Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
Date Posted:

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
Date Posted:

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
Date Posted:

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
Date Posted:
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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.

Related Articles:

  • 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.

Related Articles:

  • 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.

Wednesday, March 6, 2024

AI Summary. The authors find that aggregate profit margins of US public firms rose alongside greater globalization, with the gain driven by higher foreign profitability at large, research-intensive S&P 500 firms; domestic margins did not rise for any group, consistent with increased import competition.

Bullipe Chintha, Ravi Jagannathan and Sri Sridhar National Bureau of Economic Research
Date Posted:
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During 2003-19, the mean EBIT margin of US public companies increased by 11.5% vs. 1984-2002, driven by a 47.4% increase in foreign profitability for S&P 500 firms, while domestic profitability remained flat.

How did globalization raise US firms' profit margins?

Core argument: The authors find average annual profitability of US public firms in 2003–2019 rose by 11.5% of their 1984–2002 level, driven primarily by a 47.4% increase in foreign profitability of S&P 500 firms.

We find that the overall profitability of US firms as measured by the ratio of aggregate Earnings Before Interest and Taxes to aggregate Sales (EBIT Margin, EBITM), increased significantly following increased globalization heralded by China’s entry into WTO in December 2001. We find that the increase in EBITM is driven primarily by the increased foreign profitability of S&P 500 firms, which are larger and spend significantly more on R&D than firms not in S&P 500 index (ex-S&P 500) and have greater intangible intensity than ex-S&P 500 firms. Even among S&P 500 firms, those firms that had higher intangible intensities as measured by higher R&D/Sales and Intangible Assets/Sales ratios had higher increases in their foreign profitability. Neither S&P 500 nor ex-S&P 500 firms experienced any increase in their domestic EBITM following increased globalization, consistent with increased import competition. In the aggregate, the average annual profitability of US public firms in 2003-2019 increased by 11.5% of 1984-2002 profitability. This increase was primarily driven by foreign profitability increasing by 47.4% for firms in the S&P 500 index, which are larger and have more intangible assets created by R&D and SG&A expenditures.

Takeaways by Macro Roundup® AI

  1. The authors find average annual profitability of US public firms in 2003–2019 rose by 11.5% of their 1984–2002 level, driven primarily by a 47.4% increase in foreign profitability of S&P 500 firms.
  2. The authors attribute the rise in aggregate EBIT margin following China's December 2001 WTO entry to S&P 500 firms, which are larger, spend significantly more on R&D, and have greater intangible intensity than ex-S&P 500 firms.
  3. Neither S&P 500 nor ex-S&P 500 firms saw any increase in domestic EBIT margin after increased globalization, which the authors state is consistent with increased import competition.

Related Articles:

  • 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.
  • 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.
  • Corporate Profits in the Aftermath of COVID-19 — Nonfinancial corporate profit margins—profits as a share of gross value added—rose to about 19% before easing to 15%, compared with about 13% before the pandemic. The authors attribute much of the increase to large direct government support for small and medium-sized U.S. businesses and to lower net interest expenses under accommodative monetary policy.

AI Summary. The number of California residents with incomes of $1m or more grew by 61,900, or 66%, from 2019 to 2021, lifting the state's share of US millionaires to 17.9% from 17% while the shares of New York, Texas, and Florida fell. Rising in-state incomes minted more new millionaires than the net outflow of higher-earning taxpayers to other states.

Justin Fox Bloomberg
Date Posted:
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According to new IRS data, during 2019-21 California’s economy created millionaires faster than they fled: its share of US taxpayers with adjusted gross income of $1M or higher rose almost 1pp from 17% to 17.9%. @foxjust

Is California creating millionaires faster than wealthy residents leave?

Core argument: California's residents with incomes of $1 million or more rose by 61,900, or 66%, from 2019 to 2021, enough new homegrown millionaires to replace all those who left the state and then some.

The number of California residents with incomes of $1 million or more grew by 61,900, or 66%, from 2019 to 2021. [California’s] share of US millionaires rose to 17.9% in 2021 from 17% in 2019, while those of the next three most populous and millionaire-filled states — NY, TX, and FL — fell. It’s not that the exodus of affluent Californians was a mirage. From 2020 to 2021 (more precisely, from when people filed their 2019 taxes to when they filed their 2020 taxes), 403,041 taxpayers with an average adjusted gross income of $125,362 left California for elsewhere in the US, and just 241,216 with an average income of $87,072 moved in. But rising incomes in the state minted enough new homegrown millionaires to replace all the departers and then some.

Takeaways by Macro Roundup® AI

  1. California's residents with incomes of $1 million or more rose by 61,900, or 66%, from 2019 to 2021, enough new homegrown millionaires to replace all those who left the state and then some.
  2. California's share of US millionaires rose to 17.9% in 2021 from 17% in 2019, while the shares of New York, Texas, and Florida — the next three most populous and millionaire-filled states — fell.
  3. From 2020 to 2021, 403,041 taxpayers with an average adjusted gross income of $125,362 left California for elsewhere in the US, while just 241,216 with an average income of $87,072 moved in.

Related Articles:

AI Summary. Eased financial conditions — record stock prices and tight corporate bond spreads — plus jobless claims near 200,000 and a federal deficit near 6% of GDP support an argument for strong employment growth. With the employment-to-population ratio about a percentage point below pre-Covid levels and strong immigration, employment retains upside potential.

Torsten Sløk Apollo
Date Posted:

Citing a 6% fiscal deficit and easing financial conditions despite the tightening cycle Torsten Sløk @apolloglobal argues the job market is likely to remain strong.

Do easier financial conditions and large deficits point to strong job growth?

Core argument: Financial conditions have eased dramatically since the December FOMC meeting, with the S&P 500 at all-time highs and very tight investment-grade and high-yield spreads, cited as a major tailwind to consumer spending and capex spending.

What are the arguments for a strong February employment report Financial conditions have eased dramatically since the December FOMC meeting, with the S&P 500 at all-time highs and very tight IG and HY spreads. Significant wealth effects and lower borrowing costs are a major tailwind to consumer spending and capex spending. Jobless claims remain very low, around 200,000, and the economy remains surprisingly resilient, with households and firms having locked in lower interest rates during Covid. The fiscal deficit is running at a high 6% of GDP for an expansion, driven by the CHIPS Act, IRA, and Infrastructure Act, and associated positive effects on manufacturing construction, energy investments, and infrastructure investments. The employment-to-population ratio is almost a full percentage point lower than pre-Covid, and immigration continues to be strong, suggesting there is still more upside potential to employment.

Takeaways by Macro Roundup® AI

  1. Financial conditions have eased dramatically since the December FOMC meeting, with the S&P 500 at all-time highs and very tight investment-grade and high-yield spreads, cited as a major tailwind to consumer spending and capex spending.
  2. The fiscal deficit is running at 6% of GDP, high for an expansion, driven by the CHIPS Act, Inflation Reduction Act, and Infrastructure Act, with associated positive effects on manufacturing construction, energy investments, and infrastructure investments.
  3. The employment-to-population ratio remains almost a full percentage point below its pre-Covid level and immigration continues to be strong, suggesting further upside potential for employment.

Related Articles:

  • Monetary Policy and Financial Conditions — 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.
  • 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.
  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.

AI Summary. State-run "last resort" home insurance programs, which cover properties the private market won't, have more than doubled their market share since 2018, with liabilities passing $1tn; Florida's plan faces potential losses of $525bn and California's at least $290bn, six times its 2018 level. Of 36 such plans covering natural catastrophes, 21 do not explicitly detail how they would pay deficits.

Leslie Kaufman, Saijel Kishan, and Nadia Lopez Bloomberg
Date Posted:

State-run “last resort” insurance programs have over $1T in potentially unfunded liabilities. Florida’s state insurer is bearing $525B of risk, double the 2022 level. In California, the state insurer’s potential liability is $290B, 6x the 2018 level.

How large have state-backed insurers of last resort grown?

Core argument: State-created "last resort" insurance plans crossed $1 trillion in liabilities for the first time in 2022 and have more than doubled their market share since 2018, according to Property Insurance Plans Service Office Inc.

Homeowners in the most risky places are now more likely to be covered by state-created, “last resort” insurance programs that provide protection where the private market won’t. Those plans have more than doubled their market share since 2018, and their liabilities crossed the $1 trillion threshold for the first time in 2022, according to Property Insurance Plans Service Office Inc., a research firm that tracks the programs. The most climate-vulnerable states are the most exposed: As of now, Florida’s plan could suffer $525 billion in losses; In California, it’s at least $290 billion, up sixfold from 2018. As states have assumed more and more risk, they’ve largely dodged a fundamental question: How will they cover claims in the wake of a truly major catastrophe? Out of 36 residual insurance plans that offer coverage for natural catastrophes, 21 don’t explicitly detail how they’d pay deficits, according to new research from consulting group Milliman.

Takeaways by Macro Roundup® AI

  1. State-created "last resort" insurance plans crossed $1 trillion in liabilities for the first time in 2022 and have more than doubled their market share since 2018, according to Property Insurance Plans Service Office Inc.
  2. Florida's residual insurance plan could suffer $525 billion in losses and California's at least $290 billion, a sixfold increase from 2018, making the most climate-vulnerable states the most exposed.
  3. Of 36 residual insurance plans covering natural catastrophes, 21 do not explicitly detail how they would pay deficits, according to research from consulting group Milliman.

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.
  • Buying Home and Auto Insurance Is Becoming Impossible — Car insurance premiums rose 19.2% over 12 months, about six times the rise in overall consumer prices, marking the 15th consecutive month of double-digit year-over-year increases and the longest such stretch since the mid-1980s. Reinsurance prices rose 30%–50%, leaving home insurers to absorb more risk themselves.
  • 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%.

AI Summary. Bipartisan US legislation would bar app stores from distributing TikTok unless its Chinese owner ByteDance divests control within 165 days. The bill would also create a process letting the president act against social media applications controlled by groups headquartered or domiciled in China, Russia, Iran, or North Korea.

Demetri Sevastopulo, James Politi, and Hannah Murphy Financial Times
Date Posted:

A bipartisan federal bill has been introduced that would ban TikTok from app stores unless ByteDance divests control. The bill would enable the President to take action against social media platforms based in China, Russia, Iran, and North Korea.

A bipartisan federal bill has been introduced that would ban TikTok from app stores unless ByteDance divests control. The...

Should foreign-controlled social media apps be banned unless their owners divest?

Core argument: Bipartisan legislation from Mike Gallagher and Raja Krishnamoorthi would give ByteDance 165 days to divest TikTok, after which app stores would be barred from distributing the video-sharing platform.

Lawmakers have introduced legislation that would ban app stores from distributing TikTok unless ByteDance, its Chinese owner, divests control of the popular video-sharing platform. The bipartisan bill from Mike Gallagher, the Republican chair of the House China committee, and his Democratic counterpart Raja Krishnamoorthi would give ByteDance 165 days to divest TikTok to avoid the app from being banned. The bill would also create a process that would enable the president to take action against social media applications controlled by groups that are headquartered or domiciled in China, Russia, Iran, and North Korea.

Takeaways by Macro Roundup® AI

  1. Bipartisan legislation from Mike Gallagher and Raja Krishnamoorthi would give ByteDance 165 days to divest TikTok, after which app stores would be barred from distributing the video-sharing platform.
  2. The bill would also create a process allowing the president to act against social media applications controlled by groups headquartered or domiciled in China, Russia, Iran, or North Korea.
  3. Mike Gallagher, the Republican chair of the House China committee, and his Democratic counterpart Raja Krishnamoorthi introduced the bill targeting TikTok's ownership by Chinese company ByteDance.

Related Articles:

  • Teens, Social Media and Technology 2023 — About nine-in-ten U.S. teens ages 13 to 17 say they use YouTube, making it the most widely used platform in Pew Research Center's survey, followed by TikTok (63%), Snapchat (60%), and Instagram (59%). Facebook use among teens fell from 71% in 2014-2015 to 33%, and Twitter's teen user base also shrank over the past decade.
  • US TikTok Ban Shifts to Senate Bill That Biden Team May Support — Proposed US legislation would give the government power to ban or prohibit foreign technologies or companies when deemed necessary, without naming TikTok or its owner ByteDance. Lawmakers say such measures are intended to counter security threats from apps that they say can gather user data or serve as propaganda tools.