Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a 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 provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, July 8, 2025

AI Summary. Companies funding AI data centers through jointly owned special purpose vehicles keep the borrowing off their own balance sheets while retaining shared control and use of the facilities. AI data center spending already exceeds telecom spending during the dot-com bubble, and weak returns would quickly wipe out the thin equity cushion above the vehicles' debtholders.

Paul Kedrosky Applied Complexity
Date Posted:
Is Database:
Database

The AI buildout is being funded by special purpose vehicles (SPVs). Paul Kedrosky warns “if the returns aren’t there quickly, the thin equity cushion above datacenter SPV debt holders will be speedily wiped out.”

Are off-balance-sheet vehicles hiding the risk of AI data center debt?

Core argument: A rough estimate puts current AI data center spending above telecom capital spending during the dot-com bubble, driven by the same sort of hyperbolic projections of future usage and spending.

The capital needed for these buildouts is so large that doing it with orthodox balance sheet debt, or by issuing sufficient equity, let alone spending your cash, would make a mess of your balance sheet. By structuring it this way, via special purpose vehicles (SPVs) in which they have joint ownership, companies like Meta don't have to show the debt as their debt. It is the debt of those guys over there, that SPV. Not us. Granted, they retain shared control, and they get to use the AI data center, and nothing there happens without their say-so, but still. It's not ours. [Here] is a rough estimate of AI data center now vs telecom spending then during the dot-com bubble. We are already spending more now than then, driven by the same sort of hyperbolic projections of future usage and spending. They may turn out to be correct, but if the returns aren't there quickly, the thin equity cushion above datacenter SPV debtholders will be speedily wiped out.

Takeaways by Macro Roundup® AI

  1. A rough estimate puts current AI data center spending above telecom capital spending during the dot-com bubble, driven by the same sort of hyperbolic projections of future usage and spending.
  2. Companies such as Meta finance AI data centers through jointly owned special purpose vehicles, keeping the debt off their own balance sheets while retaining shared control and use of the facilities.
  3. The equity cushion above AI data center SPV debtholders is thin and would be speedily wiped out if returns on the buildouts do not arrive quickly.

Related Articles:

  • Microsoft’s Datacenter Freeze – 1.5GW Self-Build Slowdown & Lease Cancellation Misconceptions — Reported cancellations of about 2GW of Microsoft datacenter capacity cover only non-binding letters of intent, while the company holds roughly 5GW of pre-leased capacity under binding contracts slated to begin operating between 2025 and 2028. The authors estimate Microsoft accounted for more than 60% of all newly leased turnkey datacenter capacity over a recent six-quarter stretch.
  • The Alchemists — NVIDIA's share of all US capital spending is projected to approach two 20th-century peaks by 2026, and large cloud providers would need $400–500bn in new revenue to earn their traditional 50% gross margin on roughly $250bn of annual data center spending. After the dot-com collapse, Corning's fiber optic revenues did not surpass 2000 levels until 2018 in nominal terms.
  • A Severe Case of COVIDIA: Prognosis For An AI-Driven US Equity Market — Computing cycles move from infrastructure to platforms to applications, and NVIDIA data center revenues as a share of market-wide capital spending are projected to reach levels last seen at the 1969 mainframe peak and the dot-com boom. Large cloud providers spend more than twice as much training foundational models as running them for customers.

AI Summary. The authors estimate US tariffs leave consumers facing an average effective tariff rate of 17.6%, the highest since 1934, or 16.5% after consumption shifts to cheaper goods. They project the tariffs reduce US real GDP growth by 0.7pp, leave the economy persistently 0.4% smaller (about $110bn annually), and raise $2.2tn over a decade after dynamic effects.

Ernie Tedeschi Yale University
Date Posted:
Is Database:
Database

As of July 7, the US has an effective tariff rate of 17.6%, now reflecting a 20% tariff on Vietnam and 25% tariffs on Japan and South Korea. Dynamically scored, this regime will likely raise $2.2T over 2026–2035.

How much do new tariffs cost consumers, growth, and revenue?

Core argument: US consumers face an overall average effective tariff rate of 17.6%, the highest since 1934, falling to 16.5% after consumption shifts, the highest since 1936.

Consumers face an overall average effective tariff rate of 17.6%, the highest since 1934. After consumption shifts, the average tariff rate will be 16.5%, the highest since 1936. US real GDP growth over 2025 is -0.7pp lower from all 2025 tariffs. In the long-run, the US economy is persistently -0.4% smaller, the equivalent of $110 billion annually in 2024$. All tariffs to date in 2025 raise $2.6 trillion over 2026-35, with $408 billion in negative dynamic revenue effects, bringing dynamic revenues to $2.2 trillion.

Takeaways by Macro Roundup® AI

  1. US consumers face an overall average effective tariff rate of 17.6%, the highest since 1934, falling to 16.5% after consumption shifts, the highest since 1936.
  2. All 2025 tariffs lower US real GDP growth over 2025 by 0.7pp and leave the economy persistently 0.4% smaller in the long run, equivalent to $110 billion annually in 2024 dollars.
  3. Tariffs imposed in 2025 raise $2.6 trillion over 2026–35, with $408 billion in negative dynamic revenue effects, bringing dynamic revenues to $2.2 trillion.

Related Articles:

  • US Tariff Receipts Surge in Donald Trump’s Trade War — US tariff revenues rose almost fourfold from a year earlier to a record $24.2bn in a month, equal to about 14.5% of the typical $166bn monthly federal budget shortfall. The Yale Budget Lab projects current tariff policy would raise $2.2tn over 2025–2034, or $1.8tn net of lost revenue elsewhere.
  • Are Businesses Absorbing the Tariffs or Passing them on to Their Customers? — About three-quarters of manufacturing and service firms facing tariff-driven cost increases reported passing at least some of those costs to customers through higher prices, while roughly a quarter of each said they absorbed the full increase without raising prices. Nearly a third of manufacturers and about 45% of service firms reported full pass-through.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.

AI Summary. Chinese producer prices have been in deflationary territory since September 2022, and Chinese leaders have used state and party media to criticise "involution", or excessive price competition among manufacturers. The statements suggest Beijing is wary that rising industrial output alongside weak domestic consumer demand is entrenching deflation and straining relations with major trading partners.

Joe Leahy and Haohsiang Ko Financial Times
Date Posted:
Is Database:
Database

CCP officials have attacked “neijuan” or “involution,” meaning low-priced, disorderly price competition. Overcapacity, driven by industrial investment, is fueling, and potentially entrenching, deflation.

Is China's price competition among manufacturers entrenching deflation?

Core argument: Chinese producer prices have remained in deflationary territory since September 2022.

Chinese producer prices have been mired in deflationary territory since September 2022. In articles across state and party media, Chinese President Xi Jinping and other leading officials have attacked what they call neijuan, or “involution”, meaning excessive price competition. The statements suggest Beijing is growing increasingly wary that surging industrial output, coupled with weak consumer demand at home, is fuelling a race to the bottom in prices that is entrenching deflation and fuelling tensions with the country’s biggest trading partners.

Takeaways by Macro Roundup® AI

  1. Chinese producer prices have remained in deflationary territory since September 2022.
  2. Xi Jinping and other leading Chinese officials have attacked "neijuan", or "involution", meaning excessive price competition, in articles across state and party media.
  3. The official statements suggest Beijing is growing wary that surging industrial output combined with weak domestic consumer demand is fuelling a race to the bottom in prices, entrenching deflation and stoking tensions with China's biggest trading partners.

Related Articles:

  • China Chooses Deflation — China's headline consumer price inflation has fallen below zero and core inflation is little better, and the author argues US tariffs will hasten this deflationary dynamic. Because easing monetary policy would weaken the Yuan against the Dollar, China is accepting deflation instead, which the author argues means rising real interest rates.
  • China is Suffering its Own ‘China Shock’ — Academic analysis of 12 labour-intensive Chinese manufacturing industries estimates average employment fell about 14%, or nearly 4mn jobs, between 2011 and 2019, with textile roles down 40%; a further analysis of the same sectors found 3.4mn more jobs lost through 2023. Researchers argue industrial upgrading and automation are cutting demand for lower-skilled workers and depressing their wages.
  • Trade With China Is Becoming a One-Way Street — China's import volumes have shown no growth since the end of 2022 while its export volumes rose 33%, according to data from the Netherlands Bureau of Economic Policy Analysis. In dollar terms, Chinese imports fell 11% from the US, 17% from Japan, and 18% from Germany, as Chinese companies replace overseas suppliers with domestic ones.

AI Summary. China's export controls on rare earth materials and magnets threatened to halt production across the auto industry, the largest manufacturing sector in most advanced economies, and forced Washington to negotiate on tariffs. Despite China's well-known dominance of rare earth production, Western governments and companies have not developed alternative suppliers.

Chris Miller Financial Times
Date Posted:
Is Database:
Database

China’s precisely targeted rare earth export controls were “probably the key factor in forcing Washington to reverse its tariff rises on the country.” The American auto industry would effectively shut down if the controls were not lifted. @crmiller1

Do rare earth export controls give China leverage in trade negotiations?

Core argument: China's export controls on rare earth materials and magnets threatened within weeks to shutter key factories across the auto industry, the largest manufacturing sector in most advanced economies.

The new controls on exporting rare earth materials and magnets are different. In just a handful of weeks they threatened to shutter key factories across the auto industry — the largest manufacturing sector in most advanced economies. They also brought the US president to heel on his signature initiative: the trade war. The White House thought it had achieved escalation dominance. Its theory was that sky-high tariffs would be so costly that Beijing would have no hope but to negotiate. In fact, China’s leaders could swallow the political cost of tariffs. But Washington couldn’t ignore the loss of rare earth materials and its impact on auto companies. The most striking aspect of China’s weaponisation of rare earths is how unprepared western governments and companies were. Even those who cannot name a single rare earth element know that China dominates their production. Nevertheless, over the decade and a half since China first cut rare earth exports to Japan in 2011, the west has failed to find new suppliers.

Takeaways by Macro Roundup® AI

  1. China's export controls on rare earth materials and magnets threatened within weeks to shutter key factories across the auto industry, the largest manufacturing sector in most advanced economies.
  2. The White House's theory of escalation dominance — that sky-high tariffs would force Beijing to negotiate — faltered because China's leaders could absorb the political cost of tariffs while Washington could not ignore the loss of rare earths.
  3. Western governments and companies remained unprepared for China's rare earth leverage, failing to find new suppliers in the decade and a half since Beijing first cut rare earth exports to Japan in 2011.

Related Articles:

  • China Found World’s Pain Point on Trade – and Will Use It Again — China's export permitting system for rare earths and other critical minerals is detailed enough that Beijing is developing a granular understanding of where every kilogram it produces ends up and why. Bottlenecks emerged as China slowed approvals for magnets containing even minuscule amounts of seven rare earths, alongside limits on sales of the raw elements.
  • Automakers Race to Find Workaround to China’s Stranglehold on Rare-Earth Magnets — Automakers and suppliers are considering shifting some auto-parts manufacturing to China to avoid production shutdowns caused by China's export controls on rare-earth magnets, which have slowed license approvals. Shipping unfinished parts to China for magnet installation adds cost, time, and potential tariff exposure, but executives view shutdowns as worse.
  • The U.S.-China Rare Earths Battle — Most rare earth elements are relatively abundant but not always easy to extract, and China accounts for an estimated 70% of global output according to the United States Geological Survey. China also holds the world's largest reserves at 44m tonnes of rare-earth-oxide equivalent, roughly double those of Vietnam, Brazil, or Russia.

AI Summary. Analysis of nearly 75 years of RSMeans construction cost data across many metro areas finds that building costs, while a large share of new home costs, are a weak predictor of variation in house prices, especially in the highest-cost metros. The authors attribute this decoupling partly to restrictions that prevent housing supply expansion in high-demand areas.

Brian Potter and Chad Syverson National Bureau of Economic Research
Date Posted:
Is Database:
Database

Variation in construction costs has had relatively low predictive power for variation in house prices, with increased decoupling over time suggesting “increasingly binding restrictions that prevent housing supply expansion in high-demand areas.”

Do construction costs explain differences in house prices across metro areas?

Core argument: Chicago's house prices are 48% below what building costs predict, while the highest price-to-cost cities are in coastal California, Colorado's Front Range, Florida, Seattle, and Boston, based on nearly 75 years of RSMeans housing cost data.

Nearly 75 years of the RSMeans housing cost data, which capture the costs and margins associated with actually constructing a building, but excludes ancillary and land acquisition costs, has allowed us to examine housing construction cost growth over a long period and across many different metro areas, [and to compare them] with various measures of housing prices. While construction costs [are] a very large fraction of the costs of [new homes], these costs aren’t a particularly strong predictor of [variation in] housing prices overall, especially in the very highest-cost metros and in more recent periods. The highest house price cities (relative to costs) are in coastal California, the Front Range of Colorado, Florida, as well as Seattle and Boston. The lowest relative price cities are various locations in the Midwest and South as well as Philadelphia. Chicago’s prices are 48% less than predicted by building costs. Patterns in both aggregate and cross section data suggest the cost-price relationship is weakening over time, particularly since post-2000. Drivers of this decoupling [include] increasingly binding restrictions that prevent housing supply expansion in high-demand areas.

Takeaways by Macro Roundup® AI

  1. Chicago's house prices are 48% below what building costs predict, while the highest price-to-cost cities are in coastal California, Colorado's Front Range, Florida, Seattle, and Boston, based on nearly 75 years of RSMeans housing cost data.
  2. Construction costs make up a very large fraction of the cost of new homes but are not a particularly strong predictor of variation in housing prices, especially in the highest-cost metros and in more recent periods.
  3. Aggregate and cross-sectional patterns suggest the cost-price relationship has weakened, particularly since 2000, with drivers of this decoupling including increasingly binding restrictions that prevent housing supply expansion in high-demand areas.

Related Articles:

  • First-Time Home Buyers Are MIA. Landlords Are the Winners — The National Association of Realtors reports 1.1m first-time home buyers last year, 380,000 fewer than the prior year and about half the two-decade average of 2.1m a year, with the sharpest sales slowdown in homes under $500,000. Unaffordable prices and high mortgage rates have slowed the flow from renting to owning.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.
  • Why Has Construction Productivity Stagnated? The Role of Land-Use Regulation — Homes built per construction worker boomed after World War II and fell after 1970, a decline the authors link to local land-use regulation that limits project size and keeps construction firms small and less productive. They estimate US residential builders would be roughly 60% more productive if their size distribution matched manufacturing.

AI Summary. Younger generations in the United States and other rich countries hold more zero-sum views than older ones, a pattern researchers link to growing up amid slower economic growth and lower mobility. People who have surpassed their parents, or whose families rose over generations, are less likely to think in zero-sum terms.

Stefanie Stantcheva The Economist
Date Posted:
Is Database:
Database

Zero-sum thinking, in terms of political and policy views is strongly associated with lower levels of intergenerational upward mobility. @S_Stantcheva notes, “Younger generations today are much more zero-sum than older ones.”

Does slower growth and lower mobility breed zero-sum thinking?

Core argument: Younger Americans think in more zero-sum terms than older generations, a pattern attributed to growing up during periods of slower economic growth and lower mobility.

Younger generations today are much more zero-sum than older ones. This way of thinking doesn’t just appear out of nowhere; it stems from people’s economic environment and experiences—not only their own, but also those of their families and even earlier generations. Economic mobility and growth play a big role. People who have done better than their parents, or whose families have experienced upward mobility over time, are less likely to think in zero-sum terms. This also explains why younger generations in America are more zero-sum: they have grown up during times of slower economic growth and lower mobility. Other rich countries exhibit a similar generational pattern. In contrast, in many poorer countries where younger generations have experienced more growth than earlier ones, the pattern flips.

Takeaways by Macro Roundup® AI

  1. Younger Americans think in more zero-sum terms than older generations, a pattern attributed to growing up during periods of slower economic growth and lower mobility.
  2. People who have done better than their parents, or whose families experienced upward mobility over generations, are less likely to hold zero-sum views.
  3. Other rich countries show a similar generational pattern, while in many poorer countries whose younger generations experienced more growth than earlier ones, the pattern flips.

Related Articles:

  • 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.
  • Are We Destined For A Zero-Sum Future? — Survey data show average views in high-income countries have become 20% more zero-sum — the belief that people get rich only at others' expense — over the past century, with two rises in zero-sum attitudes coinciding with growth slowdowns in the 1970s and the past two decades.
  • The Anatomy of Mamdani’s Political Earthquake — An analysis of New York City's mayoral vote finds that Mamdani's coalition centered on working-, middle-, and upper-middle-class renters across white, Hispanic and Asian neighborhoods and on the youngest voters, while Cuomo's support came from both the wealthy and the poor and from middle-class Black voters in an older Black electorate.

Wednesday, July 9, 2025

AI Summary. The European Central Bank's trade-weighted euro index against 41 countries is setting record highs, rising faster than the euro's gain against the dollar alone. Because China has effectively re-pegged the yuan to the dollar, the euro is strengthening not only against the dollar but against China and much of Asia.

Robin Brooks Robin Brooks Substack
Date Posted:

The EUR/$ has risen from 1.04 to 1.17 since January 2025. Robin Brooks warns: “Rapid strengthening in the Euro should worry ECB policy makers…because it constitutes a substantial deflationary shock.”

Is the euro rising faster in trade-weighted terms than against the dollar?

Core argument: The ECB's trade-weighted Euro index, covering 41 countries, is setting new all-time highs practically every day.

Many countries peg their currencies to the Dollar these days, most obviously China. This means that any rise in the Euro is turbocharged and results in an even bigger rise in the Euro in trade-weighted terms. The chart shows this. The white line is EUR/$ (the number of Dollars per Euro, so - as this number goes up - Euro strengthens against the Dollar). The orange line is the trade-weighted Euro against 41 countries - the broadest index for the Euro - and is put together by the ECB. This trade-weighted Euro is making new all-time highs practically every day. That’s in large part because China has de facto re-pegged the Yuan to the Dollar, so that the Euro isn’t just rising against the Dollar but also against China and much of the rest of Asia.

Takeaways by Macro Roundup® AI

  1. The ECB's trade-weighted Euro index, covering 41 countries, is setting new all-time highs practically every day.
  2. China's de facto re-pegging of the Yuan to the Dollar means the Euro is appreciating not only against the Dollar but also against China and much of the rest of Asia.
  3. Widespread pegging of currencies to the Dollar turbocharges any rise in the Euro, producing a larger appreciation in trade-weighted terms than against the Dollar alone.

Related Articles:

  • ECB Wonders Whether Euro Rally Will Turn From Blessing to Curse — The euro is up about 14% against the dollar this year, helping curb price gains that now match the European Central Bank's inflation goal. The risk is that further appreciation pushes inflation below the target and damages European competitiveness, with the central bank warning that a move past $1.20 would be problematic.
  • German Fiscal Policy On The Move — Germany's budget raises defence spending to €152.8bn by 2029, more than doubling it to 3.5% of GDP. Using International Monetary Fund growth projections and today's yield curve, the author estimates German gross debt rises from 64% of GDP to 76% by 2029, with net debt supply for private investors approaching €250bn a year.

AI Summary. The authors introduce a benchmark for the neutral level of overall financial conditions that would close expected output gaps, and find it often diverges in sign from the interest-rate-based measure of policy stance. By this measure financial conditions were effectively contractionary during 2010–2020 even though real interest rates sat well below neutral.

Ricardo Caballero, Tomás Caravello and Alp Simsek National Bureau of Economic Research
Date Posted:

FCI*, a measure of policy neutrality, accounts for financial conditions overall. Post GFC, FCI-FCI* suggests far greater tightness than the FFR. In mid-2022, reflecting mortgage rates, the FCI-FCI* tightens even relative to the higher FFR.

Do interest rates understate how tight financial conditions actually are?

Core argument: The authors introduce FCI*, the neutral level of overall financial conditions that closes expected output gaps, and find the FCI-based stance and the real rate stance differ in sign over long periods, with the largest discrepancy during the Global Financial Crisis.

We introduce FCI*, the neutral level of [overall] financial conditions that closes expected output gaps. We analyze the historical evolution [of FCI- FCI* vs. r and r*, and the effects of these gaps on the output gap]. The two measures differ in sign during long periods of time.The GFC period shows the largest discrepancy. The real rate stance suggests monetary policy was running the economy hot throughout 2010-2020 by setting interest rates well below r*. In contrast, financial conditions suggest the effective stance was contractionary. In the COVID period, both measures initially show highly accommodative monetary policy, peaking around 2021Q4, [when the] FCI stance reverses sharply and becomes contractionary, reflecting mainly how mortgage rates and stock prices reacted to the abrupt policy shift during 2022. The series reaches its most contractionary point in 2023Q1, after which stock prices begin rallying again (driven by the MAG7 and AI narratives). In contrast, the real rate-based stance suggests monetary policy remained accommodative well into 2023, turning only mildly contractionary in 2023Q3. Although nominal interest rates peaked around mid-2023, high inflation expectations kept ex ante real rates low.

Takeaways by Macro Roundup® AI

  1. The authors introduce FCI*, the neutral level of overall financial conditions that closes expected output gaps, and find the FCI-based stance and the real rate stance differ in sign over long periods, with the largest discrepancy during the Global Financial Crisis.
  2. Throughout 2010–2020, the real rate stance suggests monetary policy ran the economy hot by setting interest rates well below r*, while financial conditions suggest the effective stance was contractionary.
  3. The FCI-based stance turned sharply contractionary after peaking in accommodation around 2021Q4 and reached its most contractionary point in 2023Q1, whereas the real rate stance suggests policy stayed accommodative into 2023, turning mildly contractionary only in 2023Q3.

Related Articles:

  • Demographics, Wealth, and Global Imbalances in the Twenty-First Century — Because the elderly hold much more wealth than the young and on average do not draw it down much as they age, the authors' model projects no "great demographic reversal": population aging is estimated to push global rates of return down by about 1.07pp and raise global wealth from 456% to 498% of world GDP.
  • Quo Vadis, r*? The Natural Rate Of Interest After The Pandemic — Estimates of the natural rate of interest across core advanced economies suggest it may have increased, though the estimates are widely dispersed and statistically uncertain. Low expected potential growth and rising longevity may weigh on the natural rate, while large fiscal deficits, age-related spending, and public investment needs for infrastructure, defense, and the green transition may push it up.
  • Recent Movements in R*: The Most Important Interest Rate That You Have Never Heard Of — The natural rate of interest — the inflation-adjusted rate prevailing when the economy grows at trend with inflation at target — is unobservable and uncertain, but most estimates have risen and sit above pre-pandemic levels. The data lean toward a long-run natural rate higher than pre-pandemic and possibly above Federal Reserve projections.

AI Summary. The author argues that if U.S. business investment is not constrained by a shortage of savings, net foreign capital inflows must be absorbed through lower domestic saving via higher unemployment or higher debt rather than higher investment. On this view, inflows expand the supply of U.S. debt alongside demand and so do not lower American interest rates.

Michael Pettis China Financial Markets
Date Posted:
Is Database:
Database

If US business investment is not “saving-constrained,” Michael Pettis argues, “the American economy will not adjust to net foreign inflows with higher domestic investment, and therefore it must adjust with lower domestic saving.”

Do foreign capital inflows lower U.S. interest rates?

Core argument: Foreign capital inflows into the United States need not lower U.S. interest rates, because they can force the creation of additional U.S. debt so that increased demand for American debt is matched by increased supply.

If American business investment is not saving-constrained, the American economy will not adjust to net foreign inflows with higher domestic investment, and therefore it must adjust with lower domestic saving. The most likely adjustments that reduce domestic saving involve either higher unemployment or higher debt. Foreign inflows, in other words, can force the creation of additional U.S. debt so that the overall increased demand for American debt is matched by an overall increased supply—and in which case it will not drive down U.S. interest rates. If foreign capital inflows are not driven by the inability of American businesses to fund domestic investment, they must be driven by distortions abroad. That is why not only are these inflows unlikely to lower borrowing costs, they may also, paradoxically, force unwanted changes in the structure of the U.S. economy that create the conditions under which more borrowing becomes necessary just to sustain demand.

Takeaways by Macro Roundup® AI

  1. Foreign capital inflows into the United States need not lower U.S. interest rates, because they can force the creation of additional U.S. debt so that increased demand for American debt is matched by increased supply.
  2. If American business investment is not constrained by a shortage of saving, the U.S. economy adjusts to net foreign inflows not through higher domestic investment but through lower domestic saving, most likely via higher unemployment or higher debt.
  3. Foreign capital inflows not driven by American businesses' inability to fund domestic investment must be driven by distortions abroad, and may force changes in the structure of the U.S. economy that make more borrowing necessary to sustain demand.

Related Articles:

  • Why Global Imbalances Do Matter — From 2008 to 2023 the US household and corporate sectors ran average savings surpluses of 3.5% and 1.6% of GDP respectively, leaving the federal government as the dominant net borrower in the US economy. This suggests the benefit of persistent net capital inflows is the ability to run larger fiscal deficits and grow public debt.
  • Foreign Treasuries Holdings Held Near a Record in April Turmoil — Foreign holdings of US Treasuries totaled $9.01tn, the second-highest on record and down $36bn from the prior month, with the decline mainly reflecting net sales of US notes and bonds by foreign private investors while official entities were net buyers of longer-term Treasuries. Japan remained the largest foreign holder at $1.13tn.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

AI Summary. China's trade surplus has soared over the past five years, including a shift from a deficit to a large surplus in autos, with net vehicle exports exceeding 6m units, and dominance in renewables manufacturing. Its export volume growth has consistently exceeded global trade growth, consistent with economies leaning on exports after a real estate crisis weakens domestic demand.

Brad Setser Council on Foreign Relations
Date Posted:
Is Database:
Database

Brad Setser argues that China’s BoP surplus, which now ~ equals Europe’s, misrepresents its true surplus. China masks exports through foreign subsidiaries and investments, as evidenced by its customs surplus growth.

How has China's trade surplus grown over the past five years?

Core argument: China's net vehicle exports are projected to top 6 million this year and net passenger car exports to exceed 5 million, a reversal from the auto trade deficit China ran as recently as five years ago.

China’s trade surplus has soared in the last five years. That basic statement maps to a host of well-known and easily verified realities. China now runs, for example, a large trade surplus in autos, when it ran a deficit as recently as five years ago. Net vehicle exports will top 6 million vehicles this year, net passenger car exports will easily top 5 million cars. It dominates renewables manufacturing (so much so that President Trump decided to essentially give up and take the U.S. back to the age of fossil fuels). China's export volume growth has consistently exceeded global trade growth. Moreover, it maps to standard economic theory: a large real estate crisis typically leads countries to rely more on exports to make up for the fall in internal demand (ask the IMF…) yet that surplus often seems to disappear when it comes to the statistics on global imbalances.

Takeaways by Macro Roundup® AI

  1. China's net vehicle exports are projected to top 6 million this year and net passenger car exports to exceed 5 million, a reversal from the auto trade deficit China ran as recently as five years ago.
  2. China's trade surplus has soared over the last five years, with export volume growth consistently exceeding global trade growth and China dominating renewables manufacturing.
  3. Standard economic theory holds that a large real estate crisis leads countries to rely more on exports to offset falling internal demand, yet China's surplus often seems to disappear in the statistics on global imbalances.

Related Articles:

  • The Evolution of Global Trade in 2024 — Global trade imbalances consist of one very large surplus and one very large deficit: China's goods surplus exceeds $1tn a year, while the U.S. non-petroleum deficit drives the Asian surplus. The author argues a Chinese surplus this large can be sustained only alongside a large U.S. deficit.
  • Trade With China Is Becoming a One-Way Street — China's import volumes have shown no growth since the end of 2022 while its export volumes rose 33%, according to data from the Netherlands Bureau of Economic Policy Analysis. In dollar terms, Chinese imports fell 11% from the US, 17% from Japan, and 18% from Germany, as Chinese companies replace overseas suppliers with domestic ones.
  • US Trade Policies and the Activity of US Multinational Enterprises in the Euro Area — Euro area affiliates of US multinational companies account for over 5% of euro area value added and 2% of employment, with higher shares in Ireland. The European Central Bank estimates these affiliates were involved in almost 30% of the euro area goods surplus with the US and about 90% of its services deficit.

AI Summary. Americans cut time spent attending or hosting social events by 50% over two decades, with those aged 15-24 spending 70% less time at parties. The decline coincided with a drop in teen drinking: fewer than 50% of high school seniors report ever having had a drink, down from more than 90%.

Derek Thompson Derek Thompson Substack
Date Posted:

In 2024, Americans aged 15–24 spent 70% less time attending or hosting parties than they did in 2003 according to the American Time Use Survey.

Are Americans spending far less time at parties than two decades ago?

Core argument: Americans cut the time spent attending or hosting social events by 50% between 2003 and 2024, with nearly every age group halving its party time over the two decades.

Between 2003 and 2024, the amount of time that Americans spent attending or hosting a social event declined by 50%. Almost every age group cut their party time in half in the last two decades. For young people, the decline was even worse. Last year, Americans aged 15-to-24 spent 70% less time attending or hosting parties than they did in 2003. I cannot ignore the fact that the great American party deficit has coincided with an extraordinary decline in teen drinking. Last year was the first on record, going back to 1975, that fewer than 50% of high school seniors said they’d ever had a drink of alcohol. As recently as 1989, the share was higher than 90%. Eighth graders in the 1980s were more likely to say they had a sip of alcohol in the previous month than today’s 12th graders.

Takeaways by Macro Roundup® AI

  1. Americans cut the time spent attending or hosting social events by 50% between 2003 and 2024, with nearly every age group halving its party time over the two decades.
  2. Americans aged 15–24 spent 70% less time attending or hosting parties in 2024 than in 2003, a steeper decline than other age groups.
  3. Fewer than 50% of U.S. high school seniors reported ever having had a drink of alcohol in 2024, the first such year in records going back to 1975, down from more than 90% in 1989.

Related Articles:

  • The Anti-Social Century — Americans spend less time with other people than in any period with reliable data back to 1965, with in-person socializing down more than 20% from 2003 to 2023 according to the Bureau of Labor Statistics' American Time Use Survey. Among unmarried men and people under 25, the decline exceeded 35%.
  • Disconnected: The Growing Class Divide in American Civic Life — 17% of Americans report having no close friends, and survey data show a wide educational gap: 24% of those with a high school education or less have no close friends versus 10% of college graduates. Three decades ago, Americans with less formal education reported social circles at least as large.
  • The Data is Clear: People Are Having Less Sex — Survey data show every age group now reports less frequent sexual activity than counterparts in earlier decades, with roughly an 8 percentage point decline across age groups. Among people around age 25, the share reporting sex at least monthly fell from over 80% to 72%, while the peak years remain ages 30 to 40.