Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Monday, 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.

Tuesday, January 9, 2024

AI Summary. The wealthiest person on the Forbes 400 list held about 85,000x median family income in 1982 versus roughly 2,500,000x in 2023, a roughly 30x increase in that ratio. The author argues this is hard to reconcile with research finding little change in after-tax top income shares since 1980, and presumes those figures contain errors.

Brad DeLong Brad DeLong's Grasping Reality
Date Posted:
Is Database:
Database

.@delong noting the 30X increase from 1982 to 2023 in the ratio of top wealth to median family income argues “the chances are 99% that there are big things wrong in the numbers in Auten/Splinter” that show stable after-tax top income shares since 1960.

Does top wealth growth contradict findings of stable top income shares?

Core argument: The ratio of the top Forbes 400 fortune to median family income rose roughly 30-fold between 1982 and 2023, from 85,000 times to 2,500,000 times.

In the US in 1982, the top of the first Forbes 400 list was Daniel Ludwig with nominal $2 billion. That was 85,000 times the then-median nominal family income of $23,430. In 2023, the top of the Forbes 400 was Elon Musk with nominal $251 billion. That was 2,500,000 times the now-median nominal family income of $98,705. Now: ($251B/$99K)/($2B/$23K) = 29.8 How the f*** is the ratio of the top to the median to explode by a factor of 30 while the Auten/Splinter measures show “little change in after-tax top income shares”? Until someone comes up with an explanation for how this could be—how a 30x multiplication since 1982 of the ratio of the top of the Forbes 400 to median household income is consistent with “top income shares are lower and have increased less since 1980 than other studies… increasing government transfers and tax progressivity have resulted in… little change in after-tax top income shares…”—I am going to presume the chances are 99% that there are big things wrong in the numbers in Auten/Splinter.

Takeaways by Macro Roundup® AI

  1. The ratio of the top Forbes 400 fortune to median family income rose roughly 30-fold between 1982 and 2023, from 85,000 times to 2,500,000 times.
  2. In 1982 Daniel Ludwig topped the first Forbes 400 with a nominal $2 billion against a median nominal family income of $23,430, while in 2023 Elon Musk topped the list with $251 billion against a median of $98,705.
  3. The author puts 99% odds that big things are wrong in the Auten/Splinter numbers, arguing their finding of "little change in after-tax top income shares" cannot be reconciled with the 30x rise in the top-to-median ratio since 1982.

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.
  • Short Reply: Comment on Auten and Splinter (2023) — The assumption that top wealth and capital income shares move in parallel over the long run is problematic, since falling interest rates reduce interest income relative to bond wealth and widen the gap. Fully counting passthrough business income, the authors' top 1% capital income share rose 5 percentage points.

AI Summary. Bloomberg Economics estimates a war over Taiwan would cost around $10tn, roughly 10% of global GDP, based on models of the hit to semiconductor supply, regional shipping, trade sanctions and tariffs, and financial markets. The largest estimated hit comes from missing Taiwanese chips, which would stall production of laptops, tablets, smartphones, and autos.

Jennifer Welch, Jenny Leonard, Maeva Cousin, Gerard DiPippo, and Tom Orlik Bloomberg
Date Posted:
Is Database:
Database

Bloomberg estimates that a Sino-American War over Taiwan would reduce global GDP by 10.2% or $10T almost 2x the impact of the Covid-19 pandemic. US GDP would drop 6.7% and the PRC would face a 16.7% loss.

How much of global GDP would a war over Taiwan cost?

Core argument: Bloomberg Economics estimates a war over Taiwan would cost roughly $10 trillion, equal to about 10% of global GDP, using a suite of models covering semiconductor supply, regional shipping disruption, trade sanctions and tariffs, and financial markets.

Bloomberg Economics estimate the price tag [of a War over Taiwan] would be around $10 trillion, equal to about 10% of global GDP. A suite of models is used to estimate the impact on GDP, taking account of the blow to semiconductor supply, disruption to shipping in the region, trade sanctions and tariffs, and the impact on financial markets. For the main protagonists, other major economies, and the world as a whole, the biggest hit comes from the missing semiconductors. Factory lines producing laptops, tablets, and smartphones — where Taiwan’s high-end chips are the irreplaceable “golden screw” — would stall. Autos and other sectors that use lower-end chips would also take a significant hit. Barriers to trade and a significant risk-off shock in financial markets add to the costs.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics estimates a war over Taiwan would cost roughly $10 trillion, equal to about 10% of global GDP, using a suite of models covering semiconductor supply, regional shipping disruption, trade sanctions and tariffs, and financial markets.
  2. The biggest hit for the main protagonists, other major economies, and the world as a whole comes from missing semiconductors, as factory lines for laptops, tablets, and smartphones stall without Taiwan's irreplaceable high-end "golden screw" chips.
  3. Autos and other sectors using lower-end chips would also take a significant hit, with trade barriers and a significant risk-off shock in financial markets adding to the costs, according to Bloomberg Economics.

Related Articles:

  • US To Link Up With Taiwan and Japan Drone Fleets To Share Real-Time Data — The US, Taiwan and Japan plan to share real-time data from naval reconnaissance drones, with Taiwan's four MQ-9B Sea Guardian drones integrated into the same system used by US forces in the region and Japan's Self-Defense Force. The arrangement would let the US and its allies view the same drone-gathered information simultaneously.
  • US To Provide Taiwan With Weapons From Its Stockpiles For First Time — The US will provide Taiwan with $345mn in weapons drawn directly from American military stockpiles, the first such transfer under an annual $1bn presidential drawdown authority approved by Congress. Previous US support for Taiwan came through approved arms sales rather than direct provision from US stocks.
  • Japan Raises Military Spending To Counter China With More Missiles and Ships — Japan's defense budget rises 13% over the prior fiscal year's planned spending, part of a five-year, ¥43tn plan to lift military spending to roughly 2% of gross domestic product, versus the roughly 1% cap maintained since the 1960s. Purchases include Aegis-equipped destroyers and Tomahawk cruise missiles, with the largest share directed at the Self-Defense Forces' sustainability and resilience.

AI Summary. Global private capital assets under management total $13tn, less than 5% of global financing markets, against $103tn in outstanding fixed income, $101tn in equity market capitalization, and $98tn in banking sector balance sheets. Over the past decade private capital grew by $8tn, far less in absolute terms than fixed income ($42tn), equities ($35tn), and banking ($34tn).

Torsten Sløk, Jyoti Agarwal, and Rajvi Shah Apollo
Date Posted:
Is Database:
Database

Torsten Sløk @apolloglobal notes that since 2010 private credit assets under management (AUM) have increased by $800B, more than the $500B growth in high-yield debt.

How large are private markets relative to global financing markets?

Core argument: Global private capital AUM stands at $13trn, less than 5% of global financing markets, which comprise $103trn of fixed income outstanding, $101trn of equity market cap, and $98trn of banking sector balance sheets.

Global private capital AUM: $13trn. Global fixed income outstanding: $103T. Global equity market cap: $101T. Global size of banking sector balance sheets: $98T. Private capital makes up less than 5% of global financing markets. Increase in the size of global private markets AUM over the past decade: $8T. Increase in the size of global fixed income markets over the past decade: $42T. Increase in the size of global equity market cap over the past decade: $35T. Increase in the size of global banking sector balance sheets over the past decade: $34T. Private capital has over the past decade grown much slower than global financing markets.

Takeaways by Macro Roundup® AI

  1. Global private capital AUM stands at $13trn, less than 5% of global financing markets, which comprise $103trn of fixed income outstanding, $101trn of equity market cap, and $98trn of banking sector balance sheets.
  2. Global private markets AUM grew by $8trn over the past decade, less than the $42trn increase in global fixed income, the $35trn increase in global equity market cap, and the $34trn increase in banking sector balance sheets.

Related Articles:

  • How Private Credit Gives Banks a Run for Their Money — Private credit emerged as an alternative to banks as regulators tightened rules on risky lending by deposit-taking institutions, and now competes with mainstream lenders across businesses from real estate firms to tech startups. Closed-end private debt funds held roughly $1.6tn in assets globally, up from about $500bn at the end of 2015.
  • Where Are All the Defaults? — One explanation for subdued high-yield bond spreads is that the lowest-quality borrowers, those most likely to default, have migrated from high-yield markets into private credit. Moody's reports the number of issuers with its lowest speculative-grade ratings has fallen, and that 62% of its rated universe is rated single-B or below.
  • Credit Normalization — Excluding Treasury securities, more than $30tn of debt securities are outstanding, and credit spreads, while wider than their 2021 lows, remain within historical ranges. The recent slight deterioration in credit-quality metrics and the rise in bankruptcy filings from historically low levels most likely reflect normalization rather than emerging financial distress.

AI Summary. The European Union's Copernicus climate change service reported the world's hottest year on record, with the global average temperature reaching almost 1.5C above pre-industrial levels and every day at least 1C warmer than pre-industrial levels for the first time since records began.

Attracta Mooney, Steven Bernard, and Kenza Bryan Financial Times
Date Posted:

2023 was the hottest year on record. 2024 is likely to break records due to the naturally occurring El Niño effect which is associated with higher temperatures.

Has the world recorded its hottest year on record?

Core argument: The global average temperature in 2023 reached almost 1.5C above pre-industrial levels, the world's hottest year, according to the European earth observation agency.

The world experienced its hottest year in 2023, with “climate records tumbling like dominoes” as the global average temperature reached almost 1.5C above pre-industrial levels, the European earth observation agency has said. Scientists from the Copernicus climate change service said that last year marked the first since records began in which every day was at least 1C warmer than pre-industrial levels before human-induced climate change began to take effect. Nick Dunstone, a climate scientist at the UK Met Office, said 2024 would be “another record-breaking year”, as a result of the continued strength of the naturally occurring El Niño effect, which heats the Pacific Ocean surface and exacerbates global warming caused by greenhouse gases.

Takeaways by Macro Roundup® AI

  1. The global average temperature in 2023 reached almost 1.5C above pre-industrial levels, the world's hottest year, according to the European earth observation agency.
  2. Copernicus climate change service scientists said 2023 was the first year since records began in which every day was at least 1C warmer than pre-industrial levels.
  3. Nick Dunstone of the UK Met Office said 2024 would be "another record-breaking year" because of the continued strength of El Niño, which heats the Pacific Ocean surface and exacerbates greenhouse-gas-driven warming.

Related Articles:

  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.
  • What Happens in Antarctica, Doesn’t Stay in Antarctica — Antarctic sea-ice extent reached a level three times further from the average than any previously recorded in July, and only 0.2–0.4% of the continent is currently exposed above the ice. Further warming is likely to expose more land, reducing the surface's reflectivity and increasing the heat the planet absorbs.
  • Long-term Surface Impact of Hunga Tonga-Hunga Ha’apai-like Stratospheric Water Vapor Injection — A volcanic eruption that injected large amounts of water vapor — a strong greenhouse gas — into the stratosphere is estimated to have raised surface temperatures by more than 1.5°C across large regions for several years, while cooling some areas by close to 1°C. The authors suggest a possible link to tropical Pacific sea surface temperatures that warrants further investigation.