Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a 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 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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences 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, February 12, 2025

AI Summary. U.S. tax rebates of $100bn disbursed in 2008 produced a large spike in aggregate disposable income but only a small rise in consumption spending. The authors estimate an implied multiplier of less than 0.2, indicating the rebates provided little macroeconomic stimulus despite micro studies finding large spending responses.

Valerie Ramey International Monetary Fund
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Valerie Ramey examines case studies from the US, Singapore, and Australia and finds that temporary transfers like tax rebates “likely provided little or no macroeconomic stimulus in advanced economies,” contradicting influential micro studies.

Do temporary cash rebates provide much macroeconomic stimulus?

Core argument: The implied multiplier from the 2008 U.S. tax rebates is less than 0.2, suggesting the rebates contributed little macroeconomic stimulus.

The 2008 U.S. tax rebates were a leading counterexample to the belief that discretionary fiscal policy was not sufficiently nimble to be used for stabilization policy. A tax rebate of $100 billion, equal to 11% of monthly income, was passed in February 2008. It was paid out mostly from May through July 2008. Among the 85% of the tax units receiving a rebate, the average check was $1,000. Figure 2 shows real U.S. aggregate disposable income and consumption, in billions of January 2008 dollars at a monthly rate. The left and right axes have different starting points but the same vertical length so that changes are equivalent across the two series. Disposable income exhibits a large spike, with a peak in May 2008 when almost $50 billion was disbursed. In contrast, consumption expenditures display a small hump, with a peak in May, but the magnitude of the rise is tiny compared to the spike in disposable income. [We] reconcile micro estimates with large MPCs [that in turn suggest large macro effects] with the aggregate data. In both cases, the implied multiplier is less than 0.2, suggesting that the rebates contributed little macro stimulus.

Takeaways by Macro Roundup® AI

  1. The implied multiplier from the 2008 U.S. tax rebates is less than 0.2, suggesting the rebates contributed little macroeconomic stimulus.
  2. The February 2008 U.S. tax rebate totaled $100 billion, equal to 11% of monthly income, was paid mostly from May through July 2008, and averaged $1,000 among the 85% of tax units receiving one.
  3. U.S. real aggregate disposable income spiked to a peak in May 2008, when almost $50 billion was disbursed, while consumption expenditures showed only a small hump peaking in May, tiny compared with the income spike.

Related Articles:

  • The Macroeconomic Consequences Of Infrastructure Investment — Infrastructure investment is not effective as short-term stimulus because time-to-build delays and the crowding out of private spending make short-run multipliers for government investment lower than for government consumption. Infrastructure spending often produces no change or a decline in employment in the initial years, even when interest rates are near zero.
  • Spatial Spillovers and the Effects of Fiscal Stimulus: Evidence from Pandemic-Era Federal Aid for State and Local Governments — The authors estimate that each $878,000 in federal assistance to state and local governments created or preserved one state or local job-year, with about a third of the effect driven by spillovers from other states. Their confidence intervals rule out a cost below $428,000 per job-year, implying weaker employment support than during the global financial crisis.
  • The Macro Equivalent of War? — A U.S. spending plan estimated at 8.6% of GDP is comparable in scale to past wartime spending, and medium-sized wars have historically produced a temporary spike in inflation rather than a sustained rise. Because much of the plan consists of transfer payments rather than military purchases, its overall economic multiplier may be lower.

AI Summary. The US consumer price index rose 0.5% in a month, with shelter accounting for nearly 30% of the advance, according to the Bureau of Labor Statistics. Grocery prices led the increase, and two-thirds of that gain came from higher egg prices following a deadly bird flu outbreak.

Augusta Saraiva Bloomberg
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CPI rose 0.5% in January, the fastest rate since August 2023, bringing CPI to 3% year over year and core CPI to 3.3% year over year. Shelter accounted for ~ 30% of the increase.

Is inflation running hotter than forecast, supporting a rate hold?

Core argument: The consumer price index rose 0.5% last month, its largest monthly increase since August 2023, led by household expenses including groceries and gas, according to the Bureau of Labor Statistics report released Wednesday.

The consumer price index rose 0.5% last month, the most since August 2023 and led by a range of household expenses like groceries and gas. Shelter accounted for nearly 30% of the advance, according to the report from the Bureau of Labor Statistics out Wednesday. The increase in the CPI was led by grocery prices, with two-thirds of that advance due to higher egg prices in the wake of a deadly bird flu outbreak. The more-than 15% jump was the largest since June 2015. Costs of hotel stays and used cars also climbed, possibly in the aftermath of severe wildfires in Los Angeles.

Takeaways by Macro Roundup® AI

  1. The consumer price index rose 0.5% last month, its largest monthly increase since August 2023, led by household expenses including groceries and gas, according to the Bureau of Labor Statistics report released Wednesday.
  2. Shelter accounted for nearly 30% of the CPI advance, while grocery prices led the increase, with two-thirds of that gain due to egg prices rising more than 15% — the largest jump since June 2015 — following a deadly bird flu outbreak.
  3. Costs of hotel stays and used cars also climbed, possibly in the aftermath of severe wildfires in Los Angeles, with inflation topping forecasts and bolstering the case for the Federal Reserve to hold.

Related Articles:

  • 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%.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — 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.
  • Bessent Says Trump Wants Lower 10-Year Yields, Not Fed Cuts — The US Treasury Secretary said the administration's effort to lower borrowing costs targets 10-year Treasury yields rather than the Federal Reserve's short-term benchmark rate, arguing that spending cuts, a smaller government, and lower energy prices can deliver non-inflationary growth. The Treasury maintained its guidance to keep sales of longer-term debt unchanged.

AI Summary. Higher interest rates transmit through a higher cost of capital that reduces capital spending and hiring while redistributing value from equity holders to debt holders, since equity bears the higher debt-servicing costs. The author argues companies with earnings and cash flow outperform those without, making value more attractive than growth.

Torsten Sløk Apollo
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Torsten Sløk argues that “higher for longer” rates shift value towards firms that have cash flow to service their debt while making risk-taking more challenging for new ventures with “no earnings, no revenue, and no cash flow.”

How do higher interest rates shift value from equity to debt holders?

Core argument: Higher interest rates redistribute value from junior to senior parts of the corporate capital structure, with equity holders, not the Fed, bearing the cost of higher debt servicing.

The transmission mechanism of monetary policy works through higher costs of capital that lowers demand for capex and hiring but also raises return requirements for equity to pay the debt holders in the company. Higher interest rates are a redistribution of value from the junior parts of the capital structure to the senior parts. Someone has to pay the higher level of interest rates in corporate capital structures, and it is not the Fed, it is the equity holder. In short, companies with no earnings, no cash flow, and no revenue will continue to struggle simply because they cannot pay the higher debt servicing costs. In other words, when interest rates are higher for longer, companies with earnings tend to outperform because companies with earnings are able to pay higher debt servicing costs. The purpose with higher interest rates is to slow growth, which makes value more attractive than growth. In fact, this is the entire idea from the Fed with raising interest rates—to discourage too much risk taking, such as investments in companies and capital structures with no earnings, no revenue, and no cash flow. Examples of [such] unattractive sectors are growth, software, and venture capital.

Takeaways by Macro Roundup® AI

  1. Higher interest rates redistribute value from junior to senior parts of the corporate capital structure, with equity holders, not the Fed, bearing the cost of higher debt servicing.
  2. Companies with no earnings, no revenue, and no cash flow struggle under rates higher for longer because they cannot cover higher debt servicing costs, while companies with earnings tend to outperform.
  3. The Fed's aim in raising rates is to slow growth and discourage risk taking in companies and capital structures without earnings, revenue, or cash flow, which makes value more attractive than growth and leaves growth, software, and venture capital unattractive.

Related Articles:

  • Monetary Policy and Innovation — The authors estimate that a 100bps monetary tightening reduces investment in intellectual property by about 1%, research and development spending at public firms by about 3%, venture capital investment by up to 25%, and patenting in important technologies by up to 9%.
  • Data Update 6 for 2025: From Macro to Micro – The Hurdle Rate Question — Valuation errors stem mainly from mistaken forecasts of growth, profitability, or reinvestment rather than from the discount rate, and no great company achieved greatness by finessing its cost of capital. The author suggests valuing a mature US company using the 8.35% median cost of capital and focusing analysis on growth and profit prospects.
  • Cost of Capital and Capital Allocation: Investment in the Era of “Easy Money” — The authors estimate that U.S. asset types seeing larger reductions in the user cost of capital and marginal effective tax rates after the 2017 Tax Cuts and Jobs Act had significantly larger increases in investment rates, persisting for several years. A 1pp decline in the user cost is associated with a 1.4–2.3pp higher investment rate.

AI Summary. Labor force participation among women ages 25–54 rose 3.5 percentage points to 78.2%, nearly double the 1.8 percentage point rise among prime-age men. Hispanic women accounted for about a third of that increase despite making up 17% of prime-age women, while White women contributed 43% versus a 56% population share.

Sabrina Considine, Brandon Miskanic, Nicolas Petrosky-Nadeau, and Deepika Baskar Prabhakar Federal Reserve Bank of San Francisco
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Labor force participation for prime-age (25-54) females rose from 74.7% in Jan. 2021 to 78.2% in Sept. 2024. Hispanic women represented only 17% of the prime-age female population but accounted for ⅓ of the increase. @sffed

Which groups of women are driving rising labor force participation?

Core argument: The labor force participation rate for prime-age women (25–54) rose 3.5 percentage points from 74.7% in January 2021 to 78.2% as of September 2024, nearly double the 1.8 percentage point rise among prime-age men.

The labor force participation (LFP) rates among people ages 25 to 54 have grown significantly since the pandemic, with women contributing more to the increase than men. Figure 1 shows that, since January 2021, the participation rate for prime-age women has surged 3.5 percentage points, increasing from 74.7% to 78.2%. As of September 2024, that was nearly double the 1.8 percentage point rise among men. Hispanic women have made a disproportionately large contribution to prime-age women’s LFP rate growth relative to their population share. Specifically, Hispanic women accounted for nearly 1/3 (1.1pp) of the 3.5pp increase in the overall prime-age women’s LFP rate since 2021 but represent only 17% of the prime-age women population. By contrast, White women contributed about 43% of the increase, substantially less than their 56% share of the prime-age women population.

Takeaways by Macro Roundup® AI

  1. The labor force participation rate for prime-age women (25–54) rose 3.5 percentage points from 74.7% in January 2021 to 78.2% as of September 2024, nearly double the 1.8 percentage point rise among prime-age men.
  2. Hispanic women accounted for 1.1 percentage points, nearly one-third, of the 3.5 percentage point increase in prime-age women's participation rate since 2021 while representing only 17% of the prime-age female population.
  3. White women contributed about 43% of the rise in prime-age women's labor force participation since 2021, substantially less than their 56% share of the prime-age female population.

Related Articles:

  • Why Is Prime-Age Labor Force Participation So High? — Labor force participation among 25-to-54-year-olds rose after the pandemic shock, with women's rate exceeding its pre-pandemic peak while men's returned to its pre-pandemic level but stayed below its historical high. The authors find this participation rise can ease wage and price pressures in hot labor markets, but appears to have ended.
  • 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.
  • Bringing Home the Bacon: Have Trends in Men’s Pay Weakened the Traditional Family? — Using the 25th percentile of pretax earnings among married sole-breadwinner fathers aged 25–29 as a marriageability threshold, the author estimates the share of young single men earning below it moved from 63% to 58% over four decades. Using an earlier baseline year instead yields a larger change, from 72% to 57%.

AI Summary. Moravec's Paradox holds that computers handle tasks humans find difficult, like advanced math, more easily than tasks humans find trivial, like making a bed — the very skills needed for elder care as populations fall. Tax breaks for fertility appear ineffective, while more and earlier marriage appears significant.

Jesús Fernández-Villaverde American Enterprise Institute
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Jesús Fernández-Villaverde @AEIecon argues that AI is unlikely to deliver viable solutions for old-age care, and proposes that “the US should restructure its entire economic policy toward a family-oriented approach that facilitates marriage.”

Can tax breaks raise fertility, or does marriage matter more?

Core argument: The authors argue that addressing falling fertility carries an impact measured in discounted terms of quadrillions of dollars, though they remain uncertain about which policies would raise US birth rates.

Moravec’s Paradox: programming computers to perform tasks that most humans consider very difficult (e.g., advanced math) is much easier than programming them to carry out tasks that most humans find trivial (e.g., making a bed). Unfortunately, the problems we will face due to the falling population, such as the need for old-age care, require skills like making a bed and not doing advanced math. What can the US do to address the fertility crisis? This is the one-quadrillion-dollar question (yes, tackling fertility has an impact measured in discounted terms of quadrillions of dollars, not just small change like a miserly trillion dollars here or there). We remain uncertain. We know, for example, that offering tax breaks for fertility doesn’t seem to make much difference. Instead, marrying more people (and doing so earlier) does appear to be significant. The US should restructure its entire economic policy toward a family-oriented approach that facilitates marriage. Highlighting the main components of such a policy would merit an article in itself. However, it encompasses housing affordability, reforming the educational system, and enhancing the labor and social skills of many young men.

Takeaways by Macro Roundup® AI

  1. The authors argue that addressing falling fertility carries an impact measured in discounted terms of quadrillions of dollars, though they remain uncertain about which policies would raise US birth rates.
  2. Tax breaks for fertility do not appear to make much difference, while marrying more people and marrying earlier does appear to be significant, according to the authors.
  3. Moravec's Paradox implies that the care needs of an aging population, such as making a bed, are harder to program computers to perform than tasks like advanced math.

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.
  • The Demographic Outlook: 2025 to 2055 — The Congressional Budget Office projects the U.S. population will grow from 350m to 372m over three decades, an average of 0.2% per year, less than a quarter of the 0.9% average annual rate from 1975 to 2024. Deaths are projected to exceed births beginning in 2033, with net immigration more than accounting for population growth thereafter.
  • 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.

AI Summary. Public schools in heavily Democratic areas often stayed closed for close to a year, while schools in some Republican areas reopened after only the initial spring closure. Eight of the 10 states with the largest losses in student achievement since 2019 voted Democratic in recent presidential elections, and eight of the 10 with the smallest math shortfalls voted Republican.

David Leonhardt New York Times
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.@DLeonhardt reports a sharp partisan gap in learning loss: 8 of the 10 states with the biggest math declines since 2019 – likely due to prolonged school closures – voted Democratic, while 8 of the 10 smallest shortfalls voted Republican.

Do longer school closures explain larger student achievement losses?

Core argument: Eight of the 10 states that have lost the most ground in test scores since 2019 voted Democratic in recent presidential elections, while eight of the 10 states with the smallest math shortfalls voted Republican.

Many public schools in heavily Democratic areas stayed closed for almost a year — from the spring of 2020 until the spring of 2021. In some Republican areas, by contrast, schools remained closed for only the spring of 2020. Eight of the 10 states that have lost the most ground since 2019 voted Democratic in recent presidential elections. And eight of the 10 states with the smallest math shortfalls voted Republican. [Higher initial scores don’t] explain the post-pandemic patterns. For example, New Jersey (a blue state) and Utah (a red state) both had high math scores in 2019, but New Jersey has fared much worse since then.

Takeaways by Macro Roundup® AI

  1. Eight of the 10 states that have lost the most ground in test scores since 2019 voted Democratic in recent presidential elections, while eight of the 10 states with the smallest math shortfalls voted Republican.
  2. Many public schools in heavily Democratic areas stayed closed from the spring of 2020 until the spring of 2021, whereas schools in some Republican areas were closed only for the spring of 2020.
  3. Higher initial scores do not explain the post-pandemic patterns: New Jersey and Utah both had high math scores in 2019, but New Jersey has fared much worse since.

Related Articles:

  • Long COVID for Public Schools: Chronic Absenteeism Before and After the Pandemic — Nationwide chronic absenteeism — the share of students missing at least 10% of a school year — rose from 15% in 2018 to 28% in 2022, and although rates improved in 2023, they remained 75% above the pre-pandemic baseline. Chronic absenteeism is associated with lower standardized test scores, with the highest rates in lower-achieving, higher-poverty districts.
  • What the Data Says About Pandemic School Closures, Four Years Later — Among school districts with similar poverty levels, remote learning was associated with greater declines in student achievement, and a district-level analysis found community poverty rates and the length of school closures had roughly equal effects on outcomes. For each week spent remote, students in poor districts experienced steeper math losses than peers in richer districts.
  • Students Are Making a ‘Surprising’ Rebound From Pandemic Closures. But Some May Never Catch Up — An analysis of standardized test data led by Stanford and Harvard researchers finds elementary and middle-school students have regained about a third of pandemic learning losses in math and a quarter in reading. Because poorer districts lost more ground initially, the typical poor district remains nearly half a grade level behind, versus about a fifth for rich districts.

AI Summary. Dairy cows in Nevada were infected with D1.1, a form of H5N1 bird flu circulating in wild birds and poultry that is distinct from the B3.13 version found in more than 950 herds across 16 states. The finding indicates the virus has spilled from birds into cows at least twice.

Emily Anthes and Apoorva Mandavilli New York Times
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Cows in Nevada have been infected with a new variant of H5N1, D1.1, which was responsible for the first US death from bird flu this year. This suggests a 2nd spillover from birds to cows beyond the B3.13 variant that has infected herds in 16 states.

Has bird flu jumped from birds into dairy cows more than once?

Core argument: Dairy cows in Nevada were infected with the D1.1 form of H5N1 bird flu, distinct from the B3.13 version that has infected more than 950 herds across 16 states.

Dairy cows in Nevada have been infected with a new form of bird flu that is distinct from the version that has been spreading through herds over the last year. The virus is a version of H5N1 known as B3.13, which has infected more than 950 herds in 16 states. Scientists believe that it initially jumped to cows from birds about a year ago, somewhere in the Texas panhandle. That transition took scientists by surprise, and this new one even more so. The cows in Nevada were infected with a version of the virus known as D1.1, which has been spreading in wild birds and poultry. It was initially detected in milk collected from a silo as part of a national milk testing strategy announced by the U.S.D.A. late last year. The D1.1 form of H5N1 has also shown itself to be dangerous to people. Of the 67 Americans known to have become ill with H5N1 so far, the only one who died was infected with this version. The [new] finding indicates that the virus, known as H5N1, has spilled from birds into cows at least twice — leading to these two sets of infections — and that it could continue to do so. [Thus] the virus may pose a persistent risk to cows and to the people who work closely with them.

Takeaways by Macro Roundup® AI

  1. Dairy cows in Nevada were infected with the D1.1 form of H5N1 bird flu, distinct from the B3.13 version that has infected more than 950 herds across 16 states.
  2. Of the 67 Americans known to have become ill with H5N1, the only one who died was infected with the D1.1 version that has been spreading in wild birds and poultry.
  3. The D1.1 infection in cows was detected in milk collected from a silo under the national milk testing strategy announced by the U.S.D.A.

Related Articles:

Thursday, February 13, 2025

AI Summary. Evidence including the Council of Economic Advisers' own suggests US inflation would have peaked 1–2 percentage points lower without the $1.9tn American Rescue Plan, but the author argues a smaller package would still have left an inflation spike. The excess demand is credited with a quick return to full employment and a powerful expansion.

Jared Bernstein Jared’s Substack
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.@econJaredB argues @jasonfurman overstates his case against Bidenomics: given the supply shock, the ARP only increased inflation by 1-2pp.

Was the inflation from excess pandemic stimulus worth the rapid recovery?

Core argument: Evidence including the Council of Economic Advisers' own suggests inflation would have peaked perhaps 1–2 percentage points lower without the American Rescue Plan, with a $650 billion package instead of $1.9 trillion possibly putting the peak near 7.5–8% rather than 9%.

All that said, good evidence, including our own at CEA, suggests that inflation would have peaked lower, perhaps by 1-2 percentage points, without the ARP. However, nobody, including Jason, is arguing there should have been no Rescue Plan. That is a totally unrealistic counterfactual. Had we done Jason’s $650 billion instead of $1.9 trillion, maybe inflation would have peaked at ~7.5-8% instead of 9%. And it matters, inflation-wise, what you’d cut. The $350 billion in state and local support may have been too large given their budget conditions, but those dollars spent out very slowly over many years. For these reasons, I’m pretty confident that a smaller ARP wouldn’t have changed the public mood very much. There's no outcome here wherein inflation would not have spiked, and the excess demand helped get us back quickly to full employment, staved off a lot of pain and scarring, and set up a uniquely powerful expansion.

Takeaways by Macro Roundup® AI

  1. Evidence including the Council of Economic Advisers' own suggests inflation would have peaked perhaps 1–2 percentage points lower without the American Rescue Plan, with a $650 billion package instead of $1.9 trillion possibly putting the peak near 7.5–8% rather than 9%.
  2. A smaller American Rescue Plan would likely not have changed the public mood much, since inflation would have spiked under any scenario and what was cut would have mattered for the inflation path.
  3. The $350 billion in state and local support may have been too large given state budget conditions, though those dollars spent out slowly over many years, while excess demand helped return the economy quickly to full employment and limited scarring.

Related Articles:

  • The Post-Neoliberal Delusion — The author argues that Biden's post-neoliberal economic approach prioritized demand over supply and understated budget constraints, leaving inflation, unemployment, interest rates, and government debt higher than before the pandemic. Stimulus-driven demand fed inflation, construction costs erased real infrastructure gains, and industrial policy crowded out unsubsidized manufacturing without net job creation.
  • Bidenomics and Its Contradictions — Bidenomics rests on the claims that growth's quality matters more than its quantity, that industrial policy should replace laissez-faire, and that trade policy should favor workers over consumers. Defining market failure that broadly—covering regional, racial and gender inequities, rural internet access and child care costs—leaves no limiting principle on government intervention.
  • 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%.

AI Summary. U.S. states with more federally backed mortgage loans issued per capita are associated with larger increases in the mean number of children ever born among White women across birth cohorts, with no such association found for Nonwhite women, consistent with documented racial discrimination in these lending programs.

Lisa Dettling and Melissa Schettini Kearney National Bureau of Economic Research
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.@kearney_melissa finds higher fertility in states with greater FHA/VHA loan issuance among women aged <= 20 when FHA loans began in 1935. She argues FHA/VHA led to 3mm births over 1935-1957, 10% of the baby boom’s rebound from low interwar birth rates.

Did greater access to government-backed mortgages raise completed fertility?

Core argument: States with more cumulative FHA and VA loans issued per capita from 1935–1957 saw larger increases in mean children ever born among White women, comparing women observed in the 1970–80 Census with those in the 1940–50 Census.

Women in the 1970-80 Census were 20 years old or younger in 1935 when the FHA loan was first introduced; thus, the loans we study were available to those women for nearly all of their childbearing years. Women observed in the 1940-50 Census, on the other hand, were 30 or older in 1935 so these loans were available much less of their childbearing years. Figure 5 shows the correlation between cumulative FHA and VA loan issuance by state from 1935-1957 and the state by race group changes in mean children ever born between the two cohorts of women. States with a greater number of FHA/VA loans issued per capita experienced larger increases in the mean number of children ever born for White women (panel a). We find no effects of FHA/VA lending on births for Nonwhite women, consistent with well-documented racial discrimination in these lending programs. These patterns are consistent with access to government-backed mortgages raising completed fertility and highlight the importance of access to home ownership for fertility decisions

Takeaways by Macro Roundup® AI

  1. States with more cumulative FHA and VA loans issued per capita from 1935–1957 saw larger increases in mean children ever born among White women, comparing women observed in the 1970–80 Census with those in the 1940–50 Census.
  2. FHA and VA lending shows no association with births for Nonwhite women, consistent with documented racial discrimination in those lending programs.
  3. Women observed in the 1970–80 Census were 20 or younger when FHA loans were introduced in 1935, so the loans spanned nearly all their childbearing years, while women in the 1940–50 Census were already 30 or older.

Related Articles:

  • 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%.
  • Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past — Pew Research Center analysis of Census Bureau data finds 21-year-olds in the US are less likely than their counterparts four decades earlier to have a full-time job, be financially independent, live on their own, be married, or have a child. Among 21-year-olds, 39% worked full time versus 64% four decades earlier, and a quarter were financially independent versus 42%.
  • 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. If the Federal Reserve delivers the normalization toward its projected long-term neutral policy rate, market-cap-weighted US asset yields would offer a near-normal risk premium over cash. If instead demand stabilizes at a higher level with tight capacity and fading disinflationary forces, policy could not ease as much as markets discount, so asset yields would likely rise and prices fall.

Bob Prince and Shane Murphy Bridgewater Associates
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Bridgewater argues the rise in forward yields implies the US economy is stabilizing at a high level of demand with tight capacity, and reversion of disinflationary forces means further rate cuts are unlikely. “Yields likely have to rise—and prices fall.”

Do asset prices depend on rate cuts markets already expect?

Core argument: Market-cap-weighted US asset yields would in aggregate offer a near-normal risk premium relative to forward cash rates if policy normalizes toward the Fed's estimated long-term neutral policy rate.

The chart shows the current yield of assets in the US relative to cash, weighted by market cap. We then show the Fed’s estimate of the long-term neutral policy rate, i.e., the rate policy makers will manage toward if conditions allow. As you can see, if we get the normalization toward neutral rates that the Fed is projecting, then asset yields where they currently are will in aggregate offer a near-normal risk premium relative to that forward cash rate. But if we stabilize at a higher level of demand with tight capacity and disinflationary forces reverting, it’s unlikely policy will be able to ease as much as is discounted. In that world, asset yields likely have to rise—and prices fall—in order to create appropriate risk premia relative to cash. In our view, the market action over the past few months in part reflects this dynamic, as forward yields have risen in concert with expectations that a significant easing will be more difficult for policy makers to achieve.

Takeaways by Macro Roundup® AI

  1. Market-cap-weighted US asset yields would in aggregate offer a near-normal risk premium relative to forward cash rates if policy normalizes toward the Fed's estimated long-term neutral policy rate.
  2. If demand stabilizes at a higher level with tight capacity and disinflationary forces reverting, policy is unlikely to ease as much as is discounted, and asset yields would likely have to rise—and prices fall—to create appropriate risk premia relative to cash.
  3. Recent market action partly reflects this dynamic, in Bridgewater's view, as forward yields have risen in concert with expectations that significant easing will be harder for policy makers to achieve.

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AI Summary. Only 29% of firms globally earn returns above their cost of capital, and even excluding firms with negative earnings the share is just 46.5%. Positive profits alone do not signal success, since the capital invested could have been deployed elsewhere to earn returns.

Aswath Damodaran Musings on Markets
Date Posted:

.@A_Damodaran argues “Making money is not enough for business success,” noting that only 26.3% of 6,062 US firms produce returns greater than their cost of capital. Among 1,987 US firms with positive operating income, this rises to only 64.6%.

Do most firms earn returns above their cost of capital?

Core argument: Only 29% of firms globally earn more than their cost of capital, based on excess returns for non-financial service companies examined by sub-region.

I look at excess returns earned by non-financial service companies by sub-region, again to see if companies in some parts of the world are better positioned to create value than others. As you can see, there is no part of the world that is immune, and only 29% of all firms globally earn more than their cost of capital. Even if you eliminate firms with negative earnings, the proportion of firms that earn more than their cost of capital is only 46.5%. Making money is not enough for business success: In many businesses, public or private, managers and even owners seem to think that making money (having a positive profit) represents success, not recognizing that the capital invested in these businesses could have been invested elsewhere to earn returns.

Takeaways by Macro Roundup® AI

  1. Only 29% of firms globally earn more than their cost of capital, based on excess returns for non-financial service companies examined by sub-region.
  2. Excluding firms with negative earnings, the share of companies earning more than their cost of capital rises only to 46.5%, and no part of the world is immune.
  3. Positive profit does not constitute business success, since the capital invested in a business could have been invested elsewhere to earn returns.

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  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.
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AI Summary. US policy shifts can reverse quickly: an Eisenhower-era deportation surge reached 1.1m people before funding and political support collapsed, cutting deportations over 90% to 90,000 within two years. McKinley-era tariffs were followed by an inflation spike and a 100-seat Republican loss, the third largest House defeat since the Civil War.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest notes that public support for Eisenhower’s deportation surge collapsed after 1.1mm Mexicans were expelled in 1954, and that McKinley’s tariffs caused an inflation spike leading to one of the largest midterm losses on record.

How quickly have aggressive US policy pushes been reversed?

Core argument: Eisenhower's deportation surge reached 1.1 million people in 1954, but within 18 months funding and political support collapsed, and deportations fell by over 90% to 90,000 in 1956.

Whether you’re elated or despondent about the blizzard of changes emanating from Washington, let me remind you of something: two years is an eternity in US politics. Two examples: Eisenhower deportations and McKinley tariffs. Eisenhower’s deportation surge hit 1.1 million people in 1954 but within 18 months, funding and political support for the program collapsed; deportations fell by over 90% to just 90,000 in 1956. And in the 1890s, although McKinley tariffs were popular at the time (he championed them as House Ways and Means Committee Chair), they caused an almost immediate inflation spike after which the GOP lost 100 seats in the 1890 midterms. The GOP loss in 1890 is the third largest in the history of the House going back to the Civil War.

Takeaways by Macro Roundup® AI

  1. Eisenhower's deportation surge reached 1.1 million people in 1954, but within 18 months funding and political support collapsed, and deportations fell by over 90% to 90,000 in 1956.
  2. The McKinley tariffs, popular when he championed them as House Ways and Means Committee Chair, caused an almost immediate inflation spike, after which the GOP lost 100 House seats in the 1890 midterms.
  3. The GOP's 1890 House loss ranks as the third largest in the chamber's history going back to the Civil War.

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AI Summary. A House budget resolution allows $3.3tn of net deficit increases—$4.8tn of increases offset by $1.5tn of required savings—which with interest the authors estimate would permit nearly $4tn of additional debt. The authors estimate debt would reach 126% of GDP in the budget's final year versus 117% under current law.

Marc Goldwein Committee for a Responsible Federal Budget
Date Posted:

.@MarcGoldwein argues the economic assumptions of the House’s reconciliation plan are “unrealistic” and projects $3.3T in deficit increases. Including interest, this would raise debt by almost $4T to 126% of GDP by 2034 vs.117% under current law.

How much would the House budget resolution raise federal debt?

Core argument: The House budget resolution allows $3.3 trillion of net deficit increases — $4.8 trillion of increases offset by $1.5 trillion of required savings — which, with interest, the analysis estimates would permit nearly $4 trillion of additional debt.

The budget resolution includes $3.3 trillion of net allowable deficit increases – from $4.8 trillion of deficit increases somewhat offset by $1.5 trillion of required savings – that, with interest, we estimate would allow nearly $4 trillion of additional debt. Passing a reconciliation bill consistent with these instructions would increase debt in 2034 (the last year of the budget) to 126% of GDP compared to 117% under current law. The budget’s economic assumptions are overly aggressive, and the ultimate direction of the economic effects is likely ambiguous; if they resulted in modestly positive economic feedback, we estimate debt would be 123% of GDP by 2034, or if they resulted in modestly negative feedback, we estimate debt would be 129% of GDP by 2034. The window of the budget – FY 2025 through 2034 – includes one year where the TCJA doesn’t need to be extended (2025) and one less year of extension (2035) than a 2026-2035 budget would include, which could make the $4.8 trillion of tax cuts and spending increases in this budget window translate to $5.5-$6 trillion of ten-year increases. The Ways and Means Committee’s instruction in particular could be substantially smaller by either paring back extensions and cuts or increasing the savings sought from the committee’s jurisdiction.

Takeaways by Macro Roundup® AI

  1. The House budget resolution allows $3.3 trillion of net deficit increases — $4.8 trillion of increases offset by $1.5 trillion of required savings — which, with interest, the analysis estimates would permit nearly $4 trillion of additional debt.
  2. A reconciliation bill consistent with the instructions would raise debt to 126% of GDP in 2034 versus 117% under current law, with estimates of 123% under modestly positive economic feedback and 129% under modestly negative feedback.
  3. Because the FY 2025–2034 budget window includes one year requiring no TCJA extension and one fewer extension year than a 2026–2035 window, the $4.8 trillion of tax cuts and spending increases could translate to $5.5–$6 trillion over ten years.

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AI Summary. US adults aged 25-35 with a bachelor's degree reported having sex 11% less often than the average adult, and those with a graduate degree 13% less often. A regression analysis of Centers for Disease Control and Prevention survey data finds a university degree is associated with 7-8% less frequent sex after controlling for age, drinking, employment, health and marital status.

Economist Staff The Economist
Date Posted:

Sexual activity among US straight adults aged 25-35 has dropped by ~ 50% over the past 20 years, with a pronounced “degree divide:” Those with a bachelor’s had sex 11% less often than the average adult, and the drop was greatest among married couples.

Does more education lead to less frequent sex?

Core argument: Between 2002 and 2023, 25- to 35-year-olds with a bachelor's degree had sex 11% less often than the average adult, and those with a graduate degree 13% less frequently.

Between 2002 and 2023, 25- to 35-year-olds with a bachelor’s degree had sex 11% less often than the average adult; those with a graduate degree had sex 13% less frequently. A regression analysis of data from the National Survey of Family Growth, a survey of nearly 10,000 Americans conducted by the Centres for Disease Control and Prevention, suggests that, even after controlling for age, drinking habits, employment, health and marriage status, a university degree is associated with 7-8% less frequent sex, on average. This effect is greatest among married couples. But even among single people, degree-holders are six percentage points less likely to say they had sex in the past year.

Takeaways by Macro Roundup® AI

  1. Between 2002 and 2023, 25- to 35-year-olds with a bachelor's degree had sex 11% less often than the average adult, and those with a graduate degree 13% less frequently.
  2. A regression analysis of Centres for Disease Control and Prevention National Survey of Family Growth data covering nearly 10,000 Americans suggests a university degree is associated with 7-8% less frequent sex, after controlling for age, drinking habits, employment, health and marriage status.
  3. The association between a degree and less frequent sex is greatest among married couples, while among single people degree-holders are six percentage points less likely to say they had sex in the past year.

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