Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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
  • “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
  • “…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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, April 9, 2024

AI Summary. An analysis finds recent swings in inflation have been concentrated in the categories most sensitive to monetary policy, with inflation for that responsive group now close to its pre-2020 rate. The authors estimate that interest rate increases likely began putting downward pressure on prices about a year later and will continue to do so near term.

Leila Bengali and Zoë Arnaut Federal Reserve Bank of San Francisco
Date Posted:

Above-target inflation is currently being driven by categories that are historically less reactive to interest rate changes, largely services, electricity, and housing. This implies more disinflation is coming.

How quickly do prices respond to interest rate changes?

Core argument: The authors find that recent swings in inflation have concentrated in the categories most sensitive to monetary policy, and inflation for that most responsive group is now close to its pre-2020 rate.

Our analysis indicates that recent ups and downs of inflation have been focused in categories that are most sensitive to monetary policy. The inflation rate for this most responsive group of goods and services categories is now close to its pre-2020 rate. Our findings suggest that the Fed’s rate hikes that began in March 2022 are exerting downward pressure on prices and will continue to do so in the near term. Rate cuts from 2019 to early 2020 could have contributed upward price pressures starting in mid- to late 2020 and thus could explain some of the rise in inflation over this period. The tightening cycle that began in March 2022 likely started putting downward pressure on prices in mid-2023 and will continue to do so in the near term. This is consistent with the view that the full effects of monetary policy tightening have yet to be felt. Finally, though inflation for the most responsive categories has been falling since mid-2022, the early part of this decline was likely to have been driven more by changes in prevailing economic conditions than by policy tightening, given estimated policy lags.

Takeaways by Macro Roundup® AI

  1. The authors find that recent swings in inflation have concentrated in the categories most sensitive to monetary policy, and inflation for that most responsive group is now close to its pre-2020 rate.
  2. The authors estimate that the Fed's tightening cycle begun in March 2022 likely started putting downward pressure on prices in mid-2023 and will continue to do so in the near term, consistent with the view that the full effects of tightening have yet to be felt.
  3. Rate cuts from 2019 to early 2020 could have contributed upward price pressures starting in mid- to late 2020, and the early part of the decline in responsive-category inflation since mid-2022 was likely driven more by prevailing economic conditions than by policy tightening.

Related Articles:

  • 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.
  • 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. US nonfinancial corporations' net issuance of bonds and loans has fallen to zero, yet real nonresidential capital spending has kept growing faster than before the pandemic, funded by profits that rose 8% pretax in a year. Business investment is largely self-financing in the aggregate, so rising investment and rising profits tend to move together.

Matt Klein The Overshoot
Date Posted:

Higher interest rates have led to deleveraging by US nonfinancial corporations, but with profits up 8% in 2023, corporations have continued to invest. @M_C_Klein

Why does business investment keep growing as corporate borrowing falls to zero?

Core argument: Pretax domestic nonfinancial corporate profits rose 8% in 2023, and real nonresidential capital spending has continued to grow faster than before the pandemic even as net bond and loan issuance by US nonfinancial corporations fell to zero.

Capital spending [by US nonfinancial corporations] is usually financed by debt. Even as net issuance of bonds and loans by nonfinancial corporations has dropped to zero, real nonresidential capital spending has continued to grow faster than it did before the pandemic. In the aggregate, of course, business investment is self-financing, because buyers book the cost as an asset that can depreciate over time while sellers book revenues immediately. This is why rising investment and rising profits tend to go together. And profits have been booming recently, with pretax domestic nonfinancial corporate profits up by 8% in 2023. This virtuous circle could break if recent investments are not validated via higher sales to consumers—but unless (or until) that happens, corporate America can continue to grow even if higher borrowing costs end up making debt less attractive.

Takeaways by Macro Roundup® AI

  1. Pretax domestic nonfinancial corporate profits rose 8% in 2023, and real nonresidential capital spending has continued to grow faster than before the pandemic even as net bond and loan issuance by US nonfinancial corporations fell to zero.
  2. Business investment is self-financing in the aggregate because buyers book the cost as a depreciating asset while sellers book revenues immediately, which is why rising investment and rising profits tend to move together.
  3. The investment-profits circle could break if recent investments are not validated by higher sales to consumers, but until that happens corporate America can keep growing even if higher borrowing costs make debt less attractive.

Related Articles:

  • 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%.
  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • The U.S. Economy is Roaring. Why Should Rates Come Down? — Traders and Federal Reserve officials expect short-term interest rates to fall sharply on the assumption the economy resembles its pre-pandemic state, but the data suggest a period of structurally faster growth more like the late 1990s, with inflation-adjusted U.S. output up more than 3% in 2023 versus 0.7% the prior year.

AI Summary. The Federal Reserve now indicates that a surge in migration will expand labor supply and moderate wage growth without requiring higher unemployment, making strong job gains compatible with potential rate cuts. Overall jobs data show native-born employment little changed since 2020 while foreign-born employment rose by 3m.

Joseph Wang Fed Guy Blog
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.@FedGuy12 notes Powell’s recent comments that immigration moderates wage growth and argues that the current job growth rate is consistent with the start of an easing cycle.

Does rising migration allow strong job growth alongside rate cuts?

Core argument: Foreign-born employment in the U.S. has risen by 3 million since 2020 while native-born employment levels are little changed, according to the overall jobs data.

Chair Powell had previously sought to lower inflation by dampening wage growth, which was to be done by raising unemployment. In that framework, strong job gains would suggest the need for tighter policy. But Powell now indicates that the tremendous surge in migration will increase labor supply and moderate wage growth without the need for higher unemployment. This suggests that blockbuster jobs growth is now compatible with potential rate cuts. The recent wave of migrants may be helping to fill the gap [caused by pandemic-related early retirements in] labor-intensive industries. This would also be consistent with the overall jobs data indicating native-born employment levels to be little changed since 2020, while foreign-born employment levels rising by 3 million.

Takeaways by Macro Roundup® AI

  1. Foreign-born employment in the U.S. has risen by 3 million since 2020 while native-born employment levels are little changed, according to the overall jobs data.
  2. Chair Powell indicates that the surge in migration will increase labor supply and moderate wage growth without requiring higher unemployment, departing from his earlier framework of lowering inflation by dampening wage growth through rising unemployment.
  3. Under Powell's revised framework, strong jobs growth is compatible with potential rate cuts, whereas strong job gains previously suggested the need for tighter policy.

Related Articles:

  • To Retire or Keep Working after a Pandemic? — Workers age 55 and older have not reversed the decline in labor force participation that began with the COVID-19 pandemic, unlike other age groups, amounting to roughly 2m workers by some estimates. The shortfall is concentrated among those without a college degree, while college-educated older workers' participation returned to its pre-pandemic trend.
  • 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.
  • New Immigration Estimates Help Make Sense Of The Pace Of Employment — The Congressional Budget Office estimates net immigration was 3.3m in 2023, versus the 1m it had projected, implying faster population and labor force growth than currently reported. The authors estimate this raised real economic growth by about 0.1 percentage point and, by lifting both production and demand, added little price or wage pressure.

AI Summary. Commercial banks located near a post office that accepted federally insured deposits were more likely to close during the Great Depression, and this effect weakened sharply after deposit insurance was extended to commercial banks. The authors interpret this as a competitive liquidity effect arising from incomplete insurance coverage.

Matthew Jaremski and Steven Sprick Schuster National Bureau of Economic Research
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Jaremski and Schuster document that before the establishment of the FDIC, deposits fled to the safety of local insured postal banks, illustrating that lack of universal deposit coverage amplifies run risk. @ssprickschuster

Does incomplete deposit insurance coverage make uninsured banks more likely to fail?

Core argument: Matching balance sheets from over 16,000 commercial banks before the Great Depression with post offices that accepted deposits, the authors find banks operating near a deposit-accepting post office were more likely to close between 1929 and 1935.

Before the Federal Deposit Insurance Corporation (FDIC) became active in 1934, the only federally insured deposit accounts available to American households were through the U.S. Postal Savings System. To examine the role that postal savings played on bank closure, we collect the balance sheets of over 16,000 commercial banks just before the start of the Great Depression and match them with information on which post offices accepted deposits. We find banks that operated nearby a post office that accepted deposits were more likely to close between 1929 and 1935. The effect of postal savings is severely weakened after deposit insurance was installed across commercial banks in 1934. This lends evidence to the theory that we are capturing a competitive liquidity effect due to the lack of universal coverage.

Takeaways by Macro Roundup® AI

  1. Matching balance sheets from over 16,000 commercial banks before the Great Depression with post offices that accepted deposits, the authors find banks operating near a deposit-accepting post office were more likely to close between 1929 and 1935.
  2. Before the FDIC became active in 1934, the U.S. Postal Savings System offered the only federally insured deposit accounts available to American households.
  3. The effect of nearby postal savings on bank closure weakened substantially after deposit insurance was extended to commercial banks in 1934, which the authors read as evidence of a competitive liquidity effect stemming from the lack of universal coverage.

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.
  • Ameridollars — Dollar deposits in U.S. banks are de facto fully protected by the U.S. government, but that protection does not extend to the trillions of dollar deposits held at foreign banks, which are supervised by home-country regulators that typically cannot insure dollar deposits. Even U.S. branches of foreign banks tend to lack federal deposit insurance.
  • In Today’s Banking Crisis, Echoes of the ’80s — Unrealized securities losses at recently failed banks reflect the risk of borrowing short and lending long, echoing thrifts that became insolvent as the Federal Reserve raised rates; between 1980 and 1994, 1,617 banks and 1,295 thrifts closed or received government assistance. Uninsured depositors fled fast enough to limit losses, illustrating market discipline.

AI Summary. JPMorgan Chase argues the economy is being fueled by government spending and deficits that are larger than past ones and occurring during boom times rather than a recession, supported by central bank bond buying. The bank also calls proposed international banking capital rules flawed and poorly calibrated, and warns that proxy advisory firms have become too influential.

Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni New York Times
Date Posted:

Jamie Dimon is worried about the trajectory of US fiscal policy, “Deficits today are even larger and occurring in boom times, and they have been supported by quantitative easing, which was never done before the great financial crisis.”

Jamie Dimon is worried about the trajectory of US fiscal policy, “Deficits today are even larger and occurring in boom...

Is the economy being fueled by government spending and deficits?

Core argument: Jamie Dimon warns that the economy is being fueled by government spending and rising deficits, noting that deficits are larger today and occurring in boom times rather than resulting from a recession.

Dimon warns that the economy is being fueled by government spending and rising deficits. “The deficits today are even larger and occurring in boom times — not as the result of a recession — and they have been supported by quantitative easing, which was never done before the great financial crisis." Dimon reiterated his concerns that many of the proposed banking rules [Basel 3] are “flawed and poorly calibrated.” He also argues that proxy advisory firms like ISS have become too influential and thinks the universal proxy “makes it easier to put poorly qualified directors on a board.”

Takeaways by Macro Roundup® AI

  1. Jamie Dimon warns that the economy is being fueled by government spending and rising deficits, noting that deficits are larger today and occurring in boom times rather than resulting from a recession.
  2. Dimon argues that today's deficits have been supported by quantitative easing, a policy never used before the great financial crisis.
  3. Dimon calls many proposed Basel 3 banking rules "flawed and poorly calibrated," and contends that proxy advisory firms such as ISS have become too influential while the universal proxy makes it easier to place poorly qualified directors on boards.

Related Articles:

  • You Are Right to Worry About the Economy — The Federal Reserve describes the US as on an unsustainable fiscal path, with federal debt up from 70% of GDP after the financial crisis to nearly 100% and spending at 23% of GDP versus 19% before. Heavy tax increases on top earners are estimated to yield under 2% of GDP.
  • Breaking Down the Sources of US Economic Resilience — The US government has funded essentially all of its increased deficit by issuing short-term Treasury bills and drawing down cash reserves rather than selling longer-dated debt, limiting the effect on market liquidity so far. The authors expect that pressure is delayed rather than eliminated, with issuance shifting toward longer maturities as the deficit stays elevated.
  • The Bond Market’s Message — The federal government is 43% larger than four years earlier, and more than a third of the surge in investment spending traces to government subsidies, credits, and handouts. The author argues the supply of Treasury securities needed to fund deficits will be substantially larger than official estimates, pushing buyers to demand higher yields.

AI Summary. World defense spending reached a record $2.2tn, and security officials say military budgets may need to reach Cold War levels of as high as 4% of economic output to deliver on NATO's plans. Bloomberg Economics calculates that US and Group of Seven allies hitting that level would mean over $10tn in additional commitments over a decade.

Enda Curran, Natalia Drozdiak, and Bhargavi Sakthivel Bloomberg
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Bloomberg estimates that returning US and G7 defense spending to Cold War-era levels would require more than $10T of additional spending over the next decade.

How much would rearming to Cold War defense levels cost?

Core argument: Bloomberg Economics calculates that if the US and its G7 allies raised defense spending to 4% of GDP, that would equate to more than $10 trillion of additional commitments over the next decade.

World defense spending reached a record $2.2 trillion last year. Political leaders have been congratulating themselves on the progress toward NATO’s targets for members of the alliance to set aside 2% of their gross domestic product on defense. But officials focused on security say that military budgets may need to emulate Cold War spending of as high as 4% in order to deliver on the alliance’s plans. If the US and its Group of Seven allies were to reach such levels, that would equate to more than $10 trillion of additional commitments over the next decade, according to calculations by Bloomberg Economics.

Takeaways by Macro Roundup® AI

  1. Bloomberg Economics calculates that if the US and its G7 allies raised defense spending to 4% of GDP, that would equate to more than $10 trillion of additional commitments over the next decade.
  2. World defense spending reached a record $2.2 trillion, with political leaders citing progress toward NATO's target of members devoting 2% of GDP to defense.
  3. Officials focused on security say military budgets may need to emulate Cold War levels as high as 4% of GDP to deliver on NATO's plans.

Related Articles:

  • Higher Interest Rates Are Here to Stay — Interest rates will likely stay higher over the next decade than in the decade after the 2008 financial crisis, reflecting factors including high debt levels, deglobalization, higher defense spending, the green transition, populist demands for income redistribution, and persistent inflation. Aging populations may also push developed countries to increase spending.
  • If Markets Are Right About Long Real Rates, Public Debt Ratios Will Increase For Some Time. We Must Make Sure That They Do Not Explode — Stabilizing public debt ratios would require cutting primary deficits to zero, which the author argues no government can do quickly without risking recession and boosting support for populist parties. With a US primary deficit around 4% and a dysfunctional budget process, the debt ratio is likely to keep rising for some time.
  • The Age-Old Question: How Do Governments Pay For Wars? — Denmark abolished a centuries-old religious holiday, requiring people to work that day, partly to help pay for extra defence spending, a move 70% of Danes opposed in one poll. The Stockholm International Peace Research Institute calculates global defence spending rose 4% to a record $2.24tn and is set to keep rising even as higher interest rates raise governments' borrowing costs.

AI Summary. The H5N1 bird flu virus has been detected in cows from 16 herds across six US states, the first widespread outbreak in cattle after only sporadic prior infections with closely related flu viruses. One infected dairy worker is recovering, and the worker's viral variant carries a mutation linked to more efficient spread in mammals.

Max Kozlov and Smriti Mallapaty Nature
Date Posted:

H5N1 has jumped from birds to cows at farms in at least six US states in the first widespread outbreak of the virus in cows. @Nature

H5N1 has jumped from birds to cows at farms in at least six US states in the first widespread outbreak of the virus in cows....

Does bird flu spreading in dairy cattle raise risks for humans?

Core argument: Health officials detected H5N1 bird flu in cows from 16 herds across six US states over a two-week span, a count likely to rise as US surveillance is stepped up.

In the past two weeks, health officials have detected H5N1 in cows from 16 herds across six states — a number that is likely to increase as US surveillance is stepped up. Researchers have previously documented sporadic infections of cows with flu viruses closely related to H5N1, but no widespread outbreaks had been detected until now. One dairy worker in Texas has been infected, but the US Centers for Disease Control and Prevention reports that the person is recovering. The virus infecting the worker is closely related to the strains found in dairy cattle in Texas, with one notable distinction: the worker’s variant has a mutation that is linked to more efficient spread in mammals.

Takeaways by Macro Roundup® AI

  1. Health officials detected H5N1 bird flu in cows from 16 herds across six US states over a two-week span, a count likely to rise as US surveillance is stepped up.
  2. Researchers had previously documented only sporadic infections of cows with flu viruses closely related to H5N1, with no widespread outbreaks detected until this one.
  3. One infected Texas dairy worker is recovering, according to the US Centers for Disease Control and Prevention, and the worker's virus is closely related to strains found in Texas dairy cattle but carries a mutation linked to more efficient spread in mammals.

Related Articles:

  • How the Current Bird Flu Strain Evolved to be So Deadly — A Nature study tracking bird flu genome changes and reported outbreaks found the virus spread three times faster among wild birds than farmed poultry, attributed to mutations letting it adapt to diverse species. Outbreaks, once seasonal with Northern Hemisphere bird migration, have become persistent, killing millions of birds across five continents.
  • Bird Flu’s Surge Has Scientists Seeking Clues to Prevent the Next Pandemic — A bird flu infection in a Cambodian village took a week to reach the attention of the government health system, as villagers attributed dead chickens to hot weather and hospital doctors initially assumed a schoolgirl had seasonal flu. Health officials deemed the eventual response a success.
  • Bird Flu Sample from Chilean Man Showed Some Signs of Adaptation to Mammals — The U.S. Centers for Disease Control and Prevention reported that an H5N1 bird flu sample from a hospitalized Chilean man carried two mutations shown in animal studies to help the virus replicate in mammalian cells. Officials said public risk remains low and the sample lacked other changes needed for efficient human-to-human spread.

Wednesday, April 10, 2024

AI Summary. Core consumer price inflation has run hot for three consecutive months, at a 3.5% annual rate over 12 months and 4.6% over the past three, undercutting the view that the early-year jump was a seasonal anomaly. Shelter inflation has plateaued around a 5.5% annual rate rather than falling as bottom-up forecasts assumed.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman notes that “Core CPI came in very hot for the third month in a row” at 3.5% annualized and that Core Services CPI ex Housing “has also been running hotter than you would expect for a normal inflationary economy.”

Is core inflation running too hot to be a seasonal fluke?

Core argument: Core CPI ran hot for a third consecutive month, at 4.6% annualized over both the past one and three months, versus 3.2% over six months and 3.5% over 12 months, per Furman.

Core CPI came in very hot for the third month in a row. The numbers are not kind to the thesis that January was a seasonal anomaly. 12 months: 3.5%. 6 months: 3.2%. 3 months: 4.6%. 1 month: 4.6%. The bottom-up forecasts of inflation coming down were premised on much larger reductions in shelter growth than we've seen. It has, as widely expected, come down from its 9% annual rate high but has plateaued at around 5.5% annual rate. You also see it in core services excluding shelter, which the Fed and others have frequently tied to wage growth, which has also been running hotter than you would expect for a normal inflationary economy.

Takeaways by Macro Roundup® AI

  1. Core CPI ran hot for a third consecutive month, at 4.6% annualized over both the past one and three months, versus 3.2% over six months and 3.5% over 12 months, per Furman.
  2. Furman argues the three-month run of hot core CPI readings undercuts the thesis that January was a seasonal anomaly.
  3. Shelter inflation has fallen from its 9% annual-rate high but plateaued at around a 5.5% annual rate, short of the larger reductions that bottom-up forecasts of falling inflation assumed, according to Furman.

Related Articles:

  • Importing Shelter Inflation — Shelter costs make up about 30% of the consumer price index, and their monthly inflation appears to be stabilizing above pre-pandemic rates rather than delivering the disinflation forward-looking data had implied. The author suggests this may be related to a surge in migration, estimated at 3.3m migrants in a year.
  • The Boomer-Millennial Housing Battle Cools — Demographic needs are outweighing affordability in the housing market, with the share of first-time buyers returning nearly to pre-pandemic levels despite high prices and interest rates. One in four Millennial buyers reported purchasing because they had no choice, and Millennials again make up the largest group of homebuyers.
  • The US Housing Market Is Very Quickly Becoming Unaffordable — Home prices in Las Vegas, Phoenix, Orlando, and Tampa now stand at 6 to 7x incomes, exceeding the ratios reached at the peak of the early 2000s housing bubble in each of those metro areas. All four shifted from affordable, to unaffordable, back to affordable, and into unaffordable territory again.

AI Summary. Using a method that combines a structural asset pricing model with machine learning to measure expectational errors, the authors estimate that stock market investors systematically overreact to perceived fundamental shocks in economic news. They attribute this to investors overstating news implications for payout-relevant factors while understating, in relative terms, implications for discount rates.

Francesco Bianchi, Sydney Ludvigson and Sai Ma National Bureau of Economic Research
Date Posted:
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Investor overreaction to news events may reduce market volatility: “the sum total of different individual overreactions to multiple simultaneous shocks can dampen rather than amplify their combined market impact.” @Francesco_Bia @LudvigsonSydney

Do stock investors systematically overreact to economic news?

Core argument: The authors estimate that investors systematically overreact to perceptions about multiple fundamental shocks in a macro-dynamic system, producing asymmetric compositional effects when several counteracting shocks occur simultaneously in real-world news events.

[We study] a variety of belief distortions in market reactions to hundreds of economic news events using a new methodology that synthesizes estimation of a structural asset pricing model with algorithmic machine learning to quantify bias. Human bias is [seen as] a genuine ex ante expectational error, and bias in expectations is measured relative to the machine forecast, not relative to the ex post outcome. We estimate that investors systematically overreact to perceptions about multiple fundamental shocks in a macro-dynamic system, generating asymmetric compositional effects when several counteracting shocks occur simultaneously in real-world events. News is overreacted to because investors systematically overstate its implications for payout-relevant factors (while understating in relative terms its implications for discount rates).

Takeaways by Macro Roundup® AI

  1. The authors estimate that investors systematically overreact to perceptions about multiple fundamental shocks in a macro-dynamic system, producing asymmetric compositional effects when several counteracting shocks occur simultaneously in real-world news events.
  2. Overreaction to news arises, by the authors' estimates, because investors systematically overstate its implications for payout-relevant factors while understating, in relative terms, its implications for discount rates.
  3. The study measures belief distortions across hundreds of economic news events by combining estimation of a structural asset pricing model with algorithmic machine learning, defining bias relative to the machine forecast rather than the ex post outcome.

Related Articles:

  • 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.
  • Stocks For The Long Run? Sometimes Yes, Sometimes No — Revised historical data that correct for survivorship bias—most notably including the Second Bank of the United States, which reached nearly 30% of US market capitalization before collapsing—show 19th-century stock returns differed from 20th-century returns, with repeated periods in which stocks underperformed bonds.
  • Equity Risk Premiums: Determinants, Estimation, and Implications — 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.

AI Summary. Felony assaults in New York City's subway have risen two- to threefold since the pandemic, a pattern that does not match the rest of the country and appears connected to local criminal justice practices. Research finds that ending cash bail for most misdemeanors and nonviolent felonies is associated with increased repeat offending among those previously charged with violent felonies.

Justin Fox Bloomberg
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Felonious assaults on New York City’s subways are up significantly since the pandemic. @foxjust suggests this “may have something to do with local criminal justice practices,” including the ending of cash bail.

Does ending cash bail increase repeat offending among violent offenders?

Core argument: New York subway felony assaults show a two- or threefold pandemic increase, while subway homicides remain so few that one or two flukey occurrences can have a big impact on the totals.

While the number of subway homicides remains so small that one or two flukey occurrences can have a big impact, the far more numerous felony assaults show a two- or threefold pandemic increase. The failure of the criminal justice system to rein in people with long histories of violence raises some questions about the bail reforms enacted in New York in 2019 and other local changes in prosecution and sentencing. New York’s continuing assault problem, which does not match what’s going on in the rest of the country, seems likelier to have something to do with local criminal justice practices. The reform-friendly Data Collaborative for Justice has found that while ending cash bail in New York for most misdemeanors and nonviolent felonies hasn’t resulted in overall increases in recidivism or crime, it does seem to have led to increased recidivism among those previously charged with violent felonies.

Takeaways by Macro Roundup® AI

  1. New York subway felony assaults show a two- or threefold pandemic increase, while subway homicides remain so few that one or two flukey occurrences can have a big impact on the totals.
  2. The reform-friendly Data Collaborative for Justice found that ending cash bail for most misdemeanors and nonviolent felonies in New York did not raise overall recidivism or crime but appears to have increased recidivism among those previously charged with violent felonies.
  3. New York's continuing assault problem does not match what is happening in the rest of the country, and seems likelier to relate to local criminal justice practices, including the 2019 bail reforms and changes in prosecution and sentencing.

Related Articles:

  • The Collapse of Broken-Windows Policing in New York City, Los Angeles, and Washington, DC, 2013–22 — Arrests for minor "broken-windows" offenses—counted as misdemeanors, violations, and infractions per 100,000 residents—fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles over the period studied, declining steadily in New York and Los Angeles.
  • New York’s Subways Have Less Crime but More Violence — Major crime on New York's subways is on track to run 13.4% below 2019 levels, but ridership remains down about a third, so crime per rider is much higher this year than from 2006 through 2019. Property crime has not risen; violent incidents account for the increase.
  • “New York, Just Like I Pictured It” — New York City retains advantages in sheer size, business diversification, and global financial dominance, with its labor force, airport use, and seated diners back to pre-pandemic levels and low residential and industrial vacancy rates. But mass transit use is 73% of prior levels, office vacancy is 18%, and about 35% of workdays are done from home.

AI Summary. Chip-design company Arm forecasts that without greater efficiency gains, artificial intelligence data centers could consume 20-25% of US power requirements by the end of the decade, versus roughly 4% or less today. The International Energy Agency estimates a single ChatGPT request uses 2.9 watt-hours of electricity, nearly 10x an average Google search.

Peter Landers Wall Street Journal
Date Posted:

The CEO of Arm forecasts that without efficiency gains by the end of the decade, “AI data centers could consume as much as 20-25% of US power requirements” vs. 4% today.

The CEO of Arm forecasts that without efficiency gains by the end of the decade, “AI data centers could consume as much as...

Will AI data centers consume a quarter of US power?

Core argument: Arm CEO Rene Haas forecasts that without greater efficiency, AI data centers could consume 20% to 25% of U.S. power requirements by the end of the decade, up from probably 4% or less today, which he calls hardly sustainable.

In a January report, the International Energy Agency said a request to ChatGPT requires 2.9 watt-hours of electricity on average—equivalent to turning on a 60-watt lightbulb for just under three minutes. That is nearly 10 times as much as the average Google search. The agency said power demand by the AI industry is expected to grow by at least 10 times between 2023 and 2026. Rene Haas, chief executive of chip-design company Arm forecasts that without greater efficiency, “by the end of the decade, AI data centers could consume as much as 20% to 25% of U.S. power requirements. Today that’s probably 4% or less,” he said. “That’s hardly very sustainable, to be honest with you.”

Takeaways by Macro Roundup® AI

  1. Arm CEO Rene Haas forecasts that without greater efficiency, AI data centers could consume 20% to 25% of U.S. power requirements by the end of the decade, up from probably 4% or less today, which he calls hardly sustainable.
  2. The International Energy Agency said in a January report that an average ChatGPT request requires 2.9 watt-hours of electricity, nearly 10 times the average Google search and equivalent to running a 60-watt lightbulb for just under three minutes.
  3. The International Energy Agency expects power demand by the AI industry to grow by at least 10 times between 2023 and 2026.

Related Articles:

  • The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off — 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.
  • 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.
  • The Good, the Bad, and the Ugly — Dominion Energy, which serves 6m customers, has raised its projected power needs for the coming decade, attributing the change to data center demand. McKinsey, BCG, and S&P Global all expect US power demand to grow 13%-15% annually through 2030, and rising transformer costs alongside electrification could make electricity scarcer.

AI Summary. Replacing existing power lines with advanced conductors made from state-of-the-art materials, a technique known as advanced reconductoring, could roughly double electric grid capacity in many parts of the US and accommodate much more wind and solar power. Many US utilities have been slow to adopt it due to unfamiliarity with the technology and regulatory and bureaucratic hurdles.

Brad Plumer New York Times
Date Posted:
Is Database:
Database

Existing power lines use steel cores surrounded by aluminum strands. Replacing these with carbon fiber-based cores, a process known as “advanced reconductoring,” could double the capacity of current lines.

Existing power lines use steel cores surrounded by aluminum strands. Replacing these with carbon fiber-based cores, a...

Can replacing existing power lines quickly double grid capacity?

Core argument: Replacing existing U.S. power lines with cables made from state-of-the-art materials, known as advanced reconductoring, could roughly double grid capacity in many parts of the country, making room for much more wind and solar power.

Replacing existing power lines with cables made from state-of-the-art materials could roughly double the capacity of the electric grid in many parts of the country, making room for much more wind and solar power. This technique, known as “advanced reconductoring,” is widely used in other countries. Many U.S. utilities have been slow to embrace it because of their unfamiliarity with the technology as well as regulatory and bureaucratic hurdles. Replacing old lines can be done relatively quickly. In 2011, AEP, a utility in Texas, urgently needed to deliver more power to the Lower Rio Grande Valley to meet soaring population growth. It would have taken too long to acquire land and permits and to build towers for a new transmission line. Instead, AEP replaced 240 miles of wires on an existing line with advanced conductors, which took less than three years and increased the carrying capacity of the lines by 40%.

Takeaways by Macro Roundup® AI

  1. Replacing existing U.S. power lines with cables made from state-of-the-art materials, known as advanced reconductoring, could roughly double grid capacity in many parts of the country, making room for much more wind and solar power.
  2. AEP replaced 240 miles of wires on an existing line serving the Lower Rio Grande Valley in less than three years, increasing the carrying capacity of those lines by 40%, after concluding a new transmission line would take too long to permit and build.
  3. Many U.S. utilities have been slow to adopt advanced reconductoring because of unfamiliarity with the technology and regulatory and bureaucratic hurdles, even though the technique is widely used in other countries.

Related Articles:

  • Resurgent US Electricity Demand Sparks Power Grid Warnings — US electricity demand is growing after years of stagnation, driven by artificial intelligence, electric vehicles, and announced industrial projects, prompting warnings about power grid stability. Nationwide forecasts for five-year electricity demand growth rose from 2.6% to 4.7%, based on utility filings to federal regulators, with retail sales projected at a record.
  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.
  • Gridlock: How a Lack of Power Lines Will Delay the Age of Renewables — A study led by Lawrence Berkeley National Laboratory found nearly 2,000GW of solar, wind and storage projects waiting in queues to connect to US long-distance transmission grids, more than the installed capacity of the entire US power plant fleet. The authors find only about a fifth of such requested projects are typically built.