Conversable Economist

Each year, the White House Council of Economic Advisers publishes the Economic Report of the President. The CEA is led by politically appointed academics, and thus you need to take it as given that the annual report will be supportive of the presidential administration. On the other side, the academic economists are there for relatively short-term appointments (typically a few years), and will typically be returning to academia, so their reputation for making arguments based on evidence and theory is (at least somewhat) at stake. In the 2026 Economic Report published earlier this year, Chapter 9 is titled “Work Means More Than Making a Living: Labor, Challenges, and Opportunity,” and it starts with a discussion of what it calles the “latent” value of work, focused on dimensions beyond quantities produced and compensation paid. The report argues:

Work is a center of meaning, a means of identity and purpose, and a powerful node of human relationship and connection (Durkheim 1897; Jahoda 1982). Understanding these “latent” benefits of work is essential for crafting policies that truly support human welfare. … [F]our striking facts are documented: work improves health and extends life by years; work increases happiness and reduces depression; work helps to develop the knowledge and skill of individuals; and work provides a webbing of social connection and community.

On the link from work to improved health:

If work were merely a source of stress to be escaped, one would expect job separation to improve health outcomes and reduce mortality. The evidence shows precisely the opposite. Workers displaced through mass layoffs experience 50–100 percent higher mortality rates in subsequent years, shortening life expectancy by 1 to 1.5 years on average (Sullivan and von Wachter 2009). Given standard estimates of the value of a statistical life from the U.S. Department of Health and Human Services (DHS 2025), the reduction in life expectancy costs about $300,000–$500,000. These are not workers who lost jobs due to poor health or performance; they were displaced through plant closures and downsizing that had nothing to do with individual circumstances. The excess deaths span multiple causes—strokes, heart attacks, accidents, suicide, and complications from substance abuse—suggesting that job loss triggers a cascade of physical and mental health deterioration (Eliason and Storrie 2009; Browning and Heinesen 2012). These studies, which are from Sweden and Denmark—countries with government healthcare—demonstrate that the health consequences of job loss operate through psychological and social pathways rather than simply through the loss of medical access.

The most compelling evidence that these effects transcend income loss comes from retirement. Fitzpatrick and Moore (2018) exploit the sharp discontinuity in retirement timing at age 62, when Social Security eligibility begins. Roughly one-third of Americans retire precisely at this threshold. This age-based threshold creates a natural experiment, since retirement timing is driven by policy rather than individual health status. Despite having their income partially replaced through Social Security, these new retirees experience animmediate 2 percent increase in mortality risk—implying that retirement itself increases mortality risk by about 6 percent for those who choose it. The effect is particularly pronounced for men, who may especially derive their identity from work.

On how work increases happiness and reduces depression:

Beyond its effects on physical health, work shapes human emotional well-being in ways that contradict people’s stated preferences. People tell themselves that they work for the weekend, yet the evidence suggests that they find more fulfillment in Monday morning than Saturday afternoon. Csikszentmihalyi and LeFevre’s (1989) pioneering study revealed this paradox elegantly. Using experience sampling methodology—giving subjects beepers that prompted them to record their activities and feelings at random moments—they found that people reported higher levels of happiness, engagement, and energy while working than during their leisure time. This finding challenges classical economic theory, which treats labor as “disutility”—a cost paid in lost leisure to obtain income. Despite the common cultural narrative that frames work as drudgery, people appear to derive deep satisfaction from productive effort and the structure it provides. …

Research on unemployment duration reinforces this pattern. Bayer and Juessen (2015) demonstrate that short unemployment spells have minimal effects on well-being, while persistent joblessness drives significant unhappiness. This suggests that the psychological benefits of work operate through multiple channels—not just the act of working, but also the security of knowing you will have work. Krueger and Mueller (2012) reinforce this interpretation, documenting how laid-off workers experience not just depression but also an explicit sense of meaninglessness.

On how work helps to develop knowledge and skill:

The modern workplace demands constant adaptation—new software, evolving best practices, shifting market demands. Workers meet these challenges not usually through formal training but by daily problem-solving alongside colleagues. This learning-by-doing, which is nearly invisible when it occurs, becomes painfully apparent only in its absence (Arrow 1962).

Bessen (2016) documents how workers master new technologies, primarily through on-the-job experimentation rather than formal education. Similarly, Jarosch, Oberfield, and Rossi-Hansberg (2021) show that workers learn substantially from their peers, with an increase in coworker quality raising own wages by 2 to 3 percent permanently of 1 standard deviation. These knowledge spillovers happen through informal channels—watching a colleague handle a difficult client, debugging code together, sharing Excel shortcuts across workstations. The cumulative returns from this workplace learning are substantial and persistent. Consider a young worker in his 20s considering whether to take a gap year after completing his training. One additional year of work experience increases his annual earnings by 3.0 to 3.6 percent throughout the rest of his career (Altonji and Williams 1992). For an average worker earning $60,000 at age 25, this translates into about $86,400 in additional lifetime earnings before retirement—all from a single additional year of early career experience. The workplace functions as an unstructured but irreplaceable quasi-university where learning happens through osmosis and the mother of all: necessity.

On how work provides a webbing of social connection and community:

[T]he benefits of work extend beyond the individual psyche and skill set to the social fabric that binds people together. Work is where people form friendships, find mentors, and build the weak ties that sociologists have long recognized as essential for opportunity and belonging. When work disappears, so does this essential social infrastructure. … [J]ob separation triggers sustained social isolation. … Unlike depression, which spikes immediately after a job loss, loneliness emerges gradually and persists. Ten years after separation from work, both unemployed and retired workers report significantly higher loneliness than when they were working. …

These individual costs ripple outward through communities. When unemployment rises locally, even those who keep their jobs experience decreased well-being—Helliwell and Huang (2014) find the effects equivalent to a 4 percent decline in household income. This spillover reflects the breakdown of social networks: when your colleague loses their job, you lose a colleague. When enough people lose work, the entire community fabric begins to fray. The social consequences of joblessness extend into people’s most intimate relationships. Work shapes not just friendships but also family formation. Autor, Dorn, and Hanson (2019) demonstrate that regions hit by trade-induced job losses experience collapsing marriage markets, particularly for noncollege men whose diminished employment prospects make them less attractive as partners. The results are fewer marriages, more single-parent households, and declining fertility—a cascade of social disconnections that begin with economic displacement.

The broad takeaway from these arguments is that work is more than a contractual relationship between an employer and an employee. Work involves human beings, with all their human issues of health, happiness, skills, and social connectedness. The US economy benefits considerably from its ability to reallocate labor between employers, industries, and places. But the costs of that reallocation are much lower when workers voluntarily leave one job to take another one, rather than when workers lose a job involuntarily.

I sometimes struggle, when teaching about unemployment, to explain just why work matters. It’s straightforward enough to note that elevated unemployment leads to loss of economic output, lower tax payments, and greater need for government welfare benefits. I can refer to evidence on how unemployment is connected to social ills like bankruptcy, divorce, depression, and even suicide. But this listing of consequences, while a necessary part of teaching the economics of unemployment, doesn’t quite touch the human heart of the issue. The poet Marge Piercy, in her 1973 poem “To be of use,” gives a more concise and powerful sense of why useful work matters so much.

“To be of use”

The people I love the best
jump into work head first
without dallying in the shallows
and swim off with sure strokes almost out of sight.
They seem to become natives of that element,
the black sleek heads of seals
bouncing like half submerged balls.

I love people who harness themselves, an ox to a heavy cart,
who pull like water buffalo, with massive patience,
who strain in the mud and the muck to move things forward,
who do what has to be done, again and again.

I want to be with people who submerge
in the task, who go into the fields to harvest
and work in a row and pass the bags along,
who stand in the line and haul in their places,
who are not parlor generals and field deserters
but move in a common rhythm
when the food must come in or the fire be put out.

The work of the world is common as mud.
Botched, it smears the hands, crumbles to dust.
But the thing worth doing well done
has a shape that satisfies, clean and evident.
Greek amphoras for wine or oil,
Hopi vases that held corn, are put in museums
but you know they were made to be used.
The pitcher cries for water to carry
and a person for work that is real.

Marge Piercy (1973)

Note: I have quoted this poem previously in 2013 and 2019, but it felt as if sufficient time had passed to mention it again on this Labor Day Holiday.

Each year, more than half of the total or gross investment by US firms just makes up for depreciation in older equipment and knowledge. in recent year, it’s more like 75% of current year investment just offsets depreciation. Here are the figures from the ever-useful FRED website run by the Federal Reserve Bank of St. Louis.

In this graph, the top line shows gross investment, while the bottom line shows “net” investment after subtracting out depreciation of older capital. As you can see from the gray bars showing periods of recession, firm investment typically drops during a recession. In the pit of the Great Recession back in 2009, all of the gross investment went to replacing depreciated capital, so the US capital stock as a whole did not grow.

The next figure just divides net investment by gross investment. Back in the 1970s, net investment was often around 40% of gross investment, but the share has been slumping over time. For the last decade or so, net investment has been about 25% of the gross–that is, about three-quarters of gross investment is just making up for depreciation of the pre-existing capital stock, and only one-quarter of gross investment is adding to the capital stock.

The likely reason for the growing gap between gross and net investment is that modern investment is more likely to be related to information technology, and less likely to be related to large physical machinery–and the information technology depreciates more rapidly and thus needs to be replaced and updated more often. A challenging implication is that, if we want the average US worker to be using a greater amount of capital on the job–which is one of the key drivers of rising labor productivity in the past–it now takes a bigger rise in gross investment to lead to a given rise in net investment compared to a few decades ago. Moreover, the US has not been a high-investment economy in the first place.

Maybe my perceptions are incorrect on this point, but my sense is that a lot of people believe that the US economy is making strong progress toward clean non-carbon energy, driven by increases in solar and wind power. I don’t see it that way. My own reading of the evidence is that the solar/wind presence in the US energy sector is barely getting underway, with some high hurdles to come.

For an overview, here’s a figure showing the US energy sector from the the US Energy Information Administration website. The left-hand categories show the primary sources of energy. Electricity is not a “primary” source, because it needs to be generated from the primary sources, but instead is a method for transmitting energy. Thus, the electricity sector in shown in the bottom center. The main sectors of energy use are on the right.

Some thoughts from this figure:

1) In 2025, after several decades of discussion of risks of climate change and the need to reduce carbon emissions, fossil fuels are 81% of US primary energy. Petroleum is by far the largest primary source for transportation. Natural gas is the single largest primary source for industrial, residential, and commercial use, as well as for generating electricity.

2) In the “renewables” sources of energy, which is 9% of the total, only about one-third of that is solar and wind–call it 3% of total US energy production. About 60% of renewables are “biomass,” including wood and the corn that goes into ethanol, with the rest being mostly hydroelectric (that is, dams).

3) Nuclear power as a primary energy source is about equal to the entire renewables sector, which means that it is about three times the size of solar and wind combined.

4) Within the electricity sector, 59% of the energy that goes into the sector is lost within the system itself, including “line losses” as electricity is transmitted and other factors involved in balancing the electricity grid. The figure shows that total energy flowing into the electricity sector is 33.5 quadrillion BTUs, while the amount flowing out is 13.8 quadrillion BTUs. Thus, about 35% of all primary energy flows into the electricity sector, but electricity accounts for only 18% of actual end-sector energy use. If the goal is to increase production of electricity to replace fossil fuels–say, electric cars to replace gasoline-fueled cars, or electric heating and cooling to replace natural gas–it will be necessary to generate more than twice as much electricity to replace the energy content of the fossil fuel source, to make up for electricity lost within the system. This holds true for increased production of nuclear energy and hydroelectric power as well, which feed into the electrical grid.

I’m not making an argument here about whether greater electrification of the US energy sector is good or bad, or the health costs of conventional polllution from burning fossil fuels, or the risks of climate change. This is an argument about numeracy.

If the US economy was to run primarily (say, more than half) on electricity from solar and wind, these energy sources need to rise by an enormous multiple. Solar/wind are currently 3% of US primary energy, so multiplying them twenty-fold would be 60% of current US primary energy. But remember that the electricity system for transmitting energy has losses in its operation, so to replace energy from fossil fuel use, we would need to (say) double solar/wind energy output again. It’s also necessary to “overbuild” capacity for solar/wind, so that when it’s dark and/or the wind isn’t blowing, energy can be stored for later use; for example, in the battery of an electric vehicle. We also seem to be entering a period when demand for electricity is rising due to developments in information technology, which means electricity production from solar/wind would need to rise still farther.

It seems foolhardy to put an ultimate number on how much solar/wind would need to expand if they are to become the predominant energy source for the US economy. But expanding by a multiple of 20 would be the extreme low end–which is what I have in mind when I say that if the vision for the future of US energy is to be predominantly solar/wind, the current levels of these energy sources are barely a beginning.

Of course, generating the additional electricity is only the first step. Remember that electricity is only about 18% of final energy use, so substantially greater electrification of the economy will requires a dramatic increase in the size and scope of the electrical grid–and it currently takes about a decade to build high-voltage interstate transmission lines, about half of which is spent on regulatory permissions. In addition, certain geographic locations work much better for solar and wind than others. Thus, this isn’t just a matter of expanding capacity of existing electricity lines, but of building additional transmission lines in new places. A US energy sector that relied heavily on intermittent sources of power like solar and wind would also need to build out city-scale battery storage capacity.

The growth of solar and wind power in size and efficiency has been a remarkable event in the US energy sector in the last two decades, such that they have come to play a cost-effective role in the electricity grid in many locations. (It seems worth noting that the withdrawal of existing subsidies for solar and wind power generation would truly demonstrate their cost-effectiveness.) But the numbers tell me that renewables as a group (counting hydroelectric) are about 11% of electricity input from primary sources; like all electricity, less than half of that input to the electricity sector reaches end-use sectors; and electricity itself only accounts for 18% of total US energy consumption.

Solar and wind power have a role to play in the US energy future. But taking seriously the numbers on sources and end-uses of energy, along with the role of the electricity sector, suggests that it will not be a predominant role any time soon.

Thanks to the power of musical theater and the genius of Lin-Manuel Miranda, I can now speak in public spaces about Alexander Hamilton and the First Bank of the United States without watching people’s eyes glaze over in real time. And I am duly grateful. But there is a preceding chapter to this story, which Matthew Wells tells in “The Bank of North America,” subtitled “Before the First Bank of the United States, another, less well-known institution helped the fledgling United States find its financial footing (Econ Focus: Federal Reserve Bank of Richmond, Third Quarter 2026). Wells sets the stage:

The nascent country’s financial situation was a major source of uncertainty. The weak and decentralized federal government created under the 1777 Articles of Confederation, along with the states, carried a debt burden of at least $70 million, owed to domestic lenders, as well as Dutch banks and the French and Spanish governments. To put the debt in context, the colonial GDP prior to the war was about $170 million. After five years of war, that number was undoubtedly much lower, possibly making the new country’s cumulative debt equal to a significant portion of its annual economic output. To make matters more complex, the U.S. currency was all but worthless thanks to the Second Continental Congress’ decision to finance the war by just printing money without the necessary gold or silver specie to back it (giving rise to the expression that items of little or no value were “not worth a Continental”). 

Hamilton’s First Bank of the United State began operation in 1791. But a decade earlier in 1781, the Congress chartered the Bank of North America, which began operations in 1782. Hamilton was a strong supporter of this earlier bank. The basic goal of this “bank” was to centralize federal borrowing: that is, the Bank of North America would start off by purchasing all national debt, and then reselling it through an organized market. As Wells writes:

Hamilton was committed to the idea of a national bank well before the end of the [Revolutionary] war. … [I]n a series of essays, … he called for the United States to adopt such an institution to act as the country’s fiscal agent, supplying funding to the government, handling its accounts, and managing its debt. … The national bank would also put forward a new, stable currency, as the Continental dollar had fallen to below one-eighth of its original value by the end of 1779 and would fall further still. Through prudent financial administration, Hamilton believed it would be able to pay off any war debt in just a few decades, making it “a national blessing … [a] powerfull [sic] cement of our union.”

Wells tells the step-by-step story of how the Bank of North America established itself, and thus came to serve as a testing ground and predecessor for Hamilton’s later and more famous bank. The original president of the Bank of North America, Thomas Willing, would also be the first president of the First Bank of the United States. For a few years in the early 1780s, it worked pretty well. Wells writes:

During this time, the bank performed its key operations, allowing the nation to begin finding its financial footing. Most importantly, it extended short-term loans to the federal government (as well as to Pennsylvania) for payroll, supply contracts, and debt servicing. It even loaned Philadelphia money to light the city’s streets and feed its citizens who could not afford food. These governments could then repay the bank whenever they received revenue, which allowed them greater flexibility and the chance to avoid default. … The circulation of a stable national currency also brought confidence to the new country’s financial system. The national government and the states could all conduct transactions, including taxation, without the frictions that came with the different actors having to determine the value of competing and overlapping currencies.

But the Bank of North America was also deeply controversial, often in ways that have an echo in modern arguments. For example, no less an authority than James Madison argued that creating the Bank of North America exceeded the power of Congress, but he was outvoted. (Remember, at this time the US Constitution had not yet been written.) There were complaints that the bank charged interest rates that were too high, and that the internal workings of the bank were entangled with conflicts of interest and foreign money. Wells summarizes the (not unfounded!) complaints of the critics: “Characterizing the bank as the root of most economic problems, they accused it of favoritism, extortion, and undue commercial and political influence. They also argued it engaged in systematic usury, leading many borrowers to financial ruin …”

The state of Pennsylvania revoked the bank’s state-level charter in 1785, then reinstated it in 1787. The bank’s national charter expired in 1789 with the end of the “Conferation Congress” of that decade and the start of the US Congress. The Bank of North American continued to operate as a Pennsylvania-chartered commercial bank under that name up through 1929, and after a series of mergers over the decades, it became part of Wells Fargo in 2008.

The Government Accountability Office (GAO) offers a blunt title for its most recent review of US fiscal policy: “The Nation’s Fiscal Health — Urgent and Sustained Action Needed to Improve the Fiscal Outlook (June 2026).

This figure shows the current-law projection of where US federal debt is headed, a projection built on the cheerful assumption that no new catastrophes like the Great Recession of 2008-09 or the COVID pandemic happen in the next 30 years or so.

The reasons why are the world’s worst-kept secret. For decades now, it was apparent that the oversize baby boomer generation born in the two decades after WWII would be retiring about now. For decades now, it has been apparent that the US health care system is driving up costs faster than the overall growth of the economy. Put these together, and the table shows that Social Security is projected to account for a rising share of GDP in the next 30 years, as are federal health care outlays (Medicare, Medicaid, the health insurance exchanges, and other programs).

In addition, the US government is right at the cusp of hitting one of the key signs of excessive debt, whether you are a person, a firm, or the government: the vicious cycle where interest payments start rising fast, because interest payments on past debt are so high that they are pushing up the need for more borrowing, which leads in turn to still-higher interest payments in the future.

The GAO asks what it would take to keep total US debt about where it is, at about 100% of GDP, heading into the future. Notice that this modest proposal would not require that the annual federal budget be balanced. It would just mean that annual deficits would be restrained enough that the total accumulated debt would grow only as fast as the overall economy. GAO writes:

To maintain debt held by the public at 100 percent of GDP in 2056 … our projections
estimate that the federal government would need to reduce deficits (i.e., reduce
the fiscal gap) by

• collecting 26 percent more revenue each and every year,
• spending 21 percent less each and every year on programs, or
• achieving comparable deficit reduction through a combination of revenue
  increases and spending decreases.

It is deeply dispiriting to me that no prominent policy-maker at the federal level, of either party, has an actual plan for dealing with this situation. If you take the numbers seriously, taxing the wealthy (without any corresponding rise in spending) or cutting fraud and abuse (without any corresponding cut in taxes), whatever the merits of such proposals, are not large enough to even be in the right ballpark of what needs to be done–and thus are fundamentially unserious as proposals.

About 10 years ago, the big topics that had economists all atwitter included the “secular stagnation” hypothesis put forward by Lawrence Summers and the rising-inequality hypothesis put forward by Thomas Piketty. Put the two theories together, and you have forecasts for a slow-growth, high-inequality future. The Review of Political Economy (38:3) has put together an eight-paper symposium on the topic: “What Have We Learned from Summers and Piketty Ten Years On?” There’s lots of thought-provoking stuff here, but I found myself especially drawn to an article by Steven Pressman, “Secular Stagnation After Piketty and Keynes” (pp. 961-979).

Pressman points out that the themes of secular stagnation and wealth inequality have been linked for a long time. The basic idea is that the wealthy have a lot of money that is being saved, rather than spent, and this lack of spending makes the economy grow more slowly. Phrased this way, there is an obvious two-birds-with-one-stone policy choice to fix both problems: tax the wealthy, and thus reduce inequality, and spend the money, thus pushing up aggregate demand and jolting the economy out of secular stagnation. As Pressman points out, advice along these lines goes back at least to the Francois Quesnay and the French physiocrats in the 18th century:

As far as I know, the first presentation of secular stagnation appears in static versions of the Tableau Économique (see Pressman 1994a). Quesnay was interested in economic reproduction and explained why the French economy languished while the British economy was growing rapidly and living standards were improving there substantially. Quesnay wanted to reverse the long-term stagnation of the French economy and to have France become more like Britain. His solution was for France to adopt a number of Physiocratic policy prescriptions and to end feudal restrictions on agricultural production. Some of his more noteworthy proposals were that taxes should fall on the class that consists (mainly) of wealthy landowners or proprietors (Pressman 1994b), encouraging consumption of goods produced by the productive agricultural sector, and discouraging savings and waste (Pressman 1994a).

Another linkage between the two ideas, going back in time, was that if a secular slowdown in growth was more-or-less inevitable–two centuries ago, a common idea was that rising output was going to run into diminishing marginal returns fairly soon–then the options were either mass starvation (Thomas Malthus) or widespread redistribution of income (John Stuart Mill).

The Great Depression brought the idea of long-term secular stagnation back to prominence; indeed, the term was coined in 1934 by Alvin Hansen. Paul Samuelson developed the idea of a “balanced budget multiplier” in 1948: tax the rich, who save a lot, have the government direct the money to the middle class and the poor who will spend more, and the result would be stronger economic growth without a need for budget deficits.

In short, there’s a long-standing current in economic and policy thought, manifesting itself in different ways at different times, that redistribution from those with high wealth or income to those with lower wealth or income would speed up the economy. A decade ago, Summers and Piketty were playing a role in resuscitating this long-standing theme. In this spirit, Pressman suggests that the modern policy along these lines would include higher marginal tax rates for those with the highest incomes and higher corporate tax rates. He’s not a fan of an annual wealth tax, pointing out that such taxes have been extraordinarily hard to implement in the past, but notes that an estate tax could function better as a form of a wealth tax.

Personally, I wouldn’t have a problem with moving the estate tax back to, say, the rates and rules tha applied in early 2000s. I’m less certain about higher marginal tax rates, but in 2026, the highest marginal tax rate kicks in at $768,700 for a married couple filing jointly. I’d be willing to try out a higher income tax bracket set well above that level. But I also think that the linkage from tax-the-rich, to more spending, to a permanently improved rate of economic growth makes the economic challenge facing us much too neat.

For example, the economy of China has for a half-century has famously high savings rates, more than double US levels. It has also had rising inequality. But the combination has been consistent with rapid economic growth. It used to be a standard recommendation that the US needed a higher rate of national savings, either from higher personal saving or lower government borrowing. Was that advice completely without merit?

As Pressman duly notes, the causes of a productivity slowdown in modern times are many and often self-reinforcing: slower population growth and an aging population, lower investment, the possibility that “most of the good ideas have already been discovered,” high US government debt, the shift to a service economy and intangible investment (areas where productivity growth may be slower), and others. I would add to this list other factor like the poor performance of the US education system for many children, problems of the US labor market in matching potential workers with jobs, underinvestment in building the nation’s reserach and development capacity, and other factors. Collecting higher taxes from those with high incomes and high wealth levels isn’t going to address those most of those issues in any direct way.

I’d also add that a widespread current concern seems to be that the US economy is about to enter a period of disruptively rapid economic growth, driven by new AI techologies. I think those worries about overly rapid AI-driven growth in the short- and medium-term are overstated. But if it happens, it would invert the earlier arguments that wealth inequality is associated with too-slow growth. Instead of redistribution to speed up the economy, we would be talking about redistribution in response to surging and unequal economic growth. I am congenitally wary about advice that remains the same, even when the situation shifts dramatically: for example, is it plausible that redistribution the answer to both slow growth and fast growth? Perhaps some level of redistribution is just a good thing for its own sake, rather than the answer to every question.

Looking at the benchmark interest rate for 30-year US Treasury debt, long-term interest rates have been rising. Any price change might happen for a number of different reasons: 1) expectations of future inflation are causing investors in Treasury debt to demand a higher rate; 2) as US government debt continues to climb, the perceived risk of this debt is rising; 3) the surge in productivity that will come from recent developments in information technology is pushing up demand for capital, and thus pushing up interest rates; 4) The higher intereset rates aren’t a US phenomonon, but rather a global one, and thus need a global explanation; and more. Hanno Lustig makes the case for a risk-based explanation in “America’s Risky Debt: What Markets See That Policymakers Don’t (Aspen Economic Strategy Group, August 2026, forthcoming The American Economy in a New Era, edited by Melissa S. Kearney and Luke Pardue).

Lustig lays out several pieces of evidence for a risk-based explanation. For example

If US Treasury bonds are perceived as safer than other assets, then the US government should be able to pay a lower interest rate than other borrowers. Up to about 2020, this pattern held true. But in recent years, investors seem to be viewing US Treasuries as very in risk to alternatives; indeed, the Wall Street Journal reported last fall that some big US companies like Microsoft and Johnson & Johnson were able to borrow long-term at lower rates than the US government.

Another risk-related pattern is called “flight to safety”: basically, when stock market prices fall or risk rises in some other way, investors head for the safe asset of US Treasury bonds. To put this another way, returns on stocks and bonds have a negative correlation. Again, this pattern held up to to about 2020. Now the correlation has flipped, and returns on stocks and US Treasury bonds are moving together — which is what you expect of two assets exposed to similar risks.

Managers of reserves at central banks aroun the world used to treat US Treasury debt as the primary saf asset: “Foreign reserve managers treated US Treasurys as the dominant safe asset, allocating more than 70 percent of allocated world foreign-exchange reserves to dollar-denominated assets. … At longer maturities, global investors now seem to prefer the safety of foreign G10 bonds.” (The G10 is shorthand for a group of 11 high-income countries–they decided not to change the name after Switzerland joined many years ago.)

Behind the scenes, the effects are apparent. For example, as the US Treasury has had to pay higher interest rates on long-term borrowing, it’s been moving to shorter-term borrowing. A problem with shorter-term borrowing, of course, it that you are planning to roll it over–that is, borrow the money again and again. In doing that, the US government as a borrower is not locking in long-term rates as often, but instead is more exposed to fluctuations in short-term interest rates. An increasing share of US Treasury debt is being purchased by hedge funds, who in turn are using that debt as basis for various strategies to make a buck, often with fairly short-term time horizons. These investors are not like, say, life insurance companies that have traditionally purchased long-term Treasury bonds as a way of making sure they could pay off long-term commitments to policyholders. If the hedge funds stop demanding as much Treasury debt, the interest rates on the debt will rise further.

As Lustig writes: “The marginal foreign holder of US Treasurys is no longer a central-bank reserve manager but a private, yield-sensitive investor: predominantly foreign banks, asset managers, and hedge funds … [T]hose Treasury investors with less price-sensitive demand have pulled back. The shortfall has been picked up by private leveraged investors whose demand is more elastic to yield and more fragile in stress.”

Lustig argues that the Federal Reserve has gradually, step by step, become entangled in keeping interest rates on Treasury borrowing lower than they would otherwise be. He argues that it’s time for the Fed to take a step back from the bond markets. If the US government is going to keep running enormous deficits, which means riskier borrowing, than the US government also face the higher interest rates that result. None of Lustig’s evidence suggest that a catastrophe or crash in US Treasury debt is just around the corner. But it does suggest that some yellow warning lights are flashing in world financial markets about the rapid build-up of US government debt.

The number of grains of sand on a beach is a classic example of an “infinite” number, in the sense that it would be impossible to count. But sand itself isn’t infinite. Demand for sand is way up, around the world, because it’s a key ingredient for some boom industries like concrete for construction and fracking for oil and gas drilling. But even lowly sand plays a role in many ecosystems. I’ve been commenting about the global market for sand for more than a decade nowg (for example, here, here, and here), but for those who would like an introduction or an update to the topic, the UN Environmental Program has published “Sand and Sustainability: An Essential Resource for Nature and Development” (April 2026). From the “Introduction”:

Sand, gravel, crushed rock and aggregates (hereinafter ‘sand resources’) are the most consumed solid materials on Earth (UNEP 2022). As fundamental ingredients in contemporary concrete and construction materials more broadly, sand has played — and continues to play — a central role in the built environment worldwide. Global demand for sand tripled between 2000 and 2020, fuelled by rapid population growth, urbanisation, and economic expansion (UNEP 2022). Since then, demand has remained stable but is projected to increase again. The global sand market was valued at USD 569.4 billion in 2024 and is projected to grow at around 3% annually, driven by urbanisation and infrastructure development (IMARC 2024) and the material demands of climate change adaptation and mitigation efforts.

While recent debates on raw materials have focused on critical minerals for the energy transition, sand plays an equally strategic, yet far less recognised role. In fact, the scale of sand use vastly exceeds that of critical minerals: around 50 billion tonnes of sand are extracted every year, compared to the projected annual extraction of 30 million tonnes of critical minerals by 2030 under a Net Zero Emissions by 2050 scenario (IEA 2023). Even for renewable energy infrastructure, sand and gravel constitute the largest volume of materials. For instance, they represent about 70% of the total volume needed for wind farms (Aska et al. 2025).

Despite the significant scale of demand and extraction, there are no exact global figures on how much sand exists, how much is extracted, where, or for which uses. … Even less discussed or understood is how sand underpins both human development and natural ecosystems. As highlighted above, sand, once extracted, is indispensable for housing and infrastructure, which form the foundation of economic activity and growth. Yet in nature, sand creates habitats for numerous species, shapes rivers and coasts, supports food and water security, and contributes to climate resilience (Torres et al. 2017). These ecological functions make sand essential for conserving biodiversity and maintaining the ecosystem services upon which humanity depends.

For an economically-minded reader, like me, the report suffers from a lack of even localized data on prices. Within the US economy, however, the US Geological Survey reports that prices for “Sand and Gravel (Construction)” rose from $10.52 per metric ton in 2021 to $14.50 per metric ton in 2025, as total production dropped modestly. The lack of data makes it hard to draw broad conclusions, but there are certainly localized examples where extensive sand extraction harmed ecosystems, including in ways that affected industries like tourism and fishing. The report concludes:

The sand crisis is no longer hypothetical. Globally, shortages are already halting major infrastructure projects. Demand for sand in the building sector alone could rise by 45 per cent by 2060 (Zhong et al. 2025). Yet unlike many environmental challenges where delayed action has led to escalating and irreversible costs, an opportunity for timely, coordinated intervention remains. Sand governance is ultimately a development choice.

The good folks at “Our World in Data” have been putting together a data series which shows monthly spending on the “on-site work to build data centers each month, including materials and construction labor. It excludes the cost of IT hardware like servers and storage, which can account for a large share of total investment.” Here’s the just-updated figure:

There’s an upward trend from about 2014, but the big rise kicks in around early 2023. At least as of the most recent data on this graph, for June 2026, there is no sign of the rise slowing down. Again, these are monthly figures, so on current trends, it’s plausible that just on-site construction spending for data centers will total $40 billion or more in 2026.

I’m of course aware that there is a degree of political pushback against building data centers, which the figure suggests isn’t having a dramatic effect, and which I think is largely misguided. Sure, there should be limits on where such centers can be built. But when I go on road trips around the country, I often find myself smiling when I drive into a modest-sized town, out in the countryside somewhere, and there is a sign and a turnoff for a hopefully named “industrial park”–without any actual firms or buildings visible. If the local community has already set the rules for industrial zoning, then data centers would seem to qualify. The on-site construction spending, as well as the longer-term running and maintenance of these sites, is largely blue-collar work. Yes, there are issues to work out concerning energy, water, noise and traffic. But some version of those issues will be true for pretty much any firm that wants to build in an industrially-zoned area.

Some of the opposition to data centers seems to arise because of a specific opposition to the new AI technologies., and yes, the new AI technologies are another reason for the recent surge of data center construction. But trying to limit AI in particular by hindering construction of data centers seems poorly targeted; for example, why not also try to limit AI by hindering US production of semiconductor chips, computers, smartphones, or other information technology products? Of course, if you just oppose all uses of information technology, it makes some sense. Bit If you have a smart-phone, or shop online, or work from home, or stream on your computer or television, or basically use the internet in any way, then you are using data centers. As the makers of the figure note, “Data centers power a wide range of online services beyond AI, such as streaming services and cloud storage.”

I’ll also add that AI as an industry may have the worst public relation campaign I’ve ever seen. As one of many examples, Genspark ran an ad during the Super Bowl that celebrated the idea that AI could do all your work–so that you could “take the day off.” If AI about taking everyone’s job, while producing endless online “AI slop” and deepfakes in text and video, while enabling hacking and simultanously making a few tech bros rich beyond the dreams of avarice, then there isn’t much to celebrate. But maybe, just maybe, the worst-possible scenarios are not all there is? Maybe, just maybe, there can be positive effects as well?

As one example (among many) of potential gains, Saloni Dattani recently published an essay titled “Every disease is a policy failure” (Works in Progress, August 11, 2026). The subtitle reads: “Few people know how much medicine has progressed in their lifetimes. Fewer know how much faster it could be progressing.” You can read about the gains over time in treating heart disease, diabetes, cancer, low-birthweight babies, and many others. If AI-assisted research has the potential to speed up health and medical innovation, so that it adds a decade or two to the average healthy human life, that possibility seems to me worth being open to a building boom in data centers.