Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, November 5, 2024

AI Summary. The authors estimate that unemployment, current inflation, and a set of noneconomic factors explain much of the variation in US presidential approval ratings since 1956, with the economic indicators' combined contribution almost always negative. Once noneconomic effects are included, the Michigan Consumer Sentiment Index loses its advantage over the economic variables.

Robert Gordon National Bureau of Economic Research
Date Posted:

Robert Gordon finds that presidential approval ratings in 1973-1983 were persistently reduced by high inflation and unemployment, while “the post-Millenium decline in average approval” is dominated by “non-economic contributions” such as polarization.

How well do unemployment and inflation explain presidential approval ratings?

Core argument: The Michigan Consumer Sentiment Index, inflation, unemployment, and noneconomic factors together provide a relatively complete explanation of the variance in US presidential approval ratings since 1956, with the combined unemployment-and-inflation contribution negative except briefly in 1999.

The combination of MCSI [the Michigan Consumer Sentiment Index], the two economic indicators [inflation and unemployment], and the set of noneconomic factors provides a relatively complete explanation of the variance in Presidential approval ratings since 1956. The separate roles of the sets of explanatory variables are captured by Figure 8. At the top the combined contribution of the unemployment and current inflation indicators, which is always negative except briefly in 1999. The role of the two oil shocks of the 1970s in making unemployment and inflation worse together dominates the blue frame, with additional negative contributions coming from high unemployment in the 2008-09 recession and its aftermath, and from high inflation in 2022-23. Once non-economic effects are taken into account, the advantage of the MCSI over the economic variables disappears, and in fact only unemployment and current inflation are significant. There is a continuous negative orange area after 2000 representing the post-Millenium decline in average approval, together with extra negative orange boxes for the last term of Bush junior, for all of the Trump Presidency, and for Biden’s last two years.

Takeaways by Macro Roundup® AI

  1. The Michigan Consumer Sentiment Index, inflation, unemployment, and noneconomic factors together provide a relatively complete explanation of the variance in US presidential approval ratings since 1956, with the combined unemployment-and-inflation contribution negative except briefly in 1999.
  2. Once noneconomic effects are taken into account, the Michigan Consumer Sentiment Index loses its advantage over the economic variables, and only unemployment and current inflation are significant.
  3. The two oil shocks of the 1970s, which worsened unemployment and inflation together, dominate the economic drag on approval, with further negative contributions from high unemployment in the 2008-09 recession and its aftermath and from high inflation in 2022-23.

Related Articles:

  • 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%.
  • Digesting Inflation — The authors estimate that inflation's drag on consumer sentiment decays about 50% per year, with a 10% inflation shock cutting sentiment by 35 index points in the current year, 16 the next, and 8 the year after. On these estimates, inflation over the prior three years is holding sentiment down by 16 index points.
  • It’s No Longer The Economy, Stupid — The long-standing link between economic sentiment and government popularity has disappeared in the US while remaining strong in France and Germany and, to a lesser degree, the UK. The author attributes this decoupling to hyper-partisanship, arguing that American voters' political allegiances now shape their economic perceptions rather than the reverse.

AI Summary. Households headed by unmarried women without children under 18 had median wealth of $87,200, similar to households headed by unmarried men, while households headed by unmarried women with children had median wealth of $10,700.

Richard Fry Pew Research Center
Date Posted:
Is Database:
Database

The median wealth of unmarried women without children is $87,200, on par with the wealth of unmarried men at $82,100. 50% of unmarried women without children own a home, vs. 47% of unmarried men. @PewResearch

Do children explain the wealth gap between unmarried women and men?

Core argument: Households headed by unmarried women without children under 18 had a median wealth of $87,200 in 2022, similar to the median for households headed by unmarried men.

Households headed by unmarried women who do not have children under 18 had a median wealth of $87,200 in 2022 – similar to households headed by unmarried men. In contrast, the median wealth of households headed by unmarried women with children was $10,700. (We cannot look at the wealth of households headed by unmarried men with or without children separately due to the relatively small number of single-father households.)

Takeaways by Macro Roundup® AI

  1. Households headed by unmarried women without children under 18 had a median wealth of $87,200 in 2022, similar to the median for households headed by unmarried men.
  2. Households headed by unmarried women with children under 18 had a median wealth of $10,700 in 2022, compared with $87,200 for unmarried women without children.
  3. The relatively small number of single-father households prevents separate wealth estimates for unmarried men with and without children.

Related Articles:

AI Summary. Boeing machinists voted 59% in favor of a four-year contract delivering a 38% wage increase, a $12,000 ratification bonus, and a pledge to build the company's next plane in the Pacific Northwest, ending a strike by 33,000 workers. Boeing has warned investors it expects to remain cash-flow negative after burning through more than $10bn over nine months.

Sharon Terlep Wall Street Journal
Date Posted:

Despite negative expected cash flow in 2025, Boeing agreed with its largest union on a 38% wage increase over four years, and a pledge to build the company’s next new plane design in the Pacific Northwest rather than non-unionized South Carolina.

Did large wage gains end the aircraft machinists' strike?

Core argument: Boeing's 33,000 Pacific Northwest machinists voted to end their strike, ratifying a four-year contract delivering a 38% wage increase, with 59% of ballots cast in favor of the company's third offer.

Workers voted in favor of a contract that delivers a 38% wage increase over the life of the four-year deal for 33,000 machinists in the Pacific Northwest who build most of Boeing’s jets. Boeing’s third offer got the support of 59% of the votes cast by union members. Holden said about 26,000 members cast votes for the deal, which also included a $12,000 ratification bonus and pledge to build the next plane in the Pacific Northwest. Boeing builds the wide-body 787 at a nonunion factory in South Carolina. Boeing has warned investors that it expects to remain cash-flow negative in 2025 after burning through more than $10 billion in the first nine months of this year.

Takeaways by Macro Roundup® AI

  1. Boeing's 33,000 Pacific Northwest machinists voted to end their strike, ratifying a four-year contract delivering a 38% wage increase, with 59% of ballots cast in favor of the company's third offer.
  2. The ratified Boeing deal includes a $12,000 ratification bonus and a pledge to build the company's next plane in the Pacific Northwest, where machinists build most of Boeing's jets.
  3. Boeing has warned investors it expects to remain cash-flow negative in 2025 after burning through more than $10 billion in the first nine months of the year.

Related Articles:

  • Crises at Boeing and Intel Are a National Emergency — 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.
  • Boeing’s Next Crisis: Aerospace Workers Demanding 40% Pay Raise — Boeing's largest union, the International Association of Machinists and Aerospace Workers, is demanding a 40% pay raise over three or four years, citing a scarcity of qualified aerospace workers and an earlier contract that sacrificed pensions and limited raises. Analysts at Jefferies estimate every 10% rise in machinist wages would reduce Boeing's free cash flow by about $260m.
  • Trends in Real Wage Growth among Union, Nonunion Workers — Wage changes for union and nonunion workers tend to move similarly over time, with union workers' nominal wage changes less volatile, and since 2002 both groups' wages increased at the same rate. When consumer prices grew faster than wages, real wage growth turned negative despite a strong labor market, then turned positive as inflation fell.

AI Summary. A final election simulation model run of 80,000 simulations produced a near-even split, with Kamala Harris winning the Electoral College in 50.015% of cases and losing in 49.985%. Of the losses, 39,718 were outright Donald Trump wins and 270 were 269-269 ties, which would likely be resolved for Trump in the U.S. House of Representatives.

Nate Silver and Eli McKown-Dawson Silver Bulletin
Date Posted:

The final @NateSilver538 update shows Harris with a national lead of 1pp; the model gives Harris a 50% chance of winning the electoral college relative to a 49.6% chance for Trump. The model gives Trump a 51.3% of winning Pennsylvania.

Is the presidential election forecast essentially a coin flip?

Core argument: Silver Bulletin's final 2024 forecast gave Kamala Harris a win in 40,012 of 80,000 simulations (50.015%), versus 39,988 (49.985%) in which she did not win.

Happy Election Day! At exactly midnight on Tuesday, we ran our simulation model for the final time in this election cycle. Out of 80,000 simulations, Kamala Harris won in 40,012 (50.015%) cases. She did not win in 39,988 simulations (49.985%). Of those, 39,718 were outright wins for Donald Trump and the remainder (270 simulations) were exact 269-269 Electoral College ties: these ties are likely to eventually result in Trump wins in the U.S. House of Representatives.

Takeaways by Macro Roundup® AI

  1. Silver Bulletin's final 2024 forecast gave Kamala Harris a win in 40,012 of 80,000 simulations (50.015%), versus 39,988 (49.985%) in which she did not win.
  2. Of the 39,988 simulations Harris did not win, 39,718 were outright Donald Trump victories and 270 were exact 269-269 Electoral College ties.
  3. Silver Bulletin expects 269-269 Electoral College ties to eventually result in Trump wins in the U.S. House of Representatives.

Related Articles:

  • 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%.
  • Has Pay Kept Up With Inflation? — All four measures of typical and aggregate pay have grown since 2019 when adjusted using the personal consumption expenditures price index, but show smaller increases in three measures and a decline in one when adjusted using the consumer price index. This pattern of smaller gains under consumer price index adjustment holds across time periods.
  • The Politics of Progress and Privilege: How America’s Gender Gap Is Reshaping the 2024 Election — Survey data show 35% of Americans say the term "feminist" describes them somewhat or very well, down from 51% earlier. Women are more likely than men to identify as feminist (42% vs 27%), with the widest gap among those age 18–29, where 55% of women but 31% of men claim the label.

Wednesday, November 6, 2024

AI Summary. Election data show the Republican candidate improved on his prior presidential margin in nearly 90% of US counties, with rural turnout strong and urban support for the Democratic candidate falling short. Exit polls indicate Asian, Black, Hispanic, and white voters all shifted toward him, while the Democrat gained only among voters over 65 and white college-educated women.

Eva Xiao, Sam Learner, Oliver Roeder, Clara Murray, et al. Financial Times
Date Posted:

Exit poll analysis by Catalist and Edison Research finds 18-19pp shifts toward Trump vs. 2020 among Hispanic and Asian voters, while over-65s and white college-educated women showed 4pp shifts toward Harris.

Did the Republican gain across nearly all counties and demographic groups?

Core argument: Trump improved on his 2020 margin in almost 90% of US counties, with rural turnout favoring him while urban voters did not deliver strongly enough for Harris.

Across the US, the data shows urban voters did not come through strongly enough for Harris, while people in rural areas turned out for Trump. He improved on his 2020 margin in almost 90% of counties nationwide. The Republican candidate gained support among huge swaths of the electorate compared with 2020, according to exit poll data. Asian, Black, Hispanic, and white voters all moved towards Trump. Harris only increased her vote share among the over-65s and with white college-educated women.

Takeaways by Macro Roundup® AI

  1. Trump improved on his 2020 margin in almost 90% of US counties, with rural turnout favoring him while urban voters did not deliver strongly enough for Harris.
  2. Exit poll data show Asian, Black, Hispanic, and white voters all shifted toward Trump compared with 2020.
  3. Harris increased her vote share only among voters over 65 and white college-educated women.

Related Articles:

  • 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.
  • Progressives Beware: High Turnout Now Favours The Right — In US elections from the 1960s to 2000, higher turnout tended to favor Democrats because habitual voters were disproportionately wealthy and well-educated, while occasional voters came from lower socio-economic groups. That gradient has reversed as economically marginalised voters shifted rightward: lower-turnout, graduate-heavy electorates now tend to help Democrats.
  • American Politics Is Undergoing A Racial Realignment — National election surveys and Gallup polling show the Democratic Party's advantage among Black, Latino, and Asian voters at its lowest level since 1960. The article argues this shift reflects fading civil rights-era ties, a weakening link between income and party choice, and non-white voters with long-held conservative views aligning their votes with those views.

AI Summary. Tariffs during Trump's first term had no noticeable effect on inflation because they were relatively modest and coincided with subdued global demand, weak investment, and slack labor markets. Proposed tariffs of at least 60% on China and 10%–20% elsewhere would lift US tariff rates to their highest since the 1930s amid brisk demand, making them a greater inflation risk.

Greg Ip Wall Street Journal
Date Posted:

.@greg_ip argues that Trump’s proposed tariff and tax cut policies would put upward pressure on inflation and interest rates. As evidence, he cites the rise of 10-year Treasury yields alongside Trump’s polling.

Are higher tariffs a bigger inflation risk when demand is strong?

Core argument: Trump has proposed tariffs of at least 60% on China and 10–20% on all other trading partners, a combination that would lift U.S. tariff rates to their highest since the 1930s.

Trump’s first-term tariffs had no noticeable effect on inflation because they were relatively modest, and globally subdued demand and investment and slack labor markets were pushing in the opposite direction. On the eve of his election, wages were rising just 2.4% a year. Bond investors expected future inflation to average 1.8%, below the Fed’s 2% target. This time Trump has proposed much higher tariffs—at least 60% on China, and 10% to 20% on everyone else. Such a combination would lift U.S. tariff rates to their highest since the 1930s. And it would come when demand is brisk, supply chains are vulnerable to geopolitical conflict, and memories of inflation are fresh. Wages are growing 3.8% a year, and bonds see future inflation at 2.3%. This suggests tariffs could pose more of an inflation risk than in his first term.

Takeaways by Macro Roundup® AI

  1. Trump has proposed tariffs of at least 60% on China and 10–20% on all other trading partners, a combination that would lift U.S. tariff rates to their highest since the 1930s.
  2. Trump's first-term tariffs had no noticeable effect on inflation because they were relatively modest, while subdued global demand and investment and slack labor markets pushed in the opposite direction.
  3. Wage growth of 3.8% a year and bond-market inflation expectations of 2.3% compare with 2.4% and 1.8% on the eve of Trump's first election, suggesting tariffs could pose more of an inflation risk than in his first term.

Related Articles:

  • US Fiscal Outlook Starting to Play a Role for Long-Term Interest Rates — Long-term US interest rates are rising even as markets price in five Federal Reserve rate cuts over the coming 12 months and oil prices fall, disconnecting long rates from those drivers. This pattern suggests long rates are being pushed up by emerging concerns about US fiscal sustainability.
  • US Interest Burden Hits 28-Year High, Escalating Political Risk — US Treasury net interest payments reached $882bn in a fiscal year, equal to 3.06% of gross domestic product — the highest ratio since 1996 — and about 18% of federal revenues. The net interest bill exceeded Defense Department spending on military programs for the first time.
  • C’est la vie: Bond Vigilantes Are Back — France's government bond yield spread widened by 0.29 percentage points, more than Italy's 0.22 and Spain's 0.2, which the authors attribute to political uncertainty created by the calling of a snap national election. The French spread has remained elevated, while the Italian and Spanish spreads have come down.

AI Summary. China imposed sanctions on Skydio, the largest US drone maker and a supplier to Ukraine's military, barring Chinese firms from supplying it with critical components including batteries from its sole provider. The company is seeking alternative suppliers and has asked the US government for help.

Demetri Sevastopulo, Kathrin Hille, and Ryan McMorrow Financial Times
Date Posted:

Skydiom, the largest US drone maker, is facing a supply chain crisis after Beijing banned Chinese groups from providing it with critical components. CEO Adam Bry noted, “This is an attempt to eliminate the leading American drone company.”

Can a US drone maker keep producing without Chinese components?

Core argument: Beijing sanctioned Skydio, the largest US drone maker and a supplier to Ukraine's military, barring Chinese groups from supplying it critical components and blocking batteries from its sole provider.

Skydio, the US’s largest drone maker and a supplier to Ukraine’s military, faces a supply chain crisis after Beijing imposed sanctions on the company, including banning Chinese groups from providing it with critical components. Skydio is rushing to find alternative suppliers after Beijing’s move, which also blocks battery supplies from its sole provider, said people familiar with the situation. The drone maker has sought help from the Biden administration. The Chinese action comes as the US Congress considers legislation that would ban Americans from flying drones made by DJI, the Shenzhen-based company that dominates the global commercial drone industry. “We suspect Skydio was targeted by Beijing because it is likely seen as a competitor to DJI,” said one US official. “If there is a silver lining, we can use this episode to accelerate our work to diversify drone supply chains away from . . . China.”

Takeaways by Macro Roundup® AI

  1. Beijing sanctioned Skydio, the largest US drone maker and a supplier to Ukraine's military, barring Chinese groups from supplying it critical components and blocking batteries from its sole provider.
  2. Skydio is rushing to find alternative suppliers and has sought help from the Biden administration after the Chinese sanctions triggered a supply chain crisis.
  3. One US official said Skydio was suspected of being targeted because Beijing likely sees it as a competitor to DJI, as the US Congress considers legislation banning Americans from flying DJI drones.

Related Articles:

  • US Efforts to Contain Xi’s Push for Tech Supremacy Are Faltering — Research by Bloomberg Economics and Bloomberg Intelligence finds that of 13 key technologies tracked, China has reached global leadership in five and is catching up in seven others, with clear leads in electric vehicles, automotive software and lithium battery technology. China still struggles to develop manufacturing processes for advanced semiconductors, the main focus of US export controls.
  • Mystery Drones Swarmed a U.S. Military Base for 17 Days. The Pentagon Is Stumped — Unidentified drones flew over a U.S. military base for 17 days in a coordinated pattern of higher-altitude fixed-wing aircraft and smaller quadcopters below, leading U.S. officials to doubt hobbyists were responsible. Federal law bars the military from shooting down drones near domestic bases absent an imminent threat.
  • Pentagon Plan to Buy Thousands of Drones Faces Looming Snags — The US Department of Defense aims to buy thousands of low-cost drones within as little as 18 months and up to 2,000 larger uncrewed jets, while one of its primary drone suppliers produced 38 aircraft last year. Booming commercial aerospace demand has left shortages of skilled labor, raw materials, and parts such as advanced electronics and fasteners.

AI Summary. Bloomberg Economics says US tariffs of up to 60% on Chinese goods would decimate trade between the two largest economies, on top of tightened export controls on advanced technology. China has expanded its retaliatory toolkit to include export controls on critical raw materials, agricultural tariffs, and an entity list targeting American companies.

Bloomberg Staff Bloomberg
Date Posted:

Trump’s 60% tariff on Chinese goods would impact $500B in exports to the US, 15% of the value of all Chinese exports. China may respond with “export controls on critical raw materials,” and “an entity list that can target key American companies.”

Is China better prepared to retaliate against steep US tariffs?

Core argument: Trump has threatened tariffs of up to 60% on Chinese goods, a level Bloomberg Economics says will decimate trade between the world's biggest economies, on top of export controls on advanced technology that the Biden administration has tightened.

Trump has threatened to put tariffs of as much as 60% on Chinese goods, a level that Bloomberg Economics says will decimate trade between the world’s biggest economies. That’s on top of a range of export controls on advanced technology that the Biden administration has only tightened since Trump left office. In that time, China has taken strategic steps to ensure it’s more resilient and well positioned to strike back. Key to that has been expanding its toolkit, which now includes export controls on critical raw materials, in addition to tariffs on agricultural goods and an entity list that can target key American companies. Last year, Chinese companies exported $500 billion in goods to the US, or about 15% of the value of all its exports. If the US were to put high tariffs on all or much of those products, it could wipe out those sales and further hurt firms facing a weak domestic economy and falling prices.

Takeaways by Macro Roundup® AI

  1. Trump has threatened tariffs of up to 60% on Chinese goods, a level Bloomberg Economics says will decimate trade between the world's biggest economies, on top of export controls on advanced technology that the Biden administration has tightened.
  2. Chinese companies exported $500 billion in goods to the US last year, about 15% of the value of all Chinese exports, sales that high US tariffs could wipe out while firms face a weak domestic economy and falling prices.
  3. China has expanded its toolkit to include export controls on critical raw materials, tariffs on agricultural goods, and an entity list that can target key American companies.

Related Articles:

  • Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios — 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.
  • 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%.
  • 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.

AI Summary. Because most US corporate profits in China are turned over to the government, which for years invested them in US government and agency debt, the US could settle much of its trade deficit with debt rather than equity. Middle Eastern trading partners instead prefer equity stakes, and overpayment has served as a tactic to overcome political obstacles to such deals.

Brandon Adams Brandon's Newsletter
Date Posted:

America’s deteriorating net international investment position will drive a dramatic transfer of American assets to foreigners. @badams78 argues this will likely “accelerate over time” and suggests foreigners will “prefer equity when they can get it.”

Does the US pay for its trade deficit with debt or equity?

Core argument: Congress blocked Dubai World's 2006 bid for six American ports, while a 2007 deal to invest $5 billion in MGM's City Center went through.

For a long time, our desire to give IOUs rather than equity in payment for our trade deficit was aided by the fact that the majority of our trade deficit was with China. In China, the vast majority of corporate profits are turned over to the government, and for many years the government was happy to invest these profits in US govt securities and US agency debt. Our Middle Eastern trading partners prefer equity when they can get it. A Dubai World deal to buy six American ports was blocked by Congress in 2006 but a 2007 deal to invest $5 billion in MGM’s City Center went through. Overpayment has proved a valuable tactic to overcome political obstacles, as in the recent LIV Tour expansion. The move by the NFL, which will allow private equity firms to buy stakes in NFL teams, can be viewed similarly; foreigners will invest in PE firms that will then overpay for NFL ownership pieces.

Takeaways by Macro Roundup® AI

  1. Congress blocked Dubai World's 2006 bid for six American ports, while a 2007 deal to invest $5 billion in MGM's City Center went through.
  2. The US ability to pay for its trade deficit with IOUs rather than equity was aided by China holding the majority of that deficit, with Chinese corporate profits turned over to the government and invested in US government securities and agency debt.
  3. Middle Eastern trading partners prefer equity when they can get it, and overpayment has proved a valuable tactic for overcoming political obstacles, as in the LIV Tour expansion and the NFL's move to let private equity firms buy stakes in teams.

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.
  • Sucking The World Dry (The US Dependence on Foreign Inflows) — The author argues that negative net national savings means the United States is consuming capital rather than accumulating it, largely by selling capital stock to foreigners and spending the proceeds and by not replacing aging capital. With a negative net international investment position, the author contends U.S. spending depends on continued foreign inflows and that potential growth is declining.
  • United States’ Changing Net IIP — 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.