Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Wednesday, September 25, 2024

AI Summary. The authors argue that studies of the Perry Preschool and Carolina Abecedarian early childhood programs yield general lessons about quality resting on adult-child interactions rather than credentials or formal curricula. Across both programs, a one standard deviation increase in measured parenting is associated with a half standard deviation increase in midlife skills.

Alison Baulos, Jorge Luis García and James Heckman National Bureau of Economic Research
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Baulos, Garcia, and Heckman conclude that after 50 years, the Perry Preschool Program shows lasting positive effects and that the key element underlying its success is engaging parents and teachers “actively in the learning life of the child.”

What determines the quality of early childhood education programs?

Core argument: In the Perry Preschool and Carolina Abecedarian programs, a one standard deviation increase in a post-treatment parenting measure collected by age five is associated with a half standard deviation increase in the average of midlife skills.

Drawing insights from both the original founders and recent empirical studies, the paper emphasizes the critical role of parental involvement in early education, advocating for a scientific agenda focused on understanding the mechanisms behind treatment effects. Studies of the Perry Preschool [and the related Carolina Abecedarian Project], offer general lessons, rather than a lesson about the effectiveness of a specific program. The analysis underscores the broader implications of early childhood interventions for social mobility and human capital formation. Analysts of early childhood education should recognize that although credentials and formal curricula contribute to successful programs, the true measure of quality lies in adult-child interactions, which play an essential role. For the two programs, a one st. dev. increase in our post-treatment measure of parenting, collected when the original participants were at most five years old, is associated with an increase of half a standard deviation in the average of midlife skills. This crucial component of Perry—home-visiting—is effective in many different contexts worldwide (see Figure 3).

Takeaways by Macro Roundup® AI

  1. In the Perry Preschool and Carolina Abecedarian programs, a one standard deviation increase in a post-treatment parenting measure collected by age five is associated with a half standard deviation increase in the average of midlife skills.
  2. The paper argues that Perry Preschool and Abecedarian yield general lessons about early childhood intervention rather than evidence about one specific program's effectiveness, with implications for social mobility and human capital formation.
  3. The paper holds that while credentials and formal curricula contribute to program success, quality rests on adult-child interactions, and that home-visiting, a central component of Perry, is effective in many contexts worldwide.

Related Articles:

AI Summary. The authors estimate sustainable sovereign debt limits for 27 advanced economies at 136%–234% of GDP on a gross basis and 181%–268% net of central bank holdings, finding evidence of "fiscal fatigue" once gross debt exceeds roughly 140%–145% of GDP. One estimate puts the US sustainable gross debt limit at 154% of GDP, about 30 percentage points above its current level.

Mark Warshawsky and Giorgi Bokhua American Enterprise Institute
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Mark Warshawsky and Giorgi Bokhua @AEIecon estimate that the US has a sustainable gross debt limit of 154% of GDP, “which is only 30 percentage points above the current level, projected to be reached by 2034.”

How much more debt can advanced economies sustainably carry?

Core argument: The authors estimate a sustainable gross debt limit for the US of 154% of GDP under one estimate, about 30 percentage points above its current gross debt level, a level projected to be reached by 2034.

This paper empirically estimates sustainable sovereign debt limits for 27 OECD countries, updating the model in Ghosh et al. (2013). We assess fiscal reaction functions, confirming the fiscal fatigue hypothesis, where gross debt levels exceeding 140-145% of GDP begin to impair a country’s ability to manage public spending and deficits. Using historical and projected interest rate-to-economic growth differentials, different country samples and updated time periods, we estimate countries’ sustainable debt limits, on both a gross and net of central bank holdings of government debt basis. Gross and net debt limits are between 136%-234% of GDP and 181%-268%, respectively. There are some indications of restricted fiscal flexibility for Canada, France, Italy, the UK, the US, Portugal and Spain. The US, in particular, for one estimate, has a sustainable gross debt limit of 154% of GDP, which is only about 30 percentage points above its current gross debt level, projected to be reached by 2034.

Takeaways by Macro Roundup® AI

  1. The authors estimate a sustainable gross debt limit for the US of 154% of GDP under one estimate, about 30 percentage points above its current gross debt level, a level projected to be reached by 2034.
  2. Across 27 OECD countries, the authors estimate sustainable debt limits of 136%–234% of GDP on a gross basis and 181%–268% net of central bank holdings of government debt.
  3. The estimated fiscal reaction functions support the fiscal fatigue hypothesis, with gross debt above 140%–145% of GDP beginning to impair a country's ability to manage public spending and deficits; the paper indicates restricted fiscal flexibility for Canada, France, Italy, the UK, the US, Portugal and Spain.

Related Articles:

  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • Federal Debt — Stabilizing federal debt would require a zero primary deficit — borrowing only to cover interest on past borrowing — which today would mean a cash deficit of about 3% of GDP, or roughly $800bn a year. The actual deficit is about $1.7tn, or 6% of GDP, with no political dynamics in prospect that would cut it to 3%.
  • 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. Race gaps in SAT scores are consistent across years, with most differences within the range expected from sampling error; the exceptions are Amerindian scores falling and Asian scores rising relative to White scores. The author attributes those shifts to changes in who selects into SAT test-taking rather than genuine population changes.

Cremieux Cremieux Recueil
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In 2024 27% of Asians who took the SAT scored between 1400-1600; 7% of White, 2% of Hispanic, and 1% of Black test takers scored in that range. @cremieuxrecueil

Do shifts in SAT race gaps reflect who chooses to test?

Core argument: Setting Whites as the baseline with a mean of 100 and a standard deviation of 15, the author converts effect sizes (d) into SAT score gaps across racial groups, finding results consistent between years.

[I’ve] set Whites to the baseline for this graph and assume they have a mean of 100 with an SD of 15 and that gaps can be computed from d accordingly. Results are consistent between years, with most differences being within the range of expectations from sampling error. The exceptions are Amerindians and Asians, who, respectively, got much worse and much better relative to Whites. Why? I assume this reflects the continuing trend towards elite Asians selecting into SAT test-taking and elite Amerindians selecting out, rather than genuine population changes. To put these race differences in means and standard deviations into perspective, [the] graph of the data [is] scaled by population size.

Takeaways by Macro Roundup® AI

  1. Setting Whites as the baseline with a mean of 100 and a standard deviation of 15, the author converts effect sizes (d) into SAT score gaps across racial groups, finding results consistent between years.
  2. Most year-over-year differences in SAT racial gaps fall within the range expected from sampling error, the exceptions being Amerindians and Asians, who scored much worse and much better relative to Whites.
  3. The author assumes the Amerindian and Asian shifts reflect a continuing trend of elite Asians selecting into SAT test-taking and elite Amerindians selecting out, rather than genuine population changes.

Related Articles:

  • The Misguided War On The SAT — The National Assessment of Educational Progress, a nationwide test of elementary and middle school students with no test-prep industry around it, shows racial and economic gaps closely resembling those on the SAT and ACT. Researchers argue this indicates college admissions tests measure underlying learning, making score disparities a symptom rather than a cause of inequality.
  • Yale, Princeton and Duke Are Questioned Over Decline in Asian Students — 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.
  • Standardized Test Scores and Academic Performance at Ivy-Plus Colleges — Using admissions records and first-year grades at multiple Ivy-Plus colleges, the authors find SAT and ACT scores substantially predict college academic success even among students with the same high school grades, while high school grade point average does little to predict it. Conditional on test scores, students from lower- and higher-resourced high schools have virtually identical college grades.

AI Summary. OpenAI has pitched the White House on building 5 gigawatt data centers across US states, arguing the expansion is needed to develop more advanced artificial intelligence models and compete with China. Each such facility would use roughly the output of five nuclear reactors, enough to power almost 3m homes.

Shirin Ghaffary Bloomberg
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OpenAI CEO Sam Altman is pitching the Biden Administration on “the economic and national security benefits of building 5GW data centers in various US states.” Each facility would require power generation equivalent to five nuclear reactors.

Does advancing AI and competing with China require city-sized data centers?

Core argument: OpenAI pitched the Biden administration on building 5 GW data centers in various US states, with 5 GW roughly equivalent to five nuclear reactors or enough to power almost 3 million homes.

OpenAI has pitched the Biden administration on the need for massive data centers that could each use as much power as entire cities, framing the unprecedented expansion as necessary to develop more advanced artificial intelligence models and compete with China. Following a recent meeting at the White House the startup shared a document with government officials outlining the economic and national security benefits of building 5 gigawatt data centers in various US states. To put that in context, 5 GW is roughly the equivalent of five nuclear reactors, or enough to power almost 3 million homes. The US has a total of 96 GW of installed capacity of nuclear power.

Takeaways by Macro Roundup® AI

  1. OpenAI pitched the Biden administration on building 5 GW data centers in various US states, with 5 GW roughly equivalent to five nuclear reactors or enough to power almost 3 million homes.
  2. OpenAI framed the data center expansion as necessary to develop more advanced AI models and compete with China, sharing a document with government officials outlining economic and national security benefits after a White House meeting.
  3. The US has 96 GW of total installed nuclear power capacity, and OpenAI's proposed data centers could each use as much power as entire cities.

Related Articles:

  • Three Mile Island’s Nuclear Plant to Reopen, Help Power Microsoft’s AI Centers — Constellation Energy will spend about $1.6bn to restart the undamaged reactor at Pennsylvania's Three Mile Island nuclear plant, which closed in 2019, and has signed a 20-year agreement to sell the power to Microsoft. The deal reflects the scale of round-the-clock carbon-free electricity sought for artificial intelligence data centers.
  • The Good, the Bad and the Ugly — Dominion Energy, which serves 6m customers, has raised its projected power needs for the coming decade, attributing the change to data center demand. McKinsey, BCG, and S&P Global all expect US power demand to grow 13%-15% annually through 2030, and rising transformer costs alongside electrification could make electricity scarcer.
  • Are We on the Brink of an AI Investment Arms Race? — Spending on AI chips and data centers was a bit below $100bn in 2023, around 0.4% of US GDP, and the broader set of companies exposed to AI-related investment has not yet seen a major jump in sales. The authors argue the underlying dynamics point to a spending surge large enough to shape the business cycle.

AI Summary. Around 1.14m people filed asylum claims in Europe in a year, the highest since the 2015 migration crisis, with claims expected to top 1m again; these figures exclude more than 4m Ukrainian refugees granted temporary protection in the European Union. Asylum seekers tend to be less educated and lower skilled than other immigrant groups.

Tom Fairless and Laurence Norman Wall Street Journal
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Last year 1.14mm people filled asylum claims in Europe and 2024 will likely see the same level. The majority who arrived in the Netherlands since 1999 and have left school “are unemployed, though the country suffers from extreme labor shortages.”

How large is Europe's asylum inflow, and who is arriving?

Core argument: Europe recorded a near-record 1.14 million asylum claims last year, the highest since the 2015 crisis, when more than a million Syrians fleeing civil war entered the bloc.

Last year, a near-record 1.14 million people filed asylum claims in Europe, the highest number since the height of the 2015 migration crisis in Europe, when more than a million Syrians fleeing that country’s civil war entered the bloc. Claims are expected to again top one million this year, with 513,000 claims made in the first half of 2024, according to the European Union Agency for Asylum. Those figures don’t include more than four million Ukrainian refugees who have received temporary protection in the EU since the war began. Asylum seekers tend to be less educated and lower skilled than other immigrant groups, said Jan van de Beek, an independent Dutch researcher. Between half and two-thirds of all asylum seekers who arrived in the Netherlands since 1999 and have left school are unemployed and on benefits, even though the country suffers from extreme labor shortages, he said.

Takeaways by Macro Roundup® AI

  1. Europe recorded a near-record 1.14 million asylum claims last year, the highest since the 2015 crisis, when more than a million Syrians fleeing civil war entered the bloc.
  2. The European Union Agency for Asylum counted 513,000 claims in the first half of 2024, with the year again expected to top one million, excluding more than four million Ukrainian refugees granted temporary protection since the war began.
  3. Independent Dutch researcher Jan van de Beek says asylum seekers tend to be less educated and lower skilled than other immigrant groups, and that half to two-thirds of those who arrived in the Netherlands since 1999 and have left school are unemployed and on benefits despite extreme labor shortages.

Related Articles:

  • Germany Extends Temporary Controls To All Its Land Borders — Germany is extending temporary border controls to all of its land borders, expanding existing checks on its frontiers with Austria, the Czech Republic, Poland, and Switzerland. The interior ministry says the controls are intended to restrict irregular immigration and guard against Islamist terrorism and serious crime, and that 30,000 people have been turned away under the existing checks.
  • Changing Sub-Saharan Africa’s Growth Trajectory — Sub-Saharan Africa's working-age population is growing nearly 3% a year, versus close to zero in much of the world, and is projected to exceed China's within about a decade and reach a quarter of the global total. With modest productivity growth near 2%, the region is likely among the world's fastest-growing.
  • The Rich World Revolts Against Sky-High Immigration — 15m people moved to rich countries over three years, the biggest surge in modern history, with net migration exceeding 3m to America, 1.3m to Canada and about 700,000 to Britain. As immigration surged, output per person fell in Britain and Germany, partly because recent arrivals are on average less skilled than residents.

AI Summary. Crossings at the US southern border fell to 56,000 in a month from a record 220,000, putting the US on track for its lowest annual apprehensions since 2020, according to government data. A parole program admitting up to 30,000 pre-screened Cubans, Haitians, Venezuelans and Nicaraguans monthly has shifted flows toward legal migration.

Christine Murray Financial Times
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In July, 56,000 people crossed the US southern border illegally, down from a record 220,000 in December. A parole program allows up to an additional 30,000 pre-screened people from Cuba, Haiti, Venezuela, and Nicaragua to enter the US each month.

Have border crackdowns and legal parole programs reduced illegal crossings?

Core argument: Crossings at the US southern border fell to 56,000 in July from a record 220,000 in December, declining steadily since February and putting the US on track for the lowest annual apprehensions since the Covid-19 pandemic began in 2020, according to government data.

56,000 people crossed the US’s southern border in July, down from a record 220,000 in December. Crossings have been falling steadily since February. Despite a small uptick in August, border encounters were 68% lower than the same month a year ago. That has put the US on track for the lowest annual number of apprehensions since the Covid-19 pandemic began in 2020, according to government data. A parole programme introduced late last year allows up to 30,000 pre-screened people from Cuba, Haiti, Venezuela and Nicaragua — all of which are facing political and economic turmoil — to enter the US each month. While that has relieved pressure at the border — US Customs and Border Protection says encounters with individuals from those countries between ports of entry are down 99%— it means that legal migration has risen.

Takeaways by Macro Roundup® AI

  1. Crossings at the US southern border fell to 56,000 in July from a record 220,000 in December, declining steadily since February and putting the US on track for the lowest annual apprehensions since the Covid-19 pandemic began in 2020, according to government data.
  2. Despite a small uptick in August, US border encounters were 68% lower than in the same month a year earlier.
  3. A parole programme allowing up to 30,000 pre-screened people monthly from Cuba, Haiti, Venezuela and Nicaragua has raised legal migration, with US Customs and Border Protection reporting encounters with individuals from those countries between ports of entry down 99%.

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.
  • 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 Cost of Illegal Immigration — The US foreign-born population rose by 6.6mm to 51.6mm over a roughly three-year span, lifting immigrants to 15.6% of the population, above the prior records of 14.8% in 1890 and 14.7% in 1910. The authors estimate about 13.7mm illegal immigrants now live in the US, a net increase of 3.7mm.

Thursday, September 26, 2024

AI Summary. The authors find that Congress reduced deficits in response to rising projected deficits during 1984–2003 but that this year-to-year response was absent on average during 2004–2024. They estimate that holding the debt ratio below 250% with 95% probability requires gradual deficit reduction averaging 0.5%–1.2% of GDP over the next decade.

Alan Auerbach and Danny Yagan Brookings Papers On Economic Activity
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Btw 1984 and 2003, Congress offset ~ 1/3 of the changes in the projected 5-year deficit within a year. Post-2004 this policy feedback is absent. Auerbach and @dannyyagan suggest annual deficits should average .5-1.2% of GDP lower over the next decade.

How much deficit reduction is needed to stabilize the debt ratio?

Core argument: Congress on average did not respond to projected deficits during 2004–2024, ending the year-to-year fiscal feedback found for 1984–2003, when rising projected deficits were met with outlay reductions and tax increases.

Previous work found that Congress reduced the deficit during 1984-2003 when projected deficits rose; [e.g.] in the first period of 1991 the projected five-year surplus averaged −3.4% of potential GDP, and Congress enacted outlay reductions and tax increases of similar magnitudes that cumulatively increased the weighted surplus over the five-year window by 0.8% of GDP. We find that this year-to-year feedback has disappeared: Congress on average during 2004-2024 did not respond to the projected deficit. With large transitory deficit shocks like the COVID-19 pandemic and persistent interest rate shocks, keeping the debt ratio below 250% with 95% probability requires strong gradual feedback – 0.5%-1.2% of GDP average deficit reduction in the next decade – though less strong than actually observed during 1984-2003. [Alternatively], successful sudden feedback requires being able to undertake 1.5%-of-GDP deficit reductions twice in twelve-year periods, suggesting that a “wait-and-see” approach to successful deficit reduction sometimes allows little waiting.

Takeaways by Macro Roundup® AI

  1. Congress on average did not respond to projected deficits during 2004–2024, ending the year-to-year fiscal feedback found for 1984–2003, when rising projected deficits were met with outlay reductions and tax increases.
  2. Keeping the debt ratio below 250% with 95% probability requires gradual deficit reduction averaging 0.5%–1.2% of GDP over the next decade, less strong than the feedback observed during 1984–2003.
  3. Successful sudden feedback requires the ability to enact deficit reductions of 1.5% of GDP twice within twelve-year periods, suggesting a "wait-and-see" approach to deficit reduction sometimes allows little waiting.

Related Articles:

  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.
  • 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.
  • An Update to the Budget and Economic Outlook: 2024 to 2034 — The Congressional Budget Office projects a federal budget deficit of $1.9tn in fiscal 2024, or $2tn excluding payment-timing shifts, rising to $2.8tn by 2034. On that adjusted basis, deficits equal 7% of gross domestic product in 2024, dip to 5.5% by 2027, and reach 6.9% by 2034, versus a 3.7% average over the past 50 years.

AI Summary. Self-reported mental health deteriorated across all U.S. population subgroups examined from 1993 to 2019, and the authors estimate these declines raised death rates among prime-age non-Hispanic Whites and, to a lesser extent, Blacks, though worsening mental health is not the predominant explanation for those mortality trends.

Christopher Ruhm National Bureau of Economic Research
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.@christopherruhm examines adverse mortality trends for prime-age non-Hispanic Whites from 1999-2019 and finds that “worsening mental health is not the predominant explanation,” contrary to the Case and Deaton “deaths of despair” narrative.

Does worsening mental health explain rising prime-age death rates?

Core argument: Mental health deteriorated across all population subgroups examined between 1993 and 2019, and these declines raised death rates and contributed to adverse mortality trends among prime-age non-Hispanic Whites from 1999–2019, and to a lesser extent Blacks.

Mental health deteriorated between 1993 and 2019 for all population subgroups examined. These declines raised death rates and contributed to the adverse mortality trends experienced by prime-age non-Hispanic Whites and, to a lesser extent, Blacks from 1999-2019. However, worsening mental health is not the predominant explanation for them. To the extent these relationships support the general idea of “deaths of despair”, the specific causes comprising it should be both broader and different than previously recognized: still including drug mortality and possibly alcohol deaths but replacing suicides with fatalities from heart disease, lower respiratory causes, homicides, and conceivably cancer. Heterogeneity in the consequences of a given increase of poor mental health are generally more important than the sizes of the changes in poor mental health in explaining Black-White differences in the overall effects of mental health on mortality.

Takeaways by Macro Roundup® AI

  1. Mental health deteriorated across all population subgroups examined between 1993 and 2019, and these declines raised death rates and contributed to adverse mortality trends among prime-age non-Hispanic Whites from 1999–2019, and to a lesser extent Blacks.
  2. Worsening mental health is not the predominant explanation for the adverse mortality trends among prime-age non-Hispanic Whites and Blacks, despite raising death rates over 1999–2019.
  3. The causes comprising "deaths of despair" should be broader and different than previously recognized, still including drug mortality and possibly alcohol deaths but replacing suicides with heart disease, lower respiratory causes, homicides, and conceivably cancer.

Related Articles:

AI Summary. In the early 1950s US government spending on public services such as teacher salaries and hospital construction equaled about 25% of GDP while entitlements, including pensions and welfare, equaled about 3%; today each is around 15% of GDP. The authors estimate federal compensation pledges to various groups total roughly 6x US GDP.

Callum Williams The Economist
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US entitlement and pension spending is crowding out government spending on public services; in the 1950s spending on public services was 25% of GDP, and entitlement/pension spending was about 3%. Today they are at par at 15%. @econcallum

Has government spending shifted from public services to entitlements?

Core argument: U.S. state spending on public services fell from an estimated 25% of GDP in the early 1950s to about 15% today, while entitlements spending rose from roughly 3% of GDP to about 15%.

America shows how one government became a Lumbering Leviathan. In the early 1950s, we estimate that state spending on public services, including everything from paying teachers’ salaries to building hospitals, equaled 25% of the country’s GDP. At the same time, entitlements spending, broadly defined, was a small line item, with outlays on both pensions and other sorts of welfare equivalent to about 3% of GDP. Today the situation is very different. The American government’s outlays on entitlements have swelled and spending on public services has crashed. Both now equal around 15% of GDP. Governments have accumulated mind-boggling off-balance-sheet obligations to dole out money in the future. We estimate that America’s federal government has made pledges of compensation to different groups worth, in aggregate, six times American GDP

Takeaways by Macro Roundup® AI

  1. U.S. state spending on public services fell from an estimated 25% of GDP in the early 1950s to about 15% today, while entitlements spending rose from roughly 3% of GDP to about 15%.
  2. The U.S. federal government has made pledges of compensation to different groups worth, in aggregate, an estimated six times American GDP, an off-balance-sheet obligation to dole out money in the future.

Related Articles:

  • An Update to the Budget and Economic Outlook: 2024 to 2034 — The Congressional Budget Office projects a federal budget deficit of $1.9tn in fiscal 2024, or $2tn excluding payment-timing shifts, rising to $2.8tn by 2034. On that adjusted basis, deficits equal 7% of gross domestic product in 2024, dip to 5.5% by 2027, and reach 6.9% by 2034, versus a 3.7% average over the past 50 years.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • Federal Debt — Stabilizing federal debt would require a zero primary deficit — borrowing only to cover interest on past borrowing — which today would mean a cash deficit of about 3% of GDP, or roughly $800bn a year. The actual deficit is about $1.7tn, or 6% of GDP, with no political dynamics in prospect that would cut it to 3%.

AI Summary. Saudi Arabia is prepared to accept a prolonged period of lower oil prices as it and seven other OPEC+ members restore long-standing production cuts, abandoning an unofficial $100-a-barrel target. The International Monetary Fund estimates the kingdom needs oil near $100 a barrel to balance its budget.

Tom Wilson Financial Times
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Saudi Arabia plans to increase production in December, even if it means abandoning its prior target of $100/barrel, the price required to balance its budget. The Kingdom plans to tap FX reserves and issue debt to finance its budget deficit.

Will Saudi Arabia accept lower oil prices to regain market share?

Core argument: Saudi officials are committed to restoring OPEC+ production as planned on December 1, even if it brings a prolonged period of lower prices, with the kingdom ready to abandon its $100-a-barrel ambition to regain market share.

The world’s largest oil exporter and seven other members of the Opec+ producer group had been due to unwind long-standing production cuts from the start of October. But a two-month delay sparked speculation over whether the group would ever be able to raise output, with the price of Brent crude, the international benchmark, briefly dropping below $70 this month to its lowest since December 2021. However, officials in the kingdom are committed to bringing back that production as planned on December 1, even if it leads to a prolonged period of lower prices. Saudi Arabia needs an oil price of close to $100 a barrel to balance its budget, according to the IMF, as Crown Prince Mohammed bin Salman seeks to fund a series of megaprojects at the heart of an ambitious economic reform programme.

Takeaways by Macro Roundup® AI

  1. Saudi officials are committed to restoring OPEC+ production as planned on December 1, even if it brings a prolonged period of lower prices, with the kingdom ready to abandon its $100-a-barrel ambition to regain market share.
  2. Brent crude briefly fell below $70 a barrel, its lowest since December 2021, after a two-month delay in unwinding OPEC+ cuts raised speculation over whether the group could ever raise output.
  3. Saudi Arabia needs an oil price close to $100 a barrel to balance its budget, according to the IMF, as Crown Prince Mohammed bin Salman seeks to fund megaprojects central to his economic reform programme.

Related Articles:

  • The World Is Transitioning to American Oil From Saudi Crude — Saudi Aramco scrapped plans to raise production capacity to 13mm barrels a day from 12mm, a cancellation expected to save $20–40bn in capital spending over five years and signaling insufficient demand for additional Saudi oil. Saudi Arabia, pumping about 9mm barrels a day under OPEC+ cuts, appears set on lower output to support higher prices.
  • United States Produces More Crude Oil Than Any Country, Ever — The United States has produced more crude oil than any nation at any time for six consecutive years, averaging 12.9m barrels per day in 2023 and surpassing the prior record of 12.3m barrels per day. Output fell to 5.0m barrels per day in 2008 before rising as producers applied hydraulic fracturing and horizontal drilling.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.

AI Summary. U.S. officials say China's first Zhou-class nuclear-powered attack submarine, which features a distinctive X-shaped stern designed for greater maneuverability, sank at a shipyard near Wuhan, a setback for a priority weapons program that Chinese authorities sought to conceal.

Michael Gordon Wall Street Journal
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China’s newest Zhou-class nuclear-powered submarine suffered an accident and sank at a pier prior to going to sea. While the boat has been salvaged, Chinese authorities have not acknowledged the episode.

Has China's naval modernization suffered a setback from a submarine sinking?

Core argument: China's first Zhou-class nuclear-powered attack submarine sank at a shipyard near Wuhan in late May or early June, a major setback for a priority weapons program, U.S. officials said.

China’s newest nuclear-powered attack submarine sank in the spring, a major setback for one of the country’s priority weapons programs, U.S. officials said. The episode, which Chinese authorities scrambled to cover up and hasn’t previously been disclosed, occurred at a shipyard near Wuhan in late May or early June. The Zhou-class vessel that sank is the first of a new class of Chinese nuclear-powered subs and features a distinctive X-shaped stern, which is designed to make the vessel more maneuverable. The U.S. has suffered similar setbacks, which proved costly. In 1969, the nuclear-powered USS Guitarro was moored at a shipyard in California when it sank following a series of mistakes by construction workers. It wasn’t officially commissioned until 32 months after its sinking.

Takeaways by Macro Roundup® AI

  1. China's first Zhou-class nuclear-powered attack submarine sank at a shipyard near Wuhan in late May or early June, a major setback for a priority weapons program, U.S. officials said.
  2. The Zhou-class vessel features an X-shaped stern designed to make the submarine more maneuverable, and Chinese authorities scrambled to cover up the sinking, which had not previously been disclosed.
  3. The U.S. has suffered similar costly setbacks, including the nuclear-powered USS Guitarro, which sank while moored at a California shipyard in 1969 after a series of construction-worker mistakes and was commissioned 32 months later.

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