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
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, September 11, 2024

AI Summary. The authors find the incidence of mental ill-health in the UK has been rising, especially among young people and particularly in Scotland, with well-being of the young declining sharply from around 2013 and women most affected. Because the growth began in the 1990s, the authors argue smartphones cannot account for all of the increase.

David Blanchflower, Alex Bryson and David Bell National Bureau of Economic Research
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.@D_Blanchflower @AlexanderBryson and David Bell find a significant increase in depression and phobia among Scots aged 16-24, from 1.3% in 2000 to 15.7% in 2023, mirroring similar trends in the US.

Do smartphones explain the rise in young people's mental ill-health?

Core argument: The incidence of mental ill-health in the UK has been rising especially among the young and especially in Scotland, with the well-being of the young declining sharply from around 2013 and especially affecting women, a pattern seen globally.

We show the incidence of mental ill-health has been rising especially among the young and especially so in Scotland. In earlier papers, we have noted the correlation between spending substantial amounts of time in front of a screen and poor mental health, especially among the young. The fact that the growth in mental ill-being in the UK began in the 1990s suggests that, although smartphone technologies may have impacted individuals’ ill-being, they cannot account for all of the increases in mental ill-health from the late 1990s, suggesting other factors may be at play. There are likely multiple forces at work here. But the facts to be explained are that the well-being of the young started declining sharply around 2013 or so, and has especially impacted women, and this is a global phenomenon. The increasing use of the internet and smartphones and the rise in cyberbullying and body shaming seem to fit the ticket especially given the timing.

Takeaways by Macro Roundup® AI

  1. The incidence of mental ill-health in the UK has been rising especially among the young and especially in Scotland, with the well-being of the young declining sharply from around 2013 and especially affecting women, a pattern seen globally.
  2. The authors note that growth in mental ill-being in the UK began in the 1990s, suggesting smartphone technologies cannot account for all the increases in mental ill-health since the late 1990s and that other factors may be at play.
  3. The authors report a correlation between spending substantial amounts of time in front of a screen and poor mental health among the young, and argue that rising internet and smartphone use, cyberbullying, and body shaming fit the timing.

Related Articles:

AI Summary. The U.S. Census Bureau estimates inflation-adjusted median household income was $80,610 in 2023, up 4% from $77,540 in 2022. The bureau said that figure was not statistically different from the $81,210 recorded in 2019, the highest level in data going back to 1967.

Jon Kamp and Paul Overberg Wall Street Journal
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Real median US household income of $80,610 remains below its 2019 level of $81,210.

Has median household income returned to its pre-pandemic peak?

Core argument: Inflation-adjusted median U.S. household income was $80,610 in 2023, up 4% from the 2022 estimate of $77,540, according to the U.S. Census Bureau.

Inflation-adjusted median household income was $80,610 in 2023, up 4% from the 2022 estimate of $77,540 [according to] the U.S. Census Bureau. The bureau said 2023 inflation-adjusted median income wasn’t statistically different from the $81,210 in 2019, the highest point reached in data back to 1967. The U.S. is only getting back to the 2019 median income peak after a long interruption, rather than continuing increases that preceded the pandemic, said Erik Hurst, a professor of economics at the University of Chicago Booth School of Business. “We are still well below where we should have been,” he said.

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted median U.S. household income was $80,610 in 2023, up 4% from the 2022 estimate of $77,540, according to the U.S. Census Bureau.
  2. The Census Bureau said 2023 inflation-adjusted median income was not statistically different from the $81,210 recorded in 2019, the highest point in data going back to 1967.

Related Articles:

  • 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.
  • The State of the American Middle Class — US households in every income tier had higher inflation-adjusted incomes in 2022 than in 1970, with median income rising 55% for lower-income households, 60% for middle-class households, and 78% for upper-income households. The gap widened: upper-income median income was 7.3x that of lower-income households, up from 6.3x.
  • Upward Mobility Is Alive and Well in America — Comparing children's adult incomes with the inflation-adjusted income quintiles of their childhood rather than contemporaneous quintiles produces much higher measured upward mobility: only 28% of children raised in the bottom quintile remained below that childhood threshold as adults, while 26% reached the top childhood quintile, which required $111,416 (2016 dollars) for a family of four.

AI Summary. The Federal Reserve's own projections call for short-term interest rates to fall by about 1.25 percentage points by end-2025 and more than 2 percentage points by end-2026, though inflation data alone would not justify cuts, with typical hourly pay gains running about 1.5 percentage points above pre-pandemic rates and consumer spending rising 5.5%-6% annually.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues the Fed should lower the FFR from the current 5.25-5.5% to “3.25%-3.5% immediately, and then waiting to see what happens. That seems to be around where traders and Fed officials think “neutral” is.”

Should the Fed cut to neutral now and hike later if needed?

Core argument: Federal Reserve officials indicated in June that they broadly agree short-term rates should fall by about 1.25 percentage points by the end of 2025 and by more than 2 percentage points by the end of 2026, though they are unsure how rapidly to move.

Federal Reserve officials believe that it is time to start lowering short-term interest rates. But they are unsure of how rapidly to do so, even though they told us in June that they broadly agree that short rates should drop by about 1.25 percentage points by the end of 2025 and by more than 2 percentage points by the end of 2026. The inflation data would not be sufficient to justify lowering rates. Annualized hourly pay gains for the typical worker are still coming in about 1.5 percentage points faster than pre-pandemic, and total consumer spending is still rising at a yearly rate of 5.5%-6%, with no obvious signs of slowing. That would imply annualized real growth of 3.5-4% if inflation were coming in at 2% a year, which, while appealing, does not seem a plausible combination over sustained periods of time. My suggestion: they should lower rates to their best estimate of “neutral” immediately, while remaining willing to raise rates rapidly again if that estimate turns out to be too low.

Takeaways by Macro Roundup® AI

  1. Federal Reserve officials indicated in June that they broadly agree short-term rates should fall by about 1.25 percentage points by the end of 2025 and by more than 2 percentage points by the end of 2026, though they are unsure how rapidly to move.
  2. Annualized hourly pay gains for the typical worker are running about 1.5 percentage points faster than pre-pandemic and total consumer spending is rising at a 5.5%–6% yearly rate with no obvious signs of slowing; the inflation data would not be sufficient to justify lowering rates.
  3. Consumer spending growth of 5.5%–6% would imply annualized real growth of 3.5%–4% if inflation ran at 2%, a combination the author calls implausible over sustained periods, and he suggests cutting immediately to the Fed's best estimate of neutral while remaining willing to raise rates rapidly.

Related Articles:

  • Quantifying What Fed Cuts Mean for GDP and Inflation — A simulation using a simplified version of the Federal Reserve's model of the US economy estimates that a 100bps cut in the federal funds rate plus guidance for 150bps more would raise GDP by 2% and inflation by 1%. The author argues such cuts would lift stock prices, tighten credit spreads, and risk reaccelerating growth and inflation.
  • The Case for Cutting Rates (or Not) is the Same As It Was Last Year — Consumer price inflation slowed only modestly over the past year, a deceleration attributable to slower rental inflation based on signed leases that are checked once every six months. Measures stripping out housing and volatile components indicate underlying inflation has been running around 2.5%-3% annually since the end of 2022.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.

AI Summary. Survey research estimates that an additional 13.3 million American adults were single by 2022 compared with before the Covid-19 pandemic, with informal relationships dissolving while married and cohabitating couples largely remained intact. The share of single, non-dating adults was higher in 2022 than in 2020, when in-person dating was dangerous.

Ben Steverman Bloomberg
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Stanford sociologist Michael Rosenfeld finds that declining social connections during COVID led to 13.3mm more single Americans in 2022 vs. pre-pandemic, delaying traditional adult milestones like getting married, having children, or buying a home.

Did the pandemic leave millions more American adults single and not dating?

Core argument: Stanford sociologist Michael Rosenfeld estimates an extra 13.3 million Americans were single by 2022 compared with before the pandemic, a dating disruption encompassing more than 1 in 20 US adults.

When Covid-19 hit, Stanford sociology professor Michael Rosenfeld reran a survey he had conducted in 2017 to measure those more casual [social] ties. The exercise revealed that millions of informal relationships fell apart, even as married and cohabitating couples survived the pandemic largely intact. More disturbing than the size of this dating disruption—encompassing more than 1 out of every 20 US adults—was the timing. After the number of singles surged in 2020, when in-person dating was dangerous, Rosenfeld ran the survey again in 2022 and was surprised to find that even more people were alone and not dating. Compared with before the pandemic, he estimates an extra 13.3 million Americans were single by 2022. A longer-term consequence of the “dating recession,” Rosenfeld says, is that Americans continue to delay traditional adult milestones. Since the 1980s, the shares of those who live on their own, get married, have children, or buy a home by age 30 have been dropping steadily.

Takeaways by Macro Roundup® AI

  1. Stanford sociologist Michael Rosenfeld estimates an extra 13.3 million Americans were single by 2022 compared with before the pandemic, a dating disruption encompassing more than 1 in 20 US adults.
  2. Rosenfeld's surveys found the number of singles surged in 2020, when in-person dating was dangerous, and his 2022 rerun showed even more people alone and not dating.
  3. Rosenfeld's survey work indicates informal relationships fell apart during Covid-19 while married and cohabitating couples survived largely intact, and he says a longer-term consequence of the "dating recession" is continued delay of traditional adult milestones.

Related Articles:

  • Disconnected: The Growing Class Divide in American Civic Life — 17% of Americans report having no close friends, and survey data show a wide educational gap: 24% of those with a high school education or less have no close friends versus 10% of college graduates. Three decades ago, Americans with less formal education reported social circles at least as large.
  • Why Young Men and Women are Drifting Apart — An analysis of polling from 20 rich countries found that a political gap between men and women aged 18-29 that was negligible two decades ago reached 0.75 points on a 1-10 liberal-conservative scale by 2020, roughly twice the gap between graduates and non-graduates. Young men were more conservative than young women in every large country examined.
  • The Data is Clear: People Are Having Less Sex — Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.

Thursday, September 12, 2024

AI Summary. The American Community Survey counted 1.7m foreign-born U.S. residents who had been abroad a year earlier, a figure historically correlated (0.91) with the Census Bureau's final revised immigration estimate. The author estimates this implies a revision to over 1.4m, above the original Census estimate of 1.1m but far below the Congressional Budget Office's 3.3m.

Jed Kolko Slow Boring
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.@JedKolko notes that immigration data from the latest Census Bureau survey does not resolve the discrepancy between the Census and CBO numbers on the 2023 immigration spike: Census estimates 1.1mm, while CBO estimates 3.3mm.

Do new survey data narrow the gap between competing immigration estimates?

Core argument: The 2023 American Community Survey reported 1.7m foreign-born residents who were abroad one year earlier, the key input into the Census Bureau's immigration estimate.

The 2023 [Census Bureau’s American Community Survey] reported 1.7m foreign-born residents who were abroad one year ago, which is the key input into the Census immigration estimate. That key input has been highly correlated with the final revision of the Census immigration estimate since 2010 (the correlation is .91). If this strong prior relationship holds, I estimate that the new ACS figure of 1.7m foreign-born, abroad one year ago, implies that the Census population estimate for 2023 will be revised to over 1.4m. That’s 300,000 more than the original Census 2023 immigration estimate of 1.1mm published in December 2023, but still way below the CBO’s 2023 estimate of 3.3mm.

Takeaways by Macro Roundup® AI

  1. The 2023 American Community Survey reported 1.7m foreign-born residents who were abroad one year earlier, the key input into the Census Bureau's immigration estimate.
  2. That ACS input has correlated at .91 with the final revision of the Census immigration estimate since 2010, and if that relationship holds, the 1.7m figure implies a 2023 revision to over 1.4m.
  3. A revised figure above 1.4m would exceed the original Census 2023 immigration estimate of 1.1m published in December 2023 by 300,000, while remaining far below the CBO's 2023 estimate of 3.3m.

Related Articles:

  • The Demographic Outlook: 2024 to 2054 — The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.
  • The Strong Labor Market Has Boosted 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.
  • How Immigration Remade the U.S. Labor Force — The Congressional Budget Office estimates more than 9m people have migrated on net to the U.S. in recent years, nearly matching the prior decade's total and lifting population growth to almost 1.2% a year. Fewer than 30% are lawful permanent residents; without immigration, growth would be 0.2%.

AI Summary. The U.S. redistributes 29.4% of its gross domestic product through transfers and taxes, a larger share than any developed country except France at 30.1%. Counting transfers as income and taxes as income lost and adjusting for household size, average households in the bottom, second, and middle income fifths have roughly equal incomes despite large differences in work effort.

Phil Gramm and Jodey Arrington Wall Street Journal
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Phil Gramm notes that after transfers and taxes “the average household in the bottom, second, and middle quintiles all have roughly the same incomes—despite dramatic differences in work effort.” He argues rising transfers have driven declining LFP.

How much income does the U.S. redistribute through transfers and taxes?

Core argument: The U.S. redistributes 29.4% of GDP through transfers and taxes, more than any developed country except France at 30.1%.

The U.S. today redistributes a larger share of its gross domestic product, 29.4%, through transfers and taxes than any developed country in the world except France with 30.1%. After counting all transfer payments as income to the recipients and taxes as income lost by taxpayers, and adjusting for household size, the average households in the bottom, second, and middle quintiles all have roughly the same incomes—despite dramatic differences in work effort. With the explosion of means-tested transfer payments, the portion of prime work-age persons in the bottom quintile who actually work has fallen to 36% from 68%. In the second quintile, households with a work-age adult who actually works have declined to 85% from 90%. While work effort fell in the bottom two quintiles, the percentage of middle-income households with a prime work-age person who works has risen to 92% from 86%. The injustice of this government-created income equality is palpable. For about the same income, 2.4 times as many work-age persons in the second quintile actually work and on average work 85% more hours than those in the bottom quintile. And 2.5 times as many work-age middle-income persons actually work and work on average 108% more hours.

Takeaways by Macro Roundup® AI

  1. The U.S. redistributes 29.4% of GDP through transfers and taxes, more than any developed country except France at 30.1%.
  2. After counting transfers as recipient income and taxes as income lost by taxpayers, and adjusting for household size, average households in the bottom, second, and middle quintiles have roughly the same incomes despite dramatic differences in work effort.
  3. The share of prime work-age persons in the bottom quintile who work has fallen to 36% from 68%, while the middle-income share rose to 92% from 86%, with middle-income persons working on average 108% more hours.

Related Articles:

AI Summary. Chronic absenteeism—students missing 10% or more of the school year—rose from 15% of K–12 students before the pandemic to 28%, then eased to 26% in the first full post-pandemic school year. Data from eight states show continued declines, including New Mexico's drop from 40% to 33%, but rates remain well above pre-pandemic levels.

Nat Malkus American Enterprise Institute
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The number of students missing 10% or more of the school year doubled from 15% in 2019 to 28% in 2022 and 26% in 2023. Early reports for 2024 show signs of improvements but @natmalkus argues “chronic absenteeism is still a major problem.”

Has student chronic absenteeism returned to pre-pandemic levels?

Core argument: Chronic absenteeism—students missing 10% or more of the school year—nearly doubled from 15% of K–12 students in 2019 to 28% in 2022, and fell only to 26% during 2022–23, the first full post-pandemic school year.

Chronic absenteeism, the percentage of students missing 10% or more of the school year, nearly doubled during the pandemic, surging from 15% of K–12 students in 2019 to 28% in 2022. During the 2022–23 school year, the first full post-pandemic year, that rate fell, but only to 26%. I recently managed to get 2023–24 data for eight states, and it seems to be a glass half full glass half empty situation. On the one hand, states are making progress. On the other hand, states are making less progress than I would like, and I worry that progress will come more slowly in future years. Of the states that have released data so far, New Mexico made the biggest strides last year, cutting its chronic absenteeism rate from 40% during the 2022–23 school year to 33% during the 2023–24 school year—a huge drop, but one that still leaves chronic absenteeism rates in the Land of Enchantment far higher than the national average two years earlier.

Takeaways by Macro Roundup® AI

  1. Chronic absenteeism—students missing 10% or more of the school year—nearly doubled from 15% of K–12 students in 2019 to 28% in 2022, and fell only to 26% during 2022–23, the first full post-pandemic school year.
  2. New Mexico cut its chronic absenteeism rate from 40% in 2022–23 to 33% in 2023–24, the largest improvement among the eight states that have released data, leaving it far above the earlier national average.

Related Articles:

  • Long COVID for Public Schools: Chronic Absenteeism Before and After the Pandemic — Nationwide chronic absenteeism — the share of students missing at least 10% of a school year — rose from 15% in 2018 to 28% in 2022, and although rates improved in 2023, they remained 75% above the pre-pandemic baseline. Chronic absenteeism is associated with lower standardized test scores, with the highest rates in lower-achieving, higher-poverty districts.
  • Students Are Making a ‘Surprising’ Rebound From Pandemic Closures. But Some May Never Catch Up — An analysis of standardized test data led by Stanford and Harvard researchers finds elementary and middle-school students have regained about a third of pandemic learning losses in math and a quarter in reading. Because poorer districts lost more ground initially, the typical poor district remains nearly half a grade level behind, versus about a fifth for rich districts.
  • What the Data Says About Pandemic School Closures, Four Years — Among school districts with similar poverty levels, remote learning was associated with greater declines in student achievement, and a district-level analysis found community poverty rates and the length of school closures had roughly equal effects on outcomes. For each week spent remote, students in poor districts experienced steeper math losses than peers in richer districts.

AI Summary. China's private sector difficulties reflect the country's economic slowdown, the withdrawal of most US-based investors amid bilateral tensions, and political decisions that have changed the environment for private business, including a crackdown on technology companies seen as monopolistic or misaligned with Communist Party values and a continuing anti-corruption campaign.

Eleanor Olcott and Wang Xueqiao Financial Times
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.@FT quotes data provider IT Juzi, “In 2018, at the height of VC investment, 51,302 start-ups were founded in China. By 2023, that figure had collapsed to 1,202 and is on track to be even lower this year.”

Why is China's private sector struggling?

Core argument: China's entrepreneurial sector crisis reflects the economic slowdown and the withdrawal of most US-based investors amid rising bilateral tensions, alongside political decisions by President Xi Jinping that have changed the environment for private business.

The crisis in the [entrepreneurial sector] partly reflects the slowdown in the Chinese economy. As bilateral tensions have risen, US-based investors have also largely pulled out. But it is also the direct result of political decisions taken by President Xi Jinping that have dramatically changed the environment for private business in China — including a crackdown on technology companies regarded as monopolistic or not attuned to Communist party values, and an anti-corruption crusade that continues to ripple through the business community. Desmond Shum, author of Red Roulette and a former real estate mogul, says the party “has throttled the private sector”. “Successful entrepreneurs . . . can expect to be closely monitored, unable to transfer money offshore and their transactions and public statements scrutinized,” he adds. “Their money is the country’s money.”

Takeaways by Macro Roundup® AI

  1. China's entrepreneurial sector crisis reflects the economic slowdown and the withdrawal of most US-based investors amid rising bilateral tensions, alongside political decisions by President Xi Jinping that have changed the environment for private business.
  2. Xi Jinping's crackdown on technology companies regarded as monopolistic or not attuned to Communist party values, together with an anti-corruption crusade, continues to ripple through China's business community.

Related Articles:

  • Communist Party Priorities Complicate Plans to Revive China’s Economy — China's leadership objects to Western-style consumption-driven growth, viewing it as wasteful and at odds with the goal of making China a world-leading industrial and technological power, according to people familiar with decision-making in Beijing. Chinese officials also emphasized avoiding a current-account deficit, which would signal greater dependence on the outside world.
  • 2023 Letter — Rising numbers of Chinese nationals are being apprehended at the US-Mexico border, with US officers encountering around 1,000 in one month early in the year and nearly 5,000 by November. Most Chinese emigrants leave through legal means, going primarily to Singapore, Japan, and Thailand.
  • Living Outside China Has Become More Like Living Inside China — About 10.5m people living outside China are or once were Chinese citizens, a diaspora exceeded only by India's, Russia's, and Mexico's. Chinese citizens received more than 70% of 81,000 American investor visas issued to dollar-millionaires over a decade, and 18% of China's nearly 900 dollar-billionaires now live abroad, up from 6%.

AI Summary. American firms with greater exposure to China have seen declines in research and development spending, patents, profitability, and employment, according to the analysis. US research and development spending, which slowed in the early 21st century, accelerated from 2018 through 2022, which the author reads as a tentative sign that reducing engagement with China has benefited American firms.

Derek Scissors American Enterprise Institute
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.@DerekScissors1 @AEIecon argues that Sino-American decoupling “is first about avoiding losses, rather than generating gains” but will increase US business productivity via investment by companies no longer discouraged by unfair Chinese competition.

Does reducing engagement with China benefit American firms?

Core argument: American firms with higher exposure to China have seen declines in R&D expenditure, patents, profitability, and employment, and the author argues these firms would hire and profit more if Beijing could less effectively target them.

For American firms with higher exposure to China, R&D expenditure, patents, profitability, and employment have all declined. If Beijing can less effectively target them for extinction, these firms will hire and profit more than otherwise. For innovation in particular, Beijing subsidizes less innovative firms under its control and tries to steal technology it cannot acquire from more innovative foreign firms. The PRC is an innovation parasite, and starving it to the extent possible will continually improve quality of life. It’s not only that American R&D spending slowed for an extended period in the early 21st century; there is even a hint of a reversal just as the US becomes more suspicious of its China engagement. The pace of R&D spending notably accelerated starting in 2018 and continuing through 2022 (the latest year for which data are available), right through COVID. This is certainly not definitive, but initial attempts to reverse the China embrace and thus assist most American firms seem to have paid off.

Takeaways by Macro Roundup® AI

  1. American firms with higher exposure to China have seen declines in R&D expenditure, patents, profitability, and employment, and the author argues these firms would hire and profit more if Beijing could less effectively target them.
  2. U.S. R&D spending growth accelerated starting in 2018 and continued through 2022, the latest year of available data, which the author reads as a hint, though not definitive, that initial efforts to reverse the China embrace paid off.
  3. Beijing subsidizes less innovative firms under its control and attempts to steal technology it cannot acquire from more innovative foreign firms, which the author characterizes as innovation parasitism that should be starved where possible.

Related Articles:

  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
  • U.S. Business Investment in the Post-COVID Expansion — Business fixed investment has held at roughly the same share of U.S. GDP as before COVID, a better outcome than after every other recession since 1980, when investment typically fell as a share of GDP and contributed less well into the recovery. American businesses invested $430bn more than if investment had followed its usual historical pattern.
  • 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. China's economy is bifurcated: domestic demand is stagnant amid a property bust and weak labor market, while real exports rose 14% over the past year. Its goods trade surplus already equals 0.8% of global GDP, and if trading partners close their borders to Chinese goods, policymakers will need to boost domestic demand to prevent slower growth and worsening deflation.

Jan Hatzius Goldman Sachs
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Jan Hatzius argues that “China’s trading partners are unlikely to tolerate sustained further expansion in the goods trade surplus, which already stands at 0.8% of global GDP.” Trade restrictions may drive deflation in China.

Can China keep growing if trading partners close markets to its exports?

Core argument: China's real exports rose 14% over the past year, contrasting with lackluster manufacturing performance elsewhere, even as domestic demand remains stagnant amid the property bust and a weak labor market.

China remains a highly bifurcated economy. Domestic demand is stagnant, for all the well-known reasons including the property bust and a weak labor market. But real exports are up 14% over the past year, a pace that is all the more impressive when contrasted with the continued lackluster performance of manufacturing elsewhere. The looming issue is that China’s trading partners are unlikely to tolerate sustained further expansion in the goods trade surplus, which already stands at 0.8% of global GDP (one of the highest in world economic history). If they respond by increasingly closing their borders to Chinese-made goods, China’s policymakers will have to find ways of boosting domestic demand to keep growth from slowing ever further and deflation from worsening.

Takeaways by Macro Roundup® AI

  1. China's real exports rose 14% over the past year, contrasting with lackluster manufacturing performance elsewhere, even as domestic demand remains stagnant amid the property bust and a weak labor market.
  2. China's goods trade surplus stands at 0.8% of global GDP, one of the highest in world economic history, and its trading partners are unlikely to tolerate sustained further expansion.
  3. If trading partners increasingly close their borders to Chinese-made goods, China's policymakers will have to find ways of boosting domestic demand to keep growth from slowing further and deflation from worsening.

Related Articles:

  • Why China Is Starting a New Trade War — Chinese policy advisers say China's leadership is guided by building a self-sufficient industrial supply chain that could withstand severe Western sanctions and by a philosophical objection to U.S.-style consumption as wasteful. That leaves exports as the main route to stabilizing a weakened economy and replacing jobs lost in domestic construction, shifting job losses to workers abroad.
  • Can China’s Export Machine Run Without the West? — China has shifted exports toward Southeast Asia and Latin America and away from the West, with shipments to Southeast Asia up 12% over two years while exports to the U.S. fell 17%. With a housing collapse weighing on domestic demand, Beijing has leaned on exports to drive growth.
  • 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.