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


Wednesday, July 24, 2024

AI Summary. Using wage data from most U.S. McDonald's restaurants, the authors find that before the Covid-19 pandemic, differences in entry-level wages across states were strongly related to state minimum wages, with real wages rising only in the roughly half of states raising their minimums. The 2021 wage spike nearly eliminated those geographic differences and left the federal minimum wage near-irrelevant.

Orley Ashenfelter and Štěpán Jurajda National Bureau of Economic Research
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Using cross-state data they collected on Big Macs earned Per Hour (BMPH) to compute likely wages in the absence of minimum wage laws, Orley Ashenfelter and Štěpán Jurajda find minimum wages had a much smaller influence post-pandemic than in 2016.

Did the pandemic wage spike erase minimum wages' influence on entry-level pay?

Core argument: Wage data from 70–80% of U.S. McDonald's restaurants over 2016–2023, covering counties holding 97% of the U.S. population, yield McWages as a measure of nominal entry-level labor costs and a Big Macs Per Hour index of their purchasing power.

We collect 2016 to 2023 wage rates from 70-80% of U.S. McDonald’s restaurants, covering U.S. counties with 97% of the U.S. population. McWages capture [nominal] labor costs in entry-level jobs, while the Big Macs (earned) Per Hour (BMPH) index measures the corresponding purchasing power of wages. Our latent McWage measure allows us to explore the structure and ‘bite’ of state minimum wages. We find that the Covid-19 pandemic resulted in a sharp break in the importance of minimum wages for low-skilled wage growth, as captured by McWages. Prior to the pandemic, cross-state wage differences were strongly related to minimum wages, as state minimum wage levels were rising in tandem with the state-specific latent McWage means. As a result, real wages of McDonald’s workers were growing only in the roughly half of U.S. states that were raising state minimum wages. The pandemic-induced wage spike of 2021 nearly eliminated these geographic minimum wage related differences in wage growth between 2016 and 2023, and led to near-irrelevance of the federal minimum wage. Finally, our estimates offer a new, consistent measure of the ‘bite’ of state minimum wages, one that suggests limited cross-state variation in the minimum wage ‘bite’ prior to the pandemic, and a declining ‘bite’ in most states since the pandemic.

Takeaways by Macro Roundup® AI

  1. Wage data from 70–80% of U.S. McDonald's restaurants over 2016–2023, covering counties holding 97% of the U.S. population, yield McWages as a measure of nominal entry-level labor costs and a Big Macs Per Hour index of their purchasing power.
  2. Before Covid-19, cross-state McWage differences were strongly related to state minimum wages, and real wages of McDonald's workers grew only in the roughly half of states that were raising their minimum wages.
  3. The pandemic-induced wage spike of 2021 nearly eliminated minimum-wage-related geographic differences in wage growth over 2016–2023 and led to near-irrelevance of the federal minimum wage, with the estimated 'bite' of state minimum wages declining in most states since.

Related Articles:

AI Summary. Wages net of housing costs were once substantially higher in high-density areas than low-density areas for workers both with and without college education, but over the past half-century that urban wage premium has persisted only for college-educated workers, not for those with a high school degree or less.

Stan Veuger Economic Innovation Group
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In 2019, urban wages for workers with a high school degree or less failed to offset higher urban housing costs, reversing a long-term trend. @stanveuger suggests loosening restrictions on housing construction to “reignite the urban growth machine.”

Do less-educated workers still earn an urban wage premium after housing costs?

Core argument: In 1970, hourly wages net of housing costs were dramatically higher in high-density areas than in low-density areas for workers both with and without at least some college education, the pattern known as the urban wage premium.

The figure shows the evolution over the past half-century of hourly wages net of spending on housing. The figure consists of five snapshots, roughly a decade apart. Each snapshot shows the relationship between population density in 1970 and “net” hourly wages] for workers with and without (some) college education. [In the] snapshot for 1970, we observe what is often referred to as “the urban wage premium” - wages accounting for the cost of housing, were dramatically higher in high-density places than in low-density areas for workers with at least some college education and those without. The scale for the vertical axis is logarithmic: an increase from 2.5 to 2.8 corresponds to an increase of about 35% in dollar terms. As we move toward the present, this pattern gradually shifts. While college workers continue to earn a significant urban wage premium, even after housing is taken into account, that is not the case for those with a high school degree or less.

Takeaways by Macro Roundup® AI

  1. In 1970, hourly wages net of housing costs were dramatically higher in high-density areas than in low-density areas for workers both with and without at least some college education, the pattern known as the urban wage premium.
  2. Across five snapshots roughly a decade apart over the past half-century, the urban wage premium net of housing costs persists for college-educated workers but not for those with a high school degree or less.
  3. The figure plots net hourly wages on a logarithmic scale against 1970 population density, where a rise from 2.5 to 2.8 corresponds to an increase of about 35% in dollar terms.

Related Articles:

  • The Determinants Of Declining Internal Migration — A 10% increase in wages where people live is associated with 3.5% less migration, while a 10% increase in destination wages is associated with 7.8% more migration; a 10% rise in destination home prices is associated with 2.6% less migration. The authors find wage responses alone would have raised migration rates, but housing-related factors more than offset them.
  • 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.
  • 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. The slight decline in native-born labor force participation reflects the aging and retirement of the native-born population rather than immigration, a drop the Congressional Budget Office had projected before the pandemic and the immigration surge. Large gains in overall employment have come from working-age immigrants arriving in the US.

Paul Krugman New York Times
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Citing only a slight fall in native-born labor force participation that is consistent with aging, @paulkrugman argues there is little evidence that competition from immigrants is driving native workers out of the labor force.

Is aging, not immigration, behind falling native-born labor force participation?

Core argument: The share of native-born U.S. adults in the labor force has fallen slightly since 2019, a decline Congressional Budget Office projections published in January 2020 had already forecast as baby boomers retired, before either the pandemic or the immigration surge.

The share of native-born adults in the labor force — employed or unemployed — has fallen slightly since 2019. This was both predictable and predicted, not because of immigration but as a result of the aging of the native-born population. Congressional Budget Office projections published in January 2020 — when nobody knew that either the pandemic or the immigration surge were coming — had already forecast a decline in the labor force participation rate as baby boomers retired. The near stagnation of native-born employment isn’t a demand-side issue, in which people aren’t working because they can’t find jobs. It is instead a supply-side issue, in which people aren’t working because they’ve reached retirement age. We’ve been able to achieve large increases in overall employment only because working-age immigrants have been coming to America. If we didn’t have the immigrants, we wouldn’t have the jobs.

Takeaways by Macro Roundup® AI

  1. The share of native-born U.S. adults in the labor force has fallen slightly since 2019, a decline Congressional Budget Office projections published in January 2020 had already forecast as baby boomers retired, before either the pandemic or the immigration surge.
  2. The near stagnation of native-born employment reflects a supply-side issue, with people leaving work at retirement age, rather than an inability to find jobs.
  3. Large increases in overall U.S. employment have been possible only because working-age immigrants have been coming to America; without those immigrants, the jobs would not exist.

Related Articles:

  • 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.
  • 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.
  • New Immigration Estimates Help Make Sense Of The Pace Of Employment — The Congressional Budget Office estimates net immigration was 3.3m in 2023, versus the 1m it had projected, implying faster population and labor force growth than currently reported. The authors estimate this raised real economic growth by about 0.1 percentage point and, by lifting both production and demand, added little price or wage pressure.

AI Summary. Cuba's national statistics office reported that more than 1m Cubans — about 10% of the population — emigrated over two years, cutting the population from roughly 11.2m to 10.1m, a level similar to 1985. The office identified emigration as the main factor in the decline.

Nora Gamez Torres Miami Herald
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According to the head of Cuba’s national statistics office, at least 10% of Cuba’s population – over 1mm people – fled during 2022- 2023. According to US records, at least 645,122 Cubans claimed asylum between October 2021 and June 2024.

Has emigration cut Cuba's population by a tenth in two years?

Core argument: Cuba's National Statistics and Information Office reported that 1,011,269 Cubans emigrated between 2022 and 2023, about 10% of the island's population, amid a severe economic downturn and a government crackdown on dissent.

A stunning 10% of Cuba’s population — more than a million people — left the island between 2022 and 2023, the head of the country’s national statistics office said during a National Assembly session. The data confirmed reporting by the Miami Herald and Cuban independent media that sounded the alarm over the mass migration of Cubans amid a severe economic downturn and a government crackdown on dissent in recent years. According to the official figures made public for the first time, Cuba’s population went from 11,181,595 on Dec. 31, 2021, to 10,055,968 on December 2023. The emigration of 1,011,269 Cubans was the main factor contributing to a massive fall in Cuba’s population by the end of 2023, when the population stood at a number similar to what it was in 1985, said Juan Carlos Alfonso Fraga, the head of the National Statistics and Information Office.

Takeaways by Macro Roundup® AI

  1. Cuba's National Statistics and Information Office reported that 1,011,269 Cubans emigrated between 2022 and 2023, about 10% of the island's population, amid a severe economic downturn and a government crackdown on dissent.
  2. Cuba's population fell from 11,181,595 on Dec. 31, 2021, to 10,055,968 in December 2023, a level similar to 1985, with emigration the main factor, said statistics chief Juan Carlos Alfonso Fraga.
  3. The Cuban figures, made public for the first time, confirmed earlier reporting on mass Cuban migration by the Miami Herald and Cuban independent media.

Related Articles:

  • How Europe Is Paying Other Countries To Police Its Borders — Interceptions of people at sea by Tunisian authorities doubled to 81,000, and the European Union is projected to spend €278mn on migration in Tunisia, with two-thirds of one €105mn package dedicated to border management. Critics argue that outsourcing border enforcement is a short-term fix that leaves the EU open to blackmail by host governments.
  • 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.
  • Border Crossings Aren’t What They Used To Be — U.S. Department of Homeland Security data suggest that in the year with the most border apprehensions on record, nearly 72% of border crossers were apprehended and more than 650,000 entered without inspection, for just over 2.3m total crossings — eighth-highest since 2000. Applying similar apprehension rates to later years suggests those totals, while high, were also not records.

AI Summary. High-income countries face aging populations and low fertility that the author argues make immigration necessary to support the elderly, with Spain's ratio of working-age people to the old projected to fall from 2.45 in 2020 to 1 by 2050. The author proposes temporary work contracts enforced through secure digital identities and steep penalties for employing unauthorized workers.

Martin Wolf Financial Times
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Martin Wolf argues the aging of rich countries with low fertility rates and the need for low-skilled in-person work will likely result in widespread “temporary contract work, without either family reunification or the possibility of citizenship.”

Can temporary work contracts resolve aging societies' need for immigration?

Core argument: In Spain, the ratio of working-age people to the old would fall from 2.45 in 2020 to 1 in 2050, part of an aging and low-fertility shift that would make support for the elderly unaffordable without immigration.

High-income countries may have to abandon today’s binary view of the options — either exclusion or a pathway to citizenship — in their own interests and those of developing countries. First, the combination of aging with low historic fertility will generate such large increases in the ratio of the old to those of working age that support for the former will become unaffordable without immigration. In Spain, for example, this ratio would collapse from 2.45 in 2020 to 1 in 2050. Second, many essential jobs are unskilled, but the workers have to be present. Care of the old is one example. Finally, none of this requires fundamental changes in attitudes towards immigrants in rich countries. But it would probably require the creation of secure digital identities for the various categories of legitimate residents. The penalties for employing people who do not possess such identities would be very high. If mass immigration remains unacceptable, but becomes essential, then something more acceptable must be found. The only likely solution is temporary contracts.

Takeaways by Macro Roundup® AI

  1. In Spain, the ratio of working-age people to the old would fall from 2.45 in 2020 to 1 in 2050, part of an aging and low-fertility shift that would make support for the elderly unaffordable without immigration.
  2. Many essential jobs, including care of the old, are unskilled yet require workers to be present.
  3. Temporary contracts are the only likely solution if mass immigration remains unacceptable but becomes essential, and would probably require secure digital identities for legitimate residents, with very high penalties for employing people who lack them.

Related Articles:

  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.
  • What The Data Says About Immigrants In The U.S. — 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.
  • 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.

AI Summary. Fuel regulations that abruptly cut sulfur dioxide emissions from international shipping by about 80% created an inadvertent geoengineering termination shock, and the authors estimate the resulting radiative forcing over the global ocean could double or more the rate of warming in the 2020s relative to the rate since 1980.

Tianle Yuan, Hua Song, Lazaros Oreopoulos, et al. Nature
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A 2020 mandate that reduced the emission of sulfur dioxide from international shipping by about 80% likely doubled the rate of global warming by reducing the amount of light being reflected back into space.

Does cutting shipping sulfur emissions accelerate global warming?

Core argument: The 2020 fuel regulations cut sulfur dioxide emissions from international shipping by about 80%, which the authors characterize as an inadvertent geoengineering termination shock with global impact.

In 2020, fuel regulations abruptly reduced the emission of sulfur dioxide from international shipping by about 80% and created an inadvertent geoengineering termination shock with global impact. Here we estimate the regulation leads to a radiative forcing of Wm−2 averaged over the global ocean. The amount of radiative forcing could lead to a doubling (or more) of the warming rate in the 2020s compared with the rate since 1980 with strong spatiotemporal heterogeneity. The warming effect is consistent with the recent observed strong warming in 2023 and expected to make the 2020s anomalously warm. The forcing is equivalent in magnitude to 80% of the measured increase in planetary heat uptake since 2020. The radiative forcing also has strong hemispheric contrast, which has important implications for precipitation pattern changes.

Takeaways by Macro Roundup® AI

  1. The 2020 fuel regulations cut sulfur dioxide emissions from international shipping by about 80%, which the authors characterize as an inadvertent geoengineering termination shock with global impact.
  2. The authors estimate the resulting radiative forcing over the global ocean could lead to a doubling or more of the warming rate in the 2020s relative to the rate since 1980, with strong spatiotemporal heterogeneity.
  3. The estimated forcing is equivalent in magnitude to 80% of the measured increase in planetary heat uptake since 2020 and is consistent with the strong warming observed in 2023.

Related Articles:

  • Heating Waters Force Change in Industries That Depend on the Ocean — Nearly half the world's oceans are experiencing a marine heatwave, defined as warmer than 90% of previous temperature observations for the same date. Beyond climate change and the El Niño/La Niña cycle, researchers are investigating whether rules cutting ships' sulfur particle pollution and water vapor from an underwater volcanic eruption are contributing, with the magnitude disputed.
  • What This Year’s ‘Astonishing’ Ocean Heat Means for the Planet — The planet's average sea surface temperature reached a record high and the ocean has stayed exceptionally warm, with North Atlantic readings running more than 2°F above typical levels and one buoy recording 101.1°F, possibly a world record. Scientists expect warm ocean conditions to continue as El Niño intensifies.

AI Summary. The world's oceans have absorbed 90% of excess heat and about a quarter of human-caused carbon dioxide emissions during the industrial era, and scientists are investigating what drove an anomalous rise in sea temperatures and whether seas will cool again. Researchers caution there is no guarantee oceans will keep absorbing heat at the same rate.

Attracta Mooney, Steven Bernard and Jana Tauschinski Financial Times
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Oceans have absorbed 90% of the heat from human-caused carbon dioxide emitted during the industrial era, but some scientists are concerned that oceans may be reaching their limits in protecting the planet against the worst extremes of climate change.

Will the oceans keep absorbing most of the world's excess heat?

Core argument: The world's oceans have absorbed 90% of excess heat and about a quarter of human-caused carbon dioxide emitted during the industrial era, heat that did not go into the land surface, atmosphere or ice caps.

Scientists are now trying to understand what has driven the rapid anomalous rise in sea temperatures, why that heat has lingered and whether the world’s seas will cool again. At the heart of these questions is a concern that the oceans may be reaching their limits in the vital role they play in protecting the planet against the worst extremes of climate change. They have absorbed 90% of excess heat and about a quarter of human-caused carbon dioxide emitted during the industrial era. “All that heat that’s going into the ocean is not going into the land surface or into the atmosphere, or into the ice caps,” says Michael Meredith, oceanographer and science leader at the British Antarctic Survey. “The ocean has been doing this huge climate favour for us for decades.” But he adds there is no guarantee it will continue doing so at the same rate. “If this does slow in future, the consequences will be like we saw in 2023 [the hottest year on record] but much more so.”

Takeaways by Macro Roundup® AI

  1. The world's oceans have absorbed 90% of excess heat and about a quarter of human-caused carbon dioxide emitted during the industrial era, heat that did not go into the land surface, atmosphere or ice caps.
  2. Scientists are investigating what drove the rapid anomalous rise in sea temperatures, why that heat has lingered and whether the seas will cool again, amid concern that the oceans may be reaching the limits of their protective role.

Related Articles:

  • Long-term Surface Impact of Hunga Tonga-Hunga Ha’apai-like Stratospheric Water Vapor Injection — A volcanic eruption that injected large amounts of water vapor — a strong greenhouse gas — into the stratosphere is estimated to have raised surface temperatures by more than 1.5°C across large regions for several years, while cooling some areas by close to 1°C. The authors suggest a possible link to tropical Pacific sea surface temperatures that warrants further investigation.
  • Heating Waters Force Change in Industries That Depend on the Ocean — Nearly half the world's oceans are experiencing a marine heatwave, defined as warmer than 90% of previous temperature observations for the same date. Beyond climate change and the El Niño/La Niña cycle, researchers are investigating whether rules cutting ships' sulfur particle pollution and water vapor from an underwater volcanic eruption are contributing, with the magnitude disputed.
  • What This Year’s ‘Astonishing’ Ocean Heat Means for the Planet — The planet's average sea surface temperature reached a record high and the ocean has stayed exceptionally warm, with North Atlantic readings running more than 2°F above typical levels and one buoy recording 101.1°F, possibly a world record. Scientists expect warm ocean conditions to continue as El Niño intensifies.

Thursday, July 25, 2024

AI Summary. The authors find that children's economic mobility improves across birth cohorts in communities where parental employment rates increase, with larger effects for children who move to such communities at younger ages. The relationship is strongest for the parental employment rates of peers in a child's own birth cohort, suggesting it is mediated by social interaction.

Raj Chetty, Will Dobbie, Benjamin Goldman, et al. Harvard University
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Children who grew up in counties with higher employment rates had more economic mobility than peers raised in counties with lower rates, even if their parents weren’t employed, suggesting a relationship mediated by social interaction. @OppInsights

Do local parental employment rates shape children's economic mobility?

Core argument: Children's economic mobility outcomes improve across birth cohorts in communities where parental employment rates rise, with larger effects for children who move to those communities at younger ages.

[Mobility] outcomes improve across birth cohorts for children who grow up in communities with increasing parental employment rates, with larger effects for children who move to such communities at younger ages, and are most strongly related to parental employment rates of peers they are more likely to interact with,[e.g.] those in their own birth cohort, suggesting that the relationship between children’s outcomes and parental employment rates is mediated by social interaction. Figure VI presents changes in children’s income ranks versus changes in the employment rates of same-race adults in their childhood counties - white and Black children with parents at the 25th and 75th income percentiles, and [the data] correspond to changes over the period when children in our focal birth cohorts were growing up: age 2 (in 1980) for children in the 1978 birth cohort and age 8 (in 2000) for the 1992 birth cohort.

Takeaways by Macro Roundup® AI

  1. Children's economic mobility outcomes improve across birth cohorts in communities where parental employment rates rise, with larger effects for children who move to those communities at younger ages.
  2. Children's outcomes relate most strongly to the parental employment rates of peers they are more likely to interact with, such as those in their own birth cohort, suggesting that social interaction mediates the relationship.
  3. Changes in children's income ranks are plotted against changes in same-race adult employment rates in childhood counties for white and Black children with parents at the 25th and 75th income percentiles, covering 1980 to 2000.

Related Articles:

AI Summary. Across starting income levels, five-year earnings growth has been consistently slower for Black earners than for White and Asian earners, and fastest for Asian earners, whose largest relative gains came among the highest earners. The authors suggest slower growth among higher-earning Black workers may contribute to a decline in their relative earnings.

Illenin Kondo, Kevin Rinz, Natalie Gubbay, et al. National Bureau of Economic Research
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Using data from tax filers and W-2 recipients from 1998–2019, @AbigailWozniak, @john_voorheis, and @kevinrinz find that earnings for both Black men and Black women fell behind earnings for White men following the Great Recession.

Does earnings growth differ by race across income levels?

Core argument: Five-year earnings growth for Black earners was consistently slower than for White and Asian earners across starting income groups, with gaps in the level of growth particularly evident over longer horizons.

Over a five-year horizon, shown in Panel (b), earnings growth for Black earners was consistently slower than growth for White and Asian earners across starting income groups, and any shifts in growth around the Great Recession are less stark. Since 2005, five-year earnings growth has consistently been fastest for Asian earners at all income levels, with the largest relative gains in growth coming for the highest earners over this period. The patterns in earnings growth reveal that Black earners experienced gaps in the level of growth, particularly over longer horizons, combined with a larger and more persistent slowdown in earnings growth after the Great Recession. [Slower] earnings growth among higher-earning Black people may contribute to [this] decline in relative earnings.

Takeaways by Macro Roundup® AI

  1. Five-year earnings growth for Black earners was consistently slower than for White and Asian earners across starting income groups, with gaps in the level of growth particularly evident over longer horizons.
  2. Since 2005, five-year earnings growth has been fastest for Asian earners at all income levels, with the largest relative gains in growth coming for the highest earners.
  3. Black earners experienced a larger and more persistent slowdown in earnings growth after the Great Recession, and slower growth among higher-earning Black people may contribute to the decline in relative earnings.

Related Articles:

  • Perspectives on the Labor Share — The share of US income going to labor reached its lowest level since the Great Depression, falling roughly 5 percentage points between 1929 and 2022 across most industries, alongside a worldwide decline of about 6 percentage points since 1980. The author argues the most plausible causes are technological, including capital-augmenting technology.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • Introducing the Low-Wage Index: A Compositionally-Adjusted Look at Low-Wage Workers Since 1979 — A Low-Wage Index holding constant the labor force mix of sex, age, industry, occupation, and education finds bottom-quartile real weekly wages flat near $450 (in 2023 dollars) from 1979 to 1997, then grew 20% over 1997–2007 and 25% over the last decade. The 75th-to-25th percentile wage ratio fell from 2.9x to 2.5x.

AI Summary. Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.

Hendrik Bessembinder Arizona State University
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Hendrik Bessembinder finds that from 1925 to 2023 51.6% of equities had a negative return; however, 17 stocks had cumulative returns greater than $50,000 per dollar invested, led by Altria Group with a return of $2.65mm for each dollar invested.

How do the best long-term stock returns compare with typical outcomes?

Core argument: Of the 29,078 U.S. common stocks in the CRSP database from December 1925 to December 2023, 51.6% delivered negative cumulative returns.

This report describes compound return outcomes for the 29,078 publicly-listed common stocks contained in the CRSP database from December 1925 to December 2023. The majority (51.6%) of these stocks had negative cumulative returns. However, the investment performance of some stocks was remarkable. Seventeen stocks delivered cumulative returns greater than five million percent (or $50,000 per dollar initially invested), with the highest cumulative return of 265 million percent (or $2.65 million per dollar initially invested) accruing to long-term investors in Altria Group. Annualized compound returns to these top performers relatively were modest, averaging 13.47% across the top seventeen stocks, thereby affirming the importance of “time in the market.” The highest annualized compound return for any stock with at least 20 years of return data was 33.38%, earned by Nvidia shareholders.

Takeaways by Macro Roundup® AI

  1. Of the 29,078 U.S. common stocks in the CRSP database from December 1925 to December 2023, 51.6% delivered negative cumulative returns.
  2. Altria Group accrued the highest cumulative return at 265 million% ($2.65 million per dollar invested), one of seventeen stocks exceeding five million% ($50,000 per dollar invested).
  3. Annualized compound returns for the top seventeen performers averaged 13.47%, while Nvidia earned the highest annualized compound return, 33.38%, among stocks with at least 20 years of return data.

Related Articles:

  • 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.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.
  • 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. U.S. public companies issued nearly $10tn in equity and retired just over $14tn, with equity-financed mergers and acquisitions making up 58% of issuance, stock-based compensation 22%, and other non-IPO share sales 20%. Firms with low stock-based compensation and high buybacks had the highest average and median total shareholder returns, though the authors note other factors likely drove these returns.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

Btw 2000 and 2023 US public firms raised $10T in equity and retired just over $14T. 22% of issuance funded stock-based compensation (SBC). @mjmauboussin finds firms with low SBC issuance and high buybacks delivered the highest total shareholder returns.

How do equity issuance and retirement patterns relate to shareholder returns?

Core argument: U.S. public companies issued $9.7 trillion in equity from 2000 to 2023 while retiring just over $14 trillion.

From 2000 to 2023, public companies in the U.S. issued nearly $10T in equity and retired just over $14T. Over this period, equity issuance was $9.7 trillion, with equity-financed merger and acquisition deals making up 58% of the total, followed by stock-based compensation (SBC) at 22%, and [new shares that are issued to investors that are not initial public offerings] at 20%. We examine the total shareholder returns from 2021 to 2023 for the stocks of the companies based on their issuance and retirement of equity. We separate the population into quadrants based on whether the companies are above or below the median for issuance and retirement. We measure issuance as SBC divided by sales and retirement as gross buybacks divided by market capitalization. We find that companies with low SBC issuance and high buybacks delivered the highest average and median TSRs of the groups. Firms with high SBC and low buybacks produced the lowest returns. We would hasten to add that numerous causes that had nothing to do with equity issuance were probably important in driving these TSRs.

Takeaways by Macro Roundup® AI

  1. U.S. public companies issued $9.7 trillion in equity from 2000 to 2023 while retiring just over $14 trillion.
  2. Equity-financed M&A deals accounted for 58% of the $9.7 trillion in issuance, followed by stock-based compensation at 22% and non-IPO share issuance to investors at 20%.
  3. Sorting firms into quadrants by stock-based compensation to sales and gross buybacks to market capitalization, companies with low SBC and high buybacks delivered the highest average and median total shareholder returns from 2021 to 2023, and high-SBC, low-buyback firms the lowest.

Related Articles:

  • Cicadian Rhythms — The authors see limited signs of the profit or capital spending declines that often accompany recessions, noting that unlike prior yield-curve inversions the corporate sector is running a surplus with stable interest expense. They flag fading disinflationary-boom prospects as a risk to price-to-earnings multiples, particularly for technology stocks.
  • Stock-Based Compensation — Stock-based compensation for companies in the Russell 3000 index of large U.S. stocks is estimated at about $270bn in 2022, up from roughly $25bn in 2006, while sales rose from $11.5tn to $21.1tn. As a share of sales it was nearly 5x its 2006 level, though it remains 6–8% of total compensation at U.S. public companies.
  • Birth, Death, and Wealth Creation — The median age at which US companies went public rose from 7.9 years in 1976–2000 to 9.5 years in 2001–2022, implying that more wealth creation now occurs in private markets. Research on more than 28,000 US-listed companies since 1926 finds that just under 60% destroyed $9.1tn of wealth while about 2% created $50tn.

AI Summary. The authors project business investment growth to slow to roughly 3% in the second half of the year as the factory-building boom catalyzed by CHIPS Act and Inflation Reduction Act subsidies has peaked. They expect downstream investment in factory equipment and artificial-intelligence-related computer hardware and software to eventually take its place, though the timing is uncertain.

David Mericle and Jessica Rindels Goldman Sachs
Date Posted:

.@GoldmanSachs expects business investment growth to slow from 5-6% in 2024H1 to 3% in 2024H2 as the factory-building boom catalyzed by the CHIPS ACT and IRA fades, but forecasts that business investment will remain above pre-pandemic levels.

Is business investment growth slowing as the subsidized factory-building boom peaks?

Core argument: Business investment growth is expected to slow to roughly 3% in the second half of 2024 as the factory-building boom catalyzed by CHIPS Act and Inflation Reduction Act subsidies, a large contributor to that growth over the past year and a half, has peaked.

We expect business investment growth to slow to a roughly 3% pace in 2024H2 because the factory-building boom catalyzed by CHIPS ACT and Inflation Reduction Act subsidies—which played such a large role in business investment growth over the last year and a half, as the light blue bars in Exhibit 6 show—has now peaked. We are not too worried about this because downstream investment in equipment for those factories and artificial intelligence-related investment in computer hardware and software should eventually take its place and drive further growth, but the timing of this hand-off is somewhat uncertain. We also see some risk that uncertainty about possible changes to regulatory policy or trade policy after the upcoming elections could also delay investment in the coming months.

Takeaways by Macro Roundup® AI

  1. Business investment growth is expected to slow to roughly 3% in the second half of 2024 as the factory-building boom catalyzed by CHIPS Act and Inflation Reduction Act subsidies, a large contributor to that growth over the past year and a half, has peaked.
  2. Downstream investment in factory equipment and artificial intelligence-related investment in computer hardware and software should eventually take the place of the factory-construction boom and drive further growth, though the timing of that hand-off is uncertain.
  3. Uncertainty about possible changes to regulatory or trade policy after the upcoming elections poses a risk of delaying business investment in the coming months.

Related Articles:

  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • U.S. Business Investment in the Post-COVID Expansion — Business fixed investment has held at roughly the same share of U.S. GDP as before COVID, a better outcome than after every other recession since 1980, when investment typically fell as a share of GDP and contributed less well into the recovery. American businesses invested $430bn more than if investment had followed its usual historical pattern.
  • The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off — Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.

AI Summary. The authors find that about half of manufacturing job destruction from Chinese import competition comes from plant closures, while about 40% of the relative effect reflects continuing plants switching their primary activity from manufacturing to services such as research, design, management, and wholesale. Gains in services offset manufacturing losses, leaving overall employment unaffected.

Kyle Handley Economic Innovation Group
Date Posted:
Is Database:
Database

.@KyleLHandley argues the “China Shock” has likely run its course; as of 2020 import penetration was well under the 2000-2010 and 2010-2018 trends.

How much manufacturing job loss from import competition reflects switching to services?

Core argument: About 40% of the negative relative manufacturing employment effect from Chinese import competition comes from plant industry switching, as continuing plants shift their primary activity from manufacturing to services.

First, while about half of the job destruction from the China Shock is from plant closure, surviving plants have positive net job creation. Second, the negative manufacturing employment effects from Chinese import competition can be decomposed into firm adjustment margins. About 40% of the relative effect is from plant industry switching: continuing plants that switch their primary activity from manufacturing to services. This employment switching shift is oriented almost exclusively away from hard-hit durable goods sectors towards the service sectors in research, design, management, and wholesale, but would otherwise appear as manufacturing jobs loss in public-use aggregated regional employment data. Third, most job destruction in manufacturing in response to the China Shock occurs within firms that are contemporaneously expanding services employment. This factor, plus industry switching, drives positive overall net job creation in services such that overall employment is unaffected by the shock, as the job gains in services offset losses in manufacturing.

Takeaways by Macro Roundup® AI

  1. About 40% of the negative relative manufacturing employment effect from Chinese import competition comes from plant industry switching, as continuing plants shift their primary activity from manufacturing to services.
  2. About half of the job destruction from the China Shock comes from plant closures, while surviving plants show positive net job creation.
  3. Most manufacturing job destruction from the China Shock occurs within firms simultaneously expanding services employment, and combined with industry switching leaves overall employment unaffected as service gains offset manufacturing losses.

Related Articles:

  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.
  • 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. China's commodity imports rose 16% in volume terms with record imports of many basic resources, while state statisticians have stopped publishing stock data for many commodities. The US Department of Agriculture projects China will hold 51% of world wheat stocks and 67% of maize stocks, and the country's crude-oil storage capacity has grown from 1.7bn to 2bn barrels.

The Economist Economist Staff
Date Posted:

Chinese import volumes of basic commodities surged by 16% last year despite a slowing economy, suggesting the country is building up strategic reserves of food, industrial, and energy resources.

Is China rapidly stockpiling commodities while withholding inventory data?

Core argument: China's commodity imports rose 16% in volume terms last year, with records broken across many basic resources at a time when commodities are expensive, and state statisticians have stopped releasing stock data for many commodities.

Last year China’s imports of many basic resources broke records, and imports of all types of commodities surged by 16% in volume terms. China appears to be stockpiling materials at a rapid pace—and at a time when commodities are expensive. In a sign of increasing caginess, state statisticians have stopped releasing data for stocks of many commodities. America’s Department of Agriculture forecasts that, by the end of the current growing season, China’s wheat and maize stocks will represent 51% and 67% of the world’s, respectively, up five to ten percentage points from 2018. These are thought to be enough to cover at least a year’s demand. More striking still has been China’s effort to stash metals and fuel. Tom Price of Panmure Liberum finds that the country’s inventory build-up [of copper, nickel, and various other metals] since 2018 has been sufficient to cover at least 35% to 133% of its annual demand, depending on the commodity. Since 2020 China’s crude-storage capacity has increased from 1.7bn to 2bn barrels.

Takeaways by Macro Roundup® AI

  1. China's commodity imports rose 16% in volume terms last year, with records broken across many basic resources at a time when commodities are expensive, and state statisticians have stopped releasing stock data for many commodities.
  2. America's Department of Agriculture forecasts that by the end of the current growing season China's wheat and maize stocks will represent 51% and 67% of the world's respectively, up five to ten percentage points from 2018.
  3. Tom Price of Panmure Liberum finds China's metals inventory build-up since 2018 sufficient to cover at least 35% to 133% of annual demand depending on the commodity, while its crude-storage capacity has grown from 1.7bn to 2bn barrels since 2020.

Related Articles:

  • Could Economic Indicators Signal China’s Intent To Go To War? — China imports nearly three-quarters of the oil it consumes and holds reserves sufficient for about three months at current consumption, so a sustained buildup of those reserves would be among the clearest signals it is preparing for war. China is also the world's largest agricultural importer, with wheat reserves an official described as covering 18 months of demand.
  • China Ups Food Security Drive, Plans To Grow 90 Percent Of Its Grain By 2032, Warning For US And Thai Farmers — China's Ministry of Agriculture and Rural Affairs plans to raise domestic self-sufficiency in grain — mainly rice, wheat, corn and soybeans — to 88.4% within a decade from 82%. The plan would cut grain imports to 122m metric tonnes from 146.9m.
  • China Expands Farmland In Bid To Cut Foreign Food Reliance — China has set a target of maintaining 120mn hectares of cultivated land, a level Beijing views as necessary for food self-sufficiency, and has reclaimed more than 170,000 hectares of farmland in a drive to cut reliance on imported food. Analysts say the effort reflects preparation for a scenario in which confrontation with the US disrupts global food supply chains.