The Tension Between Business and Competition

or no deal. 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 again ceasefire Neither country seemed eager to share the terms of that agreement in writing. until yesterday Page and a half Justin Wolfers from over at Platypus Economics I've been waiting for this moment Not like he had high hopes about what he was gonna find If someone has something awesome they can't wait to show it to you Therefore, if they can wait to show it to you, You should infer it's Not so great in process being workhoppped 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 thinkink 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 ham handed, 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 Big of an economic crisis The answer is really, really de bigep economically Was this a different kind of crisis than you expected at the beginning of the war Becauseuse you came on the start and you were like, listen, Everyone keepep your powder dry for a second. This isn't the nineteen seventies The United States is more energy independent We're going 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 bigigger or different than you expected I think it's roughly of the order of magnitude I expected whichich makes it bigger than almost anyone else is talking about My calculation is this w cost the typical American family either 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 war cost the typical American family thousands or tens of thousands of dollars, that is not per year. That is in total over the future rejection, understanding the fact that oars have persistent effects We written the full check right now no. So there's probably still pain ahead Today on the show Why you have not stopped paying for this war in Iran Even if this new deal is for real I'm Mary Harris. You're listening to what next Stick around 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 pocketbooks. 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 farmmer's market or wherever. Are these things changing anytime soon? the inflation, the gas prices There's two stories that are true And it's important that people keep both of them in mind The moment the straight opens, life gets easier than it was the day before the straight but not easier than like January. 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 around 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 else not going back to where it would have been without the war anytime soon and plumb. And that's because it Double reverse plummet at first which is say it rose sharply aong the way. It's going to come down quite as sharply and not quite as far. So your life is worse even as what we're going to have is talking heads on TV saying Um local oil prices are coming down This is a perfect Uh 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 basasically 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 halfw. Yes, we have seen this movie before. Look, the economics teacher in me just wants to say to your audience there is actually a really deep and important lesson here, which is what 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 counterfactual And when you do this counteractual thinking, if we hadn't gone to war, what would oil prices be? That's when you understand this war is imposing on you When you say where are oil prices 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 also talking at a time when Fed scheduled to meet Kevin Warsh, new Fed chair will be there He's under a lot of pressure to lower interestnterest 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 Food Funds 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 iss only one of twelve people who've hard This bike just arrived. he could Kick up a stink if he wanted to, probablyably not a good idea to, 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 The Fed last met. And I think that this is actually legitimately confusing for people because they want to have a really clear peak picture of like things are bad things are good. and what we have more is what you're saying, which is compomicated dynamic. 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 counfectual thinking Anyte You see something. I want you to say or what? So the unemployment rate is low or If we'd gone hadn't gone to war, where would it be Do we 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 iss 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 policy has been an absolute trainwreck The economy can be okay but not as good as it should be It's a hard, I'm not here to do politics hard political story to tell, but I think that's the truth. Now, I said I'm more confident about one part of that than the other that the economy' okay is actually just a factat 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 Gess U But it's a guess that most economists share Is the economy okay in other countries? Like I wonder a little bit whether okayess of the American economy blinds some people to see seeing the global changes this war maybe bringing on So you have the same problem, which is in other countriry. 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 You know, 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 has been much higher and that's also true for much of Asia And the story we're 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 Oh Most of what very poor people spend their money on And so what that means in the world's poorest 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 days and not talk or think about . portion of the world that's in grinding poverty because the moment you do it becomes brings you a little close to tears And the idea that we're taking those economies and therefore those people and meting them around the head for an ill defined foreign policy goal 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. L we see all these signals like for instance, in the midst of fighting this war the UAE left OPEC. 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 Hormuz opens that they're going to get oil reliably Is that a fair way of saying it And this it's the point I was trying to make earlier, which is history tells us wars and major infllection points Japan rewired itself as a pacif nation after World War twoI 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 U.S. Federal Reserve actually index of geopolitical risk. And if you look at that index, what you see is these massive spikes A spike for nine and eleven, a spike for the Iraq warar, smaller spike for COVID bigig 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 w 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 bog. that Donald Trump has said the war is 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 L 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. alsoso immigration. Can I get the nerds that I want into the labs that I want? That's a big one, right?tely unclear Um 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 in geopolitical risk have been very, very bad for the economy And if you take that Rise in geopolitical risk and you plug it through their estimates of the effects of geopolitical risk on an economy, 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 Well Globally in the United States. In the United States. Just in the United States. 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 Bill. is high we have two things happening at once There is the geopolitical risk of the war itself And then there is the geopolitical risk Donald Trump And those things, I think could be superchging each other. I was watching Donald Trump Do his spel 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 he's done so many times before And it struck me his main innovations as a political actor. been Blatant lying consistently and just the innovation that if you're a celebrity, they let you do it. lies along with other things potentially U alsoso when people challenge your lie, 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 in 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 start bombing Iran. This isn't The end of the world We could just stop it another morning I think this geopolitical risk 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 to is paralyzing u the thing I want to add is the lying does the economics of the line is that includes lying in contracts, right? I write a deal with Trump, I don't expect 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. Um Contracts the essence of how we do business with each other We don't just trust we We create a legal structure around it And so this is the first post contract idency 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. What 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 is smaller There is a virtue an economic virtue to truth and 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 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 ag. is that there's a real argument to be made that 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, etcetera. 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 One of 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 Richard 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 neighbour's slice of pipe. Because if we spend all that day stealing our neighbour' 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 interests rather than the American peop's I want you to remember two hundred years ago, two of the richest countries in the world were the United States and Argentina They were the two countries that you would bet on to be intensely rich in the future. And Argentina got the wrong institutions. It had military coups and it had a fragile relationship with democracy. and people started to realize it was better to steal the neighbour's pie than to go out and bake a bigger pie The U.S. had a different set of institutions. we baked the bigger pie This is one of the most important lessons 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 though they 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 been It'll be a bunch of things that don't happen 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 endpoint of that Sort of. A gonna two thirds agree with you. So In implicit in everything I said is a view that what markets do is create extraordinary wealth. And I know many of the 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 growining 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 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 business That's competition, competition means you have to create a better mouseetrap at a lower price So if you love markets, it's not that you love business, it's that you love competition The probleblem is business hates competition. Yes So the thing that means that capitalism delivers for ordinary Americans is the force for competition, is the number one thing that business wants to destroy. becausecause if you force businesses to compete They have to do more research and development rather than less research and development. So you're absolutely right, welcome to my Econ one on 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 by the way, explains where there's a long queue of CEO's lining up to get on Air Force One or lining up out the front of Mar a Lago. They're lining up to talk to the king, to say to the king, couldould 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 we I hope we have some center right People in the audience key idea here is if you think that all of these market forces deliver great outcomes and I do, I'm with you Reize it's not business that does that It's competition whichich means what I want you to do is not be pro business ition In fact, the president committed this intellectual error. The president is pro business but not pro competition And so the president talks to all these bkes and he' like, oh, you get a tariff exception because I wouldn't want you to have to compete too hard and he helps individual business. Every time he calls The CEO's are 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 am 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, and Madeeline Ducharm Pai Jasburnne is the seniorpervis producer W What Next and What nextxt TVD Nila Beel is the executive producer of podcasts here at Slate Ben Richmond is the senior Director of Podcast Operations and I'm Mary Harris. Go dack me down a blue sky. say, Hey, I'm at Mary Harris Thanks for listening catch you back here Next time.