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
  • “…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 provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “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
  • “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
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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.

Related Articles:

Monday, December 9, 2024

AI Summary. The authors argue much of research's declining productivity is a transitional composition effect: the share of the labor force in research has tripled since the 1960s, and if researchers are positively selected on ability, that expansion lowered their average ability. Separating transitional from permanent diminishing returns nearly doubles predicted long-run per capita income growth.

Lorenz Ekerdt and Kai-Jie Wu Working Paper
Date Posted:
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Ekerdt and Wu argue that the diminishing returns to research since the 1960s is a result of the 3X increase in the share of the labor force employed in research, which resulted in a transitional decline in the “average ability among researchers.”

Does expanding the research workforce explain falling research productivity?

Core argument: The authors show the share of the labor force employed in research has risen 3-fold since the 1960s, an expansion they argue could not occur without lowering researchers' average ability if workers sort into sectors by ability.

We argue that a substantial portion of the declining productivity of research is the product of a transitional composition effect instead of a permanent phenomenon. We show that the share of the labor force employed in research has increased 3-fold since the 1960s. If workers are sorted into sectors according to ability, this rapid expansion cannot have been achieved without changing the average ability among researchers. If research is positively selected on ability, i.e., workers with a comparative advantage in research also tend to have an absolute advantage in research, the direction of this change is unambiguously negative. This source of diminishing returns is transitional because it is expected to fade away when the share of workers employed in research ceases to rise. Our results suggest that the average ability of researchers has fallen substantially. We find that separating transitional diminishing returns from permanent ones nearly doubles the long-run growth rate of per capita income predicted by a broad class of growth models.

Takeaways by Macro Roundup® AI

  1. The authors show the share of the labor force employed in research has risen 3-fold since the 1960s, an expansion they argue could not occur without lowering researchers' average ability if workers sort into sectors by ability.
  2. The authors argue much of research's declining productivity is a transitional composition effect that fades once the research employment share stops rising, not a permanent phenomenon, and find average researcher ability has fallen substantially.
  3. Separating transitional from permanent diminishing returns nearly doubles the long-run growth rate of per capita income predicted by a broad class of growth models, according to the authors.

Related Articles:

  • Are Ideas Getting Harder to Find? — The authors estimate U.S. research productivity has fallen by a factor of 41 since the 1930s, averaging declines above 5% per year across sectors. Sustaining constant growth in output per person requires doubling research effort every 13 years, challenging growth models that assume constant research productivity.
  • Something Is Getting Harder But It’s Not Finding Ideas — The number of researchers in the US economy has grown to 23x its 1930 level while the economy's growth rate has been constant or declining, contradicting the assumption that constant research input yields a constant growth rate. Bloom et al. explain this divergence by assuming ideas get harder to find as more are discovered.
  • Science is Getting Harder — A growing "burden of knowledge" is making scientific breakthroughs harder, with the share of recent discoveries recognized as Nobel-worthy falling from about 90% before the 1970s to about 50% by 2015 even as the numbers of scientists and publications rose. Sustaining progress appears to require escalating research spending, expertise, and collaboration.

AI Summary. US government debt as a share of GDP has risen by 60 percentage points since 2007, versus 21 percentage points in the euro area. Assuming each dollar of government spending adds $0.30 of economic activity, the author calculates the US growth advantage over the euro area would be 5 percentage points rather than the observed 23.

Rangvid's Blog Jesper Rangvid
Date Posted:
Is Database:
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Is Important:
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Taking a demand side view, Jesper Rangvid argues that if US debt/GDP had increased by Europe’s 21pp instead of 60pp since 2007, with a conservative multiplier of 0.3 US GDP growth would have exceeded Europe’s by only 5pp vs. 23pp.

How much of the US growth advantage over Europe reflects debt?

Core argument: US government debt as a share of GDP rose 60 percentage points since 2007, three times the euro area's 21-point increase, an expansion the author argues significantly bolstered US economic activity.

Since 2007, government debt as a share of GDP has risen by 21 percentage points in the euro area but three times as much—60 percentage points—in the US. This much larger debt expansion has significantly bolstered US economic activity. The extent of this impact depends on the ‘fiscal multiplier’—the additional economic activity generated by each dollar of government spending. Assuming a fiscal multiplier of 0.3 (where one dollar of government spending adds 0.3 dollars of economic activity), the US economy would have grown only 5 percentage points more than the euro area between 2007 and 2023 when adjusting for US debt-fuelled growth. This contrasts sharply with the observed growth difference of 23 percentage points (fiscal multiplier of 0 in the figure). In other words, a substantial portion of the US growth advantage since the financial crisis has been driven by debt-financed fiscal policy expansions, making Europe’s relative growth performance appear less unfavourable. Debt-fuelled growth is not sustainable.

Takeaways by Macro Roundup® AI

  1. US government debt as a share of GDP rose 60 percentage points since 2007, three times the euro area's 21-point increase, an expansion the author argues significantly bolstered US economic activity.
  2. Assuming a fiscal multiplier of 0.3, the US economy would have outgrown the euro area by only 5 percentage points between 2007 and 2023, against the observed gap of 23 points.
  3. The author argues that a substantial portion of the US growth advantage since the financial crisis stems from debt-financed fiscal expansion, which is not sustainable, making Europe's relative performance look less unfavourable.

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.
  • You Are Right to Worry About the Economy — The Federal Reserve describes the US as on an unsustainable fiscal path, with federal debt up from 70% of GDP after the financial crisis to nearly 100% and spending at 23% of GDP versus 19% before. Heavy tax increases on top earners are estimated to yield under 2% of GDP.
  • 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. The authors model 13 illustrative federal tax and spending reforms based on standard public economics design principles and project that, over 30 years relative to current law, they would cut budget deficits by 38%, raise the capital stock 31%, GDP 21%, and wages nearly 7%, while lowering health premiums 27%.

Kody Carmody, Jon Huntley, Felipe Ruiz Mazin, et al. University of Pennsylvania
Date Posted:

The @BudgetModel proposes a series of policy changes that would reduce federal budget deficits by 38%, increase GDP by 21%, grow the capital stock by 31%, raise wages by 7%, and reduce health insurance premiums by 27% over the next 30 years.

Can principles-based tax and spending reforms cut deficits and raise GDP?

Core argument: The authors estimate that 13 illustrative tax and spending reforms would cut federal budget deficits by 38% over 30 years relative to current law, while growing the capital stock by 31%, GDP by 21%, and wages by almost 7%.

Expanding federal debt presents an opportunity to rethink U.S. federal fiscal policy while growing the economy and enhancing social insurance. We present illustrative fundamental reforms of federal tax and spending programs consistent with standard design principles that have emerged over time in the field of public economics. Specifically, we analyze 13 major tax and spending reforms that include a full accounting of their budgetary and economic interactions, arguably one of the most ambitious computational public finance experiments performed to date. Over the next 30 years, relative to current law, these reforms: (i) reduce federal budget deficits by 38%; (ii) grow the capital stock by 31%, GDP by 21%, and wages by almost 7%; (iii) reduce health insurance premiums by 27%; (iv) produce almost universal health insurance enrollment along with improvements in average health and productivity; (v) reduce old-age poverty; and (vi) reduce carbon emissions, relative to current law. These changes improve the welfare of many current and all future generations.

Takeaways by Macro Roundup® AI

  1. The authors estimate that 13 illustrative tax and spending reforms would cut federal budget deficits by 38% over 30 years relative to current law, while growing the capital stock by 31%, GDP by 21%, and wages by almost 7%.
  2. The authors' analysis projects that the reforms reduce health insurance premiums by 27% and produce almost universal health insurance enrollment, along with improvements in average health and productivity.
  3. The authors design the reforms around standard public economics design principles and find they reduce old-age poverty and carbon emissions relative to current law while improving the welfare of many current and all future generations.

Related Articles:

  • 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.
  • 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.
  • 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.

AI Summary. Across a decade, sales at five large energy companies fell at a 2.7% compound annual rate while sales at five large technology companies grew at 15.2%, leaving tech sales 28% above energy sales. Energy capital spending, once 6.5x that of the tech firms, fell to 0.6x.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

In 2013 capital expenditures of the top five energy firms were ~ 6.5x that of the top five tech firms. In 2023 the top tech firms invested 2x that of the top energy firms. @mjmauboussin

How have sales and capital spending shifted from energy to technology?

Core argument: Sales for five large technology companies grew at a 15.2% CAGR over 2013–2023 while sales for five large energy companies shrank at a -2.7% CAGR, with tech sales exceeding energy sales by 28% in 2023.

Exhibit 10 shows the trends in sales and capital expenditures for five large energy and technology companies from 2013 to 2023. Sales for these energy companies, which are in part determined by oil prices, were more than four times those for these technology companies in 2013. The sales for the two groups were roughly equal in 2022, and sales for the tech companies exceeded those of the energy companies by 28% in 2023. The compound annual growth rate (CAGR) for sales in the 10 years was -2.7% for the energy companies and 15.2% for the technology companies. Capital expenditures for the energy companies were 6.5 times those of the technology companies in 2013. By 2019, the capital expenditures were at rough parity, and in 2022 the technology companies spent twice as much as the energy companies. In a decade, the ratio of energy versus technology capital expenditures went from 6.5 to 1 to 0.6 to 1.

Takeaways by Macro Roundup® AI

  1. Sales for five large technology companies grew at a 15.2% CAGR over 2013–2023 while sales for five large energy companies shrank at a -2.7% CAGR, with tech sales exceeding energy sales by 28% in 2023.
  2. Energy company sales, determined in part by oil prices, were more than four times those of the technology companies in 2013 and roughly equal by 2022.
  3. The ratio of energy to technology capital expenditures fell from 6.5 to 1 in 2013 to rough parity by 2019 and 0.6 to 1 a decade later, with tech companies spending twice as much as energy companies in 2022.

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  • 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.
  • 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.
  • 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.

AI Summary. The global auto market has historically been regional, with most cars sold in a region also built there. Overcapacity in China's internal combustion sector, expanding electric-vehicle capacity, ample state bank credit, and a weaker yuan could concentrate global auto production in China absent restrictions such as the US 100% tariff on Chinese electric vehicles.

Brad Setser Council on Foreign Relations
Date Posted:

.@Brad_Setser argues that the auto industry could “become more like global electronics manufacturing, with a concentration of global production in a single region.” China has the capacity to build 50mm cars/year vs. global demand of 90mm.

Will global auto production concentrate in one country?

Core argument: The U.S. levies a 100% tariff on EVs imported from China, one of the hefty restrictions that could keep Chinese auto exports from reshaping a historically regional global market.

Historically, the autos market has been largely regional (setting aside trade in luxury cars, where volumes are smaller). Most cars sold in China were made in China, most cars sold in Europe are produced in Europe, most cars sold in North America are produced in North America, and so on. The U.S. did import a few million cars, on net, from Asia, and China imported a million or so luxury cars from Europe, but those were the exceptions rather than the rule. That could change, absent hefty restrictions on Chinese auto imports (like the 100% tariff the U.S. now levies on EVs imported from China). The global market—with massive overcapacity in China’s internal combustion engine (ICE) sector, massive capacity expansion in China’s EV sector, effectively unlimited credit for Chinese manufacturing firms from China’s state banks, and a Chinese yuan that is weaker against the dollar than it was back in 2008—is pushing for global auto manufacturing to become more like global electronics manufacturing, with a concentration of global production in a single region and, for that matter, a single country.

Takeaways by Macro Roundup® AI

  1. The U.S. levies a 100% tariff on EVs imported from China, one of the hefty restrictions that could keep Chinese auto exports from reshaping a historically regional global market.
  2. Overcapacity in China's internal combustion engine sector, capacity expansion in its EV sector, effectively unlimited credit for Chinese manufacturers from state banks, and a yuan weaker against the dollar than in 2008 are pushing global auto production toward concentration in a single country.
  3. Autos have historically been a regional market, with most cars sold in China, Europe, and North America produced in those same regions, aside from a few million net U.S. imports from Asia and roughly a million luxury cars China imports from Europe.

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  • Why Europe’s Car Crisis Is Mostly Made In China — Volkswagen, which has never closed a factory in its German heartland, is weighing shutting three plants and cutting worker pay by 10% after warning on profits twice in a year. China has overtaken Japan as the world's largest car exporter, with Chinese manufacturers building advanced electric cars at costs said to be 30% below European rivals'.
  • EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles — The European Union voted to impose tariffs of up to 45% on electric vehicles made in China, lasting five years, with China vowing to protect its companies. Chinese-made electric cars rose from around 3% to more than 20% of EU electric vehicle sales over three years, with Chinese brands accounting for about 8%.

AI Summary. Germany has paused processing more than 47,000 asylum claims from Syrians following the fall of Bashar al-Assad's government, prioritising other asylum decisions while awaiting clarity on conditions in Syria. Germany is the largest host of Syrian refugees in the European Union, with close to 1mn people who fled the civil war.

Laura Pitel and Laura Dubois Financial Times
Date Posted:

After the fall of the Syrian government Berlin has paused all Syrian asylum claims; over a million Syrians are currently living in Germany.

Does regime change in Syria prompt a pause in asylum decisions?

Core argument: Germany's interior ministry said more than 47,000 Syrian asylum claims have been put on hold while Berlin awaits more clarity on the situation in Syria following the fall of Bashar al-Assad's government.

Germany has paused the processing of asylum claims from Syrians as the fall of Bashar al-Assad’s government has sparked a rethink among EU countries on their immigration policies. Germany’s interior ministry said on Monday that more than 47,000 asylum claims had been put on hold while Berlin awaited more clarity on the situation in Syria. For the time being, Syrian applications would be pushed down the pile and “other asylum decisions would be prioritised”, it said. Germany, where migration is shaping up as a campaign topic ahead of snap elections in February, became the largest host of Syrian refugees in the EU after the decision in 2015 of the then-chancellor Angela Merkel to welcome them. Today, the country hosts close to 1mn people who fled the civil war that started in 2011.

Takeaways by Macro Roundup® AI

  1. Germany's interior ministry said more than 47,000 Syrian asylum claims have been put on hold while Berlin awaits more clarity on the situation in Syria following the fall of Bashar al-Assad's government.
  2. Germany's interior ministry said Syrian applications would be pushed down the pile and other asylum decisions prioritised for the time being.
  3. Germany hosts close to 1mn people who fled Syria's civil war that started in 2011, having become the EU's largest host of Syrian refugees after then-chancellor Angela Merkel's 2015 decision to welcome them.

Related Articles:

  • The Rich World Revolts Against Sky-High Immigration — 15m people moved to rich countries over three years, the biggest surge in modern history, with net migration exceeding 3m to America, 1.3m to Canada and about 700,000 to Britain. As immigration surged, output per person fell in Britain and Germany, partly because recent arrivals are on average less skilled than residents.
  • Germany Extends Temporary Controls To All Its Land Borders — Germany is extending temporary border controls to all of its land borders, expanding existing checks on its frontiers with Austria, the Czech Republic, Poland, and Switzerland. The interior ministry says the controls are intended to restrict irregular immigration and guard against Islamist terrorism and serious crime, and that 30,000 people have been turned away under the existing checks.
  • Changing Sub-Saharan Africa’s Growth Trajectory — Sub-Saharan Africa's working-age population is growing nearly 3% a year, versus close to zero in much of the world, and is projected to exceed China's within about a decade and reach a quarter of the global total. With modest productivity growth near 2%, the region is likely among the world's fastest-growing.

AI Summary. Manufacturers in China have begun limiting sales to the US and Europe of key components used to build drones, a prelude to broader export restrictions on drone parts that Western officials expect Beijing to enforce. China controls nearly 80% of the commercial drone market, according to the Center for Strategic and International Studies.

Mark Bergen, Mackenzie Hawkins, and Gian Volpicelli Bloomberg
Date Posted:

China is launching an export control campaign aimed at cutting off Western manufacturers from key components used to build drones, such as motors, batteries and flight controllers.

Is China restricting drone component sales to the US and Europe?

Core argument: Chinese manufacturers have begun limiting sales to the US and Europe of key components used to build unmanned aerial vehicles, according to multiple people with knowledge of the developments who asked not to be identified.

Manufacturers in China recently began limiting sales to the US and Europe of key components used to build unmanned aerial vehicles, according to multiple people with knowledge of the developments, who asked not to be identified discussing sensitive information. The moves are a prelude to broader export restrictions on drone parts that western officials expect Beijing to enforce in the new year, the people said. Those rules could take the form of license approvals based on the intended use of the components or softer requirements for Chinese companies to notify the government of their shipment plans, according to one of the people. Western nations are pushing to build and assemble drones outside of China to secure their supply chains. Yet the country remains the hub for producing cheap equipment for the devices. China controls nearly 80% of the commercial drone market, according to a report from the Center for Strategic and International Studies.

Takeaways by Macro Roundup® AI

  1. Chinese manufacturers have begun limiting sales to the US and Europe of key components used to build unmanned aerial vehicles, according to multiple people with knowledge of the developments who asked not to be identified.
  2. China controls nearly 80% of the commercial drone market, according to a report from the Center for Strategic and International Studies, and remains the hub for producing cheap drone equipment.
  3. Western officials expect Beijing to enforce broader export restrictions on drone parts in the new year, potentially through license approvals based on intended use or requirements that Chinese companies notify the government of shipment plans.

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  • Pentagon Plans Vast AI Fleet to Counter China Threat — The Pentagon plans to field thousands of air-, land- and sea-based artificial-intelligence systems, drones and autonomous platforms within two years to counter threats from China and other adversaries, spending hundreds of millions of dollars on systems intended to be "small, smart, cheap.
  • Pentagon Plan to Buy Thousands of Drones Faces Looming Snags — The US Department of Defense aims to buy thousands of low-cost drones within as little as 18 months and up to 2,000 larger uncrewed jets, while one of its primary drone suppliers produced 38 aircraft last year. Booming commercial aerospace demand has left shortages of skilled labor, raw materials, and parts such as advanced electronics and fasteners.