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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, January 22, 2024

AI Summary. Long-term shifts in the US economy — technological innovation and automation, declines in some energy extraction, greater globalization, and the move to a knowledge-based economy — have coincided with disproportionately negative employment outcomes in rural communities, especially for prime working-age men and those without a high school degree.

Andrew Dumont Federal Reserve Board
Date Posted:

While total employment in metro areas has passed its pre-pandemic peak, rural employment is still below 2007 levels. The employment-to-population rate of prime-aged men in metro areas is 84.2 relative to 76.2 for their rural counterparts. @FedResearch

Have long-term economic shifts hurt rural employment more than urban?

Core argument: Long-term U.S. economic shifts — technological innovation and automation, declines in some energy extraction, greater globalization, and the move to a knowledge-based economy — have coincided with disproportionately negative employment outcomes in many rural, nonmetro communities.

In the United States, long-term changes in the nature of the economy – including advances in technological innovation and automation, declines in the extraction of certain energy resources, increases in globalization, and a shift to the "knowledge-based" economy – have coincided with disproportionately negative employment outcomes in many rural, or "nonmetro," communities, especially for prime working-age men and those with less than a high school degree. These relatively large, negative employment effects may be due, in part, to differences in the historical industrial composition of nonmetro economies (e.g., a relatively large concentration in manufacturing), as well as the lower levels of educational attainment of their residents. In addition to these historical factors, remote places may face an inherent disadvantage in the modern knowledge economy where the clustering of highly skilled workers and firms in dense areas generate increasing returns.

Takeaways by Macro Roundup® AI

  1. Long-term U.S. economic shifts — technological innovation and automation, declines in some energy extraction, greater globalization, and the move to a knowledge-based economy — have coincided with disproportionately negative employment outcomes in many rural, nonmetro communities.
  2. The negative employment outcomes in nonmetro communities are concentrated among prime working-age men and workers with less than a high school degree.
  3. Differences in the historical industrial composition of nonmetro economies, such as a relatively large concentration in manufacturing, and lower educational attainment among residents may partly explain these employment effects, while remote places may face disadvantage where skilled workers and firms cluster in dense areas.

Related Articles:

  • The World’s Rust Belts: The Heterogeneous Effects of Deindustrialization on 1,993 Cities in Six Countries — A study of 1,993 cities in France, Germany, Italy, Japan, the UK and the US finds former manufacturing hubs lost employment on average after each country's manufacturing peak, though a large share fully recovered. After the peak, hubs with a higher initial share of college-educated workers grew significantly faster.
  • Pandemic Population Boom in Rural Hotspots Sparks Resentment — U.S. rural population grew for a second consecutive year after decades of decline, with non-metro areas outpacing urban growth for the first time in three decades. Gains were concentrated: the 10 rural counties with the largest increases grew about 5% on average versus a 0.4% national rate, and their house prices rose more than 40% over three years.

AI Summary. Pandemic-era house price gains tracked the plunge in mortgage rates, and the initial post-pandemic price dip tracked their rise, but the rebound since early 2023 breaks that relationship and instead matches faster U.S. growth and rising risk asset prices. If mortgage rates stay near current levels, housing activity should increase further.

Matt Klein The Overshoot
Date Posted:

US residential construction and renovation spending has been resilient in the face of higher rates; housing starts are 14% above the pre-pandemic run rate. @M_C_Klein

Are house prices now driven by growth rather than mortgage rates?

Core argument: The pandemic surge in U.S. house prices was consistent with the plunge in mortgage rates, and the subsequent jump in mortgage rates was consistent with the initial downtick in house prices.

The surge in house prices during the pandemic was entirely consistent with the plunge in mortgage interest rates. The post-pandemic surge in mortgage rates was also consistent with the initial downtick in house prices. The turn in house prices since the beginning of 2023 represents a break in the prior relationship, but it is consistent with the broader re-accleration in U.S. growth and risk asset prices over that period. Most of these data are old enough that they do not even reflect the impact of the recent drop in ~1 percentage point drop mortgage rates since October. Should rates stay at current levels, housing activity should ramp up even more.

Takeaways by Macro Roundup® AI

  1. The pandemic surge in U.S. house prices was consistent with the plunge in mortgage rates, and the subsequent jump in mortgage rates was consistent with the initial downtick in house prices.
  2. The turn in U.S. house prices since the start of 2023 breaks the prior relationship with mortgage rates but is consistent with the broader re-acceleration in U.S. growth and risk asset prices.
  3. Most of the house price data predate the roughly 1 percentage point drop in mortgage rates since October, and housing activity should ramp up further if rates stay at current levels.

Related Articles:

  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.
  • The “New Normal” Mortgage Rate Range — Goldman Sachs economists expect the federal funds rate to eventually stabilize at 3–3.25%, above what the Federal Reserve currently projects for the neutral rate. With a funds rate near 3.25% and a 10-year Treasury yield of 4.45%, 30-year fixed mortgage rates would sit in the low-to-mid 6% range.
  • America’s Missing Empty Homes — Restoring the pre-pandemic 12% vacancy rate would require 2.7m new housing units left entirely empty, or more than 18m additional units if 75% of new units are filled on net. Construction of 1.4m units in the first half of 2023 failed to keep up with demand, pushing unoccupied housing rates lower.

AI Summary. Elevated wage growth can threaten a strong labor market if it raises inflation concerns and leads the Federal Reserve to hold monetary policy tighter, though productivity growth eases that concern. After wage growth exceeded a sustainable benchmark of productivity growth plus the Federal Reserve's 2% inflation target, rebounding productivity and moderating wage growth have narrowed the gap.

Kevin Rinz Briefing Book
Date Posted:

Monthly nominal wage growth is now in line with both the pre-pandemic period and current productivity growth plus 2% inflation, suggesting the current expansion is sustainable. @kevinrinz

Is wage growth returning to a level productivity makes sustainable?

Core argument: U.S. wage growth exceeded a sustainable benchmark — labor productivity growth plus the Federal Reserve's 2% inflation target — beginning in early 2022, but over 2023 productivity rebounded and wage growth moderated, bringing actual wage growth closer to that sustainable level.

Counterintuitively, elevated wage growth could be a problem for sustaining a strong labor market if it generates concerns about (or actual) higher inflation and leads the Federal Reserve to keep monetary policy tighter than it otherwise would have. Labor productivity growth, however, would alleviate this concern. Figure 4 shows the three measures of wage growth considered above alongside a measure of sustainable wage growth that is equal to productivity growth plus the Federal Reserve’s two percent inflation target. From 2001 through 2019, actual wage growth tracked this measure well, and inflation was low and stable. Since the onset of the pandemic, labor productivity has fluctuated widely (partially reflecting shifts in the composition of employment as acutely exposed sectors reacted and adapted to the pandemic), and beginning in early 2022, actual wage growth substantially exceeded the sustainable benchmark. Over the course of 2023, however, productivity has rebounded while wage growth has moderated, bringing actual wage growth closer to a level that would be sustainable.

Takeaways by Macro Roundup® AI

  1. U.S. wage growth exceeded a sustainable benchmark — labor productivity growth plus the Federal Reserve's 2% inflation target — beginning in early 2022, but over 2023 productivity rebounded and wage growth moderated, bringing actual wage growth closer to that sustainable level.
  2. From 2001 through 2019, actual wage growth tracked the sustainable benchmark of productivity growth plus 2% inflation well, and inflation was low and stable over that period.
  3. Elevated wage growth can threaten a strong labor market by raising inflation concerns and leading the Federal Reserve to hold policy tighter than it otherwise would, a risk that labor productivity growth alleviates.

Related Articles:

  • Why Is the Labor Market so Tight? — US foreign-born employment has returned to its pre-pandemic trend while native-born employment remains about 6m jobs below trend, leaving roughly 5m native-born workers missing even after accounting for about 1m Covid deaths. The author argues these missing workers explain the tight labor market and that wage inflation is likely to remain elevated.
  • Are You Better Off Than You Were Four Years Ago? — Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. The University of Michigan's consumer sentiment survey recorded a 29% rise over two months, the largest two-month increase since 1991. The improvement was broad-based across consumers of different ages, incomes, education levels, and regions.

Gwynn Guilford and Amara Omeokwe Wall Street Journal
Date Posted:

Consumer sentiment has surged 29% since November, the largest 2-month gain since 1991; broad-based gains spanned age, income, education, and geographic brackets.

Is consumer sentiment rising broadly across income, age, and region?

Core argument: U.S. consumer sentiment surged 29% since November, the largest two-month increase since 1991, according to the University of Michigan survey released Friday.

Americans are rapidly becoming much more upbeat about the economy. Consumer sentiment surged 29% since November, the biggest two-month increase since 1991, the University of Michigan said Friday. Consumer sentiment leapt 13% in the first half of January from December, the Michigan survey said, after a sharp rise the prior month. The pickup in sentiment was broad-based, spanning consumers of different age, income, education and geography.

Takeaways by Macro Roundup® AI

  1. U.S. consumer sentiment surged 29% since November, the largest two-month increase since 1991, according to the University of Michigan survey released Friday.
  2. Consumer sentiment rose 13% in the first half of January from December, the University of Michigan survey said, following a sharp rise the prior month.
  3. The improvement in U.S. consumer sentiment was broad-based, spanning consumers across age, income, education and geography, the University of Michigan said.

Related Articles:

  • 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.
  • 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. US goods prices excluding used cars and trucks have been in sequential deflation, while services excluding housing, travel and medical care slowed from an annualized pace above 7% to about 4.5% over three months. If those trends persist, core inflation measures running near 1% annualized over three months are expected to weaken further.

Chris Marsh Money: Inside and Out
Date Posted:

.@GeneralTheorist notes that annualized inflation for services excluding housing, travel, and medical services slowed from above 7% in July to about 4.5% over the past 3 months and argues “disinflation is spreading.”

Is core inflation set to weaken further as goods deflate?

Core argument: US goods prices excluding used cars and trucks have been in sequential deflation since June on a 3-month seasonally adjusted basis and should turn negative year-over-year shortly.

Looking at the 3M growth of seasonally adjusted measures of adjusted goods and services. Goods ex. used cars and trucks have been in sequential deflation since June and should turn negative in YoY% terms shortly. Services ex. housing, travel and medical services slowed from above 7% sequentially in July to about 4.5% over the past 3 months (annualized.) If super core services continue on a slow disinflation path, while goods remain in deflation, then super core CPI, sequentially running at about 1% over 3 months, will continue to weaken from here. As will core PCE which better accounts for changing spending habits.

Takeaways by Macro Roundup® AI

  1. US goods prices excluding used cars and trucks have been in sequential deflation since June on a 3-month seasonally adjusted basis and should turn negative year-over-year shortly.
  2. Services excluding housing, travel and medical care slowed from above 7% annualized sequentially in July to about 4.5% over the past 3 months.
  3. Super core CPI, running at about 1% sequentially over 3 months, would weaken further if services disinflation continues and goods stay in deflation, as would core PCE, which better accounts for changing spending habits.

Related Articles:

  • The Case For A Mistake — Because monetary policy affects inflation with long and variable lags, much recent tightening has yet to have its full effect, and the collapse in global credit creation points to weak money growth ahead. The author argues central banks over-tightened by reacting to incoming inflation rather than looking through a one-off pandemic price-level adjustment, shifting the risk toward undershooting inflation targets.
  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.

AI Summary. Migrants from countries other than Mexico, El Salvador, Guatemala, and Honduras made up more than half of all people apprehended at the US southern border for the first time, with Venezuelans the largest share. Crossings included 43,000 Russians, 42,000 Indians, and 24,000 Chinese, up from 4,100, 2,600, and 450 two years earlier.

Economist Staff The Economist
Date Posted:

In 2023 migrants from countries beyond Mexico and Central America made up more than half of apprehensions at the border; 43,000 Russians, 42,000 Indians, and 24,000 Chinese were detained in 2023 up from 4,100, 2,600 and 450 respectively 2021.

Are migrants at the southern border coming from more distant countries?

Core argument: In fiscal year 2023, migrants from countries other than Mexico, El Salvador, Guatemala, and Honduras made up more than half of all those apprehended at the U.S. southern border for the first time, with Venezuelans the largest share.

In fiscal year 2023, for the first time, migrants from places beyond Mexico, El Salvador, Guatemala, and Honduras made up more than half of all those apprehended at the border. Venezuelans are the largest part of this group. But last year 43,000 Russians, 42,000 Indians, and 24,000 Chinese also made the crossing—up from 4,100, 2,600, and 450, respectively, in 2021. America’s northern border has proved porous, too. In total, some 40,000 Indian and Chinese migrants came south from Canada last year.

Takeaways by Macro Roundup® AI

  1. In fiscal year 2023, migrants from countries other than Mexico, El Salvador, Guatemala, and Honduras made up more than half of all those apprehended at the U.S. southern border for the first time, with Venezuelans the largest share.
  2. Crossings at the U.S. southern border last year included 43,000 Russians, 42,000 Indians, and 24,000 Chinese, up from 4,100, 2,600, and 450 respectively in 2021.
  3. Some 40,000 Indian and Chinese migrants came south from Canada last year, indicating that America's northern border has also proved porous.

Related Articles:

  • U.S. Released More Than 2.3 Million Migrants At Border Since 2021, Data Show — 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%.
  • 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%.
  • Immigrants’ Share of the U.S. Labor Force Grows to a New High — Foreign-born workers made up 18.1% of the U.S. labor force, up from 17.4% a year earlier and the highest share in 27 years of Labor Department records. The number of immigrants working or looking for work rose by 1.8m, or 6.3%, to 29.8m.

Tuesday, January 23, 2024

AI Summary. A model forecasts no statistically significant additional wage pressure on prices if year-over-year employment cost growth runs between 3.78% and 4.25%, a range above the Federal Reserve's 2% inflation target plus average productivity growth. Because inflation has outpaced productivity-adjusted wages, wages have room to catch up without adding inflation.

Philippe Andrade, Falk Bräuning, José Fillat, and Gustavo Joaquim Federal Reserve Bank of Boston
Date Posted:

Current wage growth is consistent with target inflation. A @BostonFed model argues that as inflation has outpaced wages over the past three years wage growth can “catch up” without creating inflationary pressure. @phil_andrade @gpgjoaquim

Can wages grow faster than inflation without adding price pressure?

Core argument: The authors' model forecasts no statistically significant additional wage pressure on prices if year-over-year Employment Cost Index growth in 2023:Q4 falls within 3.78 to 4.25%, and only a moderate effect on one-year-ahead inflation slightly above that range.

Our model forecasts no statistically significant additional pressures from wages on prices if year-over-year ECI growth in the fourth quarter lands within the dashed vertical lines, that is, 3.78 to 4.25%. Even for values slightly above this range but in line with recent realizations, our model predicts only a moderate effect of ECI growth on one-year-ahead inflation. Note that our results imply there will be no additional impact on inflation dynamics from the labor market for a range of year-over-year ECI growth for 2023:Q4 that is clearly higher than the sum of the Federal Reserve’s inflation target of 2% and historic average productivity growth. The key economic force behind this result is the catch-up effect referred to above. Because inflation has, on average, grown faster than productivity-adjusted wages in the last three years, there is room for wage growth to surpass inflation for some time so that it aligns with the historic relationships among the growth rates of prices, wages, and productivity.

Takeaways by Macro Roundup® AI

  1. The authors' model forecasts no statistically significant additional wage pressure on prices if year-over-year Employment Cost Index growth in 2023:Q4 falls within 3.78 to 4.25%, and only a moderate effect on one-year-ahead inflation slightly above that range.
  2. The range of year-over-year ECI growth implying no additional inflation impact from the labor market is clearly higher than the sum of the Federal Reserve's 2% inflation target and historic average productivity growth.
  3. A catch-up effect underlies the result: because inflation has on average grown faster than productivity-adjusted wages in the last three years, wage growth has room to surpass inflation for some time before aligning with historic relationships among prices, wages, and productivity.

Related Articles:

  • The Labor Market Is Primed For a Soft Landing — Elevated wage growth can threaten a strong labor market if it raises inflation concerns and leads the Federal Reserve to hold monetary policy tighter, though productivity growth eases that concern. After wage growth exceeded a sustainable benchmark of productivity growth plus the Federal Reserve's 2% inflation target, rebounding productivity and moderating wage growth have narrowed the gap.
  • The U.S. Economy Refuses to Slow Down — Wages for most U.S. private-sector workers are rising slightly faster than 4.5% a year, even as job-market churn measures such as the quits rate and detrended job openings rate have returned to or fallen below pre-pandemic norms. That income growth coincides with nominal retail spending rising about 6–7% a year.
  • Are You Better Off Than You Were Four Years Ago? — Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.

AI Summary. The main risk to risk assets is a renewed rise in longer-dated bond yields driven by re-emerging inflation and a longer-than-expected runoff of the Federal Reserve's balance sheet, which forces private investors to hold more Treasuries. Proposed bank regulations encouraging routine discount-window borrowing could extend that runoff, adding a few hundred billion dollars of Treasury supply.

Joseph Wang Fed Guy Blog
Date Posted:

Persistent QT could lead to a rise in longer-dated yields as the market digests “a few hundred billion more Treasuries” over the next two years. @FedGuy12

Do rising long-term yields pose the main risk to risk assets?

Core argument: An extended quantitative tightening program could add a few hundred billion dollars more Treasuries for private investors to absorb over two years, as QT increases the stock of Treasuries private holders must hold.

The potential stumbling block for risk assets is likely not the Fed, but a renewed rise in longer-dated bond yields from a re-emergence of inflation and an extended QT. The supply of Treasuries to private investors may be larger than expected due to a longer-than-expected QT. Recall, QT increases the amount of Treasuries private investors must hold. While QT is expected to be tapered this year, bank regulators are proposing regulatory changes that could further extend QT. Regulators are forcing banks to regularly borrow from the discount window in an attempt to destigmatize the facility. This would provide all banks with easy access to reserves and largely remove the Fed’s concern of shrinking its balance sheet too much and creating market disruptions. A longer QT could translate into a few hundred billion more Treasuries for the market to digest over the next two years.

Takeaways by Macro Roundup® AI

  1. An extended quantitative tightening program could add a few hundred billion dollars more Treasuries for private investors to absorb over two years, as QT increases the stock of Treasuries private holders must hold.
  2. The likelier stumbling block for risk assets is a renewed rise in longer-dated bond yields driven by re-emerging inflation and an extended QT, rather than the Federal Reserve.
  3. Bank regulators are pushing banks to borrow regularly from the discount window to destigmatize the facility, which would give all banks easy access to reserves and largely remove the Fed's concern about shrinking its balance sheet too much.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • The Fed Is Tightening More Than It Says — The authors estimate that the Federal Reserve's balance-sheet runoff makes its current policy rate of 5.375% equivalent in its effect on financial conditions to a rate of 5.763% without runoff, a gap of 39 basis points. They project that gap to widen to a full percentage point as assets continue rolling off at $95bn a month.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.

AI Summary. The Congressional Budget Office calculates that the top-earning 20% of U.S. households received 58% of income and paid 69% of federal taxes, while the top 1% earned 18% and paid 25%. U.S. top income, capital-gains, corporate, and estate tax rates exceed typical OECD levels; the revenue gap reflects value-added taxes.

Brian Riedl Wall Street Journal
Date Posted:
Is Database:
Database

As deficits surge towards 10% of GDP, @Brian_Riedl argues there is limited space to increase revenue by taxing the rich, which at most could raise an additional 2% of GDP over the long term.

As deficits surge towards 10% of GDP, @Brian_Riedl argues there is limited space to increase revenue by taxing the rich,...

Can higher taxes on top earners close the federal revenue gap?

Core argument: The CBO calculates that the top-earning quintile earned 58% of U.S. income but paid 69% of all federal taxes in 2019, while the top 1% made 18% of income and paid 25% of federal taxes.

The CBO calculates that the top-earning quintile, which accounts for 58% of all income in the U.S., paid 69% of all federal taxes in 2019. The top-earning 1%, which makes 18% of all income, paid 25% of all federal taxes. The bottom-earning 60% earned 23% of income but paid 13% of federal taxes. America’s top tax rates often exceed international norms. Our top income-tax bracket of 43.7%—including typical state taxes—exceeds that of the standard OECD nation (40.4%). Our top capital-gains tax rate is 10 points above the OECD average, and our corporate tax rate exceeds not only the OECD mean but that of every Scandinavian nation. America’s effective corporate tax rate is also above average, as are its estate and inheritance taxes. How, then, does the typical OECD nation collect 7.5% of its GDP more than Washington? OECD nations collect an average of 7.2% of GDP in VAT revenues with rates as high as 27%. In other words, the revenue gap isn’t driven by tax-the-rich policies.

Takeaways by Macro Roundup® AI

  1. The CBO calculates that the top-earning quintile earned 58% of U.S. income but paid 69% of all federal taxes in 2019, while the top 1% made 18% of income and paid 25% of federal taxes.
  2. The bottom-earning 60% of Americans earned 23% of income and paid 13% of federal taxes, according to the CBO.
  3. The typical OECD nation collects 7.5% of GDP more in revenue than Washington and averages 7.2% of GDP from value-added taxes with rates as high as 27%, even as U.S. top income, capital-gains, corporate and estate tax rates exceed OECD norms.

Related Articles:

  • The Limits of Taxing the Rich — Stabilizing US federal debt at 100% of GDP would require non-interest savings starting at 2% of GDP and rising to 5% of GDP over three decades, assuming no new spending, tax cuts, or crises. Taxing the rich cannot close more than a small fraction of this gap.
  • From Riches to Rags: Causes of Fiscal Deterioration Since 2001 — Federal debt held by the public rose from 32% to 98% of GDP over roughly two decades, despite earlier Congressional Budget Office projections that the debt would be paid off. The authors attribute 37 percentage points to major tax cuts, 33 to discretionary spending and Medicare expansions, and 28 to recession and pandemic responses.
  • Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy — The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.

AI Summary. The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.

Daniel Crown Congressional Budget Office
Date Posted:

A @USCBO analysis finds that after 2040 net immigration will account for all American population growth. Net immigration to the US was 2.6mm in 2022, and 3.3mm in 2023, well above the 2010-2019 mean of 900,000.

How much of projected US population growth comes from immigration?

Core argument: CBO projects the U.S. population will rise from 342mm in 2024 to 383mm in 2054, growing 0.4% per year on average, less than half the 0.9% annual pace from 1974 to 2023.

In CBO’s projections, the American population will increase from 342mm people in 2024 to 383mm people in 2054, growing by 0.4% per year, on average, or by less than one-half the pace experienced from 1974 to 2023 (0.9% per year). Over the next decade, immigration accounts for about 70% of the overall increase in the size of the population, and the greater number of births than deaths accounts for the remaining 30%. After 2034, net immigration increasingly drives population growth, accounting for all population growth beginning in 2040. In CBO’s projections, total net immigration from 2024 to 2026 is larger than it was in the past, primarily reflecting the agency’s assessment that net immigration of people in the other-foreign-national category in 2024 will be similar to what CBO estimates it was in 2023 and then will decline in 2025 and 2026 as the immigration system adjusts (without new legislation) to the increase in immigration.

Takeaways by Macro Roundup® AI

  1. CBO projects the U.S. population will rise from 342mm in 2024 to 383mm in 2054, growing 0.4% per year on average, less than half the 0.9% annual pace from 1974 to 2023.
  2. CBO projects immigration will account for about 70% of U.S. population growth over the next decade, with births exceeding deaths supplying the remaining 30%, and net immigration accounting for all population growth beginning in 2040.
  3. CBO projects total net immigration from 2024 to 2026 will exceed past levels, primarily reflecting its assessment that net immigration of other foreign nationals in 2024 will be similar to 2023 before declining in 2025 and 2026 as the immigration system adjusts without new legislation.

Related Articles:

  • 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.
  • Growth in Working-Age Population Ends. That’s Not All Bad — Immigration is the only factor keeping the US working-age population from shrinking, as about 4 million baby boomers turn 65 each year and more than 820,000 Americans aged 15–64 died last year. Forecasts project immigration will hold the US 15-to-64 population roughly constant through 2100, versus projected declines of 20% across high-income countries and 62% in China.
  • Third-Country Effects of U.S. Immigration Policy — U.S. H-1B visa denial rates rose from about 6% to 16%, and the authors estimate a 10 percentage point rise in denials increases Canadian applications by 30%, roughly one Canadian application per four forgone visas. More exposed Canadian firms increased sales and hired about 0.5 native workers per immigrant.

AI Summary. Apprehensions at the southern border are the best available measure of illegal immigration into the US, though the figures are hard to interpret: they tend to rise when the economy is strong, and a pandemic-era public-health expulsion policy prompted repeat crossing attempts that partly explain a spike in encounters.

Economist Staff The Economist
Date Posted:
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Comparing illegal immigration encounters at the south-western border under Trump and Biden the Economist argues “This is a clear win for Mr. Trump.”

How reliable are border apprehensions as a measure of illegal immigration?

Core argument: Apprehensions at the southern border are the best available measure of illegal migration into the United States, but the figures tend to rise when the economy is strong, and illegal migration surged in 2019 under Donald Trump.

The best measure America has of undocumented, or illegal, migration is apprehensions at the southern border. These numbers are tricky to handle. They tend to go up when the economy is hot (it is generally under-appreciated that illegal migration surged in 2019 when Mr Trump was president). Covid-19 allowed the federal government to quickly expel migrants who crossed the south-western border under a public-health measure called Title 42, which stayed in place until long after the worst of the pandemic was over. But those who were deposited on the Mexican side of the border often attempted to cross again. This partly explains the spike in encounters. Democrats who do not live in border states tend not to realise that the “border chaos” that Republicans talk about is real. That was until Republican politicians in those border states began shipping migrants to big Democratic cities such as New York and Chicago.

Takeaways by Macro Roundup® AI

  1. Apprehensions at the southern border are the best available measure of illegal migration into the United States, but the figures tend to rise when the economy is strong, and illegal migration surged in 2019 under Donald Trump.
  2. Title 42, the public-health measure allowing rapid expulsion of migrants crossing the south-western border, remained in place long after the worst of the pandemic, and repeat crossing attempts by those expelled to Mexico partly explain the spike in border encounters.
  3. Democrats outside border states tended not to recognise the "border chaos" that Republicans describe until Republican politicians in those states began shipping migrants to big Democratic cities such as New York and Chicago.

Related Articles:

  • America’s Southern Border Has Become A Global Crossroads — Migrants from countries other than Mexico, El Salvador, Guatemala, and Honduras made up more than half of all people apprehended at the US southern border for the first time, with Venezuelans the largest share. Crossings included 43,000 Russians, 42,000 Indians, and 24,000 Chinese, up from 4,100, 2,600, and 450 two years earlier.
  • Why Is the Labor Market so Tight? — US foreign-born employment has returned to its pre-pandemic trend while native-born employment remains about 6m jobs below trend, leaving roughly 5m native-born workers missing even after accounting for about 1m Covid deaths. The author argues these missing workers explain the tight labor market and that wage inflation is likely to remain elevated.
  • 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%.

AI Summary. Total US housing completions and placements, including manufactured homes, reached 1.543m, the most since 2007, even as total housing starts fell 9.0% year over year. Excluding manufactured homes, completions were 1.453m, up 4.5%, with construction delays leaving a near-record number of units still under construction.

Bill McBride Calculated Risk
Date Posted:
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There were 1.54mm housing completions in 2023, the highest level since 2007. While housing starts were down 9% y/y in 2023, @calculatedrisk forecasts that completions will increase this year.

Are housing completions rising even as starts decline?

Core argument: Total U.S. housing completions and placements reached 1.543 million in 2023, including manufactured homes, the most since 2007.

Although total housing starts decreased 9.0% in 2023 compared to 2022, completions increased year-over-year. Construction delays impacted completions in 2023, and that left a near-record number of housing units under construction. However, there still were 1.543 million total completions and placements in 2023, the most since 2007. Not counting Manufactured homes, there are 1.453 million completions in 2023, up 4.5% from 1.390 million in 2022, and also the most since 2007. The graph shows total housing completions and placements since 1968 through 2023. Note that the net addition to the housing stock is less because of demolitions and destruction of older housing units.

Takeaways by Macro Roundup® AI

  1. Total U.S. housing completions and placements reached 1.543 million in 2023, including manufactured homes, the most since 2007.
  2. Excluding manufactured homes, housing completions totaled 1.453 million in 2023, up 4.5% from 1.390 million in 2022, and also the most since 2007.
  3. Total housing starts fell 9.0% in 2023 from 2022, while construction delays held back completions and left a near-record number of housing units under construction.

Related Articles:

  • Higher For Longer and The 2024 Housing Outlook — Sustained higher mortgage rates are expected to weigh most on housing turnover, since nearly all borrowers hold rates below market levels, discouraging moves; the authors project existing home sales of 3.8mn, the fewest annual sales since the early 1990s. Housing starts are projected to fall 4% to 1.34mn.
  • America’s Housing Rebound — Pandemic-era house price gains tracked the plunge in mortgage rates, and the initial post-pandemic price dip tracked their rise, but the rebound since early 2023 breaks that relationship and instead matches faster U.S. growth and rising risk asset prices. If mortgage rates stay near current levels, housing activity should increase further.
  • America’s Missing Empty Homes — Restoring the pre-pandemic 12% vacancy rate would require 2.7m new housing units left entirely empty, or more than 18m additional units if 75% of new units are filled on net. Construction of 1.4m units in the first half of 2023 failed to keep up with demand, pushing unoccupied housing rates lower.