Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, April 23, 2024

AI Summary. The authors identify four wealth trajectory groups within a birth cohort: 21% who start and remain near the top, 42% who start and remain near the bottom, and 21% and 15% who stay in the middle while rising or falling in rank. They conclude that wealth mobility is concentrated in these middle groups rather than shared across the population.

Richard Audoly, Rory McGee, et al. Federal Reserve Bank of New York
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Norwegian tax records show that individuals born into the top 21% of the distribution or the bottom 42% tend to stay in these groups for life. Inter-generational mobility is primarily driven by movement within the middle of the distribution. @RichardAudoly

Is wealth mobility concentrated in the middle of the distribution?

Core argument: The "high-ranked" and "low-ranked" groups, 21% and 42% of the cohort, begin at the top or bottom of the wealth distribution and tend to remain within the upper or lower part of it, as small changes in the interquartile range of ranks indicate.

Two groups of individuals, which we label “high-ranked” and “low-ranked,” start their lives at the top or the bottom of the wealth distribution and tend to stay there. They make up 21 and 42% of the cohort, respectively. This does not imply that their wealth rank is fully stable but that it tends to stay within the upper or lower part of the wealth distribution, as made clear by the small changes in the interquartile range of the distribution of ranks. The other two groups, which we label “middle-rise” and “middle-fall”, correspond to the remaining 21 and 15% of the cohort, respectively. They stay in the central part of the distribution, but have, respectively, increasing and decreasing wealth rank trajectories. These trajectories lead them to overlap with the high-ranked and low-ranked groups by age 55. Crucially, the reversal of fortune experienced by these groups is the key driver behind the population intragenerational mobility trend. Mobility is not universal; rather, it is limited to segments of the population.

Takeaways by Macro Roundup® AI

  1. The "high-ranked" and "low-ranked" groups, 21% and 42% of the cohort, begin at the top or bottom of the wealth distribution and tend to remain within the upper or lower part of it, as small changes in the interquartile range of ranks indicate.
  2. The "middle-rise" and "middle-fall" groups, 21% and 15% of the cohort, stay in the central part of the wealth distribution with rising and falling rank trajectories that overlap with the high-ranked and low-ranked groups by age 55.
  3. The reversal of fortune experienced by the middle-rise and middle-fall groups is the key driver of the population intragenerational mobility trend, indicating that mobility is limited to segments of the population rather than universal.

Related Articles:

  • Intergenerational Mobility in American History: Accounting for Race and Measurement Error — Accounting for Black families, who historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked United States census data from 1850 to 1940. The author argues historical mobility was lower than previously estimated, implying greater equality of opportunity today than in the past.
  • The Inheritance Of Social Status: England, 1600 to 2022 — Using a genealogical database of 422,374 English people with rarer surnames, the authors find social status persists strongly even among distant relatives, with status correlations declining by a constant factor of 0.79 per step in the lineage across all status measures and eras studied. The authors argue this constancy suggests social interventions have modest effects.
  • France Has Poor Income Mobility Compared to US, Study Shows — France's statistics agency finds a 71% correlation between individuals' positions on the national income scale over a roughly 15-year span, with the richest and poorest groups least likely to change bracket. The authors say this inertia is greater than in the US, where studies have shown a higher probability of moving up or down.

AI Summary. The United States led the world in private artificial intelligence investment with $67.2bn, roughly 8.7x China's $7.8bn and 17.8x the United Kingdom's $3.8bn. Cumulative private AI investment over the prior decade shows the same ranking: $335.2bn for the United States, $103.7bn for China, and $22.3bn for the United Kingdom.

Raymond Perrault, Jack Clark, et al. Stanford University
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According to a Stanford analysis, there was $67.2B in private AI investment in the US last year, 8.7x the level in China. Since 2013 there has been a cumulative $335.2B investment in AI by the US relative to $103.7B for China.

Does the US lead the world in private AI investment?

Core argument: U.S. private AI investment reached $67.2 billion in 2023, 8.7 times China's $7.8 billion and 17.8 times the United Kingdom's $3.8 billion, leaving the United States again leading the world in total AI private investment.

The United States once again led the world in terms of total AI private investment. In 2023, the $67.2 billion invested in the United States was roughly 8.7 times greater than the amount invested in the next highest country, China ($7.8 billion), and 17.8 times the amount invested in the United Kingdom ($3.8 billion). When aggregating private AI investments since 2013, the country rankings remain the same: The United States leads with $335.2 billion invested, followed by China with $103.7 billion, and the United Kingdom at $22.3 billion.

Takeaways by Macro Roundup® AI

  1. U.S. private AI investment reached $67.2 billion in 2023, 8.7 times China's $7.8 billion and 17.8 times the United Kingdom's $3.8 billion, leaving the United States again leading the world in total AI private investment.
  2. Cumulative private AI investment since 2013 totals $335.2 billion in the United States, $103.7 billion in China, and $22.3 billion in the United Kingdom, preserving the same country rankings as the 2023 annual figures.

Related Articles:

  • The Global AI Talent Tracker 2.0 — The United States remains the leading destination for the world's most elite AI talent and hosts 60% of top AI institutions. China's share of top AI researchers working domestically rose from 29% in 2019 to 47% in 2022, and India retained one-fifth of its top AI researchers in 2022 versus nearly none in 2019.
  • Top Talent, Elite Colleges, and Migration: Evidence from the Indian Institutes of Technology — Among top scorers on India's Joint Entrance Exam for the Indian Institutes of Technology, 62% of the top 100 and 36% of the top 1,000 migrated abroad within eight years, primarily to the U.S. for graduate school. The authors argue elite schools shape migration by signaling ability and providing access to networks.
  • Chinese Companies Resort To Repurposing Nvidia Gaming Chips For AI — Chinese firms are developing artificial intelligence tools using processors stripped from Nvidia consumer gaming graphics cards and remounted on new circuit boards, after US export controls blocked sales of high-performance chips. Industry experts describe the practice as a rough workaround for China's shortage of high-end processors.

AI Summary. The authors estimate 40-50% of the emissions cuts needed for net zero can come from scaling already-mature technologies, requiring $3-5tn a year versus roughly $1.5tn deployed, with the largest shortfall in emerging markets. Technology for the remaining 50-60% is not yet available.

Daniel Hochman, Jeremy Ng, Alexis Teh, and JP Lucaci Bridgewater Associates
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Bridgewater argues that investment of $3-5T annually between 2020-50, or 4% of global GDP, would be required to deploy mature emissions-reduction technologies, but this would yield only 40-50% of reductions required to achieve net zero goals.

How much of net zero can existing technologies deliver?

Core argument: The authors estimate that 40–50% of the global emissions reductions needed for net zero can come from scaling already-mature technologies, requiring roughly $3–5 trillion a year, or about 4% of global GDP.

We estimate that about 40-50% of global emissions reductions required to achieve net zero goals can come from scaling technologies that are already mature. There are large financing gaps. Roughly $3-5 trillion a year (around 4% of global GDP) is needed to scale these technologies against the roughly $1.5 trillion a year that is currently being deployed. The financing shortfall is largest in emerging markets. The technology is not yet there to address the remaining 50-60% of emissions, though innovation is happening rapidly. Here it is harder to estimate how much capital will be necessary to successfully operationalize these technologies, but it is unlikely that the roughly $500 billion a year currently being invested to develop these earlier-stage technologies is sufficient to make the necessary progress. Unproven technologies are risky and thus require more risk-tolerant capital and project de-risking alongside in-house capex efforts of large corporate players.

Takeaways by Macro Roundup® AI

  1. The authors estimate that 40–50% of the global emissions reductions needed for net zero can come from scaling already-mature technologies, requiring roughly $3–5 trillion a year, or about 4% of global GDP.
  2. Current deployment of roughly $1.5 trillion a year falls short of the $3–5 trillion annual need for mature technologies, with the financing shortfall largest in emerging markets.
  3. Technology is not yet available to address the remaining 50–60% of emissions, and the roughly $500 billion a year invested in earlier-stage technologies is unlikely to be sufficient, making risk-tolerant capital and project de-risking necessary.

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 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.

AI Summary. US petroleum output has risen from about 7mn barrels a day two decades ago to nearly 20mn, roughly matching domestic consumption, while imports from Gulf suppliers have fallen and the country became a net oil exporter. The Permian Basin of Texas and New Mexico now pumps more oil than Kuwait, Iraq or the UAE.

Myles McCormick and Jamie Smyth Financial Times
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Harold Hamm, chair of Continental Resources argues, “If you didn’t have the shale revolution now you would have $150 oil . . . You would be in a very volatile situation. It would be horrendous.” As of this writing, TWI is $82 per barrel.

Does rising domestic oil production shield the US from price shocks?

Core argument: US petroleum production has risen from about 7mn b/d two decades ago to nearly 20mn b/d, roughly on par with domestic consumption, and the US became a net oil exporter for the first time in 2019.

“Shale has redrawn the map of world oil in a way most people don’t seem to understand,” said Daniel Yergin, vice-chair of S&P Global and a Pulitzer Prize-winning energy historian. “It has changed not only the supply-demand balance but it has changed the geopolitical balance and the psychological balance.” The numbers are stark. Two decades ago the US produced about 7mn barrels a day of petroleum and consumed 21mn. Gulf countries like Saudi Arabia and Kuwait — which send oil through the Strait of Hormuz — were among the US’s most important foreign suppliers. Now the US produces almost 20mn b/d of petroleum, roughly on par with consumption. Imports from the Gulf have plummeted, and the US became a net oil exporter for the first time in 2019. The prolific Permian Basin shale of Texas and New Mexico pumps more oil than Kuwait, Iraq or the UAE, three of Opec’s powerhouses.

Takeaways by Macro Roundup® AI

  1. US petroleum production has risen from about 7mn b/d two decades ago to nearly 20mn b/d, roughly on par with domestic consumption, and the US became a net oil exporter for the first time in 2019.
  2. The Permian Basin of Texas and New Mexico pumps more oil than Kuwait, Iraq or the UAE, while US imports from Gulf suppliers shipping through the Strait of Hormuz have plummeted.
  3. Daniel Yergin, vice-chair of S&P Global, argues shale has changed not only the world oil supply-demand balance but the geopolitical and psychological balance as well.

Related Articles:

  • United States Produces More Crude Oil Than Any Country, Ever — The United States has produced more crude oil than any nation at any time for six consecutive years, averaging 12.9m barrels per day in 2023 and surpassing the prior record of 12.3m barrels per day. Output fell to 5.0m barrels per day in 2008 before rising as producers applied hydraulic fracturing and horizontal drilling.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.
  • US Oil and Gas Boom Doesn’t Feel Like One to Workers — US oil and natural gas production has been setting records, yet industry employment is 128,700 below its mid-2014 peak and 41,200 below pre-pandemic levels, with job gains stalling after rising from an early-2021 low. Productivity in the US oil and gas industry has risen dramatically.

AI Summary. The authors see limited signs of the profit or capital spending declines that often accompany recessions, noting that unlike prior yield-curve inversions the corporate sector is running a surplus with stable interest expense. They flag fading disinflationary-boom prospects as a risk to price-to-earnings multiples, particularly for technology stocks.

Michael Cembalest J.P. Morgan
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Michael Cembalest @jpmorgan notes that the US corporate sector is generating positive cash flow and that interest expenses are stable, but the “fading prospects of a disinflationary boom are a risk to P/E multiples, particularly for tech stocks.”

Does a corporate surplus weaken the yield curve's recession signal?

Core argument: The ratio of cash yields to S&P 500 dividend yields stands at its highest level on record apart from an August 2000 spike, which may tempt investors to hold excess cash.

We see limited signs of a large profits or capital spending decline that often coincides with recessions. While an inverted yield curve has a pattern of predicting recessions, prior inversions were also accompanied by deeply negative corporate cash flow and rising corporate interest costs. This time, the story is different: the corporate sector is in surplus and corporate interest expense is still stable. Fading prospects of a disinflationary boom are a risk to P/E multiples, particularly for tech stocks. The [12 months ending] early April showed tech P/Es back at 2020/2021 highs; since that time, almost all NASDAQ 100 and S&P 500 Tech Sector YTD gains have been erased. Investors may be tempted to hold onto excess cash now that the ratio of cash yields to S&P dividend yields is at its highest level on record other than a spike in August 2000. While US equities may experience the same kind of 10% correction we saw last summer, 2024 still looks like a year of high single-digit returns on US equities.

Takeaways by Macro Roundup® AI

  1. The ratio of cash yields to S&P 500 dividend yields stands at its highest level on record apart from an August 2000 spike, which may tempt investors to hold excess cash.
  2. Unlike prior yield-curve inversions that came with deeply negative corporate cash flow and rising interest costs, the US corporate sector is in surplus with stable interest expense, and shows limited signs of a large profits or capital spending decline.
  3. Tech price-to-earnings multiples returned to 2020/2021 highs in the 12 months ending early April, and almost all NASDAQ 100 and S&P 500 tech sector year-to-date gains have since been erased.

Related Articles:

  • Pillow Talk — The "magnificent 7" megacap stocks represent an all-time-high share of US market capitalization and accounted for most equity market gains, with 72% of S&P 500 stocks underperforming the index versus a 52% average since 1980. Adjusted for higher earnings growth expectations, these megacaps look less overpriced relative to the market, though the trade is very crowded.
  • 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.
  • Global Views: Friendly Baseline, Greater Risks — Despite upside inflation surprises, the authors argue the broader disinflation narrative remains intact, citing a labor market that continues to rebalance: a jobs-workers gap of 2.0m, a quits rate below pre-pandemic levels, and wage growth running just over 4% year-on-year. They expect wage growth to converge to 3.5%, the pace they estimate is consistent with 2% inflation.

AI Summary. Chinese households spend only 37% of national income on goods and services, the lowest share in the world, while employee compensation at Chinese nonfinancial corporations is about 44% of gross value added versus roughly 60% in the US, Europe, and Japan. Chinese manufacturers appear to be adding production capacity far faster than actual output.

Matt Klein The Overshoot
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.@M_C_Klein finds that Chinese industrial production is 5% under the 2014-2019 trend, and argues that a collapse in the country’s domestic consumption is driving its surging trade surplus.

Is weak household consumption, not excess capacity, China's core imbalance?

Core argument: Chinese households spend only 37% of national income on goods and services, a level lower than anywhere else in the world.

Fixed asset investment in China’s manufacturing industry has been growing relatively briskly over the past few years, especially relative to the average growth rate in 2016-2019. At the same time, Chinese estimates of capacity utilization—which only go back to 2021Q1—show that manufacturers, particularly those in green industries, seem to be increasing their capacity to produce far faster than their actual production. Only 37% of China’s national income is spent by Chinese households on goods and services. That level is lower than anywhere else in the world. For Chinese nonfinancial corporations, employee compensation is only worth about 44% of gross value added, whereas the equivalent measure of the labor share in the U.S., Europe, and Japan is ~60%. The U.S. and others might still end up needing to deploy preferential subsidies to sustain their domestic productive bases in the face of Chinese underconsumption.

Takeaways by Macro Roundup® AI

  1. Chinese households spend only 37% of national income on goods and services, a level lower than anywhere else in the world.
  2. Employee compensation at Chinese nonfinancial corporations equals about 44% of gross value added, versus roughly 60% for the equivalent labor share in the U.S., Europe, and Japan.
  3. Chinese capacity utilization estimates, which begin only in 2021Q1, suggest manufacturers—particularly in green industries—are expanding capacity far faster than actual production, alongside manufacturing fixed asset investment growth that is brisk relative to the 2016–2019 average.

Related Articles:

  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.
  • Can Trade Intervention Lead to Freer Trade? — China accounts for over 31% of global manufacturing but under 13% of global consumption, while the United States accounts for under 17% of manufacturing and nearly 27% of consumption. The author argues persistent surpluses reflect household subsidies to producers, and that the US could counter them with tariffs or taxes on capital inflows.
  • The World Is In For Another China Shock — Weak demand and overcapacity have pushed Chinese producer prices down for 16 months, and that disinflationary impulse is spreading abroad: US import prices from China fell 2.9% year over year while prices of imports from the European Union, Japan, and Mexico rose. Western protectionism could redirect the deflationary impact toward poorer markets.

AI Summary. The H5N1 bird flu strain now circulating globally has spread not only among farmed and wild birds but into many other animals, unlike earlier versions of the virus. Outbreaks in mink and in South American sea mammals suggest the virus most likely adapted to spread between mammals.

Apoorva Mandavilli and Emily Anthes New York Times
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H5N1 is killing tens of thousands of marine mammals across South America and has likely evolved to spread directly among that population.

H5N1 is killing tens of thousands of marine mammals across South America and has likely evolved to spread directly among...

Is bird flu now spreading between mammals?

Core argument: H5N1, first identified in a highly pathogenic form in Chinese domestic waterfowl in 1996, infected 18 people in Hong Kong the following year and killed six of them.

A highly pathogenic strain of H5N1 was identified in 1996 in domestic waterfowl in China. The next year, 18 people in Hong Kong became infected with the virus, and six died. The virus then went silent, but it resurfaced in Hong Kong in 2003. Since then, it has caused dozens of outbreaks in poultry and affected more than 800 people who were in close contact with the birds. All the while, it continued to evolve. The version of H5N1 currently racing across the world emerged in Europe in 2020 and spread quickly to Africa and Asia. It killed scores of farmed birds, but unlike its predecessors, it also spread widely among wild birds and into many other animals. In the mink, at least, the most likely explanation was that H5N1 had adapted to spread among the animals. The scale of the outbreaks in sea mammals in South America underscored that probability.

Takeaways by Macro Roundup® AI

  1. H5N1, first identified in a highly pathogenic form in Chinese domestic waterfowl in 1996, infected 18 people in Hong Kong the following year and killed six of them.
  2. Since H5N1 resurfaced in Hong Kong in 2003, the virus has caused dozens of poultry outbreaks and affected more than 800 people who were in close contact with birds, evolving throughout.
  3. The H5N1 version that emerged in Europe in 2020 and spread to Africa and Asia killed scores of farmed birds and, unlike its predecessors, spread widely among wild birds and many other animals, with adaptation to spread among mink the most likely explanation in that species.

Related Articles:

  • Bird Flu Outbreak in US Cows: Why Scientists Are Concerned — 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.
  • 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 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 24, 2024

AI Summary. The authors estimate that Idaho's return-to-work bonus program, which paid up to $1,500 to people leaving nonemployment, raised employment among prime-age workers by 3.2 percentage points and the flow of unemployed workers into jobs by 18.2 percentage points. State-level estimates associate the program with a 2.9-point higher employment-population ratio and a 0.4-point lower unemployment rate.

Michael Strain and Duncan Hobbs IZA Institute of Labor Economics
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Idaho’s Return to Work Bonus of up to $1,500 was associated with a 0.4pp decrease in the unemployment rate and a 2.4% increase in nonfarm payroll employment. @MichaelRStrain

Do cash bonuses for returning to work raise employment?

Core argument: The authors' most controlled difference-in-differences models estimate that Idaho's Return to Work Bonus program, which paid up to $1,500 to leave nonemployment, raised prime-age employment by 3.2pp.

We estimate the effects of the Idaho RWB program, which gave recipients up to $1,500 to leave nonemployment, on a variety of labor market outcomes. Among prime-age workers, our most controlled DD models suggest that the Idaho RWB program increased employment by 3.2pp, increased the flow of unemployed workers into employment by 18.2pp, and increased the flow of nonparticipants into employment by 4.2pp. Using state-level outcomes with a similar specification, we estimate that the Idaho RWB program is associated with the employment-population ratio increasing by 2.9pp, the unemployment rate decreasing by 0.4pp, the nonparticipation rate decreasing by 2.5pp, and nonfarm payroll employment increasing by 2.4%. We find the estimated actual effects for Idaho are significantly larger than the placebo effects for states that did not enact the program.

Takeaways by Macro Roundup® AI

  1. The authors' most controlled difference-in-differences models estimate that Idaho's Return to Work Bonus program, which paid up to $1,500 to leave nonemployment, raised prime-age employment by 3.2pp.
  2. The Idaho Return to Work Bonus program is estimated to have increased the flow of unemployed workers into employment by 18.2pp and the flow of nonparticipants into employment by 4.2pp among prime-age workers.
  3. Using state-level outcomes, the authors estimate the Idaho program is associated with the employment-population ratio rising 2.9pp, the unemployment rate falling 0.4pp, nonparticipation falling 2.5pp, and nonfarm payroll employment rising 2.4%.

Related Articles:

  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • Why Is Prime-Age Labor Force Participation So High? — Labor force participation among 25-to-54-year-olds rose after the pandemic shock, with women's rate exceeding its pre-pandemic peak while men's returned to its pre-pandemic level but stayed below its historical high. The authors find this participation rise can ease wage and price pressures in hot labor markets, but appears to have ended.
  • Men’s Falling Labor Force Participation Across Generations — Each successive generation of prime-age men has shown higher rates of not participating in the labor force, with millennials starting at a higher level and declining more steeply into their mid-30s, a pattern driven by school enrollment. Given rising educational attainment, the authors suggest the sustained rise in male nonparticipation may slow, which could benefit economic growth.

AI Summary. Valuation multiples have become less able to capture a business's underlying economics as corporate investment has shifted from tangible assets like factories to intangible assets and how those are recorded in financial statements. Adjusting Microsoft's reported $72.4bn net income for intangible investment raises it 14.7% to $83bn and cuts its price-to-earnings ratio from 34.9 to 30.5.

Michael Mauboussin and Dan Callahan Morgan Stanley
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.@mjmauboussin and Dan Callahan argue that the ability of P/E and EV/EBITDA multiples to capture the underlying economics of a business has degraded as intangible investments in R&D and customer acquisition have become increasingly important.

Has the shift to intangible investment degraded valuation multiples?

Core argument: Adjusting Microsoft's fiscal 2023 results for intangible investment raises net income from $72.4B as reported to $83B (14.7 percent higher) and EBITDA from $102.4B to $147.0B (43.6 percent higher).

The ability of multiples to capture the underlying economics of a business has degraded over time. This is mainly the result of a shift in how companies invest. In prior generations, businesses invested primarily in tangible assets such as factories and machines. Today, the majority of investments are in intangible assets. Multiples are supposed to reflect the magnitude and return on investment. But the shift to intangible investments, and how companies record them in financial statements, has wreaked havoc on that ability. To illustrate this point, we take two looks at the financial results of Microsoft, a multinational technology company that invests heavily in intangible assets. For fiscal 2023, Microsoft reported net income of $72.4B. Adjusted for intangible investment, the figure would be $83B, or 14.7 percent higher. The company’s EBITDA was $102.4B before the adjustment and $147.0B, 43.6 percent more, after the adjustment. Based on figures from June 30, 2023, the end of the company’s fiscal year, the trailing P/E went from 34.9 as reported to 30.5 as adjusted, and EV/EBITDA went from 24.2 to 16.9. These are material differences.

Takeaways by Macro Roundup® AI

  1. Adjusting Microsoft's fiscal 2023 results for intangible investment raises net income from $72.4B as reported to $83B (14.7 percent higher) and EBITDA from $102.4B to $147.0B (43.6 percent higher).
  2. Based on figures from June 30, 2023, Microsoft's trailing P/E falls from 34.9 as reported to 30.5 as adjusted for intangible investment, and EV/EBITDA falls from 24.2 to 16.9.
  3. Valuation multiples have degraded in their ability to capture a business's underlying economics, mainly because companies now invest largely in intangible assets rather than factories and machines, and because of how those investments are recorded in financial statements.

Related Articles:

  • 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.
  • 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.
  • Data Update 4 for 2024: Risk Enters the Equation — Across a universe of 47,698 companies, the median cost of capital for a US company is estimated at 7.9%, down from 9.6% a year earlier entirely because of declines in the price of risk, namely equity risk premiums and default spreads, though still above a historic low of 5.8%.

AI Summary. Corporate taxes are ultimately borne by people: companies attempt to pass increases to consumers through higher prices, and most economic studies conclude that 50%–70% of the remainder falls on workers and 30%–50% on investors. According to Tax Notes, 72% of domestically held stock value sits in retirement, charitable, and insurance accounts.

Phil Gramm and Mike Solon Wall Street Journal
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Phil Gramm and Mike Solon defend the TCJA corporate tax cuts by highlighting that customers, employees, and investors ultimately pay corporate taxes.

Phil Gramm and Mike Solon defend the TCJA corporate tax cuts by highlighting that customers, employees, and investors...

Who actually bears the cost of corporate taxes?

Core argument: Most economic studies conclude that 50–70% of a corporate tax increase not passed on to consumers in higher prices is borne by workers, with 30–50% borne by investors.

Corporate tax rates, which were the driving force behind the permanent part of the 2017 tax cuts, receive less attention than individual income-tax rates only because Americans don’t understand that corporations don’t pay taxes. A corporate entity is a “pass through” legal structure—a piece of paper in a Delaware filing cabinet. When the corporate tax rate increases, corporations try to pass the cost on to consumers. To the degree that the entire cost of the tax increase can’t be passed on to consumers, those costs are borne by employees and investors. Most economic studies conclude that 50% to 70% of a corporate tax increase not passed on in higher prices is borne by workers, while 30% to 50% is borne by investors. Who owns American corporations? According to Tax Notes, 72% of the value of all domestically held stocks is owned by pension plans, 401(k)s, individual retirement accounts and charitable organizations, or held by life insurance companies to fund annuities and death benefits.

Takeaways by Macro Roundup® AI

  1. Most economic studies conclude that 50–70% of a corporate tax increase not passed on to consumers in higher prices is borne by workers, with 30–50% borne by investors.
  2. According to Tax Notes, 72% of the value of all domestically held stocks is owned by pension plans, 401(k)s, individual retirement accounts and charitable organizations, or held by life insurers to fund annuities and death benefits.
  3. Corporate tax rates drove the permanent portion of the 2017 tax cuts yet receive less attention than individual income-tax rates, which the argument attributes to Americans not understanding that corporations pass tax costs to consumers, employees and investors.

Related Articles:

  • Tax Policy and Investment in a Global Economy — Using administrative tax data, the authors estimate that firms experiencing the mean corporate tax change under the 2017 US tax law increased investment by 20% relative to firms with no change, with long-run domestic and total capital up 7% and 13%. They find higher depreciation deductions largely offset added revenue from capital accumulation.
  • Who Gains from Corporate Tax Cuts? — The authors estimate that corporate tax cuts boost overall investment and employment, with goods-producing firms such as manufacturers raising capital expenditure and wage bills without changing dividends, and a 1% cut in the marginal tax rate lifting their capital spending by as much as 8%. Service-sector firms instead direct most of the windfall to dividends.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.

AI Summary. The Census Bureau projects US population growth slowing to about 350k per year by the 2050s as the fertility rate sits below the 2.1 births per woman needed to keep population steady, reaching a record-low 1.64. Without immigration, the population would begin shrinking in 2038.

Aziz Sunderji Home Economics
Date Posted:

The Census Bureau forecasts annual US population growth of 350k in the 2050s, down from 3mm/year in the 1990s. After 2038, net population growth will be driven by immigration. @AzizSunderji

How much will US population growth slow as fertility falls?

Core argument: The Census Bureau forecasts U.S. population growth slowing to roughly 350,000 per year by the 2050s, not far off the level it fell to during the depths of the pandemic.

By the 2050s, the Census Bureau forecasts the population inching higher by a mere 350k per year—not far off where it fell to during the depths of the pandemic. It’s an odd situation, because the short term trend is totally different: an explosion in the population driven by migration. The official Census Bureau figure puts in-migration at around 1 million in 2023. But Goldman Sachs, for example, estimates it was far higher—at 2.5 million. The Congressional Budget Office (CBO) also believes immigration may have surged to record levels of 2-3 million per year in 2022-2023. They attribute much of this to “unauthorized migration”. If they’re right, then 2023 was the biggest population boom in the country’s history. But this is a short term blip. Over the long run, the population is set to grow more slowly. This is because the fertility rate is plunging. On average, each woman needs to have 2.1 children to keep the population steady (it’s slightly higher than 2.0, to account for child mortality and other factors). But fertility fell below that level about 15 years ago, and we never looked back. In 2020, the ratio fell to 1.64, the lowest rate recorded since the government began tracking these statistics in the 1930s. In fact, if it weren’t for immigration, the American population would begin to shrink in 2038.

Takeaways by Macro Roundup® AI

  1. The Census Bureau forecasts U.S. population growth slowing to roughly 350,000 per year by the 2050s, not far off the level it fell to during the depths of the pandemic.
  2. The U.S. fertility rate fell to 1.64 in 2020, the lowest since the government began tracking the statistic in the 1930s, and has stayed below the 2.1 replacement level for about 15 years.
  3. The Census Bureau puts 2023 in-migration near 1 million, while Goldman Sachs estimates 2.5 million and the Congressional Budget Office believes immigration may have reached 2–3 million per year in 2022–2023, much of it unauthorized.

Related Articles:

  • America Is Uniquely Ill-Suited To Handle a Falling Population — U.S. population growth slowed to about 7.4% in the decade to 2020, the slowest since the Great Depression, as the fertility rate fell from above the 2.1 needed for a stable population to 1.67. Because local and regional authorities levy 48% of all U.S. taxes—versus 20% in France and 6% in Britain—shrinking local revenue forces service cuts or tax rises.
  • 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.
  • 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.

AI Summary. A working paper by researchers at Harvard, Columbia, and the Federal Reserve finds that nearly 20% of Florida insurers rated financially stable by the rating agency Demotech became insolvent, with 99.7% of that agency's ratings in the sample at A or above. The researchers argue this signals Florida's insurance market is more precarious than already known.

Leslie Kaufman Bloomberg
Date Posted:

Florida’s state-backed home insurer is now the largest in the state, and the remaining insurers may be weaker than expected: nearly 20% of insurers rated financially stable by Demotech became insolvent from 2009-20.

Are home insurer financial stability ratings overstating insurers' actual strength?

Core argument: Nearly 20% of Florida insurers that Demotech rated as financially stable went insolvent during 2009–2022, according to a working paper by researchers at Harvard University, Columbia University, and the Federal Reserve.

Nearly 20% of the companies doing business in Florida that Demotech rated as financially stable went insolvent during the period 2009 to 2022, according to a working paper by researchers at Harvard University, Columbia University, and the Federal Reserve. In their data sample, 99.7% of the ratings issued by Demotech were an A or above. That’s a signal, the researchers said, that Florida’s insurance market may be full of weak players and is even more precarious than already known. Demotech’s president and co-founder Joseph Petrelli disputed that his agency’s ratings are inflated in any way, calling the paper a “hit job.” He said he was “as surprised as anyone” when those seven firms declared insolvency, and that the real problem with the state insurance market is consumer and contractor fraud.

Takeaways by Macro Roundup® AI

  1. Nearly 20% of Florida insurers that Demotech rated as financially stable went insolvent during 2009–2022, according to a working paper by researchers at Harvard University, Columbia University, and the Federal Reserve.
  2. Demotech issued ratings of A or above in 99.7% of cases in the researchers' data sample, which the researchers said signals Florida's insurance market may be full of weak players and more precarious than already known.
  3. Demotech president and co-founder Joseph Petrelli disputed that his agency's ratings are inflated, called the paper a "hit job," and said the real problem in Florida's insurance market is consumer and contractor fraud.

Related Articles:

  • A Hidden Crisis In US Housing — State-run "last resort" home insurance programs, which cover properties the private market won't, have more than doubled their market share since 2018, with liabilities passing $1tn; Florida's plan faces potential losses of $525bn and California's at least $290bn, six times its 2018 level. Of 36 such plans covering natural catastrophes, 21 do not explicitly detail how they would pay deficits.
  • In Southwest Florida, High Home Insurance Rates Are Driving Away Would-Be Buyers — Florida homeowners paid about $6,000 a year for insurance on average, roughly triple what they paid in 2019 and compared with about $1,700 for the average US homeowner. Insurers and state regulators attribute the increases to widespread lawsuits and fraud, and a Category 5 hurricane led some insurers to exit the state or limit new policies.
  • Rising Insurance Costs Start to Hit Home Sales — A survey of house builders found that 31% in Florida and 29% in Southern California said buyers' home insurance concerns were somewhat slowing sales, versus 9% nationally. Researchers estimate that pricing in flood risk would reduce U.S. residential property values by at least $121bn, including over $50bn of overvaluation in Florida flood zones.

AI Summary. The European Commission and local law enforcement raided the Warsaw and Rotterdam offices of Nuctech, a Chinese state-owned maker of baggage security scanners, citing indications the company may have received foreign subsidies that could distort the EU internal market. Some Western countries have banned Nuctech products on national security grounds.

Henry Foy, Joe Leahy and Andy Bounds Financial Times
Date Posted:

The EU raided a Chinese security equipment supplier that “may have received foreign subsidies that could distort the internal market.” The EU ran a trade deficit of over €400B with the PRC in 2022.

The EU raided a Chinese security equipment supplier that “may have received foreign subsidies that could distort the...

Is Europe escalating enforcement against subsidized Chinese security equipment suppliers?

Core argument: The European Commission and local law enforcement raided the Warsaw and Rotterdam offices of Nuctech, a Chinese state-owned maker of baggage security scanners, following indications the company may have received foreign subsidies that could distort the internal market.

Brussels has raided the offices of a Chinese security equipment supplier. The raid by the European Commission and local law enforcement on the offices of Nuctech, which manufactures baggage security scanners, came as Brussels cracks down on what it sees as Beijing’s unfair trading practices. The raids took place at the Warsaw and Rotterdam offices of Nuctech, a state-owned company once run by the son of former Chinese president Hu Jintao. The company’s products have been banned by some western countries on national security grounds. In a statement, the commission said the raids followed “indications that the inspected company may have received foreign subsidies that could distort the internal market”. The EU on Wednesday said it had also opened an investigation into China’s medical device market on the grounds that European manufacturers were being unfairly blocked from supplying doctors and hospitals.

Takeaways by Macro Roundup® AI

  1. The European Commission and local law enforcement raided the Warsaw and Rotterdam offices of Nuctech, a Chinese state-owned maker of baggage security scanners, following indications the company may have received foreign subsidies that could distort the internal market.
  2. Nuctech, once run by the son of former Chinese president Hu Jintao, has had its products banned by some Western countries on national security grounds.
  3. The EU opened an investigation into China's medical device market on the grounds that European manufacturers were being unfairly blocked from supplying doctors and hospitals.

Related Articles:

  • EU to Press China On Industrial Overcapacity at Beijing Summit — European Union leaders are pressing China over its expansion of industrial capacity, particularly in renewable energy products, at a time of weak Chinese domestic demand and tightening access to markets such as the US, leaving Europe a target for excess exports. EU officials say the bloc's trade deficit with China is just below $400bn and has doubled within two years.
  • Mexico Targets Chinese Steel Imports With Increased Tariff Of Nearly 80% — Mexico imposed a tariff of nearly 80% on some steel imports, including certain Vietnamese exports of cold-rolled steel sheets, after local producers said Chinese steelmakers had strangled their production. Exporters that prove the steel originates outside China are exempt.
  • Brazil Launches China Anti-Dumping Probes After Imports Soar — Brazil's industry ministry has opened at least half a dozen investigations into alleged dumping of Chinese industrial products, spanning metal sheets, pre-painted steel, chemicals and tyres. Brazilian steelmakers have asked for tariffs of 9.6% to 25% on imported steel, as Brazil's steel and iron imports from China rose from $1.6bn to $2.7bn.

AI Summary. US law requires TikTok's Chinese owner ByteDance to divest the video-sharing app within 270 days or face a US prohibition. TikTok and ByteDance argue the measure infringes the free-speech rights of the app's 170m monthly US users and plan lawsuits to void the law or delay its enforcement.

Alex Barinka Bloomberg
Date Posted:

President Biden signed into law a ban on TikTok in the US as of 1/19/25 unless ByteDance, the Chinese parent, divests TikTok in favor of Western ownership. The company plans to challenge the law in court on First Amendment grounds.

Will a forced sale of a Chinese-owned app survive legal challenge?

Core argument: Biden signed legislation requiring ByteDance to divest TikTok within 270 days or face a US prohibition of the platform, setting a divestiture deadline of Jan. 19, a day before the next presidential inauguration.

Legislation requiring the social media app’s Chinese owners to divest sailed through Congress. Biden signed it into law Wednesday, beginning a 270-day countdown for a sale or a US prohibition of the popular video-sharing platform. TikTok and Beijing-based ByteDance have vowed to do all they can to stop the measure. They’ve argued it infringes the free-speech rights of the app’s 170 million monthly US users and plan to file suits to void the law or at least delay its enforcement. If TikTok can’t slow enforcement through the legal system, another chance of avoiding a separation may lie with a new administration. Biden’s signing the bill on Wednesday puts the divestiture deadline to Jan. 19 — a day before the next presidential inauguration. Biden’s opponent in the November election, Donald Trump, has recently come out against a TikTok ban. For Trump, that marked a reversal from his decision while president to ban the app via a 2020 executive order that was later voided by federal courts.

Takeaways by Macro Roundup® AI

  1. Biden signed legislation requiring ByteDance to divest TikTok within 270 days or face a US prohibition of the platform, setting a divestiture deadline of Jan. 19, a day before the next presidential inauguration.
  2. TikTok and Beijing-based ByteDance plan to file suits to void the law or delay its enforcement, arguing it infringes the free-speech rights of the app's 170 million monthly US users.
  3. Donald Trump has come out against a TikTok ban, reversing his decision as president to ban the app via a 2020 executive order that federal courts later voided.

Related Articles:

  • China Orders Apple to Remove Popular Messaging Apps — Chinese authorities ordered Apple to remove WhatsApp, Threads, Signal and Telegram from its App Store in China, citing national security concerns. The apps, which together have roughly 3bn users globally, were already accessible in China only through virtual private networks but remained commonly used.
  • TikTok Crackdown Shifts Into Overdrive, With Sale or Shutdown on Table — U.S. legislation that would ban TikTok or force its sale by Chinese parent ByteDance advanced out of the House Energy and Commerce Committee on a 50-0 vote. TikTok's campaign urging users to call their congressional representatives against the bill appeared to harden supporters' resolve.
  • Teens, Social Media and Technology 2023 — About nine-in-ten U.S. teens ages 13 to 17 say they use YouTube, making it the most widely used platform in Pew Research Center's survey, followed by TikTok (63%), Snapchat (60%), and Instagram (59%). Facebook use among teens fell from 71% in 2014-2015 to 33%, and Twitter's teen user base also shrank over the past decade.