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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, May 24, 2024

AI Summary. Researchers disproportionately cite work from their own country, and measured against a benchmark that distributes world citations by the size of citing and cited countries, every country studied shows some home bias. The authors estimate China is a clear outlier at 42.3%, followed by Iran and India at 23.2% each and the US at 15.9%.

Shumin Qiu, Claudia Steinwender and Pierre Azoulay National Bureau of Economic Research
Date Posted:
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Chinese scientific research shows a strong “home bias” where researchers disproportionately cite work from their own country. An adjusted citation ranking places China fourth globally, behind the US, the UK, and Germany. @ClaudiaSteinwen @pierre_azoulay

Do citation counts overstate Chinese science because researchers favor home-country work?

Core argument: China shows a home bias in scientific citations of 42.3%, a clear outlier above the next-highest countries, Iran and India, each at 23.2%.

We investigate the phenomenon of home bias in scientific citations, where researchers disproportionately cite work from their own country. We measure home bias as deviations from a benchmark model, which we base on a “dartboard approach” by asking: How many citations would we expect country i to receive from country j, if world citations were distributed only according to the size of the citing and cited countries? The benchmark citation flows distribute world citations according to the total share of citations the cited country i received from the world, and the share of the size of the potential citing country j based on its world publication share. We now define home bias of a country i as the deviation of its actual citation shares from the benchmark citation share. In Figure 2 we calculate the home bias across countries implied by [this method]. All countries in our sample exhibit home bias to some extent. However, China is a clear outlier with a home bias of 42.3%, followed by Iran (23.2%), and India (23.2%). The home bias of the US is on the larger side of the remaining countries, at 15.9%.

Takeaways by Macro Roundup® AI

  1. China shows a home bias in scientific citations of 42.3%, a clear outlier above the next-highest countries, Iran and India, each at 23.2%.
  2. The authors measure home bias as the deviation of a country's actual citation shares from a "dartboard" benchmark that allocates world citations by the cited country's share of world citations and the citing country's share of world publications.
  3. Every country in the sample exhibits some home bias, with the United States at 15.9%, on the larger side of the remaining countries.

Related Articles:

  • Creating and Connecting US and China Science: Chinese Diaspora and Returnee Researchers — The authors estimate that China-born researchers working in the US contributed to 27% of US-addressed scientific papers, while China-born researchers with US experience who returned home contributed to 38% of China-addressed papers. Papers with these authors averaged more citations and appeared more often in high-impact journals than other papers.
  • The U.S. Is Turning Away From Its Biggest Scientific Partner at a Precarious Time — More than 40% of high-quality U.S. scientific papers involve collaboration with researchers abroad, and China and the U.S. are each other's largest research partners, with their joint work consistently among the most-cited across fields. In some strategic areas, analysis of publication data finds the U.S. depends on China more than China depends on the U.S.
  • Something Is Getting Harder But It’s Not Finding Ideas — The number of researchers in the US economy has grown to 23x its 1930 level while the economy's growth rate has been constant or declining, contradicting the assumption that constant research input yields a constant growth rate. Bloom et al. explain this divergence by assuming ideas get harder to find as more are discovered.

AI Summary. European Union births have fallen to levels Eurostat had not projected for another two decades, suggesting the population may peak before the forecast date of 2026 at 453mm. The EU's working-age population aged 20-64, which supplies most tax revenue, has fallen from a 2011 peak of 270mm to about 261mm.

Valentina Romei, Eleni Varvitsioti and Arjun Neil Alim Financial Times
Date Posted:

The EU’s working-age (20-64) share of the population peaked at 61.4% in 2008 and has now dropped to 58%. Europe is the only continent with falling working-age populations.

Are Europe's births falling faster than official projections assumed?

Core argument: The EU's working-age population aged 20–64, which contributes the bulk of tax revenues, shrank from a peak of 270mm in 2011 to an estimated 261mm this year, according to UN data, falling from 61.4% of the total population in 2008 to 58%.

The EU population rose in the year to January 2023, helped by an influx of displaced persons from Ukraine, after a temporary two-year dip that reflected the impact of the pandemic. Last year, Eurostat forecast that the population would peak at 453mm in 2026. But the 2023 numbers came in below expectations as EU births fell to levels Eurostat had not forecast for another two decades, suggesting the peak may come before 2026. The EU’s working-age population, those aged 20-64, who contribute the bulk of tax revenues, shrank from a peak of 270mm in 2011 to an estimated 261mm this year, according to UN data. Relative to total population, the EU working-age group peaked at 61.4% in 2008 and has now dropped to 58%. The EU fertility rate dropped to 1.46 in 2022, with the figure as low as 1.16 in Spain, 1.24 in Italy, and 1.29 in Poland. It fell below the replacement level of 2.1, at which the population is stable without immigration, in the early 1970s.

Takeaways by Macro Roundup® AI

  1. The EU's working-age population aged 20–64, which contributes the bulk of tax revenues, shrank from a peak of 270mm in 2011 to an estimated 261mm this year, according to UN data, falling from 61.4% of the total population in 2008 to 58%.
  2. EU births fell to levels Eurostat had not forecast for another two decades, suggesting the population peak may come before the 453mm in 2026 that Eurostat projected last year.
  3. The EU fertility rate fell to 1.46 in 2022 — 1.16 in Spain, 1.24 in Italy and 1.29 in Poland — having dropped below the 2.1 replacement level in the early 1970s.

Related Articles:

  • Can the Rich World Escape Its Baby Crisis? — Falling fertility in rich countries is driven by younger women having fewer children, with more than half the drop in the US total fertility rate explained by women under 19 now having almost no children, while women aged 30 and above are having more. College-educated American women at 24 still want about 2.2 children, roughly as many as earlier generations.
  • 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.
  • Suddenly There Aren’t Enough Babies. The Whole World Is Alarmed — 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.

AI Summary. Under the combined new-Keynesian and fiscal theory of the price level view, inflation is stable, determinate, and long-run neutral with respect to an interest rate target, much like a money growth target. The author argues this implies that a perpetually higher interest rate peg eventually produces correspondingly higher inflation, even if the short run moves the other way.

John Cochrane The Grumpy Economist
Date Posted:

.@JohnHCochrane argues that recent events support the fiscal theory, which implies that high interest rates ultimately raise, not lower, inflation.

.@JohnHCochrane argues that recent events support the fiscal theory, which implies that high interest rates ultimately...

Does a permanently higher interest rate peg eventually raise inflation?

Core argument: Under the new-Keynesian plus fiscal theory of the price level view, an interest rate target makes inflation stable, determinate, and long-run neutral, with inflation eventually settling at the nominal rate plus the real rate, much as it settles down to money growth under a money growth target.

The zero bound, QE, and the post-covid inflation amount to dramatic experiments, about as clean as you can ask for in economics, to distinguish our main theories of inflation. With the new-Keynesian + FTPL view, inflation is stable, determinate, and long-run neutral under an interest rate target. It works much like a money growth target: inflation eventually settles down to the nominal rate plus real rate, as it settles down to money growth. That prediction seems natural, but has a very uncomfortable implication that I have been wrestling with for years. If at zero rates inflation just bats around zero +/- a small real rate, then inescapably if the central bank raises the peg to 2% interest rate, inflation would eventually rise by two percentage points. It might go the other way in the short run, and the short run might last a long time, but the proposition that a perpetually higher rate means perpetually higher inflation, eventually, just flows from stability and (even approximate) neutrality.

Takeaways by Macro Roundup® AI

  1. Under the new-Keynesian plus fiscal theory of the price level view, an interest rate target makes inflation stable, determinate, and long-run neutral, with inflation eventually settling at the nominal rate plus the real rate, much as it settles down to money growth under a money growth target.
  2. John Cochrane argues that if inflation hovers around zero at zero interest rates, a central bank raising its peg to a 2% interest rate would eventually see inflation rise by two percentage points, even if the short-run response goes the other way and lasts a long time.
  3. The zero bound, quantitative easing, and post-covid inflation constitute dramatic experiments, about as clean as economics allows, for distinguishing among the main theories of inflation.

Related Articles:

  • Fiscal Tidbits, Part 1 — Scaling US deficits by federal debt held by the public shows deficits of a size comparable to those that preceded past inflations, though large deficits have not always been followed by inflation. Fiscal theory holds that only the portion of a deficit people do not expect to be repaid, through future surpluses or lower interest costs, is inflationary.
  • Fiscal Tidbits, Part 2 — The author argues that a shock to relative prices can only raise the overall price level if monetary or fiscal policy provides the demand to accommodate it. On this reading, inflation following supply shocks — as in the conventional account of 1970s oil shocks — is attributable to the expansionary policy response rather than the shock itself.
  • Fiscal Narratives for US Inflation — Fiscal theory attributes the deflation of the deep recession to a fall in real interest rates that lowered real interest costs on government debt, an effect that outweighed large deficits. The predicted deflation spiral and the hyperinflation forecast from quantitative easing both failed to materialize.

AI Summary. Texas has deployed 23.6GW of utility-scale solar versus California's 21.2GW, up from just over 2GW against California's 13GW five years earlier. Its grid operator uses a "connect and manage" model that assesses only essential local connection requirements, and new power generation comes online in about half the time as elsewhere in the US.

John Burn-Murdoch Financial Times
Date Posted:

Texas’ solar energy capacity hit 23.6GW in May, up from 2GW in 2019, and ahead of California’s 21.2GW. A key reason for this growth is a grid access model that takes about half as long to come online as elsewhere in the US. @jburnmurdoch

How did faster grid connection rules make Texas the solar leader?

Core argument: Texas has deployed 23.6GW of utility-scale solar versus California's 21.2GW, reversing a 2019 gap in which Texas had just over 2GW to California's 13GW.

When the latest batch of solar plants comes online, Texas will have added more solar capacity per capita in a single year than any US state and any country in the world. As recently as five years ago this would have been unthinkable. In 2019, Texas had just over 2GW of large-scale solar plants to California’s 13GW. As of this month it has deployed 23.6GW of utility-scale solar to California’s 21.2GW. The ease of building and connecting new renewable projects in Texas relative to elsewhere has been one of the key reasons for the state’s clean energy boom. Its electricity grid operator uses a “connect and manage” model. This assesses new projects based on the essential local requirements needed to connect to the grid instead of carrying out protracted studies into the broader potential ramifications. The result is that new power generation takes about half as long to come online in Texas as elsewhere. The US Federal Energy Regulatory Commission is now looking to follow a similar approach in order to speed up the transition nationwide.

Takeaways by Macro Roundup® AI

  1. Texas has deployed 23.6GW of utility-scale solar versus California's 21.2GW, reversing a 2019 gap in which Texas had just over 2GW to California's 13GW.
  2. When the latest batch of solar plants comes online, Texas will have added more solar capacity per capita in a single year than any US state or any country in the world.
  3. The Texas grid operator's "connect and manage" model assesses projects on essential local connection requirements rather than protracted broader studies, bringing new generation online in about half the time as elsewhere, an approach the Federal Energy Regulatory Commission is looking to follow.

Related Articles:

  • Republican Districts Dominate US Clean Technology Investment Boom — A Financial Times analysis found that more than 80% of pledged investment in large-scale clean energy and semiconductor manufacturing is destined for Republican congressional districts. The analysis attributes this partly to those districts' available land and cheap labor, and to state-level tax breaks and subsidies in states such as Georgia and Ohio.
  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.

AI Summary. Polling shows Trump's narrow national lead is built on gains among voters who pay little attention to politics, don't follow traditional news, and don't vote regularly, while Biden leads among those who voted in the prior presidential election. Almost all of Trump's gains have come from these less engaged voters.

Nate Cohn New York Times
Date Posted:

Based on the latest Times/Siena survey, Trump’s consistent polling advantage depends on people who did not vote in 2020. Biden leads among 2020 voters. @Nate_Cohn.

Is a polling lead built on disengaged voters reliable?

Core argument: Polls have shown Donald Trump with an edge for eight straight months, a narrow lead built on gains among voters who pay little attention to politics, don't follow traditional news, and don't vote regularly.

The polls have shown Trump with an edge for eight straight months. His narrow lead is built on gains among voters who aren’t paying close attention to politics, who don’t follow traditional news, and who don’t regularly vote. To an extent that hasn’t been true in New York Times/Siena College polling in the last eight years, disengaged voters are driving the overall polling results and the story line about the election. President Biden has actually led the last three Times/Siena national polls among those who voted in the 2020 election, even as he has trailed among registered voters overall. And looking back over the last few years, almost all of Mr. Trump’s gains have come from these less engaged voters.

Takeaways by Macro Roundup® AI

  1. Polls have shown Donald Trump with an edge for eight straight months, a narrow lead built on gains among voters who pay little attention to politics, don't follow traditional news, and don't vote regularly.
  2. President Biden has led the last three New York Times/Siena College national polls among those who voted in the 2020 election, even as he trailed among registered voters overall.
  3. Disengaged voters are driving the overall New York Times/Siena polling results and the election story line to an extent not seen in that polling over the last eight years, with almost all of Trump's gains coming from these less engaged voters.

Related Articles:

  • Trump Leads in 5 Key States, as Young and Nonwhite Voters Express Discontent With Biden — Polling of registered voters showed Trump ahead of Biden in five of six battleground states — Michigan, Arizona, Nevada, Georgia and Pennsylvania — with Biden leading only in Wisconsin. Trump and Biden were essentially tied among voters aged 18-29 and Hispanic voters, groups that each gave Biden over 60% of their vote in 2020.
  • American Politics Is Undergoing A Racial Realignment — National election surveys and Gallup polling show the Democratic Party's advantage among Black, Latino, and Asian voters at its lowest level since 1960. The article argues this shift reflects fading civil rights-era ties, a weakening link between income and party choice, and non-white voters with long-held conservative views aligning their votes with those views.
  • The Deepening Diploma Divide — Recent polling averages show the Democratic presidential candidate winning white college-educated voters by 18 points and losing white voters without college degrees by 27 points, a 45-point education gap. Earlier decades saw the two groups vote much more similarly, with one election producing a divide of just two points.

Tuesday, May 28, 2024

AI Summary. Using U.S. tax and transfer data, the authors estimate that the degree to which market income gains and losses are offset by taxes and transfers rises with income rank, peaks at the middle quintile, and then falls. They also find systematic spillovers to quintiles that neither gained nor lost, favoring the middle quintile.

Michael Boskin, Kareem Elnahal, and Adam Zhang National Bureau of Economic Research
Date Posted:
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Using CPS data from 1991-2013, Boskin, Elnahal, and Zhang find that redistribution policy attenuates market income shifts most strongly at the middle-income quintile, consistent with the median voter theory.

How much do taxes and transfers offset income shifts by rank?

Core argument: Using CPS data on U.S. state and federal taxes and transfers over 1991–2013, the authors estimate that attenuation of market income shifts rises with quintile rank, peaks at the middle quintile, and then falls for higher quintiles, consistent with median voter political economy theory.

Using CPS data on U.S. state and federal taxes and transfers over 1991-2013, we estimate a regression model that yields the marginal effect of any shift of market income share from one quintile to another on the entire post-tax, post-transfer income distribution. We identify exogenous income distribution changes [via] instruments based on exposure to international trade and commodity price shocks, and national industry demand shocks [the GMM results]. Attenuation denotes the degree to which initial (market) gains and losses are ultimately compensated. Attenuation can be achieved in two ways: by spreading gains and losses to other quintiles (spillovers), or by reversing/blunting the original shift in the market income distribution (cancellation). We find the degree of attenuation of market income shifts initially increases in quintile rank, peaks at the middle quintile, and then falls for higher income quintiles, consistent with median voter political economy theory (Figure 4). We also provide evidence of considerable and systematic spillover effects on quintiles neither gaining nor losing in the “experiments,” also favoring the middle quintile, what we label the greedy median voter.

Takeaways by Macro Roundup® AI

  1. Using CPS data on U.S. state and federal taxes and transfers over 1991–2013, the authors estimate that attenuation of market income shifts rises with quintile rank, peaks at the middle quintile, and then falls for higher quintiles, consistent with median voter political economy theory.
  2. The authors identify exogenous income distribution changes using instruments based on exposure to international trade and commodity price shocks and national industry demand shocks, estimating via GMM the marginal effect of shifting market income share between quintiles on the full post-tax, post-transfer distribution.
  3. The authors report considerable and systematic spillover effects on quintiles that neither gain nor lose in the experiments, with those spillovers also favoring the middle quintile, which the authors label the "greedy median voter.".

Related Articles:

AI Summary. The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.

Daniel Crown and Aaron Betz Congressional Budget Office
Date Posted:
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A new @USCBO analysis argues rising government debt may drive significant crowding out going forward: “In CBO’s assessment, every additional dollar of deficit-financed spending reduces private investment by 33 cents.”

How much would greater investment sensitivity to deficits reduce incomes?

Core argument: CBO assesses that under greater sensitivity of private investment to deficits — with debt held by the public exceeding 250% of GDP beginning in 2051 — real GNP per person in 2051 would be 18% ($21,300) lower than in its extended baseline.

Under the [“If sensitivity of private investment to deficits differed: Greater sensitivity”] scenario, in which debt held by the public exceeds 250% of GDP beginning in 2051, private investment would be smaller than projected in CBO’s extended baseline. The reduction in private investment would, over time, lower the stock of private capital and reduce output. Lower economic output would reduce federal revenues and lead to even larger deficits as the effect on private investment compounded. Reductions in private investment would also decrease the amount of capital used by each worker, thereby increasing the return on capital and the return on investments (including government bonds). In CBO’s assessment, that greater sensitivity of private investment to deficits would increase the average interest rate on federal debt in 2051 by 2pp in relation to the agency’s extended baseline. Real GNP per person would be 18% (or $21,300) lower in that year than it is in CBO’s extended baseline. Under the second scenario, private investment would be larger than projected in CBO’s extended baseline. The increase in private investment would, over time, boost the stock of private capital and output. It would also increase the amount of capital used by each worker, thereby reducing the return on capital and the return on investments (including government bonds). In CBO’s assessment, the reduced sensitivity of private investment to deficits would lower the average interest rate on federal debt by 0.7pp in 2054 in relation to the agency’s extended baseline. Real GNP per person under that scenario would be 7% (or $8,700) higher in that year than it is in CBO’s extended baseline.

Takeaways by Macro Roundup® AI

  1. CBO assesses that under greater sensitivity of private investment to deficits — with debt held by the public exceeding 250% of GDP beginning in 2051 — real GNP per person in 2051 would be 18% ($21,300) lower than in its extended baseline.
  2. CBO assesses that greater sensitivity of private investment to deficits would raise the average interest rate on federal debt in 2051 by 2 percentage points relative to its extended baseline, as less capital per worker increases returns on capital and government bonds.
  3. Under CBO's reduced-sensitivity scenario, larger private investment would lower the average interest rate on federal debt by 0.7 percentage points in 2054 and leave real GNP per person 7% ($8,700) higher than in the extended baseline.

Related Articles:

  • The Budget and Economic Outlook: 2024 to 2034 — The Congressional Budget Office projects the federal budget deficit will grow from $1.6tn to $2.6tn over a decade, rising from 5.6% to 6.1% of gross domestic product. That end-point is well above the 3.7% average of the past 50 years, as outlays are projected to rise faster than revenues over most of the period.
  • Why We Should, but Won’t, Reduce the Budget Deficit — High interest rates will likely crowd out private investment and weaken long-term growth prospects. Because Social Security, health care, other safety-net programs, defense, and interest payments make up most federal spending, leaving only a small and already squeezed slice of nondefense discretionary spending, deficit reduction requires either cutting popular benefits or raising taxes.
  • Recent Movements in R*: The Most Important Interest Rate That You Have Never Heard Of — The natural rate of interest — the inflation-adjusted rate prevailing when the economy grows at trend with inflation at target — is unobservable and uncertain, but most estimates have risen and sit above pre-pandemic levels. The data lean toward a long-run natural rate higher than pre-pandemic and possibly above Federal Reserve projections.

AI Summary. Chinese wages are low even after adjusting for productivity differences with American workers, and it is these relatively low wages rather than comparative advantage that explain China's weak domestic demand and low export prices. If wages rose in line with productivity, Chinese households could consume more and the country would import as much as it exports.

Michael Pettis Financial Times
Date Posted:

.@michaelxpettis argues that persistent trade imbalances are caused by surplus countries’ suppression of domestic wages, not comparative advantage. “Excess savings and persistent trade surpluses are not signs of comparative advantage.”

Do low wages rather than comparative advantage explain persistent trade surpluses?

Core argument: Chinese wages remain low even after adjusting for the productivity gap between Chinese and American workers, and these relatively low wages, rather than comparative advantage, are argued to explain China's weak domestic demand and low export prices across the board.

Chinese workers are much less productive than American workers, so it’s to be expected that they earn lower wages. The problem is that even adjusting for differences in productivity, Chinese wages are low. It is these relatively low wages — not comparative advantage — that explain China’s weak domestic demand as well as its low export prices across the board. This would change if China were to raise its wages in line with its productivity, as it has been promising to do for nearly two decades. In that case, it would still export products in which it had a comparative advantage, like electric vehicles, but because Chinese households would be able to consume more, it would import just as much as it exported, and so would contribute as much demand to the world economy as it absorbs. Americans would pay for their Chinese imports with exports to the world. This isn’t what is happening. China exports far more than its population can afford to import. And so while most economists support free trade under comparative advantage because this maximises the value of goods and services produced by the economy, excess savings and persistent trade surpluses are not signs of comparative advantage.

Takeaways by Macro Roundup® AI

  1. Chinese wages remain low even after adjusting for the productivity gap between Chinese and American workers, and these relatively low wages, rather than comparative advantage, are argued to explain China's weak domestic demand and low export prices across the board.
  2. If China raised wages in line with productivity, as it has promised for nearly two decades, its households would consume more and it would import as much as it exported, contributing as much demand to the world economy as it absorbs.
  3. China exports far more than its population can afford to import, and excess savings and persistent trade surpluses are argued to be signs not of the comparative advantage that underpins most economists' support for free trade.

Related Articles:

  • 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.
  • 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.
  • He Helped Trump Remake Global Trade. His Work Isn’t Done — 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.

AI Summary. Household data show that older Americans have shifted from spending more than their income to saving: in the mid-1990s those aged 65-74 spent 10% more than they took in, while since 2015 they have saved about 1% of income. Federal Reserve survey data show the share of retired households reporting saving rose from 46% to 51%.

Economist Staff The Economist
Date Posted:

“Baby Boomers” in the United States have 52% of net wealth, and the “life-cycle hypothesis” predicts that they should be eating into their wealth to fund current spending. However, in 2022 51% of retired households reported net savings. @TheEconomist

Are older Americans saving rather than spending down their wealth?

Core argument: Americans aged 65–74 spent 10% more than their income in the mid-1990s, drawing down wealth, but since 2015 have saved about 1% of their income.

We have looked at household data from a range of rich countries. Turn first to America. In the recent past old people behaved like old people behave in economic models. In the mid-1990s, those aged between 65 and 74 spent 10% more than they took in, eating into their wealth. But since 2015 people this age have saved about 1% of their income. Boomers are also likelier than previous generations to say they save, suggests a survey by the Federal Reserve. In 1995, 46% of retired households claimed to have saved in the past year. By 2022, 51% of retired households did. There could be deeper forces at play, making boomers reluctant to spend what they have earned, and in turn, pressing down on interest rates and inflation. Three factors stand out: “bequest motives,” the Covid-19 pandemic, and worries about care.

Takeaways by Macro Roundup® AI

  1. Americans aged 65–74 spent 10% more than their income in the mid-1990s, drawing down wealth, but since 2015 have saved about 1% of their income.
  2. A Federal Reserve survey suggests 51% of retired American households claimed to have saved in the past year in 2022, up from 46% in 1995.
  3. Three factors stand out as possible explanations for boomers' reluctance to spend their wealth, which may press down on interest rates and inflation: bequest motives, the Covid-19 pandemic and worries about care.

Related Articles:

  • Generation Z Is Unprecedentedly Rich — Hourly pay growth for Americans aged 16–24 reached 13% year on year versus 6% for those aged 25–54, the largest such gap since reliable data began. Americans aged 15–24 spent 25% less time on work and work-related activities than in 2007, and the share of 12th-graders calling work a central part of life has dropped sharply.
  • The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners — Total US family wealth rose from about $38tn in 1989 to $140tn in 2022, adjusted for inflation, and $84tn is projected to pass from older Americans to millennial and Gen X heirs through 2045. Households holding at least $5m in liquid assets, 1.5% of all households, account for 42% of expected transfers.
  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.

AI Summary. Central banks facing economic uncertainty are likely to set interest-rate policy in ways that make renewed inflation more likely than a deep recession or financial crisis. This inflationary bias is well known to economists but is not priced in by financial markets, and political pressure makes it harder for central bankers to resist.

Ken Rogoff Project Syndicate
Date Posted:

.@krogoff argues “The COVID-19 pandemic has revived central bankers’ long-dormant preference for inflationary policies,” favoring policy that makes inflation a more likely outcome than a recession or a financial crisis.

Do central banks tilt toward inflation rather than recession under uncertainty?

Core argument: Central banks facing economic uncertainty will likely set interest-rate policy in ways that make renewed inflation more likely than a deep recession or financial crisis, even if they do not aim for high inflation.

To be sure, inflationary surges do not happen every year. But another bout of inflation could occur sooner than markets expect. When faced with economic uncertainties, central banks may not aim for high inflation, but they will likely adjust their interest-rate policies in a way that makes such an outcome more likely than a deep recession or a financial crisis. Despite being well-known to economists, this inflationary bias has not been recognized by financial markets, perhaps because central-bank messaging has become exceptionally effective over the past few decades. Central bankers understand that as soon as markets doubt their intentions, interest rates will quickly reflect rising inflation expectations. Nevertheless, this realization is unlikely to help them resist pressures from politicians, who often focus only on the next election and may prioritize other issues over stabilizing short-term inflation.

Takeaways by Macro Roundup® AI

  1. Central banks facing economic uncertainty will likely set interest-rate policy in ways that make renewed inflation more likely than a deep recession or financial crisis, even if they do not aim for high inflation.
  2. This inflationary bias, though well-known to economists, has not been recognized by financial markets, perhaps because central-bank messaging has become exceptionally effective over recent decades.
  3. Central bankers know that interest rates will quickly reflect rising inflation expectations once markets doubt their intentions, yet that awareness is unlikely to help them resist pressure from politicians focused on the next election.

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  • 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.
  • The Inflation Outlook Is Getting Better, But Also Worse? — Producer price measures of input costs for manufactured goods have turned positive again, in some cases rising at the fastest rate in more than a year, and this is filtering through to core final demand. US domestic manufacturing production has been flat or slightly down since 2013 despite strong growth in domestic demand for manufactured goods.

AI Summary. American multinationals' spending on research and development in India rose from $1.7bn in 2010 to $5.5bn in 2021, according to the US Bureau of Economic Analysis. India's services exports reached $338bn, nearly 10% of GDP, up from $53bn in 2005, lifting its share of global services exports to 4.6% from roughly 2%.

Economist Staff The Economist
Date Posted:

Between 2010 and 2021 US R&D spending in India increased 224% to $5.5B. “Growing geopolitical tension with the West means that China, India’s principal rival hub for low-cost R&D, has lost some of its appeal.” @TheEconomist

Is India becoming a global hub for corporate research and services exports?

Core argument: American multinationals' R&D spending in India rose from $1.7bn in 2010 to $5.5bn in 2021, the latest year available, according to America's Bureau of Economic Analysis.

In 2010 American multinationals spent $1.7bn on R&D activities in India, according to America’s Bureau of Economic Analysis. By 2021, the latest year available, that figure had surged to $5.5bn. Growing geopolitical tension with the West means that China, India’s principal rival hub for low-cost R&D, has lost some of its appeal. On May 16th it was reported that Microsoft had asked hundreds of employees working on advanced technologies such as machine learning and cloud computing in the country to relocate. All this has helped turbocharge India’s services exports, which hit $338bn last year, or nearly 10% of GDP, up from $53bn in 2005, reckons Goldman Sachs. The country now accounts for 4.6% of global services exports, up from roughly 2% in 2005. India’s goods exports, by contrast, account for just 1.8% of the global total, up from 1% in 2005.

Takeaways by Macro Roundup® AI

  1. American multinationals' R&D spending in India rose from $1.7bn in 2010 to $5.5bn in 2021, the latest year available, according to America's Bureau of Economic Analysis.
  2. India's services exports reached $338bn last year, nearly 10% of GDP, up from $53bn in 2005, and its share of global services exports rose to 4.6% from roughly 2%, reckons Goldman Sachs.
  3. India's goods exports account for 1.8% of the global total, up from 1% in 2005, below its 4.6% share of global services exports.

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