Sifting Through the Wreckage of An Ill-Informed War| Slate's What Next + Platypus Economics

Hi, it's Justin Wolfer's I'm a regular guest on Slight's
podcast What Next, Where Mary Harris and I talked through
the economics behind the headlines. Today, I'm sharing a recent
episode with the Platypus community that I think you'll enjoy.
Take a listen, Deal or no deal.
For the last few days, that has been the question
swirling around the US and Iran. Both countries said they
were planning to extend their on again off against easefire.
Neither country seemed eager to share the terms of that
agreement in writing until yesterday.
It's a page and a half.
Justin Wolfers from over at Platypus Economics had been waiting
for this moment, not like he had high hopes about
what he was going to find.
If someone has something awesome, they can't wait to show
it to you, Therefore they can wait to show it
to you. You shoot infer it not so great.
In process being workshopped, President Trump was certainly keeping his
options open. He got in front of multiple microphones to
say he could reneg on this ceasefire anytime, that if
he did, he could simply blame JD. Vance. But if
this thing holds I wanted justin to explain what happens.
Then.
I think of the war in Iran as a crisis
of many kinds, Like it's a human crisis. People have
been killed, thousands of people. It's a crisis of democracy
because the way we went to war here did not
involve Congress incredibly hamhanded, just stumbling into war. I think
of it as a crisis of international diplomacy because of
how little we looped in our allies. Right, But it
was also an economic crisis, or is an economic crisis?
How big of an economic crisis? The answer is really
really big economically. Was this a different kind of crisis
than you expected at the beginning of the war, because
you came on at the start and you were like, listen, everyone,
keep your powder dry for a second. This is in
the nineteen seventies. The United States is more energy independent.
We're going to have to see how this goes now
that it's a few months in, and maybe maybe going
to come to some sort of conclusion at some point soon.
Is the economic damage bigger or different than you expected?
I think it's roughly of the order of magneture I expected,
which makes it bigger than almost anyone else's talking about.
My calculation is this will cost the typical American family
of the thousands or tens of thousands of dollars. And
so the question is if you'd gone door to door
and you'd said to your neighbor, we're thinking about bombing Iran.
I'm not quite sure I can tell you what the
benefits are, but the president's making the case that we
need to. But I need you to write a check
for thousands of dollars to authorize this.
How long will that cost endure?
When I say this will cost the typical American family
thousands or tens of thousands of dollars, that is not
per year, that is in total over the future. And
so that's the projection understanding the fact that wars have
persistent effects. Have we written the full check right now? No,
So there's probably still real pain ahead.
Today on the show, why you have not stopped paying
for this war and Iran even if this new deal
is for real? I'm Mary Harris.
You're listening to what next stick around.
I think most of my listeners are self centered, maybe
me too, and want to know how this war, even
if it ends, could continue to impact them in their
pocket books. And I think the main thing Americans have
been feeling is high gas prices, right, high gas prices,
high inflation, which is also kind of high gas prices
because the inflation is baked into the cost of getting
your goods wherever they're going to target or the farmer's
market or wherever. Are these things changing anytime soon? The inflation,
the gas prices they have, they.
Are There's two stories that are true, and it's important
to paplekeep both them in mind. The moment the straight open,
life gets easier than it was the day before the straight.
Opened, but not easier than like January.
Right. So if the question is will life get better,
the answer is yes. If the question is was this
worth it?
Then you want to compare where we are to where
we would have been if we hadn't gone to war.
Do we know that, Yeah, we do because we knew
what oil price futures expected oil prices to be through
this period. They expected oil to be round about sixty
dollars a barrel, and they expected that for the next
several years. And that's no one's expectation right now. I
want to be really clear with people. Oil is not
going back to where it would have been without the
war anytime soon, and it's going to plummet. And that's
because it double reverse plummet at first, which is say
it rose sharply the long way, it's going to come
down not quite as sharply and not quite as far
so your life is worse even as what we're going
to have as talking heads on TV saying.
Look, oil prices are coming down.
This is a perfect place for Donald Trump to enter,
like he's great at like having these situations that are
better but not actually better, and like making the most
of them, basically coming in and saying, like, prices are down.
It's like true, but not down in the way that
they would have been. They're down because of you know,
the mess you made that then you like fixed halfway.
Yes, we have seen this movie before.
Look the economics teacher in me, which just wants to
say to your audience, is actually a really deep and
important lesson here, which is what you when you're evaluating
the quality of a policy, it's not whether something rose
or fell, it's where is it relative to the counter factual.
And when you do this kind of factual thinking, if
we hadn't gone to war, what would oil prices be
that's when you understand the cost this war is imposing
on you. When you say where oil price is compared
to two weeks ago, that's when you're falling for it.
And I think the American people have fallen for the
mistake of comparing today with the past too often.
So we're else talking at a time when the FED
scheduled to meet. Kevin worsh New FED Chair will be there.
He's under a lot of pressure to lower interest rates.
With inflation up, typically you would not lower interest rates. However,
there is pressure. And there's also the fact that, as
you said, you know that inflation may be coming down
a bit, but just not down to where you would
have expected or wanted it to be. What does that
mean for a meeting like the one that's going to
happen today.
I can tell you that it's an absolute certainty that
nothing will happen today.
Huh.
FED Fund's futures, which is basically a futures market or
a betting market on what happens, says it's a ninety
nine point four percent chance that the FED announces no change. Now,
you might say, we had all of that drama about
the next FED chair and you're telling me nothing's going
to happen. Remember, the FED chair is only one of
twelve people who've had this plug just arrived. He could
kick up a stink if he wanted to. Probably not
a good idea too, but he could kick up a stink.
If he does kick up a stink, he's still not
going to bring eleven other people along. The FED is
trying to weigh the labor market on the one hand,
and the good news is that's looking a little healthier
than when the FED last matter.
And I think that this is actually legitimately confusing for
people because they want to have a really clear picture
of like things are bad, things are good, and what
we have more is what you're seeing, which is complicated dynamics. So, yes,
unemployment is kind of looking better, So what does that
mean for understanding the economic impact of the war?
I really want to emphasize one economics lesson today, which
is counterfactual thinking. Anytime you see something, I want you
to say or what right, So the unemployment rate is low?
Or if we'd gone hadn't gone to wall, where would
it be?
Do you know the answer to that question?
I think there's two things that are true and one
I'm more certain of than the other. The economy is
not a disaster.
Right now.
You're not allowed to say that in front of certain liberals.
They scream and yell and call your names. But it
turns out I've got lots of data and on my side,
the economy is not a disaster. And it's also the
case that economic policies but an absolute train wreck. The
economy can be okay, but not as good as it
should be. It's a hard I'm not here to do politics.
It's a hard political story to sell. But I think
that's the truth now. I said, I'm more confident about
one part of that and the other that the economy's
okay is actually just a fact.
We have so much data on it.
It's absolutely true that the economy would be better with
a smarter, more thoughtful set of policies. That's a guess,
but it's a guess that most economists share.
Is the economy okay in other countries? Like I wonder
a little bit whether the okayness of the American economy
blinds some people seeing the global changes this war maybe
bringing on.
So you have the same problem, which is in other countries,
some of them would have been good and now they're moderate.
Some of them would have been moderate, now they're terrible.
But what we do know is this war had much
much sharper effects on countries that didn't have their own energy,
and in particular Europe, which is not a country but
a beautiful continent. But Europe has suffered a lot more
than the United States the energy. As much as you
and I are whining about what we're paying at the pump,
the effect on the typical European families been much higher.
And that's also true for much of Asia. And the
story we've really not told in the United States is
that the two biggest commodities to become more expensive out
of this has been energy and food because of the
fertilizer shortage. Food and energy are most of what very
poor people spend their money on. And so what that
means in the world horust countries where the people are desperate.
We've shifted them from grinding poverty to worse and substantially worse,
and so.
And that on top of all the other things that
have happened, like shutting down a lot of USAID, that
sort of stuff. So it's like these things compound.
Yes, it might be easier for all of us to
just go through our days and not talk or think
about the portion of the world that's in grinding poverty,
because the moment you do it becomes it brings.
You a little close to tears.
And then the idea that we're taking those economies and
therefore those people and belting them around their head for
an ill defined foreign policy goal. You know, it brings
this doesn't seem to matter in American politics, but it
brings the moral stakes of what we've been doing into
sharp relief.
We may not know how the global economy is changing,
we just know it is like we see all these
signals like, for instance, in the midst of fighting this war,
the UA left opak right, this like group that prices oil.
That's a big change. The fact that China is more
invested in renewable energy than the United States, And now
so much of the globe is looking at renewable energy
because they're not confident necessarily even if the strait of
horror moves opens, that they're going to get oil reliably.
Yeah.
Is that a fair way of seeing it?
Yeah?
And this it's the point I was trying to make earlier,
which is history tells US wars a major inflection points right.
Japan rewired itself as a passivest nation after World War Two.
Germany today is very different than Germany before the war.
Everything changes and everything's on the table when countries are
being destroyed.
We'll be back after a quick break. I was struck
by the fact that the US Federal Reserve actually has
an index of geopolitical risk. And if you look at
that index, what you see is these massive spikes. A
spike for nine to eleven, a spike for the Iraq War,
smaller spike for COVID, big spike for you, bigger spike
for Ukraine, and about an equal spike for Iran. Do
we know because we have an index like that, how
these moments of geopolitical risk have played out? And does
that inform our thinking right now?
Yes?
Does geopolitical risk matter for the economy? In order to
answer that question, they had to measure geopolitical risk. I
want to be clear, there's no easy way of doing this,
and there's a million reasons you can argue with their measure.
Their measure is largely based on newspaper reports, but treated
in a sophisticated way, so they've created this measure, and
then what they did is they went back through history
and then used some sophisticated economic modeling to say, does
geopolitical risk matter for economies? And the answer is overwhelmingly yes.
You've pointed out on your blog that Donald Trump has
said the war has coming to an end fifty times.
So if that's true this current time, you're like, I
don't know what that means. And you're not going to
be like, well, I'm going to open that new office
in Dubai.
You're just not exactly and so or I'm going to
open a research center that gives me access to the
best Israeli mathematicians. Also immigration, can I get the nerds
that I want into the labs that I want. That's
a big one, right, but unclear. So these FED economists
they created this index. They went back, they studied the
history of the world, literally the history of the world,
and they said they concluded that in the past rises
and geopolitical risk have been very, very bad for the economy.
And if you take that rise in gr political risk
and you plug it through their estimates of the effects
of geopolitical risk on an economy, which is which is
based on past experience that says, my memory is roughly speaking,
that we're going to lose two hundred to four hundred
billion dollars in.
Output whoa globally in the United States.
In the United States, just in the United States, in the.
United States, so that's two to four thousand dollars per family.
It's hard to be very precise about this, but we
think the bill is high.
I think we have two things happening at once. There
is the geopolitical risk of the war itself, and then
there is the geopolitical risk of Donald Trump. And those
things I think could be supercharging each other. Like I
was watching Donald Trump do his spiel about the deal
today and about how it's not really a deal. You know,
I'm not going to agree to it. I might go
back to fighting whatever, which is so many times before,
and it struck me his main innovations as a political
actor have been blatant, lying consistently, and just the innovation
that if you're a celebrity, they let you do it
the lies, along with other things potentially, but also when
people challenge your lie, you just exhaust them, you double down.
Like you can see this in his life as a
private citizen with all the lawsuits. He was very comfortable
filing against people and would just like keep going with
them to make people go away. He would just commit
to the bit.
Which I think would explain why at one level, what's
a relatively small conflict and I don't want to editorialize,
but relative to World War Two and a whole lot
of other you know, we just woke up one morning
and decided to stop bombing Iran. This isn't the end
of the world. We could just stop it another morning.
I think this geopolitical index has responded so strongly because
of the immense rise in risk and uncertainty and the
interaction of those I think you're exactly right, Mary, is paralyzing.
The thing I want to add is what the lying does.
The economics of the lying is that includes lying in contracts. Right,
I write a deal with Trump, I don't expect it to.
Be here tomorrow.
Now. What I want you to imagine is try and
imagine an economy without contracts.
Nothing would work, no rules. Are you going to get paid?
Is your cleaner going to come to your house?
Given that you may or may not stiff them. Contracts
are the essence of how we do business with each other.
We don't just trust, we create a legal structure around it.
And so this is the first post contract presidency. So
I'm not saying he's literally gotten rid of all the
contracts in the world. I'm saying the presidency is running
as if the United States won't write deals, won't respect deals,
and effectively won't contract with anyone. And what that does
is it actually reduces the number of options the United
States has. If you never tell the truth, no one
will ever trust you, and therefore the set of choices
they will offer you as smaller. So there is a virtue,
an economic virtue to truth. That it's not just you know,
lying as a sin. Once you routinely lie, you're not someone,
you make it harder for anyone to do business with you.
And that's the world we're in right now.
I think there's this false idea that Americans just want
to hear about kitchen table issues, and like we don't
want to hear about like democratic reform and all that
sort of stuff. I think what this war has proven
to me, and I'm curious if you'll agree, is that
there's a real argument to be made that the anti
democratic actions this president has taken are making you.
Poorer by a lot.
And if I'm a politician who maybe isn't in favor
of the anti democratic actions, I would be talking about
this all the time, the fact that this is how
our country runs, and when it stops working in this way,
it is bad for you American citizen materially, because right
now there's this funny division of like, well, we just
have to keep talking about healthcare and like that's what
the American people want to hear, and we want cheaper
drug prices, et cetera, et cetera. And I think there's
some truth to that, but I don't think you have
to stop talking about the other stuff because it's deeply related.
YEP.
One of the the most important economic questions you can
ask is why are some countries rich and other countries poor,
Because once you figure out that recipe, then you could
make your country richer. And the answer turns out to
be what economists call institutions, which is basically the rules
of the game. Do we have a set of rules
that encourage people to invest and to grow the pie,
or do we have a set of rules that are
extractive that I encourage you to steal your neighbors slice
of pie, because if we spend all our days stealing
our neighbors slice of pie, no one gets baking. This
is the first president in my lifetime who I think
has actually worked to destroy that. This is where the
most important issues are, things like he tried to destroy
the independence of the Federal Reserve so that it would
serve his interest rather than the American peoples. I want
you to remember two hundred years ago, two of the
richest countries in the world were the United States in Argentina.
They were the two countries that you would bet on
to be intensely rich in the future. An argent got
the wrong institutions. It had military cups, and it had
a fragile relationship with democracy, and people started to realize
it was better to steal the neighbor's pie than to
go out and bake a bigger pie. The US had
a different set of institutions. We bake the bigger pie.
This is one of the most important lessons of economics
teaches us. And the part that we all get wrong
is none of it plays out at the level of
a news cycle, and so everything you said, Mary is correct,
but the way it shows up in economic data is
your kids are going to wake up in twenty years
time and there's a job that could have been invented
but won't have been. There'll be a new technology that
could have extended your life that won't have me. It'll
be a bunch of things that don't happen.
But justin shouldn't we say that? Like the business world
has been pushing for fewer rules and less regulation for
a long time, and this is like an end point of.
That sort of are you going to two thirds agree
with you? So implicit in everything I said as a
view that what markets do is create extraordinary wealth, and
I know many of it left leaning viewers will be
like somewhat suspicious of that, to which I'm just going
to say, look at South Korea versus North Korea. One
of those embraced markets, one of them didn't. One of
them is rich, one of them is in grinding poverty.
That's sort of the argument. And markets have all sorts
of problems. I'm going to admit to them, but I'm
just going to run over them right now to get
to the key point. Markets generate extraordinary wealth, they do
say they generate extraordinary ideas and so on. The key idea.
The thing that really makes markets work is competition. It's
not business, it's competition. Competition means you have to create
a better mouse trap at a lower price. So if
you love markets, it's not that you love business, it's
that you love competition. The problem is business hates competition. Yes,
So the thing that means that capitalism delivers for ordinary
Americans is the force of competition is the number one
thing that business wants to destroy, because if you force
businesses to compete, they have to do more research and
development than the less research and development. So you're absolutely right,
welcome to Man one oh one class. There is a
deep tension inherent in capitalism, which is competition is what
makes it deliver, and the competitors hate it and they're
always trying to get rid of it. That, by the way,
explains why there's a long queue of CEOs lining up
to get on Air Force one or lining up out
the front of mar Lago. They're lining up to talk
to the king, to say to the king, could you
please get all these bloody competitors off my back.
We've spent so long bashing. Like the Elizabeth Warren point
of view, which is like I'm a capitalist who believes
in regulation. But now here we are.
Here's a line that my students like, at least if
because I hope we have some center right people in
the audience welcome. The key idea here is if you
think that all of these market forces deliver great outcomes,
and I do, I'm with you. Realize it's not business
that does that, it's competition, which means what I want
you to do is not be pro business, but to
be pro competition. In fact, the President committed this intellectual era.
The President is pro business but not pro competition. And
so the President talks to all these blacks's, oh you
get a tariffic exception because I wouldn't want you to
have to compete too hard, and he helps individual business.
Every time he calls the CEOs of the major companies,
he's making life harder for the small business that wants
to come and destroy those incumbent players. So he's making
the mistake of being pro business when what economic theory
and history both tell us is it's the forces of competition.
It's markets that deliver the outcomes, not businesses. So I
want to urge people who think of themselves as pro
business to think a little harder and think, hey, wait
a minute, maybe it's pro market or pro competition that
I really care about.
Justin, I'm so grateful for your time. Thank you for
coming on the show. Justin Wolfers is an economist and
professor at the University of Michigan, and you can check
out his work over at Platypus Economics. And that's the show.
What Next is produced by Rob Gunther, Patrick fort Evan Campbell,
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