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, April 23, 2025

AI Summary. US artificial-intelligence-producing sectors' value added quadrupled from $278bn to $1.13tn in constant 2017 dollars between 2010 and 2023, raising their share of GDP from 2.4% to 3.5% while manufacturing's share fell 1.5 percentage points. The authors attribute the data-processing sector's productivity gains largely to elevated physical capital investment and complementary intermediate inputs, including energy.

IMF Staff International Monetary Fund
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AI’s share of US GDP increased from 2.4pp in 2013 to 3.5pp in 2023. Data processing nearly doubled its share, while that of manufacturing declined by 1.5pp. Labor productivity in the AI sector, driven by CAPEX, grew 4x the rate of the economy as a whole.

How fast have AI-producing sectors grown as a share of GDP?

Core argument: US AI-producing sectors' value added quadrupled from $278 billion to $1.13 trillion in constant 2017 dollars between 2010 and 2023, growing much faster than private nonfarm and manufacturing value added.

In the US, AI-producing sectors’ value added quadrupled from $278 billion (in constant 2017 dollars) to $1.13 trillion between 2010 and 2023, a rate much faster than those for private nonfarm and manufacturing value added. As a result, these sectors’ share in total US GDP increased from 2.4% in 2013 to 3.5% in 2023, with the data-processing sector nearly doubling its share in the same period. Meanwhile, the share of manufacturing declined by 1.5 percentage points. This fast growth of AI-producing sectors was driven by remarkable gains in labor productivity, with value added per employee in the data-processing sector growing about four times faster than that in the whole economy over the past 10 years his productivity growth was largely the result of elevated investment in physical capital and the complementarity of intermediate inputs, contrary to what was the case in computer systems design, in which labor and total factor productivity contributed significantly to output growth. Hence, the high output per employee in data centers, compared with that in other sectors, is the result of rapid capital accumulation, which has increased energy consumption as an intermediate input.

Takeaways by Macro Roundup® AI

  1. US AI-producing sectors' value added quadrupled from $278 billion to $1.13 trillion in constant 2017 dollars between 2010 and 2023, growing much faster than private nonfarm and manufacturing value added.
  2. AI-producing sectors' share of US GDP rose from 2.4% in 2013 to 3.5% in 2023, with the data-processing sector nearly doubling its share while manufacturing's share fell by 1.5 percentage points.
  3. Value added per employee in the US data-processing sector grew about four times faster than in the whole economy over the past decade, a gain attributed to elevated investment in physical capital and the complementarity of intermediate inputs.

Related Articles:

  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.
  • AI Frenzy Leads US Venture Capital to Biggest Splurge In Three Years — Large US venture rounds are concentrated in a few high-growth, well-known companies such as OpenAI and Anduril, while most start-ups cannot access similar capital. Industry researchers describe this as an untested departure from traditional venture investing, which backs very early companies on the expectation that one outsized winner covers portfolio losses.
  • Microsoft Pulls Back on Data Centers From Chicago to Jakarta — Microsoft has halted talks for or delayed data center projects in Indonesia, the UK, Australia, Illinois, North Dakota and Wisconsin. It is unclear how much of the pullback reflects expectations of weaker demand for artificial intelligence and cloud services versus construction constraints such as shortages of power and building materials.

AI Summary. Across countries in the World Bank Enterprise Survey, the share of entrepreneurs who are women rises and then falls with national income, an inverted U-shape that reverses the U-shaped link between female labor force participation and development. Female-owned firms are typically much smaller than male-owned firms and concentrated in low-skill industries.

Nava Ashraf, Alexia Delfino, Edward Glaeser and Irene Solmone National Bureau of Economic Research
Date Posted:

The 2006 World Bank Enterprise Survey shows the greatest prevalence of female entrepreneurship in middle-income countries, “where the returns to entrepreneurship are high enough to offset gender-based costs and both sexes typically form simple firms.”

How does women's share of entrepreneurship change as national income rises?

Core argument: In the World Bank Enterprise Survey, the share of entrepreneurs who are women rises and then falls with national income, an inverted U that reverses the known U-shaped relationship between female labor force participation and economic development.

In the World Bank Enterprise Survey, the share of entrepreneurs who are women first rises and then falls with national income, which reverses the well-known U-shaped relationship between female labor force participation and economic development. Women face the most level playing field in middle-income countries, where the returns to entrepreneurship are high enough to offset gender-based costs and both sexes typically form simple firms. Male-owned firms are typically much larger than female-owned firms, large firms yield far higher revenues per employee and female-owned firms are more usually in industries with low levels of skilled workers. Despite the entrepreneurship rate’s reversal of the U-shaped link between female labor-force-participation and economic development, female labor-force-participation and the entrepreneurship rate are highly correlated across countries. Even though middle income countries have the lowest LFP rates and the highest female entrepreneurship rates, the middle income countries with the highest LFP also have the higher levels of female entrepreneurship. The female entrepreneurship rate is also strongly associated with female education, weak kinship ties and Buddhism.

Takeaways by Macro Roundup® AI

  1. In the World Bank Enterprise Survey, the share of entrepreneurs who are women rises and then falls with national income, an inverted U that reverses the known U-shaped relationship between female labor force participation and economic development.
  2. Women face the most level playing field in middle-income countries, where returns to entrepreneurship are high enough to offset gender-based costs and entrepreneurs of both sexes typically form simple firms.
  3. Male-owned firms are typically much larger than female-owned firms, large firms yield far higher revenues per employee, and female-owned firms are more usually in industries with low levels of skilled workers.

Related Articles:

  • “ — Using Norwegian administrative data, the authors find that businesses owned by women experience a decline in profits after the owner becomes a parent, reaching 30% below baseline ten years after childbirth, while male-owned firms show little decline. The profit decline is most pronounced among highly capable entrepreneurs, majority owners, and women with working spouses.
  • Childbirth and Firm Performance: Evidence from Norwegian Entrepreneurs” — Using Norwegian administrative data, the authors find that businesses owned by women experience a decline in profits after the owner becomes a parent, reaching 30% below baseline ten years after childbirth, while male-owned firms show little decline. The profit decline is most pronounced among highly capable entrepreneurs, majority owners, and women with working spouses.
  • Immigration, Household Production, and Native Women’s Labor Market Outcomes: A Survey of a Global Phenomenon — A survey of existing research finds that migrant domestic workers have large positive effects on the labor supply of highly educated native women and on the gender pay gap in high-powered occupations. Low-skilled immigration to the US raised the probability that top-quartile-earning native women worked over 50 hours weekly by 1.8 percentage points.

AI Summary. US births rose 1% to more than 3.6m, according to provisional federal data, driven by a 5% increase among Asian women and a 4% gain among Hispanic women, while births fell for Black women and slipped among White women. The total fertility rate remained below the replacement level.

Alexandre Tanzi Bloomberg
Date Posted:

The total US fertility rate remained below the replacement rate last year. Births climbed 1% to 3.6mm year-over-year, driven by a 5% increase among Asian women and a 4% increase among Hispanic women. Births declined for Black and White women.

Are rising US births driven entirely by Hispanic and Asian mothers?

Core argument: US births rose 1% to more than 3.6 million last year after falling in 2023, driven entirely by a 5% increase among Asian women and a 4% gain among Hispanic women, per provisional CDC National Center for Health Statistics data.

The number of US births rose last year after falling in 2023, driven entirely by Hispanics and Asians, based on provisional data from the CDC’s National Center for Health Statistics. Births climbed 1% to more than 3.6 million, reflecting a 5% increase among Asian women and a 4% gain among Hispanics, according to data released Wednesday. Births declined for Black women and fell slightly among Whites. Despite the annual increase in births, the total fertility rate remained below the replacement pace — the level at which a given generation can exactly replace itself. By age, the trend of older women giving birth continued. Birth rates declined for females age 15-24, but increased for women in their 30s, particularly among women age 35–39.

Takeaways by Macro Roundup® AI

  1. US births rose 1% to more than 3.6 million last year after falling in 2023, driven entirely by a 5% increase among Asian women and a 4% gain among Hispanic women, per provisional CDC National Center for Health Statistics data.
  2. Births declined for Black women and fell slightly among White women, even as the overall US total increased, according to CDC data.
  3. The US total fertility rate remained below the replacement pace despite the annual rise in births, with birth rates falling for females age 15–24 and rising for women in their 30s, particularly ages 35–39.

Related Articles:

  • The Demographic Outlook: 2025 to 2055 — The Congressional Budget Office projects the U.S. population will grow from 350m to 372m over three decades, an average of 0.2% per year, less than a quarter of the 0.9% average annual rate from 1975 to 2024. Deaths are projected to exceed births beginning in 2033, with net immigration more than accounting for population growth thereafter.
  • Fifty Shades of Growth — Boom Belt" states combine high birth rates with low death rates, led by Utah at 13.2 births and 6.3 deaths per 1,000 residents for a natural increase of 6.9 per 1,000. Texas records about 12.7 births versus 9.1 deaths per 1,000, with roughly half its population growth from natural increase.
  • World Depopulation: Prospects and Implications — The US is projected to account for a growing share of the rich world's labor force, youth, and highly educated talent, with continuing population and labor force growth and only moderate aging through 2050. Its fertility, though below replacement, exceeds that of East Asian and nearly all European countries, and sustained legal immigration is essential to this demographic advantage.

AI Summary. An analysis estimates the wealthiest 0.00001% of U.S. households — 19 households — hold about 1.8% of total U.S. household wealth, or roughly $2.6tn, up from 0.1% four decades earlier when 11 households made up that group. The wealth growth of the richest Americans has far outpaced that of all other wealth groups.

Juliet Chung Wall Street Journal
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According to JPM data, the number of US nominal billionaires rose 45% between 2021 and the end of 2024 to 1,990. A @gabriel_zucman analysis claims the top 19 US households control 1.81% of US wealth, up from .9% in 2000.

Has the wealth share of the richest households outgrown all other groups?

Core argument: The 19 richest U.S. households saw their share of total household wealth rise from 1.2% in 2023 to 1.8%, or about $2.6 trillion, by the end of 2024, the biggest one-year increase on record, according to Gabriel Zucman.

It took four decades for the top 0.00001% of Americans’ share of total U.S. household wealth to grow from 0.1% in 1982—when 11 households made up that rarefied group—to 1.2% in 2023, according to an analysis by Gabriel Zucman, an economist at the University of California, Berkeley, and the Paris School of Economics. In one year, by the end of 2024, the share of total U.S. household wealth for the modern 0.00001%—those 19 households—jumped to 1.8%, or about $2.6 trillion. That is the biggest one-year increase on record, according to Zucman. The average net worth of all groups has climbed since the third quarter of 1990 as the U.S. economy has grown. The growth in wealth of the richest Americans has far outpaced that of all other U.S. wealth groups. JPMorgan Chase’s private bank estimates U.S. billionaires numbered nearly 2,000 last year, up from about 1,400 in 2021.

Takeaways by Macro Roundup® AI

  1. The 19 richest U.S. households saw their share of total household wealth rise from 1.2% in 2023 to 1.8%, or about $2.6 trillion, by the end of 2024, the biggest one-year increase on record, according to Gabriel Zucman.
  2. Zucman's analysis finds the top 0.00001% of Americans held 0.1% of total U.S. household wealth in 1982, when the group comprised 11 households, reaching 1.2% by 2023.
  3. JPMorgan Chase's private bank estimates U.S. billionaires numbered nearly 2,000 last year, up from about 1,400 in 2021.

Related Articles:

AI Summary. Germany's defense spending has risen almost 80% since 2020 to over €90bn, according to NATO estimates, offering hiring growth in a country where nearly 250,000 manufacturing jobs have disappeared since the pandemic began. Four major defense contractors added more than 16,500 employees over three years, a gain exceeding 40%, and plan roughly 12,000 more hires.

Patricia Nilsson Financial Times
Date Posted:

Germany’s historic rearmament marks an industrial shift for a country that has lost ~250,000 manufacturing jobs since the onset of the pandemic, adding at least 16,500 jobs in the defense sector since 2022, with at least 12,000 more planned by 2026.

Is defense spending offsetting Germany's manufacturing job losses?

Core argument: German defence spending has risen almost 80% since 2020 to over €90bn last year, according to Nato estimates, amid a rearmament push in a country that has lost nearly 250,000 manufacturing jobs since the onset of the pandemic.

Germany’s historic rearmament is now offering a rare glimmer of hope in a country where nearly a quarter of a million manufacturing jobs have disappeared since the onset of the pandemic. German defence spending has surged by almost 80% since 2020, reaching over €90bn last year, according to Nato estimates, and Berlin’s rearmament push is only set to intensify competition among arms makers for skilled labour. Rheinmetall, Diehl Defence, Thyssenkrupp Marine Systems and MBDA — four defence contractors with a large presence in Germany — have, over the past three years, together added more than 16,500 employees, an increase of more than 40%. They plan to hire roughly 12,000 more by 2026, they told the Financial Times.

Takeaways by Macro Roundup® AI

  1. German defence spending has risen almost 80% since 2020 to over €90bn last year, according to Nato estimates, amid a rearmament push in a country that has lost nearly 250,000 manufacturing jobs since the onset of the pandemic.
  2. Rheinmetall, Diehl Defence, Thyssenkrupp Marine Systems and MBDA together added more than 16,500 employees over the past three years, an increase of more than 40%, and told the Financial Times they plan to hire roughly 12,000 more by 2026.
  3. Berlin's rearmament push is set to intensify competition among arms makers for skilled labour in Germany.

Related Articles:

  • German Army Struggles to Get Gen Z Recruits ‘Ready for War’ — Germany's armed forces commissioner warned the country is not moving closer to its target of 203,000 active troops by 2031, as the military slightly shrank amid high dropout rates, with a quarter of new recruits leaving within six months. Conscientious objector applications reached 2,998, up from 200 in 2021.
  • Germany’s Spending Push Drives Up Borrowing Costs Across Eurozone — Germany's planned defence spending has pushed 10-year German government bond yields close to 3%, lifting borrowing costs across the eurozone because German debt serves as the bloc's benchmark. Investors warn this intensifies pressure on heavily indebted economies; one simulation projects Italy's debt-to-GDP ratio reaching 153% and France's 122% by 2030 absent spending cuts or faster growth.
  • The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers — The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.

Thursday, April 24, 2025

AI Summary. European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.

Jens Nordvig and Alex Etra Money: Inside and Out
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Capital flows suggest a strategic shift out of dollar assets is underway. “A long list of different types of investors will be looking to reduce USD exposure if they can find a way to do so.” @EtraAlex @jnordvig

Does heavy foreign exposure make US bond turmoil more unsettling?

Core argument: Foreign debt securities make up roughly 30% of European investors' and 20% of Japanese investors' total fixed income holdings, versus under 10% for US investors.

While European and Japanese investors’ allocations to foreign debt securities comprise roughly 30% and 20% of their total fixed income holdings, in the US case it is under 10%. In the case of Japanese and Eurozone investors, allocations specifically to US fixed income comprise roughly 60% of their foreign fixed income holdings and about 15% of their total fixed income portfolios. Among European investors in particular their US allocation has roughly doubled over the last decade. By contrast, in the case of the US investors, allocations to Euro Area fixed income comprise about 25% of their foreign bond holdings but just 1.6% of their total fixed income portfolio. This logically implies that tension in bond markets has more potential to spook international investors when it involves the US market, simply because exposures are so elevated—given domestic investors have traditionally been found to be stickier during periods of turmoil.

Takeaways by Macro Roundup® AI

  1. Foreign debt securities make up roughly 30% of European investors' and 20% of Japanese investors' total fixed income holdings, versus under 10% for US investors.
  2. US fixed income comprises roughly 60% of Japanese and Eurozone investors' foreign fixed income holdings and about 15% of their total fixed income portfolios, with European investors' US allocation roughly doubling over the last decade.
  3. US investors' Euro Area fixed income holdings amount to about 25% of their foreign bond holdings but just 1.6% of their total fixed income portfolio, implying that bond market tension involving the US has more potential to unsettle international investors, since domestic investors have traditionally proven stickier during turmoil.

Related Articles:

  • A Global Rebalancing Is Well Underway as Investors Sell Off U.S. Bonds — Foreign funds pulled an estimated $14.2bn from U.S. Treasuries and corporate bonds over a two-week period, while U.S.-based funds saw $11.4bn of outflows from U.S. fixed income. Analysts note that large institutions such as pension funds and insurers often take many months to implement such portfolio shifts.
  • The Great European Disentanglement From US Stocks Has Only Just Started — Federal Reserve data show European investors held about $9tn in US stocks, roughly 17% of the total value of the US market. After inflation, a dollar invested in the US at the start of 2000 was worth $3.28 by the end of 2024, versus $1.63 for the rest of the world.
  • Dollar Upheaval: This Time is Different — Standard interest-rate parity implies a 50 basis-point rise in U.S. long-term yields relative to European yields should appreciate the dollar about 5%, yet the dollar depreciated 3.6%, leaving an 8.6% gap. The authors argue investors have reduced their willingness to pay for the safety and liquidity of all dollar-denominated assets, not only U.S. Treasury securities.

AI Summary. Overseas holdings of U.S. equities have grown from $3.8tn to $18.6tn, rising from a quarter to a third of U.S. market capitalization, while the foreign-held share of Treasuries has fallen from 44% to a quarter of that market. Net foreign purchases and stock returns show a consistent positive link, making equities more sensitive to foreign flows than bonds.

Jon Sindreu Wall Street Journal
Date Posted:

Historically, net foreign flows influence equity returns more than bond prices. Overseas rotation out of American equities would have a significant impact on returns. The $18.6T of overseas holdings make up 1/3 of US market capitalization.

Are U.S. stocks more vulnerable than bonds to foreign selling?

Core argument: Overseas holdings of U.S. equities rose from $3.8 trillion in December 2011 to $18.6 trillion, climbing from a quarter to a third of U.S. market capitalization, according to official data.

The [U.S.] stock market has arguably grown more dependent on foreign money. Since December 2011, overseas holdings of U.S. equities have grown from $3.8 trillion to $18.6 trillion, official data show, going from a quarter to a third of U.S. market capitalization. The percentage of Treasuries held abroad has, meanwhile, fallen from 44% to a quarter of the market, despite nominally rising 76%. But bonds are less sensitive to actual buying and selling than stocks, for which net foreign purchases and returns show a consistent positive link—despite returns vastly outpacing flows. In February, a forward price-earnings ratio of 22.5 for the S&P 500 was seen as justified. Now that long-run prospects have worsened, this has fallen to 18.7. Both are elevated by historical standards, and may partly be a rationalization of years of indiscriminate buying.

Takeaways by Macro Roundup® AI

  1. Overseas holdings of U.S. equities rose from $3.8 trillion in December 2011 to $18.6 trillion, climbing from a quarter to a third of U.S. market capitalization, according to official data.
  2. Foreign ownership of Treasuries fell from 44% to a quarter of the market even as nominal holdings rose 76%, and bonds are less sensitive to actual buying and selling than stocks.
  3. The S&P 500's forward price-earnings ratio has fallen from 22.5 in February to 18.7 as long-run prospects worsened, with both levels elevated by historical standards.

Related Articles:

  • Bear Market Anatomy – The Path and Shape of the Bear Market — Cyclical and event-driven bear markets have both averaged declines of roughly 30%, but cyclical ones last about two years and take five to recover, versus about eight months and one year for event-driven; structural bear markets average 60% declines over three-plus years and take a decade to recover.
  • US Exceptionalism: Drivers of Equity Outperformance and What’s Needed for a Repeat — US companies need about 7% earnings-per-share growth to deliver a normal 4% equity risk premium above the risk-free rate, versus about 3% for other developed markets, with the highest expectations embedded in technology and the largest US tech firms. Chinese companies could generate a 4% risk premium over Chinese bonds with no earnings growth.
  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.

AI Summary. The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.

Jan Hatzius Financial Times
Date Posted:
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The dollar’s value on a broad trade-weighted basis is almost 2SD above its historical mean. Two periods with similar valuations, the mid-1980s and early 2000s, saw depreciation of 25-30%, compared to today’s 5% thus far.

Does the dollar have considerably further to fall?

Core argument: The real trade-weighted dollar stands nearly two standard deviations above its average since the start of the floating exchange rate era in 1973, according to Federal Reserve data, despite a 5% broad depreciation.

I believe that the recent dollar depreciation of 5% on a broad trade-weighted basis has considerably further to go. Federal Reserve data shows that the real value of the dollar still stands nearly two standard deviations above its average since the start of the floating exchange rate era in 1973. The only two historical periods with similar valuation levels were the mid-1980s and the early 2000s. Both set the stage for depreciations of 25-30%. A decision by non-US investors to reduce their US exposure would thus almost certainly result in significant dollar depreciation. In fact, even reluctance by non-US investors to add to their US portfolios will probably weigh on the dollar. This is because balance of payments accounting implies that the US current account deficit of $1.1tn must be financed via a net capital inflow of $1.1tn per year. In theory, this could come via foreign purchases of US portfolio assets, foreign direct investment in the US, or US sales of foreign assets. In practice, however, most swings in the US current account balance correspond to swings in foreign purchases of US portfolio assets. If non-US investors don’t want to buy more US assets at their current prices, those prices must fall, the dollar must weaken, or (most likely) both.

Takeaways by Macro Roundup® AI

  1. The real trade-weighted dollar stands nearly two standard deviations above its average since the start of the floating exchange rate era in 1973, according to Federal Reserve data, despite a 5% broad depreciation.
  2. The only two comparable dollar valuation periods, the mid-1980s and the early 2000s, each set the stage for depreciations of 25–30%.
  3. Balance of payments accounting implies the US current account deficit of $1.1tn must be financed by a net capital inflow of $1.1tn a year, so if non-US investors decline to buy more US assets at current prices, those prices must fall, the dollar must weaken, or both.

Related Articles:

  • What the Weak Dollar Means for the Global Economy — The dollar has weakened to fresh lows against the euro, Japanese yen and Swiss franc, with the ICE U.S. Dollar Index down 8% this year, the worst start to a year in its four-decade history. Some on Wall Street worry China will push the yuan lower to offset trade-war effects.
  • Dollar Upheaval: This Time is Different — Standard interest-rate parity implies a 50 basis-point rise in U.S. long-term yields relative to European yields should appreciate the dollar about 5%, yet the dollar depreciated 3.6%, leaving an 8.6% gap. The authors argue investors have reduced their willingness to pay for the safety and liquidity of all dollar-denominated assets, not only U.S. Treasury securities.
  • Tariffs, the Dollar, and Equities: High-Frequency Evidence from the Liberation Day Announcement — Following a sweeping US tariff announcement, the dollar's effective exchange rate depreciated rather than appreciating as standard international macroeconomic models predict: all G10 currencies gained against the dollar while the most freely floating emerging market currencies gained less or fell. The authors read this as advanced economies rebalancing away from dollar assets.

AI Summary. A dynamic quantitative trade model finds that tariffs raise the price of investment goods relative to labor, depressing capital demand and shrinking the long-run capital stock. The authors estimate US consumption falls 2.6% in the long run when capital adjusts, versus 0.6% when capital is held fixed.

David Baqaee and Hannes Malmberg National Bureau of Economic Research
Date Posted:

Contrary to the common view that the short run burden of trade wars lessens with adjustment over time, taxation of foreign investment goods may mean that U.S. consumption can fall by 2.6%,vs. 0.6% when capital is held fixed, as in a static model.

How much do tariffs reduce long-run consumption when capital adjusts?

Core argument: In a dynamic quantitative trade model where capital adjusts, U.S. long-run consumption falls by 2.6% under the April 2, 2025 tariff schedule with symmetric foreign retaliation, versus 0.6% when capital is held fixed as in a static model.

This note shows that accounting for capital adjustment is critical when analyzing the long-run effects of trade wars on real wages and consumption. The reason is that trade wars increase the relative price between investment goods and labor by taxing imported investment goods and their inputs. This price shift depresses capital demand, shrinks the long-run capital stock, and pushes down consumption and real wages compared to scenarios when capital is fixed. We illustrate this mechanism using a dynamic quantitative trade model.The US imposes tariffs on the rest of the world in line with the tariff schedule presented by the Trump administration April 2, 2025. The rest of the world retaliates by imposing symmetric import tariffs on the United States..When the capital stock is allowed to adjust, long-run consumption and wage responses are both larger and more negative. With capital adjustment, U.S. consumption can fall by 2.6%, compared to 0.6% when capital is held fixed, as in a static model. Capital capital stock adjustment emerges as a dominant driver of long-run outcomes, more important than the standard mechanisms from static trade models — terms-of-trade effects and misallocation of production across countries.

Takeaways by Macro Roundup® AI

  1. In a dynamic quantitative trade model where capital adjusts, U.S. long-run consumption falls by 2.6% under the April 2, 2025 tariff schedule with symmetric foreign retaliation, versus 0.6% when capital is held fixed as in a static model.
  2. The authors attribute the larger losses to trade wars taxing imported investment goods and their inputs, raising the price of investment goods relative to labor, depressing capital demand, and shrinking the long-run capital stock.
  3. Capital stock adjustment emerges in the authors' model as a dominant driver of long-run consumption and real wage outcomes, more important than the terms-of-trade and cross-country production misallocation channels of static trade models.

Related Articles:

  • Trump Shock Pushes US and China Toward Decoupling Cliff Edge — Bloomberg Economics estimates that 100% US tariffs on Chinese goods would virtually eliminate US imports from China over the medium term. Companies including BASF, Ford, Ingersoll Rand and Tesla have filed more than 1,100 requests for exemptions on Chinese machinery they say they need to set up or expand US production lines.
  • Why Broad-Based Import Tariffs Can Hurt Exports and Manufacturing Jobs — Firms that both export and import account for 84% of US export value and 91% of import value, and employ more than 80% of all US manufacturing workers along with over half of workers in management, utilities, wholesale, transportation, information, and retail. These firms create over three-quarters of net new manufacturing jobs.
  • 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.

AI Summary. The US president argued that a higher tax rate on millionaires would be disruptive because wealthy people would leave the country, citing other countries that have lost high earners after similar moves. The remarks push back on discussions among some Republican lawmakers about a new 40% bracket for those earning $1m or more to help fund an economic package.

Steven Dennis and Hadriana Lowenkron Bloomberg
Date Posted:

In response to a question about GOP proposals for higher taxes on the rich, Trump said, “I think it would be very disruptive because the millionaires would leave the country.”

Would a higher tax rate on millionaires drive wealthy people abroad?

Core argument: President Donald Trump said a higher tax rate on millionaires would be "very disruptive because the millionaires would leave the country," arguing other countries that have done it have lost many of their wealthy people.

President Donald Trump said that imposing a higher tax rate on millionaires would spur the country’s richest to leave the US, downplaying an idea that is under discussion in some Republican circles as a way to pay for an economic package. “I think it would be very disruptive because the millionaires would leave the country,” Trump told reporters in the Oval Office on Wednesday. “Other countries that have done it have lost a lot of people. They lose their wealthy people. That will be bad because the wealthy people pay the tax.” Trump’s remarks are likely to pour cold water on discussions about creating a new 40% tax bracket for people earning $1 million or more. Some members of the party in both the House and Senate have said they’re open to raising levies on top earners to help pay for other pieces of Trump’s agenda, which include proposals to end taxes on tips and overtime.

Takeaways by Macro Roundup® AI

  1. President Donald Trump said a higher tax rate on millionaires would be "very disruptive because the millionaires would leave the country," arguing other countries that have done it have lost many of their wealthy people.
  2. Trump's remarks downplay discussions in some Republican circles about creating a new 40% tax bracket for people earning $1 million or more to help pay for an economic package.
  3. Some House and Senate Republicans have said they are open to raising levies on top earners to pay for other parts of Trump's agenda, including proposals to end taxes on tips and overtime.

Related Articles:

  • Millionaire Tax Hike Gains Steam as Trump Signals Openness — Republicans in the White House, Senate and House are drafting analyses on creating a new top income tax bracket for the wealthiest Americans, with a House proposal setting the rate at 40% for taxpayers earning $1m or more a year.
  • Taxing Top Wealth: Migration Responses and Their Aggregate Economic Implications — Swedish data show that when a wealth-taxed entrepreneur emigrates, employment at their businesses falls 33%, value-added 34%, tax payments 50%, and investment 21%, but 60% of closed firms are absorbed by other domestic companies. The authors estimate aggregate effects on employment and investment are small.
  • Behavioral Responses to State Income Taxation of High Earners: Evidence from California — A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.

AI Summary. Researchers transmitted coherent quantum information 158 miles over existing buried fiber-optic telecommunications cables using ordinary computers, without the cryogenic cooling such systems typically require. A relay detector at a midpoint data center between two German cities enabled the distance, which had previously been achieved only in laboratory settings.

Aylin Woodward Wall Street Journal
Date Posted:

A team at Toshiba Europe sent quantum information over a record-breaking 158 miles, achieving quantum communication – an ultra secure means of transmitting data – using ordinary computers and fiber-optic cables.

Can quantum information travel long distances over existing fiber-optic networks?

Core argument: Toshiba Europe researchers sent quantum information across a record 158 miles using ordinary computers and existing fiber-optic cables, the first coherent quantum communication achieved over existing telecommunications infrastructure without cryogenic cooling, according to a study published in Nature.

Scientists have sent quantum information across a record-breaking 158 miles using ordinary computers and fiber-optic cables. It is the first time coherent quantum communication—an ultrasecure means of transmitting data—has been achieved using existing telecommunications infrastructure, without the expensive cryogenic cooling that is typically required. “Our equipment was running alongside the fibers that we use for regular communication literally buried underneath the roads and train stations,” said Mirko Pittaluga, a physicist and lead author of a study published Wednesday in Nature describing the work. Pittaluga and his colleagues at Toshiba Europe sent quantum information from regular computers hooked into the telecommunications network at data centers in the German cities of Kehl and Frankfurt, relaying them through a detector at a third data center roughly midway between them in Kirchfeld. The three-location setup enabled the group to extend the distance the messages were sent more than 150 miles, an uninterrupted distance only ever achieved in a laboratory environment.

Takeaways by Macro Roundup® AI

  1. Toshiba Europe researchers sent quantum information across a record 158 miles using ordinary computers and existing fiber-optic cables, the first coherent quantum communication achieved over existing telecommunications infrastructure without cryogenic cooling, according to a study published in Nature.
  2. The team relayed quantum messages between data centers in the German cities of Kehl and Frankfurt through a detector at a third data center in Kirchfeld roughly midway, a three-location setup that extended the distance beyond 150 miles.
  3. Lead author Mirko Pittaluga said the equipment ran alongside fibers used for regular communication buried under roads and train stations, a distance previously achieved uninterrupted only in a laboratory environment.

Related Articles:

  • Mini-Satellite Paves the Way for Quantum Messaging Anywhere On Earth — Researchers used a low-cost, lightweight microsatellite to distribute a quantum encryption key nearly 13,000 km between rooftops in Beijing and at Stellenbosch University near Cape Town, encrypting two images. The demonstration is a step toward ultra-secure quantum messaging between any two locations, however distant.
  • Physicists Question Microsoft’s Quantum Claim — 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.
  • Microsoft’s Majorana 1 Chip Carves New Path for Quantum Computing — Microsoft unveiled Majorana 1, a quantum chip built on a Topological Core architecture using a new materials stack of indium arsenide and aluminum, which the company expects will enable quantum computers capable of solving industrial-scale problems within years rather than decades. The topological superconductor produces a qubit that is fast, small, stable, and digitally controlled.