The law of unintended consequences

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Speaker 4 What do you suppose is the macroeconomic word of the day, huh? One guess. It's all you get.
From American public media. This is Marketplace.

Speaker 4 In Los Angeles, I'm Kai Risdahl. It is Wednesday today.
This one is the 26th of March. Good as always to have you along, everybody.
True story.

Speaker 4 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.

Speaker 4 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.

Speaker 4 Details, as they always seem to be, vague and variable.

Speaker 4 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.

Speaker 4 Which, A, that's kind of not how that all works. And B,

Speaker 4 allow me to introduce you here to the law of unintended consequences. Marketplaces Sabri Benish Org gets us going.

Speaker 6 There was the Simpsons episode where Homer traveled back in time to the edge of the dinosaurs.

Speaker 4 Long as I stand perfectly still and don't touch anything, I won't destroy the future.

Speaker 6 He obviously touches something, kills a bug, and messes up the future, which he finds out when he gets back.

Speaker 8 Don't you remember, Dad? Flanders is the unquestioned lord and master of the world. Don't

Speaker 6 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.

Speaker 6 Mary Lovely is a senior fellow at the Peterson Institute for International Economics, which is a marketplace underwriter.

Speaker 10 Okay, so the trade deficit reflects the difference between U.S. income and U.S.
consumption.

Speaker 6 More money going out of the house than coming in. We're all just shooting dollars out the door to Timu every day.

Speaker 6 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.

Speaker 6 That is not happening because those dollars that we send out into the world, they do not stay there. They come back.

Speaker 11 They're used to buy American assets.

Speaker 6 Matt Slaughter is Dean of Dartmouth's Tuck School of Business.

Speaker 11 U.S. stocks, they're used to purchasing maybe U.S.
corporate debt. They're definitely purchasing U.S.
Treasury securities.

Speaker 6 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.

Speaker 2 Fewer loans to business.

Speaker 6 Fewer loans to the government.

Speaker 12 If foreigners are buying fewer American assets,

Speaker 12 either the federal government has to borrow less or the private sector.

Speaker 6 Robert Lawrence is professor of international trade and investment at Harvard.

Speaker 6 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.

Speaker 5 There's just one problem.

Speaker 6 The government does not look like it is about to borrow less. Mary Lovely again.

Speaker 10 You know, all forecasts are they're going to increase the federal budget deficit.

Speaker 6 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.

Speaker 6 You know what could make the economy borrow and buy a lot less? A recession. In New York, I'm Sabri Benishore for Marketplace.

Speaker 4 On Wall Street today, tariffs, even the whisper of them, a hint, the merest mention was enough to send traders scurrying. We will have the details when we do the numbers.

Speaker 4 We're going to get come Friday next the employment situation summary for March.

Speaker 4 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.

Speaker 4 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.

Speaker 4 And those rates right now range from 1.5%, a percent and a half, up to 8%.

Speaker 14 Marketplace Mitchell Hartman has the rest of that story.

Speaker 7 Aurora Asbil is 25 from Dayton, Ohio. Theater is her passion and profession.

Speaker 15 I build costumes.

Speaker 7 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.

Speaker 15 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.

Speaker 15 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.

Speaker 7 When this happened, she'd try to find short-term freelance gigs to tide her over.

Speaker 15 You can't really fall back on, oh, well, I'll just file for unemployment. You're constantly looking for work.

Speaker 7 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.

Speaker 7 So would Asbil 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.

Speaker 7 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.

Speaker 9 Going from now to broadest, U1 is just capturing the long-term unemployed for 15 weeks or longer, which is a lot longer than the typical unemployment spell.

Speaker 7 She says says that matters because the longer folks are unemployed, the less likely they'll get another job soon. Next.

Speaker 9 U2.

Speaker 9 This starts to add in job losers because of a layoff or a firing or their temporary job ending.

Speaker 7 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.

Speaker 9 U3 is the official rates, 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.

Speaker 7 And that official rate has its virtues, says Harvard economist Lawrence Katz.

Speaker 16 We've been collecting it the same way for like 80 years.

Speaker 12 It's comparable over time.

Speaker 17 It's comparable internationally.

Speaker 16 But he says, it's not everybody facing distress in the labor market.

Speaker 7 This has been a long-standing criticism that the official rate is an undercount.

Speaker 16 It doesn't count you if you're so discouraged, you're not doing something active to find work.

Speaker 16 If you work 10 hours a week, but that's not enough to support yourself and you really want to work full-time.

Speaker 7 In recent decades, BLS has added more measures of unemployment.

Speaker 7 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.

Speaker 7 Rebecca Dixon at the National Employment Law Project follows the U6 closely.

Speaker 18 7.5% in January, bumped up to 8% in February. Seeing that increase is an example of the labor market slowing down.

Speaker 17 I'm always much more concerned with the U6.

Speaker 7 Tulane economist Gary Hoover.

Speaker 17 What's happening with marginalized workers on the periphery of the economy? Those will be the ones most quickly dismissed.

Speaker 7 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.

Speaker 17 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.

Speaker 7 These unemployment rates edging up recently suggests that the economy is starting to perform less well, especially for the least advantaged workers.

Speaker 7 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.

Speaker 4 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,

Speaker 4 come on, universities have plenty of money, especially the ones with nine-figure or more endowments.

Speaker 2 Well, maybe not.

Speaker 4 Elizabeth Pop 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.

Speaker 4 Professor Berman, welcome to the program. Good to have you on.

Speaker 14 Thanks for having me.

Speaker 6 So

Speaker 4 I guess we start at the very beginning here, which is

Speaker 4 endowments, what are they? Because contrary to popular opinion, they are not just a giant pool of money.

Speaker 14 Right. The first thing to know about endowments is that they are actually tens of thousands of little specific funds.

Speaker 14 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.

Speaker 14 And then the university agrees to hold that money and is allowed to spend the interest on it effectively on those specific things.

Speaker 4 So a dollar is not a dollar is not a dollar, right? They can't sort of replace that with something else. They got to do that.

Speaker 14 Exactly.

Speaker 14 And that's oversimplifying a little, but that's what most of the endowment actually is.

Speaker 4 Okay, 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.

Speaker 4 The point of this post is that university endowments cannot make up the difference. And the question then has to be, why?

Speaker 14 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.

Speaker 14 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?

Speaker 14 So even though Columbia's 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.

Speaker 4 Aaron Powell, the other thing you point out in this post is that, 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.

Speaker 4 And so on a per-student basis,

Speaker 4 you can't get there from here.

Speaker 14 Aaron Powell, yeah, and I think that's another thing, too, is that it's easy to forget just how large these institutions actually are.

Speaker 14 So the University of Michigan has an annual budget of something around $13, $14 billion.

Speaker 14 So again, you know, if you sort of translate this into the kinds of terms of kind of a 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.

Speaker 4 We've all heard of, and I actually have friends who 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?

Speaker 4 And the point to make here, clearly, is that you don't speak for the university, but what's your experience?

Speaker 14 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.

Speaker 14 You know, we do, we have a huge medical center that does tons of cancer research, for example. Those programs are just kind of grinding to a halt.

Speaker 14 And so the university is doing a lot to try to backstop that in the short run.

Speaker 14 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.

Speaker 4 With the acknowledgement here that you are an academician and not a tax policy specialist, There is on the table,

Speaker 4 certainly in Washington, Vice President Vance has said he wants to tax university endowments at something like 35%. And they are now, if not tax-free, then much lower levels of taxation.

Speaker 4 What do you think of that?

Speaker 14 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.

Speaker 14 So I might support an endowment tax that was going to help fund underfunded parts of higher education.

Speaker 14 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.

Speaker 4 You mentioned inequality there. It should be pointed out that

Speaker 4 there are like 20 institutions of higher learning in this country with

Speaker 4 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.

Speaker 14 Trevor Burrus, Jr.: Yeah, and I think that's really important to remember is that 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.

Speaker 14 But most colleges are not in this position.

Speaker 14 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.

Speaker 14 And rising endowments have kind of contributed to that inequality, but as part of a larger story. Aaron Powell, all right.

Speaker 4 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,

Speaker 4 and endowments can't make up the difference, as you lay out in this post, now what do we do?

Speaker 14 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.

Speaker 14 And a lot of really important work that has been getting done will no longer happen.

Speaker 4 Elizabeth Pop Berman is a professor of organizational studies at the University of Michigan. Professor, thanks for your time.
I appreciate it.

Speaker 14 Thank you.

Speaker 2 Coming up.

Speaker 20 People aren't buying the drinks and they're not buying the extra appetizer. They're not buying that bowl of soup.

Speaker 4 You know, a side order a day could keep the restaurant closures away. First, though, let's do the numbers.

Speaker 4 Dow Industrial is down 132 points today, about 3 tenths percent. Landed at 42,454.
Did the blue chips? The NASDAQ down 372 points, 2%, 17,008, 8,9 or 9er.

Speaker 4 The SP 500 gave back 64 points, 1.10%, 57 and a 12%. GameStop jumped more than 11% today after its board said it would use some of its corporate cash to invest in Bitcoin.
Huh.

Speaker 4 The video game seller also announced plans to close what it described as a

Speaker 4 significant number of its stores this year. Other meme stocks, you say? Sure.
Crypto miner AGM Holdings jumped 12 and a 10th percentile today. Private jet charter firm Jet AI gave back 2.8%.

Speaker 4 Bonds down, yield on the tenure. Teenote rose 4.35%.

Speaker 4 You're listening to Marketplace.

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Speaker 4 This is Marketplace. I'm Kai Rizdahl.
Consumers in this economy just are not feeling so good right now. We talked about that yesterday.
Mitchell did the story for us.

Speaker 4 Turns out, small businesses are kind of down in the dumps, too.

Speaker 4 The MetLife Chamber of Commerce Small Business Index slid nearly seven points over the past quarter, wiping out its gains since Election Day.

Speaker 4 To be clear, small business owners do still think the economy is on pretty solid ground, but they're feeling...

Speaker 4 What's that word again?

Speaker 4 Oh yeah, uncertain. Here's Marketplace's Henriette.

Speaker 13 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 up.

Speaker 13 Sometimes people comment, well, that's a little too much for a breakfast tackle or breakfast split, but I have no option.

Speaker 19 You know, we have to pay for employees, you know, all other bills, rent of electricity bill and all that.

Speaker 13 And rising food costs, especially eggs. Instead of raising prices, some business owners are just taking the hit.

Speaker 13 Janessa Perney owns Erskine's Grain and Garden, a farm supply store in Chester, Vermont.

Speaker 13 She recently ordered wood shavings for animal bedding from Canada, and her supplier crossed the border right before President Trump rescinded 25% tariffs.

Speaker 22 I paid 20% extra. They swallowed 5% for me.
So that kind of thing is really disconcerting. Thinking about those types of things, they're making it hard to plan cash flow.

Speaker 13 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.

Speaker 19 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.

Speaker 13 It'll determine, he says, whether businesses feel like they can hire more workers or make capital investments.

Speaker 19 But right now, what he's seeing are small business owners hitting the pause button on growth plans for 2026 and beyond.

Speaker 13 In Houston, Renee Hidalgo hopes business picks up in the next few months because right now he's at the front counter seven days a week.

Speaker 13 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.

Speaker 13 If business picked up, Hidalgo could hire someone to help out and take some time off. I'm Henry Epp for Marketplace.

Speaker 4 Henry was just talking about business uncertainty. Believe me when I tell you, it's not just happening here.

Speaker 4 President Trump's trade and other policies are rattling the global economy too, and nowhere more than in China, where those trade frictions frictions and their own consumer confidence issues are weighing on things.

Speaker 4 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%.

Speaker 4 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.

Speaker 18 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 Bolin Claw.

Speaker 23 Housed in a beautiful villa-style lane house, three floors, so that's a lot of overhead.

Speaker 18 Rachel Kwok writes a Shanghai-based food and drink blog called Nomfluence.

Speaker 18 She says the Bolin Claw 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.

Speaker 18 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.

Speaker 18 One of them was graphics designer Joan Dai.

Speaker 18 The document said that the company had dissolved and every employee's contract had been terminated.

Speaker 18 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.

Speaker 15 The number you have dialed is not in service.

Speaker 18 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.

Speaker 18 We're not using her full name because she worries about official retaliation for speaking about the economy in less than glowing terms.

Speaker 24 I think it's extremely hard to get people to dine out right now.

Speaker 18 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.

Speaker 24 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 pushstrings.

Speaker 18 Meantime, rents, labor costs, and social security taxes are all going up, says Bostonian Scott Minoy.

Speaker 18 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...

Speaker 4 We started to see per-restaurant profit level decline because simply revenue would go up by 5%, costs would go up by 15, 20%, year on year.

Speaker 18 Restaurateur Bryce Jenner once ran seven sports bars and restaurants. Now just one is left, his Mexican food outlet Pistolera.

Speaker 18 He says the beginning of the end for his business came in 2018 when Chinese leader Xi Jinping got rid of the two-term two-term limit on the presidency, shaking consumer confidence.

Speaker 4 The optimism went.

Speaker 18 Then came the COVID lockdowns. Foreigners, key customers for Jenner and the Camel Group, left China.

Speaker 18 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.

Speaker 20 You know, I said, hey, maybe we should fight this together.

Speaker 17 And they said, oh, yeah, I don't know.

Speaker 20 And we all sat there pretty sad.

Speaker 18 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.

Speaker 18 Again, Bostonian entrepreneur Scott Minoy.

Speaker 4 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.

Speaker 4 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.

Speaker 18 He quit the business three years before his Element Fresh chain officially closed in 2021.

Speaker 18 Today, some of the more established restaurants are still packed, says Bryce Jenner, though just one of his seven restaurants and bars has survived.

Speaker 20 But, you know, people aren't buying the drinks and they're not buying the extra appetizer. They're not buying that bowl of soup.
They're not buying the coffees.

Speaker 18 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.

Speaker 4 This final note on the way out today, a couple of quick where things stand data points.

Speaker 4 Saw this first one in the Wall Street Journal, data from Cox Automotive that car repossessions in 2024 were up 16% from a year earlier.

Speaker 4 That's the highest level they've hit since 2009 and the Great Recession.

Speaker 4 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.

Speaker 4 Our media production team includes Brian Allison, Jake Cherry, Justin Dueller, Drew Jostad, Gary O'Keefe, Charlton, Thorpe, One College Toronto, and Becca Weinman.

Speaker 4 Jeff Peters is the manager of media production, and I'm Kai Risdahl. We will see you tomorrow, everybody.

Speaker 4 This is APN.

Speaker 25 Sometimes kids ask questions that reveal just how much adults still need to learn, like, can you explain what causes an economic bubble? And why are things so expensive at the airport?

Speaker 4 Or how much national debt might be too much?

Speaker 25 Fear not, Million Bazillion is back with a new season to help you and your kids become pros at understanding how money shapes the answers to all those questions and more.

Speaker 26 Listen to the latest season of Million Bazillion on your favorite podcast app.