Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Thursday, November 7, 2024

AI Summary. The author argues that standard Consumer Price Index measures overstate inflation—by roughly 0.70 percentage points a year for the unchained series and about 0.40 points for chained indexes—and constructs an alternative index for gauging long-term trends in income, earnings, poverty, and wealth. The correction adjusts for substitution, new products, quality change, and new outlets.

Scott Winship American Enterprise Institute
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.@swinshi proposes a new price index to remove biases that overstate cost of living increases and finds that from 1979 to 2021 real market income for a middle-quintile household with children increased 59.9% vs. 35.3% under PCEPI and 12.4% under CPI-U.

Do standard consumer price indexes overstate inflation?

Core argument: Available evidence suggests the CPI-U and the retroactive series using current methods overstate inflation by about 0.70 percentage points per year, while the chained indexes are upwardly biased by roughly 0.40 points per year.

The available evidence suggests that the contemporary CPI-U and R-CPI-U-RS [Consumer Price Index retroactive series using current methods] overstate inflation by around 0.70 percentage points per year, while the chained indexes are upwardly biased by roughly 0.40 points per year. I turn to the creation of a new, more accurate price index for assessing long-term trends in income, earnings, poverty, and wealth. My goal is to use the best estimates of year-to-year changes in prices to the extent I can, but to adjust the estimates from different periods in accord with the research on known biases affecting different indexes at different times. My correction amounts to 1.12 points per year relative to the CPI-U from 1978 to 2000. For 2000-2023 I begin with the published 2023 value and then reduce the year-to-year changes by 0.41 percentage points. This adjustment accounts for bias due to upper-level substitution, new products, quality change, and new outlets. Compared with the published CPI-U, my correction from 2000 to 2023 is 0.68 points per year.

Takeaways by Macro Roundup® AI

  1. Available evidence suggests the CPI-U and the retroactive series using current methods overstate inflation by about 0.70 percentage points per year, while the chained indexes are upwardly biased by roughly 0.40 points per year.
  2. The proposed "More Accurate Consumer Price Index" applies a correction of 1.12 percentage points per year relative to the CPI-U for 1978–2000 and 0.68 points per year for 2000–2023.
  3. For 2000–2023 the new index starts from the published 2023 value and reduces year-to-year changes by 0.41 percentage points to account for bias from upper-level substitution, new products, quality change, and new outlets.

Related Articles:

  • The Cost of Thriving Has Fallen: Correcting and Rejecting the American Compass Cost of Thriving Index — The authors recalculate the Cost of Thriving Index and estimate the cost of supporting a family on one male earner's wages rose by just over 10 weeks of work rather than 22 weeks. Accounting for federal taxes—including the child tax credit—and quality improvements in health care and cars, they estimate the cost is now lower than in 1985.
  • Understanding Trends in Worker Pay over the Past 50 Years — Productivity growth has been unequal across industries, across firms within industries, and across workers within firms, slowing growth in both the productivity and the pay of the median worker. The authors argue that working- and middle-class men earlier received "breadwinner rents"—pay above their marginal value to employers—and then endured slow wage growth as women's workforce participation rose.
  • America is Still Working — US hours worked per person fell 7% between 2000 and 2022, a decline attributable entirely to the employment rate falling from 70% to 65%. Hours now sit roughly at their level in the first years after World War II, 23% below 1900.

AI Summary. Early results showed a nationwide rightward shift in U.S. presidential voting, with Trump improving on his prior margin in 2,367 counties and losing ground in only 240, while 536 counties had too few votes counted to include. Several states the Democratic nominee led still shifted right.

Matthew Bloch, Keith Collins, Robert Gebeloff, et al. New York Times
Date Posted:

A New York Times analysis of reported results as of Wednesday shows that over 90% of counties shifted towards Trump relative to 2020.

Did voting shift rightward across nearly all U.S. counties?

Core argument: Mr. Trump improved on his 2020 margin in 2,367 counties, while his margin decreased in only 240 counties, according to early results.

Mr. Trump improved on his 2020 margin in 2,367 counties. His margin decreased in only 240 counties. There were 536 counties where too few votes had been counted to be included in the analysis. Support for Mr. Trump over his three consecutive presidential runs has swayed back and forth, but early results showed that even a number of states where Vice President Kamala Harris was ahead had shifted right.

Takeaways by Macro Roundup® AI

  1. Mr. Trump improved on his 2020 margin in 2,367 counties, while his margin decreased in only 240 counties, according to early results.
  2. Early results showed a rightward shift even in a number of states where Vice President Kamala Harris was ahead.
  3. The analysis excluded 536 counties where too few votes had been counted, and support for Mr. Trump across his three consecutive presidential runs has swayed back and forth.

Related Articles:

  • How Trump Won In Maps and Charts — 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.
  • Democrats Join 2024’s Graveyard of Incumbents — Incumbent governing parties lost vote share in all 10 major countries tracked by the ParlGov research project that held national elections in the same year, the first such sweep in almost 120 years of records. The Democratic presidential ticket's popular-vote share fell nearly four percentage points, the steepest drop in Democratic support since 1980.
  • The Shattering of the Democratic Coalition — The Democratic presidential margin among women narrowed from 12 points to 7 while the Republican margin among men widened from 5 points to 10, leaving the overall gender gap unchanged at 17 points. Women under 30 shifted 14 points toward Republicans and men under 30 shifted 29 points.

AI Summary. Incumbent governing parties lost vote share in all 10 major countries tracked by the ParlGov research project that held national elections in the same year, the first such sweep in almost 120 years of records. The Democratic presidential ticket's popular-vote share fell nearly four percentage points, the steepest drop in Democratic support since 1980.

John Burn-Murdoch Financial Times
Date Posted:

.@jburnmurdoch argues that the 3.7% vote share loss by US Democrats, and even greater losses by incumbents in other rich countries, is a reaction to levels of inflation and immigration that haven’t been seen in decades.

Did incumbent parties lose vote share in every major country holding elections?

Core argument: Kamala Harris won almost four percentage points less of the popular vote than Joe Biden did in 2020, the steepest drop in Democratic support since 1980.

At the time of writing, vice-president Kamala Harris has won almost four percentage points less of the popular vote than President Joe Biden did in 2020, the steepest drop in Democratic support since 1980. Economic and geopolitical conditions of the past year or two have created arguably the most hostile environment in history for incumbent parties and politicians across the developed world. From America’s Democrats to Britain’s Tories, Emmanuel’s Macron’s Ensemble coalition to Japan’s Liberal Democrats, even to Narendra Modi’s erstwhile dominant BJP, governing parties and leaders have undergone an unprecedented series of reversals this year. The incumbents in every single one of the 10 major countries that have been tracked by the ParlGov global research project and held national elections in 2024 were given a kicking by voters. This is the first time this has ever happened in almost 120 years of records.

Takeaways by Macro Roundup® AI

  1. Kamala Harris won almost four percentage points less of the popular vote than Joe Biden did in 2020, the steepest drop in Democratic support since 1980.
  2. Incumbents in all 10 major countries tracked by the ParlGov global research project that held national elections in 2024 lost ground with voters, the first time this has happened in almost 120 years of records.
  3. Governing parties across the developed world suffered reversals in 2024, from America's Democrats and Britain's Tories to Emmanuel Macron's Ensemble coalition, Japan's Liberal Democrats and Narendra Modi's BJP.

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.
  • 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%.

AI Summary. The Democratic presidential margin among women narrowed from 12 points to 7 while the Republican margin among men widened from 5 points to 10, leaving the overall gender gap unchanged at 17 points. Women under 30 shifted 14 points toward Republicans and men under 30 shifted 29 points.

Ruy Teixeira The Liberal Patriot
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Ruy Teixeira notes that according to AP VoteCast data, the 17pp overall gender gap was unchanged from 2024. “The gender gap did widen among young voters, but it was because young men moved more sharply toward Trump than young women did.”

Did the gender gap widen as Democrats lost ground with women?

Core argument: Harris won women by 7 points in 2024 versus Biden's 12-point margin in 2020, while Trump's margin among men widened to 10 points from 5 points, leaving the overall gender gap unchanged at 17 points.

Contrary to much pre-election discussion, Harris’s margin among women was actually less than Biden’s in 2020, 7 points for Harris vs. 12 points for Biden. And the Trump margin was better among men, 10 points vs. 5 points in 2020. The overall gender gap went from 17 points in 2020 to….17 points in 2024. The Democrats invested so much hope in the women’s vote, especially the idea that the abortion issue would spike their margin among women, and it just did not pan out. Even more startling, Democrats believed with an almost religious fervor that young women would move sharply in their direction given liberal trends among this demographic and, again, the salience of the abortion issue. It did not happen. Women under 30 supported Biden by 32 points in 2020 but supported Harris by just 18 points in this election, a 14-point shift toward Trump. Among young men, the swing was even harder: these voters supported Biden by 15 points in 2020 but supported Trump by 14 points in 2024. That’s a 29-point pro-Republican swing.

Takeaways by Macro Roundup® AI

  1. Harris won women by 7 points in 2024 versus Biden's 12-point margin in 2020, while Trump's margin among men widened to 10 points from 5 points, leaving the overall gender gap unchanged at 17 points.
  2. Women under 30 backed Biden by 32 points in 2020 but Harris by only 18 points in 2024, a 14-point shift toward Trump.
  3. Men under 30 swung 29 points toward Republicans, moving from a 15-point Biden margin in 2020 to a 14-point Trump margin in 2024.

Related Articles:

  • How Trump Won In Maps and Charts — 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.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • Democrats Join 2024’s Graveyard of Incumbents — Incumbent governing parties lost vote share in all 10 major countries tracked by the ParlGov research project that held national elections in the same year, the first such sweep in almost 120 years of records. The Democratic presidential ticket's popular-vote share fell nearly four percentage points, the steepest drop in Democratic support since 1980.

AI Summary. The 10-year US Treasury has behaved strangely following Federal Reserve easing, partly because inflation expectations have risen again. If deportations reverse wage growth for the lowest-paid quartile, or other policies prove inflationary, the Federal Reserve may reconsider easing, making the 10-year yield the key gauge of tariffs and deregulation.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest notes the 10-year Treasury has been rising in a cutting cycle as the market anticipates the Fed’s response to a “tariff/deportation/loose fiscal agenda.”

Is the 10-year Treasury yield the key gauge of new policies?

Core argument: The 10-year US Treasury has behaved strangely in the wake of Fed easing, partly because inflation expectations have been rising again.

The 10-year US Treasury has already been behaving very strangely in the wake of Fed easing. Part of the reason: inflation expectations have been rising again. If deportations cause a U-turn in the lowest quartile of wage growth, or if Trump’s other plans prove to be inflationary, the Fed may have to reconsider its easing plans. The most important indicator to watch will be the 10-year Treasury, a bellwether for Trump’s tariff/deportation/loose fiscal agenda vs the supply side benefits of a less regulated economy.

Takeaways by Macro Roundup® AI

  1. The 10-year US Treasury has behaved strangely in the wake of Fed easing, partly because inflation expectations have been rising again.
  2. If deportations cause a U-turn in the lowest quartile of wage growth, or if Trump's other plans prove inflationary, the Fed may have to reconsider its easing plans.
  3. The 10-year Treasury is the most important indicator to watch, serving as a bellwether for Trump's tariff, deportation, and loose fiscal agenda versus the supply-side benefits of a less regulated economy.

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.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.
  • 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. The US budget deficit is the largest among OECD countries despite the US economy being in a solid cyclical position, when strong growth would typically lift tax revenues and reduce unemployment benefit spending. Slower growth and higher unemployment would worsen the US fiscal position further.

Torsten Sløk Apollo
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Torsten Sløk notes that despite a “solid cyclical position,” the 2.9% primary US deficit (excluding interest payments) is the largest among advanced economies. Overall the US deficit is ~ 6% of GDP.

Does the US run the largest deficit despite strong growth?

Core argument: The US budget deficit is the largest among OECD countries, even though the US economy remains in a solid cyclical position that typically lifts tax revenues and reduces unemployment benefit outlays.

A strong economy usually means higher tax revenues for the government and lower expenditures on unemployment benefits, which in turn means better government finances. Despite the US being in a solid cyclical position, the US budget deficit is the biggest among OECD countries. If growth slows and the unemployment rate rises, the US fiscal position will deteriorate even further.

Takeaways by Macro Roundup® AI

  1. The US budget deficit is the largest among OECD countries, even though the US economy remains in a solid cyclical position that typically lifts tax revenues and reduces unemployment benefit outlays.
  2. Slower US growth combined with a rising unemployment rate would worsen the US fiscal position further.

Related Articles:

  • An Update to the Budget and Economic Outlook: 2024 to 2034 — The Congressional Budget Office projects a federal budget deficit of $1.9tn in fiscal 2024, or $2tn excluding payment-timing shifts, rising to $2.8tn by 2034. On that adjusted basis, deficits equal 7% of gross domestic product in 2024, dip to 5.5% by 2027, and reach 6.9% by 2034, versus a 3.7% average over the past 50 years.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • From Riches to Rags: Causes of Fiscal Deterioration Since 2001 — Federal debt held by the public rose from 32% to 98% of GDP over roughly two decades, despite earlier Congressional Budget Office projections that the debt would be paid off. The authors attribute 37 percentage points to major tax cuts, 33 to discretionary spending and Medicare expansions, and 28 to recession and pandemic responses.

Friday, November 8, 2024

AI Summary. The authors find that after banking and debt crises, both national saving and investment decline, but investment falls more and does not return to its pre-crisis share within three years, improving the current account balance. They suggest persistent credit constraints may explain the weak post-crisis investment.

Menzie Chinn and Hiro Ito National Bureau of Economic Research
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@menzie_chinn and @hiroitopdx find that banking crises, currency crises and debt crises all move the current accounts of emerging market economies toward surplus, typically due to reductions in investment.

How do banking and debt crises affect saving, investment, and current accounts?

Core argument: Following a banking crisis, both national saving and investment fall, but investment keeps declining through one year after the crisis while saving recovers moderately, producing an improvement in the current account balance.

Figure 10 shows that when a banking crisis occurs, both national saving and investment fall, though while investment continues to fall until t0+1 [one year after the crisis], saving recovers moderately in t0+1, all of which lead to an improvement of the CAB. Although it recovers from t0+2 on, the investment ratio does not return to the pre-crisis level, hence contributing to the improving CAB. The underperformance of investment in the post-banking crisis period may be due to persistent credit constraints in the post-crisis period, such as that in many EMEs that went through banking crises during the Asian Financial Crisis. Like in the case of currency crises, the investment ratio falls significantly during and in the immediate aftermath of [a debt] crisis. The investment level starts recovering in t0+2, [but it] does not return to the pre-crisis level by t0+3. The CAB improves rapidly after the crisis because the decline in investment levels was greater than that of national saving

Takeaways by Macro Roundup® AI

  1. Following a banking crisis, both national saving and investment fall, but investment keeps declining through one year after the crisis while saving recovers moderately, producing an improvement in the current account balance.
  2. The investment ratio recovers from two years after a banking crisis but does not return to its pre-crisis level, contributing to the improving current account balance, a shortfall that may reflect persistent credit constraints such as those in emerging market economies after the Asian Financial Crisis.
  3. After a debt crisis, the investment ratio falls significantly and does not return to its pre-crisis level by three years out, and the current account balance improves rapidly because the decline in investment was greater than that in national saving.

Related Articles:

  • Corporate Debt, Boom-Bust Cycles, and Financial Crises — Using a dataset on sectoral credit exposure for 115 economies, the authors find corporate debt accounts for two-thirds of credit expansion before financial crises and three-quarters of nonperforming loans during busts, and that corporate debt expansions predict crises similarly to household debt. Recoveries are slower after corporate debt booms.
  • Credit Allocation and Macroeconomic Fluctuations — Credit expansions disproportionately channel credit to non-tradable sector firms and households, and the authors find that the sectoral allocation of credit predicts future GDP paths and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts boom-bust output patterns and elevated financial fragility, while credit to tradable industries is associated with higher future productivity growth.
  • The Puzzling Persistence of Financial Crisis — Financial crises are costly, with average declines of 5.5% of real GDP and median fiscal costs of 16% of real GDP to resolve distressed banks. The authors identify four categories of causal factors: politically motivated risk subsidies such as government support for housing credit, shifts in investor risk preferences, investor learning, and fraud.

AI Summary. Credit spreads across US investment-grade and high-yield corporates, emerging-market corporates, and collateralized loan obligation tranches trade at or near their tightest levels since Covid, driven by robust growth and strong demand for fixed income. The authors expect solid fundamentals and high yields to keep attracting inflows, leaving limited room for further compression.

Torsten Sløk, Shobhit Gupta, Rajvi Shah, and Shruti Galwankar Apollo
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Torsten Sløk notes that 81% of bonds globally currently trade at less than a 5% yield. US investment grade corporate bonds trade around 5.2% and high-yield around 7.1%.

Do tight credit spreads leave room for further compression?

Core argument: US investment-grade and high-yield corporates, emerging-market corporates, and CLO A–BBB tranches are trading at or near post-Covid tight spread levels.

Credit spreads have continued to rally with many segments of the market, including US IG and HY corporates, EM corporates, and CLO A-BBB tranches, trading at or near post-Covid tights. The rally in credit spreads has been driven by a combination of robust economic growth, strong fixed income demand technicals, and, in the past few days, the election outcome. We expect credit fundamentals to remain robust. This combined with elevated all-in yields and steep yield curves should continue to attract inflows into credit, which should support valuations even though room for further compression is getting more limited. Given tight valuations and beta compression, we believe the risk-reward to extend spread duration or go down the rating spectrum is not compelling. We see better value in private credit with the private-public basis still elevated.

Takeaways by Macro Roundup® AI

  1. US investment-grade and high-yield corporates, emerging-market corporates, and CLO A–BBB tranches are trading at or near post-Covid tight spread levels.
  2. The credit spread rally is attributed to robust economic growth, strong fixed income demand technicals, and the election outcome, with credit fundamentals expected to remain robust.
  3. Tight valuations and beta compression make the risk-reward of extending spread duration or moving down the rating spectrum uncompelling, with better value seen in private credit, where the private-public basis remains elevated.

Related Articles:

  • What Trump’s Win Means for the Economy — 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.
  • 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.
  • 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. The author argues the inflation of 2021–2022 could have been avoided only at the cost of a global depression, and that historical elections show voters do not reward incumbents who preside over disinflationary downturns. Many in the U.S. may nonetheless come to treat the episode as a cautionary tale about responding too aggressively to economic downturns.

Matt Klein The Overshoot
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.@M_C_Klein argues that Trump’s win might mean lower long-term interest rates, as it means an end to the Biden administration’s bias towards full employment and “a conscious choice to support unions over employers (and consumers).”

Could avoiding recent inflation have required a global depression?

Core argument: The author argues the inflation of 2021–2022 was avoidable only through policy choices that would have produced a global depression, and suspects most people, given those two options, would choose what actually occurred.

Yes, the inflation of 2021-2022 could have been avoided through different policy choices, but that would have come at the cost of a global depression. I suspect that if people understood that those were the only two options, most would choose to endure what actually happened. The U.S. elections of 1874, 1932, and 2010 do not suggest that incumbents are rewarded for presiding over disinflationary downturns. Nor, for that matter, does the experience in the rest of the world in the Great Depression. Nevertheless, it is possible that many, at least in the U.S., will look back on the past few years as a cautionary tale about the dangers of being “too aggressive” in responding to economic downturns. Inflation may have been global, but it probably did not help to have been associated with policies that opponents could point to (fairly or not) as having made things worse.

Takeaways by Macro Roundup® AI

  1. The author argues the inflation of 2021–2022 was avoidable only through policy choices that would have produced a global depression, and suspects most people, given those two options, would choose what actually occurred.
  2. The U.S. elections of 1874, 1932, and 2010, along with the rest of the world's experience in the Great Depression, do not suggest incumbents are rewarded for presiding over disinflationary downturns.
  3. The author suggests many in the U.S. may treat the past few years as a cautionary tale about being "too aggressive" in responding to downturns, since inflation was global but associated with policies opponents could point to as having made things worse.

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.
  • Bidenomics and Its Contradictions — Bidenomics rests on the claims that growth's quality matters more than its quantity, that industrial policy should replace laissez-faire, and that trade policy should favor workers over consumers. Defining market failure that broadly—covering regional, racial and gender inequities, rural internet access and child care costs—leaves no limiting principle on government intervention.
  • 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. China announced a Rmb10tn ($1.4tn) fiscal package to bail out local governments and support its faltering economy, authorising them to issue bonds over three to five years to restructure most of an estimated Rmb14tn in "hidden" debts. Those debts are largely held by off-balance-sheet financing vehicles used to invest in infrastructure and property.

Joe Leahy, Wenjie Ding, Cheng Leng and Arjun Neil Alim Financial Times
Date Posted:

China is launching a $1.4T fiscal package, including authorizing local governments to issue bonds over three to five years to restructure most of an estimated $2T in off balance sheet finance vehicles.

Will a $1.4tn bond program resolve China's hidden local government debts?

Core argument: China announced a Rmb10tn ($1.4tn) fiscal package to bail out local governments and shore up its faltering economy as it braces for increased trade tensions with the US under Donald Trump.

China has announced a Rmb10tn ($1.4tn) fiscal package to bail out local governments and help shore up its faltering economy, as it braces for increased trade tensions with the US under Donald Trump. As part of the bailout, Beijing would authorise local governments to issue bonds over three to five years to restructure most of an estimated Rmb14tn in “hidden” or “implicit” debts, finance minister Lan Fo’an said in a rare press briefing at the Great Hall of the People in Beijing. These debts are mostly held by thousands of off-balance sheet finance vehicles that local governments used to invest in infrastructure and property-related sectors. Many of these bets went sour when China’s real estate market entered a deep slowdown three years ago, sinking local government finances and undermining the broader economy.

Takeaways by Macro Roundup® AI

  1. China announced a Rmb10tn ($1.4tn) fiscal package to bail out local governments and shore up its faltering economy as it braces for increased trade tensions with the US under Donald Trump.
  2. Finance minister Lan Fo'an said Beijing would authorise local governments to issue bonds over three to five years to restructure most of an estimated Rmb14tn in "hidden" or "implicit" debts.
  3. The implicit debts are mostly held by thousands of off-balance-sheet financing vehicles that local governments used to invest in infrastructure and property-related sectors, with many bets souring when China's real estate market entered a deep slowdown.

Related Articles:

  • 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.
  • Can China’s Long-Term Growth Rate Exceed 2–3 Percent? — China invests roughly 42–44% of its GDP, while more mature, capital-intensive economies typically invest about 15–20%. Modeling a ten-year path that lowers China's investment share to 30% of GDP, the author argues the resulting growth rate depends mainly on how fast consumption grows.
  • The Rise and Fall of LGFVs — China has nearly 12,000 local government financing vehicles whose aggregated assets and liabilities equal roughly 120% and 75% of national GDP, and whose earnings before interest, taxes, and depreciation do not cover their interest payments. Their average borrowing cost of about 5% far exceeds their 1% return on assets, and 80–90% of their annual spending is funded by new debt.

AI Summary. China reported third-quarter GDP growth of 4.6%, below its official 5% annual target, amid unstable property prices and local governments unable to pay bills. Economists say structural challenges including high government debt, demographic decline, youth unemployment, and trade tensions risk a deflationary spiral like Japan's after its 1990s property bust.

Joe Leahy, Edward White and Cheng Leng Financial Times
Date Posted:

With falling property prices and many local governments unable to pay their bills, Beijing was in danger of missing its official 5% 2024 GDP growth target, prompting Xi to support fiscal stimulus for fear of a deflationary spiral.

Why did China shift toward fiscal stimulus as growth slowed?

Core argument: China reported third-quarter GDP growth of 4.6%, its lowest in 18 months, leaving Beijing in danger of missing its official 5% growth target for the year as property prices fail to stabilise and many local governments cannot pay their bills.

With property prices failing to stabilise and many local governments unable to pay their bills, Beijing was in danger of missing its official GDP growth target this year of 5%. On Friday, it reported GDP growth of 4.6% for the third quarter — the lowest growth in 18 months. Given the scale of China’s underlying structural challenges — which range from high government debt, demographic decline and youth unemployment to growing tension with trade partners — economists say Beijing has its work cut out. The stakes for Xi and China could hardly be higher. Failure could throw China into a deflationary spiral similar to that of Japan after the bursting of its real estate bubble in the 1990s, from which it has taken decades to recover. This would not only risk Xi’s strategic goal of doubling per capita GDP by 2035 and, by implication, overtaking China’s geopolitical rival, the US, as the world’s biggest economy. It could also spark discontent among a population that in recent decades has become accustomed to constant improvements in living standards.

Takeaways by Macro Roundup® AI

  1. China reported third-quarter GDP growth of 4.6%, its lowest in 18 months, leaving Beijing in danger of missing its official 5% growth target for the year as property prices fail to stabilise and many local governments cannot pay their bills.
  2. Economists say Beijing's structural challenges span high government debt, demographic decline, youth unemployment and growing tension with trade partners.
  3. Failure risks a deflationary spiral like Japan's after its 1990s real estate bubble burst, jeopardising Xi Jinping's goal of doubling per capita GDP by 2035 and, by implication, overtaking the US as the world's biggest economy.

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