Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Wednesday, January 29, 2025

AI Summary. Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

Aswath Damodaran Musings on Markets
Date Posted:
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Aswath Damodaran defines an “intrinsic risk-free rate,” the sum of real GDP growth and inflation, which he finds is more predictive of 10-year yields than the FFR. He argues, “Interest rates ultimately are driven by macro fundamentals.”

Do macroeconomic fundamentals, rather than central banks, drive interest rates?

Core argument: Damodaran defines an intrinsic risk-free rate as the sum of the inflation rate and the real GDP growth rate in a period, and argues interest rates are ultimately driven by macro fundamentals rather than set by central banks.

Over the last two decades we have come to accept the notion that central banks set interest rates. [I] argue that interest rates ultimately are driven by macro fundamentals, and that the power of central banks comes from preferential access to data about these fundamentals, their capacity to alter those fundamentals (in good and bad ways) and the credibility that they have to stay the course. [I define] Intrinsic risk-free rate = Inflation rate in period t + Real GDP growth rate in period t. In the chart, I compare my estimates of the intrinsic risk-free rate to the observed ten-year treasury bond rate each year. While the match is not perfect, the link between the two is undeniable, and the intrinsic risk-free rate calculations yield results that help counter the stories about how it is the Fed that kept rates low between 2008 and 2021, and caused them to spike in 2022. I am not suggesting that central banks don't matter or that they do not affect interest rates, because that would be an overreach.

Takeaways by Macro Roundup® AI

  1. Damodaran defines an intrinsic risk-free rate as the sum of the inflation rate and the real GDP growth rate in a period, and argues interest rates are ultimately driven by macro fundamentals rather than set by central banks.
  2. Comparing estimated intrinsic risk-free rates with observed ten-year Treasury bond rates each year, Damodaran finds the match imperfect but the link undeniable, countering claims that the Fed kept rates low between 2008 and 2021 and caused the 2022 spike.
  3. Damodaran attributes central banks' power to preferential access to data on macro fundamentals, their capacity to alter those fundamentals in good and bad ways, and their credibility to stay the course, while acknowledging they do affect interest rates.

Related Articles:

  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
  • The Move in Long Rates Is Very Unusual — 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.
  • 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.

AI Summary. The authors argue the equity market decline is a correction rather than the start of a sustained bear market, with valuations having reached very high levels, particularly in the US, where stocks remain expensive relative to history even excluding large-cap technology. They contend US market and technology-sector dominance reflects superior fundamentals rather than a bubble built on irrational exuberance.

Peter Oppenheimer, Sharon Bell, Guillaume Jaisson and Lilia Peytavin Goldman Sachs
Date Posted:

A GS note argues volatility around the release of DeepSeek is a correction and not the start of a bear market. The US equity market “does not represent a bubble based on irrational exuberance but is rather a reflection of superior fundamentals.”

Is the stock market decline a correction rather than a bear market?

Core argument: News of the DeepSeek LLM model triggered the first decline of more than 3.5% in the Magnificent 7 since last Autumn, which the authors characterize as a correction rather than the start of a sustained bear market.

The equity markets' correction, triggered by news of the DeepSeek LLM model, has been the first fall of more than 3.5% of the Magnificent 7 since last Autumn. In our view this is a correction and not the start of a sustained bear market. Overall levels of valuation had reached very high levels, particularly in the US, and P/E multiples have increased meaningfully since Q4 2023. In the case of the US, while much of this reflects the largest technology companies, the equity market remains expensive relative to history even if we exclude large cap technology (the second column). Furthermore, while other equity markets around the world are much cheaper than the US, most are not particularly cheap relative to their own history. The main exception is China. The dominance of US equity market, technology sector, and dominant companies does not represent a bubble based on irrational exuberance but is rather a reflection of superior fundamentals.

Takeaways by Macro Roundup® AI

  1. News of the DeepSeek LLM model triggered the first decline of more than 3.5% in the Magnificent 7 since last Autumn, which the authors characterize as a correction rather than the start of a sustained bear market.
  2. Equity valuations had reached very high levels, particularly in the US, with P/E multiples up meaningfully since Q4 2023, and the authors judge the US market expensive relative to history even excluding large cap technology.
  3. Most equity markets outside the US are cheaper than the US but not particularly cheap relative to their own history, with China the main exception, and the authors attribute US, technology, and mega-cap dominance to superior fundamentals rather than irrational exuberance.

Related Articles:

  • 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: To Buy, Or Not To Buy, That Is The Question — Valuations of AI-related stocks remain well below levels seen in past bubbles, with the median price-to-earnings and enterprise-value-to-sales ratios of the 7 largest technology companies roughly half those of the dominant 7 at the 2000 technology peak. But leading AI firms are no longer capital-light, and a major capital-spending boom threatens the high returns current valuations imply will continue.
  • DeepSeek and the Sincerest Form of Flattery — DeepSeek appears to have trained its models about 45x more efficiently than other leading-edge models, combining existing techniques—activating only 37bn of 671bn parameters at a time, a smaller memory cache, lower-precision training, and multi-token prediction—alongside self-reinforcement learning. Training cost $5.6m, and its interface charges $0.14 per million tokens versus OpenAI's $7.50.

AI Summary. Falling fertility rates and aging populations shrink the share of working-age people, reducing tax revenues while pension and healthcare costs rise. S&P Global estimated that without sufficient policy action, fiscal deficits would widen from a global average of 2.4% of GDP to 9.1% by 2060, with global net government debt to GDP nearly tripling.

Eade Hemingway, Janina Conboye, and Richard Milne Financial Times
Date Posted:

S&P Global forecasts deficits to climb from a current global average of 2.4% of GDP to 9.1% by 2060. Two-thirds of the world lives in countries with below-replacement fertility rates and a high number of old-age dependants, driving fiscal deficits.

Do falling birth rates widen government deficits and debt?

Core argument: S&P Global analysts estimated in 2023 that without sufficient policy action, fiscal deficits would balloon by 2060 from a global average of 2.4% of GDP to 9.1%.

The decline in fertility rates threatens to lead to deep economic malaise. Fewer babies and more older residents lead to a lower proportion of people of working age, denting tax revenues at the same time as costs associated with aging societies, such as state pensions and healthcare, increase. Without sufficient policy action, analysts at rating agency S&P Global estimated in 2023 that fiscal deficits would balloon by 2060 from a global average now of 2.4% of GDP to 9.1%. The global net government debt to GDP level would very nearly triple.

Takeaways by Macro Roundup® AI

  1. S&P Global analysts estimated in 2023 that without sufficient policy action, fiscal deficits would balloon by 2060 from a global average of 2.4% of GDP to 9.1%.
  2. S&P Global also estimated that the global net government debt to GDP level would very nearly triple absent sufficient policy action.
  3. Falling fertility rates and aging populations reduce the share of people of working age, denting tax revenues while costs for state pensions and healthcare rise.

Related Articles:

  • The Wealth of Working Nations — Because of population aging, growth in GDP per capita and GDP per working-age adult have diverged across advanced economies; from 1998 to 2019 Japan's accumulated growth per working-age adult was 31.9% versus 29.5% in the US. The authors find a standard neoclassical growth model calibrated to each country's working-age population tracks output per working-age adult in most economies.
  • World Depopulation: Prospects and Implications — The US is projected to account for a growing share of the rich world's labor force, youth, and highly educated talent, with continuing population and labor force growth and only moderate aging through 2050. Its fertility, though below replacement, exceeds that of East Asian and nearly all European countries, and sustained legal immigration is essential to this demographic advantage.
  • Babies and the Macroeconomy — Fertility rates have fallen in nearly every country, but timing differed: some developed nations fell below the 2.1 replacement level as early as the 1970s, while others dropped to "lowest low" levels below 1.3. The author argues nations with rapid, discontinuous growth saw sharper declines as women's expectations outpaced tradition-bound men's willingness to share family time.

AI Summary. Family-care centers — daycares run in a provider's home — now charge $344 per week for one infant, up 50% from a year earlier, leaving their prices nearly identical to daycare centers, according to care-giving platform Care.com. Nanny costs for an infant are about $43,000 a year, up 8%.

Kelsey Butler Bloomberg
Date Posted:

A survey by Care.com finds US childcare costs have surged with the cost of a nanny for an infant and a toddler rising 8% and 14% y/y respectively to $43,000 and $44,600. Family care centers are nearly identical in cost to daycare centers.

Are lower-cost home daycares still cheaper than daycare centers?

Core argument: Family-care centers now charge $344 per week for one infant, up 50% year-over-year, according to Care.com, leaving their prices nearly identical to daycare centers after traditionally being the more affordable option.

Family-care centers now charge $344 per week for one infant, up 50% year-over-year, online care-giving platform Care.com said. These facilities — daycares within a provider’s home — have traditionally been a more affordable option than a daycare center, but now prices are nearly identical. The cost for a nanny for an infant is now about $43,000 annually, 8% higher than a year earlier, while for a toddler it jumped about 14% for a roughly $44,600 annual price tag. Daycare center costs also rose between 7% and 8% on the year.

Takeaways by Macro Roundup® AI

  1. Family-care centers now charge $344 per week for one infant, up 50% year-over-year, according to Care.com, leaving their prices nearly identical to daycare centers after traditionally being the more affordable option.
  2. Nanny care for an infant now costs about $43,000 annually, 8% higher than a year earlier, while toddler nanny care rose about 14% to roughly $44,600, Care.com said.
  3. Daycare center costs rose between 7% and 8% on the year, according to Care.com, compared with the 50% jump for family-care centers.

Related Articles:

  • Birth Rates Are Falling In The Nordics. Are Family-Friendly Policies No Longer Enough? — Falling Nordic birth rates are now driven by childlessness rather than smaller families, with roughly three-quarters of Finland's recent fertility decline attributable to people who have no children. Nearly 40% of Finnish men with low education are childless at 45, and most have no partners.
  • How Child Care Impacts Parents’ Labor Force Participation — The number of U.S. child care workers was about 6% below pre-pandemic levels while child care costs were up 14%, and the share of parents of young children citing child care as the main reason for low work hours rose from about 15% to 18%. Even so, labor force participation among partnered women with young children surpassed its pre-pandemic level.
  • The Math Says It’s Getting Harder to Break Into the American Middle Class — A 20% down payment on a median-priced home now costs 83% of a year's income for a typical family ready to buy, up from 65% eight years earlier, according to Bloomberg calculations. Child care has risen from about a quarter of that family's weekly income to more than a third, while college costs have fallen as a share of income.

AI Summary. Inflation-adjusted US house prices are 1.1% below their 2022 peak, based on the Case-Shiller National Index. An affordability measure combining median income, house prices, and 30-year fixed mortgage rates shows the monthly principal-and-interest payment on the same house rose about 80% over three years, as prices climbed 18% and mortgage rates went from roughly 3.07% to 6.81%.

Bill McBride Calculated Risk
Date Posted:

Real house prices are 1.1% below the 2022 peak and 12% above the 2006 peak. Affordability remains at levels last seen in the early 1980s when 30-year mortgage rates were over 14%. @calculatedrisk

How much have house payments risen as prices and rates climbed?

Core argument: Inflation-adjusted U.S. house prices stand 1.1% below their 2022 peak, based on the Case-Shiller National Index, seasonally adjusted.

I’ve put together my own affordability index [using] median income from the Census Bureau, for house prices, I use the Case-Shiller National Index, Seasonally Adjusted (SA). For the down payment - there wasn’t a significant difference between 15% and 20%. For mortgage rates, I used the Freddie Mac PMMS (30-year fixed rates). Lower is more affordable. If we compare to three years ago, there is huge difference in monthly payments. In November 2021, the payment on a $500,000 house, with a 20% down payment and 3.07% 30-year mortgage rates, would be around $1,701 for principal and interest. The monthly payment for the same house, with house prices up 18% over three years and mortgage rates at 6.81% in November 2024, would be $3,068 - an increase of 80%!

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted U.S. house prices stand 1.1% below their 2022 peak, based on the Case-Shiller National Index, seasonally adjusted.
  2. The monthly principal-and-interest payment on a $500,000 house with 20% down rose 80%, from about $1,701 in November 2021 at a 3.07% 30-year rate to $3,068 in November 2024 at 6.81%.
  3. House prices rose 18% over the three years to November 2024, alongside an increase in Freddie Mac 30-year fixed mortgage rates from 3.07% to 6.81%.

Related Articles:

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

AI Summary. China directs $1–1.5bn a year in public funding to fusion research, exceeding the roughly $900m in total annual public funding across the rest of the world, while US private fusion funding has averaged $200–500m a year with sharp swings. China's state-led stability contrasts with America's fragmented, private-sector-driven approach.

Amy Ouyang Macro Polo
Date Posted:

China spends $1-$1.5B annually on fusion research from stable public funds, with state-owned firms managing supply chains. In contrast, US private fusion funding “has fluctuated significantly, averaging $200–500mm per year.” @Hanyue_Ouyang

Is China outspending the rest of the world on fusion research?

Core argument: China's public funding for fusion R&D has run $1–$1.5 billion annually in recent years, exceeding the $900 million in total annual public fusion funding for the rest of the world.

China’s public funding has flowed to fusion R&D to the tune of $1-$1.5 billion annually in recent years. While that may not be a massive aggregate sum, it far exceeds the $900 million in total annual public funding for the rest of the world. In contrast, US private funding towards fusion has fluctuated significantly, averaging $200–$500 million per year, with a one-off spike to above $2.5 billion in 2021. That this Chinese public funding is relatively stable helps to insulate fusion R&D from market pressures and short-term volatility like budget cuts. Commercializing fusion—which requires highly skilled talent, advanced materials engineering, and scalable infrastructure—takes coordination and delegation. In China, the state will be the conductor and first chair of this strategic symphony. Though fusion is no less strategic for the United States, its private-sector driven and fragmented approach brings its own set of bottlenecks.

Takeaways by Macro Roundup® AI

  1. China's public funding for fusion R&D has run $1–$1.5 billion annually in recent years, exceeding the $900 million in total annual public fusion funding for the rest of the world.
  2. US private fusion funding has averaged $200–$500 million per year with a one-off spike above $2.5 billion in 2021, while China's relatively stable public funding helps insulate its fusion R&D from budget cuts and short-term volatility.
  3. Commercializing fusion requires highly skilled talent, advanced materials engineering, and scalable infrastructure, with the Chinese state serving as coordinator while the fragmented, private-sector-driven US approach brings its own bottlenecks.

Related Articles:

  • US Nuclear Fusion Start-up Backed by Sam Altman and Peter Thiel Secures $425mn — US nuclear fusion start-up Helion has raised over $1bn at a $5.4bn valuation, including a $425mn round. The company says it will spend the funds expanding US manufacturing of large-scale pulse capacitors, which account for about a third of the cost of its Polaris reactor and were previously built overseas.
  • China Outspends the U.S. on Fusion in the Race for Energy’s Holy Grail — Scientists familiar with China's fusion facilities estimate that at its current pace of spending and development, China will surpass U.S. and European magnetic fusion capabilities within three or four years. Much U.S. fusion spending goes to legacy programs, while China's roughly $1.5bn is largely directed at building systems that would compete with leading private U.S. fusion firms.
  • Microsoft Bets That Fusion Power Is Closer Than Many Think — Microsoft has agreed to buy fusion-generated electricity from startup Helion Energy in what is believed to be the first commercial fusion power agreement, even as many experts view fusion as decades away. Helion committed to begin producing fusion electricity within about five years and to supply at least 50 megawatts or pay penalties.

AI Summary. Boom Supersonic's XB-1 test aircraft exceeded Mach 1, about 770 miles per hour, at an altitude of 34,000 feet, potentially opening the way for a return of supersonic commercial travel. The XB-1 is about one-third the size of Boom's planned Overture passenger jet, which would carry 64–80 passengers and cost about $200mn.

Sylvia Pfeifer, Ian Bott and Philip Georgiadis Financial Times
Date Posted:

Boom Supersonic’s XB-1 exceeded Mach 1 in a test flight, signaling a potential return to supersonic commercial travel. Boom has 130 aircraft pre-orders from United, American, and Japan Airlines.

Is supersonic commercial air travel moving closer to a return?

Core argument: Boom Supersonic's XB-1 test aircraft exceeded Mach 1, about 770 miles per hour, at an altitude of 34,000 feet above California's Mojave desert, breaking the sound barrier for the first time more than 20 years after Concorde's final flight.

A test aircraft built by a US start-up has broken the sound barrier for the first time during a flight, potentially paving the way for the return of supersonic commercial travel more than 20 years since Concorde’s final flight. Boom Supersonic’s XB-1 successfully exceeded Mach 1, about 770 miles per hour, after reaching an altitude of 34,000 feet above the Mojave desert in California on Tuesday. The XB-1 is about one-third the size of the Overture jet that Boom hopes to use for passenger flights. Designed to carry 64 to 80 passengers, the plane would be smaller than the average commercial airliner today and would cost about $200mn. The company has already secured orders and pre-orders from United Airlines, American Airlines, and Japan Airlines to purchase 130 aircraft.

Takeaways by Macro Roundup® AI

  1. Boom Supersonic's XB-1 test aircraft exceeded Mach 1, about 770 miles per hour, at an altitude of 34,000 feet above California's Mojave desert, breaking the sound barrier for the first time more than 20 years after Concorde's final flight.
  2. Boom's planned Overture passenger jet, about three times the size of the XB-1, would carry 64 to 80 passengers, making it smaller than the average commercial airliner today, and would cost about $200mn.
  3. United Airlines, American Airlines and Japan Airlines have placed orders and pre-orders for 130 of Boom Supersonic's aircraft.

Related Articles:

  • Boeing Battles Brain Drain As Engineers Chase the Allure of Space — The average tenure of a Boeing engineer has fallen from 16.4 years to 12.6 years, according to data from the union representing 12,000 Boeing engineers, with tenure shortening in almost every age bracket. Analysts, recruiters and union officials describe this "brain drain" as a drag on operations that could make launching a new plane harder.

Thursday, January 30, 2025

AI Summary. U.S. net borrowing was 7% of GDP across the first three quarters of 2024 versus 5.4% in 2019, with higher interest payments accounting for about 1.4 percentage points of that 1.6-point increase. The largest recent buyer of Treasury notes and bonds has been the rest of the world.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein paints a scenario where growing fiscal deficits and debt relative to GDP—unprecedented at this point in the business cycle—are merely offset by a decline in private sector debt with little effect on consumption or investment while raising concerns about a “Brazil”-like unwinding.

What explains the rising U.S. deficit, and who is buying Treasuries?

Core argument: The "rest of the world" has been the single biggest buyer of U.S. notes and bonds in recent quarters.

Net borrowing was 5.4% of GDP in 2019, compared to 7% in 2024 Q1-Q3.  [An] increase in interest payments explains about 1.4 percentage points of the total 1.6pp increase in the deficit. The single biggest buyer of notes and bonds in the past few quarters has been the “rest of the world.” The simplest assumption is that receipts will keep pace with GDP, non-interest spending will gradually rise relative to GDP thanks to population aging and the tendency of healthcare costs to rise faster than other prices, and that the overall deficit will continue to expand. The benign scenario is that private indebtedness continues to fall but that private spending remains robust. In this case, the unusually large budget deficit would  [cause] a slow unwinding of the decades-long run-up in private indebtedness that preceded the global financial crisis. The “Brazil” alternative is that policymakers feel compelled to embrace fiscal austerity as the private sector gets squeezed by high real interest rates and tight credit.

Takeaways by Macro Roundup® AI

  1. The "rest of the world" has been the single biggest buyer of U.S. notes and bonds in recent quarters.
  2. Under the benign scenario, the unusually large budget deficit drives a slow unwinding of the decades-long pre-crisis run-up in private indebtedness while private spending stays robust; the "Brazil" alternative has policymakers embracing fiscal austerity as high real interest rates and tight credit squeeze the private sector.

Related Articles:

  • 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%.
  • 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.
  • 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.

AI Summary. More efficient AI model training and falling compute costs pose a near-term risk of lower AI-related capital spending, which equity analysts project will rise to $325bn by the end of 2025, though that risk is seen as limited. Cheaper, more competitive models could instead speed the buildout of AI platforms and applications, raising macroeconomic upside.

Goldman Sachs Joseph Briggs
Date Posted:

Joseph Briggs argues that the DeepSeek AI breakthrough creates limited risks to Goldman’s forecast of $325B AI capex by Q4 ‘25. Increased competition could accelerate the buildout of productivity-enhancing AI applications “raising macroeconomic upside.”

Do cheaper AI models threaten AI capital spending or boost growth?

Core argument: Equity analysts project AI-related capex will rise to $325bn by 2025Q4, and the main near-term GDP risk is that more efficient model training and falling compute costs reduce that spending.

The main near-term risk to GDP is that more efficient model training and declining compute costs could lower AI-related capex, which [our] equity analysts project will rise to $325bn by 2025Q4. However, we view this risk as limited. Our equity analysts do not expect companies to significantly adjust capital allocation on the back of the recent DeepSeek news. While they acknowledge some risk that the build-out of AI infrastructure could be negatively affected should current leaders reassess their forward capex plans, they also highlight that DeepSeek could catalyze higher levels of real hardware spending if it pushes incumbents to invest more to maintain their lead in AI capability. More fundamentally, if the novel computational techniques employed by DeepSeek’s models indeed increase competition and lower costs, they could catalyze a faster buildout of AI platforms and applications that have so far posed a bottleneck to adoption and the impact on productivity, thereby raising macroeconomic upside.

Takeaways by Macro Roundup® AI

  1. Equity analysts project AI-related capex will rise to $325bn by 2025Q4, and the main near-term GDP risk is that more efficient model training and falling compute costs reduce that spending.
  2. Equity analysts do not expect companies to significantly adjust capital allocation following the DeepSeek news, while noting DeepSeek could catalyze higher real hardware spending if incumbents invest more to maintain their lead in AI capability.
  3. If DeepSeek's novel computational techniques increase competition and lower costs, they could catalyze a faster buildout of AI platforms and applications that have so far bottlenecked adoption and productivity, raising macroeconomic upside.

Related Articles:

  • DeepSeek FAQ — Consumers and businesses stand to gain most from a future of effectively free AI products, along with big consumer tech companies, since a world of free AI makes product and distribution the decisive advantages they already hold. China also benefits, and the United States faces a choice between expanding chip export restrictions and permission-based regulation or allowing itself to compete.
  • 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.
  • Gen AI: Too Much Spend, Too Little Benefit? — The author argues generative AI is unlikely to drive revenue expansion because it helps employees find information faster rather than find better information. If AI's benefits remain limited to efficiency gains, competitors can adopt the same tools, so cost savings get arbitraged away rather than raising prices or margins.

AI Summary. Rebound effects, where efficiency gains are partly offset by increased use, are typically too small to fully cancel out the original savings, and the Jevons paradox — where rebounds exceed the initial savings — is rare. Basing a bullish case for artificial intelligence on that paradox is a bet on demand rather than on the technology's efficiency.

Economist Staff The Economist
Date Posted:

Claims that AI adoption will follow the Jevons paradox depend on rebound effects from energy efficiency gains —like DeepSeek’s— outweighing initial savings. Yet, AI demand forecasts remain highly uncertain.

Does the bullish AI case rest on a rare rebound effect?

Core argument: Rebound effects from improved energy efficiency are typically not large enough to fully offset the initial savings, and the Jevons paradox — where the sum of all rebounds exceeds those savings — is quite rare.

The Jevons paradox is a form of a broader phenomenon known as “rebound effects”. These are typically not large enough to fully offset savings from improved efficiency. Usually they are examined by academics and policymakers keen to use less energy: environmental worries about peak coal turned into worries about peak oil and then into worries about greenhouse gases. Sometimes the effect is straightforward: tighter fuel standards, designed to lower emissions, lead American drivers to travel longer distances. Sometimes it is less direct: better-insulated houses have increased the size of windows in Europe, offsetting efficiency gains. Sometimes it is macroeconomic: less energy use by one industry frees up supply for another. The Jevons paradox occurs when the sum of all the rebounds is larger than the initial energy savings—and it is really quite rare. Basing the bull case for AI on the Jevons paradox is, therefore, a bet not on the efficiency of the technology but on the level of demand.

Takeaways by Macro Roundup® AI

  1. Rebound effects from improved energy efficiency are typically not large enough to fully offset the initial savings, and the Jevons paradox — where the sum of all rebounds exceeds those savings — is quite rare.
  2. Rebound effects operate through direct channels such as tighter fuel standards leading American drivers to travel longer distances, indirect ones such as better-insulated European houses gaining larger windows, and macroeconomic ones as freed-up energy supply shifts to other industries.
  3. Resting the bull case for AI on the Jevons paradox amounts to a bet on the level of demand rather than on the efficiency of the technology.

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AI Summary. 52% of single American women say they would be less likely to date a supporter of Donald Trump, compared with 36% of single men, with 47% of men saying it would make no difference. The gap widens with education: 73% of college-educated single women report such hesitancy, versus under half of those without a degree.

Daniel Cox and Kelsey Eyre Hammond American Enterprise Institute
Date Posted:

New @AEIecon polling finds that 73% of college-educated single women are less likely to date a Trump supporter vs. 42% of non-college single women. AP exit data shows that 39% of single women voted for Trump vs. 53% of single men. @dcoxpolls

Do single women reject partners over politics more than men?

Core argument: 52% of single American women say they would be somewhat or a lot less likely to date a Trump supporter, compared with 36% of single men who report being less inclined to date a Trump supporter.

Among single Americans, men and women have pronounced preferences regarding their partner’s politics, specifically whether they support Trump. 52% of single women say they would be somewhat less likely or a lot less likely to date a Trump supporter. Only 36% of single men say they would be less inclined to date someone who supports Trump, while 47% report that it would make no difference to them. Education further accentuates the gender divide in dating preferences. 73% of college-educated single women would be less likely to date a Trump supporter, including 52% who say they would be a lot less likely to. Less than half of single women without a college degree report that they would be hesitant to date a Trump supporter.

Takeaways by Macro Roundup® AI

  1. 52% of single American women say they would be somewhat or a lot less likely to date a Trump supporter, compared with 36% of single men who report being less inclined to date a Trump supporter.
  2. 47% of single men say a partner's support for Trump would make no difference to them, while a majority of single women report being less likely to date such a partner.
  3. Among college-educated single women, 73% would be less likely to date a Trump supporter, including 52% who say a lot less likely, compared with under half of single women without a college degree.

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  • 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%.
  • Disconnected: The Growing Class Divide in American Civic Life — 17% of Americans report having no close friends, and survey data show a wide educational gap: 24% of those with a high school education or less have no close friends versus 10% of college graduates. Three decades ago, Americans with less formal education reported social circles at least as large.

AI Summary. Samples returned from the asteroid Bennu contain salt minerals—including sodium-bearing phosphates and sodium-rich carbonates, sulfates, chlorides and fluorides—that the authors report formed as a late-stage brine evaporated early in the history of Bennu's parent body. Detecting these salts required sample return and careful curation, because they decompose with prolonged exposure to Earth's atmosphere.

T.J McCoy, S.S. Russell et al. Nature
Date Posted:

Samples from the asteroid Bennu contain key components necessary for life, including all five nucleobases that make up DNA and RNA, and 14 of 20 amino acids found in proteins on Earth, suggesting life on Earth may have been “seeded” by asteroids.

Do asteroid samples show salts left behind by evaporated brine?

Core argument: Samples of asteroid (101955) Bennu returned by OSIRIS-REx contain sodium-bearing phosphates and sodium-rich carbonates, sulfates, chlorides and fluorides formed during evaporation of a late-stage brine early in the history of Bennu's parent body.

Evaporation or freezing of water-rich fluids with dilute concentrations of dissolved salts can produce brines, as observed in closed basins on Earth and detected by remote sensing on icy bodies in the outer Solar System. The mineralogical evolution of these brines is well understood in regard to terrestrial environments, but poorly constrained for extraterrestrial systems owing to a lack of direct sampling. Here we report the occurrence of salt minerals in samples of the asteroid (101955) Bennu returned by the OSIRIS-REx mission. These include sodium-bearing phosphates and sodium-rich carbonates, sulfates, chlorides and fluorides formed during evaporation of a late-stage brine that existed early in the history of Bennu’s parent body. Discovery of diverse salts would not be possible without mission sample return and careful curation and storage, because these decompose with prolonged exposure to Earth’s atmosphere. Similar brines probably still occur in the interior of icy bodies Ceres and Enceladus, as indicated by spectra or measurements of sodium carbonate on the surface or in plumes.

Takeaways by Macro Roundup® AI

  1. Samples of asteroid (101955) Bennu returned by OSIRIS-REx contain sodium-bearing phosphates and sodium-rich carbonates, sulfates, chlorides and fluorides formed during evaporation of a late-stage brine early in the history of Bennu's parent body.
  2. Discovery of these diverse salts required mission sample return with careful curation and storage, because the minerals decompose with prolonged exposure to Earth's atmosphere.
  3. Similar brines probably still occur inside the icy bodies Ceres and Enceladus, as indicated by spectra or measurements of sodium carbonate on their surfaces or in plumes.