Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, May 13, 2024

AI Summary. An event study using intraday price moves around US Treasury quarterly borrowing announcements finds no evidence that news about government bond supply meaningfully affects the term premium, the portion of long-term yields above the expected path of short-term rates.

Alex Etra Money: Inside and Out
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.@EtraAlex argues that changes in term premia are dominated by changes in expected short-term rates and oil prices and that news about Treasury borrowing has minimal impact.

Does government bond supply news meaningfully move the term premium?

Core argument: An event study using intraday price action around Quarterly Refunding Announcements as a proxy for unexpected Treasury supply shocks does not suggest that borrowing announcements have a meaningful impact on the authors' term premium proxy.

If bond supply was driving changes in term premium (TP)—that is driving changes in long-term yields over and above changes in the expected path of short-term rates—we might expect changes in the residual term to be explained by proxies of bond supply. But an event study which uses intraday price action around QRAs as a proxy for unexpected supply shocks, does not suggest that announcements about Treasury borrowing are having a meaningful impact on our TP proxy. The chart shows the cumulative residual from our TP proxy since October 2022 around QRA announcements and outside them.

Takeaways by Macro Roundup® AI

  1. An event study using intraday price action around Quarterly Refunding Announcements as a proxy for unexpected Treasury supply shocks does not suggest that borrowing announcements have a meaningful impact on the authors' term premium proxy.
  2. If bond supply were driving term premium—long-term yields moving beyond changes in the expected path of short-term rates—changes in the residual term would be expected to track proxies of bond supply.
  3. The authors chart the cumulative residual from their term premium proxy since October 2022, separating movements around Quarterly Refunding Announcements from those outside them.

Related Articles:

  • Political Risks to the U.S. Safe Harbor Premium — The authors estimate a "shadow" country risk premium for the US of 25–35 basis points rather than the zero conventionally assumed, reflecting US political and institutional risk. If the US premium rose to current UK levels, they project real equity wealth per household would be $50,000 lower and real GDP 1% smaller after 10 years.
  • The Long Term Budget Outlook: 2024 to 2054 — The Congressional Budget Office projects the federal budget deficit will reach 8.5% of gross domestic product over a 30-year horizon, with outlays rising to 27.3% of GDP and revenues to 18.8%. The projected growth is attributed to rising interest costs, large sustained deficits excluding interest, and spending on federal health care programs, particularly Medicare.
  • Federal Debt — Stabilizing federal debt would require a zero primary deficit — borrowing only to cover interest on past borrowing — which today would mean a cash deficit of about 3% of GDP, or roughly $800bn a year. The actual deficit is about $1.7tn, or 6% of GDP, with no political dynamics in prospect that would cut it to 3%.

AI Summary. Scaling US deficits by federal debt held by the public shows deficits of a size comparable to those that preceded past inflations, though large deficits have not always been followed by inflation. Fiscal theory holds that only the portion of a deficit people do not expect to be repaid, through future surpluses or lower interest costs, is inflationary.

John Cochrane The Grumpy Economist
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.@JohnHCochrane argues that unfunded spending as a % of the outstanding stock of debt, rather than as a % of GDP, is the key to inflationary dynamics both in the 1970s and the 2020s.

Do today's deficits match the size of those that preceded past inflations?

Core argument: Measuring the US surplus relative to federal debt held by the public shows 1972 as inflationary as 2008 and 1975 nearly as bad as 2022, with current deficits comparable in size to those inflationary episodes.

When we look at the history of US surplus relative to debt, the picture changes. 1972 is as inflationary as 2008, and 1975 was almost as bad as 2022. Now we are starting to see deficits of comparable size to the inflation that followed! (I use Federal Debt held by the Public, FYGFDPUN. Sadly Fred only has it starting in 1970.) Of course 2008 did not produce inflation. Fiscal theory does not say that deficits cause inflation. It only says that the fraction of deficit people do not expect to be paid back, either by higher future surplus or by lower future interest costs, is inflationary. 2008 got, I think, really lucky with low interest costs, and to its credit (or maybe not, if you wanted stimulus), the Obama Administration always promised eventual debt reduction.

Takeaways by Macro Roundup® AI

  1. Measuring the US surplus relative to federal debt held by the public shows 1972 as inflationary as 2008 and 1975 nearly as bad as 2022, with current deficits comparable in size to those inflationary episodes.
  2. Fiscal theory holds that deficits alone do not cause inflation; only the fraction of a deficit that people do not expect to be repaid through higher future surpluses or lower future interest costs is inflationary.
  3. The 2008 deficits did not produce inflation, which the author attributes to luck with low interest costs and the Obama Administration's standing promises of eventual debt reduction.

Related Articles:

  • Fiscal Narratives for US Inflation — Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
  • What We’ve Learned About Inflation — Fiscal theory holds that a one-time $5tn fiscal expansion produces a one-time rise in the price level sufficient to inflate away $5tn of debt value, after which inflation stops even if the Federal Reserve does nothing. Raising interest rates lowers current inflation at the cost of more-persistent inflation, a beneficial smoothing.

AI Summary. The author argues that a shock to relative prices can only raise the overall price level if monetary or fiscal policy provides the demand to accommodate it. On this reading, inflation following supply shocks — as in the conventional account of 1970s oil shocks — is attributable to the expansionary policy response rather than the shock itself.

John Cochrane The Grumpy Economist
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.@JohnHCochrane notes that monetary or fiscal expansion is required for a price shock to raise the overall price level. “The supply shock is the cart, in front of the horse (monetary or fiscal policy) that pulls the inflation cart.”

Do supply shocks cause inflation, or does the policy response?

Core argument: A relative price shock can raise the overall price level only if accompanied by demand from monetary or fiscal policy, which means that policy is what raises the price level.

It seems to me that for a relative price shock to raise the overall price level, you need demand; either monetary or fiscal policy. And then it’s really the monetary and fiscal policy that’s raising the overall price level. Now, yes, central banks and governments may well respond to a relative price shock with monetary or fiscal policy that raises the overall price level. They might choose option 2 or 3 in my little schema, not option 1. They don’t like any prices to go down, especially wages, and view that option 1 might cause a recession that option 2 and 3 would avoid. That’s a conventional reading of how “oil price shocks” caused inflation in the 1970s — they induced expansionary responses. But if the inflation is due to the monetary and fiscal policies, which respond to the relative price shock, does it really make sense to say that inflation is not due to the monetary and fiscal policy, but “due to” the supply shock?

Takeaways by Macro Roundup® AI

  1. A relative price shock can raise the overall price level only if accompanied by demand from monetary or fiscal policy, which means that policy is what raises the price level.
  2. Central banks and governments may respond to a relative price shock with monetary or fiscal policy that raises the overall price level, since they dislike falling prices, especially wages, and expect that allowing such declines could cause a recession.
  3. A conventional reading of the 1970s oil price shocks holds that they caused inflation by inducing expansionary responses, which raises the question of whether that inflation is better attributed to the supply shock or to the monetary and fiscal policies.

Related Articles:

  • Fiscal Tidbits, Part 1 — Scaling US deficits by federal debt held by the public shows deficits of a size comparable to those that preceded past inflations, though large deficits have not always been followed by inflation. Fiscal theory holds that only the portion of a deficit people do not expect to be repaid, through future surpluses or lower interest costs, is inflationary.
  • Fiscal Narratives for US Inflation — Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.

AI Summary. The M2 money supply has contracted for the first time in sixty years, shrinking at an annual rate of nearly 5%, yet inflation has remained high rather than turning to deflation. The author argues this undercuts the claim that money supply growth drives inflation, since the same logic implies severe deflation should now follow.

Jesper Rangvid Rangvid's Blog
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Jesper Rangvid argues that monetarist theory would have predicted deflation from the recent contraction in the M2 money supply. Continuing inflation leaves him “skeptical, to say the least” about the theory.

Does a shrinking money supply produce deflation?

Core argument: M2 shrank at an annual rate of almost 5% a year earlier, the first contraction in the money supply in sixty years, yet inflation has been excessive rather than deflationary.

If money supply growth should cause inflation when money supply growth is unusually high, then the logical consequence must be that money supply growth should also cause low inflation/deflation when money supply growth is very low. And indeed, money supply growth has been historically low recently. In fact, the money supply has shrunk for the first time in sixty years. We should have deflation, but we have not. Instead, we have too much inflation. Since M2 shrank at an annual rate of almost 5% a year ago, with the 15-month lag that correlated with the inflation outbreak, we should have severe deflation in the next few months. Not “just” the 2% deflation we experienced during the financial crisis. No, severe deflation, because the money supply has been shrinking at a historic pace. As you can imagine, I am skeptical, to say the least.

Takeaways by Macro Roundup® AI

  1. M2 shrank at an annual rate of almost 5% a year earlier, the first contraction in the money supply in sixty years, yet inflation has been excessive rather than deflationary.
  2. Applying the 15-month lag that correlated with the inflation outbreak to a historic pace of money supply contraction implies severe deflation within months, beyond the 2% deflation experienced during the financial crisis.
  3. If unusually high money supply growth causes inflation, the logical consequence is that very low money supply growth should cause low inflation or deflation, a conclusion the author regards with skepticism.

Related Articles:

  • Monetary Policy in the 1970s and Today — The Federal Reserve responded late in the early phase of the recent inflation cycle but is now holding the federal funds rate at a fairly high level even as inflation has declined substantially. In the early 1970s the Fed cut rates as soon as inflation fell, leaving monetary conditions too expansionary when inflation resurged later in that decade.
  • Is Nominal Wage Growth Starting to Slow? — Aggregate nominal wage income, which tracks closely with nominal gross domestic product, has grown at a yearly rate of just 4.5%—identical to the pre-pandemic pace—compared with almost 7% over the prior six months. The author argues that several consecutive slow months, rather than a one-off, suggest the deceleration could be significant.
  • 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.

AI Summary. US business-formation applications reached a record 5.5m in a year, with the monthly average running about 80% above the pre-pandemic decade versus a 20% rise in Europe. In the four years before the pandemic, established firms added one net job for every four created by startups; in the four years since, they lost one for every four.

Economist Staff The Economist
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The monthly average of US new business formation is 80% higher than during the decade before COVID, vs. 20% in Europe . Between 2020-23, US startups created more than 100% of net new jobs.

Are American startups now driving job growth as established firms shed jobs?

Core argument: U.S. business formation applications hit a record 5.5m last year, and despite slowing slightly this year, the monthly average remains about 80% above the pre-covid decade, versus a 20% rise in Europe.

Last year applications to form businesses reached 5.5m, a record. Although they have slowed a touch this year, the monthly average is still about 80% higher than during the decade prior to covid, compared with just a 20% rise in Europe. Startups normally play an outsized role in creating employment in America, as elsewhere. By definition, every startup job counts as new, whereas mature companies have more churn. That difference has become even starker. In the four years before the pandemic, established firms added one net job for every four created by startups; in the four years since the pandemic, established firms have actually lost one job for every four created by startups.

Takeaways by Macro Roundup® AI

  1. U.S. business formation applications hit a record 5.5m last year, and despite slowing slightly this year, the monthly average remains about 80% above the pre-covid decade, versus a 20% rise in Europe.
  2. In the four years before the pandemic, established U.S. firms added one net job for every four created by startups; in the four years since, established firms have lost one job for every four startup jobs created.
  3. Startups play an outsized role in creating employment in America and elsewhere, since every startup job counts as new by definition, whereas mature companies have more churn.

Related Articles:

  • High Tech Business Entry In The Pandemic Era — High-tech industries accounted for a disproportionate share of the surge in net new business establishments after 2019, with net entry higher in tech than non-tech industries. The authors find suggestive evidence that tech establishment births rose more for existing firms than new firms, though both categories saw elevated openings.
  • The Startup Surge Continues: Business Applications on Track for Second-Largest Annual Total on Record — Americans filed nearly 2.7m business applications in the first half of the year, up 5% from the prior year and 52% above the same period in 2019. One-third were applications with a high likelihood of hiring employees, 36% above the comparable 2019 total.
  • Latinos Are Starting U.S. Businesses at a Torrid Pace — Immigrants accounted for 36% of new U.S. business launches last year, up from 25% in 2019, driven by a rise in Latino entrepreneurship, while business creation by white and native-born Americans has slowed. Hispanic-owned startups tend to be smaller, with 46% reporting over $100,000 in annual revenue versus 62% of white-owned firms.

AI Summary. Europe's largest publicly traded companies invested $400bn less than US counterparts in one recent year, and venture capital investment in US companies was almost 3x that in Europe. Research and development spending by the seven largest US technology companies exceeded $200bn, about half of Europe's total public and private R&D spending.

Martin Arnold, Sam Fleming and Claire Jones Financial Times
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Erik Nielsen, economics adviser at Italian bank UniCredit, says investment in the US has increased more than 8% since the end of 2019 and is still growing strongly at the start of 2024, while the Eurozone remained 4% below pre-Covid levels.

Is Europe's investment gap with the US widening across corporate spending?

Core argument: Europe's largest publicly traded companies with over $1bn in annual revenue, including those in the UK, Norway, and Switzerland, invested $400bn less than their US counterparts in 2022.

The biggest publicly traded European companies with more than a billion dollars of annual revenue, including those in the UK, Norway, and Switzerland, invested $400bn less than their US counterparts in 2022. Volkswagen was the only EU company that appeared in the top 10 in a recent European Commission report examining the world’s top 2,500 R&D investors in 2023. Six of the top 10 were headquartered in the US and none were in the UK. The R&D spending of the so-called Magnificent Seven companies amounted to more than $200B last year, around half of Europe’s total equivalent spending across all private and public sectors. The mismatch in venture capital funding is stark. Last year VC investment in US companies was almost treble what those in Europe managed, according to KPMG research. VC funds in the US also raised almost five times as much as those in Europe over the past three years.

Takeaways by Macro Roundup® AI

  1. Europe's largest publicly traded companies with over $1bn in annual revenue, including those in the UK, Norway, and Switzerland, invested $400bn less than their US counterparts in 2022.
  2. The Magnificent Seven companies spent more than $200bn on R&D, roughly half of Europe's total equivalent spending across all private and public sectors.
  3. Venture capital investment in US companies was almost triple that in Europe, and US VC funds raised almost five times as much as European funds over three years, according to KPMG research.

Related Articles:

  • Europeans ‘Less Hard-Working’ Than Americans, Says Norway Oil Fund Boss — Norway's sovereign wealth fund argues that American companies are outpacing European rivals on innovation and technology because the US more readily accepts failure and risk and because Americans work harder and are more ambitious. US shares now make up almost half of the fund's equity holdings, up from 32% a decade earlier, while UK holdings fell from 15% to 6%.
  • Europe Regulates Its Way to Last Place — Europe's regulators tend to act on the mere possibility of harm rather than evidence of it, an approach that can throttle innovation early. The McKinsey Global Institute found that among companies with over $1bn in revenue, U.S. firms spent 80% more on research and development, had 30% higher return on capital, and grew revenue 1.3 percentage points faster.
  • Comparing EU-to-US Output Per Hour — European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.

AI Summary. Polling of registered voters showed Trump ahead of Biden in five of six battleground states — Michigan, Arizona, Nevada, Georgia and Pennsylvania — with Biden leading only in Wisconsin. Trump and Biden were essentially tied among voters aged 18-29 and Hispanic voters, groups that each gave Biden over 60% of their vote in 2020.

Nate Cohn New York Times
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New polling suggests Trump and Biden are tied with 18-29-year-olds and Hispanic voters, relative to 2020 when Biden won 60% of those voters. The Rust Belt states are toss-ups with Trump having an edge in the Sun Belt.

Are young and nonwhite voters shifting away from the incumbent president?

Core argument: Trump led Biden among registered voters in five of six battleground states — Michigan, Arizona, Nevada, Georgia and Pennsylvania — with Biden ahead only in Wisconsin.

Mr. Trump was ahead among registered voters in a head-to-head matchup against Mr. Biden in five of six key states: Michigan, Arizona, Nevada, Georgia and Pennsylvania. Mr. Biden led among registered voters in only one battleground state, Wisconsin. The race was closer among likely voters. Mr. Trump led in five states as well, but Mr. Biden edged ahead in Michigan while trailing only narrowly in Wisconsin and Pennsylvania. Mr. Trump and Mr. Biden are essentially tied among 18-to-29-year-olds and Hispanic voters, even though each group gave Mr. Biden more than 60% of their vote in 2020. Mr. Trump also wins more than 20% of Black voters — a tally that would be the highest level of Black support for any Republican presidential candidate since the enactment of the Civil Rights Act of 1964.

Takeaways by Macro Roundup® AI

  1. Trump led Biden among registered voters in five of six battleground states — Michigan, Arizona, Nevada, Georgia and Pennsylvania — with Biden ahead only in Wisconsin.
  2. Trump and Biden are essentially tied among 18-to-29-year-olds and Hispanic voters, both groups having given Biden more than 60% of their vote in 2020.
  3. Trump wins more than 20% of Black voters, a tally that would be the highest level of Black support for any Republican presidential candidate since the enactment of the Civil Rights Act of 1964.

Related Articles:

  • American Politics Is Undergoing A Racial Realignment — National election surveys and Gallup polling show the Democratic Party's advantage among Black, Latino, and Asian voters at its lowest level since 1960. The article argues this shift reflects fading civil rights-era ties, a weakening link between income and party choice, and non-white voters with long-held conservative views aligning their votes with those views.
  • Consistent Signs of Erosion in Black and Hispanic Support for Biden — Polling shows the Democratic presidential candidate's support among nonwhite voters running well below his prior election standing across racial groups, with leads of 72-11 among Black voters, 47-35 among Hispanic registrants, and 40-39 among other nonwhite voters. About 5% of his former nonwhite voters now back the Republican candidate, including 8% of Hispanic voters.
  • Can Democrats Survive the Looming Crisis in New York City’s Outer Boroughs? — Just over a third of the decline in the Democratic margin of victory came from the suburbs, with New York City voters—through a mix of defection and abstention—accounting for most of the rest. Precincts that are at least three-quarters Hispanic or Asian swung 58 and 52 points toward Republicans, versus 32 points in white and 8 points in black precincts.

Tuesday, May 14, 2024

AI Summary. Productivity growth has been unequal across industries, across firms within industries, and across workers within firms, slowing growth in both the productivity and the pay of the median worker. The authors argue that working- and middle-class men earlier received "breadwinner rents"—pay above their marginal value to employers—and then endured slow wage growth as women's workforce participation rose.

Scott Winship American Enterprise Institute
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Since 1973 median pay has risen 50% while average productivity rose 111%; @swinshi finds the divergence has been driven by “fanning out” in workers’ productivity and slowing in the growth of men’s wages as women entered the labor force.

Why has median worker pay growth slowed over recent decades?

Core argument: Productivity appears to have grown unequally across industries, across firms within industries, and across workers within firms, slowing productivity growth for the median worker and, in turn, slowing growth in median worker pay.

Productivity appears to have grown unequally across industries, firms within industries, and workers within firms. As a result, growth in the productivity of the median worker has slowed, causing growth in the pay of the median worker to slow. Men benefited earlier in the century from median pay growth that exceeded productivity growth and remained elevated for decades. Many working- and middle-class men received “breadwinner rents”—pay in excess of their marginal value to their employer—because of the widespread ideal that a husband should be able to support a family on one income. As women’s workforce participation increased in the 1970s and 1980s, men endured a period of slow wage growth until productivity levels had risen enough to justify stronger growth in pay. Along with reduced fertility and greater economic opportunities for women, the decline in marriage led men to prioritize values other than maximizing their pay. The painful transition for men is largely behind us, and the median male worker has seen significant pay growth over the past 30 years.

Takeaways by Macro Roundup® AI

  1. Productivity appears to have grown unequally across industries, across firms within industries, and across workers within firms, slowing productivity growth for the median worker and, in turn, slowing growth in median worker pay.
  2. Many working- and middle-class men received "breadwinner rents"—pay in excess of their marginal value to employers—because of the widespread ideal that a husband should be able to support a family on one income.
  3. As women's workforce participation increased in the 1970s and 1980s, men endured a period of slow wage growth until productivity had risen enough to justify stronger pay growth, and the median male worker has seen significant pay growth over the past 30 years.

Related Articles:

  • Has Pay Kept Up With Inflation? — All four measures of typical and aggregate pay have grown since 2019 when adjusted using the personal consumption expenditures price index, but show smaller increases in three measures and a decline in one when adjusted using the consumer price index. This pattern of smaller gains under consumer price index adjustment holds across time periods.
  • Credit Bidenomics for Rising US Wages — Inflation-adjusted wages for US workers in the middle pay range, between the 40th and 60th percentiles, were 6.6% higher than before the pandemic, slightly above what 2015-19 trends would predict. The US is the only G7 country with substantial real wage gains, ranging elsewhere from a 0.2% rise in Canada to a 9% decline in Italy.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Among workers initially employed in manufacturing, cumulative median nominal earnings growth from 2000 to 2007 varied widely by destination sector: 27% for those who stayed in manufacturing, higher for those moving to capital- or skill-intensive, higher-wage sectors, and negative for those moving to generally lower-wage sectors.

Justin Pierce, Peter Schott, and Cristina Tello-Trillo National Bureau of Economic Research
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Trade liberalization with China reduced employment and earnings of US workers initially in manufacturing by up to 22% over seven years. Workers not initially in manufacturing saw relative earnings gains due to access to lower-cost inputs. @tellotri

How do manufacturing workers' earnings vary by the sector they enter?

Core argument: Workers who stayed in manufacturing from 2000 to 2007 saw cumulative median nominal earnings growth of 27%, placing them in the middle of the distribution of outcomes across destination sectors.

We investigate how the nominal earnings of workers initially employed in manufacturing evolve depending upon whether they remain in that sector or migrate to another by calculating the ratio of their 2007 to 2000 nominal earnings. Figure 1 reveals that M workers [those originally in manufacturing] experience dramatically different nominal earnings growth depending on their destination sector. For workers who remain in manufacturing (indicated by the highlighted bar), cumulative median earnings growth is 27%, right in the middle of the pack. Growth is most positive among workers moving to sectors that are intensive in their use of either physical or human capital and generally have higher wages than manufacturing. Median nominal earnings growth is lowest, and negative, for [movements to sectors] with generally lower wages.

Takeaways by Macro Roundup® AI

  1. Workers who stayed in manufacturing from 2000 to 2007 saw cumulative median nominal earnings growth of 27%, placing them in the middle of the distribution of outcomes across destination sectors.
  2. Among workers initially employed in manufacturing, nominal earnings growth was strongest for those moving to sectors intensive in physical or human capital, which generally pay higher wages than manufacturing.
  3. Median nominal earnings growth was lowest, and negative, for manufacturing workers who moved to sectors with generally lower wages.

Related Articles:

  • The World’s Rust Belts: The Heterogeneous Effects of Deindustrialization on 1,993 Cities in Six Countries — A study of 1,993 cities in France, Germany, Italy, Japan, the UK and the US finds former manufacturing hubs lost employment on average after each country's manufacturing peak, though a large share fully recovered. After the peak, hubs with a higher initial share of college-educated workers grew significantly faster.
  • 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.
  • Danish Weight Loss Drugs vs. Chinese Cars: Two Models of Export Booms — Denmark's weight-loss drug exports illustrate a positive-sum export boom in which new products create both supply and demand, while Chinese car exports reflect firms with persistent overcapacity fighting for market share. The US preempted Chinese electric vehicles through legislation that boosts demand while reserving a share for local producers; Europe remains more exposed.

AI Summary. The global fertility rate fell to 2.3 by 2021, near the roughly 2.2 rate demographers consider necessary to keep world population stable, and faster than United Nations projections anticipated. National birth registries are reporting births 10% to 20% below United Nations projections, according to an economist's estimate covering about half the world's population.

Greg Ip and Janet Adamy Wall Street Journal
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Globally fertility declines are outpacing the UN’s 2017 projections by 10-20%. Had the US total fertility rate remained at its 2007 level of 2.1 vs. dropping to 1.6 last year, an additional 10.6mm babies would have been born. @greg_ip

Is the global fertility rate falling faster than projected?

Core argument: The global fertility rate fell from 2.5 in 2017 to 2.3 by 2021, passing ahead of schedule the 2.4 level the United Nations had projected for the late 2020s and approaching the global replacement rate of about 2.2.

In 2017, when the global fertility rate—a snapshot of how many babies a woman is expected to have over her lifetime—was 2.5, the United Nations thought it would slip to 2.4 in the late 2020s. Yet by 2021, the U.N. concluded, it was already down to 2.3—close to what demographers consider the global replacement rate of about 2.2. The replacement rate, which keeps population stable over time, is 2.1 in rich countries, and slightly higher in developing countries, where fewer girls than boys are born and more mothers die during their childbearing years. While the U.N. has yet to publish estimated fertility rates for 2022 and 2023, Jesús Fernández-Villaverde an economist specializing in demographics at the University of Pennsylvania has produced his own estimate by supplementing U.N. projections with actual data for those years covering roughly half the world’s population. He has found that national birth registries are typically reporting births 10% to 20% below what the U.N. projected.

Takeaways by Macro Roundup® AI

  1. The global fertility rate fell from 2.5 in 2017 to 2.3 by 2021, passing ahead of schedule the 2.4 level the United Nations had projected for the late 2020s and approaching the global replacement rate of about 2.2.
  2. Jesús Fernández-Villaverde, a demographic economist at the University of Pennsylvania, supplemented U.N. projections with actual 2022–2023 data covering roughly half the world's population and found national birth registries reporting births 10% to 20% below U.N. projections.
  3. The replacement fertility rate, which keeps population stable over time, is 2.1 in rich countries and slightly higher in developing countries, where fewer girls than boys are born and more mothers die during their childbearing years.

Related Articles:

  • US Births Are Down Again, After the COVID Baby Bust and Rebound — US births declined steadily for years before the pandemic, with almost 600,000 fewer annual births in 2019 than in 2007, a 13% drop. The pandemic-related baby bust and subsequent rebound were short-term deviations from that longer trend, and 2022 birth counts remained below 2019 levels.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.
  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.

AI Summary. Weak US manufacturing productivity growth reflects a compositional shift, as high-tech, fast-productivity-growth industries were increasingly offshored and became a smaller share of US manufacturing, alongside weak manufacturing investment. Capital intensity—fixed assets used per worker—slowed in the 2000s and nearly flatlined in the 2010s, with stagnation in electrical and vehicle manufacturing.

Joey Politano Apricitas Economics
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American manufacturing productivity has been flat as measured by output per hour worked since 2007; one driver has been a flatlining in American manufacturing capital intensity. @JosephPolitano

Why has US manufacturing productivity growth weakened?

Core argument: A large part of America's manufacturing productivity problem is compositional: after 2001 and 2008, high-tech, fast-productivity-growth industries were increasingly offshored and came to represent a smaller share of US manufacturing.

A large part of America’s manufacturing productivity problem is the cross-industry compositional effect—post-2001 and 2008, high-tech fast-productivity-growth industries were increasingly offshored and thus represented a smaller share of US manufacturing. Perhaps more importantly, that shift has been coupled with a lack of manufacturing business investment—the overall capital intensity of American manufacturing, which represents the relative amount of fixed assets used in production, slowed in the 2000s and nearly flatlined in the 2010s. In other words, if you think about the amount of factories, equipment, vehicles, etc used per manufacturing worker, that number has stopped growing due to the underinvestment in new manufacturing equipment and structures throughout the last 20 years. Some subsectors, like the chemical industry, have seen more steady capital intensity growth, while electronics experienced a slowdown and electrical/vehicle manufacturing saw outright stagnation.

Takeaways by Macro Roundup® AI

  1. A large part of America's manufacturing productivity problem is compositional: after 2001 and 2008, high-tech, fast-productivity-growth industries were increasingly offshored and came to represent a smaller share of US manufacturing.
  2. The capital intensity of American manufacturing—fixed assets used per worker—slowed in the 2000s and nearly flatlined in the 2010s, attributed to underinvestment in new manufacturing equipment and structures over roughly two decades.
  3. Capital intensity growth varied by subsector, with chemicals seeing steadier growth, electronics experiencing a slowdown, and electrical and vehicle manufacturing showing outright stagnation.

Related Articles:

  • American Labor’s Real Problem: It Isn’t Productive Enough — U.S. manufacturing output per hour has grown about 0.2% a year since 2009, below the overall economy and peer economies in Europe and Asia except Japan, with motor vehicle manufacturing productivity falling 32% from 2012 through last year. Unlike warehouses and hospitals, manufacturers face foreign competition and cannot pass higher labor costs to customers.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.
  • Why American Manufacturing is Increasingly Inefficient — Labor productivity in U.S. manufacturing has been in secular decline since 2011, the first decade-long fall in the available data, even as services drove overall output growth. More than a third of the manufacturing slowdown since 2011 is accounted for by computers and electronics, a sector whose gains had soared in the 1990s and 2000s.

AI Summary. Large technology companies, the biggest buyers of green power-purchase agreements that helped spur America's renewables boom, are now investing directly in clean-energy development, including a partnership to build 10.5GW of renewable capacity in America and Europe and the first corporate deal to develop enhanced geothermal power.

Economist Staff The Economist
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Large technology firms are driving investment in clean energy sources through “power-purchase agreements.” Adding 1GW of wind or solar costs ~ $1B. @IEA forecast that data center electrical demand will double between 2022-26.

Are big tech firms moving from buying clean power to building it?

Core argument: Microsoft and Brookfield announced a deal to build 10.5GW of renewables capacity in America and Europe by 2030, meant to enable Microsoft to meet its pledge to source 100% of its electricity, 100% of the time, from zero-carbon sources by 2030.

Deep-pocketed [tech] giants have been the biggest force behind green “power-purchase agreements”, which helped kickstart America’s renewables boom by persuading utilities and other investors to build wind and solar farms. They are now getting in on the clean-energy action more directly. Microsoft and Brookfield, a big infrastructure investor, announced a deal to build 10.5GW of renewables capacity in America and Europe by 2030. This is meant to enable the software giant to meet its pledge to get 100% of its electricity, 100% of the time, from zero-carbon sources by 2030. The two partners have not revealed the price tag, but adding 1GW of wind or solar capacity can cost about $1B. Google, meanwhile, is dabbling in geothermal energy. It has signed the first-ever corporate deal to develop “enhanced” geothermal power with Fervo, a startup that has raised $430m in funding. The Department of Energy reckons that innovations like Fervo’s could expand geothermal output in America around 20-fold, to more than 90GW, by 2050.

Takeaways by Macro Roundup® AI

  1. Microsoft and Brookfield announced a deal to build 10.5GW of renewables capacity in America and Europe by 2030, meant to enable Microsoft to meet its pledge to source 100% of its electricity, 100% of the time, from zero-carbon sources by 2030.
  2. Microsoft and Brookfield have not revealed the price tag of their renewables deal, though adding 1GW of wind or solar capacity can cost about $1bn.
  3. Google has signed the first-ever corporate deal to develop "enhanced" geothermal power with Fervo, a startup that has raised $430m, and the Department of Energy reckons such innovations could expand American geothermal output around 20-fold, to more than 90GW, by 2050.

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.
  • Global Clean Energy Spending Surges to $1.8 Trillion. It’s Not Enough — Global spending on the clean-energy transition rose 17% to a record $1.8tn, covering renewable power, electric vehicles, hydrogen production and other technologies, with total funding reaching about $2.8tn including supply chains and $900bn in financing. BloombergNEF reports this remains short of a net-zero emissions trajectory.
  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.

AI Summary. The US Department of Energy estimates that artificial intelligence and other upgrades to the existing electricity grid could free up as much as 100 gigawatts of transmission and distribution capacity within three to five years without building new lines, equal to about 13% of current peak demand of roughly 740 gigawatts.

Economist Staff The Economist
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The Department of Energy estimates that efficiency improvements such as upgraded transmission lines and better management of America’s electrical grid could yield 100GW or 13% of current peak power demand.

Can grid upgrades free up capacity without building new power lines?

Core argument: America's Department of Energy reckons AI and other upgrades to the existing grid could free up as much as 100 GW of transmission and distribution capacity over the next three to five years without building new lines.

America’s Department of Energy reckons that AI and other improvements to the country’s existing grid could liberate as much as 100 gigawatts (GW) in transmission and distribution capacity over the next three to five years without the need to build new lines. That is about 13% of current peak demand of around 740gw. Some of these “grid-enhancing technologies” are now being rolled out, thanks to doughty startups developing them, their financial backers, and utilities, which are becoming less resistant to innovation. gets, as they are known for short in the industry, fall into two main categories: hardware upgrades to transmission grids and software upgrades to those grids’ brains.

Takeaways by Macro Roundup® AI

  1. America's Department of Energy reckons AI and other upgrades to the existing grid could free up as much as 100 GW of transmission and distribution capacity over the next three to five years without building new lines.
  2. The 100 GW the Department of Energy sees as available equals about 13% of current American peak demand of roughly 740 GW.
  3. Grid-enhancing technologies, which fall into hardware upgrades to transmission grids and software upgrades to those grids' brains, are being rolled out by startups, their financial backers, and utilities that are becoming less resistant to innovation.

Related Articles:

  • Generational Growth AI, Data Centers and the Coming US Power Demand Surge — 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.
  • The U.S. Urgently Needs a Bigger Grid. Here’s a Fast Solution — Replacing existing power lines with advanced conductors made from state-of-the-art materials, a technique known as advanced reconductoring, could roughly double electric grid capacity in many parts of the US and accommodate much more wind and solar power. Many US utilities have been slow to adopt it due to unfamiliarity with the technology and regulatory and bureaucratic hurdles.
  • 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.

AI Summary. China appears to be shifting its reserve diversification toward gold, but its gold allocation remains well below that of other countries at odds with the United States, such as Russia and Turkey, which raised their gold holdings substantially. Gold held in domestic custody sits outside U.S. influence.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 notes that a surprising surge in gold prices “appears in part due to a structural shift in sovereign reserve allocation that looks to continue for years,” particularly by countries with increasingly hostile relationships with the US.

Is China shifting its reserves toward gold beyond U.S. influence?

Core argument: China's gold allocation remains significantly below that of other countries that have drawn U.S. hostility, even as its recent buying spree suggests a shift toward gold in its reserve diversification.

China appears to be shifting its diversification efforts towards gold, but its gold allocation remains significantly below that of other countries who have also drawn the ire of the U.S. Countries out of favor with the U.S. often increase their holdings of gold, which is outside of U.S. influence when held in domestic custody. Russia significantly increased its gold holdings after U.S. sanctions relating to the 2014 Crimean War. Turkey has also significantly increased its gold allocations in recent years, likely in part due to rocky relations with the U.S. Interesting, China’s allocation to gold remains low even amidst open U.S. hostility. China’s recent gold buying spree indicates it may be changing its mind, but it has a long way to go to reach the level of diversification of other countries.

Takeaways by Macro Roundup® AI

  1. China's gold allocation remains significantly below that of other countries that have drawn U.S. hostility, even as its recent buying spree suggests a shift toward gold in its reserve diversification.
  2. Countries out of favor with the United States often increase gold holdings, as gold held in domestic custody sits outside U.S. influence.
  3. Russia significantly increased its gold holdings after U.S. sanctions related to the 2014 Crimean War, and Turkey has raised its gold allocation substantially, likely in part due to rocky relations with the United States.

Related Articles:

  • China Leads Record Central Bank Gold Buying in First Nine Months of Year — China has led record global central bank purchases of gold, as countries seek to hedge against inflation and reduce reliance on the dollar. The buying has helped bullion prices trade just under $2,000 a troy ounce despite rising bond yields and a strong dollar, even as gold demand excluding bilateral over-the-counter flows was 6% lower year-on-year at 1,147 tonnes.
  • Chinese Investors Buy Gold As Property And Stock Markets Fall — Chinese investors and households have bought gold as a refuge from local property and stock market turmoil, which the World Gold Council says has helped support record prices. Chinese investment demand for gold bars and coins grew 28% to 280 tonnes, largely offsetting a steep drop in Europe, while jewelry consumption rose 10% to 630 tonnes.
  • The New Gold Boom: How Long Can It Last? — Central banks bought 1,079 tonnes of gold bullion in a year, the most since records began in 1950, with prices hovering near the nominal all-time high of $2,072 per troy ounce. Developing countries wary of the US dollar have been diversifying reserves after the West froze $300bn of Russian foreign exchange holdings.