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


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.

Related Articles:

  • 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.
  • 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.
  • 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.

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%.

Related Articles:

  • We May Have Passed Peak Obesity — Newly released data show the US adult obesity rate fell by about two percentage points between 2020 and 2023, with the steepest decline among college graduates. The author argues the new generation of diabetes and weight-loss drugs is highly likely behind the reversal, as one in eight US adults have used them.
  • Today’s Most Important Technology — The share of patients taking semaglutide for weight control rather than type 2 diabetes rose from under 10% in 2019 to 41.7%. Obesity and overweight, affecting 1 in 8 people worldwide, cost the global economy $2tn — nearly 70 cents on the dollar from premature mortality and lost productivity — an impact projected to double by 2035 absent intervention.
  • The Year of Ozempic — GLP-1 medications act on receptors in the gut, liver, muscles, and brain, and studies report they reduce heart attacks and strokes, slow kidney disease progression, and shrink liver fat deposits. Users have also reported diminished cravings for alcohol, tobacco, gambling, and other compulsive behaviors, though anecdotal reports outpace clinical studies.

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
Date Posted:
Is Database:
Database
Is Important:
Important

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.

Related Articles:

  • Take the Under — Downward revisions to global population and GDP projections make climate change appear more tractable, the author argues, since the scenarios used to model emissions rely on socio-economic assumptions that are more extreme than real-world observations. With slower population and economic growth, even partial policy successes could bring emissions consistent with a 2C target within reach.
  • Global Clean Energy Spending Surges to $1.8 Trillion. It’s Not Enough — Global spending on the clean-energy transition rose 17% to a record $1.8tn, covering renewable power, electric vehicles, hydrogen production and other technologies, with total funding reaching about $2.8tn including supply chains and $900bn in financing. BloombergNEF reports this remains short of a net-zero emissions trajectory.
  • The Dangerous Effects Of Rising Sea Temperatures — The world's oceans have absorbed 90% of excess heat and about a quarter of human-caused carbon dioxide emissions during the industrial era, and scientists are investigating what drove an anomalous rise in sea temperatures and whether seas will cool again. Researchers caution there is no guarantee oceans will keep absorbing heat at the same rate.

Monday, November 18, 2024

AI Summary. The authors find evidence that higher minimum wages reduce employment among low-skill Black workers across every group examined — teens, high school dropouts, and young workers with at most a high school education — with larger effects for Black males, while such effects are not very detectable for whites.

David Neumark and Jyotsana Kala National Bureau of Economic Research
Date Posted:

Reviewing the impact of minimum wage increases on employment over 2009 – 2019, @NeumarkEcon finds strong negative employment effects on low-skilled black workers and little impact on low-skilled white workers.

Do higher minimum wages reduce employment for low-skill Black workers?

Core argument: The authors find job loss effects from higher minimum wages are much more evident for blacks and not very detectable for whites, with the estimated minimum wage effect negative for every low-skill black group considered.

We find evidence that job loss effects from higher minimum wages are much more evident for blacks, and in contrast not very detectable for whites. The overall estimated minimum wage effect for blacks is negative for every low skill group we consider. For the overall effects, these include: teens; high school dropouts; under 30, high school dropouts; under 30, with at most a high school education; and under 25, with at most a high school education. In general, when we consider low education (high school dropouts), or combinations of low education (up to at most a high school education) and being young, there is clear evidence of adverse effects of minimum wages on black employment – and more so for males. In addition, when we look at [employment] elasticities [in Figure 14], the race differences are more pronounced, because for every group we consider the employment rate is lower for blacks.

Takeaways by Macro Roundup® AI

  1. The authors find job loss effects from higher minimum wages are much more evident for blacks and not very detectable for whites, with the estimated minimum wage effect negative for every low-skill black group considered.
  2. Adverse minimum wage effects on black employment are evident for high school dropouts and for young workers with at most a high school education, and more so for males, across groups including teens, those under 30, and those under 25.
  3. Race differences are more pronounced in employment elasticities because the employment rate is lower for blacks in every group the authors consider.

Related Articles:

  • What’s Across the Border? Re-Evaluating the Cross-Border Evidence on Minimum Wage Effects — Earlier research using pairs of neighboring counties straddling state borders found no relationship between minimum wages and U.S. restaurant employment, but the authors show that result reverses when local economic areas are instead defined as multi-state commuting zones. Under that definition, they estimate an employment elasticity of −0.305 four years after a minimum wage change.
  • The U.S. Low-Wage Structure: A McWage Comparison — Using wage data from most U.S. McDonald's restaurants, the authors find that before the Covid-19 pandemic, differences in entry-level wages across states were strongly related to state minimum wages, with real wages rising only in the roughly half of states raising their minimums. The 2021 wage spike nearly eliminated those geographic differences and left the federal minimum wage near-irrelevant.
  • Who Paid Los Angeles’ Minimum Wage? A Side-by-Side Minimum Wage Experiment in Los Angeles County — A study of minimum wage increases in Los Angeles County finds restaurants in high-income areas raised prices by 5.9 percentage points more than those in areas under the state wage, while restaurants in low-income neighborhoods did not significantly raise prices but changed menus more often and closed at higher rates.

AI Summary. Market expectations for the Federal Reserve's interest-rate path have shifted, with the expected endpoint moving from about 2.8% to 3.8%. The author argues that enacting the campaign agenda—larger deficits from tax cuts, tariffs on all imports, a weaker currency, mass deportations, and pressure on central-bank independence—would produce a substantially larger inflation shock.

John Ellis and Lawrence Summers Harvard University
Date Posted:

.@LHSummers expects a terminal FFR above the 3.8% the market currently reflects. He argues if the Trump administration’s “policies are implemented in the way they have been talked about, it’s going to be more inflationary than what we saw before.”

Would enacting the campaign economic agenda produce a larger inflation shock?

Core argument: Market expectations for the Federal Reserve's rate path have shifted to a cut to 3.8% from 2.8% two months ago, against a current level around 5%.

Two months ago, people thought the Fed was on a path to cutting interest rates to 2.8% from their current level around 5. Now people think, now the markets think, the Fed's going to cut interest rates to 3.8%. If President Trump does what he said he would do during his campaign, the inflation shock administered to the economy would be substantially larger than anything that happened at the beginning of the last administration. He's vowed huge deficit increases through continuation of his tax cuts and new tax cuts. He has trashed the idea of the independence of the central bank. He said that we should want to have a less highly valued currency, which means less valuable money, higher prices. And that's just on the demand side. The more important part is he's talked about a big tariff on every good that we import, which means higher import prices, also means higher prices for everything that competes with imports. If you're talking about sending millions of people out of the country who are here now, that's a prescription for large-scale labor shortages. And we've seen in the past what that does to inflation.

Takeaways by Macro Roundup® AI

  1. Market expectations for the Federal Reserve's rate path have shifted to a cut to 3.8% from 2.8% two months ago, against a current level around 5%.
  2. If Trump enacts his campaign pledges, the resulting inflation shock would be substantially larger than anything at the start of the prior administration, given deficit increases from continued and new tax cuts, dismissal of central bank independence, and a call for a less valuable currency.
  3. Tariffs on every imported good are the more important inflationary channel, raising import prices and prices of goods competing with imports, while sending millions of people out of the country is a prescription for large-scale labor shortages.

Related Articles:

  • 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.
  • Fiscal Influences on Inflation in OECD Countries, 2020-2022 — Across 21 economies, the authors find that headline and core inflation responded positively to a measure of government spending increases scaled by pre-pandemic debt-to-GDP and average debt duration. Estimated coefficients of 0.4–0.5 suggest 40–50% of the extra spending was financed through inflation, with the rest through conventional public finance.
  • How Will Trumponomics Work Out? — 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.

AI Summary. Annual spending by major US utilities to produce and deliver electricity rose 12% over two decades to $320bn in inflation-adjusted terms, driven mainly by capital investment in infrastructure, which more than doubled. Capital spending on the distribution system that delivers power to end users increased 160%, or $31.4bn.

Lori Aniti Energy Information Administration
Date Posted:
Is Database:
Database

US utilities annual spending increased 12% in real terms between 2003 and 2023 according to FERC data. Between 2022 and 2023, capex rose 11% y/y on electrical transmission and 14% on distribution.

What has driven the increase in US utility spending over two decades?

Core argument: Annual spending by major U.S. utilities to produce and deliver electricity rose 12% from $287 billion in 2003 to $320 billion in 2023 in real 2023 dollars, according to financial reports filed with the Federal Energy Regulatory Commission.

Annual spending by major utilities to produce and deliver electricity increased 12% from $287B in 2003 to $320B in 2023 as measured in real 2023 dollars, according to financial reports to the Federal Energy Regulatory Commission (FERC). Capital investment in electric infrastructure mostly drove the increase, more than doubling over the period as aging generation and delivery infrastructure were replaced or upgraded to resist fire and storm damage. Spending on electricity transmission systems nearly tripled from 2003 to 2023, increasing to $27.7B. More recently, capital investment in the transmission of electricity increased $2.7B (11%) in 2023 from 2022. Capital spending on the distribution system, responsible for delivering electricity to end users, was the main driver of electricity spending increases over the last two decades. Capital investment in distribution infrastructure increased by $31.4B, or 160%, from 2003 to 2023. More than one-fifth of this increase occurred between 2022 and 2023.

Takeaways by Macro Roundup® AI

  1. Annual spending by major U.S. utilities to produce and deliver electricity rose 12% from $287 billion in 2003 to $320 billion in 2023 in real 2023 dollars, according to financial reports filed with the Federal Energy Regulatory Commission.
  2. Capital investment in distribution infrastructure, which delivers electricity to end users, increased $31.4 billion, or 160%, from 2003 to 2023 and was the main driver of the rise in electricity spending over those two decades.
  3. Spending on electricity transmission systems nearly tripled from 2003 to 2023, reaching $27.7 billion, with capital investment in transmission rising $2.7 billion, or 11%, in 2023 from 2022.

Related Articles:

  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.
  • Electricity Grids and Secure Energy Transitions — Under a scenario based on announced government pledges, global electricity demand is projected to grow 2.7% per year, more than doubling from just under 25,000 terawatt-hours to nearly 54,000 terawatt-hours by 2050. Hydrogen production via electrolysis and electric vehicles account for more than half of that projected growth.
  • World’s Largest Transformer Maker Warns of Supply Crunch — Hitachi Energy, the world's largest transformer maker, says the industry is overwhelmed and cannot keep pace with demand for grid equipment, with utilities that have not pre-reserved units now facing waits of three to four years versus six to eight months previously. Demand has been strained partly by data centres running generative artificial intelligence.

AI Summary. A New Zealand nuclear fusion start-up says it created and contained a plasma cloud at about 300,000 degrees Celsius for 20 seconds in under two years for less than $10mn, using a design that levitates a superconducting magnet inside the plasma rather than outside the chamber.

Malcolm Moore Financial Times
Date Posted:
Is Database:
Database

A New Zealand-based startup claims to have created a 300,000°C plasma cloud for 20 seconds using an “inside-out” tokamak, which contains superheated plasma using a high-temperature superconducting magnet inside the reactor.

Can an inside-out reactor design speed up fusion development at lower cost?

Core argument: OpenStar, a New Zealand start-up, says it created and contained a plasma cloud at around 300,000°C for 20 seconds in its first experimental reactor, achieved in under two years and for less than $10mn.

A small start-up in New Zealand claims it has created plasma, the first step towards nuclear fusion, in under two years and for less than $10mn after experimenting with an unconventional reactor design. OpenStar, founded by chief executive Ratu Mataira in 2021 in his Wellington apartment, said on Tuesday that it had created and contained a plasma cloud at around 300,000 degrees Celsius for 20 seconds in its first experimental reactor. While much higher plasma temperatures are required to achieve nuclear fusion, OpenStar’s test stands apart for its unconventional reactor design, which the company said could be faster to scale and commercialise. Mataira said OpenStar’s breakthrough had been to turn the tokamak design “inside out”. Instead of magnets outside the chamber, OpenStar levitates a high-temperature superconducting magnet inside the superheated plasma, which is then kept within the magnet’s north-to-south field lines. This allows the plasma, which is so hot it would destroy any material it touches, to be contained inside a vacuum chamber.

Takeaways by Macro Roundup® AI

  1. OpenStar, a New Zealand start-up, says it created and contained a plasma cloud at around 300,000°C for 20 seconds in its first experimental reactor, achieved in under two years and for less than $10mn.
  2. OpenStar's reactor turns the tokamak design "inside out," levitating a high-temperature superconducting magnet inside the plasma and containing the plasma within the magnet's north-to-south field lines in a vacuum chamber.
  3. Much higher plasma temperatures than OpenStar's 300,000°C are required to achieve nuclear fusion, though the company says its unconventional design could be faster to scale and commercialise.

Related Articles:

  • WHAM! Nuclear Fusion Experiment Hits New Record for Magnet Strength — A nuclear fusion experiment at the University of Wisconsin-Madison set a record for the strongest steady magnetic field confining a plasma, reaching 17 tesla — more than twice the field strength used by high-resolution MRI brain scanners. The high-temperature superconducting magnets were built by startup Commonwealth Fusion Systems.
  • US Scientists Repeat Fusion Power Breakthrough — Scientists at the Lawrence Livermore National Laboratory achieved net energy gain in a fusion reaction for a second time, with preliminary results indicating the experiment produced a higher energy output than the first ignition.
  • China Outspends the U.S. on Fusion in the Race for Energy’s Holy Grail — Scientists familiar with China's fusion facilities estimate that at its current pace of spending and development, China will surpass U.S. and European magnetic fusion capabilities within three or four years. Much U.S. fusion spending goes to legacy programs, while China's roughly $1.5bn is largely directed at building systems that would compete with leading private U.S. fusion firms.

AI Summary. China appears to be exporting close to $1tn more than it imports, with the trend upward, and other countries are unlikely to passively accept Chinese surpluses on that scale. The "China shock" of the 2000s showed that a large import surge inflicts unacceptable damage on affected workers and communities.

Paul Krugman New York Times
Date Posted:

.@paulkrugman argues “Serious trade conflict is coming as China tries to export its policy failures.” He cautions the Trump administration against “across the board” tariffs and warns of potential large-scale cronyism in their application.

Will other countries accept trade surpluses approaching $1 trillion?

Core argument: China appears to be exporting close to $1 trillion more than it imports, with the trend rising, as it offsets weak domestic consumption by running huge trade surpluses to keep its economy humming.

What do you do if you have lots of capacity but your consumers can’t or won’t buy what you make? You try to export the problem, keeping the economy humming by running huge trade surpluses. And I mean huge. Tellingly, China seems to be playing games with its trade numbers in an attempt to make its surpluses look smaller than they really are. But China appears to be exporting close to $1 trillion more than it imports, and the trend is upward. Hence the coming trade war. The rest of the world won’t passively accept Chinese surpluses on that scale. The “China shock” of the 2000s taught us that whatever the (real) virtues of free trade, a huge import surge does unacceptable damage to workers and communities in its path. Furthermore, China is an autocracy that doesn’t share democratic values. Allowing it to dominate strategically crucial industries is an unacceptable risk.

Takeaways by Macro Roundup® AI

  1. China appears to be exporting close to $1 trillion more than it imports, with the trend rising, as it offsets weak domestic consumption by running huge trade surpluses to keep its economy humming.
  2. China seems to be playing games with its trade statistics in an attempt to make its surpluses look smaller than they actually are.
  3. The "China shock" of the 2000s taught that a huge import surge does unacceptable damage to workers and communities in its path, and letting an autocracy that does not share democratic values dominate strategically crucial industries is an unacceptable risk.

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. Air freight groups and airlines are rerouting planes to capture elevated freight rates out of China, driven by demand for cheap goods from Chinese ecommerce groups and greater use of air freight amid Red Sea disruption. Average spot rates from Asia to the US rose 49% year-over-year to $5.46/kg.

Chan Ho-him, Oliver Telling, and Philip Georgiadis Financial Times
Date Posted:

The spot air freight rate from Asia to the US has surged 49% since October 2023, as Chinese e-commerce groups respond to US consumers’ appetite for cheap goods via duty-free direct-to-consumer shipments.

Are airlines rerouting planes to capture rising air freight rates from China?

Core argument: The average October spot rate for air freight from Asia to the US rose 49% from a year earlier to $5.46 a kilogram, while Asia-to-Europe rates rose 25%, according to market analytics firm Xeneta.

Air freight groups and airlines, which only recently cut flights to China amid weak tourist demand, are scrambling to reroute planes and cash in on elevated freight rates out of the country ahead of Black Friday and the Christmas shopping season. Strong growth in demand for cheap online goods from Chinese ecommerce groups and the rising use of air freight amid disruption in the Red Sea are threatening to overwhelm the already strained rapid delivery market before Christmas, causing air freight rates to jump. The freight rate for flying goods from Asia to the US has surged, with the average spot price in October up 49% from a year ago to $5.46 a kilogram, according to market analytics firm Xeneta. Rates from Asia to Europe rose 25% over the same period. The jump in air freight demand comes as China-founded ecommerce groups respond to western consumers’ appetite for cheap goods. Many of their shipments are sent direct to consumers by air, taking advantage of import duty exemptions on shipments below a certain price.

Takeaways by Macro Roundup® AI

  1. The average October spot rate for air freight from Asia to the US rose 49% from a year earlier to $5.46 a kilogram, while Asia-to-Europe rates rose 25%, according to market analytics firm Xeneta.
  2. Air freight groups and airlines, which recently cut China flights amid weak tourist demand, are rerouting planes to capture elevated freight rates out of China ahead of Black Friday and the Christmas shopping season.
  3. Demand for cheap online goods from China-founded ecommerce groups, plus greater use of air freight amid Red Sea disruption, threatens to overwhelm the strained rapid delivery market before Christmas, with many shipments flown direct to consumers under import duty exemptions below a certain price.

Related Articles:

  • China Nears Record $1 Trillion Trade Surplus as Trump Returns — China's goods trade surplus reached a record $785bn in the first 10 months of a year, up almost 16% from the prior year, and Bloomberg calculates it would approach $1tn if it keeps widening at the same pace. Foreign direct investment liabilities fell over nine months, which would mark the first annual net outflow since 1990 if sustained.
  • The Dangerous Myth of Deglobalization — China's manufacturing surplus rose by about 1 percentage point of global GDP over a four-year span and is far larger than those of Germany and Japan. China's $800bn goods trade surplus depends on the large U.S. trade deficit, which is still indirectly financed by China through the large offshore dollar stockpiles held by Chinese exporters.
  • The Surprising Resilience of Globalization: An Examination of Claims of Economic Fragmentation — China's exports have grown faster than its own economy, rising by about 3 percentage points as a share of its GDP, with a nearly $1tn surge over four years. Measured against the GDP of its trading partners, China's manufactured-goods surplus has increased by about three-quarters of a percentage point of world GDP to a record high.

AI Summary. An across-the-board tariff would shift American workers and capital toward producing goods currently imported more cheaply, lowering productivity, wages, and returns on capital while reducing output in industries where the US is more efficient. Because half of US imports are component parts used by domestic producers, tariffs would also raise production costs and reduce competitiveness.

Phil Gramm and Donald Boudreaux Wall Street Journal
Date Posted:

Phil Gramm and Donald Boudreaux argue that across-the-board tariffs would lower US productivity and the return on capital by channeling US capital and workers away from goods and services where we have a comparable advantage. @AEIecon

Do across-the-board tariffs lower productivity, wages, and competitiveness?

Core argument: Half of U.S. imports are component parts used by American producers, so an across-the-board tariff would raise domestic production costs and reduce U.S. competitiveness at home and abroad, the author argues.

An across-the-board tariff would stimulate U.S. production of goods that we now import more cheaply. To produce these goods at home, American workers and capital would be drawn away from producing other goods and services that we produce more efficiently. Productivity, wages and the return on capital would fall as we produce things at home that we could buy more cheaply abroad. This would simultaneously reduce production in industries for which our labor productivity and capital returns are higher. Moreover, because half of our imports are component parts used by U.S. producers, tariffs would further increase our production costs and reduce our competitiveness at home and abroad.

Takeaways by Macro Roundup® AI

  1. Half of U.S. imports are component parts used by American producers, so an across-the-board tariff would raise domestic production costs and reduce U.S. competitiveness at home and abroad, the author argues.
  2. An across-the-board tariff would stimulate U.S. production of goods now imported more cheaply, drawing American workers and capital away from goods and services the U.S. produces more efficiently.
  3. Productivity, wages and the return on capital would fall as the U.S. produces domestically what it could buy more cheaply abroad, cutting output in industries where U.S. labor productivity and capital returns are higher.

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.
  • China Arms Itself For Potential Trade War With Donald Trump — 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.
  • How Will Trumponomics Work Out? — 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.