Edward Conard

Top Ten New York Times Bestselling Author

  • “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 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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.

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.
  • 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.

Related Articles:

  • 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.

Monday, January 5, 2026

AI Summary. Venezuela accounts for barely 0.1% of world output and produces about 1m barrels of oil a day, roughly 1% of global supply and the 18th-largest producer, down from about 1% of global output and 8% of oil supply in the 1970s. Analysts argue even alarming scenarios there would have minimal global economic impact.

John Authers Bloomberg
Date Posted:

The American raid on Caracas had little impact on financial markets, as Venezuela is already a “basket case.” Real GDP has declined 70% under the Chavez/Maduro regime.

Does a small oil producer's turmoil matter to the global economy?

Core argument: Venezuela accounts for barely 0.1% of world GDP and produces about 1 mbpd of oil, or 1% of global supply, down from roughly 1% of global GDP and 3.5 mbpd (8% of supply) in the 1970s, according to Neil Shearing of Capital Economics.

The main reason markets should be able to take this in stride is, sadly, that Venezuela doesn’t matter much at present, even though it boasts huge reserves of oil. Neil Shearing of Capital Economics sets this out succinctly, "Venezuela’s global economic importance has diminished significantly over the past 50 years. In the 1970s, it accounted for roughly 1% of global GDP and produced around 3.5 million barrels per day (mbpd) of oil, or 8% of global supply. Today, it represents barely 0.1% of world GDP and produces about 1 mbpd, or just 1% of the global total, making it only the 18th-largest oil producer worldwide." Due to worsening mismanagement, the Chavez and Maduro regimes turned steady decline into an all-out crisis that led to hyperinflation and a 70% fall in real gross domestic product. Venezuelan migrants swamped neighboring countries and the US. The tragic bottom line is that even the most alarming scenarios for Venezuela over the next few months would have a minimal impact on the global economy. It was a basket case; nobody expected any growth from it anyway.

Takeaways by Macro Roundup® AI

  1. Venezuela accounts for barely 0.1% of world GDP and produces about 1 mbpd of oil, or 1% of global supply, down from roughly 1% of global GDP and 3.5 mbpd (8% of supply) in the 1970s, according to Neil Shearing of Capital Economics.
  2. Venezuela ranks as only the 18th-largest oil producer worldwide, and even the most alarming scenarios there over the next few months would have minimal impact on the global economy.
  3. Mismanagement under the Chavez and Maduro regimes produced hyperinflation and a 70% fall in real GDP, with Venezuelan migrants swamping neighboring countries and the US.

Related Articles:

  • Latin America’s Perpetual Growth Crisis — Per capita GDP in the US grew a cumulative 20% over a decade, about 2% a year, outpacing Latin American economies; Colombia, Peru and Chile fared best in the region but still fell well short, while Mexico and Brazil underperformed. The author argues Ecuador's and Argentina's dollar pegs preclude growth.

AI Summary. Wage growth is slowing more for lower-paid workers than for higher earners, limiting those households' ability to keep spending, while hiring is concentrated in select industries such as healthcare and among larger firms as small private firms shed workers. Layoffs remain low, but the number of workers unemployed for 27 weeks or more has only rarely been higher.

Tom Porcelli et. al. Wells Fargo
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1.9mm American workers have been out of work for at least half a year. Long-term unemployment at this level is an outlier, as it’s generally seen late in a recession or in its aftermath.

Is the labor market slowdown hitting lower-paid workers hardest?

Core argument: Wage growth for lower-paid workers is slowing more than for higher earners, limiting the ability of these households to keep spending.

The job market moderation isn't even. Lower-paid workers are seeing wage growth slow more than higher-earning peers, which is limiting the ability for these households to keep spending. While hiring has been disproportionately supported by select industries this year, like healthcare, it's also being driven by larger firms. Small private firms are outright shedding workers. Layoffs remain low, but it's getting increasingly challenging to find a new job for those who find themselves out of work. In fact, the number of workers who are unemployed for 27 weeks or more has only rarely been higher.

Takeaways by Macro Roundup® AI

  1. Wage growth for lower-paid workers is slowing more than for higher earners, limiting the ability of these households to keep spending.
  2. Hiring has been disproportionately supported by select industries such as healthcare and by larger firms, while small private firms are shedding workers.
  3. Layoffs remain low, but finding a new job has grown increasingly challenging, and the number of workers unemployed for 27 weeks or more has only rarely been higher.

Related Articles:

  • U.S. Wages Still Rising Briskly, Employment Holding Up, and Inflation Still Sticky (Probably) — The U.S. job market looks no less healthy than a few months earlier: the rise in unemployment to 4.56% has coincided with more people actively looking for work, while the share of Americans aged 25-54 with a job held near 80.6%. Wages rising about 4% a year can explain inflation running about 1 percentage point above pre-pandemic rates.
  • The Economic Divide Between Big and Small Companies Is Growing — High inflation, more cautious consumers, and tariffs are weighing on small-business earnings and prompting cutbacks, as smaller firms are less able than larger ones to withstand economic headwinds. Private firms with fewer than 50 workers have steadily shed jobs over the past six months.
  • 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.

AI Summary. China's high saving and diminishing returns on investment leave consumption weak, and its currency's real trade-weighted value has fallen substantially, giving Chinese exporters a large competitive advantage. The author argues the government sets the yuan's value and now suppresses it largely through state banks buying dollars, purchases that do not appear in official reserves.

Paul Krugman Krugman Wonks Out
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China’s saving remains high, but its investment has slowed. Instead of boosting consumption, the government exports excess saving via proactive depreciation of the yuan. The real effective exchange rate has dropped 11% (19% relative to trend) since 2021.

How does weak domestic consumption translate into an exporter advantage?

Core argument: China's real effective exchange rate has fallen substantially since 2021, and the yuan is even weaker relative to trend than the raw depreciation data suggest, giving Chinese companies a large competitive advantage.

China’s saving remains very high, but its investment is running into diminishing returns in the face of slowing technological progress and a shrinking working-age population. Yet the Chinese government keeps failing to take effective steps to reduce savings and increase consumer demand. But exports and imports are the consequence of decisions at the level of companies and individuals. So how does China’s underconsumption problem translate into incentives for exporters and importers? China’s real effective exchange rate has fallen substantially — the yuan has “depreciated” — since 2021. But this understates the yuan’s true level of weakness. The yuan is even weaker relative to trend than its raw depreciation data would suggest. This gives Chinese companies a large competitive advantage. And the value of the yuan is basically set by the Chinese government. The manipulation of the yuan by the Chinese government is unique. Nothing similar occurs with other major currencies. These days the Chinese government manipulates its currency largely by having state banks rather than the government proper buy dollars. These purchases don’t show up in official reserves, so doing it this way hides the extent of the weak-yuan policy from casual observers.

Takeaways by Macro Roundup® AI

  1. China's real effective exchange rate has fallen substantially since 2021, and the yuan is even weaker relative to trend than the raw depreciation data suggest, giving Chinese companies a large competitive advantage.
  2. The value of the yuan is basically set by the Chinese government, which manipulates it largely by having state banks rather than the government proper buy dollars, keeping those purchases out of official reserves and hiding the weak-yuan policy from casual observers.
  3. Chinese saving remains very high while investment runs into diminishing returns amid slowing technological progress and a shrinking working-age population, and the Chinese government keeps failing to take effective steps to reduce savings and raise consumer demand.

Related Articles:

  • China’s Trade Surplus, Part I — China's very high investment rates, combined with a shrinking workforce and slowing productivity, produce sharply diminishing returns, making its decades-old high-savings, high-investment growth model unsustainable. The author argues China's leaders resist a pivot toward consumption because of ideology and geopolitical ambition, with the leadership rejecting welfare spending as breeding dependency.
  • Why China Is Doubling Down On Its Export-Led Growth Model — 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.
  • 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.

AI Summary. The International Monetary Fund projects sub-Saharan African growth of about 4.4%, aided by a weak dollar that eases debt-service and inflation pressure and by high commodity prices, while Asia's combined economies slow to around 4.1%. With over 2 percentage points from population growth, that pace falls short of the roughly 7% needed for Asian-style transformation.

David Pilling Financial Times
Date Posted:

The IMF projects sub-Saharan Africa will grow at 4.4% in 2026, overtaking Asia. Per capita growth, however, will be 2 to 3% – far short of the more than 7% necessary to “replicate Asian-style transformation.”

Is African growth fast enough to match Asian-style transformation?

Core argument: Sub-Saharan Africa is expected to have mustered growth of about 4.1% in 2025 despite war in Sudan, insurgency in the Sahel and coups in Madagascar and Guinea Bissau, and the IMF expects that to rise to 4.4%.

In 2025, despite war in Sudan, insurgency in the Sahel and coups in Madagascar and Guinea Bissau, sub-Saharan Africa is expected to have mustered growth of about 4.1%. The IMF expects this to notch up to 4.4% as economies continue to reap the benefits of a weak dollar — good for cutting debt-service payments and easing inflationary pressure — and of high commodity prices, including for gold and copper. At the same time, the IMF is predicting that, as the Chinese motor whirrs more slowly, the combined economies of Asia will slow in 2026 to around 4.1%. [African] growth of 4 or 5% is not much to brag about. More than 2% of that can be explained by population expansion, leaving just 2-3% for per capita growth — which is not enough to replicate Asian-style transformation. Sustained growth of at least 7% is required for that. By 2050, more than one in four people will be African. The continent will have a larger working-age population than China and India combined. If Africa is not on a better trajectory, we will all know about it.

Takeaways by Macro Roundup® AI

  1. Sub-Saharan Africa is expected to have mustered growth of about 4.1% in 2025 despite war in Sudan, insurgency in the Sahel and coups in Madagascar and Guinea Bissau, and the IMF expects that to rise to 4.4%.
  2. African economies continue to reap the benefits of a weak dollar, which cuts debt-service payments and eases inflationary pressure, and of high commodity prices including gold and copper, while the IMF predicts Asia's combined economies will slow to around 4.1% in 2026 as China decelerates.
  3. More than 2% of Africa's 4-5% growth can be explained by population expansion, leaving just 2-3% for per capita growth, short of the sustained 7% required to replicate Asian-style transformation, even as the continent's working-age population is set to exceed China's and India's combined by 2050.

Related Articles:

  • 21st-Century Africa Governance and Growth — Sub-Saharan Africa's GDP per capita has fallen relative to the world average over three decades, from 30% to 22%, reflecting the region's inability to sustain growth. Had it grown at the global pace since 1990, income per capita would be over 40% higher; at emerging East Asia's pace, nearly 3x higher.
  • Changing Sub-Saharan Africa’s Growth Trajectory — Sub-Saharan Africa's working-age population is growing nearly 3% a year, versus close to zero in much of the world, and is projected to exceed China's within about a decade and reach a quarter of the global total. With modest productivity growth near 2%, the region is likely among the world's fastest-growing.
  • Exploring the Implications of Sub-Saharan Africa’s Demographic Explosion — Sub-Saharan Africa is projected to hold a quarter of the world's working-age population within a few decades and to surpass China's working-age population in roughly a decade. Even with modest productivity growth near 2%, the region's growth is estimated at 4.5–5.5%, raising its share of global output from about 3% while remaining small.

AI Summary. The authors find that a minority of entrepreneurs are "transformative" — generating disproportionate productivity gains, scoring high on IQ tests, being well-educated, and hiring research and development workers. They argue that economies with more such entrepreneurs and R&D workers sustain higher long-run productivity growth.

Ufuk Akcigit, Harun Alp, Jeremy Pearce, and Marta Prato Federal Reserve Bank of New York
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Danish data show that the propensity to become an R&D worker or a “transformative entrepreneur” who pursues innovation is highly correlated with IQ. Productivity growth is driven by the “symbiotic relationship” between such entrepreneurs and R&D workers.

Which entrepreneurs drive disproportionate productivity gains?

Core argument: A distinct minority of entrepreneurs are "transformative" — those hiring at least one R&D worker — and the authors find these founders generate disproportionate productivity gains while tending to have high IQ scores and strong education.

We study who becomes an entrepreneur, along with their hiring and business decisions, and find that a distinct minority are “transformative.” These individuals, who generate disproportionate productivity gains, tend to have high IQ scores, be well-educated, and hire technical (R&D) workers. We identify entrepreneurs as individuals who register as primary founders of firms with at least one employee. Among this group, we distinguish transformative entrepreneurs, those who hire at least one R&D worker, from non-transformative entrepreneurs, who do not employ technical personnel. R&D workers are defined as individuals employed in occupations with high patenting intensity, reflecting their direct involvement in innovation-related activities. The shares of entrepreneurs and R&D workers vary across IQ deciles. The pattern is reversed across the two groups: individuals with higher IQs are more likely to be R&D workers, but less likely to be entrepreneurs. The data support the idea of productivity growth being driven by the symbiotic relationship between transformative entrepreneurs and R&D workers. For policymakers, the lesson is that when an economy has more R&D workers and transformative entrepreneurs, they sustain higher long-run productivity growth.

Takeaways by Macro Roundup® AI

  1. A distinct minority of entrepreneurs are "transformative" — those hiring at least one R&D worker — and the authors find these founders generate disproportionate productivity gains while tending to have high IQ scores and strong education.
  2. Across IQ deciles the pattern reverses between the two groups: individuals with higher IQs are more likely to be R&D workers but less likely to be entrepreneurs, with entrepreneurs identified as primary founders of firms with at least one employee.
  3. The authors conclude that economies with more R&D workers and transformative entrepreneurs sustain higher long-run productivity growth, which they attribute to the symbiotic relationship between the two groups.

Related Articles:

  • Transformative and Subsistence Entrepreneurs: Origins and Impacts on Economic Growth — Only 17% of firms are "transformative" entrepreneurs, defined as those hiring a research-and-development worker at some point; higher IQ and educational attainment strongly predict transformative entrepreneurship, though the likelihood of becoming an entrepreneur overall declines with IQ. The authors argue education subsidies address financial constraints more effectively than uniform startup or research subsidies.
  • The Economics of Inequality in High-Wage Economies — Information technology created investment opportunities exceeding the supply of properly trained talent, while trade with low-wage economies, low-skilled immigration, trade deficits, and aging demographics eased constraints on low-skilled labor and risk-averse savings. The author argues this framework, rather than rising cronyism, explains high returns to success, slowing productivity growth, and low interest rates.
  • The Extreme Shortage of High IQ Workers — Semiconductor manufacturing requires workers of above-average intelligence, with the most demanding roles needing IQs in the top 1 in 1,000 — a pool of about 164,000 people in the US, of whom perhaps 100,000 can be placed in such professions. The author argues this scarcity explains reliance on high-IQ workers abroad and on smarter tools and non-human intelligence.

AI Summary. US drone makers are held back by scale: China's DJI is estimated to sell more than half the world's cheap first-person-view drones, giving China leadership in key components, since specialized chips are only worth developing if costs can be spread across many units. A 25% US tariff prompted DJI to shift US-bound production to Malaysia.

Chris Miller Financial Times
Date Posted:

Citing favorably the FCC’s recent ban on foreign-made drones and key components, Chris Miller argues “targeted import restrictions could look more attractive than blanket tariffs” as a path to incubating an American drone industry.

Does scale limit US drone makers against Chinese competition?

Core argument: China's DJI is estimated to sell more than half the world's cheap first-person view drones, and China also leads in producing many key drone components.

The problem that US drone companies face is scale. China’s DJI is estimated to sell more than half the world’s cheap, first-person view drones. Because of this, China is also the leader in producing many key drone components. This provides major advantages. Companies can only justify developing specialised chips and other hardware if they can amortise the cost over many units sold. China’s market dominance has made it impossible for foreign companies to compete. During the first Trump administration, the US tried to address this by imposing a 25% tariff on imported Chinese drones. DJI quickly pivoted its production base for US sales to Malaysia. In 2024, Malaysia exported three times as many drones by value to the US as China did.

Takeaways by Macro Roundup® AI

  1. China's DJI is estimated to sell more than half the world's cheap first-person view drones, and China also leads in producing many key drone components.
  2. Developing specialised chips and other drone hardware is only justifiable when the cost can be amortised over many units sold, and China's market dominance has made it impossible for foreign companies to compete.
  3. After the first Trump administration imposed a 25% tariff on imported Chinese drones, DJI shifted its production base for US sales to Malaysia, which in 2024 exported three times as many drones by value to the US as China did.

Related Articles:

  • America’s Fight Back Against China Starts In Los Angeles—In Flip-Flops — El Segundo, California has developed a self-reinforcing entrepreneurial cluster of defense and hardware startups founded by former employees of SpaceX, Palantir and Anduril who cashed in stock options to launch their own firms. One of them, drone maker Neros, says it has America's highest drone production rate and has worked to remove Chinese technology, including circuit boards, from its products.
  • Why Every Country Needs To Master The Electric Tech Stack — Drones are the foundation of hard power in the early 21st century, so a country unable to produce them domestically is at a disadvantage. As electric motors overtake combustion engines as the core technology that makes machines move, the same supply chains and production processes used for electronics can also produce cars, drones, robots, and appliances.
  • Drones Are Key to Winning Wars Now. The U.S. Makes Hardly Any — China's DJI accounts for about 70% of commercial drones sold globally, and industry experts estimate its output far exceeds that of any other manufacturer, with capacity in the millions of drones a year. About 500 US companies manufacture drones, producing fewer than 100,000 annually, according to an industry association.