“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
AI Summary.Prime-age (25–54) and older (55–64) employment rates in Europe exceed those in the U.S., disproving the claim that European welfare systems suppress work. Higher-welfare northern European countries tend to have higher employment rates than lower-welfare southern ones.
Chris GilesFinancial Times
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Despite Europe’s high social spending relative to the US, Chris Giles notes that prime-age adult (25–54) labor force participation in the Eurozone has overtaken that of the US, and there has been a dramatic convergence in the LFP of older workers.
Does European welfare actually discourage work?
Core argument: Prime-age adults (25–54) and older workers (55–64) both achieve higher employment rates in Europe than in the U.S., refuting the premise that generous welfare systems suppress labor force participation.
It does not matter whether you use EU or Eurozone data, prime-age adults (between 25 and 54) in Europe are more likely to be in work than those in the US. Older people (between 55 and 64) also have higher employment rates in Europe. Younger people (between 15 and 24) are more likely to have a job in the US, but that results from Europeans educating themselves for longer. The proportion of young people not in education, employment or training is higher in the US than in Europe. So welfare is not stopping work. More than that, the higher-welfare north of Europe tends to have higher employment rates than the south, although there is convergence within the Eurozone. Spain, in particular, has enjoyed rapid improvements.
Takeaways by Macro Roundup® AI
Prime-age adults (25–54) and older workers (55–64) both achieve higher employment rates in Europe than in the U.S., refuting the premise that generous welfare systems suppress labor force participation.
The U.S. records a higher share of young people (15–24) not in education, employment, or training than Europe, indicating that lower U.S. youth employment reflects weaker human capital investment, not stronger labor markets.
Within Europe, higher-welfare northern economies consistently outperform lower-welfare southern ones on employment rates, though intra-Eurozone convergence is underway, led by rapid gains in Spain.
Related Articles:
Why Do Americans No Longer Work So Much More Than Non-Americans?— The gap in hours worked between Americans and non-Americans has narrowed by half since the 1990s, driven by declining U.S. work hours as expanded government health benefits reduced the need to work, while rising wages and lower barriers to employment increased hours worked in other advanced economies.
AI Summary.US corporate investment in equipment and facilities is projected to grow 40% in real terms by the end of next year, versus 12% in the euro area, widening a productivity gap where output per hour worked rose $14 in the US compared with $2 in Europe since 2018.
Sam Fleming, Amy Borrett and Olaf StorbeckFinancial Times
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Oxford Economics projects US real business investment will rise 40% over 2021–2027, ~3x the euro area’s 12%. US investment growth since 2024 has been largely information processing and software, but high US growth in GDP/hour is not “merely digital.”
Is artificial intelligence investment widening the transatlantic productivity divide?
Core argument: U.S. corporate investment in equipment and facilities is projected to rise 40% in real terms between 2021 and end-2026, versus 12% in the euro area and near-zero growth in Germany, sharply widening the transatlantic capital-spending gap.
Corporate spending on new equipment and facilities in the US is projected to increase 40% in real terms between 2021 and the end of next year, according to forecasts from Oxford Economics. The US surge compared with a real-terms increase of just 12% in the euro area, while German business investment is expected to have all but stagnated over the same period. Europe also faces a large and growing productivity gap with the US. “The United States has recently pulled further ahead of Europe,” Bart van Ark, a professor at the University of Manchester, told policymakers at the ECB Forum in Sintra. GDP per hour worked increased $14 in the US between 2018 and 2025, compared with just $2 in Europe. “The gap is not only a digital sector story,” added van Ark, stressing that the US outperformance extended to other sectors, including wholesale and retail as well as professional services.
Takeaways by Macro Roundup® AI
U.S. corporate investment in equipment and facilities is projected to rise 40% in real terms between 2021 and end-2026, versus 12% in the euro area and near-zero growth in Germany, sharply widening the transatlantic capital-spending gap.
U.S. labor productivity rose $14 per hour worked between 2018 and 2025, versus $2 in Europe, with outperformance spanning wholesale, retail, and professional services—not solely the digital sector.
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The Two Europes— The European Union contains two divergent economies: a reforming frontier energized by security threats, and a stagnant interior where structural reform pressure remains absent.
AI Summary.Europe's welfare model has eroded its own economic frontier by prioritizing consumption over production, shrinking the tax base and leaving future generations with worse trade-offs between growth and social insurance.
Hanno LustigThe Two Cents
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Lustig argues that Krugman is wrong to dismiss concerns about slower European growth relative to the US based on welfare measures: “Europe’s social model is not financed out of consumer surplus; it is financed out of taxable income and taxable profits.”
Does prioritizing social insurance over production growth harm long-term economic competitiveness?
Core argument: Europe’s welfare-state model relies on growth assumptions that are no longer materializing, driving a structural fiscal deterioration for future generations.
Europe consumes ChatGPT; it does not collect the capital gains, the payroll taxes on million-dollar AI engineers, or the agglomeration effects. The worst possible combination for a welfare state: contented consumers committed to the status quo, eroding public finances. The tax base migrates to where the high-value production takes place, not where the products are ultimately consumed. All this insurance that European states are committed to providing was implicitly backed by the promise of future growth. And that growth is no longer expected to materialize, but the promises remain. The problem is not simply that Europeans chose a different point on the efficiency-equity frontier. Their choices have shifted the frontier itself inward over time, leaving future generations of Europeans with a trade-off that is much worse.
Takeaways by Macro Roundup® AI
Europe’s welfare-state model relies on growth assumptions that are no longer materializing, driving a structural fiscal deterioration for future generations.
Europe’s choice of redistribution over growth has shifted its efficiency-equity frontier inward, leaving worse trade-offs available to future policymakers.
Related Articles:
European vs. U.S. Economic Performance: An Update— The U.S. productivity advantage over western Europe is largely explained by industrial mix: the U.S. tech sector is 3.8 percentage points larger as a share of the economy, and tech productivity grows 6.8 percentage points faster than the rest, accounting for ~40% of the total gap.
European Stagnation Is Real— Six large American technology companies are worth more than all European stock markets combined, and the wealth they generate flows primarily to American households through equity ownership and high wages rather than to European workers or investors.
Addressing whether intra-country growth comparisons should use constant or current price PPPs, Klein notes that for Japan, both give the same conclusion. ICT‑related price and quality‑adjustment asymmetries—while present—have not yielded large PPP drift.
One obvious approach would be to start from a given base year and then run the data forwards and backwards using national measures of inflation. This generates “constant price purchasing power parities”. In any given year, the relative purchasing power between two societies is sensitive to the starting benchmark, but the direction of travel always looks the same. The other obvious approach would be to recalculate the price parities each year, if possible, and then use those to compare incomes each year. This creates “current price purchasing power parities.” The argument about whether Europe’s living standards have fallen relative to the U.S. is an argument about whether one method is better than the other. In theory these should produce more or less the same answers as long as inflation is measured consistently across countries and as long as the mix of items tracked does not change. Sometimes, that is exactly what happens. Both methods produce essentially the same results when comparing Japanese and U.S. incomes over time, for example.
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Europe Versus America: A Response to the Critics— European productivity growth has trailed U.S. productivity growth for three decades, accumulating a gap of roughly 18 log points by 2024. Measuring output using prices updated each year obscures this divergence rather than resolving it, and no proposed quality adjustment is large enough to explain away the gap.
The Mismeasurement of European Productivity— European productivity growth has trailed U.S. productivity growth for three decades, accumulating a gap of roughly 18 log points by 2024. No proposed measurement adjustment is large enough to explain away a divergence of that magnitude.
AI Summary.Generative AI assists workers across low, moderate, and high expertise tasks depending on occupation, rather than uniformly automating one skill level. Because the labor market impact of automation depends on which expertise level is displaced, generative AI's effects on wages and worker supply will vary significantly across occupations.
Alexander Bick, Adam Blandin, David Deming and Tyler SchumacherNational Bureau of Economic Research
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In a real-time survey, >30% of workers in tech and professional occupations reported that genAI assists with high-expertise tasks, compared to <10% in manual jobs. The modal response saw AI assisting in medium-expertise tasks.
How Does Generative AI Impact Wages Across Different Occupations?
Core argument: Computer, Math, Architecture, and Engineering occupations show 30%+ high-expertise genAI assistance vs. <10% in manual roles, driving divergent wage pressure.
The RPS [Real Time Population Survey] asked genAI users whether genAI primarily assisted them with low-, moderate-, or high-expertise parts of their job (workers could select multiple options). Figure 7 displays the average responses by broad occupation. In most occupations, a plurality of workers indicate that genAI assists with work that require intermediate expertise. In most technical and professional occupations, a relatively large share of workers report that genAI assists with high-expertise work. Computer and Math, Architecture and Engineering, and Management Occupations all exhibit high-expertise shares above 30%. By contrast, many occupations involving manual work exhibit small shares of workers who report high-expertise assistance - e.g. Protective Service and Buildings and Grounds Maintenance occupations exhibit high-expertise shares below 10%. However, we also observe a few interesting counterexamples to these patterns. Installation, Maintenance, and Repair Occupations, which involve substantial manual work and average education rates, exhibit large high-expertise shares. In the other direction, Legal Occupations, which exhibit high adoption rates, high education levels, and minimal manual work, exhibit small high-expertise shares. Overall, these patterns suggest that genAI does not map cleanly into a uniform “low-expertise” or “high-expertise” case.
Takeaways by Macro Roundup® AI
Computer, Math, Architecture, and Engineering occupations show 30%+ high-expertise genAI assistance vs. <10% in manual roles, driving divergent wage pressure.
Intermediate-expertise tasks dominate genAI use across most occupations, suggesting labor market impacts will vary considerably rather than follow a uniform.
Installation, Maintenance, and Repair occupations exhibit unexpectedly large high-expertise assistance shares despite manual work focus, indicating genAI’s occupational effects resist.
Related Articles:
Expertise— Autor finds automation of a given routine task can “replace experts in some occupations and augment expertise in others.” Data from 1980–2014 show that…
Generative AI and Entrepreneurship— Startups with greater exposure to generative AI tools show immediate and sustained employment declines following the technology's release, with no evidence the trend existed beforehand.
The world’s ocean temperatures reached the second-highest level on record for May, capping an “alarming” two-year streak of rapid warming. Atmospheric concentrations of CO2 hit their highest seasonal peak since records began, a global mean of 426 ppm.
The world’s ocean temperatures reached the second-highest level on record for May, capping an “alarming” two-year streak of rapid warming and fueling concerns about the seas’ ability to absorb rising levels of carbon dioxide. The EU’s Earth observation service Copernicus said the global average sea surface temperature in May was 20.79C, 0.14C below the record in the same month in 2024. The level of CO₂ in the atmosphere peaked globally at the mean of 426 parts per million in March, up from 423 ppm a year ago, and surpassed 430 ppm at the Mauna Loa Observatory in Hawaii. Scientists estimate the ocean has absorbed between a quarter and about 30% of carbon dioxide released into the atmosphere and about 90% of excess heat, helping to keep temperatures on land cooler. But Michael Meredith, a scientist at the British Antarctic Survey in Cambridge, warned the ocean “may lose some of its capacity to buffer us against the worst extremes of climate change” by absorbing less warmth or carbon than previously. “We’re seeing stronger and stronger bursts of ocean warming — marine heatwaves — that are pushing us past records at an alarming rate.”
Take the Under— .@RogerPielkeJr argues that more realistic projections of global population and GDP growth suggest that “even partial future policy successes could more easily…
Foreign tourist arrivals in the US–especially from Europe–remain buoyant. Italy posted a new all-time high in April 2025; data provide evidence contrary to the narrative warning of a collapse in travel to the US.
[The charts show] monthly tourist arrivals into the US from January 2015 to April 2025, the latest month for which data are available. Source for these data is the National Travel and Tourism Office (NTTO). Travel is highly seasonal, so I seasonally adjust these data. This means you can compare arrivals during the peak summer vacation season with arrivals at other times of the year. Data are for Germany (top left), Italy (top right), Spain (bottom left) and the UK (bottom right). The scale of these charts is different, with tourism from the UK by far the most important across these four countries, followed by Germany and Italy. What’s notable is that there’s no collapse in foreign travel to the US. In fact, in one case - Italy - arrivals posted a new all-time high in April 2025.
Edward Glaeser and Joseph GyourkoNational Bureau of Economic Research
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Supply curves in four key sunbelt areas have become less elastic. “High prices in the suburban parts of these areas no longer stimulate much new building, possibly because the residents of these areas have made it difficult to permit new projects”.
Real, constant-quality prices are at historically high levels in many major markets, most notably in sunbelt areas. Building levels have declined dramatically, especially in higher price, lower density areas. Figure 10 plots the shifting empirical supply curves [with price on the x axis and change in density on the y axis] over time for the four sunbelt metros. The empirical supply curve among suburban tracts in the 1970s (thick solid line) is always steeper than the supply curve for more central tracts (thick dotted line). Except for Dallas, the suburban line always is above the city line throughout our domain. In addition, the 1970s lines always are above those for the 1990s and 2010s. By the end of our data in the 2010s, the schedules have shifted down and flattened considerably, which is compatible with the decline in homebuilding discussed above. The lines for the 1990s show that this change began before the 2010s. High prices in the suburban parts of these metro areas no longer stimulate much new building, possibly because the residents of these areas have made it difficult to permit new projects.
This Is How to Fix the Housing Crisis— Ed Glaeser @AEIecon notes “Per capita, there was less than half as much permitting in 2023 as in 2003 or 1973”, and argues that Federal transportation funding…
