Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…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
  • “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
  • “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
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, December 12, 2024

AI Summary. An analysis of government data finds the recent U.S. immigration surge is the largest on record, with net migration averaging 2.4m people a year from 2021 to 2023 and the foreign-born share of the population reaching 15.2% in 2023, up from 13.6% in 2020. About 60% of immigrants arriving since 2021 entered without legal authorization.

David Leonhardt New York Times
Date Posted:
Is Database:
Database
Is Important:
Important

A NYT analysis finds the net inflow of 8mm immigrants since 2021, 60% of whom were illegal, was the largest in US history. The foreign-born percentage of the population is now at a new high of 15.2%, above the previous record of 14.8% in the 1890’s.

How large is the recent U.S. immigration surge historically?

Core argument: Annual U.S. net migration averaged 2.4 million people from 2021 to 2023, according to the Congressional Budget Office, a faster pace of arrivals than any other period on record, including the peak Ellis Island years.

The immigration surge of the past few years has been the largest in U.S. history, surpassing the great immigration boom of the late 1800s and early 1900s, according to a New York Times analysis of government data. Annual net migration — the number of people coming to the country minus the number leaving — averaged 2.4 million people from 2021 to 2023, according to the Congressional Budget Office. Total net migration during the Biden administration is likely to exceed eight million people. That’s a faster pace of arrivals than during any other period on record, including the peak years of Ellis Island traffic, when millions of Europeans came to the United States. Even after taking into account today’s larger U.S. population, the recent surge is the most rapid since at least 1850. About 60% of immigrants who have entered the country since 2021 have done so without legal authorization, according to a Goldman Sachs report based on government data. The combined increases of legal and illegal immigration have caused the share of the U.S. population born in another country to reach a new high, 15.2% in 2023, up from 13.6% in 2020. The previous high was 14.8%, in 1890.

Takeaways by Macro Roundup® AI

  1. Annual U.S. net migration averaged 2.4 million people from 2021 to 2023, according to the Congressional Budget Office, a faster pace of arrivals than any other period on record, including the peak Ellis Island years.
  2. The foreign-born share of the U.S. population reached 15.2% in 2023, up from 13.6% in 2020 and above the previous high of 14.8% set in 1890.
  3. About 60% of immigrants entering the United States since 2021 did so without legal authorization, according to a Goldman Sachs report based on government data, and total net migration during the Biden administration is likely to exceed eight million people.

Related Articles:

  • The Demographic Outlook: 2024 to 2054 — The Congressional Budget Office projects the US population will grow from 342mm in 2024 to 383mm in 2054, an average 0.4% a year — less than half the 0.9% pace of the prior five decades. Immigration accounts for about 70% of growth over the next decade and for all population growth beginning in 2040.
  • Immigrants Are Becoming U.S. Citizens at Fastest Clip in Years — U.S. Citizenship and Immigration Services processed naturalization applications in an average of 4.9 months over the first nine months of the current fiscal year, down from 11.5 months in fiscal 2021 and roughly in line with 2013–2014 speeds. About 3.3m immigrants have become citizens under the Biden administration, and 9m green card holders are currently eligible to naturalize.
  • The Cost of Illegal Immigration — The US foreign-born population rose by 6.6mm to 51.6mm over a roughly three-year span, lifting immigrants to 15.6% of the population, above the prior records of 14.8% in 1890 and 14.7% in 1910. The authors estimate about 13.7mm illegal immigrants now live in the US, a net increase of 3.7mm.

AI Summary. Using military personnel records and annual workplace climate surveys, the authors estimate that integrating a female officer into previously all-male combat companies causes a decline in men's perceptions of workplace conditions beyond issues that disproportionately affect women. They suggest a woman in a position of authority may generate broader negative reactions among men.

Kyle Greenberg, Melanie Wasserman, and E. Anna Weber National Bureau of Economic Research
Date Posted:

West Point professor Kyle Greenberg et al. find that the integration of women into the U.S. military had negligible effects on men’s performance, but worsened men’s perceptions of workplace quality in units with at least one female officer.

How does adding a female officer affect men's workplace perceptions?

Core argument: Beginning in 2017, roughly 5%–10% of about 400 U.S. combat companies received their first cohort of women each year, leaving 137 companies unintegrated as of 2023 as a never-treated comparison group.

In each year beginning in 2017, approximately 5% to 10% of the roughly 400 combat companies affected by the policy change received their first cohort of women. As of 2023, 137 companies had yet to be integrated, comprising a large never-treated group. Using administrative personnel records [that include] individual-level metrics of retention, promotions, demotions, criminal charges, physical fitness scores, and medical conditions, we estimate the causal effect of the introduction of female colleagues on men’s job performance, [and] disciplinary infractions. We measure men’s perceptions of company performance and cohesion, confidence in leadership, beliefs about the inclusivity of the workplace, and perceptions of leader responses to harassment and discrimination using responses to the DOD’s annual Defense Organizational Climate Survey (DEOCS). The integration of a female officer causes adecline in men’s perceptions of workplace issues beyond those that disproportionately affect women, suggesting that the presence of a woman in a position of authority may generate broader negative reactions among men.

Takeaways by Macro Roundup® AI

  1. Beginning in 2017, roughly 5%–10% of about 400 U.S. combat companies received their first cohort of women each year, leaving 137 companies unintegrated as of 2023 as a never-treated comparison group.
  2. The integration of a female officer causes a decline in men's perceptions of workplace issues beyond those that disproportionately affect women, suggesting that a woman in a position of authority may generate broader negative reactions among men.
  3. The study draws on administrative personnel records covering retention, promotions, demotions, criminal charges, physical fitness scores, and medical conditions, alongside the Defense Organizational Climate Survey, to measure effects on men's performance, discipline, and perceptions.

Related Articles:

  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • Toward An Understanding Of The Returns To Cognitive Skills Across Cohorts — The authors find that the estimated decline in labor market returns to pre-labor-market cognitive skills for white men across two U.S. youth cohorts depends critically on the widening and increased left-skewness of the test-score distribution, with declines appearing only at the lower end of that distribution.
  • Women’s Evolving Careers Helped Shrink the Gender Pay Gap — The share of women in their late 20s working in the four highest-paying broad occupation groups rose from about 30% to 55%, while the share in professional occupations rose from about 19% to 26%. Women early in their careers shifted away from predominantly administrative work toward better-paying occupations.

AI Summary. The authors argue the Federal Reserve will deliver fewer rate cuts than markets expect because household spending remains strong and the economy continues to perform well. They see a risk that lower rates overheat the economy, with strong job and wage growth lifting housing demand and prices and pushing inflation back above the Federal Reserve's 2% target.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk argues that the pace of rate cuts expected by the market is unlikely to prevail, as it could exacerbate a rebound in housing prices that “would push inflation back up, away from the Fed’s 2% target.” #ratecuts

Will a strong economy mean fewer rate cuts than markets expect?

Core argument: The authors expect fewer Federal Reserve rate cuts than the market anticipates, arguing the economy will continue to be fine and that strong household spending suggests no need for cuts.

The market thinks the Fed needs to cut rates significantly and soon. We disagree. We think we’ll get fewer cuts because the economy will just continue to be fine. Another point to consider: Should the Fed even be cutting rates at all? If you look at consumption, there seems to be no need to do so because we still have strong spending coming from households. Here’s the issue, though: If the risk in 2022 was that inflation was going to choke the economy to a standstill, the risk today is that lower rates begin to overheat the economy again, and we see continued strong job and wage growth, the key drivers of housing demand. As previously discussed, a rebound in housing prices (Exhibit 40) would push inflation back up, away from the Fed’s 2% target.

Takeaways by Macro Roundup® AI

  1. The authors expect fewer Federal Reserve rate cuts than the market anticipates, arguing the economy will continue to be fine and that strong household spending suggests no need for cuts.
  2. The authors frame the current risk as lower rates overheating the economy, in contrast to the 2022 risk that inflation would choke the economy to a standstill.
  3. The authors argue that a rebound in housing prices, supported by strong job and wage growth as the key drivers of housing demand, would push inflation back up away from the Fed's 2% target.

Related Articles:

  • Housing Is the Sleeper Issue of the 2024 Campaign — Average home prices rose from $303,600 to $422,600 and mortgage rates from 2.8% to 6.5%, doubling the average new buyer's monthly payment to $2,671 from $1,247. Housing and rental affordability indexes have been pushed to 30-year lows, and lifetime payments on an average home rise to $961,560 from $448,920.
  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.

AI Summary. America's technology advantage may owe less to institutions, culture, and policy than to the historical accident that the world's major technology hubs happen to be located in the United States and stay there through self-reinforcing clustering. Geographic proximity lets venture capitalists better judge which risks are worth taking.

Paul Krugman Krugman Wonks Out
Date Posted:
Is Database:
Database

.@paulkrugman argues that the productivity gap between the EU and the US is largely driven by technology and finance hubs, which, regardless of their origin, persist based on positive spillovers created by the concentration of talent.

Does geographic clustering explain America's technology advantage?

Core argument: The author argues America's technology advantage may owe less to institutions, culture, and policy than to the historical accident that the world's major tech hubs happen to sit in the United States and persist there for Marshallian reasons.

Industrial clusters often reflect natural advantages that have long since ceased to be relevant, like New York’s position as the terminus of shipping via the Erie Canal. Indeed, they often reflect sheer accident: Seattle is what it is because Bill Gates grew up there. Stanford University played an important role in Silicon Valley’s rise, but it’s unclear whether it would have become what it is if two guys named Hewlett and Packard hadn’t started a business in a garage. What I’m suggesting is that America’s tech advantage may bear considerable resemblance to Britain’s banking advantage. That is, it may have less to do with institutions, culture, and policy than the fact that for historical reasons the world’s major technology hubs happen to be in the United States, and remain there for the usual Marshallian reasons. Venture capitalists are ready to take risks on U.S. tech because geographical proximity makes them better able to judge which risks are worth taking — that is, the mysteries of the trade are no mysteries but are, as it were, in the air.

Takeaways by Macro Roundup® AI

  1. The author argues America's technology advantage may owe less to institutions, culture, and policy than to the historical accident that the world's major tech hubs happen to sit in the United States and persist there for Marshallian reasons.
  2. Industrial clusters often reflect natural advantages that have ceased to matter, such as New York's position as the Erie Canal's shipping terminus, or sheer accident, such as Seattle's status stemming from Bill Gates having grown up there.
  3. Venture capitalists are ready to take risks on U.S. technology because geographical proximity makes them better able to judge which risks are worth taking, the trade's mysteries being, as it were, in the air.

Related Articles:

  • 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 Effect of High-Tech Clusters on the Productivity of Top Inventors — The authors estimate that inventor productivity rises with local high-tech cluster size, with an elasticity of patent output to cluster size of 0.0662; a 49.2% shrinkage of Rochester's cluster is associated with a 20.6% productivity drop for other local inventors. They estimate that spreading inventors uniformly across US cities would cut patent output by 11.07%.
  • 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.

AI Summary. European members of NATO are discussing raising their defence spending target from 2% of GDP to 2.5% in the short term and 3% by 2030, according to people involved in the preliminary talks. Such an increase would strain national budgets and has raised misgivings in many capitals.

Henry Foy, John Paul Rathbone, Guy Chazan and Amy Kazmin Financial Times
Date Posted:

Nato’s European members have started talks to raise the spending target to 3% by 2030. Currently, 23 of the 32 members are hitting the 2% target.

Are European NATO members considering higher defence spending targets?

Core argument: NATO's European members are discussing raising the defence spending target from 2% of GDP to 2.5% in the short term and 3% by 2030, four people involved in the preliminary talks told the Financial Times.

The confidential talks, which began during a meeting of alliance foreign ministers last week and could yet fail to reach full agreement, envisage a short-term pledge to hit 2.5% and, by 2030, a target of 3%, three of the people said. The new commitments would be formally agreed at next year’s summit in the Netherlands. Four people involved in the preliminary talks told the Financial Times they were discussing the steep rise from 2% of GDP, a move that would put intense pressure on already strained national budgets and that has raised misgivings in many capitals.

Takeaways by Macro Roundup® AI

  1. NATO's European members are discussing raising the defence spending target from 2% of GDP to 2.5% in the short term and 3% by 2030, four people involved in the preliminary talks told the Financial Times.
  2. The confidential talks began at a meeting of NATO foreign ministers and may yet fail to reach full agreement, with any new commitments to be formally agreed at next year's summit in the Netherlands.
  3. The proposed rise to 3% of GDP would put intense pressure on already strained national budgets and has raised misgivings in many capitals.

Related Articles:

  • Can Europe Defend Itself Without America? — European members of NATO have increased defense spending by almost a third in real terms to $476bn, with 23 of NATO's 32 members meeting the alliance's target of spending 2% of GDP on defense, according to NATO. NATO's secretary-general argues the 2% target is insufficient, though tight budgets, high public debt, and competing priorities constrain further increases.
  • Brussels to Free Up Billions of Euros for Defence and Security From EU Budget — The European Union plans to give member states more flexibility to redirect cohesion funds — about €392bn aimed at reducing economic inequality between member countries — toward defence industries and military mobility projects such as reinforcing roads and bridges for tanks. The change would permit funding for weapons and ammunition production.
  • The US and Its Allies Face a $10 Trillion Reckoning in the Race to Rearm — World defense spending reached a record $2.2tn, and security officials say military budgets may need to reach Cold War levels of as high as 4% of economic output to deliver on NATO's plans. Bloomberg Economics calculates that US and Group of Seven allies hitting that level would mean over $10tn in additional commitments over a decade.

AI Summary. Dozens of unidentified drones have been reported over New Jersey military installations, power lines, and suburban neighborhoods, perplexing state and federal officials. The sightings resemble earlier drone swarms over Joint Base Langley-Eustis in Virginia that forced commanders to move sensitive aircraft and whose operators were never publicly identified.

Lara Seligman, Gordon Lubold and Andrew Tangel Wall Street Journal
Date Posted:

Drone swarms have been sighted over military installations in New Jersey, mirroring an episode in which drones swarmed over military bases in Virginia last December. The Pentagon “never publicly identified who was flying them or what they were doing.”

Are unidentified drones flying over military sites without accountability?

Core argument: Dozens of mysterious drones have appeared over New Jersey, with residents reporting sightings over military installations, power lines, and suburban neighborhoods, perplexing state and federal officials.

Dozens of mysterious drones have appeared in the skies over New Jersey in recent weeks, perplexing state and federal officials and agitating residents. The drones, which residents there have reported seeing over military installations, power lines, and suburban neighborhoods, appear eerily similar to a fleet that swarmed sensitive national security sites on Virginia’s eastern shoreline one year ago The drone incidents over New Jersey are the latest in a series of bizarre episodes involving large, unmanned aircraft flying freely over American soil near sensitive sites that have baffled investigators. Over two weeks last December, swarms of drones buzzed over Joint Base Langley-Eustis in Virginia, forcing commanders there to remove sensitive aircraft. Officials from the Pentagon to the White House brainstormed responses, but never publicly identified who was flying them or what they were doing.

Takeaways by Macro Roundup® AI

  1. Dozens of mysterious drones have appeared over New Jersey, with residents reporting sightings over military installations, power lines, and suburban neighborhoods, perplexing state and federal officials.
  2. The New Jersey drones appear similar to a fleet that swarmed sensitive national security sites on Virginia's eastern shoreline a year earlier.
  3. Drone swarms over Joint Base Langley-Eustis in Virginia persisted for two weeks, forcing commanders to remove sensitive aircraft, and officials never publicly identified who was flying them or what they were doing.

Related Articles:

  • Mystery Drones Swarmed a U.S. Military Base for 17 Days. The Pentagon Is Stumped — Unidentified drones flew over a U.S. military base for 17 days in a coordinated pattern of higher-altitude fixed-wing aircraft and smaller quadcopters below, leading U.S. officials to doubt hobbyists were responsible. Federal law bars the military from shooting down drones near domestic bases absent an imminent threat.
  • Defence Groups Bet Big On Drone-Destroying Laser Weapons — Major defense contractors including RTX, MBDA, and QinetiQ are investing heavily in high-energy laser weapons to destroy drones, a technology long regarded as science fiction. Britain's Ministry of Defence says its DragonFire laser will be deployed on Royal Navy ships five years ahead of schedule, firing at roughly £10 a shot.
  • 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.

Friday, December 13, 2024

AI Summary. OECD data show the U.S. has the most progressive income and payroll taxes of any OECD country, taxing the wealthy within international norms while taxing lower and middle earners far less than other nations. Across all federal taxes, the top-earning fifth of households paid $3.2tn, versus $655bn, $278bn, $81bn, and negative $20bn for the remaining fifths.

Brian Riedl Manhattan Institute
Date Posted:
Is Database:
Database

.@Brian_Riedl notes that “the US has the most progressive income and payroll taxes of any OECD nation.” Across all federal taxes, the top-earning quintile paid $3.2T, while the bottom 20% paid negative $20B. #incometax

How progressive is the US tax system compared with other countries?

Core argument: Across all federal taxes, the top-earning U.S. quintile paid $3.2 trillion, while the next three quintiles paid $655 billion, $278 billion and $81 billion, and the bottom quintile paid negative $20 billion.

OECD data reveal that the U.S. has the most progressive income and payroll taxes of any OECD nation—even after adjusting for income distribution across countries. America taxes the wealthy within international norms but taxes lower and middle earners far less than other nations (not to mention not imposing value-added taxes). Thus, the wealthy overwhelmingly fund the federal government. Across all federal taxes, the top-earning quintile paid $3.2 trillion, while the remaining four quintiles paid $655 billion, $278 billion, $81 billion, and negative $20 billion, respectively (see Figure 2). Put another way, the top-earning quintile funded 201 days of 2024 federal spending, the next quintile funded 41 days, and the bottom-earning 60% of families collectively funded 21 days of spending (the remaining 103 days were financed with budget deficits and borrowing). The notion that middle-earner taxes finance the federal government, while most wealthy families escape taxes, is simply preposterous.

Takeaways by Macro Roundup® AI

  1. Across all federal taxes, the top-earning U.S. quintile paid $3.2 trillion, while the next three quintiles paid $655 billion, $278 billion and $81 billion, and the bottom quintile paid negative $20 billion.
  2. OECD data show the U.S. has the most progressive income and payroll taxes of any OECD nation even after adjusting for cross-country income distribution, taxing the wealthy within international norms but lower and middle earners far less.
  3. The top-earning U.S. quintile funded 201 days of 2024 federal spending and the next quintile 41 days, while the bottom-earning 60% of families funded 21 days, with the remaining 103 days financed by deficits and borrowing.

Related Articles:

  • Tax Policy and Investment in a Global Economy — Using administrative tax data, the authors estimate that firms experiencing the mean corporate tax change under the 2017 US tax law increased investment by 20% relative to firms with no change, with long-run domestic and total capital up 7% and 13%. They find higher depreciation deductions largely offset added revenue from capital accumulation.
  • Chartbook: From Riches to Rags: Causes of Fiscal Deterioration Since 2001 — Reversing the fiscal deterioration by returning to pre-2001 tax law would mean higher rates, smaller credits and more taxpayers, while pre-2001 spending law would mean no Medicare drug benefit and deep military and domestic cuts. With more seniors and higher health costs, matching pre-2001 levels would require dramatic per-person benefit cuts and tax increases above 15%.
  • Why Is Europe More Equal Than The United States — The US redistributes a larger share of national income to the bottom 50% than any European country, with net transfers of 6% of national income versus about 4% in Western and Northern Europe. Europe taxes and redistributes more overall, 47% of national income versus 35%, relying more on indirect taxes.

AI Summary. A country's trade balance and net capital inflows sum to zero, so simultaneously attracting large foreign capital inflows and running trade surpluses is arithmetically impossible. A trade deficit is not a subsidy: the United States receives goods and sends back financial claims such as government or corporate debt.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman notes that “Trade balance + Net inflows of capital = 0,” making it arithmetically impossible to reduce the trade deficit and increase net foreign investment in the US simultaneously. #tradedeficit

Can a country attract large foreign capital inflows and run trade surpluses?

Core argument: The balance of payments always balances, with the trade balance plus net capital inflows equaling zero, making Trump's goal of simultaneously attracting large foreign capital inflows and running trade surpluses arithmetically impossible.

Trump wants America to be a winner, which means both attracting lots of foreign capital and running trade surpluses. Trump firmly believes that because we’re running trade deficits with other countries, we are subsidizing them. What Trump means is that we’re running trade deficits with both countries. But how does running a trade deficit with Mexico mean that we’re subsidizing our southern neighbor? They’re sending us useful stuff, like auto components. In return, we’re sending them IOUs of some kind, such as federal or corporate debt. Neither side is a victim. Here’s what you need to know about the balance of payments: it always balances. That is, Trade balance + Net inflows of capital = 0 (although there are a few asterisks involving investment income). He wants America to be a winner, which means both attracting lots of foreign capital and running trade surpluses. This is arithmetically impossible. If anyone got taken for a ride it was foreign investors, some of whom bought Pets.com in the 90s and subprime mortgage-backed securities in the 2000s.

Takeaways by Macro Roundup® AI

  1. The balance of payments always balances, with the trade balance plus net capital inflows equaling zero, making Trump's goal of simultaneously attracting large foreign capital inflows and running trade surpluses arithmetically impossible.
  2. Running a trade deficit with Mexico does not subsidize Mexico, since Mexico sends useful goods such as auto components while the United States sends IOUs like federal or corporate debt, leaving neither side a victim.

Related Articles:

  • 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.
  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • Sucking The World Dry (The US Dependence on Foreign Inflows) — The author argues that negative net national savings means the United States is consuming capital rather than accumulating it, largely by selling capital stock to foreigners and spending the proceeds and by not replacing aging capital. With a negative net international investment position, the author contends U.S. spending depends on continued foreign inflows and that potential growth is declining.

AI Summary. The postwar free-trade system depended on American soft power and broad respect for its rules, and as countries defected to mercantilist policies each defection pushed others to respond in kind. China's economic size and its use of currency management, public procurement, state subsidies and protectionism to build leading industries in electric vehicles, solar power and batteries broke the existing order.

Greg Jensen Wall Street Journal
Date Posted:

Greg Jensen argues that countries like China whose growth depends on rising, persistent trade surpluses “are the most at risk in a mercantilist world, as the US —the world’s largest trade-deficit economy— becomes unwilling to absorb these surpluses.”

Why is the free-trade system giving way to mercantilism?

Core argument: China's economic size and the effectiveness of its mercantilist policies broke the pre-existing free-trade order, turning a slow drip of defections into a death spiral, though other countries had pushed the boundaries before China did.

Mercantilist ideology is contagious. The postwar system of free trade relied on America’s soft power and the general respect that many nations had for the system. But as countries defected and adopted mercantilist policies, the global system lacked sufficient authority to stop them. Each time another country adopted mercantilist policies, it pushed others to react similarly. China turned a slow drip into a death spiral. While many countries had pushed the boundaries before China did, its economic size and the effectiveness of its mercantilist policies broke the pre-existing order. Through currency management, public procurement, state subsidies, protectionism and other implicit subsidies, China has developed a range of leading industries, including electric vehicles, solar power, and batteries. Countries that rely on rising, persistent trade surpluses to achieve growth are the most at risk in a mercantilist world, as the U.S.—the world’s largest trade-deficit economy—becomes unwilling to absorb these surpluses.

Takeaways by Macro Roundup® AI

  1. China's economic size and the effectiveness of its mercantilist policies broke the pre-existing free-trade order, turning a slow drip of defections into a death spiral, though other countries had pushed the boundaries before China did.
  2. Through currency management, public procurement, state subsidies, protectionism and other implicit subsidies, China has developed a range of leading industries, including electric vehicles, solar power and batteries.
  3. Countries relying on rising, persistent trade surpluses for growth are the most at risk in a mercantilist world, as the U.S., the world's largest trade-deficit economy, becomes unwilling to absorb those surpluses.

Related Articles:

  • Will China Take Over the Global Auto Industry? — 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.
  • 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.

AI Summary. Growth in U.S. business applications that are relatively likely to become employer businesses leads and is strongly positively correlated with total nonfarm employment growth, and leads most monthly principal federal economic indicators. Applications unlikely to become employers give early information about changes in self-employment activity.

Jose Asturias, Emin Dinlersoz, John Haltiwanger, et al. National Bureau of Economic Research
Date Posted:

The US Census Bureau’s survey of “likely employer” (HBA) business applications is a leading indicator of growth in total nonfarm employment and overall output. “Likely non-employer” (NHBA) applications predict self-employment activity. @JHaltiwanger_UM

Do business applications predict employment growth and other economic indicators?

Core argument: Growth in U.S. Census Bureau business applications classified as "likely employers" significantly leads total nonfarm employment growth and is strongly positively correlated with it, according to the authors' analysis of Business Formation Statistics.

This paper explores the properties of three monthly business application series from the U.S. Census Bureau’sBusiness Formation Statistics as economic indicators: all business applications, business applications that are relatively likely to turn into new employer businesses (“likely employers”),and the residual series -- business applications that have a relatively low rate of becoming employers (“likely non-employers”). Growth in applications for likely employers significantly leads total nonfarm employment growth and has a strong positive correlation with it. Furthermore, growth in applications for likely employers leads growth in most of the monthly Principal Federal Economic Indicators (PFEIs). Overall, applications for likely employers are a strong leading indicator of monthly PFEIs and aggregate economic activity, whereas applications for likely non-employers provide early information about changes in increasingly prevalent self-employment activity in the U.S. economy.

Takeaways by Macro Roundup® AI

  1. Growth in U.S. Census Bureau business applications classified as "likely employers" significantly leads total nonfarm employment growth and is strongly positively correlated with it, according to the authors' analysis of Business Formation Statistics.
  2. Growth in applications for likely employers leads growth in most monthly Principal Federal Economic Indicators, which the authors characterize as a strong leading indicator of aggregate economic activity.
  3. Applications for "likely non-employers" — those with a relatively low rate of becoming employers — provide early information about changes in increasingly prevalent self-employment activity in the U.S. economy.

Related Articles:

  • Surging Business Formation in the Pandemic: A Brief Update — New business applications, including those likely to become employer firms, surged during the pandemic and were followed by a rise in establishment and firm creation, consistent with reallocation toward high-tech and pandemic-friendly industries and from city centers to suburbs and the South. Business formation remains elevated relative to pre-pandemic levels, though cooling.
  • High-Growth Firms in the United States: Key Trends and New Data Opportunities — The share of U.S. firms classified as high-growth fell from 18% in 1985 to 12% in 2015, with the decline concentrated among young and small firms while mature and large firms showed little change. All sectors declined, especially construction and manufacturing, though information industries staged a modest rebound after 2010.
  • The Long Goodbye? Incumbent Competitiveness in the 21st Century — Value creation among large American companies has become concentrated in a newer cohort of firms: businesses founded after World War II accounted for 8% of the top 50 companies' total market value in 1990 but 77% by 2024. The leading 20th-century incumbents are fading as this newer group takes over.

AI Summary. The incoming US president voiced support for the dockworkers' union opposing port automation, arguing foreign-owned shipping companies accessing US markets should hire American workers rather than lay them off. A prior three-day strike closed major East and Gulf coast container ports and ended with a 61.5% raise over a six-year contract, leaving automation unresolved.

Laura Curtis Bloomberg
Date Posted:

After a meeting with the Longshoremen Trump released a statement opposing further port automation, “The amount of money saved is nowhere near the distress, hurt, and harm it causes for American Workers.” #logistics #automation

Should foreign-owned shipping companies be blocked from automating US ports?

Core argument: The International Longshoremen's Association's three-day October strike shut every major container port from Houston to Miami to Boston before the union returned to work in exchange for a 61.5% raise over its next six-year contract.

President-elect Donald Trump met with the leaders of the International Longshoremen’s Association on Thursday and voiced support for the dockworkers union that shut East and Gulf coast ports in October and may strike again in just over a month. An ILA strike shut every major container port from Houston to Miami to Boston for three days in October, before the union agreed to return to work in exchange for a 61.5% raise over its next six-year contract. The temporary deal with the foreign-owned shipping companies and terminal operators represented by the US Maritime Alliance was brokered under intense pressure from the Biden administration and left the thornier issue of automation on the bargaining table. Automated machinery is expensive and will constantly have to be replaced, Trump said, adding he hopes the foreign-owned shipping companies “will understand how important this issue is for me.” “For the great privilege of accessing our markets, these foreign companies should hire our incredible American Workers, instead of laying them off, and sending those profits back to foreign countries,” Trump said.

Takeaways by Macro Roundup® AI

  1. The International Longshoremen's Association's three-day October strike shut every major container port from Houston to Miami to Boston before the union returned to work in exchange for a 61.5% raise over its next six-year contract.
  2. The temporary deal with the US Maritime Alliance, brokered under intense pressure from the Biden administration, left automation on the bargaining table, and the ILA may strike again in just over a month.
  3. President-elect Donald Trump met with ILA leaders and voiced support for the dockworkers, saying automated machinery is expensive and must constantly be replaced and that foreign-owned shipping companies should hire American workers rather than lay them off.

Related Articles:

  • US Dockworkers Go Back to Work as Talks Extended to January — US dockworkers ended a three-day strike that halted trade at East and Gulf coast ports, extending their contract and reopening ports while negotiations resume on a long-term deal including a pay increase of about 62%. A supply-chain data company estimates the resulting cargo backlog will take over a month to clear.
  • 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.
  • Labor Market Conflict and the Decline of the Rust Belt — The authors argue that persistent labor market conflict in the Rust Belt's main industries lowered investment and productivity growth, shifting employment to the rest of the country, and estimate it accounts for roughly half the decline in the region's share of US manufacturing employment. Rising foreign competition plays a more modest quantitative role.