Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a 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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
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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
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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
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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
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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.

Related Articles:

  • 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
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.@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.

Related Articles:

  • Analysis: Chinese Cars Pour In To Mexico, Rattling The USMCA — Mexico's 2020 decree cutting car import tariffs from 20% to 0% has been followed by a surge of Chinese vehicles, with China shipping close to 500,000 cars to Mexico this year and displacing the United States as Mexico's top supplier. One in three new cars sold in Mexico this year will be built in China, up from 4% in 2020.
  • 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
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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
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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.

Related Articles:

  • Chinese Sanctions Hit US Drone Maker Supplying Ukraine — China imposed sanctions on Skydio, the largest US drone maker and a supplier to Ukraine's military, barring Chinese firms from supplying it with critical components including batteries from its sole provider. The company is seeking alternative suppliers and has asked the US government for help.
  • 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.

Tuesday, December 10, 2024

AI Summary. An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.

OECD Staff Organisation for Economic Co-operation and Development
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The 2023 OECD Survey of Adult Skills reveals the US has ~ 3 low-scorers for every high-scorer. Germany has nearly 3X as many high-scorers per low-scorer as the US; Scandinavia has more than 5X and Japan more than 7X.

How do adult numeracy skills vary across proficiency levels?

Core argument: Adults at Level 5 can apply problem-solving strategies to analyse, evaluate, reason, and critically reflect on complex and formal mathematical information, including dynamic representations, and can judge whether a data set supports or refutes a claim.

Adults at Level 5 can use and apply problem-solving strategies to analyse, evaluate, reason, and critically reflect on complex and formal mathematical information, including dynamic representations. They demonstrate an understanding of statistical concepts and can critically reflect on whether a data set can be used to support or refute a claim. Adults at Level 1 can interpret simple spatial representations or a scale on a map. Identify and extract information from a table or graphical representation or complete a simple whole number bar chart. Identify the largest value in an unordered list, including comparing the decimal part of the number, and interpret and perform basic arithmetic operations, including multiplication and division, with whole numbers, money, and common whole-number percentages, such as 25% and 50%. Adults performing Below Level 1 can count up to 20 objects that are displayed with varying degrees of organisation, sort events by chronological order, compare unordered lists of numbers to identify the largest number based on the whole-number component, locate data directly from a graph, and perform addition and subtraction with small whole numbers.

Takeaways by Macro Roundup® AI

  1. Adults at Level 5 can apply problem-solving strategies to analyse, evaluate, reason, and critically reflect on complex and formal mathematical information, including dynamic representations, and can judge whether a data set supports or refutes a claim.
  2. Adults at Level 1 can interpret simple spatial representations or a map scale, extract information from tables or graphs, identify the largest value in an unordered list, and perform basic arithmetic with whole numbers, money, and percentages such as 25% and 50%.
  3. Adults performing Below Level 1 can count up to 20 objects displayed with varying degrees of organisation, sort events chronologically, compare unordered lists to identify the largest whole-number value, locate data directly from a graph, and add and subtract small whole numbers.

Related Articles:

  • 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.
  • US PISA Results By Subpopulation — On the international PISA student assessments, American Asian and White students ranked at the top, American Hispanic students outscored Hispanic students elsewhere, and American Black students performed well. In reading, American Asian students placed first and American White students third.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.

AI Summary. An analysis of fund managers finds that those who outperformed the S&P 500 are clustered among managers with larger average overweight positions in the "Magnificent 7" large technology stocks. Managers that were consistently overweight each of those stocks individually showed the same pattern.

Michael Cembalest J.P. Morgan
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Active managers who outperformed the S&P 500 this year have been highly clustered around those who were overweight Mag 7 stocks.

Did overweighting big tech stocks drive fund manager outperformance?

Core argument: Active managers' excess returns versus the S&P 500 since January 2023 cluster around those with an average aggregate overweight to the Magnificent 7 stocks.

The first chart shows each manager’s average aggregate Mag 7 stock overweight or underweight since January 2023 on the X axis, and the manager’s excess return vs the S&P 500 on the Y axis. The outperformers are highly clustered around managers that were overweight Mag 7 stocks. We then computed the share of total months that each manager was overweight Mag 7 stocks on an individual basis; results were similar with outperformers clustered around managers that were consistently overweight each one of the Mag 7 stocks.

Takeaways by Macro Roundup® AI

  1. Active managers' excess returns versus the S&P 500 since January 2023 cluster around those with an average aggregate overweight to the Magnificent 7 stocks.
  2. Computing the share of total months each manager was overweight each Magnificent 7 stock individually produced similar results, with outperformers clustered among managers consistently overweight every one of the seven.

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. Recent U.S. migration has largely come through illegal channels that bypass the skills-based screening used elsewhere, and research indicates the great majority of illegal immigrants have no more than a high school education and limited English. Lower-skilled workers face higher unemployment and greater sensitivity to economic conditions.

Joseph Wang Fed Guy Blog
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.@FedGuy12 argues the US is “importing unemployment” given the surge in low-skilled illegal immigrants, who are particularly vulnerable to changes in business conditions.

Does low-skilled immigration leave the labor market more vulnerable to downturns?

Core argument: Research suggests the great majority of illegal immigrants in the U.S. have no more than a high school education, concentrating recent migration among lower-skilled workers, who face higher unemployment rates and greater sensitivity to economic conditions.

The lower-skilled nature of recent U.S. migrants makes the U.S. labor market particularly vulnerable to economic weakness. Unlike other countries, the recent surge in migration into the U.S. has largely been through illegal channels so the exact number is unknown. The migrants bypass the skills-based legal filters typical in other countries and tend to be lower-skilled. Research suggests that the great majority of illegal immigrants have no more than a high school education. They also predominantly originate from non-English speaking countries and so tend to have low levels of English proficiency. Lower-skilled laborers have higher unemployment rates and are also more sensitive to economic conditions. The experience abroad suggests that newer migrants have more difficulty with the labor market and that difficulty would be compounded by lower skill levels.

Takeaways by Macro Roundup® AI

  1. Research suggests the great majority of illegal immigrants in the U.S. have no more than a high school education, concentrating recent migration among lower-skilled workers, who face higher unemployment rates and greater sensitivity to economic conditions.
  2. The U.S. migration surge has come largely through illegal channels, so the exact number of arrivals is unknown and migrants bypass the skills-based legal filters typical of other countries.
  3. Recent U.S. migrants predominantly originate from non-English speaking countries and tend to have low English proficiency, and experience abroad suggests newer migrants have more difficulty in the labor market, compounded by lower skill levels.

Related Articles:

  • How Immigration Remade the U.S. Labor Force — The Congressional Budget Office estimates more than 9m people have migrated on net to the U.S. in recent years, nearly matching the prior decade's total and lifting population growth to almost 1.2% a year. Fewer than 30% are lawful permanent residents; without immigration, growth would be 0.2%.
  • Immigration Surge Has Slowed: Updated Estimates of Net International Migration — The authors estimate that net international migration to the US was close to 3.5m in one year — about 200,000 above the Congressional Budget Office's estimate, driven largely by higher undocumented entries — and project roughly 2.9m the following year, about 400,000 below the Congressional Budget Office's projection.
  • 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.

AI Summary. Researchers report superconducting quantum processors running surface code memories below the error-correction threshold, with the logical error rate suppressed 2.14x per two-step increase in code distance and a 101-qubit code reaching 0.143% error per cycle. The logical memory outlived its best physical qubit by 2.4x.

Rajeev Acharya, Dmitry Abanin, Laleh Aghababaie-Beni, et al. Nature
Date Posted:

Google is releasing Willow, a quantum computing chip that can solve in less than 5 minutes a computation that would take the current leading supercomputer over 10 septillion years (10^25) “a number that vastly exceeds the age of the Universe.”

Can quantum error correction suppress logical errors as code size grows?

Core argument: The Willow superconducting processor runs a 101-qubit distance-7 surface code memory with 0.143% ± 0.003% error per error-correction cycle, with logical error suppressed by a factor of Λ=2.14±0.02 when the code distance increases by two.

We present two below-threshold surface code memories on our newest generation of superconducting processors, Willow: a distance-7 code, and a distance-5 code integrated with a real-time decoder. The logical error rate of our larger quantum memory is suppressed by a factor of Λ=2.14±0.02 when increasing the code distance by two, culminating in a 101-qubit distance-7 code with 0.143% ± 0.003% error per cycle of error correction. This logical memory is also beyond break-even, exceeding its best physical qubit’s lifetime by a factor of 2.4±0.3. Our system maintains below-threshold performance when decoding in real time, achieving an average decoder latency of 63 μs at distance-5 up to a million cycles, with a cycle time of 1.1 μs. We also run repetition codes up to distance-29 and find that logical performance is limited by rare correlated error events occurring approximately once every hour, or 3×109 cycles. Our results present device performance that, if scaled, could realize the operational requirements of large-scale fault-tolerant quantum algorithms.

Takeaways by Macro Roundup® AI

  1. The Willow superconducting processor runs a 101-qubit distance-7 surface code memory with 0.143% ± 0.003% error per error-correction cycle, with logical error suppressed by a factor of Λ=2.14±0.02 when the code distance increases by two.
  2. The distance-7 logical memory operates beyond break-even, exceeding the lifetime of its best physical qubit by a factor of 2.4±0.3.
  3. Repetition codes run up to distance-29 show logical performance limited by rare correlated error events occurring approximately once every hour, or 3×10⁹ cycles, while real-time decoding at distance-5 averages 63 μs latency against a 1.1 μs cycle time.

Related Articles:

  • Meet Willow, Our State-of-the-Art Quantum Chip and — Google reports that its Willow quantum chip completed a random circuit sampling benchmark computation in under five minutes that one of today's fastest supercomputers would take an estimated 10^25 years to perform. The benchmark is described as the classically hardest test currently runnable on a quantum computer.
  •  Decoding For Quantum Processors — Researchers developed a recurrent, transformer-based neural network that decodes the surface code, the leading quantum error-correction code, and report it outperforms other state-of-the-art decoders on data from Google's Sycamore quantum processor and on simulated data with realistic noise. The authors argue machine learning can surpass human-designed decoding algorithms by learning directly from data.
  • Quantum Computing Advance Begins New Era, IBM Says — IBM researchers report that a 127-qubit quantum processor simulated the magnetic behavior of 127 atom-scale bar magnets, a problem too complex for an exact answer on the largest supercomputers. Because quantum noise made each sub-millisecond calculation unreliable, the computation was repeated 600,000 times to converge on an answer.

AI Summary. Google reports that its Willow quantum chip completed a random circuit sampling benchmark computation in under five minutes that one of today's fastest supercomputers would take an estimated 10^25 years to perform. The benchmark is described as the classically hardest test currently runnable on a quantum computer.

Hartmut Neven Google
Date Posted:

Google’s Hartmut Neven notes that the performance of Willow, their new quantum computing chip, “lends credence to the notion that quantum computation occurs in many parallel universes, in line with the idea that we live in a multiverse.”

Can a quantum chip outperform supercomputers on the hardest known benchmark?

Core argument: Google's Willow quantum chip completed a random circuit sampling computation in under five minutes that, according to Google, would take one of today's fastest supercomputers 10^25 years, vastly exceeding the age of the universe.

As a measure of Willow’s performance, we used the random circuit sampling (RCS) benchmark. Pioneered by our team and now widely used as a standard in the field, RCS is the classically hardest benchmark that can be done on a quantum computer today. We’ve consistently used this benchmark to assess progress from one generation of chip to the next — we reported Sycamore results in October 2019 and again recently in October 2024. Willow’s performance on this benchmark is astonishing: It performed a computation in under five minutes that would take one of today’s fastest supercomputers 1025 or 10 septillion years. This mind-boggling number exceeds known timescales in physics and vastly exceeds the age of the universe. It lends credence to the notion that quantum computation occurs in many parallel universes, in line with the idea that we live in a multiverse, a prediction first made by David Deutsch.

Takeaways by Macro Roundup® AI

  1. Google's Willow quantum chip completed a random circuit sampling computation in under five minutes that, according to Google, would take one of today's fastest supercomputers 10^25 years, vastly exceeding the age of the universe.
  2. Random circuit sampling, pioneered by Google's team and now a standard in the field, is the classically hardest benchmark that can be run on a quantum computer today, with Sycamore results reported in October 2019 and October 2024.
  3. Google argues Willow's benchmark result lends credence to the notion that quantum computation occurs in many parallel universes, in line with the multiverse prediction first made by David Deutsch.

Related Articles:

  • Quantum Error Correction Below the Surface Code Threshold — Researchers report superconducting quantum processors running surface code memories below the error-correction threshold, with the logical error rate suppressed 2.14x per two-step increase in code distance and a 101-qubit code reaching 0.143% error per cycle. The logical memory outlived its best physical qubit by 2.4x.
  • Learning High-Accuracy Error Decoding For Quantum Processors — Researchers developed a recurrent, transformer-based neural network that decodes the surface code, the leading quantum error-correction code, and report it outperforms other state-of-the-art decoders on data from Google's Sycamore quantum processor and on simulated data with realistic noise. The authors argue machine learning can surpass human-designed decoding algorithms by learning directly from data.
  • Quantum Computing Advance Begins New Era, IBM Says — IBM researchers report that a 127-qubit quantum processor simulated the magnetic behavior of 127 atom-scale bar magnets, a problem too complex for an exact answer on the largest supercomputers. Because quantum noise made each sub-millisecond calculation unreliable, the computation was repeated 600,000 times to converge on an answer.

AI Summary. Using matched employer-employee data on Italian firms, the authors estimate that family firms pay substantially lower wages, with about half the gap (roughly 8%) explained by workers' fixed characteristics and the remainder unexplained by sorting, rent-sharing, productivity, industry, or location. Family firms also have fewer management positions, promote less, and offer lower returns to promotion.

Edoardo Di Porto, Marco Pagano, Vincenzo Pezone, et al. National Bureau of Economic Research
Date Posted:

A 14-year study of 20mm Italian workers finds that family-owned firms have ~ 16% lower wages than non-family-owned firms, not due to differential productivity or amenities. Fewer promotions in family firms suggest efforts to maintain family control.

Do family firms pay lower wages and offer fewer promotions?

Core argument: Using matched employer-employee data on Italian firms, the authors find family firms pay substantially lower wages, with about half the gap — roughly 8 log-points (~8%) — attributable to workers' time-invariant characteristics.

Based on a much larger sample of Italian firms than previous literature, we confirm the finding of a significant salary gap, family firms paying substantially lower wages. Our comprehensivematched employer-employee data permit exploration of the possible reasons. We find that about half of the gap, corresponding to 8 log-points [~ 8%] is due to workers’ time-invariant characteristics, but the rest cannot be explained by sorting, differences in rent-sharing, productivity, industry, and location. The difference is greater in high-productivity firms and is driven mainly by differences in compensation for relatively high-paid employees, i.e., those in the top percentilesin each firm’s earnings distribution. In addition, controlling for observable worker and firm characteristics, family firms tend to have fewer top and middle management positions, to promote less, and to offer lower returns to promotion. We [also] show that productivity is undercut more severely following the death of the CEO in family firms suggest[ing] the controlling family may be reluctant to share organizational and technical know-how with non-relatives.

Takeaways by Macro Roundup® AI

  1. Using matched employer-employee data on Italian firms, the authors find family firms pay substantially lower wages, with about half the gap — roughly 8 log-points (~8%) — attributable to workers' time-invariant characteristics.
  2. The remaining family-firm wage gap is not explained by sorting, rent-sharing differences, productivity, industry, or location, and is larger in high-productivity firms and driven mainly by employees in the top percentiles of each firm's earnings distribution.
  3. Controlling for observable worker and firm characteristics, family firms have fewer top and middle management positions, promote less, and offer lower returns to promotion, and their productivity falls more sharply after a CEO's death, suggesting reluctance to share know-how with non-relatives.

Related Articles:

  • Capitalists in the Twenty-First Century — Most income at the top of the US distribution is non-wage income, primarily profits from closely-held, mid-market firms in skill-intensive industries owned by working-age individuals. The authors find private business profit falls by three-quarters after an owner retires or dies prematurely, indicating most top earners are "working rich" deriving income from human capital.
  • Public Markets Are a Small Part of the Overall Economy — Publicly traded companies represent a small share of US economic activity: 87% of firms with revenues above $100m are private, privately owned firms account for nearly 80% of job openings, and S&P 500 companies provide 18% of US employment and 15% of capital spending.
  • The Market for CEOs: Evidence from Private Equity — In a study of larger U.S. companies bought by private equity, more than 70% hired new chief executives, and over 75% of those were external hires, unlike public companies where internal promotions dominate. The authors estimate these executives' pay exceeds that at similar-sized public companies, suggesting an active market for chief executives.

AI Summary. Tariff policy succeeds, the author argues, if it raises domestic production enough to pull consumption up with it, leaving American consumers better off even as consumption's share of domestic production falls and the trade deficit narrows. It fails if production does not rise, in which case consumption's share falls mainly because consumption itself declines.

Michael Pettis Financial Times
Date Posted:

.@michaelxpettis argues that a tariff policy is successful “if it raises domestic production by enough to pull consumption up with it.”

Do tariffs make consumers better off only by raising domestic production?

Core argument: Tariff policy succeeds, in this framing, only if it raises domestic production enough to pull consumption up with it, leaving American consumers better off even as consumption's share of domestic production declines.

Tariff policy is “successful”, in other words, if it raises domestic production by enough to pull consumption up with it — ie, if it causes Americans to consume more by producing even more. In that case American consumers are clearly better off, even as the share they consume of total domestic production declines. Of course, as production rises faster than consumption, this usually means that the trade deficit is declining. On the other hand, tariff policy is a “failure” if it doesn’t cause a rise in domestic production, in which case tariffs reduce the consumption share of GDP mainly by causing consumption to fall. This would clearly make American consumers worse off.

Takeaways by Macro Roundup® AI

  1. Tariff policy succeeds, in this framing, only if it raises domestic production enough to pull consumption up with it, leaving American consumers better off even as consumption's share of domestic production declines.
  2. When production rises faster than consumption under successful tariff policy, the trade deficit usually declines.
  3. Tariff policy fails if domestic production does not rise, in which case consumption's share of GDP falls mainly because consumption itself falls, leaving American consumers worse off.

Related Articles:

  • Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios — The authors estimate the modeled tariff proposals would raise $1.2tn–$4.4tn over 10 years, or 0.3–1.2% of average GDP, with foreign retaliation cutting that revenue by 12–26%. They project consumer prices initially rise 1.2–5.1%, equal to $1,900–$7,600 of lost disposable income per household, with real GDP contracting 0.5–1.4% in the medium term.
  • Can Trump Reduce the Trade Deficit? — A world of widespread tariffs would also shrink international capital flows, and because the US trade deficit is the counterpart of large capital inflows, reduced capital mobility would narrow that deficit. The author argues this would occur largely by reducing overall investment in the US economy.
  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.