Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, 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
Date Posted:
Is Database:
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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
Date Posted:
Is Database:
Database

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.

Wednesday, June 19, 2024

AI Summary. The Congressional Budget Office projects federal spending of $84.9tn (24.1% of GDP) over the next decade against revenue of $62.8tn (17.8% of GDP), compared with 50-year averages of 21% and 17.3%. Interest costs are projected to reach $892bn, more than defense or Medicare, and grow to $1.7tn (4.1% of GDP).

CRFB Staff Committee for a Responsible Federal Budget
Date Posted:

According to the new @USCBO projections, interest costs are forecast to double from $345B in FY ‘20 to $892B in ‘24, reaching a near-record 3.1% of GDP, more than either defense or Medicare spending. @MarcGoldwein @BudgetHawks

Is rising federal debt driven by spending exceeding revenue?

Core argument: CBO's June 2024 baseline projects federal spending of $84.9 trillion (24.1% of GDP) and revenue of $62.8 trillion (17.8% of GDP) over the next decade, against 50-year historical averages of 21% and 17.3% of GDP.

Rising debt under CBO's baseline is driven by a large disconnect between spending and revenue, with spending totaling $84.9T (24.1% of GDP) over the next decade and revenue totaling $62.8T(17.8% of GDP). By comparison, the 50-year historic average is 21% of GDP for spending and 17.3% for revenue. Interest spending is a particularly large driver of growing spending and deficits. Interest costs are projected to more than double from $345B in FY 2020 to $892B in 2024, reaching a near-record of 3.1% of GDP this year and costing more than either defense or Medicare. Interest costs are projected to exceed their record as a share of the economy next year, top $1T in 2025, and continue to grow to $1.7T – or 4.1% of GDP – by 2034.

Takeaways by Macro Roundup® AI

  1. CBO's June 2024 baseline projects federal spending of $84.9 trillion (24.1% of GDP) and revenue of $62.8 trillion (17.8% of GDP) over the next decade, against 50-year historical averages of 21% and 17.3% of GDP.
  2. CBO projects interest costs will more than double from $345 billion in fiscal 2020 to $892 billion in 2024, reaching a near-record 3.1% of GDP and exceeding spending on either defense or Medicare.
  3. CBO projects interest costs will surpass their record share of the economy next year, top $1 trillion in 2025, and grow to $1.7 trillion, or 4.1% of GDP, by 2034.

Related Articles:

  • An Update to the Budget and Economic Outlook: 2024 to 2034 — 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.
  • 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.
  • 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.

AI Summary. Home insurance premium growth has been concentrated in disaster-prone zipcodes, and the authors estimate that the pass-through of climate risk into premiums rose more than 60% between 2018 and 2023, with higher reinsurance prices explaining over half of that increase. They project climate-exposed homeowners will pay $700 more in annual premiums by 2053 from wildfire and hurricane risk.

Benjamin Keys and Philip Mulder National Bureau of Economic Research
Date Posted:

Across zip codes, a one SD increase in disaster risk was associated with $500 higher premiums in 2023, up from $300 in 2018, mainly caused by the pass-through of reinsurance costs. @Key_Z_E @Philipcheesy

How much of rising home insurance premiums do reinsurance costs explain?

Core argument: Using mortgage escrow data, the authors estimate that the pass-through of climate risk to property insurance premiums rose more than 60% between 2018 and 2023, with premium growth concentrated in disaster-prone zipcodes.

Premiums have risen sharply since 2020. This growth has been concentrated in disaster-prone zipcodes, and elevated reinsurance costs are a critical driver of the increase. New estimates of the elasticity of premiums with respect to climate risk show that the pass-through of risk to premiums increased more than 60% between 2018 and 2023. We alsoprovide a new estimate of the pass-through of reinsurance costs to insurance premiums in markets exposed to catastrophic disasters, finding that the increase in reinsurance prices can explain over half of the increase in the relationship between premiums and risk. By 2053, we estimate that climate-exposed homeowners will be paying $700 higher annual premiums due to increasing wildfire and hurricane risk. These premium increases are highly sensitive to reinsurance prices. If insurance costs revert to their 2018 levels, then premium increases will be reduced by ⅓. Thus, the costs of climate change depend on the costs of accessing reinsurance markets to diversify catastrophic risks.

Takeaways by Macro Roundup® AI

  1. Using mortgage escrow data, the authors estimate that the pass-through of climate risk to property insurance premiums rose more than 60% between 2018 and 2023, with premium growth concentrated in disaster-prone zipcodes.
  2. The authors find that higher reinsurance prices can explain over half of the increase in the relationship between insurance premiums and disaster risk.
  3. By 2053, the authors estimate that climate-exposed homeowners will pay $700 more in annual premiums due to rising wildfire and hurricane risk, with that increase reduced by one-third if insurance costs revert to 2018 levels.

Related Articles:

  • The Uninsurable World: What Climate Change Is Costing Homeowners — Global insurance losses from natural catastrophes have topped $100bn for four straight years, a level once considered the mark of an exceptionally bad year, and US insurers have repriced risk with significant premium increases. Reinsurer Swiss Re predicts a growing number of areas where buying insurance becomes uneconomical.
  • In Southwest Florida, High Home Insurance Rates Are Driving Away Would-Be Buyers — Florida homeowners paid about $6,000 a year for insurance on average, roughly triple what they paid in 2019 and compared with about $1,700 for the average US homeowner. Insurers and state regulators attribute the increases to widespread lawsuits and fraud, and a Category 5 hurricane led some insurers to exit the state or limit new policies.
  • As Texas Burns, Property Insurance Costs Soar — Rising property insurance premiums are attributed to climate-related damage, higher rebuilding costs, and costlier reinsurance protection for insurers, which is passed on to homeowners. The insurance industry says rebuilding and replacement costs rose 55% over a three-year span, driven by raw materials, wages, supply-chain bottlenecks, and a rising share of larger homes.

AI Summary. US inflation data indicate the early-year spike was an aberration, with core personal consumption prices estimated to have risen just 0.13% in a single month. The authors project monthly prints averaging 0.17% for the rest of the year, ending at 2.7% year-on-year, slightly below the Federal Reserve's median projection of 2.8%.

Jan Hatzius Goldman Sachs
Date Posted:

Last week’s CPI report reinforces Jan Hatzius’ @GoldmanSachs view that inflation will return to the Fed’s 2% target in 2025. Jan forecasts two cuts this year, the first in September followed by a cut in December.

Was the early-year inflation spike an aberration?

Core argument: Core PCE rose an estimated 0.13% in May, based on CPI, PPI, and import price data, reinforcing the view that the Q1 inflation spike was an aberration.

Last week’s US inflation data reinforced our view that the Q1 spike was an aberration. With CPI, PPI, and import prices in hand, we estimate that core PCE rose just 0.13% in May. In the remainder of 2024, we expect prints averaging 0.17%, with flat core goods prices and ongoing gradual deceleration in both shelter and non-housing core service inflation. This implies that core PCE will end 2024 at 2.7% year-on-year, a slight increase from May's estimated 2.6% because of adverse base effects but slightly below the latest median FOMC projection of 2.8%. We still expect both headline and core inflation to fall to 2% in 2025.

Takeaways by Macro Roundup® AI

  1. Core PCE rose an estimated 0.13% in May, based on CPI, PPI, and import price data, reinforcing the view that the Q1 inflation spike was an aberration.
  2. Core PCE prints are expected to average 0.17% over the remainder of 2024, with flat core goods prices and gradual deceleration in both shelter and non-housing core services inflation.
  3. Core PCE is projected to end 2024 at 2.7% year-on-year, up slightly from May's estimated 2.6% on adverse base effects but below the median FOMC projection of 2.8%, with headline and core inflation expected to fall to 2% in 2025.

Related Articles:

  • The Fed Can Take Its Time Taming Inflation — 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.
  • 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.
  • 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. Higher Federal Reserve interest rates raise the dividends money market funds pay to households, currently running at about $500bn, or roughly 2.5% of consumer spending. The author argues rate hikes therefore boost consumer spending through this channel.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk notes “When the Fed raises interest rates, money market funds pay a higher dividend.” Current dividends are $500B/year, the equivalent of 2.5% of consumer spending.

Do higher interest rates boost consumer spending through money market dividends?

Core argument: Money market funds are paying households roughly $500 billion in dividends, equal to about 2.5% of consumer spending, a channel that rises when the Federal Reserve raises interest rates.

When the Fed raises interest rates, money market funds pay a higher dividend to households. This effect is very significant and currently running at $500B, or around 2.5% of consumer spending. Put differently, Fed hikes are boosting consumer spending through higher money market fund dividends.

Takeaways by Macro Roundup® AI

  1. Money market funds are paying households roughly $500 billion in dividends, equal to about 2.5% of consumer spending, a channel that rises when the Federal Reserve raises interest rates.
  2. Federal Reserve rate hikes boost consumer spending through higher money market fund dividends paid to households, an effect characterized as very significant.

Related Articles:

  • Americans Have More Investment Income Than Ever Before — Americans earn about $3.7tn a year from interest and dividends, according to the Commerce Department, roughly $770bn more than four years earlier. The Federal Reserve recorded wealth held in stocks, real estate, and other assets such as pensions at the highest level it has ever observed.
  • Who Benefits from Higher Yields? — Higher interest rates raise cash flows to fixed income holders, but the Federal Reserve and foreign investors hold 50% of outstanding Treasuries and foreigners hold 28% of outstanding corporate credit, so much of that added income does not boost US growth. The author argues higher rates are a net negative for the US economy.
  • Pandemic Savings Are Gone: What’s Next for U.S. Consumers? — Researchers estimate U.S. households' pandemic-era excess savings peaked at $2.1tn and were drawn down at an average pace of about $70bn per month before being depleted. The depletion is unlikely to cause households to sharply cut spending as long as they can support consumption through continued employment or wage gains, other wealth, and more debt.

AI Summary. Quit rates rose across all industries and demographic groups, with particularly sharp increases among younger, female, nonwhite, and non-college-educated workers; many moved directly to another employer, but a majority left the workforce entirely. The authors attribute the rise to both stronger labor demand and weaker labor supply, a combination that pushed up wage inflation and, in turn, price inflation.

Ryan Michaels Federal Reserve Bank of Philadelphia
Date Posted:
Is Database:
Database

The pandemic-era rise in quit rates was strongest among female, nonwhite, non-college-educated workers aged < 35, many of whom left the workforce, facilitated by increases in wealth from stimulus checks. @philadelphiafed

Did both stronger labor demand and weaker labor supply drive rising quits?

Core argument: Quit rates rose across all industries and demographic groups, with particularly sharp increases among younger, female, nonwhite, and non-college-educated workers.

Higher quit rates were observed for all industries and demographic groups, but the rise in quits was particularly sharp for younger, female, nonwhite, and non-college-educated workers. Many of these workers transitioned directly to another employer, but a majority left the workforce altogether. This suggests that changes in both the supply of labor (as illustrated by the wealth narrative) and the demand (as illustrated by the fast-growth narrative) contributed to the rise in quits. Over the course of 2021 and into 2022, wage inflation accelerated. It’s probably not a coincidence that this overlaps with the Great Resignation. The rise in quits was fueled by both stronger labor demand and weaker labor supply—a combination that should put upward pressure on wages. The acceleration in wage inflation appears to have in turn fed into higher price inflation.

Takeaways by Macro Roundup® AI

  1. Quit rates rose across all industries and demographic groups, with particularly sharp increases among younger, female, nonwhite, and non-college-educated workers.
  2. A majority of workers who quit left the workforce altogether rather than moving directly to another employer, suggesting that both weaker labor supply and stronger labor demand contributed to the rise in quits.
  3. Wage inflation accelerated over 2021 and into 2022, overlapping with the Great Resignation, and that acceleration appears to have fed into higher price inflation.

Related Articles:

  • High Tech Business Entry In The Pandemic Era — High-tech industries accounted for a disproportionate share of the surge in net new business establishments after 2019, with net entry higher in tech than non-tech industries. The authors find suggestive evidence that tech establishment births rose more for existing firms than new firms, though both categories saw elevated openings.
  • To Retire or Keep Working after a Pandemic? — Workers age 55 and older have not reversed the decline in labor force participation that began with the COVID-19 pandemic, unlike other age groups, amounting to roughly 2m workers by some estimates. The shortfall is concentrated among those without a college degree, while college-educated older workers' participation returned to its pre-pandemic trend.
  • Pandemic Labor Force Participation and Net Worth Fluctuations — The shortfall in U.S. labor force participation relative to its pre-pandemic peak is attributed mostly to a decline in participation among workers older than 55. The authors estimate that wealth effects from rising net worth can explain between 20% and 36% of the 3.3m excess retirements over the full period studied.