Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, July 30, 2024

AI Summary. The authors argue the ratio of price to marginal cost, not market concentration, is the meaningful measure of market power. U.S. corporate pretax profits rose from 8.6% of GDP in the 1990s to 11.9% in the 2010s, but domestic profits were far flatter, with much of the gain from foreign operations.

Carl Shapiro and Ali Yurukoglu National Bureau of Economic Research
Date Posted:

.@CarlShapiro finds that empirical evidence does not show a widespread decline in US competition and that “observed changes are likely to reflect competition in action.” For example, rising corporate profits % of GDP result from rising foreign earnings.

Does rising corporate profit share show weakening domestic competition?

Core argument: U.S. corporate accounting profits before tax averaged 9.0% of GDP in the 1970s, 7.7% in the 1980s and 8.6% in the 1990s, then rose to 9.8% in the 2000s and 11.9% in the 2010s.

Concentration metrics have no chance of being informative regarding product-market power. The ratio of price to marginal cost is a far more direct and meaningful measure of market power than market concentration. The left-hand panel of Figure 1 shows corporate accounting profits before tax as a share of GDP. Corporate profits averaged 9.0% of GDP during the 1970s, 7.7% during the 1980s, and 8.6% during the 1990s, then rose to 9.8% during the 2000s and 11.9% during the 2010s. A significant portion of the rise in corporate profits as a share of GDP is attributable to the foreign operations of U.S. firms, as shown in the right-hand panel of Figure 1. [If] U.S. antitrust policy was too lax over the past 40 years, one would expect to see a significant increase in domestic profits relative to GDP. But the time series of domestic profits over that time period is significantly flatter than the time series of total profits. The increase in the income/GDP earned on foreign operations by U.S. firms is likely driven by factors such as lower trade barriers, lower transportation costs, greater value abroad of the intellectual property owned by U.S. firms, and increased trade in services.

Takeaways by Macro Roundup® AI

  1. U.S. corporate accounting profits before tax averaged 9.0% of GDP in the 1970s, 7.7% in the 1980s and 8.6% in the 1990s, then rose to 9.8% in the 2000s and 11.9% in the 2010s.
  2. A significant portion of the rise in U.S. corporate profits as a share of GDP is attributable to the foreign operations of U.S. firms, and the domestic profit series is significantly flatter than the total profit series.
  3. The ratio of price to marginal cost is a more direct and meaningful measure of market power than market concentration, which the author argues has no chance of being informative about product-market power.

Related Articles:

  • Rising Markups and Declining Business Dynamism: Evidence From the Industry Cross Section — Across industries, larger increases in markups are not associated with larger declines in business dynamism—measured by new business entry rates and gross job or worker flows—and the correlation may even be positive. The authors conclude that rising markups as commonly measured are not a major explanatory factor behind declining dynamism.
  • 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.
  • The Concentration Conundrum; What To Do About Market Dominance — The largest US stocks make up a bigger share of the equity market than during the 2000 technology bubble, yet their valuations are lower than in earlier bubble episodes including the Nifty 50 of the early 1970s and Japan's late-1980s bubble. Today's dominant companies are also more profitable with stronger balance sheets.

AI Summary. US dollar strength is comparable to its early-2000s peak, with cost-based real exchange rate measures such as unit labour costs as strong as at any point since the 1990s. The US current account deficit, about 3.3% of GDP, remains below prior highs, but its composition has shifted toward non-commodity goods as the shale boom erased the commodity deficit.

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

.@GeneralTheorist and @jnordvig note that US dollar strength is comparable to its peak in the early 2000s; however, the current account deficit at about 3.3% of GDP is substantially smaller than in the 2000s, largely due to domestic energy production.

How strong is the dollar and what shapes the trade deficit?

Core argument: The US current account deficit stands at about 3.3% of GDP, above the pre-pandemic steady state near 2% but below the 4.1% reading through early 2022 and well below the 2006 peak, and close to mid-1980s levels.

Overall, US dollar strength is comparable to the peak in the early 2000s, though the picture is nuanced. The bilateral RER against JPY is much stronger than at any time since the 1990s, other bilateral measures are much less extreme. Meanwhile, cost-based measures of US REER, such as unit labour cost measures, are as strong as any time since the 1990s. Turning to the US current account, the external deficit today is about 3.3% of GDP which compares to the pre-pandemic steady state close to 2% of GDP though still below the 4.1% of GDP through early-2022. The deficit today remains well below the 2006 peak, a lagged response to the previous REER peak in the early-2000s, though is close to the current account deficit in the mid-1980s. Though the external deficit is below previous highs, the composition of the deficit has shifted towards non-commodity goods as the commodity deficit has disappeared since the US shale boom. In fact, relative to GDP, the US non-energy goods deficit is higher than the experience in the 2000s.

Takeaways by Macro Roundup® AI

  1. The US current account deficit stands at about 3.3% of GDP, above the pre-pandemic steady state near 2% but below the 4.1% reading through early 2022 and well below the 2006 peak, and close to mid-1980s levels.
  2. Overall US dollar strength is comparable to its early-2000s peak, with the bilateral real exchange rate against the yen much stronger than at any time since the 1990s while other bilateral measures are less extreme.
  3. The composition of the US external deficit has shifted toward non-commodity goods as the commodity deficit disappeared since the US shale boom, leaving the non-energy goods deficit higher relative to GDP than in the 2000s.

Related Articles:

  • How to Manage the Dollar (Part I) — 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.
  • Will Trump Get His Wish for a Weaker Dollar? — Broad measures of the dollar's real exchange rate, adjusted for inflation in major trading partners, place the currency far above historical norms, with only two earlier peaks comparable — each followed by sharp declines. Across many currency pairs, real exchange rates far out of line tend to revert toward their mean, with overvaluation typically halving in about three years.
  • The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications — The shale boom turned the United States into a net exporter of natural gas and of oil, altering how commodity prices relate to US trade. Where higher oil prices were historically associated with a deterioration in US terms of trade, they now correspond to an improvement.

AI Summary. Central banks will likely struggle to deliver the stimulus already priced into rate markets, and the cost of capital must rise enough to offset structurally higher government borrowing and durable private demand. Artificial intelligence spending is inflationary near-term while building capacity, but its deflationary potential is massive and could arrive fast.

Bob Prince, Greg Jensen, and Karen Karniol-Tambour Bridgewater Associates
Date Posted:

Bridgwater views the current late-cycle expansion as “unusually durable” due to increased business spending. They note AI’s deflationary potential “could hit fast,” and have an even bigger impact than globalization and automation in the 1990s and 2000s.

Must the cost of capital rise as borrowing and demand stay strong?

Core argument: Bridgewater's CIOs suspect central banks will find it very challenging to provide as much stimulation as rate markets already price in, and that the cost of capital must rise enough to compensate for structurally higher fiscal borrowing and durable private sector demand.

We suspect central banks will find it very challenging to provide as much stimulation as is already priced into rate markets, and the cost of capital will need to adjust to be high enough to compensate for structurally higher fiscal borrowing and especially durable private sector demand, such that small increases in the cost of capital probably won’t do much to slow the economy. One release valve might be the emergence of deflationary forces from the adoption of AI. Currently, AI spending in the near term is particularly inflationary because it is building up capacity without line of sight to the productivity payoffs, but the deflationary potential is massive—and could hit fast. There is potential for even larger and faster impacts than we experienced in manufacturing over the course of the 1990s and 2000s, when about 10% of the US workforce was displaced out of manufacturing sectors through the processes of globalization and industrial automation—which kept inflation low, led to rising inequality, supported corporate profits, and contributed to political and social shifts, including rising populism and a broad rethinking of trade and economic policies. An even bigger event is likely ahead of us.

Takeaways by Macro Roundup® AI

  1. Bridgewater's CIOs suspect central banks will find it very challenging to provide as much stimulation as rate markets already price in, and that the cost of capital must rise enough to compensate for structurally higher fiscal borrowing and durable private sector demand.
  2. The CIOs argue near-term AI spending is particularly inflationary because it builds capacity without line of sight to productivity payoffs, while its deflationary potential is massive and could hit fast.
  3. Globalization and industrial automation displaced about 10% of the US workforce out of manufacturing sectors across the 1990s and 2000s, keeping inflation low, raising inequality, supporting corporate profits, and contributing to rising populism; the CIOs expect an even bigger event ahead.

Related Articles:

  • The Transition to a Higher Cost of Capital — Bond yields near 4.5% sit below the 5.5% short-term interest rate, leaving little risk premium, and those yields have been enough to draw buyers back toward normal bond holdings. The author argues yields still need to rise to a sustainable cost of capital given structurally higher fiscal and inflationary spending.
  • 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.
  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.

AI Summary. Nominal spending by U.S. consumers and businesses continues rising at roughly 5.5% a year, a pace that makes it difficult for inflation to settle at the Federal Reserve's 2% goal unless real output grows about 3.5% annually. Output is growing about 2.5%-3% while inflation has slowed toward 2.5%-3%, an improvement the author attributes to faster productivity and easing supply disruptions.

Matt Klein The Overshoot
Date Posted:

The dollar value of spending by American consumers and businesses is rising a yearly rate of ~ 5.5%. That pace is inconsistent with the Fed’s 2% target with inflation likely falling between 2.5%-3%. @M_C_Klein

Can inflation reach 2% while nominal spending grows 5.5% annually?

Core argument: Nominal spending by U.S. consumers and businesses continues to rise at roughly 5.5% a year, the pace held since mid-2022, making inflation near the Federal Reserve's 2% goal difficult unless that pace slows or real output sustainably grows 3.5% a year.

The dollar value of spending on goods and services by American consumers and businesses is still rising at the ~5.5% yearly pace that it has since the middle of 2022. Unless that changes—or unless the real production of goods and services sustainably rises by 3.5% a year—it will be difficult for inflation to persist around the Federal Reserve’s 2% yearly goal. The good news is that the mismatch is relatively small, with output growing briskly at about 2.5%-3% a year even as inflation has decelerated slightly towards 2.5%-3%. This is a big improvement from two years ago, when the split between price and volume growth was far less favorable. Accelerating productivity and the unwinding of pandemic- and war-related supply disruptions are both responsible for this benign outcome.

Takeaways by Macro Roundup® AI

  1. Nominal spending by U.S. consumers and businesses continues to rise at roughly 5.5% a year, the pace held since mid-2022, making inflation near the Federal Reserve's 2% goal difficult unless that pace slows or real output sustainably grows 3.5% a year.
  2. Real output is growing about 2.5%–3% a year while inflation has decelerated toward 2.5%–3%, a relatively small mismatch and an improvement over the far less favorable split between price and volume growth two years earlier.
  3. Accelerating productivity and the unwinding of pandemic- and war-related supply disruptions are both responsible for the more favorable division of nominal spending growth between output and prices.

Related Articles:

  • Markets Think Inflation Will Be Too High For The Next 20 Years — Inflation expectations derived from the gap between regular Treasury yields and inflation-indexed Treasury yields show expected annual inflation over the next 10 and 20 years running considerably above expected inflation for the decade beginning 20 years out. Before the pandemic-era inflation surge, actual inflation and expected future inflation tracked each other closely.
  • The Fed Can Take Its Time Taming Inflation — Wage growth and price growth reinforce each other and both run 1 to 1.5 percentage points above pre-pandemic rates, with underlying inflation estimated at 2.5% to 3%. The author puts roughly a 1-in-3 chance that persistently strong demand keeps inflation above 3%, and argues strong job growth lets the Federal Reserve spend months assessing that risk.
  • How Many Benign Inflation Prints Are Enough? — Recent cooler inflation readings may be payback for surprisingly hot readings earlier in the year, reflecting new-year price resets rather than a change in underlying trend. Depending on the measure, inflation has been stable for anywhere from one to two years following the earlier spike, suggesting little has changed year over year.

AI Summary. U.S. home insurers posted $15.2bn in net underwriting losses, their worst performance since at least 2000, and are responding by raising premiums and withdrawing coverage. State "last-resort" public insurance plans, backed by a state's policyholders or taxpayers, reached a record of just over $1.3tn in exposure, signaling growing unavailability of private coverage.

Fran Moore Briefing Book
Date Posted:

The frequency of extreme weather events causing $1B or more in damages in inflation-adjusted terms has risen from 3.3 per year in the 1980s to over 20 per year over the last five years. @ClimateFran

Are rising disaster costs straining U.S. property insurance markets?

Core argument: U.S. home insurers took $15.2 billion in net losses in 2023, their worst performance since at least 2000, and are responding by raising premiums and withdrawing coverage.

2023 saw U.S. home insurers take $15.2 billion in net losses, the worst performance since at least 2000. In response, insurers are raising premiums and withdrawing coverage and property insurance markets are looking increasingly shaky in states across the U.S. A sudden withdrawal of insurers from underwriting windstorm, hail, and wildfire risks - similar to the withdrawal from flood insurance that occurred in the early 20th century - is certainly possible. States affected by insurance withdrawals have typically established “last-resort” public plans for properties unable to find a policy in the private market. The rapid growth in these plans, which are ultimately backed by all policy-holders or taxpayers in a state, is a clear signal of growing unavailability of private insurance: total underwriting by public plans reached a new record high in 2023 at just over $1.3 trillion in exposure; Florida, California, and Louisiana all saw their plans more than quadruple in the five years from 2018 to 2023.

Takeaways by Macro Roundup® AI

  1. U.S. home insurers took $15.2 billion in net losses in 2023, their worst performance since at least 2000, and are responding by raising premiums and withdrawing coverage.
  2. Total underwriting by state "last-resort" public insurance plans reached a record of just over $1.3 trillion in exposure in 2023, with Florida, California, and Louisiana each seeing their plans more than quadruple between 2018 and 2023.
  3. State last-resort plans are ultimately backed by all policy-holders or taxpayers in a state, and their rapid growth signals growing unavailability of private property insurance.

Related Articles:

  • US Home Insurers Suffer Worst Loss This Century — US home insurers posted a $15.2bn net underwriting loss, the worst since at least 2000 and more than double the prior year's, according to rating agency AM Best, amid natural disasters, inflation and population growth in at-risk areas. Such conditions have prompted insurers to exit disaster-hit markets or raise prices, creating an affordability crisis for many homeowners.
  • Climate Change and the Geography of the U.S. Economy — The positive association between extreme heat and U.S. county population growth weakened over recent decades and disappeared entirely in the 2010s, as hot counties grew hotter. Projected climate change is predicted to shift population from the Southeast and parts of the Southwest toward the North, Mountain West, and Pacific coast.
  • Home Insurance Premiums Are Surging—and States Are Allowing It — Home insurers recorded a $16bn underwriting loss, the largest since at least 2000, according to AM Best, which expects losses to continue. An analysis by S&P Global Market Intelligence finds state-approved rate increases have averaged just 0.2 percentage point below what insurers requested, with California approving an average 21% increase.

AI Summary. Utility Con Edison's climate-risk study projects that severe weather from flooding to heat waves will intensify, with temperatures rising faster than projected and 2040 levels arriving a decade earlier. The company models higher equipment-failure rates as temperatures rise and plans network switches and submersible transformers and circuit breakers.

Phred Dvorak Wall Street Journal
Date Posted:

Con Edison is fortifying its grid in response to increasing weather-related stress. ConEd’s updated projections forecast temperature levels that were expected to prevail by 2040 now coming a decade earlier.

How are utilities hardening power grids against intensifying severe weather?

Core argument: Con Edison's climate-risk study said temperatures are likely to rise faster than it projected four years before, with levels once expected in 2040 now coming a decade earlier, and all types of severe weather expected to increase in intensity or severity.

Con Edison’s latest climate-risk study said all types of severe weather—from flooding to heat waves—are expected to increase in intensity or severity. Temperatures are likely to rise faster than it projected four years before, with levels that were expected in 2040 now coming a decade earlier. Con Edison’s engineers took those predictions and applied them to its electric systems to model its potential increase in equipment-failure rates, which go up as the temperature rises, says Christopher Jones, chief engineer for the company’s electric distribution system. To help protect the system, Con Edison is planning to add switches to its underground network that would limit the spread of any failures. The company is also proposing to counter increased flooding by replacing hundreds of underground transformers and circuit breakers with units that work underwater.

Takeaways by Macro Roundup® AI

  1. Con Edison's climate-risk study said temperatures are likely to rise faster than it projected four years before, with levels once expected in 2040 now coming a decade earlier, and all types of severe weather expected to increase in intensity or severity.
  2. Con Edison engineers applied those predictions to the company's electric systems to model potential increases in equipment-failure rates, which go up as temperatures rise, says Christopher Jones, chief engineer of the company's electric distribution system.
  3. Con Edison plans to add switches to its underground network to limit the spread of failures and proposes replacing hundreds of underground transformers and circuit breakers with units that work underwater to counter increased flooding.

Related Articles:

  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
  • 2023 Long-Term Reliability Assessment — North American grid reliability assessments project electricity capacity deficits over the next decade in areas where generator retirements are expected before replacement resources are in service to meet rising demand. Ten-year peak demand and energy growth forecasts are higher than at any point in the past decade, contributing to lower reserve margins.
  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.

AI Summary. A Democratic presidential path that depends on winning Pennsylvania, Michigan, and Wisconsin requires sweeping all three, which is harder than carrying any one of them. One election model treats the Electoral College as a tossup when the Democratic candidate wins the national popular vote by 2 to 3 percentage points.

Nate Silver Silver Bulletin
Date Posted:

The first run of the @NateSilver538 model with Harris gives Trump a 61% probability of winning the Electoral College, vs. 73% when Biden exited the race. Harris is a “very slight” underdog in PA 43%, MI 43% and WI 47%.

How big a popular vote margin does the Electoral College require?

Core argument: The model treats the Electoral College as a tossup if Harris wins the popular vote by 2 to 3 percentage points, meaning she needs roughly a 2.5-point popular-vote margin to beat the point spread.

If an election were held today, we’d enter the evening with a lot of uncertainty about the outcome, both because the polling in the pivotal Blue Wall states (Pennsylvania, Michigan, and Wisconsin) has been close since Biden dropped out of the race and because there’s some intrinsic uncertainty about where the race stands given how much news there’s been lately. The problem with the Blue Wall strategy is that Harris needs to win all three (while also avoiding surprising losses elsewhere like New Hampshire). Although these states’ outcomes are fairly strongly correlated in the model, that’s still harder than winning just one. And while Harris has a more viable path in Georgia and North Carolina than Biden, she and the campaign still have their work cut out there. Overall, the model thinks the Electoral College would be a tossup if Harris wins the popular vote by 2 to 3 percentage points. Put differently, she basically needs to win the popular vote by 2.5 points to beat the point spread.

Takeaways by Macro Roundup® AI

  1. The model treats the Electoral College as a tossup if Harris wins the popular vote by 2 to 3 percentage points, meaning she needs roughly a 2.5-point popular-vote margin to beat the point spread.
  2. Harris's Blue Wall strategy requires winning Pennsylvania, Michigan, and Wisconsin together while avoiding surprising losses elsewhere such as New Hampshire, which is harder than winning just one state even though the three outcomes are fairly strongly correlated in the model.
  3. Polling in Pennsylvania, Michigan, and Wisconsin has been close since Biden dropped out of the race, and Harris has a more viable path in Georgia and North Carolina than Biden while still having her work cut out in those states.

Related Articles:

  • A Lot of Major Shifts Beneath the Surface in a New Trump-Harris Poll — A New York Times/Siena poll found 48% of registered voters held a favorable view of Trump, up from 42% in the prior poll and his highest in that series, while Harris's favorable rating rose to 46% from 36%. Harris's favorable rating exceeded Biden's.
  • The Road to A Political Realignment in American Politics — College-educated voters are now more likely to identify as Democrats while those without degrees back Republicans, with educational attainment increasingly correlated with views on abortion, LGBTQ+ rights, and religion's relationship to government. This sorting leaves most states politically uncompetitive, with eight states near the national average in education levels holding 97 electoral votes in play.
  • A New Global Gender Divide Is Emerging — Gallup data show women aged 18–30 in the US are 30 percentage points more liberal than young men, a gap that opened in six years, with similar divides in Germany (30 points), the UK (25 points), South Korea and China. In South Korea, marriage rates have plummeted and births fell to 0.78 per woman, the world's lowest.

Wednesday, July 31, 2024

AI Summary. The authors estimate that including Social Security in household wealth leaves top wealth shares little changed over three decades, with the top 10% and top 1% shares rising 1.1 and 1.6 percentage points versus roughly 9 and 6 points for marketable wealth alone. Social Security wealth grew from $7tn to $39tn.

Sylvain Catherine, Max Miller, and Natasha Sarin Journal of Finance
Date Posted:
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.@sc_cath @mjmill611 and @NatashaRSarin calculate that the market value of future Social Security benefits represented 49% of the wealth of the bottom 90% in 2019. Including Social Security, the wealth share of the top 1% had risen only 1.6pp since 1989.

Does including Social Security change measured wealth inequality trends?

Core argument: Including Social Security wealth, the shares of the top 10% and top 1% increased by 1.1 and 1.6 percentage points, leaving top wealth shares little changed over three decades.

Top wealth shares have not changed much over the last three decades when Social Security is properly accounted for. This is because Social Security wealth increased substantially from $7 trillion in 1989 to $39 trillion in 2019 and now represents 49% of the wealth of the bottom 90% of the wealth distribution. For retirees, we calculate Social Security wealth from the SCF directly by valuing reported benefits as a lifetime annuity. Once Social Security wealth is included the shares of the top 10% and top 1% increased by 1.1 and 1.6 pp, respectively. The present value of Social Security benefits depends on the choice of an appropriate discount rate. We first offer a risk-free valuation of Social Security wealth using the Treasury market yield curve. We find that the share of “marketable wealth” owned by the top 10% and 1% grew by approximately 9 and 6 percentage points (pp) between 1989 and 2019, in line with existing estimates.

Takeaways by Macro Roundup® AI

  1. Including Social Security wealth, the shares of the top 10% and top 1% increased by 1.1 and 1.6 percentage points, leaving top wealth shares little changed over three decades.
  2. Social Security wealth grew from $7 trillion in 1989 to $39 trillion in 2019 and represents 49% of the wealth of the bottom 90% of the wealth distribution.
  3. Measured by marketable wealth alone, with Social Security valued risk-free using the Treasury market yield curve, the top 10% and top 1% shares grew by roughly 9 and 6 percentage points between 1989 and 2019, in line with existing estimates.

Related Articles:

  • Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends — Using administrative tax data with the Survey of Consumer Finances, the authors estimate the top 1% pre-tax income share fell from 11.1% in 1962 to 9.4% in 1979, then rose to 13.8% by 2019, a 3 percentage point rise over the full period. Their after-tax measure shows increases of only 1.4 points since 1979 and 0.2 points since 1962.
  • 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.
  • 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.

AI Summary. A comment argues that widely cited estimates of US income inequality misallocate partnership depreciation deductions to sole proprietorships, which are more equally distributed, thereby lowering the measured top 1% income share and its trend. The authors contend that correcting this and other assumptions about untaxed business and capital income brings those estimates close to higher rival measures.

Thomas Piketty, Emmanuel Saez and Gabriel Zucman University of California
Date Posted:
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.@gabriel_zucman argues that Auten & Splinter’s work contains “empirical errors, conceptual errors, and questionable assumptions,” primarily the misallocation of partnership depreciation to sole proprietors rather than the owners of the partnerships.

Does misallocating business depreciation understate the top 1% income share?

Core argument: About half of partnership income is legally exempt from taxation under the tax code's depreciation rules, and an analysis of Auten and Splinter's code indicates they allocate this excess partnership depreciation to owners of sole proprietorships rather than to partnership owners.

About half of partnership income is legally exempt from taxation due to generous depreciation rules in the tax code. An analysis of AS’s code reveals that AS allocates this excess partnership depreciation not to partnership owners, but to owners of sole proprietorships. This depresses the level of the top 1% income share, because sole proprietorships are much more equally distributed than partnerships: the top 1% earns 15% of taxable sole proprietorship income vs. 80% of taxable partnership income. This also leads to a downward trend in the top 1% income share, because the excess depreciation of partnerships was negligible in 1980. We trace the remaining difference with the top 1% income share of Piketty, Saez, and Zucman (2018) to assumptions made by Auten and Splinter (2024) about the distribution of untaxed business income, untaxed capital income, and non-cash notional income. After clarifying these assumptions and confronting them with existing evidence, the Auten and Splinter (2024) estimates become similar in level and trend to those of Piketty, Saez, and Zucman (2018).

Takeaways by Macro Roundup® AI

  1. About half of partnership income is legally exempt from taxation under the tax code's depreciation rules, and an analysis of Auten and Splinter's code indicates they allocate this excess partnership depreciation to owners of sole proprietorships rather than to partnership owners.
  2. The top 1% earns 15% of taxable sole proprietorship income versus 80% of taxable partnership income, so this allocation depresses the level of the top 1% income share and produces a downward trend, since partnership excess depreciation was negligible in 1980.
  3. The remaining difference with the top 1% income share of Piketty, Saez, and Zucman (2018) is traced to Auten and Splinter (2024) assumptions about untaxed business income, untaxed capital income, and non-cash notional income; clarifying those assumptions makes the estimates similar in level and trend.

Related Articles:

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

AI Summary. Growth in nuclear power plants declined after the Chernobyl accident, particularly in democracies. The authors find fossil fuel campaign contributions became strongly associated with anti-nuclear votes in US Congress, and estimate the resulting decline in nuclear plants cost roughly 141m expected life years in the US and 318m globally.

Alexey Makarin, Nancy Qian, and Shaoda Wang National Bureau of Economic Research
Date Posted:

.@alexeymakarin and team argue that political contributions and advertising spending by fossil fuel interest groups contributed to the post-Chernobyl decline in nuclear power, increasing air pollution and costing 318 million life years globally.

How did a nuclear accident reshape nuclear power politics and public health?

Core argument: The authors estimate that the Chernobyl-driven decline in nuclear power plants led to the loss of approximately 141 million expected life years in the United States and 318 million globally.

The rapid growth of nuclear power plants (NPP) declined dramatically after Chernobyl, especially in countries with democratic governments which had the highest number of NPPs at the time. To understand the mechanisms driving such change, we examine two case studies in detail: the United States and the United Kingdom. In the U.S., we document that: (a) after the Chernobyl accident, campaign contributions to House and Senate races from fossil fuel special interest groups became strongly associated with negative votes on nuclear-related bills, and such donations increased significantly; and (b) newspapers with more fossil fuel advertisements published more anti-nuclear articles after Chernobyl, while we do not observe significant changes in advertisement spending by the fossil fuel industry. We examine air pollution as a downstream outcome of reduced nuclear investment. We estimate that the decline in NPP caused by Chernobyl led to the loss of approximately 141 million expected life years in the US, and 318 million globally.

Takeaways by Macro Roundup® AI

  1. The authors estimate that the Chernobyl-driven decline in nuclear power plants led to the loss of approximately 141 million expected life years in the United States and 318 million globally.
  2. Nuclear power plant growth declined dramatically after Chernobyl, particularly in countries with democratic governments, which held the highest number of plants at the time.
  3. In the United States after Chernobyl, fossil fuel special interest campaign contributions to House and Senate races became strongly associated with negative votes on nuclear-related bills and increased significantly, and newspapers carrying more fossil fuel advertisements published more anti-nuclear articles.

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  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
  • Plant Vogtle Unit 4 Begins Commercial Operation — The 1,114-megawatt Unit 4 reactor at Georgia's Plant Vogtle entered commercial operation, completing an 11-year expansion that brings the plant's capacity to nearly 5 gigawatts and makes it the largest US nuclear plant. No nuclear reactors are currently under construction in the United States, where nuclear supplies about 19% of electricity.
  • Nuclear Power Is Hard. A Climate-Minded Billionaire Wants to Make It Easier — Start-up TerraPower has begun building a sodium-cooled nuclear reactor designed to be smaller and cheaper than conventional water-cooled plants, with completion expected no earlier than 2030 and the design not yet approved by the Nuclear Regulatory Commission. The company says the reactors should ultimately generate electricity at half the cost of traditional nuclear plants.

AI Summary. After decades of moving together, the business cycles of China and India have decoupled.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk notes that Indian and Chinese business cycles have decoupled after tracking each other for decades.

Have the business cycles of China and India decoupled?

Core argument: Torsten Sløk notes that the business cycles of China and India have decoupled after moving in sync for decades.

The business cycles in China and India are decoupling after having grown in sync for decades.

Takeaways by Macro Roundup® AI

  1. Torsten Sløk notes that the business cycles of China and India have decoupled after moving in sync for decades.

Related Articles:

  • Apple’s India iPhone Output Hits $14 Billion in China Shift — Apple assembled $14bn of iPhones in India in its last fiscal year, doubling output there to roughly 14%, or about 1 in 7, of its iPhones. China remains Apple's largest iPhone-making hub and biggest overseas market, though its revenue there is falling amid competition from rivals such as Huawei.
  • India Equity: An Unsung Long-Term Performance Story — Cumulative total returns for Indian equities have been comparable to or better than US equities over roughly three decades, while Chinese equities have lagged both, according to index data for the MSCI India, S&P 500, and MSCI China indexes.
  • Wall Street Snubs China for India in a Historic Markets Shift — US-listed exchange-traded funds buying Indian stocks drew record inflows while the four largest China funds saw combined outflows of nearly $800m, and India's weight in the main developing-market equity benchmark hit an all-time high of 18% as China's fell to a record low of 24.8%. Indian equities trade at more than 20x future earnings, 27% above their 2010–2020 average.

AI Summary. Microsoft's quarterly capital expenditures reached $19bn, nearly 80% higher than a year earlier and above Wall Street forecasts, with the company saying nearly all of it was cloud and artificial intelligence spending. Half went to land, buildings and leases that the company expects to monetize over 15 years or more, and half to technical equipment such as chips and servers.

Camilla Hodgson, George Steer, and Tim Bradshaw Financial Times
Date Posted:

Microsoft’s capex in their fiscal Q4 ending in June grew 80% y/y to $18B. TD Cowen analysts raised their forecast of MSFT 2025 capital spending from $70B to 84B. The firm says the spend “really will be monetised over 15 years and beyond.”

Is cloud and AI capital spending accelerating at major tech firms?

Core argument: Microsoft's capital expenditures reached $19bn in the quarter to June 30, nearly 80% above the year-earlier period and ahead of Wall Street forecasts, with "nearly all" of it cloud and AI-related, said chief financial officer Amy Hood.

Microsoft’s capital expenditures for the quarter to June 30 hit $19bn, nearly 80% higher than the same period a year ago and ahead of Wall Street’s forecasts. “Nearly all” of that was cloud and AI-related spending, said its chief financial officer Amy Hood, and those investments would pay off during the second half of the year when Azure growth would “accelerate.” Analysts at TD Cowen said on Wednesday that they had raised their forecasts for Microsoft’s capital spending from $70bn to $84bn for the 2025 financial year. Hood said that half of Microsoft’s capital spending went towards land, building, and leases, which “really will be monetised over 15 years and beyond”, while the other half was spent on technical equipment, including chips and servers, which would be “based on demand signals.”

Takeaways by Macro Roundup® AI

  1. Microsoft's capital expenditures reached $19bn in the quarter to June 30, nearly 80% above the year-earlier period and ahead of Wall Street forecasts, with "nearly all" of it cloud and AI-related, said chief financial officer Amy Hood.
  2. TD Cowen analysts raised their forecast for Microsoft's capital spending in the 2025 financial year from $70bn to $84bn.
  3. Amy Hood said half of Microsoft's capital spending went to land, buildings, and leases that "really will be monetised over 15 years and beyond," with the other half on technical equipment including chips and servers, based on demand signals.

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  • AI’s $600B Question — Comparing spending on AI chips to historical railroad construction overlooks that high-fixed-cost, low-marginal-cost businesses without monopoly or oligopoly power tend to see prices competed down to marginal cost, and that semiconductors continually improve in cost versus performance, unlike physical infrastructure. Speculative frenzies accompany technology, but the payoff will take a long time.
  • 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.
  • Gen AI: Too Much Spend, Too Little Benefit? — The author argues generative AI is unlikely to drive revenue expansion because it helps employees find information faster rather than find better information. If AI's benefits remain limited to efficiency gains, competitors can adopt the same tools, so cost savings get arbitraged away rather than raising prices or margins.