Edward Conard

Top Ten New York Times Bestselling Author

  • “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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, January 6, 2025

AI Summary. The authors estimate that a hypothetical low-income family with children receives $68,686 in government support at an income of $11,000 but only $22,709 at $65,000, while its tax liability rises from $842 to $12,835. The lost assistance plus higher taxes fully offsets the $54,000 income gain.

Elias Ilin and Alvaro Sanchez Federal Reserve Bank of Atlanta
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A single parent with one child in Washington DC, earning $11K, receives $68K of government benefits net of taxes for a total after-tax income of $79K. A counterpart, earning $65K, receives $10K of government benefits net of taxes for an after-tax income of $75K. This structure creates little, if any, financial incentive for a low-income parent to work.

Do lost benefits and higher taxes erase income gains for low-income families?

Core argument: The authors estimate that a hypothetical family earning $11,000 is eligible for $68,686 in government support, falling to roughly a third of that ($22,709) at an income of $65,000.

The structure of the United States social safety net features the phaseout of public assistance as household income increases, which functions as an effective marginal tax on wage gains and is commonly referred to as a “benefits cliff.” This presents a disincentive for some low-income workers, especially those with children, to accept higher-paying jobs or promotions. Workforce development programs focused on helping low-income workers must contend with the challenges that benefits cliffs present to the career advancement of their clients. Overall, we estimate that at an income of $11,000, our hypothetical family is eligible for $68,686 in government support. At an income of $65,000, the family can expect to receive roughly a third of that assistance ($22,709). The family’s overall tax liability also increases, growing from $842 to $12,835. This loss of public assistance combined with an increase in taxes fully offsets a $54,000 income gain.

Takeaways by Macro Roundup® AI

  1. The authors estimate that a hypothetical family earning $11,000 is eligible for $68,686 in government support, falling to roughly a third of that ($22,709) at an income of $65,000.
  2. The same family's tax liability rises from $842 to $12,835 as income grows from $11,000 to $65,000, and the combined loss of public assistance and higher taxes fully offsets the $54,000 income gain.
  3. The phaseout of public assistance as household income rises functions as an effective marginal tax on wage gains, presenting a disincentive for some low-income workers, especially those with children, to accept higher-paying jobs or promotions.

Related Articles:

  • “Compensate the Losers?” Economic Policy and Partisan Realignment in the US — The authors argue that partisan realignment by education reflects Democrats' declining supply of "predistribution" policies such as job guarantees, higher minimum wages, protectionism, and stronger unions, which less-educated Americans favor while more-educated Americans prefer taxes and transfers. They estimate changing views of the parties' economic policies explain roughly half the shift.
  • Welfare Is What’s Eating the Budget — The U.S. redistributes 29.4% of its gross domestic product through transfers and taxes, a larger share than any developed country except France at 30.1%. Counting transfers as income and taxes as income lost and adjusting for household size, average households in the bottom, second, and middle income fifths have roughly equal incomes despite large differences in work effort.
  • Calomiris on Gramm Ekelund and Early on Income Distribution — Transfer benefits phase out so quickly that the effective marginal tax rate in the lowest three income quintiles approaches 100%, meaning an extra dollar earned can cost roughly a dollar of benefits. Hours worked in the lower quintiles have plummeted, though the authors stop short of asserting a causal link.

AI Summary. The authors measure US labor market structure since 1880 and find 1990–2017 less disruptive than any earlier period, because past changes from general-purpose technologies like steam and electricity were so profound. They identify four recent signs of accelerating change, including a 50%+ rise in science and technology employment share since 2010.

David Deming, Christopher Ong, and Lawrence Summers National Bureau of Economic Research
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Citing 25% growth in the STEM share of jobs and 50% drop in retail share since 2010, @ProfDavidDeming and @LHSummers suggest “AI could be a general-purpose technology on the scale of prior disruptive innovations” like steam power and electricity.

Is today's labor market less disruptive than in past technological eras?

Core argument: Measurements of US labor market structure back to 1880 show 1990–2017 as less disruptive than any prior period measured, not because today's job market is stable but because past changes were so profound.

We measure changes in the structure of the US labor market going back over a century. We find, perhaps surprisingly, that the years spanning 1990 to 2017 were less disruptive than any prior period we measure, going back to 1880. This comparative decline is not because the job market is stable today but rather because past changes were so profound. General-purpose technologies (GPTs) like steam power and electricity dramatically disrupted the twentieth-century labor market, but the changes took place over decades. We argue that AI could be a GPT on the scale of prior disruptive innovations, which means it is likely too early to assess its full impacts. Nonetheless, we present four indications that the pace of labor market change has accelerated recently, possibly due to technological change. First, the labor market is no longer polarizing. Second, employment growth has stalled in low-paid service jobs. Third, the share of employment in STEM jobs has increased by more than 50% since 2010, fueled by growth in software and computer-related occupations. Fourth, retail sales employment has declined by 25% in the last decade, likely because of technological improvements in online retail.

Takeaways by Macro Roundup® AI

  1. Measurements of US labor market structure back to 1880 show 1990–2017 as less disruptive than any prior period measured, not because today's job market is stable but because past changes were so profound.
  2. Four indications suggest labor market change has accelerated: polarization has ended, employment growth has stalled in low-paid service jobs, the STEM employment share has risen more than 50% since 2010, and retail sales employment has fallen 25% in a decade.
  3. The authors argue AI could be a general-purpose technology on the scale of steam power and electricity, whose labor market disruptions unfolded over decades, making it likely too early to assess AI's full impacts.

Related Articles:

  • Technological Disruption in the US Labor Market — The authors present four signs that US labor market change has accelerated, possibly from technology: polarization has ended as low- and middle-paid employment declined while highly paid work grew, low-paid service job growth stalled, the STEM employment share rose over 50%, and retail sales employment fell 25%. They argue artificial intelligence's effects will unfold over decades.
  • The Rapid Adoption of Generative AI — A nationally representative U.S. survey found 39% of people aged 18-64 used generative AI, with more than 24% of workers using it in the prior week and nearly one in nine using it every workday. The authors estimate 0.5-3.5% of U.S. work hours are currently assisted by generative AI.

AI Summary. Research and development spending in U.S. manufacturing has been rising relative to output and hours worked while productivity has been flat, which suggests the ability of research and development to boost productivity growth has been declining.

Danial Lashkari and Jeremy Pearce Federal Reserve Bank of New York
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A @NewYorkFed analysis finds over 2010 to 2022 the US manufacturing sector’s R&D expenditure as a % of gross output increased by 2.2%/year, but labor productivity fell 0.5%/year.

Is research and development losing its power to raise manufacturing productivity?

Core argument: R&D expenditure in U.S. manufacturing has been rising relative to both output and hours worked, with R&D intensity increasing since 1987.

R&D expenditure has been rising relative to output and to hours worked. The rise in R&D intensity has been ongoing since 1987, with some evidence of a slowdown in its growth when compared to overall employment in the sector. The fact that R&D intensity has been increasing while productivity is flat suggests that the ability of R&D to boost productivity growth has been declining.

Takeaways by Macro Roundup® AI

  1. R&D expenditure in U.S. manufacturing has been rising relative to both output and hours worked, with R&D intensity increasing since 1987.
  2. Rising R&D intensity alongside flat manufacturing productivity suggests that the ability of R&D spending to boost productivity growth has been declining.
  3. Some evidence points to a slowdown in the growth of R&D intensity when measured against overall employment in the manufacturing sector.

Related Articles:

  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
  • The Industrial Renaissance: Digital Infrastructure, Energy Transition, and Power — An industrial renaissance is underway driven by industrial policies, which fall into three types: place-based policies aimed at low-income regions that may have lost manufacturing jobs, national security policies to ensure important technology and semiconductors are produced domestically, and green policies supporting the energy transition.
  • Global Robot Density in Factories Doubled in Seven Years — Global factory robot density reached a record 162 robots per 10,000 manufacturing employees, more than double the level of seven years earlier. The European Union averages 219 units per 10,000 employees, North America 197, and Asia 182, with Korea, Singapore, mainland China and Japan among the ten most automated economies.

AI Summary. The number of venture capital firms investing in US-headquartered companies fell to 6,175 from a peak of 8,315, with more than half of the $71bn raised by US venture firms going to just nine firms. The concentration has left start-ups such as SpaceX, OpenAI, Databricks and Stripe able to stay private far longer while thinning funding options for smaller companies.

George Hammond Financial Times
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In 2024, over half of the $71B raised by VC firms went to just 9 firms. By the end of 2024, the number of active VCs had dropped 25% since peaking at 8,315 in 2021.

Is venture capital funding concentrating among a few large firms?

Core argument: The number of VCs investing in US-headquartered companies fell to 6,175 in 2024 from a 2021 peak of 8,315, meaning more than 2,000 have fallen dormant, according to PitchBook.

The tally of VCs investing in US-headquartered companies dropped to 6,175 in 2024 — meaning more than 2,000 have fallen dormant since a peak of 8,315 in 2021, according to data provider PitchBook. The trend has concentrated power among a small group of mega-firms and has left smaller VCs in a fight for survival. It has also skewed the dynamics of the US venture market, enabling start-ups such as SpaceX, OpenAI, Databricks and Stripe to stay private for far longer, while thinning out funding options for smaller companies. More than half of the $71bn raised by US VCs in 2024 was pulled in by just nine firms, according to PitchBook. General Catalyst, Andreessen Horowitz, Iconiq Growth and Thrive Capital raised more than $25bn in 2024. “The time to return capital has elongated a lot across the industry over the last 25 years,” said an LP in a number of large US venture firms. “In the 1990s it probably took seven years to get your money back. Now it’s probably more like 10 years.” Some LPs have run out of patience. The $71bn raised by US firms in 2024 is a seven-year low and less than two-fifths the total haul in 2021.

Takeaways by Macro Roundup® AI

  1. The number of VCs investing in US-headquartered companies fell to 6,175 in 2024 from a 2021 peak of 8,315, meaning more than 2,000 have fallen dormant, according to PitchBook.
  2. More than half of the $71bn raised by US VC firms in 2024 went to just nine firms, with General Catalyst, Andreessen Horowitz, Iconiq Growth and Thrive Capital raising more than $25bn, according to PitchBook.
  3. The $71bn raised by US VCs in 2024 is a seven-year low and less than two-fifths of the 2021 total, and one limited partner said the time to return capital has stretched from about seven years in the 1990s to roughly 10.

Related Articles:

  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.
  • Start-Up Failures Rise 60% As Founders Face Hangover From Boom Years — Data from private-company services provider Carta show start-up shutdowns rising sharply, with 254 venture-backed clients going bust in a single quarter and the failure rate more than 7x the level when tracking began. Carta also reports a steep drop in the share of companies able to raise new funding within two years of their last round.
  • High Interest Rates Crushed Startup Investment. Here Is What Could Revive It — U.S. venture funding for startups peaked above $300bn—more than double the prior year—before a series of steep interest-rate increases, the fastest in four decades, curbed appetite for risky startup bets and pushed funding down for a second straight year to $167bn.

AI Summary. Artificial intelligence is a general-purpose technology comparable to electricity, with potential to lift innovation and productivity. The authors argue the United States needs a national strategy spanning research and development, workforce skilling, AI infrastructure investment, and international partnerships to expand American AI exports, counter China's influence, and shape global standards.

Brad Smith Microsoft
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Microsoft President Brad Smith argues for a three-part US national AI strategy: investment, building AI workforce skills, and partnerships with allies. Microsoft is on track to invest $80B in the fiscal year ending June 2025.

Does America need a national strategy to lead in AI?

Core argument: Artificial intelligence is characterized as a General-Purpose Technology comparable to electricity, with broad potential for innovation and productivity.

Artificial intelligence represents a transformative General-Purpose Technology akin to electricity, offering immense potential for innovation and productivity. A robust national AI strategy focused on R&D, workforce skilling, and international partnerships is critical for the United States to maintain its global leadership. Collaboration among private and public sectors, investment in AI infrastructure, and fostering educational initiatives will drive economic growth and job creation. The U.S. must act swiftly to expand American AI exports, counter China's influence, and ensure trusted AI technologies shape global standards. By prioritizing teamwork across society, the U.S. can build a strong foundation for sustained prosperity in the AI era.

Takeaways by Macro Roundup® AI

  1. Artificial intelligence is characterized as a General-Purpose Technology comparable to electricity, with broad potential for innovation and productivity.
  2. A national AI strategy built on research and development, workforce skilling, and international partnerships is presented as critical to sustaining U.S. global leadership in artificial intelligence.
  3. The United States is urged to expand American AI exports, counter China's influence, and ensure trusted AI technologies shape global standards, with investment in AI infrastructure and educational initiatives supporting economic growth and job creation.

Related Articles:

  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.
  • 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.
  • Three Mile Island’s Nuclear Plant to Reopen, Help Power Microsoft’s AI Centers — Constellation Energy will spend about $1.6bn to restart the undamaged reactor at Pennsylvania's Three Mile Island nuclear plant, which closed in 2019, and has signed a 20-year agreement to sell the power to Microsoft. The deal reflects the scale of round-the-clock carbon-free electricity sought for artificial intelligence data centers.

AI Summary. Hackers linked to China's military, a group dubbed Volt Typhoon, have embedded themselves in US infrastructure including a Hawaii water utility, a Houston port, and an oil-and-gas processing facility. American security officials believe the intrusions are aimed in part at disrupting Pacific military supply lines and impeding a US response to a future conflict with China.

Dustin Volz, Aruna Viswanatha, Sarah Krouse, and Drew FitzGerald Wall Street Journal
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Chinese hackers have escalated from stealing data to infiltrating US infrastructure and telecom networks, aiming to disrupt supply lines and intelligence during potential conflicts, such as a Taiwan invasion. @WSJ

Have Chinese hackers shifted from corporate theft to targeting US infrastructure?

Core argument: Hackers tied to China's military, dubbed Volt Typhoon, have embedded themselves in U.S. infrastructure since at least 2019 and continue to do so, including at a Hawaii water utility, a Houston port, and an oil-and-gas processing facility.

The infrastructure attacks, which began at least as early as 2019 and are still taking place, hackers connected to China’s military embedded themselves in arenas that spies usually ignored, including a water utility in Hawaii, a port in Houston, and an oil-and-gas processing facility. American security officials said they believe the infrastructure intrusions—carried out by a group dubbed Volt Typhoon—are at least in part aimed at disrupting Pacific military supply lines and otherwise impeding America’s ability to respond to a future conflict with China, including over a potential invasion of Taiwan.

Takeaways by Macro Roundup® AI

  1. Hackers tied to China's military, dubbed Volt Typhoon, have embedded themselves in U.S. infrastructure since at least 2019 and continue to do so, including at a Hawaii water utility, a Houston port, and an oil-and-gas processing facility.
  2. American security officials said they believe the Volt Typhoon intrusions are aimed at least in part at disrupting Pacific military supply lines and impeding America's ability to respond to a future conflict with China, including over a potential invasion of Taiwan.

Related Articles:

  • Emerging Details of Chinese Hack Leave U.S. Officials Increasingly Concerned — U.S. intelligence and national security officials have told major telecommunications companies to find a permanent way to expel Chinese hackers from the deepest parts of the nation's communications networks. Critical parts of the system date to the late 1970s or early 1980s and are too old to upgrade with modern cybersecurity protections.
  • Volt Typhoon Targets US Critical Infrastructure with Living-Off-The-Land Techniques — Microsoft has identified stealthy intrusions by Volt Typhoon, a Chinese state-sponsored actor, against US critical infrastructure organizations spanning communications, manufacturing, utilities, transportation, maritime, government, information technology, and education. Microsoft assesses with moderate confidence that the campaign is developing capabilities that could disrupt critical communications infrastructure between the US and Asia during future crises.
  • Xi Jinping Says He Is Preparing China for War — China's leadership has emphasized war readiness, announcing a 7.2% increase in the defense budget—which has doubled over the past decade—and plans to reduce dependence on foreign grain imports. China has also opened National Defense Mobilization recruitment offices across the country, while cities in Fujian Province opposite Taiwan build or upgrade air-raid shelters.

AI Summary. Bipartisan legislation proposed in the US Congress, the Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act, would be the first major maritime law since 1936, aiming to revitalize shipbuilding and shipping over more than a decade while rebuilding the merchant marine. It calls for resources and White House-level involvement comparable to policies on energy, semiconductors, and aviation.

Daniel Michaels Wall Street Journal
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Rising tensions with China are driving proposed legislation to support the US commercial maritime sector, which has fallen to less than 1% of the global fleet, down from approximately 50% in 1945.

Can new legislation revive American shipbuilding and the merchant marine?

Core argument: The Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act, introduced by Sens. Mark Kelly and Todd Young with two House members, would, if passed, be the first major U.S. maritime legislation since 1936.

A piece of legislation was recently introduced by Sens. Mark Kelly (D., Ariz.) and Todd Young (R., Ind.) and two House members [including Rep. Mike Waltz, whom Trump has nominated as his national security adviser] the Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act. If passed, it would be the first major piece of maritime legislation since 1936. The SHIPS Act, as it is known, aims to revitalize shipbuilding and shipping over more than a decade while rebuilding the merchant marine. It calls for resources and White House-level involvement comparable to policies on energy, semiconductors and aviation.

Takeaways by Macro Roundup® AI

  1. The Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act, introduced by Sens. Mark Kelly and Todd Young with two House members, would, if passed, be the first major U.S. maritime legislation since 1936.
  2. The SHIPS Act aims to revitalize U.S. shipbuilding and shipping over more than a decade while rebuilding the merchant marine.
  3. The SHIPS Act calls for resources and White House-level involvement comparable to U.S. policies on energy, semiconductors and aviation, and its House sponsors include Rep. Mike Waltz, Trump's nominee for national security adviser.

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.
  • China Is Rapidly Building Warships. Satellite Images Reveal The Scale — China's shipbuilding capacity now exceeds the United States' by such a margin that it can build more ships in a month than American yards build in a year, with a workforce estimated at nearly 5x the US level. Chinese yards handled more than 1,700 orders in a year, compared with fewer than five for American shipyards.
  • The Hidden Threat to National Security Is Not Enough Workers — 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.

Tuesday, January 7, 2025

AI Summary. The authors estimate that a 1% rise in a city's manufacturing productivity is associated with 1.5% higher long-run annual earnings, 1.5% higher rents and 2.5% higher home values, lifting purchasing power 0.6% for renters and 1.6% for homeowners. Direct gains favor less educated local workers, while spillovers to other cities disproportionately benefit college graduates.

Richard Hornbeck and Enrico Moretti Review of Economics and Statistics
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A 1% per year rise in a city’s manufacturing TFP in revenue terms between 1980-1990 boosted annual earnings growth by 1.5% per year over 1980-2000. Renters’ purchasing power grew by 0.6%/year, and homeowners’ by 1.6%/year.

Who gains from city productivity growth: renters, homeowners, or distant workers?

Core argument: A 1% rise in city-level manufacturing revenue-based TFP from 1980 to 1990 is associated with an average 1.5% long-run increase in annual earnings from 1980 to 2000, alongside a 4% rise in local employment driven by immigration.

We estimate that local growth in TFPR (TFP in revenue terms) increases the earnings of local workers. A 1% increase in city-level manufacturing TFPR from 1980 to 1990 is associated with an average long-run increase of 1.5% in annual earnings from 1980 to 2000. Local employment increases by 4%, driven by immigration, [and] demand for housing increases. A 1% increase in city level manufacturing TFPR is associated with a 1.5% increase in housing rents and a 2.5% increase in home values. For workers who rent their home, much of the increase in earnings is offset by increases in the local cost of living. For workers who had owned their home, the gains are much larger because they come through both higher wages and higher housing values. We find that a 1% increase in local TFPR increases the purchasing power of renters and homeowners by 0.6% and 1.6%, respectively. [Direct] gains are larger for local less educated workers, [and] productivity growth reduces local inequality, [but] indirect effects of local productivity growth on earnings and housing costs of workers in other cities are economically important and disproportionately benefit college-educated workers

Takeaways by Macro Roundup® AI

  1. A 1% rise in city-level manufacturing revenue-based TFP from 1980 to 1990 is associated with an average 1.5% long-run increase in annual earnings from 1980 to 2000, alongside a 4% rise in local employment driven by immigration.
  2. A 1% increase in local revenue-based TFP is associated with a 1.5% increase in housing rents and a 2.5% increase in home values, and raises the purchasing power of renters by 0.6% and of homeowners by 1.6%.
  3. Direct gains from local productivity growth are larger for less educated local workers and productivity growth reduces local inequality, while economically important indirect effects on earnings and housing costs in other cities disproportionately benefit college-educated workers.

Related Articles:

  • Where is Standard of Living the Highest? Local Prices and the Geography of Consumption — The authors estimate that geographical differences in cost of living are especially large for low-income US households, and that expensive cities offer college graduates a standard of living similar to affordable cities while offering less-educated households a lower one. A high school dropout household moving from the most affordable to the most expensive commuting zone would see consumption fall 18.5%.
  • The Economic Geography Of The 2024 Elections — Counties where government transfer programs such as Social Security, Medicare, Medicaid, and unemployment insurance make up at least a quarter of personal income gave Trump 63% of the vote, while counties where transfers account for less than 15% gave Harris 56%. Transfers supplied 18% of total US personal income.
  • The World’s Rust Belts: The Heterogeneous Effects of Deindustrialization on 1,993 Cities in Six Countries — A study of 1,993 cities in France, Germany, Italy, Japan, the UK and the US finds former manufacturing hubs lost employment on average after each country's manufacturing peak, though a large share fully recovered. After the peak, hubs with a higher initial share of college-educated workers grew significantly faster.

AI Summary. The Federal Reserve has cut its policy rate by 100 basis points while 10-year interest rates have risen by 100 basis points over the same stretch, a highly unusual divergence. Possible explanations include fiscal worries, weaker foreign demand for U.S. debt, or rate cuts that were not justified.

Torsten Sløk Apollo
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The Fed has cut the FFR 100 bps since September, and over the same period, the 10-year yield has risen 100 bps to ~ 4.6%. Torsten Sløk argues, “it is very important for investors to have a view on why long rates are going up when the Fed is cutting.”

Why are long-term rates rising while the Fed cuts?

Core argument: The Federal Reserve has cut interest rates by 100 basis points since September while 10-year interest rates have risen 100 basis points over the same period, a highly unusual divergence.

The Fed has cut interest rates by 100 basis points since September, and over the same period, 10-year interest rates are up 100 basis points. This is highly unusual. Is it fiscal worries? Is it less demand from abroad? Or maybe Fed cuts were not justified? The market is telling us something, and it is very important for investors to have a view on why long rates are going up when the Fed is cutting.

Takeaways by Macro Roundup® AI

  1. The Federal Reserve has cut interest rates by 100 basis points since September while 10-year interest rates have risen 100 basis points over the same period, a highly unusual divergence.
  2. Possible explanations for long rates rising as the Federal Reserve cuts include fiscal worries, less demand from abroad, or rate cuts that were not justified.
  3. Investors need a view on why long rates are rising while the Federal Reserve cuts, as the market is conveying something important.

Related Articles:

  • 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.
  • Fiscal Policy Under Trump II: The Role of Scott Bessent and Basic Budget Math — US federal debt has risen from 105% to 123% of GDP, the budget deficit has doubled from 3.1% to more than 6%, and government interest expense has grown from 1.3% to about 3.1% of GDP. The author argues this makes expansive fiscal policy harder to pursue than in the past.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.

AI Summary. Spending on software, technology hardware, industrial equipment and data center structures tied to the artificial intelligence boom amounts to nearly 6% of US GDP and is likely to rise further. At close to 7% of the economy, such spending would exceed the peak share reached by the late-1990s tech, industrial and telecom boom and rival housing investment's peak share.

Skanda Amarnath Bloomberg
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In Q3 of 2024, expenditures for software, technology hardware, industrial equipment, and data center structures were almost 6% of GDP. @IrvingSwisher argues that the AI boom may be larger than the tech-industrial-telecom boom of the late 1990s.

How large is AI-related spending as a share of GDP?

Core argument: Expenditures on software, technology hardware, industrial equipment and data center structures central to the AI boom reached nearly 6% of US GDP in the third quarter of 2024, a share likely to rise further.

If you focus on the expenditures for software, technology hardware, industrial equipment and data center structures at the heart of the AI boom, you’re looking at nearly 6% of US GDP as of the third quarter of 2024. That number is likely to rise further in the coming quarters. If so, we would surpass the share of GDP that the tech-industrial-telecom boom of the late 1990s reached at its peak back in 2000. At something close to 7% of the US economy at the end of 2025, it’s plausible and arguably even likely, that the AI boom would be on a par with the share of the US economy housing investment represented at its 2005 peak.

Takeaways by Macro Roundup® AI

  1. Expenditures on software, technology hardware, industrial equipment and data center structures central to the AI boom reached nearly 6% of US GDP in the third quarter of 2024, a share likely to rise further.
  2. Continued growth in AI-related spending would push it past the share of GDP reached at the peak of the late-1990s tech-industrial-telecom boom in 2000.
  3. At something close to 7% of the US economy at the end of 2025, the AI boom would plausibly be on a par with the share of GDP that housing investment represented at its 2005 peak.

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.
  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.
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AI Summary. Overseas residents hold over $60t of U.S. assets—including roughly $13t in fixed income and $13t in equities—while U.S. residents hold $38t of foreign assets, with these positions financed in part by dollars acquired through trade. A more balanced trade relationship would reduce net dollar outflows through trade and redirect them toward U.S. manufacturers and households.

Joseph Wang Fed Guy Blog
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.@FedGuy12 argues that a trade war cutting US trade deficits may push yields higher as overseas investors have fewer dollars to invest in fixed-income assets.

Would more balanced trade redirect dollar flows to U.S. manufacturers and households?

Core argument: Overseas residents hold over $60t of U.S. assets while U.S. residents hold $38t of foreign assets, with the overseas holdings financed in part by dollars acquired through trade.

Overseas investors hold enormous amounts of U.S. assets that are in part financed by dollars acquired through trade. While U.S. residents hold $38t of foreign assets, overseas residents hold over $60t of U.S. assets. As of 2023, overseas investors hold around $13t in fixed income and $13t in equities, though the latter appears largely due to the price appreciation from the recent bull market where the S&P 500 has appreciated by over 20% for two consecutive years. A more balanced trade relationship would decrease the net dollar outflows through trade and re-allocate them to entities like U.S. manufacturers and households.

Takeaways by Macro Roundup® AI

  1. Overseas residents hold over $60t of U.S. assets while U.S. residents hold $38t of foreign assets, with the overseas holdings financed in part by dollars acquired through trade.
  2. As of 2023, overseas investors held roughly $13t in U.S. fixed income and $13t in U.S. equities, with the equity total appearing to stem largely from price appreciation as the S&P 500 rose over 20% in two consecutive years.
  3. A more balanced trade relationship would decrease net dollar outflows through trade and re-allocate them to entities such as U.S. manufacturers and households.

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  • 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.
  • United States’ Changing Net IIP — The United States' net international investment position deficit—the gap between foreign-owned US assets and US-owned foreign assets—is the largest on record and has turned negative across all major asset categories. Because much of the liability is equity, the author argues rebalancing could come through a correction in US equity values rather than a weaker dollar.
  • 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.

AI Summary. The top 10 companies in the S&P 500 index account for 37.3% of its value, a modern-day record, and just 26 stocks make up half the index's total value — the fewest since at least 1980. US stocks represent 66.6% of the $78tn MSCI All-Country World Index, with Apple, Nvidia and Microsoft alone at 13%.

Robin Wigglesworth Financial Times
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Citing Howard Silverblatt, @RobinWigg notes that only 26 stocks now account for half the entire value of the S&P 500 index, the lowest number since at least 1980.

How concentrated has the US stock market become?

Core argument: Just 26 stocks account for half the entire value of the S&P 500, down from 36 at the end of 2023 and the lowest number since at least 1980, according to S&P Dow Jones Indices' Howard Silverblatt.

There are a multitude of ways to show interlocking facets of concentration. The most popular one is simply to calculate how much of the S&P 500 index the top 10 members account for. At the moment that stands at a modern-day record of 37.3%. The most arresting stat — via S&P Dow Jones Indices’ Howard Silverblatt — is that just 26 stocks now account for half the entire value of the S&P 500 index. That’s down from an already-low 36 at the end of 2023, and is the lowest number since at least 1980. In fact, it is probably the lowest ever since the benchmark’s creation in 1957, though we’ve struggled to find historical data on its composition going back that far. US stocks now account for a whopping 66.6% of the MSCI All-Country World Index (fittingly, the number of the beast). Apple, Nvidia and Microsoft alone make up 13% of the $78tn index.

Takeaways by Macro Roundup® AI

  1. Just 26 stocks account for half the entire value of the S&P 500, down from 36 at the end of 2023 and the lowest number since at least 1980, according to S&P Dow Jones Indices' Howard Silverblatt.
  2. The top 10 members of the S&P 500 account for 37.3% of the index, a modern-day record.
  3. US stocks make up 66.6% of the $78tn MSCI All-Country World Index, with Apple, Nvidia and Microsoft alone accounting for 13% of it.

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AI Summary. A patient in Louisiana who was over 65 and had underlying medical conditions died after contracting H5N1 bird flu following exposure to a non-commercial backyard flock and wild birds, the first US fatality linked to the virus. Most US human bird flu infections have occurred in farm workers exposed to infected animals and caused mainly mild symptoms.

Gerry Smith Bloomberg
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The US has had the first domestic death related to bird flu; the patient was over 65 and had underlying medical conditions.

Has bird flu caused its first death in the US?

Core argument: A Louisiana patient over 65 with underlying medical conditions has died of H5N1 bird flu, the first US fatality linked to the virus, according to the Louisiana Department of Health.

A patient in Louisiana who tested positive for bird flu has died, marking the first US fatality linked to the respiratory virus. The patient was over 65 and had underlying medical conditions, according to a statement from the Louisiana Department of Health. The patient contracted H5N1 after exposure to a non-commercial backyard flock and wild birds, the state agency said. The resident was hospitalized in December with the first severe human case of avian influenza in the US. Most human bird flu infections have occurred in farm workers exposed to infected animals, causing mainly mild symptoms. There have been 66 confirmed human cases in the US so far, according to the Centers for Disease Control and Prevention.

Takeaways by Macro Roundup® AI

  1. A Louisiana patient over 65 with underlying medical conditions has died of H5N1 bird flu, the first US fatality linked to the virus, according to the Louisiana Department of Health.
  2. The Louisiana patient contracted H5N1 after exposure to a non-commercial backyard flock and wild birds and was hospitalized in December with the first severe human case of avian influenza in the US.
  3. The Centers for Disease Control and Prevention has confirmed 66 human bird flu cases in the US, with most infections occurring in farm workers exposed to infected animals and causing mainly mild symptoms.

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AI Summary. More than 80% of venture and private equity deals in China contain redemption clauses requiring companies, and often founders personally, to buy back investors' shares with interest if targets such as an initial public offering timeline or revenue goals are missed, according to estimates by law firm Lifeng Partners.

Ryan McMorrow, Wenjie Ding, and Nian Liu Financial Times
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Chinese investors are targeting the personal assets of failed entrepreneurs to recover losses, deepening the startup funding crisis, with entrepreneurship becoming a “game of unlimited liability.”

Do most Chinese venture deals make founders personally repay investors?

Core argument: More than 80% of venture and private equity deals in China contain redemption provisions, which are relatively rare in US venture investing, according to estimates by Shanghai-based law firm Lifeng Partners.

The hard-nosed tactics by risk capital providers have been facilitated by clauses known as redemption rights, included in nearly all the financing deals struck during China’s boom times. While they are relatively rare in US venture investing, more than 80% of venture and private equity deals in China contain redemption provisions, according to Shanghai-based law firm Lifeng Partners estimates. They typically require companies, and often their founders as well, to buy back investors’ shares plus interest if certain targets such as an initial public offering timeline, valuation goals or revenue metrics are not met. With Chinese funds and VC firms now struggling to return capital to their outside investors, a growing number have turned to redemption clauses to recoup as much money as possible. Lifeng estimates that 20% of all investor exits in 2021 and 2022 came from companies repurchasing their investors’ shares and that more than 10,000 VC or private equity-backed Chinese groups face redemption issues.

Takeaways by Macro Roundup® AI

  1. More than 80% of venture and private equity deals in China contain redemption provisions, which are relatively rare in US venture investing, according to estimates by Shanghai-based law firm Lifeng Partners.
  2. Chinese redemption clauses typically require companies, and often their founders as well, to buy back investors' shares plus interest if targets such as an IPO timeline, valuation goals or revenue metrics are not met.
  3. Lifeng Partners estimates that 20% of all investor exits in 2021 and 2022 came from companies repurchasing investors' shares and that more than 10,000 VC or private equity-backed Chinese groups face redemption issues.

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  • 2023 Letter — Rising numbers of Chinese nationals are being apprehended at the US-Mexico border, with US officers encountering around 1,000 in one month early in the year and nearly 5,000 by November. Most Chinese emigrants leave through legal means, going primarily to Singapore, Japan, and Thailand.
  • Mapping Chinese Capital Flight via the Sinaloa Cartel — China’s official balance-of-payments data show a large gap between its customs and foreign-exchange agencies’ estimates of the goods trade balance, and reported returns on Chinese foreign assets have broken from their historical relationship with the 5-year US Treasury yield despite central banks raising interest rates. The author argues both anomalies are consistent with unrecorded capital flight.