Edward Conard

Top Ten New York Times Bestselling Author

  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, October 18, 2024

AI Summary. Using political donation-based ideology scores, the author finds the average ideology of directors and executives at America's largest companies shifted left over two decades, moving from a modest conservative tilt to roughly the center—a shift of about 42% of a standard deviation. Conservatives nonetheless remain common among corporate elites.

Reilly Steel Columbia Law School
Date Posted:

Between 2001-22 both CEOs and senior corporate managers shifted left ideologically. The gap between centrist CEOs and left leaning senior managers increased significantly. @reillysteel argues corporate America is not red or blue; “it is purple.”

Has the political ideology of corporate leaders shifted left?

Core argument: The average ideology of U.S. corporate directors and executives shifted left by about 42% of a standard deviation between 2001 and 2022, moving from a modest conservative tilt to roughly the middle, based on contribution-based CF Scores.

Tracking contribution-based measures of corporate director and executive ideology over time [CF Score], I find that between 2001 and 2022, the average ideology of these individuals moved meaningfully to the left, starting from a modest conservative tilt and eventually landing around the middle. Unlike measures based on voter registration or the proportion donated to each party, the CFScore measure allows for distinctions within parties—such that a donation made to a progressive Democrat like Alexandria Ocasio-Cortez would be treated differently from a donation to a conservative Democrat like Joe Manchin. This leftward shift is large relative to the ideological distribution of corporate elites, amounting to about 42% of a standard deviation. The average ideology of the people who run America’s largest companies has become considerably more liberal. Contrary to the perception that the left has taken over big business, however, conservatives still remain common in the ranks of corporate elites. Corporate America is thus neither red nor blue; it is purple.

Takeaways by Macro Roundup® AI

  1. The average ideology of U.S. corporate directors and executives shifted left by about 42% of a standard deviation between 2001 and 2022, moving from a modest conservative tilt to roughly the middle, based on contribution-based CF Scores.
  2. The CF Score measure distinguishes within parties, treating a donation to a progressive Democrat like Alexandria Ocasio-Cortez differently from one to a conservative Democrat like Joe Manchin, unlike measures based on voter registration or party shares of donations.
  3. Conservatives remain common among corporate elites despite the leftward shift, leaving corporate America neither red nor blue but purple.

Related Articles:

  • The Market for CEOs: Evidence from Private Equity — In a study of larger U.S. companies bought by private equity, more than 70% hired new chief executives, and over 75% of those were external hires, unlike public companies where internal promotions dominate. The authors estimate these executives' pay exceeds that at similar-sized public companies, suggesting an active market for chief executives.
  • Disconnected: The Growing Class Divide in American Civic Life — 17% of Americans report having no close friends, and survey data show a wide educational gap: 24% of those with a high school education or less have no close friends versus 10% of college graduates. Three decades ago, Americans with less formal education reported social circles at least as large.
  • The Road to A Political Realignment in American Politics — College-educated voters are now more likely to identify as Democrats while those without degrees back Republicans, with educational attainment increasingly correlated with views on abortion, LGBTQ+ rights, and religion's relationship to government. This sorting leaves most states politically uncompetitive, with eight states near the national average in education levels holding 97 electoral votes in play.

AI Summary. Research finds corporate leadership is becoming more politically polarised, with a rising share of companies whose leadership teams are overwhelmingly left-leaning or right-leaning. The researchers link this to higher rates of disruption when politically mismatched executives leave or are pushed out.

John Burn-Murdoch Financial Times
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.@jburnmurdoch shows that Silicon Valley’s politics recently became deeply polarized “into an increasingly outspoken conservative venture capital industry and a still left-leaning broader tech sector.”

Is corporate leadership becoming more politically polarized, disrupting executive teams?

Core argument: Steel and a separate team of US finance professors find that the share of companies with overwhelmingly left-leaning or right-leaning leadership teams is rising, pointing to polarisation rather than a single leftward shift.

The political transformation of the corporate world has not been a single directional shift: polarisation is also increasing. Both Steel and a separate team of US finance professors find that the share of companies with overwhelmingly left-leaning or right-leaning leadership teams is rising, leading to increased rates of disruption when political misfits leave or are pushed out. The recent splintering of Silicon Valley into an increasingly outspoken conservative venture capital industry and a still left-leaning broader tech sector appears emblematic of this wider trend.

Takeaways by Macro Roundup® AI

  1. Steel and a separate team of US finance professors find that the share of companies with overwhelmingly left-leaning or right-leaning leadership teams is rising, pointing to polarisation rather than a single leftward shift.
  2. Both research efforts tie rising political homogeneity in leadership teams to higher rates of disruption when politically mismatched executives leave or are pushed out.
  3. The splintering of Silicon Valley into an increasingly outspoken conservative venture capital industry and a still left-leaning broader tech sector appears emblematic of wider corporate polarisation.

Related Articles:

  • The Political Transformation of Corporate America, 2001-2022 — Using political donation-based ideology scores, the author finds the average ideology of directors and executives at America's largest companies shifted left over two decades, moving from a modest conservative tilt to roughly the center—a shift of about 42% of a standard deviation. Conservatives nonetheless remain common among corporate elites.

AI Summary. A 20% down payment on a median-priced home now costs 83% of a year's income for a typical family ready to buy, up from 65% eight years earlier, according to Bloomberg calculations. Child care has risen from about a quarter of that family's weekly income to more than a third, while college costs have fallen as a share of income.

Shawn Donnan and Claire Ballentine Bloomberg
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Bloomberg finds that the price of the American Dream has risen sharply. In 2016 childcare cost the mean family ~ 25% of weekly income; it’s risen to over 33%. A 20% down payment on a median-priced home cost 65% of annual income in 2016, vs. 83% now.

Has the cost of middle-class life risen faster than incomes?

Core argument: A 20% down payment on a median-priced U.S. home costs 83% of a year's income for the typical family ready to buy, up from 65% on the eve of the 2016 election, according to Bloomberg calculations.

The standard 20% down payment on a median-priced home now costs 83% of a year’s income for the typical family ready to buy a home, up from 65% on the eve of the 2016 election, according to Bloomberg calculations. Buying a new car takes almost two extra weeks of work for the median household compared to eight years ago. Child care then cost the same family about a quarter of its weekly income. Now it swallows up more than a third. The cost of attending college has gone down as a share of income in recent years, a median household can expect to pay 75% of its annual income for a private college and more than third for a public in-state university.

Takeaways by Macro Roundup® AI

  1. A 20% down payment on a median-priced U.S. home costs 83% of a year's income for the typical family ready to buy, up from 65% on the eve of the 2016 election, according to Bloomberg calculations.
  2. Child care consumes more than a third of the typical family's weekly income, up from about a quarter eight years earlier, and buying a new car takes the median household almost two extra weeks of work.
  3. College costs have declined as a share of income in recent years, with a median household expecting to pay 75% of its annual income for a private college and more than a third for a public in-state university.

Related Articles:

  • The State of the American Middle Class — US households in every income tier had higher inflation-adjusted incomes in 2022 than in 1970, with median income rising 55% for lower-income households, 60% for middle-class households, and 78% for upper-income households. The gap widened: upper-income median income was 7.3x that of lower-income households, up from 6.3x.
  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.

AI Summary. Americans aged 65 and older per 100 prime-working-age Americans (20–49) rose from about 27 in 2000 to 39 in 2020 and is projected to reach 54 by 2040, with slower workforce growth as fertility declines. Labor scarcity could raise wages for less-educated workers, but rapid investment in robots has not been matched by investment in workers' skills.

Daron Acemoglu New York Times
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In 2000, there were 27 Americans aged 65+ for every 100 prime-age workers (20-49). In 15 years, there will be 54. Acemoglu argues that investment in human capital is needed to take on new tasks, including technical and advanced precision work.

How will population aging and labor scarcity reshape American wages?

Core argument: Americans over 65 per 100 prime-working-age Americans (20–49) rose from about 27 in 2000 to 39 in 2020 and are projected to reach 54 by 2040, changes driven mostly by declining fertility.

In 2000, there were about 27 Americans above the age of 65 for every 100 Americans of prime working age (between the ages of 20 and 49). By 2020, this number had increased to 39. By 2040, it will have risen to 54. Because these changes are driven mostly by a decline in fertility, the U.S. workforce will also soon begin to grow more slowly. If immigration into the United States is reduced this will only contribute to the aging problem. There’s a scenario in which a shortage of labor could be a boon for the U.S. economy. Wages for lower-educated workers stagnated or even declined between 1980 and the mid-2010s. Scarcity of labor can drive wages up, especially if combined with the right investments in both equipment and people. Alas, this isn’t what is happening in the United States. Investment in robots has increased rapidly, but it hasn’t been accompanied by adequate investments in people. The workforce remains unready for taking on new tasks, including technical and advanced precision work.

Takeaways by Macro Roundup® AI

  1. Americans over 65 per 100 prime-working-age Americans (20–49) rose from about 27 in 2000 to 39 in 2020 and are projected to reach 54 by 2040, changes driven mostly by declining fertility.
  2. The U.S. workforce will soon begin to grow more slowly because of declining fertility, and reduced immigration into the United States would contribute further to the aging problem.
  3. U.S. investment in robots has increased rapidly without adequate accompanying investment in people, leaving the workforce unready to take on new tasks, including technical and advanced precision work.

Related Articles:

  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.
  • Does Worker Scarcity Spur Investment, Automation and Productivity? Evidence from Earnings Calls — The authors estimate that a one-unit increase in a firm's labor issues, as measured by earnings calls, raises its investment by 28 basis points, implying roughly $55bn in additional US investment attributable to tighter labor markets. The effect is concentrated in industries relying heavily on routine manual tasks, such as manufacturing assembly and warehouse packaging.
  • A Data-Driven Case That AI Has Already Changed The U.S. Labor Market — Retail employment began declining in the early 2010s after holding steady for more than two decades, coinciding with heavy big tech investment in deep learning and the commercial adoption of AI-directed warehouse robots and predictive pricing and inventory tools. The author argues this circumstantial evidence suggests AI has already affected the US labor market, but does not constitute proof.

AI Summary. The FBI has reported that a Chinese state-linked firm hacked 260,000 internet-connected cameras, routers, and other devices in the US and other Western nations, and US officials are assessing a breach of systems used for court-authorized wiretapping after Verizon, AT&T, and other broadband networks were compromised. A historian argues Chinese firms must assist state intelligence services on request.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest argues a “Thucydides Cap” will limit Chinese stock market gains, “Geopolitics are more likely to negatively impact US investments in China in the years ahead than to surprise positively due to some kind of US-China detente.”

Does Chinese state-linked hacking limit the case for Chinese equities?

Core argument: The FBI disclosed that a Chinese state-linked firm hacked 260,000 internet-connected cameras, routers, and other devices in the US and other Western nations.

Consider the following: China is conducting espionage on an unprecedented scale. Last month, the FBI revealed that a Chinese state-linked firm hacked 260,000 internet-connected cameras, routers, and other devices in the US and other Western nations. US officials have launched an effort to understand the consequences of the latest Chinese hack which compromised systems the US government uses for court-authorized network wiretapping requests after Verizon, AT&T, and other broadband provider networks were breached. Chinese businesses are seen as inseparable from intelligence services. According to historian Calder Walton, Chinese businesses are required to work with its intelligence services whenever requested to do so, and these intelligence services are now “effectively silent partners in Chinese commerce with the outside world.”

Takeaways by Macro Roundup® AI

  1. The FBI disclosed that a Chinese state-linked firm hacked 260,000 internet-connected cameras, routers, and other devices in the US and other Western nations.
  2. US officials are assessing the consequences of a Chinese hack that compromised systems the US government uses for court-authorized network wiretapping requests, after Verizon, AT&T, and other broadband provider networks were breached.
  3. Historian Calder Walton says Chinese businesses are required to work with China's intelligence services whenever requested, and that those services are now "effectively silent partners in Chinese commerce with the outside world.".

Related Articles:

  • Behind Xi Jinping’s Pivot on Broad China Stimulus — 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.
  • U.S. Officials Race to Understand Severity of China’s Salt Typhoon Hacks — Federal authorities are investigating breaches of Verizon, AT&T and Lumen networks attributed to Salt Typhoon, a hacking group tied to Chinese intelligence. Investigators believe the compromises may have given the hackers access to systems the U.S. government uses for court-authorized wiretapping requests, though the severity remains unclear.
  • 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.

AI Summary. An election forecast model shows Donald Trump gaining, with Kamala Harris's national polling lead narrowing to 2.3 points from a peak of 3.5 points. The forecast describes the race as exceptionally close.

Nate Silver and Eli McKown-Dawson Silver Bulletin
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The latest @NateSilver538 update shows Harris’s national lead down to 2.3pp from a peak of 3.5pp on October 2; Nate is “confident this is real movement and not statistical noise.” The model gives Trump a 51.6% chance of winning the electoral college.

Is the presidential race narrowing to a near tie?

Core argument: Kamala Harris's lead in national polls has narrowed to 2.3 points, down from a peak of 3.5 points on October 2, according to the Silver Bulletin presidential election forecast.

Does Donald Trump have momentum in the race? Well, that’s a somewhat complicated question depending on what technically you mean by “momentum”. But he’s been gaining in our forecast, and had another good day today after cutting Harris’s lead to 2.3 points in national polls, down from a peak of 3.5 points on October 2. It remains an exceptionally close race, however.

Takeaways by Macro Roundup® AI

  1. Kamala Harris's lead in national polls has narrowed to 2.3 points, down from a peak of 3.5 points on October 2, according to the Silver Bulletin presidential election forecast.
  2. Donald Trump has been gaining in the Silver Bulletin forecast, which still describes the race as exceptionally close.

Related Articles:

  • Changing Opportunity: Sociological Mechanisms Underlying Growing Class Gaps and Shrinking Race Gaps in Economic Mobility — Across the 1978 to 1992 birth cohorts, adult household incomes fell for white children raised in low-income families and rose for those raised in high-income families, increasing the intergenerational persistence of income ranks among white children by 28%. Over the same cohorts, adult incomes rose for Black children at all parental income levels.
  • America’s Young Men Are Falling Even Further Behind — Labor force participation among US men ages 25 to 34 has not grown in a decade, standing at 89%, which one analysis of Bureau of Labor Statistics data estimates is more than 700,000 fewer participants than at 2004 rates; women's participation in that age group is up 6 percentage points over 10 years, to 79%.
  • Real Wage Growth: The Post-Pandemic Labor Market and Beyond — Real wage gains for non-managerial workers, roughly 80% of the private workforce, exceeded both those of all workers and projections based on pre-pandemic trends, which is attributed to labor market tightness and strong demand in low-wage sectors. This compression of wage inequality has persisted even as the labor market cooled and unemployment rose above 4%.

Monday, October 21, 2024

AI Summary. The US exempts nonresident individuals and foreign entities from tax on most capital gains from US financial assets and on interest from US bank deposits and other debt obligations, making those assets more attractive to foreign lenders. The author argues these inflows have raised US household debt, subsidizing domestic demand and enabling trade deficits, and proposes unwinding the tax preferences.

Kenneth Austin and Hillel Nadler Tax Notes Federal
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Kenneth Austin and @hillelnadler argue that tax and other preferences for foreigners holding U.S. assets are a driving force behind the large U.S. current account deficits and negative net asset positions, and recommend reducing their generosity.

Do US tax exemptions for foreign asset holders drive trade deficits?

Core argument: The United States exempts nonresident alien individuals and non-U.S. entities from tax on most capital gains from sales of U.S. financial assets and on interest from U.S. bank deposits and other debt obligations, making U.S. financial assets more attractive to foreign lenders.

America’s tax system is designed to attract foreign lenders. Because America’s financial markets are open, foreigners can lend (acquire U.S. assets like bonds or bank deposits) at will. Americans passively borrow in the aggregate as much as the rest of the world chooses to lend. And favorable tax treatment makes U.S. financial assets more attractive: The United States exempts nonresident alien individuals and non-U.S. entities from tax on most capital gains from the sale of U.S. financial assets and on interest from U.S. bank deposits and other debt obligations. In practice, foreign financial inflows have resulted in an increase in U.S. household debt, subsidizing domestic demand and allowing Americans to consume more than they produce — to run a trade deficit. The most obvious reform is to unwind the tax preferences for foreign holders of U.S. financial assets. Bilateral tax treaties limit the United States’ ability to impose tax on the income of some foreign asset holders, but the tax subsidies that the United States affords foreign asset holders go beyond what is required by treaty.

Takeaways by Macro Roundup® AI

  1. The United States exempts nonresident alien individuals and non-U.S. entities from tax on most capital gains from sales of U.S. financial assets and on interest from U.S. bank deposits and other debt obligations, making U.S. financial assets more attractive to foreign lenders.
  2. Because U.S. financial markets are open, foreigners acquire U.S. assets at will and Americans passively borrow in the aggregate as much as the rest of the world chooses to lend.
  3. Foreign financial inflows have in practice increased U.S. household debt, subsidizing domestic demand and allowing Americans to consume more than they produce and run a trade deficit.

Related Articles:

  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • Long Live the Dollar — Foreign investors have been the dominant net buyers of longer-dated US Treasuries, purchasing a net $700bn over a 14-month period against $860bn in total net issuance. These purchases came largely from non-official entities such as hedge funds, pension funds, insurance funds, and banks, potentially motivated by high US interest rates or currency speculation.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.

AI Summary. The United States' net international investment position deficit—the gap between foreign-owned US assets and US-owned foreign assets—is the largest on record and has turned negative across all major asset categories. Because much of the liability is equity, the author argues rebalancing could come through a correction in US equity values rather than a weaker dollar.

Chris Marsh Money: Inside and Out
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Net foreign claims on US assets are now 80% of US GDP, the most negative in history. @GeneralTheorist notes that this is partly a result of elevated U.S. equity prices, and may be resolved by a stock market correction rather than a fall in the dollar.

Can equity prices rebalance the US external position instead of the dollar?

Core argument: The US net international investment position debit is the largest of all time and has turned negative across all major asset categories, while the US external flow position is about to turn negative on all major categories as well.

The US net IIP debit is the largest of all time and has turned negative for all major asset categories in recent years—while the US external flow position is about to turn negative on all major categories. Does any of this matter? Seen from the perspective of the US dollar, the continued widening of the US net IIP debit position might suggest that at some point dollar weakness may be needed to facilitate external flow adjustment. However, growing equity liabilities means external adjustment can be achieved through other means—in particular, asset price adjustment. For example, a correction in US equity values would contribute to the rebalancing of the US net debit position without necessarily requiring dollar adjustment. So the growing external net debit position of the United States ironically might not call for more dollar adjustment. Then again, an equity correction would have wider implications for the US economy than simply contributing to a stronger external position—something that would not be good news for either the US economy or the world.

Takeaways by Macro Roundup® AI

  1. The US net international investment position debit is the largest of all time and has turned negative across all major asset categories, while the US external flow position is about to turn negative on all major categories as well.
  2. The continued widening of the US net IIP debit might suggest dollar weakness will eventually be needed to facilitate external flow adjustment, though growing equity liabilities mean adjustment could instead come through asset price movements.
  3. A correction in US equity values would contribute to rebalancing the US net debit position without necessarily requiring dollar adjustment, but would carry wider consequences for the US economy and the world.

Related Articles:

  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.
  • The Great Rotation (Part 2) — The US accounts for 63% of global stock market value but only 26% of global economic output, compared with about 40% of global GDP when its market share last exceeded 60%. The authors argue investors following global indexes are overpaying for US-generated income relative to that earlier period.

AI Summary. China's exports have grown faster than its own economy, rising by about 3 percentage points as a share of its GDP, with a nearly $1tn surge over four years. Measured against the GDP of its trading partners, China's manufactured-goods surplus has increased by about three-quarters of a percentage point of world GDP to a record high.

Brad Setser Aspen Strategy Group
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Rumors of deglobalization are overstated, @Brad_Setser argues, citing China’s expanded exports. Since the pandemic, China’s exports are up 3pp relative to GDP, and its manufacturing trade surplus is at a record high.

Is China's export growth outpacing its own economy?

Core argument: China's exports have risen by close to $1 trillion over the last four years, growing much faster than China's own economy and lifting exports as a share of Chinese GDP by about 3 percentage points.

There recently has been a clear inflection point in the data, and China’s economy is now re-globalizing. This trend is obvious, exports have recently grown much faster than China’s own economy. As a share of China’s GDP, exports are now up by about 3 percentage points. The close-to-a-trillion-dollar surge in China’s exports over the last four years stands in opposition to any narrative of a fracturing and deglobalizing world economy. In fact, measured relative to the GDP of its trading partners, China’s surplus in manufactured goods has increased by about three-quarters of a percentage point of world GDP and is now at a record high.

Takeaways by Macro Roundup® AI

  1. China's exports have risen by close to $1 trillion over the last four years, growing much faster than China's own economy and lifting exports as a share of Chinese GDP by about 3 percentage points.
  2. China's surplus in manufactured goods, measured relative to the GDP of its trading partners, has increased by about three-quarters of a percentage point of world GDP and stands at a record high.
  3. A clear inflection point in the data indicates that China's economy is re-globalizing, counter to narratives of a fracturing and deglobalizing world economy.

Related Articles:

  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.
  • 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.
  • EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles — The European Union voted to impose tariffs of up to 45% on electric vehicles made in China, lasting five years, with China vowing to protect its companies. Chinese-made electric cars rose from around 3% to more than 20% of EU electric vehicle sales over three years, with Chinese brands accounting for about 8%.

AI Summary. Intel and Boeing, once benchmarks for high-quality, demanding manufacturing, declined because of their own mistakes rather than cheap foreign competition. Because leading U.S. tech firms' software and devices depend on advanced semiconductors fabricated under contract, especially by Taiwan Semiconductor Manufacturing Co., Chinese subjugation of Taiwan could leave the U.S. tech sector at Beijing's mercy.

Greg Ip Wall Street Journal
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Over five years, the combined market cap of Boeing and Intel has halved. @greg_ip argues the crisis represents a “fundamental problem….the U.S. still designs the world’s most innovative products, but is losing the knack for making them.”

Does the decline of leading U.S. manufacturers threaten national security?

Core argument: Intel is worth less than $100 billion while Microsoft, Apple, and Nvidia are together worth $10 trillion.

Intel and Boeing were once the gold standard in manufacturing groundbreaking products to demanding specifications with consistently high quality. Not any longer. Neither fell prey to cheap foreign competition, but to their own mistakes. Since their problems are of their own making, it is tempting to leave them to their fates. Investors would likely shrug: Intel is worth less than $100 billion while Microsoft, Apple, and Nvidia are together worth $10 trillion. The problem: Those tech giants’ software and devices are useless without the advanced semiconductors whose fabrication they contract out, especially to Taiwan Semiconductor Manufacturing Co. If China makes good on its threat to subjugate Taiwan in the coming years, the entire U.S. tech sector could be at Beijing’s mercy.

Takeaways by Macro Roundup® AI

  1. Intel is worth less than $100 billion while Microsoft, Apple, and Nvidia are together worth $10 trillion.
  2. Intel and Boeing, once the gold standard in manufacturing groundbreaking products to demanding specifications with consistently high quality, fell not to cheap foreign competition but to their own mistakes.
  3. Microsoft, Apple, and Nvidia contract out fabrication of the advanced semiconductors their software and devices require, especially to Taiwan Semiconductor Manufacturing Co., so Chinese subjugation of Taiwan could leave the entire U.S. tech sector at Beijing's mercy.

Related Articles:

  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
  • 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.
  • Manufacturing Jobs Have Recovered, But Not Everywhere — U.S. manufacturing employment recovered the 650,000 jobs lost in the 2020 recession, rising above 12.9m workers and exceeding the pre-pandemic level of 12.8m — the first such post-recession recovery since the late 1970s. Even so, manufacturing's share of private-sector employment fell from 31% in 1970 to 9.7%.

AI Summary. Financing a growing federal deficit is easiest through short-term Treasury bills, which are cash-like and held by all investor classes, whereas longer-dated Treasuries carry interest-rate risk few investors will hold. The Treasury controls its own issuance mix and can raise the bill share without cooperation from the Federal Reserve or other agencies.

Joseph Wang Fed Guy Blog
Date Posted:

If either party emerges from the election with a trifecta, @FedGuy12 believes, “The likely result would not just be higher long-dated rates, but higher short-dated rates as well.” He expects the bill share of issuance to rise regardless of the winner.

How does the Treasury most easily finance a growing deficit?

Core argument: Financing a growing deficit is easiest through a greater share of Treasury bill issuance, since bills are cash-like and held by all investor classes, unlike longer-dated Treasuries, whose interest rate risk few investors are willing to hold.

The easiest way to finance a growing deficit is to issue a greater share of Treasury bills, which can be held by a wide range of investors. The demand for Treasury securities is deep, but it is subject to market sentiment and not infinitely elastic. This is particularly true for longer dated Treasuries, which carry significant interest rate risk that few investors are willing to hold. In contrast, Treasury bills are cash-like and held by all investor classes. The Treasury’s instinct last year in the face of market instability was to increase its share of bill issuance, and that approach would likely continue in the event of further fiscal deficit increases. The Treasury has full control over how it issues debt, and can easily point to history where bills were a much higher share of debt. This approach would not require the cooperation of the Fed nor any other government entity.

Takeaways by Macro Roundup® AI

  1. Financing a growing deficit is easiest through a greater share of Treasury bill issuance, since bills are cash-like and held by all investor classes, unlike longer-dated Treasuries, whose interest rate risk few investors are willing to hold.
  2. Demand for Treasury securities is deep but subject to market sentiment and not infinitely elastic, a constraint that applies particularly to longer-dated maturities.
  3. The Treasury has full control over how it issues debt and can shift toward bills without cooperation from the Federal Reserve or any other government entity, pointing to history when bills were a much higher share of debt.

Related Articles:

  • Weaker Demand for Treasuries — Recent 10-year and 30-year US Treasury auctions each cleared three basis points above the yields trading minutes beforehand, signaling demand significantly weaker than the market expected. Larger and more frequent such gaps since the Federal Reserve began raising interest rates make auction metrics an early indicator of weakening Treasury demand.
  • The Fiscal Impact of the Harris and Trump Campaign Plans — The Congressional Budget Office's current-law baseline projects U.S. national debt rising from 102% of GDP to 125% by 2035, exceeding the record 106% share set in 1946 within three years. The authors estimate the Harris campaign plan would raise debt to 133% of GDP by 2035 and the Trump plan to 142%.
  • One Weird Trick — A larger share of Treasury financing done through short-term bills rather than longer-dated coupon securities would likely ease upward pressure on long-term yields, though the effect may be modest. With the deficit estimated near $1.5t, shifting toward bills would let the Treasury hold coupon sizes steady or trim them, reducing near-term supply.

AI Summary. New York City Police Department figures show 4,858 major crimes with a minor accused or arrested in the most recent year, up 37% from 3,543 seven years earlier, with robberies and felony assaults continuing to rise. Police officials attribute the increase to a state law diverting most 16- and 17-year-old defendants from adult courts.

Maria Cramer New York Times
Date Posted:
Is Database:
Database

Btw 2017 and 2023, major crimes in NYC committed by perpetrators < 18 surged 37%. Kevin O’Connor, a retired assistant commissioner warns, "These are the future adults. What are these kids going to be like when they’re 20 or 25 years old?"

Does diverting teen defendants from adult courts increase youth crime?

Core argument: New York City recorded 4,858 major crimes in which a minor was accused or arrested last year, up 37% from 3,543 in 2017, according to Police Department figures.

The number of people under 18 accused of major crimes has increased sharply in New York City in the past seven years, Police Department figures show. Last year, there were 4,858 major crimes where a minor was accused or arrested, up from 3,543 in 2017 — a 37% increase. The seven index crimes are murder, rape, robbery, felony assault, burglary, grand larceny and grand larceny of automobiles. Many of the crimes have continued to increase dramatically in 2024, particularly robberies and felony assaults. Through Oct. 1, there were arrests for 969 felony assaults and 2,019 robberies, a 17% increase from the same time last year. Until recently, the criminal justice system in New York treated many young people accused of serious crimes as adults. But in 2017, when youth crime had fallen to lows not seen for decades, legislators in Albany changed the way the cases of 16- and 17-year-olds were handled, passing a law known as “Raise the Age.” Police officials in New York said the law, which diverted most cases of 16- and 17-year-old defendants from adult courts to Family Court or to judges with access to social services and special training, was at the root of the crisis.

Takeaways by Macro Roundup® AI

  1. New York City recorded 4,858 major crimes in which a minor was accused or arrested last year, up 37% from 3,543 in 2017, according to Police Department figures.
  2. New York City police made arrests for 969 felony assaults and 2,019 robberies through Oct. 1, a 17% increase from the same period a year earlier.
  3. New York police officials said the 2017 "Raise the Age" law, which diverted most cases of 16- and 17-year-old defendants from adult courts to Family Court or to judges with social services access and special training, was at the root of the crisis.

Related Articles:

  • It’s Time to Talk About America’s Disorder Problem — A meta-analysis of 56 studies found that disorder policing consistently reduces crime, but that indiscriminate "aggressive order maintenance" arrests did not significantly reduce crime while problem-oriented strategies targeting specific sources of disorder often had sizable effects without spillovers. The authors note that a large share of disorder comes from a small number of people and places.
  • The Collapse of Broken-Windows Policing in New York City, Los Angeles, and Washington, DC, 2013–22 — Arrests for minor "broken-windows" offenses—counted as misdemeanors, violations, and infractions per 100,000 residents—fell 74% in New York, 77% in Washington, DC, and 81% in Los Angeles over the period studied, declining steadily in New York and Los Angeles.
  • Criminal Victimization, 2023 — The U.S. rate of violent victimization — including rape or sexual assault, robbery, aggravated assault, and simple assault — was 22.5 per 1,000 persons age 12 or older, statistically unchanged from the prior year and from five years earlier. The rate declined over the prior three decades from 79.8 per 1,000.

AI Summary. An analysis of positions voluntarily disclosed by roughly 500 hedge funds found more funds are net short batteries, solar, electric vehicles and hydrogen than long them, while more are net long fossil fuels than short oil, gas and coal. This comes despite large green stimulus programs in the US, Europe and China.

Sheryl Lee, Ishika Mookerjee and Christopher Udemans Bloomberg
Date Posted:

A Bloomberg analysis finds hedge funds are net short against “green” stocks like batteries, solar and electric vehicles. Since its high in 2021, the S&P Global Clean Energy Index has lost almost 60% of its value.

Are hedge funds betting against clean energy and favoring fossil fuels?

Core argument: The S&P Global Clean Energy Index has lost almost 60% of its value since a 2021 high, while the S&P 500 and the S&P Global Oil Index have each gained more than 50%.

Despite vast green stimulus packages in the US, Europe and China, more hedge funds are on average net short batteries, solar, electric vehicles and hydrogen than are long those sectors; and more funds are net long fossil fuels than are shorting oil, gas and coal, according to a Bloomberg News analysis of positions voluntarily disclosed by roughly 500 hedge funds to Hazeltree, a data compiler in the alternative investment industry. The hedge funds’ bets have coincided with a wave of momentum that’s been building against key corners of the green economy. Since a recent high in 2021, the S&P Global Clean Energy Index has lost almost 60% of its value, while the S&P 500 Index and the S&P Global Oil Index have soared more than 50%.

Takeaways by Macro Roundup® AI

  1. The S&P Global Clean Energy Index has lost almost 60% of its value since a 2021 high, while the S&P 500 and the S&P Global Oil Index have each gained more than 50%.
  2. A Bloomberg News analysis of positions voluntarily disclosed by roughly 500 hedge funds to data compiler Hazeltree finds more funds on average net short batteries, solar, electric vehicles and hydrogen than long those sectors.
  3. More hedge funds in the Hazeltree data are net long fossil fuels than are shorting oil, gas and coal, despite vast green stimulus packages in the US, Europe and China.

Related Articles:

  • Reconciling The Tension Between Green Spending and Debt Sustainability — The green energy transition is likely to reduce growth for some time, and with the gap between interest rates and growth rates near zero in many countries, stabilizing debt ratios requires primary budget balances to eventually reach zero or a small surplus. That end constraint cannot be altered; the only margin governments have is how quickly they reach it.
  • Clean Energy Sets $1.1 Trillion Record That’s Bound to Be Broken — Global investment in the energy transition reached $1.1tn, matching investment in fossil fuels for the first time, according to clean energy research group BloombergNEF. The fossil fuel figure covers oil and gas across upstream, midstream and downstream segments plus power generation without emissions reduction technology.
  • Giant Batteries Are Transforming the Way the U.S. Uses Electricity — California has installed more grid-scale batteries than any place outside China, storing excess daytime solar power for use after dark and supplying over one-fifth of the state's electricity during some evening hours. National battery storage capacity has grown tenfold over three years to 16,000 megawatts and is expected to nearly double again, led by Texas, California, and Arizona.