Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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
  • “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 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
  • “…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
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, August 14, 2024

AI Summary. The authors attribute the small rise in U.S. unemployment after World War II to labor force withdrawals—concentrated among women aged 20–44 and male veterans—and to most job separators moving directly into new jobs, even across industries. They argue the postwar job-creation boom followed from wartime military spending having crowded out investment in consumer durables, housing, and business capital.

Shigeru Fujita, Valerie Ramey and Tal Roded Stanford University
Date Posted:

From 1945-46, the US unemployment rate grew by 3pp despite a 24% decline in GDP, supported by a 10% shrinkage of the total labor force (largely women and GI bill students) and pent-up demand for consumer durables and residential/business investment.

Why did unemployment barely rise after a massive wartime demobilization?

Core argument: Withdrawals from the labor force, concentrated among women aged 20–44 and male war veterans, form an important part of the explanation for the small rise in the U.S. unemployment rate at the end of WWII.

Withdrawals from the labor force at the end of WWII were an important part of the explanation for the small rise in the unemployment rate. These withdrawals tended to be concentrated among females between the ages of 20 and 44 and male war veterans. Among those staying in the labor force, most of the workers who separated from their jobs moved directly into a new job. Workers accomplished these job-to-job transitions despite moving across industries. Returning veterans quickly returned to their previous position on the occupation ladder whereas those laid off from civilian jobs experienced a significant step down the occupation ladder. [Finally], the post-war boom in job creation was a direct consequence of the crowding out of investment in consumer durable goods, residential capital, and business capital by military spending during the war. Had government spending crowded out only nondurable goods and services consumption, the recovery would have been much less robust.

Takeaways by Macro Roundup® AI

  1. Withdrawals from the labor force, concentrated among women aged 20–44 and male war veterans, form an important part of the explanation for the small rise in the U.S. unemployment rate at the end of WWII.
  2. Among workers who stayed in the labor force and separated from their jobs at the end of WWII, most moved directly into a new job, accomplishing these transitions even while switching industries.
  3. Returning veterans quickly regained their previous position on the occupation ladder, while workers laid off from civilian jobs experienced a significant step down it.

Related Articles:

  • Lessons from History for Successful Disinflation — The authors classify U.S. disinflation episodes by how committed monetary policymakers were, judging commitment strong in some episodes and weak in others based on policy records and public statements about acceptable output losses. They find no evidence that stronger commitment affected expected inflation, and conclude weak commitment failed mainly through premature abandonment of disinflationary policy.
  • America, Jump-Started: World War II R&D and the Takeoff of the US Innovation System — From 1940 to 1945, the US Office of Scientific Research and Development engaged industrial and academic contractors in more than 2,200 research contracts worth over $9bn in 2022 dollars, despite no pre-war tradition of funding externally performed research. At the war's height, the US government funded the research behind nearly 1 in 8 US patents.
  • The Long-Run Impacts of Public Industrial Investment on Local Development and Economic Mobility: Evidence from World War II — The authors estimate that U.S. counties receiving publicly financed World War II plants saw persistent local development and expanded higher-wage manufacturing employment, with men born there before the war earning $1,200 (2020 dollars), or 2.5%, more annually in adulthood than peers elsewhere. Gains were larger for children of lower-income parents.

AI Summary. A projected scenario has the U.S. house-price-to-income ratio falling about 13 percentage points over roughly seven years, retracing about two-thirds of the pandemic-era rise through strong income growth rather than a price bust, with moderate price appreciation slightly trailing inflation. Such a gradual correction carries risks including reduced labor mobility, delayed household formation, and longer selling times.

Enrique Martínez García and Lauren Spits Federal Reserve Bank of Dallas
Date Posted:

A @DallasFed analysis suggests housing affordability in the US will likely improve gradually through strong income growth and moderate house-price appreciation, but notes the risk of a severe price correction with negative wealth effects.

Can income growth restore housing affordability without a price bust?

Core argument: Under a benign April 2024 scenario, the U.S. price-to-income ratio is projected to decline about 13 percentage points by February 2029 relative to February 2022, retracing roughly two-thirds of the pandemic-era increase.

Chart 4 suggests that under the relatively benign scenario in April 2024, the price-to-income ratio should decline by about 13 percentage points by February 2029 relative to February 2022 levels. Such a drop would retrace approximately two-thirds of the pandemic-era increase. Putting it all together, the affordability correction in the U.S. is not expected to arise from a house-price bust but rather from strong income growth in a scenario with moderate house-price appreciation that slightly trails inflation. While slowly improving housing affordability can be less disruptive than a disorderly house-price bust, there remain associated risks. First, the more gradual correction tempers labor mobility as households face financial constraints that, in turn, limit relocation options in the event of future economic shocks. Second, household formation can be delayed as a result, which can have demographic implications. Third, sellers may encounter increased time and cost risks because fewer people are buying homes. Finally, prolonged unaffordability can increase the odds of a severe correction in a future house-price run-up, inducing a negative wealth effect on economic activity and a restraining of household consumption.

Takeaways by Macro Roundup® AI

  1. Under a benign April 2024 scenario, the U.S. price-to-income ratio is projected to decline about 13 percentage points by February 2029 relative to February 2022, retracing roughly two-thirds of the pandemic-era increase.
  2. The expected U.S. affordability correction is projected to stem from strong income growth alongside moderate house-price appreciation that slightly trails inflation, rather than from a house-price bust.
  3. A gradual affordability correction carries risks including tempered labor mobility among financially constrained households, delayed household formation with demographic implications, higher time and cost risks for sellers, and greater odds of a severe correction in a future price run-up.

Related Articles:

  • Inflation Adjusted House Prices 2.4% Below Peak — Inflation-adjusted U.S. house prices are 2.4% below their peak, while the monthly principal-and-interest payment on an equivalent house has risen 12% over one year and 107% over three years, as house prices rose 31% over that three-year span and 30-year mortgage rates went from 2.81% to 6.78%.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.
  • Housing and the American Worker — 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.

AI Summary. Inflation-adjusted median household net worth for Americans born in the 1980s rose to $130,000 from $60,000, while median wealth for those born in the 1990s more than quadrupled to $41,000, according to the Federal Reserve Bank of St. Louis. Real estate was the largest driver of the increase.

Joe Pinsker and Veronica Dagher Wall Street Journal
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At the start of 2024, the real wealth of Millennials (aged 27 to 44) was ~25% higher than Gen Xers and Baby Boomers at the same point in their life cycles, driven largely by $2.5 trilliongrowth in net housing wealth. @WSJ

Has younger Americans' household wealth risen sharply?

Core argument: The median inflation-adjusted household net worth of older millennials born in the 1980s rose to $130,000 in 2022 from $60,000 in 2019, while median wealth for Americans born in the 1990s more than quadrupled to $41,000, according to St. Louis Fed data.

The median household net worth of older millennials, born in the 1980s, rose to $130,000 in 2022 from $60,000 in 2019, according to inflation-adjusted data from the Federal Reserve Bank of St. Louis. Median wealth more than quadrupled to $41,000 for Americans born in the 1990s, which includes the generation’s youngest members, born in 1996. In early 2024, millennials and older members of Gen Z had, on average and adjusting for inflation, about 25% more wealth than Gen Xers and baby boomers did at a similar age, according to a St. Louis Fed analysis. In the first quarter of 2024, the collective wealth of millennials and older Gen Z stood at $14.2 trillion, up from $4.5 trillion four years earlier, according to the Federal Reserve. The biggest driver of that increase was real estate. Millennials’ housing wealth grew $2.5 trillion, after accounting for the additional mortgage debt they took on.

Takeaways by Macro Roundup® AI

  1. The median inflation-adjusted household net worth of older millennials born in the 1980s rose to $130,000 in 2022 from $60,000 in 2019, while median wealth for Americans born in the 1990s more than quadrupled to $41,000, according to St. Louis Fed data.
  2. The collective wealth of millennials and older Gen Z reached $14.2 trillion in the first quarter of 2024, up from $4.5 trillion four years earlier, with real estate the biggest driver as millennials' housing wealth grew $2.5 trillion net of additional mortgage debt, according to the Federal Reserve.
  3. In early 2024, millennials and older Gen Z held on average about 25% more inflation-adjusted wealth than Gen Xers and baby boomers did at a similar age, according to a St. Louis Fed analysis.

Related Articles:

  • Millennials and Older Gen Zers Made Significant Wealth Gains in 2022 — Older millennials' median wealth stood 37% above what a model based on all generations at the same age would predict — roughly $130,000 versus a predicted $95,000 at age 38 — a 46 percentage point swing from earlier years when they trailed expectations. Housing assets drove most of the growth.
  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.
  • Young People Have a Lot More Wealth Than We Thought — Wealth data for young people comes from the Federal Reserve's quarterly Distributional Financial Accounts, which project forward results from the Survey of Consumer Finances conducted every three years. When newer survey results were released, young people turned out to hold considerably more wealth than the projections based on the prior survey had indicated.

AI Summary. An index of employment at 6,500 companies tracking more than 75,000 software developers and engineers found developer employment grew through late 2019 and has been falling since 2020. Over the same period, developers' median base pay rose 24% versus 30% for all U.S. workers, though developers still earn more than 2x the U.S. median salary.

Jeff Nezaj ADP Research
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The ADP software developer employment index was up 11% in Oct. 2019 vs. Jan. 2018, but by Jan 2024 it had fallen to 17% below 2018 levels. Hat tip to Brent Orrell @AEIecon.

Is software developer employment and pay growth falling behind other workers?

Core argument: The ADP Research Institute's software developer employment index has been falling since 2020, with sharp drops in January 2022 (down 4.6 percentage points), May 2022 (down 3.5), and January 2023 (down 3.4), after growing from January 2018 to November 2019.

The ADP Research Institute tracked employees at 6,500 companies, including more than 75,000 software developers and engineers in 10 industries, between January 2018 and January 2024. Using this data, we built an index to track the employment of software developers beginning in January 2018. Developer employment grew from January 2018 to November 2019, then began to fall. The index dropped sharply in January 2022 (down 4.6pp), May 2022 (down 3.5pp), and January 2023 (down 3.4pp). Despite intermediate increases in August 2021 and October 2022, the developer employment index has been falling since 2020. As employment has fallen, pay growth has lagged that of total U.S. workers. Between January 2018 and January 2024, the median base pay for developers grew by 24% while pay growth for total U.S. workers grew by 30%. Still, developers remain well compensated, earning more than two times the U.S. median salary.

Takeaways by Macro Roundup® AI

  1. The ADP Research Institute's software developer employment index has been falling since 2020, with sharp drops in January 2022 (down 4.6 percentage points), May 2022 (down 3.5), and January 2023 (down 3.4), after growing from January 2018 to November 2019.
  2. Median base pay for software developers grew 24% between January 2018 and January 2024, lagging the 30% pay growth for total U.S. workers over the same period.
  3. Software developers earn more than twice the U.S. median salary, according to ADP Research Institute data covering more than 75,000 developers and engineers at 6,500 companies across 10 industries.

Related Articles:

  • Society’s Technical Debt and Software’s Gutenberg Moment — Every wave of technological innovation has been unleashed by something costly becoming cheap enough to waste, and large language models are collapsing the cost and complexity of producing software. The authors argue that decades of underproduced software have left society with immense technical debt that is poised to contract, releasing a wave of innovation.
  • Navigating the Future of Work — Demographic groups whose work has been more displaced by automation have seen slower real wage growth, and automation is estimated to account for about 70% of between-group wage inequality in the US since 1980. Establishments adopting artificial intelligence have slowed hiring of non-AI workers by more than they have added AI specialists.
  • Centaurs and Cyborgs on the Jagged Frontier — In a pre-registered experiment at Boston Consulting Group covering 18 realistic consulting tasks, consultants using ChatGPT-4 completed 12.2% more tasks, worked 25.1% faster, and produced 40% higher quality results than those without it. The tool acted as a skill leveler: the lowest-scoring consultants improved 43%, while top performers gained less.

AI Summary. A global migration advisory firm forecasts a record 128,000 millionaires relocating between countries in a single year, up from the prior record of 120,000. UBS projects the UK and Netherlands will lose the most millionaires by 2028, down 17% and 4%, bucking a trend of rising millionaire counts in 52 of 56 countries it monitors.

Emma Agyemang Financial Times
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UBS projects that the US will add approximately 3mm millionaires between 2023 and 2028. Henley & Partners projects that in 2024 15,000 millionaires will emigrate from China, almost 10,000 from the UK, and 5,000 from India.

Are record numbers of millionaires moving to low-tax countries?

Core argument: Henley & Partners forecasts that a record 128,000 millionaires will relocate between countries in 2024, exceeding the previous record of 120,000 set the prior year.

Henley & Partners, a global migration advisory firm tracks the movement between countries and cities of more than 150,000 high net worth individuals. It forecasts that in 2024, a record 128,000 millionaires will relocate, eclipsing the previous record of 120,000 set last year. Last month, UBS published a report forecasting the UK and Netherlands would lose the most millionaires by 2028 — falling by 17% and 4% respectively. The two countries bucked a worldwide trend in which the number of millionaires is set to rise in 52 out of 56 countries that the bank monitors. Its data includes those who have become millionaires through wealth creation as well as émigrés.

Takeaways by Macro Roundup® AI

  1. Henley & Partners forecasts that a record 128,000 millionaires will relocate between countries in 2024, exceeding the previous record of 120,000 set the prior year.
  2. UBS forecasts the UK and Netherlands will lose the most millionaires by 2028, with their millionaire populations falling 17% and 4% respectively.
  3. UBS projects the number of millionaires will rise in 52 of the 56 countries it monitors, with its data counting both those who become millionaires through wealth creation and émigrés.

Related Articles:

  • Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy — The authors estimate that US billionaires move to states without estate taxes as they age, with $80.7bn of Forbes 400 wealth escaping estate taxation as a result. They find that for the average state the added estate tax revenue exceeds forgone income tax revenue by 31%, with California a notable exception.
  • Behavioral Responses to State Income Taxation of High Earners: Evidence from California — A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
  • 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.

AI Summary. U.S. Citizenship and Immigration Services processed naturalization applications in an average of 4.9 months over the first nine months of the current fiscal year, down from 11.5 months in fiscal 2021 and roughly in line with 2013–2014 speeds. About 3.3m immigrants have become citizens under the Biden administration, and 9m green card holders are currently eligible to naturalize.

Miriam Jordan New York Times
Date Posted:

The Federal government has been processing citizenship requests at the fastest rate since 2014. Since Biden took office, 3.3mm immigrants have become American citizens; 9mm green card holders are currently eligible for citizenship. @NYT

Are immigrants becoming U.S. citizens faster than in recent years?

Core argument: U.S. Citizenship and Immigration Services processed naturalization applications in an average of 4.9 months during the first nine months of the current fiscal year, down from 11.5 months in fiscal 2021 and on par with 2013 and 2014 speeds.

The Trump administration conducted lengthier reviews of naturalization applications. The processing time roughly doubled to about 10 months during Mr. Trump’s tenure. At under five months, application processing speed is now on par with 2013 and 2014. About 3.3 million immigrants have become citizens during President Biden’s time in office, with less than two months to go before the close of the 2024 fiscal year. The U.S. Citizenship and Immigration Services took 4.9 months, on average, to process naturalization applications in the first nine months of the current fiscal year, compared with 11.5 months in fiscal 2021. Nine million green card holders are currently eligible to become U.S. citizens.

Takeaways by Macro Roundup® AI

  1. U.S. Citizenship and Immigration Services processed naturalization applications in an average of 4.9 months during the first nine months of the current fiscal year, down from 11.5 months in fiscal 2021 and on par with 2013 and 2014 speeds.
  2. About 3.3 million immigrants have become U.S. citizens during President Biden's time in office, with less than two months remaining before the close of the 2024 fiscal year.
  3. Naturalization processing times roughly doubled to about 10 months during President Trump's tenure, when the administration conducted lengthier reviews of applications.

Related Articles:

  • The Cost of Illegal Immigration — The US foreign-born population rose by 6.6mm to 51.6mm over a roughly three-year span, lifting immigrants to 15.6% of the population, above the prior records of 14.8% in 1890 and 14.7% in 1910. The authors estimate about 13.7mm illegal immigrants now live in the US, a net increase of 3.7mm.
  • The Strong Labor Market Has Grown US-Born Employment — The authors estimate that the cumulative increase in the U.S.-born population since 2010 was about 1.4m larger, and the foreign-born increase 1.7m larger, than official survey data show. Published data show a decline in the U.S.-born population over a recent one-year span, while the authors estimate an increase of 1.5m.
  • 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. Huawei is close to introducing a new artificial intelligence chip, the Ascend 910C, which Chinese internet companies and telecommunications operators have been testing and which Huawei tells potential clients is comparable to Nvidia's H100, a chip not directly available in China. Aided by state support, Huawei has developed Chinese alternatives to U.S. products despite American sanctions.

Liza Lin and Raffaele Huang Wall Street Journal
Date Posted:

China’s Huawei Technologies is close to bringing a new AI chip to market, “overcoming US sanctions to challenge Nvidia in the Chinese market.” @WSJ

Can Chinese chipmakers match leading U.S. AI processors despite sanctions?

Core argument: Huawei is close to introducing its Ascend 910C AI processor, which it has told potential clients is comparable to Nvidia's H100, a chip not directly available in China.

China’s Huawei Technologies is close to introducing a new chip for artificial intelligence use, overcoming U.S. sanctions to challenge Nvidia in the Chinese market. Chinese internet companies and telecommunications operators have been testing Huawei’s latest processor, called Ascend 910C, in recent weeks, according to people familiar with the matter. Huawei told potential clients that the new chip is comparable to Nvidia’s H100, which was introduced last year and isn’t directly available in China, the people said. Huawei’s ability to keep advancing in chips is the latest sign of how the company has managed to break through U.S. erected obstacles and develop Chinese alternatives to products made by the U.S. and its allies. Aided by billions of dollars in state support, it has become a national champion in areas including AI and a key part of Beijing’s endeavor to “delete” American technologies.

Takeaways by Macro Roundup® AI

  1. Huawei is close to introducing its Ascend 910C AI processor, which it has told potential clients is comparable to Nvidia's H100, a chip not directly available in China.
  2. Chinese internet companies and telecommunications operators have been testing Huawei's Ascend 910C, according to people familiar with the matter.
  3. Aided by billions of dollars in state support, Huawei has become a national champion in areas including AI and a key part of Beijing's endeavor to "delete" American technologies.

Related Articles:

  • The Goal for China’s Chip Giant: Cut Out the U.S. — Huawei's Mate 60 smartphone contained a system-on-chip made with SMIC technology comparable to the 7-nanometer process, despite Chinese chipmakers lacking access to ASML's most advanced lithography machines. Semiconductor engineers say the chips were likely made by exposing silicon to light multiple times, a technique that worsens yields and raises costs and becomes harder at more advanced nodes.
  • US Revokes Licences For Supply of Chips to China’s Huawei — The US Department of Commerce has revoked certain export licences allowing American firms to supply semiconductors to Chinese telecoms equipment maker Huawei, affecting chips used in Huawei laptops and mobile phones.
  • China AI & Semiconductors Rise: US Sanctions Have Failed — China's Kirin 9000S is a better-designed, leading-edge chip than the West realizes, developed without access to extreme ultraviolet lithography or cutting-edge US intellectual property, indicating existing export controls have not worked. The authors argue only decisive, full-scale measures—not half measures—could prevent China from mass-manufacturing chips needed for high-end military applications.

Thursday, August 15, 2024

AI Summary. Analysis of Gallup World Poll data estimates that if graduates could move freely, 23mm would relocate to America, 17mm to Canada and 9mm to Australia, raising the US graduate population by 7% and those of Canada, Australia and Switzerland by roughly 2.5x. China and India would lose the most graduates, an estimated 14mm and 12mm.

Economist Staff The Economist
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An @TheEconomist analysis of Gallup data estimates that in the absence of barriers to entry, 23mm college graduates would move to the US, 17mm to Canada, and 9mm to Australia. China would lose 14mm, and India 12mm.

How many graduates would move if borders were open?

Core argument: The Economist estimates that if there were no barriers to entry, 23mm graduates would move to America, 17mm to Canada and 9mm to Australia, the three most powerful magnets for talent.

The Economist analysed data from the Gallup World Poll. As a proxy for talent, we considered only respondents who said they had completed an undergraduate degree. Using data from 2010-23 we estimated how many graduates each country could expect to gain and lose if moving were easy. Three big, rich, English-speaking countries are the most powerful magnets. If there were no barriers to entry, 23mm graduates would move to America, 17mm to Canada, and 9mm to Australia, we estimate. Taking account of the number who would consider leaving these countries, global free movement for graduates would raise the number of them in the US by 7%. Canada, Australia, and Switzerland would see their graduate populations rise by a factor of around 2.5; New Zealand by over fourfold. At the other end of the scale, China and India would lose the largest number of graduates in absolute terms (14mm and 12mm respectively).

Takeaways by Macro Roundup® AI

  1. The Economist estimates that if there were no barriers to entry, 23mm graduates would move to America, 17mm to Canada and 9mm to Australia, the three most powerful magnets for talent.
  2. Accounting for graduates who would leave, The Economist estimates free movement would raise the US graduate population by 7%, with Canada, Australia and Switzerland rising by a factor of about 2.5 and New Zealand by over fourfold.
  3. China and India would lose the largest number of graduates in absolute terms, 14mm and 12mm respectively, according to The Economist's estimates drawn from 2010-23 Gallup World Poll data on respondents with undergraduate degrees.

Related Articles:

  • Top Talent, Elite Colleges, and Migration: Evidence from the Indian Institutes of Technology — Among top scorers on India's Joint Entrance Exam for the Indian Institutes of Technology, 62% of the top 100 and 36% of the top 1,000 migrated abroad within eight years, primarily to the U.S. for graduate school. The authors argue elite schools shape migration by signaling ability and providing access to networks.
  • Foreign-born Skilled Workers Play a Critical Role in Strategically Significant Industries — Foreign-born workers make up 20.3% of the roughly 19.9mn workers in strategically significant US industries—those ranking in the top fifth for research spending per worker and above average in use of science and engineering workers—compared with 18.4% of the workforce overall. Manufacturing and professional services account for 83% of employment in these industries.
  • The Global AI Talent Tracker 2.0 — The United States remains the leading destination for the world's most elite AI talent and hosts 60% of top AI institutions. China's share of top AI researchers working domestically rose from 29% in 2019 to 47% in 2022, and India retained one-fifth of its top AI researchers in 2022 versus nearly none in 2019.

AI Summary. The US external deficit widened by 1.7 percentage points of GDP over a five-year span while the dollar depreciated 14%, which is inconsistent with the view that foreign capital inflows drove the deficit by strengthening the dollar. The author argues easier US financial conditions raised asset prices and consumption, boosting imports and weakening the dollar.

Maurice Obstfeld Peterson Institute for International Economics
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Maurice Obstfeld argues that a “demand switch from import-competing goods toward cheaper Chinese imports”  helps explain the China shock; he argues this would have occurred even if the US trade deficit had been smaller.

Do foreign capital inflows drive the US trade deficit?

Core argument: The US external deficit widened by 1.7pp of GDP over 2002–06 while the dollar depreciated 14%, a pattern inconsistent with the view that foreign capital inflows widened the deficit by bidding up demand for US assets and the dollar.

Over 2002–06, the US external deficit grew by 1.7pp of GDP as the dollar depreciated by 14%, inconsistent with the view that capital inflows from abroad induced a bigger US deficit by expanding the demand for US assets and strengthening the dollar. The mechanisms at work [are] that low US interest rates and especially the easing of other US financial conditions allowed a big increase in home prices as well as in equity prices and consumption spending, accompanied by a weaker dollar. Higher consumption spilled over into imports and nontraded US products, drawing resources from the manufacturing export sector and raising the net export deficit at the same time. A demand switch from import-competing goods toward cheaper Chinese imports helps explain the China shock—and this switch would have occurred even if the US trade deficit had been smaller.

Takeaways by Macro Roundup® AI

  1. The US external deficit widened by 1.7pp of GDP over 2002–06 while the dollar depreciated 14%, a pattern inconsistent with the view that foreign capital inflows widened the deficit by bidding up demand for US assets and the dollar.
  2. Low US interest rates and the easing of other US financial conditions allowed large increases in home prices, equity prices, and consumption alongside a weaker dollar, with higher consumption spilling into imports and nontraded products and drawing resources from the manufacturing export sector.
  3. A demand switch from import-competing goods toward cheaper Chinese imports helps explain the China shock, and that switch would have occurred even had the US trade deficit been smaller.

Related Articles:

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

AI Summary. The International Monetary Fund notes that goods produced in China for nonresident firms are recorded as exports even when they never leave the country, and as imports when resold domestically at higher wholesale prices, creating a goods trade deficit in balance-of-payments data. The author estimates this understates China's goods surplus by roughly $300bn, over 1.5 percentage points of GDP.

Brad Setser Council on Foreign Relations
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.@Brad_Setser argues that a new method China uses to account for foreign firms’ contract manufacturing in China for sale in China understates the current account surplus by $300B/year as of Q2 2024 and that the actual surplus is close to $700B.

Does China's trade accounting understate its goods surplus?

Core argument: China's goods surplus in the balance of payments is about $300 billion — over 1.5 percentage points of China's GDP — smaller than it should be, reducing the country's reported current account surplus.

This is what the IMF reports: “When a Chinese contractor sells produced goods to the nonresident enterprise that outsourced the production, exports of goods are recorded in BOP even if the goods remain in China. If the nonresident enterprise subsequently sells the goods in China, imports of goods are recorded in BOP. Given that the Chinese contractors’ ex-factory price for the nonresident enterprise is normally lower than the nonresident enterprises’ wholesale price for Chinese distributors, these transactions result in a deficit in the goods trade balance in BOP.” All this “fake” trade deficit does is reduce China’s reported current account surplus—as the goods surplus in the balance of payments is now about $300B (over 1.5 percentage points of China’s GDP) smaller than what it should be in the balance of payments data. I personally now estimate the current account surplus to be close to $700B even after the drop tied [to] the resumption of tourism in 2023.

Takeaways by Macro Roundup® AI

  1. China's goods surplus in the balance of payments is about $300 billion — over 1.5 percentage points of China's GDP — smaller than it should be, reducing the country's reported current account surplus.
  2. The IMF describes how goods sold by a Chinese contractor to a nonresident enterprise are recorded as exports even while remaining in China, and as imports if resold domestically, producing a goods trade deficit because the ex-factory price is normally below the nonresident's wholesale price.
  3. China's current account surplus is estimated at close to $700 billion, even after the drop tied to the resumption of tourism in 2023.

Related Articles:

  • The Dangerous Myth of Deglobalization — China's manufacturing surplus rose by about 1 percentage point of global GDP over a four-year span and is far larger than those of Germany and Japan. China's $800bn goods trade surplus depends on the large U.S. trade deficit, which is still indirectly financed by China through the large offshore dollar stockpiles held by Chinese exporters.
  • China’s Excess Savings Are A Danger — China's current account surplus of 4% of GDP is larger in global terms than its 2007 peak of 10%, because its share of the world economy at market prices rose from 6% to 17%. Sustaining that surplus would require China to fund deficits in smaller developing countries.
  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.

AI Summary. China's central government revenue has contracted 3% against a forecast of 3%+ growth, creating a roughly 500bn yuan ($70bn) budget hole that Beijing would need to cover by widening the central deficit. Local governments face falling land sales and debt-servicing needs, and are being redirected toward de-risking rather than stimulus.

Houze Song Macro Polo
Date Posted:

.@hzsong projects 2024 nominal growth in China of ~4% vs. the CCP’s 5% target, largely driven by local governments preoccupied with debt service vs. new investments funded by land sales.

Will a revenue shortfall keep Beijing from delivering stimulus?

Core argument: China's central government revenue has contracted 3% against a forecast of 3%-plus growth, creating a 500 billion yuan ($70 billion) budget hole in the second half that Beijing would need to cover by widening the central deficit by roughly the same amount.

Central government revenue was forecast to see 3%+ growth this year, yet to date, revenue has instead contracted by 3%. That will create a 500 billion yuan ($70B) hole in the budget in 2H, implying that Beijing will have to increase the central budget deficit by ~$70B to avoid the budget shortfall from handicapping growth even more. To the extent Beijing increases the budget deficit in 2H, it will do so conservatively to cover the revenue shortfall but fall far short of being stimulative. Stimulus also won’t come from local governments as they are once again struggling with deleveraging. Not only are local governments facing a broad revenue crunch from continued decline in land sales, part of their dwindling revenue also needs to be used for debt servicing. In fact, Beijing has shown its preference in recent weeks by letting local governments use bond borrowing to refinance existing debt instead of financing new projects. It appears Beijing has already decided to not rely on local governments to stimulate the economy, instead redirecting them to focus on de-risking.

Takeaways by Macro Roundup® AI

  1. China's central government revenue has contracted 3% against a forecast of 3%-plus growth, creating a 500 billion yuan ($70 billion) budget hole in the second half that Beijing would need to cover by widening the central deficit by roughly the same amount.
  2. Any increase in China's central budget deficit in the second half will likely be conservative, covering the revenue shortfall while falling far short of being stimulative.
  3. Chinese local governments face a revenue crunch from continued declines in land sales and must use part of their dwindling revenue for debt servicing, with Beijing letting them use bond borrowing to refinance existing debt rather than finance new projects.

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  • China Economy Memo: Tempest in a Teapot or Crisis A-Brewing? — The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.
  • China’s Debt Isn’t The Problem — China's roughly $47.5tn debt pile is a symptom rather than the core problem, which is the unrecognized losses from a decade of misallocated investment into excess property, infrastructure, and manufacturing. Resolving it requires distributing asset-side losses quickly in ways that minimize financial distress costs, not just restructuring liabilities to protect the financial system.
  • The Rise and Fall of LGFVs — China has nearly 12,000 local government financing vehicles whose aggregated assets and liabilities equal roughly 120% and 75% of national GDP, and whose earnings before interest, taxes, and depreciation do not cover their interest payments. Their average borrowing cost of about 5% far exceeds their 1% return on assets, and 80–90% of their annual spending is funded by new debt.

AI Summary. Average US wages have now outpaced average price inflation over the past four years, after a stretch in which prices had risen faster than wages. Wage growth has continued even as price growth moderated.

Jeremy Horpedahl Economist Writing Every Day
Date Posted:
Is Database:
Database

.@jmhorp finds that on average US wage earners are slightly better off than they were 4 years ago: CPI-adjusted real wages are up 0.3% since the start of the Biden Administration relative to a 6.6% increase during Trump’s first term.

Have wages outpaced inflation over the past four years?

Core argument: Average American wages have outpaced average price inflation since January 2021, leaving wage earners on average better off than four years earlier.

Average wages have now outpaced average price inflation since January 2021. Despite some of that time period containing the worst price inflation in a generation, wages have continued to grow even as price growth has moderated. For most of Biden’s term, it was true that prices had outpaced wages. But no longer.

Takeaways by Macro Roundup® AI

  1. Average American wages have outpaced average price inflation since January 2021, leaving wage earners on average better off than four years earlier.
  2. For most of Biden's term, price growth exceeded wage growth, but wages have continued to rise as price growth moderated, reversing that gap.
  3. The period since January 2021 included the worst price inflation in a generation, yet wage growth has persisted through it.

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  • Has Pay Kept Up With Inflation? — All four measures of typical and aggregate pay have grown since 2019 when adjusted using the personal consumption expenditures price index, but show smaller increases in three measures and a decline in one when adjusted using the consumer price index. This pattern of smaller gains under consumer price index adjustment holds across time periods.
  • The Economic Experience of Non-College Americans Over the Pandemic — 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.
  • 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.