Why GM had a great quarter

Summary

Marketplace Podcast Summary: "Why GM Had a Great Quarter" Marketplace, Hosted by Kai Ryssdal | Released October 22, 2024

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1. Economic Overview: Bond Market Dynamics

00:01 – 03:20

The episode opens with Kai Ryssdal discussing the rising yields of the benchmark 10-year Treasury note, which had reached its highest point since late July. Despite the Federal Reserve cutting interest rates, the bond yields continued to climb, prompting confusion among listeners. Aabri Benishore, Marketplace's expert, explains that the yield reflects market expectations for the future economy.

Key Insights:

• Economic Expectations: Benishore notes that the bond yields are influenced by what markets anticipate the economy will look like over the next decade. Initially, summer projections predicted a slower economy, leading to lower yields.

  “The Yield on the 10 year treasury today is based on the economy of tomorrow...” — Aabri Benishore [00:01]

• Revised Economic Indicators: In September, positive job reports and strong retail sales signaled a more robust economy, causing yields to rise as investors anticipated fewer rate cuts by the Fed.

  “Markets are now betting on a brighter future economy, specifically one that causes the Federal Reserve to be slower to cut interest rates.” — Aabri Benishore [02:26]

• Inflation Concerns: Approximately half of the yield increase is attributed to rising inflation expectations, with some market participants forecasting inflation slightly above the Fed’s 2% target.

  “Markets believe inflation will be ever so slightly higher than the 2% the Fed considers ideal.” — James Camp [02:49]

2. Spotlight: General Motors' Exceptional Quarter

03:20 – 05:54

Kai shifts focus to Wall Street, highlighting General Motors' (GM) outstanding third-quarter performance, which exceeded market expectations. Unlike its Detroit rivals Ford and Stellantis, GM's stock saw significant gains following the positive earnings report.

Key Points:

• Performance Beat: GM reported a "great quarter," projecting pre-tax profits of $14 to $15 billion for the year, surpassing previous estimates. This success has driven GM’s share price back towards pandemic highs.

  “GM had a pretty fantastic third quarter. Busting through predictions...” — Kai Ryssdal [03:20]

• Market Positioning: Analyst Sam Fiorani attributes GM's success to its leadership in the under-$30,000 vehicle market and its advancements in electric vehicle (EV) production. GM sold 50% more EVs compared to the previous quarter, positioning itself as the second-largest EV producer in the U.S., trailing only Tesla.

  “GM is a leader in the new car under $30,000 market.” — Sam Fiorani [05:02]

  “We are able to become the number two producer of electric vehicles in the US.” — Paul Jacobson, GM CFO [05:18]

• Future Projections: Despite the growth in EV sales, EVs currently represent only 1-2% of GM’s total production. The company plans to produce approximately 200,000 EVs this year, a record for U.S. growth, though it remains behind its 2025 target of one million EVs.

  “Generally we're still very much in the internal combustion engine vehicle business.” — Kelly Wells [05:37]

• Competitive Landscape: While GM experiences a resurgence, Ford and Stellantis have struggled, with their stock prices declining. David Beery from Virginia Tech raises concerns about GM's ability to compete against dominant Chinese manufacturers, despite optimistic earnings forecasts.

  “GM's quarterly earnings report doesn't fix what he calls the elephant in the EV market room.” — Sam Fiorani [06:02]

3. Infrastructure Funding: Quebec’s REM Train Project

06:51 – 11:51

The conversation transitions to a discussion on innovative infrastructure funding models, highlighting Quebec’s REM train project financed by the provincial pension fund, CAS.

Highlights:

• Sovereign Wealth Models: Kai outlines agreements in global contexts where countries like Norway and nations around the Persian Gulf maintain sovereign wealth funds. Quebec's CAS operates similarly, investing in diverse assets to support economic development.

  “The CAS was created in 1965 by the provincial government of Quebec to manage the assets of the Quebec pension plan…” — Conrad Jacobuski [09:07]

• Public-Private Partnerships: Sonia Doucet details how CAS formed a subsidiary to develop and operate infrastructure projects like the REM train system, managing construction and ridership risks in exchange for potential investment returns.

  “The model is that we took on basically the most part of the risk, so the construction risk and the ridership risk of the project.” — Noemi Brier Marquez [10:05]

• Project Execution: Despite typical public transit challenges, the REM train project is advancing, though it experienced delays and budget overruns. The nearly 42-mile network is projected for completion nine years after construction began, which is commendable by Canadian and American standards.

  “About five years late, a few billion dollars over budget, but the project is advancing.” — Pierre Barriaux [11:08]

• Replicability: Experts suggest that Quebec’s approach could serve as a model for U.S. infrastructure projects, emphasizing the benefits of shifting financial risks to pension funds to facilitate long-term investments.

4. War Gaming Climate Change’s National Security Implications

11:52 – 26:23

A significant portion of the episode delves into the intersection of climate change and national security through war gaming exercises. Kai Ryssdal participates in a simulated war game designed by defense analyst Ed McGrady to explore future climate-related crises.

Key Components:

• Scenario Setting: The war game is set in 2044 in northern South America, focusing on a severe humanitarian crisis in Venezuela and Colombia due to extreme climate change impacts, including droughts, floods, and mass migration.

  “The world has warmed up another 2 degrees Celsius, which is way above the 1.5 degree warming target set by the Paris agreement.” — Sophia [17:38]

• Decision-Making Challenges: As the simulated President, Kai decides to increase investment in Southern Command to manage the crisis, balancing resources between humanitarian aid and geopolitical tensions with an assertive China.

  “President Ryssdal decides to increase substantially our investment in Southern Command…” [19:02]

• Military and Strategic Responses: Admiral Denny McGinn, Secretary of Defense, advocates for supporting international organizations rather than leading the operation. Retired General Wes Clark emphasizes coordinated efforts with allies and warns about China’s growing influence in the region.

  “We do not want to take the absolute lead of this humanitarian assistance, disaster relief operation.” — Admiral Denny McGinn [20:57]

• Insights from Experts: Pierre Barriaux discusses the evolution of war gaming from Cold War scenarios to integrating climate change as a threat multiplier. The exercises aim to prepare military and policy leaders for complex, uncertain future crises driven by environmental changes.

  “Climate change is a threat multiplier. It just hits in unexpected ways and does unexpected things.” — Kai Ryssdal [22:00]

• Educational Value: The use of war games helps categorize and understand uncertainties related to climate impacts on national security, fostering strategic thinking without asserting definitive outcomes.

  “There is something so valuable about using war games in this immersive experience to teach and educate and not convince people of dangers, but help them better understand the dangers of the uncertain world that exists.” — Pierre Barriaux [25:36]

5. Closing Remarks and Final Insights

26:23 – End

In the episode’s conclusion, Kai Ryssdal touches on emerging trends in artificial intelligence and its economic implications, noting OpenAI’s appointment of a chief economist to navigate AI’s impact on the job market.

Final Highlights:

• AI and the Economy: OpenAI’s hiring of Ronnie Chatterjee as chief economist signifies a commitment to understanding and mitigating AI’s effects on employment and economic distribution.

  “Dr. Chatterjee will lead research to better understand AI's economic impacts and make sure its benefits are widely distributed.” — Kai Ryssdal [26:10]

• Additional Segments: The episode includes brief mentions of ongoing listings and promotions, maintaining a focus on providing listeners with comprehensive business and economic news.

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Notable Quotes with Attribution and Timestamps:

• “The Yield on the 10 year treasury today is based on the economy of tomorrow...” — Aabri Benishore [00:01]
• “Markets believe inflation will be ever so slightly higher than the 2% the Fed considers ideal.” — James Camp [02:49]
• “GM is a leader in the new car under $30,000 market.” — Sam Fiorani [05:02]
• “We do not want to take the absolute lead of this humanitarian assistance, disaster relief operation.” — Admiral Denny McGinn [20:57]
• “Climate change is a threat multiplier. It just hits in unexpected ways and does unexpected things.” — Kai Ryssdal [22:00]
• “Dr. Chatterjee will lead research to better understand AI's economic impacts and make sure its benefits are widely distributed.” — Kai Ryssdal [26:10]

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This episode of Marketplace effectively intertwines discussions on bond market trends, General Motors' financial success, innovative infrastructure funding models, and the strategic implications of climate change on national security through war gaming. By featuring expert insights and real-world examples, the podcast provides listeners with a comprehensive understanding of complex economic and geopolitical issues.

Transcript

[Kai Rysdal]

On the program today, we got trains and automobiles, no planes, sadly. From American public Media, this is Marketplace in Los Angeles. I'm Kyle Rysdal. It is Tuesday today, the 22nd of October. Good as always to have you along, everybody. We begin today late, ladies and gentlemen, in the crystal ball section of the economic headlines sometimes known as the bond market. Our old standby, the benchmark 10 year treasury note the yield on which has been going up and up some more for a good long bit now. It is the highest it's been since late July. And I see you there. Yeah, you scratching your head because you remember the Fed has actually cut its rate. Marketplace's Aabri Benishore explains what's going on.

[Aabri Benishore]

The Yield on the 10 year treasury today is based on the economy of tomorrow, or at least on what markets think the economy of tomorrow will be like. That is because a 10 year treasury lasts for, you know, 10 years. And for most of this past summer, markets were bracing for a future much slower economy.

[Kathy Jones]

A weakening labor market having unemployment rate rise and job growth really slowed down.

[Aabri Benishore]

Kathy Jones is chief fixed income strategist for Charles Schwab and Company. So markets thought, okay, well, the economy of the future isn't going to be that great. So I guess the bond yields of today don't need to be that great either. And all summer long this mild gloom pulled 10 year yields down further and further. But then in September, the future changed.

[Kai Rysdal]

The jobs report, the unemployment report that.

[Kathy Jones]

Not only showed a pretty good gain.

[Aabri Benishore]

Not only did the future look a little brighter, so did the past. The Bureau of Labor Statistics revised up its previous estimates of job growth from months gone by when we got the.

[Kathy Jones]

Revision said, oh, well, maybe, you know.

[Kai Rysdal]

Things are not that bad.

[Aabri Benishore]

Plus strong retail sales showed the consumer was just fine. And so the 10 year yield started moving back up because markets are now betting on a brighter future economy, specifically one that causes the Federal Reserve to be slower to cut interest rates. Steve Lightly is Global co head of fixed income ETFs at BlackRock.

[Kai Rysdal]

If you look at what's priced into the futures markets, we've taken out about.

[Aabri Benishore]

2 cuts, meaning investors are now betting the Federal Reserve won't be cutting future interest rates quite as much as they once predicted. And so if the interest rates of the future will be a little higher, the bond yields of today should also be a little higher. But rising yields have another message also baked into them.

[Kai Rysdal]

About half of that is inflation expectations.

[Aabri Benishore]

Markets believe inflation will be ever so slightly higher than the 2% the Fed considers ideal. James Camp is managing director of Strategic income at Eagle asset management.

[Kai Rysdal]

That 2% long term inflation target and this type of economic reality may not be attainable.

[Aabri Benishore]

At least some of the bond market believes the future has changed in this way until of course, the future changes all over again. In New York, I'm Sabri Benishore for Marketplace.

[Kai Rysdal]

On Wall street today, the Yield on the 10 year topped 4.2%. Stocks didn't do much tall. We'll have the details when we do the number expectations had been that General Motors was going to have a good third quarter. Wall street though got that one wrong. The carmaker reported this morning it had a great quarter. GM says it expects to generate 14 to 15 billion dollars in pre tax profit this year, more than it had been guessing earlier. And the company's shares ticker symbol gm of course that was easy. Those shares are creeping back up toward the highs they hit during the pandemic. Meanwhile, shares in GM's rivals in what used to be Detroit's big three, that would be Ford and Stellantis, have seen their stock prices go the other way. Marketplace's Kelly Wells went looking for the key to GM's recent success.

[Sam Fiorani]

I actually found a set of keys, the first GM is coming back from a terrible third quarter last year, says Sam Fiorani. He is VP of global vehicle forecasting at Auto Forecast Solutions.

[Kai Rysdal]

GM as well as Ford and Stellantis had a terrible quarter last year because of the strike. So they were already at a lower point to start with.

[Sam Fiorani]

Another key yes, interest rates are coming down, but they're still pretty high and that's made life expensive.

[Kai Rysdal]

Mortgage rates are high, rent rates are high.

[Aabri Benishore]

When you're trying to cut costs everywhere.

[Kai Rysdal]

People are looking for the least expensive way to get into a new vehicle.

[Sam Fiorani]

And Firani says GM is a leader in the new car under $30,000 market. General Motors Chief Financial officer Paul Jacobson says the other big key to the company' EVs in the third quarter we.

[Kai Rysdal]

Were able to become the number two producer of electric vehicles in the US.

[Sam Fiorani]

Second of course to Tesla. Jacobson says GM sold 50% more EVs this quarter than last, but electrics still only make up 1 to 2% of its total production.

[Kai Rysdal]

Generally we're still very much in the.

[Kelly Wells]

Internal combustion engine vehicle business.

[Kai Rysdal]

But as we've been scaling up this year we'll produce about 200,000 electric vehicles.

[Sam Fiorani]

Which will be a record for US record breaking growth. But GM is still a ways away from its original goal of having produced a million EVs. By 2025.

[Kai Rysdal]

I'm not fully convinced this data addresses.

[Aabri Benishore]

Any concerns that one might have for the longer horizon.

[Sam Fiorani]

David Beery teaches public policy at Virginia Tech, and he is not celebrating because he says GM's quarterly earnings report doesn't fix what he calls the elephant in the EV market room.

[Kai Rysdal]

Can they compete against the seemingly all.

[Aabri Benishore]

Dominant Chinese car manufacturers?

[Sam Fiorani]

Despite that competition, Jacobson says he expects the company to see similar earnings next year, thanks in part to falling interest rates. I'm Kaylee Wells for Marketplace.

[Kai Rysdal]

As far apart as former President Trump and the Biden Harris administration are on most economic policy issues, there is at least one thing they agree on the United States creating its own sovereign wealth fund. China has one. So does Norway. Also a number of countries around the Persian Gulf. Big pools of government revenue that gets invested in a lot of things stock markets, real estate, soccer teams, also infrastructure projects. And you don't have to go too far to see something like that in action. In Quebec, the provincial pension fund up there is financing, building and operating a new light rail line around Montreal. As Marketplace's Henry App reports, Sonia Doucet.

[Sonia Doucet]

Used to be able to get a bus outside her apartment in the Montreal suburbs and take it all the way to a college downtown. Now that bus takes her to a train called the rem.

[Kelly Wells]

Take me a bit more time, but.

[Kai Rysdal]

When you are in the rem, it's pretty nice.

[Sonia Doucet]

Yeah, it seems pretty clean.

[Kai Rysdal]

Yeah, it's clean, it's safe. The view is amazing.

[Sonia Doucet]

The first portion of the REM opened last year, and Doucet is right as it glides over a bridge above the massive St. Lawrence River. The view of downtown Montreal is pretty incredible, and the train makes a cool sound every time the doors close. While the line is brand new, like many public transit projects, it was in the works for a while, so the.

[Aabri Benishore]

Idea actually emerged in 1962.

[Sonia Doucet]

Pierre Barriaux is a lecturer in transportation planning at the University de Montreal and runs a consulting firm. It took 50 years for the project to get real momentum. In 2012, he says, the Canadian federal government wanted to build a light rail line to the airport. Meanwhile, a suburban mayor was trying to get the private sector to build a separate line. The provincial Quebec government had nothing, and.

[Aabri Benishore]

That was a very bad vibe for the government because it was demonstrating a failure for them of being able to get stuff done.

[Sonia Doucet]

But the premier of the province at the time saw an alternative, barrio says.

[Aabri Benishore]

And the alternative they had was the.

[Sonia Doucet]

Public pension fund, the Caste du d'peut et Placement du Quebec, otherwise just known as the CAS. Conrad Jacobuski is a columnist at Canada's Globe and Mail newspaper. He says the CAS was created in.

[Kathy Jones]

1965 by the provincial government of Quebec to manage the assets of the Quebec pension plan, which is the provincial equivalent of Social Security in the states.

[Sonia Doucet]

Unlike Social Security, the CAS has acted more like a sovereign wealth fund, investing in stocks, private equity, real estate. But it's also a little different from big US pension funds. It's supposed to maximize returns but also contribute to Quebec's economic development. The caste had over 310 billion US dollars in assets last about 20% of.

[Kathy Jones]

That is invested in Quebec. The rest is invested nationally and internationally.

[Sonia Doucet]

About 10 years ago, the CAS created a subsidiary to not only invest in but develop and operate infrastructure projects, starting with the REM train system. Noemi Brier Marquez directs public affairs for that subsidiary.

[Aabri Benishore]

The model is that we took on basically essentially the most part of the risk, so the construction risk and the.

[Kai Rysdal]

Ridership risk of the project.

[Sonia Doucet]

In exchange, she says, the fund will get the potential benefits through fees paid by the region's transit authority for each rider on the train. Brio Marquez says the goal is an 8% return on investment. This quasi public model for building infrastructure could be replicated in the U.S. argues Saule Omarova, a professor of law at Cornell University, because, she says, infrastructure projects are tricky. They take a long time to build.

[Kai Rysdal]

And during that time a lot of.

[Pierre Barriaux]

Things can happen that might derail the project and might render the project less profitable.

[Sonia Doucet]

For example, that makes private industry less likely to take them on. And while the public sector might be more willing, politics is fickle and elected leaders might not want to keep funding a long term project. In Montreal, those concerns have been lessened by shifting the bulk of the financial risk to the pension fund. The REM has not been immune to the problems that many transit projects face cost overruns and delays again. Pierre Barrio Transit lecturer and consultant we're.

[Aabri Benishore]

About five years late, a few billion dollars over budget, but the project is advancing.

[Sonia Doucet]

Right now, the nearly 42 mile network is on track to be completed about nine years after construction began. By Canadian and American standards, not bad. In Montreal, Quebec, I'm Henri Epp for Marketplace.

[Kai Rysdal]

Coming up.

[Kelly Wells]

What's your plan? What are you going to do? How much risk do you want to take?

[Kai Rysdal]

So many questions. First though, let's do the numbers. Dow Industrials skimmed off 6 points. That's basically flat. Finished at 42,924. The NASDAQ gained 33 points, about 2, 10%, 18,573. The S&P 500 got rid of 2 points unchanged. There's another word for that 58 and 51 there heard from Kelly Wells at GM had a pretty fantastic third quarter. Busting through predictions, GM floored at 9 and 8 10% today. The other two major domestic carmakers, Ford Motor Company revved 2 and a 10% Stellantis sped up 1 and 6 10%. Not the greatest day for GE Aerospace. Its profit outlook went up and earnings exceeded expectations, but its commercial engine sales did not. Owner GE dimmed 9 1/10 of 1% bonds fell yield on the 10 year as I mentioned up to 4.21% you're listening to Marketplace.

[Kathy Jones]

Heads up folks. Interest rates are falling, but you can still lock in a 6% or higher yield with a bond [e-mail] that's a pretty big deal because when rates drop, so can the interest you earn on your investment. A bond account allows you to lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds. So while other people are watching their returns shrink, you can sit back with regular interest payments. But you might want to act fast because your yield is not locked in until you invest. The good news? It only takes a couple of minutes to sign [e-mail] lock in a 6% or higher yield with a bond account [e-mail] marketplace, brought to you by Public Investing member FINRA and SIPC. As of September 26, 2024, the average annualized yield to worst across the bond account is greater than 6%. Yield to worst is not guaranteed. Not an investment recommendation. All investing involves risk. Visit public.com disclosures bond account for more info.

[Henry Epp]

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[Kai Rysdal]

New deals on last minute holiday finds just dropped at Lowe's. Save $600 on a whirlpool fingerprint resistant stainless steel side by side refrigerator plus Milo's rewards members save $50 on an Allen and Roth Brighton pull down kitchen faucet. Your choice of finishes for $79. Lowe's knows deals offers valid 1212 through 1218 while supplies last selection varies by location. Loyalty program subject to terms and conditions. See lowe's.com terms for details. Subject to change. This is Marketplace. I'm Kai Rysdal. I think I mentioned this on the show a couple of weeks back that as part of our climate podcast How We Survive, we played a war game where I got to be president. We decided to set it up because the Pentagon has put millions of dollars aside specifically for climate war gaming. So do me a favor and tell me exactly who you are and what you do for a living.

[Kelly Wells]

I'm Ed McGrady. I have a PhD in chemical engineering. I have worked in the defense analysis industry for about 30 years and for a large part of that I design professional games.

[Kai Rysdal]

Ed works with a think tank, the center for a New American Security and he actually teaches a whole course on how to war game climate. So we had them design one just for us. What are the basic rules? What's the run of play here?

[Kelly Wells]

Basically, they're going to tell me what they want to do and I'm going to tell them what effects that has and I'm going to tell them what situation is. They're going to brief you and you're going to ask them questions.

[Kai Rysdal]

We got two people to help us out.

[Aabri Benishore]

I'm Admiral Denny McGinn, retired U.S. navy. Been working in the intersection of energy, environment and national security for 30 years.

[Kai Rysdal]

Admiral McGinn's going to be the Secretary of Defense. I'm retired General Wes Clark. I've worked energy, I've worked the environment, climate change. Concerned about all of this and of course national security. General Clark is going to be the commander of Southern Command, a job he had in real life in the mid-1990s. Between them, they've got nearly 70 years in uniform, decades at the very highest levels of policy. And we should tell you here, just so you know that they have both signed a letter in support of Kamala Harris. I will tell you, Adam McGinnon and General Clark, you two have an advantage over me in that you guys have done this in some form or another, I'm sure, in the last 40 years. I have not. So we're gonna see how this goes is the short answer to this one. And we're gonna have a little help.

[Sophia]

Hi, I'm Sophia. I'm a producer and I'm gonna help set up the scene.

[Kai Rysdal]

All right, Sofia, where do we start in the future?

[Sophia]

It's 2044 and our focus is northern South America. Climate change has been hitting the countries of Venezuela and Colombia pretty hard in the last 20 years. The world has warmed up another 2 degrees Celsius, which is way above the 1.5 degree warming target set by the Paris agreement. There's severe drought, then flooding. It's ruining the ability for people to grow food. Roads and cities are breaking down. Blackouts are becoming more and more frequent. It's hot. Like really hot. And the government in Venezuela can't really help because it's falling apart politically. So millions of migrants are trying to leave. They're bottlenecked on the Colombian coast without food, shelter, water. In a nutshell, it's now become a mass migration and humanitarian crisis. The UN is already involved. So the question of this round is, will the US get involved too?

[Kai Rysdal]

Good question. Ed did let game player me, the President now do a little preparation to set up game player Me President in 2044, 22nd amendment be damned for success.

[Kelly Wells]

What change do you want to make, if any, in the next 20 years before we get into this crisis?

[Kai Rysdal]

Oh, now see, this is much harder than it in real life, than it actually is in my pre gaming of this game. So look, it goes like this. It is a. Huh. This is really interesting actually. It turns out I talk a good game, but when the decision comes to me. So here's where I come down. We're going to increase substantially our investment in Southern Command so that we can ameliorate as best as possible these coming threats. To vastly oversimplify here, presidenting is hard. In the end, as I said, I leaned hard into Southern Command. More joint exercises, surveillance drones, water and tents. Of course, there is a trade off. Whatever I sent to southcom meant siphoning resources from someplace else, say Pacific Command, which does have its hands full with China.

[Kelly Wells]

What's going to happen is that your partners and allies are much more capable of assisting. So you've got partners and allies down there that you built up capacity with. You also have a lot of logistics capacity for yourselves. At the same time, your relative less emphasis on the Pacific has allowed China to get a little bit more aggressive.

[Kai Rysdal]

That's not what I expected. But it turns out China has sent hospital ships to the Caribbean and an aircraft carrier. It's an opportunity for them, right, to extend their influence.

[Kelly Wells]

So my question for the generals, both southcom and Defense, is what are you going to do? So are you going to tell the President he needs to risk some of his capital, political capital, to stand up and lead on this? Or should the President try to minimize US Forces involvement and rely on UN and partner nations predominantly? What's your plan? What are you going to do? How much risk do you want to take?

[Kai Rysdal]

Admiral McGinn, Secretary of Defense goes first.

[Aabri Benishore]

You know, the old expression, Mr. President, lead, follow or get out of the way applies here.

[Kai Rysdal]

That's retired Navy three star Denny McGinn. As the Secretary of Defense, we don't.

[Aabri Benishore]

Want to take the absolute lead of this humanitarian assistance, disaster relief operation. We do, however, want to assist the United nations and other organizations, international organizations, in getting the capability that they need to help these people. But we do not want to go in there. Mr. President, as the United States claiming leadership and by extension ownership of this crisis, we want to assist, but we don't want to lead it.

[Kai Rysdal]

Southern Command, what do you say about this? You got a Chinese battle group coming at you. First of all, you know, we need legal authority before we do anything. Wes Clark Retired army four star as the commander of Southern Command. So as the Secretary of Defense said, you know, let's get this thing up to the UN and the Organization of American States and CARICOM and get everybody who's got a stake in this, get them involved in it and we'll be behind it. We'll coordinate the logistics support. It's a political call on how much you want to actually do on this at this point. But one thing is for sure, the more you put in, the greater ownership you have of it. Some of what we were starting to see happen in that game might not seem to be related to climate change, except it really is one domino hitting another domino and then another, all because the planet's getting hotter. Climate change is a threat multiplier. It just hits in unexpected ways and does unexpected things. Would you just to set the table a little bit? I think when the layperson hears war games, they imagine some computerized, super sophisticated, very high tech simulation of actual war fighting.

[Pierre Barriaux]

You know, we're doing this oral history project as part of our initiative at Hoover.

[Kai Rysdal]

Jacqueline Schneider is the director of the Hoover War Gaming and Crisis Simulation Initiative.

[Pierre Barriaux]

At Stanford I've started asking everyone that we interview, what do you think a war game is? And I think one of the most remarkable things we found is that no one has the same idea of what a war game really is.

[Kai Rysdal]

Stanford's got a ton of games in its archives, at least the ones that have been declassified. They often have these kind of secret CIA style codenames like Proud Prophet, High Heels and Able Archer. Games that simulate worst case scenarios all the way up to nuclear war. It wasn't until after the Cold War that the military's priorities started to change. And that's when climate makes an appearance first.

[Pierre Barriaux]

We do start seeing organizations concerned about climate. I wouldn't say climate change in general, but this idea of humanitarian crises in the early 90s. And so the US Navy and other organizations start running games that are looking specifically at some sort of climate crisis scenario. You know, a hurricane, an earthquake. And the idea is that they're trying to understand how you use naval resources in order, US naval resources in order to provide humanitarian operations. The 90s were a time period where our budget was decreasing. We lost our big peer adversary in the Soviet Union, which is a good, we won the Cold War. But then what are we supposed to be doing with this big U.S. navy? And so there was a bit of an identity question about, okay, well maybe what the US Navy is doing is it's going to places like Haiti or places that are affected by these large scale climate crises after September 11th.

[Kai Rysdal]

The actual wars in Iraq and Afghanistan were of course priorities.

[Pierre Barriaux]

But then most recently you have the integration of climate issues, whether it's food security or access to mineral resources, or the way in which climate change might affect some of the US's more vulnerable ports or vulnerable bases. You see these being integrated in a more systematic way within, for example, the U.S. navy and to some extent the U.S. air Force. I would say it's still not like the number one priority. And I think where there still needs to be an evolution is thinking more concretely or using games to better understand how climate change might create the sort of resource scarcity or demographic changes that actually incite conflicts, instead of just thinking about how we respond. Specific crisis incidents.

[Kai Rysdal]

Not to get all Rumsfeldian on you here, but there's a lot of unknowns.

[Pierre Barriaux]

Unknowns.

[Kai Rysdal]

That's exactly what I was gonna say. There's a whole lot of unknown unknowns. When you start thinking about climate and how it affects our national security posture. Possible humanitarian crises. Right? I mean, it's maybe the ultimate unknown.

[Pierre Barriaux]

And this is where games are at their best because games are not about providing us, like a certainty or some sort of probabilistic understanding of what the future might be, but instead giving us a way to categorize uncertainty. There is something so valuable about using war games in this immersive experience to teach and educate and not convince people of dangers, but help them better understand the dangers of the uncertain world that exists.

[Kai Rysdal]

We've been exploring that uncertain future of climate change and national security on our podcast How We Survive. And if you want to find out how I did as President Rysdal, the rest of our war game is in the episode cleverly titled War Games. Download it wherever you get your podcasts and listen to the whole season about the military and climate change. It's on the platform of your choice. This final note on the way out today, whether or not artificial intelligence is going to take your job is at least going to be grounded now in economics. OpenAI announced today it has hired a chief economist, Ronnie Chatterjee by name, currently on faculty at Duke, late of both the Obama and Biden administrations, said the company in its press release. Dr. Chatterjee will lead research to better understand AI's economic impacts and make sure its benefits are widely distributed. Oh, OK then. Our Digital and On Demand team includes Kerry Barber, Jordan Manji, Dylan Mietanen, Janet Wynn, Olga Oxman, Ellen Office, Virginia K. Smith and Tony Wagner. Francesca Levy is the Executive Director of Digital and On Demand and I'm Kai Rysdal. We will see you tomorrow. Everybody, this is apa. You've turned to Marketplace for up to the minute news for stories that show you the connections between global events and your personal economy. And you're not alone. Marketplace is the most widely consumed business and economic news program in the country. We're proud to make fact based journalism freely accessible and Marketplace investors make it all possible. Your year end donation today will make a real difference in our nonprofit newsroom and in the lives of millions of Marketplace listeners every single day. So please contribute what you can [e-mail] donate.