Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, November 25, 2024

AI Summary. The authors estimate that men born in US counties more exposed to textile-industry decline lost about 3.3 months of old-age longevity if they lived in non-urban areas and did not migrate, with effects concentrated where alternative job prospects were fewer. Scaling by the employment drop implies roughly 4 years lost among sons of displaced textile workers.

Hamid Noghanibehambari and Jason Fletcher National Bureau of Economic Research
Date Posted:

Hamid Noghanibehambari and @jasonmfletcher find that children whose fathers lost their jobs in textiles and did not migrate during the decline of the New England textile industry in the 1920s and 1930s experienced “a 4-year loss of life expectancy.”

Does local industrial decline in childhood shorten men's later-life lifespans?

Core argument: Men born in New England counties more exposed to post-1920s textile deindustrialization show reductions in old-age longevity of about 3.3 months if they lived in non-urban areas and their families had not migrated from their county of birth by 1940.

We compare old-age longevity of individuals born in counties with higher versus lower exposure to the deindustrialization after the 1920s versus before and find reductions in longevity of about 3.3 months for exposed cohorts who reside in non-urban areas and whose family did not migrate from their county-of-birth until 1940. The negative impacts are primarily concentrated among people and places with fewer alternative job prospects. These effects measure the potential impacts among all people in as defined above. We expect to observe larger effects as we focus on the subpopulations who are more likely to be affected- [e.g.] low educated individuals [who] are less likely to switch occupations.We find that high-exposed counties (top-tercile of 1900 textile) reveal about 7 percentage-points drop in textile employment. Using the 3.3 months applying to the [at risk cohorts as described above] and deflating by the first-stage effect of 0.07 in Table 4 [“father not in textile industry”], a back-of-an-envelope calculation suggests a loss [of life expectancy] about 4 years among non-urban non-migrants whose fathers lost their job due to deindustrialization.

Takeaways by Macro Roundup® AI

  1. Men born in New England counties more exposed to post-1920s textile deindustrialization show reductions in old-age longevity of about 3.3 months if they lived in non-urban areas and their families had not migrated from their county of birth by 1940.
  2. Counties in the top tercile of 1900 textile employment show about a 7 percentage-point drop in textile employment, and scaling the 3.3-month effect by that first stage suggests a loss of roughly 4 years of life expectancy among non-urban non-migrants whose fathers lost textile jobs.
  3. The negative longevity effects are concentrated among people and places with fewer alternative job prospects, with larger effects expected among subpopulations such as low-educated individuals, who are less likely to switch occupations.

Related Articles:

  • The China Shock Revisited: Job Reallocation and Industry Switching in U.S. Labor Markets — Using U.S. Census Bureau administrative data, the authors find that rising Chinese import penetration shifted jobs from manufacturing to services far more in high human capital areas, where within-firm industry switching occurs almost exclusively, producing a net positive employment effect; in low human capital, manufacturing-dependent areas, service gains barely offset manufacturing losses.
  • Trading Places: Mobility Responses of Native and Foreign-Born Adults to the China Trade Shock — U.S. local labor markets more exposed to import competition from China saw substantially larger net reductions in their foreign-born populations, with no significant reduction among native-born residents. Within exposed areas, foreign-born and native-born workers had comparably sized declines in employment-to-population ratios.
  • Manufacturing Jobs Boom Not Reaching Places Hit By The China Shock — U.S. manufacturing job growth since the pandemic is occurring disproportionately in counties least exposed to Chinese import competition in the 2000s, according to an analysis of federal employment and wage data. The counties hardest hit by that import competition still have fewer manufacturing jobs than before the pandemic.

AI Summary. US federal debt has risen from 105% to 123% of GDP, the budget deficit has doubled from 3.1% to more than 6%, and government interest expense has grown from 1.3% to about 3.1% of GDP. The author argues this makes expansive fiscal policy harder to pursue than in the past.

Jens Nordvig Money: Inside and Out
Date Posted:

.@jnordvig notes that Trump ran an expansionary fiscal policy in his first term, growing the deficit 1.5pp to 4.6% of GDP in 2019. Scott Bessent’s goal of halving the deficit from 6.4% of GDP in 2024 to 3% by 2029 implies a contractionary policy.

Do higher debt, deficits, and interest costs constrain expansive fiscal policy?

Core argument: The U.S. federal deficit doubled from 3.1% of GDP in 2016 to more than 6% in 2024, while federal debt rose from 105% to 123% of GDP, which will make expansive fiscal policy harder to pursue than in Trump's first term.

We also saw notable expenditure expansion during Trump I, leading to a significant expansion in the fiscal deficit, even before the COVID shock hit in 2020. Specifically, the fiscal deficit was 3.1% in 2016, but had grown to 4.6% in 2019. This may seem like a small deterioration, and visually it is small compared to the mega-deficit of 2020. But historically it was a quick 1.5% deterioration which was rare in an economy experiencing ‘ok growth.’ But 2024 is different from 2016. The Federal debt level has grown from 105% of GDP to 123% of GDP. And the fiscal deficit has doubled, from 3.1% in 2016, to more than 6% in 2024. Hence, it will be hard to pursue expansive fiscal policies in the same way as in the first Trump administration. Linked to this, we have seen much more volatility in US bond markets, with supply concerns contributing to yield spikes during 2022 and 2023, and perhaps recently too. The 10-year government bond yield is currently around 4.50% compared to less than 2% when Trump was elected in 2016, with important implications for the debt service bill and debt dynamics (the government interest expense has grown from 1.3% in 2016 to around 3.1% in 2024).

Takeaways by Macro Roundup® AI

  1. The U.S. federal deficit doubled from 3.1% of GDP in 2016 to more than 6% in 2024, while federal debt rose from 105% to 123% of GDP, which will make expansive fiscal policy harder to pursue than in Trump's first term.
  2. During Trump's first term, the federal deficit widened from 3.1% of GDP in 2016 to 4.6% in 2019, a 1.5 point deterioration that was historically rare in an economy experiencing "ok growth," and before the 2020 COVID shock.
  3. The 10-year government bond yield stands near 4.50% versus less than 2% when Trump was elected in 2016, and government interest expense has grown from 1.3% in 2016 to around 3.1% in 2024.

Related Articles:

  • Long-Term Interest Rates, Fiscal Policy, And The Term Premium — 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.
  • 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.
  • How to Manage the Dollar (Part III) — Policy options for influencing the dollar fall into four overlapping categories: acting on the current account, acting on the financial account, monetary policy, and coordinated global policies affecting saving-investment balances. Because the US current account is driven by the economy's overall saving-investment balance, any policy affects the external imbalance only by shifting those decisions.

AI Summary. US economic output per hour worked has risen 8.9% over the past five years, faster than the preceding five years or any point in the 2010s, and more than double the growth of the next-fastest major comparable economy. Unlike the second-place UK, the US achieved this while also increasing overall employment.

Joseph Politano Apricitas Economics
Date Posted:

American economic output per hour worked has risen 8.9% since 2019—faster than any point in the 2010s —in spite of the COVID-19 pandemic, and more than double the productivity growth of the UK, the next-fastest major comparable economy.

Is US productivity growing faster than in other major economies?

Core argument: U.S. output per hour worked has risen 8.9% over the last five years, faster than the prior five years or any point in the 2010s, despite the COVID-19 pandemic.

American economic output per hour worked has risen 8.9% over the last five years—faster than the five years prior or any point in the 2010s—in spite of the COVID-19 pandemic. The already-great productivity recovery we had going into this year got a major upward revision from recent updates to GDP data, and preliminary estimates suggest they’ll get another boost as job growth will likely be revised down significantly at the start of next year. That success is all the more remarkable compared to the dismal productivity numbers seen across many of America’s peer nations and how long it took US productivity growth to sustainably recover from the Great Recession. Since late 2019, the US has seen more than double the productivity growth of the next-fastest major comparable economy, building on an already significant lead it built up in the years before COVID. Plus, unlike the 2nd-place UK, the US has achieved this while increasing overall employment levels instead of leaving less-productive workers out of a job.

Takeaways by Macro Roundup® AI

  1. U.S. output per hour worked has risen 8.9% over the last five years, faster than the prior five years or any point in the 2010s, despite the COVID-19 pandemic.
  2. Since late 2019, the U.S. has recorded more than double the productivity growth of the next-fastest major comparable economy, building on a lead established before COVID.
  3. Unlike the second-place UK, the U.S. achieved its productivity gains while increasing overall employment rather than leaving less-productive workers out of a job.

Related Articles:

  • American Productivity Still Leads The World — US labor productivity per hour has grown 73% since 1990, versus 39% in the euro area and 55% in both Britain and Japan. America also invests more, with non-residential investment near 17% of GDP and R&D around 3.5%, and sees company churn of nearly 20% annually versus roughly 15% in Europe.
  • Does Worker Scarcity Spur Investment, Automation and Productivity? Evidence from Earnings Calls — The authors estimate that a one-unit increase in a firm's labor issues, as measured by earnings calls, raises its investment by 28 basis points, implying roughly $55bn in additional US investment attributable to tighter labor markets. The effect is concentrated in industries relying heavily on routine manual tasks, such as manufacturing assembly and warehouse packaging.
  • Why is the U.S. GDP Recovering Faster Than Other Advanced Economies? — The U.S. output advantage over other advanced economies is attributed mainly to faster labor productivity growth and secondarily to hours worked per employee. Rigid foreign labor markets and job-retention policies kept workers attached to firms producing below capacity, while the U.S. saw about 3x more sectoral worker reallocation and a surge in new firm formation.

AI Summary. Private equity funds managed by Goldman Sachs will write off nearly $900mn of exposure to Swedish battery maker Northvolt, taking their stake to zero after the company filed for Chapter 11 bankruptcy. The bank had been Northvolt's second-largest shareholder, and one fund had recently valued its stake at 4.29x cost.

Richard Milne and Harriet Agnew Financial Times
Date Posted:

Goldman Sachs is writing its $896mm investment in Swedish battery maker Northvolt to zero. As recently as 7 months ago the position was marked at a 4.29x multiple-of-money, and they had projected an increase to a 6x multiple over the next year.

Do private equity valuations overstate the worth of failing startups?

Core argument: Goldman Sachs private equity funds will write off at least $896mn of exposure after Swedish battery maker Northvolt filed for Chapter 11 bankruptcy, marking the stake down to zero at year-end.

Funds managed by Goldman Sachs will write off almost $900mn after Swedish battery maker Northvolt filed for Chapter 11 bankruptcy. Goldman’s private equity funds have at least $896mn in exposure to Northvolt, making the US bank its second-largest shareholder. They will write that down to zero at the end of the year. The losses mark a sharp contrast to a bullish prediction just seven months ago by one of the Goldman funds, which told investors that its investment in Northvolt was worth 4.29 times what it had paid for it, and that this would increase to six times by next year.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs private equity funds will write off at least $896mn of exposure after Swedish battery maker Northvolt filed for Chapter 11 bankruptcy, marking the stake down to zero at year-end.
  2. Goldman Sachs is Northvolt's second-largest shareholder through its private equity funds.
  3. Seven months before the write-off, one Goldman Sachs fund told investors its Northvolt investment was worth 4.29 times what it had paid, and projected that multiple would reach six times by next year.

Related Articles:

  • The Climate Short: Hedge Funds Pile Up Huge Bets Against Green Future — An analysis of positions voluntarily disclosed by roughly 500 hedge funds found more funds are net short batteries, solar, electric vehicles and hydrogen than long them, while more are net long fossil fuels than short oil, gas and coal. This comes despite large green stimulus programs in the US, Europe and China.
  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.
  • AI Investments Are Booming, but Venture-Firm Profits Are at a Historic Low — U.S. venture firms returned $26bn worth of shares to their investors in a year, the lowest amount since 2011, according to data provider PitchBook, and invested $60bn more than they collected — the largest such deficit in 26 years of PitchBook data. Investment remains high while acquisitions and initial public offerings are few.

AI Summary. Averaging corporate earnings over 10 years to strip out the business cycle shows US stocks are expensive, with the cyclically adjusted price-to-earnings ratio at 38, near all-time highs and well above its long-term average of 17.

Torsten Sløk Apollo
Date Posted:

The S&P 500 Shiller CAPE stands at 38, significantly above its long term mean of 17 and near the all-time high of 44. Torsten Sløk cautions “stocks are expensive.”

Are US stocks expensive after adjusting earnings for the business cycle?

Core argument: The cyclically adjusted price-earnings ratio stands at 38, near all-time highs and well above its long-term average of 17, which indicates stocks are very expensive.

When growth is strong, corporate earnings are high. When growth is weak, corporate earnings are low. This makes it difficult to find out if companies are cheap or expensive. One way to analyze if stocks are cheap or expensive is to remove the business cycle by taking the 10-year average of earnings, and doing so shows that stocks are very expensive at the moment. Specifically, the cyclically adjusted price earnings ratio at 38 is near all-time highs, significantly above its long-term average at 17.

Takeaways by Macro Roundup® AI

  1. The cyclically adjusted price-earnings ratio stands at 38, near all-time highs and well above its long-term average of 17, which indicates stocks are very expensive.
  2. Because corporate earnings rise when growth is strong and fall when growth is weak, it is difficult to judge whether companies are cheap or expensive.
  3. Taking a 10-year average of earnings removes the business cycle from valuation analysis, and that adjustment shows stocks are very expensive.

Related Articles:

AI Summary. Researchers developed a recurrent, transformer-based neural network that decodes the surface code, the leading quantum error-correction code, and report it outperforms other state-of-the-art decoders on data from Google's Sycamore quantum processor and on simulated data with realistic noise. The authors argue machine learning can surpass human-designed decoding algorithms by learning directly from data.

Johannes Bausch, Andrew Senior, Francisco Heras et al. Nature
Date Posted:

Google DeepMind announces AlphaQubit, an AI-based decoder that identifies quantum computing errors with state-of-the art accuracy, addressing one of the biggest challenges in scaling quantum computing.

Can machine learning decode quantum errors better than human-designed algorithms?

Core argument: A recurrent, transformer-based neural network decoder outperforms other state-of-the-art decoders on real-world data from Google's Sycamore quantum processor for distance 3 and distance 5 surface codes, the leading quantum error-correction code.

Building a large-scale quantum computer requires effective strategies to correct errors that inevitably arise in physical quantum systems. Quantum error-correction codes present a way to reach this goal by encoding logical information redundantly into many physical qubits. Here we develop a recurrent, transformer-based neural network that learns to decode the surface code, the leading quantum error-correction code. Our decoder outperforms other state-of-the-art decoders on real-world data from Google’s Sycamore quantum processor for distance 3 and distance 5 surface codes. On distances up to 11, the decoder maintains its advantage on simulated data with realistic noise including cross-talk and leakage, utilizing soft readouts and leakage information. Our work illustrates the ability of machine learning to go beyond human-designed algorithms by learning from data directly, highlighting machine learning as a strong contender for decoding in quantum computers.

Takeaways by Macro Roundup® AI

  1. A recurrent, transformer-based neural network decoder outperforms other state-of-the-art decoders on real-world data from Google's Sycamore quantum processor for distance 3 and distance 5 surface codes, the leading quantum error-correction code.
  2. On simulated data with realistic noise including cross-talk and leakage, the neural network decoder maintains its advantage at code distances up to 11 by using soft readouts and leakage information.
  3. The authors argue that machine learning can go beyond human-designed algorithms by learning from data directly, making it a strong contender for decoding in quantum computers.

Related Articles:

  • Quantum Computing Advance Begins New Era, IBM Says — IBM researchers report that a 127-qubit quantum processor simulated the magnetic behavior of 127 atom-scale bar magnets, a problem too complex for an exact answer on the largest supercomputers. Because quantum noise made each sub-millisecond calculation unreliable, the computation was repeated 600,000 times to converge on an answer.

AI Summary. U.S. intelligence and national security officials have told major telecommunications companies to find a permanent way to expel Chinese hackers from the deepest parts of the nation's communications networks. Critical parts of the system date to the late 1970s or early 1980s and are too old to upgrade with modern cybersecurity protections.

David Sanger, Julian Barnes, Devlin Barrett and Adam Goldman New York Times
Date Posted:

MSS’s “Salt Typhoon” exploit may require rebuilding the basic infrastructure of the American telecommunications system in order to evict Chinese intelligence from the system.

Is aging telecommunications infrastructure making Chinese hackers hard to remove?

Core argument: Top U.S. intelligence and national security officials summoned leaders of major telecommunications companies to the White House to press them to help find a permanent way to expel Chinese hackers from the nation's communications networks.

Leaders of the top telecommunications companies were summoned to the White House on Friday to discuss a security problem that has been roiling the government: how to expel Chinese hackers from the deepest corners of the nation’s communications networks. At the White House meeting, the message delivered by top American intelligence and national security officials was that despite the aging technology, the telecommunications companies needed to help find a permanent way to keep Beijing’s agents out of the systems. Critical parts of the American telecommunications system are too old to upgrade with modern cybersecurity protections. Some parts of the system date to the late 1970s or early 1980s, when landlines, not cellphones, dominated the network. One participant in the meeting said the only solution to the problem was “ripping out and replacing whole sections of the networks,” a process the companies have been slow to invest in.

Takeaways by Macro Roundup® AI

  1. Top U.S. intelligence and national security officials summoned leaders of major telecommunications companies to the White House to press them to help find a permanent way to expel Chinese hackers from the nation's communications networks.
  2. Critical parts of the American telecommunications system date to the late 1970s or early 1980s, when landlines dominated the network, and are too old to upgrade with modern cybersecurity protections.
  3. One participant in the White House meeting said the only solution was "ripping out and replacing whole sections of the networks," an investment the telecommunications companies have been slow to make.

Related Articles:

  • U.S. Officials Race to Understand Severity of China’s Salt Typhoon Hacks — Federal authorities are investigating breaches of Verizon, AT&T and Lumen networks attributed to Salt Typhoon, a hacking group tied to Chinese intelligence. Investigators believe the compromises may have given the hackers access to systems the U.S. government uses for court-authorized wiretapping requests, though the severity remains unclear.
  • Volt Typhoon Targets US Critical Infrastructure with Living-Off-The-Land Techniques — Microsoft has identified stealthy intrusions by Volt Typhoon, a Chinese state-sponsored actor, against US critical infrastructure organizations spanning communications, manufacturing, utilities, transportation, maritime, government, information technology, and education. Microsoft assesses with moderate confidence that the campaign is developing capabilities that could disrupt critical communications infrastructure between the US and Asia during future crises.
  • Xi Jinping Says He Is Preparing China for War — China's leadership has emphasized war readiness, announcing a 7.2% increase in the defense budget—which has doubled over the past decade—and plans to reduce dependence on foreign grain imports. China has also opened National Defense Mobilization recruitment offices across the country, while cities in Fujian Province opposite Taiwan build or upgrade air-raid shelters.

Tuesday, November 26, 2024

AI Summary. Historical reconstructions show the gap between long-term interest rates and trend growth across four major economies rose by an average 7 basis points a year over 1931-2023, reversing a 2.7bp annual decline over 1507-1931. The authors argue assumptions of favorable debt-sustainability dynamics are questionable, citing sharp historical reversals alongside surging wartime spending.

Kenneth Rogoff and Paul Schmelzing National Bureau of Economic Research
Date Posted:

The smooth downward trend in r-g since 1504 reversed sign and gave way to marked volatility around 1932. Though current rates are moderate, “growth rates are drifting downwards, creating secular pressures on r-g and debt sustainability.” @paul_schmelzing

Can governments count on favorable interest-rate-minus-growth trends for debt sustainability?

Core argument: Duration-matched r-g for a weighted average of four key economies rose by an annual average of 7bps on a linear trend basis over 1931–2023, a qualitative change from the -2.7bps trend measured over 1507–1931, though the later period exhibits substantial volatility.

Over the observation period of 1931-2023, "Global AW [average weighted over 4 key economies]" duration-matched r-g [the difference between long-term interest rates and trend growth rates] increases by an annual average of 7bps when measured on a linear [trend] basis, but the period exhibits substantial volatility. The post-1932 era represents a substantial qualitative change compared to the downward trend of 2.7bps observed for the same series over 1507-1931, but If one looks at the longer sample, the idea that the world today can likely count on favorable trends in r-g and public debt sustainability dynamics, as much recent literature has done, becomes questionable. Our reconstructions reveal many historical examples of fairly sharp (visual) reversals in duration-matched r-g, for instance during the 1550s or during the 1690s (the Glorious Revolution and Louis XIV’s European Wars), the Napoleonic Wars, or the 1860s (the Crimean and Prussian Wars). In all these cases, fiscal outlays surged rapidly and r-g increases of more than 4% were observed within a decade of a new multi-decade r-g low.

Takeaways by Macro Roundup® AI

  1. Duration-matched r-g for a weighted average of four key economies rose by an annual average of 7bps on a linear trend basis over 1931–2023, a qualitative change from the -2.7bps trend measured over 1507–1931, though the later period exhibits substantial volatility.
  2. Historical reconstructions identify fairly sharp reversals in duration-matched r-g during the 1550s, the 1690s Glorious Revolution and Louis XIV's European wars, the Napoleonic Wars, and the 1860s Crimean and Prussian wars.
  3. In each identified episode, fiscal outlays surged rapidly and r-g increases of more than 4% occurred within a decade of a new multi-decade r-g low, which the authors argue casts doubt on assumptions of favorable r-g and public debt sustainability dynamics today.

Related Articles:

  • Long-Run Trends In Long-Maturity Real Rates, 1311–2022 — Analyzing long-maturity real interest rates across eight advanced economies over seven centuries, the authors find rates are trend stationary with a persistent downward trend since the Renaissance. They argue demographic and productivity factors are not convincing drivers, finding population and output growth negatively predict real rates over long spans.
  • Rethinking Short-Term Real Interest Rates and Term Spreads Using Very Long-Run Data — Multi-century data on short-maturity real interest rates show consistent reversion toward a long-run trend, relatively fast adjustment, and few structural breaks, suggesting caution about claims of a break in short-term real rate behavior. The authors find term spreads secularly rising while inflation volatility trends downward, driven by faster declines in short-maturity yields.
  • Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies — Estimates for 10 advanced economies show natural interest rates have declined over the long run, though not steadily: as recently as the 1990s they ranged from 100 to 600 basis points, while by the end of the sample 4 of 10 countries had a negative natural rate and most others fell between 0 and 50 basis points.

AI Summary. Total factor productivity growth since early 2021 has run only slightly above its 2010–19 average, suggesting the 2020 productivity surge reflected cyclical dynamics layered on a continuation of the slow pre-pandemic trend. Productivity has since grown somewhat faster than the authors' analysis predicted, but remains well below the 1995–2004 pace.

John Fernald, Huiyu Li, Brigid Meisenbacher and Aren Yalcin Federal Reserve Bank of San Francisco
Date Posted:

John Fernald and @huiyu_li find since 2023 productivity growth is slightly above the slow post-2004 trend however it remains well under the 1995-2004 pace. TFP growth has outpaced its 2010-19 pace in the post-pandemic period.

Has productivity growth broken out of its slow pre-pandemic trend?

Core argument: Total factor productivity has grown only slightly faster since the start of 2021 than its average 2010–19 pace.

Since the beginning of 2021, TFP grew just slightly faster than its average 2010–19 pace. In sum, the surge in productivity growth in 2020 appears to reflect large cyclical dynamics superimposed on a continuation of the slow pre-pandemic trend. Since the middle of 2023, productivity grew somewhat faster than what our analysis predicted but is still much slower than the pace from 1995 to 2004. The surge and retreat in productivity follows the pre-pandemic cyclical relationship in which U.S. productivity rises temporarily in recessions.

Takeaways by Macro Roundup® AI

  1. Total factor productivity has grown only slightly faster since the start of 2021 than its average 2010–19 pace.
  2. The 2020 surge in productivity growth appears to reflect large cyclical dynamics superimposed on a continuation of the slow pre-pandemic trend, following the pre-pandemic pattern in which U.S. productivity rises temporarily during recessions.
  3. Since mid-2023, productivity has grown somewhat faster than the analysis predicted but remains much slower than the pace from 1995 to 2004.

Related Articles:

  • Productivity in the World Economy During and After the Pandemic — American labor productivity rose well above its pre-pandemic estimated trend starting in 2020, but subsequently returned to that trend and, by early 2023, fell slightly below it. The estimated trend allows for a slowdown after 2004, capturing the end of the Internet-led boom.
  • The Productivity Slowdown in Advanced Economies: Common Shocks or Common Trends? — Total factor productivity is the main factor accounting for differences in labor productivity growth across countries and over time, and its growth has been lackluster across large advanced economies since the mid-2000s. The authors find this slowdown appears in both manufacturing and market services, with U.S. productivity growth slowing before the Great Recession.
  • Post-Pandemic Productivity Dynamics in the United States — U.S. labor productivity swung widely after 2020 due to both shifts in industry composition and changes within industries, and has returned to its pre-pandemic trend. Industry-level analysis finds higher labor market churn and greater investment in digitalization, particularly in teleworkable industries, are associated with higher productivity growth.

AI Summary. Donald Trump said he would impose 25% tariffs on all imports from Canada and Mexico and an additional 10% on Chinese goods, accusing the three countries of permitting illegal migration and fentanyl trafficking, and said the Canada and Mexico tariffs would remain until those flows stop. The Canadian dollar fell 0.9%, the Mexican peso 1.3%, and China's onshore renminbi 0.1%.

Aime Williams Financial Times
Date Posted:

Trump will impose a 25% tariff on all imports from Canada and Mexico and a 10% tariff on Chinese goods “until such time as Drugs, in particular, Fentanyl, and all Illegal Aliens stop this Invasion of our Country.”

Will new tariffs on three trading partners weaken their currencies?

Core argument: Donald Trump said he will impose 25% tariffs on all imports from Canada and Mexico on his first day in office, to remain in place until drugs, in particular fentanyl, and illegal immigration stop.

Donald Trump has said he will impose tariffs of 25% on all imports from Canada and Mexico, and an extra 10% on Chinese goods, accusing the countries of permitting illegal migration and drug trafficking. In a post on his social media site Truth Social, Trump said he would impose the tariffs on Canada and Mexico on his first day in office “on ALL products coming into the United States, and its ridiculous open borders”, which would remain in place “until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country”. Trump said the tariffs on China would apply to all imports and would come on top of existing levies, as he criticised Beijing for failing to follow through on promises to impose the death penalty for people dealing fentanyl, a deadly synthetic opioid. The Canadian dollar fell 0.9% against the US dollar to a four-year low, while the Mexican peso shed 1.3%, adding to a sharp depreciation this year. China’s onshore renminbi slipped 0.1% to Rmb7.25.

Takeaways by Macro Roundup® AI

  1. Donald Trump said he will impose 25% tariffs on all imports from Canada and Mexico on his first day in office, to remain in place until drugs, in particular fentanyl, and illegal immigration stop.
  2. Trump said tariffs on China would be an extra 10% on all imports, on top of existing levies, criticising Beijing for failing to follow through on promises to impose the death penalty for fentanyl dealers.
  3. The Canadian dollar fell 0.9% against the US dollar to a four-year low, the Mexican peso shed 1.3% on top of a sharp depreciation this year, and China's onshore renminbi slipped 0.1% to Rmb7.25.

Related Articles:

  • 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.
  • Analysis: Chinese Cars Pour In To Mexico, Rattling The USMCA — Mexico's 2020 decree cutting car import tariffs from 20% to 0% has been followed by a surge of Chinese vehicles, with China shipping close to 500,000 cars to Mexico this year and displacing the United States as Mexico's top supplier. One in three new cars sold in Mexico this year will be built in China, up from 4% in 2020.
  • Mexico Wants to Curb Chinese Imports With Help From U.S. Companies — Mexico is asking major foreign manufacturers operating in the country—including U.S. carmakers, semiconductor firms, and aerospace and electronics companies—to identify Chinese products and parts that could be made locally, aiming to reduce reliance on imports from China, Malaysia, Vietnam, and Taiwan. China accounts for 20% of Mexico's total imports, according to Mexican government data.

AI Summary. Unless U.S. tariffs on Chinese imports are high enough to shift income within China from producers to households, they will only redirect trade flows rather than change either country's overall trade imbalance. Absent accepting higher unemployment, Beijing must choose between stimulus aimed at investment and stimulus that temporarily boosts consumption.

Michael Pettis Carnegie Endowment for International Peace
Date Posted:

.@michaelxpettis argues that the potential Chinese responses to US tariffs are restructuring, a rise in unemployment, unproductive government investment, or stimulus to temporarily boost consumption. He expects a stimulus.

Do tariffs change overall trade imbalances or just redirect trade flows?

Core argument: Unless U.S. tariffs on Chinese imports are high enough to shift income within China from producers to households, the author argues, they will only redirect Chinese exports and U.S. imports without changing either country's overall trade imbalance.

Unless U.S. tariffs on Chinese imports are high enough to shift the distribution of income within China from producers to households, U.S. tariffs on Chinese imports will only shift the direction of Chinese exports and U.S. imports; so even as trade between the two is reduced, it won’t change the overall trade imbalances of either country. This, by the way, is exactly what happened after the administration of president Donald Trump first imposed bilateral tariffs on China in March of 2018: both China’s trade surplus and the U.S. trade deficit continued rising, just not with each other. Unless Beijing is willing to accept a rise in unemployment, it must choose between a stimulus designed to boost investment and a stimulus designed temporarily to boost consumption. I think most analysts assume it will be the latter. This is likely what Goldman analysts mean when they say that trade conflict “would accentuate the shift towards domestic demand.” If so, I suspect they are probably right.

Takeaways by Macro Roundup® AI

  1. Unless U.S. tariffs on Chinese imports are high enough to shift income within China from producers to households, the author argues, they will only redirect Chinese exports and U.S. imports without changing either country's overall trade imbalance.
  2. Unless Beijing accepts higher unemployment, it must choose between stimulus aimed at boosting investment and stimulus that temporarily boosts consumption, and the author expects consumption, consistent with Goldman analysts' view that trade conflict "would accentuate the shift towards domestic demand.".

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.
  • 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. Markets are likely underestimating how much future tariffs threaten the economy and therefore how many interest-rate cuts the Federal Reserve will deliver. From the Federal Reserve's standpoint, tariffs pose a greater threat to full employment than to price stability, so the number of cuts priced in could rise quickly once large tariffs appear.

Joseph Wang Fed Guy Blog
Date Posted:

.@FedGuy12 argues that “the market is likely mispricing the number of Fed cuts by underestimating the downside risk to the economy of future tariffs.” As retaliation reduces export sector employment “the number of cuts priced in could rise quickly.”

Do tariffs threaten employment more than prices, prompting more rate cuts?

Core argument: The market is likely mispricing the number of Fed rate cuts by underestimating the downside economic risk from future tariffs.

The market is likely mispricing the number of Fed cuts by underestimating the downside risk to the economy of future tariffs. President Trump has openly stated his intention to levy large tariffs as a negotiating tool, and would likely move quickly to accomplish his goals before the 2026 midterm elections. Similar to 2018, the tariffs would likely lead to market volatility and poor sentiment. From the Fed’s standpoint, tariffs pose a much greater threat to full employment than price stability. December looks to be a pause, but the moment large tariffs appear the number of cuts priced in could rise quickly.

Takeaways by Macro Roundup® AI

  1. The market is likely mispricing the number of Fed rate cuts by underestimating the downside economic risk from future tariffs.
  2. Tariffs pose a greater threat to the Fed's full employment mandate than to price stability, and the number of cuts priced in could rise quickly once large tariffs appear.
  3. President Trump has stated his intention to levy large tariffs as a negotiating tool and would likely act before the 2026 midterm elections, with such tariffs likely to bring market volatility and poor sentiment as in 2018.

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.
  • 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.
  • 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. Chinese electric-vehicle maker BYD is finalizing plans for a factory in Mexico, but Mexican officials worry the plant would signal to the incoming US administration that Mexico is a backdoor for Chinese companies selling into the United States. Mexico shipped nearly 2.6m vehicles to the US last year.

Santiago Pérez and Raffaele Huang Wall Street Journal
Date Posted:

A proposed BYD manufacturing plant in Mexico designed to manufacture for the Latin American market is coming under scrutiny in Mexico City; officials are concerned about provoking the incoming Trump administration.

Is Mexico hesitant to host a Chinese electric-vehicle plant?

Core argument: Mexican officials fear a BYD plant would send the wrong message to Donald Trump and the trade hawks around him by suggesting Mexico wants to be a backdoor for Chinese companies selling to Americans; Mexico shipped nearly 2.6 million vehicles to the U.S. last year.

BYD is finalizing plans for a factory in Mexico, a push that will test Donald Trump’s trade policies and the Mexican government’s appetite for conflict with the president-elect. BYD officials say the company is aiming to reach a deal with Mexico state officials to break ground on a factory near one of the automotive hubs in central or northern Mexico. The plans put Mexico in a dilemma; the country is already a major car-manufacturing center and generally welcomes foreign investment for the jobs it brings. BYD, which rivals Tesla as the biggest electric-vehicle maker in the world, would normally be a prize catch. But Mexican officials fear a BYD plant would send the wrong message to Trump and the trade hawks around him by suggesting that Mexico wants to be a backdoor for Chinese companies to sell to Americans. Mexico shipped nearly 2.6 million vehicles to the U.S. last year.

Takeaways by Macro Roundup® AI

  1. Mexican officials fear a BYD plant would send the wrong message to Donald Trump and the trade hawks around him by suggesting Mexico wants to be a backdoor for Chinese companies selling to Americans; Mexico shipped nearly 2.6 million vehicles to the U.S. last year.
  2. BYD, which rivals Tesla as the world's biggest electric-vehicle maker, is aiming to reach a deal with Mexico state officials to break ground on a factory near an automotive hub in central or northern Mexico.
  3. The BYD factory push puts Mexico in a dilemma, testing the government's appetite for conflict with Trump in a country that is already a major car-manufacturing center and generally welcomes foreign investment for the jobs it brings.

Related Articles:

  • Analysis: Chinese Cars Pour In To Mexico, Rattling The USMCA — Mexico's 2020 decree cutting car import tariffs from 20% to 0% has been followed by a surge of Chinese vehicles, with China shipping close to 500,000 cars to Mexico this year and displacing the United States as Mexico's top supplier. One in three new cars sold in Mexico this year will be built in China, up from 4% in 2020.
  • Mexico Wants to Curb Chinese Imports With Help From U.S. Companies — Mexico is asking major foreign manufacturers operating in the country—including U.S. carmakers, semiconductor firms, and aerospace and electronics companies—to identify Chinese products and parts that could be made locally, aiming to reduce reliance on imports from China, Malaysia, Vietnam, and Taiwan. China accounts for 20% of Mexico's total imports, according to Mexican government data.
  • Brazil, India, and Mexico are Taking on China’s Exports — Foreign direct investment into China fell to a 30-year low even as Chinese leaders launched an investment push in high-tech goods such as batteries and electric vehicles. Weak domestic demand for cars, chemicals, and steel has pushed Chinese goods into global markets, with average manufactured export prices down nearly 10% and export volumes near record levels.

AI Summary. European members of NATO have increased defense spending by almost a third in real terms to $476bn, with 23 of NATO's 32 members meeting the alliance's target of spending 2% of GDP on defense, according to NATO. NATO's secretary-general argues the 2% target is insufficient, though tight budgets, high public debt, and competing priorities constrain further increases.

John Paul Rathbone, Henry Foy and Ben Hall Financial Times
Date Posted:

Nato members’ defense spending in Europe is up ⅓ in real terms since 2022, with 23 of Nato’s 32 members spending its target 2% of GDP on defense, more than twice as many as in 2018. However, Nato’s general secretary suggests 2% may be insufficient.

Is Europe's higher defense spending enough to defend itself?

Core argument: Europe's NATO allies have raised defence spending by almost a third in real terms since 2022, to $476bn, according to NATO.

Europe’s Nato allies have ramped up defence spending since 2022 by almost a third, in real terms, to $476bn, according to Nato. As of this June, 23 of Nato’s 32 members also met its target of spending 2% of GDP on defence, more than twice as many as four years ago. Even so, Mark Rutte, Nato’s secretary-general, has said that Europe “will not get there with the 2%” target. “The more we spend on defence, the more we reduce the risk of future conflict,” Rutte said this month. Spending more would also give a clear sign of serious intent. But the question is how, given tight budgets, high levels of public debt, and competing priorities such as healthcare and education. The UK’s new government has said it is committed to boosting its defence budget to 2.5% of GDP, although it has not yet said when.

Takeaways by Macro Roundup® AI

  1. Europe's NATO allies have raised defence spending by almost a third in real terms since 2022, to $476bn, according to NATO.
  2. As of June, 23 of NATO's 32 members met the alliance's target of spending 2% of GDP on defence, more than twice as many as four years ago.
  3. NATO Secretary-General Mark Rutte has said Europe "will not get there with the 2%" target, arguing that the more spent on defence, the more the risk of future conflict is reduced.

Related Articles:

  • Brussels to Free Up Billions of Euros for Defence and Security From EU Budget — The European Union plans to give member states more flexibility to redirect cohesion funds — about €392bn aimed at reducing economic inequality between member countries — toward defence industries and military mobility projects such as reinforcing roads and bridges for tanks. The change would permit funding for weapons and ammunition production.
  • The US and Its Allies Face a $10 Trillion Reckoning in the Race to Rearm — World defense spending reached a record $2.2tn, and security officials say military budgets may need to reach Cold War levels of as high as 4% of economic output to deliver on NATO's plans. Bloomberg Economics calculates that US and Group of Seven allies hitting that level would mean over $10tn in additional commitments over a decade.
  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.