Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Thursday, November 14, 2024

AI Summary. A review of the Manhattan Institute's model estimating that the average immigrant adds $10,000 in lifetime present value to the federal budget while less-educated immigrants are fiscally negative finds the result hinges on assumptions such as large immediate defense spending increases and no added corporate tax payments.

David Bier Cato Institute
Date Posted:
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Challenging @DanielDiMartino’s estimates of the federal fiscal impact of low-skilled immigrants, @David_J_Bier finds that all education groups have a positive impact. Instead of costing $315,000, a 22-year-old high school dropout contributes $45,000.

Do modeling assumptions drive estimates of immigrants' lifetime fiscal impact?

Core argument: The Manhattan Institute's "The Lifetime Fiscal Impact of Immigrants" (2024) estimates the average new immigrant is fiscally positive by about $10,000 in present value over a lifetime, while immigrants without a bachelor's degree are extremely fiscally negative.

In “The Lifetime Fiscal Impact of Immigrants” (2024), the Manhattan Institute (MI) constructed a sophisticated model to estimate the likely lifetime fiscal e!ect of new immigrants on the US federal budget. MI concludes that the average immigrant will be fiscally positive a modest $10,000 in present value over a lifetime but that immigrants without a bachelor’s degree will be extremely fiscally negative. MI projects that the recent increase in migration will cost the federal government over $1.1 trillion over a century. A careful review of MI’s model finds that this result hinges on several unlikely assumptions, such as new arrivals causing large, immediate increases in defense spending, and no increase in corporate tax payments. When more realistic assumptions are adopted, MI’s model indicates that young, low-skilled immigrants will produce a positive lifetime contribution to the federal budget. After revisions, including accounting for lower rates of benefits usage by immigrants, the model predicts the new group of unlawful entrants will likely be positive an aggregate $4.9 trillion.

Takeaways by Macro Roundup® AI

  1. The Manhattan Institute's "The Lifetime Fiscal Impact of Immigrants" (2024) estimates the average new immigrant is fiscally positive by about $10,000 in present value over a lifetime, while immigrants without a bachelor's degree are extremely fiscally negative.
  2. The Manhattan Institute projects that the recent increase in migration will cost the federal government over $1.1 trillion over a century, a result that hinges on assumptions including large, immediate increases in defense spending and no increase in corporate tax payments.
  3. Revising the Manhattan Institute's model with more realistic assumptions, including lower rates of benefits usage by immigrants, indicates that young, low-skilled immigrants will contribute positively to the federal budget over their lifetimes and that new unlawful entrants will be positive an aggregate $4.9 trillion.

Related Articles:

  • The Lifetime Fiscal Impact of Immigrants — A report estimates that a selectionist U.S. immigration policy—securing the border, reducing low-skilled immigration, and expanding high-skilled immigration—would cut future federal debt by trillions of dollars, providing over $2tn in net present value in the first year and over $200bn annually thereafter. Under the proposal, annual legal immigration falls from about 1m to roughly 860,000.
  • 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%.
  • Without Immigrants, US Working-Age Population Would Shrink — All net US employment growth since early 2020 has been among foreign-born workers, and without immigration the US working-age population would be shrinking — a pattern likely to persist for the rest of the decade. The jump in immigration appears to be enabling a soft landing that most economists had thought impossible.

AI Summary. About 6.5mn people moved to the 38 member countries of the Organisation for Economic Co-operation and Development through permanent migration routes in a record year, nearly 10% above the prior record of 6mn, with the US receiving 1.2mn permanent legal immigrants. New asylum seekers in those countries rose 30% to a record 2.7mn.

Delphine Strauss Financial Times
Date Posted:

In 2023, the US received more than 1mm asylum applications, more than the total asylum claims in all OECD European members combined. A total of 6.5mm people moved into the OECD’s 38 countries in 2023, a 10% increase over 2022.

Has migration to wealthy countries reached a record high?

Core argument: Roughly 6.5mn people moved to the 38 OECD member countries through permanent migration routes in 2023, an almost 10 per cent increase on the previous record of 6mn in 2022, according to a report by the Paris-based organisation.

Roughly 6.5mn people moved to the 38 countries that make up the membership of the OECD through permanent migration routes last year. That was an almost 10 per cent increase on the previous record of 6mn who moved in 2022, a report by the Paris-based organisation showed. About a third of OECD countries had record levels of immigration in 2023, including Canada, France and Japan. The US received 1.2mn permanent legal immigrants. The number of new asylum seekers in OECD countries rose 30% to a record 2.7mn, driven by a surge in the number of people arriving in the US from Venezuela, Colombia, Nicaragua and Haiti.

Takeaways by Macro Roundup® AI

  1. Roughly 6.5mn people moved to the 38 OECD member countries through permanent migration routes in 2023, an almost 10 per cent increase on the previous record of 6mn in 2022, according to a report by the Paris-based organisation.
  2. About a third of OECD countries recorded record immigration levels in 2023, including Canada, France and Japan, while the US received 1.2mn permanent legal immigrants.
  3. The number of new asylum seekers in OECD countries rose 30 per cent to a record 2.7mn, driven by a surge in arrivals to the US from Venezuela, Colombia, Nicaragua and Haiti.

Related Articles:

  • 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.
  • Changing Sub-Saharan Africa’s Growth Trajectory — Sub-Saharan Africa's working-age population is growing nearly 3% a year, versus close to zero in much of the world, and is projected to exceed China's within about a decade and reach a quarter of the global total. With modest productivity growth near 2%, the region is likely among the world's fastest-growing.
  • Europe Hopes Barbed Wire Will Keep Migrants Out. It Won’t — The total length of border fences in the European Union grew from 315km to 2,163km over roughly a decade, yet unauthorised crossings made up just 0.13% of all external crossings into the EU. Most migrants arrive via the Mediterranean rather than the Balkans or the eastern land border.

AI Summary. With US federal debt at 100% of GDP and primary deficits projected near 3%, the measures under consideration would add 1–2 points, implying a sustained 4–5% primary deficit and rapid debt growth. Stabilizing the debt ratio would require an adjustment worth 16–20% of the federal budget.

Olivier Blanchard Peterson Institute For International Economics
Date Posted:

.@ojblanchard1 argues that predictions of “catastrophe” due to lower taxes, deportations, and tariffs are overstated. However, if the Fed maintains its 2% inflation target, these policies will require higher interest rates, likely resulting in friction.

How large an adjustment would stabilizing the debt ratio require?

Core argument: U.S. federal debt stands at 100% of GDP, with a deficit of roughly 6.5% and a primary deficit of about 3.5%, and the measures Trump is considering would raise the primary deficit by roughly 1–2% of GDP.

The ratio of federal debt to GDP is 100%. The deficit is around 6.5% of GDP, and the primary deficit is around 3.5%. If the 2017 tax cuts were left to expire, that would shrink the deficit by roughly 1% of GDP in 2025. But even under this assumption, the Congressional Budget Office forecasts were for primary deficits of about 3% as far as the eye could see. The measures that Trump is considering would increase that number by roughly 1 to 2%, leading to a 4 to 5% sustained primary deficit and a rapid increase in the debt ratio. Were the interest rate and the growth rate to be roughly equal, which looks like a reasonable hypothesis, this would imply an adjustment of the primary deficit of 4 to 5% of GDP, or equivalently, 16 to 20% of the federal budget, to stabilize the debt ratio. It is likely, however, that a further fiscal expansion, starting from an economy close to full employment, will lead to inflation and, by implication, higher Fed policy rates and a stronger dollar.

Takeaways by Macro Roundup® AI

  1. U.S. federal debt stands at 100% of GDP, with a deficit of roughly 6.5% and a primary deficit of about 3.5%, and the measures Trump is considering would raise the primary deficit by roughly 1–2% of GDP.
  2. Stabilizing the debt ratio with a sustained primary deficit of 4–5% of GDP would require an adjustment of 4–5% of GDP, equivalent to 16–20% of the federal budget, if interest and growth rates are roughly equal.
  3. Further fiscal expansion, starting from an economy close to full employment, is likely to lead to inflation and, by implication, higher Fed policy rates and a stronger dollar.

Related Articles:

  • As the Fed Cuts Rates, Treasury Yields Are Rising — Federal Reserve cuts to the federal funds rate target range were accompanied by falling short-term Treasury bill yields but rising longer-term yields, with the 10-year Treasury yield climbing from 3.63% to 4.42%. Deficit-increasing proposals from both presidential campaigns likely exacerbated the rise in longer-term yields.
  • 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.
  • 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.

AI Summary. During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.

Stephen Miran Hudson Bay Capital
Date Posted:
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.@SteveMiran cites the 2018-19 experience with tariffs on China and $/Yuan exchange rates and argues that increased tariffs will be largely offset by $/Yuan moves, resulting in little net change in after-tariff dollar import prices.

Does currency depreciation offset tariffs enough to prevent inflation?

Core argument: The effective U.S. tariff rate on Chinese imports rose 17.9 percentage points from the start of the 2018 trade war to its 2019 maximum, while the renminbi depreciated 13.7% against the dollar, leaving after-tariff USD import prices up 4.1%.

While in principle tariffs can be noninflationary, how likely is it? In the macroeconomic data from the 2018-2019 experience, the tariffs operated pretty much as described above. The effective tariff rate on Chinese imports increased by 17.9 percentage points from the start of the trade war in 2018 to the maximum tariff rate in 2019., The Chinese renminbi depreciated against the dollar over this period by 13.7%, so that the after-tariff USD import price rose by 4.1%. In other words, the currency move offset more than three-fourths of the tariff, explaining the negligible upward pressure on inflation. Measured PCE inflation went from slightly below the Fed’s target to further below the Fed’s target. Of course there were cross-currents like the Fed’s tightening cycle at the time, but any inflation from this trade war was small enough that it was overwhelmed by these cross-currents. This explains the Trump camp’s view that the first U.S.-China trade war was noninflationary.

Takeaways by Macro Roundup® AI

  1. The effective U.S. tariff rate on Chinese imports rose 17.9 percentage points from the start of the 2018 trade war to its 2019 maximum, while the renminbi depreciated 13.7% against the dollar, leaving after-tariff USD import prices up 4.1%.
  2. The currency move offset more than three-fourths of the tariff, which the author identifies as the explanation for the negligible upward pressure on inflation.
  3. Measured PCE inflation went from slightly below the Federal Reserve's target to further below it, with any inflation from the trade war small enough to be overwhelmed by cross-currents such as the Fed's tightening cycle.

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.
  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.
  • He Helped Trump Remake Global Trade. His Work Isn’t Done — A former U.S. trade representative argues that countries running chronic trade surpluses for decades are by definition protectionist, and backs a universal 10% tariff plus a higher tariff on China to push toward globally balanced trade over time. Alternatives include import certificates tied to exports and a charge on foreign investment in U.S. assets.

AI Summary. China has built legal tools to retaliate against US companies in a trade conflict, including an anti-foreign sanctions law, an "unreliable entity list" for foreign firms it deems to have undermined its national interests, and an expanded export control law. The export law lets Beijing leverage its dominance in supplying resources such as rare earths and lithium.

Edward White and Joe Leahy Financial Times
Date Posted:

China will likely hit back at Trump’s new round of tariffs with export controls exploiting its “global dominance of the supply of dozens of resources and tools…crucial to modern technologies,” and sanctions targeting specific individuals and entities.

Has China built legal tools to retaliate against US companies?

Core argument: China has prepared countermeasures to retaliate against US companies if President-elect Donald Trump reignites the trade war between the world's two biggest economies, according to Beijing advisers and international risk analysts.

China has prepared powerful countermeasures to retaliate against US companies if president-elect Donald Trump reignites a smouldering trade war between the world’s two biggest economies, according to Beijing advisers and international risk analysts. China now has at its disposal an “anti-foreign sanctions law” that allows it to counter measures taken by other countries and an “unreliable entity list” for foreign companies that it deems to have undermined its national interests. An expanded export control law means Beijing can also weaponise its global dominance of the supply of dozens of resources such as rare earths and lithium that are crucial to modern technologies.

Takeaways by Macro Roundup® AI

  1. China has prepared countermeasures to retaliate against US companies if President-elect Donald Trump reignites the trade war between the world's two biggest economies, according to Beijing advisers and international risk analysts.
  2. China's legal arsenal includes an "anti-foreign sanctions law" to counter measures taken by other countries and an "unreliable entity list" for foreign companies Beijing deems to have undermined its national interests.
  3. An expanded export control law allows Beijing to weaponise its global dominance in the supply of dozens of resources crucial to modern technologies, including rare earths and lithium.

Related Articles:

AI Summary. China's finance ministry sold $2bn of dollar bonds at yields just 0.01–0.03 percentage points above equivalent US Treasuries, drawing nearly $40bn of orders — the tightest spreads for Chinese sovereign dollar debt in 30 years, according to Bloomberg data. The sale was held in Saudi Arabia rather than Hong Kong.

Arjun Neil Alim, Cheng Leng, and Joseph Cotterill Financial Times
Date Posted:

China issued its first dollar bond in three years, selling $2B at yields on par with equivalent US Treasuries.

Can China borrow in dollars nearly as cheaply as the US?

Core argument: China's finance ministry sold $1.25bn of three-year dollar bonds at 4.274 per cent, just 0.01 percentage points above equivalent US Treasuries, and $750mn of five-year bonds at 0.03 points above Treasuries.

China has borrowed almost as cheaply as the US after returning to the global dollar bond market for the first time in three years. Investors placed nearly $40bn of orders to buy $2bn of bonds issued by China’s finance ministry on Thursday at yields only marginally above equivalent US Treasuries. The sale took place in Saudi Arabia — a break with a tradition of issuing bonds in Hong Kong — in a sign of Beijing’s push for closer financial links with the oil-rich kingdom. Chinese, US and other global banks arranged the sale. The $1.25bn of three-year debt was sold at 4.274 per cent — just 0.01 percentage points higher than Treasury equivalents. Yields on the $750mn of five-year bonds were 0.03 points higher than Treasuries. These represent the tightest spreads for any Chinese sovereign dollar issuance in the past 30 years, according to Bloomberg data. Yields on the debt fell further, to around 0.25 percentage points below US borrowing costs, as the new bonds began to be traded on Thursday.

Takeaways by Macro Roundup® AI

  1. China's finance ministry sold $1.25bn of three-year dollar bonds at 4.274 per cent, just 0.01 percentage points above equivalent US Treasuries, and $750mn of five-year bonds at 0.03 points above Treasuries.
  2. Investors placed nearly $40bn of orders for the $2bn issue, and the spreads were the tightest for any Chinese sovereign dollar issuance in the past 30 years, according to Bloomberg data.
  3. China's first sale in the global dollar bond market in three years took place in Saudi Arabia rather than Hong Kong, in a sign of Beijing's push for closer financial links with the oil-rich kingdom.

Related Articles:

  • Why The West Should Be Paying More Attention To The Gold Price Rise — The rise in the gold price reflects more than traditional economic, financial, and geopolitical influences, capturing a broader phenomenon that is building secular momentum as a growing number of countries become involved. As it takes deeper root, it risks fragmenting the global system and eroding the international influence of the dollar and the US financial system.
  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.

AI Summary. DeepMind's AlphaFold3, which can model proteins together with other molecules, was initially released only through a web server that limited predictions, drawing criticism from scientists that withholding the code and model weights undermined reproducibility. The code is now downloadable for non-commercial use, with training weights available to academics on request.

Ewen Callaway Nature
Date Posted:

Academic researchers can now download the code underlying Google’s Nobel-prize-winning AlphaFold3 tool for modeling protein structures.

Is a leading AI protein-prediction tool now open to researchers?

Core argument: DeepMind has released AlphaFold3's software code for non-commercial download, while the training weights remain available only to scientists with an academic affiliation and only on request.

AlphaFold3, unlike its predecessors, is capable of modelling proteins in concert with other molecules. But instead of releasing its underlying code — as was done with AlphaFold2 — DeepMind provided access through a web server that restricted the number and types of predictions scientists could make. The company initially said that making AlphaFold3 available only through a web server struck the right balance between enabling access for research and protecting commercial interests. But the publication of AlphaFold3 without its code or model weights drew criticism from scientists, who said that the move undermined reproducibility. DeepMind swiftly reversed course and said it would make an open-source version of the tool available within half a year. Anyone can now download the AlphaFold3 software code and use it non-commercially. But for now, only scientists with an academic affiliation can access the training weights, and only on request.

Takeaways by Macro Roundup® AI

  1. DeepMind has released AlphaFold3's software code for non-commercial download, while the training weights remain available only to scientists with an academic affiliation and only on request.
  2. AlphaFold3, which models proteins together with other molecules, was initially offered only through a web server that limited the number and types of predictions scientists could make, unlike AlphaFold2, whose underlying code was released.
  3. DeepMind reversed course after scientists criticized the publication of AlphaFold3 without its code or model weights as undermining reproducibility, pledging an open-source version of the tool within half a year.

Related Articles:

  • Accurate Structure Prediction of Biomolecular Interactions With AlphaFold 3 — AlphaFold 3, a single deep learning model with a diffusion-based architecture, jointly predicts the structures of complexes containing proteins, nucleic acids, small molecules, ions, and modified residues. The authors report accuracy exceeding specialised tools for protein-ligand docking, protein-nucleic acid interactions, and antibody-antigen prediction.

Friday, November 15, 2024

AI Summary. Using ten-minute exchange rate data around tariff news during the US–China tariff war, the authors estimate that news of higher US tariffs appreciated the dollar by about 1% and depreciated the renminbi by about 2%. The measured effect on the renminbi was roughly 3x that on the dollar.

Olivier Jeanne and Jeongwon Son Journal of International Money and Finance
Date Posted:

Olivier Jeanne and Jeongwon Son find that the cumulative effect of news about US tariffs on China in 2018-19 appreciated the dollar by about 1% and depreciated the renminbi by 2% against a broad basket of currencies.

How much do exchange rates move in response to tariff news?

Core argument: U.S. tariff news in 2018–19 appreciated the dollar by about 1% and depreciated the renminbi by about 2%, measured using ten-minute-frequency nominal effective exchange rates over horizons of a few hours.

We look at how the dollar and the renminbi responded to [high-frequency] tariff-related news in 2018-19. We construct nominal effective exchange rates (NEERs) for the US dollar and the renminbi at the ten-minute frequency and measure the impact of tariff news on these effective exchange rates at time horizons of a few hours. This exercise is model-free. Bloomberg News Search was used to identify news related to the tariff war between the US and China and record the exact time of their release.. We find that the US tariff news that occurred in 2018-19 appreciated the dollar by about one percent and depreciated the renminbi by two percent. The third row of Fig. 3 shows that the renminbi significantly depreciates following news of an increase in US tariffs,statistically significant for all time windows. The impact of news about US tariffs is about three times larger for the renminbi than for the dollar.

Takeaways by Macro Roundup® AI

  1. U.S. tariff news in 2018–19 appreciated the dollar by about 1% and depreciated the renminbi by about 2%, measured using ten-minute-frequency nominal effective exchange rates over horizons of a few hours.
  2. The impact of U.S. tariff news is about three times larger for the renminbi than for the dollar, with the renminbi depreciating significantly after news of U.S. tariff increases across all time windows.
  3. The analysis is model-free, using Bloomberg News Search to identify U.S.–China tariff war news and record the exact time of each release.

Related Articles:

  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.
  • 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.
  • He Helped Trump Remake Global Trade. His Work Isn’t Done — A former U.S. trade representative argues that countries running chronic trade surpluses for decades are by definition protectionist, and backs a universal 10% tariff plus a higher tariff on China to push toward globally balanced trade over time. Alternatives include import certificates tied to exports and a charge on foreign investment in U.S. assets.

AI Summary. US fiscal policy is on an unsustainable path, with potential market flashpoints including a sovereign credit downgrade, weak Treasury auctions, a term premium that has been trending higher, and a weaker dollar if growth slows. A debt crisis is unlikely; gradually higher long-term interest rates and a steeper yield curve are more likely.

Torsten Sløk, Rajvi Shah, and Shruti Galwankar Apollo
Date Posted:

Torsten Sløk and team argue the US is “unlikely” to face a debt crisis: “More likely is gradually higher long-term interest rates, and a steepening of the yield curve.” Interest is forecast to rise from 13% of Federal spending in 2024 to 23% in 2054.

How will unsustainable fiscal policy affect long-term interest rates?

Core argument: US fiscal policy is on an unsustainable path, with four channels by which it could become a market issue: a sovereign downgrade, weak Treasury auctions, a rising term premium, and a declining dollar.

US fiscal policy is on an unsustainable path. How could this become an issue for markets? 1. A US sovereign downgrade: Could happen without warning. 2. Treasury auctions: Weakness could appear without warning. 3. The term premium: Has been trending higher. 4. The dollar: Could decline if the US economy starts to slow down. Bottom line: So far, so good. Unlikely we will get a debt crisis. If yields spike, will the Fed do QE? More likely is gradually higher long-term interest rates, and a steepening of the yield curve.

Takeaways by Macro Roundup® AI

  1. US fiscal policy is on an unsustainable path, with four channels by which it could become a market issue: a sovereign downgrade, weak Treasury auctions, a rising term premium, and a declining dollar.
  2. The term premium has been trending higher, and the more likely outcome is gradually higher long-term interest rates and a steepening yield curve rather than a debt crisis.
  3. A US sovereign downgrade and weakness at Treasury auctions could each occur without warning, while the dollar could decline if the US economy starts to slow.

Related Articles:

  • As the Fed Cuts Rates, Treasury Yields Are Rising — Federal Reserve cuts to the federal funds rate target range were accompanied by falling short-term Treasury bill yields but rising longer-term yields, with the 10-year Treasury yield climbing from 3.63% to 4.42%. Deficit-increasing proposals from both presidential campaigns likely exacerbated the rise in longer-term yields.
  • 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.
  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.

AI Summary. Survey data show that in every US election from 1948 to 2012 voters saw the Democratic Party primarily as standing up for the working class and the poor, an image that flipped in 2016 to that of a party of minority advocacy. Voters also perceive Democrats as having moved further left than Republicans have moved right.

John Burn-Murdoch Financial Times
Date Posted:

Democrats’ views on cultural issues have swung much further from the median American voter relative to their Republican counterparts. @jburnmurdoch argues “America’s moderate voters have not deserted the Democrats; the party has pushed them away.”

Have voters stopped seeing Democrats as the party of the working class?

Core argument: Survey data show that in every US election from 1948 to 2012, voters viewed the Democratic party as the party standing up for the working class and the poor, an image that flipped in 2016.

US voters also perceive the Democrats as having moved much further left than the Republicans have shifted right in recent years. These shifts, layered on top of increasing education polarisation, are changing the image of the Democratic party in voters’ minds. Survey data shows that in every election from 1948 to 2012, American voters’ image of the Democrats was as the party that stood up for the working class and the poor. In 2016 that flipped. Now it is seen primarily as the party of minority advocacy.

Takeaways by Macro Roundup® AI

  1. Survey data show that in every US election from 1948 to 2012, voters viewed the Democratic party as the party standing up for the working class and the poor, an image that flipped in 2016.
  2. American voters now see the Democratic party primarily as the party of minority advocacy, a shift layered on top of increasing education polarisation.
  3. US voters perceive the Democrats as having moved much further left than the Republicans have shifted right.

Related Articles:

  • 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.
  • 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 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. The foreign-born share of a county's population explains half the geographic variation in the electoral swing between the 2020 and 2024 US presidential elections, a stronger predictor than the white-working-class share was of earlier shifts. Because the level of the immigrant population aligns with voting patterns rather than its growth rate, the analysis suggests immigrants themselves changed their votes.

Economist Staff The Economist
Date Posted:

An @economist analysis finds that the foreign-born share of a county’s population explains half of the geographic variation in the electoral swing from 2020 to 2024; Trump overperformed in counties with heavily ethnic white Catholic ancestry.

Does a county's foreign-born share predict recent electoral swings?

Core argument: The foreign-born share of a county's population explains half of the geographic variation in the electoral swing from 2020 to 2024, a stronger predictor than the white-working-class share was of shifts from 2012 to 2016.

The foreign-born share of a county’s population explains half of geographic variation in the electoral swing from 2020 to 2024, making it an even stronger predictor than the white-working-class share was of shifts from 2012 to 2016. Places like New Mexico, with lots of Hispanics but relatively few immigrants, swung in line with the national average. Meanwhile, areas with many foreign-born residents and modest Latino populations, like Loudoun County in Virginia, lurched right. Crucially, what aligns with voting patterns is the size of the immigrant population, not the growth rate. This implies that the people changing their minds were immigrants themselves, rather than their native-born neighbours. Exceptions to the overall trend of immigrant-rich regions shifting the farthest right offer further clues about the nature of Mr Trump’s increased appeal. He did unusually well in counties where lots of people trace their ancestry to three Catholic European countries—Ireland, Italy, and Poland. Mr Trump’s gains were relatively muted in counties with lots of college-educated whites or same-sex couples.

Takeaways by Macro Roundup® AI

  1. The foreign-born share of a county's population explains half of the geographic variation in the electoral swing from 2020 to 2024, a stronger predictor than the white-working-class share was of shifts from 2012 to 2016.
  2. The size of a county's immigrant population, not its growth rate, aligns with voting patterns, implying that the voters changing their minds were immigrants themselves rather than their native-born neighbours.
  3. Donald Trump did unusually well in counties with many residents tracing ancestry to Ireland, Italy and Poland, while his gains were relatively muted in counties with many college-educated whites or same-sex couples.

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AI Summary. China's capital-output ratio is among the highest in the world in purchasing-power terms, and as capital grows relative to output a larger share of new investment must cover depreciation. The authors estimate that increases in capital inputs now add less than 3 percentage points to annual GDP growth, down from nearly 6.

Matthew Higgins Federal Reserve Bank of New York
Date Posted:

A @NewYorkFed analysis finds that China’s per capita consumption at purchasing power parity is almost 40% lower than Thailand’s, even though China’s per capita income is 3% higher.

Does a rising capital stock contribute less to growth?

Core argument: The authors estimate that increases in capital inputs now contribute less than 3 percentage points to China's annual GDP growth, down from a high of nearly 6 percentage points early in the last decade.

China’s high investment share has supported a rapid buildup in the country’s capital stock. In fact, China’s capital-output ratio is now among the highest in the world in PPP terms. But capital accumulation is subject to diminishing returns: A given increment makes a smaller contribution to growth when capital is abundant than it does when capital is scarce. Moreover, as the capital stock rises relative to output, a higher fraction of new investment must go to offset ongoing depreciation. The impact of diminishing returns is already in evidence. According to our estimates, increases in capital inputs now contribute less than 3 percentage points to annual GDP growth, down from a high of nearly 6 ppt. early in the last decade.

Takeaways by Macro Roundup® AI

  1. The authors estimate that increases in capital inputs now contribute less than 3 percentage points to China's annual GDP growth, down from a high of nearly 6 percentage points early in the last decade.
  2. China's capital-output ratio ranks among the highest in the world in PPP terms, following a high investment share that has supported a rapid buildup of the capital stock.
  3. Capital accumulation is subject to diminishing returns, as a given increment contributes less to growth when capital is abundant, and a higher fraction of new investment must offset depreciation as the capital stock rises relative to output.

Related Articles:

  • 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.
  • Can China Catch Up with Greece? — Declining contributions from labor and capital are projected to hold China's income growth below 4% unless total factor productivity growth accelerates, which the authors argue is unlikely given that China's productivity growth has already averaged 1.8% since 2009. Only five of the 43 countries that previously reached China's income level sustained that pace over the following 13 years.
  • The Neoclassical Growth of China — China's per capita GDP growth path closely tracks those of Japan, South Korea, and Taiwan from similar starting income levels, indicating nothing unusual about its growth rate. The authors' model projects China's per capita GDP will level off at about 41% of the US level, reflecting a slowdown in productivity catch-up.

AI Summary. An estimated 15.1m US children aged 5–14, 21.4m older adolescents aged 15–24, and 172m adults aged 25 and over had overweight or obesity, with adult prevalence highest in North Dakota for males (80.6%) and Mississippi for females (79.9%). Obesity prevalence among adolescents rose roughly 158–186% over three decades.

Marie Ng, Xiaochen Dai, Rebecca Cogen et al. The Lancet
Date Posted:

Almost 75% of American adults were overweight or obese in 2021, up from ~ 50% in 1990.

How widespread are overweight and obesity across US age groups?

Core argument: An estimated 172 million US adults aged 25 and older, 21.4 million older adolescents aged 15–24, and 15.1 million children and young adolescents aged 5–14 had overweight or obesity in 2021.

In 2021, an estimated 15.1 million children and young adolescents (aged 5–14 years), 21.4 million older adolescents (aged 15–24 years), and 172 million adults (aged ≥25 years) had overweight or obesity in the USA. Texas had the highest age-standardised prevalence of overweight or obesity for male adolescents (aged 15–24 years), at 52.4%, whereas Mississippi had the highest for female adolescents (aged 15–24 years), at 63%. Among adults, the prevalence of overweight or obesity was highest in North Dakota for males, estimated at 80.6%, and in Mississippi for females at 79.9%. The prevalence of obesity has outpaced the increase in overweight over time, especially among adolescents. Between 1990 and 2021, the percentage change in the age-standardised prevalence of obesity increased by 158.4% among male adolescents and 185.9% among female adolescents (15–24 years).

Takeaways by Macro Roundup® AI

  1. An estimated 172 million US adults aged 25 and older, 21.4 million older adolescents aged 15–24, and 15.1 million children and young adolescents aged 5–14 had overweight or obesity in 2021.
  2. Age-standardised obesity prevalence among US adolescents aged 15–24 increased by 158.4% for males and 185.9% for females between 1990 and 2021, with obesity outpacing the rise in overweight.
  3. Age-standardised overweight or obesity prevalence was highest in North Dakota for adult males at 80.6% and Mississippi for adult females at 79.9%, and in Texas for male adolescents at 52.4% and Mississippi for female adolescents at 63%.

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AI Summary. Economic models have overestimated adoption of carbon capture and storage while underestimating cost declines in solar panels and lithium batteries. Researchers modelling solar, wind, batteries and hydrogen electrolysers under "Wright's law" — where each doubling of production cuts unit costs by a fixed percentage — estimate emissions fall fast enough to meet the 1.5°C target at minimal cost.

Economist Staff The Economist
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Limiting global warming to the 2° target might be more affordable than projected due to slower economic growth and the ongoing decline in the cost of solar power, wind power, and lithium batteries as production volumes increase.

Will falling clean energy costs make cutting emissions far cheaper?

Core argument: Rupert Way of the University of Cambridge and co-authors model an energy system in which solar power, wind power, lithium battery and hydrogen electrolyser costs follow "Wright's law," a scenario in which emissions fall fast enough to meet the 1.5°C target at minimal cost.

Economic modellers also have a poor record of predicting technological advances. They overestimate the take-up of some technologies (such as carbon capture and storage, whereby carbon dioxide is sucked out of the smokestacks of power stations and factories and stashed away safely underground) and severely underestimate the falling costs of others, most notably solar panels and lithium batteries. Rupert Way of the University of Cambridge and others have modelled an energy system in which the cost of solar power, wind power, lithium batteries and hydrogen electrolysers falls according to “Wright’s law”. This holds that every doubling of production sees unit costs fall by a fixed percentage, with that percentage derived from past experience. In this scenario emissions fall so rapidly that even the 1.5°C target can be met at minimal cost.

Takeaways by Macro Roundup® AI

  1. Rupert Way of the University of Cambridge and co-authors model an energy system in which solar power, wind power, lithium battery and hydrogen electrolyser costs follow "Wright's law," a scenario in which emissions fall fast enough to meet the 1.5°C target at minimal cost.
  2. Wright's law holds that every doubling of production cuts unit costs by a fixed percentage, with that percentage derived from past experience.
  3. Economic modellers have overestimated take-up of carbon capture and storage while severely underestimating the falling costs of solar panels and lithium batteries.

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