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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
  • “…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 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


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:

  • SpaceX Weighs Tender Offer Raising Valuation to $350 Billion — 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.
  • 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.

Friday, December 6, 2024

AI Summary. The authors estimate that restructuring costs for failing companies are roughly 10x higher in countries with strong employment protection laws, such as in Western Europe, than in low-protection countries such as the United States. They argue this differential lowers returns on capital in technology industries and is a first-order factor behind Europe's lag in tech.

Yann Coatanlem and Oliver Coste Universita Bocconi
Date Posted:

.@YannCoatanlem and @olivercoste find that restructuring costs in the EU are 10x that of the US and argue that “the cost of failure is a first-order factor of Europe’s lag in tech, with major consequences for its competitiveness and standard of living.”

Do high employment protection costs explain Europe's technology lag?

Core argument: The authors estimate that restructuring costs — which include much more than severance packages — are roughly 10 times higher in high labor-protection countries such as those in Western Europe than in low-protection countries such as the United States.

We find that the profitability of high-risk tech companies, associated with high rates of failure, is very dependent on the cost of restructuring, which itself is driven by employment protection legislation. Leveraging a combination of financial analysis, empirical observations, and limited existing literature, we estimate that restructuring costs (that include much more than severance packages) are approximately 10 times higher in countries with high labor protection, such as in Western Europe, than in countries with low labor protection such as in the United States. We show that this cost differential translates into lower returns on capital in tech industries and confirm that impact empirically. We explain that the cost of failure is a first order factor of Europe’s lag in tech, with major consequences for its competitiveness, its standard of living and its security. A key insight is that restructuring costs matter even if they apply only to larger enterprises because the high return from the few winners materializes only once they become larger.

Takeaways by Macro Roundup® AI

  1. The authors estimate that restructuring costs — which include much more than severance packages — are roughly 10 times higher in high labor-protection countries such as those in Western Europe than in low-protection countries such as the United States.
  2. The authors find that the profitability of high-risk tech companies, which fail at high rates, depends heavily on restructuring costs driven by employment protection legislation, and show empirically that this cost differential translates into lower returns on capital in tech.

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. Goldman Sachs projects the S&P 500 will return about 3% a year over the next decade as Big Tech dominance falters, while Bank of America expects 0%-1% a year, yet both advise buying stocks because the year ahead looks strong. U.S. stocks trade at 22.5x forecast earnings versus under 14x for the rest of the world.

James Mackintosh Wall Street Journal
Date Posted:

.@jmackin2 notes that Goldman Sachs and Bank of America predict “scary forecasts” of 0-3% equity returns over the next decade, but both recommend “Buy stocks anyway, because the next year looks great.”

Do low ten-year return forecasts argue against buying stocks now?

Core argument: Goldman Sachs forecasts the S&P 500 will return just 3% a year over the next decade as Big Tech dominance eventually falters, while Bank of America expects 0%–1% a year.

Here are two particularly scary forecasts for investors: Goldman Sachs thinks the S&P 500 will make just 3% a year over the next 10 years, as Big Tech dominance eventually falters. Bank of America expects 0%-1% a year for a decade, a catastrophic investment prospect. Their conclusion: Buy stocks anyway, because the next year looks great. But history also suggests no link at all between nosebleed valuations like we have today and returns over the next year. Expensive stocks can always get more expensive, and often do. U.S. stocks trade for 22.5 times forecast earnings, and those earnings are far and away at a record high. The rest of the world is at less than 14 times earnings, which are still lower than was forecast in 2008.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs forecasts the S&P 500 will return just 3% a year over the next decade as Big Tech dominance eventually falters, while Bank of America expects 0%–1% a year.
  2. U.S. stocks trade at 22.5 times forecast earnings, which are at a record high, versus less than 14 times for the rest of the world, whose earnings remain below what was forecast in 2008.
  3. History suggests no link between valuations as high as today's and returns over the following year, and both Goldman Sachs and Bank of America conclude investors should buy stocks because the next year looks strong.

Related Articles:

  • Updating Our Long-Term Return Forecast For US Equities to Incorporate the Current High Level of Market Concentration — The authors estimate the S&P 500 will deliver an annualized nominal total return of 3% over the next 10 years, roughly 1% in real terms, modeling long-term returns as a function of starting valuation, market concentration, frequency of economic contractions, corporate profitability, and interest rates. The index returned 13% annualized over the past decade, above its 11% long-term average.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.
  • 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.

AI Summary. Business capital spending growth is forecast to be roughly flat in the near term, held back by declining aircraft and manufacturing structures investment, before rebounding to about 5.4% growth over the following year. The projected rebound is attributed to equipment spending for newly built factories, AI investment, lower short-term borrowing rates, improved business sentiment, and reinstated tax incentives.

Elsie Peng Goldman Sachs
Date Posted:

.@GoldmanSachs forecasts capex growth of 5.4% in 2025, driven by rising equipment spending for factories funded by the CHIPS Act and IRA, AI spending, lower short-term rates, improved business sentiment, and reinstated tax incentives.

Will business capital spending rebound after the factory-building boom fades?

Core argument: Capex growth is forecast to rebound to about 5.4% in 2025 on a Q4/Q4 basis, driven by equipment spending for newly built factories, AI investment, lower short-term borrowing rates, improved business sentiment, and reinstated tax incentives.

We forecast roughly flat capex growth in Q4, reflecting drags from declining aircraft and manufacturing structures investment. But we expect capex growth to rebound next year and grow about 5.4% in 2025 on a Q4/Q4 basis, driven by rising equipment spending for the new factories, AI spending, lower short-term borrowing rates, improved business sentiment, and the reinstatement of tax incentives.

Takeaways by Macro Roundup® AI

  1. Capex growth is forecast to rebound to about 5.4% in 2025 on a Q4/Q4 basis, driven by equipment spending for newly built factories, AI investment, lower short-term borrowing rates, improved business sentiment, and reinstated tax incentives.
  2. Capex growth is forecast to be roughly flat in Q4, held back by declining investment in aircraft and manufacturing structures.

Related Articles:

  • The Industrial Renaissance: Digital Infrastructure, Energy Transition, and Power — 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.
  • 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.
  • Grid Infrastructure Investments Drive Increase in Utility Spending Over Last Two Decades — Annual spending by major US utilities to produce and deliver electricity rose 12% over two decades to $320bn in inflation-adjusted terms, driven mainly by capital investment in infrastructure, which more than doubled. Capital spending on the distribution system that delivers power to end users increased 160%, or $31.4bn.

AI Summary. China's share of global gross manufacturing production is estimated to have risen from 5% in 1995 to 35% by 2020, three times the US share and more than the next nine countries combined. Its share of global manufactured exports rose from 3% in 1995 to 20% in 2020.

Joe Leahy and Tina Hu and Chan Ho-him Financial Times
Date Posted:

China’s share of gross production in manufacturing rose from 15.7% in 2007 to 35.4% in 2020. During that period the US’s share fell 5pp from 16.6% to 11.8%.

How dominant has China become in global manufacturing and exports?

Core argument: Richard Baldwin of IMD Business School estimated in January that China's share of global gross production rose from 5% in 1995 to 35% by 2020, three times the US share and more than the next nine countries combined.

China is now the world’s “sole manufacturing superpower”, according to Richard Baldwin, professor of international economics at IMD Business School in Lausanne, who estimated in January that China’s share of global gross production had risen from 5% in 1995 to 35% by 2020 — three times that of the US and more than the next nine countries combined. Its share of global manufactured exports was 20% in 2020, up from 3% in 1995 and dwarfing the US, Japan and Germany. Out of a total of about 5,000 products, China held a dominant position in exports for almost 600 in 2019, at least six times greater than for the US or Japan and more than double that of the EU

Takeaways by Macro Roundup® AI

  1. Richard Baldwin of IMD Business School estimated in January that China's share of global gross production rose from 5% in 1995 to 35% by 2020, three times the US share and more than the next nine countries combined.
  2. China's share of global manufactured exports reached 20% in 2020, up from 3% in 1995, dwarfing the shares of the US, Japan and Germany, according to Baldwin.
  3. Of roughly 5,000 products, China held a dominant export position in almost 600 in 2019, at least six times the count for the US or Japan and more than double that of the EU.

Related Articles:

  • 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.
  • Crises at Boeing and Intel Are a National Emergency — Intel and Boeing, once benchmarks for high-quality, demanding manufacturing, declined because of their own mistakes rather than cheap foreign competition. Because leading U.S. tech firms' software and devices depend on advanced semiconductors fabricated under contract, especially by Taiwan Semiconductor Manufacturing Co., Chinese subjugation of Taiwan could leave the U.S. tech sector at Beijing's mercy.
  • The Surprising Resilience of Globalization: An Examination of Claims of Economic Fragmentation — China's exports have grown faster than its own economy, rising by about 3 percentage points as a share of its GDP, with a nearly $1tn surge over four years. Measured against the GDP of its trading partners, China's manufactured-goods surplus has increased by about three-quarters of a percentage point of world GDP to a record high.

AI Summary. A paper modeling scenarios in which global crude oil demand falls to near zero by the century's end finds that anticipated demand decline reduces producers' investment in wells and infrastructure, lowering near-term output and carbon dioxide emissions. The author estimates this disinvestment effect outweighs the "green paradox" of accelerated extraction.

Ryan Kellogg National Bureau of Economic Research
Date Posted:

.@RyanMKellogg forecasts that “green” policies implying a drop in oil demand to 0 by 2099 will cause producers to reduce investment and near-term production, refuting the “green paradox” of accelerated near-term extraction and worsening climate change.

Does expected oil demand decline lower near-term production and emissions?

Core argument: The author models scenarios in which global crude oil demand falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, stringent climate policies, or both.

This paper [considers] scenarios in which global demand for crude oil falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, adoption ofstringent climate policies, or both. One possibility is the well-known “green paradox”: because oil is an exhaustible resource, producers may accelerate near-term extraction in order to beat the demand decline. This reaction would increase near-term CO2 emissions and could possibly even lead the total present value of climate damages to be greater than if demand had not declined at all. However, because oil extraction requires potentially long-lived investments in wells and other infrastructure, the opposite may occur: an anticipated demand decline reduces producers' investment rates, decreasing near-term oil production and CO2 emissions. I find that for model inputs with the strongest empirical support, the disinvestment effect outweighs the traditional green paradox.

Takeaways by Macro Roundup® AI

  1. The author models scenarios in which global crude oil demand falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, stringent climate policies, or both.
  2. Under the "green paradox," oil producers accelerate near-term extraction to beat an anticipated demand decline, raising near-term CO2 emissions and possibly making the total present value of climate damages greater than with no demand decline.
  3. Because oil extraction requires potentially long-lived investments in wells and other infrastructure, an anticipated demand decline can instead reduce producers' investment rates, and the author finds this disinvestment effect outweighs the traditional green paradox for model inputs with the strongest empirical support.

Related Articles:

  • AI is Changing Oil Country—and Pumping Up Profits — The U.S. produces 60% more oil per day with 40% fewer workers than a decade ago, with annual productivity gains roughly 7x those of the average U.S. business. In the Permian, the break-even oil price has fallen to $40 a barrel from over $90, and AI tools that predict the most productive drilling locations should push it lower.
  • 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. Crude Oil Production Established A New Record In August 2024 — 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.

AI Summary. Research firm Cerulli Associates projects about $105tn will pass from older US generations to heirs over the next quarter century, roughly equal to global gross domestic product in 2023. Cerulli estimates more than half of that transferred wealth will come from the roughly 2% of households holding at least $5m in investible assets.

Daniel Neligh, Maria Clara Cobo, and Andre Tartar Bloomberg
Date Posted:

Cerulli Associates finds that younger Americans will inherit $105T over the next 25 years. More than half of the transfers will come from the 2% of US households with >$5mm in assets.

How much wealth will US heirs inherit over coming decades?

Core argument: Cerulli Associates projects about $105 trillion will pass from older US generations over the next quarter century, an amount roughly equal to global GDP in 2023.

About $105 trillion is projected to be passed down from older generations over the next quarter century, according to research firm Cerulli Associates, an amount roughly equal to global gross domestic product in 2023. Inherited wealth is expected to become increasingly concentrated among the most affluent, according to Cerulli. The firm estimates that more than half of the wealth transferred between generations through 2048 will come from households with at least $5 million in investible assets. Only about 2% of US households meet that threshold. Millennials, born between 1981 and 1996, are expected to inherit more than $45 trillion by 2048, including some $3.9 trillion that year alone. Generation X, sandwiched between the baby boomers and millennials, will see their annual inheritance levels peak in 2038 at just shy of $2 trillion, according to Cerulli.

Takeaways by Macro Roundup® AI

  1. Cerulli Associates projects about $105 trillion will pass from older US generations over the next quarter century, an amount roughly equal to global GDP in 2023.
  2. Cerulli estimates more than half of wealth transferred between generations through 2048 will come from households holding at least $5 million in investible assets, a threshold met by only about 2% of US households.
  3. Millennials, born 1981 to 1996, are expected to inherit more than $45 trillion by 2048, including some $3.9 trillion that year, while Generation X's annual inheritances peak in 2038 at just shy of $2 trillion, according to Cerulli.

Related Articles:

  • Should Governments Tax The Great Boomer Wealth Transfer? — Around $90tn in the US is projected to pass from those born before 1964 to their heirs by 2045, according to research by Cerulli Associates. With government finances strained by pandemic costs and aging populations, debate is growing over whether inheritance taxes—long avoidable through planning—should be made harder to sidestep.
  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.

Ting-Hui Lin, Xueyong Zhu, Shengyang Wang, et al. Science
Date Posted:

Scientists studying the H5N1 bird flu virus currently circulating in North America find that a single mutation would be sufficient to change the virus from avian to human specificity.

In 2024, several human infections with highly pathogenic clade 2.3.4.4b bovine influenza H5N1 viruses in the United States raised concerns about their capability for bovine-to-human or even human-to-human transmission. In this study, analysis of the hemagglutinin (HA) from the first-reported human-infecting bovine H5N1 virus (A/Texas/37/2024, Texas) revealed avian-type receptor binding preference. Notably, a Gln Leu substitution switched Texas HA binding specificity to human-type receptors, which was enhanced when combined with an Asn Lys mutation. Crystal structures of the Texas HA with avian receptor analog LSTa and its Gln Leu mutant with human receptor analog LSTc elucidated the structural basis for this preferential receptor recognition. These findings highlight the need for continuous surveillance of emerging mutations in avian and bovine clade 2.3.4.4b H5N1 viruses.

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