Marketplace Podcast Episode Summary: "Measuring Uncertainty" Released: January 10, 2025 | Host: Kai Ryssdal (Guest Host: Amy Scott)

In this episode of Marketplace, host Amy Scott delves into pressing economic and business issues, exploring themes of uncertainty in various sectors—from artificial intelligence and national security to wildfires and the insurance crisis in California. The episode is structured into distinct segments, each addressing a unique aspect of uncertainty in the current economic landscape.

1. U.S. AI Export Controls and National Security

Overview: As President Joe Biden's administration nears its end, significant developments are underway to regulate the export of U.S. artificial intelligence (AI) technology. The proposed rules aim to curb the distribution of AI chips to adversarial nations like China and Russia, highlighting the intersection of technology and national security.

Key Points:

• Purpose of the Rules: The new regulations are designed to prevent adversaries from accessing advanced AI chips that have both civilian and military applications.

• Industry Reaction: The tech industry, represented by figures such as Jason Oxman of the Information Technology Industry Council, has expressed discontent. Oxman criticized the regulations for not only restricting exports to nations of concern but also limiting access for U.S. allies, potentially undermining U.S. industrial dominance.

Notable Quotes:

• Gregory Allen (Center for Strategic and International Studies):
  “China is looking pretty stuck.” [01:25]

• Jason Oxman (Information Technology Industry Council):
  “But we're not just talking about limiting access to countries of concern. We're talking about limiting access to our allies around the world, forcing them to look elsewhere and undermining US industrial dominance.” [02:27]

Implications: While the Biden administration's efforts have successfully slowed China's technological advancements in AI, there is concern about potential retaliation from China, including export controls and sanctions against the U.S.

2. California Wildfires and the Insurance Crisis

Overview: California faces one of the most devastating wildfire seasons on record, with economic damages projected to exceed $50 billion. This disaster underscores the state's ongoing homeowners insurance crisis, exacerbated by climate change and stringent regulatory measures.

Key Points:

• Insurance Market Strain: The Fair Plan, California's insurer of last resort, has seen its exposure surge from $50 billion in 2018 to over $450 billion by September 2024. This ninefold increase raises concerns about the system's capacity to handle catastrophic losses.

• Regulatory Challenges: California's tightly regulated insurance market, influenced by 1980s propositions, restricts insurers in setting competitive premiums and utilizing advanced catastrophe modeling. Recent reforms aim to attract more insurers back to the market, but large-scale disasters test these measures.

• Economic Impact: The insufficient capital cushion and non-competitive rate settings could result in indirect taxes on other California homeowners, spreading the financial burden.

Notable Quotes:

• Gregory Allen (Center for Strategic and International Studies):
  “The Fair Plan has grown from about $50 billion of exposure in 2018 up to over $450 billion of exposure as of this September.” [05:04]

• Gregory Allen:
  “It's a system where the commissioner of the system has been very clear about saying that the rates are not set in a competitive manner and they also don't have much of a capital cushion.” [05:04]

• Gregory Allen (on potential US retaliation):
  “China may retaliate with its own export controls and sanctions against the US including in New York.” [02:45]

Implications: The current insurance framework in California is struggling to adapt to the increasing frequency and severity of wildfires. Without significant policy interventions, the economic repercussions could extend beyond affected regions, impacting homeowners statewide.

3. Measuring Economic Uncertainty

Overview: Uncertainty remains a pervasive theme in the economy, influencing markets, consumer behavior, and policy-making. This segment explores various methodologies economists use to quantify uncertainty and its broader implications.

Key Points:

• Economic Policy Uncertainty Index: Developed by economist Nick Bloom, this index measures uncertainty by analyzing the frequency of uncertainty-related terms in news articles pertaining to the economy and policy. As of the latest data, uncertainty is twice the historical average despite a slight decrease from its peak in May 2020.

• Alternative Measures: Economists also consider financial market volatility, forecast error variations, and the impact on firm and household decision-making as indicators of uncertainty.

• Consequences of High Uncertainty: Elevated uncertainty can lead to reduced consumer spending and delayed business investments, creating a feedback loop that exacerbates economic instability.

Notable Quotes:

• Nick Bloom (Economist, Stanford):
  “You can survey people's sentiment to predict consumer spending.” [09:47]

• Laura Jackson Young (Economist, Bentley University):
  Discussed alternative measures such as market volatility and forecasting errors. [10:15]

• Gregory Allen:
  “Uncertainty breeds uncertainty, which is maybe why lately it kind of feels like everything has been uncertain all the time, forever.” [11:10]

Implications: Understanding and accurately measuring economic uncertainty is crucial for policymakers and businesses to make informed decisions. Persistent high levels of uncertainty may hinder economic growth and stability.

4. Thailand's Economic Recovery and Electric Vehicle (EV) Manufacturing

Overview: Thailand's economy is gradually rebounding from severe flooding, with the government emphasizing the expansion of the electric vehicle (EV) sector as a key driver for future growth. This pivot aims to position Thailand as a significant player in the global EV supply chain.

Key Points:

• Shift to EV Production: With a 20% drop in overall vehicle production, Thailand is redirecting efforts towards EVs, supported by government incentives and strategic partnerships, particularly with Chinese investors like BYD.

• Challenges in Local Supply Chain: Despite policies requiring 40% local sourcing of EV parts, most components are still imported, limiting the development of a robust domestic supply chain.

• Economic Concerns: Local businesses fear that increased Chinese investment may not significantly benefit the broader Thai economy, as supply chains remain dominated by foreign entities.

Notable Quotes:

• Pavita Pananond (Professor of International Business, Thammasat University):
  “Chinese companies can set up their own suppliers and then import parts here without really creating the supply chain that the Japanese have helped create in Thailand.” [21:09]

• Grain Cry Teishakanon (Economist, Bangkok):
  “It's in its early stage, so most of the parts they are import.” [21:05]

• Rita Magaldi (Salesperson, Honda Motorcycle Dealership):
  “More Chinese EV investment is not a good thing because when Chinese brands come to pick up prices to sell more EVs, it hurts the Japanese car industry.” [22:35]

Implications: Thailand's strategic focus on EV manufacturing presents opportunities for economic revitalization. However, without a developed local supply chain and balanced foreign investment, the benefits may be unevenly distributed, potentially disadvantaging local industries.

5. Sheer Ambrosia Bakery: A Success Story Amid Economic Uncertainty

Overview: Rita Magaldi, owner of Sheer Ambrosia Bakery in Salt Lake City, shares her journey of expanding from a home kitchen to a commercial space. Her story highlights resilience and strategic planning in the face of economic fluctuations.

Key Points:

• Business Growth: Transitioning to a commercial space and hiring employees allowed Rita to scale her operations and enhance customer experience.

• Customer Loyalty: Multigenerational customer relationships have fostered a strong community presence, with loyal patrons spanning from parents to grandchildren.

• Future Plans: During slower periods, Rita focuses on strategic initiatives such as expanding her customer base by engaging with hotels and local businesses.

Notable Quotes:

• Rita Magaldi:
  “I just thought to myself, yeah, I am part of their family traditions and it's just so exciting and heartwarming.” [24:30]

• Rita Magaldi:
  “More Chinese EV investment is not a good thing because when Chinese brands come to pick up prices to sell more EVs and it hurts the Japanese car industry.” [22:35]

Implications: Rita's experience underscores the importance of adaptability and community engagement for small businesses navigating economic uncertainties. Her proactive approach in strategic planning during downturns exemplifies effective business management.

6. Tribute to Former President Jimmy Carter

Overview: The episode concludes with a heartfelt tribute to former President Jimmy Carter, highlighting his legacy and the economic policies he championed.

Key Points:

• Economic Contributions: Carter is remembered for efforts to cut the deficit, deregulate industries, and promote affordable goods, which have had lasting impacts on the economy.

• Legacy: The funeral service, held at the National Cathedral, featured personal anecdotes from his grandson, Jason Carter, emphasizing Carter's influence across generations.

Notable Quotes:

• Jason Carter (Grandson of Jimmy Carter):
  “Flights and, as you heard, craft beer.” [26:30]

• Gregory Allen:
  “Basically all of those years ago. He was the first millennial.” [26:38]

Implications: Jimmy Carter's economic policies have left a lasting imprint on American society, influencing contemporary economic practices and fostering intergenerational appreciation for his leadership.

Conclusion

This Marketplace episode effectively navigates the complex terrain of economic uncertainty, offering listeners a comprehensive understanding of how uncertainty manifests across different sectors and its far-reaching implications. From national security concerns surrounding AI technology and the strain on California’s insurance market due to wildfires, to Thailand’s strategic shift towards EV manufacturing and the personal success story of a small business owner, the discussions provide valuable insights into the multifaceted nature of economic uncertainty.

By incorporating expert opinions, real-world examples, and notable quotes, the episode underscores the pervasive impact of uncertainty on policy-making, business strategies, and individual livelihoods. As the global economy continues to navigate challenges such as climate change, technological advancements, and geopolitical tensions, understanding and measuring uncertainty remains crucial for fostering resilience and informed decision-making.