Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Friday, January 5, 2024

AI Summary. Three independent datasets on U.S. taxes and transfers all show the tax system has become more progressive and redistributive over recent decades. The authors find this shift is driven mainly by a large increase in transfers to households in the bottom half of the income distribution, a change missed by analyses focused on the top 1%.

Thomas Coleman and David Weisbach University of Chicago
Date Posted:
Is Database:
Database
Is Important:
Important

Both PSZ and AS show the same trend in US redistribution: a dramatic increase over the past 60 years driven by transfers to the bottom half of the US population. @WeisbachD

Has the US tax and transfer system grown more progressive?

Core argument: Three publicly available datasets — Piketty, Saez, and Zucman (2018), Auten and Splinter (2023), and the Congressional Budget Office (2023) — all show the U.S. tax system has become more progressive and more redistributive over the last several decades.

We compare the results from three different publicly available datasets, those from Piketty, Saez, and Zucman (2018), Auten and Splinter (2023), and Congressional Budget Office (2023). All three datasets show that the tax system has become more progressive and more redistributive over the last several decades. This increase in redistribution is driven primarily by an increase in transfers to households in the bottom half of the income distribution which is missed by a focus on the top 1%. Figure 2 shows the tax rates for each of these groups from 1966 until 2019. Once we look at the bottom half of the population, the two datasets tell a similar story. Both show that the key change over the last 60 years has been a dramatic increase in transfers to the bottom half of the population. This increase swamps the changes in tax rates for the top half of the population. PSZ exclude Social Security from their definition of transfers (including it in their definition of pre-tax hybrid income) while AS treat Social Security as a transfer (as it is not included in national income). Regardless of this difference, however, both groups show that the increase in transfers to the bottom half of the population is the central story of the tax and transfer system over the last half century.

Takeaways by Macro Roundup® AI

  1. Three publicly available datasets — Piketty, Saez, and Zucman (2018), Auten and Splinter (2023), and the Congressional Budget Office (2023) — all show the U.S. tax system has become more progressive and more redistributive over the last several decades.
  2. The increase in redistribution is driven primarily by larger transfers to households in the bottom half of the income distribution, a shift missed by a focus on the top 1%.
  3. The rise in transfers to the bottom half of the population swamps changes in tax rates for the top half, a finding that holds even though Piketty, Saez, and Zucman exclude Social Security from transfers while Auten and Splinter treat it as one.

Related Articles:

  • 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.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Since 1980, annual real income growth and consumer sentiment have generally peaked and troughed in step, and real personal income growth has run below its long-term average since early 2020, which may have weighed on sentiment. As inflation slowed and real income growth picked up, sentiment showed signs of improving.

Charles Gascon and Joseph Martorana Federal Reserve Bank of St. Louis
Date Posted:
Is Database:
Database

The disconnect between strong employment numbers and consumer sentiment has likely been driven by real income growth being under its 1980-2019 average since Q1 2022; however real income growth has started to accelerate. @stlouisfed

Does weak real income growth explain falling consumer sentiment?

Core argument: Real personal income growth has run below its long-term average since the first quarter of 2022 and was negative in the final three quarters of 2022, as rapid consumer price increases eroded income gains.

Throughout most of the years since 1980, annual income growth and sentiment hit their peaks and troughs almost perfectly in step. Furthermore, except for a few quarters between 2001 and 2003, and again in 2016, sentiment never stayed elevated while real income growth remained below average for an extended period. Most importantly, since 2020, real personal income growth has been below its long-term average and quite significantly. Even though economic output and employment were both up in 2021, households began to experience a sharp increase in the cost of living. Rapid increases in consumer prices eroded income gains, causing real income growth to be negative in the final three quarters of 2022; more generally, real income growth has been below its long-term average since the first quarter of 2022. This run of lagging incomes may have put downward pressure on consumer sentiment starting in the second half of 2021. But, as inflation slowed and real income growth accelerated, consumer sentiment also showed signs of improving, with sentiment steadily increasing since headline inflation passed its peak in June 2022.

Takeaways by Macro Roundup® AI

  1. Real personal income growth has run below its long-term average since the first quarter of 2022 and was negative in the final three quarters of 2022, as rapid consumer price increases eroded income gains.
  2. Annual income growth and consumer sentiment hit their peaks and troughs almost perfectly in step through most years since 1980, with sentiment staying elevated alongside below-average real income growth only in a few quarters between 2001 and 2003 and again in 2016.
  3. Consumer sentiment has increased steadily since headline inflation passed its peak in June 2022, as inflation slowed and real income growth accelerated.

Related Articles:

  • Just How Bad Is the US Cost-of-Living Squeeze? We Did the Math — It now takes $119.27 to buy what $100 purchased before the pandemic, with prices rising about as much since early 2020 as in the preceding decade. Groceries and electricity are each up 25% since January 2020, used cars 35%, auto insurance 33%, and rents roughly 20%.
  • Digesting Inflation — The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.
  • Asymmetric Amplification and the Consumer Sentiment Gap — Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.

AI Summary. Using US commuting zone data and the concentration of early prescription opioid marketing in cancer pain markets, the authors estimate that exposure to the opioid epidemic substantially increased the Republican vote share in congressional and presidential elections, with a one standard deviation rise in initial cancer mortality corresponding to 13.8 percentage points.

Carolina Arteaga and Victoria Barone Working Paper
Date Posted:
Is Database:
Database

.@caroartc and @Viquibarone find that greater exposure to the opioid epidemic has continuously increased the GOP vote share starting around 2000.

Did exposure to the opioid epidemic increase Republican vote share?

Core argument: By the 2020 congressional elections, a one standard deviation rise in the 1996 cancer mortality rate corresponds to a 13.8 percentage point increase in the Republican vote share, based on a panel of U.S. commuting zones spanning 1982 to 2020.

We collect data from multiple sources and construct a panel of commuting zones covering the United States from 1982 to 2020. Our approach exploits detailed features of the initial marketing of prescription opioids, [which] show that at the dawn of the opioid epidemic in 1996, pharmaceutical marketing efforts were concentrated in the cancer pain market with a plan to quickly expand to the much larger non–cancer pain market in those same geographic areas. Exposure to the opioid epidemic substantially increased the Republican vote share in congressional and presidential elections. We document that the relationship between cancer mortality and Republican vote share emerged soon after the onset of the opioid epidemic. After continuous years of increase, by the 2020 congressional elections, a rise of one standard deviation in the 1996 cancer mortality rate corresponds to an increase in the Republican vote share of 13.8 percentage points.

Takeaways by Macro Roundup® AI

  1. By the 2020 congressional elections, a one standard deviation rise in the 1996 cancer mortality rate corresponds to a 13.8 percentage point increase in the Republican vote share, based on a panel of U.S. commuting zones spanning 1982 to 2020.
  2. Exposure to the opioid epidemic substantially increased the Republican vote share in congressional and presidential elections, with the relationship between cancer mortality and Republican voting emerging soon after the epidemic's onset.
  3. The identification strategy exploits the initial 1996 marketing of prescription opioids, which concentrated on the cancer pain market with a plan to expand quickly into the much larger non–cancer pain market in those same geographic areas.

Related Articles:

AI Summary. Texas's real economic output rose $230bn over four years, making it the second-largest contributor to US growth behind California despite starting 30% smaller, and one in five new American jobs came from Texas. The Dallas metro contributed more to national growth than any other, and Texas surpassed New York in overall output.

Joseph Politano Apricitas Economics
Date Posted:
Is Database:
Database

Since the start of the pandemic real economic output in Texas has increased $230B, close to the $270B growth in the larger California economy. @JosephPolitano

Is US economic growth shifting toward Texas?

Core argument: Texas' real economic output rose $230 billion over the last four years, ranking just behind California as the second-largest contributor to U.S. growth despite Texas' economy ending 2019 30% smaller than California's.

Texas’ growth has been among the most impressive given its size—its real economic output has increased by $230B over the last four years, putting it just barely behind California as the second-largest contributor to nationwide growth despite Texas’ economy ending 2019 30% smaller than California’s. Job growth in Texas has been so large that one in five new jobs in America come from Texas alone. The Dallas metro area, despite being less than 1/3 the size of the New York metro, has contributed more to nationwide economic growth over the last three years than any other. That impressive growth has allowed Texas to pull ahead of NY in overall GDP and in white-collar professional, scientific, and technical services output over the last four years.

Takeaways by Macro Roundup® AI

  1. Texas' real economic output rose $230 billion over the last four years, ranking just behind California as the second-largest contributor to U.S. growth despite Texas' economy ending 2019 30% smaller than California's.
  2. One in five new jobs in America come from Texas alone, and Texas has pulled ahead of New York in overall GDP and in professional, scientific, and technical services output over the last four years.
  3. The Dallas metro area, less than one-third the size of the New York metro, has contributed more to nationwide economic growth over the last three years than any other metro.

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. US venture capital firms raised $67bn, a six-year low and a 60% drop from the $173bn peak, while value created by US start-up exits fell to $61.5bn from a peak of $797bn, according to private markets data provider PitchBook and the National Venture Capital Association. Roughly one in six start-ups raising cash cut their valuations.

George Hammond Financial Times
Date Posted:
Is Database:
Database

Fundraising by US venture capital firms declined 60% y/y in 2023 to $67B, the lowest level since 2017.

Is US venture capital fundraising falling sharply from its peak?

Core argument: US venture capital firms raised $67bn in 2023, the lowest annual total since 2017 and a 60% drop from the $173bn peak raised in 2022, according to PitchBook and the National Venture Capital Association.

Fundraising by US venture capital firms hit a six-year low in 2023, an ominous sign for start-ups with dwindling cash reserves and fledging businesses reliant on such backing for survival. The $67bn raised by US VCs in 2023 is the lowest annual total since 2017 and represents a 60% drop from the $173bn raised in 2022, the peak year for fundraising, according to analysis by private markets data provider PitchBook and the National Venture Capital Association. The value created by start-up exits in the US last year was just $61.5bn, compared to a 2021 peak of $797bn, according to PitchBook and the NVCA. Roughly one in six start-ups raising cash last year cut their valuations, according to PitchBook. That move is typically anathema for founders and investors who prioritise growth above all else, but Stanford expects that proportion to increase dramatically in 2024 as founders run out of other options.

Takeaways by Macro Roundup® AI

  1. US venture capital firms raised $67bn in 2023, the lowest annual total since 2017 and a 60% drop from the $173bn peak raised in 2022, according to PitchBook and the National Venture Capital Association.
  2. Value created by US start-up exits was $61.5bn in 2023, against a 2021 peak of $797bn, according to PitchBook and the National Venture Capital Association.
  3. Roughly one in six US start-ups raising cash in 2023 cut their valuations, according to PitchBook, and Stanford expects that proportion to increase sharply in 2024 as founders run out of other options.

Related Articles:

  • Data Update 2 for 2023: A Rocky Year for Equities — The implied equity risk premium on the S&P 500 rose from 4.24% to 5.94% over the course of 2022, placing it near the top of its range since 1960, while the expected return on stocks of 9.82% is its highest since 1995. Whether the market is fairly valued turns on whether that risk premium is too high or too low.
  • Mr. Toad’s Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs — Between 40% and 60% of US initial public offerings generate negative returns even in favorable periods, so average IPO returns far exceed median returns and depend on a small set of large winners. Excluding just the top 3% of IPOs turns average net returns negative and cuts average absolute returns by more than half.
  • 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.

AI Summary. Even with three rate cuts, the federal funds rate would end the year between 4.5% and 4.75%, far above the near-zero level at the start of tightening, and the authors expect the Federal Reserve to keep policy restrictive until inflation returns to its 2% target. Long-term rates are also high, reflecting a rising term premium.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal argues that investors should expect rates to remain elevated citing the rise in the term premium driven by widening Federal deficits, the loosening of Japan’s yield curve control campaign, and reduced foreign demand.

Will rate cuts leave monetary policy restrictive?

Core argument: Three Fed rate cuts in 2024, as signaled on December 13, would leave the Fed funds rate at 4.5%–4.75%, far above the virtually zero level when the Fed began tightening in March 2022.

Even if the Fed does cut rates three times in 2024, as signaled on December 13, the Fed funds rate would end the year between 4.5% and 4.75%, still much higher than the virtually zero level when the Fed started its tightening campaign in March 2022. We believe the Fed will keep policy restrictive until it tames inflation back to its 2% annual target, a job that it has yet to fully accomplish. Additionally, long-term rates are high as well, and largely for reasons that aren’t directly tied to the Fed’s ongoing tight monetary policy. The so-called “term premium” has been rising due to a variety of factors including higher borrowing needs by the US Treasury, the loosening of yield-curve control in Japan, and reduced buying and diminished inventory of US sovereign debt held by China and other foreign nations.

Takeaways by Macro Roundup® AI

  1. Three Fed rate cuts in 2024, as signaled on December 13, would leave the Fed funds rate at 4.5%–4.75%, far above the virtually zero level when the Fed began tightening in March 2022.
  2. The authors expect the Fed to keep policy restrictive until inflation returns to its 2% annual target, a job it has yet to fully accomplish.
  3. The term premium has risen on factors including higher US Treasury borrowing needs, the loosening of Japan's yield-curve control, and reduced buying and diminished inventory of US sovereign debt held by China and other foreign nations.

Related Articles:

  • Have Interest Rates Risen Fundamentally? — The underlying equilibrium level of real interest rates cannot be observed and must be estimated, and two Federal Reserve estimates disagree: one suggests it remains very low while the other suggests it has been rising. If the equilibrium rate has not risen, monetary policy is currently tight, and interest rates should fall significantly once inflation is controlled.
  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.
  • US Fiscal Alarm Bells Are Drowning Out a Deeper Problem — The Congressional Budget Office projects US federal debt held by the public at 98% of national income, within 7.6 percentage points of its 1946 wartime peak and on track to exceed it by 2028. International Monetary Fund forecasts show US debt surpassing Italy's by 2028 and Greece's by the end of the decade.

AI Summary. Mexico imposed a tariff of nearly 80% on some steel imports, including certain Vietnamese exports of cold-rolled steel sheets, after local producers said Chinese steelmakers had strangled their production. Exporters that prove the steel originates outside China are exempt.

Reuters Staff South China Morning Post
Date Posted:

Mexico has announced an 80% tariff on some steel imports from China accusing China of “dumping steel.” @SCMPNews

Mexico has announced an 80% tariff on some steel imports from China accusing China of “dumping steel.” @SCMPNews

Is Mexico raising steel tariffs in response to Chinese imports?

Core argument: Mexico announced a tariff of nearly 80% on some steel imports, following criticism from local producers that Chinese steelmakers have strangled their production.

Mexico announced a nearly 80% tariff on some steel imports on Thursday, following criticism from local producers that Chinese steelmakers have strangled their production. The tariff applies to some Vietnamese exports of cold-rolled steel sheets, although if the groups can prove the steel comes from a country other than China, they are exempt from the tariff, according to a declaration from the economy ministry published in Mexico’s official gazette.

Takeaways by Macro Roundup® AI

  1. Mexico announced a tariff of nearly 80% on some steel imports, following criticism from local producers that Chinese steelmakers have strangled their production.
  2. Mexico's tariff covers some Vietnamese exports of cold-rolled steel sheets, exempting groups that can prove the steel originated in a country other than China.
  3. Mexico's economy ministry set out the steel tariff in a declaration published in the country's official gazette.

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.
  • Can China Reduce Its Internal Balances Without Renewed External Imbalances? — China's headline goods trade surplus is about 5% of its GDP, with the underlying surplus in manufactured goods close to 10% of GDP. The author argues that if China relies on interest rate cuts, exchange rate liberalization, and a weak yuan to offset its property downturn, its trade surplus could reach record levels relative to trading partners' output.
  • How the U.S. and EU Could Harmonize Their Approaches to Trade in EVs and Steel — European-made batteries and cars do not straightforwardly qualify for U.S. consumer electric-vehicle subsidies, and U.S. national security tariffs apply even to close security allies, while the European Union prefers responding to Chinese trade distortions only through measures clearly permitted by the World Trade Organization. These competing approaches have fractured transatlantic markets for clean energy goods and steel.

Monday, January 8, 2024

AI Summary. Business capital expenditure is weak worldwide despite artificial intelligence enthusiasm: excluding firms such as Microsoft and Nvidia, S&P 500 companies plan to lift capital spending only about 2.5% in 2024, roughly in line with inflation. A Goldman Sachs tracker of American business outlays is falling 4% year on year.

Economist Staff The Economist
Date Posted:
Is Database:
Database

While Nvidia is increasing capex by 30% and Microsoft by 20%, excluding AI leaders, S&P 500 firms are planning on lifting capex by 2.5% in 2024 defying projections of an broader AI-driven capex boom. @TheEconomist

Is business investment rising broadly alongside AI enthusiasm?

Core argument: Excluding AI leaders such as Microsoft and Nvidia, S&P 500 firms plan to raise capital expenditure by only about 2.5% in 2024, an increase in line with inflation.

From 1992 to 1999 American nonresidential investment jumped by 3% of GDP, for instance, driven in large part by extra spending on computer technologies. Yet so far there is little sign of an AI splurge. Across the world, capital expenditure by businesses is remarkably weak. Some companies are once again ramping up capex, to seize what they see as the enormous opportunity in AI. This year forecasters reckon that Microsoft’s spending (including on research and development) will probably rise by close to 20%. Nvidia’s is set to soar by upwards of 30%. Exclude firms driving the AI revolution, such as Microsoft and Nvidia, and those in the S&P 500 are planning to lift capex by only around 2.5% in 2024—ie, by an amount in line with inflation. Across the economy as a whole, the situation is even bleaker. An American capex “tracker” produced by Goldman Sachs offers a picture of businesses’ outlays, as well as hinting at future intentions. It is currently falling by 4%, year on year.

Takeaways by Macro Roundup® AI

  1. Excluding AI leaders such as Microsoft and Nvidia, S&P 500 firms plan to raise capital expenditure by only about 2.5% in 2024, an increase in line with inflation.
  2. Goldman Sachs's American capital-expenditure tracker, which covers business outlays and hints at future intentions, is falling by 4% year on year.
  3. American nonresidential investment rose by 3% of GDP from 1992 to 1999, driven in large part by extra spending on computer technologies, whereas business capital expenditure worldwide is now remarkably weak, with little sign of an AI splurge.

Related Articles:

  • Top 10 Charts of 2023 — 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.
  • 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.
  • Assessing the Implications of a Productivity Miracle — If artificial intelligence can perform economically valuable cognitive tasks at very low marginal cost, consumers would buy far more of the cheapened goods and spend the savings in other categories, expanding activity and employment in sectors facing new demand. Where supply is inherently limited, such as real estate, those savings could bid up prices and produce inflation.

AI Summary. Out-of-sample models estimated by the authors find that the tone of economic news has been more negative than economic fundamentals would predict, a gap that began before the pandemic. The negativity gap in the most recent three-year period is about one-third larger than in the prior three years.

Ben Harris and Aaron Sojourner Brookings Institution
Date Posted:

Between 1982-2017, economic fundamentals reasonably predicted sentiment in economic news. However, starting in 2018, the economic news tone has become increasingly more negative than the fundamentals would predict. @econ_harris @aaronsojourner

Is economic news more negative than economic fundamentals justify?

Core argument: Economic news tone during 2021–2023 was more negative than economic fundamentals would predict, with a "negativity gap" about one-third larger than in the prior three-year period.

To quantify the gap between observed and predicted news tone, we estimate a series of models each time holding out a different three-year period from the estimation sample. Then, each estimated model is used to predict out-of-sample for economic news tone for the hold-out period. Figure 4 describes the average tone for each hold-out period. For most periods, models using other periods’ data reasonably predict sentiment in that period. However, the news tone has been more negative than the fundamentals would predict during 2018 to 2020 and even more negative than predicted in 2021 to 2023. Looking at gaps by year shows that the recent negativity seems to have started pre-pandemic in 2018. But the “negativity gap” spanning 2021 to 2023 is about one-third larger than in the prior three-year period.

Takeaways by Macro Roundup® AI

  1. Economic news tone during 2021–2023 was more negative than economic fundamentals would predict, with a "negativity gap" about one-third larger than in the prior three-year period.
  2. Models estimated while holding out a different three-year period each time and predicting news tone out-of-sample reasonably predict sentiment for most hold-out periods.
  3. Year-by-year gaps indicate the recent negativity in economic news tone began pre-pandemic in 2018, with tone from 2018 to 2020 more negative than fundamentals predict.

Related Articles:

  • Digesting Inflation — The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.
  • Asymmetric Amplification and the Consumer Sentiment Gap — Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.
  • What’s Behind the Recent Slump in Consumer Sentiment? — Since 1980, annual real income growth and consumer sentiment have generally peaked and troughed in step, and real personal income growth has run below its long-term average since early 2020, which may have weighed on sentiment. As inflation slowed and real income growth picked up, sentiment showed signs of improving.

AI Summary. Monetary policy that weighs the employment mandate more heavily creates upside risks for inflation, and the author argues the Federal Reserve is prepared to accept rising asset prices and modest inflation to sustain a hot labor market. Its guidance of three rate cuts is consistent with declining inflation.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 argues that the Biden Administration has tilted the Fed’s leadership in favor of labor, and expects rate cuts as a dovish FOMC has a bias towards maximizing employment at the expense of their inflation target.

Will the Fed accept modest inflation to keep the labor market hot?

Core argument: The Fed's guidance of 3 rate cuts this year is easily justified amid declining inflation, while the market's pricing of 5–6 cuts can be justified if job growth actually slows.

Monetary policy that more heavily weighs its employment mandate is one that creates right tail risks for inflation. While the 9% inflation of 2022 was obviously unacceptable to even the most dovish dove, the recent 3% prints present a much more ambiguous situation. The Fed’s guidance of 3 rate cuts this year is easily justified amidst declining inflation, and the market’s pricing of 5-6 cuts can be justified if job growth actually slows. This is a dovish Fed that has seen the benefits of a hot labor market and they likely are going to try to maintain it. A rise in asset prices and modest inflation may be a price they are willing to pay.

Takeaways by Macro Roundup® AI

  1. The Fed's guidance of 3 rate cuts this year is easily justified amid declining inflation, while the market's pricing of 5–6 cuts can be justified if job growth actually slows.
  2. Monetary policy that more heavily weighs the employment mandate creates right-tail risks for inflation, and recent 3% inflation prints present a more ambiguous situation than the unacceptable 9% of 2022.
  3. A dovish Fed that has seen the benefits of a hot labor market will likely try to maintain it, and may be willing to accept rising asset prices and modest inflation as the price.

Related Articles:

  • Larry Summers: We Haven’t Nailed The Landing Yet — 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.
  • 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.

AI Summary. Car insurance premiums rose 19.2% over 12 months, about six times the rise in overall consumer prices, marking the 15th consecutive month of double-digit year-over-year increases and the longest such stretch since the mid-1980s. Reinsurance prices rose 30%–50%, leaving home insurers to absorb more risk themselves.

Jean Eaglesham Wall Street Journal
Date Posted:

Property and casualty insurance premiums in the US have significantly outpaced inflation as insurers respond to multi-billion dollar losses in 2022-23. Reinsurance prices in 2023 were up 30-50% y/y largely driven by concerns related to climate change.

Are home and auto insurance premiums rising far faster than inflation?

Core argument: Car insurance rates rose 19.2% in the 12 months through November, six times the increase in overall consumer prices, according to Labor Department data.

Insurance premiums have outpaced inflation. Car insurance rates increased 19.2% in the 12 months through November, six times the rise in overall consumer prices, Labor Department data show. It was the 15th consecutive month of double-digit percentage increases in premiums, year-over-year, the longest stretch of such high hikes since the mid-1980s, according to S&P Global. Home insurers have faced premium increases from their own insurers, known as reinsurers. Reinsurance prices for last year were up 30% to 50%, and insurers were forced to take on more risk, said Neil Alldredge, head of the National Association of Mutual Insurance Companies. Reinsurers, more than almost any other industry, are focused on climate risks.

Takeaways by Macro Roundup® AI

  1. Car insurance rates rose 19.2% in the 12 months through November, six times the increase in overall consumer prices, according to Labor Department data.
  2. Car insurance premiums posted a 15th consecutive month of double-digit year-over-year increases, the longest such stretch since the mid-1980s, according to S&P Global.
  3. Reinsurance prices rose 30% to 50% last year and insurers were forced to take on more risk, said Neil Alldredge, head of the National Association of Mutual Insurance Companies.

Related Articles:

  • Parts of America are Becoming Uninsurable — Florida's average home insurance premium reached about $6,000, over 3x the national average and up 42% year-on-year, yet insurers are exiting, leaving the state-backed insurer of last resort with the largest market share and $608bn of insured assets. In California, consumer-protection rules prevent premiums from covering rising wildfire and reinsurance costs.
  • Analyzing State Resilience to Weather and Climate Disasters — The real annual cost of U.S. weather and climate disasters has risen from about $20bn per year in the 1980s to nearly $95bn per year in 2010–19, reaching roughly $153bn in one year. Property insurers absorbed 48% of these costs, uninsured or underinsured homeowners, businesses and farms 37%, the federal government 11%, and state and local governments 4%.
  • Home Insurers Are Charging More and Insuring Less — Arizona, Texas, North Carolina, Oregon, Illinois and Utah approved the largest home-insurance rate increases, ranging from 20% to 30%, while some insurers have stopped selling new policies in states such as California and pulled back from disaster-prone areas. Reinsurance premiums, which insurers buy to offload risk, rose 33% to 50% at recent renewals.

AI Summary. U.S. Customs and Border Protection released more than 2.3m migrants into the United States at the southern border, out of more than 6m taken into custody, according to Department of Homeland Security data. Families made up the majority of those released, with the share of families released reaching 81%.

Maria Sacchetti and Nick Miroff Washington Post
Date Posted:
Is Database:
Database

Under the Biden administration, more than 2.3mm migrants have been released into the United States. More than 6mm were taken into custody and 4mm migrants were expelled to Mexico or their home countries.

How many migrants taken into border custody were released?

Core argument: U.S. Customs and Border Protection released more than 2.3 million migrants into the United States at the southern border under the Biden administration, out of more than 6 million migrants taken into CBP custody over the same period.

U.S. Customs and Border Protection has released more than 2.3 million migrants into the United States at the southern border under the Biden administration, allowing in the vast majority of migrant families and some adult groups. The figures, published by the Department of Homeland Security for the first time, illustrate the extent to which CBP officials have been overwhelmed by the volume of migrants crossing the U.S.-Mexico border. The 2.3 million figure is significantly lower than the more than 6 million migrants taken into CBP custody during the same period. The DHS data show more than 4 million border-crossers have been expelled to Mexico, returned to home countries, or otherwise removed from the United States over the past three years. Families made up the majority of the 2.3 million released by CBP. In 2023, the percentage of families who were released — and not sent home or returned to Mexico — rose [from 70% over the last 3 years] to 81%.

Takeaways by Macro Roundup® AI

  1. U.S. Customs and Border Protection released more than 2.3 million migrants into the United States at the southern border under the Biden administration, out of more than 6 million migrants taken into CBP custody over the same period.
  2. Department of Homeland Security data, published for the first time, show more than 4 million border-crossers were expelled to Mexico, returned to home countries, or otherwise removed from the United States over the past three years.
  3. Families made up the majority of the 2.3 million migrants released by CBP, and the share of families released rather than sent home or returned to Mexico rose from 70% over the last three years to 81% in 2023.

Related Articles:

  • What We Know About Unauthorized Immigrants Living In The U.S. — The Pew Research Center estimates the unauthorized immigrant population in the United States at 10.5m, below its peak of 12.2m and lower than every year from 2005 to 2015. That figure represents about 3% of the total U.S. population and 22% of the foreign-born population, shares among the lowest since the 1990s.
  • Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 — U.S. labor force data show immigrants accounted for 49% of labor force growth over roughly the past three decades and their children another 21%, together about 70% of an increase of nearly 32.8m workers. Immigrants rose from about 10% to 18% of the labor force, and immigrants plus their children from 18% to 29%.
  • Illegal Immigration Is a Bigger Problem Than Ever. These Five Charts Explain Why — Government data show border agents made 2.05m arrests in a single federal fiscal year, the second consecutive year above 2m, after figures never previously exceeded 1.7m or stayed elevated for as long. A growing share of migrants are families with children, who are difficult to deport to their home countries, rather than single adults from Mexico seeking work.

AI Summary. The National Assessment of Educational Progress, a nationwide test of elementary and middle school students with no test-prep industry around it, shows racial and economic gaps closely resembling those on the SAT and ACT. Researchers argue this indicates college admissions tests measure underlying learning, making score disparities a symptom rather than a cause of inequality.

David Leonhardt New York Times
Date Posted:
Is Database:
Database
Is Important:
Important

Noting that test scores are predictive of academic and professional outcomes @DLeonhardt argues that standardized tests are the most meritocratic talent identification method. Raj Chetty notes, “The SAT is picking up fundamentals.”

Do college admissions tests measure learning rather than test prep?

Core argument: The NAEP, a nationwide test for elementary and middle school students that students do not take prep classes for, shows racial and economic gaps remarkably similar to those on the SAT and ACT.

The evidence suggests that [the advantages of well-off students] advantages cause a very small part of the gaps. Consider that other measures of learning — like the NAEP, a test that elementary and middle school students take nationwide — show similarly large racial and economic gaps. The federal government describes the NAEP as “the nation’s report card,” while education researchers consider it a rigorous measure of K-12 learning. And even though students do not take NAEP test prep classes, its demographic gaps look remarkably similar to those of the ACT and SAT. This similarity “is another piece of evidence that the SAT is picking up fundamentals,” said Raj Chetty, a Harvard economics professor who conducted the recent Ivy Plus study with Friedman and David Deming. “It strengthens the argument that the disparities in SAT scores are a symptom, not a cause, of inequality in the U.S.,” Chetty said.

Takeaways by Macro Roundup® AI

  1. The NAEP, a nationwide test for elementary and middle school students that students do not take prep classes for, shows racial and economic gaps remarkably similar to those on the SAT and ACT.
  2. Raj Chetty, a Harvard economics professor who conducted the Ivy Plus study with Friedman and David Deming, said the NAEP–SAT similarity is another piece of evidence that the SAT is picking up fundamentals.
  3. Chetty said the comparison strengthens the argument that disparities in SAT scores are a symptom, not a cause, of inequality in the United States.

Related Articles:

  • Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges — Children from top-1% families are more than 2x as likely as middle-class students with comparable SAT/ACT scores to attend an Ivy-Plus college, with two-thirds of the gap attributable to higher admissions rates. The authors attribute this advantage to legacy preferences, weight on non-academic credentials, and athlete recruitment.
  • How Ivy League Schools Tilt Your Odds in the Lottery of Life — Research classifying incomes by percentile finds that among top students, 19% of those who attended elite schools reach the richest 1% of the income distribution, versus 12% of those who did not. The authors compare these upper-tail outcomes to lottery tickets: elite schools offer many, most worth nothing, a few a jackpot.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.

AI Summary. An analysis of mortality and demographic data finds that deaths from alcohol, drugs and suicide have spread beyond predominantly white, working-class areas, with growth of 7% a year in the most diverse, educated counties versus 5.5% in counties with many high-school-educated whites. Such deaths are now as prevalent in Democratic-leaning as Republican-leaning counties.

Economist Staff The Economist
Date Posted:
Is Database:
Database

Between 2010 and 2022 so-called deaths of despair “rose by 5.5% per year in counties with lots of high-school-educated whites, but by 7% in the most diverse, educated ones.” @TheEconomist

Are deaths of despair spreading beyond white working-class communities?

Core argument: Between 2010 and 2022, deaths of despair rose 7% per year in the most diverse, educated counties versus 5.5% in counties with large shares of high-school-educated whites, reversing the 1999–2010 pattern, according to The Economist.

An analysis of mortality and demographic data by The Economist shows that the devastation has spread beyond predominantly white cities to more diverse places. 2010 marked a turning point. Between 1999 and 2010 counties with the highest share of working-class whites saw deaths of despair grow much faster than in the counties with the lowest. Between 2010 and 2022, though (a period that covers Mr Trump’s election), that relationship flipped. Deaths of despair rose by 5.5% per year in counties with lots of high-school-educated whites, but by 7% in the most diverse, educated ones. A decade ago the mortality rate from alcohol, drugs and suicide was nearly one-fifth higher in conservative counties than in liberal ones. Today, deaths from despair are now as prevalent in Democratic parts of the country as in Republican ones. And because left-leaning counties tend to be bigger than conservative ones, they record 10,000 more deaths of despair per year than them.

Takeaways by Macro Roundup® AI

  1. Between 2010 and 2022, deaths of despair rose 7% per year in the most diverse, educated counties versus 5.5% in counties with large shares of high-school-educated whites, reversing the 1999–2010 pattern, according to The Economist.
  2. A decade ago the mortality rate from alcohol, drugs and suicide was nearly one-fifth higher in conservative counties than in liberal ones, but The Economist finds deaths of despair now as prevalent in Democratic parts of the country as Republican ones.
  3. Because left-leaning counties tend to be bigger than conservative ones, they record 10,000 more deaths of despair per year, according to The Economist's analysis of mortality and demographic data.

Related Articles:

  • Importing the Opioid Crisis? International Trade and Fentanyl Overdoses — A study using U.S. mortality and import data finds a positive state-level association between imports per resident and drug overdose death rates, driven by fentanyl and accounting for an estimated 15,000–20,000 deaths per year. The authors estimate that 10% higher imports per resident is associated with an 8.1% higher fentanyl death rate.
  • 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.
  • 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.

AI Summary. US intelligence assesses that corruption in China's Rocket Force and defense industrial base is extensive enough to undermine military modernization, citing missiles filled with water instead of fuel and missile silos with lids that would not allow effective launch. US officials believe this makes Xi Jinping less likely to contemplate major military action than he otherwise would be.

Peter Martin and Jennifer Jacobs Bloomberg
Date Posted:

An American intelligence assessment argues recent purges of China’s former defense minister and Rocket Force leadership were driven by corruption revelations which may have undermined the CCP’s ability to contemplate major military action in the short term.

An American intelligence assessment argues recent purges of China’s former defense minister and Rocket Force...

Does corruption in China's missile forces reduce the likelihood of military action?

Core argument: US intelligence indicates Xi Jinping's sweeping military purge came after it emerged that widespread corruption had undermined his modernization of China's armed forces and raised questions about the country's ability to fight a war.

US intelligence indicates that Xi Jinping’s sweeping military purge came after it emerged that widespread corruption undermined his efforts to modernize the armed forces and raised questions about China’s ability to fight a war. The corruption inside China’s Rocket Force and throughout the nation’s defense industrial base is so extensive that US officials now believe Xi is less likely to contemplate major military action in the coming years than would otherwise have been the case, according to the people, who asked not to be named discussing intelligence. The US assessments cited several examples of the impact of graft, including missiles filled with water instead of fuel and vast fields of missile silos in western China with lids that don’t function in a way that would allow the missiles to launch effectively.

Takeaways by Macro Roundup® AI

  1. US intelligence indicates Xi Jinping's sweeping military purge came after it emerged that widespread corruption had undermined his modernization of China's armed forces and raised questions about the country's ability to fight a war.
  2. US assessments cite missiles filled with water instead of fuel and vast fields of missile silos in western China with lids that would not function in a way allowing effective launches as examples of graft's impact.
  3. US officials believe corruption across China's Rocket Force and defense industrial base makes Xi less likely to contemplate major military action in the coming years than would otherwise have been the case.

Related Articles:

  • China’s Age Of Malaise — More than 300,000 Chinese people emigrated in a single year, more than double the pace of a decade earlier, with some traveling overland through a half-dozen countries to reach the US. US authorities at the southern border recorded 17,894 encounters with Chinese migrants over ten months, a thirteenfold increase from the prior year.
  • Mainland China Airs Documentary Signalling Military Preparation For Taiwan Attack And Willingness To Sacrifice — China's state broadcaster aired an eight-episode documentary series, Zhu Meng ("chasing dreams"), showing People's Liberation Army personnel pledging readiness to fight "at any second" and to sacrifice themselves, including a stealth fighter pilot vowing to launch a suicide attack if necessary. The series signals Beijing's preparation for an attack on Taiwan.
  • 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.