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


Monday, March 4, 2024

AI Summary. Using administrative tax data, the authors estimate that firms experiencing the mean corporate tax change under the 2017 US tax law increased investment by 20% relative to firms with no change, with long-run domestic and total capital up 7% and 13%. They find higher depreciation deductions largely offset added revenue from capital accumulation.

Gabriel Chodorow-Reich, Matthew Smith, Owen Zidar and Eric Zwick National Bureau of Economic Research
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.@gchodorowreich @omzidar Eric Zwick and Matthew Smith find firms that benefited from the corporate tax cuts in the 2017 Tax Cuts and Jobs Act responded with a 20% increase in investment relative to firms that were not impacted.

Do corporate tax cuts raise domestic investment without paying for themselves?

Core argument: Firms experiencing the mean tax change from the Tax Cuts and Jobs Act's corporate rate cut and full expensing increased domestic investment by 20% relative to firms with no tax change, according to administrative tax data.

This paper uses administrative tax data and a new model of global investment behavior to evaluate the TCJA corporate tax provisions and to illuminate the nature of global production. We have four main findings. First, the main domestic provisions—the reduction in the corporate rate and full expensing of investment—stimulated domestic investment substantially: firms with the mean tax change increased investment by 20% relative to firms experiencing no change. Second, novel international tax provisions that incentivized U.S. multinationals to increase their foreign tangible capital also stimulated domestic investment, indicating within-firm complementarity between foreign and domestic capital. Third, using our general equilibrium model, the long-run effects of the TCJA on domestic and total capital are 7% and 13%, respectively. Finally, higher depreciation deductions largely offset additional labor and corporate tax revenue from capital accumulation. As a result, the total effect on tax revenue over ten years, which includes dynamic feedback from growth, is within 2p.p. of the mechanical effect of a 41% decline in corporate tax collections.

Takeaways by Macro Roundup® AI

  1. Firms experiencing the mean tax change from the Tax Cuts and Jobs Act's corporate rate cut and full expensing increased domestic investment by 20% relative to firms with no tax change, according to administrative tax data.
  2. TCJA international provisions that incentivized U.S. multinationals to expand foreign tangible capital also stimulated domestic investment, indicating within-firm complementarity between foreign and domestic capital.
  3. A general equilibrium model puts the long-run TCJA effects on domestic and total capital at 7% and 13%, with the ten-year revenue effect, including dynamic growth feedback, within 2 percentage points of the mechanical 41% decline in corporate tax collections.

Related Articles:

  • Tax Policy and Investment in a Global Economy — The authors estimate that the 2017 US corporate tax cut raised domestic investment at firms with the average tax change by about 20% relative to firms with no tax change, with long-run domestic and total capital up roughly 6% and 9%. They find dynamic revenue feedback under 2% of baseline corporate revenue.
  • Who Gains from Corporate Tax Cuts? — The authors estimate that corporate tax cuts boost overall investment and employment, with goods-producing firms such as manufacturers raising capital expenditure and wage bills without changing dividends, and a 1% cut in the marginal tax rate lifting their capital spending by as much as 8%. Service-sector firms instead direct most of the windfall to dividends.
  • 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.

AI Summary. Using anonymized data from 12,000 corporate tax returns and a model of global investment behavior, the authors estimate that corporations benefiting from the US corporate tax overhaul increased investment significantly more than those that did not. They find immediate expensing of domestic investment was a more efficient, lower-cost incentive than cutting the corporate tax rate.

Jim Tankersley New York Times
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.@jimtankersley reports on @omzidar @gchodorowreich research on the TCJA corporate tax cut which increased investment but reduced revenue. Eric Zwick notes immediate expensing was the most efficient incentive, “It has a bigger bang for the buck.”

.@jimtankersley reports on @omzidar @gchodorowreich research on the TCJA corporate tax cut which increased investment but...

Does immediate expensing boost investment more cheaply than corporate rate cuts?

Core argument: The researchers conclude the tax cut did not pay for itself, though both the lower corporate rate and immediate expensing of domestic investment spurred additional investment.

The researchers drew on anonymous data from 12,000 corporate tax returns from before and after the law passed, along with a new model of global investment behavior, to estimate how the law’s corporate provisions influenced businesses. They found corporations that benefited from the law increased investment significantly more than those that did not. Both the reduction in the corporate tax rate and the ability to immediately write off all domestic investments spurred more investment. But the researchers found that immediate expensing was a far more efficient incentive and came at a lower cost to taxpayers. That’s because it rewarded firms for making new investments instead of reducing their taxes on profits earned from investments made long ago. “It has a bigger bang for the buck,” Mr. Zwick said.

Takeaways by Macro Roundup® AI

  1. The researchers conclude the tax cut did not pay for itself, though both the lower corporate rate and immediate expensing of domestic investment spurred additional investment.
  2. Immediate expensing was a more efficient incentive at lower cost to taxpayers, the researchers found, because it rewarded new investment rather than reducing taxes on profits from investments made long ago — what Zwick called "a bigger bang for the buck.".
  3. The estimates rest on anonymized data from 12,000 corporate tax returns filed before and after the law passed, combined with a new model of global investment behavior.

Related Articles:

  • Tax Policy and Investment in a Global Economy — Using administrative tax data, the authors estimate that firms experiencing the mean corporate tax change under the 2017 US tax law increased investment by 20% relative to firms with no change, with long-run domestic and total capital up 7% and 13%. They find higher depreciation deductions largely offset added revenue from capital accumulation.
  • 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.

AI Summary. Older millennials' median wealth stood 37% above what a model based on all generations at the same age would predict — roughly $130,000 versus a predicted $95,000 at age 38 — a 46 percentage point swing from earlier years when they trailed expectations. Housing assets drove most of the growth.

Ana Hernández Kent and Lowell Ricketts Federal Reserve Bank of St. Louis
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According to a @stlouisfed analysis, the 2022 wealth of older millennials (born between 1980-89) was 37% above expectations based on prior generations at the same age, largely driven by real estate gains.

Have older millennials moved above wealth expectations for their age?

Core argument: Older millennials' median wealth in 2022 stood 37% above the model's prediction for their age, a 46 percentage point swing from prior years when their wealth sat below expectations.

Older millennials experienced a sharp swing in their relative standing with median wealth expectations in 2022. Whereas for much of their adult lives, their wealth had been below where we would have expected it to be based on all generations at the same age, in 2022, their wealth was 37% above expectations—a 46 percentage point swing. The figure shows these changes, as well as deviations from median wealth expectations, for each SCF year (2007-22), organized by birth decade. At age 38, the average age of older millennials in 2022, our model predicted that the typical family would have about $95,000 in median wealth based on how all generations fared at the same average age. Instead, the typical older millennial had over $130,000. While there is wide variation within this group, the typical millennial born in the 1980s thus did better than we had expected. Housing assets drove most of the overall growth.

Takeaways by Macro Roundup® AI

  1. Older millennials' median wealth in 2022 stood 37% above the model's prediction for their age, a 46 percentage point swing from prior years when their wealth sat below expectations.
  2. At age 38, the average age of older millennials in 2022, the model predicted about $95,000 in median wealth based on how all generations fared at the same age, while the typical older millennial held over $130,000.
  3. Housing assets drove most of the overall wealth growth, though wide variation exists within the group of families born in the 1980s.

Related Articles:

  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.
  • Young People Have a Lot More Wealth Than We Thought — Wealth data for young people comes from the Federal Reserve's quarterly Distributional Financial Accounts, which project forward results from the Survey of Consumer Finances conducted every three years. When newer survey results were released, young people turned out to hold considerably more wealth than the projections based on the prior survey had indicated.
  • Millennials Are Not As Badly-Off As They Think — But Success Is Bittersweet — Almost one in four US millennials say their lives are materially worse than their parents', and when wealth is deflated by house prices rather than consumer prices, millennials' assets go about half as far as baby boomers' once did. Measured against consumer prices alone, per capita wealth accumulation across the two generations tracks closely.

AI Summary. Surprise monetary tightening is associated with significant, persistent tightening in financial conditions: a 0.1 percentage point policy surprise raises the Goldman Sachs financial conditions index by about 0.07 index points on the announcement day, with further increases over the following two weeks. Macroeconomic news, especially inflation releases, also moves financial conditions by shifting expectations about future policy.

Michael Bauer and Zoë Arnaut Federal Reserve Bank of San Francisco
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New @sffed @michaelbauer_hh research suggests monetary policy is a key driver of financial conditions: a policy surprise of 0.1pp drove an increase of 0.07 index points in the Goldman Sachs Financial conditions index.

Do surprise interest rate changes tighten financial conditions persistently?

Core argument: A monetary policy surprise of 0.1 percentage point raises the Goldman Sachs Financial Conditions Index by about 0.07 index points on the day of the announcement, with further increases over the following two weeks.

Monetary policy has significant direct effects on financial conditions, as evident from the response to monetary policy surprises. [For example] a surprise monetary tightening leads to significant and persistent tightening in financial conditions. The size of the impact is moderately large: a policy surprise of 0.1 percentage point leads to an increase in the Goldman Sachs FCI by about 0.07 index points on the day of the announcement and further increases over the following two weeks. In addition, monetary policy also has indirect effects: Macroeconomic news affects financial conditions in part by shifting perceptions about the likely course of future policy. Financial market participants appear to be especially attuned to recent inflation data releases, which has led to unusually strong responses in financial conditions.

Takeaways by Macro Roundup® AI

  1. A monetary policy surprise of 0.1 percentage point raises the Goldman Sachs Financial Conditions Index by about 0.07 index points on the day of the announcement, with further increases over the following two weeks.
  2. Surprise monetary tightening leads to significant and persistent tightening in financial conditions, evidence of monetary policy's direct effects on those conditions.
  3. Monetary policy also works indirectly, as macroeconomic news shifts perceptions of the likely course of future policy, and financial market participants appear especially attuned to recent inflation data releases, which has led to unusually strong responses in financial conditions.

Related Articles:

  • A Status Check on Bank Lending and Bank Balance Sheets — Nominal bank lending growth has slowed from 10% to 2% on a three-month annualized basis, which the authors attribute to deposit outflows and higher deposit rates alongside recession fears, noting that banks building larger loan-loss provisions slowed lending more. The authors expect the growth drag from tighter lending standards to fade.
  • Transitory Disinflation — Recent disinflation likely reflected both improved supply and weaker demand, but supply improvements are largely complete and an anticipated Federal Reserve pivot could revive demand at home and abroad. A weaker dollar eases global financial conditions and is typically associated with higher commodity prices, putting upward pressure on inflation.
  • How Fast Can the Fed Ease? The Private Sector Response to Easier Conditions Will Be a Key Factor — US households have reduced debt over the past 20 years, leaving room to borrow more if incentives improve, while companies that issued debt at low rates hold large liquidity and healthy balance sheets. That gives businesses capacity to raise investment, and business surveys indicate capital-spending sentiment is already improving.

AI Summary. Rising property insurance premiums are attributed to climate-related damage, higher rebuilding costs, and costlier reinsurance protection for insurers, which is passed on to homeowners. The insurance industry says rebuilding and replacement costs rose 55% over a three-year span, driven by raw materials, wages, supply-chain bottlenecks, and a rising share of larger homes.

Aziz Sunderji Home Economics
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The property insurance industry claims that the cost of rebuilding and replacing homes has surged 55% between 2019 and 2022 contributing to higher insurance premiums. @AzizSunderji

Why are property insurance premiums rising for homeowners?

Core argument: The insurance industry says rebuilding and replacement costs surged 55% between 2019 and 2022, driven by higher raw materials prices, steeper labor wages, enduring supply-chain bottlenecks, and a rising proportion of larger, more expensive homes.

Climate change is only the first of three reasons insurance premiums are rising. The second reason is that the repair of homes after damage has also become more costly. This is a function of higher raw materials prices, steeper wages for labor, and enduring supply-chain bottlenecks. Higher replacement costs have also been driven by the rising proportion of larger, more expensive homes. The insurance industry says that rebuilding and replacement costs surged 55% between 2019 and 2022. The final driver has less to do with climate and housing than financial markets. The premiums insurance companies are paying for [catastrophic loss] protection have risen by about a third over the past few years. Insurers are passing on these higher costs to homeowners. So far, higher insurance costs haven’t hampered the flow of Americans moving to disaster-prone areas like Texas. But as insurance becomes more costly—or outright unavailable—we should probably expect this to change.

Takeaways by Macro Roundup® AI

  1. The insurance industry says rebuilding and replacement costs surged 55% between 2019 and 2022, driven by higher raw materials prices, steeper labor wages, enduring supply-chain bottlenecks, and a rising proportion of larger, more expensive homes.
  2. Premiums insurers pay for catastrophic loss protection have risen by about a third over the past few years, and insurers are passing these higher costs on to homeowners.
  3. Higher insurance costs have not yet slowed the flow of Americans moving to disaster-prone areas such as Texas, though that may change as insurance becomes more costly or outright unavailable.

Related Articles:

  • The Uninsurable World: What Climate Change Is Costing Homeowners — Global insurance losses from natural catastrophes have topped $100bn for four straight years, a level once considered the mark of an exceptionally bad year, and US insurers have repriced risk with significant premium increases. Reinsurer Swiss Re predicts a growing number of areas where buying insurance becomes uneconomical.
  • The Insurance Market Is Healing — Higher returns are drawing capital into reinsurance, which is likely to ease pressure on coverage pricing. Catastrophe bond issuance hit a record $15bn, global property catastrophe reinsurance pricing rose about 5% at January renewals versus closer to 30% a year earlier, and risk-adjusted prices for reinsurance bought by reinsurers fell as much as 15%.
  • Parts of America are Becoming Uninsurable — Florida's average home insurance premium reached about $6,000, over 3x the national average and up 42% year-on-year, yet insurers are exiting, leaving the state-backed insurer of last resort with the largest market share and $608bn of insured assets. In California, consumer-protection rules prevent premiums from covering rising wildfire and reinsurance costs.

AI Summary. Weak demand and overcapacity have pushed Chinese producer prices down for 16 months, and that disinflationary impulse is spreading abroad: US import prices from China fell 2.9% year over year while prices of imports from the European Union, Japan, and Mexico rose. Western protectionism could redirect the deflationary impact toward poorer markets.

Jason Douglas Wall Street Journal
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While excess Chinese capacity is contributing to lower import prices, the US, EU, and Japan are seeking to avoid another “China Shock” with subsidies and tariffs to buttress their economies from a flood of cheap Chinese goods. @WSJ

Is Chinese overcapacity exporting deflation to the rest of the world?

Core argument: Chinese producer prices have fallen for 16 straight months amid weak demand and overcapacity, led by consumer and durable goods, food products, metals, and electrical machinery.

Weak demand and overcapacity means Chinese producer prices have been falling for 16 months, led by consumer and durable goods, food products, metals, and electrical machinery. That disinflationary impulse is showing up around the world. The price of U.S. imports from China fell 2.9% in January from a year earlier, while the price of imports from the European Union, Japan, and Mexico all rose. Unlike in the early 2000s, however, the Western world now sees China as its chief economic rival and geopolitical adversary. The EU is considering whether Chinese-made electric vehicles are unfairly subsidized and should be subject to tariffs or other import restrictions. Former President Donald Trump has floated the idea of hitting imports from China with tariffs of 60% or higher. Such protectionism might shift some of the deflationary impact to other parts of the world, as Chinese exporters look for new markets in poorer countries.

Takeaways by Macro Roundup® AI

  1. Chinese producer prices have fallen for 16 straight months amid weak demand and overcapacity, led by consumer and durable goods, food products, metals, and electrical machinery.
  2. The price of U.S. imports from China fell 2.9% in January from a year earlier, while import prices from the European Union, Japan, and Mexico all rose.
  3. Unlike in the early 2000s, the Western world now views China as its chief economic rival and geopolitical adversary, with the EU weighing tariffs on Chinese-made electric vehicles and Donald Trump floating tariffs of 60% or higher on Chinese imports.

Related Articles:

  • 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.
  • 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.

Tuesday, March 5, 2024

AI Summary. Announcements that central banks will shrink their balance sheets are associated with government bond yields rising 4–8 basis points at horizons of one year and longer, steepening the yield curve, with more limited effects on other financial indicators. Increased demand from domestic nonbank investors has largely offset reduced central bank bond holdings.

Wenxin Du, Kristin Forbes, and Matthew Luzzetti University of Chicago
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An analysis finds that quantitative tightening in advanced economies has had a 4-8bps impact on government yields, but notes the risk of “a liquidity crunch [that could] have a sharper impact on financial markets.” @WenxinDu

How do central bank balance sheet reductions affect bond yields?

Core argument: Quantitative tightening announcements raise government bond yields by 4–8 basis points at horizons of one year and longer, steepening the yield curve, with more limited effects on most other financial market indicators.

QT announcements increase government bond yields (by 4-8bps at horizons of one year and longer), steepening the yield curve and potentially signaling a greater commitment to raising policy interest rates, but have more limited effects on most other financial market indicators. Active QT has a larger impact than passive QT, particularly on longer maturities. The implementation of QT has been associated with a modest rise in overnight funding spreads and a decline in the “convenience yield” of government bonds, but QT transactions did not significantly affect the pricing and market liquidity of government debt securities. Finally, we evaluate who buys assets when central banks unwind balance sheets. We find that increased demand by domestic nonbanks has largely compensated for reduced bond holdings by central banks. This series of cross-country results suggests that QT has had more of an impact than “paint drying”, but far less than simply reversing the effects of quantitative easing. Looking ahead, although QT has been smooth to date, frictions could increase in the future so that QT quickly evolves into more like watching “water boil.”

Takeaways by Macro Roundup® AI

  1. Quantitative tightening announcements raise government bond yields by 4–8 basis points at horizons of one year and longer, steepening the yield curve, with more limited effects on most other financial market indicators.
  2. Active QT has a larger impact than passive QT, particularly at longer maturities, and QT implementation is associated with a modest rise in overnight funding spreads and a decline in the convenience yield of government bonds.
  3. Increased demand by domestic nonbanks has largely compensated for reduced central bank bond holdings, while QT transactions did not significantly affect the pricing or market liquidity of government debt securities.

Related Articles:

  • A Beautiful Replenishment — Money market funds buying Treasury bills lets bank reserves be replenished as cash moves from the Federal Reserve's overnight reverse repo facility into the Treasury's account and back out through government spending. The author argues reserves should stay abundant, allowing the Federal Reserve's balance sheet runoff to continue about two more years.
  • The Fed Is Tightening More Than It Says — The authors estimate that the Federal Reserve's balance-sheet runoff makes its current policy rate of 5.375% equivalent in its effect on financial conditions to a rate of 5.763% without runoff, a gap of 39 basis points. They project that gap to widen to a full percentage point as assets continue rolling off at $95bn a month.
  • Olivier Blanchard on Debt Explosions — The author argues that rising long-term US Treasury yields reflect a term premium driven by heavy bond supply and weaker demand, including the Federal Reserve shrinking its holdings, rather than a risk premium, since inflation-indexed yields have also risen. Risks include a failed auction or debt monetization producing high inflation.

AI Summary. Fossil fuels' share of global primary energy fell only from about 86% to 82% over 25 years, while absolute fossil fuel consumption rose nearly 55%. Emission cuts in the EU (-23%) and US (-9%) were outweighed by China's 3.3x and India's 3x increases, with energy-sector carbon dioxide emissions up 54%.

Vaclav Smil J.P. Morgan
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Vaclav Smil argues that zero carbon by 2050 is highly unlikely: since 1997, overall CO2 emissions have grown by 54% as absolute cuts of -23% in the EU and -9% in the US were more than offset by China’s rising 3.3x and India’s up 3x.

How much has the world actually decarbonized its energy supply?

Core argument: Fossil fuels' share of world primary energy consumption fell only from nearly 86% in 1997 to about 82% in 2022, while absolute fossil fuel consumption rose nearly 55% over the same period.

All we had managed to do halfway through the intended grand global energy transition is a small relative decline of fossil fuel’s share in the world’s primary energy consumption, from nearly 86% in 1997 to about 82% in 2022. But this marginal relative retreat has been accompanied by a massive absolute increase of fossil fuel combustion: in 2022 the world consumed nearly 55% more energy locked in fossil carbon than it did in the year 1997. Absolute cuts in carbon emissions that took place in such large economies as the EU (-23%) and the US (-9%) were far surpassed by massive absolute gains in the world’s two largest industrializing nations –- China’s emissions rose 3.3 times, India’s three times. The conclusion is unequivocal: by 2023, after a quarter century of targeted energy transition, there was no absolute global decarbonization of energy supply, just the opposite as the world had substantially increased its dependence on fossil carbon. Between 1997 and 2022 annual emissions of CO2 from the fossil fuel energy sector rose from about 25.5 billion tons CO2e to about 39.3 billion tons (54% rise).

Takeaways by Macro Roundup® AI

  1. Fossil fuels' share of world primary energy consumption fell only from nearly 86% in 1997 to about 82% in 2022, while absolute fossil fuel consumption rose nearly 55% over the same period.
  2. Annual CO2 emissions from the fossil fuel energy sector rose from about 25.5 billion tons CO2e in 1997 to about 39.3 billion tons in 2022, a 54% increase.
  3. Emissions cuts in the EU (-23%) and the US (-9%) between 1997 and 2022 were far surpassed by increases in China, where emissions rose 3.3 times, and India, where they rose three times.

Related Articles:

  • Reconciling The Tension Between Green Spending and Debt Sustainability — The green energy transition is likely to reduce growth for some time, and with the gap between interest rates and growth rates near zero in many countries, stabilizing debt ratios requires primary budget balances to eventually reach zero or a small surplus. That end constraint cannot be altered; the only margin governments have is how quickly they reach it.
  • Critical 1.5C Threshold Breached Over 12-Month Period for First Time — Scientists report that global warming exceeded 1.5C above pre-industrial levels over a 12-month period for the first time, alongside record global sea surface temperatures of 21.12C. The El Niño phenomenon, which warms the Pacific Ocean surface, has contributed to sea temperature rises on top of greenhouse gas–driven warming.
  • The Death of Summer — Major European cities now record far more days with mid-afternoon temperatures above 30°C than in the early 1950s — 2.7x as many in Athens, 3.7x in Barcelona, 8.1x in Paris, and 10.4x in London. Mountain areas are warming roughly as much as coastal ones, reducing snow cover in the Alps.

AI Summary. The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.

Michael Cembalest J.P. Morgan
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The fossil fuel share of global energy use is falling at ~0.40% annually which is the same pace it did between 1973 and 1988 during the nuclear buildout; however, the overall level of fossil fuel use hasn’t fallen.

Is the falling fossil fuel share reducing global carbon emissions?

Core argument: The fossil fuel share of global energy use is falling at roughly 0.40% per year, almost exactly the pace of decarbonization achieved from 1973 to 1988 during the nuclear buildout.

The fossil fuel share of global energy use is falling at ~0.40% per year as the renewable transition progresses. That’s almost exactly the same pace of decarbonization that occurred from 1973 to 1988 during the nuclear buildout. To be clear, global CO2 emissions have not declined since energy consumption keeps rising; what’s falling is the share of primary energy from fossil fuels, not their level. The fossil-renewable gap should close at a faster pace given growing global initiatives to decarbonize; global transition spending has exceeded fossil fuel spending for the fourth year in a row and the gap is widening. Looking ahead, the fiscal costs of the US energy bill could reach $900 bn by 2030 and $1.1 trillion by 2035. But as things stand now, renewable energy is used almost exclusively to decarbonize the grid and its main purposes: space cooling, lighting, refrigeration, data centers, electronics and some space heating. The grid’s use for industrial production and transport is still small.

Takeaways by Macro Roundup® AI

  1. The fossil fuel share of global energy use is falling at roughly 0.40% per year, almost exactly the pace of decarbonization achieved from 1973 to 1988 during the nuclear buildout.
  2. Global CO2 emissions have not declined because energy consumption keeps rising; what is falling is the share of primary energy from fossil fuels rather than their level.
  3. Global transition spending has exceeded fossil fuel spending for the fourth consecutive year with the gap widening, while the fiscal costs of the US energy bill could reach $900bn by 2030 and $1.1tn by 2035.

Related Articles:

  • Growing Pains: The Renewable Transition in Adolescence — In an illustrative scenario, a California system with 20 GW of wind, 150 GW of solar and 75 GW of storage would provide only 50 GW of reliable capacity, since each added renewable unit contributes less to reliability. Levelized cost measures ignore this, so grid operators and utilities instead assess effective load-carrying capability.
  • Global Clean Energy Spending Surges to $1.8 Trillion. It’s Not Enough — Global spending on the clean-energy transition rose 17% to a record $1.8tn, covering renewable power, electric vehicles, hydrogen production and other technologies, with total funding reaching about $2.8tn including supply chains and $900bn in financing. BloombergNEF reports this remains short of a net-zero emissions trajectory.
  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.

AI Summary. China's current account surplus of 4% of GDP is larger in global terms than its 2007 peak of 10%, because its share of the world economy at market prices rose from 6% to 17%. Sustaining that surplus would require China to fund deficits in smaller developing countries.

Martin Wolf Financial Times
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According to IMF data China generated 28% of global savings in 2023 just under the 33% share the US and EU generated. @Brad_Setser notes these savings are driving a trade surplus of 4% of GDP, a post-crisis high.

Is China's smaller surplus now larger for the world?

Core argument: China's current account surplus of 4% of GDP is, from the rest of the world's point of view, far bigger than its 2007 peak of 10%, because China's share of the world economy at market prices rose from 6% to 17%.

A current account surplus of 4% of GDP does not look large by China’s past standards. But, since 2007, when China’s current account surplus peaked at 10% of GDP, its share of the world economy (at market prices, which is what matters here) has jumped from 6 to 17%. So, from the point of view of the rest of the world, a Chinese surplus of 4% of GDP is far bigger than one of 10% in 2007. Who is going to run the offsetting deficits? If China wants the mercantilist solution to excess savings it will have to fund smaller emerging and developing countries. It can pretend these are loans. But much of the money will be grants, after the fact. If it ends up funding renewable energy there, that could be good for the world. But, from China’s perspective, it would be a costly gift.

Takeaways by Macro Roundup® AI

  1. China's current account surplus of 4% of GDP is, from the rest of the world's point of view, far bigger than its 2007 peak of 10%, because China's share of the world economy at market prices rose from 6% to 17%.
  2. A mercantilist solution to China's excess savings would require China to fund smaller emerging and developing countries, raising the question of who runs the offsetting deficits.
  3. Much of the money China extends to smaller emerging and developing countries would prove to be grants after the fact, and funding renewable energy there could benefit the world while amounting to a costly gift from China's perspective.

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  • 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.
  • 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.
  • China’s Plan to Reshape World Trade On Its Own Terms — Countries covered by China's free trade agreement network took about 38% of its merchandise exports, roughly $1.3tn out of some $3.43tn shipped worldwide over a 12-month period. That free trade footprint exceeds the total worldwide exports of the Netherlands or Japan, the world's fourth- and fifth-biggest exporters.

AI Summary. Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.

Ryan Burge Graphs about Religion
Date Posted:

Citing data from the General Social Survey @ryanburge notes that from 2016-22, 72% of persons around the age of 25 had sex once a month, down from 80% in the early ‘90s.

Are people across all age groups having less sex than before?

Core argument: The share of people around age 25 reporting sexual activity at least once a month fell from more than 80% in the early 1990s to 72% recently, an 8 pp decline.

Each age group today reports lower frequencies of sexual activity compared to their counterparts from previous decades. In the early 1990s, more than 80% of individuals around the age of 25 reported engaging in sexual activity at least once a month. Recently, this figure has dropped to 72% among those in their mid-twenties. This 8 pp decline is remarkably consistent across all age groups compared. It is evident that the peak period for regular sexual activity occurs between the ages of 30 and 40. In the late 1990s, about 90% of folks said that was the case. In the most recent data, it’s much closer to 80%. The gap does narrow a bit for folks between 40 and 50 years old, but then it opens back up again when looking at those who are between 50 and 65 years of age.

Takeaways by Macro Roundup® AI

  1. The share of people around age 25 reporting sexual activity at least once a month fell from more than 80% in the early 1990s to 72% recently, an 8 pp decline.
  2. The roughly 8 pp decline in reported monthly sexual activity holds across all age groups compared, with each age group today reporting lower frequencies than its counterparts in earlier decades.
  3. Regular sexual activity peaks between ages 30 and 40, where the share reporting it fell from about 90% in the late 1990s to closer to 80% in the most recent data, with the gap narrowing for ages 40–50 and widening again for ages 50–65.

Related Articles:

  • Is There Really a Generational Difference in Identifying as Lesbian, Gay, or Bisexual? — General Social Survey data show that increases among young American adults appear in same-sex sexual behavior as well as in identification, with 20% reporting a same-sex partner versus 18.5% identifying as lesbian, gay, or bisexual. The increases are larger among 27- to 41-year-olds.
  • A New Global Gender Divide Is Emerging — 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.
  • China’s Defeated Youth — Urban Chinese unemployment among those aged 16 to 24 has run above 20%, about double the pre-pandemic level for that age group, with over 70% of unemployed youth in one year calculated to be graduates. Sentiment analysis of social media indicates the mood of young Chinese is growing darker.

AI Summary. The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.

Economist Staff The Economist
Date Posted:

Walls are going up across Europe in response to illegal immigration; between 2014 and 2023 1,344 miles were built, with another 152 going up in 2024.

Do border fences stop unauthorized migration into Europe?

Core argument: The total length of EU border fences rose from 315km in 2014 to 2,163km in 2023, with another 245km scheduled to go up this year.

Between 2014 and 2023, the total length of border fences in the EU rose from 315 to 2,163km. Another 245km will go up this year. Unauthorised crossings accounted for just 0.13% of all external crossings in the EU in 2022. Most enter Europe via the Mediterranean, not the Balkans or the eastern land border. The EU has toughened its stance on migration over recent years. Funding for Frontex has surged. In December, member countries agreed on a new migration pact, which will make it easier to deport failed asylum-seekers.

Takeaways by Macro Roundup® AI

  1. The total length of EU border fences rose from 315km in 2014 to 2,163km in 2023, with another 245km scheduled to go up this year.
  2. Unauthorised crossings made up 0.13% of all external crossings into the EU in 2022, and most migrants enter Europe via the Mediterranean rather than the Balkans or the eastern land border.
  3. The EU has toughened its migration stance, with surging funding for Frontex and a migration pact agreed by member countries in December that will make it easier to deport failed asylum-seekers.

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  • Giorgia Meloni Calls For EU Help To Deal With Surge In Migrant Arrivals — Italy has appealed for greater European Union support as more than 12,000 people arrived from north Africa in a single week, most reaching the island of Lampedusa. Arrivals on Italian shores have surged to more than 128,600 so far this year, up from about 66,200 a year earlier.
  • The World Is Becoming More African
  • Demography Is Destiny in Africa — Sub-Saharan Africa is projected to account for half of global population growth through 2050 and to hold a third of the world's people by the end of the century, up from 14%. Its population is growing 3x faster than the rest of the world, concentrating rapid growth in countries where nearly half have gross national income per person below $1,135.

AI Summary. China's military budget is set to rise 7.2% to Rmb1.67tn ($232bn), more than double its level a decade ago and the world's second largest after the US. US lawmakers and experts argue actual spending is far higher because classified expenditures are excluded from official figures.

FT Staff Financial Times
Date Posted:

Chinese defense spending has more than doubled over the past decade under Xi Jinping, and is budgeted to increase 7.2% this year, outpacing targeted 5% real GDP growth.

Is China's military spending growing faster than official figures show?

Core argument: China's military budget will rise 7.2% to Rmb1.67tn ($232bn), in line with last year's increase despite a slowing economy, ranking China the world's second largest defence spender after the US.

Beijing’s military budget will increase by 7.2%, in line with last year’s rise despite a slowing economy and making China the second largest spender after the US globally. This military budget of Rmb1.67tn ($232bn) has more than doubled over the past decade under Chinese leader Xi Jinping. US lawmakers and experts have argued that the actual military expenditures are far higher than official figures, thanks to classified expenditures that are not included. Local defence-related groups should benefit with share prices rising in the past month on the back of growing demand expectations. Shares in Avic Xi’an Aircraft Industry Group and China Shipbuilding Industry Co are up a fifth. China’s largest helicopter maker AviChina Industry & Technology stock is up 13%. But even after those gains the latter trades at about 7 times forward earnings, a significant discount to European peers, leaving room for upside.

Takeaways by Macro Roundup® AI

  1. China's military budget will rise 7.2% to Rmb1.67tn ($232bn), in line with last year's increase despite a slowing economy, ranking China the world's second largest defence spender after the US.
  2. China's military budget has more than doubled over the past decade under Xi Jinping, and US lawmakers and experts argue actual expenditures are far higher than official figures because classified spending is excluded.
  3. Shares in Avic Xi'an Aircraft Industry Group and China Shipbuilding Industry Co are up a fifth over the past month and AviChina Industry & Technology is up 13%, with AviChina trading at about 7 times forward earnings, a discount to European peers.

Related Articles:

  • Xi Jinping Says He Is Preparing China for War — China's leadership has emphasized war readiness, announcing a 7.2% increase in the defense budget—which has doubled over the past decade—and plans to reduce dependence on foreign grain imports. China has also opened National Defense Mobilization recruitment offices across the country, while cities in Fujian Province opposite Taiwan build or upgrade air-raid shelters.
  • The Taiwan Catastrophe — East Asia and the Pacific account for one-third of global GDP in purchasing-power-parity terms, roughly twice the U.S. share, and Chinese domination of the region would harm U.S. economic interests. U.S. two-way goods trade with its nine largest Asian partners besides China was nearly $940bn, about 60% larger than U.S. goods trade with China.
  • Xi, Biden and the $10 Trillion Cost of War Over Taiwan — Bloomberg Economics estimates a war over Taiwan would cost around $10tn, roughly 10% of global GDP, based on models of the hit to semiconductor supply, regional shipping, trade sanctions and tariffs, and financial markets. The largest estimated hit comes from missing Taiwanese chips, which would stall production of laptops, tablets, smartphones, and autos.