Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Tuesday, July 29, 2025

AI Summary. A universal 15% tariff on imported goods could raise roughly $300–$400bn annually, a fraction of what a value-added tax would generate but real revenue given U.S. imports of about $4tn. The author argues tariffs are a poorly designed form of consumption tax that could build political groundwork for replacing them with a more efficient value-added tax.

Paul Kedrosky Applied Complexity
Date Posted:

Paul Kedrosky argues the tariff regime is similar to a backdoor VAT and is not “so bad, if the alternative real distortion is structural deficits.” He notes a VAT at half the mean OECD level would “nearly zero out” the current U.S. deficit.

Can tariffs serve as a stepping stone toward a value-added tax?

Core argument: A uniform 15% tariff applied to manufactured goods, roughly 80% of the approximately $4 trillion in annual U.S. imports, might yield about $300–$400 billion a year, a fraction of what an actual VAT would raise.

A VAT set at even half of OECD average levels would nearly zero out the U.S. deficit. Tariffs are a species of VAT, albeit a poorly designed one. A universal tariff on imported goods—say, at 15%—would raise VAT-lite revenues. Based on recent data, U.S. annual imports are around $4 trillion. Applying a uniform 15% tariff to manufactured goods, which is 80-ish% of that might yield roughly $300-$400 billion annually. While this is a fraction of the revenue of an actual VAT, it is real money. The choice then is not between a perfect VAT and an imperfect tariff, but between an imperfect tariff and continued reliance on deficit financing or distortionary taxes on labor and capital income. Tariffs could lay the groundwork politically and psychologically for a future transition to an actual VAT. Citizens and businesses might recognize that consumption taxation you can see is better than consumption taxation that you can't. A future administration could leverage dissatisfaction with tariffs to propose replacing them with a more economically efficient and lower-rate VAT. Politically, the VAT would then become not a "new" tax but rather a tax cut (in rate terms only) eliminating import tariffs.

Takeaways by Macro Roundup® AI

  1. A uniform 15% tariff applied to manufactured goods, roughly 80% of the approximately $4 trillion in annual U.S. imports, might yield about $300–$400 billion a year, a fraction of what an actual VAT would raise.
  2. A U.S. VAT set at even half the OECD average rate would nearly eliminate the federal deficit, and tariffs amount to a poorly designed species of VAT.
  3. The real choice lies between an imperfect tariff and continued deficit financing or distortionary taxes on labor and capital income, with tariffs potentially laying political groundwork for a later switch to a VAT presented as a rate cut.

Related Articles:

  • The Fiscal Future — US debt is on an upward trajectory, and the author argues that extraordinary growth, default, money creation, and spending cuts are each implausible or unacceptable, leaving large tax increases. US governments collect about 28% of GDP in taxes versus 35% in the UK and 46% in France, and a value-added tax could close the roughly 4%-of-GDP fiscal gap.
  • Rapidly Growing Treasury Supply Crowding Out Other Types of Credit Growth — Roughly half of all fixed income issuance coming to market over the past year has been US Treasuries, meaning investors must allocate a growing share of dollars to financing the government. The argument is that lower government debt would free up more funds for consumer borrowing and business investment.
  • State of U.S. Tariffs: July 28, 2025 — The Budget Lab estimates that 2025 U.S. tariffs, if left in place, would raise $2.7tn over 2026-35 under conventional scoring. Accounting for the tariffs' negative effects on output, the estimate includes an additional $456bn revenue loss, bringing projected dynamic revenue to $2.3tn over the decade.

AI Summary. The U.S. is the world's largest single source of demand for manufactured goods but remains far smaller than the rest of the world combined, implying foreign producers will mostly avoid bearing the direct cost of tariffs. Consistent with this, the dollar has fallen about 7% against trading partners' currencies while pre-tariff import prices rose about 1%.

Matt Klein The Overshoot
Date Posted:

The incidence of tariffs so far is on US consumers, notes Matt Klein. “If foreigners were going to eat the cost, [pre-tariff] import prices should have fallen enough to offset the tariff. Excluding food and fuels, [they] are up about 1% so far in 2025.”

Are foreign producers bearing the direct cost of U.S. tariffs?

Core argument: Pre-tariff prices of U.S. imported goods excluding food and fuels are up about 1% so far in 2025, per the BLS International Price Program, whereas import prices should have fallen if foreign producers were absorbing the tariff cost.

While the U.S. is the world’s largest single contributor to global demand— and is by far the world’s largest source of net demand for manufactured goods—it is still far smaller than the combined weight of the rest of the world. All this implies, using Miran’s framework, that foreign producers will mostly avoid the direct cost of the tariffs. One clue is that the dollar has fallen about 7% against a trade-weighted basket of the currencies of our trading partners since the start of 2025, with most of the drop occurring since most of the tariffs were first announced on April 2. The textbook response to a broad tariff increase is for the dollar to appreciate to reflect the change in the relative attractiveness of investing in the U.S. to make goods for the American market, compared to investing somewhere else and exporting. That is consistent with the data we have so far from the Bureau of Labor Statistics (BLS), which measures the prices of imports before tariffs as part of its International Price Program. The prices of imported goods (excluding food and fuels) are up about 1% so far in 2025. If foreigners were going to eat the cost, import prices should have fallen enough to offset the tariff impact.

Takeaways by Macro Roundup® AI

  1. Pre-tariff prices of U.S. imported goods excluding food and fuels are up about 1% so far in 2025, per the BLS International Price Program, whereas import prices should have fallen if foreign producers were absorbing the tariff cost.
  2. The dollar has fallen about 7% against a trade-weighted basket of U.S. trading partners' currencies since the start of 2025, with most of the drop since tariffs were announced on April 2, contrary to the textbook appreciation response to a broad tariff increase.
  3. The U.S. is the world's largest single contributor to global demand and by far the largest source of net demand for manufactured goods, yet remains far smaller than the rest of the world combined, implying under Miran's framework that foreign producers mostly avoid the direct cost of tariffs.

Related Articles:

  • State of U.S. Tariffs: July 28, 2025 — The Budget Lab estimates that 2025 U.S. tariffs, if left in place, would raise $2.7tn over 2026-35 under conventional scoring. Accounting for the tariffs' negative effects on output, the estimate includes an additional $456bn revenue loss, bringing projected dynamic revenue to $2.3tn over the decade.
  • Tariff Endgame — New tariffs would add roughly 1% of GDP to a federal tax burden that was 17% of GDP, an amount that aggregate corporate profits near $4tn and disposable personal income around $22tn could absorb at the cost of modestly slower activity. The burden would fall unevenly, concentrated in import-dependent sectors such as autos and clothing.
  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.

AI Summary. An analysis of labor data finds a shrinking share of each graduating class is landing jobs requiring a bachelor's degree. At the 15 largest tech companies by market value, entry-level hires as a share of total new hires have fallen 50%, and recent graduates made up 7% of new hires, down from 11%.

Lindsay Ellis, Katherine Bindley and Rosie Ettenheim Wall Street Journal
Date Posted:

Between 2018–19 and 2023–25, Americans aged 22–27 with a bachelor’s degree saw a steep increase in their unemployment rate from 3.8% to 4.9%, while their high school peers’ unemployment rate increased by just 0.1% to 7.3%.

Is AI shrinking entry-level hiring for college graduates?

Core argument: Among the 15 largest tech companies by market capitalization, the share of entry-level hires relative to total new hires has fallen by 50% since 2019, according to venture-capital firm SignalFire.

With each new class after 2020, an ever-smaller share of graduates is landing jobs that require a bachelor’s degree, according to a Burning Glass Institute analysis of labor data. Venture-capital firm SignalFire found that among the 15 largest tech companies by market capitalization, the share of entry-level hires relative to total new hires has fallen by 50% since 2019. Recent graduates accounted for just 7% of new hires in 2024, down from 11% in 2022.

Takeaways by Macro Roundup® AI

  1. Among the 15 largest tech companies by market capitalization, the share of entry-level hires relative to total new hires has fallen by 50% since 2019, according to venture-capital firm SignalFire.
  2. Recent graduates accounted for 7% of new hires in 2024, down from 11% in 2022, according to SignalFire.
  3. A Burning Glass Institute analysis of labor data finds that with each graduating class after 2020, an ever-smaller share of graduates is landing jobs that require a bachelor's degree.

Related Articles:

  • Is AI Killing Graduate Jobs? — UK job postings for entry-level roles requiring a degree have fallen by almost two-thirds since 2022, twice the drop for all entry-level roles, with US listings down 43%. Analysis of US data shows no clear correlation between an occupation's exposure to generative AI and whether it lost young workers.
  • Educated but Unemployed, a Rising Reality for College Grads — Recent college graduates aged 22–27 account for 12% of the 60 basis-point rise in US unemployment, more than twice their 5% share of the labor force. In computer and mathematical occupations, employment for that age group has fallen 8% since 2022 while older workers' employment grew 0.8%.
  • Technological Disruption in the Labor Market — The authors measure US labor market structure since 1880 and find 1990–2017 less disruptive than any earlier period, because past changes from general-purpose technologies like steam and electricity were so profound. They identify four recent signs of accelerating change, including a 50%+ rise in science and technology employment share since 2010.

AI Summary. In the United States, mental despair once peaked in middle age but now declines steadily with age, a shift the authors attribute to rising despair among workers under 40. The hump-shaped age pattern persists among those unemployed or unable to work, while it remains flat for homemakers, students, and retirees.

David Blanchflower and Alex Bryson National Bureau of Economic Research
Date Posted:

Mental despair among non-workers continues to be hump-shaped in age over 2020–2024, but overall despair is now monotonically declining in age due to a sharp rise in distress among workers under 40, both male and female, compared to 2010–2015.

Why does mental despair now decline with age instead of peaking mid-life?

Core argument: In the United States the age–despair relationship, hump-shaped from the early 1990s through 2015 with a rise to middle age and decline later in life, now declines monotonically with age because of rising despair among the young.

Between the early 1990s and 2015 the relationship between mental despair and age was hump shaped in the United States: it rose to middle-age, then declined later in life. That relationship has now changed: mental despair declines monotonically with age due to a rise in despair among the young. However, the relationship between age and mental despair differs by labor market status. The hump-shape in age still exists for those who are unable to work and the unemployed. The relation between mental despair and age is broadly flat, and has remained so, for homemakers, students and the retired. The change in the age-despair profile over time is due to increasing despair among young workers. Whilst the relationship between mental despair and age has always been downward sloping among workers, this relationship has become more pronounced due to a rise in mental despair among young workers. Figure 7 repeats [an earlier exercise for 2010-15] for 2020-2024. As with 2010-15 the worker function slopes down, and the non-worker function is U-shaped. But now the ‘all’ function slopes down. Why? The reason is the markedly higher despair rates among workers under the age of 40, which have big weights in the overall calculation.

Takeaways by Macro Roundup® AI

  1. In the United States the age–despair relationship, hump-shaped from the early 1990s through 2015 with a rise to middle age and decline later in life, now declines monotonically with age because of rising despair among the young.
  2. The shift in the age–despair profile is attributed to increasing despair among young workers, whose already downward-sloping age–despair relationship has become more pronounced.
  3. Comparing 2020–2024 with 2010–15, the worker function still slopes down and the non-worker function is U-shaped, but the overall function now slopes down because of markedly higher despair rates among workers under 40, which carry large weights.

Related Articles:

  • US College Students’ Well-Being — A study of US college students finds moderate-to-severe depression reported by 26% of students at one elite institution, 22% reporting moderate-to-severe anxiety and 10% contemplating suicide. Poorer mental health is associated with being female, little exercise, low grades, and financial aid; financial stress is associated with higher suicidal thoughts.
  • Why Are Young Adults in the English-Speaking World So Unhappy? — The share of young adults regularly experiencing stress and anger has risen sharply in the US, Canada, UK, Ireland, Australia and New Zealand while remaining largely stable elsewhere in the West. Real house prices since 1995 are up 85% in the US and over 200% in the other five countries.
  • Life Under Two: Debt, Deficits, and the AI Discontinuity — The United States averaged annual GDP growth above 3% for decades, but 2% or less is now more likely. Over ten years, the author estimates that gap amounts to a $3.36tn larger economy, $3.7tn more tax revenue, and 6m more jobs, shifting public psychology from abundance toward scarcity.

AI Summary. China is displacing foreign imports in sectors that were core European export strengths, including autos, construction equipment, industrial robots, specialty chemicals, batteries, permanent magnets, solar panels, wind turbines, and high-speed rail. European exports to China have fallen by about half a percentage point of European GDP, and the EU's trade deficit with China is set to double.

Brad Setser Council on Foreign Relations
Date Posted:

China’s manufacturing boom is cannibalizing European exports. The EU’s trade deficit with China is set to double between 2020 and 2025 in euro terms.

Is China displacing European exports in its home market?

Core argument: European exports to China, measured by China's imports, are down about half a percentage point of European GDP over the last few years, with European exports falling steeply as a share of Europe's economy since 2022.

China is squeezing foreign imports out of its market. It hasn’t quite mastered top-of-the-line chips, protecting Taiwan. But it has mastered autos—both EVs and ICEs. And construction equipment. And industrial robots. And most specialty chemicals. And batteries, permanent magnets, solar PVs and their chemical precursors, industrial diamonds, wind turbines, and high-speed rail. While China hasn’t quite mastered the production of top-line civil aircraft, Comac is ramping up the production of the C919. Plus, there are signs that the Chinese content of the made-in-China Airbus narrow bodies is rising.* In other words, China’s continued manufacturing boom is eating into core European export strengths. Exports have been in steep fall as as a share of Europe's economy since 2022. European exports to China (measured by China’s imports) are now down about half a percentage point of European GDP over the last few years. The EU's trade deficit with China is set to double between 2020 and 2025 in euro terms.

Takeaways by Macro Roundup® AI

  1. European exports to China, measured by China's imports, are down about half a percentage point of European GDP over the last few years, with European exports falling steeply as a share of Europe's economy since 2022.
  2. The European Union's trade deficit with China is set to double between 2020 and 2025 in euro terms as China squeezes foreign imports out of its market.
  3. China has mastered production of autos, both electric and internal combustion, along with construction equipment, industrial robots, most specialty chemicals, batteries, permanent magnets, solar PVs, wind turbines and high-speed rail, eating into core European export strengths.

Related Articles:

  • How German Industry Can Survive the Second China Shock — The European Union has 30mm manufacturing jobs, and China has grown from a $4tn economy producing under 15% of global manufacturing output to an $18tn economy producing over a third, with well over 50% of global capacity in many sectors. European tariffs on Chinese electric vehicles limit import competition but do not offset lost export markets.
  • Will China Take Over the Global Auto Industry? — The global auto market has historically been regional, with most cars sold in a region also built there. Overcapacity in China's internal combustion sector, expanding electric-vehicle capacity, ample state bank credit, and a weaker yuan could concentrate global auto production in China absent restrictions such as the US 100% tariff on Chinese electric vehicles.
  • US-China Trade Clash Risks Making Europe Dumping Ground for Cheap Goods — China's trade surplus with the European Union reached a record $90bn over four months, fueling concerns that the bloc could become a dumping ground for cheap Chinese goods facing higher US import barriers. Most rerouting of Chinese exports currently passes through Latin America and Southeast Asia.

AI Summary. China's manufacturing investment continues to rise, up 7.5% this year after a 9.5% increase the prior year, and one Chinese academic estimates the country's share of global manufacturing value-added could climb to 40% from about 27%. Chinese leadership has publicly questioned whether every province needs to develop artificial intelligence, computing power, and electric vehicles, criticizing excessive price competition.

Joe Leahy, Wenjie Ding, William Langley and Haohsiang Ko Financial Times
Date Posted:

28% of China’s car manufacturers and 31% of electrical machinery builders are losing money, up from 12% and 16% in 2011, respectively, yet Chinese investment in manufacturing is rising by 7.5% this year, following a 9.5% increase in 2024.

Is China's manufacturing investment still rising despite official concerns about overcapacity?

Core argument: China's manufacturing investment is up 7.5% this year after a 9.5% rise in 2024, with no end in sight to the expansion.

China’s investment in manufacturing is still rising at a blistering pace — up 7.5% this year after a 9.5% rise in 2024 — there is no end in sight. Yan Se, assistant professor in the department of applied economics at the Guanghua School of Management in Peking University, said at a recent seminar that China’s share of global manufacturing value-added could rise to 40% in the next five years, from about 27% now. Xi recently betrayed a rare note of exasperation at what Beijing calls neijuan, or involution — excessive price competition. “Artificial intelligence, computing power and new energy vehicles. Do all provinces in the country have to develop industries in these directions?” Xi told the Central Urban Work Conference, a high-level Communist party meeting on urban development, according to state media.

Takeaways by Macro Roundup® AI

  1. China's manufacturing investment is up 7.5% this year after a 9.5% rise in 2024, with no end in sight to the expansion.
  2. Yan Se, assistant professor of applied economics at Peking University's Guanghua School of Management, said China's share of global manufacturing value-added could rise to 40% within five years from about 27% now.
  3. Xi Jinping asked the Central Urban Work Conference whether all of China's provinces have to develop artificial intelligence, computing power and new energy vehicles, showing exasperation at what Beijing calls neijuan, or involution — excessive price competition.

Related Articles:

  • China Emerges From Trade Chaos With Record Exports, Surplus — China posted a record half-year trade surplus of about $586bn, with exports up 5.8% year-over-year to $325bn and imports up 1.1%. Shipments to the US fell 16.1% from a year earlier, while exports to the 10 Southeast Asian nations in the Asean group rose 17%.
  • Industrial Colossus: China vs 1950s America — China's growth in its share of global manufacturing has slowed from roughly 1.5 percentage points per year in the early 2010s to just over 0.5 percentage points annually, about one-third the earlier pace. The author argues China's share of global manufacturing is likely near its peak.
  • Why US Tariffs Are Deflationary for China — China's exports to the US have fallen sharply while its exports to the rest of the world have risen by an almost offsetting amount. The author argues both adjustments are deflationary for China: routing goods through third countries raises transport costs and squeezes exporter margins, while redirecting goods to new markets requires cutting prices to generate demand.

Wednesday, July 30, 2025

AI Summary. Japan's 30-year government bond yield reached an all-time high of 3.21% following weak auctions, while Morgan Stanley reports the budget deficit was nearly eliminated in the first quarter, the best public finances in almost three decades. The return of nominal wage and price growth lifted income and consumption tax revenues, offset by lower household savings.

Robin Harding Financial Times
Date Posted:

Reflation in Japan has increased tax revenue, which has improved public finances. Btw 2020 and 2024, gross debt fell from 258% of GDP to 235%. The decline in the government deficit has been offset by a decline in household saving.

Does rising inflation improve government finances while pushing bond yields higher?

Core argument: Japan's 30-year government bond yield reached an all-time high of 3.21% after a series of weak auctions.

Here are two contrasting facts about Japan. Number one: the yield on 30-year government bonds hit an all-time high of 3.21% earlier this month after a series of weak auctions. Number two: according to Morgan Stanley, Japan’s budget deficit was almost completely eliminated in the first quarter of this year, putting [its] public finances in their best position [in] almost three decades. Prices have risen faster than the Bank of Japan’s 2% goal for the past three years; interest rates, at 0.5%, are off the lower limit of zero; and wages are rising. This return to nominal growth in wages and prices has led to an immediate rise in revenues from income and consumption taxes, which is what has brought the public finances back into balance. Expressed in terms of financial balances, a decline in the government deficit has been offset by lower household savings, while the corporate sector continues to run a surplus.

Takeaways by Macro Roundup® AI

  1. Japan's 30-year government bond yield reached an all-time high of 3.21% after a series of weak auctions.
  2. Morgan Stanley reports Japan's budget deficit was almost completely eliminated in the first quarter of this year, putting its public finances in their best position in almost three decades.
  3. Japan's return to nominal wage and price growth — with inflation above the Bank of Japan's 2% goal for three years and interest rates at 0.5% — raised income and consumption tax revenues, while the decline in the government deficit was offset by lower household savings.

Related Articles:

  • Japan’s Crazy Low Government Bond Yields — Japan's 30-year government bond yield remains below Germany's even after rising, despite Japanese government debt of 240% of GDP versus Germany's 65%. The author argues years of Bank of Japan quantitative easing and yield curve control, along with its continued gross purchases of government debt, keep Japanese yields artificially low.
  • Japan Leads Global Long-Bond Drop as Spending Takes Center-Stage — Long-term government bond yields rose in Japan, Germany, the UK and France as concern over widening fiscal deficits dented demand, with 30-year German yields near their highest levels in 14 years. Fiscal worries — including heavy government debt, spending, bond supply and sticky inflation — are displacing central-bank interest-rate policy as the main driver for these markets.
  • 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.

AI Summary. The author's calculation of the 10-year US Treasury yield minus a currency-hedged, trade-weighted average of 10-year government bond yields in Germany, Japan, the UK, Canada, Switzerland, Sweden and Australia indicates the "convenience yield" on US government debt has disappeared. Where the US yield averaged about 10 basis points below those dollar-hedged peers, it now carries a 20 basis point premium.

Robin Brooks Robin Brooks Substack
Date Posted:

Brooks argues that the US’s “exorbitant privilege” – the ability to sell US debt to global markets at anomalously low yields – has faded; 10-year Treasury yields are now at a 20 bps premium relative to $ denominated yields in the rest of the G10.

Have US Treasuries lost their yield advantage over hedged foreign bonds?

Core argument: The 10-year US Treasury yield, once averaging roughly 10 bps below currency-hedged G10 government bond yields, now carries a 20 bps premium, which the author reads as the disappearance of the "convenience yield" on US government debt.

I calculate the differential of the 10-year US Treasury yield minus the trade-weighted average 10-year yield on government bonds in Germany (DE), Japan (JP), the UK (GB), Canada (CA), Switzerland (CH), Sweden (SE) and Australia (AU), where I use 10-year currency forwards to hedge the returns on these government bonds back into Dollars. This rate differential is therefore purely in Dollar terms and thus a good proxy for the “convenience yield,” i.e. whether global markets are willing to buy US debt at lower yields than debt from other countries because Treasuries are “special.” The left chart shows a daily time series for this 10-year Dollar differential, starting in January 2010 and going through July 2025. It’s clear that the “convenience yield” on US government debt has disappeared. Where it used to be that the 10-year yield was on average around 10 bps below Dollar-denominated yields in the rest of the G10, there’s now a 20 bps premium.

Takeaways by Macro Roundup® AI

  1. The 10-year US Treasury yield, once averaging roughly 10 bps below currency-hedged G10 government bond yields, now carries a 20 bps premium, which the author reads as the disappearance of the "convenience yield" on US government debt.
  2. The measure is the 10-year Treasury yield minus the trade-weighted average 10-year government bond yield of Germany, Japan, the UK, Canada, Switzerland, Sweden and Australia, hedged into dollars with 10-year currency forwards.
  3. Because the differential is expressed purely in dollar terms, the author treats it as a proxy for whether global markets will buy US debt at lower yields than other countries' debt, using daily data from January 2010 through July 2025.

Related Articles:

  • Treasury Issuance Growing — US Treasury auction metrics show no current weakness in demand, with stable bid-to-cover ratios and no systematic tailing, even as debt-to-GDP rises, the term premium increases, and the government must refinance $9tn over the next year. The author argues Treasury issuance will keep outgrowing the economy, likely pushing long-term interest rates higher.
  • Rapidly Growing Treasury Supply Crowding Out Other Types of Credit Growth — Roughly half of all fixed income issuance coming to market over the past year has been US Treasuries, meaning investors must allocate a growing share of dollars to financing the government. The argument is that lower government debt would free up more funds for consumer borrowing and business investment.
  • The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget — The Congressional Budget Office projects that if private investment were more sensitive to federal deficits, debt held by the public would exceed 250% of GDP and real national income per person would be 18% ($21,300) lower than its baseline, with the average interest rate on federal debt 2pp higher.

AI Summary. The share of total US market capitalization held by young unprofitable companies has fallen from its 2021–2022 peak, while over 40% of small-cap companies have negative earnings and the negative-earnings share among large caps is falling. The 10 largest stocks hold about 35% of market cap, a high since 1990, but their share of market earnings has roughly kept pace.

Michael Cembalest J.P. Morgan
Date Posted:

Michael Cembalest notes that the 10 largest American stocks represent ~ 35% of market capitalization. Earnings are “more or less keeping pace, particularly when measured based on forward earnings estimates.”

Is market concentration justified by megacap earnings share?

Core argument: The young unprofitable company share of total market cap peaked in 2021/2022 during the SPAC boom, served as a leading indicator of the subsequent rout in low-quality stocks, and has since fallen, a positive sign for markets.

Our YUC measure (the young unprofitable company share of total market cap) looks benign. This measure peaked in 2021/2022 with the SPAC boom and was an excellent leading indicator of the rout that was about to happen to low quality stocks. This risk index has fallen since, which is a positive sign for markets. Small cap remains a barren profitability desert (40%+ of small cap companies with negative earnings!) while a falling share of large cap companies have negative earnings. The 10 largest megacap stocks continue to hover at ~35% of market cap, which is an all-time high since 1990. But when looking at the megacap share of total market earnings, they’re more or less keeping pace, particularly when measured based on forward earnings estimates. Tech and TMT valuations are still hovering at the high end of the post-2020 range, ~30x forward earnings expectations. The rest of the market is less aggressively priced, and at 20x forward earnings is priced at the middle of the range since 1990. But these valuations have been creeping up steadily since early 2022.

Takeaways by Macro Roundup® AI

  1. The young unprofitable company share of total market cap peaked in 2021/2022 during the SPAC boom, served as a leading indicator of the subsequent rout in low-quality stocks, and has since fallen, a positive sign for markets.
  2. More than 40% of small cap companies have negative earnings, while a falling share of large cap companies are unprofitable.
  3. The 10 largest megacap stocks hover at about 35% of market cap, an all-time high since 1990, though their share of total market earnings roughly keeps pace, particularly on forward estimates.

Related Articles:

  • Back to Our Regularly Scheduled Programming — The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.
  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. Analysis of Belgian business-to-business transaction data finds consulting use concentrated among large, high-labor-productivity firms, with new clients spending about 3% of payroll on engagements typically lasting under a year. The authors estimate consulting raises client labor productivity 3.6% over five years and average wages 2.7%, with larger gains for initially less productive firms.

Gert Bijnens, Simon Jäger and Benjamin Schoefer National Bureau of Economic Research
Date Posted:

Belgian data suggest that in the 5 years following “episodic engagement” with a management consultancy, firms see a 3.6% rise in labor productivity, associated with modest reductions in labor and capital input and no increase in profitability.

How does hiring management consultants affect client firm productivity and wages?

Core argument: Using Belgian VAT-linked business-to-business transaction data for 2002–2023 and difference-in-differences designs, the authors estimate that consulting engagements raise client firms' labor productivity by 3.6% over five years, driven by modest employment reductions alongside stable or growing revenue.

[We use] universal administrative business-to-business transaction data based on value-added tax links from Belgium (2002-2023) to document the nature of consulting engagements, take-up patterns, and the effects on client firms. Consulting take-up is concentrated among large, high-labor-productivity firms. For TFP and profitability, we find a U-shaped pattern: both high and low performers hire consultants. New clients spend on average 3% of payroll on consulting, typically in episodic engagements lasting less than one year. Using difference-in-differences designs exploiting these sharp consulting events, we find positive effects on labor productivity of 3.6% over five years, driven by modest employment reductions alongside stable or growing revenue. Average wages rise by 2.7% with no decline in labor’s share of value added. Our heterogeneity analysis reveals larger productivity gains for initially less productive firms, suggesting improvements in allocative efficiency, validating the productivity-enhancing view of consulting,while lending less support to a rent-shifting view favored by many economists.

Takeaways by Macro Roundup® AI

  1. Using Belgian VAT-linked business-to-business transaction data for 2002–2023 and difference-in-differences designs, the authors estimate that consulting engagements raise client firms' labor productivity by 3.6% over five years, driven by modest employment reductions alongside stable or growing revenue.
  2. Average wages at Belgian firms that take up consulting rise 2.7% with no decline in labor's share of value added, and new clients spend on average 3% of payroll on consulting in episodic engagements typically lasting under one year.
  3. Consulting take-up is concentrated among large, high-labor-productivity Belgian firms and follows a U-shaped pattern in TFP and profitability, with larger productivity gains for initially less productive firms, which the authors suggest indicates improvements in allocative efficiency.

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AI Summary. China's $167bn hydropower project on the Yarlung Tsangpo river in Tibet, where the river drops more than 2,000 meters over a 50-kilometer stretch, has a potential capacity as high as 70 gigawatts. That could generate 300 terawatt-hours a year, roughly equal to the UK's total annual electricity use.

Bloomberg Staff Bloomberg
Date Posted:

Construction has started on a $167B (2.2% of China’s 2024 GDP) Yarlung Tsangpo river dam. The project could generate ~ 300 terawatt-hours a year or about the UK’s total annual electricity use and increase GDP by 0.1–0.2 pp.

Can a single hydropower project generate as much electricity as Britain uses?

Core argument: China's $167 billion hydropower project on the Yarlung Tsangpo has a potential capacity as high as 70 gigawatts and could generate 300 terawatt-hours a year, roughly the UK's total annual electricity use.

The Yarlung Tsangpo flows from the melting glaciers of the Tibetan Plateau, cutting a sharp U-turn around Namcha Barwa, the highest peak in Nyingchi prefecture, before plunging more than 2,000 meters (1.2 miles) over a 50-kilometer stretch — forming one of the world’s deepest canyons and an irresistible source of hydropower potential. The hydropower project, with a potential capacity as high as 70 gigawatts, could generate 300 terawatt-hours a year — roughly the UK’s total annual electricity use.

Takeaways by Macro Roundup® AI

  1. China's $167 billion hydropower project on the Yarlung Tsangpo has a potential capacity as high as 70 gigawatts and could generate 300 terawatt-hours a year, roughly the UK's total annual electricity use.
  2. The Yarlung Tsangpo, fed by melting glaciers on the Tibetan Plateau, drops more than 2,000 meters over a 50-kilometer stretch around Namcha Barwa, the highest peak in Nyingchi prefecture, forming one of the world's deepest canyons.
  3. Xi Jinping has tied his legacy and China's economy to the $167 billion dam.

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AI Summary. The U.S. is building a strategy around dispersed, mobile land-based missile launchers that can operate in island environments while still inflicting heavy damage on an adversary. Australia is buying 42 Himars launchers from the U.S. and jointly developing the Precision Strike Missile, which it could eventually manufacture domestically alongside U.S. production lines.

Mike Cherney Wall Street Journal
Date Posted:

The US’s new precision strike missile will enable American or Australian Himar platforms to hit moving targets at sea at a range of 310 miles. The system would complicate a contested Chinese invasion or blockade of Taiwan.

Can dispersed mobile missile launchers strengthen deterrence in island environments?

Core argument: Australia is buying 42 Himars launchers from the U.S. and is partnering with Washington to develop the Precision Strike Missile, and could eventually produce PrSMs domestically to augment U.S. manufacturing lines.

The U.S. wants its units to be more nimble, more widely dispersedand more capable of operating in island environments, making them harder to find but still capable of inflicting heavy damage on an adversary. Land-based, mobile missile launchers are important to the strategy. Earlier in July, the U.S. fired its Typhon missile system in Australia—which can shoot Tomahawk missiles and the Standard Missile 6—for the first time in the region. Another U.S. missile system, called Nmesis, features an antiship missile launcher mounted on a remote-control truck. Australia is buying 42 Himars launchers from the U.S., and is also joining with Washington to develop the PrSM. Eventually, Australia could make PrSMs domestically, augmenting U.S. manufacturing lines.

Takeaways by Macro Roundup® AI

  1. Australia is buying 42 Himars launchers from the U.S. and is partnering with Washington to develop the Precision Strike Missile, and could eventually produce PrSMs domestically to augment U.S. manufacturing lines.
  2. The U.S. seeks units that are more nimble, more widely dispersed and capable of operating in island environments, harder to find but still able to inflict heavy damage on an adversary, with land-based mobile missile launchers important to the strategy.
  3. The U.S. fired its Typhon missile system, which can shoot Tomahawk missiles and the Standard Missile 6, in Australia for the first time in the region, while a separate system, Nmesis, mounts an antiship missile launcher on a remote-control truck.

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