Edward Conard

Top Ten New York Times Bestselling Author

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

Macro Roundup


Wednesday, September 9, 2026

AI Summary. Comparing weighted survey estimates with targets built from published administrative totals, the authors find that household survey means of income received are systematically biased downward, with the understatement reaching 40% or more for nearly half the measures examined. Bias is under 15% for Social Security benefits but exceeds 40% for pensions, unemployment insurance, and food stamps.

Bruce Meyer, Nikolas Mittag, Derek Wu, Anthony Tatarka, et al. National Bureau of Economic Research
Date Posted:

CPS reports of receipts in dollar terms are 40–60% below administrative benchmarks for income sources such as SNAP and pensions. Linked records show most of the gap comes from recipients reporting no receipt at all, not underestimating amounts.

How large is the downward bias in household survey income estimates?

Core argument: Total survey error in the Current Population Survey from 1984 to 2022 is almost always negative for both recipients and dollars, indicating survey means are biased downward, with bias of 40% or more for nearly half the variables.

To directly measure bias in survey estimates, we calculate the difference between the weighted survey estimate and the survey target constructed from published totals [TSE or total survey error], using public-data adjustments for intentional coverage differences for average dollars received and the recipient share of the population across our income sources. Figures 1 and 2 summarize TSE in the CPS from 1984 to 2022, expressed as a share of the survey target for our measures of recipients (seven income sources) and dollars (eight income sources). In levels, TSE is almost always negative for both recipients and dollars (with SSI dollars an exception in recent years), indicating that survey means are systematically biased downward. For nearly half of the variables the bias is 40% or more. Yet, there is substantial heterogeneity across income sources. TSE tends to be more modest for SSA programs (specifically OASDI and OASI, for which the net bias is below 15% for recipients and dollars), while it is much larger for income sources such as pensions, UI, and SNAP (for which the net understatement exceeds 40%).

Takeaways by Macro Roundup® AI

  1. Total survey error in the Current Population Survey from 1984 to 2022 is almost always negative for both recipients and dollars, indicating survey means are biased downward, with bias of 40% or more for nearly half the variables.
  2. Net understatement exceeds 40% for pensions, unemployment insurance, and SNAP, while net bias for the Social Security programs OASDI and OASI stays below 15% for both recipients and dollars.
  3. Bias is measured as the difference between the weighted survey estimate and a survey target built from published totals, with public-data adjustments for intentional coverage differences across seven income sources for recipients and eight for dollars.

Related Articles:

  • Poverty and Dependency in the United States, 1939–2023 — Extending a consistent poverty measure back to 1939, the authors estimate US absolute poverty fell from 48.5% to 19.5% between 1939 and 1963, driven by growth in market income rather than government transfers net of taxes. Poverty fell no faster in the 24 years after the War on Poverty than before.
  • Government Benefit Programs Already Do A Lot To Help Low Income Families — For a two-adult, three-child family, existing taxes and government benefits bring take-home resources to about $58,000 with no earnings, $79,000 with $20,000 of earnings, and $90,000 with $80,000 of earnings plus $15,000 in employer health premiums. A $75,000 gap in earnings and work-related benefits narrows to $11,000 in take-home pay.
  • Beyond the Myths: A Clearer Path to Poverty Alleviation in America — Consumption-based poverty in the U.S. fell 10.6 percentage points (81%) since 1980 and income poverty measured by an anchored Supplemental Poverty Measure fell 6.9 points (53%), while the Official Poverty Measure fell less than 2 points, suggesting the official measure understates long-run progress. The authors attribute part of the divergence to worsening underreporting of income.

AI Summary. The US Treasury tripled the size of a planned buyback of longer-dated government debt, saying it will purchase up to $6bn of outstanding securities maturing in the 10- to 20-year sector, up from the $2bn initially communicated to investors. Treasuries extended declines after the announcement, with 10-year yields rising.

Greg Ritchie and Alex Harris Bloomberg
Date Posted:

The 10-year Treasury yield rose to ~4.85%, its highest level since 2023, after the Treasury announced a planned buyback of $6B, less than many market participants had expected, despite being 3x the size of the previous operation.

Do larger Treasury buybacks of longer-dated debt lower long-term yields?

Core argument: The US Treasury will buy up to $6 billion of outstanding securities maturing in the 10- to 20-year sector, triple the $2 billion initially communicated to investors.

The US Treasury tripled the initial size of its next buyback of longer-dated government debt, in an announcement that was met with initial disappointment by investors. The Treasury Department said it will buy up to $6 billion of outstanding securities set to mature in the 10- to 20-year sector. It’s the first such operation under an expanded buybacks program that showcases Secretary Scott Bessent’s resolve to stem the recent rise in borrowing costs. The new figure is triple the amount initially communicated to investors of $2 billion. Treasuries extended an earlier decline after the release, with the yield on 10-year notes up about 6 basis points to 4.85% as of 11:35 a.m. in New York — their highest level since 2023.

Takeaways by Macro Roundup® AI

  1. The US Treasury will buy up to $6 billion of outstanding securities maturing in the 10- to 20-year sector, triple the $2 billion initially communicated to investors.
  2. Treasuries extended an earlier decline after the announcement, with the 10-year yield up about 6 basis points to 4.85%, its highest level since 2023.
  3. The operation is the first under an expanded buyback program that showcases Treasury Secretary Scott Bessent's resolve to stem the recent rise in borrowing costs.

Related Articles:

  • Bessent’s Bond Gains Wiped Out as Treasury Yields Jump Again — Yields on the longest-dated US government bonds returned to levels seen just before the Treasury Department expanded a bond buyback program aimed at halting their rise, with the 30-year yield at 5.27%. The 10-year yield, a benchmark for borrowing costs across loan types, stands at roughly 4.8%.
  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.
  • Rising Bond Yields Are Good, Actually — Interest rates remain low relative to reasonable expectations of inflation and growth, with incomes and spending rising about 7% a year in dollar terms. Absent idle workers, machines, and materials, higher rates can help shift resources toward business equipment and nonresidential construction by discouraging consumer spending and housing or attracting foreign goods and services today.

AI Summary. Norway's sovereign wealth fund is reallocating its fixed income portfolio in a way that likely shifts from US Treasuries toward Japanese government bonds, prompting speculation that more international money will return to Japan's newly competitive yields. Japanese overnight interest rates are forecast to rise by a full percentage point over 12 months, to 1.9%.

John Authers Bloomberg
Date Posted:

Authers pictures Japan exiting its ultra-low rate regime that helped drive the real effective yen to ~ half its 1990 level. Higher yields should curb yen carry, raise demand for Japanese assets, and force the “world …to do without Japanese funding.”

Are rising Japanese yields drawing global bond money back to Japan?

Core argument: Japanese overnight rates are forecast to rise by a full percentage point over the next 12 months, to 1.9%, following a shift in perception of Japan's economy.

For decades, finance has treated Japan as the exception to all rules. While the rest of the world surged and collapsed, Japan trudged on with minimal interest rates and sluggish growth — a safe place to borrow money cheap, through any number of elaborate trades. Last week’s news that Norway’s Norges Fund, one of the biggest sovereign wealth pools, was reallocating its fixed income portfolio in a way that likely shifts from Treasuries to Japanese bonds prompted speculation that more international money would move back to Tokyo and its newly competitive yields. Overnight rates are now forecast to go up by a full percentage point over the next 12 months, to 1.9%, following a shift in perception of the economy.

Takeaways by Macro Roundup® AI

  1. Japanese overnight rates are forecast to rise by a full percentage point over the next 12 months, to 1.9%, following a shift in perception of Japan's economy.
  2. Norway's Norges Fund, one of the biggest sovereign wealth pools, is reallocating its fixed income portfolio in a way that likely shifts from Treasuries to Japanese bonds, prompting speculation that more international money would return to Tokyo's newly competitive yields.
  3. Finance has treated Japan for decades as an exception, with minimal interest rates and sluggish growth making it a safe place to borrow cheaply through elaborate trades.

Related Articles:

  • Japan’s 10-Year Bond Yield Hits 3% for First Time Since 1996 — Japan's 10-year government bond yield reached 3%, its highest since 1996, after years near zero. The yield was half that level a year earlier, and the speed of the shift is reverberating through Japan's economy and global financial markets.
  • Where is the Global Debt Crisis Most Acute? — A proxy for strain at the long end of government bond markets — the gap between the 10-year yield expected in 10 years' time and today's 10-year yield, scored against its own history — shows Japan as an outlier among the G10 economies.
  • 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. Employment in five industries tied to the data-centre build-out, including electrical contracting and equipment manufacturing, has risen roughly 320,000 above what broader construction and manufacturing trends would suggest. Engineers, software developers, mathematicians and data scientists have added about 730,000 jobs above the trend for professional employment overall.

Economist Staff The Economist
Date Posted:
Is Database:
Database
Is Important:
Important

The Economist estimates that so far the AI boom has created ~1mm new jobs in the US, exceeding their estimate of ~200,000 layoffs attributed to AI since mid-2023.

Is the AI build-out adding jobs above trend?

Core argument: Employment in five industries tied to the data-centre build-out, from electrical contracting to equipment manufacturing, has risen by roughly 320,000 more since 2023 than broader construction and manufacturing trends would suggest.

[We] tracked five industries at the heart of the data-centre build-out, from electrical contracting to equipment manufacturing. Since 2023 employment in them has risen by roughly 320,000 more than broader construction and manufacturing trends would suggest. Not all of those jobs owe their existence to AI—grid upgrades and other factory building matters too. [We also] tracked employment in professional occupations closest to the AI boom—engineers, software developers, mathematicians and data scientists—and compared their growth since 2022 with professional employment overall. These roles have added roughly 730,000 jobs above trend in recent years. AI will not have created every single one of them. But it has almost certainly created quite a few.

Takeaways by Macro Roundup® AI

  1. Employment in five industries tied to the data-centre build-out, from electrical contracting to equipment manufacturing, has risen by roughly 320,000 more since 2023 than broader construction and manufacturing trends would suggest.
  2. Professional occupations closest to the AI boom—engineers, software developers, mathematicians and data scientists—have added roughly 730,000 jobs above the trend for professional employment overall since 2022.
  3. Not all of these above-trend gains are attributable to AI, since grid upgrades and other factory building also matter, though AI has almost certainly created quite a few of them.

Related Articles:

  • The College Wage Premium in the Generative AI Era — The U.S. college wage premium fell from 0.626 to 0.575 after four decades of expansion, implying the first sustained negative growth in relative demand for college-educated labor. The authors estimate that weaker wage growth in occupations highly exposed to artificial intelligence accounts for roughly 28% of that decline, though the patterns are not causal.
  • Canaries in the Coal Mine? Six Facts about the Recent Employment Effects of Artificial Intelligence — Employment for workers aged 22–25 in the occupations most exposed to artificial intelligence has declined roughly 18pp relative to less-exposed peers, with no comparable decline in other age groups. The authors find this operates mainly through reduced hiring, concentrated where AI substitutes for human tasks rather than complements them.
  • Looking for the Ladder — The article argues that the hiring downturn in occupations most exposed to generative AI reflects interest-rate sensitivity rather than AI itself, since roughly 38% of workers in the most AI-exposed quintile work in information, finance and insurance, and professional and technical services, versus under 2% in the least-exposed quintile.

AI Summary. Defense start-up Covenant plans to produce 1,000 Anthem deep-strike missiles a year at each of its German and US plants in 2027, rising to 5,000 a year at each site from 2028. At mid-six-figure euros each, versus roughly $4mn-$6mn for Tomahawks, the company says militaries could fire saturating barrages.

Laura Pitel Financial Times
Date Posted:

Covenant, a defense start-up, is opening manufacturing facilities in the US, Germany, and Israel to manufacture its new deep-strike munition at scale, with a production target of 5,000 annually at its US and German sites in 2028.

Can cheaper mass-produced missiles let militaries saturate targets with barrages?

Core argument: Covenant plans to produce 1,000 Anthem missiles a year at each of its German and US plants in 2027, rising to 5,000 a year at each site from 2028.

Covenant aims to produce 1,000 Anthem missiles a year at each of its German and US plants in 2027, and 5,000 a year at each site from 2028. [Anthem] would cost in the “mid six-figure” euros — a fraction of the price of Tomahawks, which are sold to overseas governments for roughly $4mn-$6mn apiece. Covenant declined to state the range of the Anthem but [Covenant's CEO] said the concept was partly a response to a German-British plan to jointly develop “deep precision strike” weapons with a range of more than 2,000km. Anthem will carry a warhead weighing up to 250kg half the 450kg payload of a Tomahawk. But Covenant said the lower cost and ability to be produced at scale would allow militaries to fire large barrages of the missiles to “saturate” targets such as weapons factories or military bases.

Takeaways by Macro Roundup® AI

  1. Covenant plans to produce 1,000 Anthem missiles a year at each of its German and US plants in 2027, rising to 5,000 a year at each site from 2028.
  2. Covenant prices the Anthem in the mid six-figure euros, a fraction of the roughly $4mn–$6mn that Tomahawks are sold for to overseas governments.
  3. The Anthem will carry a warhead of up to 250kg, half the 450kg payload of a Tomahawk, and Covenant says its lower cost and scale would let militaries fire large barrages to saturate targets such as weapons factories or military bases.

Related Articles:

  • How Quickly Can the DOD Rebuild and Recast the Munitions Industrial Base? — The US Department of Defense's budget documents indicate low-cost munitions will reach scale before most advanced systems, with multi-year agreements projected to raise PAC-3 MSE interceptor capacity 233% to 2,000 per year, THAAD interceptors 317% to 400, and Precision Strike Missile output fourfold to about 550.
  • Is the Industrial Base on a Wartime Footing? A Progress Report — About 10,000 new firms have entered the US defense market in two years, and nontraditional companies received over $120bn in contract obligations in fiscal 2025, while munitions contract obligations have risen 330% since fiscal 2010. The Defense Department is signing large-scale multiyear munitions agreements and backing a rare earth supply chain outside Chinese control.
  • 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, September 10, 2026

AI Summary. Firms set nominal wage increases by round-number rules—about 42% of increases below 6% fell within 0.01 percentage points of a whole or half number—and these rules rose only from about 2.7% to 3.5% as inflation peaked near 7%, contributing to falling real wages for job stayers.

Erik Hurst, Christina Patterson, Nela Richardson, and Ye Liv Wang University of Chicago
Date Posted:
Is Database:
Database

ADP microdata from 2016–25 suggest firms set wages according to “wage norms” ~ invariant to inflation. The 2020–21 inflation surge mechanically reduced real wages. By the end of 2025, 34% of incumbent workers’ real wages were lower than in 2020.

Do round-number wage rules cause real wages to fall during inflation?

Core argument: Roughly 42% of all nominal wage increases below 6% fell within 0.01 percentage points of a whole or half number.

Roughly 42% of all nominal wage increases below 6% were within 0.01 percentage points of a whole or half number [Figure 6]. Figure 9 plots the employment-weighted average modal wage change across firms (solid line) alongside inflation rate (dashed line) from 2016 through 2025. In the pre-pandemic period, firm-level wage rules were relatively stable at a median of 2.7%, modestly above the rate of inflation. Beginning in 2021, inflation rose sharply, peaking at approximately seven percent in 2022. The average modal wage change also rose, reaching a peak of 3.5% in 2022 and 2023. By 2025, the median firm had a wage rule granting increases of three percent, roughly in line with inflation. The stickiness of firms’ wage rules in the face of inflationary pressure contributed to the systematic fall in real wages for job stayers. Evidence from Belgium [which has strong wage indexation], suggests that declining real wages, rather than inflation itself, helps explain the persistence of depressed consumer sentiment during the 2021–2024 period.

Takeaways by Macro Roundup® AI

  1. Roughly 42% of all nominal wage increases below 6% fell within 0.01 percentage points of a whole or half number.
  2. Firm-level wage rules held near a median of 2.7% before the pandemic, and the employment-weighted average modal wage change peaked at 3.5% in 2022 and 2023 while inflation peaked near 7% in 2022; by 2025 the median firm granted 3%.
  3. The stickiness of firms' wage rules amid inflationary pressure contributed to a systematic fall in real wages for job stayers, and evidence from Belgium, which has strong wage indexation, suggests falling real wages rather than inflation helps explain depressed consumer sentiment in 2021–2024.

Related Articles:

  • Do Voters Punish Inflation or Pay Cuts? Inflation and Real Wages in U.S. Elections — An analysis of U.S. counties estimates that where wages grew faster than prices, voters supported the incumbent party more, while counties with larger real wage losses than average shifted more toward the opposition. A one-standard-deviation larger real wage loss is associated with shifts of roughly 0.10 and 0.19 percentage points in vote share and margin.
  • Real Wages Start To Shrink In Developed Countries — US annual inflation of 3.8% outpaced average hourly earnings growth of 3.6%, leaving prices rising faster than pay for the first time in two years, while Eurozone workers face a fresh energy-driven setback. JPMorgan attributes the real wage decline to Middle East conflict and expects growth to resume if energy prices retreat.
  • The Post‑COVID Decline in the Labor Share — The share of US national income paid to workers fell 1.6 percentage points below its pre-pandemic level, reaching a post-war low. The authors find this decline stems mainly from changes within industries rather than shifts in activity across sectors, following cyclical patterns seen in earlier recessions.

AI Summary. Prime-age adults aged 25–54 and older workers aged 55–64 have higher employment rates in Europe than in the US, while US youth employment is higher because Europeans spend longer in education. The share of young people not in education, employment or training is higher in the US than in Europe.

Chris Giles Financial Times
Date Posted:
Is Database:
Database
Is Important:
Important

Despite Europe’s high social spending relative to the US, Chris Giles notes that prime-age adult (25–54) labor force participation in the Eurozone has overtaken that of the US, and there has been a dramatic convergence in the LFP of older workers.

Do Europeans work less than Americans?

Core argument: Prime-age adults aged 25–54 in Europe are more likely to be employed than their US counterparts, whether measured with EU or Eurozone data, and Europeans aged 55–64 also have higher employment rates than Americans.

It does not matter whether you use EU or Eurozone data, prime-age adults (between 25 and 54) in Europe are more likely to be in work than those in the US. Older people (between 55 and 64) also have higher employment rates in Europe. Younger people (between 15 and 24) are more likely to have a job in the US, but that results from Europeans educating themselves for longer. The proportion of young people not in education, employment or training is higher in the US than in Europe. So welfare is not stopping work. More than that, the higher-welfare north of Europe tends to have higher employment rates than the south, although there is convergence within the Eurozone. Spain, in particular, has enjoyed rapid improvements.

Takeaways by Macro Roundup® AI

  1. Prime-age adults aged 25–54 in Europe are more likely to be employed than their US counterparts, whether measured with EU or Eurozone data, and Europeans aged 55–64 also have higher employment rates than Americans.
  2. Young people aged 15–24 are more likely to have a job in the US than in Europe, but that gap results from Europeans spending longer in education, and the share not in education, employment or training is higher in the US.
  3. The higher-welfare north of Europe tends to have higher employment rates than the south, with convergence within the Eurozone and rapid improvement in Spain.

Related Articles:

  • Why Do Americans No Longer Work So Much More Than Non-Americans? — About half of the 1990s gap between American and European hours worked had reversed by the end of the 2010s. The authors estimate US hours per person declined after the 2000s because of rising benefits for the non-employed—especially health benefits like Medicaid—while non-US hours rose with higher wages and lower work costs.
  • The Future of European Competitiveness – A Competitiveness Strategy for Europe — A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.
  • Ed Conard Debates Furman On “The Expected Value of Risk Taking” — A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.

AI Summary. Yields on US government debt rose 5 to 12 basis points across maturities, with the 30-year benchmark reaching levels last seen in 2007. The higher yields drew strong demand at a $22bn auction of 30-year bonds, awarded at 5.308% — 2.7 basis points below pre-auction market levels — with a record-low 2.2% going to Wall Street dealers.

Elizabeth Stanton Bloomberg
Date Posted:

The 10-year Treasury yield rose 9bp to 4.92%, and the 30-year rose to ~5.35%. The increase in yields stoked demand at today’s 30-year auction, which cleared at 5.308%.

Do higher long-term yields attract stronger demand at bond auctions?

Core argument: The US Treasury's $22 billion auction of 30-year bonds cleared at 5.308%, 2.7 basis points below the pre-auction market level, the second-biggest negative gap on record over the past five years.

Yields on US government debt rose to fresh multiyear highs — stoking demand for an auction of 30-year bonds. Treasury yields rose by five to 12 basis points across maturities, with the 30-year benchmark reaching levels last seen in 2007. The selloff lured investors to a $22 billion auction of 30-year bonds, which drew historically strong demand. The new securities were awarded at 5.308%, nearly three basis points lower than their yield in pre-auction trading just before the bidding deadline, meaning that bidders at higher yield levels missed out. Investor demand was so strong that a record low 2.2% of the sale went to Wall Street dealers. The auction’s 5.308% result was 2.7 basis points lower than the market level going in, the second-biggest negative gap on record in the past five years.

Takeaways by Macro Roundup® AI

  1. The US Treasury's $22 billion auction of 30-year bonds cleared at 5.308%, 2.7 basis points below the pre-auction market level, the second-biggest negative gap on record over the past five years.
  2. Treasury yields rose by five to 12 basis points across maturities, with the 30-year benchmark reaching levels last seen in 2007, a selloff that drew investors to the 30-year auction.
  3. Wall Street dealers took a record low 2.2% of the US Treasury's 30-year bond sale amid strong investor demand.

Related Articles:

  • 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.
  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.
  • How Might Fiscal Policy Respond to the Rise of Artificial Intelligence? — The Congressional Budget Office estimates that a permanent 0.5 percentage point increase in annual productivity growth would lower publicly held federal debt after 30 years by 39% of GDP, offsetting roughly half the projected rise from 101% of GDP to 175%. Higher revenue and slower spending growth outweigh higher interest costs.

AI Summary. A European think tank notes that 30-year government bond yields in the US, Germany, France, Italy, the UK, and Japan all rose by 45-79 basis points over six months, with the US in the middle at 58. The article argues this reflects surging demand for funds from an AI-driven information technology spending boom rather than policy.

Paul Krugman Krugman Wonks Out
Date Posted:

Noting long-term yields have risen across advanced economies, Krugman argues increased yields over the last 6 months “may not have much to do with policy at all,” but are more likely due to “the surge in demand for funds as a result of the AI boom.”

Is a technology investment boom driving long-term bond yields higher?

Core argument: Bruegel notes that US, German, French, Italian, UK, and Japanese 30-year yields all rose by 45–79 basis points in the six months to August 28, with the US in the middle at 58 basis points.

What [has been] driving interest rates higher [in the six months to August 28]? The European think tank Bruegel notes “US, German, French, Italian, UK, and Japanese 30-year yields [all] rose by 45-79 basis points in the six months to 28 August, with the US in the middle at 58bp.” It may not have much to do with policy at all, [but is instead due to] the surge in demand for funds as a result of the AI boom. We are in the midst of a surge in spending on IT that is on track to be even bigger than the boom of the late 1990s, [when] long-term rates were even higher then than they are now, even though inflation was low and we had a budget surplus.

Takeaways by Macro Roundup® AI

  1. Bruegel notes that US, German, French, Italian, UK, and Japanese 30-year yields all rose by 45–79 basis points in the six months to August 28, with the US in the middle at 58 basis points.
  2. The rise in long-term yields may have little to do with policy and instead reflect the surge in demand for funds generated by the AI boom.
  3. IT spending is on track to exceed the late-1990s boom, when long-term rates were higher than they are now despite low inflation and a US budget surplus.

Related Articles:

  • Bessent’s Upsized Buybacks Get Hit by Treasury-Market Reality — The US Treasury tripled the size of a planned buyback of longer-dated government debt, saying it will purchase up to $6bn of outstanding securities maturing in the 10- to 20-year sector, up from the $2bn initially communicated to investors. Treasuries extended declines after the announcement, with 10-year yields rising.
  • Rising Bond Yields Are Good, Actually — Interest rates remain low relative to reasonable expectations of inflation and growth, with incomes and spending rising about 7% a year in dollar terms. Absent idle workers, machines, and materials, higher rates can help shift resources toward business equipment and nonresidential construction by discouraging consumer spending and housing or attracting foreign goods and services today.
  • Don’t Draw The Wrong Conclusion From Treasury Yields — Ten-year real yields equal the average expected overnight rate over the next decade plus a term premium, and fiscal credibility or debt sustainability concerns would show up as a higher term premium. With the term premium and inflation expectations contained, the increase in bond yields reflects higher expected long-term overnight rates.

AI Summary. Global investment in "deep tech" — companies whose products rest on major scientific or engineering advances — has exceeded $150bn since the start of 2024, more than the $133bn invested in the decade through 2019, excluding sums poured into AI start-ups. Failed battery and electric-vehicle bets from an earlier peak illustrate the risks of such moonshot dealmaking.

Tim Bradshaw Financial Times
Date Posted:
Is Database:
Database

Since the start of 2024, more than $150B of venture capital has been invested into non-AI “deep tech” firms whose products are rooted in significant engineering advances, exceeding the $133B invested in such firms btw 2010 and 2019.

Is the AI boom pushing venture capital toward riskier moonshot bets?

Core argument: Global "deep tech" investment excluding AI start-ups has exceeded $150bn since the start of 2024, more than the $133bn invested in the entire decade through 2019, according to Dealroom.

The AI boom is fuelling a resurgence in ambitious “moonshot” bets, as early SpaceX backers’ huge returns and falling valuations for traditional software companies force tech investors to embrace riskier and more capital-intensive dealmaking. Excluding the giant sums ploughed into AI start-ups, global investment in “deep tech” — companies whose products are rooted in big scientific or engineering advances — has exceeded $150bn since the start of 2024, more than the $133bn in the entire decade to the end of 2019, according to Dealroom. This year’s deep-tech investments have not yet surpassed 2021’s peak, which was propelled by battery and electric vehicle deals for the likes of Rivian and Northvolt — many of which turned sour, highlighting the risks involved in moonshot dealmaking.

Takeaways by Macro Roundup® AI

  1. Global "deep tech" investment excluding AI start-ups has exceeded $150bn since the start of 2024, more than the $133bn invested in the entire decade through 2019, according to Dealroom.
  2. Huge returns for early SpaceX backers and falling valuations for traditional software companies are pushing tech investors toward riskier, more capital-intensive "moonshot" dealmaking.
  3. Deep-tech investment has not yet surpassed the 2021 peak, which was propelled by battery and electric vehicle deals for companies such as Rivian and Northvolt, many of which turned sour.

Related Articles:

  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • Public to Private Equity in the United States: A Long-Term Look — An analysis of more than 31,000 global venture capital deals finds 62% lost money and over half lost 50–100% of invested capital, though the distribution of returns has much fatter tails than buyouts or public equities. Venture funds averaged a public market equivalent ratio of about 1.4, indicating returns above public markets.
  • Gross and Net US Investment — Net US investment has fallen from roughly 40% of gross investment in the 1970s to about 25% in the past decade, meaning about three-quarters of gross investment now just replaces depreciating capital. The author attributes this gap to modern investment being more information-technology-related, which depreciates faster and requires more frequent replacement.