Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, April 26, 2024

AI Summary. High-wage metro areas, which accounted for roughly two-thirds of US job creation over the previous decade, have seen their share of overall job growth fall below 50%, with the fastest employment growth now occurring in the lowest-wage metros. Job growth in affluent metros has slowed only slightly; the shift reflects rapid expansion elsewhere.

August Benzow Economic Innovation Group
Date Posted:
Is Database:
Database

The highest-income 20% of metro areas, which drove roughly ⅔ of US job creation between 2011-21, have failed to keep up with rapid employment growth in the rest of the country and represented less than 50% of new jobs in 2023. @AugustBenzow

Are low-wage metro areas now leading US job growth?

Core argument: The top 20% of U.S. metro areas by average income generated roughly two-thirds of national job creation over the previous decade, but their share fell below 50% for the first time last year.

Throughout the previous decade, roughly two-thirds of job creation nationwide occurred in the 20% of metro areas with the highest average incomes. Then came the pandemic. After a brief surge in 2020, the contribution of these high-wage metro areas to overall job growth declined steadily, falling below 50% for the first time last year. Not only have other places started converging with these high-wage metros, but the fastest pace of job creation is actually taking place in the lowest-wage metros. Employment growth in affluent metro areas has slowed compared to pre-pandemic levels, but not by much. The more notable story is that these prosperous metro areas are failing to keep up with the rapid employment expansion seen across the rest of the country.

Takeaways by Macro Roundup® AI

  1. The top 20% of U.S. metro areas by average income generated roughly two-thirds of national job creation over the previous decade, but their share fell below 50% for the first time last year.
  2. The fastest pace of job creation is occurring in the lowest-wage metro areas, while other places converge toward the high-wage metros that previously dominated employment gains.
  3. Employment growth in affluent metro areas has slowed only modestly relative to pre-pandemic levels; the more notable shift is the rapid employment expansion across the rest of the country.

Related Articles:

  • Even As Pandemic Fades, People are Still Leaving Big Cities — Lower-density suburbs of large metropolitan areas grew faster than urban cores, mid-size and small metros, and non-metropolitan areas, as domestic out-migration from urban counties more than offsets population gains from international immigration. Nine of the ten most expensive metropolitan areas, many in California, recorded population declines, with Seattle the exception.
  • Economic Prosperity is Shifting Toward the Mountain West and Southeast — The most economically prosperous U.S. zip codes house 80.6m residents and averaged nearly 3x the job growth of "comfortable" zip codes and 10x that of "at-risk" ones. In several Southeast and Mountain West states, a much greater share of the population now lives in top-ranked prosperous zip codes than a decade earlier.
  • Movers And Money: Mapping the Flow of Income During the Pandemic — Manhattan recorded the largest county-level income outflow to other states at $16.5bn, with 27.7 cents of every dollar leaving—$4.6bn—going to Florida, including $2.9bn to Miami-Dade County and $1.1bn to Palm Beach County. California had the largest state-level losses, while Florida was the biggest beneficiary with a net gain of $39bn.

AI Summary. Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.

Devon Long, Will Barnes, and Eka Zhao Bridgewater Associates
Date Posted:

Bridgewater forecasts that Sub-Saharan Africa (3% of global GDP) will have working-age population growth of ~3% over the next 10 years plus 2% productivity growth yielding annual GDP growth of 4.5-5.5%, vs. 3.5-4.5% for China and 5.5-6.5% for India.

How much will Sub-Saharan Africa's population boom raise its global output share?

Core argument: Sub-Saharan Africa is projected to account for a quarter of the world's working-age population within a few decades and to have more working-age people than China in about 10 years.

Sub-Saharan Africa’s population is booming. It is projected to account for a quarter of the world’s working-age population within a few decades and have more people of working age than China in about 10 years. This means that even if productivity growth is modest, sub-Saharan Africa is on track to be one of the fastest-growing areas in the world, and its role in the global economy, which is very small today, 3% of global GDP, will likely increase as well. Our base case for long-term productivity growth in the region is positive but low, around 2%. This would be an improvement from the past decade of relative stagnation but will still keep the region in poverty with limited impact on the rest of the world in the coming decades. Combined with working-age population growth of a little under 3%, this yields a future growth estimate of 4.5-5.5%, compared to 3.5-4.5% for China and 5.5-6.5% for India. Even with anemic productivity growth, the demographic baseline means that sub-Saharan Africa will likely grow as a share of global GDP—but it will remain quite small.

Takeaways by Macro Roundup® AI

  1. Sub-Saharan Africa is projected to account for a quarter of the world's working-age population within a few decades and to have more working-age people than China in about 10 years.
  2. A base case of roughly 2% long-term productivity growth plus working-age population growth of a little under 3% yields estimated growth of 4.5–5.5% for sub-Saharan Africa, versus 3.5–4.5% for China and 5.5–6.5% for India.
  3. Sub-Saharan Africa accounts for 3% of global GDP, and even with low productivity growth its demographic baseline means that share will likely rise while remaining quite small, leaving the region in poverty.

Related Articles:

  • The World Is Becoming More African — United Nations forecasts project Africans will rise from 8% of the world's people in 1950 to one-quarter by 2100, with the continent holding the world's largest workforce within a decade. McKinsey & Company estimates Africa's per-person economic growth has averaged 1% annually since 1990, against India's 5% and China's 9%.
  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.
  • Saudi Forces Accused of Killing Hundreds of Ethiopian Migrants — Human Rights Watch alleges in a 73-page report that Saudi border forces killed hundreds of Ethiopian migrants attempting to cross into the kingdom from Yemen, firing explosive weapons at them and in some cases asking migrants which limb they would prefer to be shot. Saudi Arabia hosts hundreds of thousands of Ethiopian workers.

AI Summary. Immigrants and their children in English-speaking countries including the US, UK, Canada and Australia tend to be more skilled, hold better jobs and out-earn the native-born, while those in continental Europe fare worse. Immigrants are net fiscal contributors in the US, UK, Australia and Ireland, but net recipients in Belgium, France, Sweden and the Netherlands.

John Burn-Murdoch Financial Times
Date Posted:
Is Database:
Database

.@jburnmurdoch notes that as of 2018 “In terms of the fiscal impact, immigrants pay more in than they get out in the US, UK, Australia and Ireland, but are net recipients in Belgium, France, Sweden and the Netherlands.”

Do English-speaking countries attract more successful immigrants than continental Europe?

Core argument: Immigrants in the US, UK, Australia and Ireland pay more in taxes than they receive in benefits, while immigrants in Belgium, France, Sweden and the Netherlands are net recipients.

Immigrants and their offspring in the UK, US and so on tend to be more skilled, have better jobs and often out-earn the native-born, while those in continental Europe fare worse. In terms of the fiscal impact, immigrants pay more in than they get out in the US, UK, Australia and Ireland, but are net recipients in Belgium, France, Sweden and the Netherlands. The children of immigrants in the UK, US and Canada all experienced smaller racial wage deficits than their parents, but most second-generation immigrants in France and Germany went backwards. Similarly, the poverty rate among immigrants has fallen over the last decade in the UK, US, Australia and Canada, but risen in France, Sweden and the Netherlands.

Takeaways by Macro Roundup® AI

  1. Immigrants in the US, UK, Australia and Ireland pay more in taxes than they receive in benefits, while immigrants in Belgium, France, Sweden and the Netherlands are net recipients.
  2. Immigrants and their children in the UK, US and other Anglosphere countries tend to be more skilled, hold better jobs and often out-earn the native-born, while those in continental Europe fare worse.
  3. The children of immigrants in the UK, US and Canada experienced smaller racial wage deficits than their parents, while most second-generation immigrants in France and Germany went backwards.

Related Articles:

  • 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.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.
  • 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. Housing costs make up 32% of the Consumer Price Index, so measured inflation depends heavily on rent measurement. The authors find most of the gap between the official U.S. rent index and private measures reflects scope: rent increases for all tenants versus only new tenants, whose rents rose far faster.

Brian Adams, Lara Loewenstein, Hugh Montag and Randal Verbrugge US Bureau of Labor Statistics
Date Posted:
Is Database:
Database

.@LaraLoewenstein and @hmontag3 find that by focusing on new tenants who represent only 13-25% of rentals, alternative rent inflation indices (e.g. Zillow, CoreLogic) overstate average rental inflation when rents are rising.

Why do official and private rent indexes show different inflation rates?

Core argument: In 2022q2 the authors' Average Tenant Repeat Rent index showed 6.68% year-over-year rent inflation, versus 11.49% for their New Tenant index and 4.78% for the published BLS rent index.

Shelter is by far the largest component of the Consumer Price Index (CPI), accounting for 32% of the index. Accurate inflation measurement therefore depends critically on accurate rent inflation measurement, which is the primary input to both tenant and owner equivalent rent. We find that most of the discrepancy between the official BLS rent index and other measures [like Zillow Observed Rent Index (ZORI) or CoreLogic Single Family Rent Index (SFRI)] is due to scope, i.e., due to the differences in rent increases for all tenants versus new tenants. In 2022q2, our Average Tenant Repeat Rent (ATRR) index was recording 6.68 percent year-over-year inflation, while the New Tenant (NTRR) inflation rate was at 11.49 percent. The published BLS rent index was at 4.78 percent. Between 13 and 25 percent of units have new tenants in a month. Several years are needed for a new tenant repeat rent index to achieve a steady sample size. For studying generalized changes in living standards over time or for escalation of social security benefits, an average tenant rent inflation measure is preferred, since it reflects what is happening to the typical household.

Takeaways by Macro Roundup® AI

  1. In 2022q2 the authors' Average Tenant Repeat Rent index showed 6.68% year-over-year rent inflation, versus 11.49% for their New Tenant index and 4.78% for the published BLS rent index.
  2. The authors attribute most of the gap between the official BLS rent index and measures like the Zillow Observed Rent Index and CoreLogic Single Family Rent Index to scope, namely rent increases for all tenants versus new tenants only.
  3. Shelter accounts for 32% of the Consumer Price Index, with rent inflation serving as the primary input to both tenant rent and owner equivalent rent, and between 13 and 25 percent of units have new tenants in a month.

Related Articles:

  • It’s All About Shelter — Producer price inflation for final demand tracks consumer price inflation excluding shelter closely, and both show inflation under control; overall consumer inflation looks hot only because the shelter component is up 5.6%. That shelter measure lags rents by construction, and more current rent series show no recent inflation.
  • The Most Important New Disinflation Indicator — The New Tenant Repeat Rent Index tracks price changes only for units where new tenants have signed leases, using the same underlying data as the Consumer Price Index, and tends to lead official rent measures by about a year. It currently points to significant rent disinflation over the next three quarters.
  • Furman On CPI — 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.

AI Summary. The US government has spent over half of its $39bn in Chips Act semiconductor incentives, and chip companies and supply chain partners have announced $327bn of investments over the next 10 years, according to Semiconductor Industry Association calculations. US data show a 15-fold increase in construction of computing and electronics manufacturing facilities.

Chris Miller Financial Times
Date Posted:

The US government has now spent half of the $39B Chip Act incentives and kicked off an “unexpected investment boom.” Manufacturers and supply chain partners have announced investments totaling $327B over the next 10 years. @crmiller1 @AEIecon

The US government has now spent half of the $39B Chip Act incentives and kicked off an “unexpected investment...

Are semiconductor subsidies driving a US chip manufacturing investment boom?

Core argument: Chip companies and supply chain partners have announced investments totalling $327bn over the next 10 years, according to Semiconductor Industry Association calculations, after the US committed over half of the Chips Act's $39bn in incentives to Intel, TSMC, Samsung, and Micron.

With recent multi-billion-dollar grants to Intel, TSMC, Samsung, and Micron, the US government has now spent over half its $39bn in Chips Act incentives. In so doing it has driven an unexpected investment boom. Chip companies and supply chain partners have announced investments totalling $327bn over the next 10 years, according to Semiconductor Industry Association calculations. US statistics show a stunning 15-fold increase in construction of manufacturing facilities for computing and electronics devices. Will all these promised plants get built? Many of them already are. The scale of fab construction in the US is now stretching contractors’ ability to find workers with speciality skills. TSMC plans high-volume chip production in its first Arizona plant early next year. If the chip market softens, some plants could get postponed, but the disbursement of grants is tied to progress in bringing fabs online. Equity investors will debate whether these new investments can deliver an adequate financial return. Policymakers who see the Chips Act as an insurance policy against geopolitical shocks believe it is already paying dividends.

Takeaways by Macro Roundup® AI

  1. Chip companies and supply chain partners have announced investments totalling $327bn over the next 10 years, according to Semiconductor Industry Association calculations, after the US committed over half of the Chips Act's $39bn in incentives to Intel, TSMC, Samsung, and Micron.
  2. US statistics show a 15-fold increase in construction of manufacturing facilities for computing and electronics devices, with the scale of fab building stretching contractors' ability to find workers with speciality skills.
  3. TSMC plans high-volume chip production in its first Arizona plant early next year, and Chips Act grant disbursement is tied to progress in bringing fabs online, though a softer chip market could postpone some plants.

Related Articles:

  • Western Nations Need A Plan For When China Floods the Chip Market — China's chipmakers are expanding production capacity despite warnings of a global supply glut, with one consultancy projecting the country's chip capacity will grow 60% over three years and potentially double over five. Because Western export restrictions bar China from making the most advanced processors, much of this output will be foundational chips used in cars, household goods, and consumer devices.
  • The US-China Chip War is Escalating — China's imports of chipmaking equipment have reached record highs, with purchases rising from Japan, the Netherlands, and Singapore alongside a rebound in imports from the United States, as Chinese manufacturers work to indigenize chip production. Chinese government and military buyers have obtained some NVIDIA A100 and H100 chips that US sanctions were designed to block.
  • China AI & Semiconductors Rise: US Sanctions Have Failed — China's Kirin 9000S is a better-designed, leading-edge chip than the West realizes, developed without access to extreme ultraviolet lithography or cutting-edge US intellectual property, indicating existing export controls have not worked. The authors argue only decisive, full-scale measures—not half measures—could prevent China from mass-manufacturing chips needed for high-end military applications.

Monday, April 29, 2024

AI Summary. A wealth tax applies to net assets regardless of the return earned, making it equivalent to taxing an assumed rather than actual flow of capital income. As a result, effective tax rates on returns fall as returns rise and climb toward infinity as returns approach zero, with tax still owed on loss-making assets.

Shafik Hebous, Alexander Klemm, Geerten Michielse and Carolina Osorio-Buitron International Monetary Fund
Date Posted:
Is Database:
Database
Is Important:
Important

The IMF argues that a well-designed tax on income from capital, at a lower rate than labor income, would be less distortive and more equitable than a wealth tax if countries seek to raise more revenue from the rich.

How does a wealth tax affect effective tax rates across returns?

Core argument: A wealth tax of 1¼ percent is equivalent to a 25 percent capital income tax only for assets yielding a 5 percent return, since a wealth tax effectively taxes an assumed rather than actual flow of capital income.

One option that is increasingly being discussed is taxing the stock of net wealth directly. Moving from capital income to wealth taxes raises the question of how they differ at a fundamental level. The key difference is that the former is applied on a flow and the latter on a stock: a wealth tax is imposed on the net wealth (assets minus liabilities) of individuals, irrespective of the return. Wealth taxes are thus equivalent to taxing a fixed rate of return, that is, an assumed rather than the actual flow of capital income. This implies that high-yielding investments bear light taxation (in percent of the income), while low-return investments—including loss-making ones—are taxed heavily under a wealth tax. Figure 7 provides an illustration of the taxation of an asset through a wealth or a capital income tax, where the hypothetical income tax rate is 25 percent and the wealth tax rate is 1¼ percent. With these tax rates, they are equivalent for assets yielding a return of 5%. The figure shows how effective tax rates on returns decline as the return rises. Even more strikingly they rise for very low returns, tending to infinity as returns approach zero. And they would still be collected on loss-making assets.

Takeaways by Macro Roundup® AI

  1. A wealth tax of 1¼ percent is equivalent to a 25 percent capital income tax only for assets yielding a 5 percent return, since a wealth tax effectively taxes an assumed rather than actual flow of capital income.
  2. Under a wealth tax, effective tax rates on returns decline as returns rise and rise for very low returns, tending to infinity as returns approach zero, and the tax is still collected on loss-making assets.
  3. The fundamental difference between capital income and wealth taxes is that the former applies to a flow while the latter applies to the stock of net wealth—assets minus liabilities—irrespective of the return earned.

Related Articles:

AI Summary. Data center power demand is projected to grow 15% annually through 2030, lifting data centers to 8% of US power demand from about 3% and raising overall US power demand growth to 2.4% a year versus roughly 0% over the prior decade.

Carly Davenport, Brian Singer, Et al. Goldman Sachs
Date Posted:
Is Database:
Database

A @GoldmanSachs analysis argues US power demand will grow at 2.4%/year through 2030 versus 0% over the last decade. They forecast data centers will be 8% of power demand by 2030 from 3% currently.

Will data center growth end a decade of flat US power demand?

Core argument: Data center power demand is forecast to grow at a 15% CAGR over 2023–2030, lifting data centers to 8% of total US power demand by 2030 from about 3% currently.

We forecast a 15% CAGR in data center power demand from 2023-2030, driving data centers to make up 8% of total US power demand by 2030 from about 3% currently. We now see a 2.4% CAGR in US power demand growth through 2030 from 2022 levels vs. ~0% over the last decade. Of the 2.4%, about 90 bps of that is tied to data centers. We estimate about 47 GW of incremental power generation capacity will be required to support US data center power demand growth cumulatively through 2030, met with about 60% gas and 40% renewable sources. We expect this to drive about $50 bn of capital investment in US power generation capacity cumulatively through 2030.

Takeaways by Macro Roundup® AI

  1. Data center power demand is forecast to grow at a 15% CAGR over 2023–2030, lifting data centers to 8% of total US power demand by 2030 from about 3% currently.
  2. US power demand is projected to grow at a 2.4% CAGR through 2030 from 2022 levels, versus roughly 0% over the prior decade, with about 90 bps of that tied to data centers.
  3. About 47 GW of incremental US generation capacity is estimated as required cumulatively through 2030 to support data center demand growth, met with about 60% gas and 40% renewables, driving about $50 bn of capital investment.

Related Articles:

  • 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.
  • 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.
  • 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.

AI Summary. A substantial share of China's net export proceeds is never repatriated and cannot be accounted for; the authors attribute this to offshore holdings by private Chinese firms, overseas accumulation by state-owned entities, and reduced reinvestment by foreign exporters. They argue state-linked funds could be repatriated in a crisis, while lower foreign reinvestment is more structural.

Martin Lynge Rasmussen Money: Inside and Out
Date Posted:
Is Database:
Database
Is Important:
Important

In the 12 months ending March 2024, China ran a goods trade surplus of $844B, however only $411B has been repatriated. Two of the three drivers of this form of capital flight are unlikely to be reversed. @martin_lynge

Why do much of China's export earnings never return home?

Core argument: A substantial share of China's net export proceeds never returns to China and cannot be accounted for, with three categories identified as possibly making up a large portion of the estimated amounts.

A substantial part of China's net export proceeds never make it back to China and cannot be accounted for. We think the following three categories might make up a large portion of the estimated numbers. 1) Offshore accumulation by domestic private Chinese firms would be the clearest form of capital flight, but likely also the most reversible one. Domestic private Chinese firms might have kept export proceeds offshore as investment returns have been higher offshore than onshore recently. At the same time this group might repatriate offshore holdings once it becomes onshore assets become more attractive. These funds should probably be considered outside of the reach of Chinese authorities. 2) Overseas accumulation by state-owned companies (or offshore funds within the state's reach) should not be considered capital flight as authorities should be able to repatriate these funds and convert them into RMB if needed. These might be considered shadow reserves that can support China's BoP in times of crisis. 3) Lower reinvestment by foreign companies exporting out of China might also account for a part of the unremitted export proceeds. This trend is likely more structural and might therefore not reverse as easily as the flows from domestic private firms.

Takeaways by Macro Roundup® AI

  1. A substantial share of China's net export proceeds never returns to China and cannot be accounted for, with three categories identified as possibly making up a large portion of the estimated amounts.
  2. Offshore accumulation by domestic private Chinese firms, possibly driven by higher investment returns offshore than onshore, would be the clearest form of capital flight but likely the most reversible should onshore assets become more attractive.
  3. Overseas accumulation by state-owned companies and offshore funds within the state's reach should not count as capital flight, since authorities should be able to repatriate and convert these funds into RMB, making them shadow reserves supporting China's balance of payments in a crisis.

Related Articles:

  • Foreign Direct Investment in China Falls to Lowest Level in Decades — China's direct investment liabilities, a measure of foreign capital flowing into the country, totalled about $33bn in 2023, an 82% decline from the prior year and the lowest annual level since 1993, according to China's State Administration of Foreign Exchange.
  • Anatomy of Capital Fight in China… — Unaccounted capital outflows from China show up not only in the balance of payments' net errors and omissions category but also in net other investment and in the gap between customs-reported and foreign-exchange-reported goods trade balances. This combined residual averaged roughly $100bn per quarter, and about twice that during periods of heavier outflow pressure.
  • The Threat from China’s Capital Flight — Oddities in China's official balance of payments statistics suggest its actual current account surplus may be nearly 3x the reported figure, which would make it about as large relative to world output as it has ever been. The likeliest explanation for simultaneous downward pressure on the yuan is capital flight of roughly $500bn a year.

AI Summary. Across Nordic countries, inflation rose to around 10% after the pandemic regardless of whether the country targeted inflation or its exchange rate, indicating no monetary policy goal was superior in the face of a global inflation shock. The authors find no strong evidence that floating exchange rates delivered lower output variability.

Jesper Rangvid Rangvid's Blog
Date Posted:

Citing divergences in the exchange rate against the Euro across Scandinavia, Jesper Rangvid argues, “It seems that there is virtually no trade-off between the variability of exchange rates and the variability of other macroeconomic variables.”

Does the choice of monetary policy regime affect inflation and output stability?

Core argument: Inflation rose to around 10% after the pandemic in every Nordic country, whether it targeted inflation or the exchange rate, indicating that no monetary policy goal was superior in the face of a global inflation shock.

First, no Nordic country – regardless of monetary policy strategy – has been able to prevent the post-pandemic inflation flare-up. In every Nordic country, no matter whether it has an inflation-targeting or an exchange rate-targeting regime, inflation increased to around 10% after the pandemic. This indicates that in the face of a global inflation shock, no monetary policy goal is superior to any other. This is an important conclusion. Second, exchange rate developments have been very different. Neither Denmark nor Finland had exchange rate volatility towards the euro. However, the Swedish and Norwegian currencies have consistently depreciated against the euro over the past decade, while the Icelandic króna has fluctuated significantly. Third, it might be expected that countries with floating exchange rates would have lower output variability because one reason for choosing a floating exchange rate is that it can function as a shock absorber and allow monetary policy to be geared towards domestic stabilisation. However, there is no strong empirical evidence to back up this hypothesis, at least over the past several decades in the Nordic countries.

Takeaways by Macro Roundup® AI

  1. Inflation rose to around 10% after the pandemic in every Nordic country, whether it targeted inflation or the exchange rate, indicating that no monetary policy goal was superior in the face of a global inflation shock.
  2. Denmark and Finland saw no exchange rate volatility against the euro, while the Swedish and Norwegian currencies consistently depreciated against the euro over the past decade and the Icelandic króna fluctuated significantly.
  3. The hypothesis that floating exchange rates lower output variability by acting as a shock absorber lacks strong empirical support in the Nordic countries over the past several decades.

Related Articles:

  • In Search of Safe Havens: The Trust Deficit and Risk-free Investments! — Plotting US Treasury bond rates against a crude fundamental risk-free rate—actual inflation plus real GDP growth—undercuts the argument that central banks set interest rates. Central banks can nudge rates at the margin but cannot override the fundamentals of inflation and real growth.
  • Have Interest Rates Risen Fundamentally? — The underlying equilibrium level of real interest rates cannot be observed and must be estimated, and two Federal Reserve estimates disagree: one suggests it remains very low while the other suggests it has been rising. If the equilibrium rate has not risen, monetary policy is currently tight, and interest rates should fall significantly once inflation is controlled.

AI Summary. Opium prices in Guatemala's poppy-growing highlands have collapsed from $64 an ounce to about $9.60, with growers reporting a fall from roughly $2,310 to $256 per kilo. Eradication patrols now find only scattered small plots where cultivation once blanketed the land.

Simon Romero New York Times
Date Posted:

Prices for poppies are plunging as fentanyl outcompetes heroin. In Guatemala, poppy prices have fallen almost 90% since 2017.

Prices for poppies are plunging as fentanyl outcompetes heroin. In Guatemala, poppy prices have fallen almost 90% since...

Has synthetic opioid supply collapsed prices for opium poppy growers?

Core argument: Opium prices in Guatemala's poppy-growing highlands fell from $64 an ounce to about $9.60, according to police commander Ludvin López, who said land around Ixchiguán that was once covered in poppies now holds only scattered tiny plots.

The convoy rolled out of the military base before dawn into the mist-shrouded mountains straddling Guatemala’s border with Mexico. Its mission: destroy opium poppies used to make heroin. But after scouring village after village, they found only tiny plots of poppies here and there — a fraction of the region’s cultivation in previous years. “The land here used to be covered in poppies,” said Ludvin López, a police commander, as soldiers fanned out around Ixchiguán, an area of remote hamlets populated by speakers of Mam, a Mayan language. But that was before opium prices plunged from $64 an ounce to about $9.60, he added. Regino García, a Mam leader from San Antonio Ixchiguán, said poppy prices began tumbling in 2017, eventually crashing to 2,000 quetzals ($256) per kilo from 18,000 quetzals ($2,310).

Takeaways by Macro Roundup® AI

  1. Opium prices in Guatemala's poppy-growing highlands fell from $64 an ounce to about $9.60, according to police commander Ludvin López, who said land around Ixchiguán that was once covered in poppies now holds only scattered tiny plots.
  2. Mam leader Regino García said poppy prices began tumbling in 2017 and eventually crashed to 2,000 quetzals ($256) per kilo from 18,000 quetzals ($2,310).
  3. A Guatemalan convoy sent to destroy opium poppies along the Mexican border found, after scouring village after village, only tiny plots amounting to a fraction of the region's cultivation in previous years.

Related Articles:

  • Importing the Opioid Crisis? International Trade and Fentanyl Overdoses — A study using U.S. mortality and import data finds a positive state-level association between imports per resident and drug overdose death rates, driven by fentanyl and accounting for an estimated 15,000–20,000 deaths per year. The authors estimate that 10% higher imports per resident is associated with an 8.1% higher fentanyl death rate.
  • The Global Network Behind The Fentanyl Crisis — Nearly 110,000 Americans died of drug overdoses in a year, with more than two-thirds of those deaths caused by fentanyl, a synthetic opioid 50x as potent as heroin. A kilogram of precursor chemicals bought from Chinese manufacturers for about $800 can produce 415,000 fentanyl pills, which sell wholesale for as little as 50 cents each.
  • America’s Ten-Year-Old Fentanyl Epidemic is Still Getting Worse — Fentanyl and other synthetic opioids kill roughly 75,000 Americans a year, more than double the 2019 figure, with annual overdose deaths rising 5% year-over-year after a decade of steep increases. Fentanyl killed more than a third of a million Americans over the prior decade, and border seizures nearly doubled in a year.