“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors

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Why Did Inflation Rise And Fall In 2021-24? Channels And Evidence From Expectations

Ricardo Reis London School of Economics and Political Science

Date Posted:: March 18, 2026
Is Database:: Database
Is Important:: Important

Reis compares the IMF’s 2019 forecasts of increases in the public debt over the next 5 years with the actual increases. In OECD countries where deficits turned out to be higher than the IMF expected, inflation also turned out to be unexpectedly higher.

To inspect the fiscal mechanism, I compare the IMF’s 2019 forecasts for the increase in the public debt over the next 5 years, with the actual increase that we saw. The IMF also puts out forecasts for each term in the accounting identity linking current to future debt in equation (7). Using these forecasts, I constructed the expected increase in debt due to expected inflation, interest rates, economic growth, and fiscal deficits. Then, using the April 2025 actual values for what each of these variables were, I constructed the actual increase in public debt due to the actual evolution of each of these four variables. Subtracting one from the other gives the unexpected increase in public debt, broken down into four unexpected terms, for each country in the WEO sample. Figure 9 plots two of these terms: the unexpected increase in public debt due to unexpected deficits, and the unexpected increase in the debt due to inflation in 2019-25 per country. The figure shows a clear positive relation, which is statistically significant. This says that for countries where deficits turned out to be higher than the IMF expected, inflation also turned out to be unexpectedly higher, using the common metric of their impact on the public debt. The fiscal mechanism is validated using the expectations data. If fiscal developments lead the IMF to raise its expected deficits, then this past experience should lead it to raise its expected inflation as well.

Takeaways by Macro Roundup^® AI

Across the IMF World Economic Outlook country sample, unexpected increases in public debt from unexpected deficits and from inflation over 2019–25 show a statistically significant positive relation.
Comparing the IMF's 2019 five-year forecasts for debt, inflation, interest rates, growth, and deficits with April 2025 actual values decomposes the unexpected increase in public debt into four unexpected terms.
Countries whose deficits turned out higher than the IMF expected also saw unexpectedly higher inflation, measured by each variable's impact on public debt, which the author reads as validating the fiscal mechanism.

Projections of Deficits and Debt Under Alternative Scenarios for Interest Rates and the Budget

CBO Staff Congressional Budget OffIce

Date Posted:: September 29, 2026
Is Database:: Database

If interest rates rise 1pp above CBO’s current extended baseline (a mean rate of 4% over 2026–2056), CBO projects federal debt held by the public will be 222% of GDP in 2056, versus 175% under the current baseline.

Under a scenario in which interest rates increased until they were 1 percentage point higher than in CBO’s extended baseline, primary deficits—that is, deficits excluding net outlays for interest—would average 2.3% of GDP over the 2026–2056 period, 0.2 percentage points larger than in the extended baseline. Debt held by the public would grow to 222 percent of GDP in fiscal year 2056, 47 percentage points larger than in the extended baseline. Average annual GDP growth over the 2026–2056 period would be 0.1 percentage point slower than in CBO’s extended baseline, and the average interest rate on federal debt would be 0.7 percentage points higher.

Takeaways by Macro Roundup^® AI

CBO projects that under a scenario in which interest rates rise to 1 percentage point above its extended baseline, debt held by the public would reach 222% of GDP in fiscal year 2056, 47 percentage points above the extended baseline.
Primary deficits, which exclude net outlays for interest, would average 2.3% of GDP over 2026–2056 in CBO’s higher-interest-rate scenario, 0.2 percentage points larger than in its extended baseline.
Under CBO’s higher-interest-rate scenario, average annual GDP growth over 2026–2056 would be 0.1 percentage point slower and the average interest rate on federal debt 0.7 percentage points higher than in its extended baseline.

Estimated Fiscal Reaction Functions and the Calculation of Sustainable Government Net Debt Limits for the US and 24 Other OECD Countries

Mark Warshawsky American Enterprise Institute

Date Posted:: September 21, 2026
Is Database:: Database
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Warshawsky calculates the US has a sustainable net debt limit, “the lowest level of debt at which a country can no longer service its sovereign debt and must effectively default,” of 186% of GDP, which he forecasts will be reached in ~15 years under current policy and economic conditions.

Using historical, current, and dynamic interest rate-to-economic growth differentials, countries’ sustainable debt limits are calculated on a net of central bank holdings of government debt basis. Sustainable net debt limits average 234% of GDP for these countries assuming historical rates and economic growth (221% for the US), 214% assuming (higher) current interest rates and economic growth (186% for the US). If, however, interest rates were to rise systematically with debt according to conservative assumptions, there is no model solution for France, Greece, Japan, Italy, the UK, and the US, given their current high debt levels; the average sustainable limit is 178% for the other countries. A reasonable conclusion to draw for the US is that the fiscal path under current policy and trends with rising interest rates is not sustainable in the short to intermediate term. A major fiscal consolidation package will be needed soon, as interest rates rise, unless significantly higher inflation or capital controls will result.

Takeaways by Macro Roundup^® AI

Sustainable net debt limits across the US and 24 other OECD countries average 234% of GDP under historical interest rate–growth differentials and 221% for the US, falling to 214% on average and 186% for the US under current, higher interest rates and growth.
If interest rates rise systematically with debt under conservative assumptions, the model yields no solution for France, Greece, Japan, Italy, the UK, and the US given their current high debt levels, while the average limit for the remaining countries is 178%.
A reasonable conclusion is that the US fiscal path under current policy and trends with rising interest rates is not sustainable in the short to intermediate term, and a major fiscal consolidation package will be needed soon unless significantly higher inflation or capital controls result.

Soaring Bond Yields, Gaping Deficits and Towering Debts: What Could Go Wrong?

Economist Staff The Economist

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

Refinancing the entire US debt stock at the current five-year borrowing rate, on current growth forecasts, would require a primary surplus of 1% of GDP to hold the debt ratio stable, a fiscal consolidation of 4.7pp. In October 2025, it would have required 2.3pp.

The Economist calculated what would happen if rich countries had to replace their entire debt stocks at today’s five-year bond yields, using IMF forecasts for nominal growth. Out of 22 countries, Britain would need to run the largest primary surplus, of about 1.5% of GDP, merely to keep its debt-to-GDP ratio stable. Italy and France are next, needing surpluses of 1.4% and 1.2%, respectively. America is not far behind, requiring one of 1%. Japan can run a deficit of 0.8% since its growth is estimated to outpace the interest rate on its debt. America is running a primary deficit of nearly 4% of GDP, meaning significant belt tightening of nearly five percentage points of GDP is needed to stabilise its debt ratio at today’s borrowing costs. The situation is deteriorating fast as a result of persistent deficits and surging yields. Just a year ago America required an adjustment of more than two percentage points less than it does today.

Takeaways by Macro Roundup^® AI

The Economist calculates that Britain would need the largest primary surplus of 22 rich countries, about 1.5% of GDP, to hold its debt-to-GDP ratio stable if it replaced its entire debt stock at today’s five-year yields.
America requires a primary surplus of 1% of GDP to stabilise its debt ratio at today’s borrowing costs while running a primary deficit of nearly 4%, implying belt tightening of nearly five percentage points of GDP, by The Economist’s calculation.
Japan can run a primary deficit of 0.8% of GDP and still keep its debt burden stable because its growth is estimated to outpace the interest rate on its debt, while Italy and France need surpluses of 1.4% and 1.2%.

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

Michael MacKenzie and Alice Gledhill Bloomberg

Date Posted:: August 20, 2026
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The 30-year yield rose ~7bps to as much as 5.27%, and the 10-year yield hit 4.71%, erasing “almost all” the gains that followed Treasury’s surprise decision to increase buybacks of longer-dated bonds.

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

Takeaways by Macro Roundup^® AI

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

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

Mark Warshawsky American Enterprise Institute

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

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

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

Takeaways by Macro Roundup^® AI

The model projects U.S. federal debt-to-GDP at 151% in 2036, 218% in 2046, and 309% in 2056, above CBO's 120% in 2036 and 175% in 2056.
The model judges the projected debt path unsustainable because the real interest rate exceeds real economic growth, with real rates rising for several decades and ratcheting up interest payments, deficits, and debt.
Unlike CBO's current-law projections with simplifying assumptions on health care spending, the model determines these variables simultaneously through supply and demand under current policy, using functional forms and parameter estimates from the literature or empirical analysis.

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

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

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

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

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

Takeaways by Macro Roundup^® AI

Districts crossing the 5% poverty cutoff for additional ESSER funds saw local revenues fall an estimated $907 per pupil over three years, about 8% of the pre-COVID average.
About 80% of that local revenue decline came from property taxes, which fell by $718 per pupil across the three years.
The authors find no evidence that ESSER emergency K-12 funding, totaling $190 billion, mitigated learning loss in the short run, and no statistically significant increase in district expenditures in SY 2021 or SY 2022.

Reis compares the IMF’s 2019 forecasts of increases in the public debt over the next 5 years with the actual increases. In OECD countries where deficits turned out to be higher than the IMF expected, inflation also turned out to be unexpectedly higher.

Do unexpectedly larger government deficits coincide with unexpectedly higher inflation across countries?

Takeaways by Macro Roundup® AI

Related Articles:

If interest rates rise 1pp above CBO’s current extended baseline (a mean rate of 4% over 2026–2056), CBO projects federal debt held by the public will be 222% of GDP in 2056, versus 175% under the current baseline.

How much would higher interest rates raise projected federal debt?

Takeaways by Macro Roundup® AI

Related Articles:

Warshawsky calculates the US has a sustainable net debt limit, “the lowest level of debt at which a country can no longer service its sovereign debt and must effectively default,” of 186% of GDP, which he forecasts will be reached in ~15 years under current policy and economic conditions.

How high can government debt rise before it becomes unsustainable?

Takeaways by Macro Roundup® AI

Related Articles:

Refinancing the entire US debt stock at the current five-year borrowing rate, on current growth forecasts, would require a primary surplus of 1% of GDP to hold the debt ratio stable, a fiscal consolidation of 4.7pp. In October 2025, it would have required 2.3pp.

How much belt tightening would rich countries need to stabilize debt?

Takeaways by Macro Roundup® AI

Related Articles:

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

Do bigger bond buybacks ease concerns about surging government debt?

Takeaways by Macro Roundup® AI

Related Articles:

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

Does modeling health spending and interest rates jointly raise debt projections?

Takeaways by Macro Roundup® AI

Related Articles:

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

Do federal emergency education grants reduce student learning loss?

Takeaways by Macro Roundup® AI

Related Articles:

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