Podcast Summary: GD POLITICS

Episode: What The Iran War Did To The Economy

Host: Galen Druke
Guest: Martha Gimble, Executive Director & Co-Founder of the Budget Lab at Yale University
Date: April 13, 2026

Episode Overview

This episode explores the far-reaching economic repercussions of the sudden US-Iran conflict that began in late February 2026. Host Galen Druke and labor economist Martha Gimble dig into how the war has disrupted markets, stoked inflation, complicated the fiscal picture (especially in light of the "One Big Beautiful Bill Act"), and raised the specter of financial instability. The conversation spans global energy markets, inflation data, consumer sentiment, tax policy, and the looming risks in private credit, all while maintaining the show’s trademark blend of rigor, curiosity, and humor.

Key Discussion Points & Insights

1. The Unexpected Shock: From Soft Landing to Economic Uncertainty

[00:55]–[04:03]

• The US appeared to be achieving a historic "soft landing" in late February: inflation was down, unemployment was low, growth was decent (see previous episode with Jason Furman).
• The outbreak of war with Iran upended this. Energy prices soared: oil up ~50%, gas prices and inflation spiked.
• Martha Gimble emphasizes, “Uncertainty itself is a tax on economic activity because people can’t plan and they have to buy various forms of insurance or hedge their bets.” [03:27]
• Real question now: Where is the economy headed? Both data and expectations are in flux.

2. Are We Still on a Soft Landing Path?

[04:17]–[05:25]

• There was potential for a soft landing, even if inflation had lingering risks. But energy shocks are hard for any economy to absorb—US is better insulated than most, but will still feel real impacts.
• "An energy shock is just very, very difficult for economies to handle," says Gimble. [04:59]

3. Inflation: What’s Real, What’s Artifact?

[05:25]–[07:10]

• March data: Headline inflation rose sharply, but core inflation (stripping out food and energy) was 2.6%.
• Martha: “For energy in particular, [removing it from inflation] is a little bit of a false exercise because ... airfares ... are very, very much affected by energy prices... you can get energy prices high enough that demand destruction happens.” [06:16]
• Demand destruction: when energy gets so expensive, people spend less on other goods, dragging down growth.

4. How Bad Is the Energy Shock? Is 1970s-Style Pain Ahead?

[08:01]–[10:07]

• US is more resilient than in the 1970s (thanks to becoming a major energy producer).
• If oil stays at ~$90–$95/barrel, projections are for only a few tenths of a percent knocked off growth—not 1970s-level collapse.
• But uncertainty and duration matter; the longer disruption persists, the greater the harm, especially globally.
• “The prospects for global economic growth, I think, are a lot scarier than the prospects for US economic growth.” [09:37]

5. Global Ripple Effects and Food Supply Concerns

[10:07]–[12:09]

• Poorer countries can end up literally unable to buy energy and fertilizer, risking food insecurity.
• Rich countries (like the US) can outbid for limited supply, but the poorest lose out.
• Notable moment: “There are people in other countries who will literally not be able to access food. And so the relative pain here is not evenly borne.” [11:49]

6. AI & The Energy Crunch

[12:09]–[13:52]

• AI is a fast-growing, energy-dependent sector: “AI is very energy intensive, but in general the economy is very energy intensive ... this is bad for everyone and there’s a real cost here.” [13:31]
• Despite US energy production, the shock is a net negative for growth—even the brightest sectors cannot fully compensate.

7. Consumer Sentiment: Broad Frustration

[13:52]–[18:19]

• Post-pandemic, sentiment is lower than underlying data would suggest, and highly polarized by party.
• But now, everyone’s unhappy: “Everyone’s really mad right now. Republicans, Independents, Democrats.” [16:17]
• Q1 wage growth vs inflation: Americans are losing purchasing power again (after a brief positive spell in ‘23–‘25).
• Energy shocks threaten real incomes, echoing patterns from prior decades.

8. Labor Market: Resilience or Mirage?

[19:10]–[21:12]

• March jobs numbers strong (+178,000), but more volatility in recent months.
• True trends only clear by looking at multi-month averages.
• The equilibrium unemployment rate is lower due to decreased immigration—fewer jobs needed to maintain stability.

9. US Fiscal Picture: The One Big Beautiful Bill Act (OB3)

[22:22]–[27:04]

• The OB3 was expected to be hugely expensive (trillions in cost) and, unusually, dynamic analysis shows no long-term economic boost—potentially even a drag due to interest costs.
• “It has, over the 10 year budget window, functionally no impact on economic growth, which is impressive for a bill costing trillions of dollars.” [22:47]
• Upward pressure on interest rates affects not only government, but mortgages and personal borrowing.

Tax Filing and Fraud Concerns

• Early tax filing data shows much higher claiming of new deductions, especially overtime, than anticipated.
• Risk of confusion or outright fraud due to increased tax code complexity and underfunded IRS.
• US culture of tax compliance—a virtue at risk if enforcement slips.

10. Debt, Deficits, and Why Nobody Cares (Yet)

[29:15]–[41:27]

• Persistent warnings have led many to tune out fiscal debates.
• Gimble uses a Hallmark movie analogy: the US is like “the boyfriend in the big city that the heroine doesn’t leave because she doesn’t see a better option ... until another [market] emerges, we’re protected from the consequences of our own actions.” [34:35]
• US Treasuries remain nearly irreplaceable; even global instability (war) may bolster demand for US debt.
• Fiscal crisis not imminent (“you shouldn’t be worried that it’s going to happen tomorrow”), but the risk is real and fast-moving if alternatives ever appear.

11. Private Credit: The Next Shoe to Drop?

[42:09]–[47:12]

• Worrying headlines about “slow motion bank run” in private credit markets—less regulated, less understood.
• Investors (including Middle Eastern sovereign funds now cash-strapped from energy shocks) are trying to pull out money.
• Unlike 2008, risks are more shadowy: “Regulars just have a lot less insight into it ... when there are more unknowns, that just starts making everyone very, very itchy.” [46:31]

12. AI: Wait and See

[47:12]–[50:49]

• No detectable large impact of AI on general labor markets yet—changes mostly affect investment and data centers.
• “We’re still kind of waiting to see what the economic impacts are going to be for you and me, as opposed to kind of on the investment data center build outside.” [49:01]
• Human connection still matters—people value podcasts for personalities and relationships, not just raw information.

Notable Quotes & Memorable Moments

• “Uncertainty itself is a tax on economic activity because people can’t plan…” — Martha Gimble [03:27]
• “An energy shock is just very, very difficult for economies to handle.” — Martha Gimble [04:59]
• “There are people in other countries who will literally not be able to access food.” — Martha Gimble [11:49]
• Hallmark Analogy: “We are the boyfriend in the big city at the beginning of the Hallmark movie … but until you see an emergence of an actual alternative to the United States, we’re going to be able to continue on just like doing things in this kind of haphazard, non-ideal way.” — Martha Gimble [34:35]
• On private credit: “I personally always get itchy when normal people have to start learning about a new area of finance because it may affect their lives.” — Martha Gimble [43:03]
• Human connection: “Humans tend to like other humans and we tend to like spending time with other humans… And we often pay to be in spaces or to be with other humans.” — Martha Gimble [50:15]
• On economic predictions: “If it feels like you don’t know where all of this is going, congratulations. The economists don’t either.” — Martha Gimble [50:57]

Important Timestamps

• [00:55] Galen outlines pre-war economy & post-war shock.
• [02:39] First reactions to the rapid changes after war onset.
• [05:25] Breakdown of recent inflation data.
• [08:01] Assessing the size and likely impacts of the energy shock.
• [10:41] International impacts and food insecurity.
• [13:52] Consumer sentiment data post-crisis.
• [19:10] March jobs report and implications.
• [22:22] Fiscal impacts and tax discussion, including OB3.
• [34:35] Hallmark boyfriend/US debt analogy.
• [42:09] Discussion of private credit and financial sector concerns.
• [47:12] AI’s economic impact so far and labor market effects.
• [50:57] Concluding thoughts on uncertainty.

Final Thoughts

The episode paints a landscape where immediate crises (war, energy spikes, private credit concerns) collide with slower-burning issues (tax complexity, fiscal deficits, low consumer sentiment). The US economy is more resilient than in decades past, but not immune to shocks. The bottom line: Uncertainty reigns, and while there are reasons for relative optimism domestically, the risks—both global and structural—shouldn’t be ignored.

“If it feels like you don’t know where all of this is going, congratulations. The economists don’t either.” [50:57]

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