Marketplace: The Law of Unintended Consequences

Marketplace, hosted by Kai Ryssdal, delves into the complex and often unforeseen repercussions of economic policies and business decisions. In the March 26, 2025 episode titled "The Law of Unintended Consequences," Ryssdal explores how seemingly straightforward economic tools, such as tariffs, can ripple through various sectors, affecting everything from government borrowing to small businesses and higher education funding.

1. The Trade Deficit and Tariffs: A Double-Edged Sword

Kai Ryssdal opens the discussion by addressing the persistent topic of tariffs, a favored tool of the U.S. President aimed at shrinking the trade deficit and encouraging Americans to purchase domestic goods. Ryssdal remarks, "...allow me to introduce you here to the law of unintended consequences" [00:00].

Sabri Benishore likens economic interventions to a scene from The Simpsons, illustrating how tampering with one aspect can inadvertently disrupt the entire system [01:48]. Mary Lovely, a senior fellow at the Peterson Institute for International Economics, explains the trade deficit as "more money going out of the house than coming in" [02:24]. She emphasizes that without a mechanism to recycle these dollars back into the economy, the balance would tip disastrously.

Matthew Slaughter, Dean of Dartmouth's Tuck School of Business, adds that these outgoing dollars return as U.S. assets, such as stocks and treasury securities [02:59]. However, Sabri Benishore warns, "If the trade deficit were magically smaller... fewer loans to business, fewer loans to the government" [03:08], suggesting that reducing the deficit without addressing government borrowing needs could stifle economic growth.

Robert Lawrence of Harvard underscores the complexity by noting that a smaller trade deficit means reduced borrowing from abroad, but with the federal government unlikely to borrow less, "someone else is going to have to borrow less, and that would be the rest of the economy" [03:35]. This scenario, Benishore posits, could lead to a recession as businesses and consumers pull back [03:58].

2. Beyond the Official Unemployment Rate: The Hidden Struggles

The conversation shifts to the nuances of unemployment statistics. Ryssdal points out that the official unemployment rate, U3, is just one of six measures [04:14]. Mitchell Hartman introduces Aurora Asbill's story, a theater professional facing inconsistent work hours [05:30], highlighting the limitations of traditional unemployment metrics.

Victoria Gregory, a labor economist at the St. Louis Fed, breaks down the unemployment rates from U1 to U6, elucidating how each captures different facets of labor underutilization [06:07]. She explains that U6, the broadest measure, includes discouraged workers and the underemployed [07:27].

Gary Hoover from Tulane emphasizes his concern with U6, describing marginalized workers as "the canary in the coal mine" [08:57], signaling deeper economic distress [09:07]. This broader perspective suggests that rising unemployment rates, especially among the least advantaged, indicate a slowing economy with potentially tougher times ahead [09:14].

3. Higher Education Funding: Endowments Cannot Fill the Gap

Elizabeth Popp Berman, a professor of organizational studies at the University of Michigan, addresses the misconception that university endowments can easily replace federal funding cuts [10:20]. Ryssdal challenges the notion that large endowments, such as Michigan's $19 billion, are fungible [10:26], to which Berman responds:

"The first thing to know about endowments is that they are actually tens of thousands of little specific funds... you can't really just retire on that and support yourself and you really want to work full time." [11:05-12:00]

Berman explains that endowments are often earmarked for specific purposes and cannot be redirected to cover general funding shortfalls. She highlights the disparity between institutions with substantial endowments and those with minimal or none, leading to increased inequality within higher education [14:18].

When asked about potential solutions, Berman suggests that while an endowment tax could address inequalities, current proposals risk disproportionately benefiting already wealthy institutions [15:22]. She warns that without federal funding, universities may face significant downsizing, hindering their global competitiveness and halting critical research [15:37].

4. Small Businesses Under Pressure: Rising Costs and Uncertainty

The episode transitions to the struggles of small businesses in an uncertain economic climate. Rene Hidalgo, owner of Don Pepe Mexican Restaurant in Houston, shares his experience of raising prices to cope with rising costs:

"I have no option. We have to pay for employees, all bills, rent, electricity bills and all that." [21:08]

Janessa Perney, owner of Erskine's Grain and Garden in Vermont, recounts how tariffs directly increased her costs:

"I paid 20% extra. They swallowed 5% for me." [21:41]

Tom Sullivan from the Chamber of Commerce highlights a surge in business owners concerned about future revenues, linking this anxiety to halted growth plans [21:54-22:02]. The discussion underscores how tariffs and rising operational costs are forcing small businesses to either absorb losses or tighten their operations, often at the expense of employees and expansion [22:13-22:43].

5. Global Ripples: China's Struggling Restaurant Industry

Ryssdal broadens the scope to international impacts, particularly in China, where trade frictions and declining consumer confidence have severely affected the restaurant industry. Jennifer Pak reports on the collapse of the Camel Hospitality Group, whose sudden closure left employees unpaid and businesses shuttered [23:09-24:55].

Bryce Jenner, a former owner of multiple restaurants, notes that diminishing consumer spending, exacerbated by real estate market downturns and increased costs, has led to thin profit margins:

"People aren't buying the drinks and they're not buying the extra appetizer." [27:35-27:36]

This decline is attributed to a real estate slump that has eroded consumer wealth, prompting tighter spending on non-essential dining [25:22-25:58]. The narrative paints a bleak picture of how economic policies and market fluctuations can devastate industries far beyond their initial intent.

6. Concluding Data Points: Indicators of Economic Strain

In closing, Ryssdal presents key data points signaling broader economic challenges:

• Car Repossessions: Up 16% in 2024 compared to the previous year, the highest since the Great Recession [28:15].
• Student Loan Delinquencies: Nearly 10.1 million borrowers are past due following extended payment pauses [28:15].

These statistics reinforce the episode's theme of widespread economic strain affecting various aspects of daily life and long-term financial stability.

Final Thoughts

"The Law of Unintended Consequences" episode of Marketplace masterfully illustrates how economic policies, intended to solve specific issues, can lead to complex and far-reaching impacts. From government borrowing and unemployment nuances to the financial struggles of universities and small businesses, the episode underscores the interconnectedness of economic factors and the importance of considering potential ripple effects in policy-making.

Notable Quotes:

• "The government does not look like it is about to borrow less." — Victoria Gregory [03:35]
• "People aren't buying the drinks and they're not buying the extra appetizer." — Bryce Jenner [27:35]

This comprehensive exploration serves as a reminder that in economics, every action can lead to multiple, often unforeseen, outcomes, embodying the true essence of the law of unintended consequences.