A change in the underlying plumbing of the financial system is making it unlikely that QT can run its expected 2+ year course. An ideal QT would drain liquidity in the overall financial system while keeping liquidity in the banking sector above a minimum threshold. The marginal buyer of short-dated Treasuries over 2022 Q3 appears to surprisingly be U.S. households. Federal Reserve data show that household purchases of Treasuries surged to record levels on a seasonally adjusted annual basis as [money market funds] notably shrank their holdings. Households appear to have replaced money market funds as the marginal buyer of bills and are funding their purchases out of funds held in the banking sector.

From March 2020 to August 2021, consumers amassed a peak $2.1 trillion in excess savings relative to the pre-pandemic trend. Since August 2021, consumers have drawn down on these excess savings. Household debt payments were 9.8% of disposable personal income in Q4 ’22 vs. a peak of 13.2% in Q4 of ’04.

The figure above plots the estimated average change in net worth per head of household age category during 2022. People between the ages of 55 and 74 lost, on average, over $100,000 in net worth due to falling asset returns between January and October 2022. This partly reverses some of the net worth gains in 2020-21, which were particularly high for these age groups. This is explained by the high exposure (in absolute terms) of people in these age groups to asset classes such as stocks and bonds, which performed reasonably well in 2020-21 but posted significant negative returns during 2022. Focusing on only people between the ages of 51 and 65, whose decision to participate in the labor force tends to be more sensitive to wealth effects, we find that the decline in asset values may have caused an extra 170,000 people to return to the labor force. This corresponds to an increase in the LFP rate of 0.06 percentage points, or about 16% of the total increase observed through October 2022.

We find evidence of a decline in the size of the persistent component of core PCE inflation starting in September 2022. The decline follows a long period of high and essentially constant inflation persistence. Dissecting the layers of aggregate inflation provides further insights: core goods and core services ex-housing have been moderating since early 2022, reflecting the evolution of the common component, while housing has continued to move up, driven by its own sector-specific trend. The chart below shows a sectoral decomposition of the increase in inflation from its pre-pandemic average. The chart shows that the persistent component of housing represents a fair amount of the overall increase in trend, comparable to the contribution of core goods and core services ex-housing.

Computer security experts were struggling this week to assess a startling claim by Chinese researchers that they have found a way to break the [RSA algorithm,] the most common form of online encryption, using the current generation of quantum computers, years before the technology was expected to pose a threat. Peter Shor, the Massachusetts Institute of Technology scientist whose 1994 algorithm proving that a quantum machine could defeat online encryption, noted that the Chinese researchers had “failed to address how fast the algorithm will run”, and said that it was possible it “will still take millions of years”. He said: “In the absence of any analysis showing that it will be faster, I suspect that the most likely scenario is that it’s not much of an improvement.”

About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a ZipRecruiter survey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame. Nearly four in ten previously laid-off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey.

After last year’s selloff, we’re much closer to the end of the young unprofitable companies/mega-valued unprofitable companies repricing than the beginning. By the time Peloton is priced at 1x sales rather than its peak level of 19x sales at the end of 2020, it’s time to start thinking about whether unprofitable companies can become profitable or not. Many unprofitable companies are in that position since the market did not require them to be profitable. The aftermath of the 2000-2002 dot-com crash is interesting in this regard: The chart above shows the performance of tech companies from 2000 to 2004 based on their initial and subsequent profitability.  Companies that remained unprofitable continued to languish. However, unprofitable companies that became profitable by 2004 rallied sharply, catching up to companies that had been profitable all along. This incorporates the benefit of perfect hindsight; still, it does indicate that for stock pickers that sift through the wreckage to try and identify survivors, there may be attractive opportunities. The size of ["unprofitable in 2000" cohort that became profitable by 2004] was roughly 50% of the “unprofitable in 2000” universe.

Employees of embattled tech groups are flooding secondary markets — where stakeholders in a private company sell shares to third parties — as the industry’s former darlings such as Klarna and Stripe have been forced into aggressive cost-cutting measures, according to brokers and investors. For many workers who have lost their jobs, their shares vest within 60 days, forcing them to sell during the worst downturn in a decade. Some companies are offering an extension on this timeframe, according to brokers, although some sellers want to get out of their holdings over fears the market rout will get worse next year. However, trading in many of these companies showed a return to, or an improvement on, pre-pandemic prices, following a significant jump in valuations during a VC fundraising boom in 2021.

Roughly 70 special-purpose acquisition companies have liquidated and returned money to investors since the start of December. That is more than the total number of SPAC liquidations in the market’s history, according to data provider SPAC Research. SPAC creators have lost more than $600 million on liquidations this month and more than $1.1 billion this year, the data show. There are still nearly 400 SPACs together holding about $100 billion that have yet to find deals, according to SPAC Research. There are another roughly 150 SPACs holding about $25 billion that have reached merger agreements but haven’t closed them.

The blue dots in the figure show three “normal” subperiods, in which [annualized PCE] inflation was between 1% to 3% and real consumption growth was about 2% to 3%. There is also a positive relationship between consumption growth and inflation. The red dots show two high inflation subperiods, from April 2021 to February 2022 and from March to July 2022. Although inflation was very high (about 6%) in both periods, consumption growth was average. This suggests the high inflation was because of something other than growing demand. In that case, inflation during these periods may be associated with supply disruptions, or other components of demand (e.g., government consumption), rather than high real consumption growth. Since March 2022, the Federal Reserve has raised interest rates, so the second period highlighted in red also corresponds to a period of tightening monetary policy. From March to July 2022, inflation continued at 6%, and consumption growth was slightly higher than in the previous months. This pattern suggests that monetary policy, at least during those months, didn’t yet reduce consumption growth. The last four months are depicted with green dots [with seasonally-adjusted monthly PCE and real consumption growth rates annualized.] Two patterns are clear. First, inflation is significantly lower in the four months and is now close to 1%. Second, real consumption growth was very high during August and October but finally decreased to an annual rate of just over 0% in November. Thus, only the data corresponding to November suggests that the monetary mechanism described above may be working.

American manufacturing firms are also citing materials and labor shortages as major constraints to production at the highest levels in decades. Everywhere you look, supply chains seem to be in disarray—and demand seems to be off the charts.

For the first time in nearly a decade, the two largest players in online advertising are no longer raking in the majority of U.S. digital-ad dollars, a decline that industry insiders expect to continue in years to come. Alphabet Inc.’s; Google and Facebook parent Meta Platforms Inc. accounted for a combined 48.4% of U.S. digital-ad spending in 2022, according to estimates from research firm Insider Intelligence Inc. Their combined U.S. market share hadn’t been under 50% since 2014, said Insider Intelligence, which expects that number to drop to 44.9% this year.

John Fetterman bettered Biden’s margin across almost the entire state on his way to defeating Republican Mehmet Oz by about 5 percentage points, his largest improvements over Biden tended to be in red-leaning counties with higher shares of white residents without a college degree. In counties with a population that’s at least 60 percent white without a college degree — which together produced about 36 percent of the state’s 2022 vote — Fetterman’s margin was 7 points better than Biden’s, on average, compared with just 3 points better elsewhere.

Republicans won the national House popular vote by three percentage points — 51 percent to 48 percent. They still won by two points after adjusting for races in which only one major party was on the ballot. Republican candidates won the most votes for U.S. House in all four of the crucial Senate states where Republicans fell short: Pennsylvania, Arizona, Georgia, and Nevada. The “MAGA” Republicans — as characterized by The Cook Political Report, based on their backing from Mr. Trump in the primaries — ran far behind the mainstream Republicans.

For first time in four decades, wage inequality falling, due to rising lower tail. Despite inflation, real wages rising among young HS grads, 1st quartile workers. It’s tempting to attribute this change to ‘tight’ labor markets—but what does this mean in practice? The simplest explanation is that labor markets are operating on a higher point on the labor demand curve. Evidence indicates this explanation too simple: Competition has intensified. Distinction is critical: Rising competition means higher wages that better reflect productivity and higher aggregate productivity — a double dividend.

In the decades before the pandemic, the wages of lower-paid, less skilled hourly employees steadily lost ground to those of skilled workers, college graduates, managers, and professionals. In the two years since, those trends have sharply reversed. We don’t know if this narrowing in inequality will last. Perhaps it is a function of labor shortages that, like semiconductor shortages, will disappear as the pandemic recedes. Maybe it is the result of a tight labor market whose days are numbered as the Federal Reserve seeks to cool the economy. Some of this was catalyzed by the pandemic, which shrank the supply of people willing to do traditionally low-paid work. Many dropped out of the labor force, retired, or died from Covid-19. The college-educated labor force was 5% larger last month than in February 2020; the high school-educated and high school dropout labor force is 4% smaller. (Data between the two periods isn’t strictly comparable.)

Another big winner in the U.S.-China trade war could be Mexico. It has lower wages than China, an established manufacturing sector anchored by the automotive industry, and the perfect geographic position for serving the U.S. market—particularly since the rise of videoconferencing, which has increased the importance of being in the same time zone. Analysts at Bank of America already see some evidence that this is happening, with U.S. imports of Mexican manufactured goods roughly 60% higher than before the pandemic as of October. Interestingly, Mexico has gained share of U.S. imports in some low-tech industrial sectors such as plastics and textiles, while China has lost share.

There is a stronger economic reason for Washington to encourage switching production from countries with large-persistent trade surpluses to countries, like Mexico, with balanced trade, or even trade deficits. Because wages and household income comprise a higher share of Mexican output, when an American business shifts production to Mexico, this will likely increase US imports from Mexico. This is not what happens when a US business relocates to a trade surplus country. In that case, because their workers receive a much lower share of what they produce, and their businesses a higher share, part of the country's export revenues are converted into savings.

By my calculations, members of Britain’s “silent generation”, born between 1928 and 1945, were five percentage points less conservative than the national average at age 35, but around five points more conservative by age 70. The “baby boomer” generation traced the same path, and “Gen X”, born between 1965 and 1980, are now following suit. Millennials — born between 1981 and 1996 — started out on the same trajectory, but then something changed. The most likely explanation is a cohort effect — that millennials have developed different values to previous generations.  This is borne out by US survey data showing that, having reached political maturity in the aftermath of the global financial crisis, millennials are tacking much further to the left on economics than previous generations did, favoring greater redistribution from rich to poor.

Millennials are roughly equal in wealth per capita to Baby Boomers and Gen X at the same age. Gen X is currently much wealthier than Boomers were at the same age: about $100,000 per capita or 18% greater. Wealth has declined significantly in 2022, but the hasn’t affected Millennials very much since they have very little wealth in the stock market (real estate is by far their largest wealth category.)

There is clear evidence that more people are drinking too much. Deaths from alcohol-induced causes rose from 39,043 in 2019 to 54,258 in 2021, according to the Centers for Disease Control and Prevention, and the population-adjusted death rate is now more than double what it was in the 2000s. Provisional data also show an encouraging decline in alcohol-induced deaths in the first half of 2022, although that trend could change as final numbers become available. Even after the big increases of the past couple of years, US alcohol consumption likely still lags that of many affluent countries, especially in Europe. And yes, Americans drank lots more back in the 1970s — not to mention the 1830s, when estimated per-capita consumption was nearly three times what it was in 2020.

Since January 2021, the Biden Administration has enacted policies through legislation and executive actions that will add more than $4.8 trillion to budget deficits between 2021 and 2031. The $4.8 trillion is the net result of roughly $4.6 trillion of new spending, about $500 billion of tax cuts and tax breaks, and $700 billion of additional interest costs that are partially offset by $400 billion of spending cuts and $600 billion of revenue increases.

Why has work collapsed in the bottom decile? Here we might have a big debate. $11.76 per hour (2017) isn't a lot. But the previous graphs certainly contain a suggestion worth pursuing: The effective marginal tax rate in the lowest three quintiles is effectively 100%. Earn a dollar and lose a dollar of benefits. Why work? Gramm Ekelund and Early are careful, and don't make any causal assertions here. They don't really even stress the fact popping from the table as much as I have. But the fact is a fact, a nearly 100% tax rate + an income effect isn't a positive for labor supply, and the amount of work in lower quintiles has plummeted.  This is a book about facing facts and this one is undeniable.

According to World Health Organization estimates, life expectancy in 2019 for 15-year-old Russian males was essentially indistinguishable from 15-year-old males in Haiti. This is not a typo. The estimate for both Haiti and Russia was 53.7 years. That teenage Russian male stood worse survival chances in Russia than in 23 of the 46 countries the United Nations categorizes as “least developed” — among them Mali, Yemen, and even war-decimated Afghanistan. Projecting from 2019 survival trajectories, over one in four 20-year-old males will die before their 60th birthday. The corresponding risk in Europe is only half that high — and those European aggregates, remember, are distorted by including Russia in them.

Bank of Japan Governor Haruhiko Kuroda shocked markets by doubling a cap on 10-year yields, sparking a jump in the yen and a slide in government bonds in a move that helps pave the way for possible policy normalization under a new governor. The BOJ will now allow Japan’s 10-year bond yields to rise to around 0.5%, up from the previous limit of 0.25%, while keeping both short- and long-term interest rates unchanged, according to a policy statement Tuesday. “Whatever the BOJ calls this, it is a step toward an exit,” said Masamichi Adachi, chief Japan economist at UBS Securities and a former BOJ official. “This opens a door for a possible rate hike in 2023 under a new governorship.”

The move puts the yen’s role as a cheap funding currency in doubt and potentially sets in motion a mass reshuffling of global capital. With higher rates now on offer from Japanese government bonds, there’s a chance that money is pulled from foreign investments and plowed into domestic ones. That could potentially add to worries over who will be buying US government debt in the midst of higher inflation, new regulatory requirements for big investors, and perhaps new competition from Japanese government bonds.

A sharp decline in venture capital dealmaking, alongside a closed market for initial public offerings, has resulted in a funding crunch for many private technology companies over the past year. Company founders have entered into debt-focused deals such as bridge loans, structured equity, convertible notes, participating bonds and generous liquidation preferences. These moves are designed to avoid a dreaded “down round” — accepting funding at a far lower valuation than a company had previously secured. New VC deals fell 42% in the first 11 months of this year to $286bn, compared to the same period last year, according to investment data company Preqin. Silicon Valley law firm Cooley said the total value of late-stage VC deals it advised on had slumped almost 80% this year.

Researchers at the BLS and Cleveland Fed released a data series today that might be the single most important new inflation indicator. The New Tenant Repeat Rent Index uses the same microdata that goes into the official Consumer Price Index to select only samples with rental turnover and to assign price shifts to when they happened, not when the units were surveyed. The New Tenant Repeat Rent Index, therefore, leads official inflation data in the CPI by 1 year. The good news is that the New Tenant Repeat Rent Index suggests that the worst of housing inflation is likely behind us, and price decelerations should pass through to official inflation data soon. Critically, New Tenant Repeat Rent index also shows lower overall price growth than private data.

Apple plans to move some MacBook production to Vietnam for the first time next year as the U.S. tech group continues diversifying its production base away from China amid escalating tech tensions between Washington and Beijing. Apple has tapped its top supplier, Taiwan's Foxconn, to start making MacBooks in the Southeast Asian nation as early as around May, sources briefed on the matter said. Apple has been working to add production sites outside of China for all of its major product lines, but doing so for the final one, the MacBook has taken longer due to the complex supply chain needed for making laptop computers. "After the MacBook production shifts, all of Apple's flagship products basically will have one more production location beyond China ... iPhones in India and MacBooks, the Apple Watch and iPads in Vietnam," one person with direct knowledge of the matter told Nikkei Asia. "What Apple wants now is an 'out of China' option for at least part of production for all of its products."

We link patent records to a database containing the first five digits of more than 230mm of Social Security Numbers (SSN). By combining this part of the SSN together with year of birth, we identify whether individuals are immigrants based on the age at which their Social Security Number is assigned. We find immigrants represent 16% of all US inventors, but produced 23% of total innovation output, as measured by number of patents, patent citations, and the economic value of these patents. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. A simple decomposition illustrates that immigrants are responsible for 36% of aggregate innovation, two-thirds of which is due to their innovation externalities on their native-born collaborators.

Exhibit 25 shows capital expenditures minus depreciation for the population we studied. Using this measure, investment as a percentage of sales peaked in 1988 at 6.9% and bottomed in 2020 at 0.5 percent of sales. The average of the past decade was 1.8%. The two substantial limitations to using depreciation as a proxy for maintenance capital expenditures include inflation and the risk of technological obsolescence. In periods of rising prices (such as 2022), the capital expenditures required to replace new equipment will exceed depreciation because new expenditures reflect inflation whereas depreciation is based on historical costs. Technological obsolescence introduces the likelihood that depreciation overestimates an asset’s useful life.

On a per-person basis, Britain’s economy has grown by 7% in real terms since 2007. That is just ahead of Canada and France, both at 6%, but behind America, Australia, and Germany, which sit at 13-16%. Unfortunately, much of Britain’s meager growth has come not from working more efficiently but rather from working more. Over the past 15 years, British labor productivity has climbed by just 4%, slightly behind France’s 6% and far worse than the other countries’ double-digit gains.

The NHS is in poor shape. It has 6.8m people on waiting lists, up from 4.2m before the pandemic. EU countries in the OECD, a club of mostly rich countries, have an average of 3.7 doctors per 1,000 people (Austria has 5.4). Britain has 2.9.

When we look at the series for employed and non-employed (unemployed or out of the labor force) respondents separately, as in the chart below, we observe that the average reservation wage has been increasing for both groups since late 2017, but more so since the onset of the pandemic. In addition, the chart displays the increase since the onset of the pandemic (since March 2020) to be more pronounced for employed respondents. Specifically, while the average reservation wage increased by 19.4% between March 2020 and November 2022 for employed respondents, it increased by around 12 percent for non-employed respondents in the same time period. Among the employed respondents, we observe the highest rise in this time period for those without a college degree (a 27% increase).

As this chart shows, there is a big difference between what the market and the Fed thinks. And this divergence will define the first part of 2023 trading. What does the Fed see causing the funds rate to stay at 5.125% next year? Start with the labor market. The simple truth is the jobs market is NOT weakening. And the Fed is not changing unless it shows UNMISTAKABLE signs of weakening.

We do, however, have some direct evidence on inflation expectations. For example, here are the results of an ongoing survey by the New York Fed. People do expect elevated inflation over the next year, probably because they’re extrapolating from elevated gas prices earlier this year. But medium-term inflation expectations are quite low. There’s just no sign of inflation getting entrenched.

There does seem to be a connection between the acceleration in wage growth over the past year or so and the acceleration in the inflation rate of services other than housing, electricity, and gas. One could reasonably quibble that “services excluding housing and energy services” is 32% health care prices charged by providers to insurers (including Medicare and Medicaid), 13% imputed financial and insurance services, plus 9% “social assistance” (excluding child care) and non-profits. None of those prices are necessarily linked to wages. But these problematic categories do not explain why inflation has accelerated. In fact, excluding those categories, along with other non-market PCE, makes core services inflation looks substantially worse, as can be seen in the difference between the green line and the orange line in the chart above.

The single biggest factor in the 2023 outlook is how firms will respond to a likely reduction in demand. Will businesses announce substantial layoffs, as usual? Or will the difficulties in finding and retaining qualified workers lead them to sacrifice short-run profits to keep people on the payroll? (Many have already been laid off in the tech sector, but that is because those companies binge-hired in 2020 and 2021.)

Scientists are getting older. Above is the share of employed US PhD scientists and engineers in three different age ranges: early career (under 40), mid-career (ages 40-55), and late career (ages 55-75). The figure covers the 26 years from 1993-2019. Over this period, the share of mid-career scientists fell from about half to just under 40%. Most (but not all) of that decline has been offset by an increase in the share of late career scientists. And within the late career group, the share older than 65 has more than doubled to 27% over this time period. Yu and coauthors still find a sharp fall off in both productivity and citations to top papers after 25 years of career experience. For a scientist who first published at the age of 25, that’s 50 years old. The share of scientists who fall into this “late career” demographic has been on the rise.

Vietnam is on track this year to bump Britain from its long-time place among the US’s top seven goods trading partners, which would be the first time the UK hasn’t been in that group in records going back at least to 2004. The UK’s share of the US merchandise trade slid to 2.6% through the first 10 months of this year, while Vietnam’s rose to 2.7%, according to Census Bureau data. The numbers reflect trends that both predate the pandemic and were accelerated by it. China’s share of US goods trade, which stood at 13.2% in October, has been edging down since it peaked on a full-year basis at 16.4% in 2017.

Germany has opened its floating liquefied natural gas terminal in the North Sea port of Wilhelmshaven, marking a crucial milestone in its quest for energy independence from Russia. Since the start of the year, the government contracted five floating storage and regasification unit, each with a capacity of 5bn cubic meters a year of gas. It also pushed through the construction of new permanent LNG import terminals, one of which will be built in Wilhelmshaven. Germany would soon have an LNG import capacity of 30B cubic meters per year on its northern coasts. “That is equivalent to more than half of the entire volume of pipeline gas that flowed to Germany from Russia last year,” Olaf Scholz, the chancellor, said.

The most important thing to know about the US data on foreign holdings of US Treasury securities is that the US doesn't really know who holds US Treasuries. US Treasury holders, in rank order, Japan, China, the UK, Belgium, the Caymans, Luxembourg, Switzerland, and Ireland Only Japan and China (and, to a degree Switzerland) are real holders; the rest are financial and custodial centers. The second most important thing to know -- apart from the continued (apparent) purchases of Treasuries from private investors abroad (even if the buyers are the Caymans and the UK in the transactional data) -- is that China isn't selling. It is, in fact, rather remarkable that after adjusting for the Belgian holdings (a euroclear account used by the PBOC it seems), China's visible holdings of US bonds have stayed constant for the last 5ys (at ~ $1.6 trillion).

Liquefaction capacity has been below fleet capacity for the past 18 years or so, with a growing gap that is projected to widen through 2027. These patterns suggest that liquefaction will likely be an important bottleneck for the future growth of LNG trade. Figure 3 shows that, after Russia's invasion of Ukraine, there have been increased investments in LNG fleets (new orders in Panel A) and LNG liquefaction terminals (number of terminals expected to be completed in Panel B).

Public filings to Norway’s population registry show that at least 30 billionaires and millionaires swapped the prosperous Scandinavian nation for the lower-tax Alpine jurisdiction in 2022. The group of rich Norwegians who left for Switzerland this year had a combined fortune of NKr29B [$3B] and paid NKr550M in tax [$550M], according to the country’s open-access annual tax returns. The 2022 exodus is greater than in the previous 13 years combined, newspaper Dagens Naeringsliv calculated. At the heart of the debate is Norway’s wealth tax which is levied on all net fortunes greater than NKr1.7M ($173,000) at a rate of 1.1 per cent for the richest. Switzerland also has a wealth tax but offers deals for foreigners.

Over the next five years, Tokyo plans to spend ¥43tn ($313bn) to strengthen its defense capabilities, bringing military expenditure to roughly 2% of its current gross domestic product.  The budget includes ¥5tn to buy Tomahawk cruise missiles from the US, expand the range of its domestic surface-to-ship cruise missiles and develop hypersonic weapons, according to the medium-term Defence program. Another ¥3tn will be spent on enhancing integrated air and missile defense capabilities, including a radar upgrade for the Patriot missile system to counter hypersonic weapons. The largest portion of the military spending, ¥15tn, will be designated to strengthening the SDF’s basic needs, including ammunition stockpiles and fuel tanks, reflecting concerns that Japan’s armed forces will not have the capability to persevere in a prolonged conflict such as one over Taiwan.

First, remittances are a one-way street. If the Fed has positive earnings, it remits the earnings to the Treasury. But if the Fed incurs losses, the Treasury isn’t required to cut a check to the Fed to cover those losses. Instead, the Fed “prints” the difference. It simply pays the excess interest expense with newly created dollars, in the same way that it prints dollars to buy bonds in QE. The Fed keeps track of its cumulative losses, and when the Fed starts earning money again in the future, it will first go to recoup those losses before remittances to the Treasury resume. In other words, the positive balances shown in the graph above are in-period (since earnings are constantly swept to the Treasury), while the losses over the past several months are cumulative, since they accrue over time.

The historical narrowness of the incoming GOP majority becomes clear when comparing this cycle to previous elections over the past decade. House Republicans won the majority by 6,670 votes, or 0.006 percent of the nationwide popular vote. Had Democrats won an additional 6,671 votes across five districts, they would have maintained their majority. In 2020, Democrats won 222 seats. But their majority rested on the 34,734-vote combined margin of victory in their five closest victories. Those decisive votes were just 0.023 percent of the 152,576,055 ballots cast nationwide.

A simple ratio known as Q provides an easy and intuitive way to understand if scientists are making progress: It’s energy released divided by energy used. A Q below one means the reaction consumed more energy than it produced. A Q above one means more energy was produced than consumed. In this latest experiment, scientists put in 2.05 megajoules of energy and got 3.15 megajoules out. Q was 3.15 divided by 2.05, or about 1.5. To generate 3.15 megajoules of energy, the lab consumed about 300 megajoules of energy to fire its laser. The Q value for the entire reactor is about 0.01—roughly 1% of break-even. “If you gain a factor of 10 on the fusion and 10 on the efficiency, that gives you a factor of 100 roughly,” said Jonathan Menard, chief research officer at Princeton Plasma Physics Laboratory. “That would be in the ballpark of break-even. Both of those are theoretically possible.” With government support that could take one to two decades, he said.

Median household income from market activities – labor, business, and capital income, as well as retirement income from past services – was not stagnant from 1990 to 2019. Instead, after adjusting for inflation, it grew by 26%. This is in line with wage growth. By my calculations using Bureau of Labor Statistics (BLS) data, inflation-adjusted average wages for nonsupervisory workers grew by around one-third over this period. After factoring in social insurance benefits (from Social Security and unemployment insurance, for example), government safety-net benefits (such as food stamps), and federal taxes, the CBO finds that median household income increased by 55% from 1990 to 2019, which is significantly faster than wage growth and certainly not stagnate. The bottom 20% of households enjoyed even greater gains, with market income growth of 51% and after-tax-and-transfer income growth of 74%.

While nominal levels of growth might be slowing, inflation-adjusted growth is rising as the economy slowly gets back to normal from the many disruptions that wreaked havoc during the pandemic. So even though the labor market is softer, worker fortunes are looking brighter. We normally think about real economic growth as a function of employment growth and productivity growth. What we’re now experiencing — supply chains healing, companies’ labor needs easing, and workers reaping the benefits of lower prices with a boost to their inflation-adjusted wages — could be called productivity growth.

The US has placed three dozen Chinese companies on a trade blacklist, in another escalation of its effort to slow China’s development of advanced chips and technologies for military uses such as hypersonic weapons. The commerce department put 36 Chinese groups on the “entity list”, a move that means American companies will require extremely hard-to-obtain licenses to export critical technologies to those customers in China.

About four-in-ten U.S. adults (41%) have experienced high levels of psychological distress at least once since the early stages of the coronavirus outbreak, according to a new Pew Research Center analysis that examines survey responses from the same Americans over time. Experiences of high psychological distress are especially widespread among young adults. A 58% majority of those ages 18 to 29 have experienced high levels of psychological distress at least once across four Center surveys conducted between March 2020 and September 2022.

The November CPI is in, and inflation continues to moderate despite interest rates that, while rising, are still below current inflation. In the conventional "adaptive expectations" view, inflation is unstable unless the Fed moves interest rates quickly, and inflation will spiral away unless interest rates rise above the current rate of inflation. In the more radical "rational expectations" view, inflation is stable and will eventually go away on its own even if the Fed does nothing. (So long as fiscal policy doesn't add fuel to the fire. Also, it allows for more dynamics; inflation can go up before coming back, and the long run can take a long time.)

Total CPI inflation does not look that different from CPI inflation, excluding food, energy, shelter (which weirdly includes hotels and dorms in addition to housing), and used vehicles. In both cases, the near-term picture is that prices are rising around 4-5%, which is substantially slower than in the first half of 2022 but still faster than before the pandemic. The basic problem is that the prices of services other than energy and shelter are still rising relatively quickly.

There is a widespread labor shortage, as evidenced by the “Help Wanted” signs everywhere, yet there are also falling after-inflation wages. We economists cannot fully explain these circumstances. But they may suggest that employers simply are not willing to agree to higher wages, perhaps due to business uncertainty. And if a labor shortage won’t push them to increase real wages, perhaps a higher rate of inflation won’t either. In short, one of the main effects of a permanently higher inflation target may be lower real wages. A lot of workers may not be too happy with their situation. There remains a risk that these workers, in lieu of bargaining for higher wages, will quit the labor force entirely, or perhaps just further disengage from their jobs.

I use, as a marriageability threshold, the 25th percentile of pretax earnings among married fathers aged 25–29 who were sole breadwinners. The other choice involves what year to use as a reference point for “the past.” [The available data] is poorly suited for [estimating the tax burdens of young male sole breadwinners] before 1979. For that reason, I use 1979 as my reference point. Rather than [the share of single men earning pretax incomes less than the 25^th percentile of married men] falling from 72% to 57%  from 1969 to 2019, marriageability [only] falls … from 63% to 58% [from 1979 to 2019].

President Joe Biden announced a $36 billion bailout for the Central States Pension Fund, one of the nation’s biggest multi-employer plans, touting the help for union workers and retirees as he looks to mend ties with organized labor after a contentious rail deal. Biden said the aid would help 350,000 union workers and retirees, who would have faced benefit cuts estimated at 60% over the next few years. The Central States bailout would help 40,000 workers and retirees in Michigan, 40,000 in Ohio and 22,000 in Wisconsin.

We've gone from the low-return world of 2009-21 to a full-return world, and it may become more so in the near term.  Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Here's one example: In the low-return world of just one year ago, high-yield bonds offered yields of 4-5%. A lot of issuances was at yields in the 3s, and at least one new bond came to the market with a "handle" of 2. Today these securities yield roughly 8%.

The reaction produced about 3.15 megajoules of energy, which was about 150 percent of the 2.05MJ of energy in the lasers. Does this mean they have cracked fusion power? No. Achieving energy gain has been seen for decades as a crucial step in proving that commercial fusion power stations are possible. However, there are still several hurdles to overcome. First, energy gain in this context only compares the energy out to the energy in the lasers, not to the total amount of energy pulled off the grid to power the system. In fact, each shot requires 330MJ of electrical energy, delivered in a 400-microsecond burst. Scientists estimate that commercial fusion will require fusion reactions that generate between 30 and 100 times the energy going in.

Researchers in China claim to have produced hydrogen by splitting seawater without the need to desalinate or purify it first.  Heping Xie at Shenzhen University and Zongping Shao at Nanjing Tech kept the electrolyser separate from the seawater with a waterproof, breathable membrane. A bit like a sieve, the membrane keeps anything other than pure water vapor from entering the electrolyser. As the water vapor is drawn in and converted to hydrogen, more is pulled in from the seawater to take its place. It is, they reported recently in the journal Nature, a self-sustaining system. The scientists installed a prototype in China’s Shenzhen Bay and produced more than 1mn liters of hydrogen over 133 days without any reported deterioration.

Excluding food and energy, the consumer price index rose 0.2% in November and was up 6% from a year earlier, according to a Labor Department report Tuesday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure. The overall CPI increased 0.1% from the prior month and was up 7.1% from a year earlier, as lower energy prices helped offset rising food costs. The median estimates in a Bloomberg survey of economists called for 0.3% monthly increases in both the core and overall measures.

Terrific CPI report. This is my own concept that swaps in spot rents for all rents using the private measures from Apartment List and Zillow. This is NOT a good measure of the cost of living but may be a better way to think about where inflation is going. Overall lowest core since what turned out to be the false dawn in the summer of 2021. I feel better about it now because of what we’re seeing with commodity prices, supply chains, inventories, and housing. Some of this good news is probably transitory. But still a lot of good news.

This graph shows the year-over-year change in Core CPI ex-Shelter (blue) and the one-month change annualized (red). The year-over-year change was at 5.2% in November, down from 5.9% in October. And the annualized one-month change was negative in both October and November! Core CPI ex-shelter fell at a 1.5% annual rate in November. My view is inflation will ease quicker than the Fed currently expects, and a pause in rate hikes should be considered.

While total public and private debt hit a record $235 trillion last year, it plummeted when expressed as a percentage of economic output, which rebounded last year after the steep Covid-19 recession of 2020. Total debt fell to 247% of global gross domestic product last year, IMF data showed. That’s 10 percentage points less than in 2020 but is still the second-highest reading in history.

U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.

China is working on a more than 1 trillion yuan ($143 billion) support package for its semiconductor industry, three sources said, in a major step towards self-sufficiency in chips and to counter U.S. moves aimed at slowing its technological advances. Beijing plans to roll out what will be one of its biggest fiscal incentive packages over five years, mainly as subsidies and tax credits to bolster semiconductor production and research activities at home, said the sources. The majority of the financial assistance would be used to subsidize the purchases of domestic semiconductor equipment by Chinese firms, mainly semiconductor fabrication plants, or fabs, they said.

In his reconciliation of his own results with those of the Chicago team, Bastian misattributes something on the order of 200,000 of the one-million-parent difference in predicted disemployment to married parents rather than to low-income single mothers. Relative to the Chicago team, he underestimates the disemployment of low-income single mothers by a similar amount. The evidence remains consistent with the Chicago team’s claims: a permanent expansion of the CTC that resembles the temporary child allowance created in 2021 could reduce employment among single mothers by about one million, an effect that would go a long way toward reversing the employment gains among single mothers since the policy reforms of the mid-1990s.

The federal Lawrence Livermore National Laboratory in California, which uses a process called inertial confinement fusion that involves bombarding a tiny pellet of hydrogen plasma with the world’s biggest laser, had achieved net energy gain in a fusion experiment in the past two weeks, the people said. The fusion reaction at the US government facility produced about 2.5 megajoules of energy, which was about 120% of the 2.1 megajoules of energy in the lasers, the people with knowledge of the results said, adding that the data was still being analyzed.

The growth rate of US utility-scale battery storage capacity is outpacing the early growth rates seen in utility scale solar. That’s according to a new EIA outlook on grid-level storage: “The remarkable growth in US battery storage capacity is outpacing even the early growth of the country’s utility-scale solar capacity. US solar capacity began expanding in 2010 and grew from less than 1.0 GW in 2010 to 13.7 GW in 2015. In comparison, we expect battery storage to increase from 1.5 GW in 2020 to 30.0 GW in 2025.” New wind and solar + storage is probably at the current line of scrimmage with new natural gas. The former comes in around $28-$30/MWh without storage, and the latter comes in around $45-$74/MWh. But natural gas has higher value to the grid compared to wind and solar when they’re not paired with storage.

The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way.

Deleveraging is cyclical, with a higher proportion of companies paying down debt when the economy is slowing down. The figure above illustrates this process among Decile 10 companies that have the highest likelihood of deleveraging. The solid line represents actual deleveraging, and we can see spikes in the proportion of companies that pay down debt during recessions. Another important implication of the chart above is that deleveraging outcomes in the top decile remain within a consistent band between 60% and 80% over a 50-year sample that includes a range of macro environments, from inflation spirals to stock market bubbles to financial crises.

Wealthy mainland Chinese moving assets out of President Xi Jinping’s China account for up to half of a rise in Singapore-based single-family offices — the private wealth management firms set up for rich individuals and their relatives. Numbers have jumped nearly threefold since the coronavirus pandemic began and, according to some estimates, now total as many as 1,500. Caught by surprise by the surging numbers of family office funds, Singapore’s government this year tightened the rules, with higher minimum capital and hiring requirements.

Japan and the Netherlands have agreed in principle to join the US in tightening controls over the export of advanced chipmaking machinery to China, according to people familiar with the matter, a potentially debilitating blow to Beijing’s technology ambitions. The three-country alliance would represent a near-total blockade of China’s ability to buy the equipment necessary to make leading-edge chips. The US rules restricted the supply from American gear suppliers Applied Materials Inc., Lam Research Corp. and KLA Corp. Japan’s Tokyo Electron Ltd. and Dutch lithography specialist ASML Holding NV are the two other critical suppliers that the US needed to make the sanctions effective, making their governments’ adoption of the export curbs a significant milestone.

The pandemic gave rise to numerous sectoral supply constraints and demand shifts that – together with adjustment asymmetries – became the primary drivers of price growth. Any benefits from the extra interest-rate-driven reduction in inflation will be minimal compared to what would have happened anyway. Inflation already appears to be easing. It may be moderating more slowly than optimists hoped a year ago – before Russia’s war in Ukraine – but it is moderating nonetheless, and for the same reasons that optimists had outlined. Higher interest rates make it even more difficult to mobilize investments that could alleviate supply shortages.

Despite some improvement in the labor force participation rate for the working-age population since the early stages of the pandemic, the LFPR in October 2022 remained nearly 1½ percentage points below its pre-pandemic, February 2020 level (after making adjustments for changes in population weights introduced from the 2020 Census). The importance of retirements in accounting for this shortfall is illustrated in Figure 1, which shows the percentage of the working-age population that is not in the labor force for different reasons (black line) relative to February 2020, based on responses to the Current Population Survey. While earlier in the pandemic, factors other than retirements were an important contributor to elevated non-participation (such as non-participation while caregiving, the orange line), the percent of the population that was not in the labor force and retired (the[MRH1]  “retired share”) has steadily increased and in October 2022 was almost 1½ percentage points above its pre-pandemic level, representing an increase of more than 3½ million retirees and accounting for essentially all of the total shortfall in the LFPR.

The Nov. 8 midterm election results are nearly final, and Republican candidates have received 50.6% of the votes cast for the US House of Representatives to Democrats 47.8%. It also looks as if they will end up with 222 of the 435 House seats to the Democrats’ 213, or 51% to 49%. In other words, a vote margin of 2.8 percentage points will translate into a seat margin of 2.1 percentage points. This is not how things worked from 2010 through 2016 when Republicans won a much larger share of House seats compared with the votes they received. The disconnect was most pronounced in the 2012 election when Democrats’ 1.1-percentage-point winning vote margin resulted in a 7.6-point loss in terms of seats.

The Biden administration has approved plans to build the nation’s largest oil export terminal off the Gulf Coast of Texas, which would add 2 million barrels per day to the US oil export capacity. The administration’s move marked a major step forward for the export sector. The offshore oil export terminal, the first to be approved of four proposed along Texas’s Gulf Coast, will enable continued growth in US shale oil production and global consumption, dealing a substantial setback to the White House’s goals for drastic cuts in carbon emissions by the year 2030.

In March, the German government asked energy companies to weigh a seemingly impossible engineering task. Could a new liquefied natural gas import terminal, which normally takes at least five years to build, be erected in this port town by year’s end? At the headquarters of the company asked to build the pipeline portion, technical director Thomas Hüwener posed that question to his team. “If no, then it’s a no,” he told them. “If yes, then we have to commit, with all the possible consequences for our company.” After three days of deliberations, the company concluded that if everything went perfectly, the project could be done by Christmas. Utility Uniper SE, which the German state recently agreed to nationalize and which will operate the terminal, said that if all goes according to plan, the first tanker carrying LNG will arrive at the start of next year.

Glencore Plc Chief Executive Officer Gary Nagle said that while some people were assuming that the industry would lift copper supplies as it had in previous cycles to meet a forecast increase in demand driven by the energy transition, “this time it is going to be a bit different.” He presented estimates showing a cumulative gap between projected demand and supply of 50 million tons between 2022 and 2030. That compares with the current world copper demand of about 25 million tons a year. “There’s a huge deficit coming in copper, and as much as people write about it, the price is not yet reflecting it,” Nagle said.

Figure 1 displays the growth rate of the employment cost index over the past 20 years along with a projection over the next two that is a bit higher than that of professional forecasters. Twelve-month ECI growth peaked at 5.4% in June 2022 and declined to 5.1% as of September. In the projection, ECI rises at an annualized pace of 5% from September 2022 to March 2023, 4.5% from March to December 2023, and 4% in 2024. This projection is consistent with only a modest cooling in the labor market and an unemployment rate still somewhat lower than its equilibrium rate. Further reductions in inflation beyond 2024 would require ECI growth to slow well below a 4% pace.

The monetary tightening campaign is having a major impact in deflating asset bubbles that swelled during the pandemic. This is occurring without upending the financial system. And the losses, while large, are a fraction of the scale seen in the bursting of the tech bubble at the start of the century. The Nasdaq Composite Index is down a little over 30% from its high reached last year, but that compares with an almost 80% crash two decades ago. “It’s astonishing,” said Harvard University professor Jeremy Stein “If you told any one of us a year ago, ‘we’re going to have a bunch of 75 basis-point hikes,’ you’d have said, ‘Are you nuts? You’re going to blow up the financial system.’”

The participation rate, or the share of people aged 16 and over that have or are looking for work, nosedived when the pandemic hit [orange line above]. Some of that sharp decline has been made up as people return. But we don’t see it recovering further because the effects of an aging population account for most of the remaining shortfall. More people have hit 64 years old, the age at which most retire. That’s taken 1.3M out of the workforce as of October, we find. Another 630,000 left as the pandemic caused fewer people to work past retirement age and hastened retirement for people coming up to 64. That implies the workforce will keep shrinking relative to the population. Economic activity will need to run at a lower level to avoid persistent wage and price inflation, especially in the labor-heavy services sector.

The successes of Bell Labs and other big corporate labs in the mid 20th century has many people thinking that maybe this is an important missing piece of our modern innovation ecosystem. Google’s AI divisions have been an important driver of research in the machine learning space — an extremely important frontier. All told, the research output of Google AI, Google Brain, DeepMind, etc. has been truly staggering: Big private companies (especially IBM) are also very active in quantum computing research. And some “startups” like SpaceX are big enough to do research in-house that pushes the boundaries of general-purpose technology instead of just making a quick buck.

Beijing is running out of medical supplies as the Chinese capital combats a rapidly spreading coronavirus outbreak, health workers said, putting stress on limited resources just as authorities lift pandemic restrictions. Clinics designated for Covid-19 patients are quickly filling up, and some hospitals in the city of 22mn people have begun rationing ibuprofen and paracetamol. Residents of Chaoyang, the district at the center of Beijing’s Covid outbreak, have emptied chemists’ shelves of fever-reducing medicine and rapid antigen tests. New modeling revealed by the Financial Times this week showed that as many as 1M people could die in the country in a “winter wave” in the coming months.

It is widely misunderstood how vital suburban white working-class (noncollege) voters were to Biden’s victory in 2020. While suburban white college voters shifted around 10 margin points toward Biden, suburban white working-class voters also had a solid 5-point pro-Democratic shift. Because of this group’s larger size, their shift toward Biden contributed almost as much to the Democrats’ improved margin over Trump in 2020 as suburban white college voters. And just how liberal are these college-educated voters anyway? Overall, according to Gallup, just 30% of adults with a four-year degree only describe themselves as liberal, and 36% of those with some postgraduate education (the less numerous group) do so. Putting this together with the data about suburban demographics, this implies that perhaps one-ninth (a third of a third) of suburban voters are white college-educated liberals.

We estimate total-factor productivity (TFP) for Chinese listed firms and investigate the relationship between these estimates of TFP and the allocation of government subsidies. We find little evidence that the Chinese government consistently “picks winners.” Firms’ ex-ante productivity is negatively correlated with subsidies received by firms, and subsidies appear to have a negative impact on firms’ ex-post productivity growth throughout our data window, 2007 to 2018. Neither subsidies given out under the name of R&D and innovation promotion nor industrial and equipment upgrading positively affect firms’ productivity growth. On the other hand, we find a positive impact of subsidy on current-year employment, both for the aggregated and employment-related subsidies.

Because of high inflation, most workers are experiencing declines in their real wages. Wages are growing most rapidly in the leisure and hospitality, information, and transportation and warehousing sectors, where gains over the past 12 months have been between 6.5 and 9% (figure 6). The wage gains for these industries—representing about 20% of employment—are above the 12-month change in consumer prices. In other sectors, wage increases have fallen short of consumer price increases (except for construction and utilities, where average wage growth has roughly kept up with inflation).

China dropped many of its quarantine and testing requirements and curtailed the power of local officials to shut down entire city blocks as the country’s leaders accelerate plans to dismantle zero-Covid controls in the wake of nationwide protests. Though widely predicted, Beijing’s retreat from its costly and increasingly unpopular pandemic regime has been faster than expected. The wide-ranging new measures will allow Covid patients with mild or no symptoms and their close contacts to isolate at home instead of being shipped to government quarantine facilities.

A country can be said to be having a “youth boom” when the proportion of people aged 15-29 exceeds 28%. When a country is experiencing a youth boom, it may also find itself on the path to political change – including, potentially, democratization. That was the case in Taiwan and South Korea. As the share of young people increased – from 25% in each country in 1966 to a peak of 31% in the early 1980s – so did economic growth and pro-democratic fervor. Both economies became democracies in 1987 when their populations’ median age was 26. In April 1989 – when the proportion of youth was at its peak of 31%, and the median age was 25 – student-led demonstrators occupied Tiananmen Square in Beijing. It took a bloody crackdown that June to crush the movement. The proportion of youth aged 15-29 in China stood at just 17% last year when the median age was 42.

About one in four millennials are living with their parents, according to the survey of 1,200 people by Pollfish for the website PropertyManagement.com. That’s equivalent to about 18 million people between the ages of 26 and 41. More than half said they moved back in with family in the past year. Among the latter group, the surge in rental costs was the main reason given for the move. About 15% of millennial renters say that they’re spending more than half their after-tax income on rent. In September of 2020, a survey by Pew found that for the first time since the Great Depression, a majority of Americans aged between 18 and 29 were living with their parents.

Exhibit 17 sets out our 2075 GDP level projections, broken down by population and GDP per capita levels. Two points are notable: First, there is a large gap between the largest three economies (China, India, and then the US) and all other economies (although the Euro area represents a fourth economic superpower, if it is treated as a single economy). Second, while China and India are projected to be larger than the US by 2075, our projections imply that the US will remain more than twice as rich as both (and five times as rich as countries such as Nigeria and Pakistan).

The average monthly value of exports to Russia in August-October was 24% below the average monthly value before the invasion and 56% higher than the March-May 2022 monthly average. Overall exports of manufactured goods with potential military applications have been largely unchanged. Chinese and Turkish exports of machinery, electronics, and other goods with potential military uses have soared since June, with the total in October about a third below the pre-war average.

This paper investigates whether prime-age non-college men are more inclined to leave the labor force when their expected earnings fall relative to the earnings of other workers in their labor market. The empirical model takes into account that a job not only provides economic security but also affirms a worker’s social status, which is tied to their position relative to their age range peers. According to [a regression analysis] estimate, a 10% growth in expected earnings has an associated 0.12 percentage point decrease in the exit rate. Contrarily, a 10% growth in reference earnings has an associated 0.13 percentage point increase in the exit rate, fully discounting the earnings effect. These coefficients offer suggestive evidence that non-college men’s labor market exit behavior is tied to the relative values of their earnings. Over the course of the study period, non-college men’s relative earnings declined 30% on average. Based on the estimates, this decline in relative earnings had an associated 49 percentage point increase in the exit rate, accounting for 44% of the total growth in the exit rate among non-college men over this period. In contrast, changes in real earnings alone account for only 18% of the total growth in exit rate.

My daughter asked for help in her role as Thomas Hobbes, witness for the defense in “The Trial of Napoleon” for her European history class. I put the question to ChatGPT, which had just been announced by OpenAI a few hours earlier. [The service returned] a confident answer, complete with supporting evidence and a citation to Hobbes work, and it is completely wrong. Hobbes was a proponent of absolutism; checks and balances was the argument put forth by Hobbes’ younger contemporary, John Locke. Hobbes and Locke are almost always mentioned together, so Locke’s articulation of the importance of the separation of powers is likely adjacent to mentions of Hobbes and Leviathan in the homework assignments you can find scattered across the Internet.

How much money is still sitting ready to spend in consumers’ bank accounts? As Yardeni Research points out, some economists are worried about M2’s decline. It has fallen 1.5% since peaking at a record high of $21.7 trillion in March. Although that followed a record peak, such a drop is unprecedented. Still, the firm’s founder, Ed Yardeni, thinks that supply remains at least $2 trillion above its pre-pandemic trendline. The year-over-year change in M2, in fact, has been moving in near lockstep with the 12-month sum of the personal saving rate; money supply has stopped rising as Americans have stopped accumulating new savings. Thus, for Yardeni, the recent weakness reflects the excess liquidity accumulated by US consumers since the start of the pandemic.

During the stimulus bonanza, digital assets were priced at an unrealistic premium relative to physical ones. Monetary and fiscal policy are normalizing now after the longest period of negative real interest rates since 1820 and the largest fiscal deficits since 1800 (other than during WWI and WWII), so Cembalist is not surprised to see a basket of farm equipment, office cleaning supplies and industrial REITs finally outperforming “innovation” stocks.

Taiwan Semiconductor Manufacturing Co. says it will more than triple its investment in the US to $40 billion and bring the world’s most advanced chip production technology to the country by 2026, in a victory for Washington’s push to onshore vital parts of the semiconductor supply chain. TSMC, the world’s biggest contract chipmaker, announced on Tuesday it will increase its investment in Arizona, where it is currently building a $12 billion chip facility, to $40 billion in order to build a second, even more, advanced plant there. The additional facility will begin operation by 2026 and will be the first plant in the US to make 3-nanometer chips, the most advanced currently available.

Japanese Prime Minister Fumio Kishida has ordered a sharp defense spending hike that could see his long-pacifist country’s defense budget balloon to near the levels spent by Russia. Kishida instructed ministers to put together a budget of about 43 trillion yen ($315 billion) for the five-year period starting in April, Defense Minister Yasukazu Hamada said Monday. That’s up 57% on the 27 trillion yen initially budgeted for the current five-year period. The money is set to be used for items such as stockpiling missiles that are capable of striking military assets in neighbors Russia, China, and North Korea. Another goal over the next 10 years would be to triple the number of military units equipped with ballistic missile interceptors in a southwestern island chain that stretches toward Taiwan.

The US has proposed selling Taiwan as many as 100 of its most advanced Patriot air-defense missiles along with radar and support equipment in a deal valued at $882 million, according to a State Department notice obtained by Bloomberg News. The new proposal calls for as many as 100 of Lockheed Martin Corp.’s hit-to-kill Patriot Pac-3 “Missile Segment Enhancement” missiles that are more advanced than earlier Patriots sent to Taiwan. The proposal also calls for M903 Launcher modification kits, missile round trainers, and software upgrades to accommodate the new missiles.

Global supply chain pressures increased moderately in November, continuing a trend seen in October, albeit at a lower rate. The largest contributing factor to the rise in supply chain pressures was Chinese delivery times, though improvements were shown in US delivery times and Taiwanese purchases. The GSCPI’s recent movements suggest that developments in Asia are slowing down the return of the index back to historical levels.

ChatGPT is, quite simply, the best artificial intelligence chatbot ever released to the general public. It was built by OpenAI, the San Francisco A.I. company that is also responsible for tools like GPT-3 and DALL-E 2, the breakthrough image generator that came out this year. Users have also been finding more serious applications. For example, ChatGPT appears to be good at helping programmers spot and fix errors in their code. It also appears to be ominously good at answering the types of open-ended analytical questions that frequently appear on school assignments. (Many educators have predicted that ChatGPT, and tools like it, will spell the end of homework and take-home exams.)

The [5.8M estimate] of missing jobs is inflated because it is based on the unrealistic assumption that the pre-pandemic tailwinds for job growth from the decline in the unemployment rate and cyclical upward pressures on participation would have continued in 2020 and beyond if the pandemic would not have occurred. Instead, our payroll jobs accounting yields an 810 thousand cyclical shortfall in payroll jobs in October 2022 compared to right before the pandemic. At the recent pace of job growth, even without monetary and fiscal tightening, we expect a substantial deceleration of payroll growth in the coming months.

Interest-rate futures suggest traders expect the Fed to raise rates to about 5% by May 2023, compared with the current target range of 3.75% to 4%. “Six is certainly a scenario we can write,” Larry Summers said with regard to the peak percentage rate for the Fed’s benchmark. “And that tells me that five is not a good best-guess.” Summers reiterated that he didn’t think the Fed ought to change its inflation target to, say, 3% from the current 2% -- in part because of potential credibility issues after having allowed inflation to surge so high the past two years.

Aggregate weekly payrolls has been rising about 7% annually since the beginning of this year, with minimal variation.  That’s up from about 4.5% a year before the pandemic. Wages can rise 1-3 percentage points faster or slower than consumer prices for a variety of reasons—including but not limited to compositional and definitional differences—but larger gaps between the growth rates of wages and prices basically don’t exist outside of WWII and Korean War rationing, the late 1990s productivity boom, and the first year of the pandemic. The only time U.S. wages rose at least 4 percentage points faster than prices for at least two years in a row was 1941-1943.

Many economists believe that a little bit of inflation helps to “lubricate” the economy. An ever-changing economy often requires that prices of some goods (and wages for some workers) fall relative to prices and wages elsewhere. But price and wage cuts are hard to achieve. If the price of widgets needs to fall relative to the price of gizmos, it’s easier to do this with rising gizmo prices rather than falling widget prices, so adjustment is easier if overall inflation is somewhat positive. On the other hand, there’s a lot to be said for more or less stable prices, and in particular for an inflation rate low enough that people don’t have to think about it much. I’m with Blanchard and others in believing that it’s OK to stop at 3, maybe without admitting that we’re doing it.

Approximately half of global trade is invoiced in USD, although this share varies widely across regions. This disproportionately large reliance on the USD is in spite of the United States accounting for just over a 10th of global trade. These shares have hardly changed since 2019. One area where the role of the USD has been shrinking to some degree is official foreign exchange reserves, even though it remains the foremost reserve currency. As of the second quarter of 2022, the USD accounted for less than 60% of official foreign exchange reserves. This is one of the lowest shares in the past 20 years and is well below the average of 65% for the period.

As the pandemic snarled global supply chains, US policymakers urged companies to look at ways to reinforce their supply chains and reduce American economic dependence on China and other authoritarian regimes. The Biden administration’s push toward “friend-shoring” production and manufacturing has steadily resulted in increased US trade between the US and its traditional allies in Europe. Over the next five years semiconductor companies will collectively spend more than $110 billion building new semiconductor fabrication plants outside of China.

In recent weeks, Apple has accelerated plans to shift some of its production outside China. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led by Foxconn. Dan Panzica, a former Foxconn executive who now advises companies on supply-chain issues, said Vietnam’s manufacturing was growing quickly but was short of workers. The country has just under 100 million people, less than a 10th of China’s population. It can handle 60,000-person manufacturing sites but not places such as Zhengzhou that reach into the hundreds of thousands, he said. “They’re not doing high-end phones in India and Vietnam,” said Mr. Panzica. “No other places can do them. India is the Wild West in terms of consistent rules and getting stuff in and out.”

Through the first three weeks of November, Border Patrol agents made roughly 127,000 arrests of people crossing the border illegally, according to internal government data viewed by The Wall Street Journal, primarily of Mexicans, Cubans, and Nicaraguans. The administration was able to use Title 42 against roughly 32% of those crossing, with the rest allowed to remain in the country and pursue asylum claims. The ban under discussion would prevent migrants from winning asylum in the U.S. if they moved through another country, such as Mexico, on the way and didn’t first apply for asylum in that country. The policy would be issued, so it would take effect in conjunction with the end of Title 42.

“Ukraine has focused us . . . on what really matters. ” William LaPlante, the Pentagon’s chief weapons buyer, told a recent conference at George Mason University. “What matters is production. Production really matters.” NATO members’ defense ministries are discovering that dormant weapons production lines cannot be switched on overnight. Increasing capacity requires investment which, in turn, depends on securing long-term production contracts. Since the end of the cold war, these countries have reaped a peace dividend by slashing military spending, downsizing defense industries, and moving to lean, “just-in-time” production and low inventories of equipment such as munitions.

EU countries cut gas demand by a quarter in November even as temperatures fell, in the latest evidence that the bloc is succeeding in reducing its reliance on Russian energy since Moscow’s full-scale invasion of Ukraine. Provisional data from commodity analytics company ICIS showed gas demand in the EU was 24% below the five-year average last month, following a similar fall in October.

Panel A in figure 1 illustrates the credit impulse as a share of China’s GDP. It highlights that the Chinese authorities have long used credit to stabilize the economy as they have long faced a tradeoff between strong economic growth and financial stability objectives. That said, the GFC stands out as a period of massive credit stimulus, amounting to 25% of GDP. To size China’s credit measures in a global context, panel B in figure 1 illustrates China’s credit impulse as a share of global GDP. It shows that prior to the GFC, China’s credit measures represented a small share of global GDP. However, with China’s rise in the global economy, the quantitative importance of China’s credit policies has risen as well. Indeed, China’s last three stimulus episodes each accounted for around 1.5% of global GDP.

Higher growth would have raised absolute mobility from 50% to 81%, while lower inequality would have increased it to just 57%. This is almost the mirror image of the Chetty findings. Chetty also reported trends looking at absolute mobility for the 1970 cohort as of age 40 rather than for the 1980 cohort at age 30 (Figure S12 in their paper.) These analyses showed that in the “high growth” counterfactual, instead of 56% of the 1970 birth cohort experiencing absolute mobility, 67.5% would have. Meanwhile, in the “low inequality” counterfactual, the rate was 74%. However, using my approach, the “high growth” scenario produced an absolute mobility rate of 78.5%, while the “low inequality” scenario featured a rate of 63%. Again, the Chetty conclusion about the importance of growth versus inequality reverses.

Nonfarm payrolls increased 263,000 in November after an upwardly revised 284,000 gain in October, a Labor Department report showed Friday. The unemployment rate held at 3.7% as participation eased. Average hourly earnings rose twice as much as forecast after an upward revision to the prior month. The jobs report showed average hourly earnings rose 0.6% in November in a broad-based gain that was the biggest since January and was up 5.1% from a year earlier. Wages for production and nonsupervisory workers climbed 0.7% from the prior month, the most in almost a year. The pace of pay raises is inconsistent with the Fed’s 2% inflation target.

The biggest news in this release is large upward revisions in wage growth for September and October and a big number for November. This is the second time this year we’ve seen AHE revisions like this dashing the hopes that maybe nominal wages growth was cooling. You can’t understate how huge this is. Last month the data showed average hourly earnings grew at a 3.8% annual rate (three-month average). With revisions and one month of data, this is now a 6% annual rate. I was allowing myself to get more hopeful about a soft landing (2nd time this year), but this pretty much dashed that hope. This pace of average hourly earnings growth is consistent with about 5% inflation. About the same or slightly worse than the story the ECI is telling.

The share of Americans either working or actively looking for a job fell to 62.1%, according to government data released Friday. The rate had risen to 62.4% in August, matching a post-pandemic high reached in March, but remains significantly below where it was before the pandemic. The participation rate for so-called prime-aged workers, those aged 25 to 54, also dropped to 82.4% from 82.5%. And it, too, remains below its pre-pandemic levels. While participation declined for both men and women, a larger share of female workers left the labor force last month.

The first sign of serious trouble for the drought-stricken American Southwest could be a whirlpool. It could happen if the surface of Lake Powell, a man-made reservoir along the Colorado River that’s already a quarter of its former size, drops another 38 feet down the concrete face of the 710-foot Glen Canyon Dam here. At that point, the surface would be approaching the tops of eight underwater openings that allow river water to pass through the hydroelectric dam. The normally placid Lake Powell, the nation’s second-largest reservoir, could suddenly transform into something resembling a funnel, with water circling the openings. If that happens, the massive turbines that generate electricity for 4.5 million people would have to shut down — after nearly 60 years of use — or risk destruction from air bubbles. The federal government projects that day could come as soon as July.

Leading up to the 2008 financial crisis, neutral rates in these four economies saw declines of between 2.1 and 2.8 percentage points, with all drivers pushing down neutral rates. Between 2008 and 2019, the positive contribution of the increased sovereign debt supply modestly offset the negative contributions from other drivers. Since the pandemic, the rise in government debt accounts for most of the recent rise in neutral rates in [the US, UK, Canada, and Euro area], with other factors exerting largely offsetting effects. All told, while the sharp rise in government indebtedness since the pandemic may have put upward pressure on neutral rates abroad, we estimate that this pressure has been likely modest.

A striking feature of the US economic experience during the COVID-19 pandemic has been a surge in applications for new businesses. After initially dropping in March and April of 2020, applications rose to record levels, an all-time high in July 2020 and remaining historically elevated through the fall of 2022 (Figure 1.) The surge was apparent even among “likely employers,” that is, applications with characteristics that are likely to result in the hiring of workers and growth. Historically, there has been a tight relationship between business applications and true business formation, but questions have remained about the degree to which the pandemic’s surging applications would translate into actual employer businesses with broader labor market implications.

Jay Powell has sent a strong signal that the Federal Reserve will slow the pace of interest rate rises next month in an otherwise hawkish speech warning that the US central bank has a long way to go in its fight against inflation. “The time for moderating the pace of rate increases may come as soon as the December meeting,” the Fed chair said. The remarks from Powell suggest the Fed is preparing to “downshift” to a 0.5 percentage point increase when it meets in two weeks after it raised rates by 0.75 percentage points at each of its past four meetings. He reiterated that the endpoint of the tightening cycle would probably need to be higher than forecasted in projections released in September, which suggested most officials anticipated a so-called terminal rate of 4.6%. Most economists have penciled in the fed funds rate topping 5%.

We have examined which American industries and firms have done best over the past three years based on stock market performance. The headline is that market leadership has flipped dramatically. The digital hares have given ground to old-economy tortoises. Big tech is no longer running away with the race. Firms once derided as obsolete and sluggish suddenly look vital again. We have chosen January 1st, 2020, as the starting date for our analysis. Since then, the S&P 500 index of leading American shares has risen by 23%. The best-performing industry sector is energy, followed by information technology (IT). Health care has done well, as might be expected during a public-health crisis: the second-best-performing company in the S&P 500 is Moderna, a leading vaccine maker, whose share price is up by nearly 800%.

Bank of America expects that at the current three-month average rate of decline of household deposits, it would take between 12 and about 40 months (depending on income quartile) to return to 2019 levels. Goldman Sachs estimates US households will have less than $1T in excess savings by the end of 2023. JPMorgan recently warned excess savings could be completely depleted by the second half of next year. There are many reasons to fall on the pessimistic side of these estimates. The personal savings rate jumped from 8.3% at the end of 2019 to 26.3% at the height of Covid-19 in March 2021. In September, it had fallen back to 3.1%, well below the historical average. And for all the cash still left in aggregate household bank accounts, consumers are not feeling very confident. The Conference Board’s consumer confidence index has been declining since mid-2021.

A key gauge of US consumer prices posted the second-smallest increase this year while spending accelerated, offering hope that the Federal Reserve’s interest-rate hikes are cooling inflation without sparking a recession. The personal consumption expenditures price index, excluding food and energy, which Fed Chair Jerome Powell stressed this week is a more accurate measure of where inflation is heading, rose a below-forecast 0.2% in October from a month earlier, Commerce Department data showed Thursday. The saving rate fell to 2.3% in October, the lowest since 2005, the Commerce Department report showed.

There was an enormous swing in the trade surplus of the energy-exporting economies, and surprisingly, China’s surplus also has continued to rise. Russia’s surplus is set to top $250 billion. Saudi Arabia’s surplus should top $200 billion. The other monarchies in the Gulf should have a surplus comparable to that of the Saudis—if anything, it will be a bit bigger. Summed up, these autocratic countries’ surpluses should total about $1 trillion in 2022. But there is an important difference between now and then: the big autocratic surplus countries are not adding to their formal foreign exchange reserves. By implication, private financial intermediaries somewhere around the world will need to absorb Treasury bonds. Just as financial intermediaries globally had to absorb U.S. “subprime” (household) risk prior to the global crisis, now they have to absorb U.S. interest rate risk.

The labor economist Arindrajit Dube has estimated hourly wage changes — by decile rather than quartile — over a longer period since the beginning of the pandemic recession. He finds that real wages for the bottom 40 percent of workers have increased. Lower-income families spend a higher than average share of their income on food and energy, which are also the categories that have seen the most inflation recently. My rough calculations suggest that even when you take these food and energy costs into account, lower-income families have done better, not worse, than others, at least in terms of inflation’s effects. But it does lessen that difference somewhat.

Oliver Wyman has constructed a model of demand for stocks that tries to assess the effect of inequality and two other long-running shifts. These are the rise in willingness of pension-fund managers to hold stocks since the 1950s and the easier access to stocks for ordinary investors, both through lower fees and the popularity of funds. This “demand-weighted income” measure is then compared with household equity wealth to come up with something akin to a slow-moving price-to-earnings ratio. A price-to-inequality ratio won’t replace a simple price-to-earnings gauge. Inequality data are slow to be produced, so this can’t be used as a real-time indicator.

The total debt owed by households, businesses, and governments stands at $290 trillion, up by more than one-third from a decade ago, according to research by the Institute of International Finance. Although the world’s debt has declined from a pandemic-driven record early this year, the risks it poses to economies and financial markets are intensifying.

The increases in the Investment Grade Corporate Bond Market Distress Index since the start of the current tightening cycle have been relatively modest. Overall, the IG CMDI has trended sideways recently, with the 2022 peak not substantially above that observed in the 2015 tightening cycle.

FAZ quotes the president of the German federation of industry as saying that more than a fifth of German medium-sized companies they had polled were considering packing up and leaving the country. Despite recent market moves, end-user energy prices will not revert to the pre-war times on a sustained level. What we expect to see in Germany is not so much large de-industrialization but a shift in production technologies. We expect to see a shift away from energy-intensive production, like bulk chemicals and steel, towards lower energy-intensive industrial segments and a shift towards low carbon technologies, in particular, a process that will be accompanied with friction and possibly lower GDP growth.

A record 48,953 deaths in the US, or about 15 fatalities per 100,000 people, were caused by guns last year, said the analysis published Tuesday in the journal JAMA Network Open. Since 1990, rates of gun-related homicide have been highest among Black men aged 20 to 24, the analysis said, with 142 fatalities per 100,000 people in this group in 2021—a 74% increase since 2014. Homicide rates are as much as 23 times higher among Black men, and as much as nearly four times higher among Hispanic men than among white men, the analysis said. Gun fatality rates from suicide were highest among white men aged 80 to 84 years, at 47 fatalities per 100,000 people in this group in 2021—a 41% increase since 2007, the analysis showed.

In real terms, the National index is 3.3% below the recent peak, and the Composite 20 index is 4.4% below the recent peak in 2022. In real terms, house prices are still above the bubble peak levels. There is an upward slope to real house prices, and it has been over 16 years since the previous peak, but real prices are historically high. Affordability worsened in September as mortgage rates increased, even though house prices declined.

Jack Ma, the Alibaba founder and once the richest business leader in China, has been living in central Tokyo for almost six months amid Beijing’s continuing crackdown on the country’s technology sector and its most powerful businessmen. Since his fallout with Chinese authorities, Ma has been spotted in various countries, including Spain and the Netherlands. People involved in Japan’s modern art scene said that Ma had become an enthusiastic collector. Friends close to the billionaire in China said he had turned to painting watercolors to pass the time after being forced to retreat from his frenetic public life, jet-setting between meetings with top officials in China and around the globe.

Zhang Xin and her husband Pan Shiyi, who grew Soho China Ltd. into a behemoth that reshaped the country’s skylines, have built a discreet family office. Two of its biggest assets: stakes in the General Motors Building on Fifth Avenue and Park Avenue Plaza in Midtown. Now, after the implosion of the Chinese property sector, the combined equity value of just these two investments — about half a billion dollars — is roughly the same as the couple’s holding in the Beijing-based company responsible for their wealth. Their five-part strategy — build a successful business in China, list it on a global exchange, pay out billions of dollars in dividends, set up a family office abroad, and buy up foreign real estate — means their fortune is relatively protected while other Chinese billionaires have seen their riches crumble after running foul of President Xi Jinping’s clampdowns.

The exact number of Chinese companies being set up is unclear because Singapore does not disclose the origin country in its public statistics. However, one lawyer said his firm’s internal research division found more than 500 new Chinese companies had set up this year in Singapore, which experts noted was a rise from previous years. Another business advisory group in the city-state that had reviewed the data calculated the number at 400, including family offices, but also asked not to be identified due to the sensitivities involved. Analysts expect the number of family offices — many of which are from China — to be well over 1,000 by the end of this year, compared with 400 at the end of 2020.

While there have been some breathless claims using terms like “uprising” and “revolt,” I think that is an exaggeration of the protests at this stage and that the security services will succeed in nipping them in the bud. But no mistake, the fact that so many were willing to stand up publicly in spite of the likely personal costs is remarkable and meaningful. Still, in spite of how stirring these protests have been, I would be surprised if they continue in any meaningful way, given how much work the system has put into dealing with just these kinds of contingencies and how it has repeatedly demonstrated that when it comes to ensuring political security, there is no bottom line.

The Pentagon said Beijing “probably accelerated” its nuclear expansion last year and was on track to have a stockpile of 1,500 nuclear weapons by 2035. The Pentagon said China was also investing heavily in space, including everything from intelligence assets to weapons to counter an adversary, such as kinetic-kill missiles and ground-based lasers. It said China had more than 260 intelligence, surveillance, and reconnaissance (ISR) satellite systems, which marked an almost doubling since 2018. US officials say China has shown no willingness to engage in any talks about nuclear weapons.

When inflation is low, people and companies simply do not think about it and thus do not react to it. This was certainly the case pre-Covid. When it becomes higher, however, inflation becomes salient, wage and price decisions become more sensitive to it, and inflation expectations become more easily de-anchored. The question is, what rate of inflation leads to salience? A hint is given in a recent paper, which looks at Google searches for “inflation” as a function of the actual inflation rate. It found that, for the US, if inflation was around 3-4%, people simply did not pay attention. Above 3-4%, they did. Altogether, these arguments have led me to conclude that, while a higher inflation target is desirable, the right target for advanced economies such as the US might be closer to 3% than our original 4% proposal.

Yields on longer-term US Treasurys have fallen further below those on short-term bonds than at any time in decades, a sign that investors think the Federal Reserve is close to winning its inflation battle regardless of the cost to economic activity. Last week, the yield on the 10-year US Treasury note dropped to 0.78 percentage points below that of the two-year yield, the largest negative gap since late 1981, at the start of a recession that pushed the unemployment rate even higher than it would later reach in the 2008 financial crisis.

While the price of West Texas Intermediate crude oil for immediate delivery has dropped almost 18% since the middle of July, energy stocks, as encapsulated by the Energy Select Sector SPDR exchange-traded fund (XLE), have jumped more than 32% in the same time frame.  Two main factors seem to be behind the divergence: 1) Energy earnings have been recovering, with the sector claiming the highest percentage of companies reporting earnings above estimates in the most recent quarter, according to Factset data, and 2)  Brent crude has flipped into contango for the first time since December 2021.

[The Census Bureau defines stay-at-home males] as husbands in opposite-sex marriages with children under 15 who specifically say they’re not working so that they can care for family and whose wives are either working or looking for work. Under those terms, men accounted this year for 5% of the one-fifth of US families with a stay-at-home parent, up from about 1% in the mid-’90s and representing 239,000 fathers. According to a broader analysis by the Pew Research Center—which expands the pool to include any father of a child under 18 who hasn’t been working, regardless of reason or marital status, and also incorporates men in same-sex relationships—the number of stay-at-home dads had swelled to about 2.1M by 2021, equal to 18% of all stay-at-home parents, up from 10% in 1989.

According to a Tax Policy Center estimate, some 74 million tax filers—or nearly half (48.3%) of all filers in 2021—had no income tax liability. Can we have a sustainable tax system if the number of nonpayers continues to grow? Expanding the child tax credit would take our redistributionist tax code to a new level. Although 2021 was a pandemic year, it gives us a picture of what that world would look like. The child tax credit is a drain not only on the federal budget but on the nation’s economy. Congress’s Joint Committee on Taxation economic models predict that the policy would reduce the labor supply by 0.2% over a decade and the amount of capital by 0.4%. As a result of the reduced supply of labor and capital investment, gross domestic product would shrink by 0.2%.

Whereas nationally, 86% of white 4th graders were at least on grade level in mathematics, this was true for only 55% of black students. As students progressed to the 8th grade, the share performing at grade level or better fell by 15% (86 to 74%) for white students nationally. Among black students, the decline was 30% nationally (from 55 to 38%) and among black students in the [poorest-performing cities poorest performing cities (Baltimore, Cleveland, Detroit, Milwaukee, and Philadelphia)] (28 to 20%). A Brookings Report found that in 2019, only 7% of black test-takers scored at least 600 on the math portion of the SAT exam. By contrast, 11%, 31%, and 62% of Latino, white, and Asian test-takers, respectively, did that well.

Lithium demand is expected to jump more than fivefold by the end of the decade. EV sales targets for 2030 are probably unachievable because of constraints on various raw materials, according to Piper Sandler & Co. New lithium mines can cost as much as $1 billion and take more than six years to build, too slow for the sector’s needs, Piper analysts wrote in a November note. And BloombergNEF predicts shortages of lithium will be a problem until 2026 for companies that refine the products into chemicals used in EV batteries.

We quantify firms’ regulation compliance costs from 2002 to 2014 in terms of their labor input expenditure to comply with government rules. Detailed establishment-level occupation data, in combination with occupation-specific task information, allow us to recover the share of an establishment’s wage bill owing to employees engaged in regulatory compliance. Regulatory costs account, on average, for 1.34% of the total wage bill of a firm but vary substantially across and within industries and have increased over time. We investigate the returns to scale in regulatory compliance and find an inverted-U shape, with the percentage of regulatory spending peaking for an establishment size of around 500 employees.

Housing now dominates—accounting for more than half of service inflation pressure over 3 months. It is expected that housing will take time to reflect past rent increases still, but at the margin, the housing sector is already softening—which should hit Core CPI in about 12 months. Medical services distorted service inflation downward—something unlikely to be repeated in coming months. Overall, the October print doesn’t yet provide confidence that disinflation has spread from durables to services.

A couple of notes about [the above] chart: I show rates of rent growth [reported by Zillow] over a three-month period, a practice many economists have converged on in recent discussions: Monthly data are too noisy, but annual growth rates lag too far behind a rapidly changing economy. I also show inflation in the average rental rate reported by the Bureau of Labor Statistics (labeled official rent above.) As you can see, the rental surge of 2021-22 was quite spectacular, with rents rising at double-digit rates for about a year and a half. But it has leveled off recently. Zillow’s index (a three-month average) fell in October; other private measures, like those published by Realtor.com and Apartmentlist.com, have been signaling rent declines for two or three months.

The bond market is zeroing in on a US recession next year, with traders betting that the longer-term trajectory for interest rates will be down even as the Federal Reserve is still busy raising its policy rate. Long-dated Treasury yields are already below the Fed’s overnight benchmark range -- currently 3.75% to 4% -- and there’s still an extra percentage point of central bank increases priced in for the coming months. Demand for Treasuries with longer tenors this week dragged the rate on 10-year and 30-year securities below the lower bound of the Fed’s overnight range. With front-end rates holding relatively steady, that’s seen an intensification of the most pronounced yield curve inversion in four decades -- a widely watched indicator of potential economic pain to come.

US job postings requiring at least a bachelor’s degree were 41% in November, down from 46% at the start of 2019 ahead of the Covid-19 pandemic, according to an analysis by the Burning Glass Institute, a think tank that studies the future of work. Degree requirements dropped even more early in the pandemic. They have grown since then but remain below pre-pandemic levels.

On average, 53% of Americans aged over 65 spend more than eight hours of waking time on their own every day, according to my analysis of data from the American Time Use Survey. The trend remains unchanged for people over 60. But compared with a decade ago, the rise in the number of young people who spend more than eight hours on their own is alarming. Time on your own is one thing; feeling lonely is quite another. And young people seem worse affected by the latter. A March 2022 ONS survey found that 40% of women aged 16 to 29 in the UK report “feeling lonely often, always or some of the time,” compared with 22% of women over 70. For men, some 22% of this age group report feeling lonely, compared with 13% of the over-70s. And, of course, the impact of Covid lockdowns cannot be ignored.

At least 10 cities, including Shanghai, Beijing, Wuhan, and Chengdu, were shaken by rare political protests over the weekend, triggering clashes with police and security officers that led to a spate of detentions. The sudden outbreak of civil disobedience was sparked by outrage after a deadly apartment fire in Urumqi, Xinjiang, was partly blamed on coronavirus restrictions. While most of the protests appeared to have been stamped out by Monday, they followed months of frustration, especially among China’s young people, with relentless lockdowns, quarantines, mass testing, and electronic surveillance under Xi’s zero-Covid policies.

The popular deglobalization narrative simply isn't in China's trade data -- manufacturing exports are up massively, and that has pushed the surplus up even as China's commodity import bill reached record levels (the commodity bill is poised to fall now, by the way.) China's currency is (still) managed (in my judgment, even if the PBOC's reported reserves don't change,) so movements reflect the interaction of market pressure and political decisions. But at some level, a weaker CNY, even with a massive trade surplus, reflects a judgment by China's policymakers that they need to sustain the rise in exports (relative to China's GDP) even as global demand for manufactures drops (to offset China's domestic weakness.)

Washington’s top telecommunications regulator has barred China-based Huawei and ZTE from selling equipment in the US, citing national security concerns in a move that could further fuel tensions with Beijing. The Federal Communications Commission announced the step on Friday, saying it was the latest effort by US authorities to “build a more secure and resilient supply chain” in the telecommunications industry. “The action we take today covers base station equipment that goes into our networks. It covers phones, cameras, and WiFi routers that go into our homes. And it covers rebranded or ‘white label’ equipment that is developed for the marketplace. In other words, this approach is comprehensive,” said Jessica Rosenworcel, chair of the FCC.

The flow of weapons to Ukraine is now running up against the longer-term demands of a US strategy to arm Taiwan to help it defend itself against a possible invasion by China, according to congressional and government officials familiar with the matter. The backlog of deliveries, which was more than $14 billion last December, has grown to $18.7 billion. Included in the backlog is an order made in December 2015 for 208 Javelin antitank weapons and a separate one at the same time for 215 surface-to-air Stinger missiles. None of them have arrived on the island, according to congressional sources and people familiar with the matter. Executives at Lockheed Martin Corp., Boeing Co., and other defense companies say pandemic-driven supply-chain problems have set back production for many systems and that they have struggled to keep up with orders even before Russia’s invasion of Ukraine boosted demand.

Nine months ago, in the wake of Russia’s full-scale invasion of Ukraine, Olaf Scholz declared a Zeitenwende — a turning point — for Germany’s military and its place in the world. But since then, barely any of the €100bn in extra funding the German chancellor pledged has made its way to the armed forces. The parliamentary body set up in the spring to allocate money to modernization and reform programs has met once. The defense ministry had no procurement proposals to submit to it. Its next sitting will not be until February.  Far from rising, the 2023 defense budget, opposition leader Friedrich Merz noted, was set to shrink by €300mn based on current government plans. The lack of German action was “[giving] rise to considerable distrust” at NATO and in allied capitals, he claimed.

The polarization in favor of the biggest firms peaked at the end of last year. The megacap-to-midcap ratio of market cap has been cut from four to three in the course of 2022. But three is far from a collapse of the megacap boom. The 10-15% that was normal until 2016 has since given way to 30-35% of total capital controlled by the megacaps. I have used biweekly rolling averages for the graph. Note that this is a bottom-up census rather than an estimate. I am just adding up reliable third-party data at the granular level; every single ticker for which there is price and market cap data. This is the broadest possible universe of US equities for which I can find kosher data.

We find that slow- and fast-moving components of the atmospheric circulation interacted, along with regional soil moisture deficiency, to trigger a 5-sigma heat event. Its severity was amplified by ~40% by nonlinear interactions between its drivers, probably driven in part by land-atmosphere feedback catalyzed by long-term regional warming and soil drying. Since the 1950s, global warming has transformed the peak daily regional temperature anomaly of the event from virtually impossible to a presently estimated ~200-yearly occurrence. Its likelihood is projected to increase rapidly with further global warming, possibly becoming a 10-yearly occurrence in a climate 2 °C warmer than the pre-industrial period, which may be reached by 2050.

In the US, the earlier spike in lower-end wages relative to other workers' pay has completely stopped, while the split between labor income and profits has, if anything, moved in favor of investors. For better or worse, the popular and elite reactions to the inflation outbreak suggest that policymakers are not going to respond to future downturns the way they did to the pandemic. Soft budget constraints do not appear to be on the menu. And while there have been some constructive increases in public investment (and military spending) in the major economies, they do not seem large enough to move the needle. Financial markets may be wrong, but it is noteworthy that longer-term forward real interest rates are well within their post-financial crisis range, even if they have jumped over the past 12 months.

Covid-19 cases in China are spiraling towards record highs, forcing officials to lock down again large swaths of the country. The world's second-biggest economy reported almost 28,000 new Covid cases on Tuesday, with outbreaks in Beijing, the southern manufacturing hub of Guangzhou, and the southwestern metropolis of Chongqing continuing to grow. Covid restrictions have hit areas responsible for one-fifth of China's gross domestic product. Officials in Beijing shut most non-essential businesses in the city's largest district, Chaoyang, which has a population of 3.4mn, and have closed restaurants and other entertainment venues in much of the city while telling residents to work from home.

We can observe that the gap [between the deposit rate and the Fed funds rate] is negative when rates are near zero (and deposit levels are high) and positive when rates rise. As a consequence, post-GFC and before the 1994 tightening, deposits were more attractive to depositors, and deposit supply was high relative to loans. However, as rates rise, the gap increases, depositors move elsewhere, banks raise their rates, and cumulative deposit betas rise. Since the 1990s, the response of deposits to monetary policy has been attenuated. This can be explained by the growth in deposits over the post-crisis period relative to investment opportunities.

The Nobel Prize-winning economist Milton Friedman famously argued that "monetary actions affect economic conditions only after a lag that is both long and variable." Historically, housing starts begin to decline within two years of a Fed hike. New home construction fell by 24% from the Fed increase in March to July. Declines in home construction that follow Fed rate increases can take years before they bottom out.

There is typically a meaningful increase in equity expected returns (shown below in excess of cash) before the turn in the market because investors need to be incentivized back into equities and out of safe assets following significant losses. Today, based on our read, the re-rating of equity prices has a way to go. Our estimate for long-term excess expected returns remains relatively low compared to history. Consistent with that, analyst consensus for long-term corporate cash flow growth has barely budged over the last year, not yet reflecting the cooling of the economy we expect to see.

Total debt declined $6.4 trillion in the three months through September, to about $290 trillion, the IIF said in its quarterly Global Debt Monitor published Tuesday in Washington. That drop is amplified by the surging dollar, which makes loans denominated in other currencies look smaller when they’re measured in greenbacks. As a share of the world economy, debt has dropped to 343% -- about 20 percentage points below its pandemic peak last year. Soaring inflation in many economies has helped erode debt burdens measured against the size of economic output because the nominal value of gross domestic product has risen rapidly.

The Inflation Reduction Act will lead to benefit cuts and premium increases for seniors. We estimate that beginning in 2025, plan subsidies—specifically, the reinsurance subsidies for the beneficiaries with the most drug spending—will be cut $30 billion, out of revenue that currently totals about $110 billion. With $30 billion less to finance prescription benefits, something will have to give. Traditional Medicare members face a difficult choice in 2025: either take drastic cuts in drug coverage or switch to Medicare Advantage plans that cover prescriptions but may not cover the hospitals and doctors who are currently providing them care.

Once [the economic boost from pandemic aid fades away,] we’ll probably be back where we were before the pandemic, with weak private investment demand holding interest rates down. Last time I wrote about this I stressed demography — the drastic slowdown in growth of the working-age population — plus what looks like disappointing rates of technological progress. Let me now put it a different way. [The macroeconomic accelerator effect] tells us that investment spending will only remain high if we expect rapid economic growth. And what we know now doesn’t support that expectation. What all this suggests to me is that the era of cheap money is not, in fact, over. A few years from now, we’ll probably be back to a situation in which too much saving is chasing too few investment opportunities, and interest rates will be revisiting their old lows

Headed into the third quarter of this year, households still had about $1.2 trillion to $1.8 trillion in “excess savings”—the amount above what they would have saved had there been no pandemic. Economists’ estimates for how much consumers have left vary. JPMorgan Chase & Co. put the hoard at about $1.2 to $1.8 trillion in the third quarter and said it could be entirely spent by the second half of next year. Goldman Sachs economists estimate households have drawn down about 25% of excess savings and will have spent about 60% by the end of 2023. Ian Shepherdson, chief economist of Pantheon Macroeconomics, puts it at $1.3 trillion and estimates that at the current rate of rundown, that could last another year or so.

The economic impact of higher rates is mixed because it also subsidizes consumption by increasing private sector interest income from public sector liabilities. While private sector interest expenditures merely redistribute income among private actors, public sector interest rate expenditures increase the overall spending power of the private sector. If rates are higher for longer, the interest payments will easily exceed $1t next year. The aggressive rate hikes have thus far appeared to have a limited effect on dampening inflation. With the policy rate much closer to the terminal rate than 0% and financial markets stabilizing, the stock effect of monetary policy appears to be waning. If the flow effects are mixed, then the current policy stance may not be effective in moving inflation back to 2%

The most important of those implications would seem to be that the Federal Reserve’s policy-making committee was behind the curve when it started raising interest rates in March — a year after rents on new leases started exploding — and could end up late again in pivoting to easier monetary policy long after rents have started to fall. I ran the idea of switching to a new-leases rent measure by Princeton economist and former Fed Vice Chairman Alan Blinder, who wrote an influential paper in 1980 urging the switch to owner’s equivalent rent. He emailed, “For most purposes, making that change would be a terrible idea. It would reflect the prices paid by a small, and not representative, minority.  That said, if the BLS (or anyone) wants to create a leading indicator of inflation, using rents on new leases would be quite sensible.”

60% of young men in America with less than high-school education have been arrested at least once by age 26.  Strikingly, the report’s author James P. Smith found that the arrest rate has increased dramatically over time. Black men were significantly more likely to have been arrested. Of black men aged 26-35 in the study, 33% had been arrested by age 26 versus 23% for white men. Education plays an outsized role in explaining racial arrest differences, especially for men in the 26–35 age group. The overall higher rate of arrests by 26 among black adults in the 26–35 age group correlates with lower education levels. The study also found that having a more educated father was associated with lower rates of arrests and convictions by 26.

Figure 1 shows the cumulative total returns posted by the S&P 500 Index, the MSCI China Index, and the MSCI India Index from December 31, 1992, through April 20, 2022. Our clients have been uniformly surprised that China’s long-term performance has been so much lower than that of the US and India, especially given all the investor focus on China in recent years. And they’ve been even more surprised that India – a market many clients have more or less ignored – has fared so well over the long run.

Using a Difference-in-Differences approach, we find evidence that participation [in Made In China 2025] enables firms to receive more innovation subsidies, which appears to induce increases in R&D intensity. However, there is no evidence that participation increases domestic and foreign patenting, labor productivity, TFP, or profitability of participating firms, suggesting the most important goals of the policy are still unrealized. There is no statistically significant evidence (at a 5% significance level) of positive effects of the “Made in China 2025” initiative on total subsidies, Chinese invention patents, US utility patents, log labor productivity, TFP, and profit margin.

Japan added two more vessels to its fleet of Aegis-equipped destroyers, raising to eight the number of ships capable of intercepting ballistic missiles. Two Maya-class Aegis destroyers, the Maya and the Haguro, successfully intercepted mock ballistic missiles during tests off the coast of Hawaii earlier this month, the Defense Ministry said Monday. In addition, the Maya fired the Standard Missile-3 Block 2A, the interceptor missile developed by the US and Japan. This marks the first time a Japan Maritime Self-Defense Force vessel launched an interceptor from the state-of-the-art Block 2A system.

Among China’s 31 provincial-level jurisdictions, 13 reported more deaths than births last year. Those 13 comprised the wealthy regions of Shanghai, Jiangsu, and Tianjin; the central provinces of Sichuan, Chongqing, Hunan, and Hubei; Hebei, Shanxi, and the Inner Mongolia autonomous region in the north and northwest; and the northeastern rust-belt provinces of Liaoning, Jilin, and Heilongjiang. China has shined a bit more light on its demographic crisis, with newly released figures showing that more than a third of its provinces saw their populations shrink last year. Chinese mothers gave birth to just 10.62 million babies in 2021 – an 11.5% decline from 2020.

I don't think there has been much of a shift in global supply chains out of China. If you trust the Chinese data -- the Chinese data here may be better, as the US data is influenced by tariff avoidance -- US imports from China are slightly higher (as a share of GDP) than before the trade war. China's overall data tells a story of the reglobalization of China's economy after the pandemic. Exports to GDP had been trending down from 2010 to 2018 -- but have moved up strongly in the past year. And there is no sign that the G-7 has already decoupled from China as a source of supply! (imports from China have boomed in the last 3 years) So decoupling, in my view, is a forecast -- not a current reality. The pandemic increased the world's reliance on China as a source of manufactured supply and increased China's reliance on exports for demand!

Since the early 1990s, the Misery Index has only been higher during the 2007-09 recession and its aftermath and for a couple of months in 2020 during the early lockdowns. Importantly, though, the two factors didn't necessarily carry the same weight, as the Misery Index implies. [Andrew Oswald, a professor at the University of Warwick, found that] a 1-percentage-point increase in the unemployment rate had an equivalent impact on happiness as a 1.97-point increase in the inflation rate. [If Oswald] were to construct a Misery Index, he would make a simple modification: Multiply the unemployment rate by two and add it to the inflation rate. His index was 20% in 2010 and 15.1% now. By putting extra weight on unemployment, the index helps explain why 2010 was so much worse for Democrats.

Masayoshi Son personally owes SoftBank close to $5bn because of growing losses on the Japanese conglomerate's technology bets, which have also rendered the value of his stake in the group's second Vision Fund worthless. The billionaire's ballooning personal liabilities, discovered through a Financial Times analysis of SoftBank's recent filings, comes as the world's biggest tech investor was hammered by plunging tech stocks and valuations in private companies over the past year.

One way to think about the relationship between the great Big Tech stocks and the broader market is by comparing the equal-weight S&P index — where the performance of every stock counts the same — to the plain vanilla S&P, which is [weighted by market capitalization.] The performance of the equal-weight index is the light blue line in the chart above, [with a dark blue line for the market cap weighted index.] What that chart shows, in short, is the performance of a few [large cap] stocks, mostly the Big Techs, dragging the index around. But in the most recent rally, things have changed meaningfully, as seen from the extreme right part of the chart. Since the beginning of October, the equal-weight index has outperformed, and the index has risen. The market has rallied without Big Tech.

Throughout most of the 2010s, the dominant state for the US banking system was low-interest rates, large amounts of Quantitative Easing, weak credit creation, and low inflation. Now, however, commercial banks face a different challenge. Since the start of Quantitative Tightening, we have seen financial conditions worsening, increasing interest rate volatility, and rising long-term interest rates—so the program is likely having some of its intended effects (although it's hard to disaggregate the effects of short-term rate hikes and signaling against the actions of QT).

Most of the nation's political leaders show little concern or even awareness that the federal government's net financial position has eroded rapidly in this century. They know about mounting public debt because regular budget reports highlight it, as do media outlets. Less well-known or understood is the growth of the government's unfunded liabilities, which, if anything, should be more alarming. With Social Security and Medicare included in the assessment, the federal government's unfunded liabilities in 2021 are $93.1 trillion, or nearly 400 percent of annual GDP. That compares with $11.1 trillion as calculated in the 2001 Treasury report, which was 105 percent of GDP.

Underlying metrics confirmed that this time might really be the peak, in a way they conspicuously failed to do earlier this year when core CPI last seemed to have started a descent. The chart shows the “trimmed mean” inflation produced by the Cleveland Fed that excludes the biggest outliers in either direction from the index’s components and takes the average of the rest; and the “sticky” inflation measure produced by the Atlanta Fed, which looks only at the goods and services whose prices are hardest to change. In practice, when these measures rise, it’s taken as a sign that inflationary pressure is gaining strength; it’s good to see that while both remain very elevated, the trimmed mean has dipped slightly, while sticky price inflation is unchanged.

The news of the moment is that inflation might--might--be peaking. I just present the CPI to make the point, but there seems to be a lot of news suggesting that inflation is easing off. Newer theory, which primarily uses rational (better, forward-looking or model-consistent) rather than adaptive expectations, says that inflation is stable under an interest rate target. It follows that inflation can go away all on its own, even with interest rates substantially below inflation. With fiscal theory + rational expectations, we are having a burst of inflation to devalue government debt, as a response to the 2020-2021 fiscal blowout. But once the price level has risen enough to bring the real value of debt back, it’s over. Until the next shock hits. If inflation fades away despite interest rates below the inflation rate, we have a rather striking confirmation of this rational expectations view, with stable inflation, relative to the traditional spiral-away view. So, are we headed there? It’s too soon for this cautious commenter to declare victory, but I am willing to provide context and say I’m watching anxiously!

Republicans literally outnumbered Democrats, according to the AP’s VoteCast. And yet Democrats still won. What’s really unique about this midterm cycle is that Republicans created a radical policy change — and one that was quite unpopular — without controlling the presidency or the legislature. And that allowed Democrats to plausibly run as the party that was going to make less change than the opposition, which is a super-unusual situation. In our ad testing, messaging about reproductive rights tested very well. Dobbs had an immediate impact on election outcomes. If you look at special elections before and after the decision, Democrats did much better in the latter. And the percentage of primary voters who were Democrats increased by about 2.7 percent after Dobbs. So I think Dobbs was really the major factor.

Wages are still rising too fast to be consistent with the Fed’s inflation target, but if the economy is really set to weaken, wage growth will probably weaken too. Furthermore, you can argue that past wage growth, like surging rents, partly reflected a one-time adjustment to pandemic-related shocks, which will go away over time. I’d argue, a strong case to be made that there’s considerable future disinflation already in the pipeline. Over the past year, optimists like me were wrong, while pessimists were right. But past results are no guarantee of future performance.

The crisis of inflation should not be wasted. A bright spot in the dismal inflation period of the 1970s was the collaboration of Stephen G. Breyer (then counsel to the Senate Judiciary Committee), Sen. Edward M. Kennedy (D-Mass.) and the Carter administration on airline deregulation. In this era, high inflation should be a spur to regulatory changes — from addressing Jones Act increases in shipping costs, to strategic tariffs, to rules that force oil and gas to be transported via truck rather than pipeline, to punitive zoning restrictions — that will both reduce prices and make the economy work better. Regaining price stability at as low a cost as possible is far from sufficient to maximize American economic performance, but it is necessary.

Household, nonfinancial corporate and small-business sectors ran a surplus of total income over total spending equal to 1.1% of gross domestic product in the quarter of April to June, according to economists at Goldman Sachs Group Inc. Using a three-year average, the measure is healthier than on the eve of any U.S. recession since the 1950s. U.S. households still have around $1.7 trillion in savings they accumulated through mid-2021 above and beyond what they would have saved if income and spending had grown in line with the prepandemic economy, according to estimates by Fed economists. Around $350 billion in excess savings as of June were held by the lower half of the income distribution, or around $5,500 per household on average.

Treasury securities with similar characteristics are trading at larger-than-normal price differences. Major players, including the big banks and asset managers that have long been significant buyers, are in retreat. One problem is a growing difference between yields on the newest Treasurys in the market and older vintages that are still traded among investors. Theoretically, a five-year note sold this year should trade at the same yield as a five-year-old 10-year note, because both come due in 2027. But fresh Treasurys are trading at a growing premium to older notes, a sign the older securities have become harder to find buyers for.

It took Jacob Rothman two decades to build a Chinese manufacturing business with his friends and family. Now the 49-year-old American executive says customers want him to make some of his grilling tools and kitchen products elsewhere. He knows it isn’t going to be easy. “There’s not a customer that we have that isn’t pressuring us, suggesting, hoping that we will build factories outside of China,” says the co-chief executive of Velong Enterprises Co., which has six factories in mainland China and serves big retailers and consumer brands such as Walmart Inc. and grill maker Weber Inc. Yet “there’s nothing like China,” he added. “We’ve built this supply chain for 30 years to work like a Swiss clock. There’s just nothing like it.”

Decoupling won't be easy because there is a reason China-based manufacturers are so "competitive" internationally. Chinese subsidies to manufacturers – not just direct but, especially, indirect – are far greater than those of any other country. The extent of these subsidies explains China's huge domestic imbalances and the persistent weakness in its domestic demand. Manufacturers are in China because as long as China subsidies them directly and indirectly, with constant (and expensive) upgrades to energy, transportation, logistical and communications infrastructure, they can effectively produce more cheaply in China than elsewhere. Even rising Chinese wages won't matter because as long as the total income of Chinese workers – and households more generally – doesn't exceed, or even lags, the growth in total production, China will always be a relatively "low wage" economy.