Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


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
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.@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.

Wednesday, May 15, 2024

AI Summary. The US is raising tariffs on Chinese semiconductors, batteries, solar cells, critical minerals, steel, aluminum, and electric vehicles, affecting a projected $18bn in current annual imports, while leaving prior tariffs in place. Semiconductor tariffs double from 25% to 50%, electric vehicle tariffs rise from 27.5% to 102.5%, and certain critical minerals and ship-to-shore cranes face new 25% rates.

Josh Wingrove Bloomberg
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The Biden administration is raising tariffs on strategic goods doubling the tariff rate on semiconductors from 25% to 50% by 2025. Tariffs on EVs will rise to 102.5% from 27.5% to protect US automakers from low-cost Chinese competition.

How much in Chinese imports do the new tariffs cover?

Core argument: Biden's tariff increases on Chinese semiconductors, batteries, solar cells, critical minerals, steel, aluminum, and electric vehicles are projected to affect roughly $18 billion in current annual imports, with none of Trump's existing tariffs reduced.

Biden is raising levies on semiconductors, batteries, solar cells, and critical minerals, in addition to previously reported increases on steel, aluminum, and electric vehicles. The changes are projected to affect around $18 billion in current annual imports. None of Trump’s tariffs will be reduced. Biden will ratchet up rates on goods the US struggled to import during the coronavirus pandemic, and for industries, like chips and green energy, that he’s sought to bolster since he took office. The tariff rate on semiconductors doubles from 25% to 50% by 2025. The levies aim to counter China’s rush into so-called legacy chips, older-generation components still essential to the global economy. Certain critical minerals will see a new 25% tariff this year, while natural graphite and permanent magnets will be hit with that rate in 2026. Ship-to-shore cranes also face a new 25% tariff this year. The electric vehicle tariff takes effect this year, with a final tariff rate of 102.5%, up from 27.5% now. And tariffs on certain steel and aluminum from China — currently facing a 0% or 7.5% tariff — will rise to 25% this year.

Takeaways by Macro Roundup® AI

  1. Biden's tariff increases on Chinese semiconductors, batteries, solar cells, critical minerals, steel, aluminum, and electric vehicles are projected to affect roughly $18 billion in current annual imports, with none of Trump's existing tariffs reduced.
  2. The US tariff rate on Chinese semiconductors doubles from 25% to 50% by 2025, aimed at countering China's rush into legacy chips, older-generation components still essential to the global economy.
  3. US tariffs on Chinese electric vehicles rise to 102.5% from 27.5%, certain Chinese steel and aluminum move from 0% or 7.5% to 25%, and ship-to-shore cranes face a new 25% rate.

Related Articles:

  • China’s Plan to Reshape World Trade On Its Own Terms — Countries covered by China's free trade agreement network took about 38% of its merchandise exports, roughly $1.3tn out of some $3.43tn shipped worldwide over a 12-month period. That free trade footprint exceeds the total worldwide exports of the Netherlands or Japan, the world's fourth- and fifth-biggest exporters.
  • 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.
  • As Long As The US Is Outlet For China’s Surplus Rumors Of Decoupling Are Overstated — With Europe's current account near balance and Japan back in surplus, the question of which economy absorbs China's current account surplus remains open, and the US external deficit exceeds what G-7 countries can finance. The global economy stays relatively integrated despite frictions, even as global politics is more fractured.

AI Summary. A former U.S. trade representative argues that countries running chronic trade surpluses for decades are by definition protectionist, and backs a universal 10% tariff plus a higher tariff on China to push toward globally balanced trade over time. Alternatives include import certificates tied to exports and a charge on foreign investment in U.S. assets.

Greg Ip Wall Street Journal
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Robert Lighthizer argues that a universal tariff would better manage America’s chronic deficits than either capital controls or Warren Buffett’s proposed import certificates. “Every country should be exporting in order to import.” @greg_ip

Are chronic trade surpluses evidence of protectionism requiring tariffs?

Core argument: Lighthizer backs Trump's proposed universal 10% tariff plus a higher tariff on China, preferring tariffs for their simplicity, flexibility, and familiarity over alternative mechanisms for balancing trade.

“What we really need is balanced trade. Not balanced every year and with every country, but over time and globally. Every country should be exporting in order to import. If you’re running chronic surpluses for decades, then you are by definition a protectionist. You’re engaging in industrial policy to help yourself, you’re transferring resources from your consumers to your producers, you’re trying to…acquire other countries’ assets." Lighthizer backs Trump’s proposed universal tariff of 10% plus a higher tariff on China. There are two other possibilities. Warren Buffett proposes that imports require a certificate issued only with a corresponding export. The other is a “market access charge” on any country investing the proceeds of its trade surplus into U.S. assets such as Treasury bills. This amounts to reimposing capital controls, controls and could destabilize the Treasury market. Open to both ideas, Lighthizer prefers the simplicity, flexibility, and familiarity of tariffs.

Takeaways by Macro Roundup® AI

  1. Lighthizer backs Trump's proposed universal 10% tariff plus a higher tariff on China, preferring tariffs for their simplicity, flexibility, and familiarity over alternative mechanisms for balancing trade.
  2. Lighthizer argues that countries running chronic trade surpluses for decades are by definition protectionist, transferring resources from their consumers to their producers and seeking to acquire other countries' assets.
  3. Two alternatives to tariffs are Warren Buffett's proposal requiring import certificates issued only with a corresponding export, and a "market access charge" on countries investing trade-surplus proceeds in U.S. assets such as Treasury bills, which amounts to reimposing capital controls.

Related Articles:

  • 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.
  • Chinese “Overcapacity” Is Not the Problem. Underconsumption Is. — 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.
  • A Second Dose of Trump On Trade Would Differ From The First — A second Trump administration would pair a 10 percentage point tariff increase on all US trading partners with a tariff of at least 60% on Chinese imports, with advisers arguing a broad import tax addresses America's persistent pattern of trade deficits rather than bilateral imbalances. Researchers estimate China's manufacturing goods surplus reached a record of almost 2% of world GDP.

AI Summary. The authors argue that a purely inflationary supply shock that raises workers' cost of living without changing their productivity gives wage-posting firms little reason to raise wages. Because few American workers quit into unemployment, firms set wages mainly to avoid losing employees to other firms, and a higher cost of living does not change that competition.

Jacob Weber Federal Reserve Bank of New York
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A model developed by @NewYork Fed researchers suggests that wage-posting firms have no incentive to raise wages in response to inflationary supply shocks since these shocks don’t increase the risk of employees being poached by other firms.

Do inflationary supply shocks lead firms to raise wages?

Core argument: The authors argue that wage-posting firms have little reason to raise wages after a "pure" inflationary supply shock that raises workers' cost of living without affecting their productivity.

There is little reason for wage-posting firms to change wages in response to a “pure” inflationary supply shock that raises workers’ cost of living without affecting their productivity. A wage-posting firm will thus raise wages [only] if it perceives a heightened need to defend itself from losing employees to other firms or to unemployment. Does an inflationary supply shock that raises workers’ cost of living heighten these concerns? We think not. In practice few American workers quit into unemployment, so firms primarily view other firms as their competition when posting wages. And if the cost of living is irrelevant to a worker choosing between wage offers at different firms, then an inflationary shock that raises the cost of living doesn’t make it any easier or harder for a higher-wage firm to poach workers than before.

Takeaways by Macro Roundup® AI

  1. The authors argue that wage-posting firms have little reason to raise wages after a "pure" inflationary supply shock that raises workers' cost of living without affecting their productivity.
  2. A wage-posting firm raises wages only when it perceives a heightened need to defend against losing employees to other firms or to unemployment, and the authors contend an inflationary cost-of-living shock does not heighten those concerns.
  3. Because few American workers quit into unemployment, firms primarily view other firms as competition when posting wages, and a cost-of-living shock leaves poaching by higher-wage firms no easier or harder than before.

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.
  • Are You Better Off Than You Were Four Years Ago? — Inflation-adjusted wages rose over the past four years, including when measured from just before the pandemic, at roughly the same pace as in the preceding years: about 3% cumulative growth adjusted by the consumer price index versus about 4% in 2015-2019, and about 5% growth adjusted by personal consumption prices.

AI Summary. Bank of America internal data indicate that Gen Z and Millennials account for the net population growth in metropolitan areas where growth is accelerating, most notably Columbus and Austin. In shrinking metro areas such as New York and Washington D.C., population is declining faster among older generations than younger ones.

David Michael Tinsley Bank of America
Date Posted:

According to @BankofAmerica internal data, net population outflows from cities in the Northeast and West are largely driven by Gen Z and Millennials, with Miami and Orlando also showing declines.

Are younger generations driving population growth in expanding metro areas?

Core argument: Gen Z and Millennials appear to be driving net population growth in metropolitan statistical areas where growth is accelerating, most notably Columbus and Austin, according to Bank of America internal data.

Generationally Gen Z and Millennials appear to be driving the net population growth in metropolitan statistical areas (MSAs) where this is accelerating, most notably in Columbus and Austin. Interestingly, though, many of the MSAs where populations are shrinking YoY are seeing some significant outflows of older generations (Traditionalists/Baby Boomers), as well as the younger generations. For example, in New York and Washington D.C., the populace is declining faster among these older generations, according to Bank of America internal data.

Takeaways by Macro Roundup® AI

  1. Gen Z and Millennials appear to be driving net population growth in metropolitan statistical areas where growth is accelerating, most notably Columbus and Austin, according to Bank of America internal data.
  2. Metropolitan statistical areas with year-over-year population declines are seeing significant outflows of Traditionalists and Baby Boomers as well as younger generations, according to Bank of America internal data.
  3. In New York and Washington D.C., population is declining faster among Traditionalists and Baby Boomers, according to Bank of America internal data.

Related Articles:

  • Young Families Have Not Returned to Large Cities Post-Pandemic — The under-five population in large urban U.S. counties fell 6.1% while overall population in those counties fell 0.9%, with declines exceeding 10% in the largest counties including New York, Cook County, Illinois, and Los Angeles. Losses of young families were more severe in the Mid-Atlantic and West Coast, while the under-five population grew in Southeastern urban counties.
  • Miami Sees Its First Population Drop in Decades — Miami-Dade County lost 79,535 residents to net migration to other parts of Florida and other states over a recent multiyear stretch, an analysis of U.S. Census Bureau data by the Brookings Institution found, and the county's population shrank despite partial offset from foreign immigration. Miami home prices rose 53%.
  • Southern Comforts — Migration into southern metropolitan areas such as Austin, San Antonio, Jacksonville, and Tampa has continued, and the South also has a higher birth rate than other census regions. Growth has been uneven: Florida's GDP rose 20% and Texas and Tennessee 15% against a US average of 11%, while Oklahoma and Louisiana contracted.

AI Summary. Insurers lost money on homeowners coverage in 18 states, up from 12 states five years earlier and eight a decade earlier, according to a New York Times analysis of financial data. In response, insurers are raising premiums by as much as 50% or more, cutting coverage, or exiting entire states.

Christopher Flavelle New York Times
Date Posted:

In 2023 insurers lost money on homeowners coverage in 18 states – more than 1/3 the country – up from 12 states five years ago and 8 states in 2013. In response, insurers are raising premiums by as much as 50% or more.

How are insurer losses on homeowners coverage affecting premiums and availability?

Core argument: Insurers lost money on homeowners coverage in 18 states in 2023, more than a third of the country, up from 12 states five years earlier and eight states in 2013, according to a New York Times analysis of financial data.

The insurance turmoil caused by climate change — which had been concentrated in Florida, California, and Louisiana — is fast becoming a contagion, spreading to states like Iowa, Arkansas, Ohio, Utah, and Washington. Even in the Northeast, where homeowners insurance was still generally profitable last year, the trends are worsening. In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country, according to a New York Times analysis of newly available financial data. That’s up from 12 states five years ago, and eight states in 2013. The result is that insurance companies are raising premiums by as much as 50% or more, cutting back on coverage or leaving entire states altogether. Nationally, over the last decade, insurers paid out more in claims than they received in premiums, according to the ratings firm Moody’s, and those losses are increasing. Last year, storms, wildfires, and other disasters pushed 2.5mm American adults out of their homes, according to census data, including at least 830,000 people who were displaced for six months or longer.

Takeaways by Macro Roundup® AI

  1. Insurers lost money on homeowners coverage in 18 states in 2023, more than a third of the country, up from 12 states five years earlier and eight states in 2013, according to a New York Times analysis of financial data.
  2. Insurance turmoil once concentrated in Florida, California, and Louisiana is spreading to states including Iowa, Arkansas, Ohio, Utah, and Washington, with insurers raising premiums by as much as 50% or more, cutting back coverage, or leaving entire states.

Related Articles:

  • April Flowers, Not Showers — Bank of America internal payments data show average household property insurance payments up 23% relative to 2019, and average per-customer payments up 25%, with a three-month average year-over-year increase of 11%. The data cannot separate auto from home insurance payments.
  • 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.
  • As Texas Burns, Property Insurance Costs Soar — Rising property insurance premiums are attributed to climate-related damage, higher rebuilding costs, and costlier reinsurance protection for insurers, which is passed on to homeowners. The insurance industry says rebuilding and replacement costs rose 55% over a three-year span, driven by raw materials, wages, supply-chain bottlenecks, and a rising share of larger homes.

AI Summary. The composition of the Federal Reserve's balance sheet matters at least as much as its size: duration-adjusted holdings have declined barely at all despite substantial drops in the face value of the bond portfolio, with average Treasury duration lengthening from 6 to 6.5 years. Changes in bank reserve balances appear more important for risk-taking conditions than other Fed liabilities.

Matthew Klein The Overshoot
Date Posted:

.@Matt_Klein notes that recent Fed balance sheet shrinkage has apparently not cooled the economy because it has primarily been driven by sales of bonds of under 5 years duration, while the composition of the Fed’s liabilities has become more liquid.

Does the Fed's balance sheet composition matter more than its size?

Core argument: Between mid-2014 and mid-2016, the Fed's bondholdings shrank by 30% in duration-adjusted terms even though the portfolio's face value was unchanged, illustrating that composition matters at least as much as balance-sheet size.

The composition of the balance sheet matters at least as much [as its size]. Between mid-2014 and mid-2016, the Fed’s bondholdings shrank by 30% in duration-adjusted terms even as the face value of the portfolio was unchanged. More recently, the duration-adjusted decline has been barely visible despite substantial declines in the par value of the bond portfolio. Since October 2022, the average duration of the Fed’s Treasury portfolio has lengthened from 6 to 6.5 years. [Turning from the asset to the liability side], not all Fed liabilities are equally important. Reserves held by banks as deposits at the Fed play a different role in the financial system than the federal government’s deposits in the Treasury General Account. And both are different from the Fed’s reverse repo facility, which lets money market funds earn a competitive interest rate while lending to the Fed overnight. Changes in reserve balances seem to be more important than the others for risk-taking conditions.

Takeaways by Macro Roundup® AI

  1. Between mid-2014 and mid-2016, the Fed's bondholdings shrank by 30% in duration-adjusted terms even though the portfolio's face value was unchanged, illustrating that composition matters at least as much as balance-sheet size.
  2. The average duration of the Fed's Treasury portfolio has lengthened from 6 to 6.5 years since October 2022, leaving the duration-adjusted decline barely visible despite substantial declines in the par value of the bond portfolio.
  3. Bank reserves, the Treasury General Account, and the Fed's reverse repo facility play different roles in the financial system, and changes in reserve balances appear more important than the others for risk-taking conditions.

Related Articles:

  • Is the Fed Preparing to Taper Its Bond Redemptions? — Federal Reserve officials aim both to shrink the central bank's bond holdings, especially mortgage bonds, on the view that portfolio size and composition affect how others price risky assets, and to reduce bank reserves to "ample" rather than "abundant" levels. Aggregate reserve estimates may overstate ampleness by ignoring concentration across institutions.
  • The Fed Is Tightening More Than It Says — The authors estimate that the Federal Reserve's balance-sheet runoff makes its current policy rate of 5.375% equivalent in its effect on financial conditions to a rate of 5.763% without runoff, a gap of 39 basis points. They project that gap to widen to a full percentage point as assets continue rolling off at $95bn a month.
  • When Will Balance Sheet Runoff End and How Will the Fed Know When to Stop? — Analysts estimate that each 1% of GDP of Federal Reserve balance sheet reduction is associated with roughly a 2 basis point rise in 10-year Treasury yields, implying about 20bp of upward pressure in total. That is equivalent in its effect on financial conditions and growth to a little under one interest rate hike.

AI Summary. The H5N1 bird flu virus spreads among wild aquatic birds before passing to domesticated animals, with highly pathogenic strains killing 90%-100% of infected poultry within 48 hours and causing the death or culling of 82m US poultry and $2-$3bn in losses. The virus has also spread to US cattle, reducing milk production in infected herds.

J.P. Morgan Michael Cembalest
Date Posted:

Michael Cembalest @jpmorgan notes that the economic impact of the H5N1 outbreak could grow. At least 82mm American poultry livestock have been culled in an effort to control the spread, so far less than 1% of annual production.

How costly is bird flu for US poultry and cattle?

Core argument: Highly pathogenic H5N1 strains kill 90%–100% of infected poultry within 48 hours, and the virus has caused the death or culling of 82m poultry and $2–$3bn in losses, since entire flocks are slaughtered when the disease is found.

H5N1 spreads among wild aquatic birds and is then passed to domesticated animals. The highly pathogenic strains result in 90%-100% poultry mortality rates within 48 hours. H5N1 has led to the death or culling of 82 million poultry livestock and $2-$3 billion in losses (when the disease is found, the entire flock is slaughtered). For context, the US poultry industry produces more than 9 billion chickens and turkeys each year. H5N1 has also spread to US cattle (36 herds in 9 states); farmers report reduced milk production in infected cattle, although the impact on milk supply has been limited so far and most infected cows do not develop severe symptoms or die. The global implications of H5N1 could be substantial now that poultry has surpassed pigs in terms of global consumption.

Takeaways by Macro Roundup® AI

  1. Highly pathogenic H5N1 strains kill 90%–100% of infected poultry within 48 hours, and the virus has caused the death or culling of 82m poultry and $2–$3bn in losses, since entire flocks are slaughtered when the disease is found.
  2. H5N1 spreads among wild aquatic birds before passing to domesticated animals, and has reached US cattle in 36 herds across 9 states, with farmers reporting reduced milk production though most infected cows do not develop severe symptoms or die.
  3. The US poultry industry produces more than 9bn chickens and turkeys each year, and the global implications of H5N1 could be substantial now that poultry has surpassed pigs in global consumption.

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.
  • Bird Flu Is Infecting More Mammals. What Does That Mean for Us? — 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.
  • This May Be Our Last Chance to Halt Bird Flu in Humans and We Are Blowing It — An outbreak of H5N1 avian influenza in U.S. dairy cattle has spread to at least 33 herds across eight states with one confirmed human case, and Texas's agriculture commissioner suspects it began earlier and may have infected up to 40% of Texas Panhandle herds. An H5N1 expert argues containment becomes unlikely once around 10 human cases are detected.