Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, July 22, 2024

AI Summary. The authors calculate that proposed U.S. policies to lower drug prices, while especially benefiting low-income and elderly populations, could sharply reduce pharmaceutical firms' investment in research and development. They estimate that a single international price per drug across the highest-income advanced economies, holding firm profits fixed, would halve U.S. prices while raising other countries' prices by 28% to 300%.

Kate Ho and Ariel Pakes National Bureau of Economic Research
Date Posted:

US efforts to reduce domestic pharmaceutical prices, without corresponding increases in other high-income countries, “could dramatically reduce firms’ investment in highly welfare-improving R&D.”

Do policies to lower U.S. drug prices reduce pharmaceutical research investment?

Core argument: The authors calculate that a single international drug price across the highest-income OECD countries, holding total pharmaceutical firm profits fixed, would cut U.S. prices by half while raising every other country's prices by 28% to 300%.

As long as the vast majority of the funds for research keep being supplied by firms, an increase in pharmaceutical research likely requires increased private incentives to do that research.Our calculations indicate that currently proposed U.S. policies to reduce pharmaceutical prices, though particularly beneficial for low-income and elderly populations, could dramatically reducefirms’ investment in highly welfare-improving R&D. The U.S. subsidizes the worldwide pharmaceutical market. One reason is U.S. prices are higher than elsewhere. If each drug had asingle international price across the highest-income OECD countries, and total pharmaceutical firm profits were held fixed, then U.S. prices would fall by half and every other country’s prices would increase (by 28% to 300%). International prices would maintain firms’ R&D incentives and more equitably share the costs of pharmaceutical research.

Takeaways by Macro Roundup® AI

  1. The authors calculate that a single international drug price across the highest-income OECD countries, holding total pharmaceutical firm profits fixed, would cut U.S. prices by half while raising every other country's prices by 28% to 300%.
  2. Currently proposed U.S. policies to reduce pharmaceutical prices, though particularly beneficial for low-income and elderly populations, could sharply reduce firms' investment in welfare-improving R&D, according to the authors' calculations.
  3. Because firms supply the vast majority of pharmaceutical research funds, the authors argue that increasing such research likely requires greater private incentives, and that international pricing would maintain R&D incentives while sharing research costs more equitably.

Related Articles:

  • Evaluation and Learning in R and D Investment — Pharmaceutical firms favor incremental drugs because they are easier to evaluate, even though novel drugs generate more learning that improves future screening decisions. The authors argue policymakers could strengthen incentives for novel research by making it easier for firms to capture indirect revenues from successor projects, which accrue even when the original project fails.
  • The Hamilton Index, 2023: China Is Running Away With Strategic Industries — An analysis of value-added output in 10 strategically important advanced industries, together accounting for over $10tn in global production, found China was the leading producer in seven and produced more than all other nations outside the top 10 combined. The authors argue China's gains came at the expense of the US and other advanced economies.

AI Summary. The U.S. labor force participation rate rose from 60.8% to 62.7%, and immigrants, though 18% of the adult population, account for 40% of that increase. The foreign-born participation rate stands at 66.4% versus 61.8% for the native-born, and without immigration's contribution the overall rate would be 62.2%.

Benn Steil and Elisabeth Harding Council on Foreign Relations
Date Posted:

.@BennSteil notes that foreign-born workforce participation is 66.4%, vs 61.8% for native-born, and argues that the increasing immigrant share of the US population, from 16% in January ‘21 to 18% in June ‘24, means faster growth and slowing inflation.

How much has immigration raised the labor force participation rate?

Core argument: The U.S. labor force participation rate rose from 60.8% in June 2020 to 62.7%, and without the increased foreign-born population share and their rising participation, it would stand at only 62.2%.

Since June 2020, with the rapid early spread of Covid, the LFPR has risen from 60.8% to 62.7%, with a particularly notable uptick in the last four months. Since President Biden took office in January 2021, the adult foreign-born population of the United States has grown by over 5 million. The share of immigrants in the adult population has risen from 16% to 18%. At the start of 2021, the foreign and native born LFPRs were 64.2% and 60.9%, respectively. And since then the foreign-born LFPR has grown by a whopping 2.2pp—far more than the 0.9pp growth in the native-born LFPR. Today, the foreign-born LFPR, at 66.4%, is nearly 5pp higher than that of the native-born, at only 61.8%. Without both the increase in the share of foreign-born in the population and the increase in the foreign-born LFPR, the overall LFPR would today be only 62.2% - a substantial half a percentage point lower than the actual 62.7%. Though immigrants constitute only 18% of the adult population, they account for a much larger 40% of the rise in the LFPR.

Takeaways by Macro Roundup® AI

  1. The U.S. labor force participation rate rose from 60.8% in June 2020 to 62.7%, and without the increased foreign-born population share and their rising participation, it would stand at only 62.2%.
  2. The foreign-born labor force participation rate has grown 2.2 percentage points since the start of 2021, far more than the 0.9 points for the native-born, leaving foreign-born participation at 66.4% versus 61.8%.
  3. Immigrants make up 18% of the U.S. adult population, up from 16%, but account for 40% of the rise in the labor force participation rate, with the adult foreign-born population up over 5 million since January 2021.

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.
  • Surging Population Growth From Immigration May Have Little Effect on Inflation — A 1% immigration-driven population increase with labor-force integration comparable to native-born workers expands employment and output immediately, leaving demand and supply balanced. Because capital accumulates only over time, the temporary shortage of capital relative to labor is argued to raise real returns to capital and depress real wages, with smaller effects if immigrants take manual jobs requiring less capital.
  • Immigration and the U.S. Economy Since the Pandemic: An Accounting Exercise — The US native-born labor force fell by about 1.2m over four years, a decline driven overwhelmingly by population aging, while foreign-born labor supply grew by about 3m, leaving the overall labor force up roughly 2m. Without immigration, the total US labor force would have shrunk.

AI Summary. Home prices are unusually high relative to incomes and rents given relatively high mortgage rates, but because prices are "sticky downward" this gap has historically closed through stagnant prices and fewer transactions while incomes and rents catch up. Rents rising faster than prices in city cores appears in New York and Los Angeles.

Aziz Sunderji Home Economics
Date Posted:

.@AzizSunderji notes that rents are rising faster than home prices, particularly in New York and Los Angeles, with home prices “merely stagnating and transactions drying up while the incomes and rents catch up.”

How do high home prices relative to incomes and rents correct?

Core argument: U.S. home prices are unusually high relative to incomes and rents, particularly given relatively high mortgage rates, yet a correction through outright price declines is unlikely because home prices are "sticky" and sellers balk at selling at a loss.

Prices are unusually high, compared to incomes and rents, especially given today’s relatively high mortgage rates. But they are unlikely to correct through price declines, because home prices are “sticky”—sellers balk at selling at a loss. As Robert Shiller wrote in 2003, “home prices are sticky downward. That is, when excess supply occurs, prices do not immediately fall to clear the market.” Instead, this relationship has corrected in the past through prices merely stagnating and transactions drying up while the incomes and rents catch up. And that seems to be what’s happening these days, at least in some markets like New York. For what it’s worth this same pattern—of rents rising faster than prices in the core of the city—appears in Los Angeles, but not in the other cities I looked at.

Takeaways by Macro Roundup® AI

  1. U.S. home prices are unusually high relative to incomes and rents, particularly given relatively high mortgage rates, yet a correction through outright price declines is unlikely because home prices are "sticky" and sellers balk at selling at a loss.
  2. Robert Shiller wrote in 2003 that home prices are "sticky downward," meaning that when excess supply occurs, prices do not immediately fall to clear the market.
  3. Past corrections came through prices stagnating and transactions drying up while incomes and rents caught up, a pattern apparent in New York, with rents rising faster than prices in the urban core in Los Angeles as well.

Related Articles:

  • The Price of Housing in the United States — 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.
  • The Boomer-Millennial Housing Battle Cools — Demographic needs are outweighing affordability in the housing market, with the share of first-time buyers returning nearly to pre-pandemic levels despite high prices and interest rates. One in four Millennial buyers reported purchasing because they had no choice, and Millennials again make up the largest group of homebuyers.
  • The US Housing Market Is Very Quickly Becoming Unaffordable — Home prices in Las Vegas, Phoenix, Orlando, and Tampa now stand at 6 to 7x incomes, exceeding the ratios reached at the peak of the early 2000s housing bubble in each of those metro areas. All four shifted from affordable, to unaffordable, back to affordable, and into unaffordable territory again.

AI Summary. An analysis of Census Bureau survey data finds that women having no children at all, rather than mothers having fewer, accounted for more than two-thirds of the 6.5% decline in average births among 35- to 44-year-olds between 2012 and 2022. Some demographers and economists expect rising childlessness to be sustained as attitudes toward family shift.

Rachel Wolfe Wall Street Journal
Date Posted:

Two-thirds of the 6.5% decline in mean births in the US 35-44 cohort between 2012 and 2022 is due to the increasing number of women who have zero children.

Is rising childlessness driving most of the decline in births?

Core argument: Childlessness accounted for over two-thirds of the 6.5% drop in average lifetime births among 35- to 44-year-old American women between 2012 and 2022, according to University of Texas demographer Dean Spears's analysis of Census Bureau CPS data for The Wall Street Journal.

Women without children, rather than those having fewer, are responsible for most of the decline in average births among 35- to 44-year-olds during their lifetimes so far, according to an analysis of the Census Bureau’s CPS data by University of Texas demographer Dean Spears for The Wall Street Journal. Childlessness accounted for over two-thirds of the 6.5% drop in average births between 2012 to 2022. While more people are becoming parents later in life, 80% of the babies born in 2022 were to women under 35, according to the Centers for Disease Control and Prevention’s National Vital Statistics data. The number of American women over 40 who had no children was declining until 2018, according to Current Population Survey data, when it then began to rise again. Now, some demographers and economists expect the increase in childlessness will be sustained due to shifts in how people think about families.

Takeaways by Macro Roundup® AI

  1. Childlessness accounted for over two-thirds of the 6.5% drop in average lifetime births among 35- to 44-year-old American women between 2012 and 2022, according to University of Texas demographer Dean Spears's analysis of Census Bureau CPS data for The Wall Street Journal.
  2. 80% of babies born in the U.S. in 2022 were to women under 35, according to the CDC's National Vital Statistics data, even as more people become parents later in life.
  3. The number of American women over 40 with no children declined until 2018 and then began rising, according to Current Population Survey data, and some demographers and economists expect the increase in childlessness to be sustained by shifts in how people think about families.

Related Articles:

  • Young Families Have Continued Leaving Big Cities Post-Pandemic — Large urban counties have continued to lose population of young children even as their overall population growth resumed, driven by immigration. Birth rates in large urban counties have declined twice as fast as in rural counties over the past decade, and the number of children under five fell in 58% of all US counties.
  • U.S. Fertility Rate Falls to Record Low — The U.S. total fertility rate fell 2% to 1.62 births per woman, the lowest since federal tracking began in the 1930s, with about 3.59mn births — the fewest since 1979 — according to provisional data. Birth rates for women aged 35-39, at 54.7 per 1,000, were close to the rate of 55.4 per 1,000 for women aged 20-24.
  • US Births Are Down Again, After the COVID Baby Bust and Rebound — US births declined steadily for years before the pandemic, with almost 600,000 fewer annual births in 2019 than in 2007, a 13% drop. The pandemic-related baby bust and subsequent rebound were short-term deviations from that longer trend, and 2022 birth counts remained below 2019 levels.

AI Summary. China's real household consumption growth is projected at around 3 to 4% annually over the next five to ten years, reflecting a continued slowdown in urban per capita spending growth. If household consumption stays near 39% of GDP, it would contribute only about 1.2 to 1.6 percentage points to annual GDP growth, well below its contribution in the 2010s.

Logan Wright, Camille Boullenois, Charles Austin Jordan, et al. Rhodium Group
Date Posted:

The @rhodium_group forecasts Chinese real household consumption growth of 3-4% over the next 5-10 years, consistent with GDP growth of around 3%. Chinese household income including transfers is ~ 60% of GDP vs. ~80% in the US.

How much will household consumption contribute to China's growth?

Core argument: China's real household consumption growth over the next five to ten years most probably runs around 3–4%, reflecting headwinds and a likely continued slowdown in urban per capita spending growth.

The most probable range of China’s real household consumption growth over the next five to ten years is around 3 to 4%. This reflects headwinds, along with the probability of a continued slowdown in urban per capita spending growth, from 6% in nominal terms over the past decade (and therefore around 5% in real terms). If the economy remains imbalanced and household consumption stays around 39% of China’s GDP, that means that consumption will contribute only around 1.2 to 1.6 percentage points of GDP growth per year for most of the next decade, a much lower contribution to growth than in the 2010s. Nothing in economic development is certain, but if the future looks roughly like the recent past, this is the most probable trajectory for household consumption growth.

Takeaways by Macro Roundup® AI

  1. China's real household consumption growth over the next five to ten years most probably runs around 3–4%, reflecting headwinds and a likely continued slowdown in urban per capita spending growth.
  2. Urban per capita spending in China grew 6% in nominal terms over the past decade, roughly 5% in real terms, a pace expected to slow further.
  3. If household consumption stays around 39% of China's GDP, consumption would contribute only about 1.2 to 1.6 percentage points of GDP growth per year for most of the next decade, below its contribution in the 2010s.

Related Articles:

  • Why Xi Jinping Is Afraid to Unleash China’s Consumers — China's push for self-sufficiency began in the mid-2000s, and its reliance on global supply chains for inputs into its products has declined alongside that strategy, alongside a doctrine of "comprehensive national security" spanning the economy and society. Analysts argue China now gauges national power in military capacity rather than purely economic terms, making manufacturing central.
  • What Will It Take for China’s GDP to Grow at 4–5 Percent Over the Next Decade? — China accounts for 18% of global GDP, 13% of global consumption, and 31% of global manufacturing. The author estimates that if China grew 4–5% annually for a decade while keeping manufacturing's role in its economy, its share of global manufacturing would reach 36–39%, requiring the rest of the world to let manufacturing's share of its output fall by 0.5–1.0pp.
  • Assessing China’s Efforts to Increase Self-Reliance — China's import growth has been notably weaker than export growth over the past five years, and the correlation between GDP growth and import growth has run below that between GDP growth and export growth for about a decade, which could be an early sign of increasing self-reliance. China is reducing reliance on imported inputs while maintaining reliance on foreign demand.

Tuesday, July 23, 2024

AI Summary. In randomized assignments of managers to worker groups, the authors estimate that good managers are roughly twice as valuable as good workers and score higher on tests of fluid intelligence and economic decision-making. The authors find that self-selected managers perform worse than randomly assigned ones.

Ben Weidmann, Joseph Vecci, Farah Said, et al. National Bureau of Economic Research
Date Posted:

An experiment using repeated random assignments of managers finds that good managers have twice the impact on team performance as good workers. Randomly assigned managers do better than self-nominated ones. @ProfDavidDeming @SoniaBhalotra @_farahsaid

How valuable are good managers, and what traits identify them?

Core argument: Good managers are roughly twice as valuable as good workers, consistent with studies of managerial performance in other settings.

We repeatedly randomly assign managers to different groups of workers who perform a Collaborative Production Task together, and in each case, we estimate the contribution of the manager to group performance after conditioning on workers’ skills. Over multiple random assignments, some managers consistently cause their teams to exceed predicted performance. Good managers are roughly twice as valuable as good workers, consistent with studies of managerial performance in other settings. Good managers have higher fluid intelligence and score higher on a test of economic decision-making skill. We also find that self-promoted managers perform worse than managers who are randomly assigned to the role. Finally, we show that good managers increase group performance by monitoring workers to avoid wasting time, by allocating workers to tasks that maximize their comparative advantage, and by motivating them to exert effort.

Takeaways by Macro Roundup® AI

  1. Good managers are roughly twice as valuable as good workers, consistent with studies of managerial performance in other settings.
  2. Across repeated random assignments of managers to worker groups, some managers consistently cause their teams to exceed performance predicted from workers' skills, and good managers have higher fluid intelligence and score higher on a test of economic decision-making skill.
  3. Self-promoted managers perform worse than randomly assigned managers, and good managers raise group performance by monitoring workers to avoid wasting time, allocating workers to tasks that maximize their comparative advantage, and motivating them to exert effort.

Related Articles:

  • Why Do Wages Grow Faster for Educated Workers? — College graduates sort into professional, non-routine occupations where wages rise much more with job tenure, and the author estimates this occupational sorting explains at least half of the life-cycle growth in the college wage premium. That premium is estimated at 22% at age 26, 49% at age 40, and 56% at age 60.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.
  • Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges — Children from top-1% families are more than 2x as likely as middle-class students with comparable SAT/ACT scores to attend an Ivy-Plus college, with two-thirds of the gap attributable to higher admissions rates. The authors attribute this advantage to legacy preferences, weight on non-academic credentials, and athlete recruitment.

AI Summary. The authors argue that by shifting its debt issuance toward shorter maturities, the US Treasury is managing financial conditions in a way that takes on core Federal Reserve functions, a practice they call "activist Treasury issuance." They estimate it has lowered 10-year yields by about 0.25 percentage points, comparable to a one-point cut in the Federal Reserve's policy rate.

Stephen Miran and Nouriel Roubini Hudson Bay Capital
Date Posted:

.@SteveMiran @Nouriel argue that a rotation in Treasury’s issuance policies from long-term debt to bills is the equivalent of a 100bps cut in the FFR and believe “activist Treasury issuance” is offsetting the Fed’s efforts to slow the economy.

Is Treasury's shift to shorter maturities taking over Fed functions?

Core argument: The authors calculate that "activist Treasury issuance" — Treasury's adjustment of its debt maturity profile — has reduced 10-year yields by roughly 0.25 percentage points, providing stimulus similar to a one-point cut in the Fed Funds rate.

By adjusting the maturity profile of its debt issuance, Treasury is dynamically managing financial conditions and through them, the economy, usurping core functions of the Federal Reserve. We dub this novel tool “activist Treasury issuance,” or ATI. ATI has been a major market driver over the past year and we expect it will continue to play a significant role in the years ahead. We calculate that ATI has reduced 10-year yields over the last year by roughly a quarter of a percent, providing similar stimulus as a one-point cut in the Fed Funds rate, the central bank’s primary policy tool. Combined with higher neutral rates, ATI implies the total stance of both monetary and issuance policy, considered together, is roughly neutral—in other words, ATI has interdicted the Fed’s attempt to restrain the economy, helping explain inflation persistence and upward nominal growth surprises over the past year.

Takeaways by Macro Roundup® AI

  1. The authors calculate that "activist Treasury issuance" — Treasury's adjustment of its debt maturity profile — has reduced 10-year yields by roughly 0.25 percentage points, providing stimulus similar to a one-point cut in the Fed Funds rate.
  2. The authors argue that activist Treasury issuance combined with higher neutral rates leaves the total stance of monetary and issuance policy roughly neutral, interdicting the Fed's attempt to restrain the economy and helping explain inflation persistence and upward nominal growth surprises.
  3. The authors describe activist Treasury issuance as a major market driver that usurps core functions of the Federal Reserve, and expect it to continue playing a significant role in the years ahead.

Related Articles:

  • One Weird Trick — A larger share of Treasury financing done through short-term bills rather than longer-dated coupon securities would likely ease upward pressure on long-term yields, though the effect may be modest. With the deficit estimated near $1.5t, shifting toward bills would let the Treasury hold coupon sizes steady or trim them, reducing near-term supply.
  • Rapid Increase in T-Bill Supply Is a Growing Risk — The supply of short-term US Treasury bills has risen by $2tn over 12 months, and bills have grown as a share of total debt outstanding. Absorbing this supply requires continued demand from banks, money market funds, and households, and falling appetite could push short-term rates higher and raise the risk of funding-market strains.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.

AI Summary. US dollar policy has been non-interventionist since the mid-1990s, roughly 30 years, making the current administration's expressed preference for a weaker dollar a departure that has not been spelled out explicitly. The stated rationale is that a weaker dollar would make American exports cheaper and help rebuild domestic manufacturing employment.

Jens Nordvig and Chris Marsh Money: Inside and Out
Date Posted:

.@GeneralTheorist and @jnordvig note that the US dollar policy has been non-interventionist for the past 30 years, but a second Trump term may support a weaker dollar to boost US manufacturing competitiveness.

Would a weaker dollar boost US exports and manufacturing employment?

Core argument: US dollar policy has been non-interventionist for roughly 30 years since the mid-1990s, and Trump's stance departs from that approach, though it has not been spelled out explicitly.

US Dollar policy has been non-interventionist since the mid-1990s, or for about 30 years. Trump’s stance on the dollar is highly unusual, and a departure from the past US dollar policy noted above, although it is not a policy that is spelled out very explicitly. Take Trump’s comments to Bloomberg Businessweek, "We have a big currency problem because the depth of the currency now in terms of strong dollar/weak yen, weak yuan, is massive." But it is not only Trump. JD Vance has made similar noises about the need for a weaker dollar as a mechanism to boost manufacturing and exports, "‘Devaluing’ of course is a scary word, but what it really means is American exports become cheaper, and that’s important. Suppose you want to employ a lot of people in manufacturing. In that case, you need to make it easier for us to export and not just import what we need." For Trump-Vance a weak dollar is necessary to reverse the loss of manufacturing production to the rest of the world and reinvigorate the blue-collar American.

Takeaways by Macro Roundup® AI

  1. US dollar policy has been non-interventionist for roughly 30 years since the mid-1990s, and Trump's stance departs from that approach, though it has not been spelled out explicitly.
  2. Trump told Bloomberg Businessweek that the United States has "a big currency problem" because the depth of the currency in terms of a strong dollar and weak yen and yuan is "massive.".
  3. JD Vance has argued that devaluing the dollar would make American exports cheaper, tying that to employing more people in manufacturing rather than importing what the country needs.

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.
  • Local Currency Returns — 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.
  • 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. Commercial bank loan growth has stabilized below pre-pandemic rates at 2.5% year over year, with higher interest rates reducing loan demand. Banks' holdings of Treasuries and agency mortgage-backed securities have gradually increased as loan growth slowed, activity likely contributing to improved Treasury market liquidity.

Joseph Wang Fed Guy Blog
Date Posted:

Lower demand for bank loans due to higher rates is contributing to improved Treasury market liquidity as banks deploy “excess” balance sheet capacity into Treasuries and repo lending.

Is slower bank loan growth improving Treasury market liquidity?

Core argument: Commercial bank loan growth has slowed to 2.5% year over year, below inflation and below pre-pandemic rates, after surging post-pandemic, as higher interest rates reduced loan demand.

Commercial bank loan growth surged post-pandemic, but has stabilized at growth rates below those prevailing pre-pandemic. The large increase in interest rates has been successful in reducing demand for bank loans, where growth is even below inflation at just 2.5% year over year. The stagnation in loan growth appears to have given more room for banks to allocate capital towards their trading activities, which is likely boosting Treasury market liquidity. Bank of America has explicitly noted that they prefer to deploy excess cash into loans, but would otherwise leave them in cash or Treasuries. In line with that view, aggregate bank Treasury and Agency MBS holdings have been gradually increasing as loan growth has slowed. JP Morgan reported a 20% year-over-year increase in trading assets, which they primarily attributed to an increase in repo financing. The increased bank activity in Treasuries is likely contributing to the improvement in Treasury market liquidity.

Takeaways by Macro Roundup® AI

  1. Commercial bank loan growth has slowed to 2.5% year over year, below inflation and below pre-pandemic rates, after surging post-pandemic, as higher interest rates reduced loan demand.
  2. Aggregate bank holdings of Treasuries and Agency mortgage-backed securities have gradually increased as loan growth slowed, consistent with Bank of America's stated preference to deploy excess cash into loans and otherwise hold cash or Treasuries.
  3. JP Morgan reported a 20% year-over-year increase in trading assets, primarily attributed to an increase in repo financing, activity that is likely contributing to improved Treasury market liquidity.

Related Articles:

  • 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.
  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • How Has Treasury Market Liquidity Evolved in 2023? — Treasury market liquidity has tracked its historical relationship with interest rate volatility, indicating liquidity has not been unusually poor given the level of rate volatility, though the two-year note shows somewhat higher-than-expected price impact. The market's capacity to smoothly handle large trading flows remains a concern for policymakers and market participants.

AI Summary. Small cap stocks, large cap value versus growth, and non-US versus US stocks trade at their cheapest valuations in 20 years, reflecting weaker earnings growth than US large cap growth. Evidence from tech supports the view that firms stay private longer, with median time to initial public offering rising from about 8 years to about 12.

Michael Cembalest J.P. Morgan
Date Posted:

Small-cap stocks are at their cheapest level in decades. Michael Cembalest argues “If Trump raises tariffs and ratchets up antitrust enforcement of large-cap tech stocks, that could be a small cap relative value catalyst.”

Are small caps and value cheap because their earnings growth lagged?

Core argument: Median time-to-IPO for tech stocks rose from roughly 8 years before 2009 to roughly 12 years in 2021, after which IPO activity declined sharply in 2022 and 2023.

Since 2010, small cap has been one of the big three underperforming portfolio strategies alongside large cap value vs growth and non-US stocks vs the US. All three out of favor strategies are at their cheapest levels in 20 years, but for good reason: weaker earnings growth than US large cap growth. Some observers believe that underperformance of US small cap vs large cap is due to companies staying private for longer periods of time, after which they go public as mid or large companies instead of small cap. We find some evidence for this line of reasoning as it relates to tech stocks. Median time-to-IPO for tech stocks rose from ~8 years before 2009 to ~12 years in 2021, after which IPO activity declined sharply in 2022/2023.

Takeaways by Macro Roundup® AI

  1. Median time-to-IPO for tech stocks rose from roughly 8 years before 2009 to roughly 12 years in 2021, after which IPO activity declined sharply in 2022 and 2023.
  2. Small cap, large cap value versus growth, and non-US versus US stocks have been the three underperforming portfolio strategies since 2010, and all three sit at their cheapest levels in 20 years.
  3. The three out-of-favor strategies are cheap for a reason: weaker earnings growth than US large cap growth, with evidence that tech companies staying private longer and listing as mid or large caps partly explains small cap underperformance.

Related Articles:

  • The Quality of New Entrants — Declining quality in the US small-cap universe is attributed mainly to an influx of unprofitable new listings, which account for 57% of a 2,750-stock universe and are concentrated in biotech, financials, and health care. Companies exiting the universe have tended to be higher quality than those remaining.
  • 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.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. The U.S. foreign-born population reached a record 46.1mm, or 13.8% of the population, roughly 3x the 4.7% share in 1970 but below the record 14.8% in 1890. Mexico is the top country of birth at 23% of immigrants, and unauthorized immigrants numbered about 11mm, or 23% of the foreign-born population.

Mohamad Moslimani and Jeffrey Passel Pew Research Center
Date Posted:

A @pewresearch analysis finds that the US foreign-born population reached a record 46.1mm in 2022, or 13.8% of the population, still under the 1890 peak of 14.8%. 49% of immigrants are naturalized citizens, while 28% have permanent or temporary permits.

How large is the U.S. immigrant population and where from?

Core argument: The U.S. foreign-born population reached a record 46.1 million in 2022, or 13.8% of the population, roughly triple the 4.7% share in 1970 but below the record 14.8% recorded in 1890.

The U.S. foreign-born population reached a record 46.1 million in 2022. Growth accelerated after Congress made U.S. immigration laws more permissive in 1965. Immigrants today account for 13.8% of the U.S. population. This is a roughly threefold increase from 4.7% in 1970. However, the immigrant share of the population today remains below the record 14.8% in 1890. Mexico is the top country of birth for U.S. immigrants. In 2022, roughly 10.6 million immigrants living in the U.S. were born there, making up 23% of all U.S. immigrants. The next largest origin groups were those from India (6%), China (5%), the Philippines (4%) and El Salvador (3%). From 1990 to 2007, the unauthorized immigrant population more than tripled in size, from 3.5 million to a record high of 12.2 million. From there, the number slowly declined to about 10.2 million in 2019. In 2022, the number of unauthorized immigrants in the U.S. showed sustained growth for the first time since 2007, to 11mm. As of 2022: 49% were naturalized U.S. citizens, 24% were lawful permanent residents, 4% were legal temporary residents, and 23% were unauthorized immigrants.

Takeaways by Macro Roundup® AI

  1. The U.S. foreign-born population reached a record 46.1 million in 2022, or 13.8% of the population, roughly triple the 4.7% share in 1970 but below the record 14.8% recorded in 1890.
  2. Mexico is the top country of birth for U.S. immigrants, with about 10.6 million Mexican-born immigrants making up 23% of the total in 2022, ahead of India (6%), China (5%), the Philippines (4%) and El Salvador (3%).
  3. The unauthorized immigrant population more than tripled from 3.5 million in 1990 to a record 12.2 million in 2007, declined to about 10.2 million in 2019, then rose to 11 million in 2022.

Related Articles:

  • The Cost of Illegal Immigration — The US foreign-born population rose by 6.6mm to 51.6mm over a roughly three-year span, lifting immigrants to 15.6% of the population, above the prior records of 14.8% in 1890 and 14.7% in 1910. The authors estimate about 13.7mm illegal immigrants now live in the US, a net increase of 3.7mm.
  • 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.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

AI Summary. 15m people moved to rich countries over three years, the biggest surge in modern history, with net migration exceeding 3m to America, 1.3m to Canada and about 700,000 to Britain. As immigration surged, output per person fell in Britain and Germany, partly because recent arrivals are on average less skilled than residents.

Economist Staff The Economist
Date Posted:

In the past 3 years, at least 15mm people moved to rich countries, including a net change of 3mm in the US and 1.3mm in Canada in 2023. The flood has driven down GDP per person in the UK, Germany, and Canada.

Does a surge in less-skilled immigration lower output per person?

Core argument: Some 15m people have moved to rich countries over the past three years, the biggest surge in modern history, including net migration of more than 3m to America, 1.3m to Canada and about 700,000 to Britain last year.

In the past three years 15m people have moved to rich countries, the biggest surge in modern history. Last year more than 3m people migrated to America on net, 1.3m went to Canada and about 700,000 turned up in Britain. The arrivals are from all over, including hundreds of thousands of Ukrainians fleeing war and also millions from India and sub-Saharan Africa. Now there are signs the boom may be coming to an end. Net migration to Canada has nearly halved from its recent peak, while in New Zealand it is falling sharply. A clampdown would benefit GDP per person—the yardstick by which economists usually assess living standards. As immigration surged in 2022 and 2023, GDP per person in Britain fell. It has tumbled in Germany. In Canada, it remains nearly 4% off its high in 2022. This has happened in part because the latest arrivals are on average less skilled than the resident population, meaning that they cannot command high salaries.

Takeaways by Macro Roundup® AI

  1. Some 15m people have moved to rich countries over the past three years, the biggest surge in modern history, including net migration of more than 3m to America, 1.3m to Canada and about 700,000 to Britain last year.
  2. Canada's GDP per person remains nearly 4% below its 2022 high, while GDP per person fell in Britain and tumbled in Germany as immigration surged in 2022 and 2023, in part because recent arrivals are on average less skilled than residents.
  3. Net migration to Canada has nearly halved from its recent peak and is falling sharply in New Zealand, signs the migration boom may be coming to an end.

Related Articles:

  • A “Heat Dome” of Immigration — Canada has adopted some of the most aggressive immigration policies in the OECD, adding 1.273m residents in a year to reach a population of 41m — proportionally equivalent to the US admitting more than 10m immigrants annually. Canadians are increasingly angry as housing prices soar, sprawl expands, and traffic worsens.
  • Exploring the Implications of Sub-Saharan Africa’s Demographic Explosion — Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.
  • The Force Shaping Western Politics — The foreign-born share of the population has risen sharply since 1990 in nearly every large Western country. As mainstream politicians from the center-right to the left dismissed voters' concerns about immigration, many voters drifted toward extreme-right parties that promised to reduce it.