Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, May 13, 2025

AI Summary. The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.

Michael Cembalest J.P. Morgan
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The four major “hyperscalers” continue to have a large gap btw AI spending ($440B in 2024 and $596B in 2025) and AI revenues. The four firms now account for more than half of all capex growth of the entire US equity market. Michael Cembalest notes an uptick in revenue from cloud services, which “likely includes most AI activity.”

How large is the gap between AI spending and AI revenues?

Core argument: The four big hyperscalers spent $440 billion on capex and R&D in 2024 and are projected to spend $596 billion in 2025, a 35% increase, leaving large gaps between AI spending and AI revenues.

Last September we expressed concern that hyperscalers were spending an increasing amount on AI, and that investors would need to see evidence of corporate AI adoption fairly soon. No matter how you do the analysis, you still end up with large gaps between AI spending and revenues given $440 billion of capex/R&D for the four big hyperscalers in 2024 and $596 billion projected for 2025, a 35% increase. These four companies now account for more than half of all capex growth of the entire US equity market. We don’t have a trove of answers at this point since only Microsoft explicitly discloses AI related revenues, which rose by 150% over the past year. But we do see healthy increases in cloud-based revenues for Microsoft, Google and Amazon, which is a category that likely includes most AI activity. Another observation from Microsoft: they processed 100 trillion tokens in Q1 2025, up 5x from Q1 2024 levels; 50 trillion of these tokens were processed in March 2025 alone. This implies that there’s a lot of inference activity going on which is often a sign of corporate AI models being used in actual workflows.    

Takeaways by Macro Roundup® AI

  1. The four big hyperscalers spent $440 billion on capex and R&D in 2024 and are projected to spend $596 billion in 2025, a 35% increase, leaving large gaps between AI spending and AI revenues.
  2. The four big hyperscalers account for more than half of all capex growth across the entire US equity market.
  3. Microsoft, the only one of the four to explicitly disclose AI-related revenues, reported them up 150% over the past year and processed 100 trillion tokens in Q1 2025, 5x Q1 2024 levels, with 50 trillion in March 2025 alone.

Related Articles:

  • AI’s $600B Question — Comparing spending on AI chips to historical railroad construction overlooks that high-fixed-cost, low-marginal-cost businesses without monopoly or oligopoly power tend to see prices competed down to marginal cost, and that semiconductors continually improve in cost versus performance, unlike physical infrastructure. Speculative frenzies accompany technology, but the payoff will take a long time.
  • Microsoft’s Datacenter Freeze – 1.5GW Self-Build Slowdown & Lease Cancellation Misconceptions — Reported cancellations of about 2GW of Microsoft datacenter capacity cover only non-binding letters of intent, while the company holds roughly 5GW of pre-leased capacity under binding contracts slated to begin operating between 2025 and 2028. The authors estimate Microsoft accounted for more than 60% of all newly leased turnkey datacenter capacity over a recent six-quarter stretch.
  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.

AI Summary. U.S. aggregate productivity growth since 2019 came from within-industry gains rather than the shift of employment toward highly productive industries. Information, management of companies, and mining led productivity growth—output per worker in information rose 30% over five years—while construction productivity fell 12%, and industries with more college-educated workers showed higher productivity growth.

Oksana Leukhina and Mickenzie Bass Federal Reserve Bank of St. Louis
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Over 2019–2024, US productivity growth, which exceeded that of other advanced countries by 4–6%, was driven by within-industry growth, not reallocation across industries. Industry productivity growth was strongly related to higher education and AI use.

What is driving U.S. productivity growth since the pandemic?

Core argument: Output per worker in the U.S. information industry grew 30% from the third quarter of 2019 to the third quarter of 2024, about 5% annually, among the highest alongside management of other companies and mining.

Aggregate productivity growth since 2019 was not driven by employment reallocation toward the highly productive industries; rather, it was fueled by within-industry growth.Which industries led the way in terms of productivity growth, and what is special about them? In the figure below each point refers to one industry. Industry-specific productivity growth is shown on the x-axis, while the share of an industry’s workers who are college-educated appears on the y-axis. The highest productivity growth from the third quarter of 2019 to the third quarter of 2024 was in information, management of other companies, and mining. Output per worker in the information industry, for example, grew 30% over the course of five years (about 5% annual growth). By contrast, the construction industry grew the least; its productivity actually declined by 12% (that is, a negative 2.5% annual growth). It is clear there’s a positive relationship (as indicated by the slope of the fitted line) between sectoral education level and productivity growth in this period.

Takeaways by Macro Roundup® AI

  1. Output per worker in the U.S. information industry grew 30% from the third quarter of 2019 to the third quarter of 2024, about 5% annually, among the highest alongside management of other companies and mining.
  2. Construction productivity declined 12% from the third quarter of 2019 to the third quarter of 2024, about -2.5% annually, the smallest growth among U.S. industries.
  3. Aggregate U.S. productivity growth since 2019 came from within-industry growth rather than employment reallocation toward highly productive industries, and industries with higher shares of college-educated workers showed higher productivity growth.

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.
  • AI Beneficiaries: Investing in Second-Order Effects — If the 1,000 largest public companies automated half of the roles with a high probability of automation, the authors estimate 1.7 million fewer jobs and $207bn in annual labor-cost savings. They project customers capture $72bn, suppliers $48bn, and companies retain $87bn as added profit, a 5% rise in the group's operating profit pool.
  • The Power of One: How Standout Firms Grow National Productivity — An analysis of 8,300 large firms accounting for two-thirds of gross value added in Germany, the UK, and the US finds that fewer than 100 firms generated about two-thirds of positive labor productivity gains in each country. A still smaller group of 55 firms accounted for 50–65% of the firm-level productivity drag.

AI Summary. U.S. electricity consumption is projected to rise to new record highs, growing an average 1.7% per year, in contrast with the relatively flat demand from the mid-2000s to the early 2020s. The commercial sector, which includes data centers, and the industrial sector are projected to grow faster, at 2.6% and 2.1% per year, versus 0.7% for households.

Mark Schipper and Tyler Hodge Energy Information Administration
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US electrical consumption was flat btw 2005–2020 but is projected to rise 1.7% annually btw 2020 and 2026, driven by commercial and industrial consumption which are growing at an average of 2.6% and 2.1% per year, respectively.

Is U.S. electricity consumption rising again after years of flat demand?

Core argument: U.S. annual electricity consumption is forecast to grow an average of 1.7% per year from 2020 through 2026, with 2025 and 2026 consumption surpassing the all-time high reached in 2024.

We forecast U.S. annual electricity consumption will increase in 2025 and 2026, surpassing the all-time high reached in 2024. This growth contrasts with the trend of relatively flat electricity demand between the mid-2000s and early 2020s. From 2020 through the end of our short-term forecast in 2026, we expect electricity consumption to grow at an average rate of 1.7% per year. The commercial [which includes data centers] and industrial sectors grow faster in the forecast, at an average of 2.6% and 2.1% per year, respectively. Forecast electricity sales to the residential sector, which largely depend on year-to-year temperature fluctuations, grow on average 0.7% between 2020 and 2026.

Takeaways by Macro Roundup® AI

  1. U.S. annual electricity consumption is forecast to grow an average of 1.7% per year from 2020 through 2026, with 2025 and 2026 consumption surpassing the all-time high reached in 2024.
  2. The commercial sector, which includes data centers, and the industrial sector are forecast to grow faster than overall demand, at averages of 2.6% and 2.1% per year, respectively, through 2026.
  3. Residential electricity sales, which largely depend on year-to-year temperature fluctuations, are forecast to grow an average of 0.7% between 2020 and 2026.

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.
  • Economic Growth Now Depends on Electricity, Not Oil — 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.
  • How Xi Sparked China’s Electricity Revolution — Electricity has risen to 30% of China's final energy use while plateauing near 22% in Europe and the US, supported by a decades-long grid expansion and upgrade program projected to cost as much as $800bn by 2030. Chinese grid investment is forecast to grow about 5% annually through 2030, faster than projected economic growth.

AI Summary. China has told its airlines they can again take delivery of previously ordered Boeing jets, reversing a restriction that had required additional approval and in effect halted deliveries to one of Boeing's biggest markets. Chinese carriers had returned several jets to the U.S. rather than pay tariffs exceeding 100%.

Raffaele Huang and Sharon Terlep Wall Street Journal
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Boeing shares rose 2% on news that Beijing has lifted restrictions on airlines accepting pre-existing aircraft orders.

Has China resumed allowing its airlines to accept Boeing deliveries?

Core argument: Beijing has told Chinese airlines they can take delivery of pre-existing Boeing jet orders, reversing a restriction imposed the prior month, after the U.S. and China reached a temporary trade-war truce, according to people familiar with the situation.

China has reopened itself to Boeing, the biggest U.S. exporter, after the two nations reached a temporary truce in their trade war. Reversing an earlier restriction, Beijing has told the country’s airlines that they can take delivery on pre-existing Boeing jet orders, according to people familiar with the situation. The government last month told Chinese carriers they had to seek additional approval before taking delivery of Boeing aircraft they had already ordered, in effect halting deliveries to one of Boeing’s biggest markets. Chinese airlines, which also balked at paying tariffs of more than 100%, shipped several Boeing jets back to the U.S. that had been in China awaiting final delivery. The returns tied up hundreds of millions of dollars in revenue for Boeing.

Takeaways by Macro Roundup® AI

  1. Beijing has told Chinese airlines they can take delivery of pre-existing Boeing jet orders, reversing a restriction imposed the prior month, after the U.S. and China reached a temporary trade-war truce, according to people familiar with the situation.
  2. China's earlier requirement that carriers seek additional approval before accepting already-ordered Boeing aircraft in effect halted deliveries to one of Boeing's biggest markets.
  3. Chinese airlines balked at paying tariffs of more than 100% and shipped several Boeing jets awaiting final delivery back to the U.S., tying up hundreds of millions of dollars in revenue for Boeing.

Related Articles:

  • China Orders Boeing Jet Delivery Halt as Trade War Expands — China has ordered its airlines to stop taking deliveries of Boeing jets and to halt purchases of aircraft equipment and parts from US companies. China is forecast to account for 20% of global aircraft demand over the next two decades, though Boeing has redirected some 737 Max jets built for Chinese carriers to Indian airlines.
  • China Steps Up Drive To Break Boeing and Airbus Grip on Plane Market — China's state-backed planemaker Comac has its subsidised C919 single-aisle jet flying domestic routes with Air China, China Eastern and China Southern, and is expanding to a route between Shanghai and Hong Kong. Aviation consultancy IBA projects Comac can lift output from one to 11 aircraft a month, delivering almost 2,000 C919s by 2040.
  • Boeing Battles Brain Drain As Engineers Chase the Allure of Space — The average tenure of a Boeing engineer has fallen from 16.4 years to 12.6 years, according to data from the union representing 12,000 Boeing engineers, with tenure shortening in almost every age bracket. Analysts, recruiters and union officials describe this "brain drain" as a drag on operations that could make launching a new plane harder.

AI Summary. A US-China trade deal removes the tail risk of a complete collapse in trade between the two countries, with the probability of a US recession estimated at 30%. Tourism into the US accounts for 10% of GDP, and a 30%-40% decline in visitor arrivals from Canada and Europe is weighing on US airlines, hotels, and restaurants.

Torsten Sløk Apollo
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With the tail risk of a “complete collapse in trade between China and the US” removed, Sløk now puts the odds of a recession this year at 30%. He notes that restoration of confidence may take some time, and points to the travel industry as a bellwether.

How quickly will confidence rebound after the trade deal?

Core argument: The probability of a US recession in 2025 stands at 30% following the China trade deal, which removed the tail risk of a complete collapse in US-China trade.

After the China trade deal, the probability of a US recession in 2025 is now at 30%, and the tail risk coming from a complete collapse in trade between China and the US has been removed. Looking ahead, the key issue for markets is to monitor the speed with which confidence is restored among consumers, corporates, and foreigners. Is trust and confidence going to rebound quickly, or is it going to take several quarters or several years? One particular area to watch is tourism. Tourism into the US makes up 10% of the country’s GDP, and the observed 30% to 40% decline in visitor arrivals from Canada and Europe is having a negative impact on US airlines, hotels, and restaurants. The bottom line is that markets may recover quickly from this episode. But it will likely take some time before confidence is restored among consumers, corporates, and foreigners.

Takeaways by Macro Roundup® AI

  1. The probability of a US recession in 2025 stands at 30% following the China trade deal, which removed the tail risk of a complete collapse in US-China trade.
  2. Visitor arrivals from Canada and Europe have declined 30% to 40%, weighing on US airlines, hotels, and restaurants, with tourism into the US accounting for 10% of GDP.
  3. Markets may recover quickly from this episode, but restoring confidence among consumers, corporates, and foreigners will likely take several quarters or several years.

Related Articles:

  • How Are US Consumers and Firms Responding to Tariffs? — The author projects that new US tariffs will trigger a cascade: container departures from China slow, ship arrivals at US ports stop, trucking demand halts as shelves empty, and layoffs follow in trucking and retail. The projected end point is a recession.
  • Consumer Confidence Is Weaker than During the 2008 Financial Crisis — The University of Michigan survey of consumers shows sentiment declining among households earning both above and below $100,000, job-loss worries at levels normally seen in recessions, a record-high share saying business conditions are worsening, falling income expectations, and rapidly rising inflation expectations. The concern is that weak sentiment spills over into weaker actual spending.
  • 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.

AI Summary. China's state-owned agricultural conglomerate Cofco is building its largest export terminal outside China in Brazil, raising its annual export capacity to 14m tons from 4.5m tons. Between 2017 and 2024 China increased imports of Brazilian soybeans 35% to 73m tons while cutting U.S. soybean imports 14% to 27m tons.

Samantha Pearson Wall Street Journal
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China is investing in South American infrastructure to secure agricultural imports, making a significant investment in Latin America’s largest port in Santos, Brazil. Brazil now supplies about 70% of soybean shipments to China.

Is China building South American port capacity to replace U.S. crop imports?

Core argument: China's state-owned agricultural conglomerate Cofco is building its largest export terminal outside China in Brazil to handle corn, sugar and soybeans, raising its annual export capacity to 14 million tons from 4.5 million, with full capacity not expected until next year.

China’s state-owned agricultural conglomerate, Cofco, is building its biggest export terminal outside China at the port to manage shipments of corn, sugar and soybeans. It would increase the company’s annual export capacity to 14 million tons from 4.5 million, but isn’t expected to reach full capacity until next year. Brazil benefited from global trade tensions during President Trump’s first term, displacing U.S. exports to China. Between 2017 and 2024, China increased imports of Brazilian soybeans 35% to 73 million tons, while cutting imports of U.S. soybeans 14% to 27 million tons. By 2023, Brazil accounted for about a quarter of Chinese agricultural imports, while the U.S. share had dropped to about 14%, government data show. Brazil now supplies about 70% of soybean shipments to China.

Takeaways by Macro Roundup® AI

  1. China's state-owned agricultural conglomerate Cofco is building its largest export terminal outside China in Brazil to handle corn, sugar and soybeans, raising its annual export capacity to 14 million tons from 4.5 million, with full capacity not expected until next year.
  2. Between 2017 and 2024, China increased imports of Brazilian soybeans 35% to 73 million tons while cutting U.S. soybean imports 14% to 27 million tons, and Brazil now supplies about 70% of soybean shipments to China.
  3. Brazil accounted for about a quarter of Chinese agricultural imports by 2023 while the U.S. share fell to about 14%, according to government data, after Brazil benefited from global trade tensions during President Trump's first term and displaced U.S. exports to China.

Related Articles:

  • Ship Wars — 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.
  • South America’s ‘Made in China’ Megaport Prepares To Transform Trade — The Chinese-built Port of Chancay on Peru's Pacific coast, developed by Cosco with local miner Volcan, uses Chinese-made automated cranes, vehicles and 5G towers, and its deep waters can accommodate larger vessels. Peruvian officials argue it will reshape maritime trade along South America's Pacific coast.
  • China’s Ports Dominance Undermines Western Aims To Loosen Trade Ties — China has 76 port terminals able to handle large ships carrying more than 14,000 20ft containers, while south and south-east Asian countries have 31 between them, according to research group Drewry. This shortage of deep-water capacity elsewhere in Asia could make it harder for Western businesses to shift trade away from China.

Wednesday, May 14, 2025

AI Summary. Only 17% of firms are "transformative" entrepreneurs, defined as those hiring a research-and-development worker at some point; higher IQ and educational attainment strongly predict transformative entrepreneurship, though the likelihood of becoming an entrepreneur overall declines with IQ. The authors argue education subsidies address financial constraints more effectively than uniform startup or research subsidies.

Ufuk Akcigit, Harun Alp, Jeremy Pearce and Marta Prato National Bureau of Economic Research
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Danish data show that the probability of becoming either an R&D worker or a “transformative entrepreneur” who hires R&D workers and pursues innovation is highly correlated with IQ. Non-transformative entrepreneurship often reflects family background.

What predicts which entrepreneurs innovate and drive economic growth?

Core argument: Only 17% of firms in the authors' data are transformative, defined as hiring an R&D worker at some point in the firm's life cycle; subsistence entrepreneurs maintain their business without attempting to grow or innovate.

Subsistence entrepreneurs focus on maintaining their business but do not attempt to grow or innovate. The other types of entrepreneurs are transformative: they attempt to grow and contribute to technological progress. In our data, we define transformative entrepreneurs as those who hire an R&D worker at some point during the life cycle of the firm. Only 17% of firms in our data are transformative. We show that while the likelihood of becoming an R&D worker rises with IQ, the likelihood of becoming an entrepreneur declines with it. However, for transformative entrepreneurs—those who actively hire R&D workers and pursue innovation—IQ and educational attainment are strongly predictive. Parental background remains a powerful determinant of entrepreneurship in general, but talent and education appear to be key filters for the most growth-oriented entrepreneurs. Financial constraints in access to education limit the development of both the supply of innovative workers and the demand from transformative entrepreneurs. Education subsidies are more effective in addressing [this] than uniform startup or incumbent R&D subsidies.

Takeaways by Macro Roundup® AI

  1. Only 17% of firms in the authors' data are transformative, defined as hiring an R&D worker at some point in the firm's life cycle; subsistence entrepreneurs maintain their business without attempting to grow or innovate.
  2. The likelihood of becoming an R&D worker rises with IQ while the likelihood of becoming an entrepreneur declines with it, yet IQ and educational attainment are strongly predictive of becoming a transformative entrepreneur.
  3. Financial constraints in access to education limit both the supply of innovative workers and demand from transformative entrepreneurs, and the authors argue education subsidies address this more effectively than uniform startup or incumbent R&D subsidies.

Related Articles:

  • On the Nature of Entrepreneurship — Using US administrative tax data on pass-through business owners, who account for over 50% of US business net income, the authors find little evidence of inordinate risk, high startup costs, or non-pecuniary motives in self-employment, and steeper average income growth than comparable paid employees.
  • Immigrant Entrepreneurship: New Estimates and a Research Agenda — Immigrants account for about a quarter of new employer businesses in the United States, and firms with immigrant owners are more likely to hold patents and hold more patents per employee. This higher propensity toward innovation is only partly explained by differences in owners' education levels and fields of study.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. Using U.S. Census Bureau survey data on plant-level monitoring and human-resources practices, the authors find better-managed firms are more dynamic in acquiring, disposing, opening and closing plants, and that they create better-managed plants and improve plants they acquire. In international data, the authors estimate differences in management practices account for about 1/5 of cross-country productivity gaps.

Raffaella Sadun, Rachel Schuh, Jonathan Hartley, John Van Reenen, et al. National Bureau of Economic Research
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Firms that are deemed “well managed” in a US Census Bureau survey that measures monitoring and HR practices are more dynamic; they have higher propensities to acquire new plants and dispose of old ones, as well as a higher net acquisition rate.

How do management practices shape firm dynamism and productivity gaps?

Core argument: Using an international dataset, the authors find differences in management practices account for about 1/5 of cross-country productivity gaps, with roughly 1/4 of that share depending on differences in management-related reallocation across firms.

We leverage the U.S. Census Bureau Management and Organizational Practice Survey (MOPS). The 8 questions score plants on their use of monitoring and operations: plants with high scores report detailed, frequent, and ongoing monitoring of their production process. The second 8 questions evaluate HR practices. Plants with high scores report strong performance-related rewards, e.g. monetary rewards and promotions for high performers and retraining and corrective measures for low performers. We show better-managed firms are more dynamic in plant acquisitions, disposals, openings and closings. Better-managed firms also birth better-managed plants and improve the performance of the plants they acquire. [In a separate international dataset], management quality accounts for a significant share of productivity differences across countries. About 1/5 of cross-country productivity gaps are [due to] differences in management practices, and 1/4 of this depends on differences in management-related reallocation across firms.

Takeaways by Macro Roundup® AI

  1. Using an international dataset, the authors find differences in management practices account for about 1/5 of cross-country productivity gaps, with roughly 1/4 of that share depending on differences in management-related reallocation across firms.
  2. Drawing on the U.S. Census Bureau's Management and Organizational Practice Survey, the authors show better-managed firms are more dynamic in plant acquisitions, disposals, openings, and closings.
  3. Better-managed firms birth better-managed plants and improve the performance of the plants they acquire, according to the authors' analysis of the Management and Organizational Practice Survey.

Related Articles:

  • The Power of One: How Standout Firms Grow National Productivity — An analysis of 8,300 large firms accounting for two-thirds of gross value added in Germany, the UK, and the US finds that fewer than 100 firms generated about two-thirds of positive labor productivity gains in each country. A still smaller group of 55 firms accounted for 50–65% of the firm-level productivity drag.
  • 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.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.

AI Summary. China, Germany and Japan together ran current account surpluses of $884bn in 2024, with the top 10 surplus countries at $1.568tn, offset by a US current account deficit of $1.134tn and a UK deficit of $123bn. The author argues surplus savings are funding government borrowing in creditworthy-currency countries rather than productive investment elsewhere.

Martin Wolf Financial Times
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The $1.134tn current account deficit of the US absorbs the bulk of the surplus saving of China, Germany, Japan, and a host of other countries. The “domestic counterpart … is not funding of the private sector but borrowing by the government.”

Are global excess savings funding government borrowing instead of productive investment?

Core argument: China, Germany and Japan ran aggregate current account surpluses of $884bn in 2024, with the top 10 surplus countries totalling $1.568tn, offset by a US current account deficit of $1.134tn and a UK deficit of $123bn.

Today, the structural excess savings of a number of economies, notably China, Germany and Japan, are largely offset (and so activated) by the excess spending of the world’s most creditworthy country, the US (and, to a lesser extent, the UK). The figures are startling. Just these big three surplus economies ran aggregate current account surpluses of $884bn in 2024. The surpluses of the top 10 countries amounted to $1.568tn. But surpluses are only made possible by deficits. Thus the US ran a current account deficit of $1.134tn, to which the UK added $123bn. At least since the financial crisis of 2008, the domestic counterpart of this borrowing is not funding of the private sector but borrowing by the government. In sum, we now seem unable to turn surplus savings in some countries into productive investment elsewhere. One of the reasons for this is that the countries able to borrow sustainably from abroad have creditworthy currencies. This rules out most emerging and developing countries. It also, it turned out, mostly ruled out deficit members of the Eurozone. In such a world, it is hardly surprising that the dominant borrower and spender is the US government.

Takeaways by Macro Roundup® AI

  1. China, Germany and Japan ran aggregate current account surpluses of $884bn in 2024, with the top 10 surplus countries totalling $1.568tn, offset by a US current account deficit of $1.134tn and a UK deficit of $123bn.
  2. Since the 2008 financial crisis, the domestic counterpart of this external borrowing has been government borrowing rather than funding of the private sector.
  3. Sustained borrowing from abroad requires a creditworthy currency, which rules out most emerging and developing countries and largely ruled out deficit members of the Eurozone, leaving the US government as the dominant borrower and spender.

Related Articles:

  • The Old Global Economic Order is Dead — Because sectoral savings and investment balances must sum to zero, the domestic counterpart of chronic US current account deficits has been chronic government budget deficits, with foreigners, US businesses, and US households all running savings surpluses. Since real interest rates have been low, the author argues foreign savings inflows made large fiscal deficits necessary to sustain domestic demand.
  • The U.S. Trade Deficit: Myths and Realities — 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.
  • The Global Trading System Was Already Broken — The authors argue globalization requires a new trade regime in which countries resolve their production, consumption, and investment imbalances domestically rather than exporting them to trade partners. They propose starting with a customs-union-style bloc of major deficit countries, which would force surplus countries to raise domestic consumption or investment or cut overproduction.

AI Summary. European households save 15% of income, more than 3x the US rate, but hold much of it in low-risk products: EU households kept 32% of financial assets in cash and deposits versus 13% for US households, who placed almost half their financial wealth in equities and investment funds.

Paola Tamma Financial Times
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Between 2015 and 2021, EU households saved 15% of their income, holding 32% of their financial assets in cash and deposits, while Americans saved 5% of their income, keeping 13% of their financial assets in cash and deposits.

Do European households hold more savings in cash than Americans?

Core argument: European households save 15% of income, more than three times the U.S. rate, but hold that saving mostly in low-risk products such as savings accounts.

Europeans save 15% of household income, more than three times what Americans manage, that is mostly held in low-risk products such as savings accounts. Between 2015 and 2021, EU households held 32% of their financial assets in cash and deposits, compared with just 13% for US households, who put almost half their financial wealth into equities and investment funds.

Takeaways by Macro Roundup® AI

  1. European households save 15% of income, more than three times the U.S. rate, but hold that saving mostly in low-risk products such as savings accounts.
  2. Between 2015 and 2021, EU households held 32% of their financial assets in cash and deposits, versus 13% for U.S. households.
  3. U.S. households placed almost half of their financial wealth in equities and investment funds between 2015 and 2021.

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  • The Future of European Competitiveness – A Competitiveness Strategy for Europe — A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.
  • 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.
  • A Visualization of Europe’s Non-Bubbly Economy — The Draghi report notes that no European Union company with a market capitalization above €100bn was founded from scratch in the past fifty years, while all six US companies valued above €1tn were. The 13 EU companies founded in that period and worth at least $10bn total about $400bn, versus nearly $30tn for their US counterparts.

AI Summary. The share of US men ages 25–40 not in the labor force rose from 5% in 1976 to 11% in 2024, with more than 1 in 4 not working full-time; the increase was 165% among less-educated men versus 79% among college graduates. Of those not in the labor force, 40% received cash or cash-equivalent government benefits.

Brad Wilcox and Grant Bailey Deseret News
Date Posted:
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Database

Just 5% of young men (25–40) in the US were not in the labor force in 1976. That number rose to 11% in 2024. More than 1 in 4 men in this cohort are not working full-time, and 40% of them received some cash or cash-equivalent government benefit.

How many young men have left work, and do they get benefits?

Core argument: The share of men ages 25–40 not in the labor force rose from 5% in 1976 to 11% in 2024, when 3.8 million men in that age range were out of the labor force and 7.8 million were not working full-time.

In 1976, just 5% of young men ages 25 to 40 were not in the labor force. That number has more than doubled, rising to 11% in 2024. Over the same period, the share of men in this age range not working full-time rose by 46%, such that now more than 1 in 4 men in this age group are not working full-time. In 2024, 3.8 million men ages 25 to 40 were not in the labor force, and a total of 7.8 million were not working full-time. Working-class men have been much more affected by the male flight from work than college educated men. The increase is only up 79% among college educated men, whereas it is up 165% among less-educated men. The 2024 Current Population Survey indicates that 31% of men ages 25-40 who are not working full-time collected some form of cash or cash-equivalent benefit in the form of food stamps, Social Security for disability, Supplemental Security Income, or unemployment insurance in the prior year. Such benefits are particularly common among the nearly 4 million men in this age group who are not in the labor force, of whom 40% had received some cash or cash-equivalent government benefit. This doesn’t include other non-cash government supports, like health insurance or reduced rent.

Takeaways by Macro Roundup® AI

  1. The share of men ages 25–40 not in the labor force rose from 5% in 1976 to 11% in 2024, when 3.8 million men in that age range were out of the labor force and 7.8 million were not working full-time.
  2. The increase in men ages 25–40 not working full-time is 165% among less-educated men versus 79% among college-educated men, with more than 1 in 4 men in this age group now not working full-time.
  3. The 2024 Current Population Survey indicates that 31% of men ages 25–40 not working full-time collected food stamps, Social Security for disability, Supplemental Security Income, or unemployment insurance in the prior year, rising to 40% among those not in the labor force.

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  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • Understanding Trends in Worker Pay over the Past 50 Years — Productivity growth has been unequal across industries, across firms within industries, and across workers within firms, slowing growth in both the productivity and the pay of the median worker. The authors argue that working- and middle-class men earlier received "breadwinner rents"—pay above their marginal value to employers—and then endured slow wage growth as women's workforce participation rose.
  • Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men — Among US prime-age men without college degrees, a 10% rise in expected earnings is associated with a 0.12 percentage point lower labor force exit rate, while a 10% rise in peers' reference earnings is associated with a 0.13 percentage point higher exit rate, fully offsetting the earnings effect.

AI Summary. The average effective US tariff rate on Chinese goods is estimated at about 48%, up roughly 30 percentage points from about 18%. The increase reflects two 10-percentage-point hikes the US linked to fentanyl plus an additional 10-percentage-point universal tariff, with exclusions and metals and auto tariffs roughly offsetting.

Robin Brooks Robin Brooks Substack
Date Posted:

Following the recent de-escalation, US tariffs on China have risen from a mean effective rate of ~18% at the end of 2024 to 48% today. @robin_j_brooks

How high is the average effective US tariff rate on China?

Core argument: The author estimates the average effective US tariff rate on China at around 48%, up from 18% at the end of 2024, a rise of roughly 30 percentage points.

The chart shows my estimate for the evolution of the average effective tariff rate on China. We’re now around 48%, up from 18% at the end of 2024, a rise of 30 percentage points. You can think of how we got here in two steps: (i) there were two 10 percentage point hikes in February and March that the US linked to fentanyl; (ii) following the escalation in April and subsequent de-escalation, we’re left with an additional universal tariff on China of another 10 percentage points. As a result, the rise in China tariffs is around 30 percentage points. There’s lots of nuances around this number. The universal tariff is subject to exclusions, which cuts its impact on the effective rate by almost half. There’s smaller bumps to the average tariff rate from steel and aluminum tariffs as well as tariffs on autos and auto parts. These various things roughly offset each other, leaving the rise in the average effective tariff rate around 30 percentage points.

Takeaways by Macro Roundup® AI

  1. The author estimates the average effective US tariff rate on China at around 48%, up from 18% at the end of 2024, a rise of roughly 30 percentage points.
  2. The author attributes the increase to two 10 percentage point hikes in February and March that the US linked to fentanyl, plus an additional 10 percentage point universal tariff on China left after April's escalation and subsequent de-escalation.
  3. Exclusions cut the universal tariff's impact on the effective rate by almost half, while steel, aluminum, auto, and auto parts tariffs add smaller increments, roughly offsetting each other to leave the rise near 30 percentage points.

Related Articles:

  • De-Escalation — New U.S. tariffs act like a sudden corporate tax increase worth hundreds of billions, and with the dollar weakening and a global minimum tariff limiting substitution toward other suppliers, importing companies likely absorb much of the cost through higher input prices and lower sales volumes. Forward earnings estimates remain elevated, suggesting this hit is not priced in.
  • The Worrying Fall in the Dollar — The dollar has risen on tariff reductions and fallen on tariff increases, a pattern the author calls unusual because tariffs on the rest of the world would be expected to strengthen the dollar. The author argues markets punished US policy volatility and that the dollar remains below the level implied by forward interest-rate differentials against other advanced economies.
  • Why Didn’t Tariffs Push up the U.S. Dollar? — The US dollar was exceptionally strong at a level implying an ever-shrinking export base and an ever-growing trade deficit, requiring continually larger foreign inflows at ever more inflated dollar and US equity valuations to sustain. Even after its recent slide, the dollar remains strong by almost all measures.

AI Summary. The historical link between currencies and interest rate differentials has broken down, with the dollar now driven by other forces. Based on interest rate differentials alone, the euro-dollar exchange rate would be closer to parity, implying the dollar is about 10% weaker than that relationship would suggest.

Torsten Sløk Apollo
Date Posted:

The dollar is 10% weaker relative to the euro than interest rate differentials would suggest; this delta emerged since the start of the Trade War.

Has the link between currencies and interest rate differentials broken down?

Core argument: The US dollar is trading about 10% weaker than interest rate differentials would imply, with the chart suggesting EURUSD should be closer to parity.

Currencies normally move around with interest rate differentials. For example, when the Fed keeps interest rates higher for longer because of higher inflation, the US dollar goes up. Since the trade war started, this relationship has broken down. Now the dollar is driven by forces other than interest rate differentials, the chart suggests EURUSD should be trading closer to parity. In other words, the dollar is about 10% weaker than interest rate differentials would have suggested.

Takeaways by Macro Roundup® AI

  1. The US dollar is trading about 10% weaker than interest rate differentials would imply, with the chart suggesting EURUSD should be closer to parity.
  2. The normal relationship between currencies and interest rate differentials, in which the dollar rises when the Fed holds rates higher for longer, has broken down since the trade war started.
  3. Forces other than interest rate differentials now drive the dollar, according to the analysis.

Related Articles:

  • The Worrying Fall in the Dollar — The dollar has risen on tariff reductions and fallen on tariff increases, a pattern the author calls unusual because tariffs on the rest of the world would be expected to strengthen the dollar. The author argues markets punished US policy volatility and that the dollar remains below the level implied by forward interest-rate differentials against other advanced economies.
  • The Coming Asian FX ‘Avalanche’ — Investment firm Eurizon SLJ argues that Asian exporters have hoarded much of their trade surpluses in dollar deposits rather than repatriating them, creating an overhang the firm roughly estimates at $2.5tn in China plus more from Taiwan, Malaysia, and Korea, growing about $500bn a year. It predicts this raises the risk of a non-linear dollar sell-off.
  • Why Didn’t Tariffs Push up the U.S. Dollar? — The US dollar was exceptionally strong at a level implying an ever-shrinking export base and an ever-growing trade deficit, requiring continually larger foreign inflows at ever more inflated dollar and US equity valuations to sustain. Even after its recent slide, the dollar remains strong by almost all measures.