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


Tuesday, October 15, 2024

AI Summary. Modeling US ports with queueing theory and demand estimation, the authors estimate that port infrastructure investment yields substantial trade and welfare gains only if well targeted—net of costs, returns are positive at a minority of US ports. They also find sizable spillovers, as upgrading one port decongests others, and that macroeconomic volatility can substantially alter returns and their geography.

Giulia Brancaccio, Myrto Kalouptsidi, Theodore Papageorgiou National Bureau of Economic Research
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A study of 51 large U.S. ports over 2010-2021 indicates that only 15 ports would deliver a positive return on infrastructure investment, driven in part by high congestion at the port and the potential to relieve congestion at other ports. @myrto_kaloup

Does port infrastructure investment pay off only at some ports?

Core argument: With 80% of international trade carried by ships, the authors find that port infrastructure investment yields positive returns net of costs at only a minority of US ports, so gains depend on proper targeting.

80% of [international] trade is carried by ships. Ports are susceptible to disruptions, causing costly delays. To explore the drivers of welfare gains from investing in infrastructure, we consider how these gains depend on both the characteristics of the treated port, as well as those of the set of ports it decongests.[The] empirical framework combines insights from queueing theory to capture port technology, with tools from demand estimation and novel datasets, to quantify the costs of disruptions and evaluate transportation infrastructure investment. Our analysis unveils three policy-relevant messages: (i) investing in port infrastructure can lead to substantial trade and welfare gains, but only if targeted properly– in fact, net of costs, investment has positive returns at a minority of US ports; (ii) there are sizable spillovers across ports, as investing in one port can decongest a wider set of ports, suggesting that coordinated decision-making may result in more efficient investment decisions; (iii) [by raising the likelihood that capacity constraints will bind], macroeconomic volatility can drastically change returns to investment and their geography.

Takeaways by Macro Roundup® AI

  1. With 80% of international trade carried by ships, the authors find that port infrastructure investment yields positive returns net of costs at only a minority of US ports, so gains depend on proper targeting.
  2. The authors find sizable spillovers across ports, as investing in one port can decongest a wider set of ports, suggesting that coordinated decision-making may result in more efficient investment decisions.
  3. By raising the likelihood that capacity constraints bind, macroeconomic volatility can drastically change returns to port investment and their geography, according to a framework combining queueing theory with demand estimation and novel datasets.

Related Articles:

  • US Dockworkers Go Back to Work as Talks Extended to January — US dockworkers ended a three-day strike that halted trade at East and Gulf coast ports, extending their contract and reopening ports while negotiations resume on a long-term deal including a pay increase of about 62%. A supply-chain data company estimates the resulting cargo backlog will take over a month to clear.
  • Americas Transportation: Eye on Freight: Potential Ramifications Should Labor Disruption Arise at East/Gulf Coast Ports — The authors estimate that a labor disruption at U.S. East and Gulf Coast ports would halt roughly $4.9bn of containerized goods per day — about $25bn after one work week — equal to roughly 61% of total U.S. ocean trade and 25% of total daily U.S. trade. Pulled-forward demand and re-routing to the West Coast could mitigate the impact.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.

AI Summary. Global public debt is projected to approach 100% of GDP by 2030, with China and the United States largely driving the increase. Debt is projected to stabilize or decline in about two-thirds of countries, but remains higher than before the pandemic.

IMF Staff International Monetary Fund
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The IMF projects that global public debt levels will approach 100% of global GDP by 2030, up from ~65% in 2007, primarily driven by the US and China. They argue that “much larger fiscal adjustments than currently planned are required to stabilize debt.”

Is global public debt projected to approach 100% of GDP?

Core argument: Global public debt is expected to exceed $100 trillion in 2024 and is projected to approach 100% of GDP by 2030, with China and the United States, the world's two largest economies, largely driving the increase.

Public debt levels are elevated around the world and are expected to exceed $100 trillion in 2024. After a decline in 2021−22, global public debt edged up again in 2023 and is projected to approach 100% of GDP by 2030, with the world’s two largest economies, China and the United States, largely driving the increase. Although debt is projected to stabilize or decline by 2029 in about two-thirds of the world’s countries, it remains higher than before the pandemic.

Takeaways by Macro Roundup® AI

  1. Global public debt is expected to exceed $100 trillion in 2024 and is projected to approach 100% of GDP by 2030, with China and the United States, the world's two largest economies, largely driving the increase.
  2. Public debt is projected to stabilize or decline by 2029 in about two-thirds of the world's countries, but remains higher than before the pandemic.

Related Articles:

  • Fiscal Monitor: Fiscal Policy in the Great Election Year — The US general government deficit rose to 8.8% of GDP from 4.1% despite strong growth, as income tax revenues fell 3.1 percentage points of GDP and spending rose 1.3 points, with deficits projected above 6% of GDP over the medium term. Loose fiscal policy could make disinflation harder.
  • 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.
  • China Begins Nationwide Push to Reveal Hidden Government Debt — China's Ministry of Finance reported governments across the country held 37tn yuan ($5.1tn) in on-book debt, with no official tally of hidden debt or who owes it. The International Monetary Fund estimated local government financing vehicles held 66tn yuan ($9.2tn) of hidden debt at end-2022, up from 40tn yuan in 2019.

AI Summary. The United States' share of combined G7 output has risen from about two-fifths in 1990 to roughly half, with output per person now about 40% above Western Europe and Canada and 60% above Japan — roughly double the 1990 gaps. Average wages in Mississippi exceed national averages in Britain, Canada, and Germany.

Simon Rabinovitch and Henry Curr The Economist
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Between 1990 and today, the US share of G7 GDP increased from 40% to ~ 50%. Mean wages in Mississippi, the poorest state in the US, are higher than mean wages in the UK, Canada, and Germany. @S_Rabinovitch @currhenry

Has the US widened its output gap with other rich countries?

Core argument: U.S. per-person economic output is about 40% higher than in Western Europe and Canada and 60% higher than in Japan, roughly twice the size of those gaps in 1990.

In 1990 America accounted for about two-fifths of the overall GDP of the G7 group of advanced countries; today it is up to about half On a per-person basis, American economic output is now about 40% higher than in Western Europe and Canada, and 60% higher than in Japan—roughly twice as large as the gaps between them in 1990. Average wages in America’s poorest state, Mississippi, are higher than the averages in Britain, Canada, and Germany. America’s outperformance has accelerated recently. Since the start of 2020, just before the covid-19 pandemic, America’s real growth has been 10%, three times the average for the rest of the G7 countries. Among the G20 group, which includes large emerging markets, America is the only one whose output and employment are above pre-pandemic expectations, according to the International Monetary Fund.

Takeaways by Macro Roundup® AI

  1. U.S. per-person economic output is about 40% higher than in Western Europe and Canada and 60% higher than in Japan, roughly twice the size of those gaps in 1990.
  2. The U.S. share of G7 GDP has risen from about two-fifths in 1990 to about half today, and average wages in Mississippi, America's poorest state, exceed the averages in Britain, Canada, and Germany.
  3. Since the start of 2020, U.S. real growth has been 10%, three times the average for the rest of the G7, and the IMF finds America is the only G20 member with output and employment above pre-pandemic expectations.

Related Articles:

  • The Future of European Competitiveness – A Competitiveness Strategy for Europe — 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.
  • 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%.
  • 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.

AI Summary. Equity markets have grown more concentrated at the stock level, with the 10 largest US companies accounting for just under 20% of global equity market value and the top 5 roughly 15%. Many dominant technology firms are shifting from capital-light, scalable models toward capital-heavy investment, raising uncertainty over whether future returns will justify current valuations.

Peter Oppenheimer, Sharon Bell, Lilia Peytavin and Guillaume Jaisson Goldman Sachs
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A @goldmansachs analysis notes the largest American firms account for 18% of the value of the global equity market, and argues that “this increased concentration has reflected extraordinary profit growth rather than speculative exuberance.”

Does rising market concentration and capital-heavy tech investment raise return uncertainty?

Core argument: The 10 largest companies account for just under 20% of global equity market value and the top 5 roughly 15%, with concentration at the stock level most obvious in the US.

Equity markets have become increasingly concentrated at the stock level. This is most obvious in the US, where the biggest 10 companies account for around just under 20% of the value of the global equity market, and the top 5 companies roughly 15%. Encouragingly, the valuations of large cap Technology remain much lower than we have seen in previous bubble periods. However, many of the dominant Technology companies are shifting away from their capital-light, highly scalable business models and are increasingly capital-heavy. There is rising uncertainty over whether these companies can generate the future returns on these investments that is reflected in their current valuations. History suggests that the companies that build the underlying infrastructure in technology revolutions are often not the main beneficiaries (think of the Telecom companies during the late 1990s compared with the app-based businesses that emerged later and were able to benefit from the capex that had been built and paid for by others).

Takeaways by Macro Roundup® AI

  1. The 10 largest companies account for just under 20% of global equity market value and the top 5 roughly 15%, with concentration at the stock level most obvious in the US.
  2. Valuations of large cap Technology remain much lower than in previous bubble periods, but many dominant Technology companies are shifting from capital-light, highly scalable models toward capital-heavy ones, raising uncertainty over future returns on those investments.
  3. History suggests the companies building underlying infrastructure in technology revolutions are often not the main beneficiaries, as with Telecom firms in the late 1990s versus later app-based businesses that benefited from capex paid for by others.

Related Articles:

  • AI: To Buy, Or Not To Buy, That Is The Question — Valuations of AI-related stocks remain well below levels seen in past bubbles, with the median price-to-earnings and enterprise-value-to-sales ratios of the 7 largest technology companies roughly half those of the dominant 7 at the 2000 technology peak. But leading AI firms are no longer capital-light, and a major capital-spending boom threatens the high returns current valuations imply will continue.
  • 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. US labor productivity per hour has grown 73% since 1990, versus 39% in the euro area and 55% in both Britain and Japan. America also invests more, with non-residential investment near 17% of GDP and R&D around 3.5%, and sees company churn of nearly 20% annually versus roughly 15% in Europe.

Simon Rabinovitch and Henry Curr The Economist
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Since 1990 labor productivity per hour in the US has increased 73%, outpacing Japan’s 55% increase and the Euro Area’s 39% gain. @S_Rabinovitch and @currhenry speculate this outperformance is driven by higher investment and business dynamism.

Why does American productivity growth outpace other advanced economies?

Core argument: American productivity per hour has grown 73% since 1990, versus 39% in the euro area and 55% in both Britain and Japan.

When assessed on a per-hour basis the gap remains sizeable: 73% productivity growth for American workers since 1990 versus 39% in the euro area, 55% in Britain, and 55% in Japan. American workers have more tools at their disposal, both the physical kind such as highways and warehouses, and the intangible sort in the form of software. Non-residential investment has run at about 17% of GDP in America since the mid-1990s, consistently higher than the share in large European economies. With the exceptions of Israel and South Korea, America invests more in R&D than any other country, at roughly 3.5% of GDP. America’s overall economic environment, often described as its business dynamism, is a second factor. One way of showing this is the churn rate among its companies, or the share that are created or dissolved in any given year. [In the US this is] nearly 20% of companies annually (roughly half are new businesses and the other half are those that stop operating). In Europe, it is closer to 15%. This difference reflects the twin facts that it is easier both for old firms to fold in America and for startups to obtain financing.

Takeaways by Macro Roundup® AI

  1. American productivity per hour has grown 73% since 1990, versus 39% in the euro area and 55% in both Britain and Japan.
  2. Non-residential investment has run at about 17% of GDP in America since the mid-1990s, consistently above the share in large European economies, and America invests roughly 3.5% of GDP in R&D, more than any country except Israel and South Korea.
  3. Nearly 20% of American companies are created or dissolved annually, split roughly evenly between startups and closures, versus closer to 15% in Europe, reflecting that it is easier both for old firms to fold and for startups to obtain financing in America.

Related Articles:

  • Why is the U.S. GDP Recovering Faster Than Other Advanced Economies? — The U.S. output advantage over other advanced economies is attributed mainly to faster labor productivity growth and secondarily to hours worked per employee. Rigid foreign labor markets and job-retention policies kept workers attached to firms producing below capacity, while the U.S. saw about 3x more sectoral worker reallocation and a surge in new firm formation.
  • High-Growth Firms in the United States: Key Trends and New Data Opportunities — The share of U.S. firms classified as high-growth fell from 18% in 1985 to 12% in 2015, with the decline concentrated among young and small firms while mature and large firms showed little change. All sectors declined, especially construction and manufacturing, though information industries staged a modest rebound after 2010.
  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.

AI Summary. The Federal Reserve expanded the monetary base from $800bn to $4tn without raising inflation fears or spurring spending, because it has promised to contract the money supply before inflation takes hold and has the credibility to do so. Quantitative easing only works if made permanent and thus guaranteed to inflict inflation.

Ed Conard, Simon Johnson, Roger Bootle, and Andrew Huszar EdwardConard.com
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Congratulations @baselinescene (and @DAcemogluMIT and James Robinson) on your well-deserved Nobel. In 2015 Simon and I debated whether “Central Banks Can Print Prosperity.”

Can central banks print prosperity by expanding the monetary base?

Core argument: Conard argues that the Fed's five-fold expansion of the monetary base from $800 billion to $4 trillion had no effect on inflation fears, with the money sitting unlent and unborrowed, producing neither growth nor inflation.

Here’s the rub: the Fed increased the monetary base from $800 billion to $4 trillion dollars—an unprecedented five-fold increase—and it had no effect on anyone’s fear of inflation whatsoever. No one ran to the banks to spend their savings. The money sits unused neither lent nor borrowed, creating neither growth nor inflation. Why? Because the Fed has promised to prevent inflation by contracting the money supply before the economy recovers and people start exchanging IOUs for corn. With hard-fought decades of successfully defeating price inflation, the Fed has earned its credibility. And with Republicans threatening the Fed’s independence if it doesn’t fight inflation, the Fed’s promise has even more credibility. Advocates of Quantitative Easing pretend we can have our cake and eat it too—that we can scare savers into spending by printing money without needing to inflict the cost of inflation on the economy after it recovers. But it didn’t work when we needed stimulus. Even Ben Bernanke now admits that QE will only work if it’s permanent—if it’s guaranteed to inflict inflation on the economy. But nowhere does he advocate making QE permanent because of the damage inflation inflicts.

Takeaways by Macro Roundup® AI

  1. Conard argues that the Fed's five-fold expansion of the monetary base from $800 billion to $4 trillion had no effect on inflation fears, with the money sitting unlent and unborrowed, producing neither growth nor inflation.
  2. Conard attributes the absence of inflation to the Fed's credibility, earned over decades of defeating price inflation and reinforced by Republican threats to its independence, in promising to contract the money supply before the economy recovers.
  3. Conard notes that Ben Bernanke admits quantitative easing will work only if made permanent and guaranteed to inflict inflation, yet Bernanke does not advocate making QE permanent because of the damage inflation causes.

Related Articles:

AI Summary. The United States is projected to spend an estimated $1.7tn over 30 years to modernize its nuclear arsenal, including new submarines, bomber jets, land-based missiles, and thermonuclear warheads. The program, planned since 2010, amounts to roughly $57bn a year and involves work in at least 23 states.

W.J. Hennigan New York Times
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The US nuclear modernization program will cost ~ $1.7T over 30 years, including new bomber jets, land-based missiles, and thermonuclear warheads. Overall 2024 defense spending was 2.7% of GDP in 2024, vs. 5.6% at the end of the Cold War.

What will it cost to modernize the US nuclear arsenal?

Core argument: The United States is set to spend an estimated $1.7 trillion over 30 years to revamp its nuclear arsenal, amounting to almost $57 billion a year, or $108,000 per minute.

With Russia at war, China escalating regional disputes, and nations like North Korea and Iran expanding their nuclear programs, the United States is set to spend an estimated $1.7 trillion over 30 years to revamp its own arsenal. The spending spree, which the government began planning in 2010, is underway in at least 23 states — nearly 50 if you include subcontractors. It follows a decades-long freeze on designing, building, or testing new nuclear weapons. Along with the subs, the military is paying for a new fleet of bomber jets, land-based missiles, and thermonuclear warheads. Tally all that spending, and the bill comes to almost $57 billion a year, or $108,000 per minute for three decades.

Takeaways by Macro Roundup® AI

  1. The United States is set to spend an estimated $1.7 trillion over 30 years to revamp its nuclear arsenal, amounting to almost $57 billion a year, or $108,000 per minute.
  2. The nuclear modernization program, which the government began planning in 2010, covers new submarines, bomber jets, land-based missiles, and thermonuclear warheads, following a decades-long freeze on designing, building, or testing new nuclear weapons.
  3. Spending on the U.S. nuclear buildup is underway in at least 23 states, and nearly 50 counting subcontractors, as Russia wages war, China escalates regional disputes, and North Korea and Iran expand their nuclear programs.

Related Articles:

  • China Is Rapidly Building Warships. Satellite Images Reveal The Scale — China's shipbuilding capacity now exceeds the United States' by such a margin that it can build more ships in a month than American yards build in a year, with a workforce estimated at nearly 5x the US level. Chinese yards handled more than 1,700 orders in a year, compared with fewer than five for American shipyards.
  • Top Defence Contractors Set To Rake In Record Cash After Orders Soar — The 15 largest aerospace and defence contractors are forecast to generate $52bn in free cash flow in 2026, almost double their combined 2021 level, as governments increase orders for new weapons. Five top US contractors alone are projected to produce $26bn, more than twice their 2021 total.
  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.

Wednesday, October 16, 2024

AI Summary. Analysis of returns on invested capital by industry from 1963 to 2023 finds that variation in value creation within industries exceeds variation across industries, with every industry containing both value-creating and value-destroying companies. Adjusting returns for intangible investment pulls the highest and lowest results toward the middle, narrowing the distribution.

Michael Mauboussin and Dan Callahan Morgan Stanley
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.@mjmauboussin reviews ROIC from 1963-2023 including adjustment for intangibles, and finds that “the variance within industries is greater than the variance across industries. The industry is important but does not dictate a firm’s destiny.”

Does value creation vary more within industries than across them?

Core argument: Return on invested capital varies more within industries than across them over 1963–2023, underscoring that industry is important but does not dictate a firm's destiny.

Industries that create value in the aggregate nonetheless have companies that have neutral and negative [return on invested capital (ROIC) vs. weighted average cost of capital (WACC)] spreads. And industries that destroy value in the aggregate still have companies that create value. Exhibit 40 shows ROIC by industry from 1963 to 2023. There are a couple of important takeaways. First, the variance within industries is greater than the variance across industries. This underscores that the industry is important but does not dictate a firm’s destiny. All industries have companies that create and destroy value. The second takeaway is that adjusting ROIC for intangibles tends to pull the very high and very low ROICs toward the middle. The median and average ROICs are similar for both the traditional and adjusted calculations, but the distribution has less variance following the modifications.

Takeaways by Macro Roundup® AI

  1. Return on invested capital varies more within industries than across them over 1963–2023, underscoring that industry is important but does not dictate a firm's destiny.
  2. Every industry contains both value-creating and value-destroying companies: industries that create value in aggregate include firms with neutral and negative ROIC-versus-WACC spreads, and industries that destroy value in aggregate still contain value creators.
  3. Adjusting ROIC for intangibles pulls very high and very low ROICs toward the middle, leaving median and average ROICs similar to the traditional calculation but reducing the variance of the distribution.

Related Articles:

  • Valuation Multiples — Valuation multiples have become less able to capture a business's underlying economics as corporate investment has shifted from tangible assets like factories to intangible assets and how those are recorded in financial statements. Adjusting Microsoft's reported $72.4bn net income for intangible investment raises it 14.7% to $83bn and cuts its price-to-earnings ratio from 34.9 to 30.5.
  • 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. The authors estimate the modeled tariff proposals would raise $1.2tn–$4.4tn over 10 years, or 0.3–1.2% of average GDP, with foreign retaliation cutting that revenue by 12–26%. They project consumer prices initially rise 1.2–5.1%, equal to $1,900–$7,600 of lost disposable income per household, with real GDP contracting 0.5–1.4% in the medium term.

Ernie Tedeschi Yale University
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.@ernietedeschi analyzes Trump’s proposed tariffs, both with and without retaliation, and projects $1.2-$4.4T in revenue over 10 years, a 0.5-1.4% decline in real GDP, and a $1.9-7.6k decline in average real disposable income per household.

How much revenue do tariffs raise, and at what cost?

Core argument: The modeled tariff proposals raise $1.2 trillion–$4.4 trillion over 10 years under conventional assumptions, equal to 0.3–1.2% of average GDP, with foreign retaliation cutting US tariff revenue by 12–26% relative to the same proposal without retaliation.

The tariff proposals modeled raise between $1.2 to $4.4 trillion over 10 years under conventional assumptions or 0.3 to 1.2% of average GDP. When other countries retaliate against US tariffs, that lowers US tariff revenue relative to the same proposal under a no-retaliation scenario by 12-26%. Tariffs also initially raise the level of consumer prices by 1.2 to 5.1%. This represents between a tenth and a third of the price level increase experienced over 2020-2023. The loss in average disposable income from these price increases would be the equivalent of $1,900 to $7,600 per household in 2023 dollars. Most of this analysis assumes conventional assumption of fixed US aggregate economic activity, we also present some partial estimates of dynamic effects on the size of the US economy from the various tariff proposals. In the medium term, real US GDP contracts by between -0.5 to -1.4%.

Takeaways by Macro Roundup® AI

  1. The modeled tariff proposals raise $1.2 trillion–$4.4 trillion over 10 years under conventional assumptions, equal to 0.3–1.2% of average GDP, with foreign retaliation cutting US tariff revenue by 12–26% relative to the same proposal without retaliation.
  2. The tariffs initially raise consumer price levels by 1.2–5.1%, between a tenth and a third of the price level increase experienced over 2020–2023, costing average disposable income the equivalent of $1,900–$7,600 per household in 2023 dollars.
  3. Partial estimates of dynamic effects, departing from the assumption of fixed US aggregate economic activity, show real US GDP contracting by 0.5–1.4% in the medium term under the tariff proposals.

Related Articles:

  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.
  • He Helped Trump Remake Global Trade. His Work Isn’t Done — A former U.S. trade representative argues that countries running chronic trade surpluses for decades are by definition protectionist, and backs a universal 10% tariff plus a higher tariff on China to push toward globally balanced trade over time. Alternatives include import certificates tied to exports and a charge on foreign investment in U.S. assets.
  • Only Trump Can Make America European — A European-style welfare state with government spending at 45% of GDP cannot be financed by taxing the rich alone and would require a large consumption tax, which Republican opposition has long blocked. Proposed tariffs of 10% on all imports and 60% on China are a regressive consumption tax that could open the door to a later value-added tax.

AI Summary. Projected net migration ranges from 3.7mm under a high-immigration policy scenario to negative 740,000 under a low-immigration scenario, implying four-year growth in the working-age civilian population of anywhere from 5mm to 15mm people. The authors project the resulting gap in annual US economic growth at roughly half a percentage point, or about $130bn.

Wendy Edelberg, Cecilia Esterline, Stan Veuger and Tara Watson Niskanen Center
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.@WendyEdelberg, @stanveuger, and @CecEsterline estimate that the four-year growth in the total civilian non-institutionalized population over age 16 could range from 5mm to 15mm, depending on the impact of the election on immigration.

How much does immigration policy change US economic growth?

Core argument: Net migration in 2025 is projected at 3.7mm under a Harris, high scenario versus negative 740,000 under a Trump, low scenario, with different consequences for the U.S. economy.

In our Harris, high scenario net migration is 3.7mm in 2025, whereas in the Trump, low scenario net migration is negative 740,000. Each of these scenarios for net immigration flows has different consequences for the U.S. economy. The cumulative growth in the total civilian non-institutionalized population over age 16 (CNIP) over four years, including both U.S.-born and foreign-born people, could be as little as 5mm people or as many as 15mm people depending on the scenario. For comparison, continuation of average CNIP growth between January 2000 and January 2024 would suggest a four-year gain of 9mm people. We project a gap in 2025 GDP growth between the Trump, low, and Harris, high scenarios of roughly half a percentage point from differences in immigration policy (meaning that GDP in 2025 would be lower in the Trump immigration scenario than in the Harris scenario by around $130B).

Takeaways by Macro Roundup® AI

  1. Net migration in 2025 is projected at 3.7mm under a Harris, high scenario versus negative 740,000 under a Trump, low scenario, with different consequences for the U.S. economy.
  2. A roughly half-percentage-point gap in 2025 GDP growth is projected between the Trump, low, and Harris, high immigration scenarios, leaving 2025 GDP about $130B lower under the Trump scenario.
  3. Cumulative four-year growth in the U.S. civilian non-institutionalized population over age 16 could range from 5mm to 15mm people depending on the scenario, against 9mm implied by average growth from January 2000 to January 2024.

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%.
  • U.S. Immigrant Population in 2023 Saw Largest Increase In More Than 20 Years — The U.S. immigrant population rose by about 1.6m to a record 47.8m, the largest single-year increase since 2000, according to a Pew Research Center analysis of U.S. Census Bureau data. Immigrants made up 14.3% of the total U.S. population, up from 4.7% in 1970 but below the 1890 record of 14.8%.
  • 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.

AI Summary. U.S. electricity demand grew 4.4% from 2011 to 2023 but is projected to rise 25% by 2035 under current stated policies, an increase of nearly 1,000 terawatt-hours. Electric vehicles account for nearly 60% of that projected growth, followed by industry, while data centres tied to artificial intelligence contribute a modest share.

IEA Staff International Energy Agency
Date Posted:
Is Database:
Database

Between 2011-23 electrical demand in the US increased by just 4.4%; @IEA forecasts that electrical demand will rise by 25% between 2023-35, with 60% of the growth driven by the uptake of EVs.

What will drive projected growth in US electricity demand?

Core argument: U.S. electricity demand rose 4.4% from 2011 to 2023, but the Stated Policies Scenario projects a 25% increase from 2023 to 2035, an addition of nearly 1,000 TWh.

Electricity demand in the United States increased by just 4.4% from 2011 to 2023, but it rises by 25% from 2023 to 2035 in the [Stated Policies Scenario], up by nearly 1,000 TWh. The uptake of EVs accounts for nearly 60% of electricity demand growth to 2035. Industry is the next largest driver of demand growth, with the use of electricity expanding in many sub-sectors. Despite efficiency gains, use of electricity in buildings also rises, some of which reflects rapidly expanding demand for data centres. While there is some uncertainty about the rate of growth for data centres linked to artificial intelligence, we currently project that the potential impact on overall US electricity demand growth by 2035 is modest relative to other sectors, with a set of low-emissions options available to meet this demand.

Takeaways by Macro Roundup® AI

  1. U.S. electricity demand rose 4.4% from 2011 to 2023, but the Stated Policies Scenario projects a 25% increase from 2023 to 2035, an addition of nearly 1,000 TWh.
  2. EV uptake accounts for nearly 60% of projected U.S. electricity demand growth to 2035, with industry the next largest driver as electricity use expands across many sub-sectors.
  3. The potential impact of AI-linked data centres on overall U.S. electricity demand growth by 2035 is projected to be modest relative to other sectors, with a set of low-emissions options available to meet that demand.

Related Articles:

  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.
  • 2023 Long-Term Reliability Assessment — North American grid reliability assessments project electricity capacity deficits over the next decade in areas where generator retirements are expected before replacement resources are in service to meet rising demand. Ten-year peak demand and energy growth forecasts are higher than at any point in the past decade, contributing to lower reserve margins.
  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.

AI Summary. The International Energy Agency projects home air conditioning will require an extra 697 terawatt hours of electricity by 2030 — more than 3x the added demand from computer data centres — with electric vehicles needing an extra 854 terawatt hours. The agency attributes the rise to higher incomes in the developing world and higher temperatures from climate change.

Malcolm Moore Financial Times
Date Posted:
Is Database:
Database

An @IEA global analysis finds air conditioning will require an additional 697 terawatt hours of electricity by 2030, 3x the forecast growth from new data centers.

What will drive growth in global electricity demand?

Core argument: The IEA projects home air conditioning will require an extra 697 TWh of electricity by 2030, more than three times the additional demand from computer data centres, while electric vehicles would require an extra 854 TWh.

Researchers at the International Energy Agency said a combination of rising incomes in the developing world and higher temperatures from climate change meant that power used for home air conditioning units would rise by an amount greater than the entire Middle East’s electricity use today. The prediction came as the IEA revised up its forecasts for electricity demand forecasting that usage in 2035 would be 6% higher than anticipated last year. The report said air conditioning would need an extra 697 terawatt hours of electricity by 2030, more than three times the extra demand from computer data centres. Electric vehicles, meanwhile, would require an extra 854 TWh, the IEA said. Fatih Birol, the head of the IEA, said “Just to put it in context, in the US and Japan, 90% of households have air conditioning but it is 5% of households in Nigeria, 15% in Indonesia, and less than 20% in India.”

Takeaways by Macro Roundup® AI

  1. The IEA projects home air conditioning will require an extra 697 TWh of electricity by 2030, more than three times the additional demand from computer data centres, while electric vehicles would require an extra 854 TWh.
  2. The IEA revised up its electricity demand forecasts, projecting 2035 usage 6% higher than previously anticipated, and attributed the rise in air conditioning power use to rising incomes in the developing world and higher temperatures from climate change.
  3. IEA head Fatih Birol said 90% of households in the US and Japan have air conditioning, compared with 5% in Nigeria, 15% in Indonesia and less than 20% in India.

Related Articles:

  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
  • The Future of Cooling — Over half of the world's 1.6bn air conditioners are in just two countries, China with 570m units and the United States with 375m, and nearly 70% of all units globally are in residential buildings. Household ownership ranges from about 4% in India and under 10% in Europe to over 90% in the United States and Japan.
  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.

AI Summary. The US produces roughly 13mm barrels per day of crude oil and 3bn cubic metres per day of natural gas, making it the world's largest producer of both. Its need for foreign crude began declining in 2008, and it became a net energy exporter in 2019, recording a net energy surplus of about $65bn last year.

Simon Rabinovitch and Henry Curr The Economist
Date Posted:

Fracking has been a key driver of making the US the world’s largest oil and natural gas producer. Last year the US had a net energy surplus of $65B. @S_Rabinovitch @currhenry

Has America's shale boom turned it into a net energy exporter?

Core argument: The United States produces roughly 13mm barrels per day of crude oil and 3bn cubic metres per day of natural gas, making it the world's biggest producer of both.

America produces some 13mm barrels per day of crude oil and 3bn cubic metres per day of natural gas, making it the world’s biggest producer of both. The economic effects have been far-reaching. Most obviously it has changed America’s trading relationship with the world. Long a major importer of oil, America’s need for foreign crude started to decline in 2008—just when its oil-shale fields really took off. By 2019 it was, for the first time in more than half a century, exporting more energy than it imported (although it produces more than it consumes domestically, it still imports vast quantities of oil because it needs some varieties only produced overseas). Last year America recorded a net energy surplus of about $65bn.

Takeaways by Macro Roundup® AI

  1. The United States produces roughly 13mm barrels per day of crude oil and 3bn cubic metres per day of natural gas, making it the world's biggest producer of both.
  2. America's need for foreign crude began declining in 2008, just as its oil-shale fields took off, and by 2019 the country exported more energy than it imported for the first time in more than half a century.
  3. The United States recorded a net energy surplus of about $65bn, while still importing vast quantities of oil because it needs some varieties produced only overseas.

Related Articles:

  • U.S. Energy Production Exceeded Consumption By Record Amount In 2023 — U.S. energy production rose 4% to nearly 103 quadrillion British thermal units while consumption fell 1% to 94, leaving production exceeding consumption by 9 quadrillion British thermal units, the widest gap in records dating to 1949. Dry natural gas, crude oil, natural gas plant liquids, and renewables all reached record output.
  • 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.
  • 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.

AI Summary. Officials and advisers say China's near-term policy goal is not to massively stimulate demand but to head off a brewing financial crisis and stabilize the economy around a growth target of about 5%. Reports reaching Beijing describe a liquidity crunch in which cash-strapped local governments struggle to pay civil servants and contractors.

Lingling Wei Wall Street Journal
Date Posted:

.@Lingling_Wei reports that the recent fiscal expansion in China is an effort to manage an ongoing local government liquidity crunch and stabilize the stock market, not an attempt to rebalance the economy.

Is China's stimulus aimed at financial risks rather than boosting demand?

Core argument: Officials and advisers say Xi Jinping's near-term aim is to fend off a brewing financial crisis — "derisking" in official lingo — rather than massively stimulate demand, while stabilizing the economy and hitting the 5%-or-so growth target.

For Xi, officials and advisers say, the near-term goal isn’t to massively stimulate demand but to fend off a brewing financial crisis—or “derisking,” in official lingo—thereby helping to stabilize the overall economy and achieve the 5%-or-so growth target for this year. The benchmark of mainland-traded stocks, the CSI 300 Index, was headed for an unprecedented fourth straight year of losses. What’s more, reports were flowing into the power center in Beijing of a festering liquidity crisis across China. In particular, financially strained local governments have been struggling to pay civil servants as well as state-owned and private contractors. “There is a severe shortage of cash among local governments,” said one of the people familiar with the situation. “Something has to be done to avoid a full-blown crisis.”

Takeaways by Macro Roundup® AI

  1. Officials and advisers say Xi Jinping's near-term aim is to fend off a brewing financial crisis — "derisking" in official lingo — rather than massively stimulate demand, while stabilizing the economy and hitting the 5%-or-so growth target.
  2. The CSI 300 Index of mainland-traded stocks was headed for an unprecedented fourth straight year of losses, as reports of a festering liquidity crisis across China flowed into Beijing.
  3. Financially strained Chinese local governments have struggled to pay civil servants and state-owned and private contractors, with one person familiar with the situation citing a severe cash shortage and saying something must be done to avoid a full-blown crisis.

Related Articles:

  • China’s Youth Unemployment Hits New High as Fresh Graduates Flood Market — China's unemployment rate for 16-24 year olds, excluding students, rose to 18.8% from 17.1% the prior month, the highest since the country reintroduced the revised data series. The jobless rate for 25-29 year olds, excluding college students, also rose, to 6.9% from 6.5%.
  • Communist Party Priorities Complicate Plans to Revive China’s Economy — China's leadership objects to Western-style consumption-driven growth, viewing it as wasteful and at odds with the goal of making China a world-leading industrial and technological power, according to people familiar with decision-making in Beijing. Chinese officials also emphasized avoiding a current-account deficit, which would signal greater dependence on the outside world.
  • China Economy Memo: Tempest in a Teapot or Crisis A-Brewing? — The authors argue China is heading into a protracted debt crisis in which about 40% of local government financing vehicles default, hitting regional banks most exposed to such lending. They estimate total losses for these creditors at roughly $5tn, or about 30% of China's GDP.