 years. Deloitte estimates the largest U.S. electric companies will together spend as much as $1.8tn by 2030.
  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.
  • Gridlock: How a Lack of Power Lines Will Delay the Age of Renewables — A study led by Lawrence Berkeley National Laboratory found nearly 2,000GW of solar, wind and storage projects waiting in queues to connect to US long-distance transmission grids, more than the installed capacity of the entire US power plant fleet. The authors find only about a fifth of such requested projects are typically built.

AI Summary. Goldman Sachs projects that artificial intelligence could drive a capital investment cycle reaching almost 2.5% of US GDP by 2032, up from 0.5% of GDP.

Jan Hatzius Goldman Sachs
Date Posted:
Is Database:
Database

Jan Hatzius @GoldmanSachs argues AI could drive a large capital investment cycle reaching almost 2.5% of US GDP by 2032, up from 0.5% of GDP this year.

Related Articles:

  • Microsoft Infrastructure – AI & CPU Custom Silicon Maia 100, Athena, Cobalt 100 — Microsoft has planned annual datacenter spending of more than $50bn, which exceeds the annual spend of megaprojects such as nationwide rail networks, dams, and the Apollo moon program. The buildout is aimed at accelerating artificial general intelligence and extending generative AI from productivity applications to leisure.
  • The Race of the AI Labs Heats Up — Almost all recent artificial intelligence breakthroughs have come from large companies, largely because they hold the computing power. Amazon and Meta each produce two-thirds and four-fifths as much AI research as Stanford University respectively, while Alphabet and Microsoft produce considerably more, excluding their affiliated labs DeepMind and OpenAI.
  • Will A.I. Transform the Economy, and if So, How? — During the 1995-2005 information technology boom, productivity ended about 12% above the trend implied by growth from 1973 to 1995, and a comparable or larger gain of around 15% from artificial intelligence is plausible. If such optimistic estimates hold, growth would exceed conventional long-run estimates such as the Federal Reserve's roughly 1.8%, lifting revenue and easing debt concerns.

AI Summary. Each Nasams air-defense system, made by Norway's Kongsberg, takes two years to build and new buyers face a multiyear backlog, prompting the plant to run 24-hour, seven-day shifts. The defense industry faces a prolonged labor crunch, struggling to find workers with niche skills willing to undergo lengthy security checks.

Alistair MacDonald, Doug Cameron, and Dasl Yoon Wall Street Journal
Date Posted:

Order books of ten of the largest Western defense firms are up 57% since 2017 to $730B, but they are facing significant labor constraints. The Pentagon is rolling out a new industrial base strategy to try to clear supply chain logjams.

Why do new air-defense system orders face multiyear waits?

Core argument: Kongsberg's Nasams air-defense system, which engages drones and other airborne threats from almost 25 miles away, takes two years to build, and new customers face an existing multiyear backlog.

A Kongsberg factory west of Oslo produces a missile-defense system that can shoot down drones and other airborne threats from almost 25 miles away. When first deployed in Ukraine in 2022, it recorded a 100% success rate shooting down cruise missiles and drones in its first few months. New customers, though, will have to wait: It takes two years to make one Nasams, and there is already a multiyear backlog. To ramp up, Kongsberg has moved to 24-hour, seven-day shifts and has workers in for some holidays when the factory would typically have been idled for maintenance. That still may not be enough. The defense industry is grappling with a prolonged labor crunch, as it scrambles to find workers with niche skills, from software development to welding, and who are willing to endure lengthy security checks.

Takeaways by Macro Roundup® AI

  1. Kongsberg's Nasams air-defense system, which engages drones and other airborne threats from almost 25 miles away, takes two years to build, and new customers face an existing multiyear backlog.
  2. Nasams recorded a 100% success rate against cruise missiles and drones in its first few months after its 2022 deployment in Ukraine.
  3. Kongsberg has shifted its factory west of Oslo to 24-hour, seven-day operation and brought workers in on some holidays normally reserved for maintenance, while the defense industry struggles to hire workers with niche skills such as software development and welding who will endure lengthy security checks.

Related Articles:

  • U.S. Weapons Industry Unprepared for a China Conflict, Report Says — A Center for Strategic and International Studies report argues the U.S. defense industrial base is not prepared for the current security environment and operates in a manner better suited to peacetime. The study recommends reassessing total munitions requirements and stockpile replenishment needs, creating a strategic munitions reserve, and setting a sustainable procurement plan.
  • It’s Not Just Ukraine and Gaza: War Is on the Rise Everywhere — The economic scale of China and the US means a conflict between them would likely be protracted, lasting months, years, or decades rather than a single battle or limited campaign. Deterring war, particularly in Asia, would require a once-in-a-generation Western construction and procurement effort and strategic stockpiles of weapons and munitions far beyond current planning.
  • The Cost of the Global Arms Race — Global defence spending rose nearly 4% in real terms to over $2tn, and new commitments and forecast increases, if implemented, are estimated to add more than $200bn a year worldwide. If countries below 2% of GDP reached that level and others added half a percentage point, outlays would rise by close to $700bn annually.

AI Summary. US Steel lagged in adopting steelmaking technology, only moving into minimills through an acquisition and a new Alabama plant, with minimills now making about 25% of its domestic output. Rival minimill producer Nucor passed US Steel in output and is now the largest US steel producer.

Brian Potter Construction Physics
Date Posted:

In 1901, US Steel’s market cap was 6.7% of US GDP. Prior to Nippon Steel’s recently announced acquisition, the company’s market cap had dropped to $8B. @_brianpotter argues US Steel demontrated a persistent lack of innovation over its long history.

How did slow adoption of minimill technology reshape US steel leadership?

Core argument: US Steel did not adopt the minimill until 2020, when it acquired a minimill company and built its own minimill in Alabama; minimills now produce around 25% of its domestic output.

The new, lean US Steel still continued to be a step behind on technological innovation. US Steel didn’t adopt the minimill until 2020 when it acquired a minimill company and built its own minimill in Alabama. (Minimills now produce around 25% of US Steel’s domestic output.) Companies like Nucor beat it to the punch with things like thin slab casting technology. Today, the momentum in the American steel industry is clearly with the minimills. An ever-larger fraction of American steel is made in electric arc furnaces. Minimill company Nucor passed US Steel in production in 2015, and today is the largest steel producer in the US. As far as I can tell, no major steelmaking technology over the last century came out of US Steel.

Takeaways by Macro Roundup® AI

  1. US Steel did not adopt the minimill until 2020, when it acquired a minimill company and built its own minimill in Alabama; minimills now produce around 25% of its domestic output.
  2. Nucor passed US Steel in production in 2015 and is now the largest US steel producer, having reached technologies such as thin slab casting first.
  3. By the author's account, no major steelmaking technology of the last century came out of US Steel, while an ever-larger fraction of American steel is made in electric arc furnaces.

Related Articles:

  • The Hamilton Index, 2023: China Is Running Away With Strategic Industries — 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.
  • 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.

AI Summary. China's roughly $47.5tn debt pile is a symptom rather than the core problem, which is the unrecognized losses from a decade of misallocated investment into excess property, infrastructure, and manufacturing. Resolving it requires distributing asset-side losses quickly in ways that minimize financial distress costs, not just restructuring liabilities to protect the financial system.

Michael Pettis Financial Times
Date Posted:

.@michaelxpettis argues that rising Chinese debt as a % of GDP is a symptom of losses associated with non-productive investments in property, infrastructure, and manufacturing; China’s debt to GDP ratio is on par with the US.

Is China's debt a symptom of unrecognized investment losses?

Core argument: China's total debt pile of $47.5tn grew further in 2023, which may mean China has now overtaken the US in debt-to-GDP terms.

The $47.5tn total debt pile has grown further in 2023, which might mean that China has now finally overtaken the US in debt-to-GDP terms. The surge in Chinese debt is not itself the problem but rather a symptom of the problem. The real problem is the cumulative but unrecognised losses associated with the misallocation of investment over the past decade into excess property, infrastructure, and, increasingly, manufacturing. Resolving China’s debt problem is not just about resolving the liability side of the balance sheet. What matters more to the overall economy is that asset-side losses are distributed quickly and in ways that minimise financial distress costs. That is why restructuring liabilities must be about more than protecting the financial system. It must be designed to minimise additional losses.

Takeaways by Macro Roundup® AI

  1. China's total debt pile of $47.5tn grew further in 2023, which may mean China has now overtaken the US in debt-to-GDP terms.
  2. China's debt surge is a symptom rather than the problem itself, the real problem being cumulative but unrecognised losses from misallocated investment over the past decade into excess property, infrastructure, and increasingly manufacturing.
  3. Resolving China's debt requires distributing asset-side losses quickly in ways that minimise financial distress costs, so liability restructuring must go beyond protecting the financial system and be designed to minimise additional losses.

Related Articles:

  • Can China’s Long-Term Growth Rate Exceed 2–3 Percent? — China invests roughly 42–44% of its GDP, while more mature, capital-intensive economies typically invest about 15–20%. Modeling a ten-year path that lowers China's investment share to 30% of GDP, the author argues the resulting growth rate depends mainly on how fast consumption grows.
  • China Economy Memo: Tempest in a Teapot or Crisis A-Brewing? — The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.
  • The Debt Supercycle Comes to China — China's property sector, which accounts for 23% of GDP (26% counting imports), is yielding diminishing returns after a construction boom driven by the country's massive post-2008 investment stimulus. The author argues this debt supercycle is the best explanation for China's faltering economy and what comes next.

AI Summary. Dutch chipmaking equipment maker ASML canceled shipments of some top-of-the-line deep ultraviolet lithography machines to Chinese customers at the request of US officials, ahead of the date new Dutch export restrictions took full effect.

Cagan Koc and Jennifer Jacobs Bloomberg
Date Posted:

At the request of the Biden Administration, ASML canceled shipments to China prior to export bans coming into effect.

Does US pressure halt chip equipment shipments to China early?

Core argument: ASML canceled shipments of some machines to Chinese customers at the request of the Biden administration, weeks before export bans on high-end chipmaking equipment took effect, according to people familiar with the matter.

ASML Holding NV canceled shipments of some of its machines to China at the request of US President Joe Biden’s administration, weeks before export bans on the high-end chipmaking equipment came into effect, people familiar with the matter said. The Dutch manufacturer had licenses to ship three top-of-the-line deep ultraviolet lithography machines to Chinese firms until January when new Dutch restrictions take full effect. However, US officials reached out to ASML to ask them to immediately halt pre-scheduled shipments of some of the machines to Chinese customers, according to people familiar with the matter, who asked not to be identified because the discussions were confidential.

Takeaways by Macro Roundup® AI

  1. ASML canceled shipments of some machines to Chinese customers at the request of the Biden administration, weeks before export bans on high-end chipmaking equipment took effect, according to people familiar with the matter.
  2. ASML held licenses to ship three top-of-the-line deep ultraviolet lithography machines to Chinese firms until January, when new Dutch export restrictions take full effect.
  3. US officials contacted ASML to ask it to immediately halt pre-scheduled shipments of some of the machines, according to people familiar with the confidential discussions.

Related Articles:

  • China AI & Semiconductors Rise: US Sanctions Have Failed — China's Kirin 9000S is a better-designed, leading-edge chip than the West realizes, developed without access to extreme ultraviolet lithography or cutting-edge US intellectual property, indicating existing export controls have not worked. The authors argue only decisive, full-scale measures—not half measures—could prevent China from mass-manufacturing chips needed for high-end military applications.
  • Huawei Building Secret Network for Chips, Trade Group Warns — Huawei has entered chip production, acquiring at least two existing plants and building at least three more, part of at least 23 fabrication facilities underway in China with planned investments of more than $100bn by 2030, according to the Semiconductor Industry Association. China is on track to hold more than half of global capacity in older-generation semiconductors by around 2030.
  • Raimondo Says Commerce Needs More Money to Halt China Chip Drive — The US Commerce Department says its roughly $200m budget is inadequate to enforce semiconductor export controls aimed at limiting China's access to artificial intelligence chips, and has called for greater funding. It has warned that chips redesigned to fall just below existing thresholds will themselves be restricted, arguing national security outweighs chipmakers' short-term revenue.

Thursday, January 4, 2024

AI Summary. Using French employer-employee and tax data, the authors find that workers entering the information and communications technology sector during its boom earned 5% higher entry wages but 6% lower wages 15 years later than similar peers starting elsewhere. Larger capital flows to firms are associated with greater human capital depreciation among their workers.

Johan Hombert and Adrien Matray National Bureau of Economic Research
Date Posted:
Is Database:
Database
Is Important:
Important

French workers who joined the technology sector from 1994-2002 earned 6% lower wages 15 years out relative to similar workers starting in other sectors, presumably driven by faster skill obsolescence. @johanhombert @AdrienMatray

Do workers who join booming tech sectors earn less long-term?

Core argument: Workers entering France's ICT sector during the late 1990s boom earned 5% higher entry wages on average but ended up with 6% lower wages 15 years later than same-cohort workers with the same characteristics who started in other sectors.

We study the late 1990s boom in the Information and Communications Technology (ICT) sector. We use annual French administrative matched employer-employee data for the period 1994–2015, which we link to the universe of firms’ financial statements from tax filings. The data contain high-quality, longitudinal information on workers’ wages and career paths and on firms’ financial statements. We find that workers who enter in the ICT sector during the boom earn 5% higher entry wages on average but end up with 6% lower wages 15 years out relative to workers from the same cohort with the same characteristics starting in other sectors. Larger capital flows during the boom are indeed associated with larger labor flows in the cross-section of firms. Then, we show that larger capital flows for firms are associated with higher human capital depreciation for these firms’ workers, indicating that capital flows can worsen long-term aggregate human capital during episodes of intense technological change since it both increases the number of workers exposed to a depreciation of their human capital and amplifies the depreciation each worker experiences.

Takeaways by Macro Roundup® AI

  1. Workers entering France's ICT sector during the late 1990s boom earned 5% higher entry wages on average but ended up with 6% lower wages 15 years later than same-cohort workers with the same characteristics who started in other sectors.
  2. Larger capital flows during the boom are associated with larger labor flows across the cross-section of French firms, and with higher human capital depreciation for those firms' workers.
  3. The authors argue that capital flows can worsen long-term aggregate human capital during episodes of intense technological change by both increasing the number of workers exposed to human capital depreciation and amplifying the depreciation each worker experiences.

Related Articles:

  • Why Do Wages Grow Faster for Educated Workers? — College graduates sort into professional, non-routine occupations where wages rise much more with job tenure, and the author estimates this occupational sorting explains at least half of the life-cycle growth in the college wage premium. That premium is estimated at 22% at age 26, 49% at age 40, and 56% at age 60.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Bank of America found that Sun Belt cities such as Phoenix, Miami, Tampa, and Atlanta experienced a stronger housing boom, with rents and mortgage costs rising more than in the Northeast and West. Potential explanations include domestic migration driven by affordability, above-average employment gains, and a growing share of higher-paid jobs.

Liz Everett Krisberg, David Michael Tinsley, Anna Zhou, Vanessa Cook and Taylor Bowley Bank of America
Date Posted:

Internal @BankofAmerica data shows that migration to the Sunbelt has driven surging rent and mortgage payments. Phoenix median rents rose 26% y/y for the first 6 months of 2023. Tampa rents were up 23%.

Why have Sun Belt housing costs risen faster than other regions?

Core argument: Bank of America found that Sun Belt cities including Phoenix, Miami, Tampa, and Atlanta experienced a stronger housing boom in February, driving up rents and mortgages more than cities in the Northeast and the West.

Domestic migration during the pandemic has helped shape the housing market today, and housing remains a focal point in the economy as it constitutes the biggest monthly outlay for consumers. While rising borrowing costs have dampened home sales over the last year, shelter costs continued to rise at record pace, and the differences we found across regions were striking. Earlier this year Bank of America found that cities in the Sun Belt region such as Phoenix, Miami, Tampa, and Atlanta, experienced a stronger housing boom, driving up rents and mortgages more than those in the Northeast and the West in February. The underlying reasons may be complex, but we proposed some potential explanations: domestic migration driven by affordability, above-average employment gains, and an increasing share of higher-paid jobs. Digging further into regional migration, we also considered factors that are driving these moves. A main motivator of a family move is often career-driven, and we found that when workers switched jobs, they received a bigger jump in compensation than those who didn’t.

Takeaways by Macro Roundup® AI

  1. Bank of America found that Sun Belt cities including Phoenix, Miami, Tampa, and Atlanta experienced a stronger housing boom in February, driving up rents and mortgages more than cities in the Northeast and the West.
  2. Housing remains a focal point in the economy as the biggest monthly outlay for consumers, with rising borrowing costs dampening home sales over the past year while shelter costs continued to rise at a record pace.
  3. Proposed explanations for the regional housing divergence include domestic migration driven by affordability, above-average employment gains, and an increasing share of higher-paid jobs, and workers who switched jobs received a bigger jump in compensation than those who did not.

Related Articles:

  • Southern Comforts — Migration into southern metropolitan areas such as Austin, San Antonio, Jacksonville, and Tampa has continued, and the South also has a higher birth rate than other census regions. Growth has been uneven: Florida's GDP rose 20% and Texas and Tennessee 15% against a US average of 11%, while Oklahoma and Louisiana contracted.
  • A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South — Six fast-growing Southern states — Florida, Texas, Georgia, North and South Carolina, and Tennessee — now contribute more to US GDP than the Northeast, including the Washington-New York-Boston corridor. The Southeast accounted for more than two-thirds of US job growth since the pandemic began, nearly double its pre-pandemic share, and housed 10 of the 15 fastest-growing large American cities.
  • Movers And Money: Mapping the Flow of Income During the Pandemic — Manhattan recorded the largest county-level income outflow to other states at $16.5bn, with 27.7 cents of every dollar leaving—$4.6bn—going to Florida, including $2.9bn to Miami-Dade County and $1.1bn to Palm Beach County. California had the largest state-level losses, while Florida was the biggest beneficiary with a net gain of $39bn.

AI Summary. Arizona uses 3% less water than in 1957 despite population growth of more than 555%, and the state may be better positioned to adapt to climate change than many U.S. coastal areas. The Center for Climate Integrity estimates sea walls for U.S. coastal regions will cost at least $400bn, far more than conserving water in a desert.

Tom Zoellner New York Times
Date Posted:
Is Database:
Database

Concerns about climate change’s impact on the US Southwest are overstated: Arizona uses 3% less water than it did in 1957 despite the population growing 555% argues @tomzoellner.

Concerns about climate change’s impact on the US Southwest are overstated: Arizona uses 3% less water than it did in...

Is the desert Southwest better positioned to adapt than coastal regions?

Core argument: Arizona uses 3% less water than it did in 1957 even as its population has grown more than 555% over that period.

Arizona now uses 3% less water than it did in 1957, despite having a population that’s mushroomed more than 555% since then. In some crucial ways, Arizona will actually be better able to adapt to climate change than many coastal areas of the country. For instance, the cost of building sea walls for U.S. coastal regions will be at least $400 billion, according to the Center for Climate Integrity, while squeezing water out of a desert landscape is relatively cheap in comparison. The only necessary ingredient is political willpower.

Takeaways by Macro Roundup® AI

  1. Arizona uses 3% less water than it did in 1957 even as its population has grown more than 555% over that period.
  2. The Center for Climate Integrity estimates that building sea walls for U.S. coastal regions will cost at least $400 billion, against which squeezing water out of a desert landscape is relatively cheap.
  3. Arizona will in some crucial ways be better able to adapt to climate change than many U.S. coastal areas, with political willpower the only necessary ingredient.

Related Articles:

  • 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.
  • Climate Change and the Geography of the U.S. Economy — The positive association between extreme heat and U.S. county population growth weakened over recent decades and disappeared entirely in the 2010s, as hot counties grew hotter. Projected climate change is predicted to shift population from the Southeast and parts of the Southwest toward the North, Mountain West, and Pacific coast.
  • America Is Using Up Its Groundwater Like There’s No Tomorrow — An analysis of 84,544 groundwater monitoring wells across the United States found that nearly half declined significantly over the past 40 years as more water was pumped out than nature replenished. Four of every 10 sites hit all-time lows in the past decade.

AI Summary. BYD delivered 526,409 battery electric vehicles in a quarter versus Tesla's 484,507, and its total reaches 918,807 including trucks, buses, and plug-in hybrids. By owning its battery supply chain and using cheaper iron-phosphate cells instead of scarce cobalt and nickel, BYD has lifted margins even as materials costs rose.

David Fickling Bloomberg
Date Posted:

The Chinese EV manufacturer BYD has just overtaken Tesla as the largest producer of battery-powered cars and has nearly matched Tesla’s operating income. @davidfickling

How is BYD outselling Tesla while expanding margins?

Core argument: BYD delivered 526,409 battery electric vehicles in December versus Tesla's 484,507, and its total rises to 918,807 including trucks, buses, and plug-in hybrids that use gasoline engines to extend battery range.

BYD delivered 526,409 full battery electric vehicles in December [relative to] Tesla’s 484,507. This milestone if anything underplays BYD’s growing might. Throw in trucks, buses, and plug-in hybrids that use gasoline engines to extend their largely battery-powered range, and BYD’s sales total is 918,807. More importantly, on almost every financial metric, the Chinese company is either advancing on or overtaking its American rival. While many competitors have struggled amid the wave of discounting that’s hit the EV sector over the past year, BYD has prospered. In contrast to Tesla, which racked up years of losses before turning profitable in 2019, it has hardly ever posted negative operating income — and in the September quarter came within a whisker of the reinvigorated US company’s $1.76 billion result. By owning its own battery supply-chain and focusing on cheaper, less zippy cells that use abundant iron and phosphate instead of scarce cobalt and nickel, it’s managed to lift margins even as materials costs rose.

Takeaways by Macro Roundup® AI

  1. BYD delivered 526,409 battery electric vehicles in December versus Tesla's 484,507, and its total rises to 918,807 including trucks, buses, and plug-in hybrids that use gasoline engines to extend battery range.
  2. BYD's September-quarter operating income came within a whisker of Tesla's $1.76 billion, and unlike Tesla, which posted years of losses before turning profitable in 2019, BYD has hardly ever recorded negative operating income.
  3. BYD lifted margins even as materials costs rose by owning its battery supply chain and using cheaper, less zippy cells based on abundant iron and phosphate rather than scarce cobalt and nickel.

Related Articles:

  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.
  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.
  • Danish Weight Loss Drugs vs. Chinese Cars: Two Models of Export Booms — Denmark's weight-loss drug exports illustrate a positive-sum export boom in which new products create both supply and demand, while Chinese car exports reflect firms with persistent overcapacity fighting for market share. The US preempted Chinese electric vehicles through legislation that boosts demand while reserving a share for local producers; Europe remains more exposed.

AI Summary. Chinese shipments to Russia of high-precision computer numerical control machine tools, which are vital to Russian military industries, have increased tenfold since the full-scale invasion of Ukraine. Chinese-origin devices have risen to 57% of Russian imports of these tools by value, up from 12% before the war.

Joe Leahy, Chris Cook, Max Seddon, and Max Harlow Financial Times
Date Posted:

Chinese exports of CNC machine tools to Russia have surged tenfold since the invasion of Ukraine in a demonstration of the relationship between industrial capacity and military power.

Is China now the dominant supplier of precision machine tools to Russia?

Core argument: Chinese-origin computer numerical control (CNC) devices made up 57% of Russia's imports of such machine tools by value in July, up from 12% before the full-scale invasion of Ukraine.

Chinese shipments to Russia of an important class of advanced machine tools have increased tenfold since the full-scale invasion of Ukraine, with the country’s producers now dominating trade in high-precision “computer numerical control” devices vital to Moscow’s military industries. Chinese-origin CNC devices made up 57% of Russian imports by value in July, up from just 12% before the war.

Takeaways by Macro Roundup® AI

  1. Chinese-origin computer numerical control (CNC) devices made up 57% of Russia's imports of such machine tools by value in July, up from 12% before the full-scale invasion of Ukraine.
  2. China's shipments to Russia of an advanced class of machine tools have risen tenfold since the full-scale invasion of Ukraine, with Chinese producers now dominating that trade.
  3. High-precision CNC devices are vital to Moscow's military industries.

Related Articles:

  • Why Xi Can No Longer Brag About the Chinese Economy — China's shipyards build 46% of the world's ships, letting it produce several warships and submarines a year, while the U.S. holds under 1% of capacity and its Navy faces late, over-budget deliveries from a few yards lacking workers. China is also the largest drone producer.
  • The Hamilton Index, 2023: China Is Running Away With Strategic Industries — 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.
  • The West Badly Needs More Missiles—But The Wait To Buy Them Is Years Long — Each Nasams air-defense system, made by Norway's Kongsberg, takes two years to build and new buyers face a multiyear backlog, prompting the plant to run 24-hour, seven-day shifts. The defense industry faces a prolonged labor crunch, struggling to find workers with niche skills willing to undergo lengthy security checks.