Edward Conard

Top Ten New York Times Bestselling Author

  • “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 full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…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
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences 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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 26, 2025

AI Summary. Analysis of US household income from 1967 to 2023 finds that higher unemployment and inflation reduce real household income, with these cyclical effects relatively uniform across the income distribution before the pandemic. The authors estimate real household income rises about 1/2 to 2/3 percentage point for each additional year an expansion continues, with larger gains at lower income percentiles.

Deepika Baskar Prabhakar and Robert Valletta Federal Reserve Bank of San Francisco
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A @SFFed analysis finds sustained economic expansions raise “real household income by about 1/2 to 2/3 of a percentage point each year that an expansion continues, with larger effects evident at lower income percentiles.”

How do unemployment, inflation, and expansion length affect household income?

Core argument: Using data for 1967–2023, the authors find real household income rises about 1/2 to 2/3 percentage point for each additional year an expansion continues, with larger effects at lower income percentiles.

We use data for the years 1967 to 2023, which include the pandemic period. We find that increases in unemployment and inflation reduce real household income. Prior to the pandemic, these cyclical effects were relatively uniform across the distribution of household incomes. The pandemic period was a substantial outlier, with income losses largely offset by historically large government transfers paid in the form of enhanced unemployment insurance (UI) benefits, especially for lower-income households. Figure 4 shows that real household income rises about 1/2 to 2/3 percentage point each year that an expansion continues, with larger effects evident at lower income percentiles. This suggests that household income is likely to continue growing across the board in the current expansion, even if unemployment and inflation are unchanged. The expansion before the pandemic lasted nearly 11 years. With the U.S. economy entering its fifth year of post-pandemic economic expansion, meaningful gains in real household income are likely if the expansion continues.

Takeaways by Macro Roundup® AI

  1. Using data for 1967–2023, the authors find real household income rises about 1/2 to 2/3 percentage point for each additional year an expansion continues, with larger effects at lower income percentiles.
  2. Increases in unemployment and inflation reduce real household income, and prior to the pandemic these cyclical effects were relatively uniform across the distribution of household incomes.
  3. The pandemic period was a substantial outlier, with income losses largely offset by historically large government transfers paid as enhanced unemployment insurance benefits, especially for lower-income households.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • 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.
  • The American Dream Is Not a Coin Flip, and Wages Have Not Stagnated — Using an alternative cost-of-living adjustment, the typical 40-year-old's pre-tax family income rose 52% between 1979 and 2019, or 73% adjusting for family size, versus 15% under the methods behind widely cited mobility estimates. Absolute mobility is down 20 percentage points since 1979 but stood at 72% in 2023.

AI Summary. In a pre-registered field experiment with 776 professionals at Procter & Gamble working on real product innovation challenges, individuals using AI matched the performance of two-person teams without AI. Professionals using AI also produced solutions balancing technical and commercial considerations regardless of their functional background.

Fabrizio Dell’Acqua, Charles Ayoubi, Hila Lifshitz, Raffaella Sadun, Ethan Mollick, et al. Harvard Business School Working Paper
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In a 776-person field experiment at P&G on real product innovation tasks, individuals using AI delivered solutions with higher average quality than teams without AI, and performed almost as well as teams using AI.

Can one professional using AI match a two-person team?

Core argument: In a pre-registered field experiment with 776 Procter & Gamble professionals working on real product innovation challenges, individuals using AI matched the performance of two-person teams working without AI.

We examine how artificial intelligence transforms the core pillars of collaboration—performance, expertise sharing, and social engagement—through a pre-registered field experiment with 776 professionals at Procter & Gamble. Working on real product innovation challenges, professionals were randomly assigned to work either with or without AI, and either individually or with another professional in new product development teams. Our findings reveal that AI significantly enhances performance: individuals with AI matched the performance of teams without AI, demonstrating that AI can effectively replicate certain benefits of human collaboration. Moreover, AI breaks down functional silos. Without AI, R&D professionals tended to suggest more technical solutions, while Commercial professionals leaned towards commercially-oriented proposals. Professionals using AI produced balanced solutions, regardless of their professional background. Our results suggest that AI adoption at scale in knowledge work reshapes not only performance but also how expertise and social connectivity manifest within teams, compelling organizations to rethink the very structure of collaborative work.

Takeaways by Macro Roundup® AI

  1. In a pre-registered field experiment with 776 Procter & Gamble professionals working on real product innovation challenges, individuals using AI matched the performance of two-person teams working without AI.
  2. Without AI, R&D professionals proposed more technical solutions and Commercial professionals more commercially oriented ones, while professionals using AI produced balanced solutions regardless of functional background.
  3. The authors argue that AI adoption at scale in knowledge work reshapes performance, expertise sharing, and social connectivity within teams, compelling organizations to rethink the structure of collaborative work.

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.
  • 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.
  • Centaurs and Cyborgs on the Jagged Frontier — In a pre-registered experiment at Boston Consulting Group covering 18 realistic consulting tasks, consultants using ChatGPT-4 completed 12.2% more tasks, worked 25.1% faster, and produced 40% higher quality results than those without it. The tool acted as a skill leveler: the lowest-scoring consultants improved 43%, while top performers gained less.

AI Summary. The wealthiest 0.1% of US households hold a record 13.8% of total wealth in Federal Reserve data, up from 13%, while the bottom half hold about 2.5%. Households in the 90th to 99th percentiles are the group whose wealth share narrowed, falling 2.4 percentage points.

Alexandre Tanzi Bloomberg
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Federal Reserve data through Q4 2024 reports that the top 0.1%’s wealth share increased to 13.8% from 13% at the end of 2020 contrasted with the broadly affluent 90-99% whose wealth share declined 2.4pp to 36.4% over that period.

How is wealth distributed across American households?

Core argument: The top 0.1% of American households expanded their share of total wealth to a record 13.8% at year's end, up from 13% in the same period of 2020.

The top 0.1% expanded their share of total wealth to a record 13.8% at the year’s end, up from 13% in the same period of 2020. The bottom half’s share climbed to 2.7% in mid-2022, the highest in Fed data going back to 1989, before dropping back to 2.5%. The group that saw its wealth share narrow over the past four years is the affluent households that make up the 90th to 99th percentiles. These families saw a 2.4 percentage point decline in their share of the total.

Takeaways by Macro Roundup® AI

  1. The top 0.1% of American households expanded their share of total wealth to a record 13.8% at year's end, up from 13% in the same period of 2020.
  2. The bottom half of U.S. households holds 2.5% of national wealth, down from 2.7% in mid-2022, the highest share in Federal Reserve data going back to 1989.
  3. Affluent households in the 90th to 99th percentiles saw their share of total wealth decline 2.4 percentage points over the past four years.

Related Articles:

  • Social Security and Trends in Wealth Inequality — The authors estimate that including Social Security in household wealth leaves top wealth shares little changed over three decades, with the top 10% and top 1% shares rising 1.1 and 1.6 percentage points versus roughly 9 and 6 points for marketable wealth alone. Social Security wealth grew from $7tn to $39tn.
  • How To Get Rich in 2025 — Academic estimates compiled by The Economist indicate inheritances, after falling over the 20th century, were worth about 10% of GDP on average by the end of the 2010s, with roughly $6tn inherited across the rich world in a year. Falling family sizes mean each inheritance is spread across fewer heirs.
  • A Preliminary Report on Taxing the Great Wealth Transfer: Revenue and Distributional Effects of Taxes on Estates, Inheritances, and Unrealized Capital Gains at Death — The authors argue that replacing the estate tax, paid by those who die, with an inheritance tax, paid by recipients, could raise more revenue and increase progressivity because it targets large individual transfers rather than estates divided among several family members. They also note unrealized capital gains held until death escape income tax entirely.

AI Summary. The UK Treasury announced a £14bn package to repair public finances after weak growth and high borrowing costs, including £4.8bn in gross welfare savings, £3.6bn in day-to-day departmental spending cuts, and relaxed planning rules projected to cut borrowing by a further £3.4bn. Defence spending is set to rise to 2.5% of GDP.

George Parker, Sam Fleming, and Ian Smith Financial Times
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The UK Labour government announced a £4.8B reduction in projected welfare spending and £3.6B in cuts to departmental spending by 2029-30, in part to offset an increase in defense spending to 2.5% of GDP by 2027.

Will spending cuts and planning reform be enough to avoid tax rises?

Core argument: UK Chancellor Rachel Reeves announced a £14bn package to repair the public finances after weak growth and high borrowing costs damaged the fiscal position five months after her first Budget.

[UK Chancellor of the Exchequer] Rachel Reeves has announced a £14bn package to repair the UK public finances after weak economic growth and high borrowing costs blew a hole in the country’s fiscal position just five months after her first Budget. In one of the biggest surprises of the day, she said a relaxation of planning rules would boost GDP and tax receipts, reducing borrowing by a further £3.4bn by 2029-30. Welfare cuts would result in a gross saving of £4.8bn by that time, while cuts to planned day-to-day departmental spending would save £3.6bn. The chancellor confirmed that defence spending would increase to 2.5% of GDP. UK borrowing costs dipped following Reeves’ statement, as the government announced debt sales of £304bn for the coming year, slightly less than the £308bn forecast by markets.

Takeaways by Macro Roundup® AI

  1. UK Chancellor Rachel Reeves announced a £14bn package to repair the public finances after weak growth and high borrowing costs damaged the fiscal position five months after her first Budget.
  2. Reeves said relaxed planning rules would boost GDP and tax receipts, cutting borrowing by a further £3.4bn by 2029-30, with welfare cuts saving £4.8bn gross and departmental day-to-day spending cuts £3.6bn.
  3. UK borrowing costs dipped after Reeves' statement as the government set debt sales of £304bn for the coming year, below the £308bn markets had forecast, and confirmed defence spending rising to 2.5% of GDP.

Related Articles:

AI Summary. Sweden plans to raise defence spending from 2.4% to 3.5% of GDP by 2030, citing Russia's war in Ukraine and uncertainty over US commitment. The rearmament is to be funded largely by borrowing, about SKr300bn ($30bn) by 2035, supported by one of Europe's lowest debt-to-GDP ratios.

Richard Milne Financial Times
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Sweden is planning on increasing defense spending from 2.4% to 3.5% of GDP over the next five years, financed by borrowing, citing Russia’s war in Ukraine and waning US commitments.

Are European countries borrowing to fund sharply higher defence spending?

Core argument: Sweden will raise defence spending from 2.4% of GDP to 3.5% by 2030, citing Russia's war in Ukraine and uncertainties over US commitment, according to prime minister Ulf Kristersson.

Sweden has said it will increase defence spending to 3.5% of GDP by 2030, becoming the latest European country to propose a sharp rise as it cited Russia’s war in Ukraine and uncertainties over US commitment. The rise from the current 2.4%, to be funded largely by borrowing, was set out by centre-right prime minister Ulf Kristersson on Wednesday and has been agreed with the four parties that support his government. Kristersson said that Sweden would borrow about SKr300bn ($30bn) by 2035 to fund the rearmament, in a deal endorsed by the three parties in his coalition and the nationalist Sweden Democrats. Sweden has one of the lowest debt-to-GDP ratios in Europe, giving it plenty of headroom to borrow more.

Takeaways by Macro Roundup® AI

  1. Sweden will raise defence spending from 2.4% of GDP to 3.5% by 2030, citing Russia's war in Ukraine and uncertainties over US commitment, according to prime minister Ulf Kristersson.
  2. Kristersson said Sweden would borrow about SKr300bn ($30bn) by 2035 to fund the rearmament, with the plan agreed by his three coalition parties and the nationalist Sweden Democrats.
  3. Sweden has one of the lowest debt-to-GDP ratios in Europe, giving it headroom to fund the defence increase largely by borrowing.

Related Articles:

  • Germany’s Parliament Approves Friedrich Merz’s €1tn Spending Plan — Germany's parliament approved constitutional changes allowing up to €1tn for military and infrastructure spending, including unlimited borrowing for defense and a €500bn, 12-year fund to modernize hospitals, schools, roads and energy networks. The plan could revive Europe's largest economy and boost EU rearmament efforts.
  • The Costly End of Europe’s ‘Peace Dividend’ — European leaders are debating raising defence spending to 3.5% of GDP or more, a level not seen in continental Europe since the late 1960s. Sustaining that share from 1995 to 2023 would have required an extra $387bn a year across EU member states and $35bn a year for the UK, according to Financial Times calculations.
  • Behind NATO’s 2 Percent: Measuring the True Scope of Alliance Defense Investments and the NATO Defense Deficit — NATO's collective defense spending averaged 1.72% of GDP over roughly two and a half decades, below the alliance's agreed 2% threshold, leaving a cumulative shortfall the authors estimate at over $2tn that was not invested in force structure, modernization, and readiness. The authors argue closing the gap requires years of sustained investment beyond current commitments.

Thursday, March 27, 2025

AI Summary. Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.

Maurice Obstfeld Brookings Papers On Economic Activity
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Obstfeld @PIIE argues that current account deficits have not been forcibly “imposed” on the US from abroad since 2002. Rejecting Pettis’ tax on capital flows and a Fed-induced contraction, he argues for fiscal adjustment to increase national savings.

Which policy can reduce the trade deficit without harming growth?

Core argument: A tax on capital inflows, as suggested by Pettis, would weaken the dollar, tax imports and subsidize exports, and push domestic interest rates above foreign rates, encouraging saving while reducing investment.

Different policy directions could, in principle, deliver palpable effects on the trade balance and on manufacturing. One is to tax capital inflows, as suggested by Pettis. A capital inflow tax would weaken the dollar, taxing imports and subsidizing exports, and it would raise the domestic interest rate above foreign rates, encouraging saving while reducing investment. Along with concomitant effects on the liquidity of U.S. financial markets, the macro effects on saving and investment could be harmful to long-term growth, as well as contractionary in the short run. [Another] route would be a Fed cut in interest rates. Unless the U.S. economy moves into recession, a substantial interest rate cut now would be inflationary, not only undesirable in itself. It would also erode the extent to which the dollar’s nominal depreciation was a real depreciation. And without real depreciation, there would be no durable boost in the trade balance or manufacturing employment. A final option that would weaken the dollar, spur employment in tradable industries, and reduce the trade deficit is fiscal restraint. This would have the collateral benefit of mitigating the biggest risk on the U.S. external balance sheet

Takeaways by Macro Roundup® AI

  1. A tax on capital inflows, as suggested by Pettis, would weaken the dollar, tax imports and subsidize exports, and push domestic interest rates above foreign rates, encouraging saving while reducing investment.
  2. The macro effects of a capital inflow tax on saving, investment, and U.S. financial market liquidity could harm long-term growth and prove contractionary in the short run.
  3. A substantial Fed rate cut absent recession would be inflationary and would erode the extent to which the dollar's nominal depreciation was real, and without real depreciation there would be no durable boost in the trade balance or manufacturing employment.

Related Articles:

  • Pettis on Obstfeld — Pettis argues that saving rates in China, Japan, South Korea, Germany, Russia and Saudi Arabia are driven by their own domestic policies and conditions, and in turn drive the US saving rate. He notes the US has an open capital account, deep financial markets, and limited intervention in credit allocation.
  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.
  • Trade Intervention for Freer Trade — The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.

AI Summary. The US announced 25% tariffs on imports of foreign-made cars, and officials confirmed the tariffs will also apply to car parts including engines, transmissions, power-train parts and electrical components. The United Auto Workers union welcomed the tariffs as a step toward fixing trade deals it calls broken.

Aime Williams, Kana Inagaki and Claire Bushey Financial Times
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Donald Trump imposed a 25% tariff on foreign-made cars and parts that will go into effect April 2. The United Auto Workers union welcomed the tariffs. “Ending the race to the bottom in the auto industry starts with fixing our broken trade deals.”

Will new auto tariffs cover car parts as well as vehicles?

Core argument: Donald Trump said the US will impose 25% tariffs on imports of foreign-made cars effective April 2, the deadline he set for unveiling reciprocal tariffs against US trade partners.

The US will impose 25% tariffs on imports of foreign-made cars, Donald Trump said on Wednesday, as he announced a significant escalation in his trade war with America’s allies. The tariffs will go into effect on April 2, the US president’s self-imposed deadline for unveiling numerous reciprocal tariffs against US trade partners. A US official later confirmed the tariffs would apply to car parts as well as completed vehicles. A White House factsheet said parts subject to the tariffs would include engines, transmissions, power-train parts and electrical components. The United Auto Workers union welcomed the tariffs. “Ending the race to the bottom in the auto industry starts with fixing our broken trade deals,” said Shawn Fain, UAW president.

Takeaways by Macro Roundup® AI

  1. Donald Trump said the US will impose 25% tariffs on imports of foreign-made cars effective April 2, the deadline he set for unveiling reciprocal tariffs against US trade partners.
  2. A US official confirmed the 25% tariffs will cover car parts as well as completed vehicles, with a White House factsheet listing engines, transmissions, power-train parts and electrical components.
  3. United Auto Workers president Shawn Fain welcomed the tariffs, saying that "ending the race to the bottom in the auto industry starts with fixing our broken trade deals.".

Related Articles:

  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.
  • Steel Productivity has Plummeted Since Trump’s 2018 Tariffs — Output per hour in the U.S. steel industry has fallen 32% since 2017, following the imposition of 25% tariffs on steel imports, while output per hour for the economy as a whole rose 15%. U.S. steel-using firms, which employ roughly 45x as many Americans as steel producers, pay about 75% more for steel than global competitors.
  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.

AI Summary. The Economic Innovation Group estimates the share of US counties drawing a quarter or more of total personal income from government transfers rose from about 10% to 53% over roughly two decades. Transfers were the fastest-growing major component of personal income, reaching 18% of the US total, or $3.8tn, more than double their 1970 share.

Guy Chazan Financial Times
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In 2022 53% of US counties derived at least 25% of total personal income from federal transfer payments, up from 10% in 2000; the share of federal transfers has grown fastest in rural counties that tend to support the GOP.

How reliant have US counties become on government transfer income?

Core argument: The share of US counties deriving a quarter or more of total personal income from government transfers rose from 10.4% in 2000 to 53% in 2022, according to the Economic Innovation Group.

In 2000, according to the Economic Innovation Group just 10.4% of counties in the US derived a quarter or more of their total personal income from transfers. But by 2022, that had risen to 53% of counties in the US. Income from government transfers was the fastest-growing major component of Americans’ personal income, according to the EIG report last year. It said they made up 18% of all personal income in the US in 2022 — a total of $3.8tn — with the share more than doubling since 1970. Louisiana is a prime example of these trends. The state is as red as they come, choosing the Republican candidates in 12 of the past 14 presidential elections. In the congressional district of Mike Johnson, Republican Speaker of the House, 33% of people are enrolled in [Medicaid]. The federal government shoulders around 70% of the costs of Medicaid in the state. As Steve Bannon put it in a recent podcast: “Medicaid’s going to be a complicated one…a lot of Maga’s on Medicaid.”

Takeaways by Macro Roundup® AI

  1. The share of US counties deriving a quarter or more of total personal income from government transfers rose from 10.4% in 2000 to 53% in 2022, according to the Economic Innovation Group.
  2. Government transfers made up 18% of all US personal income in 2022, a total of $3.8tn, with the share more than doubling since 1970 and ranking as the fastest-growing major component of personal income, per the EIG report.
  3. In Louisiana, which backed Republican presidential candidates in 12 of the past 14 elections, 33% of people in Speaker Mike Johnson's congressional district are enrolled in Medicaid, with the federal government covering around 70% of the state's Medicaid costs.

Related Articles:

  • The Great “Transfer”-mation — Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.
  • The Economic and Political Dynamics of Rural America — Population growth in the average rural US county reached 0.4% and surpassed that of the average urban county, while the share of rural counties losing population fell from two-thirds in 2012 to under half. The growth is concentrated in rural counties near major urban centers and in recreation and retirement destinations.
  • America Is Uniquely Ill-Suited To Handle a Falling Population — U.S. population growth slowed to about 7.4% in the decade to 2020, the slowest since the Great Depression, as the fertility rate fell from above the 2.1 needed for a stable population to 1.67. Because local and regional authorities levy 48% of all U.S. taxes—versus 20% in France and 6% in Britain—shrinking local revenue forces service cuts or tax rises.

AI Summary. Microsoft has walked away from new US and European data center projects totaling about 2 gigawatts of electricity capacity, which TD Cowen analysts attribute to an oversupply of computing capacity relative to current AI demand forecasts. Google and Meta picked up some of the freed European capacity, the analysts wrote.

Matt Day and Ryan Vlastelica Bloomberg
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Microsoft has walked away from new data center projects in the US and Europe that would have used the equivalent of 2 gigawatts of electricity. Microsoft remains on track to spend ~$80B building out data centers this fiscal year.

Is data center capacity outpacing current AI demand forecasts?

Core argument: Microsoft has abandoned new data center projects in the US and Europe totaling roughly 2 gigawatts of electricity capacity, which TD Cowen analysts attribute to an oversupply of the computer clusters that power AI.

Microsoft has walked away from new data center projects in the US and Europe that would have amounted to a capacity of about 2 gigawatts of electricity, according to TD Cowen analysts, who attributed the pullback to an oversupply of the clusters of computers that power artificial intelligence. Google had stepped in to grab some leases Microsoft abandoned in Europe, the analysts wrote, while Meta had scooped up some of the freed capacity in Europe. Microsoft says it remains on track to spend about $80 billion building out AI data centers in its fiscal year that ends in June. “We continue to believe the lease cancellations and deferrals of capacity points to data center oversupply relative to its current demand forecast,” TD Cowen analysts Michael Elias, Cooper Belanger and Gregory Williams wrote.

Takeaways by Macro Roundup® AI

  1. Microsoft has abandoned new data center projects in the US and Europe totaling roughly 2 gigawatts of electricity capacity, which TD Cowen analysts attribute to an oversupply of the computer clusters that power AI.
  2. TD Cowen analysts Michael Elias, Cooper Belanger and Gregory Williams wrote that Microsoft's lease cancellations and capacity deferrals point to data center oversupply relative to its current demand forecast.
  3. Microsoft says it remains on track to spend about $80 billion building out AI data centers in its fiscal year ending in June, while Google and Meta took up some of the leases and capacity Microsoft freed in Europe.

Related Articles:

  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.
  • Microsoft Dropped Some AI Data Center Leases, TD Cowen Says — 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.
  • Gen AI: Too Much Spend, Too Little Benefit? — The author argues generative AI is unlikely to drive revenue expansion because it helps employees find information faster rather than find better information. If AI's benefits remain limited to efficiency gains, competitors can adopt the same tools, so cost savings get arbitraged away rather than raising prices or margins.

AI Summary. Average annual electricity load growth reached 3% and is projected to continue at that rate for five years, with utilities raising expected peak demand for 2029 by 12%, or 101 gigawatts, driven by data centers, new factories, electric vehicles, heat pumps, and hydrogen production.

Greg Ip Wall Street Journal
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In 2023, US fixed asset investment for electrical generation, storage, and distribution was $208.5B relative to $138B invested in oil, gas, and coal extraction. Grid Strategies estimates electric power investment growth at 3%/yr through 2030.

Is electricity demand growth accelerating enough to drive economic growth?

Core argument: Average annual electricity load growth reached 3% last year and will continue at that rate for the next five years, according to power-sector consulting firm Grid Strategies.

[Average Annual Electricity Load] growth jumped to 3% last year and will continue at that rate for the next five years [according to] Grid Strategies, a power-sector consulting firm. The firm estimates that since 2022, utilities have raised expected peak demand for summer 2029 by 12%, or 101 gigawatts. The drivers are data centers for AI, cloud computing and cryptocurrency; new factories; and the gradual adoption of electric vehicles, heat pumps, and hydrogen production. Most of the cost of oil and gas is the fuel itself, whereas for electricity it is the generation, transmission, storage and distribution infrastructure. Oil-and-gas extraction and refining contribute twice as much to gross domestic product as utilities, but electric utilities alone invest 50% more in plant, equipment and technology.

Takeaways by Macro Roundup® AI

  1. Average annual electricity load growth reached 3% last year and will continue at that rate for the next five years, according to power-sector consulting firm Grid Strategies.
  2. Grid Strategies estimates that since 2022 utilities have raised expected peak demand for summer 2029 by 12%, or 101 gigawatts, driven by data centers for AI, cloud computing and cryptocurrency, new factories, electric vehicles, heat pumps and hydrogen production.
  3. Oil-and-gas extraction and refining contribute twice as much to gross domestic product as utilities, yet electric utilities alone invest 50% more in plant, equipment and technology, with most electricity cost lying in generation, transmission, storage and distribution infrastructure rather than fuel.

Related Articles:

  • Heliocentrism — An energy use must be electrified before green grid electricity can decarbonize it, and while US grid decarbonization continues at a steady pace, the electricity share of final US energy consumption has grown little. Transmission line growth runs well below Department of Energy targets for 2030 and 2035, and transformer delivery times have stretched from 4–6 weeks to 2–3 years.
  • How Tariffs Could Shock America’s Power System — US electricity prices have risen at a compound annual rate of 5.7% over five years, after being roughly flat in the prior five years. Transformers could become a chokepoint: analysts estimate only about 20% of US transformer demand can be met domestically, with prices up 70%–100% on higher electrical steel and copper costs.
  • Electricity 2025 — US electricity demand is projected to grow about 2% annually over 2025-2027, an upward revision from an earlier 1% forecast. A study commissioned by the US Department of Energy found data centre electricity use rose from about 60 TWh in 2014 to 176 TWh in 2023, and could reach 325-580 TWh by 2028.

AI Summary. China's top financial regulator has urged Chinese banks to expand consumer lending as part of an effort to boost consumption, which comprises roughly 56% of GDP. More consumer lending may raise consumption in the short term largely by pulling future consumption forward, so today's gains could be offset by tomorrow's costs.

Michael Pettis Carnegie Endowment for International Peace
Date Posted:

China is pressuring banks to expand consumer lending. But per @michaelxpettis, this mainly shifts future consumption forward. “Over the longer term, however, what will matter is the impact of these positive short-term outcomes on overall confidence.”

Does expanding consumer lending raise consumption beyond the short term?

Core argument: China's National Financial Regulatory Administration on March 14 urged banks to expand consumer loans as part of Beijing's effort this year to boost consumption.

On March 14, China’s National Financial Regulatory Administration, the country’s top financial regulator, urged Chinese banks to expand consumer loans as part of Beijing’s attempt this year to boost consumption. With consumption currently comprising roughly 56% of GDP, the consumption share of GDP can only rise in years in which the consumption contribution to growth exceeds 56%. Because it came in more than ten percentage points lower last year, the consumption share of GDP actually declined in 2024. While encouraging more consumer lending may help boost consumption in the short term, it mostly does so by moving future consumption forward. This could create a problem if it simply moves consumption that would have occurred anyway a few months forward. The benefits today would be erased by the costs tomorrow. Over the longer term, however, what will matter is the impact of these positive short-term outcomes on overall confidence.

Takeaways by Macro Roundup® AI

  1. China's National Financial Regulatory Administration on March 14 urged banks to expand consumer loans as part of Beijing's effort this year to boost consumption.
  2. With consumption at roughly 56% of GDP, the consumption share can rise only when consumption's contribution to growth exceeds 56%; in 2024 that contribution came in more than ten percentage points lower, so the share declined.
  3. Encouraging consumer lending may boost consumption in the short term mainly by pulling future consumption forward, so today's benefits would be erased by tomorrow's costs if the spending would have occurred anyway, with longer-term effects hinging on overall confidence.

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