Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “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
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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 is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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
Date Posted:

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
Date Posted:
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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.

Related Articles:

  • 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.

Friday, November 28, 2025

AI Summary. China's share of US direct imports fell from a peak of about 22% in 2017 to roughly 16% in 2022, 13% in 2024, and about 9% by mid-2025 — matching its share when it joined the World Trade Organization. Vietnam, Mexico, and more recently Taiwan have been the main gainers.

Laura Alfaro and Davin Chor National Bureau of Economic Research
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China’s share of direct US imports fell from a peak of ~22% in 2017 to ~13% in 2024. Between Liberation Day and July 2025, China’s share fell another 4pp, returning to ~9%, its level at the time of China’s accession to the WTO.

How far has China's share of US imports fallen?

Core argument: China's share of US direct imports fell from 21% in 2017 to 16% in 2022 and roughly 13% by 2024, then dropped another 4pp to about 9% by July 2025.

Since 2017, China has experienced a large and persistent decline in its share of the US import market. The main gainers have been Vietnam, Mexico, and (more recently) Taiwan. It is well-documented that China’s share in US direct imports fell from around 21% in 2017 to 16% in 2022. Figure 3 reveals a further drop in the US import market share held by China to around 13% by 2024. The decoupling that started under the first Trump administration thus extended through to the end of the Biden presidency, rather than undergoing any reversal. Figure 3 further hints at how these large shifts in the sources of US imports have persisted post-Liberation Day. By July 2025, China’s share in US direct imports had fallen by another 4pp relative to 2024, declining from 13% to roughly 9%. To put this in perspective, China’s share in total US imports stood at approximately 9% in 2001, in its accession year to the WTO. This climbed steadily over the next 16 years, peaking at 22% in 2017. The drop back to a 9% import share by mid-2025 thus represents a remarkable unwinding, in just half the time it took this share to reach its pre-trade war peak.

Takeaways by Macro Roundup® AI

  1. China's share of US direct imports fell from 21% in 2017 to 16% in 2022 and roughly 13% by 2024, then dropped another 4pp to about 9% by July 2025.
  2. China's roughly 9% US import share by mid-2025 matches its share in 2001, its WTO accession year, unwinding a climb to a 22% peak in 2017 in half the time that climb took.
  3. Vietnam, Mexico, and more recently Taiwan have been the main gainers as China's share of the US import market declined since 2017.

Related Articles:

  • The Fracturing Of The World Economy — 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.
  • Mexico Is Not Just the Top Supplier to the U.S. Now It Is the Top Buyer — Mexico is now both the largest buyer of U.S. exports and the largest source of U.S. imports, with U.S. goods exports to Mexico at $226.4bn versus $225.6bn to Canada and imports from Mexico totaling $354.9bn. Mexico's growth, including its middle class, has increased demand for U.S. goods among its more than 130 million people.
  • China’s Massive Surplus Is Everywhere (Yet The IMF Still Has Trouble Seeing It Clearly) — China's manufactured goods surplus exceeds $2tn in its own customs data, about 10.5% of Chinese GDP and over 2% of world GDP, far exceeding the combined peak surpluses of Germany and Japan. The author argues the International Monetary Fund understates this by relying solely on reported current account balances, which have not similarly jumped.

AI Summary. China spent $781bn on research and development in 2023 versus $823bn in the US, according to the OECD, up from $136bn against $462bn in 2007. Chinese corporate research institutions have nearly tripled to more than 150,000 and China produces roughly 50,000 science and engineering PhDs annually versus about 34,000 in the US.

Edward White Financial Times
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Chinese total R&D spending adjusted for PPP was almost on par with the US’s in 2023.

Is China closing the gap with the US in research spending?

Core argument: China spent $781bn on R&D in 2023 versus $823bn for the US, according to the OECD, a shift from 2007 when China's $136bn was less than one-third of US spending of $462bn.

[China] is close to overtaking the US in total expenditure on R&D, with China spending $781bn and the US $823bn in 2023, according to the OECD. It is a stark change from 2007 when China’s R&D spending of $136bn was less than one-third of the $462bn spent by the US. The potential inflection point follows years of debate in the west over the wisdom of China’s state-led development model, with evidence of vast sums of state finances wasted through subsidies and corruption, and criticism over the quality of Chinese academic research and patents. According to some experts, it is not just the scale of China’s R&D budget, but a shift in the nature of that spending that warrants scrutiny. While government R&D spending in China has exceeded that of the US since 2015, Chinese companies have also rapidly increased their R&D efforts over the past decade, national statistics bureau data shows. The number of corporate R&D institutions has also nearly tripled to more than 150,000. And the number of corporate R&D personnel nearly doubled to 5mn. China is also producing around 50,000 PhD graduates in science, technology, engineering and mathematics fields annually, compared to about 34,000 from US universities.

Takeaways by Macro Roundup® AI

  1. China spent $781bn on R&D in 2023 versus $823bn for the US, according to the OECD, a shift from 2007 when China's $136bn was less than one-third of US spending of $462bn.
  2. Chinese corporate R&D institutions nearly tripled to more than 150,000 and corporate R&D personnel nearly doubled to 5mn, according to national statistics bureau data, while Chinese government R&D spending has exceeded that of the US since 2015.
  3. China produces around 50,000 STEM PhD graduates annually compared with about 34,000 from US universities, while critics of its state-led model cite state funds wasted through subsidies and corruption and question the quality of Chinese academic research and patents.

Related Articles:

  • China’s Role in Global Innovation Is Changing — Royalty receipts from intellectual property equal 0.07% of China's GDP versus 0.45% of South Korea's, but China's royalty-to-GDP ratio has grown considerably faster than that of advanced economies in recent years, narrowing the gap.
  • China’s AI University Beats Out Harvard, MIT in Race For Patents — China's Tsinghua University collected 4,986 artificial intelligence and machine learning patents from 2005 through 2024, receiving more patents annually than MIT, Stanford, Princeton and Harvard combined, and China accounts for more than half of all active patent families in those fields. US institutions still hold the most influential AI patents and produced more notable AI models, 40 to China's 15.
  • Paper Tiger? Chinese Science and Home Bias in Citations — Researchers disproportionately cite work from their own country, and measured against a benchmark that distributes world citations by the size of citing and cited countries, every country studied shows some home bias. The authors estimate China is a clear outlier at 42.3%, followed by Iran and India at 23.2% each and the US at 15.9%.

AI Summary. Long-term yields are rising as markets demand higher risk premia on fears that governments will inflate away unsustainably high debt. The 10-year Treasury yield understates this because it is pulled down by expectations of Federal Reserve rate cuts, while the 10-year yield 10 years forward has stayed high even as the 2-year yield has fallen.

Robin Brooks Robin Brooks Substack
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As the 2-year Treasury yield has fallen, the 10y10y forward yield has “remained stubbornly high. Markets are demanding higher risk premia for longer-term Treasuries,” Brooks infers.

Are markets demanding higher risk premia on fears of debt inflation?

Core argument: Long-term yields are rising across markets as investors demand higher risk premia, reflecting fears that governments will try to inflate away unsustainably high debt levels.

Markets are increasingly fearful that governments will try to inflate away unsustainably high debt levels. This is why long-term yields are rising all over the place, as markets start demanding higher risk premia. As far as longer-term yields go, you don’t want to look at the 10-year Treasury yield, because that’s getting pulled down by increasingly dovish expectations for the Fed. You can take that effect out by looking at the 10y10y forward yield, which is shown in the chart in the red line. That yield has remained stubbornly high even as the 2-year yield has fallen. No matter how you cut it, markets are demanding higher risk premia for longer-term Treasuries.

Takeaways by Macro Roundup® AI

  1. Long-term yields are rising across markets as investors demand higher risk premia, reflecting fears that governments will try to inflate away unsustainably high debt levels.
  2. The 10-year Treasury yield is pulled down by increasingly dovish expectations for the Fed, so the 10y10y forward yield removes that effect.
  3. The 10y10y forward yield has remained stubbornly high even as the 2-year yield has fallen, with markets demanding higher risk premia for longer-term Treasuries.

Related Articles:

  • Buy America — Despite multi-trillion deficits, investors show no sign of concern about US government debt, and the Treasury has supported demand by shifting issuance toward maturities with the strongest buyer interest. Short-term bills now make up 22% of marketable Treasuries, absorbed largely by money market funds whose assets have grown to $7tn.
  • Investors Now See Some Corporate Bonds as Safer Bets Than Government Debt — Average net debt relative to earnings for about 2,500 companies in the MSCI ACWI global stock index improved to 1.74x in the first half of this year from 2.53x a decade earlier, indicating stronger corporate balance sheets. Meanwhile, the International Monetary Fund projects government debt across major economies will rise annually through 2030 to about 137% of GDP.
  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.

AI Summary. Research using card-transaction, wealth and attitude data finds that reduced work effort, higher leisure spending and investment in risky assets including crypto are disproportionately common among young adults with little realistic prospect of affording a home, while those closer to home ownership work harder and take fewer risks. The authors argue the link is causal.

John Burn-Murdoch Financial Times
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Citing Lee/Yoo’s recent research John Burn-Murdoch argues young Americans’ recent upticks in “financial risk-taking, leisure spending and reduction in work effort” are responses to perceived changing economic incentives.

Does unaffordable housing push young adults toward risky bets and less work?

Core argument: Economists Seung Hyeong Lee and Younggeun Yoo find that reduced work effort, higher leisure spending and investment in risky assets including crypto are disproportionately common among young adults with little realistic prospect of affording a house.

Economists at the University of Chicago and Northwestern University used detailed data on the card transactions, wealth and attitudes of Americans to demonstrate that reduced work effort, increased leisure spending and investment in risky financial assets (including crypto) are all disproportionately common among young adults who face little to no realistic prospect of being able to afford a house. By contrast, Seung Hyeong Lee and Younggeun Yoo’s research finds that those for whom home ownership is a more realistic possibility in the medium term, or who have already attained it, take fewer risks and strive harder at work. Lee and Yoo use time series data and local house prices to show that the link between unaffordable housing and economic behaviour appears to be causal. Recent upticks in financial risk-taking, leisure spending and reduction in work effort respond to changing economic incentives. As housing affordability deteriorates, those who come to believe they are locked out of home ownership resort to a mixture of high-risk bets and what US economic commentator Kyla Scanlon calls “financial nihilism” — why strive and save when it won’t be enough to make it anyway? — while their better-placed counterparts tighten their belts.

Takeaways by Macro Roundup® AI

  1. Economists Seung Hyeong Lee and Younggeun Yoo find that reduced work effort, higher leisure spending and investment in risky assets including crypto are disproportionately common among young adults with little realistic prospect of affording a house.
  2. Lee and Yoo, economists at the University of Chicago and Northwestern University, find that those for whom home ownership is realistic in the medium term, or who already own, take fewer risks and strive harder at work.
  3. Using time series data and local house prices, Lee and Yoo argue the link between unaffordable housing and economic behaviour appears causal, with risk-taking, leisure spending and reduced work effort responding to changing economic incentives.

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AI Summary. The U.S. Navy plans to cancel orders for four new warships after extensive government design changes delayed construction by years. Of 20 frigates recently built or nearing completion across 10 countries, all but one were or will be built faster than the USS Constellation, according to a Wall Street Journal analysis.

Drew FitzGerald and Lara Seligman Wall Street Journal
Date Posted:

The Navy is canceling the Constellation-class frigate program. The first ship in the class was supposed to launch next year but has been pushed back to 2029.

Do government design changes slow U.S. warship construction?

Core argument: The U.S. Navy plans to cancel orders for four new warships after the government's extensive design modifications set back construction by years.

The U.S. Navy plans to cancel orders for four new warships after the government’s extensive design modifications set back construction by years. Warships built in U.S. shipyards take longer and cost more to build than in other industrialized nations. Of 20 different frigates made recently or set for completion soon in 10 different countries, all but one were or will be built in less time than the USS Constellation, according to a Wall Street Journal analysis.

Takeaways by Macro Roundup® AI

  1. The U.S. Navy plans to cancel orders for four new warships after the government's extensive design modifications set back construction by years.
  2. Of 20 frigates recently built or set for completion soon across 10 countries, all but one were or will be built in less time than the USS Constellation, according to a Wall Street Journal analysis.
  3. Warships built in U.S. shipyards take longer and cost more to build than those in other industrialized nations.

Related Articles:

  • How South Korea’s Shipyards Could Save the US Navy — US shipyards had just five commercial ships under construction compared with 1,749 in China, and China's naval fleet is projected to grow from 370 to 475 vessels in a decade versus 297 to between 305 and 317 for the US Navy, whose major shipbuilding programs are behind schedule.
  • Ship Wars — Shipyards tied to China's defense industrial base account for 15% of the country's active shipyards but 40% of commercial output by tonnage, with over 75% of their production built for firms outside China and Hong Kong. The authors argue these commercial revenues offset fixed costs and effectively subsidize China's naval expansion.
  • China’s Shipyards Are Ready for a Protracted War. America’s Aren’t — China produced more than half of the world's commercial shipbuilding output, while Europe accounts for about 5% and the US next to nothing, with most of the remainder built in South Korea and Japan. Analysts argue that in a protracted conflict China's wartime-scale yards could quickly accelerate production, replace lost ships, and repair damaged ones.