Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, December 31, 2025

AI Summary. Since 1990, U.S. output growth has come mostly from productivity gains rather than hours worked, with productivity growing faster than hours in every period; productivity grew roughly 2.5x as fast as hours from 2007 to 2019 and more than 4x as fast from 2019 to 2024. Output growth decelerated from 1990 to 2019 before a moderate resurgence after 2019.

Nathan Modica U.S. Bureau of Labor Statistics
Date Posted:
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US labor productivity grew a bit faster in 2019–2024 than in 2007–2019, but fell short of its 2000–2007 rate. Post-1990, output growth has been on a mostly downward trajectory, largely due to a decline in the growth of hours worked.

Does productivity or hours worked drive most U.S. output growth?

Core argument: Productivity grew more than four times as fast as hours worked in 2019–24 and roughly two and a half times as fast in 2007–19, with productivity outpacing hours growth in every period since 1990.

Since 1990, output growth at the macroeconomic level has come mostly from increases in productivity, rather than hours worked. Output growth decelerated from 2000 to 2007, and again from 2007 to 2019, but accelerated somewhat after 2019. Hours worked showed the most significant deceleration from 2000–07 and modest growth over the past two business cycles. The end dates for the periods on the chart align with business cycles. Overall, the chart displays a decelerating trend in the annual percent changes for output from 1990 to 2019, with a moderate resurgence, so far, after 2019. Productivity grew faster than hours worked in all periods. Hours growth flattened during the 2000–07 “jobless recovery,” after the “dot-com bust” recession. Productivity growth was responsible for nearly all output growth during this period. Finally, a weak but stable growth trend for hours worked appeared in the two periods from 2007–24. In the 2007–19 period, productivity grew roughly two and a half times as fast as hours worked. In the 2019–24 period, productivity then grew more than four times as fast as hours worked. However, productivity growth in the last two business cycles—so far—has remained a little slower than in the 1990–2007 periods.

Takeaways by Macro Roundup® AI

  1. Productivity grew more than four times as fast as hours worked in 2019–24 and roughly two and a half times as fast in 2007–19, with productivity outpacing hours growth in every period since 1990.
  2. Output growth decelerated from 1990 to 2019, slowing in 2000–07 and again in 2007–19, before accelerating somewhat after 2019.
  3. Hours worked flattened during the 2000–07 "jobless recovery" following the dot-com bust recession, when productivity growth accounted for nearly all output growth, while productivity growth in the last two business cycles has run a little slower than in 1990–2007.

Related Articles:

  • SF FedViews: Solid Growth, but Small Cracks Have Emerged — Since the second half of 2023, four-quarter US productivity growth has averaged nearly 2.5%, well above the pre-pandemic trend of about 1% to 1.25%, supporting real GDP growth. It remains unclear whether this reflects a higher productivity regime fostered by rising AI use or a temporary post-pandemic reorganization surge.
  • OECD Economic Outlook, Volume 2025 Issue 2: Resilient Growth But With Increasing Fragilities — U.S. real GDP grew at a 1.1% annualized rate over the first half of 2025, but excluding booming AI-related investment output contracted 0.1%, with non-AI investment weakening. The OECD identifies a correction in equity markets lifted by expectations of high AI returns as a key downside risk to its projections.
  • Europe’s Tech Lag: Does It Matter? — If technology producers face competition, faster measured productivity growth in a tech-specialized country is passed to consumers in both countries through lower prices rather than higher relative living standards. Real GDP per worker over 1998-2024 diverged more between California and the rest of the US than between the US and Europe, largely reflecting industry composition.

AI Summary. Working hours of prime-age adults have been stable across regions over decades, including roughly a century of stability in the US apart from a dip during the Great Depression. This masks offsetting gender trends: hours generally rise for prime-age women and fall for prime-age men, a pattern the authors attribute to broader societal trends as well as economic development.

Amory Gethin and Emmanuel Saez National Bureau of Economic Research
Date Posted:
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Twenty-year time series in 87 countries show stable hours of work for prime-age adults over decades; US hours are stable over a century. Almost universally, prime-age males’ decreasing hours are closely offset by rising prime-age female participation.

Have working hours of prime-age adults stayed stable across regions and decades?

Core argument: Working hours of prime-age adults show striking stability across regions, with the U.S. series nearly flat over a century apart from the Great Depression dip in the 1930s, and Europe and Latin America stable over four decades or more.

Panel (a) in Figure 10 shows striking stability over decades of hours of work of prime-age adults in each region/country. The U.S. series displays almost perfect stability over a century (except for the Great Depression dip in the 1930s). Developing countries tend to show a slight increase, perhaps most marked in Sub-Saharan Africa. Europe and Latin America, where we have the most comprehensive set of countries, show almost perfect stability over four decades or more. However, this stability of prime-age hours over time masks striking offsetting trends by gender. Figure 10, panel (b) repeats the same time series analysis but disaggregated by gender. Working hours generally increase for prime-age women while they symmetrically decrease for prime-age men, explaining the stability in panel (a). The increase in female hours is almost universal. It is visible both in regions that have grown slowly such as Latin America and in fast growing countries such as Indonesia or Pakistan. The decrease for men comes from the intensive margin while the increase for women comes from the extensive margin. This suggests that this process is not solely related to economic development but also reflects broader societal trends.

Takeaways by Macro Roundup® AI

  1. Working hours of prime-age adults show striking stability across regions, with the U.S. series nearly flat over a century apart from the Great Depression dip in the 1930s, and Europe and Latin America stable over four decades or more.
  2. Aggregate stability in prime-age hours masks offsetting gender trends, as hours generally rise for prime-age women and symmetrically fall for prime-age men, with the increase in female hours almost universal across slow-growing Latin America and fast-growing Indonesia and Pakistan.
  3. The decline in men's hours comes from the intensive margin while the rise in women's hours comes from the extensive margin, suggesting the process reflects broader societal trends rather than economic development alone.

Related Articles:

  • Comparing EU-to-US Output Per Hour — European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.
  • America is Still Working — US hours worked per person fell 7% between 2000 and 2022, a decline attributable entirely to the employment rate falling from 70% to 65%. Hours now sit roughly at their level in the first years after World War II, 23% below 1900.
  • “Giving Up”: The Impact of Decreasing Housing Affordability on Consumption, Work Effort, and Investment — Survey data show that among renters with net worth below $300,000, 4–6% say always giving their best effort at work is "not important," roughly twice the 2–3% rate among homeowners at all net worth levels; renters with net worth above $300,000 resemble homeowners. The authors argue that abandoning the aspiration of homeownership may reduce the value of additional work effort.

AI Summary. The US dollar has fallen 9.5% against a basket of major currencies over the year, with the euro gaining nearly 14% to above $1.17, a level last reached in 2021. The decline followed aggressive US tariffs on trading partners, which raised concerns about the economy and the dollar's haven status, and continued as the Federal Reserve resumed rate cuts.

Ian Smith Financial Times
Date Posted:

The dollar has fallen 9.5% against a basket of major currencies in 2025, with the euro seeing the biggest gains. The euro rose 14% relative to the dollar, reaching $1.17, its highest level since 2021, despite stagnation in Europe.

Have tariffs and rate cuts driven the dollar sharply lower?

Core argument: The dollar has fallen 9.5% against a basket of major currencies this year, its steepest annual drop in almost a decade, after President Donald Trump's trade war sparked fears for the US economy and doubts about the dollar's haven status.

The greenback has slumped 9.5% against a basket of major currencies this year, after US President Donald Trump’s trade war sparked fears for the world’s biggest economy and cast doubt over the dollar’s traditional status as a haven for investors. The euro has had the biggest gain of the major currencies against the faltering dollar, surging nearly 14% to above $1.17, a level last reached in 2021. While the dollar’s initial weakness was triggered by Trump’s launch of aggressive tariffs against the US’s trading partners in April - it was at one point down 15% against major currencies before regaining some ground - the Fed’s resumption of rate cuts in September has kept it under pressure.

Takeaways by Macro Roundup® AI

  1. The dollar has fallen 9.5% against a basket of major currencies this year, its steepest annual drop in almost a decade, after President Donald Trump's trade war sparked fears for the US economy and doubts about the dollar's haven status.
  2. The euro has posted the biggest gain among major currencies against the dollar, rising nearly 14% to above $1.17, a level last reached in 2021.
  3. The dollar's weakness was triggered by Trump's launch of aggressive tariffs in April, when it fell at one point 15% against major currencies before regaining some ground, and the Federal Reserve's resumption of rate cuts in September kept it under pressure.

Related Articles:

  • 2026 Outlook: Tech Tonic — A Broadening Bull Market — Most major equity markets have outperformed the US, with Europe, China and Asia generating almost double US total returns in dollar terms and gains of 54% in Italy, 73% in Spain and 71% in Korea. US returns have been driven by strong earnings, particularly in technology, while Europe's have come largely from rising valuations.
  • Gold and Silver Rise to Records on Rate-Cut Bets, Global Risks — Gold reached a record high amid escalating geopolitical tensions and expectations of further US interest-rate cuts, rising as much as 1.2% to just below $4,500 an ounce. Silver also set an all-time peak near $70 an ounce, with its roughly 140% rally supported by speculative inflows and lingering supply dislocations across major trading hubs.
  • The Debasement Trade Roars Back — Currencies of low-public-debt countries such as Switzerland and Sweden are showing increasing correlation with daily moves in gold and silver prices. Sweden's krona has traditionally been highly volatile without safe-haven attributes, a pattern the article attributes to the "debasement trade.

AI Summary. Nearly 30% of Chinese industrial firms operate at a loss, up from around 20% before the pandemic. The loss-making share has grown faster in sectors with high asset growth, reaching 34% versus 28% in low-asset-growth sectors.

J. Scott Davis and Brendan Kelly Federal Reserve Bank of Dallas
Date Posted:

Almost 34% of Chinese industrial firms in the high-growth asset sectors, and 28% in the low-growth sectors, were operating at a loss in 2025. Overall, ~30% of Chinese industrial firms are losing money.

Is rapid capacity expansion driving rising losses among Chinese industrial firms?

Core argument: Nearly 30% of Chinese industrial firms currently operate at a loss, up from roughly 20% before the pandemic, with the share rising again since early 2022 after returning to prepandemic levels by early 2021.

Many Chinese industrial firms are losing money. For all industrial firms, this share was around 20% before the pandemic, spiked during the pandemic and returned to prepandemic levels by early 2021. The share has risen again since early 2022; nearly 30% of all industrials in China operate at a loss currently. In early 2022, the loss-making share among high- and low-growth asset groups was about the same. Since then, the loss-making share has grown more quickly in the high-growth asset sectors, reaching 34% in August 2025, compared with 28% in the low-growth asset sectors.

Takeaways by Macro Roundup® AI

  1. Nearly 30% of Chinese industrial firms currently operate at a loss, up from roughly 20% before the pandemic, with the share rising again since early 2022 after returning to prepandemic levels by early 2021.
  2. Among China's high-growth asset sectors, the loss-making share reached 34% in August 2025 versus 28% in low-growth asset sectors, after the two groups stood at about the same level in early 2022.

Related Articles:

  • Macro Outlook 2026: Sturdy Growth, Stagnant Jobs, Stable Prices — China's growth is forecast at 4.8%, above the 4.5% consensus, with robust manufacturing offset by a housing drag on output estimated at about 1.5 percentage points as property sales run 60% below peak. Strong manufacturing and weak domestic demand are projected to lift China's current account surplus toward 1% of global output.
  • China’s Economy: Rightsizing 2025, Looking Ahead to 2026 — The authors argue China's official growth figures are inconsistent with ten consecutive quarters of deflation, estimating that real GDP is around 11% below official levels, with most of the adjustment in investment. That would imply a drop of roughly 9 percentage points in China's share of global investment, helping explain its export surge.
  • 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 trains more rare-earth technicians and researchers than any other country, with rare-earth programs offered at 39 universities, while the United States and Europe have none. Beijing has halted most exports of rare-earth processing equipment and confiscated the passports of rare-earth technicians to keep expertise from leaving the country.

Keith Bradsher New York Times
Date Posted:

China produces 90% of the world’s rare earths and rare-earth magnets. This dominance of the sector was a decades-long effort; in an effort to protect its near-monopoly, China recently has taken away the passports of rare-earth technicians.

How does China maintain its lead in rare-earth expertise?

Core argument: China offers rare-earth programs at 39 universities and trains more technicians and researchers in the field than any other country, while the United States and Europe offer no such programs.

Today, China is working to cement its lead in rare earths by churning out more trained technicians and researchers than any other country. Programs in rare earths are offered by 39 universities. The United States and Europe have no such programs — not even at Iowa State University, an institution that once trained generations of American engineers in rare earths. Iowa State has not offered a course in rare earths for the last several years and has one graduate student doing independent study in the field. It plans to offer a course next year. China is determined to guard its technological lead. Beijing has halted most exports of rare-earth processing equipment. It has also taken away the passports of rare-earth technicians to prevent them from leaving the country with valuable information.

Takeaways by Macro Roundup® AI

  1. China offers rare-earth programs at 39 universities and trains more technicians and researchers in the field than any other country, while the United States and Europe offer no such programs.
  2. Iowa State University, which once trained generations of American rare-earth engineers, has not offered a rare-earths course for several years and has one graduate student doing independent study, with a course planned for next year.
  3. Beijing has halted most exports of rare-earth processing equipment and taken away the passports of rare-earth technicians to prevent them from leaving China with valuable information.

Related Articles:

  • How Japan Built a Rare-Earth Supply Chain Without China — Japan has reduced its reliance on Chinese rare earths, with industry estimates putting China's share of Japanese rare-earth imports at roughly 60% to 70%, down from 90% or more. Japan's alternative chain runs from an Australian open-pit mine through a separation plant in Malaysia to Japanese magnet makers supplying automakers.
  • How U.S. Defense Industry Dodged a Rare-Earth Shortage After China’s Curbs — A decades-old stockpile of samarium nitrate held at a chemical plant in France was refined into usable metal, allowing a U.S. maker of samarium-cobalt magnets to source the rare-earth material outside China. Samarium processed outside China costs 5–8x as much, and the French plant had stopped separating rare-earth elements as uneconomical.
  • Why China Keeps Winning The Trade War — Governments seeking supply-chain leverage face limited visibility into their own supply chains, and China's rare earth licensing requirements for multinationals may be partly intended to give Beijing that visibility and allow more precise targeting of future restrictions. Effective measures must impose asymmetric costs, and keeping foreign manufacturers dependent on drip-fed supply is central to Beijing's strategy.

Friday, January 2, 2026

AI Summary. The four largest cloud computing firms are devoting rising shares of revenue to capital spending and research, with Meta's combined share reaching 70%. Unlike past investment booms, this one has been financed mostly from internal cash flow: 28 direct AI stocks make up 50% of S&P 500 market value but just 5% of its net debt.

Michael Cembalest J.P. Morgan
Date Posted:
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Despite hyperscaler spending on capex/R&D, debt financing remained well under late 1990s levels as of Q32025. Even with the Q4 surge in AI-related debt, “free cash flow to revenue for most direct AI companies exceeds the S&P 500’s by a wide margin.”

How are the largest cloud firms financing their AI spending?

Core argument: Meta's capital spending and R&D have reached a new high of 70% of revenue, and the company said on its Q3 earnings call that it would "aggressively ramp up spending to stay competitive in the AI arms race.".

The four hyperscalers are spending increasingly large shares of revenue on capital spending and R&D. Meta’s capex and R&D share of revenue is hitting new highs at 70%, and the company mentioned on its Q3 earnings call that it would “aggressively ramp up spending to stay competitive in the AI arms race.” But unlike capital spending booms of the past (casinos, airlines, fiber optic cable, gas turbines), the latest one has been mostly financed via internally generated cash flow…until very recently. Our universe of 28 direct AI stocks represents 50% of S&P 500 market cap and just 5% of S&P 500 net debt. Despite the recent rise in capex, the amount financed by debt was still very low as of Q3 2025 in contrast to the late 1990’s. Even after accounting for the Q4 surge in AI-related debt, many AI companies have net debt to cash flow ratios less than zero since cash and securities exceed total debt. That said, credit markets are picking up on the shift from cash flow to debt financing. Since we highlighted Oracle’s challenges in September, its stock is down ~35% and its credit spreads have risen by 90 bps. Free cash flow to revenue for most direct AI companies exceeds [that of] the S&P 500 by a wide margin, although hyperscaler cash balances are falling as a share of assets.

Takeaways by Macro Roundup® AI

  1. Meta's capital spending and R&D have reached a new high of 70% of revenue, and the company said on its Q3 earnings call that it would "aggressively ramp up spending to stay competitive in the AI arms race.".
  2. A universe of 28 direct AI stocks accounts for 50% of S&P 500 market capitalization but just 5% of S&P 500 net debt, with debt-financed capex still very low as of Q3 2025 in contrast to the late 1990s.
  3. Oracle's stock is down about 35% and its credit spreads have risen 90 basis points since September, while hyperscaler cash balances are falling as a share of assets even as free cash flow to revenue for most direct AI companies exceeds the S&P 500 by a wide margin.

Related Articles:

  • Is It a Bubble? — Transformational technologies have historically generated excessive enthusiasm and investment, producing more infrastructure than needed, asset prices that prove too high, and losses for those funding them, while also accelerating adoption. AI enthusiasm is argued to fit this pattern, with debt financing having the potential to magnify the effects.
  • Investors Seek Protection From Risk Of AI Debt Bust — Trading volumes in credit default swaps — insurance-like contracts against debt defaults — tied to major US technology companies including Alphabet, Amazon, Broadcom, CoreWeave, Meta, Microsoft and Oracle have risen 90%, according to clearinghouse DTCC data. The increase is most pronounced for Oracle and CoreWeave, both raising billions in debt for data centre capacity.
  • 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.

AI Summary. SpaceX, OpenAI and Anthropic are preparing initial public offerings without yet setting valuation targets, while each pursues new private funding. OpenAI, valued at $500bn, is in early talks to raise tens of billions of dollars at $750bn or more; SpaceX is working on a share sale valuing it at $800bn, and investors expect Anthropic to be valued above $300bn.

George Hammond Financial Times
Date Posted:

The three most valuable private American technology firms, SpaceX, OpenAI and Anthropic, are planning on going public in 2026. The groups are currently still raising private capital.

Are the largest private technology companies preparing to go public?

Core argument: SpaceX, OpenAI and Anthropic are preparing IPOs but have yet to set valuation targets.

The groups have yet to set IPO valuation targets. OpenAI, which is currently valued at $500bn, is engaged in discussions with investors about a new fundraise at a valuation of $750bn or more. Those talks are at an early stage, but OpenAI is likely to raise tens of billions of dollars in new funds, the people said. SpaceX is working on a secondary stock sale that would value it at $800bn, according to multiple people with knowledge of the deal. Anthropic is also in talks for new funding, which investors expect will value the company at more than $300bn.

Takeaways by Macro Roundup® AI

  1. SpaceX, OpenAI and Anthropic are preparing IPOs but have yet to set valuation targets.
  2. OpenAI, valued at $500bn, is in early-stage talks with investors about a fundraise at a valuation of $750bn or more and is likely to raise tens of billions of dollars.
  3. SpaceX is working on a secondary stock sale that would value it at $800bn, while Anthropic is in funding talks that investors expect will value it above $300bn.

Related Articles:

  • The Deep End: 2025 Alternative Investments Review — In venture capital, only consistently investing with top-quartile managers outperformed the S&P 500, while the median manager at best matched public equity markets and fourth-quartile managers destroyed value relative to equities. Fees are part of the issue: an 11.7% annualized NASDAQ 100 return falls to 7.4% under a 2%/20% fee structure.
  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks — A study of about 64,000 global stocks estimates net global stock market wealth creation of $75.7tn, with returns highly concentrated: the top 159 firms (0.25%) account for half of net wealth creation and the top 1,526 (2.39%) account for all of it. Fewer than half of stocks beat one-month US Treasury bills, 42.6% of non-US and 44.8% of US stocks.

AI Summary. Long-maturity US Treasuries have come under pressure as investors weigh the potential for further Federal Reserve interest-rate cuts to stoke inflation, following an annual return of more than 6% on a Bloomberg index tracking the sector. A measure of expected US bond-market volatility has slumped to multi-year lows.

Ye Xie, Ruth Carson and David Finnerty Bloomberg
Date Posted:

In 2025, Treasuries delivered a return of more than 6%, as 10-year yields declined from almost 4.8% at the start of the year to 4.18% today. However, U. S. 10-year yields remain higher today than at the start of the Fed’s cutting cycle in September 2024.

Are long-maturity Treasuries falling on inflation concerns after a strong year?

Core argument: A Bloomberg index tracking US Treasuries returned more than 6% in 2025, the sector's biggest annual gain in five years, despite volatility during the year.

Long-maturity Treasuries began 2026 on the defensive following the market’s biggest annual gain in five years, as investors focused on the potential for additional Federal Reserve interest-rate cuts to stoke inflation. For all the volatility, 2025 proved to be a good year for US Treasuries with a Bloomberg index tracking the sector delivering a return of more than 6%. A measure of expected US bond-market volatility has also slumped to the lowest levels since early 2022.

Takeaways by Macro Roundup® AI

  1. A Bloomberg index tracking US Treasuries returned more than 6% in 2025, the sector's biggest annual gain in five years, despite volatility during the year.
  2. Long-maturity Treasuries fell at the start of 2026 as investors focused on the potential for additional Federal Reserve rate cuts to stoke inflation.
  3. A measure of expected US bond-market volatility has slumped to its lowest level since early 2022.

Related Articles:

  • A Mystery in Fixed Income — Long-term interest rates have drifted higher than short-term rates and oil prices would predict, an unusual pattern during Federal Reserve rate-cutting cycles. Proposed explanations include investor concern about growing Treasury debt issuance or an effective increase in the Federal Reserve's 2% inflation target.
  • 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. China's economy features intense market competition, with firms continually expanding into each other's core businesses, a dynamic the author argues involves greater capitalist competition and greater capitalist excess than in the United States. The author attributes China's sideways-trending stock market in part to profits being competed away.

Dan Wang The Secure Transport Of Light
Date Posted:

Dan Wang argues that the domestic “ferocity of market competition” is the most underrated part of the Chinese system, which in part explains the poor relative performance of Chinese equities as “everyone’s profits are competed away.”

Does fiercer market competition in China compete away corporate profits?

Core argument: The letter argues that the ferocity of market competition is the most underrated feature of the Chinese system, with China embodying both greater capitalist competition and greater capitalist excess than America today.

The most underrated part of the Chinese system is the ferocity of market competition. It’s excusable not to see that, given that the party espouses so much Marxism. I would argue that China embodies both greater capitalist competition and greater capitalist excess than America does today. Part of the reason that China’s stock market trends sideways is that everyone’s profits are competed away. Big Tech might enjoy the monopolistic success smiled upon by Peter Thiel, coming almost to genteel agreements not to tread too hard upon each other’s business lines. Chinese firms have to fight it out in a rough-and-tumble environment, expanding all the time into each other’s core businesses, taking Jeff “your margin is my opportunity” Bezos with seriousness.

Takeaways by Macro Roundup® AI

  1. The letter argues that the ferocity of market competition is the most underrated feature of the Chinese system, with China embodying both greater capitalist competition and greater capitalist excess than America today.
  2. China's stock market trends sideways in part because firms compete away each other's profits, according to the letter, while Chinese companies constantly expand into each other's core businesses.
  3. The letter contrasts Chinese firms' rough-and-tumble environment with US Big Tech's monopolistic success of the kind smiled upon by Peter Thiel, marked by near-genteel agreements not to tread on each other's business lines.

Related Articles:

  • The Real China Model — China generates more electricity annually than the United States and European Union combined, having added capacity equivalent to the United Kingdom's total supply each year. Electricity makes up nearly 30% of China's energy use, versus 22% in the US and 21% globally, and its share is growing about 6% a year.
  • Litigation Nation, Engineering Empire — Regrouping US college majors to match Chinese disciplines yields a 2:1 ratio of science and engineering to humanities and social sciences, the same ratio as in China. The author argues America's building slowdown reflects structural economic shifts—urbanization reached 70% by 1960 and 85% by 2020, shifting needs toward maintenance—rather than a lawyerly culture.
  • 2026 Outlook: Tech Tonic — A Broadening Bull Market — Most major equity markets have outperformed the US, with Europe, China and Asia generating almost double US total returns in dollar terms and gains of 54% in Italy, 73% in Spain and 71% in Korea. US returns have been driven by strong earnings, particularly in technology, while Europe's have come largely from rising valuations.

AI Summary. Firm-level data indicate the share of Chinese non-financial firms' assets held by "zombie" companies — those whose operating earnings fall short of their interest expenses — rose from 5% to 16% between 2018 and 2024, with real estate highest at 40%, services at 17% and manufacturing at 11%.

J. Scott Davis and Brendan Kelly Federal Reserve Bank of Dallas
Date Posted:

Btw 2018 and 2024, the share of assets of all Chinese non-financial firms held by “zombie firms” whose operating earnings fell short of interest expenses rose from 5% to 16%, reminiscent of 1990s Japan. The real estate sector’s zombie share reached 40%.

Is the share of Chinese firms' assets held by zombie companies rising?

Core argument: The share of assets held by zombie firms among Chinese non-financial firms rose from 5% to 16% between 2018 and 2024, with firms classified as zombies when EBITDA falls short of interest expense.

There is mounting evidence of “zombie lending” in China, banks rolling over bad loans to unprofitable firms and allowing the status quo to continue rather than recognize losses. In many ways the current experience in China mirrors that of Japan in the 1980s and 1990s. Using firm-level financial data for Chinese firms, we can calculate zombie shares for Chinese sectors. We classify a firm as a zombie in a given year if its EBITDA (earnings before interest, taxes, depreciation and amortization, also known as operating earnings) is less than its interest expense. That is, a firm is a zombie if it does not earn enough from operations to meet interest expenses. The firm would be insolvent if not for continued funding from banks. The share of assets for all Chinese non-financial firms held by zombie firms rose from 5% to 16% from 2018 to 2024. The real estate sector has by far the highest zombie share, rising from 6% to 40%, consistent with China’s extended property sector downturn. The zombie share in manufacturing has risen fairly rapidly from a low of 4% in 2020 to 11% in 2024. With a sustained decline in industrial profits, this share looks likely to continue growing. Yet, China’s services sector has a higher proportion of zombie firms, increasing over the past several years to 17% in 2024.

Takeaways by Macro Roundup® AI

  1. The share of assets held by zombie firms among Chinese non-financial firms rose from 5% to 16% between 2018 and 2024, with firms classified as zombies when EBITDA falls short of interest expense.
  2. China's real estate sector has by far the highest zombie share, rising from 6% to 40%, consistent with the country's extended property sector downturn.
  3. Zombie shares reached 11% in Chinese manufacturing in 2024, up from a low of 4% in 2020, and 17% in services, with a sustained decline in industrial profits cited as grounds for further growth in the manufacturing share.

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  • Macro Outlook 2026: Sturdy Growth, Stagnant Jobs, Stable Prices — China's growth is forecast at 4.8%, above the 4.5% consensus, with robust manufacturing offset by a housing drag on output estimated at about 1.5 percentage points as property sales run 60% below peak. Strong manufacturing and weak domestic demand are projected to lift China's current account surplus toward 1% of global output.
  • China’s Economy: Rightsizing 2025, Looking Ahead to 2026 — The authors argue China's official growth figures are inconsistent with ten consecutive quarters of deflation, estimating that real GDP is around 11% below official levels, with most of the adjustment in investment. That would imply a drop of roughly 9 percentage points in China's share of global investment, helping explain its export surge.
  • China Manufacturing Overcapacity Boosts Output, Stagnation Fears — Nearly 30% of Chinese industrial firms operate at a loss, up from around 20% before the pandemic. The loss-making share has grown faster in sectors with high asset growth, reaching 34% versus 28% in low-asset-growth sectors.

AI Summary. China's share of global exports has risen to 15% from about 13% in 2017 and is projected to reach 16.5% by 2030, according to a Morgan Stanley study. Producer prices have fallen every month for more than three years as supply outstrips domestic demand, with goods export volumes up 43% since early 2020 versus 15% for imports.

Joe Leahy, Thomas Hale and Arjun Neil Alim Financial Times
Date Posted:

The renminbi depreciated by ~8% against the euro during 2025 in nominal terms, and on a broader trade-weighted basis has fallen 18% from its peak in March 2022. The depreciation is masking the full scale of the surge in Chinese exports.

Is China expanding its share of global exports as domestic demand lags?

Core argument: China's share of global exports has risen to 15% from about 13% in 2017 and is projected to reach 16.5% by 2030, according to a study led by Morgan Stanley chief Asia economist Chetan Ahya.

Three years after China’s economy emerged from its strict Covid controls, its global export market share has risen to 15%, up from about 13% in 2017, and is set to rise to 16.5% by 2030, according to a study led by Chetan Ahya, chief Asia economist at Morgan Stanley. [The renminbi's real depreciation] is being driven by China’s persistent deflationary pressures. Producer prices have declined every month for more than three years as supply outstrips domestic demand in almost all sectors. The decline in prices also masks an increase in the volume of China’s exports, which has increased its global market share. “In real terms, the increase in that gap between exports and imports has been larger than in nominal terms,” says Louis Kuijs, chief economist of Asia Pacific at S&P Global Ratings, who estimates that China’s goods export volumes have risen 43% since early 2020 but imports of goods have risen just 15%.

Takeaways by Macro Roundup® AI

  1. China's share of global exports has risen to 15% from about 13% in 2017 and is projected to reach 16.5% by 2030, according to a study led by Morgan Stanley chief Asia economist Chetan Ahya.
  2. Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings, estimates China's goods export volumes have risen 43% since early 2020 while goods imports rose 15%, with the export-import gap widening more in real terms than nominal.
  3. Chinese producer prices have declined every month for more than three years as supply outstrips domestic demand in almost all sectors, deflationary pressure that is driving the renminbi's real depreciation.

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  • US Exceptionalism Versus Chinese Uninvestibility (Part I) — China redirected domestic savings toward de-Westernizing its industrial supply chains through tighter capital controls, suspended stock listings, and concentrated bank lending, which the author argues was deflationary and produced poor investor returns. The author argues that if the US pursues comparable supply-chain separation from China, capital would shift into lower-return activities.
  • The True Cost of China’s Falling Prices — Prices fell for 51 of 67 consumer items tracked over a two-year period in China, while the broader GDP deflator, which includes upstream sectors, declined for 10 straight quarters, indicating deflation is more entrenched in industry. The share of "zombie" firms whose profits cannot cover debt interest rose from 19% to 34% over five years.
  • 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.