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


Thursday, June 20, 2024

AI Summary. The 10-year U.S. Treasury yield and the economy-wide return on capital have diverged by more than 10 percentage points since 1980, as overall corporate profit rates rose while financing costs fell. The authors attribute the gap to composition: profit rates for publicly traded firms have fallen by over a third, while private companies' profit rates increased.

Anton Bobrov, Carter Davis, Alexandre Sollac & James Traina Federal Reserve Bank of San Francisco
Date Posted:
Is Database:
Database
Is Important:
Important

An analysis from @SFFed finds that capital returns for publicly traded firms have fallen since 1950 while returns for privately held companies have increased. @ASollaci @EconTraina @CarterDavisFin

Why have corporate profit rates risen while financing costs fell?

Core argument: The yield on 10-year U.S. Treasury securities and the overall return on capital have diverged by more than 10 percentage points since 1980, with aggregate U.S. corporate profit rates rising even as interest rates fell.

Since 1980 the yield on 10-year U.S. Treasury securities, which approximates the interest rate, and the overall return on capital, or profit rate have diverged by more than 10 percentage points. Profit rates for publicly traded firms have fallen by more than a third since 1980, in line with interest rate trends in financial markets. U.S. corporate profit rates have increased overall since the 1980s, alongside a decrease in interest rates. We explain how corporate returns continue to rise despite falling financing costs: while overall data track profits for all corporations, financing costs are based on data for public corporations only. Including private companies in comparisons with financial markets introduces bias because their investments can differ from public corporations and vary over time. By accounting for this bias, we demonstrate that profit rates for public corporations have declined while profit rates for private companies have increased.

Takeaways by Macro Roundup® AI

  1. The yield on 10-year U.S. Treasury securities and the overall return on capital have diverged by more than 10 percentage points since 1980, with aggregate U.S. corporate profit rates rising even as interest rates fell.
  2. Profit rates for publicly traded firms have fallen by more than a third since 1980, in line with interest rate trends in financial markets.
  3. Comparing profits for all corporations with financing costs measured only for public corporations introduces bias, and accounting for it shows public corporations' profit rates declining while private companies' profit rates increase.

Related Articles:

  • Public Markets Are a Small Part of the Overall Economy — Publicly traded companies represent a small share of US economic activity: 87% of firms with revenues above $100m are private, privately owned firms account for nearly 80% of job openings, and S&P 500 companies provide 18% of US employment and 15% of capital spending.
  • End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns — The authors estimate that declining interest and corporate tax rates accounted for over 40% of real corporate profit growth from 1989 to 2019, while falling risk-free rates explain the entire expansion in price-to-earnings multiples. Real earnings before interest and taxes grew slightly more slowly than in 1962–1989, at 2.2% versus 2.4% per year.
  • The Curious Incident of the Elevated Profit Margins — The US fiscal deficit averaged just under 3% of gross national product from 1950 to 2011 but 6.6% from 2012 to 2022, driven mainly by health and social security spending, a pattern that holds excluding pandemic years. Even assuming permanently elevated profit margins, US equity valuations imply low long-run returns.

AI Summary. Analysis of Federal Reserve balance sheet reduction finds that households and broker-dealers absorbed the additional supply of Treasury securities during the 2017–2019 episode, with household holdings correlated with hedge fund holdings. In the first year of the reduction begun in 2022, households purchased a large share while hedge funds did not, and insurance companies and foreign investors also increased holdings.

Lucy Cordes and Erin Ferris Federal Reserve Board
Date Posted:
Is Database:
Database
Is Important:
Important

Since June 2022 the marginal buyer of Treasuries has shifted to domestic households, foreign hedge fund buyers, and insurance companies. @FederalReserve

Who buys Treasuries when the Fed shrinks its balance sheet?

Core argument: The authors find that households and broker-dealers absorbed the additional Treasury supply created by the Federal Reserve's 2017–2019 balance sheet reduction, with household Treasury holdings correlated with hedge fund holdings.

Understanding the marginal buyer of Treasury securities during balance sheet reduction has implications for Treasury yield volatility. Our analysis establishes that households and broker-dealers purchased the additional supply of Treasury securities resulting from the Fed's 2017-2019 balance sheet reduction period. [The “households” sector includes hedge funds, private equity funds, and personal trusts.] We find that Treasury security holdings of households are correlated with hedge fund holdings. Over the first year of the balance sheet reduction that began in June 2022, households purchased a large portion of Treasury securities the Fed no longer holds, but hedge funds did not make those purchases. In addition, we find that insurance companies and the rest of the world increased their holdings of Treasury securities during this period, in contrast to the pre-COVID balance sheet reduction.

Takeaways by Macro Roundup® AI

  1. The authors find that households and broker-dealers absorbed the additional Treasury supply created by the Federal Reserve's 2017–2019 balance sheet reduction, with household Treasury holdings correlated with hedge fund holdings.
  2. Over the first year of the balance sheet reduction that began in June 2022, households purchased a large portion of the Treasury securities the Fed no longer held, but hedge funds did not make those purchases.
  3. Insurance companies and the rest of the world increased their Treasury holdings during the balance sheet reduction that began in June 2022, in contrast to the pre-COVID reduction period, according to the authors' analysis.

Related Articles:

  • The $27 Trillion Treasury Market Is Only Getting Bigger — Short-term Treasury bills have risen to 22.4% of outstanding U.S. government debt, above the 20% limit recommended by the committee that advises the Treasury on borrowing. Demand remains solid, with investors requiring no extra compensation to hold longer-term Treasurys and fewer alternatives available in corporate and mortgage-backed bond markets.
  • Who Is Buying US Treasuries? — The US Treasury buyer base has shifted from yield-insensitive buyers such as sovereign wealth funds and central banks toward yield-sensitive buyers such as US households, pensions, and insurers. If the Federal Reserve cuts rates, demand from these yield-sensitive buyers could weaken, producing a steeper yield curve.
  • In 2023 Foreign Demand for Long Term Treasuries Exceed Net Issuances — Foreign demand for long-term US Treasuries, at just over $450bn, exceeded the Treasury's net long-term issuance of just over $400bn, with that demand not coming from China. Net long-term issuance lagged the fiscal deficit—roughly 1.5% of GDP versus 6%—leaving the increase in the stock of long-term "safe" US assets modest.

AI Summary. The authors argue easier financial conditions will keep offsetting Federal Reserve rate hikes, supported by strong consumer and government spending, corporate earnings, and rising asset prices. They project US growth of 2.5%, above consensus, as gains in middle- and high-income household wealth more than offset higher rates on indebted consumers.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk forecasts 2.5% growth in 2024, and notes that loosening financial conditions and “the dramatic increase in the wealth of middle and high-income households is more than compensating for the negative effects of rising rates.”

Do easier financial conditions offset rate hikes to keep growth above consensus?

Core argument: The authors forecast US economic growth of 2.5% in 2024, above consensus, supported by a still-strong employment picture.

We believe that easier financial conditions will continue to offset the effects of the Fed rate hikes, at least for the next three quarters, driven by strong consumer spending, still-high government spending, still-strong aggregate corporate earnings, and the “wealth effect” triggered by rising asset prices. As a result, we expect US economic growth to come in above consensus in 2024, at 2.5%, on the back of a still-strong employment picture. From a holistic perspective, we believe that the consensus outlook for consumer spending is too low (Exhibit 25). Why? Because even though consumers with a lot of debt are being negatively impacted by higher interest rates, the dramatic increase in the wealth of middle and high income households is more than compensating for the negative effects of rising rates. This significant increase in household wealth, combined with still-strong home prices, will be a solid tailwind to consumer spending over the coming quarters, in our view.

Takeaways by Macro Roundup® AI

  1. The authors forecast US economic growth of 2.5% in 2024, above consensus, supported by a still-strong employment picture.
  2. The authors argue easier financial conditions will keep offsetting the effects of Fed rate hikes for at least the next three quarters, driven by strong consumer spending, still-high government spending, still-strong aggregate corporate earnings, and the wealth effect from rising asset prices.
  3. The authors judge consensus forecasts for consumer spending too low, arguing that the increase in wealth among middle- and high-income households, combined with still-strong home prices, more than compensates for the effect of higher rates on indebted consumers.

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.
  • Monetary Policy and Financial Conditions — Surprise monetary tightening is associated with significant, persistent tightening in financial conditions: a 0.1 percentage point policy surprise raises the Goldman Sachs financial conditions index by about 0.07 index points on the announcement day, with further increases over the following two weeks. Macroeconomic news, especially inflation releases, also moves financial conditions by shifting expectations about future policy.
  • 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. Productivity growth means producing more output from the same or fewer inputs, driven by factors such as technological advances, better equipment, improved skills, and more efficient processes. The American Enterprise Institute recommends stepping up investment in human capital, noting the US ranks mid-pack among wealthy countries in public education spending and math and science scores despite near-top per capita income.

James Pethokoukis American Enterprise Institute
Date Posted:
Is Database:
Database
Is Important:
Important

US nonfarm business sector real output per hour grew at a 1.5% annual rate from Q4 2019 to Q1 2024, well under the 2.1% average from 1947-2024. @JimPethokoukis recommends that politicians “substantially step up investments in human capital.”

How can policymakers raise productivity growth?

Core argument: Steven Kamin of AEI notes that the United States ranks near the top of the OECD in per capita income but in the middle of the pack on public spending on education and on math and science test scores.

Productivity growth occurs when an economy can generate more output from the same amount of inputs, more from fewer inputs, or even the same output from fewer inputs. In other words, an economy becomes more productive when a worker can produce more output in the same amount of time due to factors such as technological advancements, better equipment, improved skills, or more efficient processes. Steven Kamin, an AEI senior fellow and former economist at the Federal Reserve [recommends] “substantially step up investments in human capital. Ultimately, our ability to compete and thrive in a global knowledge economy will depend on the training, intelligence, and creativity of our workforce. But even though the United States ranks near the top of the OECD in per capita income, it ranks very much in the middle of the pack when it comes to public spending on education as well as test scores in math and science.”

Takeaways by Macro Roundup® AI

  1. Steven Kamin of AEI notes that the United States ranks near the top of the OECD in per capita income but in the middle of the pack on public spending on education and on math and science test scores.
  2. Steven Kamin, a former Federal Reserve economist, recommends substantially stepping up investments in human capital, arguing that the ability to compete in a global knowledge economy depends on the training, intelligence, and creativity of the workforce.
  3. Productivity growth occurs when an economy generates more output from the same inputs, more from fewer inputs, or the same output from fewer inputs, through factors such as technological advancements, better equipment, improved skills, or more efficient processes.

Related Articles:

  • The Outlook for Long-Term Economic Growth — Growth theory holds that long-run growth in living standards is determined by growth in the worldwide number of people searching for ideas, and growth accounting for the US suggests temporary boosts from rising educational attainment and idea investment could fade. Potential offsets include China and India, better talent allocation, and artificial intelligence.
  • 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.
  • 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.

AI Summary. Ecuador suspended its visa waiver agreement with China, with its foreign ministry stating that nearly half of Chinese travellers who entered did not leave through regular routes or within the 90 days permitted. US Customs and Border Protection detained more than 37,000 Chinese citizens at the southern border, a 10-fold increase.

Joe Daniels Financial Times
Date Posted:

Ecuador is suspending a visa waiver agreement with China as the country increasingly becomes an entry point for Chinese citizens attempting to migrate to the US. In 2023 at least 37,000 Chinese citizens were detained at the US southern border.

Are visa waivers fueling Chinese migration routes to the US border?

Core argument: Ecuador will suspend its visa waiver agreement with China, citing a "worrying increase" in arrivals after Ecuador became an important staging post on a global migrant route to the US.

Ecuador is to suspend a visa waiver agreement with China, citing a “worrying increase” in arrivals after the South American country became an important staging post on a global migrant route to the US. The country’s foreign ministry said nearly half of Chinese travellers who entered Ecuador did not leave “through regular routes” or within the 90 days permitted. Chinese people are increasingly part of that migration flow. Last year, the number of Chinese people attempting to cross the US southern border skyrocketed, with US Customs and Border Protection detaining more than 37,000 Chinese citizens, up 10-fold from 2022. About 66,000 Chinese travellers entered Ecuador last year, while only 34,000 left through regular channels, according to officials.

Takeaways by Macro Roundup® AI

  1. Ecuador will suspend its visa waiver agreement with China, citing a "worrying increase" in arrivals after Ecuador became an important staging post on a global migrant route to the US.
  2. Ecuador's foreign ministry said about 66,000 Chinese travellers entered the country last year while only 34,000 left through regular channels, with nearly half not exiting through regular routes or within the 90 days permitted.
  3. US Customs and Border Protection detained more than 37,000 Chinese citizens at the US southern border last year, a 10-fold increase from 2022.

Related Articles:

  • China to See Biggest Millionaire Exodus in 2024 as Many Head to U.S. — 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.
  • 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.
  • 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. Canada has adopted some of the most aggressive immigration policies in the OECD, adding 1.273m residents in a year to reach a population of 41m — proportionally equivalent to the US admitting more than 10m immigrants annually. Canadians are increasingly angry as housing prices soar, sprawl expands, and traffic worsens.

Paul Kedrosky Applied Complexity
Date Posted:

Canada added 1.3mm immigrants last year, equivalent to the US adding more than 10mm immigrants in a year. @pkedrosky notes that the resultant rise in real estate prices and other impacts will likely cost the Trudeau government the election in 2025.

Is rapid immigration driving housing costs and public anger in Canada?

Core argument: Canada added 1.273 million new residents, a mix of permanent and non-permanent immigrants, over the past year, bringing its population to 41 million — equivalent to the US adding more than 10 million immigrants annually.

The Canadian government, faced with flatlining GDP, a declining birthrate, and an aging population, has instituted some of the most aggressive immigration policies in the OECD, and in recent Canadian history. The result? Canada's population is now 41 million, having added a staggering 1.273 million new residents in the past year, a mix of permanent and non-permanent immigrants. This is the equivalent of the US adding more than 10 million immigrants a year. While some economists might laud the "free lunch" that comes with wide-open immigration, Canadians themselves are increasingly angry about what is going on. A generally tolerant society, historically open to immigration, Canadians are watching real estate get priced into the stratosphere, sprawl destroy much of what made cities' environs appealing, and traffic turning everyone into Angeleno freeway rage monsters.

Takeaways by Macro Roundup® AI

  1. Canada added 1.273 million new residents, a mix of permanent and non-permanent immigrants, over the past year, bringing its population to 41 million — equivalent to the US adding more than 10 million immigrants annually.
  2. Canada's government adopted some of the most aggressive immigration policies in the OECD and in recent Canadian history in response to flatlining GDP, a declining birthrate, and an aging population.
  3. Canadians, historically open to immigration, are increasingly angry as real estate prices climb, sprawl spreads across city environs, and traffic worsens.

Related Articles:

  • Immigration Surge Fuels Male Population Boom in Canada — Canada's adult male population grew 3.4% over the past year versus 2.9% for women, the widest gap in nearly 50 years of records, as a higher share of male newcomers shifts the gender ratio. Among those aged 25 to 44, men outnumber women by 141,000, against a long-run average of zero.
  • Population Gains in Canada Set Record, But Slower Growth Ahead — Canada's population grew at a 3.2% annual rate, among the world's fastest, with only 2.4% of the increase from net births and the remainder from international migration, primarily foreign workers and students. Without temporary immigration, growth would have been 1.2%, and planned cuts to temporary residents and international students are expected to slow future gains.
  • Canadian Conservatives Have Found A Way To Win Back Young Voters — Canada's Conservative Party has doubled its vote share and moved into the lead, which the author attributes to an explicitly pro-youth platform centered on housebuilding, including proposals to withhold funds from cities that don't build enough housing and reward those that do. Housing affordability ranks as the second most important issue in Canada, behind the broader cost-of-living crisis.

Friday, June 21, 2024

AI Summary. The authors estimate that a one-unit increase in a firm's labor issues, as measured by earnings calls, raises its investment by 28 basis points, implying roughly $55bn in additional US investment attributable to tighter labor markets. The effect is concentrated in industries relying heavily on routine manual tasks, such as manufacturing assembly and warehouse packaging.

Mick Dueholm, Aakash Kalyani and Serdar Ozkan Federal Reserve Bank of St. Louis
Date Posted:
Is Database:
Database

A @stlouisfed analysis finds that since 2021 an increase in labor issues has spurred an additional $55B in investment, driven by firms that heavily employ routine manual tasks like assembly and warehouse packaging. @AakashKalyani @serdarozkanEN

Does worker scarcity push firms to invest more in automation?

Core argument: A one-unit increase in a firm's labor issues, as measured by earnings calls, is estimated to raise its investment by 28 basis points.

A one-unit increase in a firm’s labor issues [as measured by earnings calls] leads to a 28 basis point increase in its investment. To put this investment effect into perspective, our estimate implies that since 2021, the increase in labor issues (due to, for example, tighter labor markets) has spurred approximately an additional $55 billion in investment in the U.S. economy. This is a significant amount and one that’s similar in size to funding appropriated through the 2022 CHIPS and Science Act for boosting domestic semiconductor research and manufacturing. We also found that the increase in investment has been driven by firms in industries that heavily employ routine manual tasks, such as assembly line work in the manufacturing industry or packaging and labeling in the warehousing sector. Industries that don’t heavily employ routine manual tasks tend not to experience a significant increase in investment resulting from labor issues.

Takeaways by Macro Roundup® AI

  1. A one-unit increase in a firm's labor issues, as measured by earnings calls, is estimated to raise its investment by 28 basis points.
  2. The authors estimate that rising labor issues since 2021, due to factors such as tighter labor markets, have spurred roughly an additional $55 billion in U.S. investment, similar in size to funding appropriated under the 2022 CHIPS and Science Act.
  3. The investment increase has been driven by industries that heavily employ routine manual tasks, such as manufacturing assembly line work and warehouse packaging and labeling, while other industries tend not to show a significant investment response to labor issues.

Related Articles:

  • Automation and Rent Dissipation: Implications for Wages, Inequality, and Productivity — The authors argue firms inefficiently automate jobs where wages exceed workers' opportunity cost, so new automation technologies that deliver small cost savings can reduce productivity, average real wages, and aggregate consumption. They estimate workers earned an average wage premium of 35% in jobs automated between 1980 and 2016.
  • 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.
  • U.S. Business Investment in the Post-COVID Expansion — 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.

AI Summary. The average fertility rate across OECD countries has declined over the long term, falling to 1.5 children per woman, well below the 2.1 "replacement level," with rates as low as 1.2 in Italy and Spain and an estimated 0.7 in Korea. The average age of mothers at first birth rose from 26.5 years to 29.5 years.

OECD Staff Organisation for Economic Co-operation and Development
Date Posted:

The mean number of children per woman across advanced economies has fallen from 3.3 in 1960 to 1.5 in 2022 according to a new @OECD study. The age at which mothers have their first child has climbed from 26.5 in 2000 to 29.5 in 2022.

How far have fertility rates fallen across developed countries?

Core argument: The OECD average total fertility rate fell to 1.5 children per woman in 2022, well below the replacement level of 2.1, continuing a long-term decline that resumed after the 2007–08 financial crisis following a temporary halt in the 2000s.

OECD countries have been experiencing a long-term decline in the total fertility rate (TFR). There was a temporary halt in the decline during the 2000s, but it has since trended downwards again after the great financial crisis of 2007-08. The TFR fell to just 1.5 children per woman in 2022, on average across the OECD, well below the “replacement level” of 2.1 children per woman. Among OECD countries in 2022, the TFR was highest in Israel with 2.9 children per woman followed by Mexico and France with 1.8 children per woman. The TFR was lowest in Italy and Spain with 1.2 children per woman, and particularly in Korea at an estimated 0.7 children per woman in 2023. The decline in the TFR went hand in hand with an increase in the age at which mothers have their first child, which increased from 26.5 years in 2000, on average across the OECD, to 29.5 in 2022.

Takeaways by Macro Roundup® AI

  1. The OECD average total fertility rate fell to 1.5 children per woman in 2022, well below the replacement level of 2.1, continuing a long-term decline that resumed after the 2007–08 financial crisis following a temporary halt in the 2000s.
  2. Among OECD countries in 2022, Israel recorded the highest total fertility rate at 2.9 children per woman, followed by Mexico and France at 1.8, while Italy and Spain were lowest at 1.2 and Korea was an estimated 0.7 in 2023.
  3. The average age at which mothers in the OECD have their first child rose from 26.5 years in 2000 to 29.5 in 2022, an increase that went hand in hand with the decline in the total fertility rate.

Related Articles:

  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.
  • The World Is Becoming More African — United Nations forecasts project Africans will rise from 8% of the world's people in 1950 to one-quarter by 2100, with the continent holding the world's largest workforce within a decade. McKinsey & Company estimates Africa's per-person economic growth has averaged 1% annually since 1990, against India's 5% and China's 9%.

AI Summary. The US foreign-born population rose by 6.6mm to 51.6mm over a roughly three-year span, lifting immigrants to 15.6% of the population, above the prior records of 14.8% in 1890 and 14.7% in 1910. The authors estimate about 13.7mm illegal immigrants now live in the US, a net increase of 3.7mm.

Steven Camarota National Affairs
Date Posted:
Is Database:
Database

Census Bureau data shows that the foreign-born population of the US rose from 45mm in January 2021 to 51.6mm in March 2024, representing 15.6% of the population, surpassing the 1890 record of 14.8%.

How large has the foreign-born and illegal immigrant population grown?

Core argument: The author estimates that 6–7mm new illegal immigrants settled in the United States during the first three years of the Biden administration, a scale unlike anything previously seen.

Prior to the Covid-19 pandemic, we had a reasonable picture of illegal immigrants in the United States and their fiscal impact. But since President Biden took office, the flow of illegal immigrants into the country has been nothing short of astonishing. All told, during the first three years of the Biden administration, 6 to 7 million new illegal immigrants likely settled in the United States. We have never seen anything like this before. The monthly Current Population Survey shows that the total foreign-born population grew from 45mm in January 2021 to 51.6mm in March 2024 — a 6.6 million-person increase. This is the net increase, not the number of new arrivals, which of course is offset by out-migration and deaths. Immigrants now make up 15.6% of the U.S. population — almost double their share in 1990 and more than triple what it was in 1970. This surpasses the old records of 14.8% in 1890 and 14.7% in 1910. By March of this year, there were probably 13.7mm illegal immigrants in the United States, a net increase of 3.7mm since January 2021.

Takeaways by Macro Roundup® AI

  1. The author estimates that 6–7mm new illegal immigrants settled in the United States during the first three years of the Biden administration, a scale unlike anything previously seen.
  2. The monthly Current Population Survey shows the foreign-born population rose from 45mm in January 2021 to 51.6mm in March 2024, a net increase of 6.6mm after out-migration and deaths.
  3. Immigrants make up 15.6% of the US population, nearly double their 1990 share and more than triple the 1970 share, surpassing the prior records of 14.8% in 1890 and 14.7% in 1910.

Related Articles:

  • 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.
  • Immigration and the U.S. Economy Since the Pandemic: An Accounting Exercise — The US native-born labor force fell by about 1.2m over four years, a decline driven overwhelmingly by population aging, while foreign-born labor supply grew by about 3m, leaving the overall labor force up roughly 2m. Without immigration, the total US labor force would have shrunk.
  • Immigration’s Effect on US Wages and Employment Redux — The authors estimate that immigration to the US over 2000-2019 raised wages of natives with a high school degree or less by 1.7% to 2.6%, a period when that group's real wages fell by 5% to 6%. Effects on more-educated natives ranged from -0.5% to +0.7%, with an overall average effect of +0.5% to +0.8% that was not statistically significant.

AI Summary. Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.

Eswar Prasad Foreign Affairs
Date Posted:

.@EswarSPrasad argues that there isn’t a viable alternative to the dollar as a reserve currency. “The story of the dollar is, ultimately, less about the United States’ strength than about the rest of the world’s weaknesses.”

How has the world's exposure to dollar-denominated assets changed?

Core argument: The U.S. net debtor position to the rest of the world tripled from $6 trillion in 2014, as foreign liabilities rose from $30 trillion to more than $51 trillion by early 2024 while U.S. foreign assets grew from $24 trillion to just $33 trillion.

Foreign investors hold more financial assets in the United States than American investors hold abroad, meaning the United States is a net debtor to the rest of the world. U.S. liabilities to the rest of the world are denominated in dollars, with many foreign investors willing to accept low returns in exchange for the safety of the dollar. American investors, by contrast, have been willing to bet on foreign assets that are mostly denominated in foreign currencies because those assets yield higher returns even if they are riskier. If the world turned away from the dollar and sent its value plummeting relative to other currencies, foreigners would take a beating on the value of their dollar-denominated assets when converted back to their home currencies. In light of this scary scenario, countries around the world should surely have reduced their exposure to the “dollar trap.” But they have done just the opposite. From 2014 to the beginning of 2024, U.S. foreign liabilities grew from $30T to more than $51T, while U.S. assets grew from $24T to just $33T. In other words, the United States was a net debtor to the rest of the world to the tune of $6T in 2014—and that amount has tripled over the last decade. The United States now has the rest of the world in an even tighter chokehold.

Takeaways by Macro Roundup® AI

  1. The U.S. net debtor position to the rest of the world tripled from $6 trillion in 2014, as foreign liabilities rose from $30 trillion to more than $51 trillion by early 2024 while U.S. foreign assets grew from $24 trillion to just $33 trillion.
  2. U.S. liabilities to the rest of the world are denominated in dollars, with many foreign investors accepting low returns in exchange for the dollar's safety, while American investors hold higher-yielding, riskier assets abroad mostly denominated in foreign currencies.
  3. A world turning away from the dollar and sending its value plummeting would hit foreigners converting dollar-denominated assets back into home currencies, yet countries have increased rather than reduced their exposure to this "dollar trap.".

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 Sells Record Sum of US Debt Amid Signs of Diversification — China sold a record $53.3bn of US Treasury and agency bonds in a single quarter, a sign of diversification away from American assets amid persistent trade tensions. Belgium, often viewed as a custodian of Chinese holdings, disposed of $22bn of Treasuries over the same period.
  • Power and Financial Interdependence — US-China financial interdependence creates what has been called a "balance of financial terror," in which the US relies on other countries' costs of not financing its current account deficit as assurance that financing continues. Chinese policymakers worry that dollar holdings expose China to financial sanctions, while the US has feared Chinese sales of Treasuries could threaten its financial stability.

AI Summary. Bank for International Settlements data show China's outstanding credit to the nonfinancial sector rose 148 percentage points of GDP over 15 years, the worst such stretch recorded for a major economy, while US credit rose less than 15 points to above 256% of GDP. China's reported fiscal deficit grew from $20bn to $820bn.

Derek Scissors American Enterprise Institute
Date Posted:
Is Database:
Database

From 2008-2023 outstanding credit to the Chinese non-financial sector rose 148pp to over 283% of GDP. Over that same period, the corresponding measure for the US rose 15pp to 256% of GDP. @DerekScissors1

How fast has China's debt grown compared with America's?

Core argument: China's outstanding credit to the nonfinancial sector rose 148 points over 15 years, which Bank for International Settlements data record as the worst such stretch for a major economy, with Japan not reporting until 1997.

According to Bank for International Settlements data, China's 148-point increase in outstanding credit to the nonfinancial sector over 15 years is the worst stretch recorded for a major economy. (Japan did not start reporting until 1997.) In contrast, American outstanding credit is said to have risen less than 15 points from 2008 to 2023, passing 256 percent of GDP in 2023. The PRC’s general government debt started deteriorating when Xi took over. The deterioration accelerated in 2016, exactly as corporate debt was reined in. The BIS figures are helpful because American and Chinese fiscal data are not easily compared. The most reliable PRC measure of its fiscal deficits rose from $20 billion in 2008 to $820 billion in 2023. The closest US figure is federal budget deficits, which stood at $460 billion in 2008 and an absurd $1.7 trillion in 2023. America’s 2023 GDP was about 55% higher than China’s. The numbers from national statistics authorities at least appear to confirm the trends shown by BIS.

Takeaways by Macro Roundup® AI

  1. China's outstanding credit to the nonfinancial sector rose 148 points over 15 years, which Bank for International Settlements data record as the worst such stretch for a major economy, with Japan not reporting until 1997.
  2. American outstanding credit rose less than 15 points from 2008 to 2023, passing 256 percent of GDP in 2023.
  3. China's most reliable fiscal deficit measure rose from $20 billion in 2008 to $820 billion in 2023, while US federal budget deficits went from $460 billion to $1.7 trillion, with 2023 American GDP about 55% higher than China's.

Related Articles:

  • China Economy Memo: Tempest in a Teapot or Crisis A-Brewing? — The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.
  • Fiscal Policy in the Great Election Year — China's overall fiscal deficit remained above 7% of GDP, as a modest increase in revenues offset higher spending, and is projected to rise gradually to about 8% of GDP by 2029 as pension and interest costs increase. Persistently large primary deficits are projected to keep raising public debt despite very favorable interest-growth differentials.
  • The Rise and Fall of LGFVs — China has nearly 12,000 local government financing vehicles whose aggregated assets and liabilities equal roughly 120% and 75% of national GDP, and whose earnings before interest, taxes, and depreciation do not cover their interest payments. Their average borrowing cost of about 5% far exceeds their 1% return on assets, and 80–90% of their annual spending is funded by new debt.