Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
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  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, September 18, 2024

AI Summary. A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.

Mario Draghi and Staff European Commission
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An EC study of European competitiveness finds that EU gross value-added per hour worked increased by 0.7%/year from 2000-19, vs. 1.2%/year in the US. “Europe is lagging in the breakthrough digital technologies that will drive growth in the future.”

Does weaker technology sector activity explain Europe's productivity growth gap?

Core argument: Excluding the main ICT sectors — computer and electronics manufacturing and information and communication activities — EU productivity was broadly at par with the US over 2000–2019.

The EU’s aggregate gap in labour productivity growth compared with the US reflects differences in industry composition, sectoral innovation, and technology diffusion. The EU economy has traditionally been strong in all mid-technology sectors that are not at the centre of radical technological advances, but [has seen] less activity in sectors in which much of the productivity growth has originated in recent years, notably the ICT sector and the exploitation of large-scale digital services. Excluding the main ICT sectors (the manufacturing of computers and electronics and information and communication activities) from the analysis, EU productivity has been broadly at par with the US in the period 2000-2019. To digitalise and decarbonise the economy and increase our defence capacity, the investment share in Europe will have to rise by around 5 percentage points of GDP to levels last seen in the 1960s and 70s. This is unprecedented: for comparison, the additional investments provided by the Marshall Plan between 1948-51 amounted to around 1-2% of GDP annually.

Takeaways by Macro Roundup® AI

  1. Excluding the main ICT sectors — computer and electronics manufacturing and information and communication activities — EU productivity was broadly at par with the US over 2000–2019.
  2. The EU's aggregate labour productivity growth gap versus the US reflects differences in industry composition, sectoral innovation, and technology diffusion, with the EU strong in mid-technology sectors that are not at the centre of radical technological advances.
  3. Digitalising and decarbonising the EU economy and increasing defence capacity will require Europe's investment share to rise by around 5 percentage points of GDP, to levels last seen in the 1960s and 70s, against the Marshall Plan's 1–2% of GDP annually in 1948–51.

Related Articles:

  • Draghi is Trying To Save Europe From Itself — 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.
  • 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%.
  • Can Europe’s Economy Ever Hope To Rival the US Again? — Europe's largest publicly traded companies invested $400bn less than US counterparts in one recent year, and venture capital investment in US companies was almost 3x that in Europe. Research and development spending by the seven largest US technology companies exceeded $200bn, about half of Europe's total public and private R&D spending.

AI Summary. Interest rates are expected to remain relatively high even through an easing cycle: futures pricing implying short-term rates near 4.5% and later 3% would still leave rates roughly double the 1.8% average of the past decade. The authors expect inflation to take longer to reach the 2% target, steepening the yield curve.

Torsten Sløk Apollo
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Torsten Sløk notes that Fed Funds futures expect “rates will reach 3% by the end of next year, nearly double the average 1.8% rate over the past decade.” Sløk expects that long rates are going to decline less than short rates.

Will interest rates stay high even through an easing cycle?

Core argument: If futures market pricing of at least four Fed rate cuts in 2024 proves correct, short-term rates would end 2024 near 4.5%, the highest for overnight rates since 2007, excluding the Fed's current hiking cycle.

Even if the Fed embarks on an easing cycle, we believe that interest rates will remain relatively higher for longer. If we assume the interest rate futures market is correct in pricing in at least four rate cuts in 2024—which we believe is overblown—short-term interest rates would by the end of 2024 be around 4.5%, a level that would still be the highest for overnight rates since 2007 (excluding the Fed’s current hiking cycle). Furthermore, if we take in the expectations for additional ~five rate cuts in 2025, rates will reach 3% by the end of next year, which is nearly double the average 1.8% rate over the past decade. Our expectation remains that it will take longer for inflation to come down to the central bank’s 2% target range, and as a result the curve will continue to steepen, meaning long rates are going to decline less than short rates.

Takeaways by Macro Roundup® AI

  1. If futures market pricing of at least four Fed rate cuts in 2024 proves correct, short-term rates would end 2024 near 4.5%, the highest for overnight rates since 2007, excluding the Fed's current hiking cycle.
  2. Market expectations for roughly five additional cuts in 2025 would bring rates to 3% by the end of that year, nearly double the 1.8% average of the past decade.
  3. Inflation is expected to take longer to fall to the Fed's 2% target, with the yield curve continuing to steepen as long rates decline less than short rates.

Related Articles:

  • Markets Think Inflation Will Be Too High For The Next 20 Years — Inflation expectations derived from the gap between regular Treasury yields and inflation-indexed Treasury yields show expected annual inflation over the next 10 and 20 years running considerably above expected inflation for the decade beginning 20 years out. Before the pandemic-era inflation surge, actual inflation and expected future inflation tracked each other closely.
  • 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.
  • Weaker Demand for Treasuries — Recent 10-year and 30-year US Treasury auctions each cleared three basis points above the yields trading minutes beforehand, signaling demand significantly weaker than the market expected. Larger and more frequent such gaps since the Federal Reserve began raising interest rates make auction metrics an early indicator of weakening Treasury demand.

AI Summary. Students for Fair Admissions, which won the Supreme Court case barring race-based admissions preferences, is threatening investigations and lawsuits against Princeton, Yale, and Duke over declines in Asian American enrollment that it says defied expectations. Asian American enrollment fell to 29% from 35% at Duke and to 24% from 30% at Yale.

Anemona Hartocollis New York Times
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Students for Fair Admissions argues that a drop in Asian enrollment of 6pp y/y at Yale and Duke and 2.2pp at Princeton suggests renewed discrimination in admissions against Asian applicants. Admissions data are not available.

Students for Fair Admissions argues that a drop in Asian enrollment of 6pp y/y at Yale and Duke and 2.2pp at Princeton...

Are elite universities complying with the ban on race-based admissions?

Core argument: Asian American enrollment fell to 29% from 35% at Duke, to 24% from 30% at Yale, and to 23.8% from 26% at Princeton, declines that Students for Fair Admissions said defied expectations.

The group that successfully sued Harvard to end affirmative action in university admissions last year is now threatening to investigate whether schools are complying with the new rules and to file lawsuits if it believes that they are not. The Supreme Court ruled that giving preferences to students based on race violated the equal protection clause of the 14th Amendment and civil rights law. The group, Students for Fair Admissions, has focused on three universities — Princeton, Yale, and Duke — where there were notable declines in Asian American enrollment this year compared with the last year, which the group said defied expectations. Asian American enrollment dropped to 29% from 35% at Duke; to 24% from 30% at Yale; and to 23.8% from 26% at Princeton. At the same time, Black enrollment rose to 13% from 12% at Duke; stayed at 14% at Yale; and dropped to 8.9% from 9% at Princeton.

Takeaways by Macro Roundup® AI

  1. Asian American enrollment fell to 29% from 35% at Duke, to 24% from 30% at Yale, and to 23.8% from 26% at Princeton, declines that Students for Fair Admissions said defied expectations.
  2. Students for Fair Admissions, which won its Supreme Court case against Harvard, is threatening to investigate whether universities are complying with the ruling and to file lawsuits if it concludes they are not.
  3. Black enrollment rose to 13% from 12% at Duke, held at 14% at Yale, and slipped to 8.9% from 9% at Princeton.

Related Articles:

  • At M.I.T., Black and Latino Enrollment Drops Sharply After Affirmative Action Ban — Massachusetts Institute of Technology's first undergraduate class admitted after the U.S. Supreme Court banned affirmative action saw Black enrollment fall to 5% from 15% and Hispanic and Latino enrollment fall to 11% from 16%. Asian American students rose to 47% from 40%, while white students were 37% compared with 38%.
  • Americans and Affirmative Action: How the Public Sees the Consideration of Race in College Admissions, Hiring — Survey research finds more Americans disapprove than approve of colleges considering race and ethnicity in admissions: half of U.S. adults said they disapprove of selective colleges weighing race and ethnicity to increase diversity, a third approved, and 16% were unsure. In another survey, 82% said colleges should not consider race or ethnicity, versus 17% who said they should.
  • 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.

AI Summary. China produces about 1bn tonnes of steel a year, as much as the rest of the world combined, and its exports reached 90m tonnes in 2023, up 35% from the prior year. With Chinese mills selling abroad cheaply, foreign steelmakers' profits have fallen and some are seeking anti-dumping duties.

Economist Staff The Economist
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China’s steel exports surged by 35% in 2023 vs. 2022, increasing by more than total US or Japanese production. In August, barely 1% of the 250 steel mills in China that reported their finances to the government turned a profit.

How are surging Chinese steel exports affecting foreign steelmakers?

Core argument: China's steel exports reached 90m tonnes in 2023, up 35% year on year, exceeding the annual output of either America or Japan, though that is a fraction of China's roughly 1bn tonnes of yearly production, which matches the rest of the world combined.

Each year China makes as much steel as the rest of the world combined. The vast scale of its output—around 1bn tonnes a year—is obscured by the fact that most of it stays in the country. Lately, however, China’s exports of the metal have surged, reaching 90m tonnes in 2023, up by 35% on the previous year. That may be a fraction of China’s total production, but it is more than what America or Japan make in a year. With China’s economy struggling, its steelmakers are selling abroad at bargain prices, to the distress of foreign competitors and politicians alike. In August barely 1% of the 250 steel mills in China that report their finances to the government turned a profit, according to Isha Chaudhary of Wood Mackenzie. The domestic price for hot-rolled coil steel, a benchmark product, has fallen by 16% over the past year. Last month Nippon Steel, Japan’s biggest steelmaker, called on its government to impose anti-dumping duties on Chinese imports. In the quarter to June, its net profit shrank by 11% year on year. ArcelorMittal, Europe’s steelmaking champion, has been hit even harder: its net profit for the same period was down by 73%.

Takeaways by Macro Roundup® AI

  1. China's steel exports reached 90m tonnes in 2023, up 35% year on year, exceeding the annual output of either America or Japan, though that is a fraction of China's roughly 1bn tonnes of yearly production, which matches the rest of the world combined.
  2. Barely 1% of the 250 Chinese steel mills reporting finances to the government turned a profit in August, according to Isha Chaudhary of Wood Mackenzie, while China's domestic price for hot-rolled coil steel fell 16% over the past year.
  3. Nippon Steel's net profit fell 11% year on year in the quarter to June and ArcelorMittal's fell 73%, with Nippon Steel calling on Japan's government to impose anti-dumping duties on Chinese imports.

Related Articles:

  • Mexico Targets Chinese Steel Imports With Increased Tariff Of Nearly 80% — Mexico imposed a tariff of nearly 80% on some steel imports, including certain Vietnamese exports of cold-rolled steel sheets, after local producers said Chinese steelmakers had strangled their production. Exporters that prove the steel originates outside China are exempt.
  • 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.
  • Pettis On China’s Export Strategy — China is shifting investment from its weakened property sector toward manufacturing, which already accounts for 27% of Chinese GDP versus 14% elsewhere and is constrained by weak demand rather than scarce capital. Since China holds about 18% of global GDP but 30% of global manufacturing, added output must be absorbed abroad absent higher consumption.

Thursday, September 19, 2024

AI Summary. Income after transfers and taxes grew most for households in the highest quintile, a rate that would have been nearly the same without temporary pandemic policies such as recovery rebate credits, expanded unemployment compensation, and the expanded child tax credit. Those policies raised average income in the lowest quintile to $48,700 from $41,200 without them.

Bilal Habib, Edward Harris, John McClelland, and Joseph Rosenberg Congressional Budget Office
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From 2019 to 2021, income after transfers and taxes for the top quintile grew by 19% (largely from realized capital gains), the bottom quintile grew by 17% (primarily from temporary transfers), and the middle quintiles by 5%.

How did temporary pandemic policies affect household income across income quintiles?

Core argument: Income after transfers and taxes rose most in 2021 for households in the highest quintile, whose growth rate would have been almost the same without the temporary recovery rebate credit, expanded unemployment compensation, and expanded child tax credit.

In 2021, income after transfers and taxes increased the most for households in the highest quintile. (Income from realized capital gains, which mostly accrues to higher-income households, was higher in 2021 than in any other year since at least 1979.) The rate of income growth for households in that quintile would have been almost the same if the new temporary policies—the recovery rebate credit, expanded unemployment compensation, and the expanded child tax credit—had not been in place. Households in the lowest quintile benefitted the most from those policies, which increased their average income after transfers and taxes to $48,700. Had it not been for those policies, average household income in the lowest quintile would have been $41,200, which is lower than it was in 2019, before the onset of the pandemic ($41,600, in 2021 dollars). Average income after transfers and taxes decreased for households in the middle three quintiles of the distribution from $90,200 in 2020 to $89,200 in 2021. It would have been even lower in 2021 ($83,500) without the effects of temporary policies.

Takeaways by Macro Roundup® AI

  1. Income after transfers and taxes rose most in 2021 for households in the highest quintile, whose growth rate would have been almost the same without the temporary recovery rebate credit, expanded unemployment compensation, and expanded child tax credit.
  2. Temporary policies raised average income after transfers and taxes for the lowest quintile to $48,700 in 2021, compared with $41,200 without them, below the $41,600 recorded in 2019 in 2021 dollars.
  3. Average income after transfers and taxes for the middle three quintiles fell from $90,200 in 2020 to $89,200 in 2021, and would have been $83,500 without the temporary policies.

Related Articles:

AI Summary. The authors forecast a longer string of consecutive 0.25-point Federal Reserve rate cuts, bringing the federal funds rate to a terminal level of 3.25–3.5%. Bond market pricing implies 31–36 basis points of cuts at each of the next four meetings, still leaving a meaningful chance of additional half-point cuts.

David Mericle Goldman Sachs
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After yesterday’s 50bp cut, David Mericle @GoldmanSachs forecasts a string of 25 bp cuts, with the FFR reaching a terminal rate of 3.25-3.5% in June 2025, a slightly slower pace of cuts than implied by market pricing.

How fast will the Fed cut rates toward its terminal level?

Core argument: The Fed began its cutting cycle with a 50bp reduction at the September FOMC meeting, and the revised forecast calls for consecutive 25bp cuts from November 2024 through June 2025.

We have revised our Fed forecast to accelerate the pace of cuts next year. We now forecast a longer string of consecutive 25bp cuts from November 2024 through June 2025, when the funds rate would reach our terminal rate forecast of 3.25-3.5% (vs. our previous forecast of consecutive cuts this year but quarterly cuts next year). The bond market is now pricing 31-36bp of rate cuts for each of the next four meetings, a bit less than before today’s meeting but still implying a meaningful possibility of additional 50bp cuts.

Takeaways by Macro Roundup® AI

  1. The Fed began its cutting cycle with a 50bp reduction at the September FOMC meeting, and the revised forecast calls for consecutive 25bp cuts from November 2024 through June 2025.
  2. The revised forecast has the federal funds rate reaching a terminal rate of 3.25–3.5% by June 2025, replacing a prior path of consecutive cuts in 2024 followed by quarterly cuts in 2025.
  3. The bond market is pricing 31–36bp of rate cuts for each of the next four meetings, slightly less than before the September meeting but still implying a meaningful possibility of additional 50bp cuts.

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.
  • Interest Rates Are Too High. The Fed Should Cut by a Half Point — 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.
  • When Big Cuts Are Bad — 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.

AI Summary. A report estimates that a selectionist U.S. immigration policy—securing the border, reducing low-skilled immigration, and expanding high-skilled immigration—would cut future federal debt by trillions of dollars, providing over $2tn in net present value in the first year and over $200bn annually thereafter. Under the proposal, annual legal immigration falls from about 1m to roughly 860,000.

Daniel Di Martino Manhattan Institute
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.@DanielDiMartino notes higher-skilled immigrants reduce expected deficits, and proposes a policy of selective legalization, coupled with mass deportations to reduce Federal debt by about $1.9 trillion.

Would shifting immigration toward high-skilled workers reduce federal debt by trillions?

Core argument: The report's proposed legislative package would provide over $2 trillion in net present value in its first year and over $200 billion each subsequent year, excluding any additional productivity growth from high-skilled immigration.

By enacting a selectionist immigration policy—which requires securing the border from unlawful immigration, reducing low-skilled immigration, and expanding high-skilled immigration—the U.S. could reduce future federal debt by trillions of dollars over the long run. This report proposes a legislative package that provides over $2 trillion in net present value during the first year and over $200 billion each subsequent year, without accounting for the additional productivity growth resulting from high-skilled immigration. Furthermore, under these reforms, the annual number of immigrants who are new permanent residents decreases by about 15% after a temporary legalization program and a partial clearing of the employment-based visa backlog. Over the long term, annual legal immigration decreases under this plan from approximately 1 million in FY 2019 to approximately 860,000.

Takeaways by Macro Roundup® AI

  1. The report's proposed legislative package would provide over $2 trillion in net present value in its first year and over $200 billion each subsequent year, excluding any additional productivity growth from high-skilled immigration.
  2. A selectionist immigration policy—securing the border against unlawful immigration, reducing low-skilled immigration, and expanding high-skilled immigration—could reduce future U.S. federal debt by trillions of dollars over the long run, according to the report.
  3. Under the proposed reforms, annual legal immigration falls from roughly 1 million in FY 2019 to about 860,000, with new permanent residents declining about 15% after a temporary legalization program and partial clearing of the employment-based visa backlog.

Related Articles:

  • 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%.
  • 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.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

AI Summary. National polls show the two presidential candidates tied at 47%, while in Pennsylvania the Democratic candidate leads 50% to 46%. Economic pessimism is widespread: 77% of likely Pennsylvania voters rate the economy poor or fair versus 22% who call it excellent or good, including in Democratic strongholds.

Shane Goldmacher and Ruth Igielnik New York Times
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The latest Times/Siena poll shows the race for the White House is a dead heat nationally, with Harris and Trump both at 47% (margin of error 3pp). In PA, Harris is leading 50% to 46%, with 77% of likely PA voters reporting dim views of the economy.

Does widespread economic pessimism accompany a deadlocked presidential race?

Core argument: Trump and Harris are tied nationally at 47% each, while Harris leads in Pennsylvania 50% to 46%, in polls that also found Harris had the stronger debate performance.

Nationally, Mr. Trump and Ms. Harris are knotted at 47%. In Pennsylvania, Ms. Harris leads, 50% to 46%. The surveys were conducted almost entirely before the second apparent assassination attempt against Mr. Trump last Sunday. Concerns about the state of the economy remain widespread. In Pennsylvania, 77% of likely voters said the economy was poor or fair, with only 22% calling it excellent or good. That negative view held true even in key Democratic regions, including Philadelphia and its surrounding suburbs.

Takeaways by Macro Roundup® AI

  1. Trump and Harris are tied nationally at 47% each, while Harris leads in Pennsylvania 50% to 46%, in polls that also found Harris had the stronger debate performance.
  2. In Pennsylvania, 77% of likely voters called the economy poor or fair and only 22% called it excellent or good, a negative view that held even in Philadelphia and its suburbs.
  3. The surveys were conducted almost entirely before the second apparent assassination attempt against Trump.

Related Articles:

  • Many Gen Z Men Feel Left Behind. Some See Trump As An Answer — National polling shows a gender gap of roughly 39 to 51 percentage points among voters under 30, with young men favoring the Republican candidate and young women favoring the Democrat. The Republican message resonates particularly with young men without college degrees and young men of color.
  • An Unsettled Electorate: How Uncertainty and Apathy Are Shaping the 2024 Election — A survey of young registered voters finds 54% backing Biden and 46% backing Trump, with 60% of young women supporting Biden while 52% of young men support Trump. Young men are more likely than young women to say the country has gone too far in giving women equal rights, 19% versus 9%.
  • 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.