Edward Conard

Top Ten New York Times Bestselling Author

  • “…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
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, January 31, 2024

AI Summary. Prime-age employment rates are somewhat higher in major European nations than in the US, and output per hour worked is nearly identical. US real GDP grew 53% versus Europe's 31% over two decades, but almost all the gap reflects faster US working-age population growth: real GDP per working-age adult rose 31% in the US and 29% in the euro area.

Paul Krugman Krugman Wonks Out
Date Posted:

Between 1999 and 2019 real US GDP grew 53% vs. 31% in Europe. Almost all of the difference was driven by growth in the working-age population: 17% in the US vs. 2% in Europe. @paulkrugman

Does faster population growth explain the US-Europe growth gap?

Core argument: Real GDP per working-age adult rose 31% in the United States and 29% in the euro area, a gap the author describes as basically inside the margin of error.

At this point adults in their prime working years are actually somewhat more likely to be employed in major European nations than in America. Europeans also know all about information technology, and productivity — gross domestic product per hour worked — is virtually the same in Europe as it is here. In real terms, the U.S. economy grew a lot more btw 1999 and 2019 — 53% versus 31%. But almost all of that difference is explained by the fact that the U.S. working-age population (conventionally, if somewhat unfortunately, defined as adults 15 to 64) grew a lot, while Europe’s hardly grew at all (and has been declining in recent years). Real G.D.P. per working-age adult rose 31% in the United States and 29% — basically inside the margin of error — in the euro area.

Takeaways by Macro Roundup® AI

  1. Real GDP per working-age adult rose 31% in the United States and 29% in the euro area, a gap the author describes as basically inside the margin of error.
  2. The U.S. economy grew 53% in real terms between 1999 and 2019 versus Europe's 31%, with almost all of that difference explained by growth in the U.S. working-age population aged 15 to 64, while Europe's hardly grew and has recently declined.
  3. Adults in their prime working years are somewhat more likely to be employed in major European nations than in America, and productivity measured as GDP per hour worked is virtually the same in Europe as in the United States.

Related Articles:

  • Productivity Has Grown Faster in Western Europe than in America — Adjusted for purchasing power, the EU's GDP is roughly 95% of America's, the same share as a decade earlier, while at market exchange rates US prices went from 5.4% above EU levels to 46% higher, largely because of a strong dollar. GDP per person has still grown faster in America than in most of Western Europe.
  • Comparing EU-to-US Output Per Hour — European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.
  • 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.

AI Summary. Studies of large language models across tasks including software coding, consulting, and writing find double-digit productivity gains appearing within months, with less-skilled workers typically benefiting most. Given the large share of modern work these tools can augment, the author projects US productivity growth near 3% annually in the 2020s, roughly double the Congressional Budget Office's 1.4% projection.

Tej Parikh Financial Times
Date Posted:

.@erikbryn argues that generative AI will drive annual productivity growth over twice the CBO’s 1.4% forecast in the 2020s, citing recent research showing double-digit productivity gains on some tasks.

.@erikbryn argues that generative AI will drive annual productivity growth over twice the CBO’s 1.4% forecast in the...

Will AI double US productivity growth this decade?

Core argument: Erik Brynjolfsson expects U.S. productivity growth in the 2020s to run closer to 3% per year, roughly twice the 1.4% average the Congressional Budget Office projects, or more.

A big percentage of the work that is done in a modern economy is amenable to being augmented by LLMs and generative AI. The effects on those tasks have been significant — double-digit productivity gains within just a few months in some of the cases I’ve studied. Multiply the large percentage of affected tasks by sizeable productivity gains for each one and you get a big total economic impact. I’m betting that productivity growth is maybe significantly higher in the 2020s than the Congressional Budget Office is projecting. They projected 1.4% average per year. I think it could be twice that — closer to 3% — maybe more. There have been other studies that have looked at roles from software coding to management consulting, and different kinds of writing tasks. And each of them found a very similar pattern where 1) there were often double-digit gains in productivity, 2) the less skilled workers typically benefited more, and 3) the gains showed up within just a few months.

Takeaways by Macro Roundup® AI

  1. Erik Brynjolfsson expects U.S. productivity growth in the 2020s to run closer to 3% per year, roughly twice the 1.4% average the Congressional Budget Office projects, or more.
  2. Brynjolfsson reports double-digit productivity gains within a few months in some cases he has studied, and argues a large percentage of work in a modern economy is amenable to augmentation by large language models and generative AI.
  3. Studies spanning software coding, management consulting, and writing tasks found a similar pattern of often double-digit productivity gains, with less skilled workers typically benefiting more and gains appearing within a few months.

Related Articles:

  • Generative AI at Work — A study of 5,179 customer support agents finds that access to a generative AI conversational assistant raised issues resolved per hour by 14% on average, with the largest gains for novice and low-skilled workers and minimal effect on experienced, highly skilled ones. The authors also find AI assistance improved customer sentiment, reduced requests for managerial intervention, and improved employee retention.
  • Centaurs and Cyborgs on the Jagged Frontier — In a pre-registered experiment at Boston Consulting Group covering 18 realistic consulting tasks, consultants using ChatGPT-4 completed 12.2% more tasks, worked 25.1% faster, and produced 40% higher quality results than those without it. The tool acted as a skill leveler: the lowest-scoring consultants improved 43%, while top performers gained less.
  • The Short-Term Effects of Generative Artificial Intelligence on Employment: Evidence from an Online Labor Market — Freelancers in occupations most exposed to generative AI saw employment and earnings decline, with the authors estimating a 2% drop in jobs and a 5.2% drop in monthly earnings on an online labor platform. Offering high-quality service did not mitigate the effect, and top-rated freelancers appear disproportionately hurt.

AI Summary. Strong US productivity growth over the past 40 years has coincided with periods when the employment rate for people aged 25–54 was above 80%, including the late 1990s, 2019, and 2023. Excluding recession-distorted observations, the author estimates that a 1% higher prime-age employment rate is associated with an additional 0.3% of productivity growth.

Skanda Amarnath Employ America
Date Posted:

.@IrvingSwisher uses 1986-2023 data to conclude that a 1% gain in the prime-age employment rate adds 0.3% to annual productivity growth. He argues that productivity growth in 2023 was driven by full employment, not AI.

Does high prime-age employment drive stronger productivity growth?

Core argument: In a univariate linear specification excluding recession-distorted observations, a 1% higher prime-age (25–54) employment rate translates into an additional 0.3% of productivity growth.

The evidence keeps pointing to high employment rates aiding productivity growth. We now have three distinct episodes in which productivity growth outperformed in the past 40 years for reasons other than aggregate job loss: the late 1990s, 2019, and 2023. What do those periods have in common? The Prime-Age 25-54 Employment Rate was elevated and above 80%, such that labor market was in a more mature state and job and hours growth was primed to endogenously cool. Productivity growth is a multi-causal phenomenon, but recent history suggests that getting to elevated levels of prime-age employment raises the odds of achieving impressive growth outcomes. In a univariate linear specification that excludes recession-distorted observations, 1% higher on the Prime-Age Employment Rate translates into an additional 0.3% of productivity growth.

Takeaways by Macro Roundup® AI

  1. In a univariate linear specification excluding recession-distorted observations, a 1% higher prime-age (25–54) employment rate translates into an additional 0.3% of productivity growth.
  2. Three episodes in the past 40 years — the late 1990s, 2019, and 2023 — saw productivity growth outperform for reasons other than aggregate job loss, and each coincided with a prime-age employment rate above 80%.
  3. The author attributes exceptional 2023 productivity growth to fiscal supports, supply chain healing, and full employment rather than AI, describing productivity growth as a multi-causal phenomenon.

Related Articles:

  • Productivity in the World Economy During and After the Pandemic — American labor productivity rose well above its pre-pandemic estimated trend starting in 2020, but subsequently returned to that trend and, by early 2023, fell slightly below it. The estimated trend allows for a slowdown after 2004, capturing the end of the Internet-led boom.
  • 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 U.S. Economy is Roaring. Why Should Rates Come Down? — 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.

AI Summary. Within U.S. manufacturing, output at the 90th-percentile plant is nearly double that at the 10th percentile, a gap economists commonly attribute to differences in management talent. Superstar firms outspend rivals on intangible assets, and U.S. firms spend over $200bn a year on proprietary software that the authors argue enables economies of scale and product differentiation.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

Increasing returns on capital may be driven by superstar firms that outspend their competitors on R&D and better management practices which they can then scale. @mjmauboussin

What drives the large productivity gap between firms within industries?

Core argument: Economists measuring U.S. manufacturing plants found output at the 90th percentile was nearly double that at the 10th percentile, a within-industry productivity gap they do not fully understand but commonly attribute to management talent.

The gap in productivity between the best and worst companies within industries is large. For instance, economists measured the productivity of U.S. manufacturing plants and found that the output at the 90th percentile was nearly double that of those at the 10th percentile. Economists do not fully understand why that difference is so large, but they commonly attribute it to management talent. Organizations do not always identify and implement best practices. Superstar firms substantially outspend their competitors on intangible assets. They are spending big on “ideas”: software, training, and research and development (R&D). James Bessen documents that spending for proprietary software has grown substantially faster than that for R&D, acquisitions, advertising, and lobbying. U.S. firms spend more than $200 billion per year on proprietary software and the big firms represent the bulk of that outlay. They are investing heavily in nonrival goods. Bessen then makes the case that proprietary software enables superstar firms to capture classic economies of scale and to offer differentiated products.

Takeaways by Macro Roundup® AI

  1. Economists measuring U.S. manufacturing plants found output at the 90th percentile was nearly double that at the 10th percentile, a within-industry productivity gap they do not fully understand but commonly attribute to management talent.
  2. U.S. firms spend more than $200 billion per year on proprietary software, with big firms representing the bulk of that outlay.
  3. James Bessen documents that proprietary software spending has grown substantially faster than spending on R&D, acquisitions, advertising, and lobbying, and argues it enables superstar firms to capture economies of scale and offer differentiated products.

Related Articles:

  • The Economics of Inequality in High-Wage Economies — Using French employer-employee and tax data, the authors find that workers entering the information and communications technology sector during its boom earned 5% higher entry wages but 6% lower wages 15 years later than similar peers starting elsewhere. Larger capital flows to firms are associated with greater human capital depreciation among their workers.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.

AI Summary. A proposed child tax credit expansion would raise the effective tax rate on a parent with multiple children moving from part-time to full-time work from 69% to 83%, so doubling earnings from $20,000 to $40,000 would raise total income by only $3,400. The author argues such work disincentives could stunt upward mobility.

Kevin Cornith and Scott Winship American Enterprise Institute
Date Posted:

Proposed changes to the Child Tax Credit contain significant work disincentives. @swinshi @kevincorinth

Does expanding the child tax credit discourage full-time work?

Core argument: Under the Wyden-Smith child tax credit bill, a parent moving from 20 to 40 hours per week at $20 per hour would see earnings rise $20,000 but total income rise only $3,400, an effective tax rate of 83 percent.

A striking aspect of Figure 1 is a large disincentive for substantially increasing earnings. For example, consider a parent currently working 20 hours per week for $20 per hour (within a few dollars of the minimum wage in an increasing number of areas). Her annual earnings would total $20,000. By moving into full-time work at the same $20 hourly wage, her earnings would rise to $40,000. Under the proposed law, her total income would rise by only $3,400 as a result of earning $20,000 more, an effective tax rate of 83 percent. Under existing law, her total income would rise by $6,200, for an effective tax rate of 69%. A 14pp increase in the effective tax on moving from part-time to full-time work for some parents could ultimately stunt upward mobility. The effective tax on increasing earnings could even exceed 100% for other earnings changes, or when accounting for other means-tested benefits such as housing assistance.

Takeaways by Macro Roundup® AI

  1. Under the Wyden-Smith child tax credit bill, a parent moving from 20 to 40 hours per week at $20 per hour would see earnings rise $20,000 but total income rise only $3,400, an effective tax rate of 83 percent.
  2. Under existing law, that same $20,000 earnings increase raises total income by $6,200, a 69 percent effective tax rate, so the bill would add 14 percentage points to the effective tax on shifting from part-time to full-time work for some parents.
  3. The effective tax on increasing earnings could exceed 100 percent for other earnings changes or when other means-tested benefits such as housing assistance are counted, which the author argues could stunt upward mobility.

Related Articles:

  • Do 60 Percent Of American Workers Have Insecure Jobs? — A survey by American Compass concludes that only 40% of American workers have secure jobs, a finding critics dispute on methodological grounds. On one of the survey's own criteria, 96% of workers reported either a regular weekly schedule or satisfaction with their control over a varying one.
  • Upward Mobility Is Alive and Well in America — Comparing children's adult incomes with the inflation-adjusted income quintiles of their childhood rather than contemporaneous quintiles produces much higher measured upward mobility: only 28% of children raised in the bottom quintile remained below that childhood threshold as adults, while 26% reached the top childhood quintile, which required $111,416 (2016 dollars) for a family of four.
  • The Cost of Thriving Has Fallen: Correcting and Rejecting the American Compass Cost of Thriving Index — The authors recalculate the Cost of Thriving Index and estimate the cost of supporting a family on one male earner's wages rose by just over 10 weeks of work rather than 22 weeks. Accounting for federal taxes—including the child tax credit—and quality improvements in health care and cars, they estimate the cost is now lower than in 1985.

AI Summary. Cohort life expectancy projects the average age of death for people born or turning 65 in a given year: those born in 1940 had a cohort life expectancy of 73, those born today about 85, and those born in 2100 a projected 89. Life expectancy is higher still for people who reach age 65.

CRFB Staff Committee for a Responsible Federal Budget
Date Posted:

US life expectancy has grown by 10 months over the past decade to 85 years and is projected to rise between 4 and 5 years by the end of the century. @BudgetHawks

Is life expectancy still rising across generations?

Core argument: Cohort life expectancy for people born today is about 85 years, up from 73 for those born in 1940, and is projected to reach 89 for those born in 2100.

Estimates of how long people are likely to live are generated through a measure known as “cohort life expectancy,” which projects the average age of death for someone born or turning 65 in a given year. People born in 1940 had a cohort life expectancy of 73, while people born today have a cohort life expectancy of about 85, and people born in 2100 are projected to have a cohort life expectancy of 89. That means the average person born today is likely to live to be 85 and the average person in 2100 is likely to live to be 89 years old. Life expectancy is even higher for those who make it to age 65.

Takeaways by Macro Roundup® AI

  1. Cohort life expectancy for people born today is about 85 years, up from 73 for those born in 1940, and is projected to reach 89 for those born in 2100.
  2. Cohort life expectancy projects the average age of death for someone born, or turning 65, in a given year, and runs higher for those who reach age 65.

Related Articles:

AI Summary. An analysis of standardized test data led by Stanford and Harvard researchers finds elementary and middle-school students have regained about a third of pandemic learning losses in math and a quarter in reading. Because poorer districts lost more ground initially, the typical poor district remains nearly half a grade level behind, versus about a fifth for rich districts.

Claire Cain Miller, Sarah Mervosh, and Francesca Paris New York Times
Date Posted:

According to a new analysis by teams at Stanford and Harvard, US students have made up 1/3 of pandemic-related learning loss in math and 1/4 in reading; the gap in performance between rich and poor school districts has increased.

Are students recovering pandemic learning losses unevenly across rich and poor districts?

Core argument: Elementary and middle-school students have recovered about a third of pandemic learning losses in math and a quarter in reading, according to an analysis of standardized test score data led by Stanford and Harvard researchers.

Elementary and middle-school students have made up significant ground since the pandemic school closings in 2020. Overall in math, a subject where learning loss has been greatest, students have made up about a third of what they lost. In reading, they have made up a quarter, according to the new analysis of standardized test score data led by researchers at Stanford and Harvard. Once schools reopened, the pace of recovery was similar across districts, the analysis shows. Both the richest and poorest districts managed to teach more than in a usual school year — about 17 percent more in math, and 8 percent more in reading — as schools raced to help students recover. Yet because poor districts had lost more ground, their progress was not nearly enough to outpace wealthier districts, widening the gulf between them. The typical rich district is about a fifth of a grade level behind where it was in 2019. The typical poor district: nearly half a grade.

Takeaways by Macro Roundup® AI

  1. Elementary and middle-school students have recovered about a third of pandemic learning losses in math and a quarter in reading, according to an analysis of standardized test score data led by Stanford and Harvard researchers.
  2. Both the richest and poorest districts taught more than in a usual school year after reopening — about 17 percent more in math and 8 percent more in reading — and the pace of recovery was similar across districts.
  3. Because poor districts had lost more ground, the gulf between rich and poor districts widened, with the typical rich district about a fifth of a grade level behind its 2019 level and the typical poor district nearly half a grade.

Related Articles:

AI Summary. Chinese investors and households have bought gold as a refuge from local property and stock market turmoil, which the World Gold Council says has helped support record prices. Chinese investment demand for gold bars and coins grew 28% to 280 tonnes, largely offsetting a steep drop in Europe, while jewelry consumption rose 10% to 630 tonnes.

Harry Dempsey Financial Times
Date Posted:

Chinese jewelry consumption was up 10% and overall demand for gold rose 28% y/y as capital controls became more restrictive and investors and households sought to protect their savings.

Are Chinese investors turning to gold as property and stocks slump?

Core argument: Chinese investment demand for gold bars and coins grew 28% to 280 tonnes, largely offsetting a steep drop in European demand, according to the World Gold Council.

Chinese investors and households have been buying gold as a refuge from local property and stock market mayhem, helping to support record prices for the haven asset according to the World Gold Council. Chinese investment demand for gold — spanning bars and coins — grew 28% to 280 tonnes, largely offsetting a steep drop in Europe. The country’s jewelry consumption rose 10% to 630 tonnes last year, even as global demand remained flat.

Takeaways by Macro Roundup® AI

  1. Chinese investment demand for gold bars and coins grew 28% to 280 tonnes, largely offsetting a steep drop in European demand, according to the World Gold Council.
  2. China's gold jewelry consumption rose 10% to 630 tonnes, even as global demand remained flat, according to the World Gold Council.
  3. Chinese investors and households have bought gold as a refuge from local property and stock market mayhem, helping support record prices for the haven asset, according to the World Gold Council.

Related Articles:

  • China Leads Record Central Bank Gold Buying in First Nine Months of Year — China has led record global central bank purchases of gold, as countries seek to hedge against inflation and reduce reliance on the dollar. The buying has helped bullion prices trade just under $2,000 a troy ounce despite rising bond yields and a strong dollar, even as gold demand excluding bilateral over-the-counter flows was 6% lower year-on-year at 1,147 tonnes.
  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.
  • China Tightens Access To Offshore Investment Funds As Domestic Market Founders — Chinese authorities are tightening limits on capital outflows by restricting retail access to funds that invest in offshore securities, a channel that bypasses strict capital controls. About a third of such funds have announced suspensions or caps on sales to retail investors, citing stable operations and investor protection.

Thursday, February 1, 2024

AI Summary. Levels of GDP per working-age adult differ across countries with no sign of convergence, and these countries' ratio of working-age to total population peaked in 2010 and is heading downward, with Japan peaking in 1990. Which measure of economic performance is "right" depends on the question being asked.

John Cochrane The Grumpy Economist
Date Posted:

Responding to “The Wealth of Working Nations” @JohnHCochrane notes the lack of convergence in the level of GDP per working-age adult in advanced economies.

Does GDP per working-age adult converge across countries?

Core argument: GDP per working-age adult still differs across these countries, leaving the puzzling lack of convergence unresolved.

The level of GDP per working age adult varies across these countries. The somewhat puzzling lack of convergence remains. Note everyone’s ratio of working age to total population peaked in 2010 and is headed downward. Japan just leads the trend, having peaked in 1990. The “right” number depends on what question you want to ask, what version of “how well is an economy doing?” If you want to know how many aircraft carriers a country can build, or if the government can repay its debts, you want GDP. If you want to measure labor productivity, the fundamental efficiency of its businesses, you want GDP per hour. If you want to measure overall average standard of living, GDP per person is a good beginning. GDP per working-age person is a measure of productivity that includes all the impediments from high taxes to regulations that discourage people working. It leaves out fertility, a country’s crucial ability to produce workers to pay for everyone else. That is an important issue, but it is at least a very long run issue, and not one on which we have well understood policies.

Takeaways by Macro Roundup® AI

  1. GDP per working-age adult still differs across these countries, leaving the puzzling lack of convergence unresolved.
  2. The ratio of working-age to total population peaked in 2010 in all of these countries and is declining, with Japan leading the trend after peaking in 1990.
  3. The appropriate GDP measure depends on the question: total GDP for aircraft-carrier capacity or debt repayment, GDP per hour for labor productivity, GDP per person for average living standards, and GDP per working-age person for productivity including work disincentives from taxes and regulation, while omitting fertility.

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.
  • What’s the Matter With Europe? — Prime-age employment rates are somewhat higher in major European nations than in the US, and output per hour worked is nearly identical. US real GDP grew 53% versus Europe's 31% over two decades, but almost all the gap reflects faster US working-age population growth: real GDP per working-age adult rose 31% in the US and 29% in the euro area.
  • Population Aging and Economic Growth: From Demographic Dividend to Demographic Drag? — The authors estimate that a 1% increase in the working-age share of the population raises income per capita by about 1%, with an added 0.1–0.4% boost to growth in later periods. They project population aging will slow annual income per capita growth in advanced economies by 0.4–0.8 percentage points through 2050, while spurring growth in less developed countries.

AI Summary. Comparing accounting returns with costs of capital shows that no sector or region has a majority of firms earning returns above their hurdle rates once money-losing companies are included. Close to 80% of firms globally earned returns on capital below their costs of capital.

Aswath Damodaran Musings on Markets
Date Posted:

.@AswathDamodaran finds that in 2023, 73% of profitable US public firms had returns on equity that exceeded their cost of equity, vs 50% of profitable global public firms. However, only 37% of US public firms were profitable vs. 54% of global firms.

Do most firms worldwide earn returns above their cost of capital?

Core argument: Close to 80% of all firms globally earned returns on capital that lagged their costs of capital in 2023.

I bring together the costs of equity and capital and the accounting returns to answer a critical question that every business faces; whether the returns earned on its investment exceed its hurdle rate. In computing excess returns, I did add a qualifier, which is that I would do the comparison only among money-making companies; after all, money-losing companies will have accounting returns that are negative and less than hurdle rates. With each sector, to assess profitability, you have to look at the percentage of companies that make money and then at the percent of these money-making firms that earn more than the hurdle rate. In the most sobering statistic, if you aggregate money-losers with the companies that earn less than their hurdle rates, as you should, there is not a single sector or region of the world, where a majority of firms earn more than their hurdle rates. In 2023, close to 80% of all firms globally earned returns on capital that lagged their costs of capital.

Takeaways by Macro Roundup® AI

  1. Close to 80% of all firms globally earned returns on capital that lagged their costs of capital in 2023.
  2. Aggregating money-losing firms with those earning less than their hurdle rates leaves no single sector or region of the world where a majority of firms earn more than their hurdle rates.
  3. Assessing sector profitability requires two steps: the percentage of companies that make money, and the percentage of those money-making firms that earn more than their hurdle rate.

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.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
  • Stocks For The Long Run? Sometimes Yes, Sometimes No — Revised historical data that correct for survivorship bias—most notably including the Second Bank of the United States, which reached nearly 30% of US market capitalization before collapsing—show 19th-century stock returns differed from 20th-century returns, with repeated periods in which stocks underperformed bonds.

AI Summary. Growth in real disposable income per person over the two quarters before a vote, adjusted for how long a party has held the White House, predicts the governing party's vote share with striking accuracy. Real disposable income per person grew at a 1.9% annualized rate, a pace associated with a comfortable winning margin if sustained.

Economist Staff The Economist
Date Posted:

The historical relationship between the incumbent party’s vote share and real disposable income growth in the two quarters before an election suggests Biden’s reelection prospects may be stronger than current polling suggests.

Does short-term income growth predict the governing party's vote share?

Core argument: Increases in real disposable income per person in only the two quarters before a vote, adjusted for tenure in the White House, predict the vote share of America's governing parties to a striking degree of accuracy.

Increases in real disposable income per person in only the two quarters before a vote can, with an adjustment for tenure in the White House, predict the vote share of parties that are governing America to a striking degree of accuracy. Because inflation has fallen without a recession, tight labor markets continue to produce strong real wage growth. In the last quarter of 2023, real disposable income per person grew at an annualised rate of 1.9%. If maintained until the election, that pace would be associated with a winning margin equivalent to Bill Clinton’s in 1996.

Takeaways by Macro Roundup® AI

  1. Increases in real disposable income per person in only the two quarters before a vote, adjusted for tenure in the White House, predict the vote share of America's governing parties to a striking degree of accuracy.
  2. Inflation has fallen without a recession, and tight labour markets continue to produce strong real wage growth.
  3. Real disposable income per person grew at an annualised rate of 1.9% in the last quarter of 2023, a pace that, if maintained until the election, would be associated with a winning margin equivalent to Bill Clinton's in 1996.

Related Articles:

  • Consistent Signs of Erosion in Black and Hispanic Support for Biden — Polling shows the Democratic presidential candidate's support among nonwhite voters running well below his prior election standing across racial groups, with leads of 72-11 among Black voters, 47-35 among Hispanic registrants, and 40-39 among other nonwhite voters. About 5% of his former nonwhite voters now back the Republican candidate, including 8% of Hispanic voters.
  • Americans Are Suddenly a Lot More Upbeat About the Economy — 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.
  • 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. Saudi Aramco scrapped plans to raise production capacity to 13mm barrels a day from 12mm, a cancellation expected to save $20–40bn in capital spending over five years and signaling insufficient demand for additional Saudi oil. Saudi Arabia, pumping about 9mm barrels a day under OPEC+ cuts, appears set on lower output to support higher prices.

Javier Blas Bloomberg
Date Posted:

Saudi Aramco abandoned a $20-40B plan to increase capacity to 13mm bpd from their current 12mm bpd as the US takes on the role of the world’s marginal producer. @JavierBlas

Saudi Aramco abandoned a $20-40B plan to increase capacity to 13mm bpd from their current 12mm bpd as the US takes on the...

Does scrapping Saudi capacity expansion signal insufficient demand for its oil?

Core argument: Saudi Aramco scrapped its plan to raise production capacity from 12mm to 13mm barrels a day, a cancellation likely to save $20–40bn in capital expenditure over five years.

Saudi Aramco abandoned a plan to boost its production capacity to 13mm barrels a day, from 12mm barrels currently. Due to OPEC+ output cuts, Riyadh is well below its maximum output potential, currently pumping about 9mm barrels a day. The cancellation will likely to save Aramco somewhere between $20-40 billion in capex over the next five years. By scrapping the expansion plan, Riyadh has conceded what was already an open secret: There’s insufficient demand for so much extra Saudi oil in the foreseeable future. Riyadh appears determined – or resigned – to keep production lower-for-longer to keep oil prices higher-for-longer. Only if the kingdom were ready to accept much lower prices there would be demand for extra Saudi oil because, over time, investment would drop elsewhere, notably in the US shale industry. Saudi Arabia’s problem is that high oil prices encouraged – some would even say subsidized — surging production elsewhere, from the North Sea in the 1980s to the American shale basins in the 2020s.

Takeaways by Macro Roundup® AI

  1. Saudi Aramco scrapped its plan to raise production capacity from 12mm to 13mm barrels a day, a cancellation likely to save $20–40bn in capital expenditure over five years.
  2. Saudi Arabia pumps about 9mm barrels a day, well below its maximum potential, due to OPEC+ output cuts, and appears determined or resigned to keep production lower-for-longer to keep oil prices higher-for-longer.
  3. High oil prices encouraged surging production elsewhere, from the North Sea in the 1980s to the American shale basins in the 2020s, and demand for extra Saudi oil would emerge only if Riyadh accepted much lower prices.

Related Articles:

  • 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.
  • US Oil and Gas Boom Doesn’t Feel Like One to Workers — US oil and natural gas production has been setting records, yet industry employment is 128,700 below its mid-2014 peak and 41,200 below pre-pandemic levels, with job gains stalling after rising from an early-2021 low. Productivity in the US oil and gas industry has risen dramatically.
  • Oil Market Caught By Surprise As US Output Surges — US crude oil production reached an all-time high of 13.2mn barrels a day, more than any other country and about one in eight barrels of global output, outpacing official forecasts. The International Energy Agency attributes 80% of this year's growth in global oil supply to the US, complicating OPEC+ efforts to prop up prices through output cuts.