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Amy Scott
Have you ever had to put your plans on hold due to symptoms of generalized myasthenia gravis or gmg, like taking that weekend trip, talking with friends or enjoying a meal? Learn about a treatment option that may help. Visit treatgmg.com to learn more. That's treatgmg.com on the show today. AI and National Security insurance in the Climate crisis and uncertainty as an economic indicator From American Public Media, this is Marketplace in Baltimore. I'm Amy Scott in for kai Ryssd. Thursday, January 9 Good to have you with us. With just days left in his administration, President Joe Biden is reportedly preparing new rules to limit the flow of US Artificial intelligence technology around the world. The rules are aimed at preventing adversaries like China and Russia from accessing AI chips. The tech industry that makes and sells those chips, though, is not too pleased. Marketplace's Sabri Benishore reports.
Sabri Benishore
AI chips can go into phones. They can also go into drones. Scott Jones is a senior non resident fellow at the Stimson Center. Semiconductors really will be at the very heart of war fighting capability, the next generation, he says. That concern has been at the heart of the Biden administration's efforts to limit the spread of AI chips and chip making capabilities. Any day now, it's expected to announce a new set of rules.
Gregory Allen
What it does is it buckets countries into different groups.
Sabri Benishore
Gregory Allen is with the center for Strategic and International Studies. Some US Allies would get advanced AI chips no problem. Other countries, including China, wouldn't be allowed to get them at all.
Gregory Allen
And then finally there's the group of countries that are in the middle and they are subject to certain restrictions on the conditions under which those exports of AI chips can take place and also the overall quantities of AI chips that can be sold.
Sabri Benishore
These rules go further than previous attempts to control AI tech. Peter Lichtenbaum is a partner at law firm Covington and Berling.
Gregory Allen
It started out with China, but now we're looking at the US Seeking to regulate globally the diffusion of these chips.
Sabri Benishore
Some tech companies are not happy with what's known so far about the rules.
Gregory Allen
It's a really bad idea.
Sabri Benishore
Jason Oxman is president of the Information Technology Industry Council, which represents, among others, Apple, intel and Amazon. But we're not just talking about limiting.
Gregory Allen
Access to countries of concern. We're talking about limiting access to our.
Sabri Benishore
Allies around the world, forcing them, he says, to look elsewhere and undermining US Industrial dominance. So far, the Biden administration's efforts to control the spread of AI tech have actually slowed China's development of the technology, says CSIS's Gregory Allen, China is looking pretty stuck. But China may retaliate with its own export controls and sanctions against the US In New York, I'm Sabri Ben ashore for Marketplace.
Amy Scott
On Wall street, no numbers from US Stock markets today, which closed for the national day of mourning for former President Jimmy Carter. We'll have other details when we do the number. Wildfires continue to burn in Los Angeles county today with dangerous weather conditions expected through tomorrow night. At least five people have died and early estimates suggest the economic damage could exceed $50 billion. The fires will be a huge test for California, California's already shaky property insurance market. Ben Keys is a professor of real estate and finance at the Wharton School. Welcome to the program.
Gregory Allen
Thanks for having me.
Amy Scott
So, Ben, these fires are burning as California is in the midst of a really a homeowners insurance crisis. How would you describe the situation there?
Gregory Allen
Yeah, I think the crisis really comes from the household level. California's insurance market has been very tightly regulated for a long time and that's made the market generally favorable for consumers. But climate change induced disasters in recent years have really stressed that system. It's led a number of large insurers to exit the state or circumscribe where they write policies, and it's pushed a lot of homeowners into the state's insurer of last resort, the Fair Plan.
Amy Scott
Yeah, I read, I think in the Financial Times today that the Fair Plan as of the end of September had almost $6 billion of exposure just in the Pac Palisades area where, you know, these fires are burning. How does California absorb these losses?
Gregory Allen
Well, historically these types of fare plans were designed to be a band aid on the insurance market. And in the last few years, they have expanded way beyond their initial intended use. The Fair Plan in California has grown from about $50 billion of exposure in 2018 up to over $450 billion of exposure as of this September. So a ninefold increase. And I think the question is going to be whether that system is able to handle a shock as large as this one. We'll see what the final tally is in terms of damages. But this is 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. And so that means that the rest of the state is likely on the hook if the losses are large enough. And you can think of that as an indirect tax on other California homeowners.
Amy Scott
At the end of last year, California's insurance commissioner, Ricardo Lara, put in some new policies to try to stabilize the market and expand coverage in areas prone to wildfires. Can you talk about some of those changes and whether you expect that to help in this situation?
Gregory Allen
Yeah, California has been very tightly regulated in a number of ways. And part of this goes back to a proposition that was passed in the 1980s. It's been difficult for insurers to operate in the ways that they would like when it comes to setting their policy premiums and also the types of information that they're allowed to use when setting those premiums. And so California has been very restrictive in terms of, you know, relying only on backwards looking data rather than on some of the sophisticated catastrophe models. And we've seen the climate evolving so rapidly, especially for disasters like wildfires. Insurers have been desperate to use more information that they have at their fingertips when setting premiums. I think these reforms are likely to bring more insurers back to the table. This is largely what they were looking for. But a large disaster like this one is going to make them question whether it makes sense to write policies in some of these risky areas. And then ultimately, what's the right price? What's the right premium for policies that are exposed to wildfires?
Amy Scott
Hmm. As you and I have talked before, this is not just a California issue. You know, people around the country are seeing their premiums go up or getting non renewal notices as these disasters increase. Do you think we're any closer to solving this problem?
Gregory Allen
Well, we haven't really set out a list of policy solutions. We're still at very early stage when it comes to addressing these problems. I think we're still in the diagnosis phase, and you look at a very splintered regulatory landscape. Insurance is regulated at the state level. The federal government plays a relatively small role in insurance markets. And so I think we need a much more holistic approach that combines local, state and federal data and information from policymakers and from industry to wrap our hands around the problem. And then we need to think about broad based measures to stabilize the market, make it much more affordable and accessible for the average homeowner.
Amy Scott
All right. Ben Keys teaches real estate and finance at Wharton. Thank you so much for your time.
Gregory Allen
Thanks. So.
Amy Scott
If you were to tally up the most common words we've used on this show over the last handful of years, uncertainty would surely rank high on the list. We've used that word to describe what's happening in the housing market, the labor market, the stock market. Really, any Corner of the economy. I mean, honestly, I can't remember a time when things didn't feel uncertain. Right now, though, with the climate crisis and wars and a new administration coming in promising some big policy changes, it feels may extra uncertain. But how do you even measure that? Marketplace's Kristen Schwab talked to some people who try.
Kristen Schwab
Uncertainty is a tricky thing to measure because is it a feeling or is it a fact? Turns out it's a bit of both.
Gregory Allen
You really want to measure uncertainty because you want to know what's in people's heads.
Kristen Schwab
Nick Bloom is an economist at Stanford and he says, yeah, you can survey people's sentiment. Economists do this to say, predict consumer spending. But to measure uncertainty about everything is a big expensive task.
Gregory Allen
So you have to get something as kind of a proxy for this.
Kristen Schwab
Bloom's actually developed a method of measurement called the Economic Policy Uncertainty Index. And it gets its data from the news.
Gregory Allen
It actually counts the number of articles that talk about the economy, talk about policy, and mention the word uncertainty.
Kristen Schwab
Yep, I am an uncertainty influencer, which kind of makes sense if you think about who we interview, policymakers, business owners and consumers. Laura Jackson Young, an economist at Bentley University, says there are some other ways to measure uncertainty.
Amy Scott
Volatility in financial markets, professional forecasters looking at variation in their forecast errors, or we can really just think about how it's affecting firm and household decision making.
Kristen Schwab
Measuring uncertainty is similar to measuring the economy, but economists separate the two because of uncertainty's effect. For example, a high level of uncertainty might mean companies hire less and consumers spend less.
Amy Scott
And it's kind of like that can lead to this, like, snowball situation where it even further exacerbates uncertainty.
Kristen Schwab
Uncertainty breeds uncertainty, which is maybe why lately it kind of feels like everything has been uncertain all the time, forever. Like, when's the last time you didn't feel uncertain about the economy?
Amy Scott
That's an excellent question. Oh, gosh.
Kristen Schwab
Right now, according to the Economic Policy Uncertainty Index, uncertainty is down from its all time high in May of 2020, but still twice the historical average. I'm Kristen Schwab for Marketplace.
Amy Scott
Coming up.
Gregory Allen
It's in its early stage, so most.
Jennifer Pak
Of the parts, they are import.
Amy Scott
It takes time building up a local industry. First though, let's do the numbers. US Markets are closed today as part of the national day of mourning for former President Jimmy Carter. There is also no regular mail delivery, but banks were open after falling 1% yesterday. Oil prices gained back that and then some by midday today. That was partially in response to a cold snap in parts of the US And Europe. Brent crude futures were up more than a dollar to more than $77 a barrel. US West Texas Intermediate crude futures were up almost a dollar as well to more than $74 a barrel. The 30 year mortgage rate climbed to its highest level since July, 6.93%, Freddie Mac reported today. As we often talk about on the show, mortgage rates tend to relate to the yield on 10 year treasury bonds which have been rising for the past month but fell a bit today to 4.68%. You're listening to Marketplace.
Rita Magaldi
This Marketplace podcast is supported by Gusto.
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Amy Scott
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Amy Scott
I'm Amy Scott. As we talked about earlier, the damage from the wildfires raging in Southern California could reach $50 billion or more. It's expected to be the costliest wildfire disaster ever in this country. That's partly because of climate, Dr. Weather conditions and also because of shortcomings in infrastructure that make it harder to prevent and respond to fires. Marketplace's Kaylee Wells looked at what it would take to avoid a catastrophe like this in the future.
Greg Pierce
Let's start with the immediate answer. Fire prone areas could use more firefighters, says Greg Pierce. He's an urban planning professor at ucla.
Gregory Allen
There's of course a reason why we don't have more firefighting because it's incredibly.
Greg Pierce
Expensive and most of the time you wouldn't need those extra people. For example, the Lahaina fire in Hawaii lasted less than a day. There's also the issue of getting enough water to the flames.
Gregory Allen
Water systems are quote unquote over designed to address your run of the mill house fires, small fires, but not near the capacity that you'd have to have for a wildfire.
Greg Pierce
In la, some fire hydrants ran dry. Pierce says once the fire sparked, it was going to be devastating no matter what. As for avoiding the devastation, next time, Erica Fisher says the key key is mitigation. She teaches civil and construction engineering at Oregon State University.
Amy Scott
The whole goal of home hardening and mitigation within the community is to decrease the intensity of the fire and make.
Rita Magaldi
It so that we can fight the fire.
Greg Pierce
And since most buildings are homes, that means getting residents on board. Stephen Collier is a professor of city and regional planning at UC Berkeley who says one deterrent is cost.
Gregory Allen
I mean, if we're talking about home hardening, that's tens of thousands of dollars, even hundreds of thousands of dollars.
Greg Pierce
Another deterrent, he says, is aesthetic. Residents resist home hardening because they don't want to destroy the big tree in the front yard or get rid of their beautiful wooden porch. For better or worse, Collier says the insurance crisis in wildfire prone areas has started to force these mitigation efforts to happen anyway.
Gregory Allen
Whether it's because you got non renewed or because all of a sudden you're paying $5,000 or $12,000 in insurance, people are just aware that this is something that they need to do because of insurance.
Greg Pierce
Collier says the last solution that nobody wants to talk about is rethinking our current land use because fewer homes in fire prone areas means fewer resources spent fighting to save and rebuild them. I'm Kaylee Wells for Marketplace.
Amy Scott
In Thailand, the economy is still recovering from widespread flooding. Last year it's estimated to have cost around two and a half billion dollars. The Thai government recently announced more Help for small business businesses and more spending on infrastructure. Even before the floods, a key part of Thailand's plan to boost its economy has been growing the country's production of electric vehicles. Marketplace's Jennifer Pack has that story.
Jennifer Pak
Thailand is a regional auto manufacturing hub, mainly for Japanese gas powered cars and pickup trucks. That's why it's sometimes called the Detroit of Southeast Asia. But times are tough, at least for those who work making gas powered cars, says motorcycle taxi driver Natapo Balupet. He lives near a cluster of auto factories and suppliers in eastern Thailand.
Gregory Allen
Business is very bad. A lot of people have lost their jobs.
Sabri Benishore
Factories have closed down.
Jennifer Pak
Overall vehicle Production dropped by 20% in the first 11 months of last year compared to the previous year. Thailand's weak economy means banks are tightening the criteria for car loans and fewer consumers are buying new cars. But sales of EVs are holding up better than those of gas vehicles. So Thailand is betting on EV manufacturing. Of more than a million vehicles produced in the country in the first 10 months of last year, 170,000 were electric or hybrid. It has a policy. By 2030, 30% of all vehicles manufactured in Thailand will be electric. And to meet that goal, it needs help from a country with an advanced EV industry. You can see that Thailand goes all out in pursuing the Chinese investor. Pavita Pananond is a professor of international business at Thammasat University in Bangkok. She says the Thai government not only offers EV makers tax incentives to set up factories, but also tariff cut for completely built car in China. Cars built in China, she says, can also be imported into Thailand with zero tariffs. It's as part of an existing free trade agreement between China and 10 Southeast Asian countries. China's EV makers have invested over $1.4 billion in Thailand over the last couple of years. Chinese giant BYD unveiled a sprawling factory last year in Rayong Province. The firm and other Chinese EV makers are keen to find more markets since their cars face 100% tariffs in the US and are effectively shut out. BYD Thailand turned down my interview request. Further north, near another Chinese EV factory for mg, some local businesses are worried that Chinese investment won't trickle down to the wider Thai economy. Chai Rat Suan Payak works at a Honda motorcycle dealership.
Tasnapan rata Navabulsam
These days I see Chinese people renting shops to do business. Their staff is Chinese, the customers are Chinese. But Chinese people wouldn't come to shops, say like ours, and buy motorcycles.
Jennifer Pak
And something similar could happen in EV manufacturing, says Professor Pavita. Because Chinese companies can also set up their own suppliers and then import parts in here without really creating the supply chain that the Japanese have helped created. In Thailand, the Thai government requires EV makers to source 40% of car parts locally, but that isn't happening just yet. According to economist Grain Cry Tae Shakanon in Bangkok. It's in its early stage, so most of the parts they are import, but at least Thai consumers are getting a good deal. The government here subsidizes EV prices to make them more affordable. Tasnapan rata Navabulsam paid $20,000 for her BYD model. She thought it was a fair price and she's delighted with how much she's saving on running costs.
Rita Magaldi
Per month. I used to spend about $150 on petrol for my car. Now I pay just $44 to charge the EV.
Jennifer Pak
As a consumer, she's happy to have more choices. But as a salesperson for Japanese gas powered cars, she's worried.
Rita Magaldi
More Chinese EV investment is not a good thing because when Chinese brands come, they cut prices to sell more EVs and it hurts the Japanese car industry.
Jennifer Pak
But the Thai government doesn't have a lot of leverage to rein in Chinese EV makers. For now, its focus is just to be a part of the global EV supply chain. In Bangkok, I'm Jennifer Pak for Marketplace.
Amy Scott
Next week we'll get an update on retail sales after the holiday shopping season. While we wait for that, let's check in with one of our regulars. Rita Magaldi owns a baklava bakery, Sheer Ambrosia, in Salt Lake City. When we last spoke, she'd moved out of her home kitchen into a commercial space and hired an employee ahead of the busy season.
Rita Magaldi
It started off a little slow in the beginning of November, and so I thought, oh my gosh, are people gonna come back and what am I gonna do? And then right after Thanksgiving, things just kind of exploded. It was just night and day working here versus working from home because a there was a little separation between home and work. Granted, I didn't spend very much time at home, but it was always a little awkward having strangers show up to my house. And so it was just nice for them to walk into this cute bakery and it just kind of set the mood for the pickup. I have a customer whose mother started buying from me. When I first started the business in 2008, she was a teenager. So then she got married. Now this year when they came to pick up the baklavat, they had their baby with them and they sent me a video feeding him baklava. And then after the video. She sent me a little blurb and she goes, I guess it's going to be three generations of customers now. It was the cutest thing ever. And I just thought to myself, yeah, I am part of their family traditions, and it's just so exciting and heartwarming. Things have slowed down, as they always do in January. I try not to panic. So now I'm using this downtime to strategize for the year ahead. This month, I am creating a schedule so that I can get out there, meet with hotels, meet with business owners. I can do that now that I have employees that are helping me make the baklava. I'm not stuck in the kitchen like I've been in the past. I am just over the moon, excited about the new heights Sheer Ambrosia will reach in 2025.
Amy Scott
Rita Magaldi, owner of Sheer Ambrosia in Salt Lake City, Utah. This final note on the way out today, a moment from the funeral for Jimmy Carter held at the National Cathedral in Washington. Among the many tributes, the former president's grandson, Jason Carter, had this to say about his grandfather's legacy, economic and otherwise.
Gregory Allen
By the way, he cut the deficit, wanted to decriminalize marijuana, deregulated so many industries that he gave us cheap flights and, as you heard, craft beer basically all of those years ago. He was the first millennial.
Amy Scott
Jimmy Carter will be buried next to his wife of 77 years, Rosalynn Carter, in his hometown of Plains, Georgia. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Peacher and Stephanie Sieck are the Marketplace editing staff. Amir Babawi is the managing editor. We also had help today from Jess Berg. I'm Amy Scott. Hope to see you back here tomorrow. This is apm.
Gregory Allen
Hey, it's Kai. My minivan. And I, as I've said on the radio, have logged a lot of miles with Marketplace.
Sabri Benishore
Luckily, it's still running, you know, pretty well.
Gregory Allen
But if your car doesn't drive as well as it used to, listen up. It can still help drive Marketplace. When you donate your old car or truck. We'll use the proceeds to support the great programs you hear every day. Start your vehicle donation@marketplace.org vehicle.
Marketplace Episode Summary: "Measuring Uncertainty"
Hosted by Amy Scott, Marketplace's January 10, 2025 episode delves into critical economic and technological challenges shaping the current landscape. From national security concerns surrounding Artificial Intelligence (AI) to the escalating insurance crisis amid California wildfires, the episode provides in-depth analysis and expert insights. Additionally, it explores the pervasive theme of uncertainty in the economy and examines Thailand's strategic pivot towards electric vehicle (EV) manufacturing as a pathway to economic recovery.
As President Joe Biden's administration approaches its final days, significant moves are underway to bolster national security by restricting the global distribution of American AI technology. The administration is set to announce new rules aimed at limiting the export of AI chips to prevent adversarial nations, notably China and Russia, from accessing advanced AI capabilities.
Key Insights:
AI Chip Versatility: AI chips are not confined to consumer electronics like smartphones but are integral to military applications, including drones. Sabri Benishore emphasizes, “Semiconductors really will be at the very heart of war fighting capability, the next generation,” highlighting their strategic importance ([01:28]).
Categorization of Nations: Gregory Allen of the Center for Strategic and International Studies explains the administration's strategy: “Some US Allies would get advanced AI chips no problem. Other countries, including China, wouldn't be allowed to get them at all” ([01:57]). Additionally, a middle group of countries will face specific restrictions on both the conditions and quantities of AI chip exports ([02:07]).
Industry Pushback: The tech industry expresses strong opposition to the proposed regulations. Jason Oxman, president of the Information Technology Industry Council, labels the measures as “a really bad idea” and voices concerns about the broader implications for US industrial dominance and alliances ([02:53]-[02:58]).
Potential Retaliation: Gregory Allen warns of possible retaliatory actions from China, including export controls and sanctions, which could escalate geopolitical tensions ([02:58]-[03:28]).
California is grappling with unprecedented wildfires that have not only caused significant loss of life but are also imposing a staggering economic burden estimated to exceed $50 billion. These wildfires underscore the fragility of California's property insurance market, already strained by climate-induced disasters.
Key Insights:
Insurance Market Strain: Gregory Allen discusses how climate change has severely impacted California’s tightly regulated insurance market. “The Fair Plan in California has grown from about $50 billion of exposure in 2018 up to over $450 billion of exposure as of this September,” illustrating the exponential increase in risk ([05:17]-[06:35]).
Regulatory Challenges: Despite recent reforms by Insurance Commissioner Ricardo Lara aimed at stabilizing the market by allowing more flexible premium setting and the use of advanced catastrophe models, the magnitude of current wildfires threatens to overwhelm the system. Allen notes, “The rates are not set in a competitive manner... the rest of the state is likely on the hook if the losses are large enough,” indicating potential indirect costs to other homeowners ([05:17]-[06:35]).
Need for Holistic Solutions: Gregory Allen emphasizes the necessity for a comprehensive approach that integrates local, state, and federal efforts to address the multi-faceted insurance challenges exacerbated by increasing wildfire frequencies ([08:17]-[08:59]).
Uncertainty remains a dominant theme in today's economy, affecting various sectors from housing to labor markets. Marketplace explores the methodologies employed by economists to quantify this uncertainty and its implications for economic decision-making.
Key Insights:
Economic Policy Uncertainty Index: Kristen Schwab introduces Nick Bloom’s Economic Policy Uncertainty Index, which measures uncertainty by analyzing the prevalence of terms related to the economy, policy, and uncertainty in news articles. “It actually counts the number of articles that talk about the economy, talk about policy, and mention the word uncertainty,” Schwab explains ([10:39]-[10:55]).
Impact on Behavior: High levels of uncertainty can lead to reduced hiring by companies and decreased consumer spending, creating a feedback loop that further entrenches economic uncertainty. Schwab aptly states, “Uncertainty breeds uncertainty,” capturing the cyclical nature of economic hesitation ([11:41]-[11:54]).
Current State of Uncertainty: Despite a slight decrease from its peak in May 2020, the Economic Policy Uncertainty Index remains “twice the historical average,” reflecting pervasive doubts amid ongoing global challenges such as climate crises and geopolitical tensions ([11:59]-[12:39]).
In the wake of extensive flooding that cost Thailand approximately $2.5 billion last year, the Thai government is steering the economy towards electric vehicle (EV) manufacturing as a cornerstone of its recovery strategy. This pivot aims to transform Thailand into a significant player in the global EV supply chain.
Key Insights:
Shift from Gas-Powered Vehicles: Traditionally known as the “Detroit of Southeast Asia” for its robust production of Japanese gas-powered cars, Thailand is now heavily investing in EV manufacturing. The government aims for EVs to constitute 30% of all vehicles produced in Thailand by 2030 ([19:06]-[23:07]).
Chinese Investment: To achieve its EV goals, Thailand is attracting substantial investments from Chinese EV manufacturers. Pavita Pananond of Thammasat University highlights efforts such as tax incentives and tariff reductions, which have led to over $1.4 billion in Chinese investments, including the establishment of giant factories like BYD’s sprawling facility in Rayong Province ([20:00]-[21:27]).
Local Economic Concerns: While EV sales are robust, local businesses express apprehension about the long-term benefits of Chinese investments. Chai Rat Suan Payak from a Honda dealership points out that Chinese firms may not significantly contribute to the local supply chain, potentially sidelining Thai suppliers and limiting broader economic gains ([21:27]-[23:07]).
Government Measures and Consumer Impact: The Thai government mandates that EV makers source 40% of car parts locally, though this is still in its nascent stages. Consumers like Tasnapan rata Navabulsam appreciate the affordability and efficiency of EVs, yet local salespeople worry about competitive pressures from Chinese brands ([22:39]-[23:07]).
The episode concludes with a heartfelt tribute to former President Jimmy Carter. During his funeral at the National Cathedral in Washington, his grandson, Jason Carter, reflects on Carter's multifaceted legacy, including economic reforms and deregulation efforts that have had lasting impacts on various industries.
Notable Tribute: Jason Carter remarks, “He cut the deficit, wanted to decriminalize marijuana, deregulated so many industries that he gave us cheap flights and, as you heard, craft beer basically all of those years ago. He was the first millennial,” underscoring Carter's forward-thinking policies and their enduring influence ([26:53]-[27:11]).
Conclusion
This episode of Marketplace provides a comprehensive exploration of how uncertainty permeates various facets of the economy, from national security measures affecting global tech distribution to environmental disasters challenging state insurance frameworks. Through expert interviews and detailed analysis, listeners gain a nuanced understanding of the intricate interplay between policy, market dynamics, and economic resilience in an increasingly unpredictable world.