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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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.

Wednesday, November 27, 2024

AI Summary. Homes built per construction worker boomed after World War II and fell after 1970, a decline the authors link to local land-use regulation that limits project size and keeps construction firms small and less productive. They estimate US residential builders would be roughly 60% more productive if their size distribution matched manufacturing.

Leonardo D'Amico, Edward Glaeser, Joseph Gyourko, William Kerr and Giacomo Ponzetto National Bureau of Economic Research
Date Posted:

.@leonardo_damico and @william_r_kerr argue that the decline in housing units per construction employee since 1970 coincided with increases in land-use regulation, resulting in “particularly small and unproductive construction establishments.”

Does land-use regulation explain stagnant construction productivity?

Core argument: A back-of-the-envelope calculation indicates that if half of the observed link between establishment size and productivity is causal, U.S. residential construction firms would be about 60% more productive were their size distribution to match manufacturing's.

Homes built per construction worker remained stagnant between 1900 and 1940, boomed after World War II, and then plummeted after 1970. What stopped it? Local land-use controls [proxied by land-use cases per capita and % of CA cities with land-use regulation] limit the size of building projects. This constraint reduces the equilibrium size of construction companies, reducing both scale economies and incentives to invest in innovation.coincides with increases in our best proxies for land-use regulation. The size of development projects is small today and has declined over time. The size of construction firms is also quite small, especially relative to other goods-producing firms, and smaller builders are less productive. Areas with stricter land use regulation have particularly small and unproductive construction establishments. Back-of-the-envelope calculation indicates that, if half of the observed link between establishment size and productivity is causal, America’s residential construction firms would be approximately 60 percent more productive if their size distribution matched that of manufacturing.

Takeaways by Macro Roundup® AI

  1. A back-of-the-envelope calculation indicates that if half of the observed link between establishment size and productivity is causal, U.S. residential construction firms would be about 60% more productive were their size distribution to match manufacturing's.
  2. Homes built per construction worker were stagnant from 1900 to 1940, boomed after World War II, and fell sharply after 1970, a decline that coincides with increases in proxies for land-use regulation: land-use cases per capita and the share of California cities with land-use regulation.
  3. Local land-use controls limit project size, which the authors argue reduces the equilibrium size of construction companies and thereby both scale economies and incentives to invest in innovation; areas with stricter land-use regulation have particularly small and unproductive construction establishments.

Related Articles:

  • The Strange and Awful Path of Productivity in the U.S. Construction Sector — U.S. construction sector labor productivity and total factor productivity grew faster than the whole economy in the 1950s and 1960s, then fell, ending 2020 below their 1950 levels while economywide labor productivity and total factor productivity were 290% and 230% higher. Construction labor productivity fell about 1% a year from 1970 to 2020.
  • Economic Perspectives on Infrastructure Investment — US infrastructure projects cost more than international counterparts, averaging $1,601m per mile versus a global average of $478m, with a median of $965m per mile compared with $299m outside the US. Contributing factors include complex project designs, regulatory delays, elevated labor costs, and procurement and project management inefficiencies, while land costs are a minor component.
  • Construction Industry Has Work, Needs More Workers — U.S. nonresidential construction spending reached $982bn, nearly 17% higher than a year earlier, while nonresidential construction employment rose 3.3%, or 149,100 workers. Contractors are ramping up hiring of entry-level laborers to compensate for shortages of other workers, and these less productive hires are contributing to bigger backlogs and longer job completion times.

AI Summary. Global factory robot density reached a record 162 robots per 10,000 manufacturing employees, more than double the level of seven years earlier. The European Union averages 219 units per 10,000 employees, North America 197, and Asia 182, with Korea, Singapore, mainland China and Japan among the ten most automated economies.

IFR Staff International Federation of Robotics
Date Posted:

The US lags both China and Germany in industrial robots per 10,000 manufacturing employees, with only 63% as many as China and 69% as many as Germany, despite significantly higher US labor costs.

How quickly is factory robot density rising worldwide?

Core argument: Global average robot density in manufacturing reached a record 162 units per 10,000 employees in 2023, more than double the 74 units measured seven years earlier.

Robot adoption in factories around the world continues at high speed: The new global average robot density reaches a record 162 units per 10,000 employees in 2023 - more than double the number measured only seven years ago (74 units). Robot density serves as a barometer to track the degree of automation adoption in the manufacturing industry around the world. The European Union has a robot density of 219 units per 10,000 employees, an increase of 5.2%, with Germany, Sweden, Denmark and Slovenia in the global top ten. North America´s robot density is 197 units per 10,000 employees – up 4.2%. The United States ranks tenth in the world among the most automated countries in the manufacturing industry. Asia has a robot density of 182 units per 10,000 persons employed in manufacturing - an increase of 7.6%. The economies of Korea, Singapore, mainland China and Japan are among the top ten most automated countries.

Takeaways by Macro Roundup® AI

  1. Global average robot density in manufacturing reached a record 162 units per 10,000 employees in 2023, more than double the 74 units measured seven years earlier.
  2. The European Union's robot density stands at 219 units per 10,000 employees, up 5.2%, compared with North America's 197 units, up 4.2%, and Asia's 182 units, up 7.6%.
  3. Germany, Sweden, Denmark and Slovenia rank in the global top ten for robot density, alongside Korea, Singapore, mainland China and Japan, with the United States ranked tenth.

Related Articles:

  • What Progress Has There Been In Industrial Robots? — Industrial robot repeatability improved little between 1972 and 1984, with a typical 1-meter reach, 10kg payload arm accurate to about 1 mm in both years, but a comparable 2023 robot achieves roughly 0.01–0.02 mm, 50 to 100x more precise. Such a robot cost 2 to 3x more in the 1980s than today, before accounting for cheap Chinese robot arms.
  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
  • The Characteristics and Geographic Distribution of Robot Hubs in U.S. Manufacturing Establishments — Establishment-level U.S. Census data on roughly 35,000 manufacturing plants show that those using robots tend to be larger, pay higher earnings per worker, employ a larger share of production workers, and spend more on capital including information technology. Robots are highly concentrated geographically even after accounting for industry mix.

AI Summary. Federal spending on activities originally regarded as state, local, or private-sector responsibilities is estimated to have risen from 2% of GDP in 1950 to 14% in 2019, exceeding the entire growth in federal spending over that period and reaching two-thirds of all federal outlays. Aid to individuals accounts for 80% of that increase, grants to states the remaining 20%.

John Cogan Hoover Institution
Date Posted:

John Cogan finds federal budget deficits are driven by items “originally considered to be the responsibility of state and local governments or private-sector charities.” In 1950 Federal spending on these activities was 2% of GDP; by 2019 it was 14%.

How much federal spending goes to traditionally state and local responsibilities?

Core argument: Federal spending on activities originally regarded as state and local rose from 2% of GDP in 1950 to 14% in 2019, accounting for more than the entire growth in federal spending over the period.

The analysis reveals that federal spending on activities originally regarded as state and local increased from 2% of GDP in 1950 to 14% in 2019, accounting for more than the entire growth in federal spending during the period. It now constitutes two-thirds of all federal expenditures. Federal expenditures on four categories: national defense related expenditures, interest on the public debt, direct cash and in-kind transfer payments to individuals, and grants to states for healthcare, education, transportation, and other similar purposes, currently account for 96% of federal spending. In 1950, they accounted for 92%. This high concentration serves as the basis for allocating federal spending to national activities and those which would be regarded in a Madison budget as state and local. In 2019, 66% of federal spending was on activities that were originally considered to be the responsibility of state and local governments or private-sector entities such as charitable organizations. In 1950, that amount was only 15%. Aid to individuals accounts for 80% of this increase, grants to states the remaining 20%.

Takeaways by Macro Roundup® AI

  1. Federal spending on activities originally regarded as state and local rose from 2% of GDP in 1950 to 14% in 2019, accounting for more than the entire growth in federal spending over the period.
  2. In 2019, 66% of federal spending went to activities originally considered the responsibility of state and local governments or private-sector entities such as charitable organizations, up from 15% in 1950.
  3. Aid to individuals accounts for 80% of the increase in federal spending on originally state and local activities, with grants to states making up the remaining 20%.

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  • Poverty, Hardship and Government Transfers — Income-based poverty measures show a large decline followed by a large increase, while consumption-based poverty declines steadily; the authors attribute the gap to low-income households saving, then dissaving and borrowing. They estimate that expanded child tax credits, stimulus payments, and pandemic unemployment benefits each played similar or larger roles in reducing poverty.
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AI Summary. The American Rescue Plan was designed to run the economy with more heat, setting aside inflation concerns in favor of faster labor-market gains, and one of its architects concedes the resulting inflation exceeded what he envisioned. The article argues the president and his political advisers bore responsibility for weighing the risks that inflation-wary dissenters had raised.

William Galston Wall Street Journal
Date Posted:

Bill Galston argues that the architects of Bidenomics “set aside inflationary concerns in favor of faster labor-market gains” meaning they valued labor market gains over price stability.

Did running the economy hot underestimate the risks of inflation?

Core argument: Inflation-wary dissenters such as former Treasury Secretary Larry Summers raised warnings early in 2021, and weighing the risks of pedal-to-the-metal stimulus fell to President Biden and his political advisers.

The Biden administration’s fiscal stimulus was developed within the intellectual framework that the Hewlett Foundation helped create. In 2021 Mr. Bernstein told the Times that the American Rescue Plan’s purpose was to “run the economy with a little more heat”—that is, to set aside inflationary concerns in favor of faster labor-market gains. “We certainly got more heat than I envisioned at the time,” he now admits, but he adds that 20-20 hindsight was a luxury the administration couldn’t afford during the pandemic. What about 20-20 foresight, which inflation-wary dissenters such as former Treasury Secretary Larry Summers offered early in 2021? It was the responsibility of the president’s political advisers, and of the president himself, to weigh the risks of pedal-to-the-metal economic stimulus. Mr. Biden should have understood the risks of rising prices: He was already in his second Senate term when inflation undermined President Jimmy Carter’s administration.

Takeaways by Macro Roundup® AI

  1. Inflation-wary dissenters such as former Treasury Secretary Larry Summers raised warnings early in 2021, and weighing the risks of pedal-to-the-metal stimulus fell to President Biden and his political advisers.
  2. The Biden administration's fiscal stimulus was developed within an intellectual framework the Hewlett Foundation helped create, and Biden was in his second Senate term when inflation undermined the Carter administration.

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AI Summary. The Federal Reserve Bank of Chicago argues that the US has seen over a year of productivity growth faster than the previous trend, more than returning to the pre-COVID path, though it may still stabilize back to earlier rates. Faster productivity growth sustained over a long period would raise the neutral interest rate.

Matt Klein The Overshoot
Date Posted:

Output per hour worked is slightly above both the 2004-2019 and 1984-1996 trends, suggesting that the neutral rate – often positively linked to productivity growth – might be higher than it was in the pre-pandemic period. @M_C_Klein @Austan_Goolsbee

Does faster productivity growth raise the neutral interest rate?

Core argument: Chicago Fed President Austan Goolsbee says the U.S. has had over a year of productivity growth faster than the previous trend, more than returning to the pre-COVID trend.

[Austan Goolsbee] The one that I want to put out into the ether, and I’ve been saying it but maybe it’s so obvious that nobody is talking about it, but we’ve now had over a year of pretty tremendous productivity growth, faster than the previous trend. We have more than gotten back to the trend we were on before COVID. Many people said, “yes, we’re seeing rapid productivity growth, but it’s just getting us back to the previous trend. And then it’s going to stabilize and go back to what it was before.” It still might, it’s worth acknowledging. But if the productivity growth rate goes up, if you just go work through the models, that affects what you think is neutral. If productivity growth is going to be permanently faster or faster than normal for a long while, that raises the neutral interest rate.

Takeaways by Macro Roundup® AI

  1. Chicago Fed President Austan Goolsbee says the U.S. has had over a year of productivity growth faster than the previous trend, more than returning to the pre-COVID trend.
  2. Goolsbee argues that if productivity growth is permanently faster, or faster than normal for a long while, the models imply a higher neutral interest rate.
  3. Goolsbee acknowledges that productivity growth still might stabilize and return to its earlier pace, as many people have suggested.

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AI Summary. U.S. crude oil production averaged a record 13.4m barrels per day in August, topping the prior monthly record of 13.3m barrels per day. The U.S. Energy Information Administration forecasts annual production averaging 13.2m barrels per day, above the 12.9m annual record, and 13.5m barrels per day the following year.

Kimberly Peterson Energy Information Administration
Date Posted:

The US set a new crude production record in August of 13.4mm bpd. @EIAgov predicts daily production will rise to 13.5mm bpd in 2025. The US has been the world’s top oil producer since 2018.

Is U.S. crude oil production setting new records?

Core argument: U.S. crude oil production averaged a record 13.4 million b/d in August 2024, exceeding the prior monthly record of 13.3 million b/d set in December 2023, according to the Petroleum Supply Monthly.

An average of 13.4 million barrels per day (b/d) of crude oil was produced in the United States during August 2024, a new record according to data from our Petroleum Supply Monthly. More crude oil was produced in the United States during August 2024 than during December 2023, when the previous monthly record of 13.3 million b/d was set. In the first eight months of 2024, average monthly U.S. crude oil production only fell below 13.0 million b/d once, in January. For the full year of 2024, we forecast U.S. crude oil production will average 13.2 million b/d, according to our most recent Short-Term Energy Outlook, published on November 13. That volume would be more than the 2023 annual average of 12.9 million b/d, which is the current annual production record. In 2025, we forecast U.S. crude oil production will average 13.5 million b/d.

Takeaways by Macro Roundup® AI

  1. U.S. crude oil production averaged a record 13.4 million b/d in August 2024, exceeding the prior monthly record of 13.3 million b/d set in December 2023, according to the Petroleum Supply Monthly.
  2. In the first eight months of 2024, average monthly U.S. crude oil production fell below 13.0 million b/d only once, in January.
  3. The Short-Term Energy Outlook published November 13 forecasts U.S. crude oil production will average 13.2 million b/d in 2024, above the 2023 annual record of 12.9 million b/d, and 13.5 million b/d in 2025.

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AI Summary. China's defence minister has been placed under investigation as part of a broader corruption probe into the People's Liberation Army, according to current and former US officials. He is the third consecutive serving or former defence minister to face a corruption investigation.

Demetri Sevastopulo Financial Times
Date Posted:

China’s defense minister is currently under investigation for corruption; his predecessor was fired in December 2023 for corruption as part of Xi’s broader crackdown on corruption in the Chinese military.

Is corruption spreading through the top ranks of China's military?

Core argument: Chinese defence minister Admiral Dong Jun is under investigation as part of a broader probe into graft in the People's Liberation Army, according to current and former US officials familiar with the situation.

China has put its defence minister under investigation in the latest corruption-related scandal to hit the top of the People’s Liberation Army, according to current and former US officials familiar with the situation. Admiral Dong Jun, who was named in December 2023 after his predecessor was fired for corruption, is being investigated as part of a broader probe into graft in the PLA, the US officials said. He is the third consecutive serving or former defence minister to be investigated for alleged corruption. Dong succeeded General Li Shangfu, who was ousted after just seven months in the job. Both men were appointed by President Xi Jinping.

Takeaways by Macro Roundup® AI

  1. Chinese defence minister Admiral Dong Jun is under investigation as part of a broader probe into graft in the People's Liberation Army, according to current and former US officials familiar with the situation.
  2. Dong Jun is the third consecutive serving or former Chinese defence minister to be investigated for alleged corruption, the US officials said.
  3. Dong Jun was named defence minister in December 2023 after his predecessor, General Li Shangfu, was ousted for corruption just seven months into the job, with both men appointed by President Xi Jinping.

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