Edward Conard

Top Ten New York Times Bestselling Author

  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, February 21, 2025

AI Summary. A regression discontinuity study of a large urban school district, where disadvantaged students qualify for gifted status at a lower IQ threshold, estimates that being identified as gifted raises the college entry rate of marginally eligible boys by 28 percentage points, from 46% to 74%. That matches the 74% rate of marginally ineligible girls, closing the gender gap.

David Card, Eric Chyn, and Laura Giuliano National Bureau of Economic Research
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Card et al, find that the 25-30 percentage point college enrollment gap between disadvantaged boys and girls with IQs of ~116 closed among students who qualified for a “gifted” program. @EricChyn

Does gifted identification raise college entry for disadvantaged boys?

Core argument: Gifted identification raises the estimated college entry rate of marginally eligible disadvantaged boys by 28 percentage points, from 46% for those narrowly missing the threshold to 74%, in a large urban school district.

We study the effects of being identified as gifted in elementary school on subsequent test scores, courses and grades, and on the probability of entering college, for disadvantaged children in a large urban school district (“the District”). The law specifies a threshold of 130 [IQ] points for non-disadvantaged students, but allows districts to select a lower “Plan B” threshold [116 pts] for FRL and ELL students. The strict IQ threshold for gifted status provides the basis for a regression discontinuity (RD) evaluation of the impacts of being identified as gifted. Figure 6 illustrates how these impacts affect gender gaps by presenting the estimated mean potential outcomes for the complying boys (left side) and complying girls (right side) using an 8-point bandwidth. The estimated college entry rate for male compliers who narrowly miss the gifted threshold is 46%; the 28 ppt treatment effect of passing the threshold raises this to 74%, which equals the rate for female compliers who narrowly miss the threshold - being identified as gifted raises the college entry rate of marginally eligible boys to the same rate as girls.

Takeaways by Macro Roundup® AI

  1. Gifted identification raises the estimated college entry rate of marginally eligible disadvantaged boys by 28 percentage points, from 46% for those narrowly missing the threshold to 74%, in a large urban school district.
  2. The estimated 74% college entry rate for marginally eligible boys identified as gifted equals the rate for female compliers who narrowly miss the threshold.
  3. The study uses a regression discontinuity design around the IQ threshold for gifted status, 130 points for non-disadvantaged students and a "Plan B" threshold of 116 points for free-lunch and English-learner students.

Related Articles:

  • Do Adults Have the Skills They Need to Thrive in a Changing World? — An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.
  • Skills and Human Capital in the Labor Market — Labor market earnings are strongly associated with measures of personality traits and preferences, and over the last two decades returns to cognitive skills have been flat or declined in the US, Sweden, and Finland while returns to "soft" skills such as conscientiousness, extraversion, emotional stability, and social skills have grown rapidly.
  • Multidimensional Human Capital and the Wage Structure — The wage return to cognitive skills has declined, from about 10% higher hourly wages per standard deviation of test score in the 1980s and early 1990s to 4.5% in the 2000s and early 2010s, while returns to a bachelor's degree rose. Social skill-intensive occupations grew as a share of US jobs, with faster real wage growth.

AI Summary. The authors project US deficits reaching about 14% of GDP by 2053 and 25% by 2073, a gloomier path than earlier estimates largely because of a changed assumption about how deficits affect private saving. They estimate a sustainable US debt limit of 155%–210% of GDP.

Mark Warshawsky and Giorgi Bokhua American Enterprise Institute
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Mark Warshawsky and Giorgi Bokhua @AEIecon project the deficit will be 6.9% of GDP in 2033, up from 6.1% in their 2022 baseline model. Debt is forecasted to reach 256% of GDP in 2052, “likely resulting in a crisis even before 2053.”

How high will US deficits and debt rise relative to sustainable limits?

Core argument: Warshawsky, Mantus, and Pang project US federal deficits reaching roughly 14% of GDP by 2053 and 25% by 2073, with the 2023 projections gloomier for later years largely due to a changed assumption about how increased deficits affect the private savings rate.

The fiscal outlook remained highly unsustainable as of 2023, with deficits projected to reach approximately 14% of GDP by 2053 and 25% by 2073. The 2023 projections present gloomier forecasts, particularly for the later years, largely due to a changed assumption about how increased deficits affect the private savings rate. The trajectory of debt reaches unsustainable levels, likely resulting in a crisis even before 2053. We published a working paper in 2024, where we estimated sustainable debt limits for 27 OECD countries, estimating a range between 155% and 210% of GDP for the United States. Notably, the International Monetary Fund model, which we adjusted in our paper, aligns closely with our estimates Even after implementing reforms described in Table 1 and cutting all government spending and increasing income taxes, the government debt-to-GDP ratio (excluding Social Security trust fund holdings) would still rise to 203% by 2073, within the unsustainable range.

Takeaways by Macro Roundup® AI

  1. Warshawsky, Mantus, and Pang project US federal deficits reaching roughly 14% of GDP by 2053 and 25% by 2073, with the 2023 projections gloomier for later years largely due to a changed assumption about how increased deficits affect the private savings rate.
  2. The authors estimate sustainable debt limits of 155% to 210% of GDP for the United States in a 2024 working paper covering 27 OECD countries, with their adjusted International Monetary Fund model aligning closely with those estimates.
  3. Even after the reforms described in Table 1, cutting all government spending, and increasing income taxes, the authors project government debt excluding Social Security trust fund holdings would still rise to 203% of GDP by 2073, within the unsustainable range.

Related Articles:

  • Current Estimates of Sustainable Government Debt Limits for the US and 26 Other OECD Countries — The authors estimate sustainable sovereign debt limits for 27 advanced economies at 136%–234% of GDP on a gross basis and 181%–268% net of central bank holdings, finding evidence of "fiscal fatigue" once gross debt exceeds roughly 140%–145% of GDP. One estimate puts the US sustainable gross debt limit at 154% of GDP, about 30 percentage points above its current level.
  • 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.

AI Summary. Historical experience suggests that when a great power spends more on debt interest than on military capability for a sustained period, rivals are likely to challenge its position and domestic stability may suffer as governments fail to satisfy competing claims from the military, bondholders, taxpayers and welfare recipients. U.S. federal interest payments of $1.124tn exceeded defense spending of $1.107tn.

Niall Ferguson Wall Street Journal
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In 2024, the US spent 3.1% of GDP on interest and 2.9% on defense. @nfergus argues, “History suggests that any sustained period when a great power spends more on interest …than on military is likely to see its strategic rivals challenge its position.”

Does spending more on debt interest than defense threaten a great power?

Core argument: U.S. federal interest payments topped out at $1.124 trillion in 2024, exceeding national defense consumption expenditures and gross investment of $1.107 trillion, according to the BEA.

History suggests that any sustained period when a great power spends more on interest payments than on military capabilities is likely to see its strategic rivals challenge its position. The tension between “guns and coupons” (as the interest-bearing parts of bonds used to be known) may also undermine its domestic stability, as governments try and fail to meet the competing demands of generals, bondholders, taxpayers and welfare recipients. Annual defense spending—to be precise, national defense consumption expenditures and gross investment—was $1.107 trillion in 2024, according to the BEA, while federal expenditure on interest payments (the government long ago gave up on paying down principal) topped out at $1.124 trillion. These outlays can also be expressed as percentages of gross domestic product. The CBO, which uses a narrower definition of defense spending than the BEA, places it at 2.9% of GDP for last year. Net interest payments (adjusting for the interest received by bonds held by government agencies) amounted to 3.1%.

Takeaways by Macro Roundup® AI

  1. U.S. federal interest payments topped out at $1.124 trillion in 2024, exceeding national defense consumption expenditures and gross investment of $1.107 trillion, according to the BEA.
  2. Net interest payments amounted to 3.1% of GDP, against defense spending of 2.9% under the CBO's narrower definition of defense.
  3. History suggests that a great power sustaining higher interest payments than military spending is likely to see strategic rivals challenge its position, and the tension between "guns and coupons" may also undermine its domestic stability.

Related Articles:

  • The Crumbling Foundation of America’s Military — A U.S. Army Science Board report warned that the American industrial base may be incapable of meeting the munitions demand created by a potential future conflict with a peer adversary. Much of the reduction in U.S. arms-manufacturing capacity was deliberate, following the collapse of the Soviet Union and the end of the Cold War.
  • Keeping Up with the Pacing Threat: Unveiling the True Size of Beijing’s Military Spending — China's publicly released military budget understates its spending; adjusting for purchasing power and adding uncounted expenditures, the authors estimate the buying power of China's military budget at $711bn, roughly triple Beijing's stated figure and nearly equal to the United States'. Such parity favors China, whose spending concentrates on Asia while US resources are spread across multiple theaters.
  • 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.

AI Summary. Germany's economy has contracted for two consecutive years, with manufacturing output down about 10% and companies shedding thousands of jobs a month amid rising costs and falling exports. German households paid the highest electricity prices in the European Union, and Germany's patent applications were less than half those of South Korea and Japan.

Bertrand Benoit Wall Street Journal
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German manufacturing fell ~ 10% over the past 2 years, and “its companies, squeezed between rising costs and falling exports, are shedding thousands of jobs a month.” Patents are ½ of Japan’s and Korea’s, and CO2 emissions/capita are just below China’s.

Why is Germany's economy shrinking and shedding manufacturing jobs?

Core argument: Germany's economy has shrunk for two consecutive years, erasing any recovery made since the Covid-19 pandemic, with manufacturing output down about 10% over the same period and companies shedding thousands of jobs a month as costs rise and exports fall.

[Germany] Europe’s former growth engine has shrunk for two years in a row, erasing any recovery made since the Covid-19 pandemic. Its manufacturing output is down about 10% over the same period and its companies, squeezed between rising costs and falling exports, are shedding thousands of jobs a month. Germany’s CO2 emissions per capita are above the global and the European Union average, higher than the U.K.'s and France’s and just below China’s, according to Our World in Data. Meanwhile, German households paid the highest electricity prices in the EU in the first half of 2024, according to official EU statistics. In 2023, Germany recorded 133,000 patent applications, less than half the numbers in South Korea and Japan, according to the World Intellectual Property Organization.

Takeaways by Macro Roundup® AI

  1. Germany's economy has shrunk for two consecutive years, erasing any recovery made since the Covid-19 pandemic, with manufacturing output down about 10% over the same period and companies shedding thousands of jobs a month as costs rise and exports fall.
  2. German households paid the highest electricity prices in the EU in the first half of 2024, according to official EU statistics, while Germany's CO2 emissions per capita exceed the global, EU, U.K. and French levels and sit just below China's, according to Our World in Data.
  3. Germany recorded 133,000 patent applications in 2023, less than half the totals in South Korea and Japan, according to the World Intellectual Property Organization.

Related Articles:

  • Germany’s Economic Model Is Broken, and No One Has a Plan B — German industrial output has fallen 15% since 2018, manufacturing employment is down 3%, and over €300bn of investment capital has flowed out of the country since 2021. Exports support roughly one in four German jobs and equal 43% of GDP, four times the US share and twice China's.
  • How German Industry Can Survive the Second China Shock — The European Union has 30mm manufacturing jobs, and China has grown from a $4tn economy producing under 15% of global manufacturing output to an $18tn economy producing over a third, with well over 50% of global capacity in many sectors. European tariffs on Chinese electric vehicles limit import competition but do not offset lost export markets.
  • The Future of European Competitiveness – A Competitiveness Strategy for Europe — A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.

AI Summary. An analysis of UN population projections and China's 2020 census projects the ratio of men to women at prime marriage ages will peak at 119 men per 100 women by 2027, implying 22.5m more men than women in those cohorts, and remain high for decades. The share of unmarried men aged 25-39 rose from 13% to 30%.

Economist Staff The Economist
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Analysis by @TheEconomist finds that by 2027, there will be 22.5mm more men, ages 23-37, than women, ages 22-36, due to decades of policies leading to sex-selective abortions. One in six young Chinese men won’t find a marriage partner.

How large will China's surplus of marriage-age men become?

Core argument: The Economist's analysis of UN World Population Prospects data and China's 2020 census finds the sex ratio among men aged 23-37 and women aged 22-36 peaking at 119 men per 100 women by 2027, up from 105 in 2012.

The Economist has analysed data from the UN’s World Population Prospects, a biennial report, and from China’s 2020 census. The data reveal that the sex ratio—the number of men for every 100 women—among men aged 23-37 and women aged 22-36 will hit a peak of 119 by 2027. (Those are the ages between which 80% of each sex gets married—see chart 1.) It is then predicted to remain high for decades. In 2012 the ratio was just 105. That means that in 2027 there will be 22.5m more men than women in those cohorts, by far the largest number of “surplus” young males ever recorded anywhere. What is more, the share of unmarried men aged 25-39 shot up from 13% to 30% from 2006 to 2022. The 2020 census showed the sex ratio for young adults was 106 in urban areas and 120 in rural ones. Young rural women who move to the city often marry richer urban men. But changing social mores around marriage mean many better-educated urban women do not want to get married at all, let alone to rural men, shrinking the dating pool yet further.

Takeaways by Macro Roundup® AI

  1. The Economist's analysis of UN World Population Prospects data and China's 2020 census finds the sex ratio among men aged 23-37 and women aged 22-36 peaking at 119 men per 100 women by 2027, up from 105 in 2012.
  2. China is projected to have 22.5m more men than women in those marriage-age cohorts in 2027, by far the largest number of "surplus" young males ever recorded anywhere, with the ratio predicted to remain high for decades.
  3. The share of unmarried Chinese men aged 25-39 rose from 13% to 30% between 2006 and 2022, and the 2020 census showed a young-adult sex ratio of 120 in rural areas versus 106 in urban ones.

Related Articles:

  • China Marriages Hit Record Low as Population Crisis Worsens — China's Ministry of Civil Affairs reported 6.1m marriage registrations, the fewest since public records began in 1986 and less than half the 2013 peak, alongside 2.6m divorce filings. China's population shrank for a third straight year even as births rose slightly.
  • Thoughts and Comments on Demographic Aging and Shrinking — As an arithmetic matter, the greying of societies is driven much more by smaller families than by longer lives, which the author attributes to a withering away of the family. Demographic simulations project that by 2040 couples in their 60s in China will likely have at least one living parent to care for, and many will have two or three.
  • East Asia’s Coming Population Collapse — United Nations projections show China's population falling 8%, Japan's 18%, South Korea's 12%, and Taiwan's 8% between 2020 and 2050, while the US population rises 12%. Working-age people per person over 65 are projected to drop to about 1.8 in China and 1.2 in Japan and South Korea.

Monday, February 24, 2025

AI Summary. SWE-Lancer is a benchmark of over 1,400 real freelance software engineering tasks worth $1m in actual payouts, spanning $50 bug fixes to $32,000 feature builds plus managerial choices between technical proposals. Evaluations find leading AI models still cannot solve the majority of the tasks.

Samuel Miserendino, Michele Wang, Tejal Patwardhan and Johannes Heidecke arXiv
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AI programs are making progress in solving freelance software engineering tasks, but they are still less capable than experienced engineers. The top-performing model successfully completed tasks worth $208k on Upwork, out of 1,400 tasks worth $1mm.

Can leading AI models complete most real-world freelance software engineering tasks?

Core argument: SWE-Lancer grades independent engineering tasks with end-to-end tests triple-verified by experienced software engineers, and scores managerial tasks by comparing model choices among technical proposals against the decisions of the originally hired engineering managers.

We introduce SWE-Lancer, a benchmark of over 1,400 freelance software engineering tasks from Upwork, valued at $1 million total in real-world payouts. SWE-Lancer encompasses both independent engineering tasks — ranging from $50 bug fixes to $32,000 feature implementations — and managerial tasks, where models choose between technical implementation proposals. Independent tasks are graded with end-to-end tests triple-verified by experienced software engineers, while managerial decisions are assessed against the choices of the original hired engineering managers. We evaluate model performance and find that frontier models are still unable to solve the majority of tasks. To facilitate future research, we open-source a unified Docker image and a public evaluation split. By mapping model performance to monetary value, we hope SWE-Lancer enables greater research into the economic impact of AI model development.

Takeaways by Macro Roundup® AI

  1. SWE-Lancer grades independent engineering tasks with end-to-end tests triple-verified by experienced software engineers, and scores managerial tasks by comparing model choices among technical proposals against the decisions of the originally hired engineering managers.
  2. The authors open-source a unified Docker image and a public evaluation split, and map model performance to monetary value to support research into the economic impact of AI model development.

Related Articles:

  • Society’s Technical Debt and Software’s Gutenberg Moment — Every wave of technological innovation has been unleashed by something costly becoming cheap enough to waste, and large language models are collapsing the cost and complexity of producing software. The authors argue that decades of underproduced software have left society with immense technical debt that is poised to contract, releasing a wave of innovation.
  • The Short-Term Effects of Generative Artificial Intelligence on Employment: Evidence from an Online Labor Market — Freelancers in occupations most exposed to generative AI saw employment and earnings decline, with the authors estimating a 2% drop in jobs and a 5.2% drop in monthly earnings on an online labor platform. Offering high-quality service did not mitigate the effect, and top-rated freelancers appear disproportionately hurt.
  • The Rise—and Fall—Of The Software Developer — An index of employment at 6,500 companies tracking more than 75,000 software developers and engineers found developer employment grew through late 2019 and has been falling since 2020. Over the same period, developers' median base pay rose 24% versus 30% for all U.S. workers, though developers still earn more than 2x the U.S. median salary.

AI Summary. The authors estimate that labor demand falls with the average exposure of workers' tasks to artificial intelligence but rises with the dispersion of task exposures, as workers shift effort toward tasks AI does not displace. Firm productivity gains and task reallocation nearly offset direct substitution, leaving the net effect near zero across most of the pay distribution.

Menaka Hampole, Dimitris Papanikolaou, Lawrence Schmidt and Bryan Seegmiller National Bureau of Economic Research
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.@menaka_hampole et al. estimate that AI has little net effect on overall labor demand. Though “highly-exposed occupations experience relatively lower demand…the resulting increase in firm productivity increases employment across all occupations.”

How does AI exposure affect labor demand across the pay distribution?

Core argument: Labor demand falls with the average exposure of workers' tasks to AI but rises with the dispersion of task exposures, as workers shift effort toward tasks that AI does not displace.

The impact on wage earnings and employment can be summarized by two statistics: [1] Labor demand decreases in the average exposure of workers' tasks to AI technologies; [2] holding the average exposure constant, labor demand increases in the dispersion of task exposures to AI, as workers shift effort to tasks that are not displaced by AI. The direct effect of labor substitution - the red line in the top panel of Figure 4 [is that] the negative effect of mean AI exposure increases on average as pay increases, echoing the fact that the AI exposure is higher for higher-paid occupations. However, this mean exposure measure abstracts from the benefits of labor reallocation and the impact of firm productivity on firm labor demand. Examining the remaining lines in the Figure, we note these two effects serve to mediate the direct effect of labor substitution. Highly-paid positions tend to be at firms which use AI intensively (in yellow), and are also exposed to larger dispersion in AI exposure (in green). These two forces almost offset the impact of direct task-level AI substitution, so that the total net effect in blue is close to zero [except at the top of] the pay distribution.

Takeaways by Macro Roundup® AI

  1. Labor demand falls with the average exposure of workers' tasks to AI but rises with the dispersion of task exposures, as workers shift effort toward tasks that AI does not displace.
  2. The direct labor-substitution effect of AI grows more negative on average as pay increases, echoing the higher AI exposure of higher-paid occupations.
  3. Higher-paid positions tend to sit at firms that use AI intensively and face larger dispersion in AI exposure, forces that almost offset direct task-level substitution, leaving the net effect close to zero except at the top of the pay distribution.

Related Articles:

  • The Rapid Adoption of Generative AI — A nationally representative U.S. survey found 39% of people aged 18-64 used generative AI, with more than 24% of workers using it in the prior week and nearly one in nine using it every workday. The authors estimate 0.5-3.5% of U.S. work hours are currently assisted by generative AI.
  • Use of Artificial Intelligence and Productivity: Evidence from Firm and Worker Surveys — 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.
  • Technological Disruption in the Labor Market — The authors measure US labor market structure since 1880 and find 1990–2017 less disruptive than any earlier period, because past changes from general-purpose technologies like steam and electricity were so profound. They identify four recent signs of accelerating change, including a 50%+ rise in science and technology employment share since 2010.

AI Summary. Federal workforce layoffs and contract cuts are projected by consensus to eliminate 300,000 jobs, but with studies showing two contractors for every federal employee, total job losses could approach 1mm. Economic policy uncertainty is spiking while credit spreads have not widened and incoming data remain strong.

Torsten Sløk Apollo
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Noting a disconnect between credit spreads and an index of policy uncertainty, Apollo Chief Economist Torsten Sløk warns that downside risks to capex and hiring decisions are growing.

Are federal job and contract cuts a growing risk to the economy?

Core argument: Consensus expects 300,000 DOGE-related job cuts, small against U.S. employment of 160mm, 7mm unemployed, and roughly 5mm people changing jobs each month.

We are starting to worry about the downside risks to the economy and markets from the impact of DOGE layoffs and contract cuts, weighing on capex spending decisions and hiring decisions. The consensus expects total DOGE-related job cuts to be 300,000. Total employment in the United States is 160mm, with 7mm unemployed. About 5mm people change jobs every month. In that context, 300,000 federal jobs lost is not much. Studies show that for every federal employee, there are two contractors. As a result, layoffs could potentially be closer to 1 million. Any increase in layoffs will push jobless claims higher over the coming weeks, and such a rise in the unemployment rate is likely to have consequences for rates, equities, and credit. Economic policy uncertainty is spiking higher, but credit spreads are not widening. The question is if persistently elevated policy uncertainty will begin to have a negative impact on capex spending and hiring decisions. The incoming data remain strong. But the near-term downside risks to the economy and markets are growing.

Takeaways by Macro Roundup® AI

  1. Consensus expects 300,000 DOGE-related job cuts, small against U.S. employment of 160mm, 7mm unemployed, and roughly 5mm people changing jobs each month.
  2. Studies showing two contractors for every federal employee suggest DOGE-related layoffs could be closer to 1mm, which would push jobless claims higher over the coming weeks.
  3. Economic policy uncertainty is spiking while credit spreads are not widening and incoming data remain strong, though a rising unemployment rate would likely have consequences for rates, equities, and credit.

Related Articles:

  • When History Rhymes — Inflation, inflation expectations, and the gap between nominal and inflation-indexed bond yields are all moving higher. The author argues that cutting interest rates too early raises the likelihood of repeating the 1970s, leaving the Federal Reserve no option but to hold rates higher for longer.
  • Are We Still on the Path to Equilibrium? — 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.
  • 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.

AI Summary. Microsoft has voided data center leases totaling a couple of hundred megawatts of capacity and stopped converting preliminary agreements into formal leases, according to brokerage TD Cowen's checks with supply chain providers. TD Cowen also says Microsoft is redirecting some planned international spending to the US, suggesting a material slowdown in international leasing.

Ryan Vlastelica and Newley Purnell Bloomberg
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Is Microsoft growing more cautious about demand for AI? A TD Cowen report found that the company has started canceling leases for a “substantial” amount of data center capacity.

Is a major tech company pulling back on AI data center leases?

Core argument: Microsoft has voided AI data center leases totaling "a couple of hundred megawatts" of capacity, according to TD Cowen, which cited channel checks with supply chain providers.

Microsoft OpenAI’s biggest backer has voided leases totaling “a couple of hundred megawatts” of capacity, TD Cowen reported, citing channel checks or inquiries with supply chain providers. Microsoft has also stopped converting agreements that usually lead to formal leases, TD Cowen said. That was a tactic rivals such as Meta Platforms Inc. employed previously, when it decided to cut back on capital spending, the brokerage wrote. Microsoft is redirecting a portion of its planned international spending to the US too, TD Cowen said, which “suggests to us a material slowdown in international leasing.” A potential pullback by Microsoft on spending and datacenter construction raises questions about whether the company — one of the frontrunners among Big Tech in AI — is growing cautious about the outlook for demand. The company has said it expects to spend $80 billion this fiscal year on AI data centers, and, on a late January earnings call, Chief Executive Officer Satya Nadella said Microsoft has to sustain spending to meet “exponentially more demand.”

Takeaways by Macro Roundup® AI

  1. Microsoft has voided AI data center leases totaling "a couple of hundred megawatts" of capacity, according to TD Cowen, which cited channel checks with supply chain providers.
  2. TD Cowen said Microsoft has stopped converting agreements that usually lead to formal leases, a tactic Meta Platforms used previously when it decided to cut back on capital spending.
  3. Microsoft is redirecting a portion of planned international spending to the US, which TD Cowen said suggests a material slowdown in international leasing, even as Microsoft has said it expects to spend $80 billion this fiscal year on AI data centers.

Related Articles:

  • 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.
  • 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.
  • The AI Transition One Year Later: On Track, but Macro Impact Still Several Years Off — Investment in AI hardware is projected to rise substantially as a precursor to integrating AI into business processes, with the investment cycle estimated to peak at 2–2½% of GDP and early signs visible among AI-enabling companies. The authors estimate generative AI could raise developed-market labor productivity growth by 1.5pp annually over a 10-year adoption period, roughly 15% cumulatively.

AI Summary. Moody's Analytics estimates the top 10% of earners account for 49.7% of all U.S. consumer spending, a record in data going back to 1989, up from about 36% three decades ago, with their spending alone equal to almost one-third of gross domestic product.

Rachel Louise Ensign Wall Street Journal
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The top 10% of US earners now account for nearly half of all personal spending, according to Moody’s @Markzandi, up from 36% three decades ago. “The finances of the well-to-do have never been better… and the economy never more dependent on that group.”

How much of US consumer spending comes from the top 10%?

Core argument: The top 10% of earners account for 49.7% of all U.S. consumer spending, a record in data going back to 1989 and up from about 36% three decades ago, according to a Moody's Analytics analysis of Federal Reserve data.

Mark Zandi estimated that spending by the top 10% alone accounted for almost one-third of gross domestic product. Those consumers now account for 49.7% of all spending, a record in data going back to 1989, according to an analysis by Moody’s Analytics. Three decades ago, they accounted for about 36%. Between September 2023 and September 2024, the high earners increased their spending by 12%. Spending by working-class and middle-class households, meanwhile, dropped over the same period. The bottom 80% of earners spent 25% more than they did four years earlier, barely outpacing price increases of 21% over that period. The top 10% spent 58% more. "The finances of the well-to-do have never been better, their spending never stronger and the economy never more dependent on that group,” said Zandi, who oversaw the analysis, which was based on data from the Federal Reserve. The analysis runs through the third quarter of 2024 because that is the most recent data available.

Takeaways by Macro Roundup® AI

  1. The top 10% of earners account for 49.7% of all U.S. consumer spending, a record in data going back to 1989 and up from about 36% three decades ago, according to a Moody's Analytics analysis of Federal Reserve data.
  2. Mark Zandi estimated that spending by the top 10% alone accounted for almost one-third of U.S. gross domestic product, and said the economy has never been more dependent on that group.
  3. Between September 2023 and September 2024, high earners raised their spending 12% while working-class and middle-class household spending fell; over four years the bottom 80% spent 25% more against 21% price increases, versus 58% for the top 10%.

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AI Summary. Among the world's 2,000 largest companies, U.S. firms generated 38% of global profits and firms based in allied countries 35%, while Chinese firms including Hong Kong generated 16%. The U.S. leads in 20 of 27 industries and China in three, with profits used as a measure of economic chokepoints.

Stephen Brooks and Ben Vagle Foreign Affairs
Date Posted:

China is far more vulnerable than the US to bilateral trade disruptions, argue Stephen Brooks & @ben_vagle. In 2022, US firms demonstrated significantly greater economic power, with 38% of global profits vs. 16% for Chinese firms.

How do global corporate profits compare between the US and China?

Core argument: U.S. firms generated 38% of the profits of the 2022 Forbes 2000, with allied-country firms at 35% and Chinese firms, including those in Hong Kong, at 16%.

Look at the profits generated by the 2022 Forbes 2000—the world’s 2,000 largest companies. Profits are the preferred measure of economic power because if a firm in a sector is generating them, it likely means there are barriers preventing competitors from entering the market and cutting into that company’s margins. They thus best capture the chokepoints of the world economy. And U.S. firms generated 38% of global profits, while firms headquartered in allied countries generated 35%. Chinese firms, including those in Hong Kong, generated just 16%. A closer look at the 27 industries in the Forbes 2000 makes the U.S. lead over China even clearer. China leads in three of these industries. The United States, meanwhile, leads in 20, of them, almost always by double digits. In three of the seven industries in which the United States is not the leader, an American ally is. Together, the United States and its allies and partners make up all the top five countries in terms of profit share in five industries: aerospace and defense, drugs and biotechnology, media, semiconductors, and utilities.

Takeaways by Macro Roundup® AI

  1. U.S. firms generated 38% of the profits of the 2022 Forbes 2000, with allied-country firms at 35% and Chinese firms, including those in Hong Kong, at 16%.
  2. The United States leads in 20 of the 27 industries covered by the Forbes 2000, almost always by double digits, while China leads in three, and an American ally leads three of the remaining seven.
  3. The United States and its allies and partners occupy all top five country slots by profit share in aerospace and defense, drugs and biotechnology, media, semiconductors, and utilities.

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AI Summary. Physicists outside the work have responded cautiously to Microsoft's topological quantum computing claim, noting that the search for topological qubits and the "Majorana" particles underpinning them has a history of bold announcements later withdrawn. Researchers describe the technology as excruciatingly difficult to actually build.

Nidhi Subbaraman Wall Street Journal
Date Posted:

Microsoft’s quantum computing breakthrough in creating an advanced “topological qubit” is likely to prove difficult to turn into practical outcomes, some physicists contend.

Are physicists skeptical of claims of a topological quantum computing breakthrough?

Core argument: Physicists are responding cautiously to Microsoft's quantum announcement, in part because the pursuit of topological qubits and the "Majorana" particles underpinning them has a history of bold pronouncements later pulled back, said Vlad Pribiag, a quantum device physicist at the University of Minnesota.

Scientists are responding to Microsoft’s announcement with caution, in part because the quest for topological qubits and the “Majorana” particles that underpin them has a history of bold pronouncements that later were pulled back, said Vlad Pribiag, a quantum device physicist at the University of Minnesota who wasn’t involved with the work. “This particular technology they’re pursuing, as exciting as it is, is turning out to be excruciatingly difficult to actually build,” said Stephen Bartlett, director of the University of Sydney Nano Institute, who wasn’t involved with the work.

Takeaways by Macro Roundup® AI

  1. Physicists are responding cautiously to Microsoft's quantum announcement, in part because the pursuit of topological qubits and the "Majorana" particles underpinning them has a history of bold pronouncements later pulled back, said Vlad Pribiag, a quantum device physicist at the University of Minnesota.
  2. Stephen Bartlett, director of the University of Sydney Nano Institute, said the technology Microsoft is pursuing, as exciting as it is, is turning out to be excruciatingly difficult to actually build.

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