Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, November 25, 2025

AI Summary. The US would gain relative to China from a fracturing world economy because its bloc of allies includes nearly all advanced countries, accounting for 68% of world GDP at market prices versus 26% for China's bloc. China's structural current account surplus also leaves it reliant on the US and its allies as safe places to invest those funds.

Martin Wolf Financial Times
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Neil Shearing argues that as the global economy fractures, the US is poised to benefit; most countries will ultimately choose the US-centered bloc (currently 50% of PPP-adjusted world GDP) over a China-centered one (currently 32% of world GDP).

Would the US gain relative to China from a fracturing world economy?

Core argument: Neil Shearing argues the US bloc accounts for 68% of world GDP at market prices against the China bloc's 26%, and 50% against 32% at purchasing power parity, because it includes almost all advanced countries.

[Neil Shearing] argues that the US would come out ahead from a fracturing of the world economy. The main justification is that America’s allies are more economically powerful than China’s because they include almost all advanced countries. At market prices, the US bloc’s share of world GDP is 68%, against the China bloc’s 26%. Even at purchasing power parity, the US bloc’s share is 50%, against the China bloc’s 32%. In the end, the most economically potent countries in the world will stay closer to the US, because they depend on its security umbrella, its markets and its currency, or because, in the last resort, they distrust China more. China would also lose more than the US from a fractured world economy. One reason is that it has a structural current account surplus. The only countries where these funds can be safely invested are the US and its allies. The alternative is to lend vastly to developing countries, which may be unable to service their debts.

Takeaways by Macro Roundup® AI

  1. Neil Shearing argues the US bloc accounts for 68% of world GDP at market prices against the China bloc's 26%, and 50% against 32% at purchasing power parity, because it includes almost all advanced countries.
  2. Neil Shearing argues the most economically potent countries would stay closer to the US in a fractured world economy because they depend on its security umbrella, markets and currency, or distrust China more.
  3. Neil Shearing contends China would lose more than the US from a fractured world economy, since its structural current account surplus can be safely invested only in the US and its allies, the alternative being heavy lending to developing countries that may not service their debts.

Related Articles:

  • Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
  • Underestimating China — China's productive capacity is three times that of the United States and exceeds the next nine countries combined, with its share of global manufacturing quintupling to 30% while the U.S. share halved to about 15%. The authors argue Washington must convert its alliances into a platform for pooled capacity building.
  • Power Politics: Energy Self-Sufficiency in a Modern Mercantilist World — China leads in adding power to the grid, with more than 30,000 miles of ultra-high-voltage transmission lines versus zero in the US and lead times for large transformers of 48 weeks against a US average of 143 weeks. This positions China to accommodate new demand sources such as artificial intelligence.

AI Summary. The share of U.S.-born men out of the labor force typically grows after each recession and generally has not returned to pre-recession levels once the economy recovered. Immigrant men, once more likely than U.S.-born men to be out of the labor force, are now less likely, according to Census survey data.

Steven Camarota and Karen Zeigler Center For Immigration Studies
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The share of native-born prime-age men (25–54) not in the labor force – 12.1% – has returned to its pre-pandemic level, but is elevated relative to prior economic expansions.

Are U S -born men leaving the labor force more than immigrants?

Core argument: The share of U.S.-born men not in the labor force typically rises after each recession, and labor force participation generally did not return to pre-recession levels for the U.S.-born once the economy recovered.

The share of U.S.-born men not in the labor force typically grows after each recession, which is to be expected since, like unemployment, it is a lagging indicator of the economy. Participation in the labor force generally did not make it back to pre-recession levels for the U.S.-born once the economy recovered. In 1994, the first year for which the CPS ASEC has nativity data, there was only a modest difference in rates between immigrants and the U.S.-born, but that changed thereafter with the foreign-born improving and the U.S.-born deteriorating. We see the same general trend in Figure 11, which shows the share of prime-age men 25 to 54 not in the labor force based on the CPS ASEC for every year. In fact, prime-age immigrant men were actually more likely to be out of the labor force in 1994 than their U.S.-born counterparts, which is completely reversed today.

Takeaways by Macro Roundup® AI

  1. The share of U.S.-born men not in the labor force typically rises after each recession, and labor force participation generally did not return to pre-recession levels for the U.S.-born once the economy recovered.
  2. In 1994, the first year for which the CPS ASEC has nativity data, the difference in labor force non-participation rates between immigrants and the U.S.-born was modest, after which the foreign-born improved and the U.S.-born deteriorated.
  3. Prime-age immigrant men 25 to 54 were more likely than their U.S.-born counterparts to be out of the labor force in 1994, a pattern that is completely reversed today.

Related Articles:

  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.
  • Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men — Among US prime-age men without college degrees, a 10% rise in expected earnings is associated with a 0.12 percentage point lower labor force exit rate, while a 10% rise in peers' reference earnings is associated with a 0.13 percentage point higher exit rate, fully offsetting the earnings effect.
  • Bachelors Without Bachelor’s: Gender Gaps in Education and Declining Marriage Rates — Marriage rates for college-educated women have remained stable over the past fifty years even as the relative supply of college-educated men declined, with the overall decline in marriage driven almost entirely by fewer marriages between non-college women and non-college men. The education gap in women's marriage rates is larger in areas where non-college men face the highest joblessness and incarceration.

AI Summary. Among unemployed workers aged 22–27, the rate of exiting unemployment for college graduates trended upward from 1976 to 2000 and then declined sharply, while the rate for high school graduates was stable until 2008 and now sits near its long-run average. The gap between the two groups narrowed after 2000 and closed entirely around 2019.

Alexander Cline and Barış Kaymak Federal Reserve Bank of Cleveland
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The gap btw high school and college graduates in the rate at which individuals leave unemployment, either by finding a job or dropping out of the labor force, began to fall around 2000. By 2019, HS grads left unemployment sooner than college grads.

Have young college graduates lost their advantage in exiting unemployment?

Core argument: The gap in unemployment exit rates between high-school-educated and college-educated workers aged 22–27 narrowed after 2000 and closed entirely around 2019.

We examine unemployment trends for high school and college graduates aged 22–27. Figure 3 shows two different measures of unemployment exit rates for young high school and college graduates. Dashed lines are smoothed to capture short-run movements primarily from business cycle fluctuations; both groups show strongly procyclical exit rates with comparable amplitudes, meaning that economic cycles do not affect the exit rates of the two groups differentially. Solid lines reveal longer-term trends: High school exit rates remained stable until 2008, dropped during the jobless recovery from the 2008 recession, and now sit near long-run averages. College exit rates trended upward from 1976 to 2000 and then declined sharply. The gap between the exit rates for high-school-educated and college-educated workers narrowed after 2000, closing entirely around 2019.

Takeaways by Macro Roundup® AI

  1. The gap in unemployment exit rates between high-school-educated and college-educated workers aged 22–27 narrowed after 2000 and closed entirely around 2019.
  2. College graduates' unemployment exit rates trended upward from 1976 to 2000 and then declined sharply, while high school graduates' rates held stable until 2008, fell during the jobless recovery from the 2008 recession, and now sit near long-run averages.
  3. Smoothed exit rates for both young high school and college graduates are strongly procyclical with comparable amplitudes, indicating that economic cycles do not affect the two groups' exit rates differentially.

Related Articles:

  • What the Graduate Unemployment Story Gets Wrong — Comparing recent graduates with others newly entering the labor market, rather than with all non-graduates of similar age, shows those without a degree are faring worse: US unemployment among recent college graduates is up 1.3 percentage points from its low, versus 2.4 points for recent entrants without a degree.
  • Canaries in the Coal Mine? Six Facts about the Recent Employment Effects of Artificial Intelligence — Using payroll records covering millions of US workers, the authors find employment for workers aged 22–25 in occupations most exposed to artificial intelligence, such as software developers and customer service representatives, declined 6%, while employment for older workers in those occupations rose 6–9%. Employment in less-exposed occupations grew comparably across age groups.
  • Military Officer Quality in the All-Volunteer Force — The authors find a steady decline in U.S. Marine Corps officers' General Classification Test scores, which is statistically associated with the expansion of college attendance and explains 96% of the measured change. They also find a positive association between African American officers and mean test scores, arguing affirmative action has not lowered officer quality.

AI Summary. Among young adults aged 22-27, the unemployment rate for those with only a high school degree is consistently higher than for college graduates, but the gap is now the smallest in half a century. Much of that convergence reflects how sharply high-school-only unemployment spiked during the Great Recession.

Timothy Taylor Conversable Economist
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Noting the convergence of the employment rates of young college and non-college workers since 2010, Tim Taylor concludes that today, “the main labor advantage [of a college degree] is higher wages after finding a job.”

Is the unemployment gap between young high school and college graduates narrowing?

Core argument: The unemployment gap between young adults aged 22–27 with only a high school degree and those with a college degree is the smallest it has been in a half-century, having generally converged since roughly 2010 apart from the pandemic.

The left-hand figure shows that unemployment rates for those with only a high school degree are consistently higher than for those with a college degree. This data includes only young adults in the 22-27 age group. However, the size of the unemployment gap varies. Since the aftermath of the Great Recession back around 2010, the two rates have been generally converging (except during the pandemic). At present, the gap is the lowest it has been for a half-century. A glass-half-full type would also point out that although the pattern over the last 15 years is striking, most of the convergence between these unemployment rates has happened because the unemployment rate for those with only a high school degree spiked so violently during the Great Recession. Also, although the gap between unemployment rates for the two groups is small, it was also quite low in the late 1970s, late 1980s, and late 1990s. Also, comparing unemployment rates for these two groups doesn’t take into account how the share of those attending college has risen in the last half-century.

Takeaways by Macro Roundup® AI

  1. The unemployment gap between young adults aged 22–27 with only a high school degree and those with a college degree is the smallest it has been in a half-century, having generally converged since roughly 2010 apart from the pandemic.
  2. Unemployment rates for young adults aged 22–27 with only a high school degree remain consistently above those for college graduates, though the size of that gap varies over time.
  3. Most of the convergence in these unemployment rates traces to the sharp spike in unemployment for high-school-only young adults during the Great Recession, and comparably small gaps also occurred in the late 1970s, late 1980s, and late 1990s.

Related Articles:

  • Are Young College Graduates Losing Their Edge in the Job Market? — Among unemployed workers aged 22–27, the rate of exiting unemployment for college graduates trended upward from 1976 to 2000 and then declined sharply, while the rate for high school graduates was stable until 2008 and now sits near its long-run average. The gap between the two groups narrowed after 2000 and closed entirely around 2019.
  • Jobless Growth — Labor demand growth may be too weak to keep pace with even modest labor supply growth: the labor market is somewhat weaker than before the pandemic, job growth has turned negative outside healthcare, and firms are focused on using AI to cut labor costs. Economists estimate most employment losses in routine manual occupations since the 1970s occurred during recessions.
  • Americans With Four-Year Degrees Now Comprise a Record 25% of Unemployed Workers — Americans with at least a bachelor's degree make up a record 25% of the unemployed, over 1.9m workers aged 25 and up, according to US Bureau of Labor Statistics data going back to 1992. Their unemployment rate rose half a percentage point from a year earlier to 2.8%, while other education levels showed little increase.

AI Summary. China installed 295,000 industrial robots in a year, nearly 9x the US total and more than the rest of the world combined, with its operational robot stock surpassing 2m, the most of any country. Of 131 sites recognized globally for using technologies such as AI to lift productivity, 45 are in mainland China and three in the US.

Brian Spegele Wall Street Journal
Date Posted:

China installed 295,000 industrial robots in 2024, ~9x as many as the U.S. and more than the rest of the world combined, according to data from the International Federation of Robotics.

Is China leading the world in factory automation?

Core argument: China installed 295,000 industrial robots last year, nearly nine times the U.S. total and more than the rest of the world combined, according to the International Federation of Robotics.

China installed 295,000 industrial robots last year, nearly nine times as many as the U.S. and more than the rest of the world combined, according to the International Federation of Robotics. China’s stock of operational robots surpassed two million in 2024, the most of any country. Of 131 factories and industrial sites recognized by the World Economic Forum globally for lifting productivity through cutting edge technologies such as AI, 45 are in mainland China, while three are in the U.S.

Takeaways by Macro Roundup® AI

  1. China installed 295,000 industrial robots last year, nearly nine times the U.S. total and more than the rest of the world combined, according to the International Federation of Robotics.
  2. China's stock of operational robots surpassed two million in 2024, the most of any country.
  3. Of 131 factories and industrial sites recognized globally by the World Economic Forum for lifting productivity through cutting-edge technologies such as AI, 45 are in mainland China and three are in the U.S.

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.
  • Homegrown Robots Help Drive China’s Global Export Surge — Chinese factories install about 280,000 industrial robots a year, half the global total, with roughly half made by domestic producers that undercut foreign rivals on price, lifting China's robot-to-worker density above Germany's. Trade data show China's global export share in labour-intensive goods rose, including small manufactured goods up 9 percentage points to 52.3%.
  • What Would It Take to Bring Back US Manufacturing? Part 2: Making American Manufacturing More Productive — 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.

AI Summary. The authors respond to a critique of their finding of rising market power, arguing that the critique's results are driven entirely by outlier small firms in pharmaceutical and medicine manufacturing that report very low sales, no overhead costs, and negative profits. They restrict their sample to firms reporting the overhead costs needed to measure both markups and profits.

Jan De Loecker, Jan Eeckhout and Gabriel Unger National Bureau of Economic Research
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De Loecker et al. note that the deleted observations in their paper are small pharmaceutical companies with ~0 sales, unsuitable for production function estimation. With these excluded, the results are invariant to the inclusion of finance and insurance.

Does the finding of rising market power hold up against outlier firms?

Core argument: De Loecker, Eeckhout and Unger reply that Benkard, Miller and Yurukoglu's findings are entirely driven by outliers in one four-digit NAICS industry, 3254 (Pharmaceutical and Medicine Manufacturing), whether or not Finance, Insurance and Real Estate is excluded.

Benkard, Miller, and Yurukoglu (BMY) argue that the results in De Loecker, Eeckhout and Unger (DLEU) are not robust for two reasons: 1. the inclusion of Finance and Insurance and Real Estate (FIRE); 2. sample selection due to the exclusion of firms not reporting SGA (Sales, General and Administrative expenses). Here we show that the findings in BMY are entirely driven by outliers in one four-digit NAICS industry 3254 (Pharmaceutical and Medicine Manufacturing, whether or not FIRE is excluded. These small firms have very low sales, some costs, no SGA, and negative profits. In essence, these firms do not produce, and therefore report extremely low sales-to-COGS ratios. In DLEU we use a sample with firms reporting all variables required to measure markups and profits, since our key insight is that both markups and profits are rising. To establish the latter, we need overhead costs, which we show are increasing, but not enough to offset the rise in markups, and hence profits are rising too. [The presence of industry 3254] leads to implausibly low output elasticities dropping from about 0.85 in 1990 to about 0.5 by the end of the sample. To aid in seeing the full effect of the outliers [on the time series of estimated markups], we reproduce the aggregate markup series but exclude [two-digit] sector 32 all together, in the right panel of Figure A.4.

Takeaways by Macro Roundup® AI

  1. De Loecker, Eeckhout and Unger reply that Benkard, Miller and Yurukoglu's findings are entirely driven by outliers in one four-digit NAICS industry, 3254 (Pharmaceutical and Medicine Manufacturing), whether or not Finance, Insurance and Real Estate is excluded.
  2. The outlier firms in industry 3254 have very low sales, some costs, no reported SGA, and negative profits, and their extremely low sales-to-COGS ratios accompany output elasticities falling from about 0.85 in 1990 to about 0.5 by the end of the sample.
  3. De Loecker, Eeckhout and Unger restrict their sample to firms reporting all variables needed to measure markups and profits, and show overhead costs are rising but not enough to offset rising markups, so profits rise as well.

Related Articles:

  • The Rise of Market Power and the Macroeconomic Implications: Comment — A reanalysis using the full sample of firms, rather than one dropping observations with missing capital or overhead-cost data, finds that the measured rise in average markups at the end of the sample is driven almost entirely by the finance and insurance sector. Excluding that sector, average markups rise only modestly, from just under 1.30 to about 1.35.
  • The Rise of Market Power and the Macroeconomic Implications — The authors estimate that aggregate markups over cost rose from 18% to nearly 67% between 1980 and 2014, concentrated among firms that already had high markups, which they interpret as a rise in market power. They associate this increase with declining labor and capital shares, lower low-skill wages, reduced labor force participation, fewer startups, and wider wage inequality.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

Wednesday, November 26, 2025

AI Summary. Interviews with Chinese economists, technologists and business leaders yielded no clear answer to what products China would want to buy from the rest of the world in future, beyond commodities, luxury goods and higher education. The author argues China sees nothing it cannot eventually make better and cheaper itself, undermining trade as a two-way exchange.

Robin Harding Financial Times
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Robin Harding argues, “China is making trade impossible. If it will buy nothing from others but commodities and consumer goods, they must prepare to do the same.” While it’s a “bad” solution, large-scale protectionism in the West is inevitable.

Does China want to import anything from the rest of the world?

Core argument: Asked what product China would want to buy from the rest of the world in future, economists, technologists and business leaders in mainland China gave answers leading to the conclusion that there is nothing China wishes to import.

On a recent trip to mainland China, I found myself posing the same question, again and again, to the economists, technologists and business leaders who I met with. “Trade is an exchange. You provide something of value to me, and in return, I must offer something of value to you. So what is the product, in the future, that China would like to buy from the rest of the world?” The answers were revealing. A few said “soyabeans and iron ore” before realising this was not much help to a European. Some observed that Louis Vuitton handbags are popular and then went on to talk about the export prospects for fast-rising Chinese luxury brands. “Higher education” was another common answer, qualified sometimes with the observation that Peking University and Tsinghua are harder to get into, and more academically rigorous, than anything on offer in the west. Several of the economists, who had perhaps pondered the issue already, jumped ahead to a different point altogether: “This,” they said, “is why you should let Chinese companies set up factories in Europe.” It is a train of thought that gives away the real answer to the question. Which is: nothing. There is nothing that China wants to import, nothing it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to.

Takeaways by Macro Roundup® AI

  1. Asked what product China would want to buy from the rest of the world in future, economists, technologists and business leaders in mainland China gave answers leading to the conclusion that there is nothing China wishes to import.
  2. Respondents in China named soyabeans and iron ore, Louis Vuitton handbags and higher education, while noting that Chinese luxury brands are rising as exporters and that Peking University and Tsinghua are harder to enter than western institutions.
  3. Several economists in China redirected the question, arguing that Europe should let Chinese companies set up factories there rather than naming goods China would import.

Related Articles:

  • Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
  • Underestimating China — China's productive capacity is three times that of the United States and exceeds the next nine countries combined, with its share of global manufacturing quintupling to 30% while the U.S. share halved to about 15%. The authors argue Washington must convert its alliances into a platform for pooled capacity building.
  • We Warned About the First China Shock. The Next One Will Be Worse — The authors argue China is moving from follower to leader by aggressively contesting innovative sectors long dominated by the United States, including aviation, artificial intelligence, telecommunications, microprocessors, robotics, and nuclear and fusion power. They note the world's largest and most innovative makers of electric vehicles, EV batteries, drones, and solar wafers are all Chinese firms under 30 years old.

AI Summary. The Congressional Budget Office now projects tariffs enacted this year will reduce debt including interest by $3.0tn through 2035, down from $4.0tn, reflecting policy changes and revised assumptions about duty-free imports and costs absorbed by foreign exporters. If courts strike down the emergency-powers tariffs, the debt reduction would fall to roughly $0.9tn.

Marc Goldwein Committee for a Responsible Federal Budget
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The CBO has reduced its forecast of tariff revenue through FY 2035 by 25% to $3T. 2/3 of the downward revision is due to methodological refinements such as an increased estimate of the share of imports from Canada and Mexico covered by the USMCA.

How much debt reduction will this year's tariffs actually deliver?

Core argument: CBO projects tariffs enacted this year will reduce debt, including interest, by $3.0 trillion through FY2035, down from $4.0 trillion in August, with revenue excluding dynamic effects falling from $3.3 trillion to $2.5 trillion.

Updated projections from the CBO show that tariffs enacted this year will reduce debt (including interest) by $3.0 trillion through Fiscal Year (FY) 2035, down from the $4.0 trillion projected in August. Excluding dynamic effects, CBO now projects $2.5 trillion of revenue as opposed to $3.3 trillion – with 1/3 of the difference driven by announced policy changes and the other 2/3 due to an increased estimate of the share of imports that can access lower or zero duty rates under the United States-Mexico-Canada Agreement (USMCA), reduced estimates of the value of steel and aluminum in goods subject to tariffs on derivative products, and [a rise] in the projected share of tariff costs absorbed by foreign exporters from 0% to 5% of the increase in the tariff rate. If the Supreme Court upholds the ruling that tariffs enacted under the International Emergency Economic Powers Act (IEEPA) are illegal, then the primary deficit impact would likely drop to around $0.7 trillion, or roughly $0.9 trillion after interest. In light of CBO’s updated tariff estimates and the incorporation of actual 2025 budget data from Treasury, we now project debt to rise to 122% of GDP by 2035, roughly 2% of GDP higher than the CRFB Adjusted August Baseline and 4% of GDP higher than CBO’s January 2025 baseline. If the Supreme Court rules IEEPA tariffs illegal, debt would rise further to 127% of GDP.

Takeaways by Macro Roundup® AI

  1. CBO projects tariffs enacted this year will reduce debt, including interest, by $3.0 trillion through FY2035, down from $4.0 trillion in August, with revenue excluding dynamic effects falling from $3.3 trillion to $2.5 trillion.
  2. CBO attributes one-third of the revenue reduction to announced policy changes and two-thirds to a higher estimated share of imports accessing lower USMCA duty rates, reduced steel and aluminum value estimates, and a rise from 0% to 5% in tariff costs absorbed by foreign exporters.
  3. CRFB projects debt rising to 122% of GDP by 2035, roughly 4% of GDP above CBO's January 2025 baseline, and to 127% if the Supreme Court rules IEEPA tariffs illegal, which would cut the primary deficit impact to about $0.7 trillion.

Related Articles:

  • Tariffs Are Generating Meaningful New Revenue — New U.S. tariffs are estimated to generate $1.3tn in net new revenue through the end of the current presidential term and $2.8tn through 2034 before economic effects, about $600bn more than previously enacted tariffs. If a court ruling striking down some tariffs is upheld, the remainder could raise as little as $800bn through 2034.
  • Trump’s Tariffs Are a Massive Money Grab. That’s Why They Are in Trouble — The US administration's own budget office estimates the tariffs amount to $3.9tn over a decade, the largest tax increase since 1982. Though the Supreme Court tends to read presidential authority over foreign policy broadly, allowing any president to impose such a tax without input from Congress may exceed its limits.
  • The U.S. Is Tiptoeing Away From Many of Trump’s Signature Tariffs — The US has exempted dozens of products from its reciprocal tariffs and offered to carve out hundreds more, from farm products to airplane parts, for countries that strike trade deals. The administration is simultaneously expanding tariffs grounded in Section 232 of the Trade Expansion Act, covering metals, autos, heavy trucks, pharmaceuticals and furniture.

AI Summary. Comparing average daily U.S. Treasury yields before and after the presidential election, the 10-year nominal yield rose from 3.92% to 4.29% and its inflation-adjusted counterpart from 1.74% to 1.96%, while the 30-year nominal yield rose from 4.21% to 4.77% and its inflation-adjusted counterpart from 2.03% to 2.5%.

Mark Warshawsky American Enterprise Institute
Date Posted:

Btw July 21 and Election Day, the 10-yr nominal yield averaged 3.92% and the 30-yr averaged 4.21%. Both rose btw the election and inauguration, averaging 4.29% and 4.77%, respectively, since then. Much of the rise was in real (inflation-indexed) rates.

Have long-term Treasury yields risen since the presidential election?

Core argument: The average daily 10-year nominal Treasury yield rose from 3.92% before the election to 4.29% after, while the 10-year real yield rose from 1.74% to 1.96%.

To evaluate the impact of the Trump Administration’s economic policies (tariffs, immigration, DOGE, tax cuts, budget spending, regulations, administrative actions, and so on) [on real interest rates and inflation premiums], I compare yields in three periods: 1) from the time Kamala Harris became the Democratic nominee to Election Day; 2) from the election to the present; and 3) [from] after the inauguration [to the present]. All yields increased following Trump’s election and remained higher, on average, following his inauguration. This is particularly clear for the 30-year yields. Comparing pre- and post-election experience, the average daily 10-year nominal yield increased from 3.92% to 4.29%, and the 10-year real yield increased from 1.74% to 1.96%. The average 30-year nominal yield increased from 4.21% to 4.77%, and the 30-year real yield increased from 2.03% to 2.5%.

Takeaways by Macro Roundup® AI

  1. The average daily 10-year nominal Treasury yield rose from 3.92% before the election to 4.29% after, while the 10-year real yield rose from 1.74% to 1.96%.
  2. The average 30-year nominal yield increased from 4.21% to 4.77% and the 30-year real yield from 2.03% to 2.5% between the pre- and post-election periods.
  3. All yields increased following Trump's election and remained higher on average after his inauguration, a pattern particularly clear for 30-year yields.

Related Articles:

  • Across The Rich World, Fiscal Crises Loom — An analysis estimates most rich countries could keep debt stable as a share of their economies with only small primary surpluses—Britain's required surplus is 0.3% of GDP—even if all debt were refinanced immediately at current rates, but the tightening needed to stabilize debt ratios exceeds 2% of GDP in Britain and America and 3% in France.
  • 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.
  • Our Thoughts on Large US Deficits and Their Impact on Bond Yields — Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.

AI Summary. The 2020 scaling-laws paper fostered a belief that mixing compute, data, and parameters yields better AI models in a deterministic way, which the author argues let unusually large capital spending plans pass without investor revolt. The author contends that curve was empirical rather than physical and is now breaking, returning AI capital spending to normal economics.

Paul Kedrosky Applied Complexity
Date Posted:

Kedrosky argues that diminishing returns to AI investment are visible, noting “soaring” frontier training costs and slower model improvement. “If scaling laws no longer guarantee anything, the spending mirage fades. Only the bill will remain.”

Did belief in predictable AI scaling shield huge capex from scrutiny?

Core argument: The author argues that the 2020 scaling-laws paper convinced boards and CFOs that AI capability growth was a deterministic function of compute, data, and parameters, derisking corporate spending more profoundly than in any prior technology cycle.

If Moore had his law, AI has Kaplan’s Mirage: the belief, born from the 2020 scaling-laws paper that pre-training drove intelligence in a deterministic and almost mathematical way. The curve was appealing: smooth, monotonic, mathematically tidy. It said that if you mix the right ratio of compute + data + parameters, you will cook up a better model. That conviction derisked corporate spending more profoundly than in any prior technology cycle. CFOs and boards didn’t see risk; they saw a factory process. Capex plans that would normally trigger investor revolt sailed through because the output has felt predictable. But the “law” was empirical, not physical. And empirical curves break. The break is appearing [marginal improvements are shrinking, training stability is worsening, data is finite and heavily duplicated, inference quality is unstable in a reinforcement learning regime]. If you remove the illusion of deterministic capability growth, the AI capex supercycle reverts to normal economics.

Takeaways by Macro Roundup® AI

  1. The author argues that the 2020 scaling-laws paper convinced boards and CFOs that AI capability growth was a deterministic function of compute, data, and parameters, derisking corporate spending more profoundly than in any prior technology cycle.
  2. The author contends that AI scaling laws were empirical rather than physical, and points to shrinking marginal improvements, worsening training stability, finite and heavily duplicated data, and unstable inference quality under reinforcement learning as signs the curve is breaking.
  3. The author argues that removing the illusion of deterministic capability growth would return the AI capex supercycle to normal economics, since capex plans that would normally trigger investor revolt passed only because output felt predictable.

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  • On Benchmark Games, Gemini, and Declining Returns to Scale — Composite benchmarks show Google's Gemini roughly in line with GPT-5-class models, with any gap small, and the author argues it does not lead on strict low-leakage reasoning exams. The pattern reflects growing training costs yielding modest gains concentrated in vision, video, and some coding rather than broad reasoning advances.
  • Is AI Hitting A Wall? — Artificial intelligence gains have come from a formula of more data and more computing power, but companies have exhausted freely available internet training data and are now striking data-sharing deals with publishers and copyright holders. Training and running large models is energy-intensive, requiring vastly more Nvidia chips with each generation.
  • Why AI Capex isn’t a Bubble: A Perez-ian Perspective — Carlota Perez's framework of technological revolutions casts heavy artificial-intelligence infrastructure spending as a late-stage installation surge, in which financial capital overshoots and builds capacity ahead of demand, leaving both losses and infrastructure for later productivity. The author argues this model is descriptive rather than prescriptive, and that executives and policymakers invoking it rationalize losses in advance and erode market discipline.

AI Summary. Chinese fixed-asset investment fell 1.7% year-over-year in the year to October after a 0.5% decline the prior month, declines without recent precedent outside the early Covid-19 period, and investment was falling in more than a third of China's 31 province-level areas. Goldman Sachs estimates about 60% of the drop reflects a statistical correction of previously over-reported data.

Joe Leahy, Thomas Hale and Haohsiang Ko Financial Times
Date Posted:

A 1.7% year-on-year decline in Chinese fixed-asset investment could be evidence of Beijing’s crackdown on “involution.” GS suggests the majority of the decline is a statistical correction.

Is Chinese investment actually falling, or is data being corrected?

Core argument: Chinese fixed-asset investment fell 1.7% in the year to October, following a 0.5% decline in the year to September, the only such falls reported in recent decades apart from the early stages of the Covid-19 pandemic in 2020.

Government data released this month showed Chinese fixed-asset investment (FAI) fell 1.7% in the year to October, following a 0.5% decline recorded for the year to September. These were the only such falls in FAI reported in recent decades, with the exception of the early stages of the Covid-19 pandemic in 2020. China does not release standalone monthly FAI comparisons. Financial Times analysis of regional FAI data also shows it falling in more than a third of mainland China’s 31 province-level areas, compared with just three as recently as May. The quality of the fixed-asset investment data series has been questioned and some analysts suggest the October statistics may have been significantly affected by technical changes, the dramatic fall has potential implications for Chinese growth. Analysts at Goldman Sachs estimated that about 60% of the fall in fixed-asset investment stemmed from “a statistical correction of previously over-reported data”.

Takeaways by Macro Roundup® AI

  1. Chinese fixed-asset investment fell 1.7% in the year to October, following a 0.5% decline in the year to September, the only such falls reported in recent decades apart from the early stages of the Covid-19 pandemic in 2020.
  2. Goldman Sachs analysts estimated that about 60% of the fall in Chinese fixed-asset investment stemmed from a statistical correction of previously over-reported data, and some analysts suggest the October figures were significantly affected by technical changes.
  3. Financial Times analysis of regional data shows fixed-asset investment falling in more than a third of mainland China's 31 province-level areas, compared with three as recently as May.

Related Articles:

  • China’s “Anti-Involution” Campaign: Global Implications — China's economy has slowed as domestic investment stagnates and consumer spending stays weak, with the shortfall partly offset by rising net exports. The author argues these internal problems are being passed to the rest of the world, since export values are rising about 6% a year while import values are down 2.2%.
  • What’s New About Involution? — China's cycle of relentless competition and price cutting stems from its long-standing growth model, with the latest phase driven by an engineered shift of investment from property into manufacturing that was not tied to expected demand growth. Administrative fixes and exports shift excess capacity between sectors rather than resolving it.
  • China Struggles To Break Its Addiction To Manufacturing — 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.