The law of unintended consequences

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What, do you suppose, is the macroeconomic word of the day, huh?

One guess, that's all you get.

From American public media, this is Marketplace.

In Los Angeles, I'm Kyle Rizdahl.

It is Wednesday today. This one is the 26th of March.
Good as always to have you along, everybody. True story.
When I woke up this morning, I said to myself I was going to try to get through the show today without saying the word tariffs. I know, but a guy can dream, right? And in any case, the president of the United States had other plans.
Word from the White House today, more tariffs are coming. Automobile imports this time.
Details, as they always seem to be, vague and variable. Import taxes are, as you know, the president's most favored economic tool, in part because, he claims, they're going to help shrink the trade deficit and get Americans to buy more American stuff instead of foreign stuff, which, A, that's kind of not how that all works.
And B, allow me to introduce you here to the law of unintended consequences. Marketplace's Sabree Beneshore gets us going.
There was the Simpsons episode where Homer traveled back in time to the edge of the dinosaurs. As long as I stand perfectly still and don't touch anything, I won't destroy the future.
He obviously touches something, kills a bug and messes up the future, which he finds out when he gets back. Don't you remember, dad? Flanders is the unquestioned lord and master of the world.
Economics is sometimes a little bit like that. You mess with one thing and something else gets messed up.

Take the trade deficit.

The U.S. imports more than it exports.

Mary Lovely is a senior fellow at the Peterson Institute for International Economics, which is a marketplace underwriter.

OK, so the trade deficit reflects the difference between U.S. income and U.S.
consumption.

More money going out of the house than coming in.

We're all just shooting dollars out the door to Timu every day.

Now, if that was all that was going on decade after decade, we would have no money and the world would have just dollars piling up worth nothing.

That is not happening because those dollars that we send out into the world, they do not stay there. They come back.
They're used to buy American assets. Matt Slaughter is dean of Dartmouth's Tuck School of Business.
U.S. stocks, they're used to purchasing maybe U.S.
corporate debt. They're definitely purchasing U.S.
treasury securities. Now, let's imagine that the trade deficit were magically smaller.
We're sending fewer dollars out the door. So fewer dollars are coming back in the door as investments.
Fewer loans to business. Fewer loans to the government.
If foreigners are buying fewer American assets, either the federal government has to borrow less or the private sector. Robert Lawrence is professor of international trade and investment at Harvard.
A world with a smaller trade deficit is a world where this country is borrowing less because there's fewer dollars coming in, because there's fewer dollars going out. There's just one problem.
The government does not look like it is about to borrow less. Mary Lovely again.
You know, all forecasts are they're going to increase the federal budget deficit. So if the government isn't borrowing less and the trade deficit's supposed to go down, that means someone else is going to have to borrow less.
And that would be the rest of the economy. You know what could make the economy borrow and buy a lot less? A recession.
In New York, I'm Sabri Beneshore for Marketplace. On Wall Street today,

tariffs, even the whisper of them, a hint, the merest mention was enough to send

traders scurrying. We will have to put it, I'd imagine, right up at the top of the show.
and you're going to get, come Friday next, the employment situation summary for March. We're going to put it, I'd imagine, right up at the top of the show.
And you're going to hear me say something like, the unemployment rate last month was whatever it was, which is fine as far as it goes. But the thing is, the Bureau of Labor Statistics actually publishes six unemployment rates in total, each of which measures a different bit of what economists call labor underutilization.
Basically, workers not working. And those rates right now range from 1.5 percent, a percent and a half, up to 8 percent.
Marketplace's Mitchell Hartman has the rest of that story. Aurora Asbill is 25 from Dayton, Ohio.
Theater is her passion and profession. I build costumes.
She moved to New York City two years ago with a theater tech degree and eventually landed a job in a shop making costumes for movies and Broadway shows. While I had like a nine to five, if Broadway is not doing any cast changes, nothing's opening, hours get cut.
I would walk in in the morning. My boss would be like, sorry, girl, like, we don't have any work for you.
Like, you can go home. Maybe I'll see you in two weeks.
When this happened, she'd try to find short-term freelance gigs to tide her over. You can't really fall back on, oh, well, I'll just file for unemployment.
You're constantly looking for work. She had a job, though she sometimes didn't get any hours or a paycheck.
She did temp jobs, but it didn't pay the bills, and she was aggressively looking for a new job. So would Asbill be counted in the monthly jobs report as unemployed, underemployed? It's actually not an easy answer.
Victoria Gregory is a labor economist at the St. Louis Fed.
She says each of the unemployment rates the Bureau of Labor Statistics publishes, labeled U1 through U6, tries to get at a different slice of people who tell the survey takers they want to work but aren't working or aren't working as much as they want to. Going from now is the broadest.
U1 is just capturing the long-term unemployed for 15 weeks or longer, which is a lot longer than the typical unemployment spell. She says that matters because the longer folks are unemployed, the less likely they'll get another job soon.
Next. U2, this starts to add in job losers because of a layoff or a firing or their temporary job ending.
And that might be the unemployment category Aurora Asbill would fall under, a temporary layoff, or perhaps the next one, U3, when she gave up on the first job and started looking for a new one. U3 is the official rate, the simplest notion of unemployment.
It just captures people who want a job and have actively been searching for one within the last four weeks. And that official rate has its virtues, says Harvard economist Lawrence Katz.
We've been collecting it the same way for like 80 years. It's comparable over time.
It's comparable internationally. But he says it's not everybody facing distress in the labor market.
This has been a longstanding criticism that the official rate is an undercount. It doesn't count you if you're so discouraged you're not doing something active to find work.
If you work 10 hours a week, but that's not enough to support yourself and you really want to work full time. In recent decades, BLS has added more measures of unemployment.
The broadest U6 includes discouraged workers, the marginally attached who want work but haven't looked recently, and involuntary part-time workers, also called the underemployed. Rebecca Dixon at the National Employment Law Project follows the U6 closely.
7.5% in January bumped up to 8% in February. Seeing that increase is an example of the labor market slowing down.
I'm always much more concerned with the U6. Tulane economist Gary Hoover.
What's happening with marginalized workers on the periphery of the economy, those will be the ones most quickly dismissed. They're the workers with the least education and experience, more likely to be women and minorities, last hired and first fired in a downturn.
Hoover calls it... The canary in the coal mine, the harbinger of things to come, and it'll probably show up later on in the U3.
These unemployment rates edging up recently

suggests that the economy is starting to perform less well,

especially for the least advantaged workers.

And given rampant economic uncertainty

and rising hesitancy by businesses to hire,

it could be a sign of worse times to come.

I'm Mitchell Hartman for Marketplace. Universities are among the highest profile targets of the spending cuts being engineered by Elon Musk and his operatives.
And the temptation here is to say, come on, universities have plenty of money, especially the ones with nine figures or more endowments. Well, maybe not.
Elizabeth Popper Berman is a professor of organizational studies at the University of Michigan. Also, the author of a post entitled, No, University Endowments Can't Replace Federal Science Funding.
Professor Berman, welcome to the program. Good to have you on.
Thanks for having me. So I guess we start at the very beginning here, which is endowments, what are they? Because contrary to popular opinion, they are not just a giant pool of money.
Right. The first thing to know about endowments is that they are actually tens of thousands of little specific funds.
So when a donor gives money to the university, they give it with some specific intent in mind. So maybe it's for a particular kind of cancer research, or maybe it is for a particular scholarship.
And then the university agrees to hold that money and is allowed to spend the interest on it effectively on those specific things. So a dollar is not a dollar is not a dollar, right? They can't, you know, sort of replace that with something else.
They just, they got to do that. Exactly.
And that's oversimplifying a little, but that's what most of the endowment actually is. OK, so to the matter at hand, federal funding gets cut, as is happening now.
And chances are it's going to happen more in the future. The point of this post is that university endowments cannot make up the difference.
And the question then has to be why? Yeah, I think there's a couple of reasons, really. First, they're just not that large relative to the amount of money that the government contributes to universities.
You know, most recently, we've seen Columbia had 400 million immediately pulled from it. But the administration said they had $5 billion in contracts outstanding that could be pulled, right? So even though Columbia has got a $15 billion endowment, much of which it legally can't spend anyway, it can't cover something like that on more than a one time basis.
The other thing you point out in this post is that and I think you cite the University of Michigan, your university specifically, it's got like a 19 ish billion dollar endowment, but it's tens of thousands of students with huge obligations. And so on a per student basis, you can't get there from here.
Yeah. And I think that's another thing, too, is that it's easy to forget just how large these institutions actually are.
So the University of Michigan has an annual budget of something around $13, $14 billion. So again, if you sort of translate this into the kinds of terms of kind of an ordinary family, right? If you make $100,000 and you have about that much in savings,

it's not like you can really just retire on that and support yourself. We've all heard of, and I actually have friends in academia who pointed out that PhD enrollments are being put on hold, if not completely rolled back.
What are you seeing in Ann Arbor? And the point to make here clearly is that you don't speak for the university, but what's your experience? Sure. I mean, I think what you see right now is that research programs are being cut, lines of work that I think most people in the public would be generally very supportive of.
You know, we have a huge medical center that does tons of cancer research, for example. Those programs are just kind of grinding to a halt.
And so the university is doing a lot to try to backstop that in the short run. But right now, they've said they're going to be able to backstop about maybe six months to kind of give people some time to transition.
But there's no long-term solution to federal funds going away. With the acknowledgement here that you are an academician and not a tax policy specialist, there is on the table, certainly in Washington, Vice President Vance has said he wants to tax university endowments at something like 35 percent, and they are now, if not tax-free, then much lower levels of taxation.
What do you think of that? Yeah, I mean, I think it's complicated because I do think that it's a problem for the sector, that there's so much inequality between very wealthy institutions with large endowments and the majority, you know, a large majority of colleges and universities that have almost no endowment to speak of. So I might support an endowment tax that was going to help fund underfunded parts of higher education.
But I think right now what we're looking at really is a potential endowment tax that is essentially going to fund tax cuts for the well-off. You mentioned inequality there.
It should be pointed out that there are like 20 institutions of higher learning in this country with, you know, 20 plus billion dollar endowments, and they get all the intention. But most schools have way less, if any, right? And I guess the point is, these endowments do contribute to inequality.
Yeah. And I think that's really important to remember is that, you know, when we read the news, we're really reading about the same handful of five or 10 or 20 institutions that do have these large endowments.
But most colleges are not in this position. You know, your regular regional university down the street that enrolls a lot of students in your community does not have an endowment that's contributing in any significant way to its bottom line.
And rising endowments have kind of contributed to that in quality, but, you know, as part of a larger story. All right.
So look, here comes the put up or shut up question. If federal funding is really going away, which certainly seems to be the case, and endowments can't make up the difference as you lay out in this post, now what do we do? I mean, I think if federal funds truly go away, universities will still exist, but they will just be smaller.
They will not be globally competitive. And a lot of really important work that has been getting done will

no longer happen. Elizabeth Popperman is a professor of organizational studies

at the University of Michigan. Professor, thanks for your time.
I appreciate it. Thank you.
Coming up.

People aren't buying the drinks and they're not buying the extra appetizer.

They're not buying that bowl of soup.

You know, a side order a day could keep

the restaurant closures away. First, though, let's do the numbers.
Downdustral's down 132 points

today, about three-tenths percent. Landed at 42,454, did the blue chips.
The Nasdaq down 372

points, 2 percent, 17,899. The S&P 500 gave back 64 points, 1 and a 10th percent, 57 and a 12.
GameStop jumped more than 11% a day after its board said it would use some of its corporate cash to invest in Bitcoin. Huh.
The video game seller also announced plans to close what it described as a significant number of its stores this year.

Other meme stocks, you say? Sure. Crypto miner AGM Holdings jumped 12 and a 10 percent today.

Private jet charter firm Jet AI gave back 2.8 percent. Bonds down.
Yield on the 10-year

T-note rose 4.35 percent. You're listening to Marketplace.
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I'm Kyle Rizdahl. Consumers in this economy just are not feeling so good right now.
We talked about that yesterday. Mitchell did the story for us.
Turns out small businesses are kind of down in the dumps too. The MetLife Chamber of Commerce Small Business Index slid nearly seven points over the past quarter, wiping out its gains since Election Day.
To be clear, small business owners do still think the economy's on pretty solid ground. But they're feeling...
what's that word again? Oh yeah, uncertain. Here's Marketplace's Henry App.
It's been a quiet march for Rene Hidalgo, owner of Don Pepe Mexican Restaurant in Houston, and he thinks that has a lot to do with the fact that he raised his prices this year, because his costs keep going that. And rising food costs, especially eggs.

Instead of raising prices, some business owners are just taking the hit.

Janessa Perny owns Erskine's Grain and Garden, a farm supply store in Chester, Vermont.

She recently ordered wood shavings for animal bedding from Canada,

and her supplier crossed the border right before President Trump rescinded 25% tariffs.

I paid 20% extra. They swallowed 5% for me.
So that kind of thing is really disconcerting. Thinking about those types of things are making it hard to plan cash flow.
The U.S. Chamber of Commerce survey found a sharp uptick in business owners who feel concerned about their future revenue.
Tom Sullivan is with the chamber. We know that that revenue, depending on how much of a chunk is taken out from inflation, is really what is going to result in growth, stability, or decline.
It'll determine, he says, whether businesses feel like they can hire more workers or make capital investments. But right now, what he's seeing...
Our small business owners hitting the pause button on growth plans for 2026 and beyond. In Houston, Rene Hidalgo hopes business picks up in the next few months, because right now he's at the front counter seven days a week.
And I'm working here since opening the morning until closing, because I cannot afford to have another person, you know, like a manager or something.

If business picked up, Hidalgo could hire someone to help out

and take some time off.

I'm Henry Epp for Marketplace. Henry was just talking about business uncertainty.
Believe me when I tell you, it's not just happening here. President Trump's trade and other policies are rattling the global economy, too, And nowhere more than in China, where those trade frictions and their own consumer confidence issues are weighing on things.
Consumer discretionary spending in particular, a category called food away from home, most specifically restaurant profits in Beijing last year. This is from municipal data, down more than 80 percent.

The cause and effect connection here is that a lot of restaurants are closing.

Sometimes all of a sudden.

Marketplace's Jennifer Pack has more now from Shanghai.

If you came to Shanghai late last year and asked where you could have a nice, not too expensive brunch with free flowing alcohol, a popular choice would have been the bowl and claw.

Housed in a beautiful villa-style lane house, three floors.

So that's a lot of overhead.

Rachel Kwok writes a Shanghai-based food and drink blog called Nomfluence. She says the Bolin Klau was part of a handful of restaurants and gyms

owned by the Australian firm Camel Hospitality Group,

which was established in 2010, when times were good. They were printing money back in the day.
Like a lot of sectors in China. Fast forward to last November when Camel Group sent a WeChat message to all its staff.
One of them was graphics designer Joan Dye. The document said that the company had dissolved and every employee's contract had been terminated.
It said our salaries would be prioritized as soon as the company's bankruptcy liquidation was complete. Then the boss disappeared and he hasn't answered our calls since.
He just ghosted us. The number you have dialed is not in service.
I also tried, without luck, to reach former bosses at Camel Hospitality for comment. I did get one of the vendors it owes money to.
Luckily, not a lot, says Maria, who supplies alcohol to restaurants. We're not using her full name because she worries about official retaliation, for speaking about the economy in less than glowing terms.
I think it's extremely hard to get people to dine out right now. She says that's because of China's real estate slump.
People here invest most, if not all, of their savings in property, which used to be a safe bet until the market dropped. So when real estate has started to sort of hit this brick wall, a lot of people have seen their main assets decrease quite a lot.
And therefore, they're tightening their purse strings. Meantime, rents, labor costs, and social security taxes are all going up, says Bostonian Scott Minoy.
He opened a popular restaurant chain in China called Element Fresh that serves sandwiches, salads, and smoothies. For a decade, all went well.
But then... We started to see per-restaurant profit level decline

because simply revenue would go up by 5%, costs go up by 15%, 20% year on year.

Restaurateur Bryce Jenner once ran seven sports bars and restaurants.

Now just one is left, his Mexican food outlet Pistolera.

He says the beginning of the end for his business came in 2018

when Chinese leader Xi Jinping got rid of the two-term limit on the presidency, shaking consumer confidence. The optimism went.
Then came the COVID lockdowns. Foreigners, key customers for Jenner and the Camel Group, left China.
Jenner says he's friends with the Camel Group owners, and the last time they met was over a year ago to discuss what they should do in the downturn. No, I said, hey, maybe we should fight this together in this room.
Yeah, I don't know. And we all sat there pretty sad.
In the end, Jenner sold off parts of his business, closed others. But even downsizing costs money.
See, in China, companies legally need to pay severance to their workers. Again, Bostonian entrepreneur Scott Minnoy.
And if we let everybody go that we should let go so that we can cut down on payroll, well, we'll be in the red immediately with the severance payment. So you kind of hang on one more month, two more months, three more months.
Eventually, you run out of cash. And that's what happened to us.
He quit the business three years before his Element Fresh chain officially closed in 2021. Today, some of the more established restaurants are still packed, says Bryce Jenner, though just one of his seven restaurants and bars has survived.
But you know, people aren't buying the drinks and they're not buying the extra appetizers. They're not buying that bowl of soup.
They're not buying the coffees. Items that can increase the tab by 30-40%, he says.

And until China's overall economy improves, restaurant profits will likely be very thin.

In Shanghai, I'm Jennifer Pack for Marketplace. This final note on the way out today, a couple of quick where things stand data points.
Saw this first one in the Wall Street Journal, data from Cox Automotive, that car repossessions in 2024 were up 16 percent from a year earlier.

That's the highest level they've hit since 2009 and the Great Recession.

Also and related, this one is from the Federal Reserve Bank of New York, that almost 10 million people are past due on their

student loans since the pandemic payment pause and an additional grace period extended, rather,

last September. Our media production team includes Brian Allison, Jake Cherry, Justin Duller, Drew

Jostad, Gary O'Keefe, Charlton Thorpe, One College Toronto, and Becca Weinman. Jeff Peters is the

manager of media production, and I'm Kai Risizdal. We will see you tomorrow, everybody.
This is APN. For decades, China's economic rise has been symbolized by the unstoppable force of low-cost manufacturing.
But today, a new and far more disruptive wave of competition is unfolding, one that threatens not just Western manufacturing, but also the West's geopolitical dominance. I'm journalist James King, and in my new audiobook, Global Tech Wars, from Pushkin Industries and the Financial Times, I'm unpacking what China's rapid technological ascent across cutting-edge industries like artificial intelligence, electric vehicles and surveillance technology means for the future.

Find Global Tech Wars at pushkin.fm slash audiobooks, Audible, Spotify and wherever audiobooks are sold.