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 26, 2024

AI Summary. Gallup data show women aged 18–30 in the US are 30 percentage points more liberal than young men, a gap that opened in six years, with similar divides in Germany (30 points), the UK (25 points), South Korea and China. In South Korea, marriage rates have plummeted and births fell to 0.78 per woman, the world's lowest.

John Burn Murdoch Financial Times
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.@jburnmurdoch highlights a growing ideological gap between women and men under the age of 30: US women are now 30 percentage points more liberal than their male counterparts, with similar gaps in Germany and the UK.

Are young men and women diverging ideologically across major economies?

Core argument: Gallup data show US women aged 18–30 are 30 percentage points more liberal than men of the same age, a gap that opened in six years after decades in which the sexes were spread roughly equally across liberal and conservative views.

In the US, Gallup data shows that after decades where the sexes were each spread roughly equally across liberal and conservative world views, women aged 18 to 30 are now 30 percentage points more liberal than their male contemporaries. That gap took just six years to open up. Germany also now shows a 30-point gap between increasingly conservative young men and progressive female contemporaries, and in the UK the gap is 25 points. Outside the West, there are even more stark divisions. In South Korea, there is now a yawning chasm between young men and women, and it’s a similar situation in China. Korea’s is an extreme situation, but it serves as a warning to other countries of what can happen when young men and women part ways. Its society is riven in two. Its marriage rate has plummeted, and birth rate has fallen precipitously, dropping to 0.78 births per woman in 2022, the lowest of any country in the world.

Takeaways by Macro Roundup® AI

  1. Gallup data show US women aged 18–30 are 30 percentage points more liberal than men of the same age, a gap that opened in six years after decades in which the sexes were spread roughly equally across liberal and conservative views.
  2. Germany shows a 30-point ideological gap between increasingly conservative young men and progressive young women, the UK gap is 25 points, and divisions outside the West are starker still in South Korea and China.
  3. South Korea's marriage rate has plummeted and its birth rate fell to 0.78 births per woman in 2022, the lowest of any country, in a society riven in two between young men and women.

Related Articles:

AI Summary. The US halted approval of new licenses to export liquefied natural gas pending review of how shipments affect climate change, the economy, and national security. The pause affects more than a dozen proposals awaiting review at the Energy Department and is likely to disrupt plans for billions of dollars in projects.

Ari Natter, Jennifer A Dlouhy, and Ruth Liao Bloomberg
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The Biden administration “paused” the approval of new LNG licenses pending a new review process to account for climate change concerns, a move that will benefit foreign LNG producers.

Does halting new gas export licenses disrupt billions in planned projects?

Core argument: The Biden administration halted approval of new licenses to export US liquefied natural gas while it examines how the shipments affect climate change, the economy, and national security, a moratorium likely to disrupt plans for billions of dollars in projects.

The Biden administration halted the approval of new licenses to export US liquefied natural gas while it scrutinizes how the shipments affect climate change, the economy, and national security — a moratorium likely to disrupt plans for billions of dollars in projects. The pause could have implications for more than a dozen proposals now awaiting review at the Energy Department, including ventures planned in Louisiana by Commonwealth LNG and Energy Transfer LP.

Takeaways by Macro Roundup® AI

  1. The Biden administration halted approval of new licenses to export US liquefied natural gas while it examines how the shipments affect climate change, the economy, and national security, a moratorium likely to disrupt plans for billions of dollars in projects.
  2. The pause could affect more than a dozen LNG export proposals awaiting review at the Energy Department, including ventures planned in Louisiana by Commonwealth LNG and Energy Transfer LP.

Related Articles:

  • America’s Energy Export Boom — The US produces more crude oil than any other country and, counting total petroleum products, more than Saudi Arabia and Russia combined, with crude and natural gas output at record highs and gas production up 7% from its 2019 peak. Net US energy exports reached $70bn over 12 months despite falling oil and gas prices.
  • The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications — The shale boom turned the United States into a net exporter of natural gas and of oil, altering how commodity prices relate to US trade. Where higher oil prices were historically associated with a deterioration in US terms of trade, they now correspond to an improvement.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.

AI Summary. Border apprehensions and expulsions of unauthorized migrants have reached record levels, with nearly 250,000 crossings in a single month. The Pew Research Center estimates 10.5m unauthorized immigrants live in the US, roughly 3% of residents and 22% of the foreign-born population—the lowest shares since the 1990s.

Economist Staff The Economist
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.@TheEconomist notes that illegal immigration is as at a record under President Biden: nearly 250,000 crossed the border in November alone, compared to an average of 100,000/month in the 1980s through to the early 2000s.

Are record border crossings coinciding with decades-low unauthorized population shares?

Core argument: Nearly 250,000 undocumented migrants crossed the U.S. border in November alone, and record numbers of apprehensions and expulsions have occurred during Joe Biden's presidency, making him a clear outlier on border crossings.

Mr Biden is a clear outlier in terms of the number of undocumented, or illegal, migrants crossing the border. During his presidency there have been record numbers of apprehensions and expulsions at the border; nearly 250,000 people crossed in November alone. The Pew Research Centre reckons that there were 10.5m illegal immigrants in 2021, the latest year available. That is roughly the same as in 2017 and fewer than in any other year between 2005 and 2015. It also puts illegal migrants at roughly 3% of people living in America and 22% of the country’s foreign-born population—the lowest shares since the 1990s. This data does not include estimates since the latest wave of encounters at the border; some 600,000 people are thought to have slipped through undetected in 2023.

Takeaways by Macro Roundup® AI

  1. Nearly 250,000 undocumented migrants crossed the U.S. border in November alone, and record numbers of apprehensions and expulsions have occurred during Joe Biden's presidency, making him a clear outlier on border crossings.
  2. The Pew Research Centre estimates there were 10.5m illegal immigrants in the United States in 2021, roughly the same as in 2017 and fewer than in any year between 2005 and 2015.
  3. Pew reckons illegal migrants made up roughly 3% of people living in America and 22% of the foreign-born population, the lowest shares since the 1990s, excluding the estimated 600,000 thought to have slipped through undetected 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.
  • The Demographic Outlook: 2024 to 2054 — 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.
  • Ten Charts Compare Joe Biden’s Record With Donald Trump’s — 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.

AI Summary. US utilities and grid operators have doubled their annual electricity demand forecasts for the next five years to about 1.5%, the highest rate since the 1990s, after decades of growth below 1%. Alongside data centers, the demand comes from roughly $465bn of announced semiconductor, electric-vehicle and battery factories, and old coal plants are staying online.

Saijel Kishan and Josh Saul Bloomberg
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A @BCG analysis argues that by 2030, data center electrical consumption will triple from 2022 levels to 7.5% of projected US electricity demand.

Is rising electricity demand keeping old coal plants online?

Core argument: US utilities and grid operators have doubled their annual electricity demand forecasts for the next five years to about 1.5%, according to Grid Strategies' analysis of regulatory filings, after decades of growth below 1% annually.

For decades, US electricity demand rose by less than 1% annually. But utilities and grid operators have doubled their annual forecasts for the next five years to about 1.5%, according to Grid Strategies, a consulting firm that based its analysis on regulatory filings. That’s the highest since the 1990s before the US stepped up efforts to make homes and businesses more energy efficient. Utilities are having to contend with other power hogs, besides data centers. There’s about $465 billion worth of semiconductor, EV and battery factories announced since Biden took office.

Takeaways by Macro Roundup® AI

  1. US utilities and grid operators have doubled their annual electricity demand forecasts for the next five years to about 1.5%, according to Grid Strategies' analysis of regulatory filings, after decades of growth below 1% annually.
  2. The 1.5% projected annual US electricity demand growth is the highest since the 1990s, before the US stepped up efforts to make homes and businesses more energy efficient.
  3. Beyond data centers, US utilities must contend with other power hogs, including about $465 billion worth of semiconductor, EV and battery factories announced since Biden took office.

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.
  • Elon Musk’s Latest Mission: Rev Up the Electricity Industry — U.S. electricity demand has grown at an average of 1% a year over the past 20 years, but McKinsey projects it will double by 2050 and PG&E expects a 70% rise over the next 20 years. Deloitte estimates the largest U.S. electric companies will together spend as much as $1.8tn by 2030.
  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.

AI Summary. Japan's foreign worker count reached about 2.05 million, the most on record, a 12.4% increase from a year earlier, according to the Labor Ministry. About three in five of the roughly 319,000 establishments employing non-Japanese staff have no more than 30 employees in total.

Erica Yokoyama and Momoka Yokoyama Bloomberg
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The number of foreign workers in Japan has tripled over the last decade; as of October 2023 there were over 2mm foreign workers in Japan, or 1.6% of the population.

Is Japan's foreign worker population growing to record levels?

Core argument: Japan's foreign worker count reached about 2.05 million as of October 2023, the most on record, according to the Labor Ministry.

The number of foreign workers in Japan reached about 2.05 million as of October 2023, the most on record, the Labor Ministry reported Friday. The number grew by 12.4% from a year earlier, an acceleration compared with recent years but slower than in some years prior to the pandemic. Friday’s report also showed that small businesses were more likely to rely on foreign staff. About three of five of the roughly 319,000 establishments that hire non-Japanese staff have no more than 30 employees in total.

Takeaways by Macro Roundup® AI

  1. Japan's foreign worker count reached about 2.05 million as of October 2023, the most on record, according to the Labor Ministry.
  2. Japan's foreign worker tally grew 12.4% from a year earlier, an acceleration compared with recent years but slower than in some pre-pandemic years.
  3. About three of five of the roughly 319,000 Japanese establishments employing non-Japanese staff have no more than 30 employees in total, with small businesses more likely to rely on foreign workers.

Related Articles:

  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.
  • More Than 40% of Japanese Women May Never Have Children — Japan's National Institute of Population and Social Security Research projects that up to 42% of Japanese women may never have children, with a midpoint estimate of one-third and a more optimistic scenario of a quarter of women born in 2005. The institute projects childlessness as high as 50% among men.
  • One in 10 Japanese Now Aged Over 80, Population Report Shows — People aged over 80 account for more than 10% of Japan's population for the first time, and those over 65 reached a record 29.1%, making Japan the world's oldest country by that measure. The overall population fell by about half a million to 124.4m and is projected to drop below 109m by 2045.

Monday, January 29, 2024

AI Summary. The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.

David Autor, Anne Beck, David Dorn, and Gordon Hanson National Bureau of Economic Research
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Tariffs implemented during the 2018-2019 trade war were “at best a wash, and may have been mildly negative” in terms of employment, but increased political support for Trump in the 2020 election. @davidautor

Do tariffs boost employment and political support in protected areas?

Core argument: The authors estimate the combined predicted employment effect of import tariffs, retaliatory tariffs, and farm subsidies from the 2018–2019 U.S.-China trade war ranged from a 0.2% loss to a 0.2% gain in the employment rate across most commuting zones.

We evaluate whether the U.S.-China tariff war of 2018–2019 succeeded in meeting then-President Trump’s stated goal of bringing back jobs to America and generating support for Trump and the Republican party. We find consistent evidence on both questions. The net effect of import tariffs, retaliatory tariffs, and farm subsidies on employment in locations exposed to the trade war was at best a wash, and it may have been mildly negative. Conversely, the trade war appears to have been successful in strengthening support for the Republican party. Residents of tariff-protected locations became less likely to identify as Democrats and more likely to vote for President Trump. Figure 4 plots the predicted employment effects of tariffs and subsidy variables against their predicted impacts for the GOP vote share in the presidential election, with commuting zones (CZ) aggregated into 40 bins based on their x-axis values. The figure indicates that the combined predicted employment effect of import tariffs, retaliatory tariffs and agricultural subsidies is small, ranging from a 0.2% loss to a 0.2% gain in the employment rate in most CZs. Conversely, predicted Republican vote share gains are more sizable, reaching values of 0.5% to 1.0% for most CZs. A striking pattern in Figure 4 is that local exposure to the trade war appears to have benefited the Republican party even in regions where the combined effect of tariffs and subsidies predicts no employment gain or even a modest employment loss. Voters thus appear to have responded favorably to the extension of tariff protections to local industries, even though the ensuing retaliatory measures were economically damaging.

Takeaways by Macro Roundup® AI

  1. The authors estimate the combined predicted employment effect of import tariffs, retaliatory tariffs, and farm subsidies from the 2018–2019 U.S.-China trade war ranged from a 0.2% loss to a 0.2% gain in the employment rate across most commuting zones.
  2. Predicted Republican presidential vote share gains reached 0.5% to 1.0% for most commuting zones, and residents of tariff-protected locations became less likely to identify as Democrats and more likely to vote for Trump.
  3. The authors find that trade-war exposure appears to have benefited the Republican party even in regions where tariffs and subsidies predict no employment gain or a modest employment loss, suggesting voters responded favorably to tariff protections for local industries.

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.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.
  • Are Manufacturing Jobs Still Good Jobs? An Exploration of the Manufacturing Wage Premium — Manufacturing average hourly wages, once about 3% above private-sector wages, have grown more slowly than private-sector wages, erasing the manufacturing wage premium for most manufacturing jobs. The authors estimate that declining unionization accounts for more than 70% of that drop, an effect that remains significant after controlling for worker and sector characteristics.

AI Summary. US manufacturers' investment in plants and production facilities rose almost 63% in a year, the largest annual advance since 1951, reflecting federal incentives and spending deferred during the pandemic. Purchasing and supply executives expect outlays to increase almost 12% this year after rising nearly 15%.

Mark Niquette Bloomberg
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The pace of capex expansion by American manufacturers will likely cool this year after surging 63% y/y in 2023 the largest annual increase since 1951.

Will manufacturing investment keep growing after its largest annual advance since 1951?

Core argument: US manufacturers' investment in plants and other production facilities surged almost 63% in 2023, the largest annual advance since 1951, according to the government's latest GDP report.

Investment by manufacturers in plants and other production facilities surged almost 63% in 2023, the largest annual advance since 1951, according to the government’s latest report on gross domestic product. The increase has its roots in companies taking advantage of federal incentives and making up for deferred spending during the pandemic when supply chains were in disarray. Purchasing and supply executives expect outlays to increase almost 12% this year after rising by nearly 15% in 2023, according to the Institute for Supply Management’s latest semiannual economic forecast. While factories are dialing back the pace of investment, S&P Global Market Intelligence sees spending in the sector still climbing $54 billion after an estimated $50.6 billion last year.

Takeaways by Macro Roundup® AI

  1. US manufacturers' investment in plants and other production facilities surged almost 63% in 2023, the largest annual advance since 1951, according to the government's latest GDP report.
  2. The Institute for Supply Management's semiannual forecast has purchasing and supply executives expecting outlays to rise almost 12% this year, after an increase of nearly 15% in 2023.
  3. S&P Global Market Intelligence sees manufacturing sector spending climbing $54 billion, following an estimated $50.6 billion last year, with the increase rooted in companies using federal incentives and making up for spending deferred during the pandemic.

Related Articles:

  • American Labor’s Real Problem: It Isn’t Productive Enough — U.S. manufacturing output per hour has grown about 0.2% a year since 2009, below the overall economy and peer economies in Europe and Asia except Japan, with motor vehicle manufacturing productivity falling 32% from 2012 through last year. Unlike warehouses and hospitals, manufacturers face foreign competition and cannot pass higher labor costs to customers.
  • Why American Manufacturing is Increasingly Inefficient — Labor productivity in U.S. manufacturing has been in secular decline since 2011, the first decade-long fall in the available data, even as services drove overall output growth. More than a third of the manufacturing slowdown since 2011 is accounted for by computers and electronics, a sector whose gains had soared in the 1990s and 2000s.
  • One of Biden’s Favorite Chip Projects Is Facing New Delays — Taiwanese chip maker TSMC said volume production at the second of its two Arizona semiconductor plants, part of a $40bn project central to U.S. efforts to rebuild domestic chip manufacturing, is now expected in 2027 or 2028 rather than 2026, with the chip type still undetermined.

AI Summary. Traders and Federal Reserve officials expect short-term interest rates to fall sharply on the assumption the economy resembles its pre-pandemic state, but the data suggest a period of structurally faster growth more like the late 1990s, with inflation-adjusted U.S. output up more than 3% in 2023 versus 0.7% the prior year.

Matt Klein The Overshoot
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Real growth was over 3% last year with nominal income growth running 6-7%. @M_C_Klein notes short-term rates ranged between 5-6% during the late 1990s and argues that the pre-pandemic period might be the wrong baseline for calibrating interest rates.

Does faster structural growth undercut expectations for sharply lower interest rates?

Core argument: U.S. inflation-adjusted output grew more than 3% in 2023 versus 0.7% in 2022, which the author argues points to a period of structurally faster growth resembling the second half of the 1990s rather than a return to 2019 conditions.

Traders are still betting that short-term interest rates will fall sharply in the next few years because they believe—along with Federal Reserve officials and many other analysts—that the post-pandemic economy will more or less resemble the world of 2019. While that may prove correct, the data so far continue to suggest that we remain in a period of structurally faster growth more akin to the second half of the 1990s. The inflation-adjusted value of goods and services produced in the U.S. grew more than 3% in 2023 vs. 0.7% in 2022. There is evidence that businesses are more likely to invest in productivity improvements during sustained periods of full employment and high capacity utilization (like now). In that world, sustained nominal growth around 6% would continue to translate into rapid real growth alongside modest inflation. More speculatively, it is possible that large language models and weight loss drugs could also have sustained productivity benefits, but it might take a while before the impact is visible in the data.

Takeaways by Macro Roundup® AI

  1. U.S. inflation-adjusted output grew more than 3% in 2023 versus 0.7% in 2022, which the author argues points to a period of structurally faster growth resembling the second half of the 1990s rather than a return to 2019 conditions.
  2. Traders are betting short-term interest rates will fall sharply over the next few years, sharing a belief with Federal Reserve officials and many analysts that the post-pandemic economy will broadly resemble 2019.
  3. Sustained nominal growth around 6% would continue to translate into rapid real growth alongside modest inflation, and there is evidence that businesses invest more in productivity improvements during sustained periods of full employment and high capacity utilization.

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.
  • Will A.I. Transform the Economy, and if So, How? — During the 1995-2005 information technology boom, productivity ended about 12% above the trend implied by growth from 1973 to 1995, and a comparable or larger gain of around 15% from artificial intelligence is plausible. If such optimistic estimates hold, growth would exceed conventional long-run estimates such as the Federal Reserve's roughly 1.8%, lifting revenue and easing debt concerns.
  • The Outlook for Long-Term Economic Growth — Growth theory holds that long-run growth in living standards is determined by growth in the worldwide number of people searching for ideas, and growth accounting for the US suggests temporary boosts from rising educational attainment and idea investment could fade. Potential offsets include China and India, better talent allocation, and artificial intelligence.

AI Summary. Across a universe of 47,698 companies, the median cost of capital for a US company is estimated at 7.9%, down from 9.6% a year earlier entirely because of declines in the price of risk, namely equity risk premiums and default spreads, though still above a historic low of 5.8%.

Aswath Damodaran Musings On Markets
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At the start of 2024, the median cost of capital for an American firm is 7.9% down from 9.6% at the start of 2023 but up from 5.8% at the start of 2022. @AswathDamodaran

Why did the median cost of capital for US companies fall?

Core argument: Damodaran computes a median cost of capital of 7.9% for US companies at the start of 2024, down from 9.6% at the start of 2023, entirely because of declines in the price of risk.

I computed the cost of capital for the 47,698 companies in my data universe at the start of 2024. I provide a distribution of corporate costs of capital, for US and global companies, in US dollars. At the start of 2024, the median cost of capital is 7.9% for a US company, lower than the 9.6% at the start of 2023, entirely because of declines in the price of risk (equity risk premiums and default spreads). The 2024 costs of capital are higher than the historic lows of 5.8% for US stocks at the start of 2022. In short, if you are a company or an investor who works with fixed hurdle rates over time, you may be using a rationale that you are just normalizing, but you have about as much chance of being right as a broken clock.

Takeaways by Macro Roundup® AI

  1. Damodaran computes a median cost of capital of 7.9% for US companies at the start of 2024, down from 9.6% at the start of 2023, entirely because of declines in the price of risk.
  2. Declines in equity risk premiums and default spreads drove the drop in US corporate costs of capital, which at 7.9% remain above the historic low of 5.8% for US stocks at the start of 2022.
  3. Damodaran computed costs of capital in US dollars for the 47,698 companies in his data universe, arguing that companies and investors using fixed hurdle rates over time have about as much chance of being right as a broken clock.

Related Articles:

  • Data Update 3 for 2024: A Rule-breaking Year for Interest Rates — Central bank influence on interest rates is strongest at the shortest maturities and decays at longer ones, so long-term rates are better understood through the Fisher decomposition of a nominal rate into expected inflation plus an expected real rate. Assuming the expected real rate converges on real economic growth yields an "intrinsic risk-free rate" estimated as inflation plus real growth.
  • 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.
  • Market Bipolarity: Exuberance versus Exhaustion — The equity risk premium fell over the first half of the year and then held relatively steady, leaving the expected return on equities higher as risk-free rates rose. The author argues that quarterly moves in stock and corporate bond prices came largely from rising interest rates rather than a heightened fear of risk.

AI Summary. U.S. venture funding for startups peaked above $300bn—more than double the prior year—before a series of steep interest-rate increases, the fastest in four decades, curbed appetite for risky startup bets and pushed funding down for a second straight year to $167bn.

Berber Jin and Nate Rattner Wall Street Journal
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American venture capital funding dropped from over $300B in 2021 to $167B in 2023, the lowest level since 2020.

Do higher interest rates reduce venture funding for startups?

Core argument: U.S. startup funding topped $300 billion in 2021, more than double the prior year, pumping up valuations, before dropping for a second consecutive year to $167 billion last year.

Funding for U.S. startups topped $300 billion in 2021—more than double the prior year—pumping up valuations. But a series of steep rate increases beginning in 2022—the fastest pace in four decades—sapped desire to chase returns in the riskier world of startups. Venture funding dropped for a second year in a row to $167 billion last year. Venture capitalists like to say that the best companies can weather any macroeconomic storm. Take OpenAI, which is set to roughly triple its valuation to almost $90 billion. But for most of startup-land, the era of cheap money was over.

Takeaways by Macro Roundup® AI

  1. U.S. startup funding topped $300 billion in 2021, more than double the prior year, pumping up valuations, before dropping for a second consecutive year to $167 billion last year.
  2. Steep interest rate increases beginning in 2022, the fastest pace in four decades, sapped desire to chase returns in the riskier world of startups.
  3. OpenAI is set to roughly triple its valuation to almost $90 billion, while for most of startup-land the era of cheap money was over.

Related Articles:

  • Monetary Policy and Innovation — The authors estimate that a 100bps monetary tightening reduces investment in intellectual property by about 1%, research and development spending at public firms by about 3%, venture capital investment by up to 25%, and patenting in important technologies by up to 9%.
  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.

AI Summary. China's chipmakers are expanding production capacity despite warnings of a global supply glut, with one consultancy projecting the country's chip capacity will grow 60% over three years and potentially double over five. Because Western export restrictions bar China from making the most advanced processors, much of this output will be foundational chips used in cars, household goods, and consumer devices.

Chris Miller Financial Times
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US, European, and Japanese governments are debating potential responses to Chinese chip overcapacity, as Chinese capacity for “foundational” semiconductors used in cars and household goods is forecast to grow by 60% over the next three years. @crmiller

US, European, and Japanese governments are debating potential responses to Chinese chip overcapacity, as Chinese capacity...

Are China's chipmakers expanding capacity into a foreseeable global chip glut?

Core argument: One consultancy projects that China's chip production capacity will grow by 60% over the next three years and could double over five.

On a recent quarterly earnings call, the chief executive of Semiconductor Manufacturing International Corporation, China’s leading chipmaker, predicted a “global supply glut” in the types of semiconductors his company produces. Simultaneously, he announced a $7.5bn increase in capital expenditure. It may defy business logic but, helped by generous subsidies, China’s chipmakers are ramping up production capacity despite concerns about oversupply. According to one consultancy, the country’s chip production capacity will grow by 60% in the next three years and could double over the next five. Since Western restrictions on the exports of chipmaking equipment to China mean that it can’t produce the most advanced processor chips, much of this production will be of foundational processor chips, which are widely used in cars, household goods, and consumer devices.

Takeaways by Macro Roundup® AI

  1. One consultancy projects that China's chip production capacity will grow by 60% over the next three years and could double over five.
  2. The chief executive of Semiconductor Manufacturing International Corporation predicted a "global supply glut" in the semiconductor types his company produces while announcing a $7.5bn increase in capital expenditure on the same quarterly earnings call.

Related Articles:

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AI Summary. The authors argue the US-led international order faces three linked regional challenges — China's military buildup in the western Pacific, Russia's war in Ukraine, and Iran and its proxies in the Middle East — united by autocratic governance and grievance. They contend larger defense spending is essential but politically difficult and slow to take effect.

Hal Brands Foreign Affairs
Date Posted:

.@HalBrands notes that the global situation closely resembles that of the 1930s as three different revanchist powers find their goals in alignment, and argues that the US “would have great difficulty mobilizing for a protracted conflict.”

.@HalBrands notes that the global situation closely resembles that of the 1930s as three different revanchist powers find...

Are three linked regional challenges threatening the US-led international order?

Core argument: The revisionist states are linked by autocratic governance and geopolitical grievance—a desire to break a U.S.-led order that deprives them of the greatness they seek.

The international system is facing three sharp regional challenges. China is rapidly amassing military might as part of its campaign to eject the United States from the western Pacific. Russia’s war in Ukraine is the centerpiece of its long-standing effort to reclaim primacy in eastern Europe and the former Soviet space. In the Middle East, Iran and its coterie of proxies are waging a bloody struggle for regional dominance against Israel, the Gulf monarchies, and the United States. The fundamental commonalities linking the revisionist states are autocratic governance and geopolitical grievance; in this case, a desire to break a U.S.-led order that deprives them of the greatness they desire. Although dramatically ramping up military spending to drive down global risk is strategically essential, it seems politically inexpedient, at least until the United States suffers a more jarring geopolitical shock. In any case, it would take time—time Washington and its friends might not have—for even sizable increases in defense outlays to have a tangible military effect.

Takeaways by Macro Roundup® AI

  1. The revisionist states are linked by autocratic governance and geopolitical grievance—a desire to break a U.S.-led order that deprives them of the greatness they seek.
  2. Dramatically ramping up military spending is strategically essential to drive down global risk but appears politically inexpedient absent a more jarring geopolitical shock, and even sizable increases in defense outlays would take time to produce a tangible military effect.

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