Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Friday, August 2, 2024

AI Summary. Using congressional representation as an instrument — an extra senator or representative per million residents predicts roughly $1,000 more aid per capita — the authors estimate that federal pandemic relief strongly predicts incumbent performance in state-wide elections.

Jeffrey Clemens, Julia Payson, and Stan Veuger American Enterprise Institute
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An additional senator or representative per mm residents predicted about $1,000 dollars in additional COVID aid per capita over 2020-2022, yielding incumbents an extra 4 ppt of the two-candidate vote share. @jeffreypclemens @payson_julia @stanveuger

Does federal pandemic aid boost incumbent performance in state elections?

Core argument: Each additional senator or representative per million residents predicts roughly $1,000 more COVID-19 aid per capita, and overrepresented states received systematically more federal pandemic funding.

Identifying the effect of revenue windfalls on economic voting is challenging because whatever conditions led to the influx of cash might also benefit or harm incumbent politicians for a variety of other reasons. We leverage the fact that pandemic assistance varied based on congressional representation, with an additional senator or representative per million residents predicting roughly $1,000 dollars in additional aid per capita. As a result, overrepresented states received systematically more funding. By predicting aid levels using congressional representation as an instrument, we seek to isolate the effect of COVID-19 spending on state-wide election results. We find that federal pandemic aid strongly predicts incumbent performance in the 2020, 2021, and 2022 elections. The exclusion restriction here [the basis for the econometric identification] assumes that higher per capita representation in Congress did not benefit incumbents through channels other than the increase in COVID-19 funding.

Takeaways by Macro Roundup® AI

  1. Each additional senator or representative per million residents predicts roughly $1,000 more COVID-19 aid per capita, and overrepresented states received systematically more federal pandemic funding.
  2. Using congressional representation as an instrument for pandemic aid, the authors find that federal COVID-19 aid strongly predicts incumbent performance in the 2020, 2021, and 2022 elections.
  3. The identification rests on an exclusion restriction assuming that higher per capita congressional representation did not benefit incumbents through channels other than increased COVID-19 funding.

Related Articles:

AI Summary. Inflation-adjusted median weekly earnings for US workers aged 25-64 without a college degree rose 4.6% from $829 to $867, outpacing the 3.3% gain for college-educated workers, a reversal from the Great Recession when college wages grew faster. Inflation-adjusted wealth grew 5.5% for non-college households versus 4.8% for college households.

Ernie Tedeschi Third Way
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Real median weekly earnings for non-college workers grew by 4.6% from Q4 2019 to Q1 2024, vs. 3.3% for their college peers, a reversal from the Great Recession “when real college wages consistently grew faster than non-college wages.” @ernietedeschi

Have non-college workers' wages and wealth grown faster than college graduates'?

Core argument: Real median weekly earnings for non-college workers aged 25–64 rose 4.6% from $829 in 2019 to $867 over the four quarters ending 2024 Q1, in inflation-adjusted 2023 dollars, higher than any pre-pandemic quarter on record.

The pandemic has been extraordinary among recent US recessions in the growth of non-college wages. In 2019, the typical non-college worker aged 25-64 earned $829 a week in inflation-adjusted 2023 dollars. Over the four quarters ending in 2024 Q1, their weekly earnings were $867, a 4.6% increase and higher than any pre-pandemic quarter on record. In contrast, college workers have seen a 3.3% increase in real median weekly earnings since 2019. The stronger performance of non-college wages is in stark contrast with the Great Recession when real college wages consistently grew faster than non-college wages. [Similarly,] Inflation-adjusted wealth has grown by 5.5% for non-college households, versus 4.8% for college households.

Takeaways by Macro Roundup® AI

  1. Real median weekly earnings for non-college workers aged 25–64 rose 4.6% from $829 in 2019 to $867 over the four quarters ending 2024 Q1, in inflation-adjusted 2023 dollars, higher than any pre-pandemic quarter on record.
  2. College-educated workers saw real median weekly earnings rise 3.3% since 2019, less than the 4.6% gain for non-college workers, in contrast with the Great Recession when real college wages consistently grew faster.
  3. Inflation-adjusted wealth grew 5.5% for non-college households versus 4.8% for college households.

Related Articles:

AI Summary. In 2000 the 10 largest US stocks traded at 60x earnings after 22% annual fundamental returns, then delivered only 8% a year as telecom earnings fell following 3G spectrum auctions. Today's top 10 have delivered 19% annual fundamental returns but trade at a median 27x, implying lower investor expectations.

Ty Cobb, Tom Hancock, and Anthony Hene GMO
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GMO argues that comparisons between the current market and the 2000 tech bubble are overdrawn given the current top 10 companies’ stronger fundamentals and median P/E of 27x, vs. 60X for the top 10 companies in 2000.

Are today's largest stocks priced more modestly than in 2000?

Core argument: In 2000, the top 10 traded at a 60x price-to-earnings ratio after delivering fundamental returns of 22% p.a. over the preceding five years, while 2024's top 10 carry a median P/E of 27x after 19% p.a. returns since 2019.

In 2000, the price-to-earnings ratio of the top 10 was 60x. Market participants were intoxicated by the ongoing communication revolution and heady fundamental returns of 22% per annum (p.a.) for the group over the preceding five years. Even if the fundamental return expectation of 19% p.a. had been delivered and stock prices held, the top 10’s multiple would have still exceeded 25x by 2005. In reality, the fundamental return was a relatively puny 8% p.a. for the group, with earnings falling at the telecom companies after what turned out to have been disastrous capital allocation in 3G spectrum auctions. 2024’s top 10 have delivered similarly impressive fundamental returns of 19% p.a. since 2019, but the set-up is rather different to 2000, with a median P/E of 27x. If today’s top 10 were to deliver on 19% fundamental return expectations and prices were to stay the same this time around, the multiple would collapse to 12x by 2029. Implicitly, investors expect less from the mega-caps now than they did in 2000.

Takeaways by Macro Roundup® AI

  1. In 2000, the top 10 traded at a 60x price-to-earnings ratio after delivering fundamental returns of 22% p.a. over the preceding five years, while 2024's top 10 carry a median P/E of 27x after 19% p.a. returns since 2019.
  2. The 2000 top 10 delivered fundamental returns of 8% p.a. against expectations of 19% p.a., with earnings falling at telecom companies after capital allocation in 3G spectrum auctions proved disastrous.
  3. If the 2024 top 10 were to deliver 19% p.a. fundamental returns and prices were to stay the same, the group's multiple would collapse to 12x by 2029, implying investors expect less from mega-caps now than in 2000.

Related Articles:

  • Which U.S. Stocks Generated the Highest Long-Term Returns? — 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.
  • Five Easy Pieces — The rally in the seven largest US technology stocks has been driven by earnings rather than valuation: of the group's 28% return, 21 percentage points came from sales growth, 6 from margin expansion, and 1 from multiple expansion. Market concentration has reached its highest level since 1972, and large spikes in concentration have frequently coincided with or preceded prior recessions.
  • Magnificently Concentrated — Since 1957, the 10 largest stocks in the S&P 500 have trailed an equal-weighted index of the remaining 490 stocks by 2.4% per year on average, though over the past decade the largest 10 outperformed by 4.9% per year. The authors argue history suggests the capitalization-weighted S&P 500 is likely to underperform the equal-weighted version over the next decade.

AI Summary. A study of 84,985 mergers reported to U.S. antitrust agencies, of which 1,477 were challenged in court, finds that the likelihood agencies win fully litigated cases and the likelihood challenged mergers proceed to litigation both increased following the Chicago School's influence. The authors read this as a shift toward stricter judicial enforcement standards.

Mark Jamison American Enterprise Institute
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@drj_policy @AEI argues that from 1982–2021 antitrust enforcement standards “have become more pro-enforcement—exactly the opposite of the accepted wisdom.”

Has merger enforcement actually become stricter in the courts?

Core argument: Of 84,985 mergers reported to U.S. antitrust agencies from 1982 to 2021 under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, the agencies challenged 1,477 by petitioning a court to stop the merger, according to the study.

The new study systematically analyzed the evolution of judicial standards for proposed mergers and found that the Chicago School in fact upgraded antitrust enforcement. The study examined 84,985 mergers reported to the agencies from 1982 to 2021 under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. The agencies challenged 1,477 mergers, meaning that one of the agencies petitioned a court to stop the merger. The study found that the likelihood that agencies would win fully litigated cases rose since the Chicago School’s influence. It also found that the likelihood of challenged mergers proceeding to litigation increased. Both findings indicate a shift towards stricter enforcement standards in the courts. The study’s findings are consistent with those of an earlier study by some of the same authors. This earlier study found that the intensity of merger challenges increased from 1979 to 2017 and that the rising enforcement did not depend on who was in the White House.

Takeaways by Macro Roundup® AI

  1. Of 84,985 mergers reported to U.S. antitrust agencies from 1982 to 2021 under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, the agencies challenged 1,477 by petitioning a court to stop the merger, according to the study.
  2. The study found that the likelihood agencies would win fully litigated merger cases rose since the Chicago School's influence and that challenged mergers became more likely to proceed to litigation, indicating a shift toward stricter enforcement standards in the courts.
  3. An earlier study by some of the same authors found that the intensity of merger challenges increased from 1979 to 2017 and that the rising enforcement did not depend on who was in the White House.

Related Articles:

  • Trends in Competition in the United States: What Does the Evidence Show? — 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.
  • 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.
  • Has Market Concentration in U.S. Manufacturing Increased? — Measuring U.S. manufacturing concentration by domestic production alone shows the top 20 firms' share rising, but including imports and excluding exports leaves the top 20 firms' share of total U.S. sales flat. The authors argue the falling market share of U.S. firms suggests their market power may have declined.

AI Summary. Chinese manufacturing competitiveness was built on transfers that acted as implicit supply-side support, so reversing them to raise household consumption would likely erode that competitiveness and cause a short-term contraction. Manufacturing accounts for 27–28% of China's economy versus 15–16% of global output, making any such hit especially painful.

Michael Pettis Carnegie Endowment for International Peace
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Increasing China’s consumption share in a sustainable manner would require an offset by “the business sector, local governments, or Beijing,” likely reducing the competitiveness of China’s manufacturing sector. @michaelxpettis

Why is it so hard for China to raise household consumption?

Core argument: Manufacturing accounts for 27–28% of China's GDP versus 15–16% of global GDP, a disproportionately large share the author attributes to three decades of one-directional transfers supporting Chinese manufacturers.

After three decades when Chinese manufacturers’ global competitiveness was effectively built on transfers in one direction, what would happen to their manufacturing prowess if these transfers were reversed? Their prowess would almost certainly decline, as they would struggle to manage in a significantly less friendly supply-side environment. One likely result could be a short-term contraction, as Chinese manufacturers learn to live without the implicit supply-side support and essentially return the various subsidies. Because one of the consequences of these transfers has been a disproportionately large manufacturing share of the economy (27–28% of China’s GDP, compared to 15–16% of global GDP, as I explained in this June 2024 piece), anything that undermines China’s manufacturing competitiveness in the short term is likely to be especially painful for the economy. This is why Beijing’s unwillingness to boost the consumption share of GDP is not as bizarre as it seems.

Takeaways by Macro Roundup® AI

  1. Manufacturing accounts for 27–28% of China's GDP versus 15–16% of global GDP, a disproportionately large share the author attributes to three decades of one-directional transfers supporting Chinese manufacturers.
  2. Reversing those transfers would almost certainly reduce Chinese manufacturers' prowess, the author argues, as they would struggle in a significantly less friendly supply-side environment and essentially return the various subsidies.
  3. Given China's outsized manufacturing share of GDP, the author contends that anything undermining manufacturing competitiveness in the short term would be especially painful, which renders Beijing's unwillingness to raise the consumption share less bizarre than it seems.

Related Articles:

  • Why Xi Jinping Is Afraid to Unleash China’s Consumers — China's push for self-sufficiency began in the mid-2000s, and its reliance on global supply chains for inputs into its products has declined alongside that strategy, alongside a doctrine of "comprehensive national security" spanning the economy and society. Analysts argue China now gauges national power in military capacity rather than purely economic terms, making manufacturing central.
  • No Quick Fixes: China’s Long-Term Consumption Growth — China's real household consumption growth is projected at around 3 to 4% annually over the next five to ten years, reflecting a continued slowdown in urban per capita spending growth. If household consumption stays near 39% of GDP, it would contribute only about 1.2 to 1.6 percentage points to annual GDP growth, well below its contribution in the 2010s.
  • Assessing China’s Efforts to Increase Self-Reliance — China's import growth has been notably weaker than export growth over the past five years, and the correlation between GDP growth and import growth has run below that between GDP growth and export growth for about a decade, which could be an early sign of increasing self-reliance. China is reducing reliance on imported inputs while maintaining reliance on foreign demand.

AI Summary. A presidential election forecasting model puts Kamala Harris ahead of Donald Trump by 1.1 points in its national polling average and gives her a 47% chance of winning the Electoral College, placing the race in toss-up territory. Weaker economic news lowers the model's economic index and reduces the incumbent party's estimated chances.

Nate Silver and Eli McKown-Dawson Silver Bulletin
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.@NateSilver538 estimates that Trump has a 53% chance of winning the Electoral College, down from 61% on Monday. Trump has a 48% probability of winning WI, a 44% of winning MI, and a 51% chance of winning PA. The race is a toss-up.

Does weaker economic news reduce the incumbent party's election odds?

Core argument: Kamala Harris leads Donald Trump by 1.1 points in the Silver Bulletin national polling average and has a 47% chance of winning the Electoral College, placing the race well into toss-up territory.

Despite a bad day of economic news — which worsens the model’s economic index and therefore harms the incumbent party’s chances — Kamala Harris continues to inch ahead in the forecast on the strength of fairly strong polling. She now leads Donald Trump by 1.1 points in our national polling average, and has a 47% chance of winning the Electoral College, putting the race well into toss-up territory.

Takeaways by Macro Roundup® AI

  1. Kamala Harris leads Donald Trump by 1.1 points in the Silver Bulletin national polling average and has a 47% chance of winning the Electoral College, placing the race well into toss-up territory.
  2. A day of bad economic news worsened the Silver Bulletin model's economic index, harming the incumbent party's chances, yet Harris continued to inch ahead on fairly strong polling.

Related Articles:

  • The GOP is Poised to Make Gains With Young Voters — Over less than a decade, the share of young men who identify with or lean toward the Democratic Party fell from 51% to 39%. Young women have retained a stronger Democratic allegiance, though that commitment also appears to have weakened more recently.
  • An Unsettled Electorate: How Uncertainty and Apathy Are Shaping the 2024 Election — A survey of young registered voters finds 54% backing Biden and 46% backing Trump, with 60% of young women supporting Biden while 52% of young men support Trump. Young men are more likely than young women to say the country has gone too far in giving women equal rights, 19% versus 9%.
  • 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.

Monday, August 5, 2024

AI Summary. The authors find that new types of work emerge in occupations experiencing innovations that augment their outputs or rising demand, while innovations that automate tasks or reduce demand slow the emergence of new work. They estimate that the demand-eroding effects of automation innovations have intensified over the past four decades while the demand-increasing effects of augmentation innovations have not.

David Autor, Caroline Chin, Anna Salomons, et al. The Quarterly Journal of Economics
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.@davidautor et al. find that the labor-replacing impact of automation innovations has intensified in the past four decades, while the demand-increasing effects of augmentation innovations have not.

How do automation and augmentation innovations shape the emergence of new work?

Core argument: New work emerges in occupations exposed to augmentation innovations, which raise the capabilities, quality, variety, or utility of occupational outputs, and to demand shocks that increase occupational demand.

New work emerges in response to technological innovations that complement the outputs of occupations and demand shocks that raise occupational demand. Innovations that automate tasks or reduce occupational demand slow new-work emergence. In our terminology, augmentation innovations are technologies that increase the capabilities, quality, variety, or utility of the outputs of occupations, potentially generating new demands for worker expertise and specialization. Conversely, automation innovations are technologies that substitute for the labor inputs of occupations, potentially replacing workers performing these tasks. Although the flow of augmentation and automation innovations is positively correlated across occupations, the former boosts occupational labor demand while the latter depresses it. The demand-eroding effects of automation innovations have intensified in the past four decades while the demand-increasing effects of augmentation innovations have not.

Takeaways by Macro Roundup® AI

  1. New work emerges in occupations exposed to augmentation innovations, which raise the capabilities, quality, variety, or utility of occupational outputs, and to demand shocks that increase occupational demand.
  2. Automation innovations, which substitute for occupations' labor inputs, slow the emergence of new work and depress occupational labor demand, while augmentation innovations boost it, even though the two flows are positively correlated across occupations.
  3. The demand-eroding effects of automation innovations have intensified over the past four decades, while the demand-increasing effects of augmentation innovations have not.

Related Articles:

  • 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.
  • Applying AI To Rebuild Middle-Class Jobs — Computerization concentrated decision-making power and resources among elite experts with college and graduate degrees, while the 60% of U.S. adults without a bachelor's degree were relegated to low-paid service jobs. Because artificial intelligence can combine information and rules with acquired experience, it could enable more workers to perform higher-stakes decision-making tasks.
  • 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. Permanent job losers account for just 0.1 percentage point of the 0.8 percentage point rise in the US unemployment rate from its trough, with new entrants and re-entrants to the labor force explaining nearly all of the increase. Typical worker pay is still rising a little more than 4% a year, faster than before the pandemic.

Matt Klein The Overshoot
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.@M_C_Klein argues the US jobs market is “better than it looks:” rising unemployment since 2023 has been driven by increased workforce participation and weather-related temporary layoffs in July. Wages are growing 1.5pp/year faster than in 2017-19.

Is the rise in unemployment driven by new labor force entrants?

Core argument: Permanent job losers account for just 0.1 percentage point of the total 0.8 percentage point rise in the U.S. unemployment rate since its trough, with their ranks essentially flat for over a year.

The ranks of “permanent” job losers in the unemployed have been essentially flat for over a year, accounting for just 0.1 pp of the total 0.8 pp increase in the jobless rate since the trough. The number of people who are not in the labor force but say that they want a job now has been range bound since mid-2022. New entrants to the labor force and re-entrants to the labor force explained almost the entire increase in the headline unemployment rate until this month, while the pop in July is largely attributable to a bump in temporary layoffs. Nominal wage growth has clearly decelerated from the peak of 2021H2-2022H1, but pay is still rising about 1.5 percentage points faster (annualized) than in 2017-2019. This is corroborated by the monthly data on average worker pay through July. The latest readings imply that the typical worker is still getting a pay rise of a little more than 4% a year. That is slower than the peak, but still a bit faster than before the pandemic.

Takeaways by Macro Roundup® AI

  1. Permanent job losers account for just 0.1 percentage point of the total 0.8 percentage point rise in the U.S. unemployment rate since its trough, with their ranks essentially flat for over a year.
  2. New entrants and re-entrants to the labor force explained almost the entire increase in the headline unemployment rate until July, whose jump is largely attributable to a bump in temporary layoffs.
  3. Nominal wage growth has decelerated from its 2021H2–2022H1 peak but remains about 1.5 percentage points faster annualized than in 2017–2019, implying the typical worker is getting a raise of a little more than 4% a year.

Related Articles:

  • Recent Spike in Immigration and Easing Labor Markets — States with higher per capita volumes of undocumented immigrants broadly had a lower ratio of job vacancies to unemployed workers, a common gauge of labor market tightness. Using state data, the author estimates that about one-fifth of the decline in that ratio was associated with higher immigration.
  • Measuring Unemployment Risk — The authors estimate individual unemployment risk using employment status, demographic, job, and geographic characteristics, and find that before a recession this risk is concentrated: unemployment risk is below 5% for the vast majority of employed workers. Unemployed individuals, a small share of the population, average nearly 22% risk, about 10x the average for employed (2.7%) or out-of-the-labor-force (2.4%) individuals.
  • The Dual U.S. Labor Market Uncovered — The authors identify a dual U.S. labor market in which a primary segment of about 55% of the population is almost always employed, while a secondary segment of about 14% absorbs most seasonal and business-cycle fluctuations. Workers in the secondary segment have 6x higher turnover and are 10x more likely to be unemployed than primary-segment workers.

AI Summary. State-level data show a positive association between workers quitting jobs and new-business applications, a relationship that grew stronger in the years following the pandemic's onset. Because business applications have stayed high while quits returned to earlier levels, the authors argue the surge in quitting cannot fully explain the sustained rise in new-business formation.

Michael Owyang and Marie Hogan Federal Reserve Bank of St. Louis
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A @stlouisfed analysis finds that new business applications with a high propensity to hire remain elevated over pre-pandemic levels, even as job quits decline.

Does the rise in job quits explain sustained new-business formation?

Core argument: State-level job quits and new-business applications are positively associated, with the correlation growing in magnitude during 2020-2023 and particularly in 2022, based on year-by-year state-level measurements.

We found a positive association between business applications and job quits. The strength of this relationship—which we measured by calculating the correlation between job quits and business applications at the state level within each year—varies over time, growing in magnitude during 2020 to 2023 (and particularly in 2022). This may imply that, after the lockdowns early in the pandemic, the relationship between business applications and job quits was stronger than in previous years. However, business applications have remained high through 2024 relative to the 2010s—both on aggregate and within the work-from-home-friendly industries, like professional services—while job quits have returned to previous levels. This suggests that the rise in job quits following the onset of the COVID-19 pandemic (i.e., the Great Resignation) cannot fully explain the persistent increase in applications for new businesses.

Takeaways by Macro Roundup® AI

  1. State-level job quits and new-business applications are positively associated, with the correlation growing in magnitude during 2020-2023 and particularly in 2022, based on year-by-year state-level measurements.
  2. Business applications have remained high through 2024 relative to the 2010s, both in aggregate and within work-from-home-friendly industries such as professional services, while job quits have returned to prior levels.
  3. The rise in job quits following the onset of the COVID-19 pandemic, known as the Great Resignation, cannot fully explain the persistent increase in applications for new businesses.

Related Articles:

  • Surging Business Formation in the Pandemic: Causes and Consequences? — Shifts in consumer demand and in preferences for work and lifestyle during the pandemic created entrepreneurial opportunities, and applications to start businesses produced new firms and establishments that hired workers in large numbers. The authors argue these new businesses drew in quitting workers as founders or hires, implying economic restructuring across industry, geography, and firm size and age.
  • High Tech Business Entry In The Pandemic Era — High-tech industries accounted for a disproportionate share of the surge in net new business establishments after 2019, with net entry higher in tech than non-tech industries. The authors find suggestive evidence that tech establishment births rose more for existing firms than new firms, though both categories saw elevated openings.
  • Demographic Origins of the Start-up Deficit — The authors estimate that the slowdown in US labor supply growth can explain up to 52% of the decline in the start-up rate and up to 80% of the decline in start-ups' share of employment. In their model, growing labor supply requires growing labor demand, which comes through entry of new firms or a lower real wage.

AI Summary. Microsoft, Alphabet, Amazon, and Meta together spent $106bn in the first half of the year and pledged further increases over the next 18 months, with Meta projecting capital spending could reach $40bn this year. Analysts at Dell'Oro Group expect as much as $1tn could flow into infrastructure such as data centers within five years.

Stephen Morris, Hannah Murphy, and Camilla Hodgson Financial Times
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Big Tech’s capex cycle, potentially $1T over 5 years, is driven by perceived existential risks and likely won’t slow due to market jitters. Zuckerberg said, “I’d rather risk building capacity before it is needed, rather than too late.”

Are Big Tech's AI capital spending increases set to continue?

Core argument: Microsoft, Alphabet, Amazon, and Meta spent a combined $106bn in the first six months of 2024 and pledged further increases over the next 18 months, with their collective forecasts implying AI-related investment could more than double by year-end.

Microsoft, Alphabet, Amazon, and Meta all revealed massive increases in spending in the first six months of 2024 — totalling $106B — in their latest quarterly earnings reports, as their leaders brushed off stock market jitters to pledge further investment hikes over the next 18 months. “At this point, I’d rather risk building capacity before it is needed, rather than too late,” Meta chief Mark Zuckerberg said this week, as he predicted the Facebook parent’s capital spending could hit $40bn this year. Their collective forecasts mean Big Tech’s AI-related investment could more than double by year-end. Analysts at Dell’Oro Group now expect as much as $1tn could be channelled into infrastructure such as data centres within five years, even though the companies have so far failed to convince investors that their customers are prepared to spend big on AI products and services.

Takeaways by Macro Roundup® AI

  1. Microsoft, Alphabet, Amazon, and Meta spent a combined $106bn in the first six months of 2024 and pledged further increases over the next 18 months, with their collective forecasts implying AI-related investment could more than double by year-end.
  2. Meta chief Mark Zuckerberg predicted the company's capital spending could reach $40bn this year, saying he would rather risk building capacity before it is needed than too late.
  3. Analysts at Dell'Oro Group expect as much as $1tn could be channelled into infrastructure such as data centres within five years, even as the companies have not convinced investors that customers are prepared to spend big on AI products and services.

Related Articles:

  • Are We on the Brink of an AI Investment Arms Race? — Spending on AI chips and data centers was a bit below $100bn in 2023, around 0.4% of US GDP, and the broader set of companies exposed to AI-related investment has not yet seen a major jump in sales. The authors argue the underlying dynamics point to a spending surge large enough to shape the business cycle.
  • 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.
  • 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.

AI Summary. Ecuador has suspended visa-free entry for Chinese nationals, closing the most popular access route for Chinese migrants seeking to reach the U.S. border. Tens of thousands of Chinese migrants have attempted to enter the U.S. by flying into Ecuador and crossing the Darién Gap to Mexico.

Wenxin Fan Wall Street Journal
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In the aftermath of Ecuador suspending visa-free travel, attempted Chinese migration to the US has shifted to Bolivia.

How does ending visa-free entry affect Chinese migration to the US?

Core argument: Ecuador suspended visa-free arrivals for Chinese nationals on July 1, closing the most popular access point for Chinese migrants seeking to reach the U.S. border.

The government of Ecuador suspended visa-free arrivals for Chinese nationals on July 1, closing the most popular access point for Chinese migrants hoping to reach the border. The move was welcomed by the U.S. Department of Homeland Security, which two days later deported 116 Chinese migrants on a charter flight from Texas to the northeastern Chinese city of Shenyang. Chinese officials, meanwhile, have been making examples of those caught and punished for the attempt. In recent years, tens of thousands of Chinese people have attempted to enter the U.S. by first journeying to Mexico through the treacherous Darién Gap that connects South and Central America, typically after flying into Ecuador. Speaking from Mexico City, a 37-year-old Chinese man who hoped to reach the U.S. border by motorbike [cited Confucius] “Oppressive governments are more terrible than tigers.”

Takeaways by Macro Roundup® AI

  1. Ecuador suspended visa-free arrivals for Chinese nationals on July 1, closing the most popular access point for Chinese migrants seeking to reach the U.S. border.
  2. The U.S. Department of Homeland Security welcomed Ecuador's move and two days later deported 116 Chinese migrants on a charter flight from Texas to Shenyang.
  3. Tens of thousands of Chinese nationals have attempted to enter the U.S. by flying into Ecuador and crossing the Darién Gap to Mexico, while Chinese officials make examples of those caught and punished.

Related Articles:

  • Ecuador Suspends Visa Deal With China As Migrants Surge — Ecuador suspended its visa waiver agreement with China, with its foreign ministry stating that nearly half of Chinese travellers who entered did not leave through regular routes or within the 90 days permitted. US Customs and Border Protection detained more than 37,000 Chinese citizens at the southern border, a 10-fold increase.
  • Why So Many Middle-Class Chinese Migrants Take Risky, Illegal Route To U.S. — U.S. Customs and Border Protection reported more than 37,000 Chinese nationals detained at the border with Mexico in a single year, roughly 10x pre-pandemic levels, with families among the fastest-growing group. United Nations data show China's annual net emigration rose above 300,000, compared with about 190,000 a year over the prior decade.
  • China to See Biggest Millionaire Exodus in 2024 as Many Head to U.S. — China is projected to see a record 15,200 high-net-worth individuals — those with at least $1m in assets — leave the country, the world's largest such outflow, according to a Henley & Partners report. The prior year's 13,800 departures went mostly to the US, Canada, and Singapore.