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


Tuesday, June 11, 2024

AI Summary. A stochastic simulation of 187 large US state and local government defined benefit pension plans finds that if investment returns are poor but within historical experience, about 11% of plans would see very large drops in funded status and several would approach insolvency. Employer contributions would on average double, and triple for roughly one in seven plans.

Mark Warshawsky American Enterprise Institute
Date Posted:
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Mark Warshawsky simulates the performance of government pensions based on the past ten-year history of bond and stock returns. At the 25th percentile of historical returns, few plans are fully funded, and many are below 50% funding. @AEIecon

How would poor investment returns affect public pension funding and contributions?

Core argument: A stochastic simulation of 187 large state and local pension plans finds that under poor but historically plausible investment returns, about 11% of plans would see very large drops in funded status and several would be at or near insolvency.

Most state and local governments provide defined benefit (DB) pension retirement plans to their employees. A traditional measure of the funded status and hence the security of a pension plan is its funded ratio, that is, the ratio of assets to liability. Using a 2022 database of 187 large pension plans, basic plan features and conditions, actuarial relationships, simple economic projections, and varied bond and stock investment returns based on past ten-year historical periods in the US and the current asset allocation of the plans, I create a risk model. This risk assessment is denominated as the range of reasonably possible future actuarial funded ratios and amounts of indicated employer contributions across plans, when investment performance is poor but within historical experience. Several plans would be at or near insolvency, about 11 percent of plans would see very large drops in funded status, while employer contributions would, on average, double, and for about one in seven plans, triple. At the 25th percentile, shown in Exhibit 5, the modal projected funded ratio is around 75%, the liability-weighted mean is 72%, few plans are fully funded, and a substantial segment is below 50% funding, with a few showing severely worsening funded ratios.

Takeaways by Macro Roundup® AI

  1. A stochastic simulation of 187 large state and local pension plans finds that under poor but historically plausible investment returns, about 11% of plans would see very large drops in funded status and several would be at or near insolvency.
  2. Under poor investment performance within historical experience, employer contributions to state and local pension plans would double on average, and triple for about one in seven plans.
  3. At the 25th percentile of simulated outcomes, the modal projected funded ratio is around 75% and the liability-weighted mean is 72%, with few plans fully funded and a substantial segment below 50%.

Related Articles:

  • Flanked by Union Allies, Biden Touts $36 Billion Pension Bailout — The U.S. government allocated $36bn to the Central States Pension Fund, one of the country's largest multi-employer plans, aiding 350,000 union workers and retirees who otherwise faced benefit cuts estimated at 60%.
  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — 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.
  • 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.

AI Summary. A review of existing research finds no reduction in employment within broadly defined demographic groups from the 2021 expansion of the Child Tax Credit, which raised benefits to families and especially the lowest-income families. The authors estimate that among unmarried mothers with low levels of education, the group most affected, employment fell by 4.5 percentage points during the advance payments.

Diane Whitmore Schanzenbach and Michael Strain National Bureau of Economic Research
Date Posted:
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The 2021 Child Tax Credit (CTC) expansion increased government benefits to low-income families but reduced employment only among mothers with relatively low levels of education. @dwschanz @MichaelRStrain

Does expanding the child tax credit reduce employment among low-income mothers?

Core argument: Among unmarried women with some college or less, the authors estimate a statistically significant 4.5 percentage-point reduction in employment during the advance Child Tax Credit payments.

The American Rescue Plan Act of 2021 made several temporary changes to the Child Tax Credit (CTC). The 2021 Child Tax Credit (CTC) expansion increased government benefits to families, and especially to families with the lowest incomes. Our review of available [pre-existing] research suggests that employment within broadly defined demographic groups was not reduced by the 2021 CTC changes. However, we present evidence that employment was reduced among mothers with relatively low levels of education — the demographic group that was most affected by the CTC expansion. Table 1, column 3 [shows] the analysis for a sample of women with low levels of education, who are more likely to have incomes in the ranges impacted by the changes in incentives described above. Among women with some college or less, the estimated treatment effects are both independently and jointly small and negative and not statistically significant. Column 4 further restricts the sample to women with low levels of education who are also unmarried. The treatment effect is negative and statistically significant and implies a 4.5 percentage-point reduction in employment during the advance CTC payments. We interpret these new findings as additional evidence that there is little to no detectable short-term negative impact of the advance CTC payments on employment broadly defined in August to December 2021. At the same time, among the demographic groups most likely to be affected by the advance CTC, we do see some evidence of employment reductions

Takeaways by Macro Roundup® AI

  1. Among unmarried women with some college or less, the authors estimate a statistically significant 4.5 percentage-point reduction in employment during the advance Child Tax Credit payments.
  2. For the broader sample of women with some college or less, the estimated treatment effects of the 2021 Child Tax Credit expansion are small, negative, and not statistically significant.
  3. The authors' review of existing research suggests employment within broadly defined demographic groups was not reduced by the 2021 Child Tax Credit changes, which increased benefits to families and especially to those with the lowest incomes.

Related Articles:

  • Per-Child Benefit in Wyden-Smith Child Tax Credit Bill Would Discourage Full-Time Work for Families with Multiple Children — A proposed child tax credit expansion would raise the effective tax rate on a parent with multiple children moving from part-time to full-time work from 69% to 83%, so doubling earnings from $20,000 to $40,000 would raise total income by only $3,400. The author argues such work disincentives could stunt upward mobility.
  • The Child Tax Credit Is a Failed Experiment — The Tax Policy Center estimates about 74m tax filers—48.3% of all filers—had no income tax liability in 2021. Congress's Joint Committee on Taxation models project that expanding the child tax credit would reduce labor supply by 0.2% and capital by 0.4% over a decade, shrinking gross domestic product by 0.2%.
  • The Short-Term Labor Supply Response to the Expanded Child Tax Credit — Comparing families that qualified for smaller and larger Child Tax Credit payments, the authors detect no significant differences in labor force participation or hours worked. Their confidence intervals rule out a 0.3 percentage point participation decline from a 10 percentile increase in the credit relative to income.

AI Summary. US productivity gains are attributed to mass layoffs followed by a rapid rebound: consumption and employment shifted away from low-pay, low-productivity in-person services, and when demand returned, restaurants and hotels could not hire fast enough and adopted labor-saving innovations while many laid-off workers moved into higher-pay, higher-productivity jobs.

Justin Fox Bloomberg
Date Posted:

In 2022, GDP/hour in France was 15% under the US and Germany was 11% lower. @foxjust argues this is likely driven by mass layoffs from low-pay services jobs in the US during the pandemic, and a reallocation of labor towards more productive activities.

Do mass layoffs followed by rapid rebound raise productivity?

Core argument: U.S. pandemic mass layoffs were followed by a rapid economic comeback, with productivity rising initially as both consumption and employment shifted away from low-pay, low-productivity in-person services hit hardest by shutdowns.

So what the US got was mass layoffs followed by a rapid economic comeback. Productivity rose initially because both consumption and employment shifted away from the low-pay, low-productivity in-person services most affected by pandemic shutdowns. But it held up even as Americans started eating out and traveling again because restaurants and hotels weren’t able to hire nearly as fast as demand grew, forcing them to come up with labor-saving innovations. In the meantime, many laid-off restaurant and hotel workers found opportunities to upgrade to higher-pay, higher-productivity work. “There was a silver lining to the — brutal, almost inhumane — shedding of labor in the US,” emailed Philipp Carlsson-Szlezak, global chief economist at Boston Consulting Group. European countries avoided the layoffs, he went on, “but it looks like they missed out on the learnings that came with these massive gyrations (while US stimulus also managed to protect the population via stimulus checks).”

Takeaways by Macro Roundup® AI

  1. U.S. pandemic mass layoffs were followed by a rapid economic comeback, with productivity rising initially as both consumption and employment shifted away from low-pay, low-productivity in-person services hit hardest by shutdowns.
  2. U.S. productivity held up even as Americans resumed eating out and traveling because restaurants and hotels could not hire as fast as demand grew, forcing them to adopt labor-saving innovations, while many laid-off workers moved to higher-pay, higher-productivity jobs.
  3. Philipp Carlsson-Szlezak, global chief economist at Boston Consulting Group, argues European countries avoided the layoffs but appear to have missed the learnings that came with those gyrations, while U.S. stimulus checks protected the population.

Related Articles:

  • Labor Productivity Is Popping — Labor productivity, measured as output per hour worked, rose 0.8% quarter over quarter and 2.7% year over year, compared with average paces of 0.3% and 1.3% in the decade before the pandemic. Productivity growth is volatile and can turn negative even outside recessions.
  • Comparing EU-to-US Output Per Hour — European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.
  • Productivity Has Grown Faster in Western Europe than in America — Adjusted for purchasing power, the EU's GDP is roughly 95% of America's, the same share as a decade earlier, while at market exchange rates US prices went from 5.4% above EU levels to 46% higher, largely because of a strong dollar. GDP per person has still grown faster in America than in most of Western Europe.

AI Summary. Start-up TerraPower has begun building a sodium-cooled nuclear reactor designed to be smaller and cheaper than conventional water-cooled plants, with completion expected no earlier than 2030 and the design not yet approved by the Nuclear Regulatory Commission. The company says the reactors should ultimately generate electricity at half the cost of traditional nuclear plants.

Brad Plumer New York Times
Date Posted:

.@BillGates broke ground on the first nuclear power plant from @TerraPower, which uses liquid sodium vs. water as a coolant and is projected to generate power at half the cost of the current US nuclear fleet. Gates has invested $1B in TerraPower.

Can sodium-cooled reactors make nuclear power smaller and cheaper?

Core argument: Bill Gates has put more than $1 billion of his fortune into TerraPower and expects to increase that amount, backing a smaller, cheaper reactor design whose construction began Tuesday and won't be finished until 2030 at the earliest.

Workers began construction on Tuesday on a novel type of nuclear reactor meant to be smaller and cheaper than the hulking reactors of old. The reactor being built by TerraPower, a start-up, won’t be finished until 2030 at the earliest and faces daunting obstacles. The Nuclear Regulatory Commission hasn’t yet approved the design, and the company will have to overcome the inevitable delays and cost overruns that have doomed countless nuclear projects before. What TerraPower does have, however, is Bill Gates. Who has poured more than $1 billion of his fortune into TerraPower, an amount that he expects to increase. TerraPower’s reactor uses liquid sodium instead of water, allowing it to operate at lower pressures. In theory, that reduces the need for thick shielding. In an emergency, the plant can be cooled with air vents rather than complicated pump systems. Chris Levesque, TerraPower’s chief executive, said its reactors should ultimately produce electricity at half the cost of traditional nuclear plants.

Takeaways by Macro Roundup® AI

  1. Bill Gates has put more than $1 billion of his fortune into TerraPower and expects to increase that amount, backing a smaller, cheaper reactor design whose construction began Tuesday and won't be finished until 2030 at the earliest.
  2. TerraPower's reactor uses liquid sodium instead of water, operating at lower pressures that in theory reduce the need for thick shielding and allow emergency cooling through air vents rather than complicated pump systems.
  3. TerraPower chief executive Chris Levesque said its reactors should ultimately produce electricity at half the cost of traditional nuclear plants, though the Nuclear Regulatory Commission has not yet approved the design.

Related Articles:

  • 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.
  • Bill Gates’ TerraPower Plans To Build First US Next-Generation Nuclear Plant — TerraPower, founded by Bill Gates, plans to seek a US construction permit for its Natrium reactor, which is cooled with liquid sodium rather than water, at a first plant in Kemmerer, Wyoming. The company says the reactors could be built for about half the cost of standard water-cooled reactors.
  • Plant Vogtle Unit 4 Begins Commercial Operation — The 1,114-megawatt Unit 4 reactor at Georgia's Plant Vogtle entered commercial operation, completing an 11-year expansion that brings the plant's capacity to nearly 5 gigawatts and makes it the largest US nuclear plant. No nuclear reactors are currently under construction in the United States, where nuclear supplies about 19% of electricity.

AI Summary. Japan and the United States agreed to create working groups on joint missile production, ship and aircraft repair, and supply chain resiliency as part of a defense industry cooperation forum. U.S. officials say Japan's engineering, industrial, and manufacturing capacity is a significant addition for the U.S. defense industrial base.

Tamayo Muto Nikkei Asia
Date Posted:

The US and Japan have started talks aimed at integrating key aspects of their defense industries ranging from “joint missile production, ship and aircraft repair, [to] supply chain resiliency.”

Can allied manufacturing capacity strengthen the U.S. defense industrial base?

Core argument: Japan and the U.S. agreed at the Defense Industrial Cooperation, Acquisition, and Sustainment Forum in Tokyo to establish working groups on joint missile production, ship and aircraft repair, and supply chain resiliency.

Japan and the U.S. concluded the Defense Industrial Cooperation, Acquisition, and Sustainment Forum (DICAS) aimed at promoting defense industry cooperation in Tokyo on Tuesday in which they agreed to set up working groups on joint missile production, ship and aircraft repair, and supply chain resiliency. "It is clear that the U.S. military-industrial base cannot meet all the security challenges," U.S. Ambassador to Japan Rahm Emanuel told reporters on Monday. "Japan's engineering, industrial and manufacturing capacity is a major, significant development" for the U.S. defense industry, he said. The DICAS meeting was followed by its first working group meeting on ship repair on Tuesday. A working group meeting on aircraft repair is scheduled for August, Emanuel said.

Takeaways by Macro Roundup® AI

  1. Japan and the U.S. agreed at the Defense Industrial Cooperation, Acquisition, and Sustainment Forum in Tokyo to establish working groups on joint missile production, ship and aircraft repair, and supply chain resiliency.
  2. U.S. Ambassador to Japan Rahm Emanuel said the U.S. military-industrial base cannot meet all the security challenges and called Japan's engineering, industrial and manufacturing capacity a major, significant development for the U.S. defense industry.
  3. The first working group meeting on ship repair followed the forum, and Emanuel said a working group meeting on aircraft repair is scheduled for August.

Related Articles:

  • China’s Shipyards Are Ready for a Protracted War. America’s Aren’t — China produced more than half of the world's commercial shipbuilding output, while Europe accounts for about 5% and the US next to nothing, with most of the remainder built in South Korea and Japan. Analysts argue that in a protracted conflict China's wartime-scale yards could quickly accelerate production, replace lost ships, and repair damaged ones.
  • Why is the U.S. Navy Running Out of Tomahawk Cruise Missiles? — The U.S. Navy has been firing Tomahawk land-attack cruise missiles faster than it can replace them, with opening-day strikes in Yemen expending more than 80 missiles against 30 targets. An entire year's purchase of 55 Tomahawks accounted for 68% of the precision munitions fired at the Houthis in a single day.
  • Keeping Up with the Pacing Threat: Unveiling the True Size of Beijing’s Military Spending — China's publicly released military budget understates its spending; adjusting for purchasing power and adding uncounted expenditures, the authors estimate the buying power of China's military budget at $711bn, roughly triple Beijing's stated figure and nearly equal to the United States'. Such parity favors China, whose spending concentrates on Asia while US resources are spread across multiple theaters.

Wednesday, June 12, 2024

AI Summary. When stock analysts' forecasts of long-term earnings growth for S&P 500 firms are high by historical standards, their forecasts of short- and long-term profits are systematically disappointed later, according to the authors. The authors estimate that a 1 standard deviation rise in these long-term forecasts is followed by an investment boom that reverses two years later.

Pedro Bordalo,Nicola Gennaioli, Rafael La Porta, et al. University of Chicago
Date Posted:
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Changes in sell-side analysts’ 3-5 year profit expectations of individual S&P 500 firms predict aggregate boom-bust cycles for both corporate investment and stock valuations.

Do overly optimistic long-term earnings forecasts drive investment booms and busts?

Core argument: A 1 standard deviation increase in analysts' long-term earnings growth forecasts (LTG) for S&P 500 firms fuels an investment boom, with growth in the investment-to-capital ratio 3% above conventional levels the following year, before sharply reverting two years later.

Business cycles are typically traced to “fundamental” shocks. A positive productivity shock increases current output and rational expectations about future productivity. In principle, such shocks could [also] explain stock market volatility, because stocks are just claims on firms’ fluctuating profits. In practice, they do not. We follow a different route. Key to our strategy is the use of data on stock analysts’ consensus expectations of the earnings growth of S&P 500 firms. One measure turns out to be critical: the analysts’ forecast of a firm’s long-term earnings growth (LTG), which captures expectations of fundamentals over a 3-to-5-year horizon. When LTG is high relative to historical standards, analyst forecasts of short and long-term profits are systematically disappointed in the future. We [further] connect LTG to real activity. We show that a 1 s.d. increase in LTG fuels an investment boom: growth in the investment-to-capital ratio is 3% higher than conventional levels in the following year, corresponding to a 0.4 s.d. increase. The investment boom sharply reverts 2 years later. Finally, we connect LTG to conventional business cycle analysis. In the short term, higher LTG acts like a positive shock: it predicts growth in consumption, employment, and wages.

Takeaways by Macro Roundup® AI

  1. A 1 standard deviation increase in analysts' long-term earnings growth forecasts (LTG) for S&P 500 firms fuels an investment boom, with growth in the investment-to-capital ratio 3% above conventional levels the following year, before sharply reverting two years later.
  2. When LTG is high relative to historical standards, analysts' forecasts of both short- and long-term profits are systematically disappointed in the future.
  3. Higher LTG acts like a positive shock in the short term, predicting growth in consumption, employment, and wages, while fundamental productivity shocks in practice do not explain stock market volatility.

Related Articles:

  • Long Term Expectations and Aggregate Fluctuations — Analyst long-term earnings growth forecasts for S&P 500 firms, when high by historical standards, are systematically disappointed and coincide with higher expected stock returns in surveys, which the authors interpret as excess optimism. A one standard deviation rise in these forecasts is associated with an investment boom that reverses two years later.
  • Are We on the Brink of an AI Investment Arms Race? — Spending on AI chips and data centers was a bit below $100bn in 2023, around 0.4% of US GDP, and the broader set of companies exposed to AI-related investment has not yet seen a major jump in sales. The authors argue the underlying dynamics point to a spending surge large enough to shape the business cycle.
  • Credit Allocation and Macroeconomic Fluctuations — Credit expansions disproportionately channel credit to non-tradable sector firms and households, and the authors find that the sectoral allocation of credit predicts future GDP paths and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts boom-bust output patterns and elevated financial fragility, while credit to tradable industries is associated with higher future productivity growth.

AI Summary. Core consumer price inflation came in at 0.16% for the month, a 2.0% annual rate, with headline inflation at 0.01%. Core goods prices remained negative and core services inflation has been receding even as shelter inflation has not slowed, which the author argues supports hope for further inflation reduction and puts a second inflation-based interest rate cut in play.

Jason Furman @jasonfurman
Date Posted:

.@jasonfurman on the May CPI report “Big picture: core goods inflation stayed negative but core services inflation has been receding.”

Does cooling core services inflation put another rate cut in play?

Core argument: Furman notes core goods inflation stayed negative while core services inflation has been receding even though shelter inflation is not slowing, which gives him more hope about the last mile of inflation reduction.

Core CPI was 0.16% in May (2.0% annual rate). Headline was 0.01%. These are the best monthly readings since 8/21 & 7/22 respectively. Big picture: core goods inflation stayed negative but core services inflation has been receding. This is happening despite the fact that shelter inflation is not slowing. It gives me more hope about the last mile of inflation reduction. In my view, it puts a second inflation-based rate cut in play for the year. Plus prices weren't up for American families in May relative to April (seasonally adjusted).

Takeaways by Macro Roundup® AI

  1. Furman notes core goods inflation stayed negative while core services inflation has been receding even though shelter inflation is not slowing, which gives him more hope about the last mile of inflation reduction.
  2. Furman argues the May CPI report, with core CPI at 0.16% (a 2.0% annual rate) and headline at 0.01%, puts a second inflation-based rate cut in play for the year, with seasonally adjusted prices flat versus April.

Related Articles:

  • Is Consumer Spending Slowing? — The dollar value of US consumer spending has grown about 6% a year since mid-2022, but a growing share of that growth comes from "imputed" categories rather than actual transactions, and excluding those, spending appears to be slowing. Meanwhile core goods inflation has accelerated, running at 2% annually.
  • An Analysis of Pandemic-Era Inflation In 11 Economies — 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.
  • An Update About How Inflation Has Affected Households at Different Income Levels Since 2019 — The Congressional Budget Office estimates that income after transfers and taxes grew faster than consumption prices for all income groups, lowering the share of income needed to buy the same goods by 2% for the lowest-income fifth and 6.3% for the highest-income fifth.

AI Summary. Business fixed investment has held at roughly the same share of U.S. GDP as before COVID, a better outcome than after every other recession since 1980, when investment typically fell as a share of GDP and contributed less well into the recovery. American businesses invested $430bn more than if investment had followed its usual historical pattern.

Eric Van Nostrand U.S. Department of the Treasury
Date Posted:

US business investment is at least $430B higher than if it had followed the pattern of fixed investment as a share of GDP for all US business cycles since 1971.

Has business investment held up better than in past recoveries?

Core argument: U.S. business fixed investment has held roughly the same share of GDP as before COVID, a better outcome than after every other recession since 1980, whereas investment typically falls as a share of GDP and contributes less well into recovery.

Figure 1 shows business fixed investment as a share of GDP since the COVID business cycle peak (blue), compared with the analogous period in the Great Recession and Recovery (orange), and the average behavior in all U.S. business cycles since 1971 (dotted). Typically, investment tends to fall as a percent of GDP in a recession and to continue to contribute less well into the recovery.  This was especially the case in the 2008 Great Recession, when business investment as percent of GDP fell by more than 2 percentage points.  In recent years, business investment has bucked that trend, remaining at roughly the same share of GDP since before COVID: a better outcome than after every other recession since 1980. Indeed, in this cycle, American businesses invested $430 billion more than if overall growth had been the same but investment followed its usual historical pattern. Factory construction has contributed almost one-third of business investment growth since the end of 2021.

Takeaways by Macro Roundup® AI

  1. U.S. business fixed investment has held roughly the same share of GDP as before COVID, a better outcome than after every other recession since 1980, whereas investment typically falls as a share of GDP and contributes less well into recovery.
  2. American businesses invested $430 billion more in this cycle than if overall growth had been the same but investment had followed its usual historical pattern.
  3. Factory construction has contributed almost one-third of U.S. business investment growth since the end of 2021, while in the 2008 Great Recession business investment as a share of GDP fell by more than 2 percentage points.

Related Articles:

  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • 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.
  • The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off — Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.

AI Summary. The foreign-born share of the population has risen sharply since 1990 in nearly every large Western country. As mainstream politicians from the center-right to the left dismissed voters' concerns about immigration, many voters drifted toward extreme-right parties that promised to reduce it.

David Leonhardt New York Times
Date Posted:

.@DLeonhardt suggests the rapid rise of the foreign-born share of national populations since 1990 is driving the recent electoral success of the 2016 Brexit campaign, Trump, and EU parliamentary results for Le Pen in France and the AfD in Germany.

Is rising immigration pushing Western voters toward extreme-right parties?

Core argument: The foreign-born share of the population has risen sharply since 1990 in nearly every large Western country, and it is not clear whether immigration has ever previously risen so quickly in so many countries at once.

The first thing to understand is how unusual the modern migration boom has been. In nearly every large Western country, the foreign-born share of the population has risen sharply since 1990. It’s not clear whether immigration has ever previously risen so quickly in so many different countries. If anything, the chart understates the trend because it ends in 2020, the last year with available data. For years, mainstream Western politicians, from the center-right to the center-left to the left, have dismissed voters’ concerns about immigration. Many voters responded by drifting to the only parties that promised to reduce immigration — parties on the extreme right.

Takeaways by Macro Roundup® AI

  1. The foreign-born share of the population has risen sharply since 1990 in nearly every large Western country, and it is not clear whether immigration has ever previously risen so quickly in so many countries at once.
  2. Data on the Western migration boom end in 2020, the last year with available figures, so the chart may understate the trend.
  3. Mainstream Western politicians from the center-right through the left dismissed voters' concerns about immigration for years, and many voters drifted to extreme-right parties, the only ones promising to reduce it.

Related Articles:

  • Exploring the Implications of Sub-Saharan Africa’s Demographic Explosion — Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.
  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

AI Summary. The European Commission will provisionally apply additional duties of 17–38% on imported Chinese electric vehicles, on top of an existing 10% tariff, with the rate depending on how far each carmaker cooperated with an EU subsidy investigation. EU officials say heavily subsidized Chinese imports put European industry at risk of injury.

Andy Bounds, Alice Hancock, and Gloria Li Financial Times
Date Posted:

The EU is imposing tariffs of up to 48% on Chinese EVs; currently, the PRC applies a 15% tariff on European EVs. The EU market share of EVs imported from China increased from 4% in 2020 to 25% in September 2023.

Will Europe impose new tariffs on subsidized Chinese electric vehicles?

Core argument: The European Commission notified carmakers it will provisionally apply additional duties of 17–38% on imported Chinese electric vehicles from next month, on top of the existing 10% tariff on all Chinese EVs, for a combined rate of up to 48%.

The European Commission notified carmakers Wednesday that it would provisionally apply additional duties of between 17 and 38% on imported Chinese EVs from next month. The duties will be applied on top of existing 10% tariffs on all Chinese EVs, depending on the extent to which they complied with an EU investigation into electric carmakers that was announced last September. “We have no option but to act in the face of soaring imports of heavily-subsidised battery electric vehicles, from China,” Valdis Dombrovskis, EU trade commissioner, told the Financial Times. “This puts our industry at risk of injury.”

Takeaways by Macro Roundup® AI

  1. The European Commission notified carmakers it will provisionally apply additional duties of 17–38% on imported Chinese electric vehicles from next month, on top of the existing 10% tariff on all Chinese EVs, for a combined rate of up to 48%.
  2. The size of each additional duty depends on the extent to which carmakers complied with an EU investigation into electric carmakers announced last September.
  3. EU trade commissioner Valdis Dombrovskis told the Financial Times that the bloc has no option but to act in the face of soaring imports of heavily subsidised battery electric vehicles from China, which puts European industry at risk of injury.

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AI Summary. China has shifted exports toward Southeast Asia and Latin America and away from the West, with shipments to Southeast Asia up 12% over two years while exports to the U.S. fell 17%. With a housing collapse weighing on domestic demand, Beijing has leaned on exports to drive growth.

Jacky Wong Wall Street Journal
Date Posted:

The share of China’s exports going to the developing world is rising as the EU and US adopt measures to protect their economies from China’s chronic surplus. In response, Latin American countries have started to impose tariffs.

Can China sustain export growth without Western buyers?

Core argument: Chinese exports rose 7.6% year over year in May in dollar terms while imports rose 1.8%, as Beijing leaned on its export engine after the housing market's implosion dragged down domestic demand.

Chinese exports in May increased 7.6% from a year earlier in dollar terms, while imports rose 1.8%. The implosion of China’s housing market has dragged down domestic demand, so Beijing has revved up its export engine to drive growth. Overall, China has been selling less to the West and more to Southeast Asia and Latin America. Exports to Southeast Asia in the first five months of this year rose 12% from the same period two years earlier. Over the same time, China exported 17% less to the U.S. In 2023 alone, China’s exports to the U.S. dropped 14%. This could partly be because Chinese companies are rerouting their trades through countries like Vietnam or Mexico, though those countries have also been building up lower-end manufacturing while China moved up the value chain.

Takeaways by Macro Roundup® AI

  1. Chinese exports rose 7.6% year over year in May in dollar terms while imports rose 1.8%, as Beijing leaned on its export engine after the housing market's implosion dragged down domestic demand.
  2. China's exports to Southeast Asia in the first five months of the year rose 12% from the same period two years earlier, while exports to the U.S. fell 17% over that span, including a 14% drop in 2023.
  3. The shift away from Western markets could partly stem from Chinese companies rerouting trade through countries such as Vietnam and Mexico, which have also been building up lower-end manufacturing as China moved up the value chain.

Related Articles:

  • Brazil, India, and Mexico are Taking on China’s Exports — Foreign direct investment into China fell to a 30-year low even as Chinese leaders launched an investment push in high-tech goods such as batteries and electric vehicles. Weak domestic demand for cars, chemicals, and steel has pushed Chinese goods into global markets, with average manufactured export prices down nearly 10% and export volumes near record levels.
  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.
  • China’s Excess Savings Are A Danger — China's current account surplus of 4% of GDP is larger in global terms than its 2007 peak of 10%, because its share of the world economy at market prices rose from 6% to 17%. Sustaining that surplus would require China to fund deficits in smaller developing countries.