“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“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
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“…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
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…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 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

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U.S. Treasury Investors Are Long in AI

Howard Kung, Hanno Lustig and James Paron Stanford University

Date Posted:: April 27, 2026
Is Database:: Database

AI‑driven productivity gains would raise the fundamental value of bonds as well as equities. Persistently higher growth would strengthen the fiscal backing of Treasurys, giving bonds a positive “AI beta,” and improving the US’s debt‑to‑GDP trajectory.

We find that U.S. government debt has a large positive productivity beta: its fundamental value seems highly sensitive to the long-run productivity growth outlook. [Given] the tax code, government revenue is highly sensitive to productivity growth while its spending is not. When the economy grows faster, the government collects more tax revenue, as households creep into higher tax brackets, but its spending commitments barely change in the short run. Bondholders are long in a levered claim to GDP and short in a portfolio of inflation-indexed bonds. This means that bondholders are implicitly long productivity growth: they benefit when growth surprises to the upside, and they suffer when growth disappoints. As a result, if investors revise their estimate of productivity growth upwards, they should mark up their valuation of government debt, even if they anticipate higher real rates. If the market became more confident that AI would deliver sustained productivity gains, the repricing of government debt could be substantial. Nominal yields would decline because investors expect inflation to be lower, as predicted by the fiscal theory of the price level. In addition, the supply of Treasurys would decline as well, which would put upward pressure on the convenience yields on Treasurys. Finally, the nominal term premium would likely compress as the government’s fiscal position improves, reducing the risk of higher inflation in bad states of the world.

Takeaways by Macro Roundup^® AI

A 0.1 pts increase in permanent productivity growth raises Treasury valuations by $1.3tn (4.2% of market value), driving a 71.
U.S. government debt exhibits positive productivity beta because tax revenue scales with GDP growth while spending remains fixed, making bondholders.
Treasury investors benefit asymmetrically from productivity surprises—upside gains exceed downside losses—because the government’s revenue-to-spending ratio improves when growth accelerates.

US 30-Year Bonds Erase Gains From Treasury’s Buyback Surprise

Michael MacKenzie and Alice Gledhill Bloomberg

Date Posted:: August 20, 2026
Is Database:: Database
Is Important:: Important

The 30-year yield rose ~7bps to as much as 5.27%, and the 10-year yield hit 4.71%, erasing “almost all” the gains that followed Treasury’s surprise decision to increase buybacks of longer-dated bonds.

US Treasuries erased almost all of the gains that followed the Trump administration’s surprise decision to increase buybacks of longer-dated bonds, signaling the move has done little to alleviate the angst about the surging government debt that has pushed some yields to the highest in close to two decades. The 30-year yield on Thursday rose over seven basis points to as much as 5.27%, where it was just ahead of the US Treasury Department’s announcement early Wednesday, before paring the gain. The 10-year yield touched 4.71%, just shy of its highest level since early 2025.

Takeaways by Macro Roundup^® AI

The 30-year Treasury yield surged 7 basis points to 5.27%, erasing virtually all gains from the Treasury’s surprise buyback announcement and signaling the intervention failed to calm investor concerns over fiscal sustainability.
The 10-year Treasury yield reached 4.71%, approaching its highest level since early 2025, as surging government debt continues to pressure long-duration bonds.

A Long-Run Economic Model for Projecting the Finances of the U.S. Government and National Spending on Healthcare: Analysis of Productivity Increases and Health Sector Reform

Mark Warshawsky American Enterprise Institute

Date Posted:: July 23, 2026
Is Database:: Database

Warshawsky projects US debt-to-GDP will be 151% in 2036, well above CBO’s 120% projection, as higher real rates and a dynamic Baumol cost-disease effect will increase healthcare spending relative to GDP in an aging economy.

The Congressional Budget Office makes certain simplifying assumptions on health care spending, and is based on current law. By contrast, in the model presented in this paper, these variables are simultaneously determined by supply and demand, based on logical functional forms and parameter estimates from the literature or empirical analysis, and the model is based on current policy. This approach better reflects real economic relationships—between health care spending, the federal budget, and investment in capital—and changing underlying conditions, especially demographics. Within the next twenty or so years, the model predicts that federal government debt will grow significantly beyond historical experience, to be judged unsustainable because the real interest rate exceeds real economic growth. Debt-to-GDP will be 151% in 2036, 218% in 2046, and 309% in 2056, compared to CBO’s 120% in 2036 and 175% in 2056. Real interest rates rise for several decades, ratcheting interest payments, deficits, and debt in a vicious cycle.

Takeaways by Macro Roundup^® AI

U.S. federal debt-to-GDP reaches 151% by 2036 and 309% by 2056 under this general-equilibrium model—far exceeding CBO’s 120% and 175% projections—as real interest rates outpace economic growth, locking deficits and debt in a self-reinforcing spiral.

Intergovernmental Grants to School Districts and Educational Outcomes During the COVID-19 Pandemic

Jeffrey Clemens, Philip Hoxie and Stan Veuger National Bureau of Economic Research

Date Posted:: July 16, 2026
Is Database:: Database
Is Important:: Important

Exploiting a discontinuity in K-12 public school districts’ qualification for Covid emergency funding (ESSR), Clemens et al find that the funds did not mitigate learning loss. To a large extent, local districts used them to lower property taxes.

Emergency funding for K-12 public schools was an important component of recession spending packages during COVID, involving $190 billion in additional expenditure. We see no evidence that ESSER funds helped to mitigate learning loss, at least in the short run. We find no statistically significant evidence that districts increased expenditures in SY 2021 or SY 2022. We do find evidence that districts that qualified for additional ESSER funds had statistically significant reductions in local revenues that were in excess of their ESSER funds. This pass-through of federal funds may partially explain why ESSER had minimal impacts on learning loss for districts around the 5% poverty threshold. Our estimates suggest that over the three years, crossing the qualification cutoff for additional ESSER funds is associated with a $907 per pupil decrease in local revenues, or about 8% of the pre-COVID average. We show the decline in local revenues as an event study in Figure 3, which includes a flat pre-COVID trend in local revenues per pupil across the qualification threshold. In Table 5,Column 5 [], we can see that about 80% of the revenue decline came from decreases in revenues from property taxes, [which fell] by $718 per pupil across the 3 years. The findings apply specifically to districts in the neighborhood of the 5% poverty threshold for qualifying for additional ESSER funds.

How Might Fiscal Policy Respond to the Rise of Artificial Intelligence?

Karen Dynan, Douglas Elmendorf and Louise Sheiner National Bureau of Economic Research

Date Posted:: July 13, 2026
Is Database:: Database
Is Important:: Important

CBO baseline projects debt-to-GDP rising from 101% in 2026 to 175% in 2056. Dynan et al. study how AI might modify that projection. In all but their most optimistic scenario, TFP grows 0.5pp faster, and AI offsets 39–49 pp of that 74pp increase.

[In the Base Case], faster economic growth [improves the federal budget and debt outlook] through four channels. First, [higher] incomes increase federal revenue, [while] the progressive tax system [modestly] raises revenue relative to GDP. CBO [estimates] that a [permanent] 0.5 pp increase in annual TFP growth would raise revenue after [30 years] by 0.14% of GDP. Second, [although] faster growth increases [some] federal spending, spending rises [more slowly] than GDP, [reducing noninterest outlays] relative to GDP. Under our [assumptions], discretionary spending falls from 6.1% of GDP in 2025 to 4.5% in 2056. Third, because faster growth does not [change the stock of] existing debt, that debt becomes smaller relative to GDP. Fourth, [stronger] growth generally raises interest rates, increasing the [cost] of new borrowing and [refinancing] existing debt. This represents a partial offset to the [fiscal gains]. [On balance], additional annual TFP growth of 0.5 pp would lower publicly held federal debt after [30 years] by 39% of GDP relative to CBO’s extended baseline. CBO’s extended baseline shows federal debt rising from 101% of GDP in 2026 to 175% in three decades, so this hypothesized increase in growth would offset roughly half of that projected rise.

Annual Economic Report

BIS Staff Bank of International Settlements

Date Posted:: June 30, 2026
Is Database:: Database

BIS warns, “Countries can no longer count on nominal growth to stabilise debt dynamics. They now must run primary surpluses or significantly smaller deficits to maintain stable debt-to-GDP ratios.”

Many countries entered the current energy crisis with limited fiscal space. Public debt in [Advanced Economies] (AE) has risen steadily over recent years (Graph 15.A), reducing governments’ ability to cushion fallout from higher energy prices. Although the increase partly reflects successive shocks, from the Covid-19 recession to the war in Ukraine, persistent failures to make meaningful progress on fiscal consolidation during economic expansions have also played a part. Cyclically adjusted primary deficits in AEs averaged 1.9% of GDP from 2022 onwards (Graph 15.B), nearly double the 1.1% recorded over the two preceding decades. [Emerging market economies] (EME) have seen an even sharper deterioration (1.8% since 2022 versus 0.1% between 2000 and 2019). Fiscal positions are set to remain strained over the coming years. Debt servicing costs are unlikely to ease soon, as higher interest rate payments continue to weigh on fiscal accounts (Graph 15.C). Deficits in 2027 are projected at or above 2025 levels in most jurisdictions.

Takeaways by Macro Roundup^® AI

Cyclically adjusted primary deficits in AEs doubled to 1.9% of GDP since 2022 versus 1.1% over 2000–2019, reducing fiscal space.
EMEs experienced sharper fiscal deterioration with deficits at 1.8% since 2022 versus 0.1% in 2000–2019, limiting their capacity to cushion.
Higher interest rate payments drive debt servicing costs upward, keeping deficits at or above 2025 levels through 2027 across most.

More T-Bills, More Dependence on the Fed

Torsten Sløk Apollo

Date Posted:: June 17, 2026
Is Database:: Database

T-bills are ~85% of gross Treasury issuance, meaning Federal borrowing costs are more closely tied to the front end of the curve, the part most directly under the Fed’s control.

T-bills now account for almost 85% of gross Treasury issuance, near the highest share in over two decades. By tilting issuance toward short-dated debt, the government ties its borrowing costs more closely to the front end of the curve, making its financing increasingly dependent on Fed policy.

Takeaways by Macro Roundup^® AI

T-bills comprise 85% of gross Treasury issuance, near 20-year highs, tying federal borrowing costs directly to Fed policy rates.
Short-dated debt concentration drives government financing vulnerability to near-term rate decisions, increasing refinancing risk vs. longer-maturity alternatives.
Front-end curve dependence results in fiscal costs rising faster when the Fed maintains restrictive policy, amplifying deficit pressures.

AI‑driven productivity gains would raise the fundamental value of bonds as well as equities. Persistently higher growth would strengthen the fiscal backing of Treasurys, giving bonds a positive “AI beta,” and improving the US’s debt‑to‑GDP trajectory.

Takeaways by Macro Roundup® AI

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The 30-year yield rose ~7bps to as much as 5.27%, and the 10-year yield hit 4.71%, erasing “almost all” the gains that followed Treasury’s surprise decision to increase buybacks of longer-dated bonds.

Does government debt buyback activity actually reduce long-term borrowing costs?

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Warshawsky projects US debt-to-GDP will be 151% in 2036, well above CBO’s 120% projection, as higher real rates and a dynamic Baumol cost-disease effect will increase healthcare spending relative to GDP in an aging economy.

Will rising healthcare costs overwhelm U.S. fiscal capacity?

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Exploiting a discontinuity in K-12 public school districts’ qualification for Covid emergency funding (ESSR), Clemens et al find that the funds did not mitigate learning loss. To a large extent, local districts used them to lower property taxes.

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CBO baseline projects debt-to-GDP rising from 101% in 2026 to 175% in 2056. Dynan et al. study how AI might modify that projection. In all but their most optimistic scenario, TFP grows 0.5pp faster, and AI offsets 39–49 pp of that 74pp increase.

Does productivity growth from artificial intelligence solve the federal debt problem?

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BIS warns, “Countries can no longer count on nominal growth to stabilise debt dynamics. They now must run primary surpluses or significantly smaller deficits to maintain stable debt-to-GDP ratios.”

Does rising public debt limit governments' ability to handle future crises?

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T-bills are ~85% of gross Treasury issuance, meaning Federal borrowing costs are more closely tied to the front end of the curve, the part most directly under the Fed’s control.

Does rising short-term debt issuance increase government vulnerability to Fed policy?

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