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


Wednesday, January 22, 2025

AI Summary. Annual change in the US debt-to-GDP ratio can be decomposed into the primary deficit, interest payments, and the growth dividend, with the latter two summing to "excess interest," which remains slightly negative in Congressional Budget Office baseline projections. That implies primary deficits drive the projected unsustainable debt path.

Danny Yagan National Bureau of Economic Research
Date Posted:
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.@dannyyagan notes that in CBO’s baseline, nominal GDP growth exceeds the nominal interest rate through 2040, but the historically high debt/GDP ratio implies greater vulnerability to the risk that interest rates will exceed GDP growth before 2040.

What drives the projected rise in the debt-to-GDP ratio?

Core argument: America's growth dividend — the amount by which annual GDP growth shrinks the debt-GDP ratio — has more than doubled since the Great Recession because the debt ratio has more than doubled, leaving headline deficits far exceeding changes in the debt ratio.

America's growth dividend - the amount by which annual GDP growth shrinks the debt-GDP ratio - has more than doubled since the Great Recession because the debt ratio has more than doubled, leading to headline deficits that far exceed changes in the debt ratio. Each year's change in the debt ratio can be decomposed into three components: the primary deficit (non-interest spending minus tax revenue), interest payments, and the growth dividend. The sum of the latter two is excess interest: the impact of past debt on the debt ratio, roughly equal to last year's debt ratio times the excess interest rate (r-g)/(1+g) where r is the average nominal interest rate on federal debt and g is the nominal GDP growth rate. Excess interest remains slightly negative in CBO's baseline ten-year projection. Hence, current debt is sustainable in the CBO baseline despite high interest payments, and primary deficits entirely drive the unsustainable projected debt ratio path and provide a good guide for how the debt ratio is projected to change. However, America's higher debt ratio implies higher vulnerability to the risk that the excess interest rate turns persistently positive.

Takeaways by Macro Roundup® AI

  1. America's growth dividend — the amount by which annual GDP growth shrinks the debt-GDP ratio — has more than doubled since the Great Recession because the debt ratio has more than doubled, leaving headline deficits far exceeding changes in the debt ratio.
  2. The annual change in the debt-GDP ratio decomposes into the primary deficit, interest payments, and the growth dividend, with the latter two summing to excess interest, roughly last year's debt ratio times (r-g)/(1+g).
  3. Excess interest remains slightly negative in CBO's baseline ten-year projection, so debt is sustainable in that baseline despite high interest payments, with primary deficits driving the unsustainable projected debt path and the higher debt ratio implying greater vulnerability if the excess interest rate turns persistently positive.

Related Articles:

  • The Growth Dividend and Excess Interest — The annual change in the debt-to-GDP ratio equals the deficit plus a "growth dividend," the amount by which nominal GDP growth shrinks the ratio. Under Congressional Budget Office baseline projections, interest payments stay below the growth dividend, so projected primary deficits—not existing debt—drive the unsustainable debt path.
  • Robust Fiscal Stabilization — The authors find that Congress reduced deficits in response to rising projected deficits during 1984–2003 but that this year-to-year response was absent on average during 2004–2024. They estimate that holding the debt ratio below 250% with 95% probability requires gradual deficit reduction averaging 0.5%–1.2% of GDP over the next decade.
  • Living with High Public Debt — High public debt ratios are likely to persist because large sustained primary budget surpluses are politically unrealistic, real interest rates are already very low, faster global growth is hard to engineer, inflation is not a sustainable route to reducing debt, and financial repression is less feasible amid liberalized markets.

AI Summary. Executive orders can streamline permitting for pipeline and transmission projects, but without explicit federal eminent domain legislation such projects remain open to legal challenge, and US oil pipeline, gas pipeline and transmission line construction has nearly halted. Ending leasing to wind farms would be marginal since only 2% of US wind power is on public lands.

Michael Cembalest J. P. Morgan
Date Posted:
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Michael Cembalest notes streamlining permits for energy infrastructure will likely have only a limited impact on speeding construction without Federal eminent domain powers. Still a 7% increase in oil and gas output by 2029 is “a very achievable goal.”

Can executive orders restart stalled pipeline and transmission construction?

Core argument: Bessent's 3-3-3 target amounts to a 7% increase in US oil, gas and NGL production, most of which will continue to rely on hydraulic fracturing, a goal the authors call very achievable, though its effect on US energy prices is less clear.

You can try to streamline permits for pipelines and transmission projects with executive orders, but without explicit Federal eminent domain legislation, projects can still be challenged for a number of reasons. Oil pipeline, gas pipeline and transmission line projects in the US have practically ground to a halt. It would be quite a feat from a political perspective to jumpstart the pace. The Trump agenda also calls for an “end to leasing to wind farms”, but only 2% of US wind power takes place on public lands as opposed to private lands, so that’s a marginal issue at best. Trump might have more luck achieving Bessent’s target for higher domestic energy production. Based on our energy math, Bessent’s 3-3-3 target amounts to a 7% increase in oil, gas and NGL production (most of which will continue to rely on hydraulic fracturing) and is a very achievable goal. Whether this brings down US energy prices is less clear.

Takeaways by Macro Roundup® AI

  1. Bessent's 3-3-3 target amounts to a 7% increase in US oil, gas and NGL production, most of which will continue to rely on hydraulic fracturing, a goal the authors call very achievable, though its effect on US energy prices is less clear.
  2. Without explicit federal eminent domain legislation, executive orders streamlining permits still leave oil pipeline, gas pipeline and transmission line projects, which have practically ground to a halt in the US, open to challenge on a number of grounds.
  3. Trump's call for an end to leasing to wind farms is a marginal issue at best, since only 2% of US wind power takes place on public lands rather than private lands.

Related Articles:

  • Oil Was Written Off. Now It’s the Most Productive US Industry — US oil and gas extraction productivity nearly tripled in a decade, and crude output reached a record 13.3m barrels a day — 48% above Saudi Arabia — with under a third of the rigs. BloombergNEF projects production growth of 600,000 barrels a day on higher well productivity.
  • U.S. Crude Oil Production Established A New Record In August 2024 — U.S. crude oil production averaged a record 13.4m barrels per day in August, topping the prior monthly record of 13.3m barrels per day. The U.S. Energy Information Administration forecasts annual production averaging 13.2m barrels per day, above the 12.9m annual record, and 13.5m barrels per day the following year.
  • AI is Changing Oil Country—and Pumping Up Profits — The U.S. produces 60% more oil per day with 40% fewer workers than a decade ago, with annual productivity gains roughly 7x those of the average U.S. business. In the Permian, the break-even oil price has fallen to $40 a barrel from over $90, and AI tools that predict the most productive drilling locations should push it lower.

AI Summary. The U.S.-Mexico-Canada trade agreement governs roughly $2tn of trade and was approved with the broadest congressional support of any U.S. trade deal, with more than 200 Democrats backing it over added labor and environmental standards. Mexico and Canada have since supplanted China as the leading U.S. trading partners.

Brian Schwartz, Gavin Bade and Vipal Monga Wall Street Journal
Date Posted:

Trump is seeking an early renegotiation of the USMCA, the successor to NAFTA, and in advance of the negotiations is threatening Canada and Mexico with 25% tariffs as of February 1.

Have North American neighbors displaced China as top US trading partners?

Core argument: The USMCA governs roughly $2 trillion of trade among the U.S., Mexico, and Canada, and Trump is pushing to renegotiate it ahead of schedule.

The USMCA governs roughly $2 trillion of trade between the U.S. and its continental neighbors. It was approved by Congress with the broadest support of any trade deal in U.S. history. More than 200 Democrats in the House and Senate joined Republicans in backing the agreement because of the stricter labor and environmental standards that Trump’s team added to broaden its appeal. Since its signing, Mexico and Canada have supplanted China as the leading U.S. trading partners, according to Census Bureau data. Trump is particularly focused on using the threat of tariffs to change automotive rules under the continental trade pact, forcing car plants to move from Canada and Mexico back to the U.S., according to people familiar with his thinking.

Takeaways by Macro Roundup® AI

  1. The USMCA governs roughly $2 trillion of trade among the U.S., Mexico, and Canada, and Trump is pushing to renegotiate it ahead of schedule.
  2. More than 200 Democrats in the House and Senate joined Republicans in approving the USMCA, the broadest congressional support for any trade deal in U.S. history, because of stricter labor and environmental standards added by Trump's team.
  3. Mexico and Canada have supplanted China as the leading U.S. trading partners since the USMCA was signed, according to Census Bureau data, and Trump is focused on using tariff threats to change the pact's automotive rules and move car plants back to the U.S., people familiar with his thinking said.

Related Articles:

  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.
  • China’s Very Bad, No Good Trillion-Dollar Trade Surplus — China's high investment rates face diminishing returns and the government is unwilling to promote higher consumer spending, so it compensates for weak domestic demand with large trade surpluses supported by a weaker currency. The author argues this attempt to export its policy failure will provoke a protectionist backlash from Europe, the UK, and others.
  • 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. Tariffs would need to be high and broad to reshape the global economy and raise tax revenue, and financial markets would react far faster than the real economy. A market decline that tightens financial conditions could push the Federal Reserve toward rate cuts, cushioning the economy and allowing the trade war to continue.

Joseph Wang Fed Guy Blog
Date Posted:

Focusing on trade wars as threats to financial stability, @FedGuy12 notes “the sharp market decline in late 2018 tightened financial conditions and forced the Fed to pivot towards cuts” and suggests “the stage is set for a re-run of the same show.”

Do rate cuts triggered by falling markets enable an aggressive trade war?

Core argument: The author argues Trump's trade war can be unusually aggressive because a Federal Reserve with ample room to cut rates will underwrite it.

Trump’s trade war can be surprisingly aggressive because it will be underwritten by a Fed with plenty of room to cut. The market seems to perceive tariffs as largely a negotiating tool, but there is increasing indication that they will be deployed regardless of the outcome of negotiations. Tariffs will need to be high and broad in order to fundamentally reshape the global economy and raise tax revenue. Similar to the first trade war, the financial markets would react far quicker to tariffs than the real economy. The sharp market decline in late 2018 tightened financial conditions and forced the Fed to pivot towards cuts, even though they viewed the economy to be on sound footing. Their actions saved the market and unwittingly allowed the trade war to continue. The stage is set for a re-run of the same show.

Takeaways by Macro Roundup® AI

  1. The author argues Trump's trade war can be unusually aggressive because a Federal Reserve with ample room to cut rates will underwrite it.
  2. Tariffs will need to be high and broad to fundamentally reshape the global economy and raise tax revenue, and indications are increasing that they will be deployed regardless of negotiation outcomes.
  3. The sharp market decline in late 2018 tightened financial conditions and forced the Fed to pivot toward cuts despite its view that the economy was on sound footing, which the author says unwittingly allowed the trade war to continue.

Related Articles:

  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.
  • China’s Very Bad, No Good Trillion-Dollar Trade Surplus — China's high investment rates face diminishing returns and the government is unwilling to promote higher consumer spending, so it compensates for weak domestic demand with large trade surpluses supported by a weaker currency. The author argues this attempt to export its policy failure will provoke a protectionist backlash from Europe, the UK, and others.
  • China’s Stunning 2024 Export Growth — 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.

AI Summary. Tariffs are argued to cause a one-time jump in price levels rather than persistently faster inflation, while mass deportations would be more disruptive but with less clear long-run inflation effects. The article argues inflation could be lower in the long term because politicians, fearing voter backlash, may be more reluctant to fight future downturns.

Matthew Klein Financial Times
Date Posted:

.@M_C_Klein argues the 2024 election may ultimately reduce inflation. Tariffs cause a one-time jump in prices, not persistent inflation, and politicians “will be cognisant of the political risks of inflation.”

Could tariffs raise price levels once without causing lasting inflation?

Core argument: Tariffs may produce a one-time jump in price levels rather than a persistent acceleration in inflation, while mass deportations would be far more disruptive than any tariff, with a less clear longer-term inflation impact.

The longer-term ramifications [of the 2024 election] could well lead to less inflation in the decades ahead. [Tariffs may cause] a one-time jump in price levels, but no persistent acceleration in inflation. Mass deportations would be far more disruptive than any tariff, [but] the longer-term impact on inflation is less clear: at least some Federal Reserve officials have indicated that this kind of persistent supply shock, unlike one-time tariff increases, should not be accommodated with higher prices. Even if the Trump agenda makes inflation worse over the next few years, there is still one very good reason to think that it could be lower in the long term as a result of his victory: politicians may be more reluctant to fight future downturns out of fear of voter backlash. Democrats may overcorrect to restore their credibility in the eyes of voters when they are next in power, prioritising pushing inflation down rather than going for growth. Savvy Republicans will be cognisant of the political risks of inflation and wary of facing their own equivalent of 2024. And Trump himself promised to defeat inflation in his inauguration speech.

Takeaways by Macro Roundup® AI

  1. Tariffs may produce a one-time jump in price levels rather than a persistent acceleration in inflation, while mass deportations would be far more disruptive than any tariff, with a less clear longer-term inflation impact.
  2. At least some Federal Reserve officials have indicated that a persistent supply shock such as mass deportations, unlike one-time tariff increases, should not be accommodated with higher prices.
  3. The 2024 election outcome could lead to less inflation in the decades ahead if politicians grow more reluctant to fight downturns for fear of voter backlash, with Democrats prioritising pushing inflation down over growth when next in power.

Related Articles:

  • Will Trump’s Win (Eventually) Lead to *Lower* Long-Term Interest Rates? — The author argues the inflation of 2021–2022 could have been avoided only at the cost of a global depression, and that historical elections show voters do not reward incumbents who preside over disinflationary downturns. Many in the U.S. may nonetheless come to treat the episode as a cautionary tale about responding too aggressively to economic downturns.

AI Summary. OpenAI and SoftBank plan a US artificial intelligence infrastructure joint venture called Stargate, intending to spend $100bn initially and as much as $500bn over four years. SoftBank holds financial responsibility and OpenAI operational responsibility, with Abu Dhabi state fund MGX and Oracle also funding and Arm, Microsoft and Nvidia as technology partners.

George Hammond, Myles McCormick and David Keohane Financial Times
Date Posted:

OpenAI and SoftBank are launching an AI buildout, “Stargate” that will spend between $100-$500B over the next four years on artificial intelligence infrastructure in the United States.

How large is the new US AI infrastructure joint venture?

Core argument: OpenAI and SoftBank's joint venture Stargate plans to spend $100bn on US AI infrastructure, rising to as much as $500bn over four years.

OpenAI and SoftBank plan to launch a massive new US artificial intelligence infrastructure project. The joint venture, dubbed Stargate, is looking to spend $100B in Big Tech infrastructure projects, rising to as much as $500B over the next four years. It was not immediately clear how Stargate would obtain funding but one person involved in the project said they intended to bring on additional investors. SoftBank has ultimate financial responsibility for the new company, with OpenAI taking operational responsibility. Tokyo-based SoftBank’s chair Masayoshi Son will chair the joint venture. Abu Dhabi state AI fund MGX and Oracle are also providing funding for the project, while SoftBank-owned Arm, Microsoft and Nvidia are technology partners.

Takeaways by Macro Roundup® AI

  1. OpenAI and SoftBank's joint venture Stargate plans to spend $100bn on US AI infrastructure, rising to as much as $500bn over four years.
  2. SoftBank holds ultimate financial responsibility for Stargate while OpenAI takes operational responsibility, with SoftBank chair Masayoshi Son chairing the joint venture.
  3. Abu Dhabi state AI fund MGX and Oracle are providing funding for Stargate, with SoftBank-owned Arm, Microsoft and Nvidia as technology partners, and one person involved said additional investors would be brought on.

Related Articles:

  • The AI Boom’s Economic Impact Is Starting to Show Up — 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.
  • 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.
  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.

AI Summary. The share of heterosexual men reporting no female sexual partners in the past year rose, driven mainly by fewer men reporting exactly one partner, with no change among men reporting large numbers of partners. The decline is concentrated in approximately monogamous sex, reflecting later or forgone marriage.

Lyman Stone Institute for Family Studies
Date Posted:

In 2022-23, 24% of US males and 13% of females aged 22-34 had no sexual partner in the last year, up from 9% and 8%, respectively, in 2013-15. @lymanstoneky argues “One of the biggest drivers of declining sexual activity is the decline in marriage.”

Is declining marriage behind less sex among young adults?

Core argument: The rising share of heterosexual men reporting no female sexual partners in the past year is driven mostly by a decline in men with one partner, and secondarily by a decline in men with two.

There was a rise in the share of heterosexual males with no female sexual partners in the last year—but it was driven mostly by a decline in the number of males with one female partner, and secondarily by a decline in the number of men with two. There was no change at all in the prevalence of heterosexual men with large numbers of female sexual partners. Thus, what we can actually observe is not that a small number of men are having sex with more and more women, but simply that men and women are failing to couple off together: the major decline is in sex between people who only had sex with one person in the prior year, i.e. approximately monogamous sex. This is because one of the biggest drivers of declining sexual activity is the decline in marriage. Married people have more sex, and for most young adults, marriage is occurring later or not at all. As a result, sex is declining.

Takeaways by Macro Roundup® AI

  1. The rising share of heterosexual men reporting no female sexual partners in the past year is driven mostly by a decline in men with one partner, and secondarily by a decline in men with two.
  2. The prevalence of heterosexual men with large numbers of female sexual partners did not change, indicating that men and women are failing to couple off rather than that a small number of men are having sex with more women.
  3. The decline in marriage is one of the biggest drivers of falling sexual activity, since married people have more sex while for most young adults marriage occurs later or not at all.

Related Articles:

  • The Anti-Social Century — Americans spend less time with other people than in any period with reliable data back to 1965, with in-person socializing down more than 20% from 2003 to 2023 according to the Bureau of Labor Statistics' American Time Use Survey. Among unmarried men and people under 25, the decline exceeded 35%.
  • The Data is Clear: People Are Having Less Sex — Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.
  • Young People Are Hanging Out Less — It May Be Harming Their Mental Health — People in their teens and twenties now socialize about as much as people 10 years older did in the past, with less partying accompanied by less sex and drinking. Trends in time spent alone closely parallel rising mental distress among the young but not the middle-aged or older.

Thursday, January 23, 2025

AI Summary. The Congressional Budget Office projects the federal deficit will grow from $1.9tn (6.2% of GDP) to $2.7tn by 2035, well above the 3.8% of GDP average of the past 50 years. Outlays are projected to rise to 24.4% of GDP, driven by growth in Social Security and Medicare spending and rising net interest costs, while revenues reach 18.3%.

CBO Staff Congressional Budget Office
Date Posted:
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.@USCBO projects a deficit of 6.2% of GDP in 2025, down from 6.6% in 2024. Outlays at 23.3% of GDP would exceed the long-term mean by 2.2pp; revenue of 17.1% is just 0.2pp under its long-term mean. Projections beyond 2025 assume the expiration of TCJA.

How large will federal deficits grow over the next decade?

Core argument: CBO projects the federal deficit at $1.9 trillion in fiscal 2025, or 6.2% of GDP, growing to $2.7 trillion by 2035, when the adjusted deficit equals 6.1% of GDP, compared with the 3.8% average of the past 50 years.

In CBO’s baseline projections, the federal budget deficit in fiscal year 2025 is $1.9T. The deficit grows to $2.7 trillion by 2035. It amounts to 6.2% of GDP in 2025 and drops to 5.2% by 2027 as revenues increase faster than outlays. In later years, outlays increase faster than revenues, on average. In 2035, the adjusted deficit equals 6.1% of GDP—significantly more than the 3.8% that deficits have averaged over the past 50 years. Federal outlays in 2025 total $7T, or 23.3% of GDP. They remain close to that level through 2028 and then rise, reaching 24.4% of GDP in 2035. The main reasons for that increase are growth in spending for Social Security and Medicare and rising net interest costs. Revenues total $5.2T, or 17.1% of GDP, in 2025. They rise to 18.2% of GDP by 2027, in part because of the scheduled expiration of provisions of the 2017 tax act. Revenues decline as a share of GDP over the next two years, falling to 17.9% in 2029, but then generally increase, reaching 18.3% in 2035.

Takeaways by Macro Roundup® AI

  1. CBO projects the federal deficit at $1.9 trillion in fiscal 2025, or 6.2% of GDP, growing to $2.7 trillion by 2035, when the adjusted deficit equals 6.1% of GDP, compared with the 3.8% average of the past 50 years.
  2. CBO projects federal outlays of $7 trillion in 2025, or 23.3% of GDP, rising to 24.4% of GDP by 2035, mainly because of growth in Social Security and Medicare spending and rising net interest costs.
  3. CBO projects revenues of $5.2 trillion in 2025, or 17.1% of GDP, rising to 18.2% by 2027, in part because of the scheduled expiration of provisions of the 2017 tax act, then falling to 17.9% in 2029 before reaching 18.3% in 2035.

Related Articles:

  • An Update to the Budget and Economic Outlook: 2024 to 2034 — The Congressional Budget Office projects a federal budget deficit of $1.9tn in fiscal 2024, or $2tn excluding payment-timing shifts, rising to $2.8tn by 2034. On that adjusted basis, deficits equal 7% of gross domestic product in 2024, dip to 5.5% by 2027, and reach 6.9% by 2034, versus a 3.7% average over the past 50 years.
  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.
  • 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. The authors find that Congress reduced deficits in response to rising projected deficits from 1984 to 2003 but that this year-to-year response disappeared over 2004-2024. They estimate that holding the debt ratio below 250% with 95% probability would require gradual deficit reduction averaging 0.5%-1.2% of GDP over the next decade.

Alan Auerbach and Danny Yagan National Bureau of Economic Research
Date Posted:
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From 1984 to 2003, Congress offset ~ 1/3 of the changes in the projected 5-year deficit within a year. Post-2004 this policy feedback is absent. Auerbach @dannyyagan believe annual deficits over the next decade should be lowered by 0.5-1.2% of GDP.

How much deficit reduction is needed to stabilize the debt ratio?

Core argument: Congress on average during 2004–2024 did not respond to projected deficits, in contrast with 1984–2003, when rising projected deficits were met with outlay reductions and tax increases.

Previous work found that Congress reduced the deficit during 1984-2003 when projected deficits rose; [e.g.] in the first period of 1991 the projected five-year surplus averaged −3.4% of potential GDP, and Congress enacted outlay reductions and tax increases of similar magnitudes that cumulatively increased the weighted surplus over the five-year window by 0.8% of GDP. We find that this year-to-year feedback has disappeared: Congress on average during 2004-2024 did not respond to the projected deficit. With large transitory deficit shocks like the COVID-19 pandemic and persistent interest rate shocks, keeping the debt ratio below 250% with 95% probability requires strong gradual feedback – 0.5%-1.2% of GDP average deficit reduction in the next decade – though less strong than actually observed during 1984-2003. [Alternatively], successful sudden feedback requires being able to undertake 1.5%-of-GDP deficit reductions twice in twelve-year periods, suggesting that a “wait-and-see” approach to successful deficit reduction sometimes allows little waiting.

Takeaways by Macro Roundup® AI

  1. Congress on average during 2004–2024 did not respond to projected deficits, in contrast with 1984–2003, when rising projected deficits were met with outlay reductions and tax increases.
  2. In the first period of 1991 the projected five-year surplus averaged −3.4% of potential GDP, and Congress enacted outlay reductions and tax increases that cumulatively raised the weighted surplus over the five-year window by 0.8% of GDP.
  3. Keeping the debt ratio below 250% with 95% probability requires gradual deficit reduction averaging 0.5%–1.2% of GDP over the next decade, or alternatively 1.5%-of-GDP deficit reductions twice within twelve-year periods.

Related Articles:

  • Robust Fiscal Stabilization — The authors find that Congress reduced deficits in response to rising projected deficits during 1984–2003 but that this year-to-year response was absent on average during 2004–2024. They estimate that holding the debt ratio below 250% with 95% probability requires gradual deficit reduction averaging 0.5%–1.2% of GDP over the next decade.
  • The Budget and Economic Outlook: 2025 to 2035 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (6.2% of GDP) to $2.7tn by 2035, well above the 3.8% of GDP average of the past 50 years. Outlays are projected to rise to 24.4% of GDP, driven by growth in Social Security and Medicare spending and rising net interest costs, while revenues reach 18.3%.
  • Long Rates Are Too High — A simple model of the relationship between long-term interest rates and Federal Reserve policy expectations shows 10-year rates sitting 40 basis points above what those expectations would predict, consistent with increases in term premium measures from the New York and San Francisco Federal Reserve Banks. Markets worry this extra premium reflects fears about fiscal sustainability.

AI Summary. A survey of Japanese firms and workers finds that firms using artificial intelligence have higher productivity, mean wages, and expected medium-term growth, and that more-educated firms and workers are more likely to use it. Workers using artificial intelligence report their own productivity rose by about 20% on average.

Masayuki Morikawa The Research Institute of Economy, Trade and Industry
Date Posted:

Analyzing new survey evidence from Japan, Masayuki Morikawa finds that “more-educated workers are more likely to use AI, suggesting that AI and education are complementary.” Workers who use AI believe it has raised their productivity by 20% on average.

Do firms and workers using AI report higher productivity and wages?

Core argument: Japanese workers who use AI report their work productivity has risen by approximately 20% on average, which the study suggests indicates AI could have a fairly large productivity-enhancing effect.

Based on an original survey of Japanese firms and workers, this study presents evidence on the use of AI and other automation technologies, the characteristics of the firms and workers who use them, and their views on the effects of AI. The main results are summarized as follows. First, the number of firms using AI is increasing rapidly, and firms with a larger share of highly educated workers, particularly those with a postgraduate education, tend to use AI. Robot-using firms are also increasing, but the relationship between their use and workers’ education is weakly negative, Second, AI-using firms have higher productivity, mean wages, and expected medium-term growth rates. Third, AI-using firms expect that while it will increase their productivity and wages in the long run, it may decrease their number of employees. Fourth, even at the worker level, more-educated workers are more likely to use AI, suggesting that AI and education are complementary. Fifth, workers who use AI evaluate their work productivity to have increased by approximately 20% on average, suggesting that AI could potentially have a fairly large productivity enhancing effect.

Takeaways by Macro Roundup® AI

  1. Japanese workers who use AI report their work productivity has risen by approximately 20% on average, which the study suggests indicates AI could have a fairly large productivity-enhancing effect.
  2. AI-using firms in the survey have higher productivity, mean wages, and expected medium-term growth rates, and expect AI to raise their productivity and wages in the long run while possibly decreasing their number of employees.
  3. Firms with larger shares of highly educated workers, particularly those with postgraduate education, tend to use AI, as do more-educated workers individually, suggesting AI and education are complementary, while robot use relates weakly negatively to workers' education.

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AI Summary. The US economy is described as in a sweet spot of healthy growth and gradual disinflation, with real gross domestic product estimated to have grown 2.6% in the fourth quarter and projected to continue at a similar pace. That forecast sits ½ percentage point above consensus, based on expectations for solid real disposable personal income growth and sturdy business investment.

Jan Hatzius Goldman Sachs
Date Posted:

Jan Hatzius forecasts US GDP growth of ~ 2.6% in 2025, above consensus, because of his confidence that real disposable personal income will grow solidly in 2025 and a “sturdy forecast for business investment.”

Is the US economy in a sweet spot of growth and disinflation?

Core argument: The authors estimate US real GDP grew 2.6% in Q4 and expect a similar pace in 2025, describing the economy as in a sweet spot of healthy growth and gradual disinflation.

The US economy is in the sweet spot of healthy growth and gradual disinflation. We estimate that real GDP grew 2.6% in Q4 and expect a similar pace in 2025. Our forecast is ½pp above the latest Bloomberg consensus, in part because we are still more confident than others that real disposable personal income will grow solidly in 2025 and in part because of a sturdy forecast for business investment. That said, we are not as far above consensus as for most of the last two years because other forecasters have become more optimistic given ongoing strength in the data and, in some cases, high expectations for the growth-positive aspects of the Trump agenda.

Takeaways by Macro Roundup® AI

  1. The authors estimate US real GDP grew 2.6% in Q4 and expect a similar pace in 2025, describing the economy as in a sweet spot of healthy growth and gradual disinflation.
  2. The authors' 2025 growth forecast sits ½pp above the latest Bloomberg consensus, reflecting greater confidence in solid real disposable personal income growth and a sturdy business investment forecast.
  3. The gap between the authors' forecast and consensus is narrower than for most of the past two years, as other forecasters turned more optimistic on ongoing data strength and, in some cases, growth-positive aspects of the Trump agenda.

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  • Business Spending Is Lining Up to Reinforce Growth — Around 70% of sectors are posting positive year-over-year profit growth, with big tech showing the largest acceleration in demand and profits but strength broadening across the economy. Companies are responding with rising capital spending growth and more optimistic investment plans, as firms typically add capacity with a slight lag after real demand picks up.
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AI Summary. Bank of America internal customer account data show women's median annual income rising faster than men's, and women who change jobs receiving larger pay raises than men. The bank attributes the narrowing gender pay gap in part to more opportunities for higher-paying work and faster wage growth in lower-paying, female-dominated sectors.

Taylor Bowley Bank of America
Date Posted:

.@BankofAmerica customer account data indicates that women’s annual median income growth has outpaced men’s since April 2020, driven particularly by a “rising, positive difference in pay increases for women changing jobs” versus male job switchers.

Is the gender pay gap narrowing as women's incomes rise faster?

Core argument: Women's median annual income has been rising faster than men's for the past few years, according to Bank of America internal customer account data.

Using Bank of America internal customer account data, we find that women’s median annual income has been rising faster than men’s for the past few years. Moreover, for those women who have changed jobs, the associated rise in pay has been relatively strong. Though the overall percentage raise associated with a job-to-job change has been slowing, the raises women have received from a job change have been higher than men since 2019, per Bank of America internal data. Plus, these raises have recently been steadily increasing, reaching the highest rate in over three years. This rising, positive difference in pay increases for women changing jobs suggests women are narrowing the gender pay gap, likely due in part to more opportunities for higher-paying work as well as accelerated wage growth in lower-paying sectors in female-dominated professions.

Takeaways by Macro Roundup® AI

  1. Women's median annual income has been rising faster than men's for the past few years, according to Bank of America internal customer account data.
  2. Bank of America internal data show that pay raises associated with job-to-job changes have been higher for women than for men since 2019, and women's job-switching raises have recently climbed to their highest rate in over three years, even as overall job-switching raises slow.
  3. The rising positive difference in pay increases for women changing jobs suggests women are narrowing the gender pay gap, likely due in part to more opportunities for higher-paying work and accelerated wage growth in lower-paying, female-dominated sectors.

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  • One Cohort at a Time: A New Perspective on the Declining Gender Pay Gap — The authors find the entire decline in the gender pay gap comes from newer cohorts entering with smaller-than-average gaps and older cohorts exiting with larger ones, with entry convergence driven by younger men's positional losses in the wage distribution, especially at higher-paying firms. They find labor-market exit became the sole contributor, implying no full convergence ahead.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
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AI Summary. Homeowners insurance costs have risen steadily and substantially since the 1970s across essentially every US state, with construction cost inflation, larger homes, insurer profits, and population shifts explaining little of the increase. The largest driver of rising expected losses over the past two decades is the increasing severity and frequency of water damage rather than climate-related events.

Brian Potter Construction Physics
Date Posted:

.@_brianpotter argues that an increase in claims for water damage and freezing is responsible for ~75% of the rise in expected annual homeowners insurance payouts since 2005. This excluded flood damage, which is typically not covered.

What is driving the long-run rise in homeowners insurance costs?

Core argument: The increasing severity and frequency of water damage, rather than anything climate-related, is by far the biggest driver of rising homeowners insurance expected losses over the past two decades, for reasons that remain unclear.

Homeowners insurance costs have risen steadily and substantially since the 1970s. Construction cost inflation and increasing home size can probably only explain a small portion of the increase. Insurers’ profits don’t seem to be a driver, and neither does state-level population shifts: the cost increases are across the board, in essentially every state. Increasingly destructive weather events and climate-related disasters are probably part of the explanation, with the cost in risky regions being spread over the rest of the country, but it’s hard to tell how much this is occurring. Over the past two decades, by far the biggest driver of rising homeowners insurance expected losses isn’t anything climate-related, but is instead due to the increasing severity and frequency of water damage. But it’s unclear to me why this is occurring, and to what extent whatever’s behind it can explain increasing severity of other sorts of claims (fire, hail, wind, etc.)

Takeaways by Macro Roundup® AI

  1. The increasing severity and frequency of water damage, rather than anything climate-related, is by far the biggest driver of rising homeowners insurance expected losses over the past two decades, for reasons that remain unclear.
  2. Homeowners insurance costs have risen steadily and substantially since the 1970s in essentially every state, which argues against state-level population shifts as a driver, while construction cost inflation and larger homes probably explain only a small portion.
  3. Insurers' profits do not appear to drive rising homeowners insurance costs, while increasingly destructive weather events and climate-related disasters are probably part of the explanation, with costs in risky regions spread over the rest of the country.

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AI Summary. Chinese shipbuilder Hengli Heavy Industry is seeking to hire 30,000 workers for a new Dalian shipyard spanning over 2m square metres across 17 workshops. Once fully operational the facility will employ 50,000 and build very large crude carriers, ultra-large containerships, gas carriers, offshore drilling units and alternative-fuel engines.

Lloyd’s List Staff Lloyds List
Date Posted:

Hengli Heavy is hiring 30,000 workers as it opens its new shipyard in Dalian. When fully operational, the “Future Factory” will employ 50,000 workers.

Is China expanding shipbuilding capacity with massive new shipyards?

Core argument: Hengli Heavy Industry is seeking to hire 30,000 workers for its newly inaugurated "Future Factory" shipyard on Changxing Island in Dalian, China, which will employ a total workforce of 50,000 once fully operational.

Chinese shipbuilder Hengli Heavy Industry is looking to hire 30,000 workers as it launches a new shipyard in Dalian, China. The newly inaugurated “Future Factory”, completed in just 153 days on Changxing Island, spans over 2m square metres of building space across 17 large workshops, said Hengli in a statement. Once fully operational, the facility will employ a total workforce of 50,000 and deliver impressive production capabilities allowing it to build high-value products, including very large crude carriers, ultra-large containerships, very large gas carriers and offshore drilling units, as well as alternative-fuel engines.

Takeaways by Macro Roundup® AI

  1. Hengli Heavy Industry is seeking to hire 30,000 workers for its newly inaugurated "Future Factory" shipyard on Changxing Island in Dalian, China, which will employ a total workforce of 50,000 once fully operational.
  2. Hengli says the Dalian shipyard was completed in 153 days and spans over 2m square metres of building space across 17 large workshops.
  3. The facility will be able to build very large crude carriers, ultra-large containerships, very large gas carriers, offshore drilling units and alternative-fuel engines, according to Hengli.

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  • 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.
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