Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, September 16, 2024

AI Summary. Weakened regulations on institutions enrolling aid-dependent students led to rising enrollment of disadvantaged students, but primarily at low-value institutions where loan performance deteriorated. Institutions in the lowest loan-repayment quintile had a 23% completion rate, $27,760 average post-enrollment earnings, and 20% default rates, versus 73%, $48,375, and 3% at the highest.

Adam Looney and Constantine Yannelis Journal of Economic Perspectives
Date Posted:

Looney and Yannelis tie the US federal student debt crisis to policies that filled weak institutions with students who commonly failed to complete a degree, struggled to repay their loans, defaulted at high rates, and floundered in the job market.

Did weaker regulation push student borrowers into low-value institutions?

Core argument: In 2011, institutions in the lowest student-loan repayment quintile had a 23% enrollment-weighted degree completion rate, average post-enrollment earnings of $27,760, and a 20% default rate.

Starting in the late 1990s, policymakers weakened regulations that had constrained institutions from enrolling aid-dependent students, [leading to] rising enrollment of disadvantaged students, but primarily at poor-performing, low-value institutions. As these new borrowers experienced similarly poor outcomes, their loans piled up, loan performance deteriorated, and with it the finances of the federal program. Institutions offering the highest-quality educations and with the best outcomes expanded enrollment the least, whereas the lowest-performing institutions expanded the most. In 2011, the average enrollment-weighted degree completion rate at institutions in the lowest-repayment rate quintile illustrated in Figure 3 was 23 percent, the average post-enrollment earnings were $27,760, and the average student loan default rate was 20 percent. In contrast, at institutions in the highest repayment rate quintile, 73 percent graduated, their average earnings were $48,375, and the default rate was 3 percent.

Takeaways by Macro Roundup® AI

  1. In 2011, institutions in the lowest student-loan repayment quintile had a 23% enrollment-weighted degree completion rate, average post-enrollment earnings of $27,760, and a 20% default rate.
  2. In 2011, institutions in the highest repayment quintile graduated 73% of students, with average post-enrollment earnings of $48,375 and a 3% default rate.
  3. Policymakers weakened regulations beginning in the late 1990s that had constrained institutions from enrolling aid-dependent students, and enrollment of disadvantaged students rose primarily at poor-performing, low-value institutions, with the lowest-performing institutions expanding the most.

Related Articles:

  • Debt Moratoria: Evidence from Student Loan Forbearance — The authors estimate that borrowers whose student loan payments were frozen ended with about $1,500 more in student loan balances and $1,200 (3%) more in other household debt, including mortgage, auto, and credit card borrowing, than borrowers without a payment stoppage. The findings suggest the pause raised short-term consumption and overall leverage, with effects concentrated among borrowers never previously delinquent.
  • PLUS or Minus? The Effect of Graduate School Loans on Access, Attainment, and Prices — The authors estimate that uncapping federal graduate student borrowing increased previously constrained students' borrowing and shifted their debt from private to federal sources, but had no effect on graduate enrollment, the racial and gender composition of entering students, human capital accumulation, or later earnings. They find the resulting increase in federal loans significantly raised program prices.
  • The Total Cost of Student Debt Cancellation — Recent US student debt cancellation policies are estimated to cost a combined $870bn to $1.4tn, with $620bn already implemented through an income-driven repayment program, interest cancellation during repayment pauses, and targeted discharges. The newest cancellation plan is preliminarily estimated to cost an additional $250bn to $750bn.

AI Summary. US hours worked per person fell 7% between 2000 and 2022, a decline attributable entirely to the employment rate falling from 70% to 65%. Hours now sit roughly at their level in the first years after World War II, 23% below 1900.

Scott Winship Fusion
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.@swinshi notes falling hours worked since 2000 but argues “to the extent that many of our challenges reflect the choices everyday Americans have made, they will require nothing less than cultural change rooted in a recognition of long-denied tradeoffs.”

Why have US hours worked per person declined?

Core argument: U.S. hours worked per person fell 7% from 2000 to 2022, a decline attributable entirely to the employment rate dropping from 70% to 65%.

From 2000 to 2022 hours per person dropped 7%. This decline was entirely due to the employment rate falling from 70% to 65%. Average hours dropped 12% just from 2000 to 2010, leaving labor supply lower than in any year since 1983. Hours in 2020 were similarly low. To some extent, these depressed levels reflect the severity of the Great Recession and the COVID-19 recession, but labor supply also fell from 2000 to 2003 when the economy was expanding. Today, hours are roughly where they were in the first years after World War II—23% lower than in 1900.

Takeaways by Macro Roundup® AI

  1. U.S. hours worked per person fell 7% from 2000 to 2022, a decline attributable entirely to the employment rate dropping from 70% to 65%.
  2. Average hours fell 12% from 2000 to 2010 alone, leaving labor supply lower than in any year since 1983, with hours in 2020 similarly low.
  3. U.S. hours per person stand roughly at their level in the first years after World War II, 23% below 1900, and fell from 2000 to 2003 even as the economy expanded.

Related Articles:

  • Understanding Trends in Worker Pay over the Past 50 Years — Productivity growth has been unequal across industries, across firms within industries, and across workers within firms, slowing growth in both the productivity and the pay of the median worker. The authors argue that working- and middle-class men earlier received "breadwinner rents"—pay above their marginal value to employers—and then endured slow wage growth as women's workforce participation rose.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • Bringing Home the Bacon: Have Trends in Men’s Pay Weakened the Traditional Family? — Using the 25th percentile of pretax earnings among married sole-breadwinner fathers aged 25–29 as a marriageability threshold, the author estimates the share of young single men earning below it moved from 63% to 58% over four decades. Using an earlier baseline year instead yields a larger change, from 72% to 57%.

AI Summary. Consumer price inflation has fallen to 2.5% and core inflation on the Federal Reserve's preferred gauge to an estimated 2.7%, with the remaining gap above the 2% target largely reflecting lagged effects of earlier housing and auto price increases. Inflation-indexed markets project 1.8% consumer price inflation over the coming year.

Greg Ip Wall Street Journal
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Noting inflation-indexed financial instruments are now projecting CPI inflation at 1.8% next year and a mean of 2.2% over the next five years, @greg_ip suggests a 50bps cut in the FFR would be appropriate.

Has inflation fallen enough to justify a half-point rate cut?

Core argument: CPI inflation fell from 3.2% a year earlier to 2.5% in August, while core PCE inflation dropped from 4.2% to an estimated 2.7%, with the remaining gap to the Fed's 2% target largely reflecting lagged housing, auto, and other prices.

A year ago inflation as measured by the consumer-price index was 3.2%. In August, it was 2.5%. In that time, core inflation, which excludes food and energy, has fallen from 4.2% to an estimated 2.7% [using PCE, the Fed’s preferred gauge.] The gap between 2.7% and the Fed’s 2% target largely reflects the lagged effects of higher housing, auto, and other prices from a few years ago. Inflation is likely to keep falling. Oil has plunged from $83 a barrel in early July to below $70 on Friday. This will directly lower headline inflation and, indirectly, core inflation because oil is an input into almost every business. A study by Robert Minton, now at the Fed, and Brian Wheaton at the University of California, Los Angeles, found oil can explain 16% of fluctuations in core inflation, and it takes two years for 80% of the effect to show up. Inflation-indexed bonds and derivatives now project CPI inflation at just 1.8% in the coming year and an average of 2.2% in the following five years, according to the Intercontinental Exchange.

Takeaways by Macro Roundup® AI

  1. CPI inflation fell from 3.2% a year earlier to 2.5% in August, while core PCE inflation dropped from 4.2% to an estimated 2.7%, with the remaining gap to the Fed's 2% target largely reflecting lagged housing, auto, and other prices.
  2. Oil's decline from $83 a barrel in early July to below $70 is expected to lower headline inflation directly and core inflation indirectly, with a study by Robert Minton and Brian Wheaton finding oil can explain 16% of core inflation fluctuations, 80% of the effect appearing within two years.
  3. Inflation-indexed bonds and derivatives project CPI inflation of 1.8% over the coming year and 2.2% on average over the following five years, according to the Intercontinental Exchange.

Related Articles:

  • Do Deficits Cause Inflation? A High Frequency Narrative Approach — Using a high-frequency narrative approach around news about US 2021 deficits, the authors estimate an "inflation multiplier" of 0.18% price-level growth over two years for a deficit shock of 1% of GDP. They estimate this implies the 2021 deficits caused about 30% of the 2021–22 inflation.
  • 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.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.

AI Summary. Manufacturing wages in China are 20% of US manufacturing wages, and Indian manufacturing wages are 3% of US levels. GDP per capita is $76,000 in the US, $13,000 in China, and $2,000 in India.

Torsten Sløk Apollo
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Torsten Sløk notes that in 2023, average monthly manufacturing wages in China were 20% of US levels and in India, only 3%. GDP per capita in the US was $76,000 vs. $13,000 in China and $2,000 in India.

How do US manufacturing wages compare with those in China and India?

Core argument: Manufacturing wages in China stand at 20% of US manufacturing wages, while manufacturing wages in India are 3% of the US level.

Manufacturing wages in China are now 20% of manufacturing wages in the US, and manufacturing wages in India are 3% of US wages. For comparison, GDP per capita in the US is $76,000, in China it is $13,000, and in India $2,000.

Takeaways by Macro Roundup® AI

  1. Manufacturing wages in China stand at 20% of US manufacturing wages, while manufacturing wages in India are 3% of the US level.
  2. GDP per capita is $76,000 in the US, $13,000 in China, and $2,000 in India.

Related Articles:

  • How China Could Swamp India’s Chip Ambitions — China is adding more chip-making capacity than the rest of the world combined, all in mature nodes, backed by government incentives worth more than $150bn, according to research consultancy Gavekal Dragonomics. Utilization rates for mature-node chip producers have fallen from nearly 100% to 65–75%, leaving India's $11bn semiconductor push facing an already well-supplied market.
  • Insular India’s Exporters Will Struggle to Fill Chinese Shoes — An analysis estimates that China ceded roughly $150bn of global market share in labor-intensive goods over the decade following the global financial crisis, with India capturing no more than 10% of it while manufacturing's share of India's economy declined. Despite a professed export-oriented policy, India remains too resistant to two-way trade to exploit the opening.
  • China’s Imaginary Trade Data — 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.

AI Summary. China became a leading source country for international adoption, with about 160,000 children placed abroad over three decades, and has now ended the program. American families adopted 82,658 Chinese children between 1999 and 2022, nearly one-third of all US adoptions from foreign countries.

Yi Fuxian Project Syndicate
Date Posted:

China will no longer allow foreign adoptions of Chinese children by non-relatives, in an effort to stem population decline. Over the past 30 years, there have been 160,000 such adoptions with the US as the leading destination. @fuxianyi

Has China ended its international adoption program?

Core argument: China supplied roughly 160,000 children for international adoption over the last three decades, peaking at 13,000 in 2005, aided by an abundance of babies and a centralized, predictable process costing about half as much as adopting in the US.

When it came to supplying children for adoption, China was tough to beat. An abundance of babies and a centralized, predictable, and relatively affordable adoption process – about half as much as adopting in the US – quickly turned China into a leading country-of-origin for international adoptions, which reached 160,000 over the last three decades, peaking in 2005, at 13,000. The US is a leading destination: in 1999-2022, American families adopted 82,658 Chinese children – nearly one-third of all US adoptions from foreign countries. If one includes pre-1999 adoptions, it is estimated that US families have adopted more than 100,000 Chinese children, some of whom were taken from their parents by family-planning officials.

Takeaways by Macro Roundup® AI

  1. China supplied roughly 160,000 children for international adoption over the last three decades, peaking at 13,000 in 2005, aided by an abundance of babies and a centralized, predictable process costing about half as much as adopting in the US.
  2. American families adopted 82,658 Chinese children in 1999-2022, nearly one-third of all US adoptions from foreign countries, and an estimated more than 100,000 when pre-1999 adoptions are included.
  3. China has shut down its international-adoption program, through which some children had been taken from their parents by family-planning officials.

Related Articles:

  • A Revolution Is Coming for China’s Families — Prolonged below-replacement fertility in China is projected to produce a "kin crash" in which rising generations have fewer living relatives than ever before in Chinese history. The authors argue this shrinking of extended family networks will erode the Chinese family's role in protecting people from adversity and helping them seize opportunity.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.
  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.

AI Summary. Analyzing ancient DNA for consistent trends in gene-variant frequency over time, the authors report that many hundreds of gene variants were affected by strong directional selection over the last ten millennia. They identify selection for variant combinations today associated with lighter skin color, lower schizophrenia and bipolar risk, slower health decline, and higher intelligence-test scores, income, and schooling.

David Reich, Ali Akbari, et al. bioRxiv
Date Posted:

David Reich and @aliakbari23 find that starting 10,000 years ago human evolution favored traits related to cognitive performance. Alleles associated with higher scores on intelligence tests increased by a standard deviation of .79.

What does ancient DNA reveal about recent human genetic selection?

Core argument: The authors estimate selection coefficients at 9.9 million genetic variants in ancient DNA time-series data, finding that many hundreds of alleles have been affected by strong directional selection over the last ten millennia.

We present a method for detecting evidence of natural selection in ancient DNA time-series data that leverages an opportunity not utilized in previous scans: testing for a consistent trend in allele frequency change over time. In the last ten millennia, many hundreds of alleles have been affected by strong directional selection. We identify selection for combinations of alleles that are today associated with lighter skin color, lower risk for schizophrenia and bipolar disease, slower health decline, and increased measures related to cognitive performance (scores on intelligence tests, household income, and years of schooling). We finally observe signals of selection for combinations of alleles that today predict three 368 correlated behavioral traits: scores on intelligence tests (increasing 0.79 ± 0.14), household 369 income (increasing 1.11 ± 0.14), and years of schooling (increasing 0.61 ± 0.13). We estimate selection coefficients at 9.9 million variants, enabling study of how Darwinian forces couple to allelic effects and shape the genetic architecture of complex traits.

Takeaways by Macro Roundup® AI

  1. The authors estimate selection coefficients at 9.9 million genetic variants in ancient DNA time-series data, finding that many hundreds of alleles have been affected by strong directional selection over the last ten millennia.
  2. The authors identify selection for combinations of alleles today associated with lighter skin color, lower risk for schizophrenia and bipolar disease, slower health decline, and increased measures related to cognitive performance.
  3. The authors report selection signals for combinations of alleles that today predict three correlated behavioral traits: intelligence test scores increasing 0.79 ± 0.14, household income 1.11 ± 0.14, and years of schooling 0.61 ± 0.13.

Related Articles:

  • Using DNA to Predict Education: a Meta-Analytic Review — A meta-analysis found that polygenic scores, person-specific aggregates of inherited DNA differences, are associated with educational attainment at a correlation of .27 and with educational achievement such as school grades at .24; after accounting for sample ancestry, age at assessment, and education measure, these estimates rose to .29 and .50. Only 15% of estimates came from samples of non-European ancestry.
  • Animal Mutation Rates Reveal Traits That Speed Evolution — An analysis of 68 vertebrate species published in Nature found germline mutation rates varied about 40-fold per generation but roughly 120-fold per year, a wider range than earlier studies suggested. The authors found species with larger effective population sizes had lower mutation rates, evidence for the "drift-barrier hypothesis" that natural selection weakens against mutation in smaller populations.
  • US PISA Results By Subpopulation — On the international PISA student assessments, American Asian and White students ranked at the top, American Hispanic students outscored Hispanic students elsewhere, and American Black students performed well. In reading, American Asian students placed first and American White students third.

Tuesday, September 17, 2024

AI Summary. The authors argue workers must take costly actions to make nominal wages catch up with inflation, so inflation imposes welfare costs even when real wages do not fall, and observed wage growth understates inflation's costs. In their survey, workers would sacrifice 1.75% of wages to avoid such conflict, more than doubling estimated costs.

Joao Guerreiro, Jonathon Hazell, Chen Lian et al. National Bureau of Economic Research
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.@JADHazell @jptguerreiro @ChenLian92 argue inflation is costlier to workers than the decline in real wages, as countering wage erosion requires costly conflict with employers. Workers would sacrifice 1.75% of their real wages to avoid conflict.

Why do workers dislike inflation even when real wages hold up?

Core argument: In a survey of workers, respondents were willing to sacrifice 1.75% of their wages to avoid the costly actions ("conflict") needed to make nominal wages catch up with inflation.

We argue that workers must take costly actions (“conflict”) to have nominal wages catch up with inflation, meaning there are welfare costs even if real wages do not fall as inflation rises. We show that, following a rise in inflation, wage catchup resulting from more frequent conflict does not raise welfare. Instead, the impact of inflation on worker welfare is determined by what we term “wage erosion”—how inflation would lower real wages if workers' conflict decisions did not respond to inflation. As a result, measuring welfare using observed wage growth understates the costs of inflation. We conduct a survey showing that workers are willing to sacrifice 1.75% of their wages to avoid conflict. Calibrating the model to the survey data, the aggregate costs of inflation incorporating conflict more than double the costs of inflation via falling real wages alone. The right figure[s] in Figure 11 shows the dynamic response of real wages and welfare-relevant wage erosion for the 2021-23 inflation surge. The gap between real wages and wage erosion [right panels] measures the large aggregate costs of inflation due to conflict.

Takeaways by Macro Roundup® AI

  1. In a survey of workers, respondents were willing to sacrifice 1.75% of their wages to avoid the costly actions ("conflict") needed to make nominal wages catch up with inflation.
  2. Calibrating their model to the survey data, the authors find that incorporating conflict costs more than doubles the aggregate costs of inflation relative to costs from falling real wages alone.
  3. The authors argue that worker welfare depends on "wage erosion"—how inflation would lower real wages if conflict decisions did not respond to inflation—so measuring welfare using observed wage growth understates inflation's costs.

Related Articles:

  • Trends in Real Wage Growth among Union, Nonunion Workers — Wage changes for union and nonunion workers tend to move similarly over time, with union workers' nominal wage changes less volatile, and since 2002 both groups' wages increased at the same rate. When consumer prices grew faster than wages, real wage growth turned negative despite a strong labor market, then turned positive as inflation fell.
  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • Are Real Wages Catching Up? — Real wage growth has turned slightly positive, but wage levels remain below where they stood before the inflation surge: consumer prices rose nearly 18% while the Employment Cost Index, a broad wage measure, rose a little under 15%, leaving cumulative real wage growth about 3pp below zero.

AI Summary. Real disposable income per head has grown almost twice as much in the US as in the European Union since 2000, with the EU trailing the US and China in the digital revolution and only four of the world's top 50 tech companies European. If average productivity growth since 2015 persists, EU output would merely stay constant until 2050.

Martin Wolf Financial Times
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.@martinwolf_ notes that Europe has fallen behind the US in technological innovation: in the last 50 years, no new EU-based company has achieved a market cap > €100B while the US has 5 new firms worth >$1T.

Is Europe falling behind the US in income and technology?

Core argument: Real disposable income per head has grown almost twice as much in the US as in the EU since 2000, a gap attributed in large part to the EU falling far behind the US and China in the digital revolution.

“Real disposable income [per head] has grown almost twice as much in the US as in the EU since 2000”. A big part of the reason is that the EU has fallen far behind the US (and even China) in the digital revolution. Only four of the world’s top 50 tech companies are European. EU energy prices are relatively high, particularly in comparison with those of the US. EU demographics are also dire. Thus, “[i]f the EU were to maintain its average productivity growth rate since 2015, it would only be enough to keep GDP constant until 2050”. Not least, Europeans are unable to protect themselves, as the war in Ukraine has shown. “Europe is stuck in a static industrial structure with few new companies rising up to disrupt existing industries or develop new growth engines.

Takeaways by Macro Roundup® AI

  1. Real disposable income per head has grown almost twice as much in the US as in the EU since 2000, a gap attributed in large part to the EU falling far behind the US and China in the digital revolution.
  2. Only four of the world's top 50 tech companies are European, and Draghi describes Europe as stuck in a static industrial structure with few new companies rising up to disrupt existing industries or develop new growth engines.
  3. Maintaining the EU's average productivity growth rate since 2015 would only be enough to keep GDP constant until 2050, against a backdrop of relatively high energy prices and dire demographics.

Related Articles:

  • Europeans ‘Less Hard-Working’ Than Americans, Says Norway Oil Fund Boss — Norway's sovereign wealth fund argues that American companies are outpacing European rivals on innovation and technology because the US more readily accepts failure and risk and because Americans work harder and are more ambitious. US shares now make up almost half of the fund's equity holdings, up from 32% a decade earlier, while UK holdings fell from 15% to 6%.
  • Comparing EU-to-US Output Per Hour — European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.
  • Europe Regulates Its Way to Last Place — Europe's regulators tend to act on the mere possibility of harm rather than evidence of it, an approach that can throttle innovation early. The McKinsey Global Institute found that among companies with over $1bn in revenue, U.S. firms spent 80% more on research and development, had 30% higher return on capital, and grew revenue 1.3 percentage points faster.

AI Summary. An aggressive Federal Reserve rate-cutting campaign may not benefit risk assets, because it would weaken the dollar at a time when foreign investors hold about 20% of U.S. corporate equities. A weaker dollar imposes currency losses on those investors, which could prompt them to sell U.S. equities and dollars, deepening the decline.

Fed Guy Blog Joseph Wang
Date Posted:

.@FedGuy12 argues that aggressive rate cuts would likely be bearish for U.S. equities, as dollar depreciation might cause foreigners, who now own about 20% of U.S. stock, to sell in order to avoid FX losses.

Do aggressive rate cuts hurt US stocks by weakening the dollar?

Core argument: Foreign portfolio investment accounts for around 20% of U.S. corporate equities, with foreign holdings at all-time highs, so an aggressive rate cut campaign that depreciates the dollar may not benefit risk assets.

An aggressive rate cut campaign may not be positive risk assets because it would depreciate the dollar even as foreign holdings of U.S. equities reach all-time highs. The top 6 equity holdings of Norway’s sovereign wealth fund are all U.S. technology stocks. On a percentage basis, foreign portfolio investments account for around 20% of U.S. corporate equities. While interest rate differentials have only modestly narrowed, the dollar has dropped to multi-month lows against many key currencies. A potentially aggressive rate cut cycle, slowing economy, and large deficits suggest further dollar weakness. A weaker dollar imposes FX losses on foreign investors, which could lead them to sell their U.S. equities and dollars, which in turn could lead to a further sell-off.

Takeaways by Macro Roundup® AI

  1. Foreign portfolio investment accounts for around 20% of U.S. corporate equities, with foreign holdings at all-time highs, so an aggressive rate cut campaign that depreciates the dollar may not benefit risk assets.
  2. The dollar has fallen to multi-month lows against many key currencies even though interest rate differentials have narrowed only modestly, and an aggressive rate cut cycle, slowing economy, and large deficits suggest further dollar weakness.
  3. A weaker dollar imposes FX losses on foreign investors, which could lead them to sell their U.S. equities and dollars and trigger a further sell-off; the top 6 equity holdings of Norway's sovereign wealth fund are all U.S. technology stocks.

Related Articles:

  • Local Currency Returns — U.S. foreign exchange policy has rested with the Treasury since the 1933 dollar devaluation, and a president could pursue depreciation through direct intervention using the Exchange Stabilization Fund or diplomatic talks with other countries. A weaker dollar eases global financial conditions but could prompt foreign investors holding large amounts of U.S. equities to sell to avoid currency losses.
  • 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.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. An analysis of immigration court data on the 1.8m asylum seekers and refugees who arrived in the US in one year found that in battleground states about 72% settled in counties that voted Democratic in the prior presidential election, which contain roughly 60% of the US population. In those states, 85% settled in counties whose economies had grown.

Elena Mejía and Shawn Donnan Bloomberg
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A Bloomberg analysis finds that in 2023, 12% of migrants seeking asylum and refugees went to swing states, and 72% of these went to counties that voted for Biden in 2020.

Are new migrants settling in growing, Democratic-leaning counties?

Core argument: About 72% of migrants who arrived in 2023 in battleground states settled in counties that voted for Biden, while fewer than a third went to Trump counties, according to Bloomberg News's analysis of immigration court data obtained by Syracuse University researchers.

Bloomberg News analyzed immigration court data obtained by researchers at Syracuse University that show where the 1.8 million asylum seekers and refugees who landed in the US in 2023 have taken up residence. In past decades, these records for immigration court cases would not have offered as comprehensive a picture of new arrivals. Now, though, more border-crossers are turning themselves in to apply for asylum and, eventually, a work permit, making the data set more exhaustive. In the battleground states that will decide this November’s election, about 72% of migrants in 2023 went to Biden counties while less than a third went to Trump counties. Counties that voted for Biden four years ago are home to roughly 60% of the overall US population. Swing states received 12% of all migrants, with most going to blue counties like Philadelphia, home to Pennsylvania’s largest city, and Gwinnett, which is outside Atlanta. In swing states, 85% of migrants settled in places that saw GDP growth from 2019 to 2022, according to the latest available data.

Takeaways by Macro Roundup® AI

  1. About 72% of migrants who arrived in 2023 in battleground states settled in counties that voted for Biden, while fewer than a third went to Trump counties, according to Bloomberg News's analysis of immigration court data obtained by Syracuse University researchers.
  2. In swing states, which received 12% of all migrants, 85% settled in counties that saw GDP growth from 2019 to 2022, with most going to blue counties such as Philadelphia and Gwinnett outside Atlanta.

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AI Summary. An analysis of the two US presidential candidates' fiscal plans finds neither has made deficit reduction a priority, with the Democratic candidate's acceptance of tax increases on higher earners giving more room to fund policy goals. The Republican candidate's proposed offsets—tariffs and cuts to clean energy subsidies—are described as insufficient to cover the cost of his tax plans.

James Capretta and Jack Rowing American Enterprise Institute
Date Posted:

James Capretta @rowing_jack @AEIecon review the budgetary effects of the Harris and Trump campaign plans and argue “Neither candidate is promising fiscal restraint despite the adverse outlook. The best that might be hoped for is for no further erosion.”

Do either presidential candidate's fiscal plans reduce the deficit?

Core argument: Neither Harris nor Trump has pledged to make deficit reduction a priority, though Harris's willingness to embrace tax increases on the well-off gives her more room, at least on paper, to fund her policy objectives.

It is possible to provide a summary perspective of what the candidates’ plans would do to the fiscal outlook, as reflected in Table 1. While neither candidate has pledged to make deficit reduction a priority, Harris’s willingness to embrace tax hikes (at least for the well-off) provides her with more space to meet her policy objectives, at least on paper. It is noteworthy that President Biden had more success securing his spending plans than tax increases. Trump is more boxed in than Harris because the GOP is institutionally opposed to tax hikes and Trump himself is not interested in spending reforms. He is left with suggesting substantial tariffs and cuts to the Biden administration’s clean energy subsidies as offsets, which are insufficient to cover the full costs of his tax plans.

Takeaways by Macro Roundup® AI

  1. Neither Harris nor Trump has pledged to make deficit reduction a priority, though Harris's willingness to embrace tax increases on the well-off gives her more room, at least on paper, to fund her policy objectives.
  2. Trump's proposed offsets—substantial tariffs and cuts to the Biden administration's clean energy subsidies—are insufficient to cover the full costs of his tax plans.
  3. Trump is more constrained than Harris because the Republican Party is institutionally opposed to tax hikes and Trump himself is not interested in spending reforms.

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