Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, June 17, 2024

AI Summary. The author argues that two pandemic-era labor market shifts help explain the recent fall in inflation: a large withdrawal from the labor force followed by recovering participation, and a lasting move to working from home. Surveys of business executives imply the work-from-home shift lowered average wage growth by 2 percentage points over two years.

Steven Davis National Bureau of Economic Research
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The return of lower-paid workers who left the labor force during Covid as well as other workers’ willingness to accept lower pay for work-from-home jobs left average real wages in Q1 ‘24 down 3.5 to 4.4 ppts relative to 2006-19 trends.

Did pandemic labor market shifts help bring inflation down?

Core argument: Surveys of business executives imply the shift to work from home lowered average wage growth by two percentage points from spring 2021 to spring 2023, easing wage-growth pressures along the path to a new equilibrium.

I advance a different and complementary explanation for the recent disinflation that centers on two extraordinary labor market developments associated with the pandemic and its aftermath. The first is the sizable labor force withdrawal in 2020 and 2021, driven by infection worries and social distancing, followed by recovery in participation rates as [these] receded. The second development is the big and lasting shift to work from home. This development lowered wage-growth pressures along the transition path to a new equilibrium with pay packages that recognized higher remote work levels and their benefits to workers. Surveys of business executives imply that the shift to WFH lowered average wage growth by two percentage points from spring 2021 to spring 2023. A direct inspection [see Chart 5] finds that average real wage growth from 2021 Q1 to 2024 Q1 in the U.S. economy was at least 3.5 to 4.4 ppts below the path suggested by pre-pandemic experience. This large shortfall in real wage growth aligns well with the interpretation of the 2022-23 disinflation offered here.

Takeaways by Macro Roundup® AI

  1. Surveys of business executives imply the shift to work from home lowered average wage growth by two percentage points from spring 2021 to spring 2023, easing wage-growth pressures along the path to a new equilibrium.
  2. Average real wage growth in the U.S. economy from 2021 Q1 to 2024 Q1 ran at least 3.5 to 4.4 percentage points below the path suggested by pre-pandemic experience, a shortfall aligned with the proposed interpretation of the 2022-23 disinflation.
  3. The proposed explanation of the 2022-23 disinflation centers on two pandemic-era labor market developments: sizable labor force withdrawal in 2020 and 2021 driven by infection worries and social distancing, followed by recovery in participation rates, and a big and lasting shift to work from home.

Related Articles:

  • 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.
  • Has Pay Kept Up With Inflation? — All four measures of typical and aggregate pay have grown since 2019 when adjusted using the personal consumption expenditures price index, but show smaller increases in three measures and a decline in one when adjusted using the consumer price index. This pattern of smaller gains under consumer price index adjustment holds across time periods.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

AI Summary. Wage growth and price growth reinforce each other and both run 1 to 1.5 percentage points above pre-pandemic rates, with underlying inflation estimated at 2.5% to 3%. The author puts roughly a 1-in-3 chance that persistently strong demand keeps inflation above 3%, and argues strong job growth lets the Federal Reserve spend months assessing that risk.

Jason Furman Wall Street Journal
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Estimating underlying inflation in the 2.5-3% range @jasonfurman argues the Fed should be cautious on rate cuts. “The last mile of disinflation could be the hardest and cuts risk undermining the Fed’s credibility.”

Can the Fed take months to assess inflation risk?

Core argument: Wage growth and price growth are each running 1 to 1.5 percentage points above their pre-Covid rates and feed into each other, a wage-price persistence that the author argues will keep inflation higher until something pushes it in a different direction.

Wage growth and price growth feed into each other, and both of those are running 1 to 1.5 percentage points higher than before Covid. Shorter-term measures of inflation expectations are also elevated. While this may not be a full-blown wage-price spiral, wage-price persistence will keep inflation higher until something pushes it in a different direction. There is reason to expect inflation to continue falling. The labor-market loosening will work with a lag, and wages and prices appear to be in a diminishing dynamic. I believe underlying inflation is in the 2.5% to 3% range. Getting it much below that could be hard and may not even be needed. But there is a meaningful risk, maybe 1 in 3, that if demand stays strong inflation could stay above 3%, which would be a big blow to the credibility that has helped make Jerome Powell’s task so much easier than Volcker’s. Given strong U.S. job growth, the Fed can afford to spend several more months assessing just how big the reflation risk is.

Takeaways by Macro Roundup® AI

  1. Wage growth and price growth are each running 1 to 1.5 percentage points above their pre-Covid rates and feed into each other, a wage-price persistence that the author argues will keep inflation higher until something pushes it in a different direction.
  2. The author puts underlying inflation in the 2.5% to 3% range and sees roughly a 1-in-3 risk that persistently strong demand keeps inflation above 3%, which would be a big blow to the Federal Reserve's credibility.
  3. Given strong U.S. job growth, the Federal Reserve can afford several more months to assess the reflation risk, with labor-market loosening working with a lag and wages and prices appearing to be in a diminishing dynamic.

Related Articles:

  • The Transmission Mechanism of Monetary Policy Is Much Slower than Normal — The share of outstanding US mortgages with interest rates below 4% has risen from 38% before the pandemic to 63%, leaving millions of households insulated from Federal Reserve rate increases. The author argues this slows the transmission of monetary policy and will require the Federal Reserve to hold rates higher for longer to contain inflation.
  • The Fed Looks Through a Great Inflation Print — U.S. inflation data show broad-based disinflation, with notable price declines in airfares, video and video game subscriptions and rentals, computer software, and gasoline, each falling by almost 4%. Few categories rose by much if at all, and narrower measures that strip out volatile or idiosyncratic components tell a similar story.
  • 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. Because the balance of payments must balance, net foreign capital inflows into advanced economies are more likely to reduce domestic savings than to raise domestic investment, so they do not lower interest rates and taxing them would not raise them. The US absorbs nearly half of the world's excess savings, so US savings adjust to accommodate other countries.

Michael Pettis @michaelxpettis
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Responding to Maurice Obstfeld, @michaelxpettis argues that a capital inflow tax won’t raise US interest rates because capital inflows are “more likely to cause domestic savings to decline than to cause domestic investment to rise.”

Do foreign capital inflows lower interest rates in advanced economies?

Core argument: Pettis argues the US absorbs nearly half of the world's excess savings, with the UK, Canada and Australia absorbing much of the rest, so it is mainly US savings that must rise and fall to accommodate savings elsewhere.

The balance of payments must still balance, and so this means that foreign inflows must either cause US investment to rise or US savings to decline. If the US were a developing economy in which businesses were eager to invest, but were constrained by scarce and expensive capital, these inflows would indeed probably cause interest rates to decline and investment to rise. In advanced economies, net foreign capital inflows are more likely to cause domestic savings to decline than to cause domestic investment to rise. That is why they don't reduce interest rates, and why taxing them won't raise interest rates. Many Americans find it shocking to think that foreigners can affect US savings rates, but this is how the balance of payments works: if one country increases its savings relative to its investment, other countries must either increase their investment or reduce their savings. And because the US absorbs nearly half of the excess savings of the world (and the UK, Canada and Australia, much of the rest), it is mainly US savings that must rise and fall to accommodate that of the rest of the world.

Takeaways by Macro Roundup® AI

  1. Pettis argues the US absorbs nearly half of the world's excess savings, with the UK, Canada and Australia absorbing much of the rest, so it is mainly US savings that must rise and fall to accommodate savings elsewhere.
  2. Because the balance of payments must balance, Pettis argues foreign inflows must either raise US investment or reduce US savings, and that in advanced economies such inflows are more likely to cause domestic savings to decline.
  3. Pettis argues that because net foreign capital inflows into advanced economies are more likely to depress domestic savings than to lift investment, they do not reduce interest rates, and taxing them will not raise interest rates.

Related Articles:

  • The Dangers of a US Capital Inflow Tax — A tax on foreign capital inflows large enough to balance US trade would raise real interest rates for all US borrowers, domestic and foreign-funded alike, since some foreign funding is needed whenever a trade deficit exists. The argument holds the deficit would shrink mainly through lower investment, reducing demand, growth, and innovation.
  • 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. An International Monetary Fund analysis finds the US has absorbed about a third of global capital flows, up from a pre-pandemic average of 18%. The analysis attributes the increase to US interest rates at their highest levels in decades and to foreign direct investment drawn by US renewable energy and semiconductor incentives.

Enda Curran and Saleha Mohsin Bloomberg
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According to an IMF analysis, almost 1/3 of global investment flows since the pandemic have been into the US, up from 18% pre-pandemic.

Why has the US share of global capital flows risen?

Core argument: The US has absorbed about a third of global capital flows since Covid, up from a pre-pandemic average share of 18%, according to an IMF analysis.

An International Monetary Fund analysis shows that the share of global flows has climbed — not fallen — since a shortage of dollars in 2020 spooked global investors and the 2022 freezing of Russian assets stoked questions about respect for free movement of capital. The pre-pandemic US average share was just 18%, according to the IMF. For all the angst over the dollar’s dominance, a run-up in US interest rates to the highest levels in decades proved a major draw for overseas investors. The US has also pulled in a fresh wave of foreign direct investment thanks to billions of dollars worth of incentives under President Joe Biden’s initiatives to spur renewable energy and semiconductor production.

Takeaways by Macro Roundup® AI

  1. The US has absorbed about a third of global capital flows since Covid, up from a pre-pandemic average share of 18%, according to an IMF analysis.
  2. The IMF analysis shows the US share of global capital flows rose rather than fell after the 2020 dollar shortage spooked investors and the 2022 freezing of Russian assets raised questions about respect for free movement of capital.
  3. A run-up in US interest rates to the highest levels in decades proved a major draw for overseas investors, while billions of dollars of incentives under President Joe Biden's renewable energy and semiconductor initiatives pulled in a fresh wave of foreign direct investment.

Related Articles:

  • Is the Global Economy Deglobalizing? — Trade as a share of GDP has stalled since the financial crisis and declined in some cases, but capital and labor market trends point the other way, making it premature to describe the world economy as deglobalizing. While the US and China appear to be reducing reliance on global markets, other countries are not.
  • 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.
  • The Dangers of a US Capital Inflow Tax — A tax on foreign capital inflows large enough to balance US trade would raise real interest rates for all US borrowers, domestic and foreign-funded alike, since some foreign funding is needed whenever a trade deficit exists. The argument holds the deficit would shrink mainly through lower investment, reducing demand, growth, and innovation.

AI Summary. A survey of 20 large and medium-sized US and European defence and aerospace companies found they plan to recruit tens of thousands of workers, with 10 of them seeking to add almost 37,000 positions, or nearly 10% of their combined workforce. Demand spans apprentices to executives, including engineers, software developers, cyber security analysts, welders, and mechanics.

Sylvia Pfeifer, Clara Murray, Arjun Neil Alim, and Sarah White Financial Times
Date Posted:

After adding over 12,000 employees in 2023, top Western defense contractors plan to grow their aggregate workforces by almost 10% this year. An @ft analysis of 20 large and medium-sized western defense firms finds 37,000 job openings.

Are defence companies expanding their workforces to meet record orders?

Core argument: Ten of the 20 US and European defence and aerospace companies surveyed by the Financial Times are seeking to add almost 37,000 positions, or almost 10% of their aggregate workforce.

A Financial Times survey of the hiring plans of 20 large and medium-sized US and European defence and aerospace companies found they are looking to recruit tens of thousands of people this year. Three of the largest US contractors — Lockheed Martin, Northrop Grumman, and General Dynamics — have close to 6,000 job openings they need to fill, while 10 companies surveyed are seeking to increase positions by almost 37,000 in total, or almost 10% of their aggregate workforce. Companies said they are looking to fill positions across the board, from apprentices to late-stage career executives. Engineers, software developers, and cyber security analysts as well as welders and mechanics are in demand.

Takeaways by Macro Roundup® AI

  1. Ten of the 20 US and European defence and aerospace companies surveyed by the Financial Times are seeking to add almost 37,000 positions, or almost 10% of their aggregate workforce.
  2. Lockheed Martin, Northrop Grumman, and General Dynamics together have close to 6,000 job openings to fill, according to the Financial Times survey of 20 large and medium-sized defence and aerospace companies.
  3. Defence and aerospace companies said they are filling roles from apprentices to late-stage career executives, with demand for engineers, software developers, cyber security analysts, welders, and mechanics.

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.
  • Japan, U.S. Form Working Group For Joint Missile Production — 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.
  • 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.

AI Summary. Polling indicates infrequent, less engaged voters now favor the Republican presidential candidate, a reversal that would mean higher turnout benefits Republicans rather than Democrats. In Pennsylvania, new registrants under automatic voter registration have affiliated with Republicans over Democrats by six percentage points.

Nate Cohn New York Times
Date Posted:

According to recent New York Times/Siena College polling Trump leads Biden by 14pp with respondents with no voting history; the least frequent voters being the most Republican is a new pattern in 2024. @Nate_Cohn

Does higher voter turnout now favor Republicans instead of Democrats?

Core argument: If the polls are right, infrequent voters have swung 20 percentage points since 2020, and Donald Trump would stand to gain if they turn out — something unimaginable for a Republican as recently as a few years ago.

With five months to go until the election, there’s still time for less engaged voters to tune in and swing back toward Mr. Biden. Many infrequent voters aren’t yet tuned into the race, and their preferences appear highly volatile. If the polls are right, they’ve swung 20 percentage points since 2020, but some changed their answers when re-interviewed in the wake of Mr. Trump’s felony conviction in New York. Even if Mr. Trump holds his edge among the disengaged, it’s not clear many of these low-turnout voters will ultimately show up to vote. But if they do vote, Mr. Trump would stand to gain — something unimaginable for a Republican as recently as a few years ago. In Pennsylvania, where Democrats enacted automatic voter registration last year, new registrants have affiliated with Republicans over Democrats by six percentage points.

Takeaways by Macro Roundup® AI

  1. If the polls are right, infrequent voters have swung 20 percentage points since 2020, and Donald Trump would stand to gain if they turn out — something unimaginable for a Republican as recently as a few years ago.
  2. Some infrequent voters changed their answers when re-interviewed in the wake of Trump's felony conviction in New York, and their preferences appear highly volatile.
  3. In Pennsylvania, where Democrats enacted automatic voter registration last year, new registrants have affiliated with Republicans over Democrats by six percentage points.

Related Articles:

  • The Shaky Foundation of Trump’s Lead: Disengaged Voters — 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.
  • Small Shift Toward Biden After Trump Verdict — A New York Times/Siena College re-interview of nearly 2,000 voters found the group's support for Trump over Biden narrowed from three points to one point after his conviction for falsifying business records. About one-quarter of those who had said they backed Biden in 2020 but would switch to Trump said they would stick with Biden.
  • The New Hispanic Diploma Divide — Survey data from the Survey Center on American Life show a large education split among Hispanic voters, with the Democratic presidential candidate leading by 24 points among college-educated Hispanics but only 2 points among those without degrees. 13% of working-class Hispanics are undecided, and non-college Hispanics make up roughly 7% of the electorate versus 3% for college-educated Hispanics.

Tuesday, June 18, 2024

AI Summary. Using a new data set covering 150 years and 60 countries, the authors estimate that war reduces output at the war site by about 30% and raises inflation persistently by 15 percentage points. Spillovers depend on geographic distance: output falls in nearby economies as trade collapses, while very distant countries can see mildly positive output effects from increased military spending.

Jonathan Federle, Andre Meier, Gernot Muller, et al. National Bureau of Economic Research
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An analysis of war since 1870 finds that nearby non-belligerent countries suffered an 8% reduction in output six years after the onset of war, while distant non-belligerents saw a 4% rise in output, heavily influenced by increased military spending.

How much does war reduce output and raise inflation?

Core argument: Output at the war site declines by approximately 30% on average and inflation rises persistently by 15 percentage points, according to a data set spanning 150 years and 60 countries.

We assemble a new data set spanning 150 years and 60 countries to study the economic impact of war. [These costs] are not confined to the war site, where output declines [on average] by approximately 30% and inflation increases persistently by 15 percentage points. There are strong spillovers to other countries as well [that] depend on geographic distance. As war destroys the productive capacity of the war site, trade with nearby economies collapses, generating an endogenous supply-side contraction. [Yet] for very distant countries, output spillovers can turn positive [because] there is much less trade with Home, and the overall effect may thus be dominated by the expansionary effect of increased military expenditure. For both country groups, we find negative output spillovers in Nearby and mildly positive output spillovers in Distant (left column). Similarly, the pattern of the inflation response, shown in the right column of the figure is somewhat amplified as we zoom in on the belligerents, but does not change fundamentally. Participation in the war as such does not explain the spillovers from the war site. Instead, it amplifies the primary effect related to proximity.

Takeaways by Macro Roundup® AI

  1. Output at the war site declines by approximately 30% on average and inflation rises persistently by 15 percentage points, according to a data set spanning 150 years and 60 countries.
  2. War spillovers depend on geographic distance: nearby economies suffer negative output effects as trade with the war site collapses in an endogenous supply-side contraction, while distant countries see mildly positive output spillovers, where the expansionary effect of increased military expenditure may dominate.
  3. Participation in the war does not itself explain spillovers from the war site but amplifies the primary effect related to proximity, with the inflation response pattern somewhat amplified yet not fundamentally changed among belligerents.

Related Articles:

  • The US and Its Allies Face a $10 Trillion Reckoning in the Race to Rearm — World defense spending reached a record $2.2tn, and security officials say military budgets may need to reach Cold War levels of as high as 4% of economic output to deliver on NATO's plans. Bloomberg Economics calculates that US and Group of Seven allies hitting that level would mean over $10tn in additional commitments over a decade.
  • The Age-Old Question: How Do Governments Pay For Wars? — Denmark abolished a centuries-old religious holiday, requiring people to work that day, partly to help pay for extra defence spending, a move 70% of Danes opposed in one poll. The Stockholm International Peace Research Institute calculates global defence spending rose 4% to a record $2.24tn and is set to keep rising even as higher interest rates raise governments' borrowing costs.
  • Higher Interest Rates Are Here to Stay — Interest rates will likely stay higher over the next decade than in the decade after the 2008 financial crisis, reflecting factors including high debt levels, deglobalization, higher defense spending, the green transition, populist demands for income redistribution, and persistent inflation. Aging populations may also push developed countries to increase spending.

AI Summary. The Congressional Budget Office projects a federal budget deficit of $1.9tn in fiscal 2024, or $2tn excluding payment-timing shifts, rising to $2.8tn by 2034. On that adjusted basis, deficits equal 7% of gross domestic product in 2024, dip to 5.5% by 2027, and reach 6.9% by 2034, versus a 3.7% average over the past 50 years.

CBO Staff Congressional Budget Office
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Updated @USCBO projections forecast the 2024 federal budget deficit will be almost $2T or 7.0% of US GDP, up from 6.2% in 2023.

How large are projected federal deficits relative to historical averages?

Core argument: CBO projects the federal budget deficit at $1.9 trillion in fiscal year 2024, or $2 trillion adjusted to exclude shifts in the timing of certain payments, rising to $2.8 trillion by 2034.

In CBO’s projections, the federal budget deficit in fiscal year 2024 is $1.9 trillion. Adjusted to exclude the effects of shifts in the timing of certain payments, the deficit amounts to $2 trillion in 2024 and grows to $2.8 trillion by 2034. With such adjustments, deficits equal 7% of gross domestic product (GDP) in 2024 and 6.5% of GDP in 2025. By 2027, as revenues increase faster than outlays, they drop to 5.5% of GDP. Thereafter, outlays generally increase faster than revenues. By 2034, the adjusted deficit equals 6.9% of GDP—significantly more than the 3.7% that deficits have averaged over the past 50 years

Takeaways by Macro Roundup® AI

  1. CBO projects the federal budget deficit at $1.9 trillion in fiscal year 2024, or $2 trillion adjusted to exclude shifts in the timing of certain payments, rising to $2.8 trillion by 2034.
  2. On an adjusted basis, CBO projects deficits equal to 7% of GDP in 2024 and 6.5% in 2025, falling to 5.5% by 2027 as revenues increase faster than outlays.
  3. CBO projects the adjusted deficit reaches 6.9% of GDP by 2034, significantly more than the 3.7% that deficits have averaged over the past 50 years, as outlays generally increase faster than revenues after 2027.

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.
  • 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.
  • 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. New York's Metropolitan Transportation Authority has a $19bn operating budget and roughly $11bn in annual capital spending yet builds relatively little, and 4 of the 5 most expensive projects tracked by the NYU-Marron Institute Transit Costs Project are in New York City. High transit construction costs are an America-wide problem, but the author argues they are worst in the city.

Apricitas Economics Joseph Politano
Date Posted:

New York City’s transit construction costs are significantly higher than other advanced economies; in fact 4 of the 5 of the most expensive projects tracked by the NYU-Marron Institute Transit Costs Project are in New York City. @JosephPolitano

Does New York spend heavily on transit while building relatively little?

Core argument: The MTA runs a $19 billion operating budget—larger than many states—plus roughly $11 billion a year in capital investment, yet builds relatively little with it.

A lot of congestion-pricing criticism posits that the MTA already has “enough money” and just needs to spend it better. In many ways, they have a great point—the MTA has a total operating budget of $19B, an amount larger than many states, plus a capital investment budget of roughly $11B a year, and they build relatively little with it. High costs for new public transportation infrastructure is an America-wide problem but is at its absolute worst within the city—of the 5 most expensive projects tracked by the NYU-Marron Institute Transit Costs Project, 4 are in New York City. It would be great if New York could build transit infrastructure at something approaching the cost-per-mile of other dense urban areas in much of Asia, continental Europe, or South America, but even reaching the still-boondoggle levels of the Bay Area Rapid Transit extension to San Jose would be a massive improvement. Even as billions are spent, construction takes much longer to complete in NYC—in the 15 years it took to complete the East Side Access project, the Delhi Metro in India added 7 new lines and increased ridership by more than 1B trips per year.

Takeaways by Macro Roundup® AI

  1. The MTA runs a $19 billion operating budget—larger than many states—plus roughly $11 billion a year in capital investment, yet builds relatively little with it.
  2. Four of the five most expensive projects tracked by the NYU-Marron Institute Transit Costs Project are in New York City, where America-wide high transit construction costs are at their worst.
  3. During the 15 years New York took to complete East Side Access, the Delhi Metro added 7 new lines and increased ridership by more than 1 billion trips per year.

Related Articles:

AI Summary. China is projected to see a record 15,200 high-net-worth individuals — those with at least $1m in assets — leave the country, the world's largest such outflow, according to a Henley & Partners report. The prior year's 13,800 departures went mostly to the US, Canada, and Singapore.

Pak Yiu Nikkei Asia
Date Posted:

According to a Henley report, at least 13,800 high-net-worth individuals emigrated from the PRC last year, mostly to the U.S., Canada, and Singapore. The report forecasts a record 15,200 will depart this year.

Is China losing record numbers of millionaires to other countries?

Core argument: A Henley & Partners report projects China will lose a record 15,200 high-net-worth individuals in 2024, following 13,800 departures last year, the world's largest outflow.

China saw the world's biggest outflow of high-net-worth individuals last year and is expected to see a record exodus of 15,200 in 2024 a new Henley & Partners report says. China last year saw 13,800 high-net-worth individuals depart, mostly to the U.S., Canada, and Singapore. Such individuals are defined as those with at least $1 million in assets.

Takeaways by Macro Roundup® AI

  1. A Henley & Partners report projects China will lose a record 15,200 high-net-worth individuals in 2024, following 13,800 departures last year, the world's largest outflow.
  2. The Chinese high-net-worth individuals who left last year went mostly to the U.S., Canada, and Singapore, according to the Henley & Partners report.
  3. High-net-worth individuals are defined as those holding at least $1 million in assets.

Related Articles:

  • Why So Many Middle-Class Chinese Migrants Take Risky, Illegal Route To U.S. — U.S. Customs and Border Protection reported more than 37,000 Chinese nationals detained at the border with Mexico in a single year, roughly 10x pre-pandemic levels, with families among the fastest-growing group. United Nations data show China's annual net emigration rose above 300,000, compared with about 190,000 a year over the prior decade.
  • Anatomy of Capital Fight in China… — Unaccounted capital outflows from China show up not only in the balance of payments' net errors and omissions category but also in net other investment and in the gap between customs-reported and foreign-exchange-reported goods trade balances. This combined residual averaged roughly $100bn per quarter, and about twice that during periods of heavier outflow pressure.
  • 2023 Letter — Rising numbers of Chinese nationals are being apprehended at the US-Mexico border, with US officers encountering around 1,000 in one month early in the year and nearly 5,000 by November. Most Chinese emigrants leave through legal means, going primarily to Singapore, Japan, and Thailand.

AI Summary. A World Gold Council survey finds almost 60% of advanced-economy central banks expect gold's share of global reserves to rise over the next five years at the expense of the US dollar, up from 38% a year earlier. About 13% plan to increase their own gold holdings within a year, the highest share recorded in the survey.

Harry Dempsey Financial Times
Date Posted:

According to a survey conducted by the World Gold Council, 13% of respondents from advanced economy central banks plan to increase their gold holdings in the next year, the highest level since the survey began, up from around 8% last year.

Are advanced-economy central banks expecting gold to displace dollar reserves?

Core argument: Almost 60% of advanced economies' central banks expect gold's share of global reserves to rise over the next five years, up from 38% of respondents a year earlier, according to the World Gold Council's annual survey.

Advanced economies’ central banks expect gold’s share of global reserves to rise at the expense of the US dollar, as these institutions look to follow the lead of emerging markets in buying bullion. Almost 60% of rich countries’ central banks believe that gold’s share of global reserves will rise in the next five years, up from 38% of respondents last year, according to an annual survey conducted by the World Gold Council. Around 13% of advanced economies plan to increase their gold holdings in the next year, up from around 8% last year and the highest level since the survey began. That follows the lead of emerging market central banks, which have been the main purchasers of gold since the 2008 global financial crisis.

Takeaways by Macro Roundup® AI

  1. Almost 60% of advanced economies' central banks expect gold's share of global reserves to rise over the next five years, up from 38% of respondents a year earlier, according to the World Gold Council's annual survey.
  2. Around 13% of advanced economies' central banks plan to increase gold holdings in the next year, up from about 8% last year and the highest level since the World Gold Council survey began.
  3. Advanced economies' central banks expect gold's share of global reserves to rise at the expense of the US dollar, following emerging market central banks, which have been the main purchasers of gold since the 2008 global financial crisis.

Related Articles:

  • Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves — Gold accounts for about 10% of aggregate official foreign exchange reserves, roughly its level in the early 2000s. International Monetary Fund country data indicate most added official gold holdings came from a few central banks, with over half of reported accumulation from China and Russia and about a quarter from several emerging markets.
  • China Leads Record Central Bank Gold Buying in First Nine Months of Year — China has led record global central bank purchases of gold, as countries seek to hedge against inflation and reduce reliance on the dollar. The buying has helped bullion prices trade just under $2,000 a troy ounce despite rising bond yields and a strong dollar, even as gold demand excluding bilateral over-the-counter flows was 6% lower year-on-year at 1,147 tonnes.
  • Gold Rising — China appears to be shifting its reserve diversification toward gold, but its gold allocation remains well below that of other countries at odds with the United States, such as Russia and Turkey, which raised their gold holdings substantially. Gold held in domestic custody sits outside U.S. influence.

AI Summary. The US recorded locally acquired malaria cases in Florida, Texas, and Maryland after a 20-year absence, and the US Centers for Disease Control and Prevention reports recent dengue, chikungunya, and Zika outbreaks in US states and territories. Higher temperatures can raise mosquito biting frequency and reproduction rates, while more frequent flooding creates new breeding pools.

Michael Peel Financial Times
Date Posted:

The US saw its first domestic malaria cases in 20 years, with infections reported in Florida, Texas, and Maryland last year, as environmental changes expand mosquito ranges.

Are mosquito-borne diseases spreading in the United States again?

Core argument: The US recorded its first locally transmitted malaria cases in 20 years, with infections reported in Florida, Texas, and Maryland, an expansion that in some ways reverts to historical patterns when malaria was endemic in the US and Europe.

The US saw its first homegrown malaria cases for 20 years last year, with infections reported in Florida, Texas, and Maryland. This expansion is in some ways a reversion to historical trends. Malaria used to be endemic in the US and Europe, known by names such as “marsh fever” and “ague”. Dengue, chikungunya, and Zika virus outbreaks have also occurred recently in US states and territories, according to the US Centers for Disease Control and Prevention. There is reason to think climate change and other environmental trends will widen mosquito ranges still further. Higher temperatures can increase biting frequency and the reproduction rates of both the insect and the pathogens it bears. Flooding made more frequent by climate change creates new stagnant pools for the insects to lay eggs, as do expanded water storage efforts in areas stricken by drought.

Takeaways by Macro Roundup® AI

  1. The US recorded its first locally transmitted malaria cases in 20 years, with infections reported in Florida, Texas, and Maryland, an expansion that in some ways reverts to historical patterns when malaria was endemic in the US and Europe.
  2. The US Centers for Disease Control and Prevention reports that dengue, chikungunya, and Zika virus outbreaks have also occurred in US states and territories.
  3. Higher temperatures can increase mosquito biting frequency and the reproduction rates of both the insects and the pathogens they carry, while climate-driven flooding and expanded water storage in drought-stricken areas create new stagnant pools for egg-laying.

Related Articles:

  • Climate Change and the Geography of the U.S. Economy — The positive association between extreme heat and U.S. county population growth weakened over recent decades and disappeared entirely in the 2010s, as hot counties grew hotter. Projected climate change is predicted to shift population from the Southeast and parts of the Southwest toward the North, Mountain West, and Pacific coast.

AI Summary. The authors report that matrix multiplication operations, which typically dominate the computational cost of large language models, can be eliminated entirely while matching the performance of leading Transformer models at scales up to at least 2.7bn parameters. Their GPU-efficient implementation cuts memory use by up to 61% during training versus an unoptimized baseline.

Rui-Jie Zhu, Yu Zhang, Ethan Sifferman, et al. Arxiv
Date Posted:

A new approach to LLM development eliminates the need for resource-intensive matrix multiplication (MatMul), reducing memory requirements by 61% for training and 90% for generating responses to queries, potentially expanding AI use in consumer devices.

Can language models match leading performance without matrix multiplication?

Core argument: The authors report that language models with matrix multiplication eliminated entirely match state-of-the-art Transformers at scales up to at least 2.7B parameters, while those Transformers require far more memory during inference.

Matrix multiplication (MatMul) typically dominates the overall computational cost of large language models (LLMs). In this work, we show that MatMul operations can be completely eliminated from LLMs while maintaining strong performance at billion-parameter scales. Our experiments show that our proposed MatMul-free models achieve performance on par with state-of-the-art Transformers that require far more memory during inference at a scale up to at least 2.7B parameters. We provide a GPU-efficient implementation of this model which reduces memory usage by up to 61% over an unoptimized baseline during training. Our model's memory consumption can be reduced by more than 10x compared to unoptimized models. This work not only shows how far LLMs can be stripped back while still performing effectively but also points at the types of operations future accelerators should be optimized for in processing the next generation of lightweight LLMs.

Takeaways by Macro Roundup® AI

  1. The authors report that language models with matrix multiplication eliminated entirely match state-of-the-art Transformers at scales up to at least 2.7B parameters, while those Transformers require far more memory during inference.
  2. A GPU-efficient implementation of the MatMul-free model cuts memory usage by up to 61% over an unoptimized baseline during training, and memory consumption can be reduced by more than 10x compared with unoptimized models.
  3. The authors argue their results point to the types of operations future accelerators should be optimized for in processing lightweight large language models.

Related Articles:

  • 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.
  • Artificial Intelligence’s ‘Insatiable’ Energy Needs Not Sustainable, Arm CEO Says — Chip-design company Arm forecasts that without greater efficiency gains, artificial intelligence data centers could consume 20-25% of US power requirements by the end of the decade, versus roughly 4% or less today. The International Energy Agency estimates a single ChatGPT request uses 2.9 watt-hours of electricity, nearly 10x an average Google search.
  • 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.