Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…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
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 12, 2025

AI Summary. Simulations of the Federal Reserve's main macroeconomic model estimate that debt-financed deficits raise core prices about 0.2 percentage points over five years absent a central-bank response. With the central bank reacting, the cost shifts to interest rates: short rates roughly 0.25% higher, mortgage rates 23 basis points higher, and real household wealth 1.2% lower.

Ernie Tedeschi Yale University
Date Posted:

.@ernietedeschi of Yale’s Budget Lab writes that increasing the primary deficit by 1% of GDP, the cost of extending the TCJA, would raise mortgage rates by 23 bps and lower household wealth by 1.25% by 2029, assuming the Fed holds inflation constant.

Do rising deficits raise interest costs more than inflation?

Core argument: In FRB/US without a Fed reaction function, rising federal deficits raise core PCE prices by roughly 0.2 percentage points five years out, but when the Fed tightens, the price level is only 0.05% higher after five years.

FRB/US (the Federal Reserve’s workhorse macroeconomic model) [absent a Fed reaction function], has core PCE prices at roughly 0.2 percentage points higher five years out. As the Fed tightens in reaction to inflationary pressure, the trade-off shows up more in the form of higher interest rates and less in the form of realized inflation. In FRB/US, the effect [on] inflation is now imperceptible—mere basis points—and even after five years the price level is only 0.05% higher. But debt-financing still comes with costs. Now, short-run interest rates are persistently higher, by about 0.25%. Mortgage rates are 23 basis points higher after five years, about $600 per year in interest payments to the median home in today’s market. For the average small business loan, that means an extra $1,000 in interest annually. Real household wealth falls by 1.2% over 5 years, the equivalent of a $14,000 loss on average today. And even within the five years, the capital stock begins to take damage from higher interests and crowding-out. So with a credible central bank [that staves off fiscal dominance], households still face a cost-of-living tradeoff from higher debt even in the short-run, through interest costs rather than prices.

Takeaways by Macro Roundup® AI

  1. In FRB/US without a Fed reaction function, rising federal deficits raise core PCE prices by roughly 0.2 percentage points five years out, but when the Fed tightens, the price level is only 0.05% higher after five years.
  2. With the Fed tightening in response to fiscal pressure, short-run interest rates run about 0.25% higher and mortgage rates 23 basis points higher after five years, about $600 per year for the median home and an extra $1,000 annually on the average small business loan.
  3. Real household wealth falls 1.2% over five years in FRB/US, equivalent to a $14,000 average loss today, and the capital stock begins to take damage from higher interest rates and crowding-out within that window.

Related Articles:

  • The Budget and Economic Outlook: 2025 to 2035 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (6.2% of GDP) to $2.7tn by 2035, well above the 3.8% of GDP average of the past 50 years. Outlays are projected to rise to 24.4% of GDP, driven by growth in Social Security and Medicare spending and rising net interest costs, while revenues reach 18.3%.
  • Larry Summers and Bob Rubin Join Our CIOs to Discuss the Surprising Economic Cycle — Adopting the Simpson-Bowles fiscal consolidation when interest rates were at zero would have risked excessive disinflation, since long rates had no room to fall to provide an offsetting expansionary impulse. After the large run-up in debt and rise in real interest rates, the developing fiscal situation risks inflationary pressure, Treasury market disruption, or crowding out of private investment.
  • 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.

AI Summary. Tariffs are estimated to weigh on growth through three channels: higher consumer prices that cut real income, tighter financial conditions, and trade policy uncertainty that delays business investment. The authors estimate tariffs will subtract 0.8pp from US GDP growth over the next year, with only 0.1–0.2pp offset by tax cuts and deregulation.

Jan Hatzius Goldman Sachs
Date Posted:

Jan Hatzius @GoldmanSachs downgraded his 2025 US growth forecast from 2.4% to 1.7%, citing changes in US trade policy that will reduce consumer income, tighten financial conditions, and delay investment.

How much do tariffs subtract from US growth?

Core argument: Tariffs are estimated to subtract 0.8pp from US GDP growth over the next year, with only 0.1–0.2pp of that drag offset by the slower-moving boost from tax cuts and regulatory easing.

Tariffs weigh on growth via three main channels. First, they raise consumer prices—and thereby cut real income—by an estimated 0.1% per 1pp increase in the average US tariff rate. (In theory, the drag could diminish if the tariff revenue is recycled into additional tax cuts, but this revenue will not be scored in the ongoing budget negotiations if it results from executive as opposed to congressional action.) Second, tariffs tend to tighten financial conditions, although the impact in this cycle looks smaller than in the 2018-2019 trade war when scaled by the size of the tariff hikes. Third, trade policy uncertainty leads firms to delay investment. All told, our new baseline implies that tariffs will subtract an estimated 0.8pp from GDP growth over the next year, with only 0.1-0.2pp of this drag offset by the (relatively slow-moving) boost from tax cuts and regulatory easing.

Takeaways by Macro Roundup® AI

  1. Tariffs are estimated to subtract 0.8pp from US GDP growth over the next year, with only 0.1–0.2pp of that drag offset by the slower-moving boost from tax cuts and regulatory easing.
  2. Each 1pp increase in the average US tariff rate is estimated to raise consumer prices by 0.1%, cutting real income, and tariff revenue will not be scored in budget negotiations if it results from executive rather than congressional action.
  3. Tariffs tend to tighten financial conditions—by less in this cycle than in the 2018–2019 trade war when scaled by the size of the tariff hikes—while trade policy uncertainty leads firms to delay investment.

Related Articles:

  • A Modest Stagflation Shock But Not a Recession — Modeling of tariffs and federal spending cuts using a framework similar to the Federal Reserve's model of the US economy projects inflation 0.2% higher and GDP 0.5% lower over the coming quarters. The authors characterize this as a modest, temporary stagflation shock rather than a recession.
  • The Trade War Will Pound Stocks — Efforts to cut U.S. trade deficits and escalate tensions with allies risk deterring foreign capital, and foreigners need only stop buying U.S. assets to hit prices, as China and Russia already have. Bridgewater estimates nonfinancial U.S. firms capture 39% of global profits though the U.S. is 15% of world output.
  • Global Economies, Converging on Equilibrium, Confront a Geopolitical Regime Shift — Global economies are converging on a reasonable equilibrium, with developed-world central banks gradually cutting rates toward what they view as neutral, China prioritizing domestic demand after a deflationary stretch, and artificial intelligence showing potential to enhance productivity. Markets are discounting that stability, with US equity indexes pricing an even more exceptional decade than the last.

AI Summary. The S&P 500 fell 9% from its record high, with more than half of the decline coming from a 14% drop in the seven largest technology stocks, whose price-to-earnings ratio fell from 30x to 26x. The equal-weighted index declined 6%, leaving it 8% below its own record high.

David Kostin, Ben Snider, Ryan Hammond, Jenny Ma, et al. Goldman Sachs
Date Posted:

David Kostin and team revised their end-of-year S&P 500 target from 6500 to 6200, which would be up ~ 11% from current levels. Half of the recent drawdown is due to a 14% decline in the Mag 7 stocks which now have a P/E of 26x.

Are the largest technology stocks driving most of the index's decline?

Core argument: The S&P 500 has fallen 9% from its all-time high over three weeks, with more than half of the decline stemming from a 14% plunge in the Magnificent 7 stocks, whose P/E fell to 26x from 30x.

During the past three weeks the S&P 500 index has plummeted by 9% from its all-time high with more than half of the near-correction stemming from a 14% plunge in the share prices of the Mag 7 stocks (P/E to 26x from 30x). In contrast, last year the Mag 7 stocks accounted for more than half of the 25% total return of the overall index. Note that during the past 40 years the cap-weighted index has experienced a median calendar year drawdown of 10%, similar to the recent fall. However, the typical stock as represented by the equal-weight index (SPW) has declined by 6% during the past three weeks (P/E to 16x from 17x) and trades 8% below its all-time high reached at the end of November.

Takeaways by Macro Roundup® AI

  1. The S&P 500 has fallen 9% from its all-time high over three weeks, with more than half of the decline stemming from a 14% plunge in the Magnificent 7 stocks, whose P/E fell to 26x from 30x.
  2. The Magnificent 7 accounted for more than half of the S&P 500's 25% total return last year, and account for more than half of the index's recent 9% decline.
  3. The equal-weight S&P 500 has declined 6% over three weeks, with its P/E easing to 16x from 17x, and trades 8% below its end-of-November all-time high, against a 40-year median calendar-year drawdown of 10% for the cap-weighted index.

Related Articles:

  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.
  • 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.
  • European vs. US Stocks: Which Market Comes Out On Top? — Since MSCI data began in 1970, US stocks have outperformed European stocks by an average of 0.8 percentage points per year, with $1 invested in 1970 growing to $268 in the US versus $141 in Europe over 55 years. Before the financial crisis the ranking was reversed, with the US gain equal to 57% of the European gain.

AI Summary. The author argues that the vast expansion of chemical production since World War 2 — billions of tons a year across 350,000 different chemicals, many of them endocrine disruptors — has made the environment toxic to human and other life. Central to the argument is a decline in men's sperm counts of nearly two-thirds since 1973.

Jeremy Grantham GMO
Date Posted:

Jeremy Grantham notes a two-thirds decline in men’s sperm concentration from 1973 to 2018, and argues endocrine-disrupting chemicals “have begun in the last 20 years to profoundly impact our ability to have children.”

Is rising chemical production making the environment toxic to human fertility?

Core argument: Men's sperm counts have fallen by almost two-thirds since 1973, which the author identifies as the most powerful result of rising chemical output for fertility.

The incredible increase in chemical output since World War 2 has resulted in a world that is simply toxic to life in most forms, including ours. These billions of tons a year of 350,000 different chemicals, many of which are endocrine disruptors, have begun in the last 20 years to profoundly impact our ability to have children. The most powerful result of all this, directly affecting our fertility, is that the quantity of men’s sperm has been reduced by almost two-thirds from 1973. But 1973 was already a very toxic era – sperm counts must already have been down from hunter-gatherer days. There are no good records, so we can only make intelligent guesses. (Mine would be that we must, by inference, be down by at least 75% from original levels.) The good news was that our species was hugely overdesigned in the case of sperm count, I like to say like a good Victorian bridge, and the first 40 or 45% reduction appeared to have absolutely no effect.

Takeaways by Macro Roundup® AI

  1. Men's sperm counts have fallen by almost two-thirds since 1973, which the author identifies as the most powerful result of rising chemical output for fertility.
  2. Billions of tons a year of 350,000 different chemicals, many of them endocrine disruptors, have over the past two decades profoundly affected human ability to have children, according to the author.
  3. The author infers that sperm counts are down at least 75% from original levels, notes no good records exist, and argues the first 40–45% reduction had no apparent effect because the species was hugely overdesigned.

Related Articles:

  • Global Sperm Counts Are Falling. This Scientist Believes She Knows Why — A researcher argues that "endocrine disrupting" chemicals — including pesticides, bisphenols that harden plastic, and phthalates that soften it — interfere with the body's natural hormones and may be lowering sperm counts and affecting the reproductive development of unborn children. Traces of these chemicals have been found in breast milk, placental tissue, urine, blood, and seminal fluid.
  • Sustainability or Bust: The Sheer Impossibility of Eternal Compound Growth — The author argues that compound growth in energy use cannot continue indefinitely, noting that sustaining the past 250 years' 2.3% annual growth for another 450 years would generate enough waste heat alone to boil the oceans. Greenhouse gases account for 95% of the heating effect of human energy use and waste heat diffusion under 5%.

AI Summary. Data from seven surveys of mental health and well-being, along with reported suicide rates, show teens and young adults in the US improving on every measure in recent years. The share of young adults reporting weekly depression fell from 16.5% to 13.3%, though it remains well above pre-pandemic levels.

Economist Staff The Economist
Date Posted:

Analysis by @TheEconomist suggests that mental health among US 12-18 year olds is improving: the percent reporting persistent feelings of sadness fell from 42% in 2022 to 40% in 2023.

Is the mental health of young Americans improving?

Core argument: In the CDC's National Health Interview Survey, the share of young adults reporting depression at least once a week fell from 16.5% in 2022 to 13.3% in 2023, though it remains well above pre-pandemic levels.

We examined data from seven different surveys of mental health and well-being, as well as reported suicide rates. On every measure teens and young adults seem to be doing better in the past few years. In the National Health Interview Survey carried out by the Centres for Disease Control and Prevention, the share of young adults who report feeling depressed at least once a week fell from 16.5% in 2022 to 13.3% in the most recent data from 2023 (although it is still well above pre-pandemic levels). In 2023 the share of 15- and 16-year-olds who said they don’t enjoy life was 24.7%, down from 28.8% in 2021. The suicide rate of 18-25-year-olds has also fallen to 16.1 for every 100,000, slightly below the rates from 2017 to 2019.

Takeaways by Macro Roundup® AI

  1. In the CDC's National Health Interview Survey, the share of young adults reporting depression at least once a week fell from 16.5% in 2022 to 13.3% in 2023, though it remains well above pre-pandemic levels.
  2. The share of 15- and 16-year-olds saying they don't enjoy life fell to 24.7% in 2023 from 28.8% in 2021.
  3. The suicide rate for 18-to-25-year-olds has fallen to 16.1 per 100,000, slightly below the rates from 2017 to 2019, and seven surveys of mental health and well-being suggest teens and young adults are doing better.

Related Articles:

AI Summary. A Japanese government survey found adults eating the smallest daily volume of vegetables since 2001, attributed to inflation, with prices of Chinese cabbage, leek and carrots running 227%, 167% and 140% above their long-term averages. Food as a share of household spending stands at a 43-year high.

Leo Lewis Financial Times
Date Posted:

The BoJ’s efforts to end Japan’s long deflationary slump face growing consumer retrenchment: wage hikes haven’t kept pace with inflation, and “higher prices are making [consumers] more thrifty, not making them spend more.”

Is inflation changing how households eat in Japan?

Core argument: Japan's most recent government survey of national eating habits found adults eating the smallest daily volume of vegetables since 2001, which the government attributes to inflation.

In its most recent survey of national eating habits, Japan’s government discovered something unsettling. Adults in this wealthy, healthy country were now eating the smallest daily volume of vegetables since 2001. The reason? Inflation. At the beginning of March, prices of the three key ingredients of Japanese hotpot, a traditional winter dish — Chinese cabbage, leek and carrots — were respectively 227, 167 and 140% above their long-term average. The Engel coefficient, which measures food as a proportion of household spending, is at a 43-year high. The collective decision to cut back on greens has come as the country undergoes what some see as its biggest economic inflection in over 30 years: the much-heralded “normalisation” of Japan’s relationship with money after a long period of stagnant prices and moribund growth.

Takeaways by Macro Roundup® AI

  1. Japan's most recent government survey of national eating habits found adults eating the smallest daily volume of vegetables since 2001, which the government attributes to inflation.
  2. At the start of March, prices of Chinese cabbage, leek and carrots — the three key ingredients of Japanese hotpot — stood 227%, 167% and 140% above their long-term averages.
  3. Japan's Engel coefficient, which measures food as a proportion of household spending, is at a 43-year high as the country undergoes what some see as the "normalisation" of its relationship with money after a long period of stagnant prices and moribund growth.

Related Articles:

  • Japanese Workers Secure Biggest Pay Rise In Three Decades — Japanese companies including Honda, Nippon Steel, and ANA Holdings granted workers their largest pay rise in more than three decades, with economists expecting large firms to give unionised workers average increases above 4%, up from 3.6% the prior year. The increases strengthen the case for the Bank of Japan to begin raising interest rates.
  • Japan Births Fall to Lowest in 125 Years — Japan recorded 720,988 births, a 5% drop from the prior year and the lowest since records began 125 years ago, with births declining for nine straight years despite government financial incentives for couples to have more children. Combined with a record 1.6mn deaths, Japan's population shrank by almost 900,000 people net of immigration.
  • 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.

AI Summary. Shipyards tied to China's defense industrial base account for 15% of the country's active shipyards but 40% of commercial output by tonnage, with over 75% of their production built for firms outside China and Hong Kong. The authors argue these commercial revenues offset fixed costs and effectively subsidize China's naval expansion.

Matthew Funaiole, Brian Hart and Aidan Powers-Riggs Center for Strategic and International Studies
Date Posted:

In 2024, China State Shipbuilding Corporation built more commercial vessels by tonnage than the entire US shipbuilding industry had built since the end of World War II. @CSIS notes “commercial revenues effectively subsidize China’s naval expansion.”

Do foreign commercial ship orders help fund China's naval expansion?

Core argument: China's Tier-1 and Tier-2 shipyards, closely intertwined with the country's defense industrial base, account for just 15% of active shipyards but 40% of total commercial output by tonnage, while more numerous private yards produce 36%.

A disproportionate share of China’s commercial shipbuilding occurs at shipyards that are closely intertwined with the country’s sprawling defense industrial base. Tier-1 and Tier-2 yards represent just 15% of active shipyards in China but produce a striking 40% of its total commercial output by tonnage. Private shipyards, although far more numerous, combine for just 36% of the country’s commercial production. Foreign buyers are responsible for the vast majority of shipbuilding production across China’s industry, but especially at Tier-1 and Tier-2 yards. Over 75% of the production at these shipyards was destined for firms based outside of China or Hong Kong. By purchasing vessels from these yards, foreign firms have funneled billions of dollars of revenue into entities that are central to China’s naval modernization. Given the substantial overlap in material inputs, production techniques, personnel, and infrastructure required for both commercial and military shipbuilding, commercial revenues effectively subsidize China’s naval expansion. By offsetting fixed costs, these earnings enable Chinese shipyards to scale military production more efficiently and at lower marginal expense.

Takeaways by Macro Roundup® AI

  1. China's Tier-1 and Tier-2 shipyards, closely intertwined with the country's defense industrial base, account for just 15% of active shipyards but 40% of total commercial output by tonnage, while more numerous private yards produce 36%.
  2. Over 75% of production at China's Tier-1 and Tier-2 shipyards was destined for firms based outside China or Hong Kong, funneling billions of dollars in revenue into entities central to China's naval modernization.
  3. Because commercial and military shipbuilding share material inputs, production techniques, personnel, and infrastructure, commercial revenues offset fixed costs and effectively subsidize China's naval expansion, letting shipyards scale military production at lower marginal expense.

Related Articles:

  • The Hidden Threat to National Security Is Not Enough Workers — At Newport News Shipbuilding, half of welders now have less than four years' experience, down from an average of 20 years three decades ago, and inexperience reduces productivity and adds delays. Shipbuilding wages starting at $17 an hour no longer carry a premium over local retail and warehouse jobs paying up to $24.
  • China Is Rapidly Building Warships. Satellite Images Reveal The Scale — China's shipbuilding capacity now exceeds the United States' by such a margin that it can build more ships in a month than American yards build in a year, with a workforce estimated at nearly 5x the US level. Chinese yards handled more than 1,700 orders in a year, compared with fewer than five for American shipyards.
  • 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.

Thursday, March 13, 2025

AI Summary. The share of college-educated 25-34 year-olds without school-age children living in urban neighborhoods fell from 39.2% to 37.0%, a steeper decline than for the population overall, according to the American Community Survey. The urban share of top-10% income households held roughly flat at about 30%, a change from earlier steady increases.

Jed Kolko Slow Boring
Date Posted:
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The recent surge in immigration masked internal migration away from urban counties. @JedKolko notes educated young adults are “still more likely to live in urban neighborhoods than other people are, but by a smaller margin than before the pandemic.”

Are educated young adults still moving into urban neighborhoods?

Core argument: The share of college-educated 25–34 year-olds without school-age children at home living in urban neighborhoods fell from 39.2% in 2019 to 37.0% in 2023, a steeper decline than for the total population, per the American Community Survey.

Recent urban growth was driven by a temporary national immigration surge and is likely to reverse. According to the American Community Survey, the college-educated young adults who helped drive last decade’s urban revival moved away from cities during the pandemic. In 2019, 39.2% of 25-34 year-olds with a college degree and no school-age kids at home lived in urban neighborhoods; that slipped during the pandemic to 37.0% in 2023. This was a steeper decline than for the total population. These educated young adults are still more likely to live in urban neighborhoods than other people are, but by a smaller margin than before the pandemic. The story is somewhat different for another especially urban demographic group: rich households. In 2019, 30% of households with top-10% incomes lived in urban neighborhoods; by 2023, 29.8% did. The share of rich households in urban neighborhoods went down slightly in 2021 and 2022 before almost fully recovering in 2023. Still, the share of rich households in urban neighborhoods holding essentially flat between 2019 and 2023 is a change from the pre-pandemic years, when it rose steadily.

Takeaways by Macro Roundup® AI

  1. The share of college-educated 25–34 year-olds without school-age children at home living in urban neighborhoods fell from 39.2% in 2019 to 37.0% in 2023, a steeper decline than for the total population, per the American Community Survey.
  2. The share of households with top-10% incomes in urban neighborhoods held essentially flat, at 30% in 2019 and 29.8% in 2023, dipping in 2021 and 2022 before nearly fully recovering, a change from steady pre-pandemic increases.
  3. Recent urban growth was driven by a temporary national immigration surge and is likely to reverse, and college-educated young adults remain more likely than others to live in urban neighborhoods, but by a smaller margin than before the pandemic.

Related Articles:

AI Summary. Across 15 destination countries, the authors estimate that about half of the variation in income gaps between children of immigrants and children of the local-born reflects parental income differences, with the remainder tied to differing rates of mobility for those raised at the bottom of the distribution.

Leah Boustan, Mathias Fjællegaard Jensen, Ran Abramitzky et al. National Bureau of Economic Research
Date Posted:
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.@leah_boustan et al. study children born in 1979-83 in 15 countries, and find that absolute economic mobility is strongest for sons and daughters of immigrants in destinations that are historically “immigrant-receiving.”

What explains income gaps between children of immigrants and locals?

Core argument: Using parent-child links across 15 destination countries, around half of the cross-country variation in second-generation income gaps is explained by parental income differences, with children of immigrants typically raised in poorer households than children of the local-born.

We use parent-child links to document three new facts about cross-country income gaps between the children of immigrants and children of local-born. (1) Around half of the cross-country variation in second-generation income gaps can be explained by parental income differences. Children of immigrants tend to be raised in poorer households than children of the local born. Thus, countries with a smaller first-generation income rank gap (e.g., the US and Canada) also have smaller second-generation income rank gaps. (2) After accounting for parental income, remaining income gaps for the children of immigrants are driven by differential rates of absolute mobility, i.e. higher or lower income for children raised at the bottom of the income distribution. (3) In most countries, daughters of immigrants exhibit higher absolute mobility than daughters of locals. Sons of immigrants only enjoy this advantage in non-European countries with long histories of immigrant incorporation (Australia, Canada, Israel and the US), as well as in the UK. As a result, daughters of immigrants have higher income than [daughters of non-immigrants] raised at the same point in the income distribution in most destination countries, while sons of immigrants often have lower income.

Takeaways by Macro Roundup® AI

  1. Using parent-child links across 15 destination countries, around half of the cross-country variation in second-generation income gaps is explained by parental income differences, with children of immigrants typically raised in poorer households than children of the local-born.
  2. Countries with smaller first-generation income rank gaps, such as the US and Canada, also show smaller second-generation income rank gaps, and gaps remaining after accounting for parental income are driven by differing rates of absolute mobility among children raised at the bottom of the income distribution.
  3. Daughters of immigrants show higher absolute mobility than daughters of locals in most of the 15 destination countries, while sons of immigrants hold that advantage only in Australia, Canada, Israel, the US and the UK, and often earn less elsewhere.

Related Articles:

  • Recent Immigration Surge Has Been Largest in U.S. History — An analysis of government data finds the recent U.S. immigration surge is the largest on record, with net migration averaging 2.4m people a year from 2021 to 2023 and the foreign-born share of the population reaching 15.2% in 2023, up from 13.6% in 2020. About 60% of immigrants arriving since 2021 entered without legal authorization.
  • Enclaves and Assimilation in the Age of Mass Migration: Evidence from Ethnic Catholic Churches — Among early 20th-century US immigrants, the authors find that new Polish Catholic church openings are associated with slower economic assimilation for Polish residents — lower income scores and a shift toward manual occupations — alongside stronger communal ties such as more within-group marriage and Polish names. These patterns persist into the second generation and are not found for Italians.
  • Trading Places: Mobility Responses of Native and Foreign-Born Adults to the China Trade Shock — U.S. local labor markets more exposed to import competition from China saw substantially larger net reductions in their foreign-born populations, with no significant reduction among native-born residents. Within exposed areas, foreign-born and native-born workers had comparably sized declines in employment-to-population ratios.

AI Summary. Because restrictive planning laws prevent housing supply from responding to demand in rich countries, researchers estimate that a 1% rise in a city's migrant population raises rents by 0.5–1%, with other studies estimating larger effects on house prices and median rents. Since migration has only a small positive effect on wages, housing becomes less affordable for natives.

Economist Staff The Economist
Date Posted:
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The ongoing wave of immigration to OECD countries has likely put upward pressure on housing costs. @TheEconomist reports on studies finding that a 1% increase in the migrant population of a region raises housing costs from 1-3%.

Does immigration make housing less affordable where building is restricted?

Core argument: A University of Waikato meta-analysis finds that a 1% increase in a city's migrant population raises rents by 0.5–1%, while Umut Unal of the Czech Research Institute for Labour and Social Affairs estimates a 1% rise in migration to a German district raises house prices by 3%.

Rich-world housing markets are often rigid and bound by restrictive planning laws that prevent supply from responding to demand. The lump of labour may be a fallacy but, without more housebuilding, there is effectively one lump of land that must be divided between a larger population. Research supports this intuition. A University of Waikato [meta-analysis] finds that a 1% increase in the migrant population of a city leads to a 0.5-1% rise in rents. Umut Unal of the Czech Research Institute for Labour and Social Affairs estimates that a 1% rise in migration to a German district leads to a 3% rise in house prices. James Cabral and Walter Steingress, both of the Bank of Canada, calculate that a 1% increase in an American county’s population raises median rents by 2.2%. As migration only has a small positive impact on wages, the rise in costs makes housing less affordable for natives. Housing demand depends not only on the number of people in an area but how densely they live. Often new migrants are willing to accept worse conditions than natives.

Takeaways by Macro Roundup® AI

  1. A University of Waikato meta-analysis finds that a 1% increase in a city's migrant population raises rents by 0.5–1%, while Umut Unal of the Czech Research Institute for Labour and Social Affairs estimates a 1% rise in migration to a German district raises house prices by 3%.
  2. James Cabral and Walter Steingress of the Bank of Canada calculate that a 1% increase in an American county's population raises median rents by 2.2%.
  3. Because migration has only a small positive impact on wages, rising housing costs make housing less affordable for natives, and restrictive planning laws in rich-world markets prevent supply from responding to demand.

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  • Why Immigration Is an Urban Phenomenon — Because many immigrants send remittances home or plan to return, part of their spending occurs in their origin country rather than where they work, so local prices apply to only part of their budget. The authors argue this makes immigrants less deterred by high local costs, concentrating them in expensive cities.
  • Importing Shelter Inflation — Shelter costs make up about 30% of the consumer price index, and their monthly inflation appears to be stabilizing above pre-pandemic rates rather than delivering the disinflation forward-looking data had implied. The author suggests this may be related to a surge in migration, estimated at 3.3m migrants in a year.

AI Summary. The economic benefits of pro-market policies such as deregulation, faster infrastructure permitting, increased inbound foreign direct investment, and federal spending cuts are expected to take time to materialize, while reciprocal tariffs proceed in the interim. The author suggests deploying excess portfolio liquidity if the S&P 500 falls 12%-15%.

Michael Cembalest J.P. Morgan
Date Posted:

Noting the benefits of deregulation and permits for new infrastructure will take time to materialize, Michael Cembalest argues “When/if 12%-15% correction levels are hit on the S&P 500, I would look at deploying some of a portfolio’s excess liquidity.”

Will pro-market policy benefits take time while tariffs proceed?

Core argument: The author would deploy some of a portfolio's excess liquidity if the S&P 500 reaches a 12%–15% correction level.

It will take time before the benefits from pro-market policies of the administration materialize (deregulation, infrastructure permitting, more inbound FDI, DOGE spending cuts, etc). In the meantime, I expect Trump to proceed with some kind of reciprocal tariff announcement in March or April. When/if 12%-15% correction levels are hit on the S&P 500, I would look at deploying some of a portfolio’s excess liquidity.

Takeaways by Macro Roundup® AI

  1. The author would deploy some of a portfolio's excess liquidity if the S&P 500 reaches a 12%–15% correction level.
  2. The author expects Trump to proceed with some form of reciprocal tariff announcement in March or April.
  3. Benefits from the administration's pro-market policies — deregulation, infrastructure permitting, increased inbound foreign direct investment, and DOGE spending cuts — will take time to materialize, according to the author.

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AI Summary. Dollars that foreigners earn selling goods to Americans must ultimately be spent on U.S. goods and services, invested in U.S. assets such as stocks, government bonds, real estate, or short-term interest-bearing instruments, or sold to others who want those things. A U.S. trade deficit therefore corresponds to an inflow of foreign capital.

Jeremy Siegel Wall Street Journal
Date Posted:

Jeremy Siegel notes that the $1B US trade deficit reflects an equal US $1B capital surplus. He argues that trade policies that reduce US trade deficits would reduce demand and prices for US assets and raise interest rates.

Does a trade deficit necessarily mean an inflow of foreign capital?

Core argument: In the example of an American buying a $40,000 Japanese-made Toyota, Toyota can spend the dollars on $40,000 of U.S. goods or services, in which case there would be no trade deficit.

A simple example shows the relationship between trade and capital flows. Suppose an American buys a $40,000 Toyota made in Japan. Toyota has three options for what to do with these dollars. It can buy $40,000 worth of U.S. goods or services, in which case there would be no trade deficit. Or, because it expects the American economy to grow, it can invest $40,000 in U.S. capital—say, the S&P 500 index, U.S. government bonds or American real estate. It can also temporarily invest the funds in short-term, interest-bearing assets such as Treasury bills, commercial paper or bank deposits that enhance the lending capabilities of American financial institutions and fund short-term corporate borrowing needs. What if Toyota doesn’t want to buy U.S. goods or assets? Then it can sell the dollars on the foreign-exchange market. People purchase these dollars either because they want to buy U.S. goods or assets or because they think the dollar will appreciate in value.

Takeaways by Macro Roundup® AI

  1. In the example of an American buying a $40,000 Japanese-made Toyota, Toyota can spend the dollars on $40,000 of U.S. goods or services, in which case there would be no trade deficit.
  2. Toyota can instead invest the $40,000 in U.S. capital such as the S&P 500 index, U.S. government bonds or American real estate if it expects the American economy to grow.
  3. Toyota can park the funds in short-term interest-bearing assets such as Treasury bills, commercial paper or bank deposits that enhance U.S. financial institutions' lending capabilities, or sell the dollars to buyers seeking U.S. goods, U.S. assets or dollar appreciation.

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  • Budget Cuts Can Solve Trump’s Trade Deficit Problem — An International Monetary Fund study of 33 countries found that for a large economy like the U.S., each dollar of deficit reduction shifts the current account—trade in goods, services and investment income—by 30 to 50 cents. Applying that math, cutting the U.S. federal deficit from 6.4% of GDP to 3% would trim $300bn–$500bn from the roughly $900bn goods-and-services trade deficit.
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AI Summary. German arms maker Rheinmetall is considering taking over one of Volkswagen's soon-to-be idle German plants as it searches for extra production capacity, though the company says any acquisition would depend on securing more tank orders. Volkswagen decided to halve its German production capacity, idling three plants, because of a slowdown in European car sales.

Patricia Nilsson Financial Times
Date Posted:

Rheinmetall, one of Germany’s largest weapons manufacturers, may take over some of “Volkswagen’s soon-to-be idle plants” to build tanks.

Can idle car plants be repurposed for tank production?

Core argument: Rheinmetall CEO Armin Papperger said Volkswagen's Osnabrück plant is a "good fit" for the arms maker's operations, as Rheinmetall searches Germany for additional production capacity.

Rheinmetall is considering taking over one of Volkswagen’s soon-to-be idle plants, as the growing arms maker scours Germany for extra production capacity while struggling carmakers scale back. Chief executive Armin Papperger on Wednesday said VW’s plant in Osnabrück was a “good fit” for Rheinmetall operations, but stressed any decision to acquire idle car factories would depend on securing more tank orders. VW’s Osnabrück plant is one of three set to become idle within the next two years after the carmaker decided in December to halve production capacity in the country because of a slowdown in European car sales.

Takeaways by Macro Roundup® AI

  1. Rheinmetall CEO Armin Papperger said Volkswagen's Osnabrück plant is a "good fit" for the arms maker's operations, as Rheinmetall searches Germany for additional production capacity.
  2. Papperger said any Rheinmetall decision to acquire idle car factories depends on securing more tank orders.
  3. Volkswagen's Osnabrück site is one of three plants set to become idle within two years after the carmaker decided in December to halve its German production capacity because of a slowdown in European car sales.

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