Edward Conard

Top Ten New York Times Bestselling Author

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Upside of Inequality Oxford Unintended Consequences

Government Spending

Research on the scale, composition, and economic effects of government spending, including public investment, transfers, consumption, crowding out, and long-run fiscal pressures. Explore evidence and debate from across the Macro Roundup archive.

AI Summary. Long-term U.S. Treasury yields did not fall during an artificial-intelligence equity sell-off, which the author argues contradicts the view that AI capital spending and hyperscaler debt issuance are the main force pushing yields higher. The author attributes elevated long-term yields instead to a rising fiscal risk premium tied to U.S. public debt growth.

Robin Brooks Robin Brooks Substack
Date Posted:

Brooks notes that while the 2-year and 10-year Treasury yields fell during last week’s AI sell-off, the 10y10y forward yield did not. He argues its failure to do so “further cements the case for the fiscal risk premium,” concluding that long yields are up “because of mounting fiscal stress, not because of AI capex.”

Are elevated long-term yields driven by fiscal strain rather than AI borrowing?

Core argument: Robin Brooks argues that long-term Treasury yields failed to fall during the late-2026 AI equity sell-off, contradicting the view that AI capital expenditure and hyperscaler debt issuance have been the primary force pushing yields higher.

The black line shows daily data from the start of 2026 for the two-year Treasury yield.The blue line is the 10-year yield and the purple line is the 10y10y forward yield. If the AI bubble were a material driver of the rise in long-term yields, the purple line should have fallen this week alongside the blue and black ones. It didn’t and that in my mind further cements the case for the fiscal risk premium. The midterm elections and the AI sell-off that’s ensued have given us the perfect natural experiment to disentangle what’s going on with long-term yields. They’re up because of mounting fiscal stress, not because of AI. Once the war ends - and it will - we’ll be left with all the structural challenges the US and others in the G10 face. The fact that we’re rapidly running out of fiscal space is top of that list.

Takeaways by Macro Roundup® AI

  1. Robin Brooks argues that long-term Treasury yields failed to fall during the late-2026 AI equity sell-off, contradicting the view that AI capital expenditure and hyperscaler debt issuance have been the primary force pushing yields higher.
  2. The November payrolls print of 165,000 jobs beat the Bloomberg consensus of 70,000 by 95,000, or 1.2 standard deviations against a historical standard deviation of 76,000, and the two-year yield rose five basis points, in line with or above the historical regression of yield responses to payrolls surprises.
  3. Brooks concludes that elevated long-term yields reflect mounting fiscal stress rather than AI, noting the 10-year/10-year forward yield did not decline alongside shorter maturities during the sell-off week and that corporate dissaving is “not remotely near where it was in the IT bubble of the early 2000s.”.

Related Articles:

  • Global Bond Sales Smash Record, Fueled by AI Borrowing Binge — Financial firms, companies and governments raised about $6.61tn through broadly syndicated investment-grade and junk-bond sales, up 15% year-over-year to a record. Cloud-computing giants and data-center developers sold almost $368bn of debt, more than 6x the prior year, accounting for roughly a third of the increase in borrowing.
  • Is the AI Buildout Pushing Up Yields? — US saving-investment data show that non-financial corporations remain net savers, unlike the early-2000s information technology boom when they flipped to net borrowers and their capital spending accounted for the entire current account deficit. Government dissaving through the budget deficit, not the artificial intelligence buildout, is absorbing national resources.
  • The Meaning Of Higher Real Yields — US inflation-protected Treasury yields have broken above their post-2008 highs, indicating the real cost of capital is rising, while nominal 20- and 30-year Treasury yields remain within their three-year ranges. The article argues an artificial-intelligence-driven investment boom has raised demand for capital, and that corporate debt-to-equity ratios have fallen and interest coverage has surged since Covid.

AI Summary. US debt held by the public peaked at a record 106.1% of GDP after World War II and fell as a share of the economy through 1974, aided by rapid growth, deficits averaging just 0.4% of GDP, and more tax increases than cuts. The federal deficit was 6.2% of GDP in fiscal 2026.

Justin Fox Bloomberg
Date Posted:

Both growth and fiscal restraint gradually erased the WWII debt burden. Tax increases in 1982–93 helped reverse the large deficits of the 1980s, contributing to surpluses in 1998–2001. In line with this history, growth alone is unlikely to stabilize the current debt trajectory.

Can economic growth alone bring down the national debt?

Core argument: US debt held by the public peaked at a record 106.1% of GDP in fiscal 1946 and fell as a share of GDP through 1974, aided by rapid growth and a fiscal balance averaging -0.4% of GDP from 1947 to 1974.

The Economic Recovery Tax Act of 1981, also known as the Reagan tax cuts, is remembered variously as a budget-busting disaster and the driver of a new era of growth. There’s some truth to both portrayals, but what doesn’t come up nearly enough is that the 1981 tax cuts were followed by tax increases in 1982, 1983, 1984, 1986 (just barely; that year’s Tax Reform Act was supposed to be revenue-neutral), 1987, 1990 and 1993. Thanks in part to the end of the Cold War, Congress was also able to reduce spending growth in the 1990s, with federal outlays falling from 21.7% of GDP in 1991 to 17.7% in 2000 and 2001. The result: four straight years of budget surpluses, and a debt-to-GDP ratio that fell from 47.9% in 1993 to 31.5% in 2001.

Takeaways by Macro Roundup® AI

  1. US debt held by the public peaked at a record 106.1% of GDP in fiscal 1946 and fell as a share of GDP through 1974, aided by rapid growth and a fiscal balance averaging -0.4% of GDP from 1947 to 1974.
  2. The US fiscal balance in fiscal 2026 was -6.2% of GDP, compared with the -0.4% average that accompanied the postwar decline in the debt-to-GDP ratio.
  3. Federal spending tripled in inflation-adjusted terms from 1947 to 1974 and rose from 16.1% to 17.8% of GDP, with revenue rising almost as fast in a period with more tax increases than decreases, according to a 2013 Treasury Department accounting of major tax legislation.

Related Articles:

  • Projections of Deficits and Debt Under Two Scenarios With Higher Interest Rates — The Congressional Budget Office projects that if interest rates run 1.5 percentage points above its economic forecast, deficits would be $6tn larger over 2026–2036, reflecting a $4.9tn rise in net interest costs and $1.1tn in added debt-service costs. Debt held by the public would reach 133.1% of GDP in 2036, 12.9 percentage points above its baseline.
  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
  • How Might Fiscal Policy Respond to the Rise of Artificial Intelligence? — The Congressional Budget Office estimates that a permanent 0.5 percentage point increase in annual productivity growth would lower publicly held federal debt after 30 years by 39% of GDP, offsetting roughly half the projected rise from 101% of GDP to 175%. Higher revenue and slower spending growth outweigh higher interest costs.

AI Summary. The average premium in the Affordable Care Act insurance marketplaces is projected to rise 13%, according to an analysis by the health research group KFF. That increase is slightly higher than elsewhere, with consulting firms projecting roughly 10% increases for employer plans covering about 150m people and more than 10% for federal workers.

Reed Abelson and Margot Sanger-Katz New York Times
Date Posted:
Is Database:
Database

According to a KFF analysis, the average benchmark health care premium on the Obamacare insurance marketplaces will increase 13% in 2027, compared to 10% for private insurance. This follows a 26% increase last year.

Are marketplace health premiums rising faster than employer plan premiums?

Core argument: Average premiums in the Obamacare marketplaces will rise 13% in 2027, according to an analysis by KFF that combined newly published federal prices for 30 states with state-level figures.

Obamacare premiums will rise an average of 13% in 2027, following a 26% increase in 2026. Much of the increase reflects rising medical costs, with employer-plan premiums also expected to climb about 10%. But the expiration of enhanced federal subsidies has left some Obamacare customers particularly exposed. Remaining income-based subsidies will shield most enrollees from next year’s premium increases by shifting the additional expense to taxpayers. Those ineligible for assistance—including many self-employed workers and early retirees—must absorb the full increase, sometimes after already paying over $1,000 more per month in 2026.Many customers have responded by buying cheaper coverage with higher deductibles, pushing the average deductible to nearly $4,000 this year. Having already traded down, they have less room to offset further increases. KFF estimates suggest enrollment had fallen by nearly five million by June, while a Commonwealth Fund survey indicates that the uninsured rate among working-age adults has risen.

Takeaways by Macro Roundup® AI

  1. Average premiums in the Obamacare marketplaces will rise 13% in 2027, according to an analysis by KFF that combined newly published federal prices for 30 states with state-level figures.
  2. Reports by several consulting firms project that 2027 premiums for employer plans, which cover around 150 million people, could rise by about 10%, below the 13% marketplace increase.
  3. Premiums for federal workers are increasing by more than 10%.

Related Articles:

AI Summary. European Central Bank bond purchases replace private market-rate lending with official lending through the TARGET2 settlement system, leaving Germany with a large creditor balance and Italy and Spain with large debtor balances. The author argues this lets Italy, Spain and France borrow at below-market rates and run looser fiscal policy, while Germany bears the subsidy.

Robin Brooks Robin Brooks Substack
Date Posted:

Brooks argues Le Pen won’t be a “big” disruptor due to fiscal constraints but urges all eyes on Berlin, “The AfD is a different matter. All the stuff being done to cover up debt distress elsewhere is being paid for with German fiscal space. The AfD will shut that down. It’s the only populist movement in Europe that matters.”

How does the central bank's bond buying shift lending costs between countries?

Core argument: ECB quantitative easing replaces private market-rate lending to Italy with official Bundesbank lending to the Banca d’Italia at artificially low rates, producing Germany’s large TARGET2 creditor balance against debtor balances in Italy and Spain.

When the ECB buys Italian debt from a German bank as part of QE, that bond ends up on the Banca d’Italia balance sheet and - what would have been private lending at market interest rates - gets replaced by official lending by the Bundesbank to the Banca d’Italia at artificially low rates. This is why Germany (blue) has a massive creditor balance in the Euro zone, a system called TARGET2, while Italy (pink) and Spain (orange) have big debtor balances. Whenever the ECB does QE, or if it now activates its TPI program to stop contagion to Italy and Spain, Germany’s TARGET2 claim will grow. There’s two basic points to take away from all this. First, for Italy and Spain (and increasingly France), TARGET2 is a way to borrow at subsidized, below-market rates, which underwrites fiscal policy that is therefore looser than otherwise. What populist is going to say no to that? Second, for Germany, TARGET2 is a tax the AfD (and increasingly others) will be unwilling to pay. Why would you give subsidized loans to places running unsustainable pension systems with absurdly low retirement ages? No German political party - populists included - should agree to that.

Takeaways by Macro Roundup® AI

  1. ECB quantitative easing replaces private market-rate lending to Italy with official Bundesbank lending to the Banca d’Italia at artificially low rates, producing Germany’s large TARGET2 creditor balance against debtor balances in Italy and Spain.
  2. TARGET2 lets Italy, Spain, and increasingly France borrow at subsidized below-market rates, underwriting fiscal policy looser than it would otherwise be, which the author argues no populist party would refuse.
  3. Germany’s TARGET2 claim grows whenever the ECB conducts QE or activates its TPI program to stop contagion to Italy and Spain, a cost the author argues the AfD and other German parties will be unwilling to pay.

Related Articles:

  • What a Global Debt Crisis Looks Like — An analysis indexes 10-year government bond yields across countries from the start of the year, cumulating their rise in basis points, and compares each against an equal-weighted average of daily changes in all those yields to show which countries are performing better or worse than average.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • Are Government Bonds Safe in Times of War and Pandemic? — Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.

AI Summary. A National Bureau of Economic Research paper projects U.S. medical spending, 18% of GDP in 2024, reaching 19%–26% of GDP by 2040, with federal medical spending consuming 45%–61% of federal revenue excluding Social Security contributions. The author argues only the low-spending path is consistent with current tax levels and other commitments.

David Cutler National Bureau of Economic Research
Date Posted:
Is Database:
Database

From 1970 to 2010, growth in US medical spending outpaced GDP growth by ~2.4pp annually. From 2010 to 2024, that growth differential fell to just 0.3pp. If it persists, medical spending reaches only 19% of GDP by 2040; if excess spending growth reverts to 2.4pp, it reaches 26%.

How much federal revenue will medical spending consume by 2040?

Core argument: David Cutler projects U.S. medical spending reaching 26%, 22.3%, or 19% of GDP by 2040 under high, benchmark, and low scenarios, versus 18% in 2024 and 6.9% in 1970.

Figure 1 shows that in 1970, medical care was 6.9% of GDP. In 2024, it was 18%. From 1970 through around 2010; mean medical spending growth exceeded GDP growth by 2.4 pp annually. Since 2010, the growth of medical spending has exceeded the growth of GDP by only 0.3 pp annually. There is no comparable time period with anything like the sustained slowdown in spending growth since 2010. Patient cost-sharing has increased enormously [indirectly reducing overall expenditure via incentives] as shown in Figure 5. An additional role [was] played by the diffusion of cost-reducing technologies. Because they are often less invasive, second-round therapies typically have lower unit prices. [mechanism in Fgure 6]. Finally, there [are] fewer expensive new innovations than in the past. [However], recent data show an uptick in spending growth in 2024, which continued in 2025. Some of this is a result of new technologies— prime examples are GLP-1 medications and new drugs for cancer that are taken on an ongoing basis. To consider a scenario with [a reversion to] more rapid spending increases, I assume that the growth of medical spending above GDP growth after 2024 returns to the average rate realized between 1970 and 2010. This scenario is shown as the High-spending scenario in figure 1, in which medical care in 2040 rises to 26% of GDP.

Takeaways by Macro Roundup® AI

  1. David Cutler projects U.S. medical spending reaching 26%, 22.3%, or 19% of GDP by 2040 under high, benchmark, and low scenarios, versus 18% in 2024 and 6.9% in 1970.
  2. Federal medical spending consumed 45% of “discretionary revenue”—total federal revenue less Social Security contributions—in 2024, up from 13% in 1987, and Cutler projects 61% by 2040 under the high-spending scenario.
  3. Cutler states that only the low-spending scenario is consistent with current tax levels and non-medical spending commitments, attributing the post-2010 slowdown to high-deductible plans, prior authorization, cost-reducing technology, and reduced administrative friction.

Related Articles:

AI Summary. An analysis indexes 10-year government bond yields across countries from the start of the year, cumulating their rise in basis points, and compares each against an equal-weighted average of daily changes in all those yields to show which countries are performing better or worse than average.

Robin Brooks Robin Brooks Substack
Date Posted:

Brooks argues a global debt crisis is underway, pointing to contagion from France driving rising yields in Italy and Spain, and a flight to safety driving down yields in the US, while low-debt safe havens like Germany, Sweden and Switzerland extend their outperformance.

Are government bond yields rising faster in some countries than others?

Core argument: The charts index 10-year government bond yields to 100 on January 1, 2026, and cumulate each country’s rise in basis points, so a reading of 200 means a yield up 100 basis points since the start of 2026.

The blue lines in the charts show how 10-year government bond yields have evolved so far this year. I’ve indexed them to 100 on January 1, 2026, and cumulate the rise in basis points from that day to yesterday. If you’re at 200 as of yesterday, that means your ten year yield is up 100 basis points since the start of 2026. The black line in each chart is the same and is the equal-weighted average of daily changes in all of these yields. I cumulate this up to show who’s better or who’s worse than average.

Takeaways by Macro Roundup® AI

  1. The charts index 10-year government bond yields to 100 on January 1, 2026, and cumulate each country’s rise in basis points, so a reading of 200 means a yield up 100 basis points since the start of 2026.
  2. A black line identical across the charts cumulates the equal-weighted average of daily changes in all the yields shown, serving as the benchmark for which countries are better or worse than average.

Related Articles:

  • What’s the Matter With France? — France's official retirement age for full benefits was 62 in 2023, versus 67 in Denmark and the US, and its average actual retirement age was the lowest in Western Europe while life expectancy at 65 reaches about 87, two years longer than in the US.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • Are Government Bonds Safe in Times of War and Pandemic? — Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.

AI Summary. In France, social protection and health rose from 53.1% to 58.7% of total government spending, and are projected to reach 59.7%, while education, defense and public order fell from 15.2% to 13.7% and transport from 5.3% to 3.8%. Public pension spending rose from 12.7% of GDP to 14.8%.

Hanno Lustig The Two Cents
Date Posted:

At 59.7% of total government spending, France’s social safety net is crowding out core state functions such as education, defense and public order, whose collective share of spending fell from 15.2% to 13.7% of the total btw 1995 and 2024.

Is social spending squeezing out education, defense, and transport?

Core argument: French social protection and health spending, including all public pensions, rose from 53.1% to 58.7% of total government spending between 1995 and 2024, with a projected further increase to 59.7% in 2026.

Between 1995 and 2024, spending on social protection and health, including all public pensions (social spending from here on) increased from 53.1% to 58.7% as a fraction of total government spending. Social spending is projected to increase even more to 59.7% in 2026. Over the same period, government spending on education, defense and public order decreased from 15.2 % to 13.7% of total government spending. To compute these shares, I removed the State’s imputed pension contributions for teachers, soldiers and other civil servants from each function and from total spending, since the pensions actually paid are already counted in social spending; this gives a better sense of what the government spends on teaching kids and keeping the country safe. Transport fell from 5.3% to 3.8%. Pensions account for the lion’s share of transfers. Total public pension spending in France added up 14.8% of GDP in 2024, and it is projected to increase to 15% of GDP this year, up from 12.7% in 1995.

Takeaways by Macro Roundup® AI

  1. French social protection and health spending, including all public pensions, rose from 53.1% to 58.7% of total government spending between 1995 and 2024, with a projected further increase to 59.7% in 2026.
  2. French government spending on education, defense and public order fell from 15.2% to 13.7% of total government spending between 1995 and 2024, while transport fell from 5.3% to 3.8%.
  3. Total French public pension spending reached 14.8% of GDP in 2024, up from 12.7% in 1995, and is projected to reach 15% of GDP this year.

Related Articles:

  • What’s the Matter With France? — France's official retirement age for full benefits was 62 in 2023, versus 67 in Denmark and the US, and its average actual retirement age was the lowest in Western Europe while life expectancy at 65 reaches about 87, two years longer than in the US.
  • Le Boomer Spread — The gap between French and German 10-year government bond yields exceeded 140 basis points, up from 40–50 basis points, which the author attributes to political choices favoring pensioners over bondholders, including a suspended pension reform leaving the minimum retirement age near 62. French over-65s hold higher average incomes than working-age people.
  • France is the Biggest Loser in the Global Rates Reset — French government borrowing costs now exceed the country's nominal income growth by about 2 percentage points, the most unfavorable gap between borrowing costs and growth in the rich world. By contrast, Spanish and Greek bond yields remain about 2 percentage points below their income growth rates.

AI Summary. Street violence in France has pressured French financial assets, with the extra yield investors demand to hold 10-year French government bonds over German ones having risen to about 1.4% and euro short positions at their largest since 2016. Credit stress has also spread to artificial-intelligence-related debt, with data center financing spreads widening and CoreWeave's debt yielding 15%.

John Authers Bloomberg
Date Posted:

France is caught between voters demanding more spending and bond markets demanding less. After a brief respite in French bond yields relative to German bunds, renewed protests threaten to undermine confidence not only in French debt, but in the euro itself.

Are political unrest and AI debt worries pressuring markets together?

Core argument: The spread of 10-year French OATs over German Bunds rose to about 1.4% earlier in 2026 before partially stabilizing in October, with street violence including the burning of Limoges city hall intensifying pressure on French financial assets.

The violence came at a point when bond market sentiment appeared to have stabilized after a sharp rise in the spread demanded for buying French bonds compared to German bunds. After two weeks of relative calm, this measure will be the focus of attention, particularly for the currency market. Kit Juckes of Societe Generale SA commented that “at the time of writing I struggle to see how the euro absorbs mass protests against any form of fiscal austerity.” It’s difficult to disagree. When politicians are squeezed between voters demanding more spending, and bond markets insisting on less, a blow to confidence in the euro seems inevitable.

Takeaways by Macro Roundup® AI

  1. The spread of 10-year French OATs over German Bunds rose to about 1.4% earlier in 2026 before partially stabilizing in October, with street violence including the burning of Limoges city hall intensifying pressure on French financial assets.
  2. CFTC data showed the largest net euro short position since January 2016 in the week preceding the French violence, and Kit Juckes of Societe Generale says he struggles to see how the euro absorbs mass protests against any form of fiscal austerity.
  3. Daily earnings for supertankers on the Middle East-to-China route stood at $1.37 million, more than a sixfold increase from pre-conflict levels, as commercial cargo crossings through the Strait of Hormuz collapsed.

Related Articles:

  • France’s Marine Le Pen Pledges To Rein In Public Spending — France's National Rally party, historically a champion of big-state spending, has pledged to clean up the country's degraded public finances alongside tax cuts it describes as a fully financed "competitiveness shock." The party also proposed lowering the retirement age from 62 to 60 for those who start working young, estimating €15bn–€20bn in pension savings from correcting "unjust or inefficient" measures.
  • Le Boomer Spread — The gap between French and German 10-year government bond yields exceeded 140 basis points, up from 40–50 basis points, which the author attributes to political choices favoring pensioners over bondholders, including a suspended pension reform leaving the minimum retirement age near 62. French over-65s hold higher average incomes than working-age people.
  • France and Britain Are In Thrall To Pensioners — French pensioners receive larger government payments than in any other western country and begin receiving them several years earlier, leaving over-65s with higher average incomes than the working-age population — a situation without precedent internationally or in France's own history. Proposals to raise the retirement age or delay pension increases have triggered nationwide protests and government collapses.