Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, July 16, 2024

AI Summary. Among US PhDs from the same institution and field, first-generation college graduates are 13% less likely to end up tenured at a top research university and are tenured at institutions ranked 9% lower than classmates whose parent held a graduate degree. Detailed measures of research quantity and quality explain about a third of this class gap.

Anna Stansbury and Kyra Rodriguez Massachusetts Institute of Technology
Date Posted:
Is Database:
Database

.@annastansbury finds 1st-gen college grads are 13% less likely to be tenured at a high-ranked university than PhD classmates whose parents held a non-PhD grad degree. Detailed measures of research productivity explain around a third of the “class gap.”

Does family background affect academic career outcomes among similar PhDs?

Core argument: First-generation college graduates are 13% less likely to end up tenured at an R1 institution and are tenured at institutions ranked 9% lower than PhD classmates from the same institution and field whose parent held a non-PhD graduate degree.

Using parental education to proxy for socioeconomic background, we compare career outcomes of people who got their PhDs in the same institution and field. First-generation college graduates are 13% less likely to end up tenured at an R1 [institution with very high research activity according to the 2015 Carnegie Classification], and are on average tenured at institutions ranked 9% lower, than their PhD classmates with a parent with a (non-PhD) graduate degree. [The dashed lines in Figure 2] incorporate research controls - second-order polynomials in publications, impact factors, and average number of authors per paper, all interacted with PhD field group. Our most detailed measures of research quantity and quality explain around a third of the class gap. Strikingly, the class gap in the likelihood of ending up tenured at an R1 is as large or larger than the analogous race or gender gaps. Our analyses of coauthor characteristics suggest networks likely play a role. [Similarly,] examining PhDs who work in industry we find a class gap in pay and in managerial responsibilities which widens over the career.

Takeaways by Macro Roundup® AI

  1. First-generation college graduates are 13% less likely to end up tenured at an R1 institution and are tenured at institutions ranked 9% lower than PhD classmates from the same institution and field whose parent held a non-PhD graduate degree.
  2. Detailed measures of research quantity and quality — publications, impact factors, and average authors per paper — explain around a third of the class gap, and analyses of coauthor characteristics suggest networks likely play a role.
  3. The class gap in the likelihood of ending up tenured at an R1 is as large or larger than the analogous race or gender gaps, and among PhDs working in industry a class gap in pay and managerial responsibilities widens over the career.

Related Articles:

  • The Inheritance Of Social Status: England, 1600 to 2022 — Using a genealogical database of 422,374 English people with rarer surnames, the authors find social status persists strongly even among distant relatives, with status correlations declining by a constant factor of 0.79 per step in the lineage across all status measures and eras studied. The authors argue this constancy suggests social interventions have modest effects.
  • The Life-Cycle Dynamics of Wealth Mobility — The authors identify four wealth trajectory groups within a birth cohort: 21% who start and remain near the top, 42% who start and remain near the bottom, and 21% and 15% who stay in the middle while rising or falling in rank. They conclude that wealth mobility is concentrated in these middle groups rather than shared across the population.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. Manufacturing is 15% of global GDP but 11% of U.S. GDP versus 19% in Germany, 21% in South Korea, 26% in mainland China, and 34% in Taiwan, according to World Bank data. The author argues this gap stems from trade and industrial policies in surplus economies that effectively force households to subsidize manufacturing, drawing global manufacturers toward the largest subsidies.

Michael Pettis China Financial Markets
Date Posted:

.@michaelxpettis argues that the US manufacturing sector is significantly impacted by foreign industrial policies that “improve manufacturing competitiveness by effectively forcing households to subsidize their manufacturing sectors.”

Does the low U.S. manufacturing share reflect other countries' policies?

Core argument: Manufacturing accounts for 11% of U.S. GDP versus 19% in Germany, 21% in South Korea, 34% in Taiwan, and 26% in mainland China, against 15% of global GDP in the most recent World Bank data.

While manufacturing comprises 15% of global GDP, according to the most recent World Bank data, it comprises a much lower share of GDP for advanced economies that run persistent trade deficits and a much higher share for those that run persistent surpluses. Among the former countries, for example, manufacturing is 11% of U.S. GDP, it is 19% of German GDP, 21% of South Korean GDP, and 34% of Taiwanese GDP (and 26% of mainland Chinese GDP). This lopsided distribution of manufacturing across surplus and deficit economies isn’t a coincidence, nor is it the result of decisions made in the United States. It is mostly the result of trade and industrial policies in several major economies that were designed to improve manufacturing competitiveness in these economies by effectively forcing households in those economies to subsidize their manufacturing sectors. These policies have resulted not just in trade surpluses, as domestic demand inevitably has failed to keep up with production, but also in the increasing role of manufacturing in their economies. Over time, global manufacturers have migrated to these surplus economies because that is where direct and indirect manufacturing subsidies were greatest.

Takeaways by Macro Roundup® AI

  1. Manufacturing accounts for 11% of U.S. GDP versus 19% in Germany, 21% in South Korea, 34% in Taiwan, and 26% in mainland China, against 15% of global GDP in the most recent World Bank data.
  2. The author argues that the lopsided split of manufacturing between deficit and surplus economies stems mostly from foreign trade and industrial policies that effectively force households to subsidize manufacturing, not from decisions made in the United States.
  3. The author argues that those policies produced trade surpluses as domestic demand failed to keep up with production, and drew global manufacturers to the surplus economies where direct and indirect subsidies were greatest.

Related Articles:

  • The Dangerous Myth of Deglobalization — A tax on foreign capital inflows large enough to balance US trade would raise real interest rates for all US borrowers, domestic and foreign-funded alike, since some foreign funding is needed whenever a trade deficit exists. The argument holds the deficit would shrink mainly through lower investment, reducing demand, growth, and innovation.
  • and — A tax on foreign capital inflows large enough to balance US trade would raise real interest rates for all US borrowers, domestic and foreign-funded alike, since some foreign funding is needed whenever a trade deficit exists. The argument holds the deficit would shrink mainly through lower investment, reducing demand, growth, and innovation.
  • The Dangers of a US Capital Inflow Tax — A tax on foreign capital inflows large enough to balance US trade would raise real interest rates for all US borrowers, domestic and foreign-funded alike, since some foreign funding is needed whenever a trade deficit exists. The argument holds the deficit would shrink mainly through lower investment, reducing demand, growth, and innovation.
  • He Helped Trump Remake Global Trade. His Work Isn’t Done — A former U.S. trade representative argues that countries running chronic trade surpluses for decades are by definition protectionist, and backs a universal 10% tariff plus a higher tariff on China to push toward globally balanced trade over time. Alternatives include import certificates tied to exports and a charge on foreign investment in U.S. assets.

AI Summary. U.S. foreign exchange policy has rested with the Treasury since the 1933 dollar devaluation, and a president could pursue depreciation through direct intervention using the Exchange Stabilization Fund or diplomatic talks with other countries. A weaker dollar eases global financial conditions but could prompt foreign investors holding large amounts of U.S. equities to sell to avoid currency losses.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 argues that foreigners, who hold about 30% of total dollar-denominated stocks and bonds, will likely sell assets ahead of policy actions to improve US manufacturing competitiveness by weakening the dollar, creating “a notable tail risk.”

Would a weaker dollar push foreign investors to sell U.S. equities?

Core argument: A dollar depreciation under a Trump presidency could prompt foreign investors to sell U.S. assets to avoid currency losses, putting downward pressure on asset prices even as a weaker dollar inflates financial assets and eases global financial conditions.

A dollar depreciation is possible under a Trump presidency and it could trigger foreign selling that actually puts downward pressure on asset prices. Foreign exchange policy has been completely within the purview of the U.S. Treasury ever since President Roosevelt devalued the dollar in 1933. President Trump could depreciate the dollar through direction intervention using the Exchange Stabilization Fund, or high level diplomatic talks with other countries. On the surface, a weaker dollar inflates financial assets and eases global financial conditions, but it could also encourage foreign investors to sell dollar assets to avoid currency losses. The tremendous size of non-official foreign holdings in U.S. equities and recent surge in equity prices suggests this is a notable tail risk.

Takeaways by Macro Roundup® AI

  1. A dollar depreciation under a Trump presidency could prompt foreign investors to sell U.S. assets to avoid currency losses, putting downward pressure on asset prices even as a weaker dollar inflates financial assets and eases global financial conditions.
  2. Foreign exchange policy has resided entirely with the U.S. Treasury since President Roosevelt devalued the dollar in 1933, leaving President Trump options such as direct intervention via the Exchange Stabilization Fund or high-level diplomatic talks with other countries.
  3. The size of non-official foreign holdings of U.S. equities, combined with the surge in equity prices, suggests that foreign selling triggered by dollar depreciation is a notable tail risk.

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

AI Summary. China's business cycle has decoupled from the US business cycle, which had been closely correlated through Chinese exports to the US, because Chinese home prices are falling while US home prices rise, China's working-age population is declining while the US's grows, and US and European tariffs weigh on Chinese exports. A US slowdown would magnify China's ongoing slowdown.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk notes three factors driving divergent Chinese and US business cycles: 1) higher Chinese real estate investment share of GDP, 2) declining Chinese working-age population vs. ongoing US growth, and 3) US tariffs on Chinese imports.

Has China's business cycle decoupled from the US business cycle?

Core argument: China's business cycle, once highly correlated with the US cycle through Chinese exports to the US, has decoupled for three reasons: falling Chinese home prices, a declining working-age population, and US and European tariffs.

China’s business cycle used to be highly correlated with the US business cycle because of Chinese exports to the US. But the business cycles in China and the US have decoupled for three reasons: 1) Chinese home prices are falling. US home prices are rising. 2) China’s working-age population is declining. The US working-age population is growing. 3) The US and Europe have imposed tariffs and want to produce more goods at home. This is negative for Chinese exports. If US growth is about to slow down, then it will magnify the ongoing slowdown in China.

Takeaways by Macro Roundup® AI

  1. China's business cycle, once highly correlated with the US cycle through Chinese exports to the US, has decoupled for three reasons: falling Chinese home prices, a declining working-age population, and US and European tariffs.
  2. US home prices are rising and the US working-age population is growing, while Chinese home prices are falling and China's working-age population is declining.
  3. A slowdown in US growth would magnify the ongoing slowdown in China, while US and European tariffs and efforts to produce more goods at home weigh on Chinese exports.

Related Articles:

  • 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.
  • Housing, Household Debt, and the Business Cycle: An Application to China and Korea — Household debt and housing booms in China and Korea are comparable to those in the United States and United Kingdom from 2001 to 2007, and consumer spending in both countries could be quite weak. Korea's debt service ratio has risen substantially to an exceptionally high level, a pattern historically associated with slower growth.
  • The Debt Supercycle Comes to China — China's property sector, which accounts for 23% of GDP (26% counting imports), is yielding diminishing returns after a construction boom driven by the country's massive post-2008 investment stimulus. The author argues this debt supercycle is the best explanation for China's faltering economy and what comes next.

AI Summary. States with higher per capita volumes of undocumented immigrants broadly had a lower ratio of job vacancies to unemployed workers, a common gauge of labor market tightness. Using state data, the author estimates that about one-fifth of the decline in that ratio was associated with higher immigration.

Evgeniya Duzhak Federal Reserve Bank of San Francisco
Date Posted:
Is Database:
Database

A @sffed analysis finds that the recent spike in immigration from ~1mm/year in the 2010s to at least 3.3mm people in 2023 and 2024 drove about one-fifth of the improvement in the vacancy-to-unemployment ratio.

How much did higher immigration ease labor market tightness?

Core argument: Using state data from 2021–2024, the author estimates that a doubling of new immigration court cases in the prior year is associated with a 16% increase in the job vacancy-to-unemployment (V–U) ratio.

The dashed line in Figure 4 demonstrates that states that experienced higher per capita volumes of undocumented immigrants in 2023 broadly had a lower job vacancy to unemployment (V–U) ratio in the first few months of 2024. It is worth noting that V–U ratios in some of these states declined to close to 1, indicating a relatively balanced labor market. To quantify the impact of the higher volume of migrants on labor market tightness, I use state data from 2021–2024 and estimate the relationship between relative changes in the number of new immigration court cases and relative changes in the V–U ratio. The results imply that a 100% increase (doubling) in the number of new immigration court cases in the prior year is associated with a 16% increase in the V–U ratio. The average change in the number of court cases was 85% across states, with some of the larger increases in Illinois (202% increase), Maine (179%), and Colorado (144%). The results suggest that about one-fifth of the V–U decline was associated with higher immigration.

Takeaways by Macro Roundup® AI

  1. Using state data from 2021–2024, the author estimates that a doubling of new immigration court cases in the prior year is associated with a 16% increase in the job vacancy-to-unemployment (V–U) ratio.
  2. States with higher per capita volumes of undocumented immigrants in 2023 broadly had lower V–U ratios in the first months of 2024, with some falling close to 1, indicating a relatively balanced labor market.
  3. New immigration court cases rose 85% on average across states, with larger increases in Illinois (202%), Maine (179%), and Colorado (144%), and the author's results suggest about one-fifth of the V–U decline was associated with higher immigration.

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.
  • The Role of Immigration in U.S. Labor Market Tightness — State-level analysis estimates that a slowdown in immigration to the United States modestly tightened local labor markets, raising the ratio of job vacancies to unemployed workers by 5.5 percentage points. A subsequent rebound in immigration helped close the shortfall in foreign-born labor, contributing a one-point reduction in that ratio.
  • Immigration’s Effect on US Wages and Employment Redux — The authors estimate that immigration to the US over 2000-2019 raised wages of natives with a high school degree or less by 1.7% to 2.6%, a period when that group's real wages fell by 5% to 6%. Effects on more-educated natives ranged from -0.5% to +0.7%, with an overall average effect of +0.5% to +0.8% that was not statistically significant.

AI Summary. Survey data show 56% of divorced men report supporting Trump versus 42% of divorced women, the largest gender gap of any marital-status group. Married men and women report similar support levels (50% vs. 45%), while single men are somewhat more likely than single women to back Trump.

Daniel Cox American Storylines
Date Posted:

In a survey of registered voters, 56% of divorced men said they are voting for Trump relative to 42% of divorced women. This 14pp gap is significantly larger than the 5pp gap between married men and women and the 9pp gap for single voters. @dcoxpolls

Does the gender gap in political support vary by marital status?

Core argument: 56% of divorced men said they are voting for Trump versus 42% of divorced women, the largest male-female voting divide of any marital-status group.

56% percent of men who are divorced said they are voting for Trump, compared to 42% of divorced women. The voting divide between men and women is larger among the formerly married than any other group. Married men and women report supporting Trump at remarkably similar rates (50% vs. 45%). Single men are somewhat more likely to vote for Trump than single women, a statistic that has been a topic of considerable comment.

Takeaways by Macro Roundup® AI

  1. 56% of divorced men said they are voting for Trump versus 42% of divorced women, the largest male-female voting divide of any marital-status group.
  2. Married men and women report supporting Trump at similar rates, 50% versus 45%, a narrower divide than among the formerly married.
  3. Single men are somewhat more likely to vote for Trump than single women, a gap that has drawn considerable comment.

Related Articles:

  • One Cohort at a Time: A New Perspective on the Declining Gender Pay Gap — The authors find the entire decline in the gender pay gap comes from newer cohorts entering with smaller-than-average gaps and older cohorts exiting with larger ones, with entry convergence driven by younger men's positional losses in the wage distribution, especially at higher-paying firms. They find labor-market exit became the sole contributor, implying no full convergence ahead.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • Why Young Men and Women are Drifting Apart — An analysis of polling from 20 rich countries found that a political gap between men and women aged 18-29 that was negligible two decades ago reached 0.75 points on a 1-10 liberal-conservative scale by 2020, roughly twice the gap between graduates and non-graduates. Young men were more conservative than young women in every large country examined.

AI Summary. Over less than a decade, the share of young men who identify with or lean toward the Democratic Party fell from 51% to 39%. Young women have retained a stronger Democratic allegiance, though that commitment also appears to have weakened more recently.

Daniel Cox The Liberal Patriot
Date Posted:
Is Database:
Database

According to Gallup data, the share of young men who identified with or leaned toward the Democratic Party has fallen from 51% in 2016 to 39% in 2023. @dcoxpolls

Are young voters shifting away from the Democratic Party?

Core argument: The share of young men identifying with or leaning toward the Democratic Party fell from 51% in 2016 to 39% in 2023, a drop of 12 percentage points.

In less than a decade, the number of young men who identify as Democrats dropped significantly. As recently as 2016, more than half of young men (51%) identified with or leaned toward the Democratic Party. By 2023, less than four in ten (39%) young men identified as Democrats. Young women retained a stronger allegiance to the Democratic Party, perhaps in part due to their strong aversion to Trump, but in the last couple of years, this strong Democratic commitment appears to have faltered.

Takeaways by Macro Roundup® AI

  1. The share of young men identifying with or leaning toward the Democratic Party fell from 51% in 2016 to 39% in 2023, a drop of 12 percentage points.
  2. Young women retained a stronger allegiance to the Democratic Party than young men, possibly in part because of their aversion to Trump.
  3. Young women's strong Democratic commitment appears to have faltered in the last couple of years.

Related Articles:

  • An Unsettled Electorate: How Uncertainty and Apathy Are Shaping the 2024 Election — A survey of young registered voters finds 54% backing Biden and 46% backing Trump, with 60% of young women supporting Biden while 52% of young men support Trump. Young men are more likely than young women to say the country has gone too far in giving women equal rights, 19% versus 9%.
  • Why Young Men and Women are Drifting Apart — An analysis of polling from 20 rich countries found that a political gap between men and women aged 18-29 that was negligible two decades ago reached 0.75 points on a 1-10 liberal-conservative scale by 2020, roughly twice the gap between graduates and non-graduates. Young men were more conservative than young women in every large country examined.
  • The Data is Clear: People Are Having Less Sex — Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.

Wednesday, July 17, 2024

AI Summary. Retail grocery workers' wages rose roughly 15 percentage points more than wages in food manufacturing and the overall workforce, and profit margins at food and beverage stores increased from 2.9% to 4.4% while food manufacturing margins were little changed at about 6.8%. That margin increase is small relative to the 25% rise in grocery prices.

Thomas Klitgaard Federal Reserve Bank of New York
Date Posted:

Grocery prices have outpaced inflation due to commodity prices and above-average wage growth for low-paid retail grocery workers. Profit margins have remained steady for food manufacturers and increased by 1.5pp for retailers. @NewYorkFed

Do rising retail wages, not profit margins, explain higher grocery prices?

Core argument: Food and beverage retail store profit margins rose from 2.9% in 2019 to 4.4% in 2023, an increase small relative to the 25% rise in grocery prices over the same period.

The increase in retail grocery workers’ wages since 2019 has been roughly 15pp greater than that of wages for the food manufacturing sector and the workforce as a whole. Commodity goods, energy, other inputs in 2023 were up 15% relative to what they were in 2019, while costs for food and beverage retail stores increased 18%. Revenues rose 15% [for food manufacturers] and retail sales data recorded a 25% increase in revenue for food and beverage stores. Putting these results together yields a measure of the profit margin: the ratio of revenue minus operating costs to revenue. For food manufacturing, the margin was little changed, going from 6.9% in 2019 to 6.8% in 2023, while increasing from 2.9% to 4.4% for food and beverage retail stores. But put in context, this increase in grocery store profit margins (revenues over costs) is small compared to the 25% increase in grocery prices over this period.

Takeaways by Macro Roundup® AI

  1. Food and beverage retail store profit margins rose from 2.9% in 2019 to 4.4% in 2023, an increase small relative to the 25% rise in grocery prices over the same period.
  2. Food manufacturing margins were little changed, at 6.9% in 2019 versus 6.8% in 2023, with revenues up 15% against a 15% rise in commodity, energy, and other input costs.
  3. Retail grocery workers' wages have risen roughly 15 percentage points more since 2019 than wages in food manufacturing and in the workforce as a whole, while food and beverage retail store costs rose 18%.

Related Articles:

  • How Far $100 Goes at the Grocery Store After Five Years of Food Inflation — Prices for hundreds of grocery items have risen more than 50% over five years as food companies raised prices, with recent Labor Department data showing grocery prices up 1% from a year earlier. Executives have said higher prices were needed to offset their own rising costs for ingredients, transportation, and labor.
  • Price Discounts and Cheapflation During the Post-Pandemic Inflation Surge — 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.
  • An Update About How Inflation Has Affected Households at Different Income Levels Since 2019 — The Congressional Budget Office estimates that income after transfers and taxes grew faster than consumption prices for all income groups, lowering the share of income needed to buy the same goods by 2% for the lowest-income fifth and 6.3% for the highest-income fifth.

AI Summary. Stochastic simulations in the Federal Reserve's own macroeconomic model, run with a policy rule allowing for political "capture" that makes the central bank less responsive to inflationary impulses, skew outcomes toward more inflation. Under high capture, median cumulative 6-year inflation was 0.6pp higher and the 95th-percentile outcome nearly 2pp higher, while low-inflation outcomes were equally likely.

Ernie Tedeschi and John Ricco The Budget Lab
Date Posted:

.@ernietedeschi and @riccoja argue that a Fed “captured” by political pressure would lead to median inflation 0.6% higher after six years.

Does a politically captured central bank skew outcomes toward higher inflation?

Core argument: In stochastic simulations of the Fed's FRB/US model, the median cumulative 6-year inflation outcome was 0.6pp higher under high political capture of the Fed (C = 0.85) than under no capture (C = 0).

A “captured” Fed would be one less responsive to inflationary impulses, which allows inflationary pressure to build unchecked. To test the implications of capture, we ran a monetary policy rule that allows for a spectrum of political “capture” through a series of stochastic simulations in FRB/US, the Fed’s macroeconomic model. In these simulations, FRB/US picks random historical economic shocks to key variables occurring between 1970 and 2023 and applies them to its forward forecast. We ran 1,000 such simulations each assuming C = 0 (no political capture) and alternatively C = 0.85 (high political capture). C = 1 implies extreme perfect capture, in which the Fed only responds asymmetrically to low inflation and high unemployment. Figure 2 illustrates the results. The x-axis shows cumulative 6-year inflation, while the y-axis denotes the probability of each outcome in our simulations. A captured Fed skews economic outcomes towards more inflation over time. In our simulations, low inflation was just as likely under our two capture assumptions. But the median inflationary outcome was +0.6pp higher after six years under high capture. And the outlier 95th percentile outcome was almost 2pp higher under high capture.

Takeaways by Macro Roundup® AI

  1. In stochastic simulations of the Fed's FRB/US model, the median cumulative 6-year inflation outcome was 0.6pp higher under high political capture of the Fed (C = 0.85) than under no capture (C = 0).
  2. In the FRB/US simulations, the 95th percentile inflation outcome was almost 2pp higher under high capture, while low-inflation outcomes were just as likely under both capture assumptions.
  3. The analysis ran 1,000 simulations for each capture assumption, with FRB/US drawing random historical shocks to key variables occurring between 1970 and 2023 and applying them to its forward forecast.

Related Articles:

  • Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements — Fiscal dominance requires governments to fund deficits at the margin with non-interest-bearing debt, and the revenue from inflation taxation—both expected and unexpected—is limited. The authors argue a US fiscal dominance episode could end the payment of interest on bank reserves and restore requirements that banks hold large zero-interest reserves against deposits.
  • Changing Central Bank Pressures and Inflation — The authors argue that slowing globalization, fragmenting global flows, longer supply chains, and fiscal pressures from pandemic-era debt and population aging are pushing average long-run inflation upward. They contend that keeping inflation low and stable would require offsetting political-economy factors such as stronger central bank independence or more credible public debt policy.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.

AI Summary. Escalating trade tensions could raise near-term inflation risks by increasing the cost of imported goods along supply chains, and disappointing inflation data could destabilize the return to price stability if short-term expectations spike. Elevated inflation raises the prospect of higher-for-longer interest rates, increasing external, fiscal, and financial risks, including dollar appreciation that disrupts capital flows.

IMF Staff International Monetary Fund
Date Posted:

The IMF warns escalating trade tensions present new upside risks to inflation, “raising the prospect of higher-for-even-longer interest rates.”

Do rising trade tensions threaten the return to price stability?

Core argument: Risks to the global outlook remain balanced overall, though escalating trade tensions could raise near-term inflation risks by increasing the cost of imported goods along the supply chain.

Overall, risks to the outlook remain balanced but some near-term risks have gained prominence. The escalation of trade tensions could further raise near-term risks to inflation by increasing the cost of imported goods along the supply chain. Bumpiness along the remaining disinflation path could destabilize the return to price stability if short-term expectations spike upward as a result of disappointing inflation data. The risk of elevated inflation has raised the prospects of higher-for-even-longer interest rates, which in turn increases external, fiscal, and financial risks. Prolonged dollar appreciation arising from rate disparities could disrupt capital flows and impede planned monetary policy easing, which could adversely impact growth. Persistently high interest rates could raise borrowing costs further and affect financial stability if fiscal improvements do not offset higher real rates amid lower potential growth.

Takeaways by Macro Roundup® AI

  1. Risks to the global outlook remain balanced overall, though escalating trade tensions could raise near-term inflation risks by increasing the cost of imported goods along the supply chain.
  2. Bumpiness along the remaining disinflation path could destabilize the return to price stability if disappointing inflation data cause short-term inflation expectations to spike upward.
  3. Elevated inflation risk raises the prospect of higher-for-even-longer interest rates, with prolonged dollar appreciation from rate disparities potentially disrupting capital flows, impeding planned monetary easing, and raising borrowing costs and financial stability risks.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • Global Supply Chains and U.S. Import Price Inflation — An analysis of more than 25m trade flows among 52 exporters and 52 importers attributes most early growth in U.S. import prices to global factors common across countries, with U.S. demand factors taking over later. Foreign suppliers catching up with demand, notably China, account for the subsequent decline in import price inflation.
  • Can Trade Intervention Lead to Freer Trade? — China accounts for over 31% of global manufacturing but under 13% of global consumption, while the United States accounts for under 17% of manufacturing and nearly 27% of consumption. The author argues persistent surpluses reflect household subsidies to producers, and that the US could counter them with tariffs or taxes on capital inflows.

AI Summary. Yield-curve models estimated using only data available to investors in real time show no trend in term premiums, attributing the long-run decline in long-term Treasury yields instead to a fall in the expected long-run level of short-term interest rates. That decline is consistent with lower inflation and a lower neutral long-run real interest rate.

Michael Kiley Federal Reserve Board
Date Posted:
Is Database:
Database

Using information available to market participants in each period, Michael Kiley finds that the decline in 10-year Treasury rates since 1990 is attributed to a decline in the expected value of short-term interest rates, with no trend in the term premium.

Why have long-term Treasury yields declined over recent decades?

Core argument: Standard yield-curve decompositions using the entire history of data attribute much of the trend decline in long-term Treasury yields since 1992 to a large downward trend in term premiums through 2022.

A predominant set of tools used in discussions of the yield curve are models that decompose the yield curve into expected short-term interest rates and term premiums. Standard decompositions of the Treasury yield curve attribute much of the trend decline in long-term yields [since 1992] to term premiums. The standard decomposition is based on the entire history of data. These models show a large downward trend in term premiums from the early 1990s (or earlier) to 2022. In contrast to the typical implementation of the approach, the analysis herein only uses information available in real time. Using data only available in real time suggests no trend in term premiums. Rather, the trend decline is attributed to a decline in the long-run expected value of short-term interest rates. This real time approach arguably better captures the information available to investors buying and selling Treasury securities at a given point in time. Importantly, a trend decline in the expected short term interest rate is consistent with a decline in inflation and in the neutral long-run real interest rate.

Takeaways by Macro Roundup® AI

  1. Standard yield-curve decompositions using the entire history of data attribute much of the trend decline in long-term Treasury yields since 1992 to a large downward trend in term premiums through 2022.
  2. Restricting the decomposition to information available in real time suggests no trend in term premiums, attributing the decline in long-term Treasury yields instead to a fall in the long-run expected value of short-term interest rates.
  3. A trend decline in expected short-term interest rates is consistent with a decline in inflation and in the neutral long-run real interest rate, and the real-time approach arguably better captures the information available to Treasury investors at each point in time.

Related Articles:

  • The Transition to a Higher Cost of Capital — 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.
  • 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.
  • Quo Vadis, r*? The Natural Rate Of Interest After The Pandemic — Estimates of the natural rate of interest across core advanced economies suggest it may have increased, though the estimates are widely dispersed and statistically uncertain. Low expected potential growth and rising longevity may weigh on the natural rate, while large fiscal deficits, age-related spending, and public investment needs for infrastructure, defense, and the green transition may push it up.

AI Summary. German net public investment has been close to zero since the start of the century, leaving the ratio of public capital to economic output consistently falling. The author argues Germany should use its large private-sector surplus savings at home and repeal the constitutional "debt brake" to fund needed public investment.

Martin Wolf Financial Times
Date Posted:

.@MartinWolf_ notes that Germany’s public investment of 2.5% of GDP is “extraordinarily low” relative to its peers, and argues for increased public investment funded by a portion of net private sector savings, which were 7.5% of GDP in 2023.

Should Germany scrap its debt brake to fund public investment?

Core argument: German net public investment has been close to zero since the beginning of this century, and the ratio of public capital to GDP has consistently fallen.

German net public investment has been close to zero since the beginning of this century. Thus, the ratio of public capital to GDP has been consistently falling. It makes no sense for a country with such vast surplus savings in its private sector not to use them at home, thereby generating both a stronger supply side and the demand that Germany and the Eurozone will need. Germany’s short-term problems will pass. Its longer-term ones are more challenging. But the most unnecessary one is its reluctance to fund needed public investment at home. The time to repeal the absurd “debt brake” in the constitution is now.

Takeaways by Macro Roundup® AI

  1. German net public investment has been close to zero since the beginning of this century, and the ratio of public capital to GDP has consistently fallen.
  2. Germany's vast private-sector surplus savings should be used at home, generating both a stronger supply side and the demand that Germany and the Eurozone will need.
  3. Germany's short-term problems will pass while its longer-term ones are more challenging, and its most unnecessary problem is a reluctance to fund needed public investment at home, which argues for repealing the constitutional "debt brake.".

Related Articles:

  • Germany’s Record Trade Surplus — Germany's trade surplus has returned to 8% of GDP, with the authors attributing the gain to higher traded-goods prices boosting nominal exports despite weak export volumes. A growing share of the surplus is bilateral with the rest of the Eurozone, Central Europe, and the US.
  • Germany Is Losing Its Mojo. Finding It Again Won’t Be Easy — The International Monetary Fund projects Germany will be the only major economy to contract this year, while even sanctioned Russia grows. German exports long depended on a rapidly industrializing China buying its capital goods, but Chinese growth and import demand have faltered, and German industry still faces higher energy costs than U.S. and Asian competitors.
  • Which Country Should Design U.S. Industrial Policy? — Manufacturing is 15% of global GDP but 11% of U.S. GDP versus 19% in Germany, 21% in South Korea, 26% in mainland China, and 34% in Taiwan, according to World Bank data. The author argues this gap stems from trade and industrial policies in surplus economies that effectively force households to subsidize manufacturing, drawing global manufacturers toward the largest subsidies.

AI Summary. The nominal value of the S&P 500 index of large American companies has risen almost 80% since the start of 2020, more than twice the percentage increase in US GDP, leaving its cyclically adjusted price-earnings ratio at 36. American share prices would need to fall by more than 50% for that ratio to return to its long-run average.

Economist Staff The Economist
Date Posted:

At current interest rates, US equity values would need to fall by around 1/3 for the gap between the Cyclically Adjusted Earnings Price Ratio and real Treasury yields to revert to the mean.

How far are stock valuations above their long-run average?

Core argument: The S&P 500's nominal market value has risen almost 80% since the start of 2020, more than twice the percentage increase in American GDP.

Since the beginning of 2020, before the crash that accompanied the spread of covid-19, the nominal market value of America’s S&P 500 index has risen by almost 80%, more than twice as much in percentage terms as the increase in American GDP. The index’s cyclically adjusted price-earnings (CAPE) ratio is 36. It has only been higher near the worst of the dotcom bubble and in 2021, both of which preceded crashes. It also means that the “CAPEyield”, the cape’s inverse and a predictor of real returns, is close to a historic low, providing an impetus to sell stocks. Indeed, the CAPE yield only just beats the guaranteed real yield on inflation-protected Treasury bonds. At current interest rates, American share prices would need to fall by around 1/3 for the gap between the CAPE and real Treasury yields to revert to the mean. For the CAPE to return to its long-run average, they would have to crater by more than 50%.

Takeaways by Macro Roundup® AI

  1. The S&P 500's nominal market value has risen almost 80% since the start of 2020, more than twice the percentage increase in American GDP.
  2. The S&P 500's cyclically adjusted price-earnings ratio stands at 36, a level exceeded only near the worst of the dotcom bubble and in 2021, both of which preceded crashes.
  3. At current interest rates, American share prices would need to fall by around a third for the gap between the CAPE yield and real Treasury yields to revert to the mean, and by more than 50% for the CAPE to return to its long-run average.

Related Articles:

  • S&P 500 Looking More Vulnerable — The 10 largest companies in the S&P 500 account for 35% of its market value but only 23% of its earnings, the widest such gap on record. The author argues this reflects record bullishness on future earnings from a small group of companies, compounding the index's concentration.
  • The Life Cycle of Market Champions — The 10 largest US companies make up almost one-third of US equity market capitalization, a concentration not seen in decades. Historically, about half of each decade's largest companies underperform the market and drop out of the top 15 within a decade or two, and nearly all are eventually displaced.
  • Stock Market Concentration — Over 2014–2023 the 10 largest U.S. stocks averaged 19% of market capitalization while generating 47% of total economic profit, and by 2023 they were 27% of market capitalization and 69% of economic profit. The S&P 500 returned above its average when concentration was rising and below it when concentration was falling.

AI Summary. Republicans won the most congressional votes by substantial margins in swing states including Arizona, Georgia, Nevada, North Carolina, Pennsylvania, and Wisconsin, with Michigan the only true swing state where they failed to win a vote majority. The author argues this undercuts claims the election was a broad repudiation of Donald Trump.

Sean Trende American Enterprise Institute
Date Posted:
Is Database:
Database

.@SeanTrende @AEI notes that Republicans won 51.4% of 2022 two-party Congressional votes, and forecasts, “If Republicans match that showing in 2024, Trump will almost certainly return to the White House, with full control of the House and Senate.”

Did swing-state results show a broad repudiation of Republicans?

Core argument: Republicans won the most congressional votes by substantial margins in the swing states of Arizona, Georgia, Nevada, North Carolina, Pennsylvania, and Wisconsin, with Michigan the only true swing state where they failed to win a vote majority.

While 2022 was undoubtedly a good year for Democrats, analysts today lean too heavily on the results when looking to 2024. Republicans received the most votes for Congress by substantial margins in swing states like AZ, GA, NV, NC, PA, and WI. The only true swing state in which Republicans failed to win a majority of the vote was MI. Republicans also had a pretty good year in state legislatures. Though not as strong as 2010 or 2014, Republicans still received a majority of the vote. In fact, their margin was roughly the same as it was in congressional elections. The idea that the 2022 election represented a massive repudiation of Donald Trump is not supported by the result. If Republicans match that showing in 2024, Trump will almost certainly return to the White House, with full control of the House and Senate.

Takeaways by Macro Roundup® AI

  1. Republicans won the most congressional votes by substantial margins in the swing states of Arizona, Georgia, Nevada, North Carolina, Pennsylvania, and Wisconsin, with Michigan the only true swing state where they failed to win a vote majority.
  2. Republicans received a majority of the vote in state legislative elections by roughly the same margin as in congressional races, though weaker than their showings in 2010 or 2014.
  3. The 2022 results do not support the claim of a massive repudiation of Donald Trump, and a repeat of that Republican showing in 2024 would almost certainly return Trump to the White House with full control of the House and Senate.

Related Articles:

  • An Unsettled Electorate: How Uncertainty and Apathy Are Shaping the 2024 Election — A survey of young registered voters finds 54% backing Biden and 46% backing Trump, with 60% of young women supporting Biden while 52% of young men support Trump. Young men are more likely than young women to say the country has gone too far in giving women equal rights, 19% versus 9%.
  • The Road to A Political Realignment in American Politics — College-educated voters are now more likely to identify as Democrats while those without degrees back Republicans, with educational attainment increasingly correlated with views on abortion, LGBTQ+ rights, and religion's relationship to government. This sorting leaves most states politically uncompetitive, with eight states near the national average in education levels holding 97 electoral votes in play.
  • Progressives Beware: High Turnout Now Favours The Right — In US elections from the 1960s to 2000, higher turnout tended to favor Democrats because habitual voters were disproportionately wealthy and well-educated, while occasional voters came from lower socio-economic groups. That gradient has reversed as economically marginalised voters shifted rightward: lower-turnout, graduate-heavy electorates now tend to help Democrats.