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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, December 18, 2024

AI Summary. The authors argue that replacing the estate tax, paid by those who die, with an inheritance tax, paid by recipients, could raise more revenue and increase progressivity because it targets large individual transfers rather than estates divided among several family members. They also note unrealized capital gains held until death escape income tax entirely.

William Gale, Oliver Hall, and John Sabelhaus Brookings Institution
Date Posted:

Bequeathable wealth/GDP has risen from 256% to 424% over 1997- 2021, but the current estate tax law yields ~$0 revenue. @BrookingsInst researchers propose an inheritance tax on recipients that may be more efficient than a revised estate tax.

Would taxing inheritances instead of estates raise more revenue and progressivity?

Core argument: Returning the estate tax to its inflation-adjusted 2001 parameters would have raised seven times as much revenue in 2021 as the actual estate tax did, the authors estimate.

We investigate three options for wealth transfer taxes: reforming the estate tax; taxing capital gains at death; and converting the estate tax (paid by decedents) to an inheritance tax (paid by recipients). An inheritance tax is better [at reducing inequality] than an estate tax because it targets large individual transfers, rather than large estates which may be divided up among a number of family members. Under current law, no income tax is ever paid on the unrealized gains that occur over the owner’s lifetime if the owner holds the asset until death. This not only loses billions of dollars in revenue but also distorts behavior - individuals are incentivized to hold capital assets for their entire lifetime to avoid taxation when that capital might be more efficiently allocated elsewhere. Alternatively, when we return the estate tax to its (inflation-adjusted) 2001 parameters, we find that it would have raised seven times as much revenue in 2021 as the actual estate tax did. We conclude that switching from the current estate tax to an inheritance tax could raise more revenue, increase overall progressivity, and broaden the income tax base

Takeaways by Macro Roundup® AI

  1. Returning the estate tax to its inflation-adjusted 2001 parameters would have raised seven times as much revenue in 2021 as the actual estate tax did, the authors estimate.
  2. The authors argue an inheritance tax paid by recipients reduces inequality better than an estate tax paid by decedents, because it targets large individual transfers rather than large estates that may be divided among several family members.
  3. Under current law no income tax is ever paid on unrealized gains accrued over an owner's lifetime if the asset is held until death, which the authors say loses billions of dollars in revenue and incentivizes lifetime holding of capital assets.

Related Articles:

  • A $105 Trillion Inheritance Windfall Is On the Way for US Heirs — Research firm Cerulli Associates projects about $105tn will pass from older US generations to heirs over the next quarter century, roughly equal to global gross domestic product in 2023. Cerulli estimates more than half of that transferred wealth will come from the roughly 2% of households holding at least $5m in investible assets.
  • Should Governments Tax The Great Boomer Wealth Transfer? — Around $90tn in the US is projected to pass from those born before 1964 to their heirs by 2045, according to research by Cerulli Associates. With government finances strained by pandemic costs and aging populations, debate is growing over whether inheritance taxes—long avoidable through planning—should be made harder to sidestep.
  • The Inheritance Of Social Status: England, 1600 to 2022 — Using a genealogical database of 422,374 English people with rarer surnames, the authors find social status persists strongly even among distant relatives, with status correlations declining by a constant factor of 0.79 per step in the lineage across all status measures and eras studied. The authors argue this constancy suggests social interventions have modest effects.

AI Summary. Chinese export volumes are up 13% year-over-year while import volumes are up only 2%, a gap that with exports at about 20% of GDP implies a net exports contribution to Chinese growth of close to 2% of GDP. Falling Chinese export prices mean export volumes are growing much faster than the dollar value of exports.

Brad Setser and Michael Weilandt Council on Foreign Relations
Date Posted:
Is Database:
Database

Chinese export volumes through November are up 13% y/y while imports are only up 2%. A 10 pp gap between growth in exports vs. imports “implies a net exports contribution to Chinese growth of close to 2% of GDP.” @Brad_Setser @Mike_Weilandt

How much are net exports contributing to China's growth?

Core argument: With exports around 20% of Chinese GDP, the 10-percentage-point gap between export and import volume growth implies a net exports contribution to China's growth of close to 2% of GDP.

China’s weak domestic economy and ever-expanding production capacity, juiced with an explicit policy of directing state bank credit toward manufacturing, has led to a surge in Chinese exports. Because Chinese export prices are falling (think of the price of a solar panel), export volumes have been growing much faster than the dollar value of Chinese exports. The phenomenon is clear in their export volume data released by the General Administration of Customs of the People’s Republic of China (GACC) as well the global data compiled by Dutch CPB. On a year-over-year basis, Chinese export volumes are up 13% (data through November, so it will be close to the 2024 annual number) while import volumes are only up 2%. With exports around 20% of GDP, the 10 percentage point gap implies a net exports contribution to Chinese growth of close to 2% of GDP.

Takeaways by Macro Roundup® AI

  1. With exports around 20% of Chinese GDP, the 10-percentage-point gap between export and import volume growth implies a net exports contribution to China's growth of close to 2% of GDP.
  2. Falling Chinese export prices, such as for solar panels, mean export volumes have grown much faster than the dollar value of Chinese exports, amid weak domestic demand, expanding production capacity, and state bank credit directed toward manufacturing.
  3. Chinese export volumes are up 13% year-over-year through November while import volumes are up only 2%, according to data from China's General Administration of Customs and the Dutch CPB.

Related Articles:

  • China’s Record Manufacturing Surplus — China's manufacturing trade surplus has reached about 2% of world GDP, exceeding the peak surpluses of export powerhouses like Japan and Germany, and shows no signs of shrinking as policy continues to emphasize advanced manufacturing capacity. The main offsetting manufactured-goods deficit is in the United States rather than commodity exporters.
  • 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.
  • 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. Nippon Steel's $14.1bn bid for U.S. Steel faces opposition from politicians and union leaders, a national-security review, and souring investor sentiment, with shares trading well below the $55 price shareholders approved. U.S. Steel's chief executive warns that if the deal collapses the company would likely close plants and move its headquarters out of Pittsburgh.

Bob Tita Wall Street Journal
Date Posted:

Nippon and U.S. Steel are attempting to save Nippon’s proposed acquisition of U.S. Steel, opposed by both Biden and Trump. The latter’s shares trade at $32, well under Nippon’s $55 tender price, as steel prices have fallen 40% y/y.

Will political opposition block a foreign takeover of a domestic steelmaker?

Core argument: U.S. Steel shares closed Tuesday at $31.94, the lowest level since September and well below the $55 a share that U.S. Steel shareholders approved in April for Nippon Steel's $14.1 billion takeover.

A year has passed since Nippon Steel announced that it would buy U.S. Steel for $14.1 billion. The takeover bid has run into opposition from politicians and union leaders as well as skepticism from investors. Now the steel market is weak, and the clock is winding down on a national-security review that could precede President Biden blocking the deal. Biden has yet to formally block the takeover, but the White House last week reiterated his position that U.S. Steel should be domestically owned and operated. President-elect Donald Trump has similarly rejected the Pittsburgh-based company being sold to a foreign firm, warning Nippon Steel in a Dec. 2 social-media post: “Buyer Beware!” Investor sentiment in U.S. Steel is souring. Shares closed Tuesday at $31.94, the lowest level since September and well below the $55 U.S. Steel shareholders approved in April. If the deal collapses, U.S. Steel Chief Executive Dave Burritt has warned that the company can’t match Nippon Steel’s planned investments, and would likely close plants and move its headquarters out of Pittsburgh.

Takeaways by Macro Roundup® AI

  1. U.S. Steel shares closed Tuesday at $31.94, the lowest level since September and well below the $55 a share that U.S. Steel shareholders approved in April for Nippon Steel's $14.1 billion takeover.
  2. Nippon Steel's bid for U.S. Steel faces opposition from politicians and union leaders and a national-security review, with the White House reiterating President Biden's position that U.S. Steel should be domestically owned and operated.
  3. U.S. Steel Chief Executive Dave Burritt has warned that if the deal collapses, the company cannot match Nippon Steel's planned investments and would likely close plants and move its headquarters out of Pittsburgh.

Related Articles:

  • Chinese Overcapacity is Crushing the Global Steel Industry — China produces about 1bn tonnes of steel a year, as much as the rest of the world combined, and its exports reached 90m tonnes in 2023, up 35% from the prior year. With Chinese mills selling abroad cheaply, foreign steelmakers' profits have fallen and some are seeking anti-dumping duties.
  • “No Inventions; No Innovations,” A History of US Steel — US Steel lagged in adopting steelmaking technology, only moving into minimills through an acquisition and a new Alabama plant, with minimills now making about 25% of its domestic output. Rival minimill producer Nucor passed US Steel in output and is now the largest US steel producer.
  • 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.

AI Summary. Analysts at Omdia estimate Microsoft purchased 485,000 of Nvidia's "Hopper" artificial intelligence chips in a year, roughly twice as many as its next-largest US rival Meta at 224,000. Omdia estimates ByteDance and Tencent each ordered about 230,000 Nvidia chips, including the H20 model modified to meet US export controls.

Tim Bradshaw and Stephen Morris Financial Times
Date Posted:

Microsoft likely purchased 485,000 of Nvidia’s “Hopper” chips this year, twice the amount purchased by Meta, Nvidia’s second-largest American customer.

Which company bought the most Nvidia AI chips this year?

Core argument: Omdia estimates Microsoft bought 485,000 of Nvidia's "Hopper" chips this year, more than double the 224,000 purchased by Meta, Nvidia's next biggest US customer.

Microsoft bought twice as many of Nvidia’s flagship chips as any of its largest rivals, as OpenAI’s biggest investor accelerated its investment in artificial intelligence infrastructure. Analysts at Omdia estimate that Microsoft bought 485,000 of Nvidia’s “Hopper” chips this year. That put Microsoft far ahead of Nvidia’s next biggest US customer Meta, which bought 224,000 Hopper chips. With demand outstripping supply of Nvidia’s most advanced graphics processing units for much of the past two years, Microsoft’s chip hoard has given it an edge in the race to build the next generation of AI systems. Omdia estimates ByteDance and Tencent each ordered about 230,000 of Nvidia’s chips this year, including the H20 model, a less powerful version of Hopper that was modified to meet US export controls for Chinese customers. While Nvidia still dominates the AI chip market, its Silicon Valley rival AMD has been making inroads. Meta bought 173,000 of AMD’s MI300 chips this year, while Microsoft bought 96,000, according to Omdia.

Takeaways by Macro Roundup® AI

  1. Omdia estimates Microsoft bought 485,000 of Nvidia's "Hopper" chips this year, more than double the 224,000 purchased by Meta, Nvidia's next biggest US customer.
  2. Omdia estimates ByteDance and Tencent each ordered about 230,000 Nvidia chips this year, including the H20, a less powerful Hopper version modified to meet US export controls for Chinese customers.
  3. AMD has made inroads against Nvidia's dominance of the AI chip market, with Meta buying 173,000 MI300 chips and Microsoft 96,000 this year, according to Omdia.

Related Articles:

  • Big Tech Groups Say Their $100B AI Spending Spree Is Just Beginning — Microsoft, Alphabet, Amazon, and Meta together spent $106bn in the first half of the year and pledged further increases over the next 18 months, with Meta projecting capital spending could reach $40bn this year. Analysts at Dell'Oro Group expect as much as $1tn could flow into infrastructure such as data centers within five years.
  • Are We on the Brink of an AI Investment Arms Race? — Spending on AI chips and data centers was a bit below $100bn in 2023, around 0.4% of US GDP, and the broader set of companies exposed to AI-related investment has not yet seen a major jump in sales. The authors argue the underlying dynamics point to a spending surge large enough to shape the business cycle.
  • 2025 Capex Outlook: A Gradual Rebound After the Factory-Building Boom — Business capital spending growth is forecast to be roughly flat in the near term, held back by declining aircraft and manufacturing structures investment, before rebounding to about 5.4% growth over the following year. The projected rebound is attributed to equipment spending for newly built factories, AI investment, lower short-term borrowing rates, improved business sentiment, and reinstated tax incentives.

AI Summary. Commonwealth Fusion Systems, the best-funded of the fusion start-ups, plans to build a fusion power plant in Virginia with a peak capacity of 400 megawatts, which the company says could power about 150,000 homes but would most likely serve large industrial customers. The company is first building a pilot machine in Massachusetts intended to demonstrate the technology's feasibility.

Raymond Zhong New York Times
Date Posted:

Commonwealth Fusion Systems, a fusion startup backed in part by Bill Gates, plans to generate electricity from its first fusion power plant in Virginia by the early 2030s.

Are fusion start-ups moving from pilot machines to commercial power plants?

Core argument: Commonwealth Fusion Systems plans a Virginia fusion power plant with a peak capacity of 400 megawatts, which chief commercial officer Rick Needham said would power about 150,000 homes, though the electricity would most likely serve large industrial customers.

Commonwealth is the best funded of a crop of start-ups that are hoping to realize fusion’s potential soon. The company is first building a pilot machine in Massachusetts, one it says will demonstrate the feasibility of its technology in 2027. Rick Needham, Commonwealth’s chief commercial officer, said it intended to make a “substantial” investment to build the [Virginia] plant, though he declined to say how much. The plant would have a peak capacity of 400 megawatts. That would be enough energy to power about 150,000 homes, Mr. Needham said, though the electricity would most likely go to large industrial customers.

Takeaways by Macro Roundup® AI

  1. Commonwealth Fusion Systems plans a Virginia fusion power plant with a peak capacity of 400 megawatts, which chief commercial officer Rick Needham said would power about 150,000 homes, though the electricity would most likely serve large industrial customers.
  2. Commonwealth is first building a pilot machine in Massachusetts that the company says will demonstrate the feasibility of its fusion technology in 2027.
  3. Commonwealth is the best funded of a group of fusion start-ups hoping to realize the technology's potential soon, and Rick Needham said it intended to make a "substantial" investment in the Virginia plant, declining to specify an amount.

Related Articles:

  • WHAM! Nuclear Fusion Experiment Hits New Record for Magnet Strength — A nuclear fusion experiment at the University of Wisconsin-Madison set a record for the strongest steady magnetic field confining a plasma, reaching 17 tesla — more than twice the field strength used by high-resolution MRI brain scanners. The high-temperature superconducting magnets were built by startup Commonwealth Fusion Systems.
  • China Outspends the U.S. on Fusion in the Race for Energy’s Holy Grail — Scientists familiar with China's fusion facilities estimate that at its current pace of spending and development, China will surpass U.S. and European magnetic fusion capabilities within three or four years. Much U.S. fusion spending goes to legacy programs, while China's roughly $1.5bn is largely directed at building systems that would compete with leading private U.S. fusion firms.
  • European Scientists Set New Nuclear Fusion Energy Record — Researchers at the Joint European Torus facility outside Oxford set a nuclear fusion energy record, generating 69 megajoules from a five-second sustained reaction, up from a previous record of 59 megajoules. The experiment consumed far more power than the reaction produced.

AI Summary. The International Energy Agency estimates global coal demand reached an all-time high of 8,771m metric tons, up 1% from the prior year, as electricity demand rose faster than expected. China consumes nearly 30% more coal than the rest of the world combined, and its coal demand is projected to set records annually through at least 2027.

Javier Blas Bloomberg
Date Posted:
Is Database:
Database

An @IEA analysis finds that global coal demand hit a record high in 2024, and projects that demand will likely rise through at least 2027. @JavierBlas notes that China consumes 30% more coal than the rest of the world combined.

Is China driving global coal demand to record highs?

Core argument: The IEA estimates global coal demand reached an all-time high of 8,771 million metric tons in 2024, up 1% from 2023, as electricity demand rose faster than expected.

Coal demand set a record high in 2024. The IEA now estimates that global coal demand surged to an all-time high of 8,771 million metric tons this year, up 1% from 2023, as electricity demand rose faster than expected. The country, worshiped by some green enthusiasts thanks to its embrace of electric vehicles, wind turbines, and solar panels, is the world’s biggest polluter. China alone consumes nearly 30% more coal than the rest of the world together. That’s not ending anytime soon. Now, the IEA assumes that Chinese coal demand will set an all-time high every year until at least 2027.

Takeaways by Macro Roundup® AI

  1. The IEA estimates global coal demand reached an all-time high of 8,771 million metric tons in 2024, up 1% from 2023, as electricity demand rose faster than expected.
  2. China consumes nearly 30% more coal than the rest of the world combined and is the world's biggest polluter, despite its embrace of electric vehicles, wind turbines, and solar panels.
  3. The IEA assumes Chinese coal demand will set an all-time high every year until at least 2027.

Related Articles:

  • The Energy Transition Is Powered By — Wait for It — Coal — The International Energy Agency now estimates coal consumption in 2030 will be 6% higher than it projected a year earlier — an increase equal to Japan's entire coal use — and above 2010 levels. Fossil fuels met two-thirds of the recent global increase in energy demand.
  • Electravision — The fossil fuel share of global primary energy is falling about 0.40% per year, matching the pace of decarbonization during the 1973–1988 nuclear buildout, though total carbon dioxide emissions have not declined because energy consumption keeps rising. Renewable energy is used almost exclusively for the electricity grid, with little penetration in industry and transport.
  • Electricity 2024 — More than 8,000 data centers operate globally, with about 33% in the United States, 16% in Europe, and close to 10% in China. US data center electricity use is projected to rise from roughly 200 TWh in 2022, about 4% of US electricity demand, to almost 260 TWh, or 6% of total demand.

AI Summary. A U.S. Army Science Board report warned that the American industrial base may be incapable of meeting the munitions demand created by a potential future conflict with a peer adversary. Much of the reduction in U.S. arms-manufacturing capacity was deliberate, following the collapse of the Soviet Union and the end of the Cold War.

Mark Bowden The Atlantic
Date Posted:

Mark Bowden documents the decline of the US defense industrial base as the country cashed the post-Cold War peace dividend, noting “much of the reduction in America’s arms-manufacturing capacity was deliberate.”

Can the U.S. industrial base meet wartime munitions demand?

Core argument: The U.S. Army Science Board warned in 2023 that the American industrial base "may be incapable of meeting the munitions demand created by a potential future fight against a peer adversary.".

In 2023, the U.S. Army Science Board expressed concern that the nation’s industrial base “may be incapable of meeting the munitions demand created by a potential future fight against a peer adversary.” Mackenzie Eaglen, a defense analyst AEI and one of the authors of the Science Board’s report, immersed herself in this world of procurement and manufacturing for nearly a year. “When I was done,” she told me, “the only thing I could think was It’s a miracle the U.S. military has anything that blows up, ever.” This is not just a bump in the road, and it is not just about munitions. The U.S. military, the richest in the world, confronts a deep, institutional deficiency. War planning occurs in a political and strategic context bigger than the Pentagon, which is another reason the U.S. finds itself where it is. Much of the reduction in America’s arms-manufacturing capacity was deliberate—a consequence of the collapse of the Soviet Union and the end of the Cold War.

Takeaways by Macro Roundup® AI

  1. The U.S. Army Science Board warned in 2023 that the American industrial base "may be incapable of meeting the munitions demand created by a potential future fight against a peer adversary.".
  2. Mackenzie Eaglen, an AEI defense analyst and co-author of the Science Board report, spent nearly a year examining procurement and manufacturing and concluded it is a miracle the U.S. military has anything that blows up.
  3. Much of the reduction in America's arms-manufacturing capacity was deliberate, a consequence of the Soviet Union's collapse and the end of the Cold War.

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.
  • Why is the U.S. Navy Running Out of Tomahawk Cruise Missiles? — The U.S. Navy has been firing Tomahawk land-attack cruise missiles faster than it can replace them, with opening-day strikes in Yemen expending more than 80 missiles against 30 targets. An entire year's purchase of 55 Tomahawks accounted for 68% of the precision munitions fired at the Houthis in a single day.
  • Pentagon Runs Low on Air-Defense Missiles as Demand Surges — U.S. stocks of some air-defense missiles are running low, raising questions about the Pentagon's readiness for conflicts in the Middle East, Europe, and a potential Pacific war. The U.S. has launched dozens of Standard Missile interceptors in single months, while the producer can make at most a few hundred a year, shared with at least 14 allied buyers.

Thursday, December 19, 2024

AI Summary. The Census Bureau estimates immigrants accounted for 84% of U.S. population growth over a one-year period, with about 2.7m net arrivals, alongside a falling birthrate and a death rate elevated by an aging population. The bureau estimates the U.S. grew by 8.5m over four years, with immigrants making up the vast majority.

Paul Overberg, Jon Kamp and Max Rust Wall Street Journal
Date Posted:

The Census Bureau estimates that 2.7mm immigrants accounted for 84% of US population growth in the 12 months ending June 2024. Over the past four years, the US population grew by 8.5mm, with immigrants making up the vast majority.

How much of US population growth comes from immigration?

Core argument: Immigrants accounted for 84% of U.S. population growth in the year ended June 30, the Census Bureau said, amid a surge in legal and illegal arrivals, a falling birthrate and a death rate propped up by an aging population.

Newcomers accounted for 84% of U.S. growth in the year ended June 30, the Census Bureau said Thursday, continuing a trend since the Covid-19 pandemic. This was fueled by a surge in legal and illegal arrivals, a falling birthrate and a death rate propped up by an aging population. The Census Bureau estimates include major revisions to earlier estimates that are intended to better capture a surge in immigration. The bureau estimates about 2.7 million net arrivals for the most recent year. The bureau also more than doubled its net immigration estimate for the prior year to about 2.3 million. The agency now estimates the U.S. grew by 8.5 million over the past four years, with immigrants accounting for the vast majority.

Takeaways by Macro Roundup® AI

  1. Immigrants accounted for 84% of U.S. population growth in the year ended June 30, the Census Bureau said, amid a surge in legal and illegal arrivals, a falling birthrate and a death rate propped up by an aging population.
  2. The Census Bureau estimates about 2.7 million net immigrant arrivals in the most recent year and more than doubled its prior-year net immigration estimate to about 2.3 million, part of revisions intended to better capture the surge.
  3. The Census Bureau estimates the U.S. grew by 8.5 million over the past four years, with immigrants accounting for the vast majority, a trend continuing since the Covid-19 pandemic.

Related Articles:

  • Recent Immigration Surge Has Been Largest in U.S. History — 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.
  • 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.
  • 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 digitized industry-level US tariff data from 1870–1900 matched to state-level manufacturing census data for over 80 industries, the authors estimate that tariffs reduced labor productivity. They argue the results are consistent with weaker international competition allowing less efficient firms to survive, reduced incentives to innovate, and lobbying for protection misallocating resources.

Alexander Klein and Christopher Meissner National Bureau of Economic Research
Date Posted:

In a study of over 80 US manufacturing industries from 1870-1909 @cmicmeissner concludes that higher tariff rates reduced labor productivity. “The era’s high tariffs are unlikely to have helped the US become a globally competitive manufacturer.”

Did high tariffs raise or lower American manufacturing productivity?

Core argument: Using an instrumental variable strategy on 1870–1900 U.S. data, the authors find that tariffs reduced labor productivity in manufacturing, with negative and significant coefficients for textiles, metals, paper, transportation, chemicals, and petroleum.

We develop an industry-level database of tariffs spanning three decades (1870-1900) by digitizing the universe of tariff-lines and imports from official data in benchmark years. We match these data to state-level Census of Manufactures data for over 80 highly dis-aggregated manufacturing industries. Using an instrumental variable strategy, results show that tariffs reduced labor productivity. Generally, when labor productivity is the dependent variable, the coefficients on tariffs are negative and significant (Textiles, Metals, Paper, Transportation, Chemicals and Petroleum) or statistically insignificant (Consumer Goods, Tobacco, Glass, and Machinery/Electrical). Our results are consistent with several, not mutually incompatible, explanations. One is that tariffs weakened international competition, and in so doing, allowed smaller, less efficient firms to operate. Second, firms in a less competitive environment may have been less likely to invest in new products and processes. Finally, firms and industries may have lobbied to obtain protection which could have led to an economic misallocation of resources.

Takeaways by Macro Roundup® AI

  1. Using an instrumental variable strategy on 1870–1900 U.S. data, the authors find that tariffs reduced labor productivity in manufacturing, with negative and significant coefficients for textiles, metals, paper, transportation, chemicals, and petroleum.
  2. The authors build an industry-level tariff database for 1870–1900 by digitizing the universe of tariff-lines and imports in benchmark years, matching them to state-level Census of Manufactures data for over 80 disaggregated manufacturing industries.
  3. Tariff coefficients are statistically insignificant for consumer goods, tobacco, glass, and machinery/electrical, and the authors offer several compatible explanations: weakened international competition allowing smaller, less efficient firms to operate, reduced investment in new products and processes, and lobbying for protection that misallocated resources.

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.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.
  • 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.

AI Summary. The Federal Reserve has cut interest rates by 100 basis points amid growth of 3.0% and 2.8% over the past two quarters, with the Atlanta Federal Reserve projecting 3.2% growth in the fourth quarter, above the Congressional Budget Office's 2% long-run estimate. The authors put 40% odds on rate hikes and see significant downside risk to the 60/40 stock-bond portfolio.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk projects “a 40% probability that the Fed will raise interest rates in 2025,” citing a strong economy, potential for inflationary fiscal expansion, and other policy shifts.

Do rate cuts in a strong economy threaten the 60/40 portfolio?

Core argument: The authors put a 40% probability on the Fed raising interest rates in 2025, after the Fed cut rates by 100 bps this year.

The Fed has now cut interest rates 100 bps this year. In a strong economy where growth over the past two quarters has been 3.0% and 2.8%, the Atlanta Fed expects GDP growth in the fourth quarter to be 3.2%, well above the CBO’s 2% estimate of long-run US growth. The strong economy, combined with the potential for lower taxes, higher tariffs, and restrictions on immigration, has increased the risk that the Fed will have to hike rates in 2025. We see a 40% probability that the Fed will raise interest rates in 2025. For investors, it is starting to look similar to 2022—too high inflation, rising interest rates, and falling stock prices. The bottom line is that there are significant downside risks to the 60/40 portfolio as we enter 2025.

Takeaways by Macro Roundup® AI

  1. The authors put a 40% probability on the Fed raising interest rates in 2025, after the Fed cut rates by 100 bps this year.
  2. US growth of 3.0% and 2.8% over the past two quarters, plus the Atlanta Fed's 3.2% fourth-quarter projection, runs well above the CBO's 2% estimate of long-run US growth.
  3. The authors see significant downside risks to the 60/40 portfolio entering 2025, citing a setup resembling 2022 of too-high inflation, rising interest rates, and falling stock prices, with potential lower taxes, higher tariffs, and immigration restrictions adding risk.

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  • Inflation Rising Again — The decline in inflation has stalled, with Federal Reserve and market-implied inflation measures above the 2% target and short- and long-run consumer inflation expectations moving higher. The author argues this uptrend, alongside strong economic momentum, points to an inflation rebound rather than a softening that would justify rate cuts.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
  • Economic Policy Before and After the 2024 Election — Market expectations for the Federal Reserve's interest-rate path have shifted, with the expected endpoint moving from about 2.8% to 3.8%. The author argues that enacting the campaign agenda—larger deficits from tax cuts, tariffs on all imports, a weaker currency, mass deportations, and pressure on central-bank independence—would produce a substantially larger inflation shock.

AI Summary. Federal Reserve officials project that inflation will not return to their 2% target until 2027 and that short-term interest rates will settle near 3-3.25%, above prior expectations. The projections suggest policymakers are willing to accept more inflation, faster real growth, and lower interest rates to keep unemployment from rising.

Matt Klein The Overshoot
Date Posted:

Fed officials expect the terminal rate will settle between 3-3.25%, not far below the current level of 4.25-4.5%. @M_C_Klein notes the Fed is more focused on the labor market than their 2% inflation target.

Are policymakers willing to tolerate higher inflation to prevent rising unemployment?

Core argument: Fed officials project inflation will not return to the 2% goal until 2027 under appropriate monetary policy, with short-term rates settling around 3–3.25%, not far below the current 4.25–4.5%.

Monetary policymakers admitted that inflation is more entrenched than they had previously believed, and that short-term interest rates will need to be higher for longer. “Under appropriate monetary policy,” inflation will not return to the Fed’s 2% goal until 2027. When that finally happens, officials expect that short-term interest rates will settle down around 3-3.25%—not much lower than the current level of 4.25-4.5%. “Appropriate” short-term interest rates in 2025 and 2026 are now expected to be 50 basis points higher than when the previous batch of projections were released in mid-September, while short rates in 2027 are expected to be roughly 25 basis points higher. But the latest projections also revealed something else that was missed in the negative market reaction: the median policymaker seems willing to accept almost any outcome that prevents unemployment from getting worse. Comparing the Fed’s latest projections to those from mid-June shows that officials are now happy to accept more inflation, faster real growth, and lower interest rates—whatever it takes to keep the jobless rate capped.

Takeaways by Macro Roundup® AI

  1. Fed officials project inflation will not return to the 2% goal until 2027 under appropriate monetary policy, with short-term rates settling around 3–3.25%, not far below the current 4.25–4.5%.
  2. Appropriate short-term rates for 2025 and 2026 are now projected 50 basis points higher than in the mid-September projections, and 2027 rates roughly 25 basis points higher.
  3. Compared with the mid-June projections, Fed officials appear willing to accept more inflation, faster real growth, and lower interest rates to keep the jobless rate from rising.

Related Articles:

  • Inflation Rising Again — The decline in inflation has stalled, with Federal Reserve and market-implied inflation measures above the 2% target and short- and long-run consumer inflation expectations moving higher. The author argues this uptrend, alongside strong economic momentum, points to an inflation rebound rather than a softening that would justify rate cuts.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
  • Economic Policy Before and After the 2024 Election — Market expectations for the Federal Reserve's interest-rate path have shifted, with the expected endpoint moving from about 2.8% to 3.8%. The author argues that enacting the campaign agenda—larger deficits from tax cuts, tariffs on all imports, a weaker currency, mass deportations, and pressure on central-bank independence—would produce a substantially larger inflation shock.

AI Summary. At Newport News Shipbuilding, half of welders now have less than four years' experience, down from an average of 20 years three decades ago, and inexperience reduces productivity and adds delays. Shipbuilding wages starting at $17 an hour no longer carry a premium over local retail and warehouse jobs paying up to $24.

Greg Ip Wall Street Journal
Date Posted:

Labor constraints at shipyards are leading to supply constraints and quality issues as American warship tonnage under construction is projected to rise from 68,000 in 2014 to 167,000 by 2034. @greg_ip

Are shipbuilding wages too low to retain experienced welders?

Core argument: Half of Newport News Shipbuilding's welders have less than four years' experience, versus an average of 20 years three decades ago, and inexperience reduces productivity and adds delays.

Thirty years ago the average welder at Newport News Shipbuilding had 20 years of experience. Today, half have less than four years’ experience. Inexperience reduces productivity and adds delays. Newport News recently reported that around 20 welders had skipped a crucial step, leading to substandard welds on aircraft carriers and submarines. Under contracts negotiated before the pandemic inflation, salaries here start at $17 an hour, exceed $20 within a year, and top $30 for more senior craftsmen. That once represented a significant premium to unskilled jobs in the region. Not now. Local fast-food restaurants pay up to $16 an hour, and Target is advertising warehouse jobs at up to $24. Chris Kastner, chief executive of Huntington Ingalls Industries [noted] “The spread between the shipbuilding manufacturing wage and basic wage in services such as retail essentially disappeared. So it’s just much easier for someone to leave and do a less demanding job.”

Takeaways by Macro Roundup® AI

  1. Half of Newport News Shipbuilding's welders have less than four years' experience, versus an average of 20 years three decades ago, and inexperience reduces productivity and adds delays.
  2. Newport News Shipbuilding reported that roughly 20 welders skipped a crucial step, producing substandard welds on aircraft carriers and submarines.
  3. Newport News shipbuilding salaries, set by contracts negotiated before pandemic inflation, start at $17 an hour and top $30 for senior craftsmen, while local fast-food work pays up to $16 and Target advertises warehouse jobs at up to $24.

Related Articles:

  • China’s Shipyards Are Ready for a Protracted War. America’s Aren’t — China produced more than half of the world's commercial shipbuilding output, while Europe accounts for about 5% and the US next to nothing, with most of the remainder built in South Korea and Japan. Analysts argue that in a protracted conflict China's wartime-scale yards could quickly accelerate production, replace lost ships, and repair damaged ones.
  • Nearly 40% of US Attack Submarines Are Out of Commission for Repairs — US Navy data show 18 of its 49 attack submarines — 37% — are out of commission for repairs because of naval shipyard delays, up from 28% and well above the 20% industry best practice. The report argues this leaves the US at a disadvantage against China's numerically larger fleet.
  • Global Defence Groups Hiring At Fastest Rate In Decades Amid Record Orders — A survey of 20 large and medium-sized US and European defence and aerospace companies found they plan to recruit tens of thousands of workers, with 10 of them seeking to add almost 37,000 positions, or nearly 10% of their combined workforce. Demand spans apprentices to executives, including engineers, software developers, cyber security analysts, welders, and mechanics.

AI Summary. A Louisiana resident hospitalized with avian influenza is the first severe human bird flu case in the US, with the patient having been exposed to sick and dead birds in backyard flocks. California declared a state of emergency over an outbreak spreading among dairy cows, giving agencies more flexibility on staffing and contracting.

Ilena Peng and Gerry Smith Bloomberg
Date Posted:

There have been 61 human cases of bird flu detected in the US since April; a Louisiana resident has now been hospitalized with the first “severe” human case of avian influenza in the US.

Is bird flu causing severe human illness and emergency declarations?

Core argument: A Louisiana resident hospitalized with avian influenza is the first severe human bird flu case in the US, with exposure to sick and dead birds in backyard flocks and the infection source still under investigation.

A Louisiana resident has been hospitalized with bird flu, marking the first severe human case of avian influenza in the US, while California declared a state of emergency to respond to the growing outbreak among dairy cows. The Louisiana patient had exposure to sick and dead birds in backyard flocks, and an investigation into the source of the infection is still ongoing. There have been 61 human cases of bird flu detected in the US since April, with most patients reporting mild symptoms. California Governor Gavin Newsom declared an emergency to help contain an outbreak that’s been spreading among dairy cows. The move gives state and local agencies more flexibility around staffing, contracting, and other rules to support the response. More than half of the US bird flu infections in humans have occurred in California, where nearly 650 herds have been affected.

Takeaways by Macro Roundup® AI

  1. A Louisiana resident hospitalized with avian influenza is the first severe human bird flu case in the US, with exposure to sick and dead birds in backyard flocks and the infection source still under investigation.
  2. The US has detected 61 human bird flu cases since April, with most patients reporting mild symptoms, and more than half of those infections have occurred in California.
  3. California Governor Gavin Newsom declared a state of emergency over an outbreak spreading among dairy cows, giving state and local agencies more flexibility on staffing and contracting, with nearly 650 herds affected.

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