Edward Conard

Top Ten New York Times Bestselling Author

  • “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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, August 5, 2026

AI Summary. Measured total factor productivity growth is estimated to come almost entirely from higher input utilisation rather than underlying efficiency gains, based on a method that infers unobserved capital and labour utilisation from movements in hours per worker. On this evidence, recent productivity gains reflect "working harder" rather than "working smarter.

Shane Boyle, John Fernald and Huiyu Li Center For Economic and Policy Research
Date Posted:
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Database

US labor productivity has accelerated, with output per hour growing at a mean annual rate of 2.5% btw 2023–2026Q1, ~1pp above its 2005–2019 pace. The gains have largely been driven by higher input utilisation, which is ‘inherently temporary.”

Does higher input utilisation explain recent measured productivity growth?

Core argument: Since the beginning of 2024, utilisation growth accounts for essentially all measured total factor productivity growth, suggesting the measured productivity gains derive from "working harder" rather than "smarter".

Input utilisation is not observed directly for the entire economy;  it must be inferred. Consider a firm that wants to meet strong demand but has a given capital stock, workforce, and technology. It can ask its existing workers to work longer (which we observe). It can also run its capital longer. Each margin is costly, for example, overtime pay, so firms typically use all of them at once. The observed margin serves as a proxy for the unobserved ones. The method infers changes in industry utilisation from observed movements in hours per worker, scaled by an estimated pass-through of those movements into labour productivity. Industry estimates are aggregated using Domar weights, which reflect each industry’s importance. The stacked bars in Figure 2 show measured TFP growth split into [Fernald's] measure of utilisation growth in light grey and utilisation-adjusted TFP growth in dark grey. In 2023, utilisation growth was a drag on measured TFP growth, and utilisation-adjusted TFP growth soared. Since the beginning of 2024, however, utilisation accounts for essentially all TFP growth. For now, the measured productivity gains appear to derive from “working harder” rather than “smarter.”

Takeaways by Macro Roundup® AI

  1. Since the beginning of 2024, utilisation growth accounts for essentially all measured total factor productivity growth, suggesting the measured productivity gains derive from "working harder" rather than "smarter".
  2. In 2023, utilisation growth was a drag on measured TFP growth while utilisation-adjusted TFP growth soared, according to Fernald's decomposition of measured TFP.
  3. Economy-wide input utilisation is not observed directly and is inferred from movements in hours per worker, scaled by an estimated pass-through into labour productivity, with industry estimates aggregated using Domar weights.

Related Articles:

  • 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 Impact of AI on the U.S. Labor Market — Using observed AI usage data across 321 U.S. occupations, the authors estimate that highly exposed occupations saw a 6.7% decline in real wage growth with no detectable employment effects. The estimated declines are concentrated among the lowest earners, with service workers down 24.3% and the bottom wage quartile down 10.7%, while top earners show no significant effect.
  • Why Wages And Productivity Look Set To Diverge Further — In the US, Europe and Japan, pay growth has decoupled from productivity growth, with productivity pulling ahead. US labor productivity, measured as real GDP per hour worked, is more than 5x its 1947 level while real hourly compensation is only about 3x, and median wage growth lags even further behind.

AI Summary. A San Francisco Federal Reserve model estimates that the growth contribution from rising resource utilization in recent quarters has been larger than in almost any comparable five-quarter stretch since 1947 outside recoveries from downturns. That measure is based on a modified version of the average worker's weekly hours rather than unemployment or capacity utilization.

Matt Klein The Overshoot
Date Posted:

The recent growth contribution from rising utilization, as measured by the FRBSF, is outsized “except for the brisk—and unsustainable— growth that characterized the mid-1960s and parts of the 1970s.”

What is driving the recent surge in measured resource utilization growth?

Core argument: The San Francisco Fed model shows the growth contribution from rising "resource utilization" in 2024Q4–2026Q1 exceeding almost any other 5-quarter stretch since 1947, outside periods of recovery from a downturn.

Outside of periods when the economy was in the midst of recovering from a downturn, the growth contribution from rising “resource utilization” in 2024Q4-2026Q1 has been larger than over almost any other 5-quarter stretch since 1947, according to the SF Fed model. While the absolute level of this estimate of “resource utilization”, based on cumulative growth since 1947, remains relatively low, the recent pace of growth has been rapid. The main precedents were the periods of brisk—and unsustainable— growth that characterized the mid-1960s and parts of the 1970s. I was puzzled by this at first, since it does not fit with other data we have such as the unemployment rate or industrial capacity utilization. Neither unemployment nor underemployment have worsened since 2023, but they have not dramatically improved, either. Meanwhile, the Fed’s estimate of manufacturing capacity utilization ground steadily lower from the post-pandemic peak in 2021H2-2022H1 until 2024Q4, where it has remained ever since. (Manufacturing production itself has done much better, but the rise in output has coincided with an increase in capacity, hence the relatively low level of aggregate capacity utilization.) The explanation is that the SF Fed measure is not based on those indicators, but on a modified version of the average worker’s weekly hours.

Takeaways by Macro Roundup® AI

  1. The San Francisco Fed model shows the growth contribution from rising "resource utilization" in 2024Q4–2026Q1 exceeding almost any other 5-quarter stretch since 1947, outside periods of recovery from a downturn.
  2. The main precedents for such rapid growth in the San Francisco Fed's resource utilization measure were the brisk and unsustainable growth periods of the mid-1960s and parts of the 1970s, though the absolute level of the estimate remains relatively low.
  3. The San Francisco Fed's resource utilization measure is based on a modified version of the average worker's weekly hours rather than on the unemployment rate or manufacturing capacity utilization, which fell from its 2021H2–2022H1 peak through 2024Q4 and has stayed there.

Related Articles:

  • AI and Productivity — The recent pickup in US labor productivity appears driven by higher utilization of existing capital—running factories, server racks, and hotel rooms harder—rather than by firm-level efficiency gains from AI. Adoption remains too thin and the cross-sectional evidence too weak to conclude that AI-driven productivity gains are already widespread.
  • Have We Entered an Era of High Productivity Growth? — 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.
  • 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%.

AI Summary. A US-backed intervention to support the yen was funded largely by selling euros rather than dollars, limiting the volume of dollar sales required. The author argues this signals that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks deploy their dollar reserves in unlimited quantities.

Barry Eichengreen Financial Times
Date Posted:

Eichengreen argues that Treasury’s reluctance to see the BOJ use their dollar reserves for exchange intervention suggests that “the dollar is not the attractive reserve currency it once was,” and thus “reserve diversification is apt to gather steam.”

Is Washington reluctant to let central banks sell dollar reserves?

Core argument: The US Exchange Stabilization Fund purchased yen primarily with euros rather than dollars in the intervention, limiting the volume of dollar sales required from Japanese authorities.

Last week’s intervention [in which the Exchange Stabilization Fund purchased yen, primarily with Euros] contains troubling information about the dollar. Central banks are accustomed to holding foreign reserves in dollars because markets in US Treasury securities are liquid. Central banks hold US Treasuries because they can be freely bought and sold and used in interventions. But not now, at least not in unlimited quantities. Instead, we see the US Treasury stepping in with euro sales as part of its contribution to the intervention, thus limiting the volume of dollar sales needed by the Japanese authorities. The bottom line is that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks use their dollar reserves.

Takeaways by Macro Roundup® AI

  1. The US Exchange Stabilization Fund purchased yen primarily with euros rather than dollars in the intervention, limiting the volume of dollar sales required from Japanese authorities.
  2. Central banks hold reserves in US Treasuries on the premise that those securities can be freely bought, sold, and deployed in interventions, a premise the author argues no longer holds in unlimited quantities.
  3. The author concludes that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks draw on their dollar reserves.

Related Articles:

  • Q&A on Yen Intervention — Currency intervention can't stem yen depreciation in the medium term because the decline is driven by Japanese government bond yields capped by the Bank of Japan to avert a debt crisis, and Japan can't afford higher yields. The author argues Japan could instead sell government financial assets to pay down gross debt and strengthen the yen.
  • The International Role of the U.S. Dollar – 2025 Edition — The US dollar accounted for 58% of disclosed global official foreign reserves, versus 20% for the euro and 2% for China's renminbi, and roughly 50% of international payments made through the SWIFT messaging system. About 55% of international claims and 60% of liabilities are denominated in dollars, a share relatively stable since 2000.
  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.

AI Summary. Model-based simulations suggest that industrial policies using quantity targets to boost tradable output create shortages of nontradable goods, raising their prices and appreciating the real exchange rate — effects that can be reversed by repressing consumption, turning the current account effect positive. Appreciating a surplus country's nominal exchange rate alone would only add deflationary pressure.

Pierre-Olivier Gourinchas, Gene Kindberg-Hanlon, Manasa Patnam, Lorenzo Rotunno, et al. Journal of Economic Perspectives
Date Posted:
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Database

Industrial policy that stimulates exports also raises domestic spending. To generate a current-account surplus, it must be paired with forced saving, financial repression, or related features of the Chinese model.

How does repressing consumption change industrial policy's trade effects?

Core argument: Model-based simulations show that quantity targets boosting tradable output create a lopsided economy with a shortage of nontradable goods, raising domestic nontradable prices and the overall price level and appreciating the real exchange rate.

Consider the example of policy directives to boost tradable output through the use of quantity targets. [This] creates a lopsided economy, resulting in a shortage of nontradable goods. To restore balance, the price of domestic nontradable goods would rise, increasing the overall price level and appreciating the real exchange rate, as the model-based simulations in Figure 9 show. However, these side-effects of the policy can be reversed by suppressing consumption, for instance through forced saving policies. In this case, reduced aggregate demand contains the rapid rise in nontradable prices and overall inflation. A sufficient degree of consumption repression can fully reverse the fall in saving and appreciation of the real exchange rate that would otherwise occur, subdue the relative nontradable price increase, and turn the current account balance effect from negative to positive. A policy that would seek to appreciate the nominal exchange rate of surplus countries without a change in the underlying drivers of saving and investment would only result in stronger domestic deflationary pressures. In this sense, focusing on the nominal exchange rate alone risks overstating its ability to correct external imbalances without accompanying changes in domestic demand and saving.

Takeaways by Macro Roundup® AI

  1. Model-based simulations show that quantity targets boosting tradable output create a lopsided economy with a shortage of nontradable goods, raising domestic nontradable prices and the overall price level and appreciating the real exchange rate.
  2. A sufficient degree of consumption repression, such as forced saving policies, can fully reverse the fall in saving and the real exchange rate appreciation, subdue the relative nontradable price increase, and turn the current account balance effect from negative to positive.
  3. Appreciating surplus countries' nominal exchange rates without changing the underlying drivers of saving and investment would only produce stronger domestic deflationary pressures, so focusing on the nominal rate alone risks overstating its ability to correct external imbalances.

Related Articles:

  • Understanding Global Imbalances — The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
  • Debt, Deficits & Global Imbalances — Taxes or restrictions on short-term capital inflows were argued to be a more direct and potentially superior tool than tariffs for shrinking the trade deficit, since tariffs risk retaliation and supply-chain distortions. Proponents said such measures could reduce reliance on household and government borrowing to sustain employment, if paired with efforts to strengthen domestic demand and tradables capacity.
  • Why Global Imbalances Matter — Countries running persistent trade surpluses, such as China, Germany and Japan, have built their economies around an excess supply of tradeable goods and services, leaving them dependent on deficit countries to absorb it. That dependence gives deficit countries bargaining power and exposes surplus countries to pressure to expand domestic demand.

AI Summary. High-achieving Chinese high school graduates are increasingly applying to police and military academies and other schools offering a clear path to public-sector jobs, pushing required entrance-exam scores up. Some programs now demand more than 650 points out of 750, rivaling the least competitive courses at China's most prestigious universities.

Sun Yu Financial Times
Date Posted:

Gaokao scores are rising at police and military academies in China as the labor market deteriorates. Applicants to the top courses at a top police academy fell only three points short of the minimum score for early admissions to the least competitive course at Tsinghua.

Are China's top students turning to police and military academies?

Core argument: Applicants to the most competitive programmes at the People's Public Security University of China needed 652 of 750 points on this year's gaokao in Jiangsu, three points below early admission to Tsinghua University's least competitive course.

Chinese high school graduates are increasingly shifting their sights towards police and military academies and other institutions that offer a clear path to public-sector jobs. Admission scores needed for some of these institutions have jumped — with some undergraduate courses requiring more than 650 points out of a maximum of 750 — reflecting strong demand from high-achieving students. Some of their courses are now as tough to enter as the least competitive subjects at top-tier universities. Applicants to the most competitive programmes at the People’s Public Security University of China (PPSUC) needed 652 points out of 750 in this year’s gaokao in Jiangsu, one of China’s wealthiest provinces. That was just three points below the minimum score for early admissions to the least competitive course at Beijing’s Tsinghua University, the country’s most prestigious university. China’s defence ministry said that students admitted to military academies this year ranked, on average, among the top 6% of gaokao candidates in their provinces.

Takeaways by Macro Roundup® AI

  1. Applicants to the most competitive programmes at the People's Public Security University of China needed 652 of 750 points on this year's gaokao in Jiangsu, three points below early admission to Tsinghua University's least competitive course.
  2. China's defence ministry said students admitted to military academies this year ranked, on average, among the top 6% of gaokao candidates in their provinces.
  3. Chinese high school graduates are increasingly shifting toward police and military academies and other institutions offering a clear path to public-sector jobs, with some undergraduate courses now requiring more than 650 points out of 750.

Related Articles:

  • Incentives And Outcomes — US technology and finance firms offer new engineering graduates higher pay and greater prestige than large industrial companies like Boeing, whereas engineering graduates in France, Japan, China, and Germany take industrial jobs such as Airbus at a fraction of US engineering pay. The author argues this talent pull is a genuine obstacle to re-industrializing the US.
  • Do Adults Have the Skills They Need to Thrive in a Changing World? — An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.
  • Military Officer Quality in the All-Volunteer Force — The authors find a steady decline in U.S. Marine Corps officers' General Classification Test scores, which is statistically associated with the expansion of college attendance and explains 96% of the measured change. They also find a positive association between African American officers and mean test scores, arguing affirmative action has not lowered officer quality.

Thursday, August 6, 2026

AI Summary. Data-center capital spending is projected to rise from 1.4% of GDP to 3.1% within two years, about 0.85 percentage points a year, roughly twice the pace of the housing boom's fastest stretch (0.5 points a year) and far above telecom fiber's (about 0.15). In level, the buildout exceeds twice the fiber peak but remains under half the housing peak.

Torsten Sløk Apollo
Date Posted:

Sløk forecasts hyperscaler capex to peak at 3.2% of GDP, less than half housing’s 6.6% peak, but it is projected to rise ~70% more quickly – 0.85pp of GDP per year at its fastest, versus 0.5pp for housing.

How fast is the data-center buildout growing compared with past capex booms?

Core argument: Data-center capex is projected to rise from 1.4% of GDP in 2025 to 3.1% in 2027, adding 1.7 percentage points in two years, or roughly 0.85 percentage points a year.

In level, the ongoing data-center buildout sits between the fiber and housing cycles: more than twice the fiber peak, less than half the housing peak. In cumulative change, what matters is not the level of the share but how much it moves. On this measure, the data-center buildout is the bigger capex cycle. In speed, the contrast is sharper still, and it holds even when each cycle is measured over its own fastest stretch. Data-center capex adds 1.7 percentage points in just two years, from 1.4% of GDP in 2025 to 3.1% in 2027, or roughly 0.85 percentage points a year. Housing's quickest phase, from 5.1% in 2002 to 6.6% in 2005, ran at 0.5 percentage points a year, and telecom's at around 0.15. The AI cycle is building at close to twice the pace of the housing boom at its fastest.

Takeaways by Macro Roundup® AI

  1. Data-center capex is projected to rise from 1.4% of GDP in 2025 to 3.1% in 2027, adding 1.7 percentage points in two years, or roughly 0.85 percentage points a year.
  2. Housing's fastest stretch, from 5.1% of GDP in 2002 to 6.6% in 2005, ran at 0.5 percentage points a year and telecom's at about 0.15, leaving the data-center buildout at close to twice the pace of the housing boom at its quickest.
  3. In level, the data-center buildout sits between the fiber and housing cycles at more than twice the fiber peak and less than half the housing peak, while ranking as the bigger capex cycle measured by cumulative change.

Related Articles:

  • The Market Is Asking Questions — Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.
  • Semiquincententacles — Leading artificial-intelligence labs are moving to usage-based token pricing on a cost-plus basis that includes total ownership costs, pushing token prices higher and giving some enterprises reason to migrate to cheaper open models. Frontier models remain necessary for cybersecurity, distillation training, agents, and scientific discovery, where maximum performance is required.
  • AI: The ROI Runway Could Be Long Outside the Tech Sector — AI company valuations rest on the assumption that profit margins across non-tech firms will eventually rise, but outside a handful of sectors adoption is slow, creating a divergence between front-loaded valuations and slower cash flows. If the per-use costs of AI models converge toward zero, revenue may be insufficient for all major cloud providers.

AI Summary. After a fifteen-year stretch in which US equities, technology and growth stocks led, equity gains have broadened geographically, with the US the weakest of the major regions. The five largest US stocks now trade at a price-to-earnings ratio only marginally above the other 495, after holding a consistent premium since 2017.

Peter Oppenheimer, Sharon Bell, Guillaume Jaisson, Elena Porfidia, et al. Goldman Sachs
Date Posted:

Noting US underperformance relative to the world since the start of 2025, and the fact that the 5 largest US stocks now have a P/E only marginally above that of the S&P 495, Goldman argues that the post-crisis regime of concentrated returns is over.

Are equity gains broadening beyond US growth and technology leadership?

Core argument: The five largest U.S. stocks trade at a P/E ratio only marginally above the other 495, after carrying a consistent premium since 2017.

In the fifteen years that followed the financial crisis, equity markets were very bifurcated. The US equity market dominated regionally, Technology consistently outperformed sectorally, and Growth persistently outpaced Value. Since 2025, and again through this year, the opportunity set has shifted. Equities have performed well, but the geographical spread has widened. The US has been the weakest of the major regions. [Further], the biggest five stocks in the US now have a P/E ratio only marginally above the other 495 but had previously been on a premium consistently since 2017.

Takeaways by Macro Roundup® AI

  1. The five largest U.S. stocks trade at a P/E ratio only marginally above the other 495, after carrying a consistent premium since 2017.
  2. In the fifteen years after the financial crisis, equity markets were bifurcated, with the U.S. dominating regionally, Technology outperforming sectorally, and Growth persistently outpacing Value.
  3. Equities have performed well since 2025 while the geographical spread has widened, with the U.S. the weakest of the major regions.

Related Articles:

  • The Magnificent Seven Are Riding Into the Sunset — Companies have steadily "de-equitized" through buybacks and cash-funded mergers, supporting share prices, but Barclays projects equity supply could rise for the first time in decades as large cloud computing firms fund capital spending. Their high valuation multiples make equity cheaper than debt, and that re-equitization would weigh on share prices.
  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • One Hundred Years in the U.S. Stock Markets — Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.

AI Summary. Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices. Crowds do not always correct errors: when beliefs and trading become correlated, or when uninformed participants flood a market, gaps open between implied and likely probabilities that informed participants can exploit.

Michael Mauboussin and Dan Callahan Morgan Stanley
Date Posted:

Price discovery in the stock market involves information from many disparate sources. “From time to time, beliefs and trading in the stock market become correlated and crowds amplify, rather than correct, errors. This is the madness of crowds.”

Do prediction markets always correct investor errors?

Core argument: Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices.

The ability to compare information from different markets has never been better. For example, prediction markets now offer contracts tied to key performance indicators for companies, which may provide investors with an additional way to assess the expectations embedded in stock prices. From time to time, beliefs and trading in the stock market become correlated and crowds amplify, rather than correct, errors. Steven Crist, an author and well-known handicapper, has noted that “the best friend that horseplayers have are the big race days.” The reason is that a wave of uninformed participants place bets that create a large gap between the implied and likely probability of winning. This opens an opportunity for informed handicappers to make profitable bets.

Takeaways by Macro Roundup® AI

  1. Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices.
  2. Beliefs and trading in the stock market become correlated from time to time, and crowds amplify rather than correct errors.
  3. Handicapper Steven Crist has noted that big race days are horseplayers' best friend, because a wave of uninformed bettors creates a large gap between implied and likely win probabilities, opening profitable bets for informed handicappers.

Related Articles:

  • Who Is On the Other Side? — Research defining an industry "run-up" as a cumulative return of 100% or more over two years finds that such run-ups do not predict unusually low average future returns, though they do raise the probability of a crash, defined as a 40% drawdown. Volatility, turnover, and equity issuance help predict those crashes.
  • One Hundred Years in the U.S. Stock Markets — Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.
  • Chart of the Day: U.S. Households at Record Equity Allocation Heading into AI IPOs — 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.

AI Summary. In China, structural monetary tools direct credit toward targeted sectors, and the authors' evidence suggests credit expansion working mainly through the production side can sustain output, leverage, and balance-sheet growth without restoring pricing power or profitability. Faster money supply growth is associated with a temporary rise in producer price inflation that fades and turns disinflationary over longer horizons.

Jeffery (Jinfan) Chang and Wei Xiong National Bureau of Economic Research
Date Posted:

China’s state-directed system employs monetary easing mainly to channel credit to producers, initially boosting output and PPI, but fostering excess capacity and leverage without matching household demand. The end result is deflation or “involution.”

Does credit directed through producers restore pricing power and profitability?

Core argument: A positive shock to China's M2 growth is followed by higher PPI inflation over roughly four quarters, peaking around the third quarter and significant at the 90% level, before fading, crossing zero after about five quarters, and turning negative.

[In China] structural monetary tools are designed to direct credit toward targeted sectors and support activity aligned with broader policy priorities. Our evidence suggests that when credit expansion operates mainly through the production side, it can sustain output, leverage, and balance-sheet expansion without restoring pricing power or profitability. Figure 4 reveals a cyclical pattern. A positive shock to M2 growth is followed by a positive response of PPI inflation over roughly the next four quarters, with the effect peaking around the third quarter and significant at the 90% level. The response then gradually fades, crosses zero after about five quarters, and turns negative thereafter. Faster aggregate credit growth is associated with disinflationary pressure over longer horizons, indicating that monetary easing does not generate sufficiently strong household demand.

Takeaways by Macro Roundup® AI

  1. A positive shock to China's M2 growth is followed by higher PPI inflation over roughly four quarters, peaking around the third quarter and significant at the 90% level, before fading, crossing zero after about five quarters, and turning negative.
  2. Faster aggregate credit growth in China is associated with disinflationary pressure over longer horizons, indicating that monetary easing does not generate sufficiently strong household demand.
  3. China's structural monetary tools are designed to direct credit toward targeted sectors, and evidence suggests that credit expansion operating mainly through the production side can sustain output, leverage, and balance-sheet expansion without restoring pricing power or profitability.

Related Articles:

  • China’s “Anti-Involution” Campaign: Global Implications — China's economy has slowed as domestic investment stagnates and consumer spending stays weak, with the shortfall partly offset by rising net exports. The author argues these internal problems are being passed to the rest of the world, since export values are rising about 6% a year while import values are down 2.2%.
  • 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.
  • 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.

AI Summary. China is pursuing hundreds of billions of dollars in unpaid taxes from the ultra-rich, scrutinizing overseas capital gains and investments dating back as far as 2000 while also seeking to expand control of outbound capital flows. Budget revenue fell 1.7% to Rmb21.6tn ($3.2tn), and land sale revenue dropped from a Rmb8.7tn peak to Rmb4.15tn after a property slump.

Leo Lewis, Edward White, Sun Yu and Owen Walker Financial Times
Date Posted:

China has launched a tax crackdown on the overseas capital gains of China’s rich, as Beijing looks to offset a worsening fiscal outlook. Total government revenue from land sales has fallen ~52% since 2021.

Is China chasing decades of unpaid taxes to offset falling revenue?

Core argument: China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades, targeting the ultra-rich as Beijing seeks to fill a deepening fiscal hole.

China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades as Beijing seeks to fill a deepening fiscal hole by targeting the ultra-rich. Authorities have stepped up scrutiny of overseas capital gains and investments, in some cases going back as far as 2000, in a campaign that comes as Beijing also seeks to significantly expand control of outbound capital flows. China’s budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7% to Rmb21.6tn ($3.2tn) in 2025. Total government revenue from land sales, once a core revenue source for the state, collapsed from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.

Takeaways by Macro Roundup® AI

  1. China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades, targeting the ultra-rich as Beijing seeks to fill a deepening fiscal hole.
  2. China's budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7% to Rmb21.6tn ($3.2tn) in 2025.
  3. Total Chinese government revenue from land sales, once a core revenue source for the state, fell from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.

Related Articles:

  • China Is Wrestling With A Novel Phenomenon: Inherited Wealth — The share of Chinese who believe effort is always rewarded fell from 62% in 2004 to 28% in 2023, according to survey research, with respondents now citing unequal opportunity, connections, and being born rich as the keys to wealth. Those reporting their family situation had improved over the prior five years fell from about 70% to 39%.
  • The Exodus of China’s Wealthy to Japan — Japan's Chinese resident population reached about 822,000, up 60,000 from a year earlier. Prospective Chinese buyers of Japanese property must move money out of China, which limits outflows, and secure visas—available to those investing at least $32,000 in a Japanese business with an office and two or more employees.
  • The Sinister Disappearance Of China’s Bosses — China's liuzhi detention system operates alongside normal policing, requiring no court approval and denying detainees lawyers, with windowless cells, constant lighting and round-the-clock supervision. Stock-exchange filings show 39 executives at listed companies disappearing into the system by the end of September, exceeding the prior year's record.