Amory Instruments

My main worry about Europe’s public finances fits into one figure from @jburnmurdoch at @FT. The figure shows that real output per worker has grown more slowly in the EU-27 than in the U.S. (France and Germany look particularly worrisome) and that the gap between the two trends is widening, likely because of AI adoption in the U.S. Why is this a problem? The large capex requirements of AI point to much higher real interest rates over the next decade. If a country with a debt-to-GDP ratio of 100% must go from financing itself at 2% to 5%, its budget carries an additional burden of 3% of GDP. Countries that adopt AI massively and enjoy fast productivity growth will, more or less, digest this shock to their budgets. But countries that do not adopt AI (or do it poorly) will not grow fast. In other words, France or Spain might end up with the worst possible combination: high real interest rates because of high worldwide AI capex and low real per capita growth because of low AI adoption due to internal barriers. Most European countries simply do not have the fiscal space, especially as their populations age, to absorb such an increase in the interest they pay on their debt. Governments will be tempted to rely on temporary measures (e.g., playing with the maturity structure of the debt) or to cut other spending, such as investment in infrastructure. But we saw tragically last week, with the high-speed train accident in Spain, what a decade or so of neglect of public infrastructure leads to. The day of reckoning might not be too far in the future. Four years? Five years? Economies are complex systems, so any concrete forecast is foolish. But the fundamental problems are real, and reality always finds a way.

Gideon Lewis-Kraus’s feature story “Sand Castles” in @NewYorker includes a remarkable statistic: in 2025, one in every 46 babies born in Taiwan was born to a family with a TSMC employee. That sounded almost impossible, so I checked the math. TSMC (VisEra included) had about 80,000 employees in Taiwan, roughly 0.54% of Taiwan’s population aged 20–64. Yet 2,331 of the 107,812 babies born in Taiwan, 2.16% of all births, were born to TSMC employee families. So, mechanically, TSMC employees are overrepresented among the parents of newborns by a factor of 2.16/0.54, or about 4. But this comparison is not quite right. TSMC has a very young workforce: the average employee is about 36, and almost 94% of employees are under 50. Comparing TSMC employees with everybody aged 20–64 is therefore not the right exercise. Ideally, I would take the age and sex distribution of TSMC’s employees in Taiwan and apply Taiwan’s age- and sex-specific fertility rates. Unfortunately, the public corporate reports do not give me enough information to do this cleanly. TSMC reports the sex composition of its Taiwan workforce, but the age-by-sex distribution I can find is for its worldwide workforce, not Taiwan alone. Moreover, the age categories are very coarse: 18–30, 31–50, and 51+. For fertility, whether an employee in the 31–50 group is 32 or 48 obviously matters enormously. Thus, I do not think the data justify a precise age-adjusted estimate. But my best estimate is that TSMC employees in Taiwan have around 2.5 times more children than the average age-adjusted fertility, with a plausible range of roughly 2–3.5. Of course, even a proper age adjustment would not identify a causal effect of working at TSMC. The selection problem is enormous. TSMC hires highly educated workers, pays them well, gives them unusually stable jobs, and provides generous family benefits. Finally, we have strong assortative mating in the marriage market. In other words, the interesting exercise would condition not only on age and sex, but also on education, income, and marital status. My guess is that much of the remaining difference would disappear and that there is little causal effect of working for TSMC (in opposition to the large positive causal effect on fertility of having a high-income job with high education; yes, in most advanced economies those having more kids are the highly educated, high-income adults). Still, the raw statistic is extraordinary: a company employing about half of one percent of Taiwan’s working-age population is connected to more than 2% of all the babies born in the country.