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


Friday, May 17, 2024

AI Summary. Cultural individualism accounts for about one-third of cross-country differences in working from home, with the shift from the lowest-individualism country (Taiwan) to the highest (the US) associated with 0.7 more fully paid work-from-home days per week, and 1.1 more among college graduates. The authors find individualism explains more of this variation than industry mix, population density, or lockdown stringency.

Pablo Zarate, Mathias Dolls, Steven Davis, et al. National Bureau of Economic Research
Date Posted:
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A measure of individualism accounts for about 1/3 of the cross-country variation in work-from-home rates, with WFH most prevalent in the Anglosphere and least in Asia. @PabloZarate98 @I_Am_NickBloom @Jose_MariaRD @cevatgirayaksoy

Does culture explain why working from home varies across countries?

Core argument: Cultural factors, specifically Individualism, account for about one-third of cross-country differences in work from home, with the move from Taiwan's lowest Individualism score to the highest in the US associated with 0.7 more full paid WFH days per week.

We examine how work from home varies across countries and across US workers. Our key finding is that cultural factors – specifically Individualism – account for about one-third of the differences across countries. Figure 3 shows the bivariate relationship between individualism and WFH. Moving from the country with the lowest Individualism score (Taiwan) to the one with the highest (the US) is associated with 0.7 more full paid WFH days per week (1.1 among college graduates). Individualism explains far more of the variation than industrial composition, population-weighted density, or lockdown stringency. Across US workers, industry and population density are the two most important determinants. But cultural factors are still statistically significant. Respondents who reside in counties that voted for Joe Biden in 2020 by a larger margin WFH at higher rates even after accounting for industry, state-level wages, population density, and a battery of demographics.

Takeaways by Macro Roundup® AI

  1. Cultural factors, specifically Individualism, account for about one-third of cross-country differences in work from home, with the move from Taiwan's lowest Individualism score to the highest in the US associated with 0.7 more full paid WFH days per week.
  2. Among college graduates, the gap between the lowest- and highest-Individualism countries is associated with 1.1 more full paid WFH days per week, and Individualism explains far more variation than industrial composition, population-weighted density, or lockdown stringency.
  3. Across US workers, industry and population density are the two most important determinants of working from home, while respondents in counties that voted for Joe Biden in 2020 by larger margins work from home at higher rates even after accounting for industry, state-level wages, density, and demographics.

Related Articles:

  • Remote Work, Three Years Later — Remote work has reduced office utilization but not yet office occupancy, because most firms are locked into long-duration leases. Baseline estimates suggest remote work will exert 0.8 percentage points of upward pressure on the office vacancy rate near-term, 2.3 more over the following five years, and 1.8 thereafter.
  • Does Working from Home Boost Productivity Growth? — After controlling for each industry's pre-pandemic productivity trend, there is essentially no statistically significant relationship between how easily an industry's work can be done remotely and its excess productivity growth during the pandemic.
  • Work From Home and the Office Real Estate Apocalypse — The authors estimate New York City office values fell 45% in 2020 and 39% in the longer run, a $453bn value destruction, with lower-quality buildings hit hardest as tenants shifted to higher-quality space. They argue this has implications for local public finances and financial sector stability.

AI Summary. Credit availability in US commercial real estate has been resilient, leaving the likelihood of a credit crunch or a systemic shock from the sector low. Loan modifications and extensions will likely remain a key channel for borrowers to address refinancing needs, helping stabilize property performance outside the office sector.

Lotfi Karoui and Vinay Viswanathan Goldman Sachs
Date Posted:

A @GoldmanSachs analysis argues there is little risk of a systemic shock emerging from US commercial real estate, as banks continue to extend credit and allow modifications.

Is commercial real estate stress likely to become a systemic shock?

Core argument: Credit availability in US commercial real estate has been resilient, which the authors read as keeping the risk of a credit crunch remote and the likelihood of a systemic shock from the CRE market low.

Credit availability has been resilient, suggesting the risk of a credit crunch is still remote and leaving us comfortable with our view that the likelihood of a systemic shock from the CRE market is low. Modifications and extensions will likely remain a key channel through which borrowers address their refinancing needs. The resilience of the debt financing backdrop will likely continue to stabilize property performance, especially outside of the office sector. On the market side, we think the magnitude and speed of erosion in the risk premium provided by the new issue CMBS market has shifted the opportunity set to bond selection in older vintages in the secondary market. We continue to favor exposures to single-asset/singe-borrower bonds collateralized by retail and luxury resort properties while also seeing value up the capital structure in AAA CRE CLO AAA floaters.

Takeaways by Macro Roundup® AI

  1. Credit availability in US commercial real estate has been resilient, which the authors read as keeping the risk of a credit crunch remote and the likelihood of a systemic shock from the CRE market low.
  2. Loan modifications and extensions will likely remain a key channel for CRE borrowers addressing refinancing needs, with the resilient debt financing backdrop continuing to stabilize property performance, especially outside the office sector.
  3. The authors argue that the magnitude and speed of erosion in the new-issue CMBS risk premium has shifted the opportunity set toward bond selection in older secondary-market vintages, favoring single-asset/single-borrower bonds collateralized by retail and luxury resort properties and AAA CRE CLO floaters.

Related Articles:

  • Work From Home and the Office Real Estate Apocalypse — The authors estimate New York City office values fell 45% in 2020 and 39% in the longer run, a $453bn value destruction, with lower-quality buildings hit hardest as tenants shifted to higher-quality space. They argue this has implications for local public finances and financial sector stability.
  • Corporate Debt, Boom-Bust Cycles, and Financial Crises — Using a dataset on sectoral credit exposure for 115 economies, the authors find corporate debt accounts for two-thirds of credit expansion before financial crises and three-quarters of nonperforming loans during busts, and that corporate debt expansions predict crises similarly to household debt. Recoveries are slower after corporate debt booms.
  • Real-Estate Doom Loop Threatens America’s Banks — A Wall Street Journal analysis estimates banks' total commercial real-estate exposure at $3.6tn—about 20% of their deposits—including indirect lending, foreclosed properties, commercial mortgage-backed securities, and loans to nonbank mortgage lenders. Losses on these loans risk triggering a doom loop in which banks cut lending, pushing property prices down further and generating additional losses.

AI Summary. China sold a record $53.3bn of US Treasury and agency bonds in a single quarter, a sign of diversification away from American assets amid persistent trade tensions. Belgium, often viewed as a custodian of Chinese holdings, disposed of $22bn of Treasuries over the same period.

Masaki Kondo and Iris Ouyang Bloomberg
Date Posted:

Bloomberg reports there was an apparent $53.3B reduction in China’s US bond holdings in Q1. @Brad_Setser notes that China may have either diversified out of the dollar or diversified its custodians.

Is China diversifying away from US assets?

Core argument: China sold a combined $53.3 billion of US Treasuries and agency bonds in the first quarter, a record sum, according to calculations based on US Department of the Treasury data.

China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist. Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium, often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period.

Takeaways by Macro Roundup® AI

  1. China sold a combined $53.3 billion of US Treasuries and agency bonds in the first quarter, a record sum, according to calculations based on US Department of the Treasury data.
  2. Belgium, often seen as a custodian of China's holdings, disposed of $22 billion of Treasuries during the first quarter.
  3. China's record first-quarter sales highlight Beijing's move to diversify away from American assets as trade tensions persist.

Related Articles:

  • Power and Financial Interdependence — US-China financial interdependence creates what has been called a "balance of financial terror," in which the US relies on other countries' costs of not financing its current account deficit as assurance that financing continues. Chinese policymakers worry that dollar holdings expose China to financial sanctions, while the US has feared Chinese sales of Treasuries could threaten its financial stability.
  • Shadow Reserves — How China Hides Trillions of Dollars of Hard Currency — Institutions reporting to China's central government likely hold closer to $6tn in foreign assets than the $3.12tn officially reported as reserves, with the state banking system the main vehicle for holding these uncounted foreign currency assets. China remains a massive global creditor whose foreign exchange accumulation is felt worldwide.
  • Where Have All the Foreign Buyers Gone for U.S. Treasury Debt? — Foreign holders, including private investors and central banks, own about 30% of outstanding U.S. Treasury securities, down from roughly 43% a decade ago, with China and Japan seen as unlikely net buyers going forward. Meanwhile the Treasury has issued a net $2tn in new debt and the Federal Reserve is shedding about $60bn a month.

AI Summary. The Dow Jones Industrial Average rose 45% over the portion of the Biden presidency following his election win, compared with 34% at the equivalent point of Trump's term and 70% by that term's end.

Greg Ip and Rosie Ettenheim Wall Street Journal
Date Posted:

Since Biden’s election, the DJIA has risen 45%. Despite the pandemic crash, the Dow rose 70% over Trump’s term. @greg_ip

How does stock market performance compare across presidential terms?

Core argument: The Dow is up 45% since Biden defeated Trump in 2020, compared with 34% at the equivalent point in Trump's term, which ended 70% higher.

After the election in 2016, stocks rallied on expectations that a Republican president and Congress would cut taxes and regulations. In 2020, the post-election rally reflected good news on Covid vaccines and expectations of more stimulus. The Dow is up 45% since Biden defeated Trump in 2020. At the equivalent point in Trump’s term, it was up 34%, and it finished his term 70% higher.

Takeaways by Macro Roundup® AI

  1. The Dow is up 45% since Biden defeated Trump in 2020, compared with 34% at the equivalent point in Trump's term, which ended 70% higher.
  2. The stock rally after the 2016 election reflected expectations that a Republican president and Congress would cut taxes and regulations.
  3. The rally after the 2020 election reflected good news on Covid vaccines and expectations of more stimulus.

Related Articles:

  • The Expensive Stock Market — Falling interest rates reduced interest payments as a share of corporate profits, raising profits and stock market valuations. Measured against GDP, the US stock market is historically expensive, and since rates cannot fall as sharply as they have over the past four decades, expected future returns are low.
  • Global Views: Friendly Baseline, Greater Risks — Despite upside inflation surprises, the authors argue the broader disinflation narrative remains intact, citing a labor market that continues to rebalance: a jobs-workers gap of 2.0m, a quits rate below pre-pandemic levels, and wage growth running just over 4% year-on-year. They expect wage growth to converge to 3.5%, the pace they estimate is consistent with 2% inflation.
  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.

AI Summary. Microsoft has asked roughly 700 to 800 employees in its China-based cloud-computing and artificial intelligence operations, mostly Chinese-national engineers working on machine learning, to consider transferring to countries including the U.S., Ireland, Australia, and New Zealand amid escalating U.S.-China tensions.

Raffaele Huang and Yoko Kubota Wall Street Journal
Date Posted:

Microsoft is giving hundreds of China-based employees in its cloud-computing and artificial intelligence operations the option to transfer to offices in the U.S., Ireland, Australia, and New Zealand.

Are U.S. tech firms moving AI staff out of China?

Core argument: Microsoft offered roughly 700 to 800 employees in its China-based cloud-computing and AI operations the chance to transfer abroad, to countries including the U.S., Ireland, Australia, and New Zealand, according to people familiar with the matter.

Microsoft is asking hundreds of employees in its China-based cloud-computing and artificial intelligence operations to consider transferring outside the country, as the American tech behemoth finds itself caught in the crosshairs of escalating U.S.-China tensions. Such staff, mostly engineers with Chinese nationality, were recently offered the opportunity to transfer to countries including the U.S., Ireland, Australia, and New Zealand, people familiar with the matter said. About 700 to 800 people were given the offer, the bulk of which are involved in machine learning and other cloud-computing tasks, one of the people said.

Takeaways by Macro Roundup® AI

  1. Microsoft offered roughly 700 to 800 employees in its China-based cloud-computing and AI operations the chance to transfer abroad, to countries including the U.S., Ireland, Australia, and New Zealand, according to people familiar with the matter.
  2. The Microsoft staff asked to consider relocating are mostly engineers with Chinese nationality, with the bulk involved in machine learning and other cloud-computing tasks, one of the people said.
  3. Microsoft's request that China-based AI and cloud staff consider transferring outside the country comes as the company finds itself caught in the crosshairs of escalating U.S.-China tensions.

Related Articles:

  • China Blocks Use of Intel and AMD Chips in Government Computers — China has issued government procurement guidelines that phase out US microprocessors from Intel and AMD in state PCs and servers and sideline Microsoft's Windows and foreign database software in favor of domestic alternatives. China accounted for 27% of Intel's $54bn in sales and 15% of AMD's $23bn.
  • Chinese Companies Resort To Repurposing Nvidia Gaming Chips For AI — Chinese firms are developing artificial intelligence tools using processors stripped from Nvidia consumer gaming graphics cards and remounted on new circuit boards, after US export controls blocked sales of high-performance chips. Industry experts describe the practice as a rough workaround for China's shortage of high-end processors.
  • Microsoft Infrastructure – AI & CPU Custom Silicon Maia 100, Athena, Cobalt 100 — Microsoft has planned annual datacenter spending of more than $50bn, which exceeds the annual spend of megaprojects such as nationwide rail networks, dams, and the Apollo moon program. The buildout is aimed at accelerating artificial general intelligence and extending generative AI from productivity applications to leisure.

AI Summary. The El Niño warming phase, which can temporarily raise global temperatures and drive extreme weather, is forecast to give way to a neutral stage and then the cooler La Niña pattern, which should bring temperatures down. How much El Niño lifted temperatures is not yet clear; a smaller-than-expected drop could signal a step change in the rate of global warming.

Economist Staff The Economist
Date Posted:

In June 2023 the world entered an “El Niño” phase, which is associated with higher global temperatures. Transition to the cooler “La Niña” phase between July and September will provide insights into the underlying rate of global warming.

How much did a natural warming cycle raise global temperatures?

Core argument: The world entered an El Niño phase in June 2023, a natural cycle within the El Niño Southern Oscillation that can temporarily raise temperatures and drive extreme weather anomalies.

In June 2023 the world entered an “El Niño” phase. This natural climate cycle (part of a pattern known as El Niño Southern Oscillation, or ENSO) can temporarily boost temperatures and cause extreme weather anomalies. In April the Australian Bureau of Meteorology announced that the Pacific Ocean was cooling substantially, which is generally a sign that El Niño is on its way out. Forecast models point to an imminent transition to a neutral stage, and predict that the world is likely to enter La Niña (the cooler pattern) some time between July and September. That should start bringing temperatures down towards the end of the year. El Niño has pushed temperatures up even higher, but it is not yet obvious by how much. That should become clearer in the next cycle: if temperatures do not drop by as much as expected, it could signal a step change in the rate of global warming. There is no consensus yet on what would be behind such a change.

Takeaways by Macro Roundup® AI

  1. The world entered an El Niño phase in June 2023, a natural cycle within the El Niño Southern Oscillation that can temporarily raise temperatures and drive extreme weather anomalies.
  2. The Australian Bureau of Meteorology announced in April that the Pacific Ocean was cooling substantially, generally a sign El Niño is ending, and forecast models point to a neutral stage and a likely shift to La Niña between July and September.
  3. How much El Niño pushed temperatures up is not yet obvious, and if temperatures fail to drop as much as expected in the next cycle, that could signal a step change in the rate of global warming, with no consensus yet on its cause.

Related Articles:

  • Oceans Set Heat Records For More Than 365 Days In A Row — Global sea surface temperatures set daily records for 365 consecutive days, peaking at an all-time high of 21.2C, according to US National Oceanic and Atmospheric Administration and Climate Reanalyzer data. Scientists are concerned that climate change could push marine ecosystems beyond a tipping point, with seas showing no sign of returning to typical seasonal temperatures.
  • Long-term Surface Impact of Hunga Tonga-Hunga Ha’apai-like Stratospheric Water Vapor Injection — A volcanic eruption that injected large amounts of water vapor — a strong greenhouse gas — into the stratosphere is estimated to have raised surface temperatures by more than 1.5°C across large regions for several years, while cooling some areas by close to 1°C. The authors suggest a possible link to tropical Pacific sea surface temperatures that warrants further investigation.
  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.

Monday, May 20, 2024

AI Summary. A cross-country analysis of 11 economies finds wide agreement that global energy and food price increases and supply disruptions in key sectors drove pandemic-era inflation, and that their recession accounts for most of the global cooling of inflation. The authors find tight labor markets had smaller but more persistent inflationary effects, leaving wage inflation as the larger remaining factor.

Ben Bernanke and Olivier Blanchard Peterson Institute for International Economics
Date Posted:
Is Database:
Database

.@benbernanke and @ojblanchard1 find that pandemic-era inflation across ten countries was initially driven by transient price shocks, but as these effects receded, tight labor markets and wage inflation became more significant and persistent factors.

What drove pandemic-era inflation and its subsequent cooling across economies?

Core argument: In many, though not all, of the 11 economies studied, post-pandemic labor markets became quite tight, presumably reflecting strong aggregate demand together with constraints on labor supply, which contributed to wage inflation and consequently to price inflation.

This cross-country summary presents the conclusions of studies by ten central banks and our own work for the United States. Consistent with our original findings for the United States, there is wide agreement [re] global increases in energy and food prices and supply disruptions in key sectors. As of this writing (March ‘24), these shocks have receded substantially, accounting for most of the global cooling of inflation. The prominence of shocks to prices does not preclude a role for labor markets, however: Also consistent with earlier results, in many, although not all, countries, post-pandemic labor markets became quite tight, presumably reflecting strong aggregate demand together with constraints on labor supply. Tight labor markets in turn contributed to wage inflation, and consequently to price inflation. Importantly, although the inflationary effects of tight labor markets were initially much smaller than the effects of shocks to prices, they were more persistent. Thus, as the shocks to prices faded or reversed, wage inflation has become the larger factor behind the remaining price inflation, which may make further reductions in inflation more difficult to achieve

Takeaways by Macro Roundup® AI

  1. In many, though not all, of the 11 economies studied, post-pandemic labor markets became quite tight, presumably reflecting strong aggregate demand together with constraints on labor supply, which contributed to wage inflation and consequently to price inflation.
  2. The inflationary effects of tight labor markets were initially much smaller than those of price shocks but more persistent, so wage inflation has become the larger factor behind remaining price inflation, which may make further disinflation harder to achieve.
  3. Studies by ten central banks, together with the authors' work on the United States, agree that global increases in energy and food prices and supply disruptions in key sectors drove pandemic-era inflation, and their recession accounts for most of the global cooling.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • 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.
  • Money and Inflation — 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.

AI Summary. The U.S. output advantage over other advanced economies is attributed mainly to faster labor productivity growth and secondarily to hours worked per employee. Rigid foreign labor markets and job-retention policies kept workers attached to firms producing below capacity, while the U.S. saw about 3x more sectoral worker reallocation and a surge in new firm formation.

Francois de Soyres, Joaquin Garcia-Cabo Herrero, et al. Federal Reserve Board
Date Posted:

More fluid labor markets and greater business dynamism are key reasons for the stronger post-pandemic recovery in the US vs. other advanced economies. @FSoyres

Why does US output growth outpace other advanced economies?

Core argument: Sectoral reallocation of workers during the pandemic recession was three times greater in the U.S. than in the euro area, with advanced foreign economies characterized by more rigid labor markets, stricter employment protection, and higher unemployment rates.

The gap in output performance between the U.S. and advanced foreign economies (AFEs) can be traced to a divergence in labor productivity, and, to a lesser degree, the number of hours worked per employee. Many AFEs have more rigid labor markets, with more stringent employment protection as well as higher unemployment rates. During the pandemic recession, there has been three times more sectoral reallocation of workers in the U.S. than in the euro area. Policies preserving the firm-employee link in some AFEs led to adjustments along the intensive margin [hours and effort] as firms retain employees without producing goods and services up to their full potential. Hence, as aggregate demand recovers, one might see a mechanical increase in labor productivity in advanced foreign economies, as firms are able to produce more without a comparable increase in their labor force. Another aspect is the stark difference in business dynamisms. The U.S. experienced an impressive increase in new firms' formation since the second half of 2020. Together with the high increase in unemployment discussed above, this surge in firms' creation likely supported the strong rebound in U.S. aggregate activity.

Takeaways by Macro Roundup® AI

  1. Sectoral reallocation of workers during the pandemic recession was three times greater in the U.S. than in the euro area, with advanced foreign economies characterized by more rigid labor markets, stricter employment protection, and higher unemployment rates.
  2. The output performance gap between the U.S. and advanced foreign economies traces to a divergence in labor productivity and, to a lesser degree, hours worked per employee, with policies preserving the firm-employee link abroad pushing adjustment onto hours and effort.
  3. U.S. new firm formation rose since the second half of 2020, which, together with the high increase in unemployment, likely supported the strong rebound in U.S. aggregate activity.

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.
  • Has the U.S. Economy Transitioned to a Higher Long-Run Real Interest Rate Regime? — Labor productivity growth in the U.S. nonfarm business sector has exceeded its longer-run average in three of the past five years, suggesting a possible shift to a faster productivity growth regime. Such a shift is one possible explanation for a long-run neutral real interest rate above 2%.
  • Can Europe’s Economy Ever Hope To Rival the US Again? — 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.

AI Summary. The $280bn CHIPS Act seeks to expand US semiconductor manufacturing and reduce dependence on Taiwan, where TSMC produces 92% of leading-edge chips, a concentration that raises national security concerns. The authors argue success should be judged by whether the US reaches a target of 20% of advanced chip production domestically by 2030, not by job creation or plant locations.

James Pethokoukis Faster, Please!
Date Posted:

.@JimPethokoukis argues that the success of the CHIPS Act should be measured not by job creation, but by increasing the US share of global advanced chip production from 0% today to 20% by 2030.

How should success of semiconductor subsidies be measured?

Core argument: TSMC in Taiwan produces 92% of leading-edge chips, a concentration behind the national security concerns motivating the $280 billion CHIPS Act's push to expand US semiconductor manufacturing.

The $280 billion CHIPS Act aims to boost US semiconductor manufacturing and reduce reliance on TSMC in Taiwan, which produces 92% of leading-edge chips, raising national security concerns. Historical analysis shows mixed results for US industrial policy, with R&D support being the most successful. The CHIPS Act's specific industry focus and national security objectives may justify federal intervention, despite early challenges in implementation. Success will be measured by whether the US increases domestic production of advanced chips to 20% by 2030, as targeted by the Biden administration, rather than by other metrics like job creation or the location of chip facilities.

Takeaways by Macro Roundup® AI

  1. TSMC in Taiwan produces 92% of leading-edge chips, a concentration behind the national security concerns motivating the $280 billion CHIPS Act's push to expand US semiconductor manufacturing.
  2. The Biden administration's target of raising US domestic production of advanced chips to 20% by 2030 is the benchmark for judging the CHIPS Act, rather than job creation or the location of chip facilities.
  3. Historical analysis of US industrial policy shows mixed results, with R&D support the most successful form of intervention, while the CHIPS Act's specific industry focus and national security objectives may justify federal intervention despite early implementation challenges.

Related Articles:

  • The Chips Act Has Been Surprisingly Successful So Far — The US government has spent over half of its $39bn in Chips Act semiconductor incentives, and chip companies and supply chain partners have announced $327bn of investments over the next 10 years, according to Semiconductor Industry Association calculations. US data show a 15-fold increase in construction of computing and electronics manufacturing facilities.
  • Making Manufacturing Great Again — US manufacturing construction spending has more than doubled over the past year and risen as a share of gross domestic product, a surge attributed to two laws: the Inflation Reduction Act, whose core is green energy subsidies, and the CHIPS Act, which promotes domestic semiconductor production.
  • Why Laws Meant to Create Jobs Can Be So Destructive for Our Cities — State audits and independent evaluations of corporate tax incentive programs have found poor targeting, weak oversight, and excessive costs that harmed rather than benefited local governments. Examples include $5.5bn in New York tax credits for a Micron facility and up to $1.75bn in Michigan incentives for a Ford electric vehicle plant.

AI Summary. Publicly traded companies represent a small share of US economic activity: 87% of firms with revenues above $100m are private, privately owned firms account for nearly 80% of job openings, and S&P 500 companies provide 18% of US employment and 15% of capital spending.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes that publicly traded firms are a small part of the American economy. Workers employed by S&P 500 firms constitute 18% of total US employment though their profits make up half of economy-wide corporate profits.

How much of the US economy do public companies represent?

Core argument: 87% of US firms with revenues above $100 million are private, and privately owned firms account for almost 80% of job openings.

Most of the time in financial markets is spent on discussing Apple, Tesla, and Coca-Cola, but these firms and the rest of the S&P 500 companies only make up a very small part of the US economy. 87% of firms with revenues greater than $100 million are private. Privately owned firms account for almost 80% of job openings. Employment in S&P 500 companies is 18% of total US employment. Employment in firms with more than 500 employees is 23.8 million, and total US employment is 158 million. Less than half of all corporate debt outstanding is from S&P 500 companies. S&P 500 profits make up half of economy-wide corporate profits. Capex by S&P 500 companies is 15% of total capex in the US economy. Bottom line: Public markets are a small part of the overall economy.

Takeaways by Macro Roundup® AI

  1. 87% of US firms with revenues above $100 million are private, and privately owned firms account for almost 80% of job openings.
  2. Employment at S&P 500 companies is 18% of total US employment, and firms with more than 500 employees account for 23.8 million jobs out of 158 million total US employment.
  3. S&P 500 companies account for half of economy-wide corporate profits, 15% of total US capital expenditure, and less than half of corporate debt outstanding.

Related Articles:

  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Chinese firms bought the largest amount of foreign exchange from banks since 2016, while exporters held back dollar conversion and residents bought foreign currencies for overseas travel. Chinese banks sent a record net $29.5bn overseas for clients' direct investment, which one analysis attributes partly to higher US interest rates rather than waning foreign interest in China.

Bloomberg Staff Bloomberg
Date Posted:

Chinese banks wired a net $29.5B of funds overseas on behalf of clients for direct investment, a record high. @gdp1985 speculates that outflows may be “more a reflection of higher interest rates in the US than of foreign firms losing interest in China.”

Are China's capital outflows driven by higher US interest rates?

Core argument: Chinese banks wired a net $29.5 billion overseas on behalf of clients for direct investment in April, a record high for a measure that captures both foreign investment into China and Chinese outbound investment.

China’s capital outflows worsened in April. Local firms purchased the largest amount of foreign exchange from banks since 2016 in April, while exporters held back dollar conversion and residents snapped up foreign currencies for overseas travel. Chinese banks wired a net $29.5 billion worth of funds overseas on behalf of clients for direct investment, which was a record high. This measure includes both foreign investment into China and China’s outbound investment overseas. The collapse in China’s foreign direct investment inflows may be more a reflection of comparatively higher interest rates in the US than of foreign firms losing interest in China, Bloomberg analyst Gerard DiPippo wrote in a note last week as non-resident firms — including Chinese firms with Hong Kong offices — may have moved their cash offshore to benefit from higher yields.

Takeaways by Macro Roundup® AI

  1. Chinese banks wired a net $29.5 billion overseas on behalf of clients for direct investment in April, a record high for a measure that captures both foreign investment into China and Chinese outbound investment.
  2. Chinese firms bought the largest amount of foreign exchange from banks since 2016 in April, while exporters held back dollar conversion and residents bought foreign currencies for overseas travel.
  3. Bloomberg analyst Gerard DiPippo wrote that the collapse in China's foreign direct investment inflows may reflect comparatively higher US interest rates rather than foreign firms losing interest in China, as non-resident firms may have moved cash offshore for higher yields.

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