“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“…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 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 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

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The Microstructure of AI Diffusion: Evidence from Firms, Business Functions, and Worker Tasks

Kathryn Bonney, Cory Breaux, Emin Dinlersoz, Lucia Foster, et al. National Bureau of Economic Research

Date Posted:: May 20, 2026

Census data show that 18% of US firms used AI in at least one function (32% employment-weighted). 66% say it augments work; only 2% report job cuts, but the deeper firms embed AI into operations, the more employment falls.

During Nov 2025–Jan 2026, 18% of firms used AI in at least one function (32%, employment-weighted), with adoption expected to reach 22% within six months. Use is concentrated in large firms and knowledge-intensive sectors, reaching 50%–60% (60%–70%, employment-weighted) among very large firms in Information, Professional Services, and Finance. Among adopters, scope remains limited: 57% use AI in three or fewer functions, most often Sales and Marketing (52%), Strategy (45%), and IT (41%). Worker-level use appears in 23% (41%, employment-weighted) of firms, primarily for writing, document analysis, and information search; 65% restrict use to three or fewer tasks. Evidence suggests both top-down and bottom-up diffusion: worker use can occur without firm adoption, and vice versa. Most firms (66%) use AI for task augmentation, while employment reductions are rare (2%).

Takeaways by Macro Roundup^® AI

Capital substitution at 16% of firms outpaces headcount reductions at 2%, indicating structural functional integration—not task-level tool use—leads to labor.
firms is best understood as a layered phenomenon, with formal firm-level adoption, deployment across business functions, and worker-task use overlapping.
Functional-breadth and operational-investment indices correlate positively with employment declines even as task-use breadth does not, suggesting top-down structural integration, not.

The College Wage Premium in the Generative AI Era

José Azar, Mireia Gine and Javier Sanz-Espín Social Science Research Network

Date Posted:: September 4, 2026
Is Database:: Database

The college wage premium flattened in the mid-2010s and has fallen ~8% since 2022. The authors argue that this compression reflects a broad decline in the returns to formal schooling, rather than a decline in the upper tail.

After expanding for four decades, the U.S. college wage premium [dropped] sharply from 0.626 in 2022 to 0.575 in 2026. Current Population Survey data through 2026 implies an unprecedented drop in relative demand for college labor—the first sustained negative relative demand growth. Post-2022 wage growth slowed disproportionately in high-exposure occupations, which employ a disproportionate share of college graduates. By 2026, going from zero occupational AI exposure to full exposure had a negative effect on wages of−0.086. Combined with the college–non-college exposure gap, this mechanism accounts for roughly 28% of the total drop in the college wage premium from 2022 to 2026. While non-causal, these patterns indicate that task displacement in AI-exposed white-collar occupations plays a quantitatively meaningful role in the recent compression of the aggregate skill premium.

Takeaways by Macro Roundup^® AI

The U.S. college wage premium fell from 0.626 to 0.575 between 2022 and 2026—the first sustained decline in relative demand for college labor after four decades of uninterrupted expansion.
Moving from zero to full occupational AI exposure reduced wages by 0.086 log points by 2026.
the college–non-college AI-exposure gap accounts for roughly 28% of the total premium compression over that period.

The AI Re-Acceleration That Wasn’t

Paul Kedrosky Applied Complexity

Date Posted:: September 3, 2026
Is Database:: Database

Kedrosky argues AI capabilities continue to improve, but “the full composite data shows flattening relative gains, not acceleration…rolling relative model gains have fallen from their 2024 peak, while model dispersion has narrowed sharply.”

Using all Epoch’s Capabilities Index observations, and controlling for developer and model family, there is no statistically significant breakpoint. A piecewise model—which splits the series into intervals and applies a sub-function to each segment—does not improve on a purely linear trend: p = 0.615, The estimated change in slope has a confidence interval of -8.4 to +23.4 points per year. In short, the maths shows there is no model acceleration, contrary to claims, and as expected. The result comes from selecting frontier observations only, choosing a breakpoint, ignoring variance collapse, and fitting separate lines on either side.

Takeaways by Macro Roundup^® AI

Epoch’s Capabilities Index shows no statistically significant AI performance acceleration when controlling for developer and model family, with a breakpoint test returning p = 0.615 and a slope-change confidence interval of -8.4 to +23.4 pts per year.
Claims of AI re-acceleration rest on a methodological artifact: selecting only frontier model observations, pre-choosing a breakpoint, ignoring variance collapse, and fitting separate trend lines on each side of that breakpoint.

The AI Trade Is Losing One of Its Key Signals

Jan-Patrick Barnert and Michael Msika Bloomberg

Date Posted:: July 7, 2026
Is Database:: Database

The Silicon Data LLM Token Expenditure Index, which tracks AI token prices, is down ~20% from its recent peak in May. The metric is a rough “proxy for marginal willingness to pay.”

A softer index doesn’t mean AI is getting cheaper. The gauge blends prices and usage, meaning a dip can imply very different scenarios: either list prices are falling, or demand is shifting toward cheaper models. It could also point to a genuine softening in what buyers are prepared to shoulder. Each of these possibilities carries different implications. Let’s start with a benign read: While token prices have collapsed more than 90% since 2023, total spend has roughly doubled since last year. Cheaper tokens have expanded the market. This means that an index pause is simply digestion, while demand is real and capex is money well spent. The bull case for Nvidia rests here. Now for the interpretation that’s keeping people up at night: Bears warn that sustained weakness in the index could end the trade that saw nearly the entire AI cohort rally hard this cycle. It’s token spending that justifies the next capex order, and the bill is already looking stretched. Allianz Research said there’s nearly a 46% growth gap between AI investment and sales. That’s worse than the 32% divergence measured during the 2001 telecom bust.

Takeaways by Macro Roundup^® AI

Token prices collapsed 90% since 2023 while total spending doubled, driving market expansion despite index softening.
Index weakness signals either benign demand shift toward cheaper models or stretched capex justification, leading to divergent bull/bear interpretations.

The Age Of The Solopreneur

Ernie Tedeschi, Marisa Rama and Chris Cruickshank Stripe Economics

Date Posted:: June 22, 2026
Is Database:: Database

New US business applications have surged since late 2024, driven mainly by “likely nonemployer” filings representing “solopreneurs” rather than businesses expected to hire. Data suggest AI may be enabling this by filling capability gaps without hiring.

While the recent surge in US business formation is not reflected in high-propensity applications, the evidence points toward a structural increase in genuine small business activity over 2025 and 2026, driven by solopreneurs. Preliminary evidence of growth in AI tool usage and solopreneur growth in high-AI-adoption sectors suggests that advances in AI are responsible for a meaningful portion of this growth. We believe AI is lowering barriers to business formation and growth by expanding the capabilities of solopreneurs, further improving tools and platforms that cater to new businesses, and creating a new set of opportunities for entrepreneurs to pursue. Whether the magnitude of this effect is as large as the most optimistic readings of the data suggest remains to be seen, but we believe we might be in the early innings of a fundamental acceleration in business formation—which could have ripple effects throughout the economy.

Chart of the Day: Small Models are Closing the Gap to Frontier AI

Paul Kedrosky Applied Complexity

Date Posted:: June 3, 2026
Is Database:: Database

Small models have increasingly closed the performance gap with frontier models. To Kedrosky, this implies “edge compute becomes real,” which in turn, at the margin, means reduced relative demand for data center-based versus local compute.

A quiet story in AI isn't that large models keep getting better, it's that small ones are catching up quickly. In 2022, reaching 60% on MMLU, a test of academic reasoning, required a 540-billion-parameter model. By 2024, a 3.8-billion-parameter model hit the same threshold — a 142-fold parameter reduction in two years. The direction is clear, and the implications are wide-ranging. Edge compute becomes real. Models that fit on a phone or a sensor don't need a data center. Inference shifts from hyperscaler to device, which is a different supply chain and a different competitive moat than anyone has built for. The data center API business model has a half-life. If a fine-tuned 7B model running locally can handle 80% of enterprise use cases, the case for paying per-token to a cloud provider shrinks fast. The most exposed providers are those whose moats are model quality rather than distribution, i.e., the capex-heavy frontier models. Compute becomes less scarce.

Takeaways by Macro Roundup^® AI

Inference migration from data centers to devices results in a fundamentally different supply chain, threatening capex-heavy frontier model providers lacking.
By 2024, a 3.8-billion-parameter model hit the same threshold — a 142-fold parameter reduction in two years.
The direction is clear, and the implications are wide-ranging.

Challenging the Narrative of European Decline, Continued

Paul Krugman Paul Krugman Wonks Out

Date Posted:: May 19, 2026
Is Database:: Database

In 2021 prices, per capita GDP in the Euro area is falling relative to that of the US, but the opposite is true if one takes into account the benefits to Europe from falling tech prices. “The big benefits of IT come from applying it, [not] creating it.”

Let’s start by looking at GDP per capita in Europe (actually the euro area) as a percentage of GDP per capita in the US. If we do this using constant prices — the World Bank uses 2021 prices — we get the line in Chart 1 labeled “2021 prices.” This line shows Europe falling behind over the past 25 years. If, however, we simply use prices in each given year, we get the line labeled “PPP,” which shows Europe gaining on the US. We get a similar picture if we look at GDP per worker-hour, where the black line is calculated using 2021 prices and the blue line is calculated using PPP. IT progress is passed on to all consumers via lower prices. The big benefits of IT come from applying it, rather than creating it. And as I’ve tried to show, the data show Europe holding its own in the relative value of the goods it produces, indicating that European economies are doing fine when it comes to applying technological advances. What should worry Europe, instead, are the geopolitical implications of US/Chinese leadership in advanced technology. The risk of being cut off from strategically important technologies, once minimal, is now very real. And that risk, rather than misleading numbers about trends in real GDP per worker hour, is what should concern European policymakers.

Takeaways by Macro Roundup^® AI

If we do this using constant prices — the World Bank uses 2021 prices — we get the line in.
If, however, we simply use prices in each given year, we get the line labeled “PPP,” which shows Europe gaining.
We get a similar picture if we look at GDP per worker-hour, where the black line is calculated using 2021.

Census data show that 18% of US firms used AI in at least one function (32% employment-weighted). 66% say it augments work; only 2% report job cuts, but the deeper firms embed AI into operations, the more employment falls.

Does formal AI adoption matter more than worker tool use?

Takeaways by Macro Roundup® AI

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The college wage premium flattened in the mid-2010s and has fallen ~8% since 2022. The authors argue that this compression reflects a broad decline in the returns to formal schooling, rather than a decline in the upper tail.

Is the college degree losing its economic value to artificial intelligence?

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Kedrosky argues AI capabilities continue to improve, but “the full composite data shows flattening relative gains, not acceleration…rolling relative model gains have fallen from their 2024 peak, while model dispersion has narrowed sharply.”

Are AI performance gains accelerating or just appearing to through selective measurement?

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The Silicon Data LLM Token Expenditure Index, which tracks AI token prices, is down ~20% from its recent peak in May. The metric is a rough “proxy for marginal willingness to pay.”

Is artificial intelligence investment growing faster than actual demand?

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New US business applications have surged since late 2024, driven mainly by “likely nonemployer” filings representing “solopreneurs” rather than businesses expected to hire. Data suggest AI may be enabling this by filling capability gaps without hiring.

Are AI tools fundamentally reshaping the economics of starting a business?

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Small models have increasingly closed the performance gap with frontier models. To Kedrosky, this implies “edge compute becomes real,” which in turn, at the margin, means reduced relative demand for data center-based versus local compute.

Are smaller AI models making cloud computing less essential for artificial intelligence?

Takeaways by Macro Roundup® AI

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In 2021 prices, per capita GDP in the Euro area is falling relative to that of the US, but the opposite is true if one takes into account the benefits to Europe from falling tech prices. “The big benefits of IT come from applying it, [not] creating it.”

Does measuring European economic output differently change the decline narrative?

Takeaways by Macro Roundup® AI

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Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

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