Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
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  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
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  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…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


Wednesday, May 27, 2026

AI Summary. Labor productivity has grown solidly while the San Francisco Federal Reserve's total factor productivity index, which adjusts for the equipment and technology workers use, has grown modestly, suggesting gains so far reflect better tools rather than broader advances. A regime-switching model puts the probability of a high-productivity regime at 57% using labor productivity and 21% using total factor productivity.

Hamza Abdelrahman and Andrew Foerster Federal Reserve Bank of San Francisco
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US labor productivity is ~8pp above 2022 levels, while TFP has shown little growth since 2024, echoing 1990s pre-surge dynamics. A regime-switching model using labor productivity gives a 57% probability the US is in a high-growth regime vs 21% using TFP.

Do recent productivity gains reflect better tools rather than broader advances?

Core argument: A regime-switching model puts the implied probability that the U.S. economy is in a high-productivity growth regime at about 57% based on labor productivity and 21% based on total factor productivity as of the fourth quarter of 2025.

[While] labor productivity has shown solid gains in recent years, the San Francisco Fed’s Total Factor Productivity (TFP) index- which adjusts for how much equipment, technology, and other resources workers have at their disposal - has shown modest growth. A similar divergence between labor productivity and TFP emerged in the 1990s technology before the full productivity benefits became more definitive. Figure 1 plots how labor productivity and TFP have evolved relative to 2022 values, right before the recent surge in labor productivity. Their paths have since diverged amid a surge in business investment in AI technology and infrastructure, such as data centers, with labor productivity growing at a faster pace in recent years. The increased investment has coincided with more productive workers but has not yet produced the broader gains that TFP is designed to measure, suggesting that productivity improvements so far reflect better tools for workers rather than fundamental economic advancement. Figure 2 shows the implied probability [from a regime-switching model] of the U.S. economy being in a high-productivity growth regime using labor productivity (blue line) and TFP (green line). The probabilities based on these two measures have picked up to varying degrees: around 57% based on labor productivity and 21% based on TFP as of the fourth quarter of 2025.

Takeaways by Macro Roundup® AI

  1. A regime-switching model puts the implied probability that the U.S. economy is in a high-productivity growth regime at about 57% based on labor productivity and 21% based on total factor productivity as of the fourth quarter of 2025.
  2. Labor productivity has posted solid gains in recent years while the San Francisco Fed's Total Factor Productivity index, which adjusts for the equipment, technology, and other resources workers have at their disposal, has grown modestly.
  3. The divergence between labor productivity and TFP has coincided with a surge in business investment in AI technology and infrastructure such as data centers, suggesting productivity improvements so far reflect better tools for workers rather than fundamental economic advancement.

Related Articles:

  • America Is Experiencing A Productivity Miracle — America's post-2019 productivity acceleration came largely from professional services and management—about 10% of output and heavy users rather than producers of new technology—and from oil and gas. The information industry grew productivity around 6% annually, no faster than its 2000-19 average, with its output share steady at 5.3–5.5%.
  • 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.
  • An AI Productivity Boom? Don’t Count Your (Productivity Data) Chickens — Measured productivity can rise from compositional effects when lower-wage, lower-productivity workers leave the labor force, as happened during Covid and 2009, and immigration policy changes could produce a similar effect. Much of the recent productivity boost appears to come from capital utilization tied to increased investment in AI rather than workers becoming more productive using AI.

AI Summary. U.S. GDP per capita, about $87,000, is projected to reach $102,000 by 2035 with 1.8% annual productivity growth, or $110,000 with 2.7% growth. Because the healthcare sector has been slow to adopt AI, health spending is projected to rise from 18.3% of GDP to 21% under slower growth and 21.7% under faster growth.

Mark Warshawsky American Enterprise Institute
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Warshawsky argues AI may paradoxically worsen the US fiscal outlook, as the income effect of higher overall growth increases demand for low-productivity-growth healthcare. The rise in healthcare spending may “swamp rising tax revenues.”

Does faster productivity growth reduce health spending as a share of GDP?

Core argument: U.S. GDP per capita, about $87,000, is projected to reach $102,000 by 2035 with 1.8% annual productivity growth, or $110,000 if productivity rises to 2.7%.

Currently, GDP per capita is about $87,000. With annual productivity growth of 1.8%, based on historical averages, this welfare measure for the U.S. population will grow to $102,000 by 2035. With productivity rising to 2.7%, per capita income is projected to reach $110,000, a clearly positive result for welfare. Currently, healthcare spending is 18.3% of GDP. With 1.8% productivity growth in the broad economy but not in the healthcare sector, which has been slow to adopt AI, and an aging population, the health spending-to-income ratio is projected to rise to 21% of GDP by 2035, with relative healthcare inflation running at 1.1% annually. When productivity increases to 2.7%, health prices rise more rapidly at 1.8% annually, pushing spending to 21.7% of GDP.

Takeaways by Macro Roundup® AI

  1. U.S. GDP per capita, about $87,000, is projected to reach $102,000 by 2035 with 1.8% annual productivity growth, or $110,000 if productivity rises to 2.7%.
  2. Healthcare spending, at 18.3% of GDP, is projected to reach 21% by 2035 under 1.8% productivity growth, with relative healthcare inflation of 1.1% annually, an aging population, and slow AI adoption in healthcare.
  3. Productivity growth of 2.7% is projected to raise health prices 1.8% annually and health spending to 21.7% of GDP by 2035.

Related Articles:

  • U.S. Treasury Investors Are Long in AI — The authors find U.S. government debt has a large positive productivity beta, because the tax code makes federal revenue highly sensitive to productivity growth while spending commitments change little, leaving bondholders implicitly long productivity growth. They argue greater market confidence in sustained productivity gains from AI could substantially reprice government debt, lowering nominal yields.
  • Has the United States Bent the Health Care Cost Curve? — The authors estimate that a slowdown in US health care spending reflects technology-associated changes in health and site of care (21% of the slowdown, double that in Medicare), more elastic long-run supply (6%), market changes reducing and making demand more elastic (11–27%), improved population health (7%), and slower price growth net of upcoding (24%).
  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.

AI Summary. Current readings on labor market tightness, manufacturing price pressures, supply chain tightness and the output gap resemble conditions that have historically preceded Federal Reserve rate increases rather than cuts, and futures markets are pricing in hikes. Averaging several monetary policy rules implies a policy rate of 4.00%–4.85% versus the current 3.50%–3.75%.

Michael Cembalest J.P. Morgan
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Cembalest notes labor market tightness, price pressures in the manufacturing sector and the implied output gap are “much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them.”

Do current inflation indicators point toward rate hikes rather than cuts?

Core argument: Averaging several monetary policy rules — Taylor rules, inertial, alternative r*, and forward-looking — yields a Fed Funds range of 4.00%–4.85%, above the current 3.50%–3.75% range.

Inflation indicators the Fed watches include labor market tightness, price pressures in the manufacturing sector, supply chain tightness and the “output gap” which measures how far actual growth is above/below potential growth. [The two] charts plot these four variables at the time of prior Fed decisions to increase or cut policy rates; green dots indicate when the Fed cut, red dots indicate when the Fed tightened and yellow circles show today’s values. In other words: current values are much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them. That may be why the futures curve is now pricing in Fed hikes instead of the cuts that were priced in at the start of the year. Superwonky: averaging several different monetary rules of thumb (Taylor rules, inertial, alternative r*, forward-looking) yields a Fed Funds range of 4.00% - 4.85% compared to the current range of 3.50% - 3.75%.

Takeaways by Macro Roundup® AI

  1. Averaging several monetary policy rules — Taylor rules, inertial, alternative r*, and forward-looking — yields a Fed Funds range of 4.00%–4.85%, above the current 3.50%–3.75% range.
  2. Labor market tightness, manufacturing price pressures, supply chain tightness, and the output gap sit much closer to conditions that historically prompted the Fed to raise policy rates than to cut them.
  3. The futures curve is pricing in Fed hikes rather than the cuts priced in at the start of the year.

Related Articles:

  • US Consumer Sentiment Slides to Record Low on Price Concerns — The University of Michigan's consumer sentiment index fell 5 points to 44.8, a record low and weaker than all economist projections in a Bloomberg survey. Consumers expect prices to rise 3.9% annually over the next five to 10 years, up from 3.5%, and 4.8% over the coming year.
  • The Dangerous Brew That’s Rattling Bond Markets — U.S. inflation has remained above the Federal Reserve's 2% target since 2022 while government borrowing runs high and companies borrow heavily to fund AI build-out. Even so, the 30-year Treasury yield reached a 19-year high of 5.18% while the 10-year yield, at 4.67%, sat below its October 2023 level.
  • 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.

AI Summary. US consumer prices ended up 10.4% higher than if the Federal Reserve had hit its 2% annual inflation target throughout, suggesting central banks tolerate permanent price-level overshoots after large shocks while resisting persistent undershoots. The author argues the Fed's shift to averaging 2% over time was mistimed and tightening came far too late.

Martin Wolf Financial Times
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Martin Wolf argues that the Powell Fed’s lateness in raising interest rates in response to the pandemic inflation and its new “let bygones be bygones” monetary rule, left inflation on a prolonged above-2% course.

Do central banks let prices overshoot targets but resist undershoots?

Core argument: The US personal consumption expenditures price index in March 2026 stood 10.4% above where it would have been had the Fed hit its 2% annual target from January 2020 onwards.

[In its response to] the disruption caused by the Covid-19 pandemic, the Fed, like other central banks, failed to keep inflation at 2% a year. Some argue that, given the scale of that disruption, what happened was the least bad outcome. But in March 2026 the US personal consumption expenditures price index was 10.4% higher than it would have been if the Fed had hit its 2% annual target from January 2020 onwards. From this experience, it is rational for people to conclude that over time the 2% target will be exceeded. That is because central banks will allow prices to rise permanently above the levels implied by the inflation target in response to a big shock. But they will work far harder to prevent it from falling consistently below that level. The Fed also made its job harder by moving to a new regime, in which bygones would no longer be bygones. In August 2020, the Fed said that it “seeks to achieve inflation that averages 2% over time”. Thus, “following periods when inflation has been running persistently below 2%, appropriate monetary policy will probably aim to achieve inflation moderately above 2% for some time.” This was both a bad idea and a badly mistimed idea, since it was followed by a period of very high inflation. The Fed and other central banks did not expect the soaring inflation and, in my view at the time, ended up tightening policy far too late.

Takeaways by Macro Roundup® AI

  1. The US personal consumption expenditures price index in March 2026 stood 10.4% above where it would have been had the Fed hit its 2% annual target from January 2020 onwards.
  2. The Fed's August 2020 shift to seeking inflation that averages 2% over time, aiming moderately above 2% after persistent undershooting, was, in the author's view, a bad and badly mistimed idea, as it preceded a period of very high inflation.
  3. Since central banks allow prices to rise permanently above levels implied by the inflation target after a big shock while working far harder to prevent persistent undershooting, people can rationally conclude the 2% target will be exceeded over time.

Related Articles:

  • Why Did Inflation Rise And Fall In 2021-24? Channels And Evidence From Expectations — Across countries, unexpectedly higher government deficits relative to earlier International Monetary Fund forecasts are associated with unexpectedly higher inflation, measured by each factor's contribution to the increase in public debt, a relationship the author finds statistically significant. This evidence is consistent with a fiscal channel for inflation.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • 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.

AI Summary. China's renminbi internationalization appears to have re-accelerated after nearly a decade of limited progress, supported by a persistently strong balance of payments and an appreciating currency. The renminbi has already displaced the dollar as the dominant currency for Chinese trade credit, and may benefit as historical US allies reconsider their dollar allocations.

Martin Lynge Rasmussen Money: Inside and Out
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80% of China’s trade finance extension is renminbi-denominated, up from 20% in 2020. “The renminbi has already displaced the dollar as the dominant currency for Chinese trade credit in the span of a few years.”

Is China's renminbi gaining ground as an international currency?

Core argument: Renminbi internationalization appears to have re-accelerated since 2024 after nearly a decade of limited progress, backed by a stronger political mandate.

After nearly a decade of limited progress, RMB internationalisation appears to have re-accelerated since 2024. The context appears highly supportive of continued progress: the renminbi has been appreciating since last summer as China’s balance of payments has been persistently strong, and the renminbi might benefit at the margin as historical US allies are reconsidering their USD allocations. Moreover, the renminbi has already displaced the dollar as the dominant currency for Chinese trade credit in the span of a few years.

Takeaways by Macro Roundup® AI

  1. Renminbi internationalization appears to have re-accelerated since 2024 after nearly a decade of limited progress, backed by a stronger political mandate.
  2. The renminbi has displaced the dollar as the dominant currency for Chinese trade credit within the span of a few years.
  3. The renminbi has been appreciating since last summer as China's balance of payments has remained persistently strong, and it might benefit at the margin as historical US allies reconsider their USD allocations.

Related Articles:

  • A New Driver of China’s De-Dollarization — Chinese banks have shifted their trade financing toward the renminbi, which now accounts for 72% of the roughly $250bn of Chinese trade credit extended since 2017, up from 17% of about $150bn during 2017-2021. The dollar share of Chinese trade credit is falling, and dollar trade credit provision may be negative.
  • The Emergence Of A New Anchor — Renminbi bonds have outperformed other major bond markets over horizons ranging from year-to-date to the past 10 years, and most countries now trade more with China than with the US. The author argues the world is not deglobalizing but "de-Westernizing," with greater trade with China making countries more willing to save in renminbi.
  • Finding China in the U.S.TIC Data — China's holdings of U.S. assets began disappearing from U.S. custodial data after the G-7 immobilized Russia's reserves, and estimating them has grown harder as China diversified away from both U.S. and Belgium-based custodians. Estimates suggest a lower share in long-term Treasuries, more bills, and roughly 10% in agency bonds.

AI Summary. German federal spending has picked up, with year-to-date outlays from the off-budget military fund up €1.7bn (+44%) from a year earlier and total defence spending up €7.0bn (+34%). Spending from the newly established infrastructure and climate fund came in above expectations at €6.1bn, exceeding the decline in infrastructure items within the main budget.

Niklas Garnadt Goldman Sachs
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German fiscal expansion is underway, led by defense spending, which was up 34% y/y in April. Further buoyed by climate and infrastructure spending above expectations, the widened deficit will add an estimated 0.6pp fiscal impulse in 2026.

Is German federal spending on defence and infrastructure accelerating?

Core argument: Germany's year-to-date spending from the off-budget military fund is up EUR 1.7bn (+44%) from last year, while total defence spending is up EUR 7.0bn (+34%).

Spending in the off-budget military fund (implied by the fund's issuance activity) stood at EUR 1.2bn, slightly higher than our expectation of EUR 1.0bn and also higher than last year's EUR 0.9bn. YTD spending in the military fund is up EUR 1.7bn (+44%) from last year and total defence spending is up EUR 7.0bn (+34%). Spending in the infrastructure fund (implied by the fund's issuance activity) came in at EUR 6.1bn, notably above our expectation. Data on spending in the federal bucket of this fund, which came in at only EUR 0.7bn in April, suggests that the upside surprise came either from disbursement to the states or spending in the climate transformation fund. As the infrastructure & climate fund was only established last autumn, there are no comparable numbers for last year, but total spending out of this fund remains notably higher than the decrease in infrastructure-related items in the main budget compared to last year.

Takeaways by Macro Roundup® AI

  1. Germany's year-to-date spending from the off-budget military fund is up EUR 1.7bn (+44%) from last year, while total defence spending is up EUR 7.0bn (+34%).
  2. April spending in Germany's off-budget military fund, implied by the fund's issuance activity, was EUR 1.2bn, above the EUR 1.0bn expected and last year's EUR 0.9bn.
  3. Spending in Germany's infrastructure fund, implied by the fund's issuance activity, came in at EUR 6.1bn, notably above expectation, with only EUR 0.7bn from the federal bucket, suggesting disbursement to the states or the climate transformation fund.

Related Articles:

  • Germany Has the Cash to Revitalize Its Economy, but Can’t Seem to Spend It — Germany's large economic stimulus has been slowed by bureaucratic procedures that delay infrastructure spending, though the country suspended planning rules to build three liquefied natural gas terminals in about 10 months instead of the usual five years. A bill in parliament would extend similar streamlining to large infrastructure projects.
  • Merz’s €600 Billion Defense Push Is Rippling Across Germany — Germany has earmarked an initial €600bn ($687bn) for its military, and streamlined procurement is helping defense producers secure record orders for goods ranging from artillery shells to attack drones, with banks lending more readily. UBS estimates defense will add 0.5 percentage points to German growth by 2028.
  • 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.

Thursday, May 28, 2026

AI Summary. Japan's real effective exchange rate for the yen has fallen below Turkey's lira, signaling something profoundly wrong. Japan's gross government debt stands at 240% of GDP versus net debt of 130%, and selling some of the government's financial assets to pay down debt would reduce upward pressure on yields and downward pressure on the yen.

Robin Brooks Robin Brooks Substack
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Japan’s gross government debt stands at 240% of GDP, but net debt is only 130% due to large holdings of financial assets. Brooks suggests selling these to reduce borrowing costs and stabilize the yen, which is now underperforming even the Turkish Lira.

Can selling government financial assets ease Japan's debt and currency pressures?

Core argument: Japan's real effective yen fell below the Turkish lira in April 2026, a currency the author calls the world's weakest for over a decade under Erdogan's policies, which the author reads as a sign something is profoundly wrong.

The blue line in the chart shows the real effective Yen, which in April 2026 fell below the Turkish Lira (black line). This should alarm everyone in Japan. The Turkish Lira has been the world’s weakest currency for over a decade, thanks to Erdogan’s shambolic policies. For the Yen to fall below this is not a small thing. It signals that something is profoundly wrong. Japan’s government holds vast amounts of financial assets, which is why net debt is so much lower than gross debt. Gross debt stands at 240% of GDP, while the vertical axis shows that net debt is only 130% . The difference is financial assets that can be sold, with the cash used to pay down debt. Even a small step in this direction would get huge acclaim in financial markets, reducing upward pressure on yields and depreciation pressure on the Yen.

Takeaways by Macro Roundup® AI

  1. Japan's real effective yen fell below the Turkish lira in April 2026, a currency the author calls the world's weakest for over a decade under Erdogan's policies, which the author reads as a sign something is profoundly wrong.
  2. Japan's gross government debt stands at 240% of GDP while net debt is 130%, the difference being financial assets the government holds and could sell to pay down debt.
  3. The author argues that even a small move by Japan to sell government financial assets and repay debt would win acclaim in financial markets, easing upward pressure on yields and depreciation pressure on the yen.

Related Articles:

  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • 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.
  • Japan’s Debt Puzzle: Sovereign Wealth Fund from Borrowed Money — Japan's public sector operates as a highly leveraged sovereign wealth fund, funding risky assets by borrowing from banks and depositors at below-market rates, with returns sustaining its debt-to-GDP ratio above 200% without primary surpluses. The authors argue the resulting duration and currency mismatches expose Japan to mark-to-market losses that could trigger a fiscal crisis or a run on the yen.

AI Summary. Manufacturing in Japan, South Korea and Taiwan has narrowed around artificial intelligence: chips and AI-related gear account for over 40% of South Korean exports and 80% of Taiwan's, both up sharply from earlier shares. The Economist estimates the region's entire rise in industrial output is attributable to AI, with non-AI factory output shrinking.

Economist Staff The Economist
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The industrial production of Japan, South Korea and Taiwan has risen 15% since 2019 – entirely driven by AI-related demand. Apart from chip-making, IP has shown no trend since 2011. The fall in non-chip output is likely due to Chinese competition.

Is all industrial growth in north-east Asia coming from AI?

Core argument: The Economist finds that all of the 15% rise in north-east Asian industrial output since 2019 is attributable to AI, after counting firms not classified as AI-linked in official statistics, such as Japan's Advantest and Taiwan's Foxconn.

North-east Asian manufacturing is getting narrower. Chips and other gear related to AI make up over 40% of South Korean exports, more than double their share just two years ago. In Taiwan it is 80% of exports, compared with about half before the pandemic. After accounting for firms not neatly captured as AI-linked in official statistics, like Japan’s Advantest (which makes chip-testing gear) and Taiwan’s Foxconn (which produces data-centre servers, among other electronics), The Economist finds that all 15% of the region’s rise in industrial output since 2019 is thanks to AI. In Japan, South Korea and Taiwan output at factories unrelated to AI has shrunk in recent years.

Takeaways by Macro Roundup® AI

  1. The Economist finds that all of the 15% rise in north-east Asian industrial output since 2019 is attributable to AI, after counting firms not classified as AI-linked in official statistics, such as Japan's Advantest and Taiwan's Foxconn.
  2. Chips and other AI-related gear account for over 40% of South Korean exports, more than double their share two years earlier, and 80% of Taiwan's exports, compared with about half before the pandemic.
  3. Factory output unrelated to AI has shrunk in recent years in Japan, South Korea and Taiwan, leaving north-east Asian manufacturing narrower.

Related Articles:

  • China’s Next-Generation Industrial Policy — China's export growth is concentrated in upstream, higher-tech goods: exports of intermediate inputs rose 26% and capital goods 32% between 2021 and 2024, while consumption goods exports were broadly flat. This shift embeds China deeper in global production systems and aligns with its long-running import substitution strategy of localizing entire value chains.
  • China Is Making Trade Impossible — Interviews with Chinese economists, technologists and business leaders yielded no clear answer to what products China would want to buy from the rest of the world in future, beyond commodities, luxury goods and higher education. The author argues China sees nothing it cannot eventually make better and cheaper itself, undermining trade as a two-way exchange.
  • 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. The authors present descriptive evidence that global supply chain disruptions were associated with elevated transportation costs, goods supply-demand imbalances, and a surge in goods prices, steepening the aggregate supply curve. In the disrupted state, a contractionary monetary policy shock produces muted responses in real output and spare capacity but a substantially stronger decline in goods prices.

Xiwen Bai, Jesús Fernández-Villaverde, Yiliang Li and Francesco Zanetti National Bureau of Economic Research
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Bai, et al present evidence that btw 2017 and 2023, monetary tightening reduced US inflation relatively more than output during periods of global supply chain disruption, compared to undisrupted periods.

Does monetary tightening lower prices more when supply chains are disrupted?

Core argument: Using linear projections, the authors find that a contractionary monetary policy shock in the disrupted global supply chain regime produces muted responses in real GDP and spare capacity but a substantially stronger decline in PCE goods prices, especially shortly after impact.

We highlight important interrelated facts connecting global supply chain disruptions to domestic conditions in the U.S. between 2017 and 2023, showing that such disruptions were associated with elevated transportation costs, severe imbalances in the supply and demand for goods, and a surge in goods prices. Supply chain disruptions, which curtail the availability of goods in retail markets, increase the convexity of the aggregate supply curve [i.e. the curve steepens more sharply at higher hypothetical output levels]. As a result, adjustments in demand driven by monetary policy during disruptions lead to significant price changes with limited effects on real output. Next, we employ linear projections (LPs) to identify [the effects of] a contractionary monetary policy shock conditional on the state of the global supply chain. In the disrupted regime, a contractionary monetary policy shock generates muted responses in real GDP and spare capacity relative to the undisrupted regime, but a substantially stronger decline in PCE goods prices, especially in the short run following impact. [Given econometric limitations], we view the analysis not as a definitive assessment, but as descriptive evidence that the data are consistent with the mechanisms highlighted in our theoretical model.

Takeaways by Macro Roundup® AI

  1. Using linear projections, the authors find that a contractionary monetary policy shock in the disrupted global supply chain regime produces muted responses in real GDP and spare capacity but a substantially stronger decline in PCE goods prices, especially shortly after impact.
  2. The authors argue that supply chain disruptions curtail retail goods availability and increase the convexity of the aggregate supply curve, so monetary-policy-driven demand adjustments during disruptions move prices significantly with limited effects on real output.
  3. Global supply chain disruptions between 2017 and 2023 were associated with elevated transportation costs, severe imbalances in the supply and demand for goods, and a surge in goods prices in the U.S., which the authors present as descriptive evidence rather than a definitive assessment.

Related Articles:

  • How Have Swings in Demand Affected Global Supply Chain Pressures? — The Federal Reserve Bank of New York's Global Supply Chain Pressure Index isolates supply-side disruptions, while an auxiliary "Net" version captures stress from both supply and demand forces. A mix of supply and demand factors is driving an easing of net global supply chain pressure.
  • Revisiting the Phillips and Beveridge Curves: Insights from the 2020s Inflation Surge — The authors identify a "Beveridge threshold" level of labor market tightness—the ratio of job vacancies to unemployed workers—below which the relationship between inflation and economic activity steepens and labor market adjustment occurs mainly through vacancies rather than unemployment. They estimate that during the post-pandemic inflation surge the unemployment rate fell as much as 1.08 percentage points below this threshold.

AI Summary. U.S. households hold a record share of their assets in equities, exceeding the dot-com and Nifty Fifty eras, while price-earnings multiples sit near all-time highs and fewer than 10 stocks account for almost 40% of the S&P 500's market value. The author argues equity ownership has become structural rather than discretionary, making markets simultaneously more stable and more fragile.

Paul Kedrosky Applied Complexity
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Equities are now a record share of American households’ financial assets, surpassing the dot-com peak. Paul Kedrosky notes that passive inflows act to “damp ordinary selloffs,” but warns that “once flows reverse, there will be few marginal buyers left.”

Does record household equity ownership make markets more stable and more fragile?

Core argument: U.S. household equity allocation stands at a record, exceeding levels reached during the dot-com bubble and the Nifty Fifty era.

Households in the U.S. are at a record equity allocation, higher than in the dot-com or even the Nifty Fifty era. At the same time, market price-earnings multiples are not far from all-time highs, and index concentration is at a record, with fewer than 10 stocks making up almost 40% of the S&P 500's market cap. This has systemic implications: Equity ownership is now structural, not discretionary. Household “diversification” masks concentration. Monster AI IPOs will create forced-buying spirals. Public investors become the exit liquidity for private AI capital. Markets become simultaneously more stable and more fragile.

Takeaways by Macro Roundup® AI

  1. U.S. household equity allocation stands at a record, exceeding levels reached during the dot-com bubble and the Nifty Fifty era.
  2. Fewer than 10 stocks account for almost 40% of the S&P 500's market cap, a record index concentration, while price-earnings multiples sit not far from all-time highs.
  3. The analysis argues equity ownership has become structural rather than discretionary, that household diversification masks concentration, and that large AI IPOs will create forced-buying spirals with public investors serving as exit liquidity for private AI capital.

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AI Summary. Fully closing Social Security's funding gap by raising the payroll tax rate would require an immediate, permanent increase from 12.4% to 17.6%, which would reduce labor supply and economic growth. Research on a prior benefit cut found affected Americans raised earnings by 61 cents per dollar of lost benefits, generating additional payroll tax revenue.

Andrew Biggs American Enterprise Institute
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Biggs argues that “fair” approaches to restoring Social Security solvency – those that do not cut already accrued benefits – are less effective than “unfair” ones that do, because the latter incentivize increased work effort, raising growth and revenue.

Does closing Social Security's gap with higher payroll taxes hurt growth?

Core argument: Keeping Social Security permanently solvent under the "fairness" model of paying accrued benefits in full would require an immediate and permanent payroll tax increase from 12.4% to 17.6%, which would decrease labor supply and reduce economic growth.

Imagine that Social Security reform follows the fairness model, in which accrued benefits are paid in full but the rate at which future benefits are earned is reduced. A simple way to do this is to increase the payroll tax rate To keep Social Security permanently solvent, meaning through 75 years and beyond, would require an immediate and permanent increase in the payroll tax rate [from] 12.4% to 17.6%. The higher rate would decrease labor supply and reduce economic growth. [Consider] an alternate reform, which looks clearly unfair: fix Social Security’s funding gap entirely by reducing accrued benefits that Americans already have earned. As of 2025, Americans had accrued $54 trillion in Social Security benefits. Social Security’s unfunded obligation as of 2025 was $26 trillion. So, roughly, this means cutting Americans’ “earned benefits” in half. [Analyzing the 1977 reform that undid the notorious 1972 “double-indexing” of benefits, a group of economists], using SSA earnings data, found that, for every dollar of lost benefits, the affected Americans increased their earnings by 61 cents. Moreover, these additional earnings would be taxed by Social Security, further strengthening the program’s finances. In effect, this makes cutting benefits a “cheaper” way to fix Social Security than raising taxes, because people respond in ways that also increase tax revenues.

Takeaways by Macro Roundup® AI

  1. Keeping Social Security permanently solvent under the "fairness" model of paying accrued benefits in full would require an immediate and permanent payroll tax increase from 12.4% to 17.6%, which would decrease labor supply and reduce economic growth.
  2. Americans had accrued $54 trillion in Social Security benefits as of 2025 against an unfunded obligation of $26 trillion, so closing the gap solely by cutting already-earned benefits would mean roughly halving those benefits.
  3. Economists analyzing the 1977 reform that undid the 1972 "double-indexing" of benefits found, using SSA earnings data, that affected Americans raised their earnings by 61 cents per dollar of lost benefits, earnings that Social Security would tax.

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  • Social Security and Trends in Wealth Inequality — The authors estimate that including Social Security in household wealth leaves top wealth shares little changed over three decades, with the top 10% and top 1% shares rising 1.1 and 1.6 percentage points versus roughly 9 and 6 points for marketable wealth alone. Social Security wealth grew from $7tn to $39tn.
  • How Federal Spending is Distributed by Age — An analysis classifying $4.4tn of $7tn in federal spending by age finds retirees aged 65 and older receive $2.7tn, 38.6% of total outlays and 61.9% of age-assignable spending, versus $1.2tn for working-age adults and $449bn for those under 26. Social Security and Medicare account for 80% of age-assignable spending on older adults.
  • The Great “Transfer”-mation — Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.

AI Summary. The US has warned Japan that deliveries of 400 Tomahawk cruise missiles, expected by April 2028, could be delayed by as much as two years. The Center for Strategic and International Studies says the US fired more than 1,000 Tomahawks from an estimated prewar inventory of 3,100 during five weeks of operations against Iran.

Demetri Sevastopulo Financial Times
Date Posted:

The US has notified Japan to expect “serious delays” in the delivery of 400 Tomahawk missiles Tokyo ordered in 2024, and were expected to start arriving in 2028, due to concerns about US magazine depth after the Iran war

Are wartime missile expenditures delaying cruise missile deliveries to allies?

Core argument: The US fired more than 1,000 Tomahawks from an estimated prewar inventory of 3,100 during five weeks of military operations against Iran, according to the Center for Strategic and International Studies.

Japan had expected to receive two batches of 200 missiles each by April 2028. One person familiar with the situation said Washington had warned that the delays could add as much as two years to the current delivery schedule. According to the Center for Strategic and International Studies, the US fired more than 1,000 Tomahawks out of an estimated prewar inventory of 3,100 during the five weeks of military operations against Iran. CSIS said that in took roughly four years to deliver Tomahawks to the US military from the time Congress has provided funding.

Takeaways by Macro Roundup® AI

  1. The US fired more than 1,000 Tomahawks from an estimated prewar inventory of 3,100 during five weeks of military operations against Iran, according to the Center for Strategic and International Studies.
  2. Washington has warned Japan that delays could add as much as two years to a schedule under which Tokyo expected two batches of 200 Tomahawk missiles each by April 2028, according to one person familiar with the situation.
  3. CSIS said Tomahawk deliveries to the US military have taken roughly four years from the time Congress provided funding.

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