Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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
  • “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
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, December 4, 2024

AI Summary. The authors find that a news-based index of economic policy uncertainty across 21 foreign countries has incremental power to predict excess U.S. stock returns 6 to 12 months ahead. They estimate that adverse foreign uncertainty shocks work through expected cash flows rather than discount rates, with corporate investment, payouts, and credit demand declining.

Mohammad Jahan-Parvar, Yuriy Kitsul, Jamil Rahman et al. Federal Reserve Board
Date Posted:

Federal Reserve research finds that an increase in foreign economic policy uncertainty is associated with excess US stock returns over the following 6-12 months. These excess returns are attributable to news about cash flows rather than discount rates.

Does foreign policy uncertainty predict U.S. stock returns through expected cash flows?

Core argument: Foreign economic policy uncertainty, measured from news article counts across 21 countries, has significant incremental predictive power for excess U.S. stock returns in aggregate and for portfolios sorted on firm characteristics at 6- to 12-month-ahead horizons.

The policy uncertainty index combines news article counts in 21 countries that reflect uncertainty about a broad range of policies, including those by fiscal and monetary authorities, but also the potential economic effects of policies that are not traditionally viewed as economic, such as military actions. We document that foreign economic policy uncertainty [EPU] has significant incremental predictive power for excess U.S. stock returns both in aggregate and for returns of portfolios constructed on firm characteristics, for 6 to 12-months-ahead horizons. We find that [unlike US domestic EPU shocks] foreign EPU shocks operate through a cash-flow news channel; they do not affect discount rates or equity premia. Aggregate credit demand and investment outlays respond significantly to an adverse foreign EPU shock. Corporate investment outlays, payouts, and aggregate credit demand decline in response to such a shock.

Takeaways by Macro Roundup® AI

  1. Foreign economic policy uncertainty, measured from news article counts across 21 countries, has significant incremental predictive power for excess U.S. stock returns in aggregate and for portfolios sorted on firm characteristics at 6- to 12-month-ahead horizons.
  2. Foreign economic policy uncertainty shocks operate through a cash-flow news channel and do not affect discount rates or equity premia, unlike U.S. domestic policy uncertainty shocks.
  3. Corporate investment outlays, payouts, and aggregate credit demand decline in response to an adverse foreign economic policy uncertainty shock.

Related Articles:

  • United States’ Changing Net IIP — The United States' net international investment position deficit—the gap between foreign-owned US assets and US-owned foreign assets—is the largest on record and has turned negative across all major asset categories. Because much of the liability is equity, the author argues rebalancing could come through a correction in US equity values rather than a weaker dollar.
  • 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.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. Value creation among large American companies has become concentrated in a newer cohort of firms: businesses founded after World War II accounted for 8% of the top 50 companies' total market value in 1990 but 77% by 2024. The leading 20th-century incumbents are fading as this newer group takes over.

Andrew McAfee The Geek Way
Date Posted:
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From 1930-90, the market capitalization of the top 50 US companies was dominated by firms founded in the 19th century. Since 1990, the market cap from companies founded after WWII has risen from 8% to 77% in 2024. @amcafee

Are newer firms displacing the largest 20th-century incumbents?

Core argument: Companies founded after the end of World War II accounted for 77% of the top 50 U.S. market cap in 2024, up from 8% in 1990.

Value creation among American big businesses became strikingly concentrated in the 21st century, and largely left out the giants of the 20th. In 1990 companies founded after the end of WWII were responsible for only 8% of total top 50 market cap. In 2024, the equivalent figure was 77%. The incumbents of the 20th are fading and an entirely new cohort, the most prominent members of which are not yet 50, is taking over.

Takeaways by Macro Roundup® AI

  1. Companies founded after the end of World War II accounted for 77% of the top 50 U.S. market cap in 2024, up from 8% in 1990.
  2. Value creation among American big businesses became concentrated in the 21st century, largely leaving out the corporate giants of the 20th century.
  3. A new cohort of firms, whose most prominent members are not yet 50 years old, is taking over from fading 20th-century incumbents.

Related Articles:

  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. Real GDP per head in other large high-income countries sits below the US level and has fallen further behind this century, with Germany at 84% of the US level (down from 92%) and the UK at 73% (down from 82%). Whether US pathologies such as higher inequality and lower life expectancy are a necessary price of that dynamism is unclear.

Martin Wolf Financial Times
Date Posted:

Martin Wolf contrasts US companies’ outperformance relative to Europe against the backdrop of the greater US social inequalities and asks if US dynamism requires the “rugged, nay dog-eats-dog, individualism of the US. It is a sobering possibility.”

How far have other high-income countries fallen behind US income?

Core argument: German real GDP per head was 84% of US levels in 2023, down from 92% in 2000, while the UK's fell to 73% from 82%, leaving large high-income countries further behind the US this century.

The sustained prosperity of the US is astounding. Real GDP per head in the larger high-income countries is below the US average. Moreover, these countries have fallen further behind in this century. In 2023, German real GDP per head was 84% of US levels, down from 92% in 2000. The UK’s was 73% of US levels, down from 82% in 2000. This relative outperformance is remarkable if one considers how big and diverse the US is or that one would have expected catch-up, not relative decline, by poorer countries elsewhere. A big question for non-Americans, notably Europeans, is whether pathologies [higher inequality, lower life expectancy] are the necessary price of economic dynamism? Logically, it is not clear why an innovative economy cannot be combined with a more harmonious and healthier society. One might hope that the scale of the US market, its relatively light regulation, the quality of its science and its attractions to high-quality immigrants are the explanations. But there is this lingering fear that the technologically dynamic society Draghi and other Europeans now seek might require the rugged, nay dog-eats-dog, individualism of the US. It is a sobering possibility.

Takeaways by Macro Roundup® AI

  1. German real GDP per head was 84% of US levels in 2023, down from 92% in 2000, while the UK's fell to 73% from 82%, leaving large high-income countries further behind the US this century.
  2. The relative decline of other large high-income economies runs counter to the expectation that poorer countries would catch up, and is notable given the size and diversity of the US.
  3. Possible explanations for US outperformance include the scale of its market, relatively light regulation, the quality of its science and its attractions to high-quality immigrants, though the technological dynamism Europeans seek may require US-style individualism.

Related Articles:

  • A Visualization of Europe’s Non-Bubbly Economy — The Draghi report notes that no European Union company with a market capitalization above €100bn was founded from scratch in the past fifty years, while all six US companies valued above €1tn were. The 13 EU companies founded in that period and worth at least $10bn total about $400bn, versus nearly $30tn for their US counterparts.
  • The Future of European Competitiveness – A Competitiveness Strategy for Europe — A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. Researchers find that economic prospects for working-class and poor white Americans are declining while improving for Black Americans in the same economic tier, narrowing the income gap. Among children born to parents at the 25th income percentile, the Black-white earnings gap at age 27 shrank from about $12,994 to $9,521 in 2023 dollars.

Arian Campo-Flores Wall Street Journal
Date Posted:

Raj Chetty’s research finds that white children born in the bottom income quintile in 1992 had a 29.7% chance of staying there, up from 24.9% in 1978, and only an 11.9% chance of rising to the top quintile, down from 13.7%. @WSJ

Is the Black-white income gap narrowing among lower-income Americans?

Core argument: The Black-white income gap at age 27 for children born to parents at the 25th percentile narrowed from $12,994 for the 1978 birth cohort to $9,521 for the 1992 cohort, in 2023 dollars.

A big shift is under way in American life: The prospects for working-class and poor white Americans are declining, while they are improving for Black Americans in the same economic tier. The change in economic mobility the researchers traced—which shrank the amount by which Black Americans’ income lags behind white Americans’ income—occurred between 2005, when many Gen Xers were in their late 20s, and 2019, when many millennials reached the same age. Nationwide, a Black child born to parents at the 25th percentile of income in 1992 made $9,521 less at age 27 than a white child born at the 25th percentile. A Black child born in 1978 made $12,994 less at age 27, adjusted to 2023 dollars.

Takeaways by Macro Roundup® AI

  1. The Black-white income gap at age 27 for children born to parents at the 25th percentile narrowed from $12,994 for the 1978 birth cohort to $9,521 for the 1992 cohort, in 2023 dollars.
  2. Researchers traced the change in economic mobility between 2005, when many Gen Xers were in their late 20s, and 2019, when many millennials reached the same age.
  3. Prospects for working-class and poor white Americans are declining while improving for Black Americans in the same economic tier.

Related Articles:

  • Changing Opportunity: Sociological Mechanisms Underlying Growing Class Gaps and Shrinking Race Gaps in Economic Mobility — Across the 1978 to 1992 birth cohorts, adult household incomes fell for white children raised in low-income families and rose for those raised in high-income families, increasing the intergenerational persistence of income ranks among white children by 28%. Over the same cohorts, adult incomes rose for Black children at all parental income levels.
  • Two Cheers for Shrinking Black-White Opportunity Gaps — Research finds outcomes for Black adults raised poor worsened on several measures including household income, marriage, and mortality, but declined less than for whites raised poor, narrowing the racial gap. Among children raised poor, 4% of Black and 15% of white adults reach the top fifth of household income.
  • Intergenerational Mobility in American History: Accounting for Race and Measurement Error — Accounting for Black families, who historical studies routinely drop, and for measurement error in fathers' economic status can double estimates of intergenerational persistence in linked United States census data from 1850 to 1940. The author argues historical mobility was lower than previously estimated, implying greater equality of opportunity today than in the past.

AI Summary. Immigrants make up more than half of construction trade workers in Texas, California, New Jersey, and the District of Columbia, and undocumented workers are estimated at 13% of the construction industry, more than twice their share of the overall workforce. Roughly 130,000 newly arrived immigrants have joined the industry, bringing foreign-born construction employment to a record.

Elizabeth Findell and Gina Heeb Wall Street Journal
Date Posted:

Undocumented workers make up an estimated 13% of the American construction industry. Since 2022, at least 130,000 immigrants, legal and illegal, have entered the sector.

Does the construction industry depend heavily on immigrant workers?

Core argument: Undocumented workers make up an estimated 13% of the U.S. construction industry, more than twice their share of the overall workforce, according to a Pew Research Center estimate.

In Texas, California, New Jersey, and the District of Columbia, immigrants make up more than half of construction trade workers, according to Riordan Frost, a senior research analyst at the Harvard Joint Center for Housing Studies. Undocumented workers make up an estimated 13% of the construction industry—more than twice that of the overall workforce, according to a recent estimate from Pew Research Center. Since 2022, some 130,000 newly arrived immigrants have joined the construction industry, pushing the number of foreign-born construction workers to a record, according to the NAHB.

Takeaways by Macro Roundup® AI

  1. Undocumented workers make up an estimated 13% of the U.S. construction industry, more than twice their share of the overall workforce, according to a Pew Research Center estimate.
  2. Immigrants account for more than half of construction trade workers in Texas, California, New Jersey, and the District of Columbia, according to Riordan Frost of the Harvard Joint Center for Housing Studies.
  3. Some 130,000 newly arrived immigrants have joined the construction industry since 2022, pushing the number of foreign-born construction workers to a record, according to the National Association of Home Builders.

Related Articles:

  • Why Has Construction Productivity Stagnated? The Role of Land-Use Regulation — 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.
  • 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.
  • How Gen Z Is Becoming the Toolbelt Generation — Enrollment in vocational-focused community colleges rose 16% to its highest level since tracking began, with construction-trades programs up 23% and heating, ventilation, air conditioning and vehicle repair programs up 7%. Federal data show the number of carpenters and electricians grew over the past decade even as their median ages fell.

AI Summary. Water availability has been rising on about 54% of land in the contiguous United States and falling on 46%, with a slight net decline equal to 0.04% of average annual U.S. rainfall. Losses are concentrated in central and southern California and the Ogallala aquifer region, while land east of the Mississippi has been stable to gaining.

Cheikh Fall, Christian Hilgemann and Ishan Nath Federal Reserve Bank of San Francisco
Date Posted:

A @sffed analysis finds that US aggregate water resources were stable between 2003 and 2022, but California, Texas, and the Southwest experienced sharp declines, with some areas “in the top 1% for water depletion among all global arable land.”

Is U.S. water availability rising or falling across the country?

Core argument: Water availability has been rising on about 54% of land in the contiguous United States and falling on 46%, with drying regions losing more than moistening regions gain, leaving aggregate net losses equal to 0.04% of average annual U.S. rainfall.

Overall, water availability has been rising on about 54% of the land in the contiguous United States and decreasing on 46%. On net, total U.S. water volumes have declined slightly as the drying regions have lost more water than the moistening regions have gained, though aggregate losses are only 0.04% of average annual U.S. rainfall. Most of the western and southwestern United States has been losing substantial quantities of water: Almost all of the land in the bottom 10% of water trends are located in central and southern California and the Ogallala aquifer region at the intersection of Texas, Oklahoma, Kansas, New Mexico, and Colorado. Some of these regions are in the top 1% for water depletion among all global arable land. By contrast, the Great Plains and upper Midwest have largely been gaining water resources, and the vast majority of land east of the Mississippi River has seen stable to increasing water resources over time.

Takeaways by Macro Roundup® AI

  1. Water availability has been rising on about 54% of land in the contiguous United States and falling on 46%, with drying regions losing more than moistening regions gain, leaving aggregate net losses equal to 0.04% of average annual U.S. rainfall.
  2. Almost all U.S. land in the bottom 10% of water trends lies in central and southern California and the Ogallala aquifer region at the intersection of Texas, Oklahoma, Kansas, New Mexico, and Colorado, with some of these areas in the top 1% for water depletion among all global arable land.
  3. The Great Plains and upper Midwest have largely gained water resources, and the vast majority of land east of the Mississippi River has seen stable to increasing water resources.

Related Articles:

  • Global Water Scarcity: H2O No! — Less than 1% of the planet's water is usable; water demand has risen about 40% over 40 years and is estimated to increase another 25% by 2050, while supply has more than halved since 1970. Some 57% of global freshwater aquifers are beyond their tipping point, and one-third of piped fresh water is lost to leakage.
  • America Is Using Up Its Groundwater Like There’s No Tomorrow — An analysis of 84,544 groundwater monitoring wells across the United States found that nearly half declined significantly over the past 40 years as more water was pumped out than nature replenished. Four of every 10 sites hit all-time lows in the past decade.
  • Arizona Is Running Out of Cheap Water. Investors Saw It Coming — Phoenix-area suburbs are paying sharply higher prices for water rights from a basin west of the city, with one suburb approving $80m for 6,000 acre-feet — more than double the per-acre-foot price another suburb paid earlier. Arizona's groundwater replenishment assessments rose from $154 to $768 per acre-foot.

AI Summary. SpaceX is in talks to sell insider shares in a transaction valuing the rocket and satellite maker at about $350bn, up from a previously discussed $255bn valuation and roughly $210bn in an earlier tender offer.

Gillian Tan and Katie Roof Bloomberg
Date Posted:

SpaceX is considering a tender offer that would value the firm at $350B, up from $210B in June.

Is a private rocket and satellite maker's valuation rising sharply?

Core argument: SpaceX is in talks to sell insider shares in a transaction valuing the rocket and satellite maker at about $350 billion, according to people familiar with the matter.

SpaceX is in talks to sell insider shares in a transaction valuing the rocket and satellite maker at about $350 billion, according to people familiar with the matter, a massive jump highlighting the post-election gains across Elon Musk’s business empire. That would be a significant premium to a previously mulled valuation of $255 billion as reported by Bloomberg News and other media outlets just last month. SpaceX was last valued at about $210 billion in a tender offer earlier this year.

Takeaways by Macro Roundup® AI

  1. SpaceX is in talks to sell insider shares in a transaction valuing the rocket and satellite maker at about $350 billion, according to people familiar with the matter.
  2. The discussed $350 billion valuation is a significant premium to the $255 billion level previously mulled, as reported by Bloomberg News and other media outlets.
  3. SpaceX was last valued at about $210 billion in an earlier tender offer, and the jump to roughly $350 billion highlights post-election gains across Elon Musk's business empire.

Related Articles:

  • SpaceX Launches Starship Rocket as Trump and Musk Look On — SpaceX's Starship, the largest and most powerful rocket ever developed, is under contract as a lunar lander for NASA's effort to return people to the moon and is central to plans for a Mars settlement. SpaceX says the fully reusable design will be far cheaper to fly and will eventually replace its Falcon 9 and Falcon Heavy rockets.
  • Building an Enduring Advantage in the Third Space Age — The United States and China each logged their highest-ever annual launch rates, at 103 and 66 launches, while Russia fell to 19 and Europe recorded three. The US accounted for roughly half of global launches but 81% of effective launch capacity, since Falcon 9 and Falcon Heavy comprised 93% of US launches.
  • It’s Not a Space Race, It’s the Space Olympics — The US operates 81% of commercial satellites in orbit and 86% of global effective launch capacity, with NATO allies second in satellites at 11% and China second in launch capacity at 9%. China is pursuing mega satellite constellations and reusable rockets, in many cases copying approaches already proven by US companies.

Thursday, December 5, 2024

AI Summary. Congressional Budget Office projections imply that stabilizing US debt requires tax increases and spending cuts totaling 2.5% of GDP annually, which would stabilize debt at 122% of GDP. Across scenarios for productivity growth, interest rates, and extending tax cuts, the needed adjustment ranges from 0.7% to 4.6% of GDP, or $2–11tn over ten years.

Jason Furman Aspen Economic Strategy Group
Date Posted:

.@jasonfurman argues that stabilizing the debt by 2034 will require $2-11T of fiscal consolidation over the next ten years, or 0.7-4.6% of GDP.

How much fiscal adjustment would stabilizing US debt require?

Core argument: Under the CBO forecast and current law, stabilizing US federal debt would require tax increases and spending cuts totaling 2.5% of GDP annually, with debt stabilizing at 122% of GDP if the measure took effect in 2034.

To understand this table, start with the CBO forecast and current law. Under these parameters, a combination of tax increases and spending cuts would need to total 2.5% of GDP annually to stabilize the debt. If this measure went into effect in 2034, then the debt would stabilize at 122% of GDP. The exact dollar figure of these required figures over the ten-year budget window used in Washington policy debates depends on the time path; the table shows the ten-year total—assuming that savings are linearly phased in from the first year to the full $1T in 2034—of $6T. Assuming higher productivity growth reduces these fiscal gaps, but some adjustment is still needed. This requirement is consistent with the observation that debt is still rising as a share of GDP even with productivity growth 0.5pp higher. If interest rates are higher, then an even larger fiscal adjustment is necessary. Under current policy, the tax cuts will be extended, adding about 1.6% of GDP to the needed adjustment. Overall, the needed fiscal adjustment ranges from 0.7% of GDP to 4.6% of GDP—which, if phased in, would amount to $2 to $11T over the ten-year budget window.

Takeaways by Macro Roundup® AI

  1. Under the CBO forecast and current law, stabilizing US federal debt would require tax increases and spending cuts totaling 2.5% of GDP annually, with debt stabilizing at 122% of GDP if the measure took effect in 2034.
  2. Phasing in savings linearly to the full $1T in 2034 yields a ten-year total of $6T over the budget window used in Washington policy debates.
  3. Across scenarios, the needed US fiscal adjustment ranges from 0.7% to 4.6% of GDP, or $2–11T over ten years if phased in, with extending the tax cuts adding about 1.6% of GDP to the requirement.

Related Articles:

  • Long-Term Interest Rates, Fiscal Policy, And The Term Premium — US fiscal policy is on an unsustainable path, with potential market flashpoints including a sovereign credit downgrade, weak Treasury auctions, a term premium that has been trending higher, and a weaker dollar if growth slows. A debt crisis is unlikely; gradually higher long-term interest rates and a steeper yield curve are more likely.
  • As the Fed Cuts Rates, Treasury Yields Are Rising — Federal Reserve cuts to the federal funds rate target range were accompanied by falling short-term Treasury bill yields but rising longer-term yields, with the 10-year Treasury yield climbing from 3.63% to 4.42%. Deficit-increasing proposals from both presidential campaigns likely exacerbated the rise in longer-term yields.
  • 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. The French government collapsed amid opposition from both left and right to a budget that would cut the deficit from 6.1% to 3% of GDP by 2029, a target the National Rally leader called not credible and wants replaced with slower deficit reduction. French bonds gained and the spread over German 10-year debt narrowed to 77 basis points.

Ania Nussbaum and William Horobin Bloomberg
Date Posted:

The left and right in France brought down the government over an austerity plan that would have reduced the budget deficit from 6.1% of GDP this year to 3% by 2029.

Can a slower deficit reduction path break France's budget deadlock?

Core argument: Marine Le Pen said France can deliver a budget in "a matter of weeks" provided the next prime minister narrows the deficit more slowly than the collapsed government's plan to cut it from 6.1% to 3% of GDP by 2029.

Macron’s government collapsed in the face of opposition from the left and the right over a budget that would bring the budget deficit down from 6.1% to 3% of GDP by 2029. Marine Le Pen said France can overcome government collapse to deliver a budget in “a matter of weeks” — so long as the next prime minister is prepared to narrow the deficit more slowly. She said the outgoing administration’s plan to bring the budget gap to 3% of economic output by 2029 is not credible for the country and a “reasonable trajectory” is needed, based on wealth creation and savings. “We want to absorb the deficits, but we want to do it intelligently, without depriving ourselves, of the chance to reindustrialize, to help companies. This is such an essential problem for us.” French bonds gained after Le Pen’s comments and the spread on 10-year notes over safer German securities tightened. The gap fell to 77 basis points, the lowest level in two weeks, while the euro advanced $1.0577, outperforming most peers.

Takeaways by Macro Roundup® AI

  1. Marine Le Pen said France can deliver a budget in "a matter of weeks" provided the next prime minister narrows the deficit more slowly than the collapsed government's plan to cut it from 6.1% to 3% of GDP by 2029.
  2. Le Pen called the outgoing administration's 3%-by-2029 target not credible and urged a "reasonable trajectory" based on wealth creation and savings that preserves the chance to reindustrialize and help companies.
  3. French bonds gained after Le Pen's comments, with the 10-year spread over German securities tightening to 77 basis points, the lowest in two weeks, while the euro advanced to $1.0577, outperforming most peers.

Related Articles:

  • C’est la vie: Bond Vigilantes Are Back — France's government bond yield spread widened by 0.29 percentage points, more than Italy's 0.22 and Spain's 0.2, which the authors attribute to political uncertainty created by the calling of a snap national election. The French spread has remained elevated, while the Italian and Spanish spreads have come down.
  • Fiscal Policy Under Trump II: The Role of Scott Bessent and Basic Budget Math — US federal debt has risen from 105% to 123% of GDP, the budget deficit has doubled from 3.1% to more than 6%, and government interest expense has grown from 1.3% to about 3.1% of GDP. The author argues this makes expansive fiscal policy harder to pursue than in the past.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.

AI Summary. European Union countries are discussing a joint fund of more than €500bn for common defence projects and arms procurement, financed by bonds backed by national guarantees from participating countries rather than the EU as a whole. The talks follow US threats to withdraw security guarantees from NATO allies that underspend on defence.

Paola Tamma, Henry Foy, Eleni Varvitsioti and John Paul Rathbone Financial Times
Date Posted:

EU countries are discussing issuing €500B+ of debt to allow member states to finance increased defense spending. The bonds would be “backed by national guarantees from participating countries rather than the EU as a whole.” @FT

Will Europe use joint borrowing to fund a common defence buildup?

Core argument: EU countries are discussing a joint defence fund of €500bn for common defence projects and arms procurement, financed by tapping bond markets ahead of Donald Trump's return to the White House.

EU countries are discussing a €500bn joint fund for common defence projects and arms procurement, tapping bond markets to boost spending in anticipation of Donald Trump’s White House return. Trump’s threat to withdraw US security guarantees from underspending Nato allies has spurred European capitals to explore more radical defence funding options, including joint borrowing that has traditionally been ruled out by fiscal hawks in Germany, the Netherlands and Denmark. Senior European officials discussing the plan are now focused on setting up a financing vehicle for defence, which would issue bonds backed by national guarantees from participating countries rather than the EU as a whole. While the precise borrowing target is still to be agreed, those involved in negotiations said it would need to be more than €500bn.

Takeaways by Macro Roundup® AI

  1. EU countries are discussing a joint defence fund of €500bn for common defence projects and arms procurement, financed by tapping bond markets ahead of Donald Trump's return to the White House.
  2. Senior European officials are focused on a financing vehicle that would issue bonds backed by national guarantees from participating countries rather than by the EU as a whole, with the precise borrowing target still to be agreed, though above €500bn.
  3. Trump's threat to withdraw US security guarantees from Nato allies that underspend has spurred European capitals to explore joint borrowing, an option traditionally ruled out by fiscal hawks in Germany, the Netherlands and Denmark.

Related Articles:

  • Can Europe Defend Itself Without America? — 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.
  • 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.

AI Summary. Japan's population ageing and the rising ratio of people 65 and older to those aged 20-64 explain the decline in the country's aggregate household saving rate since the mid-1970s. Retired elderly households drew down financial net worth by 1-3% a year, driven by falling disposable income — particularly public pension benefits and property income — rather than higher consumption.

Charles Yuji Horioka National Bureau of Economic Research
Date Posted:

The drop in Japan’s net private saving rate since its 1974-75 peak is due to the steady aging of the population and in recent years, more rapid spending down of wealth by retired elderly households. @CharlesYuji

Does population ageing explain the decline in household saving rates?

Core argument: Japan's ratio of the population aged 65 or older to those aged 20–64 rose at an average 0.86 percentage points per year during 1975–2020, a trend that can explain the steady decline in Japan's aggregate household saving rate since the mid-1970s.

The steady ageing of Japan’s population and the steady increase in the ratio of the population aged 65 or older to the population aged 20-64 can explain the steady decline in Japan’s aggregate household saving rate since the mid-1970s. The ratio of the population aged 65 to the population aged 20-64 increased at an average rate of 0.86 percentage points per year during the 1975-2020 period. [In line with the life-cycle hypothesis], retired elderly households in Japan decumulated their financial net worth at a rate of 1 to 3 percent per year throughout the 2003-23 period. The tendency to decumulate financial net worth strengthened throughout much of this period, rising from 1-2 percent in 2003 to about 3 percent in the mid-2010s before leveling off somewhat. [Thus] declines in the saving rate of retired elderly households is an important explanation for the recent decline in the household saving rate. This was due not to increases in consumption spending but to declines in disposable income, especially public pension benefits and property income.

Takeaways by Macro Roundup® AI

  1. Japan's ratio of the population aged 65 or older to those aged 20–64 rose at an average 0.86 percentage points per year during 1975–2020, a trend that can explain the steady decline in Japan's aggregate household saving rate since the mid-1970s.
  2. Retired elderly households in Japan decumulated financial net worth at 1–3 percent per year throughout 2003–23, with the pace rising from 1–2 percent in 2003 to about 3 percent in the mid-2010s before leveling off somewhat.
  3. The decline in the saving rate of retired elderly Japanese households stemmed not from higher consumption spending but from falling disposable income, especially public pension benefits and property income.

Related Articles:

  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.
  • Japan’s Stock Market Is Back After 34 Years But The Country Is Deeply Changed — Japan's economy grew an average of just 0.7% during the 2000s amid mild deflation, and the International Monetary Fund expects public debt to reach 256% of gross domestic product, up from 65% in 1989. Net profits at non-financial Japanese firms rose more than fourfold over that period, leaving ¥343tn in cash.
  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.

AI Summary. An industrial renaissance is underway driven by industrial policies, which fall into three types: place-based policies aimed at low-income regions that may have lost manufacturing jobs, national security policies to ensure important technology and semiconductors are produced domestically, and green policies supporting the energy transition.

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

US manufacturing capacity has risen 2pp since 2022 but remains 6% under the 2007 level.

What types of industrial policies are driving an industrial renaissance?

Core argument: An industrial renaissance driven by industrial policies has begun, spanning digital infrastructure, the energy transition, and power.

A new industrial renaissance has started, driven by industrial policies. Types of industrial policies: 1) Place-based industrial policies, to help people in low-income regions where manufacturing jobs may have been lost 2) National security-motivated industrial policies, to make sure that important technology and semiconductors are produced domestically 3) Green industrial policies, to support the energy transition.

Takeaways by Macro Roundup® AI

  1. An industrial renaissance driven by industrial policies has begun, spanning digital infrastructure, the energy transition, and power.
  2. Place-based industrial policies aim to help people in low-income regions where manufacturing jobs may have been lost.
  3. National security-motivated industrial policies seek to ensure that important technology and semiconductors are produced domestically, while green industrial policies support the energy transition.

Related Articles:

  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • 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.
  • Global Robot Density in Factories Doubled in Seven Years — 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.

AI Summary. SpaceX's Starlink operates around 6,500 active satellites, more than half the world's inventory, with Amazon, China, and the Pentagon all planning large constellations of their own. The global space economy is projected to reach $1.8tn by 2035, roughly 3x its 2023 size.

W.J. Hennigan New York Times
Date Posted:

American firms and government are responsible for approximately 80% of the satellites, crewed spacecraft, and probes launched into space.

Is satellite deployment accelerating as the space economy triples?

Core argument: SpaceX's Starlink operates roughly 6,500 active satellites, more than half the world's inventory, and SpaceX plans to greatly expand the constellation.

With around 6,500 active satellites, Starlink, operated by Elon Musk’s SpaceX, accounts for more than half of the world’s inventory. SpaceX has plans to greatly increase the size of its constellation in the coming years. That’s a lot on its own, but Amazon also has plans to build a system to compete with Starlink in the next few years. China hopes to launch 40,000 of its own such satellites in the next decade, and the Pentagon is set to spend nearly $14 billion over the next five years to build its new system of missile-targeting satellites in low-Earth orbit. All told, the global space economy is expected to grow to $1.8 trillion by 2035, roughly three times where it stood in 2023.

Takeaways by Macro Roundup® AI

  1. SpaceX's Starlink operates roughly 6,500 active satellites, more than half the world's inventory, and SpaceX plans to greatly expand the constellation.
  2. China aims to launch 40,000 satellites over the next decade, Amazon plans a competing system to Starlink, and the Pentagon is set to spend nearly $14 billion over five years on missile-targeting satellites in low-Earth orbit.
  3. The global space economy is expected to reach $1.8 trillion by 2035, roughly three times its 2023 level.

Related Articles:

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  • Building an Enduring Advantage in the Third Space Age — The United States and China each logged their highest-ever annual launch rates, at 103 and 66 launches, while Russia fell to 19 and Europe recorded three. The US accounted for roughly half of global launches but 81% of effective launch capacity, since Falcon 9 and Falcon Heavy comprised 93% of US launches.
  • It’s Not a Space Race, It’s the Space Olympics — The US operates 81% of commercial satellites in orbit and 86% of global effective launch capacity, with NATO allies second in satellites at 11% and China second in launch capacity at 9%. China is pursuing mega satellite constellations and reusable rockets, in many cases copying approaches already proven by US companies.

AI Summary. The authors project US net migration ranging from -650,000 under a "low" scenario, in which more people leave the country than enter, to positive 1.3m under a "high" scenario assuming only modestly more aggressive immigration policy. Actual flows could fall outside this range.

Wendy Edelberg, Cecilia Esterline, Stan Veuger and Tara Watson Brookings Institution
Date Posted:

Researchers at @BrookingsInst estimate that Trump’s impact on 2025 immigration range from a “Low” scenario with net outmigration of 650k and a 0.4% reduction in 2025 GDP, to a “High” scenario of 1.3mm net immigration, and a 0.1% GDP reduction.

How wide is the plausible range of US net migration?

Core argument: The authors' "low" immigration scenario, set at roughly the 20th percentile of plausible net flows, projects U.S. net migration of -650,000 in 2025, meaning more people leaving the country than entering.

We think of the scenarios as spanning the range of plausible policy actions, something like the 20th percentile of resulting net flows (“low”) to the 80th percentile (“high”). In the first two years of the “low” scenario, in which we anticipate the most acute departure from recent policy, we expect the United States to see net outmigration—that is, the extraordinary case of more people leaving the country than entering. Under this scenario, in 2025 migration would be -650,000. The “high” scenario assumes immigration policy is only modestly more aggressive than it was in the first Trump administration. The resulting immigration flows would be positive 1.3 million in 2025. To be sure, immigration flows could be outside the range of our scenarios. During the campaign, Trump called for immediate mass deportations more than 10 times what we incorporate even in our “low” scenario.

Takeaways by Macro Roundup® AI

  1. The authors' "low" immigration scenario, set at roughly the 20th percentile of plausible net flows, projects U.S. net migration of -650,000 in 2025, meaning more people leaving the country than entering.
  2. The authors' "high" scenario, at roughly the 80th percentile and assuming policy only modestly more aggressive than the first Trump administration, projects net immigration of 1.3 million in 2025.
  3. Trump called during the campaign for immediate mass deportations more than 10 times the scale incorporated in the authors' "low" scenario, and actual flows could fall outside the scenario range.

Related Articles:

  • The Demographic Outlook: 2024 to 2054 — The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.
  • Farms, Meat Plants Brace for Trump Immigration Crackdown — 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.
  • Construction Industry Braces for One-Two Punch: Tariffs and Deportations — Immigrants make up more than half of construction trade workers in Texas, California, New Jersey, and the District of Columbia, and undocumented workers are estimated at 13% of the construction industry, more than twice their share of the overall workforce. Roughly 130,000 newly arrived immigrants have joined the industry, bringing foreign-born construction employment to a record.