Chapter 1: What impact is the war in Iran having on global oil supply?
All right, what if, and just hear me out now, what if the markets are an idiot? From American Public Media, this is Marketplace. In Los Angeles, I'm Colin Risdell. It is Monday. Today, this one is the 23rd of March. Good as always to have you along, everybody. All right.
It was perhaps a little bit harsh to characterize the market's reaction to the news of the day, as I just did, because it does make some sense, after all, for traders and their algorithms to react to presidential promises that things are going to get better, whatever the actual facts might show.
But one cannot help but wonder whether the markers of market based capitalism that we use might be just a bit too focused on the short term. That is that they haven't priced in the long run economic challenges that this war is going to bring. Robin Brooks is a senior fellow at the Brookings Institution. Robin, it's good to have you back on the program.
Great to be back, Kai.
All right. Test my premise. Do you think markets are not, as I said, pricing in the long term challenges no matter what the president happens to say on any given day?
So I think there's two big questions. And I think the question you're asking is totally valid. The first question is, is what just happened? On Friday, we were de-escalating. On Saturday, we were escalating. We were going to bomb power plants in Iran. This morning, we're de-escalating again. And I think it's worth thinking about how much weight should the market put on any one pronouncement.
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Chapter 2: How does the current oil shock compare to the 1970s oil crises?
The whole thing reminds me of the tariff standoff with China a year ago when tariffs went to 150%. And for a while, the president was almost negotiating with himself, escalating, de-escalating. And ultimately, that ended up with China kind of winning that standoff. And perhaps... That's what's going to happen here, too. Iran will kind of emerge with the upper hand.
And I think that's kind of what the market is betting on, that Trump is backing off and kind of doing a taco, as people say. The other question, obviously, that you're also getting to is, you know, is there not enough lasting damage to the economy for the stock market to rally today? So we can discuss that next, maybe.
Well, let's go ahead and go there. What do you suppose the lasting damage factor might be? Because for every day this thing goes on, it will take, I don't know, I'm making this number up, but it's going to take a week, 10 days to unpack it, you know?
Oh, totally. So I think there's two things going on, right? Oil prices, which obviously impact prices at the pump, and that's incredibly important for the U.S. consumer. You know, oil prices are a function of two things, a physical shortfall in the market now and So that's the de facto closure of the Strait of Hormuz or severe encumberment.
And then second of all, there's a big expectations component, which is basically the market guessing how long will it take for the Strait of Hormuz to reopen tomorrow, the week after, the month after, three months from now. And today, the market basically said, okay, This pronouncement from the president means this conflict is going to be a lot shorter.
And so therefore, my expectations component, I'm going to rein that in. And so that's the reason that the market rallied today.
One hates to bring Jay Powell into the conversation seemingly unnecessarily, but the word that comes to mind here is transient, right? Powell got in trouble in the post-pandemic period and in the pandemic period saying that inflation was going to be transitory. And it does seem to me...
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Chapter 3: What factors are contributing to skyrocketing natural gas prices?
that people writ large are expecting the economic fallout from this war to be transient. You know what I mean? That it's not going to endure. And I wonder if you agree, because, you know, once prices go up, whatever the cause, they're really slow to come down.
Yeah, Kai, I think that's a really important point. I think we all have a little bit of trauma from 2021 and 2022 when inflation rose so much that after a decade when inflation was almost written off. And of course, the Federal Reserve also was slow to recognize that inflation shock. But I think a bunch of things are different now. 2021, 2022, we were obviously recovering from COVID.
The global economy was gunning. That's not at all the situation now. We don't have the kind of fiscal stimulus that we had then. And so the global economic picture is genuinely weaker now. And if at the end of the day, we're talking about a conflict that is a matter of one month or something like that, then I think the case for transitory is stronger.
30 seconds to answer this next question. What do you think is the bigger threat as it stands right now, the inflation threat or the threat to global growth?
Definitely the threat to global growth. We are in a relatively good position because we're a net oil exporter. But Europe, for example, not only is getting hit by oil prices, but also a big spike in natural gas prices. So that's really bad news for others.
Robin Brooks, senior fellow at the Brookings Institution. Thanks, Robin. It's always good to pick your brain. Great to chat with you, Kai.
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Chapter 4: Why are U.S. data centers particularly affected by natural gas prices?
Traders today, as I said, what, me worry? We'll have the details when we do the numbers. Listeners of a certain age might remember the last big oil shock in this country, the embargoes in the 1970s. And listeners a good deal younger are going to remember the last global energy shock when Russia invaded Ukraine.
Well, today, the head of the International Energy Agency said that already just 24 days into this war, the impact is worse than those two historical references. Marketplace's Samantha Fields explains what that might mean.
If you were old enough to drive in 1973 during the OPEC oil embargo or in 1979 during the Iranian revolution, you might remember gas shortages and long lines to fill up your tank. Each of those took about 5 million barrels a day of oil supply off of the market.
Samantha Gross at the Brookings Institution says today, with the Strait of Hormuz largely closed, we've lost maybe 15 million barrels a day or 15 percent of supply.
So this supply shock is three times bigger than the ones that we saw in the 1970s.
This is also not the 1970s.
The United States now is less dependent on oil imports than we were 50 years ago.
Hugh Daigle at the University of Texas at Austin says that's why gas prices here are spiking, but we're not seeing shortages.
But countries like Pakistan, India, Thailand, China, Japan, they are really being hurt by this.
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Chapter 5: What challenges do small businesses face due to the current economic climate?
I'm Megan McCarty Carino for Marketplace.
If you happen to be a perspicacious shopper, you've perhaps already noticed at your local Kroger or Best Buy maybe that there are electronic price labels on some of those store shelves. They are, we're told, the next big thing in retail.
But in keeping with the truism that nothing is a done deal in retail until Walmart says it is, the news the other day that that company is going to roll out electronic price labels in all of its U.S. locations within the next year has put them on the fast track. Marketplace's Kristen Schwab has more on that one.
The average Walmart supercenter is nearly 180,000 square feet, bigger than three football fields. And it carries something like 120,000 items, each with its own price. Joe Feldman is a retail analyst at Telsey Advisory Group.
Think about the amount of labor hours it takes to go and change the labels with stickers.
Electronic price labels replace manual labor with the click of a button. And Feldman says there are other time-saving advantages. Workers can use an app to identify shelves that need attention.
It could, you know, light up in a different color or flash or something, and it would notify employees that they need to be restocking this particular item or that particular item.
Electronic prices will allow Walmart to not just change prices more easily, but whenever it wants. The company says it will only do this outside of shopping hours. So the cost of toothpaste can't go up between when you grab it from the shelf and when you check out. Still, Phil Lempert, a food industry analyst, says commodities like eggs, meat and coffee fluctuate daily.
We've got lots of disruption, whether it's about labor, whether it's about fuel.
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Chapter 6: How is Beaver County, Pennsylvania, adapting to changes in industry?
The population's been falling since 1970, and the economy and the way these things go has suffered accordingly. There has been a glimpse of hope or two over the past handful of years, but as Marketplace's Kaylee Wells reports, nothing has really ever paid off.
Daniel Rossi-Keene has lived in Beaver County for 15 years. He runs a local community development nonprofit called Riverwise. He's touring me through small town after small town along the Ohio River, past lots of people in Pittsburgh sealers beanies, plus boarded up storefronts and closed down factories and power plants.
It's like in West Virginia. You know, can we just get back to coal? You know, it's like in Detroit, can we just make cars in America again? That sensibility is very strong.
Fourteen years ago, some residents were convinced that a new plant would reverse Beaver County's decline. It's the height of the shale boom. Pennsylvania and neighboring states were one of the largest sources of natural gas in the whole country.
And Shell announces it's going to build a plant that turns that gas into the plastic you'd find in water bottles and toys and car parts right in Beaver County.
Everything's going to change. I mean, Shell officials stood up and said, when we turn the lights on at that facility, you'll never recognize your community again.
There will be new jobs and tax revenue and prosperity, just like the old days. But instead of steel, it's plastic. The Commonwealth of Pennsylvania granted a $1.65 billion tax break, the largest in its history. Beaver County resident Jolene Atkins says her neighbors were thrilled. What I've learned about this area because of the steel boom and then the steel decline is
I can understand why it sounded like such a great addition to the county.
Years of construction brought in thousands of new temporary jobs. The plant is a giant lattice of pipes with a line of stacks billowing white plumes on one side. It's a bit sci-fi, but since it opened in 2022. It doesn't, I don't know, it just kind of doesn't seem like the employment cash cow that it was supposed to be.
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Chapter 7: What role does local business play in economic recovery?
If the argument was that this was going to be a rising tide that lifted all boats, a lot of boats are doing worse off than they were in 2012.
Nick Messinger, senior economist at the think tank the Ohio River Valley Institute, says Shell's plant has been a bust for a few reasons. Other companies built new plants like Shell's, so there's a glut of production capacity. Meanwhile, more of us opted for reusable water bottles instead of the single-use ones made from the plant's plastic.
He also says this idea of a community putting all its proverbial eggs in one basket might have worked in the age of the steel plants, but not a great bet today.
A lot of the economics research indicates that small businesses are actually and local businesses are actually the number one job creator in the country anywhere you go.
And that is precisely the insight that's guiding Daniel Rossi Keene of the local development nonprofit Riverwise. He's a small business owner himself. He owns a bookstore. He's employed dozens of people and written thousands of paychecks.
Not a single person has gotten wealthy as a result of that. But we've managed to create a local business and employ folks.
On our driving tour, he stops by a metal scrap drop-off site run by a nonprofit he's partnered with. It uses the scrap to repair bicycles, then it gives them to children.
It's not a $14 or $15 billion investment. When you start to stack these things up piece by piece by piece by piece by piece, his operation, modest as it is, generates north of a million dollars a year in economic output for Beaver County.
Output which is almost entirely invested back into Beaver County. In a statement, Shell said its plant, quote, continues to deliver ongoing economic value in the Commonwealth. In Beaver County, Pennsylvania, I'm Kaylee Wells for Marketplace.
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Chapter 8: What lessons can be learned from the current economic situation?
I'm Kyle Risdahl. We will see you tomorrow, everybody. This is APM.