Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

John Iselin and Ryan Nunn Yale University
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Iselin and Nunn expect AI to increase output growth but to reduce labor’s share of income. “This bias in AI-induced growth reduces the revenue increase one would otherwise expect, given the preferential tax treatment afforded to capital income.”

The additional output growth that is often expected from AI—a clear positive for the fiscal picture —is not the only potential impact that matters. Another widely expected consequence of AI adoption is a reduction in the labor share of income. This bias in AI-induced growth reduces the revenue increase one would otherwise expect, given the preferential tax treatment afforded to capital income. Further, any labor inequality effects of AI could increase revenues (in the case of increasing inequality) or reduce them (in the case of decreasing inequality). Because these channels are of first-order importance for understanding AI effects on tax revenues, our analysis focuses on their roles. Other channels, not considered here, could also turn out to have meaningful revenue implications. We project that by 2030, in a rapid AI growth scenario (3.3% annualized GDP growth and a growing capital share), federal revenues could grow by up to $216 billion, a 3.3% increase on top of CBO’s 2026 baseline.

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  • How Might Fiscal Policy Respond to the Rise of Artificial Intelligence? — A 0.5% annual productivity growth boost would reduce publicly held federal debt by 39% of GDP over 30 years, cutting roughly half of the projected rise from 101% to 175% of GDP, through higher tax revenue, slower spending growth relative to GDP, and debt dilution that outweighs higher borrowing costs.
  • Can AI Avert the Impending Federal Budget Crisis? — Higher economy-wide productivity growth raises incomes but also accelerates healthcare inflation, so a productivity surge from 1.8% to 2.7% raises GDP per capita from $102,000 to $110,000 by 2035 while pushing healthcare spending from 21% to 21.7% of GDP.
  • U.S. Treasury Investors Are Long in AI — U.S. government debt acts as a leveraged bet on long-run productivity growth, because tax revenue rises automatically with faster growth while spending commitments stay flat. Each 0.1 percentage point increase in permanent productivity growth raises the fundamental value of government debt by $1.3tn, implying a 71 basis point decline in

AI Summary. U.S. bond market indicators, including long-term inflation expectations and default insurance prices, show no meaningful rise in concern about government insolvency or debt sustainability.

Paul Krugman Krugman Wonks Out
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Citing the stable long-term breakeven inflation rate and minimal rise in Treasury CDS prices, Krugman argues that high long-term rates reflect heavy federal borrowing, but not fears of outright default or inflation-induced debasement.

Are bond markets pricing in debt sustainability risks?

Core argument: U.S. bond markets show no signs of a Greek-style solvency crisis, with breakeven inflation rates and credit default swap prices both remaining stable despite fiscal concerns.

There is very little evidence that fears of a Greek-style crisis are driving interest rates now. For example, if markets were really worried about U.S. solvency and the potential for the government to inflate the debt away, this should be reflected in measures that track inflation. But there has been, in fact, very little change in the “breakeven” inflation rate, a measure of long-term inflation expectations. Another indicator is the price of credit default swaps — insurance against a possible US default. These also haven’t moved much.

Takeaways by Macro Roundup® AI

  1. U.S. bond markets show no signs of a Greek-style solvency crisis, with breakeven inflation rates and credit default swap prices both remaining stable despite fiscal concerns.
  2. Flat breakeven inflation rates signal that long-term inflation expectations remain anchored, ruling out market pricing of a debt-monetization scenario by the U.S. government.

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AI Summary. Tariff refunds are contributing an estimated 0.2 percentage points to US quarterly GDP growth, adding to existing economic tailwinds from AI investment, industrial expansion, and fiscal policy, keeping interest rates elevated for longer.

Torsten Sløk Apollo
Date Posted:

Net tariff receipts turned negative in May as refunds outpaced custom duties. The Atlanta Fed projects GDP growth of 4.3% at an annual rate in Q3, of which Sløk estimates ~.2pp will be driven by tariff refunds.

Are tariff refunds masking underlying economic weakness?

The tailwinds behind the US economy are not just AI spending, the industrial renaissance and the One Big Beautiful Bill. Tariff refunds have now joined the list. Not only are tariff refunds boosting corporate earnings, they are also boosting GDP growth. The Atlanta Fed's GDPNow currently points to 4.3% growth this quarter, of which we estimate roughly 0.2 percentage points come from tariff refunds. The bottom line is that the US economy continues to be supported by a growing set of tailwinds. Rates will stay higher for longer.

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  • The State of U.S. Tariffs July 24, 2026 — The average U.S. tariff rate stands at 11.1% and is set to rise to 11.8% by year-end, with current tariff policy estimated to raise consumer prices by 0.7% and generate $1.9tn in revenue over ten years, net of drag on economic output.
  • The AI Capex Boom Is Building Twice as Fast as the Housing Boom — Data-center investment is expanding at nearly twice the speed of the housing boom at its peak, rising from 1.4% to 3.1% of GDP in two years (~0.85 percentage points per year) versus housing's fastest pace of 0.5 percentage points per year.
  • The AI Investment Race — AI infrastructure investment is expanding faster than any previous technology boom, including the railway mania and dotcom bubble, within just three years. Debt-fueled buildout and circular financing arrangements are creating financial interconnectedness that makes the current cycle more fragile and prone to sharp correction.

AI Summary. China is pursuing hundreds of $bn in unpaid taxes on overseas capital gains and investments dating back to 2000, targeting wealthy individuals to offset a fiscal shortfall driven by stagnant tax revenue and a collapse in land sale income from Rmb8.7tn to Rmb4.15tn.

Leo Lewis, Edward White, Sun Yu and Owen Walker Financial Times
Date Posted:

China has launched a tax crackdown on the overseas capital gains of China’s rich, as Beijing looks to offset a worsening fiscal outlook. Total government revenue from land sales has fallen ~52% since 2021.

Is China using retroactive tax enforcement to plug its fiscal crisis?

Core argument: China’s budget revenue fell 1.7% to Rmb21.6tn ($3.2tn) in 2025, prompting authorities to pursue retroactive tax claims on overseas capital gains dating as far back as 2000 to close a widening fiscal gap.

China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades as Beijing seeks to fill a deepening fiscal hole by targeting the ultra-rich. Authorities have stepped up scrutiny of overseas capital gains and investments, in some cases going back as far as 2000, in a campaign that comes as Beijing also seeks to significantly expand control of outbound capital flows. China’s budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7% to Rmb21.6tn ($3.2tn) in 2025. Total government revenue from land sales, once a core revenue source for the state, collapsed from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.

Takeaways by Macro Roundup® AI

  1. China’s budget revenue fell 1.7% to Rmb21.6tn ($3.2tn) in 2025, prompting authorities to pursue retroactive tax claims on overseas capital gains dating as far back as 2000 to close a widening fiscal gap.
  2. Land-sale revenue collapsed 52% from its 2021 peak of Rmb8.7tn to Rmb4.15tn, eliminating the fiscal buffer Beijing historically relied on to offset tax shortfalls.
  3. China’s retroactive tax campaign targets ultra-high-net-worth individuals’ offshore investments, extending scrutiny across decades of cross-border capital flows and signaling a structural tightening of outbound capital controls.

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AI Summary. The average U.S. tariff rate stands at 11.1% and is set to rise to 11.8% by year-end, with current tariff policy estimated to raise consumer prices by 0.7% and generate $1.9tn in revenue over ten years, net of drag on economic output.

John Iselin Yale University
Date Posted:

The US’s average statutory tariff rate stands at 11.1% and is set to rise to 11.8% by the end of year. John Iselin projects that the current regime will raise ~$1.9T in revenue over 10 years.

Are rising tariffs worth the consumer price increases they generate?

Core argument: The average U.S. statutory tariff rate stands at 11.1% and is projected to reach 11.8% by year-end as scheduled increases take effect, with current-law tariffs estimated to raise $1.9 trillion over ten years before accounting for GDP drag.

As of July 24th, the average statutory tariff rate stands at 11.1% after falling by about 0.3pp when Section 122 tariffs expired and were replaced with new tariffs under Section 301. Under current law, which includes several scheduled tariff increases in the coming months, this figure is set to be 11.8% by the end of this year. We estimate the ultimate consumer price impact of current-law tariff policy to be about 0.7%. Over the next ten years, we estimate that current-law tariffs will raise about $1.9 trillion. These numbers are somewhat lower, though, after taking into account the negative impact of tariffs on GDP.

Takeaways by Macro Roundup® AI

  1. The average U.S. statutory tariff rate stands at 11.1% and is projected to reach 11.8% by year-end as scheduled increases take effect, with current-law tariffs estimated to raise $1.9 trillion over ten years before accounting for GDP drag.
  2. Current-law U.S. tariff policy carries an estimated 0.7% consumer price impact, and the ten-year $1.9 trillion revenue projection declines in net terms once tariffs' negative GDP effects are incorporated.

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AI Summary. Emergency federal education grants during the pandemic did not measurably reduce student learning loss, partly because qualifying districts saw local revenues fall by ~$907 per pupil over three years — offsetting federal funds rather than supplementing them.

Jeffrey Clemens, Philip Hoxie and Stan Veuger National Bureau of Economic Research
Date Posted:
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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.

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AI Summary. Taxing unrealized capital gains reduces average founder ownership at exit by ~25% but raises the share of entrepreneurs with positive payoffs from ~16% to ~47%, because tax credits on failed ventures provide insurance that partly offsets dilution costs.

Eduardo Azevedo, Florian Scheuer, Kent Smetters and Min Yang National Bureau of Economic Research
Date Posted:
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~84% of venture backed founders end with zero exit value, while the top 2% capture ~80% of total exit value. Accrual-based taxation would reduce mean founder ownership stakes at exit by ~25%, but with fully refundable tax credits, raise the share of founders with >0 payoffs to ~47%.

Does taxing unrealized gains help or hurt entrepreneurial risk-taking?

Core argument: Accrual-based capital gains taxation reduces founder ownership by ~25% at exit vs. realization-based taxation, yet increases positive payoff probability from.

This paper examines how taxing unrealized capital gains affects entrepreneurship, combining a dynamic career-choice model with new evidence on all U.S. venture capital backed startups. Figure 1a plots a histogram of the positive company exit values. The distribution spans several orders of magnitude and is relatively similar to a lognormal, but with a right skew and fatter right tail. A stylized model highlights a key trade-off: accrual-based capital gains taxes dilute successful founders by forcing additional share sales before exit, a well known concern, yet they also provide insurance through tax credits to founders whose ventures fail, an aspect often overlooked. Quantitatively, advance taxation substantially reduces founders' ownership at exit: average founder shares fall about 25% under accrual-based taxation relative to realization based taxation. At the same time, accrual taxation increases the fraction of entrepreneurs with positive payoffs from around 16% to nearly 47%. Embedding these outcomes in a career-choice framework shows that the insurance value of accrual taxation partly offsets dilution costs: less risk-averse founders favor realization-based taxes, while more risk averse ones prefer accrual-based taxes. The strength of this insurance channel depends on the highly skewed distribution of entrepreneurial payoffs and the design of loss provisions under accrual-based taxation.

Takeaways by Macro Roundup® AI

  1. Accrual-based capital gains taxation reduces founder ownership by ~25% at exit vs. realization-based taxation, yet increases positive payoff probability from.
  2. Risk-averse entrepreneurs prefer accrual taxation’s loss provisions despite ownership dilution, while less risk-averse founders favor realization-based taxation, driving heterogeneous career.
  3. Accrual taxation’s insurance channel partly neutralizes dilution costs by expanding the fraction of founders achieving positive returns, demonstrating that tax.

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AI Summary. Declining labor force participation concentrates economic output among fewer workers, raising the return on automation and making productivity growth the primary driver of expansion. Any productivity shortfall carries greater consequences because a shrinking worker base cannot compensate through increased participation.

Paul Kedrosky Applied Complexity
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Overall LFP is at a 50-year low. Kedrosky warns, “As fewer adults work or seek work, a larger fraction of voters experience the economy mostly as consumers, retirees, or rentiers, not as workers…[which] changes incentives around….taxation and redistribution.”

Does productivity growth become the economy's only growth engine as workers decline?

Core argument: Declining labor force participation concentrates income and tax generation among fewer workers, driving fiscal fragility and heightened vulnerability to productivity.

As fewer adults work or seek work, a larger fraction of voters experience the economy mostly as consumers, retirees, or rentiers, not as workers. That changes political incentives around wages, immigration, AI, taxation, and redistribution. The economy becomes increasingly dependent on a shrinking core. A shrinking group of workers generates the income, taxes, and innovation that support a growing number of non-workers. The economy becomes more fragile because labor shocks are concentrated among fewer participants. Capital must increasingly substitute for labor. Labor scarcity raises the return on automation, AI, robotics, and software. The AI bet becomes as much about compensating for workers' absence as simple replacement. Growth increasingly depends on productivity, on not participation. Any [productivity] miss will be much more consequential than in the past, given that labor no longer picks up the slack.

Takeaways by Macro Roundup® AI

  1. Declining labor force participation concentrates income and tax generation among fewer workers, driving fiscal fragility and heightened vulnerability to productivity.
  2. Shrinking workforce participation shifts voter incentives toward consumption and capital returns over wage growth, leading to political realignment on taxation.

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