Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, May 20, 2025

AI Summary. Using linked Census and tax records for 37m low-income adults, the authors estimate that state Medicaid expansions raised enrollment by 12 percentage points and cut mortality among low-income adults by 2.5%, implying a 21% reduction in the mortality hazard of new enrollees. They estimate direct budgetary costs of $5.4m per life saved and $179,000 per life-year saved.

Angela Wyse and Bruce Meyer National Bureau of Economic Research
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Exploiting state-level variation in the timing and adoption of Medicaid expansions, Wyse and Meyer infer that the mortality hazard of new enrollees (the “treated”) fell by an average of 21%. Younger adults accounted for almost 1/2 of life-years saved.

Does expanding public health insurance reduce mortality among low-income adults?

Core argument: Medicaid expansions raised enrollment by 12 percentage points and reduced mortality of the low-income adult population by 2.5%, which the authors estimate implies a 21% reduction in the mortality hazard of new enrollees.

We examine the causal effect of health insurance on mortality using the universe of low-income adults, a dataset of 37 million individuals identified by linking the 2010 Census to administrative tax data. Our methodology leverages state-level variation in the timing and adoption of Medicaid expansions under the Affordable Care Act (ACA) and earlier waivers. We find that expansions increased Medicaid enrollment by 12 percentage points and reduced the mortality of the low-income adult population by 2.5%, suggesting a 21% reduction in the mortality hazard of new enrollees. Mortality reductions accrued not only to older age cohorts, but also to younger adults, who accounted for nearly half of life-years saved due to their longer remaining lifespans and large share of the low-income adult population. These expansions appear to be cost-effective, with direct budgetary costs of $5.4 million per life saved and $179,000 per life-year saved falling well below valuations commonly found in the literature. Our findings suggest that lack of health insurance explains about five to twenty percent of the mortality disparity between high- and low-income Americans.

Takeaways by Macro Roundup® AI

  1. Medicaid expansions raised enrollment by 12 percentage points and reduced mortality of the low-income adult population by 2.5%, which the authors estimate implies a 21% reduction in the mortality hazard of new enrollees.
  2. Mortality reductions accrued to younger adults as well as older cohorts, with younger adults accounting for nearly half of life-years saved given their longer remaining lifespans and large share of the low-income adult population.
  3. Direct budgetary costs of the expansions came to $5.4 million per life saved and $179,000 per life-year saved, below valuations commonly found in the literature, and the authors suggest lack of insurance explains about 5 to 20% of the mortality disparity between high- and low-income Americans.

Related Articles:

  • Here’s How Government Spending Has Grown—and Where the Money Is Going — US federal spending rose to nearly $6.8tn in fiscal year 2024 from about $3.7tn in 2015, with revenue rising far more slowly. Adjusting for inflation and population growth shows spending still climbed, but by less than the raw dollar figures suggest.
  • Medicaid May Face Big Cuts and Work Requirements — Medicaid enrollment reached 87m people, boosted by pandemic legislation requiring states to keep people enrolled longer than normal and by additional states adopting the Affordable Care Act expansion, under which the federal government covers 90% of costs for expansion enrollees. The Congressional Budget Office projected states would receive nearly $60bn less in federal Medicaid funds year over year.
  • The Great “Transfer”-mation — Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.

AI Summary. Only four of the world's top 50 technology companies are European, and venture capital technology investment in Europe is a fifth of U.S. levels. Over 50 years the U.S. created 241 companies from scratch worth more than $10bn versus 14 in Europe, by one researcher's count.

Tom Fairless and David Luhnow Wall Street Journal
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107 privately held European firms worth >$1B represent just 13% ($333.38B) of the American cohort of 90 such firms worth $2.53T, despite Europe having a larger population and similar education levels to the U.S.

How far does Europe lag the US in building tech giants?

Core argument: Over the past 50 years the U.S. created from scratch 241 companies worth more than $10 billion, versus 14 in Europe, according to calculations from Andrew McAfee.

Only four of the world’s top 50 tech companies are European, despite Europe having a larger population and similar education levels to the U.S. and accounting for 21% of global economic output. None of the top 10 companies investing in quantum computing are in Europe. In Europe, venture capital tech investment is a fifth of U.S. levels. Over the past 50 years, the U.S. has created, from scratch, 241 companies with a market capitalization of more than $10 billion, while Europe has created just 14, according to calculations from Andrew McAfee. The typical company in the top 10 publicly traded U.S. firms was founded in 1985, while in Europe, it was in 1911, according to the International Monetary Fund. By the late 1990s, when the digital revolution got under way, the average EU worker produced 95% of what their American counterparts made per hour. Now, the Europeans produce less than 80%.

Takeaways by Macro Roundup® AI

  1. Over the past 50 years the U.S. created from scratch 241 companies worth more than $10 billion, versus 14 in Europe, according to calculations from Andrew McAfee.
  2. Only four of the world's top 50 tech companies are European, and none of the top 10 firms investing in quantum computing are in Europe, though Europe accounts for 21% of global economic output.
  3. The average EU worker produced 95% of U.S. output per hour by the late 1990s but now produces less than 80%, while European venture capital tech investment is a fifth of U.S. levels.

Related Articles:

  • 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.
  • 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.
  • Why the U.S. Economy Is Trouncing Europe’s — Only about 12% of Americans score at the highest levels on international academic tests versus 34% at the lowest, yet the U.S. has created nearly 250 companies worth over $10bn ($30tn in value) against Europe's 14, and median U.S. disposable household income is 25% above Germany's. The author argues expanding high-skilled immigration is the fastest way to accelerate growth.

AI Summary. Saudi Arabia has become a net consumer of foreign capital rather than a provider, accumulating $142bn in foreign debt as heavy spending on economic transformation outpaces oil revenue, with its sovereign wealth fund scaling back some projects. Estimates put the oil price needed to balance its budget near $96 a barrel.

Erik Schatzker Bloomberg
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Saudi Arabia will likely be running sustained current account deficits to help finance almost $2T of domestic investment. Spending at this level means the kingdom has not been a net provider of overseas capital since 2024.

Has Saudi Arabia shifted from exporting capital to importing it?

Core argument: Saudi Arabia needed an average oil price of $96 a barrel to balance its budget in the first quarter of 2025, rising to $113 if Public Investment Fund spending commitments are included, according to Bloomberg chief emerging-markets economist Ziad Daoud.

Saudi Arabia is no longer a net provider of overseas capital. Its own sovereign wealth fund, the Public Investment Fund, or PIF, is even scaling back on some projects. Until 2024, the kingdom ran current-account deficits only in years when crude prices collapsed – like in 2015 and 2016, after its ill-fated attempt to crush US shale-oil production, and the early Covid shock. But after a decade of unprecedented spending on the social, economic and geopolitical transformation championed by Crown Prince Mohammed bin Salman, Saudi Arabia simply doesn’t have enough revenue to fund everything. At least, not with Brent crude sliding to around $65 a barrel. It’s become a net consumer of capital and amassed $142 billion in foreign debt. According to Ziad Daoud, Bloomberg’s chief emerging-markets economist, Saudi Arabia needed an average oil price of $96 a barrel just to balance its budget in the first quarter of 2025 (and $113 if spending commitments by the PIF are included). Closing the current-account gap requires an $82 price.

Takeaways by Macro Roundup® AI

  1. Saudi Arabia needed an average oil price of $96 a barrel to balance its budget in the first quarter of 2025, rising to $113 if Public Investment Fund spending commitments are included, according to Bloomberg chief emerging-markets economist Ziad Daoud.
  2. Saudi Arabia has become a net consumer of capital rather than a net provider of overseas capital, amassing $142 billion in foreign debt, with Brent crude sliding to around $65 a barrel.
  3. Until 2024, Saudi Arabia ran current-account deficits only when crude prices collapsed, as in 2015 and 2016 after its attempt to crush US shale-oil production and during the early Covid shock; closing the current-account gap requires an $82 price.

Related Articles:

  • The Petrodollar Is Dead, Long Live the Petrodollar — Saudi Arabia has no surplus left to recycle and is instead borrowing heavily in sovereign debt markets and selling assets, including stakes in its national oil company, to fund its economic plans. The International Monetary Fund projects the Saudi current account surplus narrowing to 0.5% of GDP before shifting into deficit through the end of the decade.
  • Oil Was Written Off. Now It’s the Most Productive US Industry — US oil and gas extraction productivity nearly tripled in a decade, and crude output reached a record 13.3m barrels a day — 48% above Saudi Arabia — with under a third of the rigs. BloombergNEF projects production growth of 600,000 barrels a day on higher well productivity.
  • Saudi Arabia’s PIF and the New Petrodollar Recycling — Saudi Arabia's Public Investment Fund appears to have taken over a significant portion of the foreign asset allocation previously handled by the Saudi Central Bank, making its balance sheet a window into a new form of petrodollar recycling. Of roughly $777bn in total assets, $305bn were current and $472bn non-current, with $225bn of the latter held as investment securities.

AI Summary. US long-term real interest rates, measured as the five-year forward five-year real rate, have not declined alongside weakening US economic activity and remain far above the equivalent Euro zone rate derived from interest rate swaps. The author argues this divergence indicates a potentially large fiscal risk premium forming in US yields.

Robin Brooks Robin Brooks Substack
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A growing divergence between real Treasury yields and EuroZone yields in the face of weakening American economic activity suggests investors may be pricing in a “fiscal risk premium” for American debt. @robin_j_brooks

Are high US long-term real rates signaling a fiscal risk premium?

Core argument: US 5y5y forward real interest rates have not fallen much since "Liberation Day" on April 2 even as US economic activity has clearly weakened, which the author cites as one indication that a fiscal risk premium may be forming.

One way to gauge just how massive the rise in real long-term rates is for the US is to compare them to the equivalent interest rate for the Euro zone. The Euro zone doesn’t have a comparable government bond (it’s a monetary union without a fiscal union), but you can use interest rate swaps to back out an equivalent 5y5y forward real rate. The chart compares the 5y5y forward real interest in the Euro zone (black) with that in the US (blue). The US “exceptionalism” narrative likely drove up the US real rate in the years following COVID, but it’s notable that this real yield has NOT fallen much since “Liberation Day” on April 2, since when economic activity for the US has clearly weakened. The fact that US real rates have not followed weaker data down is one indication that a fiscal risk premium may be forming. The large divergence between US and Euro zone real rates suggests that this risk premium may be big.

Takeaways by Macro Roundup® AI

  1. US 5y5y forward real interest rates have not fallen much since "Liberation Day" on April 2 even as US economic activity has clearly weakened, which the author cites as one indication that a fiscal risk premium may be forming.
  2. Because the Euro zone is a monetary union without a fiscal union and lacks a comparable government bond, interest rate swaps can be used to back out an equivalent 5y5y forward real rate for comparison with the US.
  3. The large divergence between US and Euro zone 5y5y forward real rates suggests that a US fiscal risk premium may be big, with the US "exceptionalism" narrative likely having driven up the US real rate in the years following COVID.

Related Articles:

  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
  • The Long-Term Budget Outlook: 2025 to 2055 — The Congressional Budget Office projects the 10-year Treasury note interest rate will average 3.8% over 2025–2055, close to its 3.7% average over the prior three decades, with the inflation-adjusted rate averaging 1.5%. It assesses that long-run rates are largely set by structural factors including demographics, saving and investment behavior, and federal debt.

AI Summary. The share of US adults saying "most people can be trusted" fell from 46% in 1972 to 34% in 2018 and stood at 34% in a later survey. Trust is associated with neighborhood characteristics beyond individual demographics, and people who see their neighbors as similar to them racially, politically, and educationally report trusting them more.

Laura Silver, Scott Keeter, Stephanie Kramer, Jordan Lippert, et al. Pew Research Center
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Trust rises with educational attainment and income. Only 34% of Americans overall agree that “most people can be trusted,” down from 46% in 1972. 24% of adults with a high school education or less agree, relative to 44% with a college education.

Has Americans' trust in one another declined, and does neighborhood similarity matter?

Core argument: The share of U.S. adults saying "most people can be trusted" fell from 46% in 1972 to 34% in 2018, according to the General Social Survey, with an identical 34% in a 2023–24 Pew Research Center poll.

Americans trust each other less than they did a few decades ago. The share of adults who said “most people can be trusted” declined from 46% in 1972 to 34% in 2018, according to the General Social Survey. In a 2023-24 Pew Research Center poll, an identical 34% said most people can be trusted. While the level of trust within a community may be predicted largely by the wealth, education and other characteristics of the people who live there, that’s not the entire story. Even after controlling for demographic differences, neighborhoods seem to matter. For example, people who live in an area where more people are college educated tend to have higher levels of trust, regardless of their own level of education. Demographic and social diversity also can present barriers to trust. A March 2025 survey found that more than two-thirds of people who say their neighbors are similar to them racially, politically and educationally also say they trust most or all of their neighbors. By contrast, most people who see their neighbors as very different say they trust only some or none of them.

Takeaways by Macro Roundup® AI

  1. The share of U.S. adults saying "most people can be trusted" fell from 46% in 1972 to 34% in 2018, according to the General Social Survey, with an identical 34% in a 2023–24 Pew Research Center poll.
  2. Neighborhoods appear to matter for trust even after controlling for demographic differences, as people living in areas where more residents are college educated tend to report higher trust regardless of their own education level.
  3. A March 2025 survey found that more than two-thirds of people who say their neighbors are similar to them racially, politically and educationally trust most or all of their neighbors, while most who see neighbors as very different trust only some or none.

Related Articles:

AI Summary. Democratic two-way presidential support fell 3 points from 52% to 49% between the two most recent elections, with larger declines among overlapping demographic groups: 12 points among young Latinos, 16 among young Latino men, and 17 among young Latino men who vote irregularly.

Yair Ghitza, Haris Aqeel and Josh Yazman Catalist
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“Two-way” (i.e. after netting our minor candidates and undervotes) support for Democrats among voters under the age of 30 dropped 6pp btw 2020 (61%) and 2024 (55%) nationally. Harris lost 16pp of support from 18–29 year old Latino men.

How concentrated was the Democratic vote decline among overlapping groups?

Core argument: Harris's two-way support fell 3 points nationally versus Biden in 2020, dropping from 52% to 49%.

Figure 4, shows how much support Harris lost compared to Biden in 2020 among a key set of groups. Across the country, she lost 3 points, going from 52% to 49% [two-way support] overall. Importantly, it would be a mistake to consider these demographic attributes one at a time. For instance, Latinos are more likely to be irregular voters than white voters, young people are less likely to vote in midterm elections, and Latinos are more likely to be young. In other words, these groups overlap considerably. Further, groups that had a combination of these traits were more likely to move away from Harris. Among young Latinos, Harris lost 12 points; among young Latino men, 16 points; among young Latino men who are irregular voters, 17 points. Similar trends are evident across other combinations of these groups and sub-groups, including along racial, gender, age and vote history lines.

Takeaways by Macro Roundup® AI

  1. Harris's two-way support fell 3 points nationally versus Biden in 2020, dropping from 52% to 49%.
  2. Harris's losses were larger among overlapping groups: 12 points among young Latinos, 16 points among young Latino men, and 17 points among young Latino men who are irregular voters.
  3. Treating demographic attributes one at a time is a mistake, since these groups overlap considerably, with Latinos more likely to be irregular voters and young, and similar trends appear across racial, gender, age, and vote-history combinations.

Related Articles:

  • Democrats Need to Face Why Trump Won — Among American voters over 30, the gender gap in presidential support has held at roughly 10%, but among those under 30 it has widened dramatically, with 18-year-old men 23 percentage points more likely than 18-year-old women to support Donald Trump. Similar divides are appearing in other countries.
  • How To Get Rich in 2025 — Academic estimates compiled by The Economist indicate inheritances, after falling over the 20th century, were worth about 10% of GDP on average by the end of the 2010s, with roughly $6tn inherited across the rich world in a year. Falling family sizes mean each inheritance is spread across fewer heirs.
  • Zero-Sum Thinking and the Roots of U.S. Political Divides — Zero-sum thinking — viewing gains for one group as losses for another — is associated with greater support for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party. The authors also find it linked to believing the QAnon conspiracy theory holds some truth and to sympathy for the attack on the U.S. Capitol.

AI Summary. A biotechnology company reported that a gene-editing treatment designed to correct the mutation behind chronic granulomatous disease, an immune disorder, restored a crucial enzyme's function in two-thirds of one patient's neutrophils with no serious side effects a month later. The results have not been peer-reviewed, and researchers say it is too soon to judge success.

Heidi Ledford Nature
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A CRISPR-based gene-editing technique known as prime editing was used to treat a teenager with a rare immune disorder. It will take somewhere btw six months and a year “to be certain that the edited stem cells are thriving.”

Can gene editing correct the mutation behind an inherited immune disorder?

Core argument: Prime Medicine reported on 19 May that a teenager treated with its CRISPR therapy for chronic granulomatous disease had restored function of a crucial enzyme in two-thirds of his neutrophils, with no serious side effects after one month.

Researchers designed the treatment to correct a mutation that causes chronic granulomatous disease, a dangerous condition that disables a variety of immune cells, including those called neutrophils. A month after the teenager received the treatment, he had experienced no serious side effects. And the therapy seemed to have restored the function of a crucial enzyme in two-thirds of his neutrophils — more than enough to provide a significant boost to his immune system. Prime Medicine, a biotechnology company in Cambridge, Massachusetts, unveiled the results on 19 May. It has not yet published them in a peer-reviewed journal. It is too soon to know whether the treatment was a success: it will take between six months and a year to be certain that the edited stem cells are thriving, says Annarita Miccio, who studies gene therapy at the Imagine Institute at the Necker Hospital for Sick Children in Paris and is not involved in the research.

Takeaways by Macro Roundup® AI

  1. Prime Medicine reported on 19 May that a teenager treated with its CRISPR therapy for chronic granulomatous disease had restored function of a crucial enzyme in two-thirds of his neutrophils, with no serious side effects after one month.
  2. The treatment was designed to correct a mutation that causes chronic granulomatous disease, a condition that disables a variety of immune cells including neutrophils, and the results have not been published in a peer-reviewed journal.
  3. Annarita Miccio, a gene-therapy researcher at the Imagine Institute in Paris who is not involved in the research, says it will take six months to a year to be certain that the edited stem cells are thriving.

Related Articles:

  • Bridge RNAs Direct Programmable Recombination Of Target And Donor DNA — The IS110 bridge system uses a single compact RNA-guided recombinase that is sufficient on its own for direct DNA recombination, unlike other programmable genome-editing tools that require added effector proteins. Its bispecific bridge RNA can be reprogrammed to direct DNA insertion, excision, and inversion for large-scale sequence and genome rearrangement.
  • Accurate Structure Prediction of Biomolecular Interactions With AlphaFold 3 — AlphaFold 3, a single deep learning model with a diffusion-based architecture, jointly predicts the structures of complexes containing proteins, nucleic acids, small molecules, ions, and modified residues. The authors report accuracy exceeding specialised tools for protein-ligand docking, protein-nucleic acid interactions, and antibody-antigen prediction.
  • AI Protein-Prediction Tool AlphaFold3 Is Now More Open — DeepMind's AlphaFold3, which can model proteins together with other molecules, was initially released only through a web server that limited predictions, drawing criticism from scientists that withholding the code and model weights undermined reproducibility. The code is now downloadable for non-commercial use, with training weights available to academics on request.

Wednesday, May 21, 2025

AI Summary. Students from the bottom third of parental income now earn less than half the college enrollment wage premium of top-third students. The authors attribute this mainly to the rising relative value of research universities, lower-income students' diversion to community and for-profit colleges, and their shift from computer science and engineering into humanities.

Zachary Bleemer and Sarah Quincy National Bureau of Economic Research
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Enrollment in teaching colleges instead of increasingly valued research universities and moves out of computer science and engineering led students with parental incomes in the bottom ⅓ to now “earn less than ½ the enrollment wage premium” of the top ⅓.

Why do lower-income students now earn a smaller college wage premium?

Core argument: Students from the bottom parental income tercile earn less than half the college enrollment wage premium received by top-tercile students, a gap driven more by sector and field of study than by access to high-quality universities or net tuition costs.

Lower-income students have become less likely to enroll in the traditional 4-year university sector than their peers, experienced declines in the relative value of the public teaching oriented universities where they have long enrolled, and become less likely to study high-value fields like computer science. These forces– more than changes in high-quality university access or net tuition costs– now lead students from the bottom parental income tercile [i.e. third] to earn less than half the enrollment wage premium received by top-tercile students. The relative decline in higher education’s value for lower-income Americans can largely be explained by three factors: the rising relative value of higher-income students’ research-oriented universities, lower-income students’ increasing diversion to community and for profit colleges, and lower-income students’ redirection out of computer science and engineering into the shrinking humanities disciplines within four-year universities. Differential selection into college, reallocation of students within the four-year sector, and changes in the value of different college majors have played minimal roles, especially in recent years.

Takeaways by Macro Roundup® AI

  1. Students from the bottom parental income tercile earn less than half the college enrollment wage premium received by top-tercile students, a gap driven more by sector and field of study than by access to high-quality universities or net tuition costs.
  2. The relative decline in higher education's value for lower-income Americans can largely be explained by the rising relative value of higher-income students' research-oriented universities, lower-income students' diversion to community and for-profit colleges, and their redirection out of computer science and engineering into the shrinking humanities.
  3. Differential selection into college, reallocation of students within the four-year sector, and changes in the value of different college majors have played minimal roles, especially in recent years.

Related Articles:

AI Summary. The U.S. trade deficit equals the gap between domestic saving and investment spending, with the two measures differing only because of statistical discrepancies. Trade agreements and industrial policy alter the size and composition of cross-border trade, but change the trade balance only if they also change the saving-investment gap.

Thomas Klitgaard Federal Reserve Bank of New York
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In 2024, investment was 21.7% of US GDP, while national saving (private saving minus the government deficit) was only 17.3%. The counterpart of this excess of spending over income is the current account deficit.

What determines the U.S. trade deficit?

Core argument: U.S. borrowing measured as the gap between saving and investment equals the gap between exports and imports, diverging only because of statistical discrepancies.

The amount of U.S. borrowing is the same whether viewed as the difference between saving and investment or between exports and imports. It has to be the same value in both calculations, diverging only because of statistical discrepancies. The chart shows gross U.S. saving and investment spending since 2000, with both calculated as shares of nominal GDP to make the values comparable across time. From 2000 to 2007, the gap widened as investment spending as a share of GDP dipped and then recovered while the saving share failed to fully recover. The gap contracted with the global financial crisis in 2008 as investment spending fell by more than saving, and then narrowed further as saving staged a stronger recovery. More recently, saving dipped during the pandemic and has stayed low in the aftermath while investment spending as a share of GDP has been stable over the whole period. The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and investment spending.

Takeaways by Macro Roundup® AI

  1. U.S. borrowing measured as the gap between saving and investment equals the gap between exports and imports, diverging only because of statistical discrepancies.
  2. Measured as shares of nominal GDP, the U.S. saving-investment gap widened from 2000 to 2007 as investment dipped and recovered while saving did not, then contracted in the 2008 financial crisis as investment fell by more than saving.
  3. Trade policies such as free-trade agreements and industrial policy alter the size and composition of cross-border trade, but affect the difference between imports and exports only if they also change the gap between domestic saving and investment spending.

Related Articles:

  • 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.
  • Without Spending Cuts, Brace for Slow Growth — The author argues that US trade deficits have funded debt-financed consumption rather than domestic business investment, noting that since 2000 real interest rates have tended to fall as trade deficits widen while business investment has been uncorrelated with both. If tariffs shrink trade deficits, interest rates could rise and worsen America's fiscal balance.
  • Exorbitant Privileges, Burdens, etc. and the Implications for Fiscal Policy — Given a U.S. current account deficit, some domestic sector must be a net seller of financial assets, and the federal government is best suited to that role because its liabilities are easy to service and have served investors as hedges. The author argues borrowing and monetary policy should target adequate private-sector nominal income rather than the budget balance itself.

AI Summary. A weak auction of 20-year US Treasury bonds pushed yields higher, with 30-year yields up 10 basis points and 10-year yields up nine basis points to 4.58%. The S&P 500 fell about 1% and a dollar gauge slipped 0.5%.

Rita Nazareth, Denitsa Tsekova, and Emily Graffeo Bloomberg
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A soft auction of 20-year bonds drove broader weakness in the Treasury market, with 30-year yields jumping 10bps above 5%. 10-year yields approached 4.6%.

Does weak Treasury auction demand lift yields and hit stocks?

Core argument: A weak auction of 20-year Treasury bonds, carrying a 5% coupon — the highest since the tenor was reintroduced in 2020 — sent Treasuries lower, with long-term debt bearing the brunt of the selling.

Treasuries got hammered after the weak auction of 20-year bonds, whose 5% coupon rate was the highest since the tenor was reintroduced in 2020. Long-term debt bore the brunt of the selling, with 30-year yields jumping 10 basis points toward the highest since October 2023. After almost wiping out losses, the S&P 500 pushed lower again to drop about 1%. The greenback slipped against most major currencies. The yield on 10-year Treasuries rose nine basis points to 4.58%. A dollar gauge slid 0.5%.

Takeaways by Macro Roundup® AI

  1. A weak auction of 20-year Treasury bonds, carrying a 5% coupon — the highest since the tenor was reintroduced in 2020 — sent Treasuries lower, with long-term debt bearing the brunt of the selling.
  2. The 30-year Treasury yield jumped 10 basis points toward its highest level since October 2023, while the 10-year yield rose nine basis points to 4.58%.
  3. The S&P 500 fell about 1% after nearly erasing its losses, and a dollar gauge slid 0.5% as the greenback weakened against most major currencies.

Related Articles:

  • A Global Rebalancing Is Well Underway as Investors Sell Off U.S. Bonds — Foreign funds pulled an estimated $14.2bn from U.S. Treasuries and corporate bonds over a two-week period, while U.S.-based funds saw $11.4bn of outflows from U.S. fixed income. Analysts note that large institutions such as pension funds and insurers often take many months to implement such portfolio shifts.
  • Record High US Long-Term Interest Rates — The 5-year, 5-year forward real US interest rate stands at 2.5%, the highest since 2010 and above levels seen during past periods of Federal Reserve tightening. Long-term real rates rising while the Federal Reserve contemplates further cuts is unusual and raises concerns for US debt sustainability.
  • Are Foreigners Selling US Assets? — European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.

AI Summary. Long-term government bond yields have risen globally, with 30-year yields in the UK and Japan at their highest levels since 2000 and the US increase modest by comparison. Rising Japanese yields reduce the incentive for Japanese households to buy foreign bonds such as US Treasuries, adding upward pressure on US long-term rates.

Robin Brooks Robin Brooks Substack
Date Posted:
Is Database:
Database

The rise in Japan’s 30-year yield to more than 3%, compared to 1% in 2023, is working to keep Japanese savings at home, compounding the impact of loose fiscal policy in the US. @robin_j_brooks

Are rising long-term yields abroad pushing up US long-term rates?

Core argument: The 30-year government bond yield in both the UK and Japan stands at its highest level going back to 2000, while the rise in US long-term yields is modest by comparison.

It’s the very long end of the yield curve where risk premia are most important. That’s why I look at the 30-year government bond yield in the US (black), Germany (red), Japan (blue) and the UK (orange). Long-term yields in the US are up, but the truth is that what’s going on in the US is modest compared to the UK or Japan, where - in both cases - the 30-year yield is now at its highest level going back all the way to 2000. The global debt binge during and after COVID is now exacting a price, with global yields rising sharply. Poor fiscal policy is a global problem, not just a US problem. A final word on Japan, where the recent rise in the 30-year yield is quite shocking. This rise obviously exacerbates whatever rise is already happening in US yields. When Japanese bond yields were low, this encouraged Japanese households to seek higher yields overseas. Some of the resulting capital outflow from Japan went into US Treasuries, helping keep longer-term US interest rates low. With the sharp rise in Japan’s 30-year yield, this dynamic is now much less, which adds to upward pressure on longer-term US yields. In effect, the rise in Japanese interest rates is exporting Japan’s high debt level to the rest of the world.

Takeaways by Macro Roundup® AI

  1. The 30-year government bond yield in both the UK and Japan stands at its highest level going back to 2000, while the rise in US long-term yields is modest by comparison.
  2. The author attributes sharply rising global long-term yields to the global debt binge during and after COVID, arguing poor fiscal policy is a global rather than uniquely American problem.
  3. Low Japanese yields previously encouraged Japanese households to seek higher yields overseas, with some capital flowing into US Treasuries; the author argues the sharp rise in Japan's 30-year yield weakens that dynamic and adds upward pressure on longer-term US yields.

Related Articles:

  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • Brazil’s Slow-Burning Economic Crisis Might Be the U.S. Future — Brazil illustrates a feedback loop in which higher interest rates raise debt-servicing costs—now over 7% of GDP—which in turn lift risk premia and inflation expectations, making fiscal policy less sustainable still. U.S. long-term rates have not fallen despite Federal Reserve cuts, partly reflecting an $11tn debt increase and markets pricing the risk that debt is managed through higher inflation.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. Analysts estimate the House reconciliation bill would push federal deficits to about 7% of GDP, and even assuming real annual growth of 2.6% — roughly 50% above expectations — deficits would reach 6.6% of GDP. If the bill's provisions were made permanent, deficits would still total 6.3% of GDP, more than twice the 3% target.

Marc Goldwein Committee for a Responsible Federal Budget
Date Posted:
Is Database:
Database

If the reconciliation bill passes as written and 10-year yields stay at ~4.5%, the deficit will rise to ~ 7% of GDP in 2027 – up from 6.4% in 2024, @MarcGoldwein cautions.

Would the House reconciliation bill leave deficits far above the 3% target?

Core argument: The House reconciliation bill is estimated to boost deficits to about 7% of GDP in 2027, putting a 3% of GDP deficit target far out of reach.

In 2027, we estimate the House reconciliation bill would boost deficits to about 7% of GDP. Assuming 2.6% real annual growth – about 50% higher than the expected growth rate – the deficit will still total an alarming 6.6% of GDP in 2027. It would fall to 5.4% of GDP in 2034 only if large parts of the House bill expired and the rapid unrealistic growth continued. On a permanent basis, deficits would still total 6.3% of GDP in 2034 – more than twice the 3% target – even with unrealistic growth assumptions.

Takeaways by Macro Roundup® AI

  1. The House reconciliation bill is estimated to boost deficits to about 7% of GDP in 2027, putting a 3% of GDP deficit target far out of reach.
  2. Assuming 2.6% real annual growth — about 50% higher than the expected rate — the 2027 deficit would still total 6.6% of GDP, falling to 5.4% by 2034 only if large parts of the House bill expired and that growth continued.
  3. Made permanent, the House bill would leave deficits at 6.3% of GDP in 2034, more than twice the 3% target, even under unrealistic growth assumptions.

Related Articles:

  • The Worrying Rise in Long-Term US Yields — US long-term real interest rates, measured as the five-year forward five-year real rate, have not declined alongside weakening US economic activity and remain far above the equivalent Euro zone rate derived from interest rate swaps. The author argues this divergence indicates a potentially large fiscal risk premium forming in US yields.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
  • On Notice — Tax legislation is estimated to widen an anticipated $2tn annual US fiscal deficit by a few hundred billion in the near term, testing investor appetite for dollar assets. Dollar weakness alongside higher long-term yields would signal a regime in which fiscal stimulus is negative for risk assets.

AI Summary. With the pause on reporting delinquent federal student loans ended, up to 10% of US households may face a steep drop in their credit scores, leaving them unable to borrow for cars, homes, or furniture. Together with tariffs and high uncertainty, this is a significant headwind to consumer spending.

Torsten Sløk Apollo
Date Posted:

The pandemic-era pause in reporting of delinquency in student loan payments is over. Torsten Sløk argues this will impact ~ 10% of US households, damaging credit scores and in turn reducing consumer spending.

Will falling credit scores from student loan delinquencies restrain consumer spending?

Core argument: Up to 10% of US households may face a steep decline in their credit score starting in May 2025, as the COVID-motivated pause on reporting delinquent federal student loans has ended.

The COVID-motivated pause on reporting delinquent federal student loans has now ended. As a result, starting in May 2025, up to 10% of US households may face a steep decline in their credit score. This means they will no longer be able to get a loan to buy a car, a house, or new furniture. Combined with tariffs and high uncertainty, this is a significant headwind to consumer spending over the coming months.

Takeaways by Macro Roundup® AI

  1. Up to 10% of US households may face a steep decline in their credit score starting in May 2025, as the COVID-motivated pause on reporting delinquent federal student loans has ended.
  2. Households whose credit scores fall with the resumption of delinquency reporting on federal student loans will no longer be able to obtain loans to buy a car, a house, or new furniture.
  3. Credit-score declines from renewed student loan delinquency reporting, combined with tariffs and high uncertainty, form a significant headwind to US consumer spending over the coming months.

Related Articles:

  • What Went Wrong with Federal Student Loans? — Weakened regulations on institutions enrolling aid-dependent students led to rising enrollment of disadvantaged students, but primarily at low-value institutions where loan performance deteriorated. Institutions in the lowest loan-repayment quintile had a 23% completion rate, $27,760 average post-enrollment earnings, and 20% default rates, versus 73%, $48,375, and 3% at the highest.
  • Debt Moratoria: Evidence from Student Loan Forbearance — The authors estimate that borrowers whose student loan payments were frozen ended with about $1,500 more in student loan balances and $1,200 (3%) more in other household debt, including mortgage, auto, and credit card borrowing, than borrowers without a payment stoppage. The findings suggest the pause raised short-term consumption and overall leverage, with effects concentrated among borrowers never previously delinquent.
  • The Economic Fallout of Student Loan Forbearance Ending — Payments to the US Department of Education, mostly student loans, returned to their pre-pandemic pace of more than $75bn annualized from lows under $13bn, as required payments resumed on $1.5tn of federal student debt. Real retail spending by 25-34 year olds fell 1.5% while rising 2.5%-4.2% for all other age groups.

AI Summary. China's leadership has called for greater self-reliance in manufacturing and mastery of key core technologies. China accounts for about 18% of global GDP but only 13% of global consumption, and contributed roughly 29% of global manufacturing value-added, more than the US, Japan, Germany and India combined.

Joe Leahy Financial Times
Date Posted:

Xi is calling for increased Chinese “self-reliance” in manufacturing. In 2023, China contributed ~29% of global manufacturing value-added, compared to 18% of GDP.

Is China pushing manufacturing self-reliance while consuming less than it produces?

Core argument: China contributed about 29% of global manufacturing value-added in 2023, more than the US, Japan, Germany and India combined, according to the Center for Strategic and International Studies.

China’s President Xi Jinping has stepped up calls for greater “self-reliance” in the country’s manufacturing sector. “From relying on imports of foreign matches, soap, and iron in the past, we have now become the world’s largest manufacturing country,” he said, according to state news agency Xinhua, adding: “We need to keep improving our manufacturing sector, insist on self-reliance and self-improvement [and] master key core technologies.” China accounts for about 18% of global GDP, but only 13% of global consumption. The country contributed about 29% of global manufacturing value-added in 2023, according to the Center for Strategic and International Studies, more than the next four largest producers — the US, Japan, Germany and India — combined.

Takeaways by Macro Roundup® AI

  1. China contributed about 29% of global manufacturing value-added in 2023, more than the US, Japan, Germany and India combined, according to the Center for Strategic and International Studies.
  2. Xi Jinping called for China's manufacturing sector to "insist on self-reliance and self-improvement" and "master key core technologies," according to state news agency Xinhua.
  3. China accounts for about 18% of global GDP but only 13% of global consumption.

Related Articles:

  • Was Made in China 2025 Successful? — Chinese firms have narrowed the gap with foreign competitors across targeted industries, with China's share of global patents rising by more than 4 percentage points in electric vehicles, new materials, electronics, and robotics. Gaps remain in areas such as advanced semiconductors, where Chinese firms still lag the global frontier.
  • Underestimating China — China's productive capacity is three times that of the United States and exceeds the next nine countries combined, with its share of global manufacturing quintupling to 30% while the U.S. share halved to about 15%. The authors argue Washington must convert its alliances into a platform for pooled capacity building.
  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.