Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…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
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
Date Posted:
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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
Date Posted:

“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
Date Posted:

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
Date Posted:

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.

Related Articles:

  • AI’s $600B Question — Comparing spending on AI chips to historical railroad construction overlooks that high-fixed-cost, low-marginal-cost businesses without monopoly or oligopoly power tend to see prices competed down to marginal cost, and that semiconductors continually improve in cost versus performance, unlike physical infrastructure. Speculative frenzies accompany technology, but the payoff will take a long time.
  • 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.
  • The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off — Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.

AI Summary. 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.

Related Articles:

  • Accurate Structure Prediction of Biomolecular Interactions With AlphaFold 3 — AlphaFold 3, a single deep learning model with a diffusion-based architecture, jointly predicts the structures of complexes containing proteins, nucleic acids, small molecules, ions, and modified residues. The authors report accuracy exceeding specialised tools for protein-ligand docking, protein-nucleic acid interactions, and antibody-antigen prediction.

Tuesday, July 9, 2024

AI Summary. The authors argue that findings showing little rise in top-1% income concentration depend on assuming tax noncompliance is detected equally well in random audits of the bottom 99% and the top 1%, which reduces measured growth in the top 1% pre-tax income share by 0.46 percentage points and likely understates rising inequality.

John Iselin and Daniel Reck University of Maryland
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.@john_iselin @danhreck propose an alternative estimate of unreported income and find that pre-tax income share of the top 1% rose by 0.52pp from 1962-2014. (labeled in the chart as “PSZ Macro.”)

Do assumptions about undetected tax noncompliance understate rising top income concentration?

Core argument: The authors argue that Auten and Splinter's assumption that random audits detect noncompliance equally well in the bottom 99% and the top 1% reduces measured growth in the top 1% share of pre-tax national income by 0.46 percentage points.

We argue that Auten and Splinter [AS] results are driven by the assumption that detection of noncompliance in random audit data is equally good in the bottom 99% as in the top 1%. This reduces the growth in the share of pre-tax national income held by the top 1% by 0.46 pp. We argue that the rise of pass-through business income since 1986 likely causes this bias to grow significantly over time, leading to an understatement of the increase in inequality. We also review related methods by Piketty, Saez, and Zuckman [PSZ]. These authors’ methods are rooted in the assumption that if reported income grows in concentration, then so should unreported income. We propose a simple alternative method that explicitly imposes this via a distributional neutrality assumption. Under this assumption, growth in the top income share increases by 0.52 pp.

Takeaways by Macro Roundup® AI

  1. The authors argue that Auten and Splinter's assumption that random audits detect noncompliance equally well in the bottom 99% and the top 1% reduces measured growth in the top 1% share of pre-tax national income by 0.46 percentage points.
  2. The authors argue that the rise of pass-through business income since 1986 likely causes this bias to grow over time, understating the increase in inequality.
  3. The authors propose an alternative method that explicitly imposes distributional neutrality — the assumption, rooted in Piketty, Saez, and Zucman's methods, that unreported income grows in concentration alongside reported income — under which growth in the top income share increases by 0.52 percentage points.

Related Articles:

  • Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends — Using administrative tax data with the Survey of Consumer Finances, the authors estimate the top 1% pre-tax income share fell from 11.1% in 1962 to 9.4% in 1979, then rose to 13.8% by 2019, a 3 percentage point rise over the full period. Their after-tax measure shows increases of only 1.4 points since 1979 and 0.2 points since 1962.
  • Comment on Auten and Splinter (2023) — A critique argues that Auten and Splinter's methodology misallocates a large share of untaxed business and capital income to the bottom of the distribution, assuming the top 1% earns only about 15% of untaxed business income while tax data show they earn about 55% of business income overall.
  • Short Reply: Comment on Auten and Splinter (2023) — The assumption that top wealth and capital income shares move in parallel over the long run is problematic, since falling interest rates reduce interest income relative to bond wealth and widen the gap. Fully counting passthrough business income, the authors' top 1% capital income share rose 5 percentage points.

AI Summary. Foreign investors have been the dominant net buyers of longer-dated US Treasuries, purchasing a net $700bn over a 14-month period against $860bn in total net issuance. These purchases came largely from non-official entities such as hedge funds, pension funds, insurance funds, and banks, potentially motivated by high US interest rates or currency speculation.

Joseph Wang Fed Guy Blog
Date Posted:
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Foreigners have been the dominant net buyers of long-dated Treasuries over the 14 months ending April 2024, purchasing $700B, over 80% of total net issuance. @Fedguy12 warns that this would make a dollar devaluation “particularly dangerous.”

Are foreign private investors absorbing most long-dated Treasury issuance?

Core argument: Foreigners purchased a net $700bn in longer-dated Treasuries over the 14 months ending April 2024, only modestly below the $860bn in total net issuance of longer-dated Treasuries.

Foreigners have been the dominant net buyers of long-dated Treasuries over the past year by purchasing almost as much as the entire net issuance. Foreigners purchased a net $700b in longer-dated Treasuries over the 14 months ending April 2024. That is only modestly below the $860b in total net issuance of longer-dated Treasuries. Foreign purchasers of longer-dated Treasuries have largely been from the non-official sector while net purchases from the official sector appeared to move with the dollar. While granular data is not available, foreign non-official entities include hedge funds, pension funds, insurance funds, and banks. Their purchases could be motivated by historically high U.S. interest rates, or in part a currency speculation.

Takeaways by Macro Roundup® AI

  1. Foreigners purchased a net $700bn in longer-dated Treasuries over the 14 months ending April 2024, only modestly below the $860bn in total net issuance of longer-dated Treasuries.
  2. Foreign buying of longer-dated Treasuries has come largely from the non-official sector — which includes hedge funds, pension funds, insurance funds, and banks — while official-sector net purchases appeared to move with the dollar.
  3. Foreign purchases of longer-dated Treasuries could be motivated by historically high U.S. interest rates or in part by currency speculation, though granular data on these buyers is not available.

Related Articles:

  • Who Buys Treasuries When the Fed Reduces its Holdings — 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.
  • Liquidity Deteriorating in Treasury Markets — A liquidity gauge for US government debt measures the average gap between quoted yields and values implied by fitted yield curves across Treasury notes and bonds with at least one year to maturity, and it indicates deteriorating liquidity. Small average yield errors signal favorable conditions, as mispricings are corrected quickly.
  • 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. Bond yields near 4.5% sit below the 5.5% short-term interest rate, leaving little risk premium, and those yields have been enough to draw buyers back toward normal bond holdings. The author argues yields still need to rise to a sustainable cost of capital given structurally higher fiscal and inflationary spending.

Karen Karniol-Tambour Bridgewater Associates
Date Posted:

Bridgewater Associates co-CIO Karen Karniol-Tambour expects 10-year Treasury yields to rise from the current ~4.5% to compensate for structurally higher fiscal borrowing and investments in AI, remilitarization, rebalancing of supply chains, and energy.

Do bond yields still need to rise further?

Core argument: Bonds are clearing at roughly 4.5% yields, low relative to the 5.5% short-term interest rate, and even allowing for expected easing, the author argues that level embeds little risk premium.

Bonds are clearing at the roughly 4.5% yield levels we’ve seen. This is pretty low relative to the short-term interest rate of 5.5%, and even with expectations of some easing ahead of us, it is hard to argue there is much risk premium in that yield level. Even 4.5% yields were sufficient to persuade bond buyers to begin to normalize their abnormally low bond holdings. This can be thought of as “pent-up demand” for bonds, which slows the process of adjustment to a new cost of capital. Bond yields still need to rise to set a price of capital that is sustainable for the world we’re in, compensating for structurally higher fiscal stimulation and inherently inflationary spending on things like AI investments, remilitarization, rebuilding supply chains to reduce reliance on China, the energy transition, and energy security.

Takeaways by Macro Roundup® AI

  1. Bonds are clearing at roughly 4.5% yields, low relative to the 5.5% short-term interest rate, and even allowing for expected easing, the author argues that level embeds little risk premium.
  2. Yields of 4.5% were enough to prompt bond buyers to begin normalizing abnormally low bond holdings, a "pent-up demand" for bonds that slows adjustment to a new cost of capital.
  3. The author argues bond yields still need to rise to a sustainable price of capital that compensates for structurally higher fiscal stimulation and inflationary spending on AI investment, remilitarization, rebuilding supply chains to reduce reliance on China, the energy transition, and energy security.

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AI Summary. 10-year Treasury yields have moved roughly one-for-one with expectations for Federal Reserve policy, but a gap has opened between the two, suggesting other factors such as the fiscal outlook are influencing long-term rates. Rates markets face a slowing economy arguing for lower rates against structural inflation pressures from deglobalization, the energy transition, immigration restrictions, and defense spending.

Torsten Sløk Apollo
Date Posted:

Noting a gap between 10-year yields and market expectations of Fed cuts, Torsten Sløk wonders if increased demand for capital from structural drivers and the US fiscal outlook are putting upward pressure on yields.

Are long-term rates now moving on more than Fed expectations?

Core argument: 10-year Treasury yields have moved roughly one-to-one with Fed expectations, but a gap has opened up, suggesting other factors, perhaps including the fiscal outlook, are beginning to influence long rates.

In rates markets, there is a tug-of-war between a slowing economy arguing for lower rates versus the structural forces putting upside pressures on inflation and rates (i.e., deglobalization, energy transition, more restrictions on immigration, more defense spending, and significant fiscal challenges). So far, 10s have been moving around one-to-one with Fed expectations, But in recent weeks, a gap has opened up, suggesting that other factors, perhaps including the fiscal outlook, are beginning to play a role for long rates.

Takeaways by Macro Roundup® AI

  1. 10-year Treasury yields have moved roughly one-to-one with Fed expectations, but a gap has opened up, suggesting other factors, perhaps including the fiscal outlook, are beginning to influence long rates.
  2. Rates markets face a tug-of-war between a slowing economy, which argues for lower rates, and structural forces pressuring inflation and rates upward, including deglobalization, the energy transition, immigration restrictions, higher defense spending, and fiscal challenges.

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  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
  • 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.

AI Summary. Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.

Ronan Lyons, Allison Shertzer, Rowena Gray and David Agorastos National Bureau of Economic Research
Date Posted:
Is Database:
Database

A real housing price index in 30 US cities from 1890-2006 shows that rising prices are concentrated in the West Coast, Northeast, and South Coast. Across cities, there is a significant relationship between zoning and home price appreciation after 1980.

How has the link between zoning restrictiveness and housing prices changed?

Core argument: Real U.S. housing price growth showed almost no relationship with zoning restrictiveness in 1890–1929 (coefficient of -0.02), while the gradient steepened in later periods to 0.48 and 0.29, and reached 0.67 in 1980–2006, suggesting a closer relationship late in the 20th century.

We document different degrees of price growth across cities. For instance, in Figure 7 we show real housing price appreciation by region: the Northeast, the Midwest, the southern coasts, the inland South, and the West Coast. Increases in the home prices of West Coast cities were observable before the late 1940s. In other regions of the United States, prices in the 1950s – and in some cases in the 1980s – were similar in real terms to what they were in 1890 or 1910. There is almost no relationship between real housing price growth and the restrictiveness of zoning in the 1890-1929 period (coefficient of -.02). Zoning was adopted by almost every city in our sample during the 1920s. We see a slightly steeper gradient over the next two periods (coefficients of .48 and .29, respectively). The gradient in the final period (1980-2006) is even steeper, however (coefficient of .67), suggesting a closer relationship between zoning and home price appreciation towards the end of the 20th century.

Takeaways by Macro Roundup® AI

  1. Real U.S. housing price growth showed almost no relationship with zoning restrictiveness in 1890–1929 (coefficient of -0.02), while the gradient steepened in later periods to 0.48 and 0.29, and reached 0.67 in 1980–2006, suggesting a closer relationship late in the 20th century.
  2. West Coast cities saw real home price increases before the late 1940s, while in other U.S. regions real prices in the 1950s — and in some cases the 1980s — were similar to their 1890 or 1910 levels.
  3. Almost every city in the sample adopted zoning during the 1920s, and real housing price appreciation differed across the Northeast, Midwest, southern coasts, inland South, and West Coast.

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AI Summary. Sub-Saharan Africa produces more than six times as much food as it did in 1961, but it has achieved this mainly by adding inputs — many more farmers and much more land under cultivation and pasture — rather than by raising productivity. The region badly trails the world in agricultural total factor productivity gains.

Peter Coy New York Times
Date Posted:

Global agricultural TFP has risen 80% since 1961, but only 30% in Sub-Saharan Africa. @petercoy argues this is a major factor holding back economic development.

Is Africa's food output growth coming from inputs rather than productivity?

Core argument: Africa south of the Sahara produces more than six times as much food as it did in 1961, but it has achieved that gain largely by massively increasing inputs rather than productivity.

Africa south of the Sahara is producing more than six times as much food as it did in 1961. Sub-Saharan Africa badly trailing the world as a whole in improvements in total factor productivity of agriculture. While Africa is increasing its output of crops, livestock, and so on, it’s managing to do so only by massively increasing its inputs. That means many more farmers and much more land under cultivation or pasture. It’s better than if farm output hadn’t increased at all, but it’s not what the subcontinent needs to get ahead economically.

Takeaways by Macro Roundup® AI

  1. Africa south of the Sahara produces more than six times as much food as it did in 1961, but it has achieved that gain largely by massively increasing inputs rather than productivity.
  2. Sub-Saharan Africa badly trails the world as a whole in improvements in agricultural total factor productivity, expanding output of crops and livestock through many more farmers and much more land under cultivation or pasture.
  3. Rising farm output driven by input expansion is better than no increase at all, but it is not what Africa south of the Sahara needs to get ahead economically.

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  • 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%.
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