Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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.

Related Articles:

  • 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
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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.

Related Articles:

  • 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
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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
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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.

Thursday, May 15, 2025

AI Summary. US Treasuries serve as both a crisis hedge and a store of value investors sell to raise cash, but the market has grown too large to rely on dealers alone to intermediate trades. The authors call for broader central clearing, greater price transparency, "all-to-all" trading venues, and less reliance on leverage-based capital requirements.

Darrell Duffie Journal of Economic Perspectives
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Treasuries must be an asset that “can be quickly liquidated for cash” in a crisis. Treasury markets are “growing too large to rely exclusively on dealers to intermediate” these trades, and require central clearing and “all-to-all” trading, Duffie argues.

How can the Treasury market keep functioning as a safe haven?

Core argument: Treasuries serve two safe-haven roles — a crisis hedge and a store of value that can be liquidated quickly for cash, as in March 2020 — and the second requires the market to intermediate huge volumes of selling.

Treasuries serve two distinct safe-haven roles: [that of] a crisis hedge, and [that of a] store of value that can be quickly liquidated for cash once a crisis actually hits [as in March 2020]. For this, the market must be able to quickly intermediate huge volumes of demand by investors to sell Treasuries. When dealer balance sheets are filled to capacity by crisis selling, trading costs soar, allocative efficiency suffers, and investors who had purchased Treasuries in order to quickly and efficiently raise cash in a crisis are likely to be thwarted. The market for Treasury securities is simply growing too large to rely exclusively on dealers to intermediate investor trades. The decision by the SEC to extend the scope of required central clearing was a major step forward. Large improvements in price transparency and market structure are also needed. Regulations should promote (although not mandate) “all-to-all” trade venues, which would allow direct trade between Treasury market participants of all types. The role of leverage-based [as opposed to risk-based] capital requirements should be reduced. The Fed should prepare to settle trades at a clearinghouse.

Takeaways by Macro Roundup® AI

  1. Treasuries serve two safe-haven roles — a crisis hedge and a store of value that can be liquidated quickly for cash, as in March 2020 — and the second requires the market to intermediate huge volumes of selling.
  2. When dealer balance sheets fill to capacity during crisis selling, trading costs soar and allocative efficiency suffers, likely thwarting investors who bought Treasuries to raise cash quickly in a crisis.
  3. The Treasury market is growing too large to rely exclusively on dealers, and proposed remedies include the SEC's extension of required central clearing, greater price transparency, regulations promoting rather than mandating all-to-all trading venues, a reduced role for leverage-based capital requirements, and Fed preparation to settle trades at a clearinghouse.

Related Articles:

  • Resilience Redux in the US Treasury Market — The authors argue that large, persistent US federal deficits and limited dealer balance-sheet flexibility will cause outstanding Treasury debt to grow rapidly relative to the market's capacity to intermediate trades, absent significant changes in market structure. They contend broad central clearing, all-to-all trading, real-time post-trade reporting, capital-regulation changes, and transparent official purchase programs could strengthen market capacity and resilience.
  • Treasury Market Dysfunction and the Role of the Central Bank — The authors argue the Federal Reserve could relieve Treasury market strain by buying cash Treasuries while fully hedging with offsetting short positions in Treasury derivatives, taking the other side of hedge funds' unwinding of hedged positions. Because this removes no net duration from the market, it distinguishes market-functioning purchases from quantitative easing.
  • Liquidity Event — U.S. Treasuries remain the world's most liquid security, but daily cash trading volumes have not kept pace with the growth in issuance, leaving the market structurally less liquid. Principal trading firms account for 20% of cash market volumes yet withdraw when volatility rises, making their liquidity provision illusory.

AI Summary. McKinsey estimates that dynamic reallocation of employees from less productive to more productive firms contributed 0.9 of 2.1 percentage points of productivity growth in its US sample, while the contribution was negligible in Germany and the United Kingdom. The report attributes this to highly dynamic US factor markets that allow quick entry, exit, scale-up, and restructuring.

James Pethokoukis American Enterprise Institute
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Citing McKinsey, @JimPethokoukis notes that reallocation of workers from less to more productive firms accounted for 0.9pp of the 2.1% US productivity growth between 2011 and 2019, relative to .2% in Germany and almost zero in the UK.

How much does shifting workers to more productive firms boost productivity?

Core argument: McKinsey finds that dynamic reallocation, including shifts across subsector boundaries, contributed 0.9 of the 2.1 percentage points of productivity growth in its US sample—slightly less than half—while the contribution in Germany and the United Kingdom was negligible.

[McKinsey finds] "Firms in the US sample had more reallocation of employees from less productive to more productive firms. Leaders grew faster, and underperforming firms more swiftly restructured or exited....Overall, dynamic reallocation, including reallocation across subsector boundaries, added 0.9 of 2.1 percentage points—slightly less than half—to productivity growth in the US sample. In contrast, the contribution of reallocation was negligible in Germany and the United Kingdom. This may be explained by the fact that the United States has highly dynamic factor markets, allowing for quick entry and exit as well as fast scale-up and restructuring." The policy lesson is straightforward enough: countries with flexible labor markets transform creative destruction into widespread prosperity. Those that preserve the status quo guarantee decline.

Takeaways by Macro Roundup® AI

  1. McKinsey finds that dynamic reallocation, including shifts across subsector boundaries, contributed 0.9 of the 2.1 percentage points of productivity growth in its US sample—slightly less than half—while the contribution in Germany and the United Kingdom was negligible.
  2. Firms in McKinsey's US sample reallocated more employees from less productive to more productive firms, with leading firms growing faster and underperforming firms restructuring or exiting more swiftly.
  3. McKinsey suggests the US reallocation result may be explained by highly dynamic factor markets that allow quick entry and exit as well as fast scale-up and restructuring.

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.
  • The Spacetime of the US Economy — An analysis of US company market values finds that roughly 62% of net market-cap growth across all US companies since 2000 came from a narrow cluster of young West Coast technology firms, including Uber, Meta, Amazon, Netflix, NVIDIA, Apple and Microsoft. The author argues this concentration shows how fast, broad, and deep the shifts in US value creation have been.
  • 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. The Federal Reserve Bank of New York finds the employment-rate gap between college-educated and non-college workers is larger than gaps by race/ethnicity or sex, and wider than before the pandemic. Most of that gap reflects differences in labor force participation rather than unemployment rates.

Rajashri Chakrabarti, Thu Pham, Beckett Pierce, and Maxim Pinkovskiy Federal Reserve Bank of New York
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The gap in employment rates between workers 25–54 who have completed college and workers who have not is 13pp, up from 12.2pp pre-pandemic.

Is the employment gap by education larger than by race or sex?

Core argument: Using the New York Fed's Economic Heterogeneity Indicators, the authors find the employment rate gap between workers who have completed college and those who have not exceeds the gaps between racial/ethnic groups or between men and women.

We document profound differences in labor market outcomes by educational attainment. Drawing on the [New York Fed] Economic Heterogeneity Indicators, we find that the gap in employment rates between workers who have completed college and workers who have not is larger than the employment gaps between workers of different races/ethnicities or between men and women—and is wider than the pre-pandemic gap. Moreover, most of this gap and its recent movements are driven by differences in labor force participation rates rather than by differences in unemployment rates. Fostering higher labor force participation of workers without a college degree, thus, would be quite helpful in promoting maximum employment.

Takeaways by Macro Roundup® AI

  1. Using the New York Fed's Economic Heterogeneity Indicators, the authors find the employment rate gap between workers who have completed college and those who have not exceeds the gaps between racial/ethnic groups or between men and women.
  2. The college/non-college employment gap is wider than the pre-pandemic gap, and most of the gap and its recent movements reflect differences in labor force participation rather than unemployment rates.
  3. The authors argue that fostering higher labor force participation among workers without a college degree would help promote maximum employment.

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  • Something Alarming Is Happening To The Job Market — Young college graduates have almost always had a lower unemployment rate than the overall labor force over the past four decades, but that gap recently hit an all-time low. One interpretation is that firms are replacing young workers with machines, though the surge in productivity growth such a shift would imply is hard to find in the data.
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AI Summary. The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease. The Commonwealth Fund reports about a third of U.S. adults have had multiple chronic conditions, the highest share among peer nations, and U.S. rates of high blood pressure and chronic lung disease also exceed those countries'.

Brianna Abbott and Josh Ulick Wall Street Journal
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The US obesity rate is almost double the average of peer nations, rising 126% since 1990. A third of US adults have multiple chronic conditions, the highest among peer nations, and the share of adults with diabetes increased by 78% over that period.

Do Americans have higher rates of chronic disease than peer nations?

Core argument: The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease.

The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease. Around a third of U.S. adults have had multiple chronic conditions, the highest rate among our peers, according to the Commonwealth Fund. Rates for conditions including hypertension and chronic obstructive pulmonary disease have held relatively steady in recent decades, and the rising prevalence of diabetes is in part because people are living longer with the disease, researchers say. But the U.S. still has higher rates of these conditions compared with peer nations.

Takeaways by Macro Roundup® AI

  1. The U.S. obesity rate is nearly double the average of peer nations, disrupting prior decades of progress against heart disease.
  2. Around a third of U.S. adults have had multiple chronic conditions, the highest rate among peer nations, according to the Commonwealth Fund.
  3. U.S. rates of hypertension and chronic obstructive pulmonary disease have held relatively steady in recent decades, and researchers attribute rising diabetes prevalence in part to people living longer with the disease, though U.S. rates remain above those of peer nations.

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  • We May Have Passed Peak Obesity — Newly released data show the US adult obesity rate fell by about two percentage points between 2020 and 2023, with the steepest decline among college graduates. The author argues the new generation of diabetes and weight-loss drugs is highly likely behind the reversal, as one in eight US adults have used them.
  • National-Level and State-Level Prevalence of Overweight and Obesity Among Children, Adolescents, and Adults in the USA — An estimated 15.1m US children aged 5–14, 21.4m older adolescents aged 15–24, and 172m adults aged 25 and over had overweight or obesity, with adult prevalence highest in North Dakota for males (80.6%) and Mississippi for females (79.9%). Obesity prevalence among adolescents rose roughly 158–186% over three decades.

AI Summary. China's trade surplus with the European Union reached a record $90bn over four months, fueling concerns that the bloc could become a dumping ground for cheap Chinese goods facing higher US import barriers. Most rerouting of Chinese exports currently passes through Latin America and Southeast Asia.

Malcolm Scott, James Mayger, and William Horobin Bloomberg
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China’s goods trade surplus with the EU reached a record $90B for the first four months of the year, driven in part by rapidly rising EV exports which are up 17x since 2019.

Is Europe becoming a dumping ground for cheap Chinese goods?

Core argument: China's trade surplus with the European Union reached a record $90 billion in the first four months of this year, fueling concerns the 27-nation bloc could become a dumping ground for cheap goods amid the US-China tariff confrontation.

China’s widening trade surplus with the European Union is fueling fresh concerns that the 27-nation bloc risks becoming a dumping ground for cheap goods in the volatile tariff confrontation between Washington and Beijing. As European officials step up vigilance to ward off a flood of Chinese goods facing higher barriers to get into the US, data already indicate that China’s surplus with the EU reached a record $90 billion in the first four months of this year. For now, most of the rerouting of Chinese goods is passing through Latin America and Southeast Asia. But the quantity of Chinese exports already flowing to Europe since the pandemic raises alarm bells that the influx may accelerate as America’s higher import taxes take root.

Takeaways by Macro Roundup® AI

  1. China's trade surplus with the European Union reached a record $90 billion in the first four months of this year, fueling concerns the 27-nation bloc could become a dumping ground for cheap goods amid the US-China tariff confrontation.
  2. Most rerouting of Chinese goods currently passes through Latin America and Southeast Asia rather than Europe.
  3. European officials are stepping up vigilance against a flood of Chinese goods, with the quantity of Chinese exports flowing to Europe since the pandemic raising concern that the influx may accelerate as higher US import taxes take root.

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AI Summary. Germany has backed the US demand that NATO allies spend 5% of GDP on defence, up from the alliance's current 2% target. Berlin signalled it would meet the goal via the NATO secretary-general's proposal of 3.5% of GDP on hard military spending plus 1.5% on related areas such as infrastructure and cyber security.

Anne-Sylvaine Chassany and John Paul Rathbone Financial Times
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Germany will aim to raise spending on defense to 5% of GDP by 2032 by increasing “hard military spending” from this year’s 2% to 3.5%, while adding 1.5% of GDP of “related spending, including infrastructure and cyber security.”

Will Germany back a higher NATO defence spending target?

Core argument: German foreign minister Johann Wadephul said in Antalya that Berlin is "following" Donald Trump's demand that NATO allies spend 5% of GDP on defence, up from the alliance's current 2% target.

Speaking at a meeting in Antalya on Thursday, German foreign minister Johann Wadephul said Berlin was “following” Trump on his demand that Nato allies reach a 5% goal. Currently the alliance has a 2% spending target. Wadephul also signalled that the way the country would meet the target would be by embracing a proposal by Nato secretary-general Mark Rutte. The Dutchman has called for Nato members to reach 3.5% of GDP on “hard military spending” by 2032, to which he has suggested adding 1.5% of GDP on “related spending” including infrastructure and cyber security.

Takeaways by Macro Roundup® AI

  1. German foreign minister Johann Wadephul said in Antalya that Berlin is "following" Donald Trump's demand that NATO allies spend 5% of GDP on defence, up from the alliance's current 2% target.
  2. NATO secretary-general Mark Rutte has called for members to reach 3.5% of GDP on "hard military spending" by 2032, and has suggested adding 1.5% of GDP on "related spending" including infrastructure and cyber security.
  3. Wadephul signalled that Germany would meet the 5% goal by embracing Rutte's proposal.

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  • From Trains to Tanks: Germany’s Rearmament Marks Industrial Shift — 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.
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