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

Macro Roundup


Thursday, March 12, 2026

AI Summary. Conflict in the Middle East has cut crude and oil product flows through the Strait of Hormuz from about 20 mb/d to a trickle, prompting Gulf countries to cut oil production by at least 10 mb/d. Global oil supply is projected to fall by 8 mb/d in a single month.

IEA Staff International Energy Agency
Date Posted:

The IEA estimates that the effective closure of the Strait of Hormuz will lead to a net global decline in oil supply of 8mm bpd, as a 10mm decline in Middle East production is partially offset by increases from non-OPEC+ producers Kazakhstan and Russia.

How much does global oil supply fall when a shipping chokepoint closes?

Core argument: Crude and oil product flows through the Strait of Hormuz have fallen from around 20 mb/d before the Middle East war to a trickle, in what the IEA calls the largest supply disruption in the history of the global oil market.

The war in the Middle East is creating the largest supply disruption in the history of the global oil market. With crude and oil product flows through the Strait of Hormuz plunging from around 20 mb/d before the war to a trickle currently, limited capacity available to bypass the crucial waterway, and storage filling up, Gulf countries have cut total oil production by at least 10 mb/d. In the absence of a rapid resumption of shipping flows, supply losses are set to increase. Global oil supply is projected to plunge by 8 mb/d in March, with curtailments in the Middle East partly offset by higher output from non-OPEC+ producers Kazakhstan and Russia following disruptions at the start of the year. While the extent of losses will depend on the duration of the conflict and disruptions to flows, we estimate global oil supply [will] rise by 1.1 mb/d in 2026 on average, with non-OPEC+ producers accounting for the entire increase.

Takeaways by Macro Roundup® AI

  1. Crude and oil product flows through the Strait of Hormuz have fallen from around 20 mb/d before the Middle East war to a trickle, in what the IEA calls the largest supply disruption in the history of the global oil market.
  2. Gulf countries have cut total oil production by at least 10 mb/d as capacity to bypass the Strait of Hormuz remains limited and storage fills up, with supply losses set to increase absent a rapid resumption of shipping flows.
  3. Global oil supply is projected to plunge by 8 mb/d in March, with Middle East curtailments partly offset by higher output from Kazakhstan and Russia, and to rise by 1.1 mb/d on average in 2026, an increase entirely from non-OPEC+ producers.

Related Articles:

  • Global Economics Comment: Global Economic Impacts of the War in Iran — The main economic risk to major economies from the war in Iran is that higher energy prices lift inflation and slow growth, with oil near $80/bbl, up 14% since late February. Analysts project oil moderating to $76/bbl and then $65/bbl as the risk premium fades in a structurally oversupplied market.
  • The Long-Feared Persian Gulf Oil Squeeze Is Upon Us — With crude unable to reach world markets through the Strait of Hormuz, Iraq has cut output by more than two-thirds and producers in Kuwait and Abu Dhabi have slowed production as storage tanks fill. JPMorgan Chase analysts estimate regional daily output could fall by around 9m barrels, close to a tenth of global demand.
  • IEA Will Launch Largest-Ever Oil Release From Global Strategic Reserves — The International Energy Agency's member countries will release 400m barrels of oil from emergency stocks, the largest such release on record, to counter crude prices driven up by the war with Iran. Analysts estimate the release could fully offset lost supply only if the conflict ends soon.

AI Summary. Because innovation is intangible, risky, and hard to finance externally, firms with higher research and development intensity—R&D spending relative to total assets—tend to hold more of their assets in cash. R&D intensity has risen over the past four decades, with the increase concentrated among the most research-intensive firms.

Juan Sánchez and Masataka Mori Federal Reserve Bank of St. Louis
Date Posted:
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American firms’ R&D relative to total assets saw a sharp rise starting in 2013. This rise in R&D intensity may make firms more dependent on external finance going forward.

Why do research-intensive firms hold more cash?

Core argument: Between 2013 and 2024, R&D intensity—R&D expenditures divided by total assets—rose by 6.9 percentage points at the 90th percentile and 3.4 at the 75th, compared with 2.0 at the mean and 0.9 at the median.

Innovation is inherently difficult to finance externally: It is intangible, risky and subject to severe asymmetric information. As a result, firms with higher R&D intensity—R&D expenditures divided by total assets—tend to hold a larger share of their assets in cash. The figure displays R&D intensity - R&D expenditures divided by total assets - i.e. it tracks how aggressively companies invest in developing new products and technologies relative to their size. R&D intensity has risen steadily over the past four decades, with the increase concentrated in the upper tail of the distribution. The figure shows a particularly notable acceleration between 2013 and 2024: The mean and median rose by 2.0 percentage points and 0.9 percentage points, respectively, while the 75th and 90th percentiles increased by 3.4 percentage points and 6.9 percentage points, respectively. Looking ahead, if AI-related investment continues to expand, firms may enter a period with lower internal liquidity and greater reliance on external financing. Because innovation is typically intangible, risky and difficult to pledge as collateral, such a shift could create financing challenges in the years to come.

Takeaways by Macro Roundup® AI

  1. Between 2013 and 2024, R&D intensity—R&D expenditures divided by total assets—rose by 6.9 percentage points at the 90th percentile and 3.4 at the 75th, compared with 2.0 at the mean and 0.9 at the median.
  2. Firms with higher R&D intensity tend to hold a larger share of their assets in cash, as innovation is intangible, risky and subject to severe asymmetric information, making it difficult to finance externally.
  3. R&D intensity has risen steadily over the past four decades, with the increase concentrated in the upper tail of the distribution, and continued expansion of AI-related investment could leave firms with lower internal liquidity and greater reliance on external financing.

Related Articles:

  • Tracking AI’s Contribution to GDP Growth — Investment in information processing equipment, software, research and development, and data centers contributed 0.97 percentage points to real GDP growth over the first three quarters of 2025, or 39% of total growth, compared with 0.81 percentage points and 28% during the dot-com investment boom of 2000.
  • Financing The AI Boom: From Cash Flows To Debt — Spending on semiconductor plants and data centers, negligible before recent years, has averaged 0.4 percentage points of US GDP growth, and total IT-related investment has reached 5% of GDP, exceeding its dot-com-era peak. Unlike that earlier boom, which was driven by firms using IT products, the current one is driven by IT producers.
  • The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers — The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.

AI Summary. Splitting hyperscaler computing investment into maintenance spending, proxied by depreciation schedules, and growth spending shows that growth spending accounts for over half of suppliers' revenues but only a fraction of hyperscalers'. The authors argue this asymmetry makes Nvidia less cheap than Microsoft despite similar price-to-earnings ratios.

Tom Hancock GMO
Date Posted:

A slowdown in the AI buildout would not impact hyperscalers’ revenues, but would significantly impact suppliers. Thus, Tom Hancock argues, risk adjusted, “Nvidia is not as cheap as Microsoft, even though the difference in their current P/E’s is not large.”

Does growth capex exposure make chip suppliers riskier than hyperscalers?

Core argument: Growth capex accounts for over half of compute suppliers' revenues while supporting only a fraction of hyperscalers' revenues, so a pause in capacity expansion by hyperscalers would create a bloodbath in the supply chain.

It is helpful to split the investment spend at the Compute layer into two buckets. One is the “maintenance capex” that Hyperscalers need to maintain their current compute capacity. This is proxied by their depreciation schedules (and we think the controversy about whether 4, 5, or 6 years is the right number for a GPU is not of the highest consequence). The remainder is “growth capex.” This is investment to extend compute capacity. While the growth capex supports a fraction of the Hyperscalers’ revenues, it accounts for over half of the suppliers’. And so, if the Hyperscalers were to take their foot off the gas and say, “Hmm, capacity is good for the next year or so,” there would be a bloodbath in the supply chain. It is this risk that makes us think Nvidia is not as cheap as Microsoft, even though the difference in their current P/E’s is not large.

Takeaways by Macro Roundup® AI

  1. Growth capex accounts for over half of compute suppliers' revenues while supporting only a fraction of hyperscalers' revenues, so a pause in capacity expansion by hyperscalers would create a bloodbath in the supply chain.
  2. Nvidia is not as cheap as Microsoft despite a small gap in their current price-to-earnings ratios, because Nvidia carries the risk of hyperscalers slowing growth capex.
  3. Splitting hyperscaler compute spending into maintenance capex, proxied by depreciation schedules, and growth capex clarifies the investment picture, while the dispute over whether a GPU lasts four, five, or six years is not of the highest consequence.

Related Articles:

  • Big Tech’s $680bn Buy-Now-Book-Later Problem — Morgan Stanley's accounting team estimates that splitting hyperscaler capital spending into AI and non-AI components, with graphics chips assumed to last up to six years and warehouses 15 years, could quadruple Alphabet's depreciation expense within several years and lift Oracle's from $4bn to $56bn, equal to 28% of expected revenue.
  • Putting The Total Amount Of Hyperscaler Capex Into Perspective — Capital spending by the largest cloud computing companies is projected to reach about $646bn, roughly 2% of US GDP. For comparison, annual US consumer spending growth is around $1tn, total US bank loan growth was about $700bn, and US defense spending was $917bn.
  • Rough Notes, Feb 20, 2026: AI Capex in Q4 GDP, Anthropic Revenues, Agentic Domains, etc. — An early estimate puts the floor contribution of artificial intelligence capital spending to fourth-quarter US GDP growth at about 64%, and likely closer to 80% including externalities and multipliers, though the calculation is not adjusted for imports. The author also notes that token price deflation persists and that US-China token price differences are immense and growing.

AI Summary. Margin debt has reached a record high of about $1.3tn. Analysts argue this leverage could amplify any stock market downturn, as leveraged investors are forced to sell into falling markets.

Torsten Sløk Apollo
Date Posted:
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Margin debt has hit a record high of ~$1.3T. Sløk notes this could amplify a correction as leveraged investors are forced to sell into falling markets.

Does record margin debt amplify stock market downturns?

Core argument: Margin debt has reached a record high of roughly $1.3tn.

With margin debt at record highs, any downturn in stocks risks turning into a sharper correction as leveraged investors are forced to sell into falling markets.

Takeaways by Macro Roundup® AI

  1. Margin debt has reached a record high of roughly $1.3tn.
  2. Sløk notes that record margin debt could amplify a stock market correction as leveraged investors are forced to sell into falling markets.

Related Articles:

  • Chart of the Day: AI Capex, From Bonanza to Burden — Stock price reactions to large artificial intelligence capital spending announcements have shifted from rewarding to penalizing companies, with the valuation multiple markets assign to such spending collapsing and likely turning negative. Technology companies once valued for low debt and low capital intensity are now among the leaders in both.
  • Valuing AI: Extreme Bubble, New Golden Era, or Both — By the investment firm's definition of a bubble — a price two standard deviations above an asset class's long-term real trend — U.S. equities are in bubble territory and extremely overpriced on historically effective valuation metrics, with a cyclically adjusted price-earnings ratio of 40 and a record share of the market trading above 10x sales.
  • Everyone’s Looking For A Bubble. No One Sees The Stampede — A proprietary model estimates monthly artificial intelligence revenue grew roughly 18-fold in two years, from $772m to $13.8bn, with AI accounting for an estimated 23% of Google Cloud, 10% of Azure and 5% of Amazon Web Services. The model's ratio of investment to revenue fell from 6.1x to 4.7x, still historically high.

AI Summary. Lower fertility cannot meaningfully reduce mid-century emissions because of timing: most people alive in 2050 have already been born, with United Nations projections implying about 75% of the 2050 US population will be over age 24. A 10% decline in births would cut the 2050 population by only about 2.5%, mostly children whose consumption and emissions are low.

Kevin Kuruc Aspen Economic Strategy Group
Date Posted:

Kuruc argues fertility changes reduce population far too slowly to affect near-term climate goals – particularly reducing carbon emissions. Further, smaller and older populations will mean greater fiscal constraints on environmental initiatives.

Can lower birth rates meaningfully reduce mid-century emissions?

Core argument: United Nations 2024 projections expect about 75% of the U.S. population in 2050 to be over age 24 and thus born before 2026, so fertility changes can affect only the remaining 25% of the population pyramid.

The reason that low fertility will not reduce long-run climate change is simple: timing. The timelines over which the world is aiming to substantially curtail emissions do not line up with the timelines over which fertility impacts the size of the population. It is too late for changes in fertility to make a large difference in population sizes this century, and by the end of this century, it will be too late for population changes to make a large difference to eventual warming. A large majority of the people who will be alive in 2050—a focal year in climate discussions—have already been born. Demographic projections expect that about 75% of the United States population in 2050 will be over the age of 24, and hence, born prior to 2026 (United Nations 2024). Even an immediate change in fertility can only affect the 25 percent of the population pyramid that has not yet been born, implying that, for example, a 10% decline in births would produce only a 2.5% decline in the size of the overall 2050 population. Moreover, these missing individuals would be mostly children—too young to have entered the workforce, when their income, consumption, and emissions peak. So, any realistic decline in near-term births would have a trivial impact on mid-century emissions.

Takeaways by Macro Roundup® AI

  1. United Nations 2024 projections expect about 75% of the U.S. population in 2050 to be over age 24 and thus born before 2026, so fertility changes can affect only the remaining 25% of the population pyramid.
  2. A 10% decline in births would produce only a 2.5% decline in the overall 2050 population, and those missing individuals would mostly be children, too young to have entered the workforce, when income, consumption, and emissions peak.
  3. The environmental case for low fertility turns on timing: it is too late for fertility changes to make a large difference in population size this century, and by the end of the century population changes will matter little for eventual warming.

Related Articles:

  • Three Tough Truths About Climate — The International Energy Agency's projection for annual carbon dioxide emissions in 2040 has fallen from 50bn tons to 30bn tons, though the world is expected to fall far short of the 1.5°C Paris goal, with warming likely between 2°C and 3°C by 2100. Global energy demand is projected to more than double by 2050.
  • The Most Amazing Climate Policy Figure — U.S. carbon dioxide emissions from fossil fuels moved closely with GDP from 1992 to about 2005, after which the two decoupled, with GDP continuing to rise while emissions fell.
  • Is the Green Energy Transition Dead? — The world is undergoing an energy addition rather than an energy transition: renewables have grown as a share of supply while fossil fuel production has also risen in absolute terms, leaving total energy supply and greenhouse gas emissions at all-time highs.

Friday, March 13, 2026

AI Summary. Commodity strategists project Brent crude to average $98 over two months—40% above the prior year's average—before falling to $71 by late 2026, with a 60-day disruption of oil flows through the Strait of Hormuz pushing prices to $145. On these forecasts, headline inflation is projected at 2.9%, growth at 2.2%, and peak unemployment at 4.6%.

Manuel Abecasis and David Mericle Goldman Sachs
Date Posted:

GS forecasts that Brent will average $98 in March and April, 40% above its 2025 mean, before falling to $71 by the end of the year. They now expect 2026 headline inflation to run at 2.9%, and have lowered their GDP growth forecast to 2.2%.

How do higher oil price forecasts change inflation, growth, and unemployment?

Core argument: Goldman Sachs commodity strategists expect Brent crude to average $98 in March and April, up 40% from the 2025 average, before falling back to $71 by 2026Q4.

Our commodity strategists now expect Brent to average $98 in March and April—up 40% from the 2025 average—before falling back to $71 by 2026Q4. In an upside risk scenario where oil flows through the Strait of Hormuz are disrupted for a total of one month, they estimate that Brent would average $110 in March and April before gradually declining to $76 by 2026Q4. A more extreme upside scenario with a 60-day disruption to flows through the Strait of Hormuz could see prices average $145 in March and April before declining to $93 by 2026Q4. Based on our new oil forecasts, our rules of thumb, these historical lessons, and the details of the February CPI report, we have raised our year-over-year December 2026 headline PCE inflation forecast by 0.8pp to 2.9% and our core PCE forecast by 0.2pp to 2.4%. We have also lowered our 2026 Q4/Q4 GDP growth forecast by 0.3pp to 2.2% (or 2.6% on a full-year basis). Our forecast for the peak unemployment rate is now 4.6%, up from 4.44% in February.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs commodity strategists expect Brent crude to average $98 in March and April, up 40% from the 2025 average, before falling back to $71 by 2026Q4.
  2. In a scenario with one month of disrupted Strait of Hormuz oil flows, the strategists estimate Brent would average $110 in March and April before declining to $76 by 2026Q4, while a 60-day disruption would lift the average to $145 before a decline to $93.
  3. The December 2026 year-over-year headline PCE inflation forecast was raised by 0.8pp to 2.9% and core PCE by 0.2pp to 2.4%, with 2026 Q4/Q4 GDP growth lowered 0.3pp to 2.2% and peak unemployment now 4.6%.

Related Articles:

  • Oil Market Report – March 2026 — Conflict in the Middle East has cut crude and oil product flows through the Strait of Hormuz from about 20 mb/d to a trickle, prompting Gulf countries to cut oil production by at least 10 mb/d. Global oil supply is projected to fall by 8 mb/d in a single month.
  • The Long-Feared Persian Gulf Oil Squeeze Is Upon Us — With crude unable to reach world markets through the Strait of Hormuz, Iraq has cut output by more than two-thirds and producers in Kuwait and Abu Dhabi have slowed production as storage tanks fill. JPMorgan Chase analysts estimate regional daily output could fall by around 9m barrels, close to a tenth of global demand.
  • Global Economics Comment: Global Economic Impacts of the War in Iran — The main economic risk to major economies from the war in Iran is that higher energy prices lift inflation and slow growth, with oil near $80/bbl, up 14% since late February. Analysts project oil moderating to $76/bbl and then $65/bbl as the risk premium fades in a structurally oversupplied market.

AI Summary. Investor concern that the Iran war will raise government spending and widen budget deficits has triggered a selloff in long-term government bonds, pushing the 30-year US Treasury yield near 4.90% and lifting yields from the UK and Germany to Australia and Japan. A global borrowing wave could further pressure the $31tn US Treasury market.

Greg Ritchie, Ruth Carson, and Ye Xie Bloomberg
Date Posted:

Since February 27th, 10 and 30-year Treasury yields have both risen ~30bps: the 10-Year is up 30bps and the 30-Year is up 27bps.

Are war-driven deficit fears pushing long-term government bond yields higher?

Core argument: The 30-year Treasury yield rose to close to 4.90%, its highest in a month, as investors worried the Iran war will lift spending and swell budget deficits across countries.

Investors are growing worried that the Iran war will drive up expenditures and swell budget deficits in countries around the world, sparking a selloff in long-term government bonds. The move has driven the 30-year Treasury yield to close to 4.90%, the highest in a month, as markets are already worrying over oil-driven inflation fret governments will need to borrow more to pay for defense spending and to shield households from higher energy costs. More broadly, global bonds have surrendered their year-to-date gains. Bond yields have spiked from the UK to Germany to Australia to Japan. A wave of government borrowing globally could put further pressure on the $31 trillion US Treasury market, should investors opt for higher yields elsewhere. Bloomberg’s gauge of Treasuries returns has almost wiped out its gains for this year.

Takeaways by Macro Roundup® AI

  1. The 30-year Treasury yield rose to close to 4.90%, its highest in a month, as investors worried the Iran war will lift spending and swell budget deficits across countries.
  2. Global bonds have surrendered their year-to-date gains, with yields spiking from the UK to Germany to Australia to Japan, and Bloomberg's gauge of Treasuries returns has almost wiped out its gains for the year.
  3. A wave of government borrowing globally to fund defense spending and shield households from higher energy costs could pressure the $31 trillion US Treasury market if investors opt for higher yields elsewhere.

Related Articles:

  • Are Government Bonds Safe in Times of War and Pandemic? — Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.
  • The First 36 Hours of War Consumed Over 3,000 U.S.-Israeli Munitions — The authors estimate replacing two destroyed U.S. radars would take five to eight years and $1.1bn for one and 12–24 months and $50m–$75m for the other, making supply-chain fragility and replacement timelines a greater constraint than materials cost. Both systems require gallium, of which China controls 98% of global supply.
  • 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.

AI Summary. Total factor productivity — a measure of how efficiently labor and capital are combined — grew 1.27% over the most recent four quarters, while a utilization-adjusted version intended to better capture technical progress grew just 0.32%, down from 1.70% the prior year. The gap reflects a relatively high estimate of growth in how intensively capital and labor were used.

John Fernald Federal Reserve Bank of San Francisco
Date Posted:

Fernald’s updated productivity tracker, which tends to presage closely the BLS release due next Thursday, shows no uptick in (unadjusted) TFP growth. It has 2025 TFP growth at 1.27%, ~unchanged from the BLS’s 1.23% for 2024.

Is measured productivity growth outpacing underlying technical progress?

Core argument: Total Factor Productivity grew 1.27% over the four quarters ending in the fourth quarter of 2025, while utilization-adjusted TFP, intended as a purer measure of technical progress, grew only 0.32%.

Over the past four quarters ending in the fourth quarter of 2025, Total Factor Productivity grew at a rate of 1.27% and Utilization-adjusted TFP [which accounts for “the intensity margin for the workweek of capital and labor effort” and is intended to be a purer measure of technical progress] grew at a rate of only 0.32% in 2025, compared to 2024’s 1.70, reflecting a relatively high estimate of growth in factor utilization during 2025.

Takeaways by Macro Roundup® AI

  1. Total Factor Productivity grew 1.27% over the four quarters ending in the fourth quarter of 2025, while utilization-adjusted TFP, intended as a purer measure of technical progress, grew only 0.32%.
  2. Utilization-adjusted TFP growth of 0.32% in 2025 fell from 1.70% in 2024, reflecting a relatively high estimate of growth in factor utilization during 2025.
  3. Utilization-adjusted TFP accounts for the intensity margin for the workweek of capital and labor effort.

Related Articles:

  • Concentrated Growth: The Role Of The IT Sector — Since 1988, total factor productivity in the information technology sector has risen about 178%, versus about 12% across all non-IT sectors combined, while aggregate productivity rose about 40%. The IT sector accounts for roughly 45% of cumulative aggregate productivity growth, once sectoral linkages to downstream industries are weighted in.
  • Productivity During and Since the Pandemic — Total factor productivity growth since early 2021 has run only slightly above its 2010–19 average, suggesting the 2020 productivity surge reflected cyclical dynamics layered on a continuation of the slow pre-pandemic trend. Productivity has since grown somewhat faster than the authors' analysis predicted, but remains well below the 1995–2004 pace.
  • The Productivity Slowdown in Advanced Economies: Common Shocks or Common Trends? — Total factor productivity is the main factor accounting for differences in labor productivity growth across countries and over time, and its growth has been lackluster across large advanced economies since the mid-2000s. The authors find this slowdown appears in both manufacturing and market services, with U.S. productivity growth slowing before the Great Recession.

AI Summary. Gross domestic product can rise on investment alone even as other components weaken, because capital spending generates capital formation and corporate revenue rather than wages — data center construction employs thousands during building but a hundred or fewer after opening. Since mortgage debt service is fixed in nominal terms, even modest income declines can push borrowers toward default.

Paul Kedrosky Notes on Complexity
Date Posted:

Kedrosky argues that a persistent increase in investment could drive overall GDP growth while consumption lags. He suggests that the first signs of such an emerging “ghost economy” would likely show up in credit performance and housing markets.

Can GDP grow on investment alone while household incomes weaken?

Core argument: Data center construction employs workers in the thousands during the build phase, only to fall to a hundred or fewer once the facility opens, illustrating that capex generates capital formation and corporate revenue rather than wages.

GDP can rise with investment ("I" in GDP terms), despite everything else in GDP being weak, or even falling. It is just math. Capex does not necessarily generate broad income growth. It generates capital formation and corporate revenue, not wages. You can see that directly in data centers, where construction jobs are in the thousands, only to collapse to a hundred or fewer post-opening. The result is a strange possibility: the economy can grow rapidly, at least in accounting terms, while the demand side weakens badly. That is the essence of Ghost GDP. One place this dynamic would show up quickly is household credit. Mortgage obligations are nonlinear with respect to income changes. Debt service is fixed in nominal terms, so even modest income declines can push borrowers toward default. Once debt-service coverage ratios approach one, default probabilities rise sharply.

Takeaways by Macro Roundup® AI

  1. Data center construction employs workers in the thousands during the build phase, only to fall to a hundred or fewer once the facility opens, illustrating that capex generates capital formation and corporate revenue rather than wages.
  2. GDP can rise on the investment component alone even as other components weaken or fall, producing what the author calls "Ghost GDP," rapid accounting growth alongside a badly weakening demand side.
  3. Mortgage debt service is fixed in nominal terms and nonlinear with respect to income changes, so even modest income declines can push borrowers toward default, with default probabilities rising sharply as debt-service coverage ratios approach one.

Related Articles:

  • Tech Has Never Caused a Job Apocalypse. Don’t Bet on It Now — Labor Department data analyzed by researchers show the number of software developers up 5% year over year, a pace largely consistent with the past 23 years, while computer programmers declined slightly in line with a decades-long trend. The median young computer science graduate earned 63% more than the typical young graduate in 2024, up from 47% in 2009.
  • Trump’s Immigration Crackdown Fails to Deliver Jobs for US-Born Workers — Researchers at the American Enterprise Institute and the Brookings Institution estimate net migration into the US may have turned negative for the first time in at least 50 years. That decline coincided with rising joblessness among US-born workers, whose labor force participation has fallen in recent months to near its lowest level since 2021.
  • Zero-Sum Thinking and the Roots of U.S. Political Divides — Zero-sum thinking — viewing gains for one group as losses for another — is associated with greater support for liberal economic policies, stronger alignment with the Democratic Party, and weaker alignment with the Republican Party. The authors also find it linked to believing the QAnon conspiracy theory holds some truth and to sympathy for the attack on the U.S. Capitol.

AI Summary. Analysis of project-level manufacturing construction data shows planning for new facilities surged before the US semiconductor subsidy law was enacted, which some read as evidence the building boom was market-driven. A subsector and regional breakdown shows much of the increase was concentrated in the industries and geographies most relevant to the law's awards.

Skanda Amarnath Factory Settings
Date Posted:

The CHIPS Act’s impact on U. S. manufacturing construction looks far stronger when accounting for pre-passage information and observing the sharp trend break in computers & electronics—two-thirds of the boom—that appeared right as Senate funding passed.

Did semiconductor subsidies drive the manufacturing construction boom?

Core argument: A January 2025 FEDS Note using project-level Dodge Data & Analytics data finds that planning for new manufacturing facilities surged in 2021, before the CHIPS Act was enacted, and that the mid-2022 peak in construction starts came from projects planned pre-enactment.

Skepticism about CHIPS’s effects on construction spending may stem from a January 2025 FEDS Note. The analysis uses project-level data from Dodge Data & Analytics to trace manufacturing construction from planning to construction starts. The central finding is that planning activity for new manufacturing facilities surged in 2021 — well before CHIPS was enacted — and that the mid-2022 peak in construction starts was driven by projects that firms began planning before the legislation became law. Based on that evidence, a natural inference is that the boom was already underway on its own market-driven logic, and that CHIPS may not have been so relevant to the historic rise in construction spending. A more granular analysis of the planning data challenges that simplistic reading. The CHIPS Act had a long and public legislative history that made it possible to track the likelihood of passage well before its enactment; firms were likely planning their construction activity based on policy expectations even during the 2021 pre-passage surge the FEDS Note identifies. Breaking down the planning data by manufacturing subsector and census division makes apparent that a substantial share of the construction uptick was concentrated in the industries and geographies most relevant to CHIPS award funding, suggesting that the policy effects were more potent than a focus on the enactment date alone implies.

Takeaways by Macro Roundup® AI

  1. A January 2025 FEDS Note using project-level Dodge Data & Analytics data finds that planning for new manufacturing facilities surged in 2021, before the CHIPS Act was enacted, and that the mid-2022 peak in construction starts came from projects planned pre-enactment.
  2. Because the CHIPS Act had a long and public legislative history that allowed firms to track its likelihood of passage, firms were likely planning construction on policy expectations during the 2021 pre-passage surge the FEDS Note identifies.
  3. Breaking the planning data down by manufacturing subsector and census division shows a substantial share of the construction uptick concentrated in the industries and geographies most relevant to CHIPS award funding, suggesting policy effects larger than an enactment-date focus implies.

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