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


Monday, August 11, 2025

AI Summary. Unemployment has risen by 0.30 percentage points for the fifth of workers most exposed to artificial intelligence, compared with 0.94 percentage points for the least exposed fifth, leaving no visible AI effect on jobs. The share of workers leaving the labor force within a year is lowest among the most AI-exposed workers and roughly flat.

Sarah Eckhardt and Nathan Goldschlag Economic Innovation Group
Date Posted:
Is Database:
Database
Is Important:
Important

The unemployment rate for the quintile of workers most exposed to AI rose 0.30pp between 2022 and early 2025, but for the least-exposed quintile it climbed 0.94pp. “By the most obvious measures, the effect of AI on jobs is invisible.”

Is there any visible effect of AI on employment?

Core argument: Between 2022 and the beginning of 2025, the unemployment rate for the quintile of workers most exposed to AI rose 0.30 percentage points, versus 0.94 percentage points for the least exposed quintile, with the other three quintiles also rising.

Btw 2022 and the beginning of 2025 the unemployment rate for the quintile of the most exposed workers rose by 0.30 percentage points. For the quintile of the least exposed workers, it climbed by 0.94 percentage points. The unemployment rate also climbed during this period for the other three quintiles [Figure 1]. By the most obvious measure, then, the effect of AI on jobs is invisible. But what about less obvious measures? In Figure 2 we widen our lens, showing the percent of workers exiting the labor force by AI-exposure groups. Specifically, for each worker in a given AI-exposure group, we look at the probability that the worker is not in the labor force a year later. Once again the disruptive effect of AI fails to appear. Highly exposed workers aren’t running for the exits and, in fact, the share exiting the labor force is actually the lowest for the most AI-exposed workers, and has been roughly flat since 2022.

Takeaways by Macro Roundup® AI

  1. Between 2022 and the beginning of 2025, the unemployment rate for the quintile of workers most exposed to AI rose 0.30 percentage points, versus 0.94 percentage points for the least exposed quintile, with the other three quintiles also rising.
  2. By the most obvious measure, unemployment by AI-exposure quintile, the effect of AI on jobs is invisible.
  3. The share of workers not in the labor force a year later is lowest for the most AI-exposed workers and has been roughly flat since 2022.

Related Articles:

  • AI Is Wrecking an Already Fragile Job Market for College Graduates — 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%.
  • 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.
  • The Kanye/Data Center Crossover — Data center capital spending differs from fiber and railroad investment because most of the cost sits in processors that are replaced every 3-4 years rather than in long-lived shells, power, and cooling connections. That short replacement cycle requires returns high enough to exceed a risk-adjusted cost of capital of 12-14% before the hardware must be replaced.

AI Summary. The US imports roughly 40% of the goods it consumes, directly and through imported inputs, with labor-intensive goods like apparel almost entirely imported. The authors argue America's main comparative disadvantage is its cost of production, driven mainly by labor costs, with real estate costs and a strong dollar also contributing.

Danny DeBois, Aidan Madigan-Curtis, Kate Dunbar and Kenza Wilks Bridgewater Associates
Date Posted:
Is Database:
Database
Is Important:
Important

Bridgewater estimates that closing the ~$3T gap btw US manufacturing output and goods consumption will be an uphill battle. Largely due to manufacturing wages 7x that of China, the “US’s biggest comparative disadvantage is its cost of production.”

What holds back US manufacturing competitiveness against foreign producers?

Core argument: The US imports roughly 40% of the goods it consumes, both directly and indirectly through domestic manufacturers' use of imported inputs.

The US imports roughly 40% of the goods it consumes, both directly and indirectly through domestic manufacturers’ use of imported inputs. Certain goods consumption in the US, like apparel, is almost entirely imported, as labor is a large share of the total cost, and these goods can be produced much more cheaply outside the US. Tariffs on these kinds of goods are especially likely to be passed on to the consumer, given the lack of any viable competition from domestic producers any time soon. The US’s biggest comparative disadvantage is its cost of production. Globalization facilitated the offshoring of manufacturing in the US toward economies with much cheaper costs of production, particularly for goods with relatively low manufacturing value added that are also easy to ship internationally. Though US labor costs are the predominant driver of this cost differential, higher real estate costs also play a role. Energy prices, meanwhile, are a modest support. A secularly strong dollar has also effectively raised the cost of US-produced goods relative to foreign-produced goods and contributed to the decline of US manufacturing competitiveness.

Takeaways by Macro Roundup® AI

  1. The US imports roughly 40% of the goods it consumes, both directly and indirectly through domestic manufacturers' use of imported inputs.
  2. The US's biggest comparative disadvantage in manufacturing is its cost of production, driven predominantly by labor costs with higher real estate costs also contributing, while energy prices offer a modest support.
  3. Tariffs on goods like apparel, where US consumption is almost entirely imported because labor is a large share of total cost, are especially likely to be passed on to consumers given the absence of viable domestic competition.

Related Articles:

  • Why Is Manufacturing Productivity Growth So Low? — Manufacturing productivity growth fell behind other sectors after computer and semiconductor manufacturing productivity, which had grown at roughly 15% and 11% a year, decelerated substantially. The authors also present suggestive evidence that quality improvements are missed in price measures, estimating manufacturing productivity growth is understated by 0.8 percentage points, including 1.7 points for durable goods.
  • The Mysterious Slowdown in U.S. Manufacturing Productivity — US manufacturing labor productivity growth slowed broadly after the Great Recession, with the four largest firms in each industry averaging –0.5% growth from 2010 to 2022 versus 3.7% from 1987 to 2007, and smaller follower firms showing an identical 4.2 percentage-point decline. The authors find the slowdown spans all industries and firm sizes.
  • 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. The authors argue the United States is a decade away from the scale of automated "lights-out" manufacturing needed to meet its own end-to-end demand at comparable cost. With 98% of US manufacturers being small or medium enterprises, low deployment of mature productivity technologies reflects limited commercial adoption and investment rather than technical readiness.

Danny DeBois, Aidan Madigan-Curtis, Kate Dunbar and Kenza Wilks Bridgewater Associates
Date Posted:
Is Database:
Database
Is Important:
Important

98% of manufacturers in the US are small-to-medium enterprises that are relatively underpenetrated by advanced technologies, including robots, additive manufacturing, and embodied AI, posing headwinds to rapid increases in US manufacturing productivity.

What limits automation adoption in US manufacturing?

Core argument: 98% of US manufacturers are small-to-medium enterprises that remain relatively underpenetrated by the technologies capable of driving significant growth in manufacturing productivity.

The United States is a decade away from the scale and scope of “lights-out” manufacturing that could enable it to rival the rest of the world’s manufacturing output to satisfy the US’s own end-to-end demand, at a similar or lesser cost. While the current scale and impact of advanced technologies in American industrial production is low outside of low-volume defense manufacturing, several key technological advances are having a positive impact on US industrial productivity. Unfortunately, 98% of manufacturers in the United States are small-to-medium enterprises and are relatively underpenetrated by technologies capable of driving significant growth in manufacturing productivity. Essentially, the low levels of deployment of these increasingly mature technologies in the US today are limited not by technical readiness or maturity, but by commercial adoption and willingness to invest in advanced capabilities and improved manufacturing throughput.

Takeaways by Macro Roundup® AI

  1. 98% of US manufacturers are small-to-medium enterprises that remain relatively underpenetrated by the technologies capable of driving significant growth in manufacturing productivity.
  2. The United States is a decade away from the scale and scope of "lights-out" manufacturing that could rival the rest of the world's output in satisfying US end-to-end demand at similar or lesser cost.
  3. Low deployment of increasingly mature manufacturing technologies in the US is limited by commercial adoption and willingness to invest in advanced capabilities and improved throughput, not by technical readiness or maturity.

Related Articles:

  • America Is Missing The New Labor Economy – Robotics Part 1 — Building an identical robotic arm in the US costs about 2.2x more than in China, and US-labeled components still depend heavily on Chinese parts and materials with no scalable alternative. The author argues China is the only country positioned to capture full-scale intelligent robotic automation, which would let it outcompete the US across production.
  • Global Robot Density in Factories Doubled in Seven Years — Global factory robot density reached a record 162 robots per 10,000 manufacturing employees, more than double the level of seven years earlier. The European Union averages 219 units per 10,000 employees, North America 197, and Asia 182, with Korea, Singapore, mainland China and Japan among the ten most automated economies.
  • How AI & Robots are Smashing Economics, and Why It Matters — As artificial intelligence and robots make wages less responsive to employment conditions, the link between tight labor markets and inflation weakens, undermining central banks' inflation-targeting frameworks. The author argues central banks would then need far larger interest-rate moves to achieve the same effect, producing more volatile and less predictable outcomes.

AI Summary. Interest rate futures price about 130 basis points of Federal Reserve rate cuts through the end of next year, versus no cuts expected from the European Central Bank and 50 and 70 basis points for the Bank of England and Reserve Bank of Australia. Possible explanations include tariff-driven US recession risk, the Fed's slower easing so far, and political pressure.

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

Markets have priced in five 25bp cuts for the Fed but no cuts for the ECB through the end of 2026. This may reflect the 200bp ECB cuts that have already occurred or concerns about a US slowdown.

Do expected interest rate cuts explain the dollar's decline?

Core argument: Interest rate futures priced 130 basis points of Fed cuts through the end of next year, slightly more than five 25 basis point cuts, versus an ECB expected to stay on hold.

[The chart] uses interest rate futures to calculate how much markets expect key central banks to cut their policy rates through the end of next year. As of Friday, markets priced 130 basis points in cuts for the Fed (so slightly more than five 25 basis point cuts) in contrast to an ECB that’s expected to be on hold. Only the Bank of England (GB) and Reserve Bank of Australia (AU) come close in the eyes of the market, with 50 and 70 basis points priced, respectively. Why are market pricing so many more cuts for the Fed? I can think of three possible reasons. The first is that they think tariffs will boomerang on the US, forcing the Fed to cut aggressively as recession risk mounts and holds down any inflation impulse from tariffs. The second is that the Fed last cut in December of last year while other central banks kept cutting. For example, the ECB has already made four 25bp cuts this year, bringing this easing cycle to 200 basis points, double that of the Fed. The third is that markets price aggressive Fed easing not because of economic fundamentals but because of mounting political pressure.

Takeaways by Macro Roundup® AI

  1. Interest rate futures priced 130 basis points of Fed cuts through the end of next year, slightly more than five 25 basis point cuts, versus an ECB expected to stay on hold.
  2. The Bank of England and Reserve Bank of Australia come closest to the Fed in market-priced easing, with 50 and 70 basis points of cuts respectively.
  3. Three possible explanations for the Fed's larger priced easing are tariffs boomeranging on the US as recession risk mounts, the Fed's pause since last December while the ECB cut 200 basis points this cycle, and mounting political pressure.

Related Articles:

  • Explaining the US Dollar’s Depreciation in the First Half of 2025 — The dollar depreciated by more than interest-rate differentials alone would predict, and regression analysis attributes the gap to the trade war and economic policy uncertainty, including foreign investors' concerns about proposed taxes on foreign holders of US assets and a possible currency accord. The author expects the dollar to appreciate as these uncertainties resolve.
  • Dollar Positioning — The dollar is having its worst year since 1973, and the author argues that persistent large fiscal deficits and challenges to Federal Reserve independence imply significant further downside for a currency still trading above historical averages. Foreign investors hold very large dollar asset exposure, so a shift from currency hedging to outright selling could spur a self-reinforcing cycle of declines.
  • A Trump Risk Premium in the Dollar — Movements in the trade-weighted US dollar against other major currencies map almost entirely onto changes in forward interest-rate differentials, with the same positive relationship holding across periods despite noisier data. The author argues this leaves no discernible evidence of a separate political risk premium in the dollar.

AI Summary. The US government negotiated an arrangement taking 15% of Nvidia's Chinese sales of its H20 artificial intelligence processor, a chip with performance restricted relative to versions sold to US customers. The administration said it would consider allowing Nvidia to sell China more advanced chips based on its newer Blackwell platform.

Michael Acton, Demetri Sevastopulo, Tim Bradshaw and Myles McCormick Financial Times
Date Posted:

In exchange for export licences to export H20 chips to China which had been previously banned by US export controls, Nvidia, as well as AMD, will turn 15% of their revenue from China sales over to the US government.

Will the US permit advanced AI chip sales to China?

Core argument: Trump confirmed an unprecedented deal with Nvidia CEO Jensen Huang giving the US government 15% of Nvidia's Chinese sales of its H20 processor.

Donald Trump said he will consider allowing Nvidia sell a more advanced artificial intelligence chip in China, after confirming he “negotiated a little deal” to give Washington a share of the chipmaker’s revenues from the country. The unprecedented deal Trump struck with Nvidia’s chief executive Jensen Huang [involves] the US taking 15% of Chinese sales of its H20 processor, which it introduced in 2023 to comply with Biden-era controls on AI chips. The performance of the H20 chips sold to China is restricted compared with those available to US customers. The H20 is based on Nvidia’s older Hopper architecture but Trump on Monday said that he planned to discuss a new deal with Huang to allow it to sell chips to China based on its latest Blackwell platform.

Takeaways by Macro Roundup® AI

  1. Trump confirmed an unprecedented deal with Nvidia CEO Jensen Huang giving the US government 15% of Nvidia's Chinese sales of its H20 processor.
  2. Nvidia introduced the H20 in 2023 to comply with Biden-era AI chip controls, and its performance is restricted relative to chips sold to US customers.
  3. Trump said he plans to discuss a new deal with Huang to allow Nvidia to sell China chips based on its latest Blackwell platform, rather than the older Hopper architecture underlying the H20.

Related Articles:

  • 2025 AI Diffusion Export Controls – Microsoft Regulatory Capture, Oracle Tears, Impacts Quantified, Model Restrictions — The US Framework for Artificial Intelligence Diffusion imposes export restrictions aimed at preventing China from accessing the computing power needed to build frontier AI models. It sorts the world into three tiers — the US and 18 allies, 23 arms-embargoed nations plus Macau, and all other countries — with differing access to AI chips and caps on graphics processor purchases.
  • China’s AI Industry Has Almost Caught Up With America’s — Chinese developer DeepSeek trained its V3 large language model using fewer than 3m chip-hours at an estimated cost under $6m—roughly a tenth of the computing power and expense of Meta's Llama 3.1—through a series of marginal efficiency improvements rather than one breakthrough. The model was trained on chips constrained by American export sanctions.

AI Summary. China is seeking relief from US semiconductor export controls as part of a trade deal, and people familiar with the matter say Beijing is more concerned about restrictions on high-bandwidth memory chips than about the H20 chip Nvidia designed for the Chinese market. Those memory controls constrain Chinese companies' ability to develop their own AI chips.

Demetri Sevastopulo Financial Times
Date Posted:

In exchange for a trade deal, China wants American export controls on high-bandwidth memory (HBM) chips, key components for AI chips, relaxed. The chips would allow Huawei to manufacture AI chips that are more competitive with Nvidia’s.

Which chip export controls does Beijing most want lifted?

Core argument: China is pressing the US to relax chip export controls as part of a trade deal, after Biden in 2022 unveiled measures to damage Chinese efforts to buy or make advanced AI chips.

Beijing has been frustrated at US export controls since Biden in 2022 unveiled measures to damage Chinese efforts to buy or make advanced AI chips. In 2024, he banned HBM exports to China to hamper Huawei and Semiconductor Manufacturing International Corporation (SMIC), a Chinese chipmaker. The recent focus on export controls to China has been on the H20 chip Nvidia designed for the Chinese market after Biden banned the export of more advanced chips. The US approved H20 export licences on Friday after Nvidia CEO Jensen Huang met Trump. But people familiar with the matter said China is much more worried about HBM controls because they seriously constrain the ability of Chinese companies, including Huawei, to develop their own AI chips.

Takeaways by Macro Roundup® AI

  1. China is pressing the US to relax chip export controls as part of a trade deal, after Biden in 2022 unveiled measures to damage Chinese efforts to buy or make advanced AI chips.
  2. People familiar with the matter say China is far more worried about the 2024 ban on HBM exports, which seriously constrains the ability of Chinese companies including Huawei to develop their own AI chips.
  3. The US approved export licences for Nvidia's H20 chip, designed for the Chinese market after Biden banned exports of more advanced chips, following a meeting between Nvidia CEO Jensen Huang and Trump.

Related Articles:

  • Donald Trump Freezes Export Controls To Secure Trade Deal With China — The US Bureau of Industry and Security, which administers export controls, has been instructed to avoid tough measures against China, according to current and former US officials. Officials cite the risk that China retaliates by restricting exports of critical rare earths and magnets to the US, as it has previously done.
  • 2025 AI Diffusion Export Controls – Microsoft Regulatory Capture, Oracle Tears, Impacts Quantified, Model Restrictions — The US Framework for Artificial Intelligence Diffusion imposes export restrictions aimed at preventing China from accessing the computing power needed to build frontier AI models. It sorts the world into three tiers — the US and 18 allies, 23 arms-embargoed nations plus Macau, and all other countries — with differing access to AI chips and caps on graphics processor purchases.
  • Chinese Companies Resort To Repurposing Nvidia Gaming Chips For AI — Chinese firms are developing artificial intelligence tools using processors stripped from Nvidia consumer gaming graphics cards and remounted on new circuit boards, after US export controls blocked sales of high-performance chips. Industry experts describe the practice as a rough workaround for China's shortage of high-end processors.

Tuesday, August 12, 2025

AI Summary. Proprietary flow tracking shows foreign bond flows into US assets, an outlier low in one month, have substantially normalized, suggesting an allocation shift away from dollar assets may have peaked. The authors argue traditional fundamentals, such as the US business cycle and Federal Reserve policy, will matter more for any further dollar weakness.

Jens Nordvig Money: Inside and Out
Date Posted:

The shift out of dollar assets has likely peaked, but inflows are unlikely to return to the 2017–2024 mean of 43% of cross-border equity flows. Relative bond flows based on proxy flows from mutual funds and ETFs have “substantially normalized.”

Have foreigners stopped shifting their allocations away from dollar assets?

Core argument: US bond flows were a complete outlier in April, but proprietary tracking of mutual fund and ETF proxy flows shows relative bond flows substantially normalized over May–July.

US bond flows looked very bad and were a complete outlier in April. But as our proprietary tracking shows, the relative bond flows are substantially normalized in May-July, based on proxy flows from mutual funds and ETFs. All told, 2025 has seen an important USD asset allocation shift, and serious question marks around the USD bull trend that has been in place for most of the past 10-11 years have appeared. But precise and holistic flow analysis also indicates that the allocation shift may have peaked and that the force from this factor will be less dominant in H2 compared to H1 2025. This does not mean that the USD is necessarily set for recovery. But it does mean that traditional fundamentals, such as the cyclical state of the US economy (and relatedly Fed policy) will play a bigger role in facilitating potential further USD weakness.

Takeaways by Macro Roundup® AI

  1. US bond flows were a complete outlier in April, but proprietary tracking of mutual fund and ETF proxy flows shows relative bond flows substantially normalized over May–July.
  2. The authors argue 2025 has brought an important USD asset allocation shift that raises serious question marks around the USD bull trend in place for most of the past 10–11 years.
  3. Flow analysis indicates the USD allocation shift may have peaked and will be less dominant in H2 than in H1 2025, leaving traditional fundamentals such as the cyclical state of the US economy and Fed policy a bigger role in any further USD weakness.

Related Articles:

  • 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.
  • Asia’s $7.5 Trillion Bet on US Assets Is Suddenly Unravelling — Asia's 11 largest economies have accumulated $7.5tn in US stocks and bonds, but their annual capital flows into the US fell to $68bn, equal to just 11% of their trade surpluses with the US. Their major currencies, including the yen and yuan, trade on average 57% below exchange rates adjusted for living-cost differences.
  • The US Trade Deficit and Foreign Borrowing — The authors argue US trade deficits persist because foreign investors find US financial assets attractive, but the current deficit level is not sustainable. They estimate that stabilizing the US net foreign liability position requires improving the trade balance by about 2% of GDP, or over 3% if low-cost borrowing privileges are lost.

AI Summary. Wage growth for the bottom quarter of US earners was 3.7%, around the lowest since 2017, versus 4.7% for the top quarter, according to the Federal Reserve Bank of Atlanta. Bank of America customer data show after-tax pay up 1.6% year-over-year for the bottom third of households versus 2.9% for the top third.

Justin Lahart Wall Street Journal
Date Posted:
Is Database:
Database

Wage growth of the bottom quartile of American workers slowed to a 3.7% annual rate in June, below that of the top quartile, whose wages grew 4.7%. Since 2015, wage growth for the bottom quartile has generally outpaced that of their higher-earning peers.

Are low-paid workers now seeing slower wage growth than high earners?

Core argument: Wage growth for the bottom quarter of earners was 3.7% as of July, around the lowest since 2017, versus 4.7% for the top quarter, according to the Atlanta Fed.

As of July, wage growth at the bottom quarter was 3.7% according to the Atlanta Fed, around the lowest since 2017. For the top quarter, it was 4.7%. A Bank of America Institute analysis of BofA customer data tells a similar story. It shows that after-tax wages and salaries for households at the bottom third by income were up 1.6% this June from a year earlier, versus 2.9% for households in the top third. As recently as December, the BofA data showed wage growth for lower-income households was outpacing high-income wage growth.

Takeaways by Macro Roundup® AI

  1. Wage growth for the bottom quarter of earners was 3.7% as of July, around the lowest since 2017, versus 4.7% for the top quarter, according to the Atlanta Fed.
  2. Bank of America Institute data show after-tax wages and salaries for households in the bottom third by income rose 1.6% in June from a year earlier, compared with 2.9% for the top third.
  3. The Bank of America data showed wage growth for lower-income households outpacing that of high-income households as recently as December.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — Labor market tightness produced an unexpected compression in the US wage distribution, with disproportionate wage growth at the bottom reducing the college wage premium and reversing nearly 40% of the rise in 90-10 wage inequality since 1980. The authors attribute this in part to increased competition for low-wage workers.
  • AI and Jobs: The Final Word (Until the Next One) — Unemployment has risen by 0.30 percentage points for the fifth of workers most exposed to artificial intelligence, compared with 0.94 percentage points for the least exposed fifth, leaving no visible AI effect on jobs. The share of workers leaving the labor force within a year is lowest among the most AI-exposed workers and roughly flat.
  • 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. Slowing wage growth suggests labor market weakness reflects weaker labor demand rather than a shortage of workers, since reduced immigration would push wages up even as job growth slowed. Real consumer spending has plateaued, and tariffs now taking effect are expected to further reduce corporate profits and consumer incomes.

Joseph Wang Fed Guy Blog
Date Posted:

Deceleration in wage growth suggests recent labor market weakness is being driven “primarily” by lower labor demand; this and reductions in corporate profits and consumer incomes due to tariffs could shift the FOMC’s base case from 2 to 3 cuts this year.

Does slowing wage growth signal weaker labor demand rather than worker shortages?

Core argument: Decelerating wage growth suggests labor market weakness stems primarily from lower labor demand rather than a labor shortage, since reduced illegal immigration would push wages up even as job growth slowed.

The deceleration in wage growth suggests labor market weakness is driven primarily by lower labor demand. If there were a labor shortage from lower illegal immigration, then wages would increase even as growth in jobs numbers slows. Real consumer spending plateaued since the beginning of the year, even before changes in tariff and immigration policy. A new dovish member A new dovish member on the FOMC could shift the base case from two cuts this year to three cuts, but there has already been a notable loss in economic momentum. A new dovish member on the FOMC could shift the base case from two cuts this year to three cuts, but there has already been a notable loss in economic momentum. The full tariffs are just coming into effect this month and will further reduce corporate profits and consumer incomes. Future weakness in economic data could end up being more persuasive than any number of Fed doves.

Takeaways by Macro Roundup® AI

  1. Decelerating wage growth suggests labor market weakness stems primarily from lower labor demand rather than a labor shortage, since reduced illegal immigration would push wages up even as job growth slowed.
  2. Real consumer spending has plateaued since the start of the year, before changes in tariff and immigration policy took effect.
  3. Full tariffs coming into effect this month will further reduce corporate profits and consumer incomes, while a new dovish FOMC member could shift the base case from two cuts this year to three.

Related Articles:

  • The Job Market Is Strong, Inflation Is Too Fast, and the Government Is Bananas — The inflation measure preferred by Federal Reserve officials has risen faster in 2025 than in 2024 or 2023, with no progress since late 2022. A "supercore" measure stripping out volatile components is running nearly 2 percentage points above its pre-pandemic average, driven by accelerating goods prices excluding energy, groceries, and vehicles.
  • Goods Inflation And The Tariffs — Tariff pass-through to consumer goods prices has varied widely by category, with household appliances and household supplies passing on nearly all or more than the estimated tariff cost while clothing, new cars, and telephone equipment show minimal or negative price effects. Across 19 products the authors estimate about 50% pass-through to consumption goods prices.
  • The Tariff Shock to US Inflation Is Massive — Tariff-driven inflation is now showing up in furnishings and recreational goods—two heavily China-imported categories making up 25% of "core" goods in US inflation baskets—with monthly inflation running 100–120 basis points above seasonal norms. The author argues this impulse is large enough that the Federal Reserve may not cut rates at all.

AI Summary. Using US Census Bureau micro-data on manufacturing, the authors estimate that both the output elasticity of research and development and its marginal returns have risen, alongside rising technological rivalry and obsolescence. They conclude ideas are not getting harder to find, but innovations are more transient, so rising R&D need not raise aggregate productivity growth.

Yoshiki Ando, James Bessen and Xiupeng Wang Social Science Research Network
Date Posted:
Is Database:
Database
Is Important:
Important

Low productivity growth in the US manufacturing sector btw 1976 and 2018 was due to “rising technological rivalry” that “render[ed] rivals’ technologies obsolete and innovations more transient.”

Are ideas getting harder to find, or just more transient?

Core argument: Using US Census Bureau micro-data on manufacturing from 1976 to 2018, the authors find that both the elasticity of total factor productivity with respect to R&D and the marginal returns to R&D have risen sharply.

R&D investment has grown robustly, yet aggregate productivity growth has stagnated. Is this because “ideas are getting harder to find”? This paper uses micro-data from the US Census Bureau to explore the relationship between R&D and productivity in the manufacturing sector from 1976 to 2018. We find that both the elasticity of output (TFP) with respect to R&D and the marginal returns to R&D have risen sharply. Exploring factors affecting returns, we conclude that R&D obsolescence rates must have risen. Using a novel estimation approach, we find consistent evidence of sharply rising technological rivalry and obsolescence. These findings suggest that R&D has become more effective at finding productivity-enhancing ideas, but these ideas may also render rivals’ technologies obsolete, making innovations more transient. Because of obsolescence, rising R&D does not necessarily mean rising aggregate productivity growth. [Flagged by Tyler Cowen].

Takeaways by Macro Roundup® AI

  1. Using US Census Bureau micro-data on manufacturing from 1976 to 2018, the authors find that both the elasticity of total factor productivity with respect to R&D and the marginal returns to R&D have risen sharply.
  2. The authors conclude that R&D obsolescence rates must have risen, and using a novel estimation approach find consistent evidence of sharply rising technological rivalry and obsolescence.
  3. The authors argue that R&D has become more effective at finding productivity-enhancing ideas, but that such ideas may render rivals' technologies obsolete, so rising R&D does not necessarily mean rising aggregate productivity growth.

Related Articles:

  • The R&D Puzzle in U.S. Manufacturing Productivity Growth — Research and development spending in U.S. manufacturing has been rising relative to output and hours worked while productivity has been flat, which suggests the ability of research and development to boost productivity growth has been declining.
  • Are Ideas Getting Harder to Find? — The authors estimate U.S. research productivity has fallen by a factor of 41 since the 1930s, averaging declines above 5% per year across sectors. Sustaining constant growth in output per person requires doubling research effort every 13 years, challenging growth models that assume constant research productivity.
  • Something Is Getting Harder But It’s Not Finding Ideas — The number of researchers in the US economy has grown to 23x its 1930 level while the economy's growth rate has been constant or declining, contradicting the assumption that constant research input yields a constant growth rate. Bloom et al. explain this divergence by assuming ideas get harder to find as more are discovered.

AI Summary. Chinese authorities have sent notices discouraging domestic firms from using Nvidia's less-advanced H20 processors, with especially strong guidance against their use in government or national security work, though the letters stop short of an outright ban. The guidance complicates Nvidia's efforts to recover billions in lost China revenue after the US reversed an effective ban on such sales.

Mackenzie Hawkins and Ian King Bloomberg
Date Posted:

On the heels of the Trump administration’s reversal of the US export controls on H20 chip exports, Beijing is urging domestic firms to avoid purchases of Nvidia H20 chips.

Is China discouraging domestic firms from buying US AI chips?

Core argument: Chinese authorities have sent notices to a range of local firms discouraging use of Nvidia's H20 processors, complicating Nvidia's attempt to recoup billions in lost China revenue after the Trump administration reversed an effective US ban on such sales.

Beijing has urged local companies to avoid using processors, particularly for government-related purposes, complicating the chipmaker’s attempts to recoup billions in lost China revenue after the Trump administration reversed an effective US ban on such sales. Over the past few weeks, Chinese authorities have sent notices to a range of firms discouraging use of the less-advanced semiconductors, people familiar with the matter said, asking not to be named discussing sensitive information. The guidance was particularly strong against the use of H20s for any government or national security-related work by state enterprises or private companies, the people said. The letters did not, however, constitute an outright ban on H20 use, according to the people. Industry analysts broadly agree that Chinese companies still covet those chips, which perform quite well in certain crucial AI applications.

Takeaways by Macro Roundup® AI

  1. Chinese authorities have sent notices to a range of local firms discouraging use of Nvidia's H20 processors, complicating Nvidia's attempt to recoup billions in lost China revenue after the Trump administration reversed an effective US ban on such sales.
  2. Beijing's guidance was particularly strong against using H20 chips for government or national security-related work by state enterprises or private companies, though the letters did not constitute an outright ban, according to people familiar with the matter.
  3. Industry analysts broadly agree that Chinese companies still covet the less-advanced H20 chips, which perform quite well in certain crucial AI applications.

Related Articles:

  • Trump Opens Door To Nvidia Selling Advanced AI Chips to China For A Fee — The US government negotiated an arrangement taking 15% of Nvidia's Chinese sales of its H20 artificial intelligence processor, a chip with performance restricted relative to versions sold to US customers. The administration said it would consider allowing Nvidia to sell China more advanced chips based on its newer Blackwell platform.
  • China Wants US To Relax Export Controls On Chips As Part Of Trade Deal — China is seeking relief from US semiconductor export controls as part of a trade deal, and people familiar with the matter say Beijing is more concerned about restrictions on high-bandwidth memory chips than about the H20 chip Nvidia designed for the Chinese market. Those memory controls constrain Chinese companies' ability to develop their own AI chips.
  • 2025 AI Diffusion Export Controls – Microsoft Regulatory Capture, Oracle Tears, Impacts Quantified, Model Restrictions — The US Framework for Artificial Intelligence Diffusion imposes export restrictions aimed at preventing China from accessing the computing power needed to build frontier AI models. It sorts the world into three tiers — the US and 18 allies, 23 arms-embargoed nations plus Macau, and all other countries — with differing access to AI chips and caps on graphics processor purchases.

AI Summary. China's leaders cite security concerns, including suspicion of hidden back doors in US-designed chips, as a rationale for their drive toward chip self-sufficiency. The dilemma extends beyond chips: US intelligence reportedly found extra modems on Chinese-made port cranes, and the US has banned Chinese components from connected auto systems.

Chris Miller Financial Times
Date Posted:

Chinese concerns over Nvidia’s H20 chips are not new. Chris Miller notes, “Beijing no doubt has always suspected that US-designed chips have deliberate back doors,” which had long motivated their drive for chip self-sufficiency.

Do security fears about foreign chips drive both countries toward self-sufficiency?

Core argument: Beijing suspects US-designed chips contain deliberate back doors, and while no public evidence supports this, past chips have been found to have apparently accidental design flaws that unmasked encryption.

Beijing no doubt has always suspected that US-designed chips have deliberate back doors, though there is no public evidence for this. We do, however, know plenty from the public domain about apparently accidental design flaws in past chips that were discovered to have unmasked encryption. China’s leaders cite security as a key rationale for their decade-long drive for chip self-sufficiency. Yet this dilemma is not unique to China or even to chips: it is the result of increasing connectivity in all sorts of complex machines. Washington had a kill-switch crisis of its own last year, when US intelligence reportedly found extra modems on the Chinese-made cranes that move containers from ship to shore in US ports. If every ship crane could be shut down from Beijing, the US logistics system would grind to a halt. Similar fears have led the US to ban Chinese components from connected auto systems.

Takeaways by Macro Roundup® AI

  1. Beijing suspects US-designed chips contain deliberate back doors, and while no public evidence supports this, past chips have been found to have apparently accidental design flaws that unmasked encryption.
  2. China's leaders cite security as a key rationale for their decade-long drive for chip self-sufficiency, a dilemma that stems from increasing connectivity in all sorts of complex machines rather than chips alone.
  3. US intelligence reportedly found extra modems on Chinese-made ship-to-shore container cranes in US ports, raising the prospect that Beijing could halt US logistics, and similar fears prompted a US ban on Chinese components in connected auto systems.

Related Articles:

  • China Intensifies Push to ‘Delete America’ From Its Technology — A Chinese government directive requires state-owned companies in finance, energy, and other sectors to replace foreign software in their information technology systems by 2027, part of a broader push to remove U.S. technology. Hardware makers were targeted first, with Dell, IBM, and Cisco equipment gradually replaced by Chinese products.
  • The Year-End Wake-Up: The ‘Chinese Sputnik’ That Demands Our Attention — Chinese AI company DeepSeek trained its Version 3 large language model for roughly $5.6m, about 100x cheaper than Meta's Llama 3, with performance comparable to Claude 3.5 Sonnet and interface access costing 12x less than Anthropic's. The author argues US chip export controls backfired by spurring leaner engineering, and that the gap between open-source and closed-source models is narrowing rapidly.
  • Huawei Readies New Chip to Challenge Nvidia, Surmounting U.S. — Huawei is close to introducing a new artificial intelligence chip, the Ascend 910C, which Chinese internet companies and telecommunications operators have been testing and which Huawei tells potential clients is comparable to Nvidia's H100, a chip not directly available in China. Aided by state support, Huawei has developed Chinese alternatives to U.S. products despite American sanctions.