Edward Conard

Top Ten New York Times Bestselling Author

  • “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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, July 3, 2024

AI Summary. The dollar-yen exchange rate is above 160 and 10-year Japanese government bond yields are approaching 1.1%, while Japan holds $1.2tn of US Treasuries versus China's $770bn. A declining three-month moving average of Japanese net Treasury purchases suggests repatriation, and an econometric model based on US-Japan interest differentials implies a rate of 140.

Torsten Sløk Apollo
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Japanese demand for US Treasuries is declining as domestic assets become more attractive, with 10-year JGB rates approaching 1.1%. At $1.2T Japan is the biggest foreign holder of US Treasuries.

Is a weak yen pushing Japanese investors to sell US Treasuries?

Core argument: The yen is above 160 per dollar and 10-year JGB yields are approaching 1.1%, while a simple econometric model based on the current US–Japan interest differential implies a USD/JPY rate of 140.

The Japanese yen has risen above 160 and 10-year JGB yields are approaching 1.1%. Japan is the biggest foreign holder of US Treasuries, holding $1.2 trillion. This is more than China’s $770 billion. The three-month moving average of Japanese net purchases of US Treasuries is declining, suggesting that Japanese investors are repatriating money from abroad and taking money home to buy Japanese assets. A simple econometric model forecasting the USD/JPY exchange rate shows that based on the current interest differential between the US and Japan, the USD/JPY exchange rate should currently be 140. In other words, with Japanese yields rising relative to US yields, the yen should be appreciating, which is the opposite of what has happened.

Takeaways by Macro Roundup® AI

  1. The yen is above 160 per dollar and 10-year JGB yields are approaching 1.1%, while a simple econometric model based on the current US–Japan interest differential implies a USD/JPY rate of 140.
  2. Japan is the largest foreign holder of US Treasuries at $1.2 trillion, ahead of China's $770 billion, and the three-month moving average of Japanese net Treasury purchases is declining.
  3. The decline in Japanese net purchases of US Treasuries suggests Japanese investors are repatriating money from abroad to buy Japanese assets.

Related Articles:

  • The Japanese Bid for Foreign Bonds After the End of Yield Curve Control — Even as the Bank of Japan moves away from negative interest rates and yield curve control, Japanese short- and long-term interest rates are expected to remain well below those in the U.S. and Europe. On that basis, Japan is likely to remain a modest net buyer of foreign bonds.
  • BOJ Shock Has Wall Street Gaming Out the Global Spillovers — The Bank of Japan has signaled it will allow yields to trade toward 1% from roughly 0.5%, though its intervention in the market suggests that shift is not imminent. With Japanese domestic investors holding around $2.5tn of US stocks, bonds and credit, Wall Street is weighing volatile spillovers that could reinforce higher-for-longer interest rates.
  • Japanese Workers Secure Biggest Pay Rise In Three Decades — Japanese companies including Honda, Nippon Steel, and ANA Holdings granted workers their largest pay rise in more than three decades, with economists expecting large firms to give unionised workers average increases above 4%, up from 3.6% the prior year. The increases strengthen the case for the Bank of Japan to begin raising interest rates.

AI Summary. The US foreign-born labor force has fully recovered from its pandemic decline and now exceeds what pre-pandemic trend growth would have implied, reaching 31.9M. Wages rose faster in immigrant-intensive occupations and industries than in those with a lower share of immigrants.

Pia Orrenius, Ana Pranger, Madeline Zavodny and Isabel Dhillon Federal Reserve Bank of Dallas
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Despite the US foreign-born labor force growing from 28.7M in February ‘20 to 31.9M in April ‘24, a @DallasFed analysis finds that wage growth in immigrant-intensive industries has outpaced that of other industries.

Does an immigration surge raise wages in immigrant-heavy industries?

Core argument: The foreign-born labor force returned to its February 2020 level of 28.7 million in November 2021 and surpassed trend growth in August 2022 by reaching 30.0 million, per the Current Population Survey.

With this recent immigration wave, the foreign-born labor force [of 31.9M in April ‘24] has recovered completely from the pandemic drop, even exceeding what would have been expected absent the pandemic. The foreign-born labor force reached February 2020 levels [of 28.7M] in November 2021, and surpassed trend growth in August 2022 [by reaching 30.0M,] according to the Current Population Survey. Wages rose faster in immigrant-intensive occupations and industries than in those that had a lower share of immigrants.

Takeaways by Macro Roundup® AI

  1. The foreign-born labor force returned to its February 2020 level of 28.7 million in November 2021 and surpassed trend growth in August 2022 by reaching 30.0 million, per the Current Population Survey.
  2. Wages rose faster in immigrant-intensive occupations and industries than in those with a lower share of immigrants.

Related Articles:

  • The Demographic Outlook: 2024 to 2054 — The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.
  • 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.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

AI Summary. U.S. labor productivity swung widely after 2020 due to both shifts in industry composition and changes within industries, and has returned to its pre-pandemic trend. Industry-level analysis finds higher labor market churn and greater investment in digitalization, particularly in teleworkable industries, are associated with higher productivity growth.

Mai Chi Dao and Josef Platzer International Monetary Fund
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Data processing and media-related sectors with high technology investment and work-from-home potential saw annual productivity growth of nearly 10% from Q4 ‘19 to Q4 ‘23, while productivity in construction and wholesale trade fell by over 2%.

What drove U.S. productivity swings and its return to trend?

Core argument: U.S. labor productivity swung widely since 2020 due to both compositional and within-industry effects, but has returned to its pre-pandemic trend.

We study U.S. labor productivity growth and its drivers since the COVID-19 pandemic. Labor productivity experienced large swings since 2020, due to both compositional and within-industry effects, but has since returned to its pre-pandemic trend. Industry-level panel regressions show that measures of labor market churn are associated with higher productivity growth both in the cross-section and over time. Sectors with higher investment in digitalization, particularly in teleworkable industries, also experience higher productivity growth on average. There has also been an increase in business formation since the pandemic, but its impact on productivity dynamics will likely need more time to be reflected in the data.

Takeaways by Macro Roundup® AI

  1. U.S. labor productivity swung widely since 2020 due to both compositional and within-industry effects, but has returned to its pre-pandemic trend.
  2. Industry-level panel regressions show that measures of labor market churn are associated with higher productivity growth both across industries and over time.
  3. Sectors with higher investment in digitalization, particularly in teleworkable industries, experience higher productivity growth on average, while the impact of increased business formation since the pandemic will likely need more time to appear in the data.

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.
  • Does Worker Scarcity Spur Investment, Automation and Productivity? Evidence from Earnings Calls — 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.
  • 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.

AI Summary. China holds 6% of the world's freshwater while supporting 20% of its population, with most northern provinces—home to 40% of Chinese people—falling below the United Nations threshold for water scarcity. Himalayan glaciers feeding China's major rivers have lost a fifth of their ice cover, and meltwater runoff is expected to begin declining around mid-century.

Economist Staff The Economist
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Changes in weather patterns are adding stress to China’s water supply. With 20% of the global population, China has only 6% of the world’s freshwater.

Is China's water supply strained by scarcity and shrinking glaciers?

Core argument: China holds just 6% of the world's freshwater while supporting 20% of the world's population, and its uneven internal distribution has led leaders past and present to rely on large infrastructure projects to move water from wetter to drier regions.

With just 6% of the world’s freshwater China must quench the thirst of 20% of the world’s people. The uneven distribution of the country’s water adds to the challenge. Chinese leaders past and present have relied on big infrastructure projects to move it from wetter to drier places. But now climate change is testing the entire country. Northern China has long been parched. Most of the provinces in the region, where 40% of the population lives, fall below the threshold for “water scarcity” set by the UN. Another trend is hitting western China. Glaciers high in the Himalayas, which feed the country’s great rivers are retreating. 1/5 of their ice cover has melted since the 1950s. For the moment, that is making parts of China wetter. Oases in western deserts are blooming. But around mid-century, the meltwater runoff is expected to start decreasing.

Takeaways by Macro Roundup® AI

  1. China holds just 6% of the world's freshwater while supporting 20% of the world's population, and its uneven internal distribution has led leaders past and present to rely on large infrastructure projects to move water from wetter to drier regions.
  2. Most provinces in northern China, home to 40% of the country's population, fall below the UN threshold for "water scarcity.".
  3. Himalayan glaciers feeding China's great rivers have lost one-fifth of their ice cover since the 1950s, which for the moment is making parts of China wetter and western desert oases bloom, though meltwater runoff is expected to start decreasing around mid-century.

Related Articles:

  • Global Water Scarcity: H2O No! — Less than 1% of the planet's water is usable; water demand has risen about 40% over 40 years and is estimated to increase another 25% by 2050, while supply has more than halved since 1970. Some 57% of global freshwater aquifers are beyond their tipping point, and one-third of piped fresh water is lost to leakage.
  • 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.
  • Arizona Is Running Out of Cheap Water. Investors Saw It Coming — Phoenix-area suburbs are paying sharply higher prices for water rights from a basin west of the city, with one suburb approving $80m for 6,000 acre-feet — more than double the per-acre-foot price another suburb paid earlier. Arizona's groundwater replenishment assessments rose from $154 to $768 per acre-foot.

AI Summary. Ice loss from Alaska's Juneau Icefield accelerated, with glacier volume loss of 0.65–1.01 km³ per year from 1770–1979 rising to 3.08–3.72 km³ from 1979–2010 and 5.91 ± 0.80 km³ from 2010–2020. The authors attribute the acceleration to rising snowline elevations and pervasive plateau thinning that trigger melt-accelerating feedbacks likely to inhibit future regrowth.

Bethan Davies, Robert McNabb, Jacob Bendle, Jonathan Carrivick, Jeremy Ely, Tom Holt, Bradley Markle, Christopher McNeil, Lindsey Nicholson and Mauri Pelto Nature Communications
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The rate of ice loss in the Juneau Icefield in Alaska has doubled after 2010 relative to 1979-1990. The ice field has lost 25% of its volume since the late 18th century when the glaciers expanded during the Little Ice Age.

Why has ice loss from an Alaskan plateau icefield accelerated?

Core argument: Volume loss from Alaska's Juneau Icefield reached 5.91 ± 0.80 km³ a⁻¹ during 2010–2020, roughly double the 3.08–3.72 km³ a⁻¹ rate of 1979–2010 and above the 0.65–1.01 km³ a⁻¹ that held from 1770–1979.

Ice loss from Juneau Icefield, a plateau icefield in Alaska, accelerated after 2005 AD. Rates of area shrinkage were 5 times faster from 2015–2019 than from 1979–1990. Glacier volume loss remained fairly consistent (0.65–1.01 km3 a−1) from 1770–1979 AD, rising to 3.08–3.72 km3 a−1 from 1979–2010, and then doubling after 2010 AD, reaching 5.91 ± 0.80 km3 a−1 (2010–2020). Thinning has become pervasive across the icefield plateau since 2005, accompanied by glacier recession and fragmentation. Rising equilibrium line altitudes and increasing ablation across the plateau has driven a series of hypsometrically controlled melt-accelerating feedbacks and resulted in the observed acceleration in mass loss. As glacier thinning on the plateau continues, a mass balance-elevation feedback is likely to inhibit future glacier regrowth, potentially pushing glaciers beyond a dynamic tipping point.

Takeaways by Macro Roundup® AI

  1. Volume loss from Alaska's Juneau Icefield reached 5.91 ± 0.80 km³ a⁻¹ during 2010–2020, roughly double the 3.08–3.72 km³ a⁻¹ rate of 1979–2010 and above the 0.65–1.01 km³ a⁻¹ that held from 1770–1979.
  2. Juneau Icefield area shrinkage ran 5 times faster in 2015–2019 than in 1979–1990, with thinning pervasive across the icefield plateau since 2005 alongside glacier recession and fragmentation.
  3. Rising equilibrium line altitudes and increasing ablation across the Juneau Icefield plateau are identified as driving hypsometrically controlled melt-accelerating feedbacks, with a mass balance-elevation feedback likely to inhibit future glacier regrowth.

Related Articles:

  • The Rapid Loss Of Antarctic Sea Ice Brings Grim Scenarios Into View — Unusual wind and wave patterns are a leading short-term explanation for the loss of Antarctic sea ice, which holds the continent's coastal ice shelves in place. If those shelves collapsed, continental ice could flow rapidly into the oceans; the West Antarctic ice sheet alone holds enough water to raise global sea level by 11 feet.
  • What Happens in Antarctica, Doesn’t Stay in Antarctica — Antarctic sea-ice extent reached a level three times further from the average than any previously recorded in July, and only 0.2–0.4% of the continent is currently exposed above the ice. Further warming is likely to expose more land, reducing the surface's reflectivity and increasing the heat the planet absorbs.
  • Antarctic Sea Ice Has Shrunk By An Area Nine Times The Size Of Britain — Antarctic sea ice cover fell to 10.7m square km, 1.15m square km below the prior record low for that date and 2.3m square km below the 1981–2010 average. Scientists have not established why sea ice around the continent dropped so steeply after an earlier period of growth.

Monday, July 8, 2024

AI Summary. Micro price data for food products at 91 large retailers across ten countries show that regular price changes, not temporary discounts, drove post-pandemic food inflation, as retailers raised the share of products with price increases from about half to over two-thirds. In the US, prices of cheaper products rose 30% versus 22% for premium varieties.

Alberto Cavallo and Oleksiy Kryvtsov National Bureau of Economic Research
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Between January 2020 and May 2024, the regular prices of cheaper US foods and beverages grew at 1.4 times the rate for more expensive ones, adding 8 ppts cumulative price growth relative to premium varieties. @albertocavallo

Did regular price increases, not discounts, drive post-pandemic food inflation?

Core argument: U.S. cheaper food products saw 30% cumulative inflation since January 2020 versus 22% for premium varieties, a 1.4 times higher rate that added 8 percentage points of cumulative price growth relative to premium goods.

We use micro price data for food products sold by 91 large multi-channel retailers in ten countries between 2018 and 2024. Measuring unit prices within narrowly defined product categories, we analyze two key sources of variation in prices within a store: temporary price discounts and differences across similar products. Price changes associated with discounts grew at a much lower average rate than regular prices, helping to mitigate the inflation burden. By contrast, cheapflation—a faster rise in prices of cheaper goods relative to prices of more expensive varieties of the same good exacerbated it. We show that regular price changes were the primary driver of inflation, mainly because retailers increased the proportion of price increases from about half to over two-thirds of products. In contrast, sales had only a minor impact on inflation. Figure 5(a) visualizes the quartile price indexes for the United States. There is a significant disparity in inflation rates between the first and last quartiles over the period from January 2020 to May 2024. The difference starts to increase in early 2021 and stabilizes by early 2023, suggesting that cheapflation is most prominent during the inflation surge. Since January 2020, cheaper products have experienced an inflation rate of 30%, while premium product prices increased by 22%. In other words, inflation for cheaper products was 1.4 times higher, leading to an additional 8 percentage points cumulative price growth relative to premium varieties.

Takeaways by Macro Roundup® AI

  1. U.S. cheaper food products saw 30% cumulative inflation since January 2020 versus 22% for premium varieties, a 1.4 times higher rate that added 8 percentage points of cumulative price growth relative to premium goods.
  2. Regular price changes were the primary driver of inflation across 91 large multi-channel retailers in ten countries between 2018 and 2024, mainly because retailers raised the share of price increases from about half to over two-thirds of products.
  3. Price changes associated with temporary discounts grew at a much lower average rate than regular prices, helping mitigate the inflation burden, while sales had only a minor impact on inflation.

Related Articles:

  • Markets Think Inflation Will Be Too High For The Next 20 Years — Inflation expectations derived from the gap between regular Treasury yields and inflation-indexed Treasury yields show expected annual inflation over the next 10 and 20 years running considerably above expected inflation for the decade beginning 20 years out. Before the pandemic-era inflation surge, actual inflation and expected future inflation tracked each other closely.
  • 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.
  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.

AI Summary. More than 1,000 US "left-behind" counties—home to 18% of the population and defined by lagging population and income growth—recorded their strongest three-year stretch of job and business creation since 2000, with jobs growing over 4x faster than in the preceding four years. Their share of national jobs nonetheless kept falling.

August Benzow Economic Innovation Group
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“Left-behind” US counties that lagged in population and income growth from 2000-16 saw their strongest 3-year growth since 2000 btw ‘20 and ‘23; however, their overall share of employment continued to decline from 18% in ‘16 to 17% in ‘23. @AugustBenzow

Are left-behind counties closing the gap despite record job growth?

Core argument: Jobs in America's left-behind counties grew more than four times faster in 2020–2023 than in the prior four years, their strongest three-year stretch of job and business growth since the turn of the 21st century.

Left-behind counties in the United States have just experienced their strongest three-year period of job creation and business growth since the turn of the 21st century. Despite their vigorous recovery in the wake of the COVID-19 pandemic, the economic gap between these counties and the rest of the country nonetheless continues to widen. Representing over 1,000 counties and inhabited by 18% of the country’s population, these left-behind communities are defined by lagging population and income growth from 2000 to 2016. Between 2016 and 2019, annual job growth in these counties averaged only 0.4%, less than 1/3 the national rate. By the start of 2020, fewer than 1/3 had recovered all the jobs they lost during the Great Recession, which ended more than a decade earlier. However, between 2020 and 2023, jobs in left-behind counties grew more than four times faster than in the four previous years—and nearly half of these counties have already regained all the jobs they shed during the COVID downturn. In 2000, left-behind counties accounted for 21% of all U.S. jobs. That share had fallen to 18% by 2016 and dropped even further to 17% by the end of last year.

Takeaways by Macro Roundup® AI

  1. Jobs in America's left-behind counties grew more than four times faster in 2020–2023 than in the prior four years, their strongest three-year stretch of job and business growth since the turn of the 21st century.
  2. Left-behind counties' share of all U.S. jobs fell from 21% in 2000 to 18% in 2016 and 17% by the end of 2023, and the economic gap with the rest of the country continues to widen.
  3. The more than 1,000 left-behind counties, home to 18% of the U.S. population and defined by lagging population and income growth from 2000 to 2016, averaged 0.4% annual job growth in 2016–2019, less than a third of the national rate.

Related Articles:

  • America Is Uniquely Ill-Suited To Handle a Falling Population — U.S. population growth slowed to about 7.4% in the decade to 2020, the slowest since the Great Depression, as the fertility rate fell from above the 2.1 needed for a stable population to 1.67. Because local and regional authorities levy 48% of all U.S. taxes—versus 20% in France and 6% in Britain—shrinking local revenue forces service cuts or tax rises.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.

AI Summary. Negative public sentiment about the economy may reflect comparisons to pandemic-era conditions, when real disposable income per capita was about 2% higher than recent readings and credit card debt has since risen 44% from its pandemic-era trough. Those conditions reflected temporary fiscal support and constrained spending that no economist expected to persist.

Greg Mankiw Greg Mankiw Blog
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Greg Mankiw argues negative economic sentiment is driven by “people comparing things to 2021, the first year of the Biden administration,” when income was enhanced by fiscal transfers and credit card debt was reduced by lower pandemic-era spending.

Are people judging the economy against pandemic-era incomes and debt levels?

Core argument: Real disposable income per capita was $50,491 in May 2024 versus $51,567 for the year 2021, a decline of about 2%, after growth of more than 3% per year from 2017 to 2021.

Here is a hypothesis: People are comparing things to 2021, the first year of the Biden administration, when things looked much better for them. Consider real disposable income per capita. In the latest reading, for May 2024, it was $50,491. For the year 2021, the figure was $51,567. That is, average income is down about 2% over this period. By contrast, average income grew by more than 3% per year from 2017 to 2021. Similarly, consider credit card debt. From 2017 to 2021, it was up a mere 4% (in nominal terms). From its trough in April 2021 until now, it is up 44%. To be sure, one might say that 2021 was an unusual year. Disposable income was goosed by numerous, temporary fiscal policies aimed to ease the pain of the pandemic. Covid also reduced consumers' ability to spend, so they used more of their incomes to pay off their debts. No economist expected these unusual conditions to persist. That is all true. But do most people take this fact into account? Maybe they think, "A few years ago, my income was higher, and my debts were lower. So, yes, I am glad the pandemic is over, but my finances are worse."

Takeaways by Macro Roundup® AI

  1. Real disposable income per capita was $50,491 in May 2024 versus $51,567 for the year 2021, a decline of about 2%, after growth of more than 3% per year from 2017 to 2021.
  2. Credit card debt rose 44% in nominal terms from its April 2021 trough through the latest reading, compared with a 4% increase from 2017 to 2021.
  3. One hypothesis holds that people judge the economy against 2021, when temporary pandemic fiscal policies boosted disposable income and reduced spending let consumers pay down debt, conditions no economist expected to persist.

Related Articles:

  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • 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.
  • Digesting Inflation — The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.

AI Summary. Trade-surplus economies have manufacturing shares of GDP averaging 3.4pp above the global average, while deficit economies average 3.5pp below. The author argues manufacturing migrates toward where subsidies are greater, and that the US could opt out of absorbing global imbalances through across-the-board import tariffs or by restraining foreign access to US financial markets.

Mike Pettis Phenomenal World
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.@michaelxpettis notes that “the manufacturing share of GDP is 3.4pp above the global average for surplus economies and 3.5pp below the global average for deficit economies,” and argues for capital controls to revive US manufacturing.

Do trade surpluses explain why some economies have larger manufacturing sectors?

Core argument: Surplus economies average a manufacturing share of GDP 3.4pp above the global average while deficit economies average 3.5pp below it, accounting for why advanced economies with persistent surpluses have larger manufacturing sectors.

On average, the manufacturing share of GDP is 3.4pp above the global average for surplus economies and 3.5pp below the global average for deficit economies. There is no mystery, in other words, as to why advanced economies with persistent surpluses are also economies in which manufacturing plays a larger role in the economy, and why advanced economies with persistent deficits are those in which manufacturing plays a smaller role. In either case, global manufacturing is simply migrating to where the subsidies are greater, while consumption must migrate in the opposite direction. The most likely way the US might opt out of its outsized role in absorbing global imbalances would be by imposing across-the-board tariffs on US imports or—more effectively—by restraining unfettered access to US financial markets. The net impact of limiting access to claims on US assets is that countries who repressed domestic demand in order to subsidize their manufacturing industries would not be able to externalize the cost of those subsidies by acquiring US assets to balance their trade surpluses.

Takeaways by Macro Roundup® AI

  1. Surplus economies average a manufacturing share of GDP 3.4pp above the global average while deficit economies average 3.5pp below it, accounting for why advanced economies with persistent surpluses have larger manufacturing sectors.
  2. Global manufacturing migrates to where subsidies are greater while consumption migrates in the opposite direction, leaving advanced economies with persistent deficits with smaller manufacturing sectors.
  3. The US could opt out of its outsized role in absorbing global imbalances through across-the-board tariffs on imports or, more effectively, by restraining unfettered access to US financial markets, so surplus countries could not externalize subsidy costs by acquiring US assets.

Related Articles:

  • 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.
  • The Dangerous Myth of Deglobalization — China's manufacturing surplus rose by about 1 percentage point of global GDP over a four-year span and is far larger than those of Germany and Japan. China's $800bn goods trade surplus depends on the large U.S. trade deficit, which is still indirectly financed by China through the large offshore dollar stockpiles held by Chinese exporters.
  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.

AI Summary. The author argues generative AI is unlikely to drive revenue expansion because it helps employees find information faster rather than find better information. If AI's benefits remain limited to efficiency gains, competitors can adopt the same tools, so cost savings get arbitraged away rather than raising prices or margins.

Allison Nathan, Jenny Grimberg, and Ashley Rhodes Goldman Sachs
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GS’s head of equity research argues at $1T the AI buildout will struggle to earn an appropriate ROI as efficiency improvements won’t drive multiple expansion “because cost savings just get arbitraged away.”

Will AI deliver efficiency gains without expanding revenue or margins?

Core argument: The author places low odds on AI-driven revenue expansion, arguing the technology is not and likely will not become smart enough to make employees smarter.

I place low odds on AI-related revenue expansion because I don't think the technology is, or will likely be, smart enough to make employees smarter. Even one of the most plausible use cases of AI, improving search functionality, is much more likely to enable employees to find information faster than enable them to find better information. And if AI’s benefits remain largely limited to efficiency improvements, that probably won’t lead to multiple expansion because cost savings just get arbitraged away. If a company can use a robot to improve efficiency, so can the company’s competitors. So, a company won’t be able to charge more or increase margins.

Takeaways by Macro Roundup® AI

  1. The author places low odds on AI-driven revenue expansion, arguing the technology is not and likely will not become smart enough to make employees smarter.
  2. Improved search, among the more plausible AI use cases, is more likely to help employees find information faster than to help them find better information, according to the author.
  3. If AI's benefits remain limited to efficiency gains, the author argues multiple expansion is unlikely because competitors can adopt the same tools, arbitraging away cost savings and preventing higher prices or margins.

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AI Summary. Scientists familiar with China's fusion facilities estimate that at its current pace of spending and development, China will surpass U.S. and European magnetic fusion capabilities within three or four years. Much U.S. fusion spending goes to legacy programs, while China's roughly $1.5bn is largely directed at building systems that would compete with leading private U.S. fusion firms.

Jennifer Hiller and Sha Hua Wall Street Journal
Date Posted:

An early American lead in fusion research may be “slipping away” as China spends around $1.5B annually on fusion research, about 2x the US government fusion budget. China could catch up to US “magnetic fusion capabilities in three or four years.”

Is China on pace to surpass Western fusion capabilities?

Core argument: Scientists familiar with China's fusion facilities said that at its current pace of spending and development, China will surpass U.S. and European magnetic fusion capabilities in three or four years.

Scientists familiar with China’s fusion facilities said that if it continues its current pace of spending and development, it will surpass the U.S. and Europe’s magnetic fusion capabilities in three or four years. U.S. Rep. Don Beyer, a Virginia Democrat and co-chair of Congress’s Fusion Energy Caucus, said that much U.S. fusion spending goes to legacy programs, “not the cutting-edge stuff.” “In China, from what we can tell, most of their billion and a half is actually going to build stuff that would compete with Helion or Commonwealth Fusion,” Beyer said, referring to two of the largest private fusion firms in the U.S. For decades, China had “almost nothing” of a fusion program, said Dennis Whyte, a professor of engineering at MIT, who for several years sat on Chinese fusion advisory committees. It took China about 10 years to build a world-class fusion science program and national labs. “It was almost like a flash that they were able to get there,” Whyte said. “Don’t underestimate their capabilities about coming up to speed.”

Takeaways by Macro Roundup® AI

  1. Scientists familiar with China's fusion facilities said that at its current pace of spending and development, China will surpass U.S. and European magnetic fusion capabilities in three or four years.
  2. Rep. Don Beyer, co-chair of Congress's Fusion Energy Caucus, said much U.S. fusion spending goes to legacy programs rather than "the cutting-edge stuff," while most of China's billion and a half goes to building systems that would compete with Helion or Commonwealth Fusion.
  3. MIT engineering professor Dennis Whyte, who sat on Chinese fusion advisory committees, said China went from "almost nothing" to a world-class fusion science program and national labs in about 10 years.

Related Articles:

  • US Scientists Repeat Fusion Power Breakthrough — Scientists at the Lawrence Livermore National Laboratory achieved net energy gain in a fusion reaction for a second time, with preliminary results indicating the experiment produced a higher energy output than the first ignition.
  • European Scientists Set New Nuclear Fusion Energy Record — Researchers at the Joint European Torus facility outside Oxford set a nuclear fusion energy record, generating 69 megajoules from a five-second sustained reaction, up from a previous record of 59 megajoules. The experiment consumed far more power than the reaction produced.
  • How Xi Jinping Plans To Overtake America — China's leadership has pledged a "whole of nation" push for technological self-reliance, applying science and technology to production, with the central government's budget raising annual science and technology spending by 10%, the largest percentage increase of any category. Rhodium Group estimates China spent about $420bn, or 2.8% of GDP, on science and technology.

AI Summary. The IS110 bridge system uses a single compact RNA-guided recombinase that is sufficient on its own for direct DNA recombination, unlike other programmable genome-editing tools that require added effector proteins. Its bispecific bridge RNA can be reprogrammed to direct DNA insertion, excision, and inversion for large-scale sequence and genome rearrangement.

Matthew Durrant, Nicholas Perry, James Pai, et al. Nature
Date Posted:

Moving beyond CRISPR gene editing technology, “bridge recombination” allows fully programmable gene insertion and may “enable a new frontier of genome design.”

Can a single RNA-guided enzyme rearrange DNA without added proteins?

Core argument: The IS110 bridge system uses a single, compact RNA-guided recombinase that is necessary and sufficient for direct DNA recombination, whereas functional diversification of other guide-RNA systems has generally required recruiting or fusing additional effector proteins.

Guide RNAs [a key component of CRISPR] are underpinning a technological revolution in programmable biology. Functional diversification of these systems beyond nucleic acid binding or cleavage has generally required the recruitment or fusion of additional effector proteins, resulting in increasingly large and intricate engineered genome-editing fusions. The IS110 bridge system, in contrast, uses a single and compact RNA-guided recombinase that is necessary and sufficient for direct DNA recombination. Modular reprogramming of target and donor recognition by the bispecific bridge RNA uniquely enables the three fundamental DNA rearrangements of insertion, excision, and inversion for manipulating large-scale DNA sequences and overall genome organization. With further exploration and development, we expect that the bridge recombination mechanism will spur a third generation of programmable RNA-guided tools beyond RNA interference- and CRISPR-based mechanisms to enable a new frontier of genome design.

Takeaways by Macro Roundup® AI

  1. The IS110 bridge system uses a single, compact RNA-guided recombinase that is necessary and sufficient for direct DNA recombination, whereas functional diversification of other guide-RNA systems has generally required recruiting or fusing additional effector proteins.
  2. Modular reprogramming of target and donor recognition by the bispecific bridge RNA enables the three fundamental DNA rearrangements — insertion, excision, and inversion — for manipulating large-scale DNA sequences and overall genome organization.
  3. The authors expect the bridge recombination mechanism, with further development, to spur a third generation of programmable RNA-guided tools beyond RNA interference- and CRISPR-based mechanisms for genome design.

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