Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, February 28, 2024

AI Summary. The share of Americans who have ever married is at historic lows at ages 35 and 45, with about 60% of 35-year-old men ever-married compared with 90% in 1980. The author projects that one-third of men and women reaching age 45 by 2050 will never have married.

Lyman Stone Institute for Family Studies
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According to a @Lymanstoneky analysis about one-third of today’s 18 and 19 year old young Americans will not have married by the time they turn 45 in 2050.

How many young adults will never marry?

Core argument: About 60% of 35-year-old American men have ever been married, down from 90% in 1980, with ever-married shares at historic lows for both men and women at ages 35 and 45.

Ever-married shares today are at historic lows for 35-year-old and 45-year-old men and women. For instance, only about 60% of 35-year-old men are ever-married today, down from 90% in 1980. This trend also suggests that a growing share of Americans will not get married before their healthiest years are long past them. This figure also shows dotted lines for forecasts (or future estimates). I forecast rates by taking younger Americans about whom we know at least some of their marital history, and assuming that their marriage rates in the future follow the trends of past birth cohorts, while also accounting for some degree of delay-and-catchup dynamics. The decline in marriage at age 25 may now be subsiding, but the effects of past delays will continue into older ages. This means that plausibly, one-third of men and women who turn 45 in 2050 (those who are about 18 or 19 today) will not have married.

Takeaways by Macro Roundup® AI

  1. About 60% of 35-year-old American men have ever been married, down from 90% in 1980, with ever-married shares at historic lows for both men and women at ages 35 and 45.
  2. The author forecasts that roughly one-third of men and women turning 45 in 2050 — those about 18 or 19 today — will not have married, extrapolating past birth-cohort trends and allowing for delay-and-catchup dynamics.
  3. The decline in marriage at age 25 may be subsiding, but the author suggests the effects of past delays will continue into older ages, with a growing share of Americans not marrying before their healthiest years have passed.

Related Articles:

  • Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past — Pew Research Center analysis of Census Bureau data finds 21-year-olds in the US are less likely than their counterparts four decades earlier to have a full-time job, be financially independent, live on their own, be married, or have a child. Among 21-year-olds, 39% worked full time versus 64% four decades earlier, and a quarter were financially independent versus 42%.
  • Intermarriage in America Post-Loving v. Virginia — US interracial marriage rates showed no decline despite heightened public discourse about racial tension, a metric where increased racial tension would be expected to register. The author argues America's ethnoracial composition is more mixed than it has ever been, resembling a Latin American country more than a European one.
  • Fortunate Families? The Effects of Wealth on Marriage and Fertility — Using lottery winners, the authors estimate that wealth windfalls raise the short- and medium-run probability of marriage, an effect driven by male winners. The estimated average effect on marriage dissolution is not statistically distinguishable from zero, but for married women a 1M-SEK windfall nearly doubles the short-run divorce rate, with the effect fading over the long run.

AI Summary. South Korea's fertility rate fell to 0.72 expected births per woman over a lifetime from 0.78 the prior year, with births down 7.7% to 230,000 in a nation of about 50m, according to Statistics Korea. Marriages also hit a low, with about 192,500 couples wedding, down 42% from a decade earlier.

Sam Kim Bloomberg
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230,000 babies were born in South Korea in 2023 as fertility fell to .72 last year from .78 in 2022.

Is the world's lowest fertility rate still falling?

Core argument: South Korean births slid 7.7% to 230,000 last year, a low for comparable data in a nation of about 50 million people.

The number of babies expected per woman in a lifetime fell to 0.72 last year from 0.78 in 2022, according to data released Wednesday by South Korea’s national statistics office. The number of births also slid by 7.7% to 230,000, setting a new low for comparable data in a nation of about 50 million people. In 2022 marriages fell to a new low. While some 192,500 couples tied the knot, that was down 42% from decade earlier, according to Statistics Korea.

Takeaways by Macro Roundup® AI

  1. South Korean births slid 7.7% to 230,000 last year, a low for comparable data in a nation of about 50 million people.
  2. Marriages in South Korea fell to a new low in 2022, with some 192,500 couples wedding, down 42% from a decade earlier, according to Statistics Korea.

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.
  • Korea Finance Nominee Likens Aging Demographics to Titanic Iceberg — South Korea's finance minister nominee argues the country's aging population requires immediate preparation, noting efforts to raise the world's lowest fertility rate would take at least 30 years to yield benefits. A shrinking workforce is a major cause of South Korea's declining potential growth rate, with births per woman at 0.78.
  • How a Vast Demographic Shift Will Reshape the World — In East Asia and Europe, growing numbers of retirees will depend on a shrinking working-age population, and some Asian countries are aging before becoming rich — China hit its peak working-age population at 20% of US income levels at the same point, Vietnam at 14%.

AI Summary. Migrants listing addresses for US immigration court cases rose nine-fold in Illinois, seven-fold in Colorado, and five-fold in New York over a two-year span, larger increases than in Texas and Florida. On a per-capita basis, New York recorded the most arrivals at 1 per 100 residents, followed by New Jersey and Florida at 0.9.

Elena Mejia and Lisa Beyer Bloomberg
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According to a @markets analysis of new immigration court cases, 2% of the population of Queens, Miami and Denver are illegal migrants who arrived in 2023.

Which states are seeing the biggest increases in migrant arrivals?

Core argument: Migrants listing an Illinois address for their immigration court cases rose nine-fold in 2023 versus two years earlier, with seven-fold increases in Colorado and five-fold in New York—larger than the increases in Texas and Florida.

The number of migrants listing an address in Illinois for their immigration court cases jumped nine-fold in 2023 compared with just two years earlier; the increase was 7-fold in Colorado and five times in New York—bigger than the increases seen in Texas and Florida. The data also suggest that New York state saw the highest number of migrant arrivals in 2023 on a per capita basis: 1 per 100 residents of the state. New Jersey and Florida were next at 0.9. Texas and Colorado had 0.8, and Illinois ranked eighth at 0.6.

Takeaways by Macro Roundup® AI

  1. Migrants listing an Illinois address for their immigration court cases rose nine-fold in 2023 versus two years earlier, with seven-fold increases in Colorado and five-fold in New York—larger than the increases in Texas and Florida.
  2. Immigration court address data suggest New York state had the highest number of migrant arrivals per capita in 2023, at 1 per 100 residents, followed by New Jersey and Florida at 0.9.
  3. Texas and Colorado each recorded 0.8 migrant arrivals per 100 residents in 2023, while Illinois ranked eighth at 0.6.

Related Articles:

  • America’s Border Crisis in Ten Charts — 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.
  • 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.
  • 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.

AI Summary. Mexico has overtaken China as America's largest source of goods imports, and China's share of US imports has fallen by a third to about 14% since 2017 by American figures. But Chinese data and a 32% rise in China's intermediate-goods exports suggest countries like India and Vietnam repackage Chinese inputs for America.

Mike Bird and Callum Williams The Economist
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.@Birdyword @econcallum argue rumors of Sino-US economic decoupling are overstated citing a rise in China’s exports of intermediate goods and discrepancies between the two countries’ trade data.

Has America actually reduced its reliance on Chinese goods?

Core argument: China's share of American goods imports has fallen by a third since 2017 to about 14% by American figures, and Mexico overtook China last year as the largest source of American goods imports.

Last year Mexico overtook China as America’s largest source of goods imports. Since 2017 the share of America’s imports coming from China has fallen by a third to around 14%, according to American figures. China reports that its exports to America rose by $30bn between 2020 and 2023, whereas America says its Chinese imports fell by $100bn. If China’s data are correct, the country’s share of American imports has still declined, but by much less. Adam Wolfe of Absolute Strategy Research estimates that, as a consequence [of under-reporting to avoid tariffs] America now understates its imports from China by 20-25%. Since 2019 China’s global exports of intermediate goods have risen by 32%, compared with a rise in other sorts of exports, such as finished goods, of only 2%. The surge is driven by exports to countries such as India and Vietnam, which are two of the American government’s preferred trading partners. American trade with these countries is, in turn, increasing—from 4.1% of its goods imports in 2017 to 6.4% today. In combination, these trends imply that the two countries often act as something akin to packaging hubs for goods made with Chinese input that are destined for America’s shores.

Takeaways by Macro Roundup® AI

  1. China's share of American goods imports has fallen by a third since 2017 to about 14% by American figures, and Mexico overtook China last year as the largest source of American goods imports.
  2. China reports its exports to America rose $30bn between 2020 and 2023 while America reports its Chinese imports fell $100bn; Adam Wolfe of Absolute Strategy Research estimates America understates its imports from China by 20-25%.
  3. China's global exports of intermediate goods have risen 32% since 2019 against 2% for other exports, driven by shipments to countries such as India and Vietnam, whose share of American goods imports rose from 4.1% in 2017 to 6.4%.

Related Articles:

  • How America Is Failing To Break Up With China — Research finds that countries with the strongest existing trade ties to China in a given industry have gained the most as direct Chinese exports to the US are redirected, suggesting Chinese supply chains remain central to American imports even in advanced-manufacturing goods officials most want to shield from China.
  • Setser On Sources Of Chinese Demand — China cannot build a developing-world trading bloc to replace the US and Europe as a source of end demand, because its trade surplus is too large and the main deficit countries outside the West are India and Turkey. India resists larger deficits with China, and Turkey needs to reduce its deficit.
  • Can Trade Intervention Lead to Freer Trade? — China accounts for over 31% of global manufacturing but under 13% of global consumption, while the United States accounts for under 17% of manufacturing and nearly 27% of consumption. The author argues persistent surpluses reflect household subsidies to producers, and that the US could counter them with tariffs or taxes on capital inflows.

AI Summary. Battery-electric vehicles rose from 10% to 14% of European motor vehicle sales, and China's share of the region's battery-electric sales rose from 17% to 28%, doubling China's share of total European vehicle sales from 2% to 4%. Those gains may flatten as European producers catch up and political pressure builds to cap Chinese exports.

Thomas Klitgaard Federal Reserve Bank of New York
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China’s success in EVs might lead to only limited GDP gains given likely US and EU protectionist responses to foreign competition in the automotive sector. @NewYorkFed

Is China's share of European electric vehicle sales rising?

Core argument: Battery-electric vehicle sales in Europe rose from 1.2 million in 2021 to 1.6 million in 2022, per the European Automobile Manufacturers Association, while total motor vehicle sales fell from 11.8 million to 11.3 million.

The European Automobile Manufacturers Association estimates that BEV sales in Europe equaled 1.2 million in 2021 and 1.6 million in 2022, with total sales of motor vehicles dipping from 11.8 million to 11.3 million. Given the rising popularity of BEVs (increasing from 10% to 14% of the market) and China’s higher share of that region’s BEV sales (17% to 28%), a quick calculation shows that China’s BEV share of total vehicle sales doubled from 2% to 4% in one year. Assuming that China’s exports to Europe grew at the same rate as its total BEV exports, then Chinese vehicles made up 35% of Europe’s higher BEV sales in 2023, accounting for 5.5% of total motor vehicle sales in the region. Such gains may soon flatten out, both from greater competition as European plants work to catch up and from political pressure to put a cap on China’s exports. China itself is a case study of a government protecting a favored domestic industry, with the U.S.-Japan Voluntary Export Restraint (VER) program in the early 1980s being another.

Takeaways by Macro Roundup® AI

  1. Battery-electric vehicle sales in Europe rose from 1.2 million in 2021 to 1.6 million in 2022, per the European Automobile Manufacturers Association, while total motor vehicle sales fell from 11.8 million to 11.3 million.
  2. China's share of Europe's BEV sales climbed from 17% to 28% as BEVs grew from 10% to 14% of the market, doubling China's share of total European vehicle sales from 2% to 4% in one year.
  3. Assuming China's exports to Europe grew at the same rate as its total BEV exports, Chinese vehicles made up 35% of Europe's BEV sales in 2023 and 5.5% of total motor vehicle sales, gains that may flatten amid European competition and political pressure to cap exports.

Related Articles:

  • US Warns China Against Dumping Goods on Global Markets — The US has warned China that it and its allies will respond if Beijing addresses its industrial overcapacity by dumping goods on international markets. US Treasury officials say Chinese industrial support and macroeconomic policies focused on supply rather than demand risk pushing excess capacity onto world markets.
  • Can Trade Intervention Lead to Freer Trade? — China accounts for over 31% of global manufacturing but under 13% of global consumption, while the United States accounts for under 17% of manufacturing and nearly 27% of consumption. The author argues persistent surpluses reflect household subsidies to producers, and that the US could counter them with tariffs or taxes on capital inflows.
  • A Second Dose of Trump On Trade Would Differ From The First — A second Trump administration would pair a 10 percentage point tariff increase on all US trading partners with a tariff of at least 60% on Chinese imports, with advisers arguing a broad import tax addresses America's persistent pattern of trade deficits rather than bilateral imbalances. Researchers estimate China's manufacturing goods surplus reached a record of almost 2% of world GDP.

AI Summary. A reanalysis argues that the reported long-run decline in the disruptiveness of scientific papers and patents, measured by CD indices, is attributable to a relative decline in database entries recorded as having zero references. The authors find these entries are dataset artifacts, since their source documents do contain references, and that random citation behaviour reproduces the observed decline.

Vincent Holst, Andres Algaba, Floriano Tori, Sylvia Wenmackers and Vincent Ginis Working Paper
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Science is not getting less disruptive over time; an earlier finding that the pace of disruptiveness has slowed was the result of data errors.

Is the reported decline in scientific disruptiveness a data artifact?

Core argument: A reanalysis attributes Park's reported decline in scientific disruptiveness, based on CD indices across almost 45 million papers and 3.9 million patents, to a relative decline in database entries with zero references.

Park reported a decline in the disruptiveness of scientific and technological knowledge over time. Their main finding is based on the computation of CD indices, a measure of disruption in citation networks, across almost 45 million papers and 3.9 million patents. Due to a factual plotting mistake, database entries with zero references were omitted in the CD index distributions, hiding a large number of outliers with a maximum CD index of one [most disruptive], while keeping them in the analysis. Our reanalysis shows that the reported decline in disruptiveness can be attributed to a relative decline of these database entries with zero references. Proper evaluation of the Monte-Carlo simulations reveals that, because of the preservation of the hidden outliers, even random citation behaviour replicates the observed decline in disruptiveness. Finally, while these papers and patents with supposedly zero references are the hidden drivers of the reported decline, their source documents predominantly do make references, exposing them as pure dataset artifacts.

Takeaways by Macro Roundup® AI

  1. A reanalysis attributes Park's reported decline in scientific disruptiveness, based on CD indices across almost 45 million papers and 3.9 million patents, to a relative decline in database entries with zero references.
  2. A plotting mistake omitted zero-reference database entries from the CD index distributions while retaining them in the analysis, hiding a large number of outliers with a maximum CD index of one.
  3. Because the hidden outliers were preserved, even random citation behaviour replicates the observed decline in disruptiveness in the Monte-Carlo simulations, and the source documents of the supposedly zero-reference papers and patents predominantly do make references.

Related Articles:

  • Papers and Patents Are Becoming Less Disruptive Over Time — Using an index of how papers and patents alter citation networks, the authors find that scientific papers and patents have become less disruptive across all fields, with declines of 91.9%–100% for papers and 78.7%–91.5% for patents. Rates of decline are steepest early in the series, with patents appearing to stabilize.
  • Something Is Getting Harder But It’s Not Finding Ideas — The number of researchers in the US economy has grown to 23x its 1930 level while the economy's growth rate has been constant or declining, contradicting the assumption that constant research input yields a constant growth rate. Bloom et al. explain this divergence by assuming ideas get harder to find as more are discovered.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

Thursday, February 29, 2024

AI Summary. The authors estimate that the weighted average cost of capital for Russell 3000 companies averaged 6.9% during the 2009-21 era of easy money versus 7.5% in the prior period, while the aggregate return on invested capital averaged 9.5% versus 9.2%. The resulting spread between returns and the cost of capital averaged 2.6 percentage points versus 1.7 points earlier.

Michael Mauboussin and Dan Callahan Morgan Stanley
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Between 2009 and 2021 Russel 3000 firms didn’t respond to low interest rates and a lower weighted average cost of capital by raising their investment in capex, M&A, and investment SG&A relative to 1996-2008. @mjmauboussin

Did easy money widen the gap between corporate returns and capital costs?

Core argument: The weighted average cost of capital for Russell 3000 companies is estimated to have fallen to 6.9% during the easy-money period of 2009–21, from 7.5% in the prior period, based on annual averages.

We estimate that the weighted average cost of capital (WACC) for companies in the Russell 3000 dropped to 6.9% in the time of easy money [2009-21] from 7.5% in the prior period, based on annual averages. Standard corporate finance dictates that companies fund projects that have a positive net present value (NPV), defined as when the present value of the future cash flows from an investment exceeds the initial outlay. The aggregate return on invested capital (ROIC), defined as net operating profit after taxes divided by invested capital, averaged 9.5% in the easy money period and 9.2% in the preceding time. Companies earn an ROIC in the aggregate that is roughly 50-60% of the hurdle rate they use. That means a lot of investments fail to earn the hurdle rate. But, on average, companies in the U.S. do earn an ROIC in excess of the actual cost of capital. The average spread between the ROIC and WACC was 2.6 percentage points in the easy money era and 1.7 percentage points in the prior period.

Takeaways by Macro Roundup® AI

  1. The weighted average cost of capital for Russell 3000 companies is estimated to have fallen to 6.9% during the easy-money period of 2009–21, from 7.5% in the prior period, based on annual averages.
  2. Aggregate return on invested capital averaged 9.5% in the 2009–21 easy-money era versus 9.2% earlier, with the average ROIC–WACC spread at 2.6 percentage points versus 1.7 percentage points.
  3. Companies in aggregate earn an ROIC equal to roughly 50–60% of the hurdle rate they use, meaning many investments fail to earn that hurdle, though U.S. companies on average earn an ROIC above their actual cost of capital.

Related Articles:

  • Data Update 4 for 2024: Risk Enters the Equation — 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%.
  • Cost of Capital — The average weighted average cost of capital for Russell 3000 companies, a proxy for the U.S. equity market, was 7.9% from 1985 to 2022, with an estimate of 8.8% at the end of 2022. Corporate finance executives rely on the capital asset pricing model, while quantitative investors use multifactor models.
  • The Corporate Debt Maturity Wall: Implications for Capex and Employment — The authors estimate the average interest rate on outstanding corporate debt will rise from 4.20% to 4.50%, lifting private sector interest expense as a share of gross output by 0.25 percentage points. They project this would reduce capital spending growth by up to 0.25 percentage points and labor cost growth by up to 0.15.

AI Summary. The global surplus of savings that helped hold down long-term interest rates has crested, with aging populations, a weakened Chinese economy, and a more fragmented global economy threatening to turn it into a shortfall. The International Monetary Fund projects China's savings will fall to 42.4% of its gross domestic product as its current account surplus shrinks.

Rich Miller Bloomberg
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Data compiled by Robert Dugger and @ChicagoFed researchers Robert Barsky and Matthew Easton suggest that the global savings glut plateaued just after the 2007-09 financial crisis.

Is the shrinking global savings surplus pushing long-term borrowing costs higher?

Core argument: The IMF projects China's savings will fall to 42.4% of GDP in 2028 from over 44% last year and 45.7% in 2022 as its current account surplus shrinks.

Ben Bernanke’s global savings glut is drying up. Long-term interest rates worldwide may be heading higher as a result. Aging populations, an embattled Chinese economy, and an increasingly fragmented global one are among the factors threatening to turn the surplus of savings into a shortfall. Data compiled by Hanover Provident founder Robert Dugger and Chicago Fed economists Robert Barsky and Matthew Easton suggest the glut crested some years ago. Its impact though was masked by the especially easy policies the Fed and other central banks hewed to coming out of the 2007-09 financial crisis. The pandemic subsequently triggered an even greater gusher of cash from the monetary and fiscal authorities as they fought to keep their economies afloat. China’s role as a big supplier of savings to the rest of the world may also diminish as it’s pressured by the US on a variety of trade and technological fronts. The International Monetary Fund projects China’s savings will fall to 42.4% of its gross domestic product in 2028 from over 44% last year and 45.7% in 2022 as its current account surplus shrinks.

Takeaways by Macro Roundup® AI

  1. The IMF projects China's savings will fall to 42.4% of GDP in 2028 from over 44% last year and 45.7% in 2022 as its current account surplus shrinks.
  2. Data compiled by Hanover Provident founder Robert Dugger and Chicago Fed economists Robert Barsky and Matthew Easton suggest Ben Bernanke's global savings glut crested some years ago, and long-term interest rates worldwide may head higher as a result.
  3. Aging populations, an embattled Chinese economy, and an increasingly fragmented global one threaten to turn the savings surplus into a shortfall, though the glut's waning impact was masked by easy Fed policy after the 2007-09 financial crisis and pandemic-era monetary and fiscal support.

Related Articles:

  • Japan, Germany and the Challenge of Excess Savings — Despite ultra-low interest rates intended to lift private investment and reduce private saving, Japan's private savings surplus—especially its corporate surplus—has remained large. Government deficits averaging 5% of GDP and net foreign asset purchases via current account surpluses averaging 3% of GDP absorbed those excess savings.
  • What Is the Ten-Year Real Rate Going to Be? I: How We Got Here — A return of bond yields to their 2010s lows is unlikely, though the author expects some mean reversion, guessing roughly 0.5 percentage points. Demand for US Treasuries from wealthy emerging-market investors, sovereign wealth funds, and exchange reserves continues to scale with global wealth, so the author argues the safe-asset shortage holding down Treasury rates is not over.
  • Why Fitch’s Downgrade Matters — The inflation-adjusted 10-year Treasury yield stands at 1.7%, near its highest since 2009, after being around zero a decade ago, indicating the global saving glut that once held yields down is gone. One estimate holds private investors will absorb government debt worth 7.7% of developed economies' GDP this year and 9.2% next, more than double 2011's 4.3%.

AI Summary. Analysis of national-accounts data finds that US corporate net profits grew about 2% a year in real terms from 1962 to 1989 and more than 4% a year from 1989 to 2019, a difference attributed entirely to declining interest and corporate tax rates. Similar patterns appear across wealthy countries, where underlying profits grew less impressively.

Economist Staff The Economist
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An Economist analysis argues “The surge in net profits is really an artifact of lower taxes and interest bills. Measures of underlying profits have grown less impressively.” This suggests lower returns going forward.

Did falling interest and tax rates drive decades of profit growth?

Core argument: Real net profits of American corporations grew 2% a year between 1962 and 1989, then accelerated to more than 4% a year between 1989 and 2019, according to national-accounts data analysed using Michael Smolyansky's methodology.

Rarely have corporate profits been valued so highly. And the outlook for the profits themselves is also challenging. To understand why, consider the fundamental sources of their long-term growth. We have employed Michael Smolyansky’s methodology to examine national-accounts data for American corporations. Between 1962 and 1989 net profits increased in real terms by 2% a year. After that, profits accelerated. Between 1989 and 2019 they increased by more than 4% a year. We find similar trends across the OECD as a share of GDP, corporate profits were steady from the 1970s to the 1990s, then doubled. Mirroring Mr. Smolyansky, we find that in America the difference in profit growth between the 1962-1989 period and the 1989-2019 period is “entirely due to the decline in interest and corporate-tax rates”. Extending this analysis to the rich world as a whole, we find similar trends. The surge in net profits is really an artifact of lower taxes and interest bills. Measures of underlying profits have grown less impressively.

Takeaways by Macro Roundup® AI

  1. Real net profits of American corporations grew 2% a year between 1962 and 1989, then accelerated to more than 4% a year between 1989 and 2019, according to national-accounts data analysed using Michael Smolyansky's methodology.
  2. Mirroring Smolyansky, the analysis finds the gap in American profit growth between 1962-1989 and 1989-2019 is "entirely due to the decline in interest and corporate-tax rates", with similar trends across the rich world.
  3. Corporate profits as a share of GDP across the OECD were steady from the 1970s to the 1990s and then doubled, while measures of underlying profits have grown less impressively.

Related Articles:

  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.
  • The Curious Incident of the Elevated Profit Margins — The US fiscal deficit averaged just under 3% of gross national product from 1950 to 2011 but 6.6% from 2012 to 2022, driven mainly by health and social security spending, a pattern that holds excluding pandemic years. Even assuming permanently elevated profit margins, US equity valuations imply low long-run returns.
  • Five Easy Pieces — The rally in the seven largest US technology stocks has been driven by earnings rather than valuation: of the group's 28% return, 21 percentage points came from sales growth, 6 from margin expansion, and 1 from multiple expansion. Market concentration has reached its highest level since 1972, and large spikes in concentration have frequently coincided with or preceded prior recessions.

AI Summary. The share of US 12th graders socializing with friends almost daily fell from more than half in the late 1970s to 28% by 2017, and in-person socializing declined about 30% from 1976 to 2022. Teenage girls reporting persistent sadness or hopelessness rose from 36% to 57%.

Derek Thompson The Atlantic
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Citing @jean_twenge data @DKThomp highlights a 30% decline of teenage in-person socialization between 1976 and 2022; the majority of the trend, 17pp, was in the last decade.

How much has in-person socializing among American teens declined?

Core argument: The share of 12th graders who got together with friends almost daily fell from more than half in the late 1970s to 28% by 2017, and the number of socializers declined about 30% from 1976 to 2022.

In the late 1970s, more than half of 12th graders got together with their buddies almost every day. By 2017, only 28% did. “There’s very clearly been a striking decline in in-person socializing among teens and young adults, whether it’s going to parties, driving around in cars, going to the mall, or just about anything that has to do with getting together in person,” says Jean Twenge, a psychology professor at San Diego State University. From 1976 to 2022, the number of socializers fell by about 30%. For young people, all this seems to clearly correlate with actual depression. According to the CDC’s Youth Risk Behavior Surveillance System, the share of teenage girls who say they experience “persistent feelings of sadness or hopelessness” increased from 36 to 57%, and the share of girls who said they’ve contemplated suicide increased 50% in the same decade. The rise in teen depression coincides with the proliferation of smartphones and social media.

Takeaways by Macro Roundup® AI

  1. The share of 12th graders who got together with friends almost daily fell from more than half in the late 1970s to 28% by 2017, and the number of socializers declined about 30% from 1976 to 2022.
  2. Jean Twenge, a psychology professor at San Diego State University, describes a striking decline in in-person socializing among teens and young adults, spanning parties, driving around in cars, going to the mall, and other ways of getting together.
  3. The CDC's Youth Risk Behavior Surveillance System shows the share of teenage girls reporting persistent feelings of sadness or hopelessness rising from 36% to 57%, with those contemplating suicide up 50% in the same decade, a rise coinciding with the spread of smartphones and social media.

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