Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…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
  • “…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 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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, December 5, 2025

AI Summary. Completed fertility for US women aged 41–44 has been stable for more than two decades, with the large decline having occurred earlier; among those with at least one native-born parent it averaged 1.88 children versus 1.87. What changed is timing: 30-year-old women averaged 1.34 children versus 0.98.

Mike Konczal Mike Konczal Substack
Date Posted:

Btw 1980 and 2000, US completed fertility fell from > 3 children per woman to < 2. Today, the oldest millennials, at 44, have 1.92 children, the same number as the youngest boomers. Birth timing is delayed relative to 2000, but fertility has not fallen.

Has completed fertility fallen, or have women just delayed childbearing?

Core argument: The average number of children for a 30-year-old woman fell from 1.34 in 2000 to 0.98 in 2024, while completed fertility ended up at the same level, reflecting a change in the timing of births.

What has changed is the timing of births. Remember this is a cross-section based on the year we are observing. In 2000, a 30-year-old woman had, on average, 1.34 children. In 2024, that number had dropped to 0.98. The two cross-years ended up in the same place, but they follow very different paths to get there. Before you ask, is this all immigration? No. We can track nativity status in this data. For women 41 to 44 who have at least one native-born parent, the weighted average number of children was 1.88 in 2000 and 1.87 in 2024. Now completed fertility used to be higher than it is today. So when did the drop happen? We can look at the average number of births for women ages 41 to 44 in each CPS Fertility Supplement, going back every two years to 1976, as shown in Figure 2. The big drop happened some time ago. But the headline is how stable completed fertility has been for more than two decades.

Takeaways by Macro Roundup® AI

  1. The average number of children for a 30-year-old woman fell from 1.34 in 2000 to 0.98 in 2024, while completed fertility ended up at the same level, reflecting a change in the timing of births.
  2. Among women ages 41–44 with at least one native-born parent, the weighted average number of children was 1.88 in 2000 and 1.87 in 2024, indicating immigration does not account for the stability.
  3. CPS Fertility Supplement data for women ages 41–44, tracked every two years back to 1976, place the large decline in completed fertility well in the past, with the measure stable for more than two decades.

Related Articles:

  • The Growing Link Between Marriage, Fertility, and Partisanship — Among US women born 1975–1979 who have completed childbearing, conservatives average 2.1 children, moderates 1.8, and liberals 1.5; among those born 1985–1989 the figures are 2.1, 1.9, and 1.7. Birthrates and marriage rates are lower for all ideological groups than before 1975.
  • Is America’s Religious Decline Responsible for Falling Birthrates? — In the United States, falling birth rates have accompanied a decline in religious participation, with the share of Americans attending worship services weekly falling from 42% to 30% over 20 years, according to Gallup. Survey data show 68% of Americans in their mid-70s or older attended weekly services in childhood, versus 48% of those in their early 20s.
  • Depopulation Globally and in the Asia-Pacific: The Shape of Things to Come — Population aging and fertility below replacement levels are connected to a revolution in family structure in which families grow smaller, fewer people marry, and voluntary childlessness becomes common across countries. As a result, families become less able to bear the demands that may be placed on them.

AI Summary. A national survey found 56% of Americans believe life in America today is worse than 50 years ago, but income data conflict with this perception of long-run decline. The typical year-round male worker earned $74,000 in 2023 including benefits and employer taxes, 46% above 1973, while the typical woman's earnings rose 121%.

Scott Winship American Enterprise Institute
Date Posted:

Scott Winship notes American worker’ earnings are “essentially” at an all-time high. In real terms, a typical year-round male worker earns 46% more than in 1973, and his female peer earns 121% more.

Have American workers' incomes risen over the past fifty years?

Core argument: The typical year-round male worker earned $74,000 in 2023 including fringe benefits and employer taxes, 46% more than in 1973.

A national Pew survey conducted in April of this year found that 56% of Americans believe that “life in America today” is worse than it was “50 years ago for people like you.” However, these perceptions of long-run decline are at odds with the facts. The typical year-round male worker in 2023 made $74,000 including fringe benefits and employer taxes. That is 46% higher than it was in 1973. The typical woman working year-round makes 121% more than in 1973 — an increase from $28,000 to $61,000 in today’s dollars.

Takeaways by Macro Roundup® AI

  1. The typical year-round male worker earned $74,000 in 2023 including fringe benefits and employer taxes, 46% more than in 1973.
  2. The typical year-round female worker's pay rose 121%, from $28,000 in 1973 to $61,000 in today's dollars.
  3. A national Pew survey found 56% of Americans believe life in America today is worse than it was 50 years ago "for people like you," perceptions the author argues are at odds with the facts.

Related Articles:

  • Don’t Choose Your Own Adventure: Understanding Middle-Class Earnings Trends — Using a standard price index, US men's earnings were flat from 1973 to 1989 and rose 0.4% a year thereafter, while an alternative middle-class cost-of-living index shows 0.7% annual growth in both periods and a 40% total rise instead of 13%. The author attributes weak growth to 1970s stagflation and early-1980s recessions rather than trade, immigration, or income concentration.
  • The American Dream Is Not a Coin Flip, and Wages Have Not Stagnated — Using an alternative cost-of-living adjustment, the typical 40-year-old's pre-tax family income rose 52% between 1979 and 2019, or 73% adjusting for family size, versus 15% under the methods behind widely cited mobility estimates. Absolute mobility is down 20 percentage points since 1979 but stood at 72% in 2023.
  • Should We Believe the Economic Data or Americans’ “Lyin’” Eyes? The Answer Is Yes — Gallup polling finds that while roughly 80% of Americans say they are dissatisfied with the way things are going in the country, about 80% are satisfied with the way things are going in their own lives, including 90% satisfied with family life, 88% with housing, and 87% each with education and work.

AI Summary. Using data on President–Federal Reserve interactions, the author estimates that political pressure to ease monetary policy raises the price level strongly and persistently without boosting real activity, working through inflation expectations more than a typical easing. Such pressure occurred mainly in the 1970s and contributed to inflationary episodes.

Thomas Drechsel University of Maryland
Date Posted:

Drechsel studies “political pressure shocks” on monetary policy as in the Nixon-Burns interactions of 1971–1972. He finds that politically pressured drops in interest rates raises inflation but not output, highlighting the importance of Fed independence.

Does political pressure on the central bank raise prices without boosting output?

Core argument: The author estimates that political pressure on the Fed to ease, sustained for six months at half the intensity of Nixon's, raises the price level by about 7% over the following decade.

I exploit an increase in the number of President-Fed interactions that satisfies two criteria. First, these interactions arise mainly for reasons that are political, and are therefore plausibly unrelated to economic conditions. Second, monetary policy [actually] changes due to the political pressure. In his desire to be re-elected in1972, President Nixon pressured Fed Chair Arthur Burns to ease monetary policy in the fall of 1971, as reflected in a spike in interactions clearly visible in Figure 3. I exploit this narrative through restrictions on a structural vector autoregression that includes the President-Fed interaction data. I find that political pressure shocks mostly occurred in the 1970s, in the Nixon, Ford, and Carter administrations. I find that political pressure to ease monetary policy (i) increases the price level strongly and persistently, (ii) does not lead to positive effects on real economic activity, (iii) contributed to inflationary episodes outside of the Nixon era, and (iv) transmits differently from a typical monetary policy easing, by having a stronger effect on inflation expectations. Increasing political pressure by half as much as Nixon, for six months, raises the price level by about 7% over the following decade.

Takeaways by Macro Roundup® AI

  1. The author estimates that political pressure on the Fed to ease, sustained for six months at half the intensity of Nixon's, raises the price level by about 7% over the following decade.
  2. Using a structural vector autoregression that includes President-Fed interaction data, the author finds political pressure shocks to ease monetary policy raise the price level strongly and persistently without positive effects on real economic activity.
  3. The author finds political pressure shocks occurred mostly in the 1970s under the Nixon, Ford, and Carter administrations, contributed to inflationary episodes outside the Nixon era, and transmitted with a stronger effect on inflation expectations than a typical monetary policy easing.

Related Articles:

  • The Global Debt Crisis Builds — Long-dated forward yields such as 10-year and 20-year forwards are near their highs even as the Federal Reserve cuts rates, with the gap between those forwards and 10-year yields widening, which the author reads as a worsening buyers' strike for longer-dated government debt. Italy, France, the UK, Japan and Germany all show elevated long-term forward yields.
  • 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.
  • 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.

AI Summary. New York City's population has historically balanced natural growth and international inflows against domestic outflows, but outflows have come to dominate, leaving the city shrinking at its fastest pace since the 1970s. Its contraction of more than 3% is twice that of Philadelphia, the next-fastest-shrinking large US city.

Aziz Sunderji Home Economics
Date Posted:

New York City’s population is shrinking due to domestic out-migration. Aziz Sunderji finds NYC’s population declined by 395,000 btw 2014 and 2024. As immigration slows, the population decline may accelerate.

Why is New York City's population shrinking faster than other large cities?

Core argument: New York City's population fell more than 3% between April 2020 and July 2024, twice the rate of Philadelphia, the next-fastest-shrinking city, while Los Angeles lost only half a percent.

New York City’s population has stagnated since the 1970s, but outright declined through the 2010s. The city’s population has historically been a balance between natural growth and international inflows offsetting domestic outflows. In recent years outflows have dominated. Looking through the recent wobbles (both down and up) to the longer term trends, New York appears to be shrinking at the fastest pace since the 1970s. Five of the country’s ten largest cities have shrunk since the Covid pandemic began. But the pace of New York’s contraction—more than 3% between April 2020 and July 2024—is twice that of the next-fastest-shrinking city, Philadelphia. Los Angeles, New York’s closest peer, lost only half a percent of its population over the same period. Although New York has recently returned to growth on the back of surging international in-migration, about half of this is asylum seekers and humanitarian flows—these are different in nature than highly skilled immigrants, in terms of contribution to growth and tax base. Moreover, these flows are collapsing.

Takeaways by Macro Roundup® AI

  1. New York City's population fell more than 3% between April 2020 and July 2024, twice the rate of Philadelphia, the next-fastest-shrinking city, while Los Angeles lost only half a percent.
  2. Five of the ten largest U.S. cities have shrunk since the Covid pandemic began, and looking past short-term swings to longer-term trends, New York appears to be shrinking at its fastest pace since the 1970s.
  3. New York's return to growth rests on surging international in-migration, about half of it asylum seekers and humanitarian flows that differ from highly skilled immigration in contribution to growth and the tax base, and those flows are collapsing.

Related Articles:

  • The Clock Now Ticks on Zohran Mamdani — New York City's share of the nation's millionaires has fallen 30% since 2010 and major banks have expanded in Dallas and Atlanta as finance's share of city employment shrank. The author argues a proposed city tax plan would leave remaining high earners paying 60% of taxes.
  • As New Jobs In Finance Dry Up, New York City’s Fiscal Model Is Wilting — New York state's share of US taxpayers reporting over $1m in income fell from 12.7% in 2010 to 8.7% in 2022, and the Citizens Budget Commission estimates state and city income tax receipts from that group would have been $13bn higher had the share held. Job growth has concentrated in lower-paid health care and social assistance.
  • The Stationary Bandits of New York City — New York City's construction costs exceed international benchmarks: Paris installs metro platform edge doors for about €3.7m per station while the Metropolitan Transportation Authority says it needs $55m per station. The author argues stringent crane operator licensing and sidewalk shed regulations protect a small number of unionized contractors from competition.

Monday, December 8, 2025

AI Summary. China's trade surplus reached $1.1tn in 11 months, exceeding its previous full-year record, as strong export growth to the European Union and Africa more than offset a 29% drop in shipments to the US. France's president has warned the EU may impose tariffs if Beijing does not address the imbalance.

Bloomberg Staff Bloomberg
Date Posted:

China’s exports rose 5.9% y/y in November, driving China’s 2025 goods trade surplus to a record $1.1T.

Is China's trade surplus hitting a record despite falling US shipments?

Core argument: China amassed a trade surplus of $1.1 trillion in 11 months, surpassing the full-year record set in 2024.

As China navigated the trade war and growing economic protectionism around the world, the country amassed a surplus of $1.1 trillion, needing just 11 months to catapult it past a full-year record set in 2024. While shipments to the US plummeted 29% in November — the eighth month of double-digit declines and the biggest since August — strong growth in sales to regions like the European Union and Africa more than offset the slump. The display of export dominance is stirring waves of resentment abroad. French President Emmanuel Macron, who visited China last week, has warned the EU may take “strong measures,” including by imposing tariffs, should Beijing fail to address the imbalance.

Takeaways by Macro Roundup® AI

  1. China amassed a trade surplus of $1.1 trillion in 11 months, surpassing the full-year record set in 2024.
  2. Chinese shipments to the US fell 29% in November, the eighth month of double-digit declines and the biggest since August, while growth in sales to regions including the European Union and Africa more than offset the slump.
  3. French President Emmanuel Macron has warned that the EU may take "strong measures," including tariffs, should Beijing fail to address the trade imbalance.

Related Articles:

  • China Is Making Trade Impossible — 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.
  • 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.
  • 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.

AI Summary. China accounts for 17% of global GDP, and Goldman Sachs projects its current-account surplus will reach 1% of world GDP by 2029, larger than any country's since at least the late 1940s. Goldman estimates the historically positive spillover has turned negative, with faster Chinese growth now trimming growth elsewhere as cheaper goods fail to offset damage to rival manufacturers.

Greg Ip Wall Street Journal
Date Posted:

GS estimates that for every 1pp increase in Chinese GDP, advanced economies now experience a 0.1–0.3pp drag. Greg Ip notes that China used to be a driver of global growth, but its exports are now a headwind to growth in advanced economies.

Does faster Chinese growth now reduce growth elsewhere?

Core argument: Goldman estimates China's current-account surplus will reach 1% of world GDP by 2029, larger than any country's at least since the late 1940s, with China now accounting for 17% of global GDP.

Two decades ago, China’s economy was small enough that its trade surplus mattered little to the world. Today China accounts for 17% of global gross domestic product. Goldman estimates its surplus on the current account—the broadest definition of trade—will reach 1% of world GDP by 2029, larger than any country at least since the late 1940s. In the past, they wrote, 1% more output in China would raise the rest of the world’s output by 0.2% as it pulled in imports. In their new forecast, the Goldman team has concluded that the relationship has turned negative. China’s growth, they write, is being driven by its “leadership’s determination and capability to further advance manufacturing competitiveness and boost exports.” This is positive for other countries insofar as cheaper Chinese goods boost purchasing power. But that benefit is more than offset by the hit to their manufacturing sectors from Chinese competition. The upshot is that Goldman sees China growing about 0.6 percentage point a year faster over the next few years, but that will reduce the rest of the world’s growth by 0.1 point a year.

Takeaways by Macro Roundup® AI

  1. Goldman estimates China's current-account surplus will reach 1% of world GDP by 2029, larger than any country's at least since the late 1940s, with China now accounting for 17% of global GDP.
  2. Goldman concludes the spillover from Chinese growth has turned negative: where 1% more Chinese output once raised the rest of the world's output by 0.2%, China's export-driven expansion now subtracts from it.
  3. Goldman forecasts China growing about 0.6 percentage point a year faster over the next few years while reducing the rest of the world's growth by 0.1 point a year, as the hit to foreign manufacturing more than offsets cheaper Chinese goods.

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.
  • 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.
  • 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. Even as the Federal Reserve has cut its benchmark rate by 1.5 percentage points to a 3.75%-4% range, long-term Treasury yields have risen, with 10-year yields up nearly half a point to 4.1% and 30-year yields up over 0.8 point. New York Federal Reserve estimates show the term premium up nearly a full percentage point.

Ye Xie and Michael MacKenzie Bloomberg
Date Posted:

Since the start of the Fed’s cutting cycle,10-year yields have risen ~50bps to 4.1% and the 30-year yield has risen 80bps. The ~1pp rise in the term premium highlights the inability of the central bank to control long-term rates.

Do long-term Treasury yields rise even as the Fed cuts rates?

Core argument: Ten-year Treasury yields have risen nearly 0.5 percentage point to 4.1% and 30-year yields over 0.8 percentage point since the Federal Reserve began easing in September 2024, even as the Fed cut its benchmark rate by 1.5 percentage points to 3.75%–4%.

The Fed started pulling its benchmark rate down from a more than two-decade high in September 2024 and has since cut it by 1.5 percentage points to a range of 3.75% to 4%. Traders see another quarter point cut after the next meeting on Wednesday as virtually assured and are pricing in two more such moves next year, which would bring its rate to around 3%. Yet, key Treasury yields — which serve as the main baseline for the borrowing costs paid by American consumers and corporations — haven’t come down at all. Ten-year yields have risen nearly half a percentage point to 4.1% since the Fed started easing policy and 30-year yields are up over 0.8 percentage point. The [term premium] has risen nearly a full percentage point since the rate-cut cycle began, according to the New York Fed estimates.

Takeaways by Macro Roundup® AI

  1. Ten-year Treasury yields have risen nearly 0.5 percentage point to 4.1% and 30-year yields over 0.8 percentage point since the Federal Reserve began easing in September 2024, even as the Fed cut its benchmark rate by 1.5 percentage points to 3.75%–4%.
  2. Traders treat a further quarter-point cut at the Federal Reserve's next meeting as virtually assured and are pricing in two more such moves next year, which would bring the Fed's rate to around 3%.
  3. The term premium has risen nearly a full percentage point since the rate-cut cycle began, according to New York Fed estimates, and Treasury yields serve as the main baseline for borrowing costs paid by American consumers and corporations.

Related Articles:

  • Political Pressure on the Fed — Using data on President–Federal Reserve interactions, the author estimates that political pressure to ease monetary policy raises the price level strongly and persistently without boosting real activity, working through inflation expectations more than a typical easing. Such pressure occurred mainly in the 1970s and contributed to inflationary episodes.
  • The Race Between Asset Supply and Asset Demand — The authors estimate that demand for assets has outpaced supply by roughly 400% of GDP versus 100%, making rising asset demand the leading contributor to falling interest rates. They project that debt sustainability requires fiscal consolidation exceeding 10% of GDP, though debt could reach 250% of GDP without raising interest rates.
  • 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. U.S. households now hold roughly 40% of financial wealth in equities, up from about 32% in 2000, with equity holdings worth about 250% of annual consumption versus 160%. Applying a 3% marginal propensity to consume out of equity wealth, the author estimates a 50% stock-market fall would cut consumption 3.8% and GDP 2.6%.

Jesper Rangvid Rangvid's Blog
Date Posted:

Given US households’ higher stock market exposure today relative to 2000, a stock market correction on the scale of the dot-com crash would imply a reduction in consumption of 3.8% and GDP of 2.6%.

How much would a 50% stock-market decline reduce consumption and GDP?

Core argument: Applying a 3% marginal propensity to consume out of equity wealth to roughly USD 21 trillion of U.S. personal consumption implies a 50% equity-market decline would cut aggregate consumption by about 3.8% and GDP, at roughly USD 30.5 trillion, by about 2.6%.

In early 2000, U.S. households held around USD 11 trillion in equities and USD 34 trillion in total financial wealth, giving an equity share of roughly 32%. When the stock market fell by 50% after the dot-com crash, households therefore lost about USD 5.5 trillion. Applying [a] 3% marginal propensity to consume out of equity implies a fall in consumption of roughly USD 165 billion. Total consumption at the time was about USD 6.8 trillion, so the percentage decline in consumption was around 2.4%. In 2000, U.S. households had allocated around 32% of their financial wealth to equities. Today, that share is a quarter higher, at roughly 40%. In 2000, the value of [US households’ equity] holdings amounted to about 160% of annual consumption. Today, the ratio is closer to 250%. Total personal consumption expenditure in the U.S. is around USD 21 trillion. The percentage decline in aggregate consumption thus amounts to 3.8% for a 50% stock-market fall. U.S. GDP is roughly USD 30.5 trillion; consumption accounts for about two-thirds of it. This implies that GDP would decline by 2.6% if the market falls 50%. Since 2000, annual real GDP growth has averaged around 2.2%, and consumption growth about 2.5%. If these figures represent “normal” growth, a 20% equity-market decline would not on its own trigger a recession. A 50% decline, by contrast, likely would.

Takeaways by Macro Roundup® AI

  1. Applying a 3% marginal propensity to consume out of equity wealth to roughly USD 21 trillion of U.S. personal consumption implies a 50% equity-market decline would cut aggregate consumption by about 3.8% and GDP, at roughly USD 30.5 trillion, by about 2.6%.
  2. U.S. households hold roughly 40% of financial wealth in equities, a quarter higher than the roughly 32% share in early 2000, with equity holdings equal to about 250% of annual consumption versus about 160% then.
  3. With U.S. real GDP growth averaging about 2.2% and consumption growth about 2.5% since 2000, a 20% equity-market decline would not on its own trigger a recession, while a 50% decline likely would.

Related Articles:

  • AI Bubble Burst: How Severe A Recession Will It Trigger? Part I — The cyclically adjusted price-earnings ratio stands at 40, below its all-time high of 44.2 but above the level reached at the onset of the Great Depression. Using only the prior year's earnings gives a less extreme reading, yet the standard price-earnings ratio still sits near the 95th percentile of its historical distribution.
  • Why We Are Not In A Bubble….Yet — The 5 largest US technology companies are worth about 16% of the global public equity market, and the top 10 US stocks nearly 25%, almost $25tn. The author argues valuations are high but not bubble-level, with the "Magnificent 7" median forward price-to-earnings ratio at 27x, roughly half that of the late-1990s leaders.
  • Surviving the AI Capex Boom — Capital spending by the largest US technology companies has risen from 4% to 15% of revenue since 2012, approaching the capital intensity of utilities, with Meta, Microsoft, and Alphabet each set to spend 21–35% of revenue. The authors argue this shift toward asset-heavy models is associated with inferior returns.

AI Summary. The share of middle-class disposable income spent on essentials — healthcare, childcare, housing and food — has climbed from just over a third to half. Total household spending as a share of income remains broadly in line with its historical average, offset by falling prices for clothes, electronics, appliances and other mass-produced goods.

John Burn-Murdoch Financial Times
Date Posted:

Since 1985, the share of income the US middle class spends on “essentials” has risen from 1/3 to 1/2. Burn-Murdoch notes, “the squeeze and the prosperity are two sides of the same coin” as the relative price of labour-intensive services rises over time.

Why do households feel poorer when overall spending shares are unchanged?

Core argument: Spending on unavoidable essentials has risen from just over a third of middle-class disposable income to half, with healthcare up 3 percentage points, housing up 4, childcare up 2, and food up 1.

The share of income the middle class spends on essential categories has risen significantly over both the long and shorter term. Add together the increased portion of incomes accounted for by healthcare (up by 3pp over recent decades), childcare (up 2pp), housing (up 4 pp) and food (up 1pp in recent years), and total spending on these unavoidable costs has climbed from just over a third of middle class disposable income to half of the total. But this squeeze from essentials has not led to an increase in the share of income American households spend in total across all categories, which is broadly in line with the historical average — even slightly down on where it was when all of these things were cheaper in real terms. This has been made possible primarily by dramatic falls in the price of clothes, electronics, household appliances and other mass-produced tradeable goods, which have more than offset the rise in essential services. Even if people keep consuming the exact same basket of goods and services, as living standards in their country increase they will find more and more of their spending is going on essential services.

Takeaways by Macro Roundup® AI

  1. Spending on unavoidable essentials has risen from just over a third of middle-class disposable income to half, with healthcare up 3 percentage points, housing up 4, childcare up 2, and food up 1.
  2. Total US household spending across all categories as a share of income remains broadly in line with the historical average, and slightly below its level when essentials were cheaper in real terms.
  3. Falling prices for clothes, electronics, household appliances and other mass-produced tradeable goods have more than offset the rising cost of essential services.

Related Articles:

  • Our Economy Is Not Stagnant — A national survey found 56% of Americans believe life in America today is worse than 50 years ago, but income data conflict with this perception of long-run decline. The typical year-round male worker earned $74,000 in 2023 including benefits and employer taxes, 46% above 1973, while the typical woman's earnings rose 121%.
  • Don’t Choose Your Own Adventure: Understanding Middle-Class Earnings Trends — Using a standard price index, US men's earnings were flat from 1973 to 1989 and rose 0.4% a year thereafter, while an alternative middle-class cost-of-living index shows 0.7% annual growth in both periods and a 40% total rise instead of 13%. The author attributes weak growth to 1970s stagflation and early-1980s recessions rather than trade, immigration, or income concentration.
  • The American Dream Is Not a Coin Flip, and Wages Have Not Stagnated — Using an alternative cost-of-living adjustment, the typical 40-year-old's pre-tax family income rose 52% between 1979 and 2019, or 73% adjusting for family size, versus 15% under the methods behind widely cited mobility estimates. Absolute mobility is down 20 percentage points since 1979 but stood at 72% in 2023.

AI Summary. Home ownership functions as the modern marker of full participation in American society, and while most people's incomes have risen faster than the cost of a broad basket of consumer goods, housing has become substantially less affordable over the past generation. The author argues encouraging more housing construction is the most important element of a long-run affordability agenda.

Paul Krugman Paul Krugman Substack
Date Posted:

Krugman highlights two concrete facts that help explain the social frustration reflected in discussions of “affordability:” the income of the young hasn’t kept pace with the price of starter homes, and the job-finding rate has fallen in the last year.

Is home ownership the key to affordability in America?

Core argument: Most Americans have seen real incomes rise as wages and other incomes outpaced the cost of a broad basket of consumer goods, while houses have become substantially less affordable over the past generation.

In today’s America, a key component in our general sense of affordability is the ability to acquire the modern equivalent of an 18th century linen shirt - something that both publicly and privately allows you to be a full participant in society. So what is our modern equivalent of a linen shirt? I would say home ownership. What makes the social importance of home ownership relevant to the affordability discussion is that while most people have seen their real incomes rise despite inflation - that is, wages and other incomes have risen faster than the cost of a broad basket of consumer goods - houses have become substantially less affordable over the past generation. Encouraging more housing construction is arguably the most important aspect of a long-run affordability agenda. Although the unemployment rate has risen since last year, it is still relatively low by historical standards. Yet the labor market is effectively “frozen”: employers aren’t firing a lot of people, but they aren’t hiring many people either.

Takeaways by Macro Roundup® AI

  1. Most Americans have seen real incomes rise as wages and other incomes outpaced the cost of a broad basket of consumer goods, while houses have become substantially less affordable over the past generation.
  2. Home ownership is the modern equivalent of the 18th century linen shirt, the good that allows full participation in society, and encouraging more housing construction is arguably the most important part of a long-run affordability agenda.
  3. The U.S. unemployment rate has risen since last year but remains relatively low by historical standards, while the labor market is effectively frozen, with employers neither firing nor hiring many workers.

Related Articles:

  • Affordability, Part I — Conventional data show wages have outpaced inflation for most workers, contradicting the narrative that prices have outrun incomes; the Consumer Price Index used to calculate real wages excludes borrowing costs. Many Americans rely on credit for homes and cars, and the ability of young Americans to buy first homes has deteriorated substantially.
  • The Middle Class Is Buckling Under Almost Five Years of Persistent Inflation — US prices for goods and services are 25% above 2020 levels, and 44% of middle-income respondents in the University of Michigan consumer sentiment survey said their finances were worse than a year earlier versus 23% who said better, with most citing higher prices. Retailers report middle-income customers pulling back on discretionary spending.
  • 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.