Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, April 1, 2024

AI Summary. The US native-born labor force fell by about 1.2m over four years, a decline driven overwhelmingly by population aging, while foreign-born labor supply grew by about 3m, leaving the overall labor force up roughly 2m. Without immigration, the total US labor force would have shrunk.

Ernie Tedeschi Briefing Book
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Since the end of 2019, US GDP has grown by 8.2%, and immigration drove at least 1.6pp of that growth. The overall US workforce grew by 2mm, with immigration offsetting a 1.2mm decline in the native-born workforce. @ernietedeschi

Has immigration offset the aging-driven decline in the native-born labor force?

Core argument: The native-born US labor force fell by 1.2 million between 2019 Q4 and 2023 Q4, a decline driven overwhelmingly by aging, as the share of native-born adults aged 65 or older rose from about 21% to 23%.

Between the end of 2019 and the end of 2023, the native-born US labor force (workers who either had or actively wanted a job) fell by 1.2 million. This decline was driven overwhelmingly by the aging of the native-born population: in 2019 Q4, about 21% of the native-born civilian adult population was 65 or older; in 2023 Q4, this share had risen to 23%. In a counterfactual world without immigration, then, the overall US labor force would have shrunk over the past four years, placing a meaningful ceiling on aggregate growth. Instead, the US labor force grew by about 2 million. That is because immigrants more than filled in the labor hole dug by native-born workers. The foreign-born labor supply expanded by about 3 million, with 1 million of that from naturalized US citizens and 2 million from non-citizens, which includes immigrants with both legal and non-legal status. This immigrant contribution on its own expanded the labor force by 1.9% over the four years following 2019 Q4.

Takeaways by Macro Roundup® AI

  1. The native-born US labor force fell by 1.2 million between 2019 Q4 and 2023 Q4, a decline driven overwhelmingly by aging, as the share of native-born adults aged 65 or older rose from about 21% to 23%.
  2. Foreign-born labor supply expanded by about 3 million over the four years after 2019 Q4 — 1 million naturalized citizens and 2 million non-citizens of both legal and non-legal status — while the total US labor force grew by about 2 million.
  3. The immigrant contribution alone expanded the US labor force by 1.9% over the four years following 2019 Q4; without immigration, the overall labor force would have shrunk, placing a meaningful ceiling on aggregate growth.

Related Articles:

  • The Demographic Outlook: 2024 to 2054 — The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.
  • Growth in Working-Age Population Ends. That’s Not All Bad — Immigration is the only factor keeping the US working-age population from shrinking, as about 4 million baby boomers turn 65 each year and more than 820,000 Americans aged 15–64 died last year. Forecasts project immigration will hold the US 15-to-64 population roughly constant through 2100, versus projected declines of 20% across high-income countries and 62% in China.
  • Immigrants & Their Kids Were 70% of U.S. Labor Force Growth Since 1995 — U.S. labor force data show immigrants accounted for 49% of labor force growth over roughly the past three decades and their children another 21%, together about 70% of an increase of nearly 32.8m workers. Immigrants rose from about 10% to 18% of the labor force, and immigrants plus their children from 18% to 29%.

AI Summary. Nationwide chronic absenteeism — the share of students missing at least 10% of a school year — rose from 15% in 2018 to 28% in 2022, and although rates improved in 2023, they remained 75% above the pre-pandemic baseline. Chronic absenteeism is associated with lower standardized test scores, with the highest rates in lower-achieving, higher-poverty districts.

Nat Malkus American Enterprise Institute
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28% of American public school students missed at least 10% of the school year in 2022 up from 15% before the pandemic. The change was most pronounced in low-achieving school districts. @natmalkus @AEIecon

Has chronic school absenteeism remained far above pre-pandemic levels?

Core argument: Nationwide chronic absenteeism—students missing at least 10% of a school year—rose from 15% in 2018 to 28% in 2022, and although rates fell in 33 of 39 reporting states in 2023, they remained 75% above the pre-pandemic baseline.

Chronic absenteeism is associated with lower standardized test scores. Studies have shown larger associations between chronic absenteeism and achievement in later grades than in earlier grades and in math than in reading. Nationwide, chronic absenteeism—the percentage of students missing at least 10% of a school year—surged from 15% in 2018 to 28% in 2022. Falling in 33 of 39 states reporting data, chronic absenteeism rates improved in 2023 but still remained 75% higher than the pre-pandemic baseline. Chronic absenteeism increased for all district types, but rates were highest in districts with low achievement and higher poverty, affecting over one in three students. In 2022, 16% of Asian students and 24% of white students were chronically absent, compared to 36% of Hispanic students and 39% of black students. The urgent need to recover from pandemic learning loss will be severely hampered by current rates of chronic absenteeism, making it the most pressing post-pandemic problem in public schools.

Takeaways by Macro Roundup® AI

  1. Nationwide chronic absenteeism—students missing at least 10% of a school year—rose from 15% in 2018 to 28% in 2022, and although rates fell in 33 of 39 reporting states in 2023, they remained 75% above the pre-pandemic baseline.
  2. Chronic absenteeism in 2022 reached 39% of black students and 36% of Hispanic students, compared with 24% of white students and 16% of Asian students.
  3. Chronic absenteeism, which is associated with lower standardized test scores, rose across all district types but was highest in districts with low achievement and higher poverty, affecting more than one in three students there.

Related Articles:

  • What the Data Says About Pandemic School Closures, Four Years Later — Among school districts with similar poverty levels, remote learning was associated with greater declines in student achievement, and a district-level analysis found community poverty rates and the length of school closures had roughly equal effects on outcomes. For each week spent remote, students in poor districts experienced steeper math losses than peers in richer districts.
  • Parents Don’t Understand How Far Behind in School Their Kids Are — The authors calculate that the average student fell half a year behind in math and a third of a year behind in reading. Students in the poorest 10% of districts lost three-quarters of a year in math, more than double the decline in the richest districts, with reading declines half as large.
  • NAEP Long-Term Trend Assessment Results: Reading and Mathematics — U.S. national assessment scores for 13-year-olds declined 4 points in reading and 9 points in mathematics from the prior assessment, and 7 and 14 points respectively compared with a decade earlier. Mathematics declines were larger for lower-performing students (12–14 points) than for middle- and higher-performing students (6–8 points).

AI Summary. Enrollment in vocational-focused community colleges rose 16% to its highest level since tracking began, with construction-trades programs up 23% and heating, ventilation, air conditioning and vehicle repair programs up 7%. Federal data show the number of carpenters and electricians grew over the past decade even as their median ages fell.

Te-Ping Chen Wall Street Journal
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Since 2019 enrollment growth in vocational-focused community colleges is up 16% compared to under 1% growth in four-year colleges. The median age of American electricians and plumbers started to decline recently.

Are young workers shifting toward skilled trades and vocational training?

Core argument: Enrollment in vocational-focused community colleges rose 16% last year to the highest level since the National Student Clearinghouse began tracking the data in 2018.

The number of students enrolled in vocational-focused community colleges rose 16% last year to its highest level since the National Student Clearinghouse began tracking such data in 2018. The ranks of students studying construction trades rose 23% during that time, while those in programs covering HVAC and vehicle maintenance and repair increased 7%. The number of carpenters in the U.S. grew over the past decade, while their median age fell from 42.2 to 40.9. The same was true for electricians, whose ranks grew by 229,000 workers, even as their median age fell by 2.9 years, according to federal data. Other skilled trade occupations, such as plumbing and HVAC workers, have also trended younger.

Takeaways by Macro Roundup® AI

  1. Enrollment in vocational-focused community colleges rose 16% last year to the highest level since the National Student Clearinghouse began tracking the data in 2018.
  2. Enrollment in construction trades programs rose 23%, while programs covering HVAC and vehicle maintenance and repair grew 7%.
  3. The number of U.S. carpenters grew over the past decade as their median age fell from 42.2 to 40.9, and electricians added 229,000 workers with a median age drop of 2.9 years, according to federal data.

Related Articles:

  • America Is Trying to Electrify. There Aren’t Enough Electricians — The U.S. Bureau of Labor Statistics projects the country's more than 700,000 electricians will grow about 7% over the next decade, against a 5% average for all occupations. Electricians report being booked months out and struggling to hire, and many are raising wages and prices as federal climate incentives worth several hundred billion dollars take effect.
  • Talent Disrupted: Underemployment, College Graduates, and the Way Forward — A study classifying college graduates as underemployed when their occupation does not typically require a bachelor's degree finds that of every 100 graduates with a terminal bachelor's degree, 48 hold college-level jobs one year after graduation and 55 do at both five and 10 years. Graduates who start underemployed largely remain so.
  • China’s Shipyards Are Ready for a Protracted War. America’s Aren’t — China produced more than half of the world's commercial shipbuilding output, while Europe accounts for about 5% and the US next to nothing, with most of the remainder built in South Korea and Japan. Analysts argue that in a protracted conflict China's wartime-scale yards could quickly accelerate production, replace lost ships, and repair damaged ones.

AI Summary. The implied equity risk premium for the S&P 500 — the forward-looking extra return investors demand for holding stocks over risk-free assets — has fallen to 4.23%, its lowest level since 2008, as the market has climbed.

Aswath Damodaran Social Science Research Network
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.@AswathDamodaran estimates the current equity risk premium for the S&P 500 at 4.23%, the lowest level since 2008; the expected return on stocks is 8.6%.

Has the equity risk premium fallen to its lowest level since 2008?

Core argument: The implied equity risk premium for the S&P 500 has fallen to 4.23% as the market climbs, its lowest level since 2008.

As the market climbs, the implied ERP for the S&P 500 drops to 4.23%, its lowest value since 2008. As a forward-looking price of risk, the ERP drives everything in markets. I have a review that I do on ERP, and my fifteenth annual update is now available. The paper is verbose (155 pages) and not riveting reading, but it does include everything I know about equity risk premiums and their estimation.

Takeaways by Macro Roundup® AI

  1. The implied equity risk premium for the S&P 500 has fallen to 4.23% as the market climbs, its lowest level since 2008.
  2. The equity risk premium, characterized as a forward-looking price of risk that drives everything in markets, is the subject of a fifteenth annual review running 155 pages on its determinants and estimation.

Related Articles:

  • Magnificent 7. Or is it Magnificent 2? — Microsoft and Nvidia's combined weight in the S&P 500 rose from 6.3% in 2021 to 12.3%, while Alphabet, Amazon, Apple, Meta, and Tesla's combined weight fell from 18% to 16.2% as they underperformed the index. The other 493 stocks rose 33.5% in value, from $23.9tn to $31.9tn.
  • Five Easy Pieces — The rally in the seven largest US technology stocks has been driven by earnings rather than valuation: of the group's 28% return, 21 percentage points came from sales growth, 6 from margin expansion, and 1 from multiple expansion. Market concentration has reached its highest level since 1972, and large spikes in concentration have frequently coincided with or preceded prior recessions.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. Market share is not a consistent indicator of firm performance, and many industries show a negative relationship between market share and profitability. Among industry-leading public firms in the dataset, 90 companies — 56% — have profit margins below their industry's median.

Daniel Rasmussen Verdad
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After examining all US and Canadian private and public firms with >$10mm in sales, @verdadcap concludes that the relationship between a firm’s market share and return on assets/equity is “virtually non-existent.”

Does higher market share mean higher profitability?

Core argument: Of the industry-leading public firms in the dataset, 90 companies—56%—have profit margins below their industry median, and it is rare for the number-one company in an industry to earn far above-market margins.

Market share is not a consistent indicator of firm performance. This finding holds true across industries, with many illustrating a negative relationship between market share and profitability. Companies earn their market share through a better product, better pricing, better service, or a litany of other firm-specific strategic decisions. It's actually quite rare to see the number-one company in an industry earning far above-market profit margins. In our dataset, 90 companies—or 56% of the industry-leading public firms—have margins below the industry median.

Takeaways by Macro Roundup® AI

  1. Of the industry-leading public firms in the dataset, 90 companies—56%—have profit margins below their industry median, and it is rare for the number-one company in an industry to earn far above-market margins.
  2. Market share is not a consistent indicator of firm performance, a finding that holds across industries, with many showing a negative relationship between market share and profitability.
  3. Companies earn market share through a better product, better pricing, better service, or other firm-specific strategic decisions.

Related Articles:

  • Rising Markups and Declining Business Dynamism: Evidence From the Industry Cross Section — Across industries, larger increases in markups are not associated with larger declines in business dynamism—measured by new business entry rates and gross job or worker flows—and the correlation may even be positive. The authors conclude that rising markups as commonly measured are not a major explanatory factor behind declining dynamism.
  • Surging Business Formation in the Pandemic: Causes and Consequences? — Shifts in consumer demand and in preferences for work and lifestyle during the pandemic created entrepreneurial opportunities, and applications to start businesses produced new firms and establishments that hired workers in large numbers. The authors argue these new businesses drew in quitting workers as founders or hires, implying economic restructuring across industry, geography, and firm size and age.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Microsoft and OpenAI executives have drawn up plans for a US data center project, referred to as "Stargate," housing a supercomputer with millions of specialized server chips to power OpenAI's artificial intelligence. People involved say the project could cost as much as $100bn, roughly 100x some of today's biggest data centers, with Microsoft likely financing it.

Anissa Gardizy and Amir Efrati The Information
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Microsoft and OpenAI are planning a super-computer “Stargate” that could cost as much as $100B to provide compute for OpenAI’s artificial intelligence.

Microsoft and OpenAI are planning a super-computer “Stargate” that could cost as much as $100B to provide compute for...

How much will the largest planned AI supercomputer cost?

Core argument: Microsoft and OpenAI executives have drawn up plans for a U.S.-based data center project referred to as "Stargate" that could cost as much as $100 billion, according to people involved in the private conversations and a person who viewed Microsoft's initial cost estimates.

Executives at Microsoft and OpenAI have been drawing up plans for a data center project that would contain a supercomputer with millions of specialized server chips to power OpenAI’s artificial intelligence, according to three people who have been involved in the private conversations about the proposal. The project could cost as much as $100 billion, according to a person who spoke to OpenAI CEO Sam Altman about it and a person who has viewed some of Microsoft’s initial cost estimates. Microsoft would likely be responsible for financing the project, which would be 100 times more costly than some of today’s biggest data centers, demonstrating the enormous investment that may be needed to build computing capacity for AI in the coming years. Executives envisage the proposed U.S.-based supercomputer, which they have referred to as “Stargate,” as the biggest of a series of installations the companies are looking to build over the next six years.

Takeaways by Macro Roundup® AI

  1. Microsoft and OpenAI executives have drawn up plans for a U.S.-based data center project referred to as "Stargate" that could cost as much as $100 billion, according to people involved in the private conversations and a person who viewed Microsoft's initial cost estimates.
  2. The proposed Stargate supercomputer would contain millions of specialized server chips to power OpenAI's artificial intelligence and would be 100 times more costly than some of today's biggest data centers.
  3. Microsoft would likely be responsible for financing the project, which executives envisage as the biggest of a series of installations the two companies are looking to build over the next six years.

Related Articles:

  • AI Datacenter Energy Dilemma – Race for AI Datacenter Space — Artificial intelligence is projected to push datacenters to 4.5% of global electricity generation by 2030, with datacenter power capacity growth accelerating from a 12-15% annual rate to 25%. Global datacenter critical IT power demand is projected to rise from 49 gigawatts to 96 gigawatts, about 40 gigawatts of it for AI.
  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
  • Microsoft Infrastructure – AI & CPU Custom Silicon Maia 100, Athena, Cobalt 100 — Microsoft has planned annual datacenter spending of more than $50bn, which exceeds the annual spend of megaprojects such as nationwide rail networks, dams, and the Apollo moon program. The buildout is aimed at accelerating artificial general intelligence and extending generative AI from productivity applications to leisure.

AI Summary. AI adoption is argued to require continued heavy investment in semiconductor production and a significant expansion of energy infrastructure to meet rising demand for computation. This larger demand for investment could push interest rates higher; Northern Virginia's data center cluster is projected to need the equivalent of several large nuclear power plants.

Tyler Cowen Bloomberg
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.@tylercowen argues that demand from AI for semiconductors, computation, and energy will require capital investment that will put upward pressure on interest rates.

Will AI's demand for chips and energy push interest rates higher?

Core argument: Northern Virginia, home to major data centers, needs the equivalent of several large nuclear power plants to meet projected energy demands, a dilemma driven by AI and other factors.

Think about capex in a world of AI. The scurry to produce more high-quality semiconductor chips will continue. Those investments are not easy or cheap. But the demand for investment will not stop there. The more that AI is integrated into lives and business plans, the higher will be the demand for computation. That will induce a significant expansion of energy infrastructure. Northern Virginia, for example, is now facing a major dilemma along these lines, and not only because of AI. The region is home to major data centers, and now needs the equivalent of several large nuclear power plants to meet projected energy demands.

Takeaways by Macro Roundup® AI

  1. Northern Virginia, home to major data centers, needs the equivalent of several large nuclear power plants to meet projected energy demands, a dilemma driven by AI and other factors.
  2. Greater integration of AI into daily life and business plans raises demand for computation, which the author argues will induce a significant expansion of energy infrastructure.
  3. Production of more high-quality semiconductor chips will continue, and those investments are neither easy nor cheap.

Related Articles:

  • Amazon Bets $150 Billion on Data Centers Required for AI Boom — Amazon has committed roughly $148bn over two years to build and operate data centers worldwide, expanding hubs in northern Virginia and Oregon while entering new locations including Mississippi, Saudi Arabia, and Malaysia. The buildout targets demand for corporate services like file storage and databases, as well as the computing power for expected growth in generative artificial intelligence.
  • AI Needs So Much Power That Old Coal Plants Are Sticking Around — US utilities and grid operators have doubled their annual electricity demand forecasts for the next five years to about 1.5%, the highest rate since the 1990s, after decades of growth below 1%. Alongside data centers, the demand comes from roughly $465bn of announced semiconductor, electric-vehicle and battery factories, and old coal plants are staying online.
  • Data Centres Curbed as Pressure Grows On Electricity Grids — The International Energy Agency reports that data center energy use is growing rapidly in the US, home to a third of the world's 8,000 data centers, and in China, which has a tenth, and projects that global electricity consumption from data centers, cryptocurrencies, and artificial intelligence could double over a four-year span.

AI Summary. Newly digitized unemployment insurance claims data show U.S. states' unemployment rates have become less dispersed, with convergence in how quickly and fully unemployment recovers after recessions. The authors argue convergence in states' industrial composition helps explain this more uniform business cycle and why interstate migration became a less important adjustment mechanism.

Andrew Fieldhouse, David Munro and Christoffer Koch Brookings Papers On Economic Activity
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Since the 1960s labor market fluctuations have become more uniform across states, helping to make interstate migration less important in cyclical adjustments. @A_Fieldhouse @D_Munro_Econ @ChristofferKoch

Why have state unemployment rates converged across the United States?

Core argument: Newly digitized unemployment insurance claims data, used to construct monthly state unemployment series back to January 1947, show a trend decrease in the dispersion of unemployment across U.S. states.

Using newly digitized unemployment insurance claims data we construct historical monthly unemployment series for U.S. states going back to January 1947. We document 1) a trend decrease in the dispersion of unemployment across states; 2) a marked attenuation of relative employment and relative population responses to state-specific demand shocks; and 3) a convergence across states in both the speed and degree to which unemployment recovers after recessions. Convergence in states’ industrial composition helps explain why a more uniform business cycle emerged when it did. And states’ increasingly similar experience in recessions helps explain why interstate migration became less of an important adjustment mechanism.

Takeaways by Macro Roundup® AI

  1. Newly digitized unemployment insurance claims data, used to construct monthly state unemployment series back to January 1947, show a trend decrease in the dispersion of unemployment across U.S. states.
  2. Relative employment and relative population responses to state-specific demand shocks attenuated markedly, and states converged in both the speed and degree to which unemployment recovers after recessions.
  3. Convergence in states' industrial composition helps explain the timing of a more uniform business cycle, and states' increasingly similar recession experiences help explain why interstate migration became less important as an adjustment mechanism.

Related Articles:

Tuesday, April 2, 2024

AI Summary. Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.

Joseph Briggs and Devesh Kodnani Goldman Sachs
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Goldman Sachs forecasts an AI-driven investment cycle with $250B of annual hardware investment, equivalent to 9% of US business investment or roughly 1% of US GDP, through 2025. They expect this capex cycle to peak at 2-2.5% of US GDP by 2032.

How much will AI investment lift productivity growth over a decade?

Core argument: Analysts estimate generative AI could raise developed-market labor productivity growth by 1.5pp per year over a 10-year adoption period, implying a cumulative increase in labor productivity levels of around 15%.

Investment in AI [hardware] is likely to rise substantially as this investment is a precursor to the widespread integration of AI into business processes. We expect such an investment cycle (which we have estimated could peak at 2-2½% of GDP) to be the first measurable gauge of AI adoption. Early signs of such an investment boom are already visible among AI-enabling companies. This increased investment is not yet visible in official national accounts data that are relevant for GDP, but shipments for some AI-related components have recently picked up. The economic upside implied by our analysis is quite large. We estimate that generative AI could raise DM [developed market] labor productivity growth by 1½pp per year over a 10-year adoption period; implying a cumulative increase in labor productivity levels of around 15%; and forecast a net 0.4pp boost to DM potential GDP growth by the end of forecast horizon after accounting for the overlap with current technology-driven productivity gains and a slowing underlying productivity growth trend.

Takeaways by Macro Roundup® AI

  1. Analysts estimate generative AI could raise developed-market labor productivity growth by 1.5pp per year over a 10-year adoption period, implying a cumulative increase in labor productivity levels of around 15%.
  2. The AI hardware investment cycle, estimated to peak at 2–2.5% of GDP, is expected to be the first measurable gauge of AI adoption, with early signs already visible among AI-enabling companies.
  3. Increased AI investment is not yet visible in official national accounts data relevant for GDP, though shipments of some AI-related components have picked up; analysts forecast a net 0.4pp boost to developed-market potential GDP growth by the end of the forecast horizon.

Related Articles:

  • Microsoft and OpenAI Plot $100 Billion Stargate AI Supercomputer — Microsoft and OpenAI executives have drawn up plans for a US data center project, referred to as "Stargate," housing a supercomputer with millions of specialized server chips to power OpenAI's artificial intelligence. People involved say the project could cost as much as $100bn, roughly 100x some of today's biggest data centers, with Microsoft likely financing it.
  • Amazon Bets $150 Billion on Data Centers Required for AI Boom — Amazon has committed roughly $148bn over two years to build and operate data centers worldwide, expanding hubs in northern Virginia and Oregon while entering new locations including Mississippi, Saudi Arabia, and Malaysia. The buildout targets demand for corporate services like file storage and databases, as well as the computing power for expected growth in generative artificial intelligence.
  • AI Datacenter Energy Dilemma – Race for AI Datacenter Space — Artificial intelligence is projected to push datacenters to 4.5% of global electricity generation by 2030, with datacenter power capacity growth accelerating from a 12-15% annual rate to 25%. Global datacenter critical IT power demand is projected to rise from 49 gigawatts to 96 gigawatts, about 40 gigawatts of it for AI.

AI Summary. Foreign-born workers make up 20.3% of the roughly 19.9mn workers in strategically significant US industries—those ranking in the top fifth for research spending per worker and above average in use of science and engineering workers—compared with 18.4% of the workforce overall. Manufacturing and professional services account for 83% of employment in these industries.

Connor O’Brien and Adam Ozimek Economic Innovation Group
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Properly trained talent is the limiting constraint to growth; immigrants currently make up 20% of the domestic American workforce in strategic industries. @cojobrien @ModeledBehavior

How large a share of strategic industry workers are foreign-born?

Core argument: Foreign-born workers make up 20.3% of the 19.9mm workers in strategically significant industries identified in the 2018–2022 five-year American Community Survey, above their 18.4% share of the workforce overall.

We identify Census-defined industries as strategically significant if they intersect with Brookings Metro’s Advanced Industries definition, using the Census Bureau’s NAICS crosswalk. Brookings defines advanced industries as those that are both in the top fifth of industries by R&D spending per worker and are above average in their use of STEM workers. We then examine the workforces of these industries using 2018-2022 five-year American Community Survey (ACS) microdata. The industries identified encompass nearly 20 million workers and range from software to shipbuilding. Strategic industries are disproportionately in manufacturing and professional services, which combine for 83% of employment. In non-strategic sectors, these two categories combined employ only 9% of workers. We find a total of 19.9mm workers in the 2022 five-year ACS in our identified strategic industries. Just over 4mm, or 20.3%, of such workers are foreign-born, compared with 18.4% of workers overall.

Takeaways by Macro Roundup® AI

  1. Foreign-born workers make up 20.3% of the 19.9mm workers in strategically significant industries identified in the 2018–2022 five-year American Community Survey, above their 18.4% share of the workforce overall.
  2. Manufacturing and professional services account for 83% of employment in strategically significant industries, compared with 9% of workers in non-strategic sectors.
  3. Strategically significant industries, defined by intersecting Census industries with Brookings Metro's advanced industries — those in the top fifth by R&D spending per worker and above average in STEM worker use — range from software to shipbuilding.

Related Articles:

  • The Extreme Shortage of High IQ Workers — Semiconductor manufacturing requires workers of above-average intelligence, with the most demanding roles needing IQs in the top 1 in 1,000 — a pool of about 164,000 people in the US, of whom perhaps 100,000 can be placed in such professions. The author argues this scarcity explains reliance on high-IQ workers abroad and on smarter tools and non-human intelligence.
  • Immigration and the U.S. Economy Since the Pandemic: An Accounting Exercise — The US native-born labor force fell by about 1.2m over four years, a decline driven overwhelmingly by population aging, while foreign-born labor supply grew by about 3m, leaving the overall labor force up roughly 2m. Without immigration, the total US labor force would have shrunk.
  • Third-Country Effects of U.S. Immigration Policy — U.S. H-1B visa denial rates rose from about 6% to 16%, and the authors estimate a 10 percentage point rise in denials increases Canadian applications by 30%, roughly one Canadian application per four forgone visas. More exposed Canadian firms increased sales and hired about 0.5 native workers per immigrant.

AI Summary. The authors argue that slowing globalization, fragmenting global flows, longer supply chains, and fiscal pressures from pandemic-era debt and population aging are pushing average long-run inflation upward. They contend that keeping inflation low and stable would require offsetting political-economy factors such as stronger central bank independence or more credible public debt policy.

Hassan Afrouzi, Marina Halac, Kenneth Rogoff and Pierre Yared Brookings Papers On Economic Activity
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.@krogoff @YaredPierre @hafrouzi argue that strengthened central bank independence and more credible public debt policies are required to offset inflationary pressures from trade-distorting geopolitical tensions and rising government deficits.

Are slowing globalization and fiscal pressures pushing long-run inflation higher?

Core argument: The authors argue that keeping inflation low and stable will require political economy offsets such as strengthened central bank independence or more credible public debt policy, because global economic pressures are pushing average long-run inflation upwards.

If countries pursue protectionist policies and do not deescalate geopolitical tensions in the coming years, then the slowdown in globalization, the rising fragmentation of global flows, and the lengthening of supply chains will also persist. Debt overhang from pandemic-era government spending combined with high interest rates is a common driver of [rising fiscal pressures], but it is not the only one. The fiscal pressures for advanced economies largely reflect the acceleration of the aging of the population and the resulting expansion of entitlement spending without commensurable revenue increases. We argue that for inflation to remain low and stable in the future, political economy factors, such as strengthened central bank independence or more credible public debt policy, would need to offset the global economic pressures now pushing average long-run inflation upwards.

Takeaways by Macro Roundup® AI

  1. The authors argue that keeping inflation low and stable will require political economy offsets such as strengthened central bank independence or more credible public debt policy, because global economic pressures are pushing average long-run inflation upwards.
  2. Continued protectionist policies and unresolved geopolitical tensions would sustain the slowdown in globalization, rising fragmentation of global flows, and lengthening of supply chains, according to the authors.
  3. Fiscal pressures in advanced economies largely reflect accelerating population aging and the resulting expansion of entitlement spending without commensurate revenue increases, while pandemic-era debt overhang combined with high interest rates is a common driver across countries.

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  • Has the U.S. Economy Transitioned to a Higher Long-Run Real Interest Rate Regime? — Labor productivity growth in the U.S. nonfarm business sector has exceeded its longer-run average in three of the past five years, suggesting a possible shift to a faster productivity growth regime. Such a shift is one possible explanation for a long-run neutral real interest rate above 2%.
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AI Summary. Bloomberg Economics projects US federal debt will reach 123% of GDP by 2034, with debt servicing costs near 5.4% of GDP — over 1.5x what the federal government spent on national defense in 2023 and comparable to the entire Social Security budget. Across a million simulations, the worst 5% of outcomes put the debt ratio above 139%.

Bhargavi Sakthivel, Maeva Cousin, and David Wilcox Bloomberg
Date Posted:

A Bloomberg analysis argues the US debt outlook is fragile, with servicing costs reaching 5.4% of GDP by 2034, 1.5x what was spent on defense last year.

How high will US debt and interest costs rise by 2034?

Core argument: Bloomberg Economics' model, using market pricing for future interest rates and bond maturity data while keeping the CBO's other assumptions, projects US debt at 123% of GDP in 2034.

Bloomberg Economics has built a forecast model using market pricing for future interest rates and data on the maturity profile of bonds. Keeping all the CBO’s other assumptions in place, that shows debt equaling 123% of GDP for 2034. Debt at that level would mean servicing costs reach close to 5.4% of GDP — more than 1.5 times as much as what the federal government spent on national defense in 2023, and comparable to the entire Social Security budget. To put some parameters around the uncertainty, Bloomberg Economics has run a million simulations on the CBO’s baseline view — an approach economists call stochastic debt sustainability analysis. Each simulation forecasts the debt-to-GDP ratio with a different combination of GDP growth, inflation, budget deficits, and interest rates, with variations based on patterns seen in the historical data. In the worst 5% of outcomes, the debt-to-GDP ratio ends 2034 above 139%, which means that the US would have a higher debt ratio in 2034 than crisis-prone Italy did last year.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics' model, using market pricing for future interest rates and bond maturity data while keeping the CBO's other assumptions, projects US debt at 123% of GDP in 2034.
  2. Debt at 123% of GDP would put servicing costs near 5.4% of GDP, more than 1.5 times what the federal government spent on national defense in 2023 and comparable to the entire Social Security budget.
  3. In the worst 5% of Bloomberg Economics' million simulations, which vary GDP growth, inflation, budget deficits, and interest rates, the debt-to-GDP ratio ends 2034 above 139%, higher than Italy's ratio last year.

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  • 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.
  • From Riches to Rags: Causes of Fiscal Deterioration Since 2001 — Federal debt held by the public rose from 32% to 98% of GDP over roughly two decades, despite earlier Congressional Budget Office projections that the debt would be paid off. The authors attribute 37 percentage points to major tax cuts, 33 to discretionary spending and Medicare expansions, and 28 to recession and pandemic responses.

AI Summary. The United States was the world's largest exporter of liquefied natural gas, shipping an average of 11.9 billion cubic feet per day, a 12% increase from the prior year.

Victoria Zaretskaya Energy Information Administration
Date Posted:

The US exported more LNG than any other country in 2023, with 66% of exports going to Europe and 26% to Asia.

Is the United States the world's largest LNG exporter?

Core argument: U.S. liquefied natural gas exports averaged 11.9 Bcf/d in 2023, a 12% (1.3 Bcf/d) increase over 2022.

The United States exported more liquefied natural gas (LNG) than any other country in 2023. U.S. LNG exports averaged 11.9 billion cubic feet per day (Bcf/d)—a 12% increase (1.3 Bcf/d) compared with 2022.

Takeaways by Macro Roundup® AI

  1. U.S. liquefied natural gas exports averaged 11.9 Bcf/d in 2023, a 12% (1.3 Bcf/d) increase over 2022.
  2. The United States exported more liquefied natural gas than any other country in 2023.

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  • America’s Energy Export Boom — The US produces more crude oil than any other country and, counting total petroleum products, more than Saudi Arabia and Russia combined, with crude and natural gas output at record highs and gas production up 7% from its 2019 peak. Net US energy exports reached $70bn over 12 months despite falling oil and gas prices.