Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


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%.

Related Articles:

  • The Great “Transfer”-mation — Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.
  • 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.
  • Evaluating the Success of the War on Poverty since 1963 Using an Absolute Full-Income Poverty Measure — The authors estimate that an absolute full-income poverty measure, which counts a fuller set of income sources and adjusts thresholds only for inflation, fell from 19.5% to 1.6%, versus an official decline to 10.5%. They also find relative poverty reductions modest and government dependence more than doubled among working-age adults.

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.

Related Articles:

  • Bidenomics and Its Contradictions — Bidenomics rests on the claims that growth's quality matters more than its quantity, that industrial policy should replace laissez-faire, and that trade policy should favor workers over consumers. Defining market failure that broadly—covering regional, racial and gender inequities, rural internet access and child care costs—leaves no limiting principle on government intervention.
  • Yes, Inflation Made The Median Voter Poorer — Real wage growth in no part of the income distribution outpaced its 2012-2020 rate during the Biden presidency, and the median individual's wage change was weaker than any period in 30 years except the Great Recession. Median growth in total income after taxes and transfers turned deeply negative, partly reflecting the timing of pandemic stimulus.
  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.

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.

Related Articles:

  • U.S. Inflation Is Still Hotter than Pre-Pandemic. And that’s Okay — If underlying services inflation holds near 2% a year and prior relationships reassert themselves, total yearly personal consumption inflation could settle near 3% rather than returning to 2%. That would carry implications for interest rate pricing, and traders assuming a reversion to pre-pandemic inflation norms may be surprised.
  • Recent Movements in R*: The Most Important Interest Rate That You Have Never Heard Of — The natural rate of interest — the inflation-adjusted rate prevailing when the economy grows at trend with inflation at target — is unobservable and uncertain, but most estimates have risen and sit above pre-pandemic levels. The data lean toward a long-run natural rate higher than pre-pandemic and possibly above Federal Reserve projections.
  • Quo Vadis, r*? The Natural Rate Of Interest After The Pandemic — Estimates of the natural rate of interest across core advanced economies suggest it may have increased, though the estimates are widely dispersed and statistically uncertain. Low expected potential growth and rising longevity may weigh on the natural rate, while large fiscal deficits, age-related spending, and public investment needs for infrastructure, defense, and the green transition may push it up.

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.

Related Articles:

  • Oil Was Written Off. Now It’s the Most Productive US Industry — US oil and gas extraction productivity nearly tripled in a decade, and crude output reached a record 13.3m barrels a day — 48% above Saudi Arabia — with under a third of the rigs. BloombergNEF projects production growth of 600,000 barrels a day on higher well productivity.
  • U.S. Energy Production Exceeded Consumption By Record Amount In 2023 — U.S. energy production rose 4% to nearly 103 quadrillion British thermal units while consumption fell 1% to 94, leaving production exceeding consumption by 9 quadrillion British thermal units, the widest gap in records dating to 1949. Dry natural gas, crude oil, natural gas plant liquids, and renewables all reached record output.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.

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.

Related Articles:

  • US Intelligence Shows Flawed China Missiles Led Xi to Purge Army — US intelligence assesses that corruption in China's Rocket Force and defense industrial base is extensive enough to undermine military modernization, citing missiles filled with water instead of fuel and missile silos with lids that would not allow effective launch. US officials believe this makes Xi Jinping less likely to contemplate major military action than he otherwise would be.
  • 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.
  • China’s Newest Nuclear Submarine Sank, Setting Back Its Military Modernization — U.S. officials say China's first Zhou-class nuclear-powered attack submarine, which features a distinctive X-shaped stern designed for greater maneuverability, sank at a shipyard near Wuhan, a setback for a priority weapons program that Chinese authorities sought to conceal.

Monday, December 2, 2024

AI Summary. The authors present a framework in which temporary disruptions like banking crises and excessive debt, along with structural factors like demographic decline and rising inequality, can push natural interest rates below zero, and argue that a negative natural rate combined with interest rates stuck at zero is necessary for a liquidity trap.

Gauti Eggertsson and Sergey Egiev National Bureau of Economic Research
Date Posted:
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.@GautiEggertsson and @SEgiev note the difficulty of achieving negative nominal rates and argue that big downturns have resulted from a negative natural real rate – driven either by a crisis or secular stagnation – combined with stubbornly low inflation.

What causes liquidity traps in major economic downturns?

Core argument: The paper argues that a negative natural interest rate and the zero lower bound are both necessary conditions for a liquidity trap, applying a single framework to the U.S. Great Depression, the U.S. Great Recession, and Japan's Long Recession.

This paper presents a unified framework to explain three major economic downturns: the U.S. Great Depression, the U.S. Great Recession, and Japan’s Long Recession. Temporary economic disruptions, such as banking crises and excessive debt accumulation, can drive natural interest rates into negative territory in the short term. At the same time, structural factors, including demographic decline and rising inequality, can depress natural interest rates over short and long horizons. A negative natural interest rate and the zero lower bound (ZLB) are necessary conditions for a liquidity trap. Credible monetary policy can counteract the adverse effects of short-run liquidity traps. Diminished monetary policy credibility or persistent negative natural rates may necessitate fiscal interventions. The framework sheds light on the macroeconomic challenges of low-interest-rate environments and underscores the central importance of policy regimes.

Takeaways by Macro Roundup® AI

  1. The paper argues that a negative natural interest rate and the zero lower bound are both necessary conditions for a liquidity trap, applying a single framework to the U.S. Great Depression, the U.S. Great Recession, and Japan's Long Recession.
  2. Temporary disruptions such as banking crises and excessive debt accumulation can push natural interest rates negative in the short run, while structural factors including demographic decline and rising inequality can depress them over short and long horizons.
  3. Credible monetary policy can counteract short-run liquidity traps, but diminished monetary policy credibility or persistent negative natural rates may necessitate fiscal intervention, according to the framework.

Related Articles:

  • Liquidity Traps, Gobal and Local (Somewhat Wonkish) — Europe's weak domestic demand, reflected in core inflation of 0.6%, is exported globally through large current account surpluses, while low inflation interacting with the zero lower bound on interest rates keeps policy from reaching equilibrium. Liquidity traps can persist locally despite international capital mobility when domestic demand stays weak.
  • The Puzzling Persistence of Financial Crisis — Financial crises are costly, with average declines of 5.5% of real GDP and median fiscal costs of 16% of real GDP to resolve distressed banks. The authors identify four categories of causal factors: politically motivated risk subsidies such as government support for housing credit, shifts in investor risk preferences, investor learning, and fraud.
  • Frying Pans and Fiscal Policy — The US economy remained significantly depressed for roughly a decade after the financial crisis, a lost decade the author argues could have been avoided with different policies. The evidence offered is the post-Covid recovery, in which major federal spending programs helped the economy regain lost ground in just over three years.

AI Summary. Long-running U.S. tests show population average reading scores moved from 255 to 256 out of 500 and math from 266 to 271, despite educational attainment rising more than three years. The author argues that if added schooling has not raised productivity, measured total factor productivity growth has been understated, shrinking the apparent "Great Stagnation" by about a third.

Maxwell Tabarrok Maximum Progress
Date Posted:
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Database
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.@MTabarrok argues that “zero improvement in the population average score” in math and reading since the 1970s implies that growth accounting has overestimated growth in human capital, understating 2023 TFP relative to its post-1973 trend by up to ⅓.

Has productivity growth been understated because added schooling didn't raise skills?

Core argument: Average U.S. reading scores moved from 255 out of 500 in 1971 to 256 in 2023 and math scores from 266 to 271, essentially zero improvement despite educational attainment rising 3+ years since the 1970s.

Math and reading scores on tests that have been surveyed over longer periods also show essentially zero improvement in the population average scores. The average score on the reading test in 1971 was 255 out of 500, in 2023 it was 256 and math scores went from 266 to 271. Educational attainment has risen by 3+ years since 1970s but population level reading and math scores have barely changed, and scores within educational attainment groups have fallen. As more people are pushed through lowered standards to a high school diploma, the wage premium to this degree has fallen, suggesting that much of its value was in the differentiating signal rather than skill gains. If this story is true, and more education hasn’t been raising productivity, then all the GDP growth we thought was due to more skilled workers is actually coming from somewhere else. That means we’ve been undercounting TFP, and technological progress for decades. If we take the SF Fed TFP data and remove the adjustments they make for gains in human capital (based mostly on rising educational attainment), we get something that looks like this. The Great Stagnation is shrunk by about a third!

Takeaways by Macro Roundup® AI

  1. Average U.S. reading scores moved from 255 out of 500 in 1971 to 256 in 2023 and math scores from 266 to 271, essentially zero improvement despite educational attainment rising 3+ years since the 1970s.
  2. Scores within educational attainment groups have fallen, and the wage premium to a high school diploma has declined as more people are pushed through lowered standards, suggesting much of the diploma's value was differentiating signal rather than skill gains.
  3. Removing the SF Fed's human capital adjustments, based mostly on rising educational attainment, from its total factor productivity data shrinks the Great Stagnation by about a third, implying TFP and technological progress have been undercounted for decades.

Related Articles:

  • Productivity During and Since the Pandemic — 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.
  • Marginal Returns to Public Universities — Using admission-score cutoffs across all 35 Texas public universities, the author estimates that marginally admitted students complete an additional year of four-year education, are 12 percentage points more likely to earn a bachelor's degree, and earn 5–10% more than marginally rejected peers, with gains driven by students who otherwise would not attend a four-year school.
  • Toward An Understanding Of The Returns To Cognitive Skills Across Cohorts — The authors find that the estimated decline in labor market returns to pre-labor-market cognitive skills for white men across two U.S. youth cohorts depends critically on the widening and increased left-skewness of the test-score distribution, with declines appearing only at the lower end of that distribution.

AI Summary. A world of widespread tariffs would also shrink international capital flows, and because the US trade deficit is the counterpart of large capital inflows, reduced capital mobility would narrow that deficit. The author argues this would occur largely by reducing overall investment in the US economy.

Paul Krugman Stone Center on Socio-Economic Inequality
Date Posted:
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.@paulkrugman offers a novel mechanism by which Trump’s tariffs may reduce US trade deficits. “A tariff-ridden world would also be a world with greatly reduced capital flows,” and “net capital flows are the counterpart of imbalances in physical trade”.

Do tariffs shrink the trade deficit by reducing investment in the US?

Core argument: A tariff-ridden world would also greatly reduce global capital flows, and because the U.S. trade deficit is the counterpart of large capital inflows, reduced capital mobility would squeeze the deficit largely by cutting overall investment in the U.S. economy.

My main new argument here is that a tariff-ridden world would also be a world with greatly reduced capital flows; since the U.S. trade deficit is the counterpart of large capital inflows, a global reduction in capital mobility would also squeeze our trade deficit, although it would largely do so by reducing overall investment in the U.S. economy. The amount by which the exchange rate must appreciate to accommodate a given inflow of capital depends on how many goods are tradable. If only a small part of production can be exported and a small part of consumption imported, you’d need a very, very strong dollar to produce the kind of trade deficits America currently has. And because what goes up must eventually come down, a U.S. economy with limited trade would be unable to attract foreign investment at current rates. To the extent that [trade deficit reduction due to tariffs] succeeds, it will be for bad, economically destructive reasons: damaging the world trading system will also greatly damage international capital markets.

Takeaways by Macro Roundup® AI

  1. A tariff-ridden world would also greatly reduce global capital flows, and because the U.S. trade deficit is the counterpart of large capital inflows, reduced capital mobility would squeeze the deficit largely by cutting overall investment in the U.S. economy.
  2. The dollar appreciation needed to accommodate a given capital inflow depends on how much of production is tradable: if only a small share of output can be exported and of consumption imported, a very strong dollar would be required to generate America's current trade deficits.
  3. Any reduction in the U.S. trade deficit achieved through tariffs would come for economically destructive reasons, since damaging the world trading system would also greatly damage international capital markets.

Related Articles:

  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • 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.
  • 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.

AI Summary. Goldman Sachs and JP Morgan estimate net immigration to the US will fall to roughly 750,000 a year, down from a peak of 3.3m in 2023 and an average of 919,000 a year in the 2010s, while Evercore ISI projects net immigration will turn negative, with outflows exceeding inflows by 600,000 by 2028.

Paul Kiernan Wall Street Journal
Date Posted:
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Deportations from the interior of the US peaked in 2009 at 243,000. Restrictions on immigration and deportations at scale could have a major labor market impact in segments like construction and hospitality with large numbers of foreign-born workers.

How much will tighter immigration policy reduce net immigration?

Core argument: Goldman Sachs and JP Morgan both estimate U.S. net immigration will fall to roughly 750,000 a year, the rate during Trump's first presidency, down from a 2023 peak of 3.3 million and a 2010s average of 919,000.

There is little recent precedent for the expected labor-force impact of Trump’s immigration plans. Removals of immigrants from the interior of the country (as opposed to at the border) peaked at 243,000 in 2009, at the depths of the 2007-09 recession, and averaged 126,000 a year over the following decade, when the job market was generally weaker than now. Goldman Sachs and JP Morgan both estimate that net immigration—the difference between people entering the country and people leaving—will fall back to the annual rate during Trump’s first presidency of around 750,000 from a peak of 3.3 million in 2023 and an average of 919,000 a year in the 2010s. By contrast, Evercore ISI projects net immigration will actually be negative, with outflows exceeding inflows by 100,000 in 2025, rising to 600,000 in 2028.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs and JP Morgan both estimate U.S. net immigration will fall to roughly 750,000 a year, the rate during Trump's first presidency, down from a 2023 peak of 3.3 million and a 2010s average of 919,000.
  2. Evercore ISI projects U.S. net immigration will turn negative, with outflows exceeding inflows by 100,000 in 2025 and rising to 600,000 in 2028.
  3. Removals of immigrants from the U.S. interior peaked at 243,000 in 2009, at the depths of the 2007-09 recession, and averaged 126,000 a year over the following decade, when the job market was generally weaker than now.

Related Articles:

  • Immigration Surge Has Slowed: Updated Estimates of Net International Migration — The authors estimate that net international migration to the US was close to 3.5m in one year — about 200,000 above the Congressional Budget Office's estimate, driven largely by higher undocumented entries — and project roughly 2.9m the following year, about 400,000 below the Congressional Budget Office's projection.
  • Immigration and the Macroeconomy After 2024 — Projected net migration ranges from 3.7mm under a high-immigration policy scenario to negative 740,000 under a low-immigration scenario, implying four-year growth in the working-age civilian population of anywhere from 5mm to 15mm people. The authors project the resulting gap in annual US economic growth at roughly half a percentage point, or about $130bn.
  • The Cost of Illegal Immigration — The US foreign-born population rose by 6.6mm to 51.6mm over a roughly three-year span, lifting immigrants to 15.6% of the population, above the prior records of 14.8% in 1890 and 14.7% in 1910. The authors estimate about 13.7mm illegal immigrants now live in the US, a net increase of 3.7mm.

AI Summary. New tariffs on China and autos are projected to trim US growth by an average of 0.2 percentage points through higher consumer prices and trade-war uncertainty weighing on business investment. Absent further escalation, tax cuts, lighter regulation, and improved business confidence are projected to add an average of 0.3 percentage points the following year.

Jan Hatzius, Dominic Wilson, Joseph Briggs, et al. Goldman Sachs
Date Posted:

Jan Hatzius forecasts 2.5% growth in 2025, with a net 0.2pp drag from tariffs, offset by a net boost of 0.3pp from regulatory changes and improved “animal spirits.”

Do tax cuts and deregulation outweigh the growth drag from tariffs?

Core argument: The baseline outlook projects new policies to create a net drag on US GDP growth averaging 0.2pp in 2025, with effects that are small and largely offsetting.

The effects from the new policies on US GDP are small and largely offsetting under our baseline outlook. The new administration is likely to announce the China and auto tariffs relatively soon after the January 20 inauguration, which could also fuel uncertainty about broader tariff measures among businesses and market participants. These tariffs would result in a modest hit to real disposable personal income via higher consumer prices, and the broader uncertainty of how much further the trade war might escalate is likely to weigh on business investment. The result is a net drag averaging 0.2pp in 2025. Assuming that the trade war does not escalate further, we expect the positive impulses from tax cuts, a friendlier regulatory environment, and improved “animal spirits” among businesses to dominate in 2026, with a net boost to growth averaging 0.3pp.

Takeaways by Macro Roundup® AI

  1. The baseline outlook projects new policies to create a net drag on US GDP growth averaging 0.2pp in 2025, with effects that are small and largely offsetting.
  2. China and auto tariffs are expected relatively soon after the January 20 inauguration, modestly trimming real disposable personal income via higher consumer prices, while uncertainty over further trade-war escalation is likely to weigh on business investment.
  3. Assuming no further trade-war escalation, tax cuts, a friendlier regulatory environment, and improved "animal spirits" among businesses are expected to dominate in 2026, boosting growth by an average of 0.3pp.

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  • Productivity During and Since the Pandemic — 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.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.

AI Summary. Yields on 30-year Chinese government bonds have fallen from 4% in late 2020 to 2.21% as China cuts interest rates and investors move into safe assets, while Japan's long-term yields have risen above China's to 2.27%. Chinese core inflation, excluding fuel and food, was 0.2% annually versus 2.3% in Japan.

Arjun Neil Alim and Ian Smith Financial Times
Date Posted:

China’s long-term bond yields have fallen to 2.21% from 4% in late 2020, and are for the first time, marginally below Japan’s.

Is China's bond market taking on Japan's deflationary character?

Core argument: The yield on 30-year Chinese government bonds has fallen from 4% in late 2020 to 2.21%, as Beijing cuts interest rates to boost a flagging economy and Chinese investors move into haven assets.

A rally in 30-year Chinese government bonds has pushed their yield down from 4% in late 2020 to 2.21% on Friday, as Beijing cuts interest rates to boost its flagging economy and Chinese investors pile into haven assets. Japan’s long-term bond yields, which for years were stuck below 1%, have risen above China’s to 2.27%, as Tokyo normalises monetary policy after decades of deflation. Core inflation in China, excluding fuel and food, was running at an annual rate of 0.2% in October. In Japan, core inflation hit a six-month high of 2.3%, strengthening the case for further rate rises.

Takeaways by Macro Roundup® AI

  1. The yield on 30-year Chinese government bonds has fallen from 4% in late 2020 to 2.21%, as Beijing cuts interest rates to boost a flagging economy and Chinese investors move into haven assets.
  2. Japan's long-term bond yields, stuck below 1% for years, have risen above China's to 2.27% as Tokyo normalises monetary policy after decades of deflation.
  3. Chinese core inflation excluding fuel and food ran at an annual 0.2% in October, while Japan's core inflation hit a six-month high of 2.3%, strengthening the case for further Japanese rate rises.

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  • Why Xi Jinping Changed His Mind on China’s Fiscal Stimulus — China reported third-quarter GDP growth of 4.6%, below its official 5% annual target, amid unstable property prices and local governments unable to pay bills. Economists say structural challenges including high government debt, demographic decline, youth unemployment, and trade tensions risk a deflationary spiral like Japan's after its 1990s property bust.
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AI Summary. Gangs mixing fentanyl with the horse tranquilliser xylazine is believed to postpone withdrawal symptoms so users take fewer hits, and to be one factor behind a shift from injecting to smoking fentanyl, which tends to reduce lethality. Analysis of state-level data finds the states furthest into declines in fentanyl mortality are those where xylazine has circulated longest.

John Burn-Murdoch Financial Times
Date Posted:

Fentanyl deaths are 20% under their pre-pandemic peak. @jburnmurdoch highlights evidence that cutting fentanyl with the horse tranquillizer xylazine may be driving the decline.

Are drug mixtures behind falling fentanyl overdose deaths?

Core argument: Gangs mixing fentanyl with the horse tranquilliser xylazine is believed to postpone withdrawal symptoms in some users, leading them to take fewer hits and reducing the risk of a deadly overdose.

In recent years, gangs have begun mixing fentanyl with the horse tranquilliser xylazine, whose properties alter the fentanyl high. This is believed to postpone withdrawal symptoms in some cases, meaning users take fewer hits, reducing the risk of a deadly overdose. Xylazine is also thought to be one factor behind the shift among users from injecting to smoking fentanyl, which tends to reduce its lethality. This is also another perfect fit for the east-west pattern. According to my analysis of state-level data on drug supply and deaths, the states that are furthest into their declines in fentanyl mortality are those where xylazine has been circulating for the longest.

Takeaways by Macro Roundup® AI

  1. Gangs mixing fentanyl with the horse tranquilliser xylazine is believed to postpone withdrawal symptoms in some users, leading them to take fewer hits and reducing the risk of a deadly overdose.
  2. Analysis of state-level drug supply and mortality data finds that the states furthest into their declines in fentanyl deaths are those where xylazine has circulated the longest, fitting an east-west pattern.
  3. Xylazine is thought to be one factor behind users shifting from injecting fentanyl to smoking it, a change that tends to reduce the drug's lethality.

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  • Importing the Opioid Crisis? International Trade and Fentanyl Overdoses — A study using U.S. mortality and import data finds a positive state-level association between imports per resident and drug overdose death rates, driven by fentanyl and accounting for an estimated 15,000–20,000 deaths per year. The authors estimate that 10% higher imports per resident is associated with an 8.1% higher fentanyl death rate.
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