Posts Tagged ‘business’
“Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor”*…
We’ve become a nation of credit and debit card users. As of this year, Pew reports, 42% of Americans don’t use cash for purchases in a typical week (up from 24% in 2015); another 46% use a mix of cash and plastic; only 12% use mostly (or entirely) cash. The Federal Reserve reports, unsuprisingly, that cash remains the dominant mode for the elderly and the poor; debit cards, for lower-to-middle-income households.
NBER unpacks one little-understood consequence of this shift…
Every time a consumer swipes a credit card, the merchant pays an interchange fee—typically around 1.9 percent of the transaction value—most of which funds the rewards that cardholders receive. Because merchants generally charge the same prices regardless of how customers pay, consumers who use cash or debit cards effectively help finance the rewards enjoyed by credit card users. In Who Pays for Payments? (NBER Working Paper 35067), Mark L. Egan, Gregor Matvos, Amit Seru, Lulu Wang, and Vincent Yao use novel merchant-level data from Fiserv—one of the largest US merchant acquirers—to measure how the payment system redistributes resources.
The primary dataset contains establishment-level payment data from 2006 to 2022, including total payment values, transaction counts, and interchange fees paid for different card types…
… The researchers’ analysis using these datasets suggests that interchange fees transfer approximately $30 billion annually from cash and debit card users to credit card users. Cash users lose about 96 basis points of purchasing power, and regulated debit card users lose roughly 47 basis points, while basic and premium credit card users gain approximately 48 and 59 basis points, respectively. Because credit card use rises with income, the system generates an estimated $9.2 billion annual transfer from households earning less than $150,000 to those earning more.
Two forces moderate this redistribution. First, the tendency for cash, debit, and credit card users to shop at different merchants limits the overlap necessary for cross-subsidization. Second, where overlap does occur, such as at large grocery stores and gas stations, interchange fees tend to be lower due to sector discounts and negotiated rates. Together, these forces reduce the transfer by approximately 25 percent relative to the transfer that would occur with homogeneous consumers and merchants.
The researchers also examine the redistributive consequences of two specific developments in the payment system. The first is the Durbin Amendment, which capped interchange fees on debit cards issued by large banks. The authors show that one perhaps unintended consequence of the amendment was that it primarily benefited credit card users through lower retail prices at the expense of regulated debit card users, who lost approximately $9.6 billion in rewards and free checking benefits. This was a net transfer from middle-income to higher-income households. The second development is the rise of premium credit cards, which grew from 15 percent of credit card volume in 2006 to 60 percent by 2022. This has also been a regressive development. While premium cardholders gained about $7.9 billion, debit card users—not cash users—bore the largest dollar losses because they shop most frequently alongside premium card users…
The rich getting richer: “Who Ultimately Pays Credit Card Interchange Fees?” from @nber.org.
Pair with Annie Lowrey on another burden– a “time tax”– that falls disportionately on the neediest: “How American Bureaucracy (Literally) Steals Years From Your Life“:
Washington currently estimates that Americans spend 12 billion hours a year filling out government forms, meaning the average person spends six 8-hour workdays filing their taxes, signing up for Medicaid, renewing their driver’s licenses, and applying for government loans. At prevailing wages, this uncompensated labor is worth $430 billion a year. If Washington were to create a Department of Bureaucracy to take on the paperwork it shunts to citizens, the agency would require 5.9 million employees, making it four times the size of the active-duty military. The DOB’s payroll would be larger than that of every other federal department combined.
The nation’s paperwork regime frustrates every resident, and particularly lower-income residents who use more government programs and interact more frequently with public officials. The political scientist Elizabeth Cohen has done seminal work exploring time as a potent, if obscure, form of political currency. “The devaluation of a person or group’s political time is a structural obstacle to equality,” she writes. Yet we can’t measure time and effort as easily as we measure dollars, and we don’t even try. The 12-billion-hour estimate is an undercount, and an egregious one…
* James Baldwin (see also Terry Pratchett’s “Boots theory“)
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As we second-guess secreted subventions, we might spare a thought for Jean-Baptiste Colbert; he died on this date in 1683. A French statesman who served as First Minister of State under the rule of King Louis XIV from 1661 until his death. His lasting impact on the organization of the country’s politics and markets, known as Colbertism, a form of the mercantilism so popular in the Trump Administration today. Colbert also helped craft the Code Noir, a legal instrument that sanctioned an intentionally brutal system of torture and repression to enforce institutional slavery in the French colonial empire and restrict the enterprise of free Black people.
Though Colbert was more competent and less crony-ish than the crew at “work” in D.C. over the last couple of years, his goal of a healthy economy was frustrated by a King whose spending out-ran (and whose favoritism undermined) Colbert’s efforts. In the longer run, many economists suggest that “Colbertism” has contributed to contributed to a lack of adaptability in French industry and a hostility to technological innovation.
“The ice was here, the ice was there, The ice was all around”*…
Your correspondent will on the road for the next several days, so (R)D will be on hiatus until on or around September 3. Meantime, a seasonally-appropriate post…
Writing for Texas Monthly, Lauren Larson visits Reddy Ice, the largest producer of packaged ice in North America and it’s CEO, Lonny Warner, to explore a billion-dollar industry that’s essential to us all, but that few of us stop to ponder…
… Warner joins a long procession of icemen who have bemoaned the lack of interest in their trade. “We are so familiar with water in its liquid and its solid form, that we seldom think of it as a mineral, and still less as a mineral product of any considerable industrial importance,” wrote W. P. Blake, an American geologist and mining consultant, in an 1883 report on the country’s ice trade. And yet, he wrote, “the industry is peculiarly American, and in no other country has the business of cutting and storing ice been so well systematized and perfected.”
By the time of Blake’s findings, people had been experimenting with making and keeping ice for centuries. In India, possibly as early as three thousand years ago, people used clay pots to cool water: The water’s evaporation through the clay removed heat, leaving chilled water or even ice under the right conditions. The technique is still used, especially as the country experiences record heat waves.
Americans in the nineteenth century, the dawn of the modern ice industry, had it easier. “The natural supply of ice in the United States is almost beyond calculation,” wrote a U.S. census agent named Henry Hall in a report submitted in 1883. Since at least 1805 so-called natural ice had been harvested from northern lakes, rivers, and ponds in a process accurately and musically depicted in the opening scene of Frozen, a rare cinematic nod to the ice industry. (In Eugene O’Neill’s 1946 play, The Iceman Cometh, a salesman has told his alcoholic friends that his wife is at home with the iceman. The iceman in question is meant to evoke death—the woman has been killed—but anxieties around swole deliverymen entering homes and seducing wives seem to have been prevalent in the twentieth century.) Using long handsaws and a variety of improvised plows, Northerners would cut grids in the ice and remove blocks, which were then stored or sent to warmer locales by ship or rail in insulated containers.
Thanks to a man named Frederic Tudor, some of these destinations were quite far-flung. Tudor was a merchant from Boston, more mutton chop than man in his later years. He would ship natural ice from Thoreau’s Walden Pond, which is startlingly Whole Foods–y branding for the nineteenth century.
Tudor envisioned a global ice industry. Perhaps he was motivated by the limited market for his Gläce-priced ice blocks in the U.S. or by the prevalence elsewhere of tropical fevers such as yellow fever, as the symptoms of these were often soothed by cold water. (In 1851 a doctor named John Gorrie experimented with creating a cold sickroom for malaria patients’ high fevers, effectively inventing air-conditioning.) In 1806, Tudor attempted to ship blocks of ice to the island of Martinique, a speculation that is detailed by Jonathan Rees, a history professor at Colorado State University Pueblo, in Refrigeration Nation, one of three books he’s written about refrigeration. First, the owner of a boat Tudor had chartered got cold feet, convinced, as many shipowners were, that the ice would melt and sink the ship. Tudor chartered another ship and successfully delivered his wares to the island, but Martinique had no icehouse in which to store it, and it began to melt, as ice does. Customers also had no idea how to transport it from his hold to their homes or keep it cold once they did; Tudor advised them to wrap their purchases in cloth. “He still got complaints, since it melted anyway,” writes Rees.
Tudor could very well have gone down in history as the father of the modern Potemkin start-up rather than the father of the modern ice industry, but he persevered. He saw that in order to create the worldwide ice trade he envisioned, he would have to build a global network of icehouses. Eventually his empire grew vast, and historians call Tudor by the absolutely sick moniker the Ice King…
… By the mid to late nineteenth century, artificial ice makers were being invented across the globe. Texans—perhaps shaken by the Civil War, which hindered the shipment of ice, and also likely motivated by the state’s growing beef industry—were aggressive in the ice race. By 1867, notes Rees, when the United States had only eight ice plants, three existed in San Antonio. Some early refrigeration machines used compressed ammonia, which is still widely used as a coolant. In the coming decades, ice plants bloomed across the state like frost on a window.
In the late 1920s, Southland Ice Company had eight plants and 21 retail locations in Texas, from which it provided ice for the iceboxes of residents in surrounding areas. (Widespread adoption of refrigerators was still several decades away and was driven, Rees tells me, by the lure of ice in the home. “The argument was always, ‘Get rid of the iceman. Buy a refrigerator.’ ”) Southland eventually became Southland Ice Corporation, and its icehouses, which had grown into convenience stores called Tote’ms, were rechristened 7-Elevens. In 1972, as 7-Eleven was growing into the brand that would stain the lips of countless middle schoolers with its neon Slurpees, Southland rebranded its large ice operation, calling it Reddy Ice Division.
Reddy was not yet the acquisitive ice empire it is today. For most of the twentieth century, regional producers thrived. But then, in the early nineties, the packaged-ice industry encountered an innovation: the in-store bagger. Refrigerator ice makers already existed but were not a particularly virile threat, as it would take a long time for a refrigerator-door ice maker to fill a cooler. In-store ice baggers were a different story.
The machines had been perfected by a young man named Jim Stuart, a former accountant who had consulted for a company called Automatic Ice Machine, or A.I.M. Inspired by that work, he began selling what he called the Ice Factory, a machine that automatically made and packaged ice at grocery stores and other retailers that had previously bought their ice from local businesses. Stuart began acquiring these flailing producers. His Houston-based company, Packaged Ice, quickly achieved ice supremacy, and in 1998, Stuart bought Reddy. (It still makes the Ice Factory.) A 2001 New Yorker profile christened Stuart the Emperor of Ice…
[Larson reviews the uses to which we put ice– the social (American’s prefer their beverages chilled), but also the more industral: ice is critical to everything from construction (e.g., in high temps it’s used to keep concrete from setting too quickly and becoming brittle) to medical treatment and research…]
… Not far from Reddy’s headquarters is a storage facility with twelve thousand pounds of ice that’s kept on reserve—kept on ice!—for emergencies. When natural disasters level our critical systems, as ritually occurs in Texas, ice is suddenly even more crucial. “When a hurricane hits and power goes out, we’re a lifeline,” Warner says. “It’s not for drinks at that point. It’s ‘how do I keep my food cold?’ ” In the event of a crisis, Reddy works with H-E-B, Walmart, and the Federal Emergency Management Agency to distribute ice, often thousands of pounds of it. He vividly remembers when Hurricane Beryl tore through Houston soon after the Fourth of July in 2024. Celebrations had cleared out Reddy and its distributors’ reserves, leading them to scramble to get ice from across the country to Houston. “We had H-E-B calling us for ice, and we were just trying to get it anywhere we could,” Horton, of Polar Ice, recalls.
The moments when ice is needed but unavailable are as irritating and unsettling to us as the breakdown of any utility, even in much lower-stakes contexts than a hurricane’s aftermath. “Ice is actually a very high-passion business,” says Juan Estrada, who directs Reddy plants in the Metroplex and across the state. Customers might stop at a convenience store on the way to a party, gather some snacks, and then ask for a bag of ice at the checkout. If there is no ice available, Estrada says, they’ll likely abandon all their other purchases and walk out. For most of us, these small but searing disappointments are the only times we think about the role of ice in our lives.
But for many Texans, ice can be the only thing keeping us from succumbing to our surroundings. In 2024, Harris County Public Health reported that heat-related illnesses had increased by 329 percent between 2019 and 2023. Texans who are exposed to heat as part of their work in industries including agriculture, construction, and delivery—as is the case for more than 35 percent of Americans—are disproportionately vulnerable, as are older adults and children.
Those of us outside those groups are not immune. As early as March of this year, a ranger at Big Bend National Park tells me, she and her colleagues were responding to between four and six heat-related incidents each week. Rangers bring ice on almost every medical response; it’s crucial for stabilizing patients during what can be an hours-long journey from the park to a hospital. In the summer, says San Antonio Fire Department medic Ashley Long, everyone is vulnerable to the heat, even those who have been hydrating all day. Much like the ice distributors, Long responds to ten times as many emergencies when it’s hot. “The hospitals are just slammed. Every single bed is taken,” she says. “Every disease and debilitation that people have is magnified by the heat.”
Perhaps we don’t think much about ice because doing so requires us to consider how implausible it is that we’re able to live comfortably in such heat. How lucky we are to enjoy a snow cone on a one-hundred-degree day.
An invisible essential: “Inside the Billion-Dollar Industry That’s Keeping Your Beer Cold—and Saving Lives,” from @lonlozzin.bsky.social in @texasmonthly.bsky.social.
For a look at the even larger, even more infrastructurally-central, but equally opaque– ‘cold chain’: “Food is simply sunlight in cold storage.”
* Samuel Taylor Coleridge, The Rime of the Ancient Mariner
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As we stay cool, we might note that there’s still time to check in on World Water Week; today is its final day. While its in-person events are happening in Stockholm, much of the program is available online.
Why we should care (UK-centered, but all-too-relevant across the globe).
“I went down the street to the 24-hour grocery. When I got there, the guy was locking the front door. I said, ‘Hey, the sign says you’re open 24 hours.’ He said, ‘Yes, but not in a row.'”*…
As Max Burns reports, a wave of corporate consolidation is reshaping the grocery industry; today, the U.S. has one-third fewer grocery stores than it did 25 years ago. The result is that just four corporations—Walmart, Kroger, Costco, and Albertsons—control more than two-thirds of the U.S. grocery market, This is squeezing workers, limiting competition, and giving this handful of retailers unprecedented control over what Americans pay for food…
If it feels to you like American consumers have fewer choices than ever before, your mind isn’t playing tricks on you. Federal regulators are approving corporate mega-mergers at the fastest rate since the 1980s. Consumers are feeling those industry-spanning consolidations everywhere, as hardly a sector of American life has escaped Wall Street’s goal of building the largest and most powerful corporate conglomerates in world history.
From power utilities and artificial intelligence to broadcast news networks and railroads, a few massive corporate players have come to dominate American commercial life in ways not seen since the Gilded Age trusts of the 19th century. Those consolidations have generated historic profits for executives and major shareholders while working families are faced with lower quality goods and services, fewer options, and a hostile labor market unfairly skewed toward the interests of the ultra-rich.
Democrats have been quick to criticize some of the nation’s biggest mergers as anti-worker and anti-consumer, but one critical sector of the U.S. economy has managed to escape widespread public criticism: grocery stores. Thanks to a record rise in special interest cash donations to both Democrats and Republicans, grocery-industry lobby groups have managed to keep prices high, wages low, and consumer choice limited while avoiding federal policymakers’ crosshairs. The result is an invisible crisis in the nation’s food industry that threatens to reshape how and what Americans eat.
In a corporate landscape defined by Republican deregulation, America’s grocery stores and food suppliers are consolidating despite active federal laws explicitly intended to prevent anticompetitive behavior. Perhaps the most important of those laws is the Robinson-Patman Act of 1936, or RPA, also known as the Anti-Price Discrimination Act. For decades, RPA ensured fair competition by banning food suppliers from charging different prices to different stores; at least it did until the Reagan-era Federal Trade Commission largely stopped enforcing it in the 1980s. Even though RPA is still the law of the land, food suppliers like Pepsi now routinely ignore the law without consequence.
“Big corporations have buying power, and they can oppress and dictate to producers what they want to pay for crops,” Rhode Island Lt. Gov. Sabina Matos told me. “A corporation can come to a farmer and say ‘we’ll pay you this price for potatoes, but you can’t give that price to anyone else,’ so they fix prices in a way that hurts independent supermarkets and independent businesses.”
Megacorporations aren’t subtle about flexing their market power to fix prices in ways that protect other megacorporations. Last year President Donald Trump’s FTC dismissed an RPA claim against PepsiCo which alleged that Pepsi illegally offered grocery chain Walmart unfair pricing discounts while charging smaller chains more for the same products. When independent grocery stores undercut Walmart by lowering the price of Pepsi products, PepsiCo allegedly responded by raising wholesale prices or refusing to do business with the smaller stores until they raised prices above those at Walmart.
As independent grocery stores struggle, they become more likely to sell out to larger national chains, leading to consolidation that makes both prices and employee wages less competitive. As president of the United Food and Commercial Workers International Union Local 3000, Faye Guenther represents over 50,000 grocery and retail workers across the Pacific Northwest. Guenther has spent years fighting the growing imbalance between rising prices and falling wages. Now, she says, things have reached a crisis point for regular Americans…
Read on for Burns’ looks at the impact on workers (TLDR: fewer jobs, lower wages), availability of stores (TDLR: or its opposite, food deserts), and food prices (TLDR: they’re rising), and for his suggested remedies.
The painful reality behind the joke “I’m getting stronger with age. I can now lift $100 worth of groceries with one hand!”: “America’s Grocery Monopoly Problem,” from @themaxburns.bsky.social in @damemagazine.bsky.social.
See also: “Grocery Retail: The Last Link in the Monopoly Chain.”
Also apposite: “Big Food Versus the People” (what court battles reveal about the ultra-processed food industry’s corporate litigation strategies). Further to which: “Is the recycling symbol free speech? A judge just ruled it could be“…
A pioneering California law meant to sharply limit use of the familiar “chasing arrows” recycling symbol has been blocked by a federal judge who said it probably violates the First Amendment.
In a preliminary injunction issued earlier this month, U.S. District Judge William Hayes halted enforcement of SB 343 after food, packaging and retail groups sued, finding that key provisions were “unconstitutionally vague” and likely infringed protected commercial speech. Enforcement of the law, passed in 2021, was expected to start this fall.
The decision is a blow to environmental advocates, who had hoped to remove the familiar symbol from a huge array of plastic products, in line with a statewide study showing that only a fraction are widely collected and actually recycled. SB 343 said only goods and packaging accepted by recycling programs serving at least 60 percent of Californians and then actually sorted for recycling — not collected and thrown away — could bear the chasing arrows.
Hayes’ constitutional reasoning surprised supporters of SB 343 because similar arguments against environmental marketing regulations have historically struggled in court….
Of course, there’s always eating out… but of course, that’s got its own issues: “The restaurant business is changing beyond recognition,” gift article from @economist.com.
Oh, and we might note that this is National Farmers Market Week.
* Steven Wright
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As we chow down, we might recall that it was on this date in 1930 that the officially-adjudicated “first supermarket” opened: King Kullen in Queens, New York.
Grocery chains had been around since 1859, when The Great Atlantic & Pacific Tea Company (A&P) was established. But they rarely sold fresh meat or produce and relied on the old mercantile system of clerks puling items from shelves on request. As long-time readers may recall, the first self-service grocery store was the Piggly Wiggly, which shifted to self-serve in 1916.
The first modern supermarkets appeared just over twenty years later, offering a full range of food items, beverages, and household items under one self-service roof, often with an emphasis on low prices as well as convenience. There were a number of contenders for the “first supermarket” crown…
To end the debate, the Food Marketing Institute in conjunction with the Smithsonian Institution and with funding from H.J. Heinz, researched the issue. They defined the attributes of a supermarket as “self-service, separate product departments, discount pricing, marketing and volume selling.” They determined that the first true supermarket in the United States was opened by a former Kroger employee, Michael J. Cullen, on 4 August 1930, inside a 6,000-square-foot former garage in Jamaica, Queens in New York City. The store King Kullen, operated under the logic of “pile it high and sell it cheap.” The store layout was designed by Joseph Unger, who originated the concept of customers using baskets to collect groceries before checking out at a counter. Everything displayed for sale in the store “had prices clearly marked”, meaning that consumers would no longer need to haggle over prices. Cullen described his store as “the world’s greatest price wrecker.” At the time of his death in 1936, there were seventeen King Kullen stores in operation. Although Saunders had brought the world self-service, uniform stores, and nationwide marketing, Cullen built on this idea by adding separate food departments, selling large volumes of food at discount prices and adding a parking lot. Moreover, the supermarket format as pioneered by King Kullen was not only cheap, but convenient, in how it combined so many different departments under one roof which had formerly required trips to separate stores. – source
“Let’s go to the numbers”*…
From the McKinsey Global Institute, the executive summary of their snapshot– a “balance sheet”– of the global economy…
• The global balance sheet takes stock of all assets, liabilities, and wealth, providing a lens into economic health. This annual update estimates that it reached nearly $1.8 quadrillion ($1,800 trillion) in 2025, up from $1.7 quadrillion in 2024. Several asset classes grew further out of balance with the underlying economy, raising the possibility of corrections through inflation, asset valuation losses, or, optimally, productivity growth.
• The balance sheet’s mounting detachment from the global economy was driven by the world’s two biggest economies in 2025. US equity values soared to 2.4 times corporate net assets as profits were double their share of GDP since 2000. China’s corporate debt grew to 80 percent of real assets, versus 50 percent globally. Government debt remains near all-time highs in the United States and has grown most rapidly in China.
• Globally, most corporate and household debt and real estate moved closer to 25-year averages relative to GDP. Inflation helped with this normalization, although values remain well above pre-2000 levels. The ratio of productive assets to GDP held steady amid flat investment.
• Global household wealth growth rose to a new high of $570 trillion, driven by “paper” gains. Only 20 percent came from real capital formation, while valuations of existing assets grew four percentage points faster than already-high consumer price inflation. In the United States and Canada, equity values drove wealth growth. China, France, and Germany saw a drop in paper wealth as real estate prices declined. In the United Kingdom and Japan, inflation pushed up asset values.
• Major economies were on different pathways entering 2026. The United States has been in a “productivity acceleration” scenario, but high public debt and equities add the possibility of “sustained inflation” or “balance sheet reset.” Europe has gravitated toward “secular stagnation” as sluggish demand depresses growth and interest rates. China has experienced a partial balance sheet reset amid declining property values, although government spending and corporate investment have continued to propel balance sheet growth.
In this report, we provide an update on the global balance sheet in 2025, exploring to what extent its recent expansion, and by extension wealth growth, has been “in balance.” The analysis finds that wealth was, to an even greater extent than previously, rooted in asset values rising faster than real economy investment and growth, creating record levels of global wealth “on paper.”
Although many economies that were studied experienced wealth and balance sheet swings, the global picture was largely driven by its two biggest: the United States and China. Higher US equity values and the accumulation of China’s public and private debt brought some near-term economic benefits but left their economies more vulnerable to potential corrections.
Businesses use both income statements and balance sheets to develop a complete picture of their financial health. Analysts of the global economy tend to focus on the former. Since 2021, MGI has developed a “global balance sheet” to fill this gap, representing a clearer view into the world economy’s wealth and health.
Our previous reports found that from the mid-1990s to the COVID-19 pandemic, household wealth expanded faster than gross domestic product. Asset prices for real estate, equities, and bonds grew, as did debt and deposits. This occurred amid declining (and eventually rock-bottom) interest rates, rapidly expanding US profits, and a property boom in China. Productivity did not keep pace across advanced economies, nor did real wealth formation through net new investment.
When the balance sheet outruns the underlying economy, weaknesses can be exposed. When real estate and equity values rise faster than GDP, capital may disproportionately go to asset repurchases, sometimes with a lot of leverage. This may push up valuations but leave the economy deprived of the type of investment that generates long-run growth. For households, wealth rises but merely on paper, with heightened risks of eventual corrections. Growing asset values also tend to exacerbate wealth inequality, as existing owners of wealth see large gains while entering asset markets becomes harder for others (for example, young households trying to buy a home).
Elevated balance sheets may correct in one of three ways. A productivity acceleration scenario involves higher income supporting high asset values and debt; this is the most preferred outcome. A sustained inflation scenario brings down the real values of assets and debt, recalibrating the balance sheet with higher nominal GDP. But it can erode inflation-adjusted wealth along with other undesirable side effects. A balance sheet reset scenario, entailing a drop in asset values, deleveraging, and defaults, would shrink the balance sheet in absolute terms, with severe wealth losses and, often, lengthy periods of lost economic growth. Or the balance sheet may just stay high, particularly under secular-stagnation-like conditions of low investment and interest rates, as seen in the United States and Europe in the 2010s. That’s seemingly good for wealth, but at the cost of low growth and rising leverage.
Historically, most balance sheet corrections have taken place through higher inflation. Indeed, the inflation coming out of the COVID-19 pandemic in the United States and Europe brought a correction in the balance sheet (and wealth) ratio to GDP. In China, a drop in property values drove a decline in wealth to GDP.
In 2025, global wealth reached a higher dollar value than ever before. But how “healthy” was this new growth? After postpandemic corrections, some balance sheet items have resumed expansion and reached new heights. This was particularly the case for US equity as AI fueled market optimism and corporate earnings continued to climb. Rising government debt relative to GDP remains a challenge in many economies amid higher interest rates. Stocks of currency and deposits remain high compared to longer-term historical norms. Altogether, this has culminated in even more wealth on paper than in the past several decades and raises the stakes for US corporate earnings to deliver.
Balance sheets, and macroeconomic factors like productivity and inflation, point to diverging trends across major economies. Recognizing the swing factors that can shift an economy to productivity acceleration is more urgent than ever: for the United States, corporate earnings and greater government saving (in other words, less borrowing); for Europe, greater investment; for China, higher domestic consumption.
Future global wealth and stability may depend on it…
[The report unpacks 0with lots of charts/data) the contents– the constituent elements– of the balance sheet, examines whether or not it is “in balance,” and considers whether the growth that it reflects has been “healthy.” (McKinsey worries that it has not been.) It concludes, addressing the executives who are McKinsey’s primary clients…]
… A balance sheet that is out of kilter with the economy—in other words, with high paper wealth fueled by debt and liquidity levels significantly above historical norms—can unwind via higher productivity, higher inflation, or asset price corrections. Balance sheets may also remain large, typically under secular-stagnation-like conditions, effectively kicking the can down the road for potential correction.
Each of these four scenarios shapes the long-term economic outlook. Only productivity acceleration delivers real economic growth justifying valuations, thus protecting wealth. The others sacrifice wealth, growth, or both. Sustained inflation reduces real values of wealth, secular stagnation sees low growth, and a balance sheet reset signals a loss of wealth and growth. Importantly for business leaders, two scenarios would likely mean structurally higher interest rates: Productivity acceleration would entail greater demand for capital amid higher business investment, while sustained inflation would likely involve central banks tightening policy rates and, ultimately, higher long-term yields.
All scenarios are possible for all major economies. However, they appear to be on different pathways, with different swing factors that could move them from one trajectory to another.
For executives, this means both preparing for an unusually broad array of economic pathways and carefully watching the swing factors, which rise above the noise of daily indicators (see sidebar “Business planning for all scenarios”). Leaders across sectors and industries could also explore ways to encourage the optimal outcome, the productivity acceleration scenario.
Major economies show significant divergence in trends across macro drivers of productivity, inflation, and interest rates, along with fundamental balance sheet components including real estate, equity, and debt.
The United States has seen a structural uptick in both productivity growth and interest rates relative to the prepandemic period. Productive investment, particularly driven by the tech sector, has recently grown. High equity values also signal market confidence, although they may pose some downside risks. Meanwhile, inflation remains above the Federal Reserve’s 2 percent target and government debt remains near all-time highs, adding further inflation risk.
The eurozone has experienced a return to secular-stagnation-like conditions, akin to the prepandemic period, amid flat productivity and higher saving. Europe’s balance sheets overall appear more in balance compared to the US balance sheet (with a few exceptions, such as Italy’s government debt). Productivity growth rates, however, are down across the region’s three largest economies (Germany, France, and Italy). Until recently, inflation was mostly trending toward the European Central Bank’s 2 percent target, although Europe is more exposed to energy price changes. Personal savings rates remain high amid a drop in aggregate demand and per capita household wealth has declined in PPP terms in Germany and France.3 Productive investment remains below prepandemic and global averages.
China continues to work through a partial balance sheet reset in the face of a continued decline in real estate, with questions about future growth drivers amid low household demand and a boom in corporate investment. Productivity growth has receded in recent years, although it remains above the rate in advanced economies. Inflation and, in tandem, nominal interest rates have dropped, and concerns have shifted to dealing with deflation risks. At a macro level, lower household property investment has been offset by higher corporate investment, especially among state-owned enterprises, and by government spending. This has coincided with a substantial rise in corporate and government debt, both reaching all-time highs.
While the United States is the only major economy showing signs of productivity acceleration, it is not guaranteed long term, and other economies have a potential path to it. Focusing on “swing factors” could help filter signal from noise in the daily flow of indicators, market fluctuations, and political headlines. These factors differ by economy.
In the United States, swing factors that could knock the economy out of productivity acceleration include the “fiscal tightrope” and corporate earnings.
- Government debt stands at about 120 percent of GDP. Combined with higher interest rates, this means more public spending will need to be directed toward debt repayment. Public spending could come under pressure, especially from bond investors, in the form of higher market interest rates. These translate into higher business costs of capital. If fiscal policy tightens too little, a public debt crisis or sustained inflation becomes more likely. Too much, and secular stagnation is a potential outcome. To bring budgets back into balance, greater fiscal saving (or lower borrowing) on the order of three percentage points of GDP would be needed.
- On the corporate-earnings side, an equity or wealth reset could be triggered by a large structural shift in the longer-term outlook—for example, from AI disappointment or large geopolitical disruption. Equities are at all-time highs, at 3.7 times GDP and 2.4 times net assets, and constitute nearly 40 percent of household wealth. A price correction could result in a sharp pullback in demand, ushering in an extended period of low growth. It is thus imperative that corporate earnings deliver on high expectations…
Eminently worth reading in full: “The global balance sheet 2026: Imbalance and divergence.”
See also: “World Economic Situation and Prospects 2026” from UNCTAD (the UN Trade and Development Organization), whose review of the global finacial situation resonates with McKinsey’s, but whose recommendations are targeted to global policy makers and development champions:
• Strengthen coordination across macroeconomic policies. Monetary policy alone cannot manage persistent price pressures. Better alignment between monetary, fiscal and industrial policies is essential to stabilise inflation, support investment and protect vulnerable groups.
• Use fiscal policy strategically and credibly. Targeted and temporary measures can help protect households from high prices and support social cohesion, while credible medium-term fiscal plans and prudent debt management are essential to rebuild fiscal space.
• Scale up multilateral cooperation and development finance. Implementing commitments under the Sevilla Commitment, including debt reform and expanded concessional and climate finance, is vital to closing investment gaps and reducing systemic risks.
• Reinforce an open, rules-based trading system. Strengthening transparency, predictability and cooperation in global trade remains central to sustaining growth and limiting fragmentation in an increasingly uncertain global economy.
And for a differently-flavored kind of accounting: “What the Big Mac index reveals about a global currency beef.”
* Catchphrase often used by financial and sports journalists to transition to statistics or financial data, e.g., on public radio’s wonderful Marketplace.
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As we ponder the political economy, we might recall (hoping that history doesn’t repeat itself) that on this date in 1929, while the U.S. economy was already showing signs of strain (agricultural strains and a sagging consumer market), the U.S., its businesses, and its financial markets were still in the “Roaring Twenties.” Roughly three months later (on October 24, 1929, “Black Thursday,” and October 29, 1929, “Black Tuesday”) America– and the world– suffered the Wall Street crash of 1929 and began the slide into the Great Depression.
By this date in 1932, stocks had lost roughly 90% of the value they had had three years earlier. GDP in the U.S. had fallen 30%; GDP around the world was down 15%. International trade fell by more than 50%, and unemployment in some countries rose as high as 33% (peaking in 1933 at 25% in the U.S.).
“If you optimize everything, you will always be unhappy.”*…
Phil Tinline on the history and consequences of the impulse to optimize businesses, markets, and governments…
Optimization means achieving a measurable objective—that is, maximizing or minimizing a given number. It requires controlling the inputs and processes that affect the objective, in order to find the most efficient way to achieve it. It draws on centuries of mathematical discovery, but it emerged in its modern form under the pressure of World War II and the need to manage the byzantine complexity of US military logistics.
In the summer of 1947, a Stanford-trained mathematical scientist named George Dantzig sat in his office at the Pentagon, laboring over US Air Force planning issues with a desk calculator. The problems he had dealt with during the war and since involved “an astronomical number of feasible solutions to choose from,” making it impossible to calculate which was the best. As he recalled, “Those in charge often do a hand-wave and say, ‘I’ve considered all the alternatives,’ but this is so much garbage.” All those leaders had to offer was that their “‘experience’ and ‘mature judgment’ would guide the way” by laying down rules that would limit the options.
The problem, Dantzig realized, was that “you could never find any direct relationship between the stated goal and the actions to achieve the goal.” The solution, he believed, was to formulate a complex real-world problem as a mathematical model. This could then be solved by what became Dantzig’s “simplex algorithm” (or “simplex method”), provided a precise goal was set as its “objective function.”
The simplex algorithm radically reduced the number of feasible solutions. It soon became clear that it could be brought to bear far beyond the military: “All one had to do,” Dantzig remembered, “was change the names of the columns and the rows, and it was applicable to an economic planning problem or to an industrial planning problem.”
In engineering, optimization was put to use in designing rockets and aircraft, and the shape of cars, wind turbines, and hydrofoils. It redefined manufacturing, circuit design, and the management of supply chains. Its impact is still visible in measures of the occurrence of the word “optimization” itself. Before 1950, the term was barely in use at all; thereafter, its frequency soared.
Economists embraced optimization too. An early application was in the development of “portfolio theory,” which, as the aerospace engineer Joaquim R. R. A. Martins and the computer scientist Andrew Ning put it, “formalized the idea of investment diversification, marking the birth of modern financial economics.”7 One important element of optimization in economics is the inclusion of constraining factors: Given a set level of income or cost, how can we maximize utility? But economics is not quite as scientifically determinable as engineering—it’s more exposed to messy, contradictory fellow humans. Here, optimization starts to look rather suboptimal…
… As computers have become ubiquitous, optimization has spread ever deeper into human life. In 2021, a trio of Stanford academics published a book titled System Error: Where Big Tech Went Wrong and How We Can Reboot. They observed: “What begins as a professional mind-set for the technologist easily becomes a more general orientation to life. … The paramount goal becomes removing friction from everyday activities, automating repetitive tasks, and finding ways to save time while improving outcomes.” US tech companies, for instance, are often led by software engineers, who manage their staff accordingly, measuring results against precisely set objectives. An over-dominant engineering mindset, System Error argued, is extending optimization beyond the areas where it can be effective.
This might surprise the tech analyst Dan Wang, whose 2025 bestseller Breakneck: China’s Quest to Engineer the Future argued that “an American elite, made up mostly of lawyers, excelling at obstruction” had much to learn from China’s “technocratic class, made up of mostly engineers, that excels at construction.” But even Wang admitted that engineering logic can be taken too far. “Sometimes, it feels like China’s leadership is made up entirely of hydraulic engineers,” he wrote, “who view the economy and society as liquid flows, as if all human activity—from mass production to reproduction—can be directed, restricted, increased, or blocked with the same ease as turning a series of valves.”
Given its mathematical foundations, optimization depends on having numerical data that can be adjusted to achieve the numerically expressed objective. As the American historian of science Theodore Porter showed in his 1995 study Trust in Numbers: The Pursuit of Objectivity in Science and Public Life, governments began to gather data at scale and to rely on it for decision-making for reasons similar to those set out by Dantzig—to get away from the subjective judgment of leaders.
However, Porter warned that while using numbers to exercise power objectively might be an attractive idea, it is also impossible to do. Even governments can’t count everything, and choosing what to leave out is an intensely political decision. Worse, Porter wrote, “numbers have often been an agency for acting on people, exercising power over them,” even turning people “into objects to be manipulated.” As Wang noted, in China the drive to meet numerical targets has sometimes taken a crushingly simple form, as with the government’s “one child” or “zero Covid” policies.
Even when optimizers aren’t sealing sick people in their homes, as the Chinese state did during the pandemic, they are often so focused on their objective that they don’t notice the damage they’re doing. Whatever is not relevant to the objective can be shrugged off as a so-called externality. Witness corporations optimizing their operations to maximize profits or the price of their shares. Some squeeze pay or working conditions; others pollute with abandon, or exploit their dominant market position to force down their suppliers’ prices, regardless of the impact.
And the problem with optimization is not just a matter of unfortunate side-effects. We are seeing the emergence of what we might call “social optimization”—the belief that this idea offers a way to transform society as a whole. But as Porter’s work suggests, this is not a matter of neutrally making things better. Optimization privileges the measurable over the unmeasurable. And it places the onus for improving society on the ever-striving individual rather than asking more fundamental, structural questions about why systems work as they do and whom they empower and disempower.
This is not an explicit ideology. No doubt, businesses and governments often are simply following the logic and opportunities implicit in new digital technology, from smartphones to the cameras and sensors that can now cheaply and efficiently monitor a wide range of activities. Nonetheless, as new technology has made it possible to gather ever more numerical data, optimization has begun to embed its implicit values into our lives.
In the workplace, this can swiftly make people’s lives worse. Particularly in sectors such as logistics, new technology allows employers to optimize more and more rigorously for maximum productivity and minimum cost. It has become commonplace to give employees an ongoing score, with the aim of incentivizing them to compete continually. This goes beyond even the monitoring of worker efficiency that the management consultant Frederick Taylor pioneered in the early twentieth century and the numerical key performance indicators that his successors promoted. The intensive quantification of employees’ performance has come to be known as “digital Taylorism.”
Optimization has refocused the media around the measurable preferences of the individual, as tallied in clicks, page views, unique browses, and similar metrics. This erodes the shared moments that build a culture and the shared truths that underpin democracy. Social media takes this even further: Algorithms are optimized to maximize attention, incentivizing people to respond to political issues not with thought but vivid expressions of feeling, rewarding users numerically in follows, likes, and shares. Meanwhile, tracking apps increasingly normalize the optimization of health metrics.
Yet technologists are keen to go much further. Off the back of their successes producing software, they are raising their sights to the horizon, optimizing for a few grand objectives at all costs, in pursuit of an ever more perfect world. They have formed an alliance with philosophers and philanthropists in the Effective Altruism movement, which aims to purge generosity of the influence of feeling in favor of calculable reason—even as it confidently prophesies the far future. Other tech leaders support the principles of the “network state.” According to the journalist Gil Duran, this concept proposes to create “private, corporate-controlled cities” that will liberate innovators from the constraints of the democratic state and its messy, unmeasurable trade-offs.13
And most of all, the dream of social optimization reverberates through promises of an AI-transformed future, in which once unthinkably efficient tech will supposedly liberate individual human potential. In “The Techno-Optimist Manifesto” (2023), the venture capitalist Marc Andreessen proposed using technology and the free market to maximize abundance to the point of infinity. Though Andreessen insists he does not believe in “the Unconstrained Vision of Utopia,” he dismisses the “Precautionary Principle” as an “enemy.”
The problem here is obvious to anyone not immersed in the culture of Silicon Valley. Not every worthwhile objective can be measured. How do we quantify social peace, for instance, or the health of our arts and culture, or the concentration of power? Or the worth of work itself, or a truly enriching education, or kindness? We might hope the realization that not everything can be measured would prompt the promoters of social optimization to accept its limitations and appreciate the qualities of more deeply rooted systems, such as democracy. Alas, they tend to conclude that if a goal or a problem has no measure, it is not worth bothering with. Kevin Kelly, a technology journalist and an apostle of the Quantified Self movement, has faced criticism, as he puts it, that “only intangibles like meaningful happiness count.” His response: “Meaningfulness is very hard to measure, which makes it very hard to optimize.” Similarly, in a critique of the US anti-monopoly movement, the journalist Matthew Yglesias has protested that “‘corporate power’ doesn’t mean anything” on the grounds that it “doesn’t add up to anything measurable or actionable.”
But this is not the first time similar-sounding criticisms have been raised against attempts to perfect society. Where they chose to focus their fire, and where they didn’t, reveals what’s distinctive about the phenomenon of social optimization…
[Tinline reaches back to the early 19th century (and the earliest known use of the word “optimize”) then follows the development of what has become a powerful mindset– in effect, a movement. He concludes…]
Governments today do have something to learn from Dantzig’s insistence on the importance of having a clear objective. But his overly dim view of leadership needs to be constrained. It is increasingly clear that, in the less calculable areas of life, a leader exercising human judgment is preferable to an implacable optimization algorithm. Without such human-centered constraints in place, social optimization won’t make things better—only more extreme.
On not letting the perfect be the enemy of the possible– and often the preferable: “The Cult of Optimization,” from @philtinline.bsky.social in The Ideas Letter.
We should note that the optimization craze has taken hold at the personal level as well, with similar results. See. e.g., “Optimising is just perfectionism in disguise. Here’s why that’s a problem” and “Optimization Culture Is Making Us Miserable.”
* Donald Knuth (the godfather of computer programming)
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As we celebrate slack and internalize externalities, we might spare a thought for a man who looked beyond the metrics od his day, Clifford W. Beers; he died on this date in 1943. An author and psychiatric patient, he is best known as the founder of the American mental hygiene movement.
Clifford Whittingham Beers was an American author and social reformer who wrote an autobiography documenting appalling conditions and maltreatment by staff of mental patients. His classic book, A Mind That Found Itself (1908) raised public consciousness of the need for reform. He had already himself experienced treatment as a mental patient, first in 1900, diagnosed with depression and paranoia. His four siblings also suffered mental health problems and died in mental hospitals, as he also did. In 1909, Beers founded the National Committee for Mental Hygiene (since renamed as Mental Health America) with the mission to improve the treatment in mental health institutions. By 1913, he was able to establish the Clifford Beers Clinic in New Haven, an outpatient mental health clinic, the first of its kind in the U.S., which continues his legacy to the present. – source
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