Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, April 5, 2024

AI Summary. Traditional bank balance sheet lending has declined as a share of credit intermediation, with credit increasingly channeled through arms-length transactions such as securitization. A structural model attributes falling lending shares to lower securitization costs, savers' behavior driving bank balance sheet size, and implicit bank costs and subsidies shaping balance sheet composition.

Greg Buchak, Gregor Matvos, Tomasz Piskorski and Amit Seru National Bureau of Economic Research
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Bank balance sheet lending has declined from 60% of total private lending in 1970 to 35% in 2023. Private credit is increasingly intermediated through arms-length transactions such as securitization. @NBERpubs

Why has bank balance sheet lending declined as a share of credit?

Core argument: Traditional bank-led credit intermediation has declined sharply since the 1970s, with private credit increasingly intermediated through arms-length transactions such as securitization.

The role of traditional bank-led intermediation has declined sharply since the 1970s. Private credit is increasingly intermediated through arms-length transactions such as securitization. A structural model explores what can explain these shifts [and simulates] implications for macroprudential policies. Declines in securitization cost account for changes in aggregate lending quantities. Savers, rather than borrowers, are the main drivers of bank balance sheet size. Implicit banks’ costs and subsidies explain shifting bank balance sheet composition. Together, these forces explain the fall in the overall share of informationally sensitive bank lending in credit intermediation. Raising capital or liquidity requirements decreases lending in both early (1960s) and recent (2020’s) scenarios, but the effect is less pronounced in the latter. The substitution of bank balance sheet loans with debt securities in response to these policies explains why we observe only a fairly modest decline in aggregate lending despite a large contraction of bank balance sheet lending.

Takeaways by Macro Roundup® AI

  1. Traditional bank-led credit intermediation has declined sharply since the 1970s, with private credit increasingly intermediated through arms-length transactions such as securitization.
  2. A structural model attributes changes in aggregate lending quantities to declines in securitization costs, bank balance sheet size mainly to savers rather than borrowers, and shifting balance sheet composition to implicit bank costs and subsidies.
  3. Raising capital or liquidity requirements decreases lending in both 1960s and 2020s scenarios, though less markedly in the latter, as substitution of bank balance sheet loans with debt securities limits the decline in aggregate lending.

Related Articles:

  • The Evolution of Banking in the 21st Century: Evidence and Regulatory Implications — An examination of 25 years of US banking trends finds deposits—especially uninsured deposits—have grown rapidly while banks have shifted from information-intensive lending toward longer-term securities such as mortgage-backed securities and long-term Treasuries. The authors argue these trends favor strengthening liquidity regulation over expanding deposit insurance to reduce bank-run risk.
  • Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements — Fiscal dominance requires governments to fund deficits at the margin with non-interest-bearing debt, and the revenue from inflation taxation—both expected and unexpected—is limited. The authors argue a US fiscal dominance episode could end the payment of interest on bank reserves and restore requirements that banks hold large zero-interest reserves against deposits.

AI Summary. Developed countries roughly tripled real per capita spending on child benefits, subsidised childcare, and parental leave between 1980 and 2019 while birth rates fell from 1.85 to 1.53 per woman. Finland's fertility rate has fallen by a third since 2010, and Korea's "baby bonus" mainly paid women already planning children.

John Burn-Murdoch Financial Times
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By her mid-thirties, the most common number of children a US or UK woman has is 0. @jburnmurdoch argues there is no evidence that fiscal transfers lift fertility in advanced economies.

Does more spending on family-friendly policies raise birth rates?

Core argument: The world's most developed countries roughly tripled real per capita spending on child benefits, subsidised childcare, and parental leave between 1980 and 2019, while their birth rates fell from 1.85 to 1.53 children per woman.

Between 1980 and 2019, the world’s most developed countries roughly tripled their real-terms per capita spending on child benefits, subsidised childcare, parental leave, and other family-friendly policies. They also saw their birth rates decline from 1.85 to 1.53 per woman. In egalitarian Finland, home to some of the most family-friendly policies in the world, the fertility rate has fallen by a third since 2010. In Hungary, famous for its extravagant payouts aimed at boosting the nation’s number of babies, fewer children were born last year than at any time since records began. Meanwhile, in Korea, the poster child of plummeting fertility, the government’s “baby bonus” programme was found to have mainly paid out to women who were already planning on having children.

Takeaways by Macro Roundup® AI

  1. The world's most developed countries roughly tripled real per capita spending on child benefits, subsidised childcare, and parental leave between 1980 and 2019, while their birth rates fell from 1.85 to 1.53 children per woman.
  2. Finland, with some of the world's most family-friendly policies, has seen its fertility rate fall by a third since 2010, and Hungary, known for extravagant pro-natal payouts, recorded fewer births last year than at any point since records began.
  3. Korea's "baby bonus" programme was found to have mainly paid out to women who were already planning on having children.

Related Articles:

  • $75,000 for a Baby? South Korean Businesses Float Incentives As Demographic Crisis Looms — South Korea's total fertility rate fell from 0.78 to 0.72 and is projected to reach 0.68, far below the 2.1 the OECD says is needed for a stable population. Military personnel numbers have dropped below 500,000, schools and universities report shrinking enrollment, and kindergartens have been converted into nursing homes.
  • Birth Rates Are Falling In The Nordics. Are Family-Friendly Policies No Longer Enough? — Falling Nordic birth rates are now driven by childlessness rather than smaller families, with roughly three-quarters of Finland's recent fertility decline attributable to people who have no children. Nearly 40% of Finnish men with low education are childless at 45, and most have no partners.
  • The Wealthy Are Starting to Have More Babies Than the Poor Again — In developed countries, men's income and education are now generally positively associated with fatherhood, with 70.1% of US men holding graduate or professional degrees having children versus 48.8% of those without a high school diploma. Among advanced economies, those where men take on more housework and child care have higher fertility rates.

AI Summary. Prices for hundreds of grocery items have risen more than 50% over five years as food companies raised prices, with recent Labor Department data showing grocery prices up 1% from a year earlier. Executives have said higher prices were needed to offset their own rising costs for ingredients, transportation, and labor.

Stephanie Stamm and Jesse Newman Wall Street Journal
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A basket of commonly purchased food items that cost $100 in 2019 had increased 36.5% by March of 2024, led by eggs and sports drinks up 40%. @WSJecon

How much less does $100 buy at the grocery store now?

Core argument: Grocery prices rose 1% in February from a year earlier, according to Labor Department data, down from a 10.2% year-over-year increase in February 2023 and close to the 1.2% pace of February 2019.

Grocery prices were up 1% in February from a year earlier, Labor Department data show. They were up 10.2% in February 2023 versus a year earlier, and were up 1.2% in February 2019 from a year earlier. Prices for hundreds of grocery items have increased more than 50% since 2019 as food companies raised their prices. Executives have said that higher prices were needed to offset their own rising costs for ingredients, transportation, and labor.

Takeaways by Macro Roundup® AI

  1. Grocery prices rose 1% in February from a year earlier, according to Labor Department data, down from a 10.2% year-over-year increase in February 2023 and close to the 1.2% pace of February 2019.
  2. Prices for hundreds of grocery items have increased more than 50% since 2019 as food companies raised their prices.
  3. Food company executives have said higher prices were needed to offset their own rising costs for ingredients, transportation, and labor.

Related Articles:

  • Fiscal Narratives for US Inflation — Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.
  • Just How Bad Is the US Cost-of-Living Squeeze? We Did the Math — It now takes $119.27 to buy what $100 purchased before the pandemic, with prices rising about as much since early 2020 as in the preceding decade. Groceries and electricity are each up 25% since January 2020, used cars 35%, auto insurance 33%, and rents roughly 20%.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.

AI Summary. China's economy grew 20% between 2019 and 2023 while the US grew 8%, but lower Chinese inflation and a 10% depreciation of the renminbi against the dollar caused China's dollar-measured GDP to fall from 76% to 67% of US GDP. The author argues these factors are transitory and projects China's dollar GDP will surpass the US in about a decade.

Nick Lardy Foreign Affairs
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Nick Lardy argues that the stalling of China’s economic convergence with the US is based on transitory inflation and interest-driven exchange rate factors and that China’s nominal GDP measured in US dollars will surpass the US “in about a decade.”

Nick Lardy argues that the stalling of China’s economic convergence with the US is based on transitory inflation and...

Has China's economic convergence with the United States stalled?

Core argument: China's GDP fell from 76% of U.S. GDP in 2021 to 67% in 2023, even though China's GDP was 20% larger than its 2019 level by 2023 while U.S. GDP was only 8% larger.

Take the widely held misconception that the Chinese economy’s progress in converging with the size of the U.S. economy has stalled. It is true that from 2021 to 2023, China’s GDP fell from 76% of U.S. GDP to 67%. Yet it is also true that by 2023, China’s GDP was 20% bigger than it had been in 2019, the eve of the global pandemic, while the United States’ was only 8% bigger. This apparent paradox can be explained by two factors. First, over the last few years, inflation has been lower in China than it has been in the United States. The growing gap between Chinese and U.S. interest rates reversed what had been a large inflow of foreign capital into China, ultimately depressing the value of the renminbi vis-à-vis the dollar by 10%. Converting a smaller nominal GDP to dollars at a weakened exchange rate results in a decline in the value of China’s GDP when measured in dollars relative to U.S. GDP. But these two factors are likely to be transitory. China’s nominal GDP measured in U.S. dollars will almost certainly resume converging toward that of the United States this year and is likely to surpass it in about a decade.

Takeaways by Macro Roundup® AI

  1. China's GDP fell from 76% of U.S. GDP in 2021 to 67% in 2023, even though China's GDP was 20% larger than its 2019 level by 2023 while U.S. GDP was only 8% larger.
  2. The apparent divergence is attributed to lower inflation in China than in the United States and a 10% depreciation of the renminbi against the dollar, as a widening China–U.S. interest-rate gap reversed large foreign capital inflows into China.
  3. Both factors are judged transitory, with China's nominal GDP in dollars expected to resume converging toward U.S. GDP and likely to surpass it in about a decade.

Related Articles:

  • When Will China’s GDP Overtake America’s? — China's productivity growth has slowed and its working-age population is shrinking, with the UN projecting a decline of more than 100m people aged 15-64 in the 2030s. Several forecasters project China's GDP will overtake America's sometime in the 2030s, while Capital Economics argues that if it does not, it may never happen.
  • China Economy Memo: Tempest in a Teapot or Crisis A-Brewing? — The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.
  • The Neoclassical Growth of China — China's per capita GDP growth path closely tracks those of Japan, South Korea, and Taiwan from similar starting income levels, indicating nothing unusual about its growth rate. The authors' model projects China's per capita GDP will level off at about 41% of the US level, reflecting a slowdown in productivity catch-up.

AI Summary. The U.S. and Japan are formalizing arrangements for U.S. Navy warships to undergo maintenance, repair, and overhaul at Japanese private shipyards, initially limited to the roughly two dozen ships forward-deployed to Japan. Expanding the work to U.S.-based ships, which could ease American maintenance bottlenecks, may require congressional action.

Ken Moriyasu Nikkei Asia
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The US and Japan are enhancing defense industrial collaboration, starting with repairs on US Navy vessels in Japanese shipyards, and joint munitions production. @NikkeiAsia

The US and Japan are enhancing defense industrial collaboration, starting with repairs on US Navy vessels in Japanese...

Can Japanese shipyards help ease U.S. Navy maintenance bottlenecks?

Core argument: Biden and Kishida are expected to formalize maintenance, repairs, and overhauls of U.S. Navy warships at Japanese private shipyards, initially limited to the roughly two dozen ships forward-deployed to Japan.

Biden and Kishida are expected to formalize the process of performing maintenance, repairs, and overhauls on U.S. Navy warships at Japanese private shipyards. The U.S. Navy has already experimented with ship repairs at Mitsubishi Heavy Industries’ Yokohama Dockyard and Machinery Works. The repairs will initially be limited to the two dozen ships forward-deployed to Japan. Congressional action may be required to expand the operations to allow Japanese yards to service U.S.-based ships as well. This would help ease maintenance bottlenecks at American yards and allow ships to return to operation faster. Analysts say that in a potential future conflict between the U.S. and China in the Taiwan Strait, it would be crucial for the U.S. Navy to be able to perform quick repairs in Japan so that ships can return to battle, rather than spending weeks traveling back to the U.S. Meanwhile, co-production of assets would likely begin with munitions.

Takeaways by Macro Roundup® AI

  1. Biden and Kishida are expected to formalize maintenance, repairs, and overhauls of U.S. Navy warships at Japanese private shipyards, initially limited to the roughly two dozen ships forward-deployed to Japan.
  2. Expanding Japanese yards' work to U.S.-based ships may require congressional action, a step that would help ease maintenance bottlenecks at American yards and return ships to operation faster.
  3. Analysts say that in a potential U.S.-China conflict over the Taiwan Strait, rapid repairs in Japan would be crucial so ships can return to battle rather than spend weeks traveling to the U.S., with co-production likely beginning with munitions.

Related Articles:

  • Why is the U.S. Navy Running Out of Tomahawk Cruise Missiles? — The U.S. Navy has been firing Tomahawk land-attack cruise missiles faster than it can replace them, with opening-day strikes in Yemen expending more than 80 missiles against 30 targets. An entire year's purchase of 55 Tomahawks accounted for 68% of the precision munitions fired at the Houthis in a single day.
  • 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.
  • US Attack Submarines to Counter China Are Running Up to Two Years Late — Deliveries of US Virginia-class attack submarines are running an estimated 24 to 36 months behind contracted dates, with builders General Dynamics and HII averaging roughly 1.2 submarines a year against a required two. The Navy projects the contractors will reach the two-a-year rate by 2028.

Monday, April 8, 2024

AI Summary. Government efforts to spur innovation raise the risk of expropriation through corruption, clientelism, or political favors, misallocating effort and resources. Corruption measures show a strong negative correlation with most innovation indicators, with research and development spending and researcher counts relative to output and population differing by 100% between the least and most corrupt countries.

Jose-Miguel Benavente, Claudio Bravo-Ortega, Pablo Egaña-delSol and Bronwyn Hall National Bureau of Economic Research
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A cross-country statistical study provides robust evidence that expropriation risk such as corruption negatively impacts innovation by reducing productivity-enhancing activities including R&D. @NBERpubs

Does corruption reduce innovation and research spending across countries?

Core argument: R&D expenditure and the number of R&D researchers, measured relative to GDP and population, differ by 100% between the lowest and highest values of the authors' corruption index.

[Government activity to increase innovation] increases the risk of expropriation, such as corruption, clientelism or political favors, by the government, leading to a misallocation of efforts and resources. The International Country Risk Guide (ICRG) corruption index [evaluates] a country’s practices by asking if there are demands for special payments and bribes, exchange controls, tax assessments or police protection for those involved with trade and financial transactions, along with patronage, nepotism, job reservations, secret party funding, and ties between politics and business. We present the simple correlation between our corruption index and some innovative activity indicators. There is a strong negative correlation between most of the selected variables and our variable of interest. Relative to GDP and population R&D expenditure and the number of R&D researchers differ by 100% between the lowest and highest values of the corruption index.

Takeaways by Macro Roundup® AI

  1. R&D expenditure and the number of R&D researchers, measured relative to GDP and population, differ by 100% between the lowest and highest values of the authors' corruption index.
  2. The authors report a strong negative correlation between their corruption index and most selected indicators of innovative activity.
  3. The authors argue that government activity intended to increase innovation raises the risk of expropriation through corruption, clientelism, or political favors, leading to a misallocation of efforts and resources.

Related Articles:

  • Big Firms Have Different Incentives — Inventors who move to incumbent large firms and those who move to young small firms show indistinguishable patenting and earnings paths beforehand, then diverge afterward. The authors suggest large firms pay inventors more but assign them projects less likely to yield patents, including innovations less likely to threaten existing product lines.
  • Where Have All the “Creative Talents” Gone? Employment Dynamics of US Inventors — Data on over 760,000 US inventors show they are increasingly concentrated in large incumbent firms and less likely to work for young firms or become entrepreneurs; inventors hired by incumbents rather than young firms see earnings rise 12.6% while innovative output falls 6–11% over four years.
  • Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data — Analysis of US patent data finds that the largest firms are more likely to file novel patents even after controlling for size, industry, and patent counts, and that firms produce more novel patents as they become mega firms. Venture-backed startups also account for a disproportionate share of novel patents.

AI Summary. The Federal Reserve responded late in the early phase of the recent inflation cycle but is now holding the federal funds rate at a fairly high level even as inflation has declined substantially. In the early 1970s the Fed cut rates as soon as inflation fell, leaving monetary conditions too expansionary when inflation resurged later in that decade.

Jesper Rangvid Rangvid's Blog
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Jesper Rangvid says the Fed was slow to raise rates, but it correctly continues to keep the Fed funds rate high even after inflation has fallen, suggesting we could avoid a second 70s-style inflationary spurt.

Is the Fed handling late-cycle inflation better than in the 1970s?

Core argument: Jesper Rangvid concludes the Fed reacted very late in the first phase of this inflation cycle, suggesting it had gone dormant after years of low pre-pandemic inflation and forgotten how to respond when inflation picks up.

Inflation is now close to the target, and we can begin to assess how monetary policy reacted as inflation approached the target. The conclusion is that the Fed reacted very late in the first phase of this inflation cycle. It seems that the Fed had gone dormant and forgotten what to do when inflation picks up, probably because we had become used to inflation being so low before the pandemic. On the other hand, the Fed is doing much better now, i.e. in the late phase of this inflation cycle. The Fed is keeping the federal funds rate at a fairly high level, even though inflation has declined significantly. In the early 1970s, the Fed lowered the federal funds rate as soon as inflation fell. That was not good, because monetary conditions were then too expansionary when inflation picked up again in the late 1970s. Jesper Rangvid argues by keeping the Fed funds rate well above inflation, “we could avoid a second severe inflationary spurt like in the late 1970s.”

Takeaways by Macro Roundup® AI

  1. Jesper Rangvid concludes the Fed reacted very late in the first phase of this inflation cycle, suggesting it had gone dormant after years of low pre-pandemic inflation and forgotten how to respond when inflation picks up.
  2. Rangvid argues the Fed is doing much better in the late phase of this cycle, keeping the federal funds rate at a fairly high level even though inflation has declined significantly and is now close to target.
  3. Rangvid notes that in the early 1970s the Fed lowered the federal funds rate as soon as inflation fell, leaving monetary conditions too expansionary when inflation picked up again in the late 1970s, a repeat he argues can be avoided by holding the rate well above inflation.

Related Articles:

  • The Disappearance of Inflation: Were Rate Hikes Necessary? — Unlike the 1970s inflation waves, when inflation expectations rose as much as or more than inflation itself, inflation expectations stayed anchored near 3% while inflation reached 8%, which the author argues is an important reason inflation fell back. The author contends central banks still had to raise rates, since without hikes inflation would likely have been higher.
  • Global Views: Cutting Through the Noise — Slowing wage growth across all three major US wage measures is consistent with a soft landing in which inflation returns to 2% without a recession. Forward-looking measures based on wage surveys and posted wages in job ads point to further slowing toward roughly 3½%, an estimated sustainable pace.
  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.

AI Summary. Shenzhen Inovance, China's largest industrial automation company, says its role in keeping global supply chains running will insulate it from rising protectionism as it expands abroad, and it aims to rank among the world's three largest companies in the sector within five years. The International Federation of Robotics reports more than half of global industrial robot installations occurred in China.

William Langley and Gloria Li Financial Times
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According to the International Federation of Robotics, in 2022 more than half of all industrial robot installations in the world took place in China.

Can Chinese robot makers expand abroad despite rising protectionism?

Core argument: More than half of all industrial robot installations worldwide took place in China in 2022, according to the International Federation of Robotics.

The founder of China’s largest industrial automation company believes the key role played by the country’s robot makers in keeping global supply chains running will insulate them from rising global protectionism as they try to expand overseas. Zhu Xingming, chair and founder of Shenzhen Inovance, said it hopes to challenge incumbents — which include Western groups such as ABB and Siemens — for a place in the top three largest companies in the sector globally within five years. More than half of all industrial robot installations in the world took place in China in 2022, according to figures from the International Federation of Robotics.

Takeaways by Macro Roundup® AI

  1. More than half of all industrial robot installations worldwide took place in China in 2022, according to the International Federation of Robotics.
  2. Zhu Xingming, chair and founder of Shenzhen Inovance, China's largest industrial automation company, said it hopes to rank among the world's three largest firms in the sector within five years, challenging incumbents such as ABB and Siemens.
  3. Zhu Xingming argues that the key role of China's robot makers in keeping global supply chains running will insulate them from rising global protectionism as they expand overseas.

Related Articles:

  • What Progress Has There Been In Industrial Robots? — Industrial robot repeatability improved little between 1972 and 1984, with a typical 1-meter reach, 10kg payload arm accurate to about 1 mm in both years, but a comparable 2023 robot achieves roughly 0.01–0.02 mm, 50 to 100x more precise. Such a robot cost 2 to 3x more in the 1980s than today, before accounting for cheap Chinese robot arms.
  • The Characteristics and Geographic Distribution of Robot Hubs in U.S. Manufacturing Establishments — Establishment-level U.S. Census data on roughly 35,000 manufacturing plants show that those using robots tend to be larger, pay higher earnings per worker, employ a larger share of production workers, and spend more on capital including information technology. Robots are highly concentrated geographically even after accounting for industry mix.
  • Factory Boom Sweeps US With Construction at Record $190 Billion — US manufacturers' construction spending has more than doubled over the past year to an annual rate of nearly $190bn, according to the Census Bureau. Manufacturing now makes up about 13% of all non-government construction, the highest share in a data series going back to the early 1990s.

AI Summary. Unaccounted capital outflows from China show up not only in the balance of payments' net errors and omissions category but also in net other investment and in the gap between customs-reported and foreign-exchange-reported goods trade balances. This combined residual averaged roughly $100bn per quarter, and about twice that during periods of heavier outflow pressure.

Martin Lynge Rasmussen Money: Inside and Out
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A dataset of 417 cases of illegal capital flight from China shows that after 2018 the crackdown on corporate capital flight “has been extremely effective” and increasingly private individuals have been the primary driver of capital flight. @martin_lynge

How large are China's unrecorded capital outflows?

Core argument: China's balance-of-payments residual averaged roughly $100bn per quarter during 2023, and roughly twice that during the 2015–2016 and 2020–2022 episodes when capital outflow pressures picked up, according to Exante Data.

Capital flight, or capital outflows that cannot be accounted for, is usually recorded in the net errors and omissions (NEO) category in the balance of payments. At Exante Data, we believe capital flight is likely to show up in two other categories as well: net other investment (NOI) and the difference between the goods trade balance reported by the General Administration of Customs and the State Administration of Foreign Exchange (SAFE, reported on a BoP-basis). The size of China’s BoP residual, the sum of the three categories above, is massive: around $100bn per quarter on average during 2023, and twice that when capital outflows pressures picked up in 2015-2016 and 2020-2022. This is shown in the chart below.

Takeaways by Macro Roundup® AI

  1. China's balance-of-payments residual averaged roughly $100bn per quarter during 2023, and roughly twice that during the 2015–2016 and 2020–2022 episodes when capital outflow pressures picked up, according to Exante Data.
  2. Exante Data argues Chinese capital flight shows up not only in net errors and omissions but also in net other investment and in the gap between goods trade balances reported by the General Administration of Customs and by SAFE on a balance-of-payments basis.
  3. Capital flight, defined as capital outflows that cannot be accounted for, is usually recorded in the net errors and omissions category of the balance of payments.

Related Articles:

  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.
  • Chinese Investors Buy Gold As Property And Stock Markets Fall — Chinese investors and households have bought gold as a refuge from local property and stock market turmoil, which the World Gold Council says has helped support record prices. Chinese investment demand for gold bars and coins grew 28% to 280 tonnes, largely offsetting a steep drop in Europe, while jewelry consumption rose 10% to 630 tonnes.
  • Singapore Family Office Applicants Face 18-Month Wait Amid Tighter Scrutiny — Singapore-registered family offices rose from 50 in 2018 to 1,100 at the end of 2022, according to the Monetary Authority of Singapore. Lawyers and advisers setting up such offices say new registrations have slowed and processing times have stretched from under six months to as long as 18 months amid an application backlog and stricter criteria.

AI Summary. Bloomberg Economics projects India's growth accelerating to 9% by the end of the decade while China slows to 3.5%, putting India on course to overtake China as the world's biggest growth driver by 2028. Manufacturing accounted for about 15.8% of India's output versus 26.4% in China.

Dan Strumpf, Anup Roy, and Abhishek Gupta Bloomberg
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Bloomberg forecasts that India will likely overtake China as the leading driver of global growth by 2028.

Will India overtake China as the world's biggest growth driver?

Core argument: Bloomberg Economics' base case has India's growth accelerating to 9% by the end of the decade while China slows to 3.5%, putting India on course to overtake China as the world's biggest growth driver by 2028.

In Bloomberg Economics’s base case scenario, India’s economy will accelerate to 9% by the end of the decade, while China slows to 3.5%. That puts India on course to overtake China as the world’s biggest growth driver by 2028. Even in the most pessimistic scenario — in line with the IMF’s projections for the next five years in which growth stays below 6.5% — India overtakes China’s contribution in 2037. Despite years of efforts to boost manufacturing, it still only accounted for about 15.8% of India’s GDP output in 2023 compared with 26.4% in China, according to the latest national statistics. Even if India’s manufacturing sector consistently grows by three percentage points more than the headline growth, the country wouldn’t attain Modi’s goal of 25% share in manufacturing until 2040, according to Bloomberg Economics.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics' base case has India's growth accelerating to 9% by the end of the decade while China slows to 3.5%, putting India on course to overtake China as the world's biggest growth driver by 2028.
  2. In Bloomberg Economics' most pessimistic scenario, in line with IMF projections of growth below 6.5% over the next five years, India overtakes China's growth contribution in 2037.
  3. Manufacturing accounted for about 15.8% of India's GDP in 2023 versus 26.4% in China, and Bloomberg Economics estimates India would not reach Modi's 25% target until 2040 even if manufacturing grew three percentage points faster than headline growth.

Related Articles:

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  • How China Could Swamp India’s Chip Ambitions — China is adding more chip-making capacity than the rest of the world combined, all in mature nodes, backed by government incentives worth more than $150bn, according to research consultancy Gavekal Dragonomics. Utilization rates for mature-node chip producers have fallen from nearly 100% to 65–75%, leaving India's $11bn semiconductor push facing an already well-supplied market.
  • Wall Street Snubs China for India in a Historic Markets Shift — US-listed exchange-traded funds buying Indian stocks drew record inflows while the four largest China funds saw combined outflows of nearly $800m, and India's weight in the main developing-market equity benchmark hit an all-time high of 18% as China's fell to a record low of 24.8%. Indian equities trade at more than 20x future earnings, 27% above their 2010–2020 average.

AI Summary. Taiwan Semiconductor Manufacturing Co. will produce its most advanced 2-nanometre chips at a plant in Phoenix, Arizona, and raise its total US investment from $40bn to $65bn to build a third fabrication plant. The US Commerce Department will provide $6.6bn in grants and up to $5bn in loans.

Kathrin Hille Financial Times
Date Posted:

TSMC is planning a third Arizona manufacturing facility that will build cutting-edge chips after getting $6.6B in grants and up to $5B in loans from the federal government. The new plan will bring TSMC’s total investment in the US to $65B.

TSMC is planning a third Arizona manufacturing facility that will build cutting-edge chips after getting $6.6B in grants and...

Will federal subsidies bring the most advanced chipmaking to the US?

Core argument: TSMC will raise its total US investment from $40bn to $65bn, adding a third Arizona fab using 2nm or more advanced technology that is set to be operational by 2030.

Taiwan Semiconductor Manufacturing Co., has agreed to make its most advanced products in Arizona from 2028. TSMC will make the latest cutting-edge 2-nanometre chips in a fabrication plant, or fab, it is building in Phoenix, Arizona, marking an upgrade from its previous plans. That facility will be the company’s second in the US. The first, which is also in Arizona and was announced in 2020 under the Trump administration, will begin production next year. TSMC also said on Monday that it will increase its total investment in the US from $40bn to $65bn to build a third fab, with 2nm or even more advanced technology, which will be operational by 2030. The Taiwanese company and the US Commerce Department said on Monday that Washington would provide it with support worth $6.6bn in grants and up to $5bn in loans.

Takeaways by Macro Roundup® AI

  1. TSMC will raise its total US investment from $40bn to $65bn, adding a third Arizona fab using 2nm or more advanced technology that is set to be operational by 2030.
  2. The US Commerce Department will provide TSMC with $6.6bn in grants and up to $5bn in loans, alongside the company's plan to make 2nm chips in Phoenix, Arizona from 2028.
  3. TSMC's first Arizona fab, announced in 2020 under the Trump administration, will begin production next year, while the Phoenix 2nm plant will be the company's second US facility.

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  • How Real is America’s Chipmaking Renaissance? — Chipmakers have announced more than $200bn of investments in America, including $40bn from TSMC in Arizona, $17bn from Samsung in Texas, and $40bn from Intel in Arizona and Ohio. Even if all planned investments materialize, American output of cutting-edge chips would meet barely a third of domestic demand.
  • One of Biden’s Favorite Chip Projects Is Facing New Delays — Taiwanese chip maker TSMC said volume production at the second of its two Arizona semiconductor plants, part of a $40bn project central to U.S. efforts to rebuild domestic chip manufacturing, is now expected in 2027 or 2028 rather than 2026, with the chip type still undetermined.
  • TSMC To Send Hundreds More Workers To Speed U.S. Plant Construction — Chipmaker TSMC and its suppliers are in talks with the U.S. government on non-immigrant visas to dispatch more than 500 experienced workers to speed construction of its U.S. chip plants, according to chip supply chain executives. Executives said too few U.S. workers have hands-on experience building semiconductor facilities, causing installation delays.

AI Summary. Baby boomers are more liberal than voters older than them, and their aging into the 65-and-older group — alongside the shrinking ranks of those older — helps explain Democratic gains among seniors. Because the relatively conservative Gen X now dominates ages 45 to 64, that group has become more conservative.

Nate Cohn New York Times
Date Posted:
Is Database:
Database

Democratic losses with younger voters are being offset by a compositional shift in older voters as Baby Boomers replace more conservative cohorts aged 65+. @Nate_Cohn

Does generational turnover explain Democratic gains among older voters?

Core argument: Baby boomers will make up more than 70% of seniors in 2024, up from 0% when Barack Obama won the presidency in 2008, and they are more liberal than the voters older than them.

Boomers will make up more than 70% of seniors in 2024, up from 0% when Mr. Obama — himself a baby boomer — won the presidency in 2008. Boomers have a reputation for being conservative, but they’re more liberal than the voters older than them. The aging of the boomers, along with the dwindling ranks of those even older than the boomers, helps explain the steady Democratic gains among seniors over the last decade. The aging of the boomers into the 65-and-older category has had the effect of making the 45-to-64 group more conservative. That’s because the relatively conservative Gen X now makes up the preponderance of those 45 to 64. Much as the boomers have long been more liberal than the Silent Generation, Gen X has long been more conservative than the boomers. In fact, the polls suggest almost every age group under age 50 has shifted to the right since 2012 (although they still lean left overall).

Takeaways by Macro Roundup® AI

  1. Baby boomers will make up more than 70% of seniors in 2024, up from 0% when Barack Obama won the presidency in 2008, and they are more liberal than the voters older than them.
  2. The aging of boomers into the 65-and-older category, along with the dwindling ranks of those older than the boomers, helps explain steady Democratic gains among seniors over the last decade.
  3. Gen X, long more conservative than the boomers, now makes up the preponderance of those 45 to 64, making that group more conservative, and polls suggest almost every age group under 50 has shifted right since 2012 while still leaning left overall.

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