Fear is the economy killer

Summary

Today, Explained: "Fear is the Economy Killer"
Vox Podcast Network – Released March 27, 2025

Hosts Sean Rameswaram and Noel King
Guests: Heather Long (Washington Post Economic Columnist) and Henry Foy (Financial Times Brussels Bureau Chief)

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1. Rising Concerns Over a Recession

The episode opens with Heather Long addressing the escalating fears surrounding a potential recession. Gone are the days of minimal concern; sentiments have significantly intensified since January.

“I’m on a scale of 1 to 10, I’m probably somewhere around a 5 or 6 now, which is way higher… everyone agrees the recession risks have really gone up.”
— Heather Long (00:04)

Long cites varying economist predictions: JP Morgan at a 40% chance, Larry Summers at 50%, and Goldman Sachs maintaining a more conservative 20-25%. The consensus, however, underscores a heightened risk of economic downturn.

2. Tariffs, Stock Market, and Economic Reactions

A substantial portion of the discussion centers on the impact of tariffs introduced under the Trump administration and their ensuing effects on the stock market. Initially, there was optimism as markets surged post-Trump’s election, fueled by promises of deregulation and tax cuts.

“Tariffs are beautiful, tariffs are wonderful. Tariffs are going to revolutionize America kind of message because tariffs are going to make us rich as hell.”
— Heather Long (04:09)

However, as Trump began implementing tariffs on unexpected fronts like Mexico and Canada in early February, market confidence waned dramatically. The uncertainty around these tariffs led to significant stock market volatility, catching even seasoned Wall Street traders off-guard.

3. Shifting Consumer Behavior Amid Economic Uncertainty

Heather Long highlights a critical shift in consumer behavior resulting from economic fears. Initially, there was a surge in spending as consumers attempted to buy goods before tariffs took effect, masking underlying economic strains.

“People are very concerned about inflation… they start cutting back… They start booking fewer vacations, going out to eat less.”
— Heather Long (05:53)

This anticipatory spending has begun to wane, revealing the latent economic pain as consumer confidence diminishes. Retailers and utility companies are warning of increased costs, further dampening consumer spirits.

4. Job Market Concerns and Economic Sentiment

The potential for job losses has exacerbated economic anxieties. With the Trump administration’s cuts to the federal workforce and other sectors, Americans are increasingly fearful about their job security and financial stability.

“People are very afraid. People, this is a vibe session… there’s been this crazy spike in people who think they or someone they know is going to lose their job very soon.”
— Heather Long (07:23)

This pervasive fear translates into cautious spending, as evidenced by reduced discretionary expenditures in sectors like dining and entertainment. Chain restaurants report declining patronage, particularly among lower-income consumers.

5. Consumption-Driven US Economy vs. Export-Driven Models

Long contrasts the US economy's heavy reliance on consumer spending—accounting for 70% of GDP—with export-driven models seen in countries like China and Germany.

“The US is very reliant on consumption… obviously, a number of other countries around the world are much more economies dependent on producing things and exporting them.”
— Heather Long (11:06)

This dependence makes the US economy particularly vulnerable to shifts in consumer confidence and spending patterns.

6. Trumponomics and Comparisons to Argentina’s Policies

A critical analysis is provided on the Trump administration’s economic strategies, drawing parallels to Argentina’s tumultuous economic policies under President Javier Milei.

“They honestly believe that the US should follow the model of Argentina and President Xavier Milei, reducing the Argentine state to its minimum and at all costs.”
— Heather Long (11:46)

Long questions the viability of such approaches, citing Argentina’s current economic crisis as a cautionary tale. The discussion raises concerns about whether the US can emulate any positive outcomes from Argentina’s drastic measures.

7. European Economic Resilience and Defense Spending

Transitioning to a global perspective, Henry Foy discusses Europe's response to US economic policies and geopolitical challenges. Contrary to fears of economic decline, Europe has shown resilience, particularly in defense sectors.

“Europe is getting serious… investing massively in defense could be a huge driver for the entire economy at large.”
— Henry Foy (17:15)

Germany's new Chancellor, Frederick Merkel, is spearheading a trillion-euro spending plan focused on defense and economic independence from the US. This pivot includes transforming industries, such as converting car factories into military production hubs, signaling a potential economic rejuvenation.

8. Future Implications for Europe and Global Economy

Foy elaborates on the broader implications of Europe's increased defense spending, emphasizing the potential for economic growth and greater competitiveness on the global stage.

“If you can build a European one that's joined up… the economies of scale from that are enormous.”
— Henry Foy (24:17)

However, he cautions about the societal challenges Europe faces, including higher taxes, potential conscription, and the societal shift back to a wartime footing. The unity among European nations, led by leaders like UK’s Sakir Starmer and France’s Emmanuel Macron, remains crucial for sustained economic and defense collaboration.

Conclusion

The episode concludes by highlighting the interconnectedness of consumer behavior, government policies, and global economic dynamics. As fear becomes a driving force, its translation into economic action could precipitate a recession, with significant ramifications both within the US and globally.

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Notable Quotes:

• Heather Long (00:04): “I’m on a scale of 1 to 10, I’m probably somewhere around a 5 or 6 now, which is way higher… everyone agrees the recession risks have really gone up.”

• Heather Long (04:09): “Tariffs are beautiful, tariffs are wonderful. Tariffs are going to revolutionize America kind of message because tariffs are going to make us rich as hell.”

• Henry Foy (17:15): “Europe is getting serious… investing massively in defense could be a huge driver for the entire economy at large.”

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Produced by Myles Bryan and Carla Javier
Edited by Jolie Myers
Engineered by Andrea Christensdotter and Patrick Boyd
Fact-checked by Laura Bullard

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If you enjoyed this summary, consider tuning into our hosts' podcast, "Explain it to Me," for more in-depth discussions and analyses.

Transcript

[Jaclyn Hill]

How worried about a recession are you?

[Heather Long]

Yes, that's the big question. I'm on a scale of 1 to 10, I'm probably somewhere around a 5 or 6 now, which is way higher. If we had this conversation in January, I think I would have been like a two. So it just shows you how much it's jumped up. You can pick your favorite economist. I think JP Morgan put the recession odds at 40%. Larry Summers was at 50%. Goldman Sachs still pretty conservative, around 20 to 25%. But everyone agrees the recession risks have really gone up.

[Jaclyn Hill]

Tariffs, the stock market, Doge cuts. Americans are getting bad vibes from the economy. But if consumers quit spending, a vibe session could turn into a real session. I'm Jaclyn Hill, guest hosting today's show. And all this is coming up on Today Explained. Paramount celebrates Women's History Month with the Women who Move Mountains Collection.

[Heather Long]

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[Jaclyn Hill]

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[Heather Long]

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[Henry Foy]

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[Jaclyn Hill]

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[Henry Foy]

Everyone's talking about capitalism.

[Heather Long]

I'm Heather Long, an economic columnist at the Washington Post.

[Jaclyn Hill]

Heather, I have a question. This is just something I've personally wondered. Maybe it's because, like, I was 18 in 2008, but, like, is there, are there signs? Like, what will make me say, oh, girl, there's a recession and she's here. Like, are there things or you just gotta wait and see?

[Heather Long]

That's a good one. Yes. Yes, there are. Traditionally, it's the unemployment rate jumping up a lot. People are keeping a close eye on the early signs of that. The other one that I am keeping a close eye on is consumption, retail spending, and in particular, I've been watching the normally very dull earnings reports from the companies, but I think the companies are being Pretty explicit. What we don't know is potential consumer demand. That's across the board based on how tariffs ripple across the economy, for instance. But we have that.

[Jaclyn Hill]

Although we can pass this cost to our business partners, higher prices to an already pressured consumer will likely impact our.

[Henry Foy]

Segment volumes and ultimate revenue and profitability.

[Heather Long]

You know, they're not out there saying, you know, trump this, Trump that, but they are saying pretty clearly we are ratcheting back our forecasts for this year. Particularly, like a lot of the consumer facing places, are really feeling it.

[Jaclyn Hill]

Let's get into the stock market first because that's where we've seen some of the most dramatic change. Stocks went way up after Trump was elected and since they've fallen dramatically. Why? What is going on?

[Heather Long]

It's really been almost a one to run reaction to the tariff plans. Initially, there was the huge rally, this belief, Trump's coming back, we're going to be in the boom time. He's talking about deregulation.

[Jaclyn Hill]

We'll remove 10 old regulations for every new regulation. Regulation.

[Heather Long]

He's talking about tax cuts for everybody.

[Henry Foy]

They're in there, they're waiting for you to vote.

[Heather Long]

But then every single day since the election, he would mention tariffs.

[Henry Foy]

I always say tariffs is the most.

[Jaclyn Hill]

Beautiful word to me in the dictionary.

[Heather Long]

And not just in passing. It was this, tariffs are beautiful, tariffs are wonderful. Tariffs are going to revolutionize America kind of message because tariffs are going to make us rich as hell.

[Jaclyn Hill]

It's going to bring our country's businesses back.

[Heather Long]

That left us and for a long time, Wall street didn't take that seriously. But February, early February, so hits and he puts those tariffs. Who does he go to first? Mexico and Canada, you know, that was not expected. So the market starts to go down early February, Trump pulls him off. Then we kick that to that crazy week in March. And it was just mind blowing. Even for traders on Wall street whose whole job is to be able to react in microseconds. This was just crazy.

[Henry Foy]

But we need to see fentanyl deaths decline. So that is the statistic.

[Jaclyn Hill]

So are we looking at daily autopsy deaths? Like, how do we do that?

[Heather Long]

How as a business, do you figure.

[Jaclyn Hill]

Out what that's going to look like.

[Henry Foy]

And when it ends?

[Heather Long]

And so I think that's when Wall street really started to say, wait a minute. Our entire read on what Trump is trying to do with these tariffs is probably wrong. And we need to really take seriously that there could be some mistakes or that this trade war is going to be way bigger than we were estimating. And now of we've kicked it to April 2nd is the new, oh, my gosh, what's really going to happen day on these tariffs.

[Jaclyn Hill]

And it will be liberation day because.

[Heather Long]

We'Ll be taking in large amounts of money for our country, and that's lower taxes and all of the things that are good.

[Jaclyn Hill]

And jobs, a lot of jobs. Are American consumers changing their behavior in reaction to all of this?

[Heather Long]

Oh, yes. Oh, yes. And so two big things are going on. Number one is a significant number of people have been buying ahead of the tariffs. So you saw a bit of a splurge or a mini boom, if you will. And people trying to buy a car are trying to get their home improvements done basically before Trump took office. And certainly by the by March 1st. And that's actually masking a lot of the pain that I think we could potentially see soon. I think the second noticeable thing that that's different is, look, people are very concerned about inflation. And they're watching, you know, they are watching the egg price crisis. The average price for a dozen of.

[Henry Foy]

Eggs is double now what it was before this outbreak began three years ago.

[Heather Long]

All right, guys, today is the day.

[Jaclyn Hill]

I know they are going to be $1.99.

[Heather Long]

And they're starting to see and get notes from retailers or from electric utilities warning them that as these tariffs go into place, you know, bicycles are going to cost more. Your utility bill could come up if you get your energy partly from Canadian hydropower, Canadian oil that's coming across the border. So. So I think people are very tuned into this and can really start to see it tangibly.

[Jaclyn Hill]

Yeah. What impact has we seen on jobs? Are people concerned about at all?

[Heather Long]

Yeah. And this is so different than before. Partly it's tariffs, but even more so, I think the Trump administration, particularly Elon Musk, did not understand the psychology of this Doge craziness. Today, yet more examples that the Social Security administration is in turmoil because of the cuts that Elon Musk and Doge are making. The Trump administration slashing of the federal government workforce is hitting home far beyond the nation's capital. Some 80% of the federal workforce is outside D.C. you know, they're so eager to show that they are cutting all of these federal jobs, but what it's really doing is freaking Americans out, even if you don't work in a federal government sector. You know, I've heard from daycare workers who suddenly say, wait a minute, if a bunch of people in my area lose their job, does that mean they're not going to take their kid to daycare anymore. And so I lose my job or restaurant workers thinking the same thing. Wait a minute, you know, are all these people not going to come out for their birthday dinner anymore? And so my on the line or my hours get cut back. What's different now than what I was seeing even a couple of weeks ago is when you look at these consumer sentiment surveys that are really in the dumps now, you know, people are very afraid. People, this is a vibe session. Trump is in a vibe session, let's call it People. When they're asked, do you think unemployment will go up in six to 12 months or do you think you will financially be worse off? There's been this crazy spike in people who think they or someone they know is going to lose their job very soon and that their finances are going to be worse off. And that was different under the Biden administration. A lot of people gave very poor grades to the economy. They didn't like the economy, they were very worried. But when they were asked, are your personal finances going to be better off in six to 12 months, vast majority of people would say, yes, we did it, we did it. Jo and now what do you do? What do you do if you think there's going to be a recession or you might lose your job? Right. People are pretty rational about this. And of course they stop booking vacations, they stop going out to eat as much. You know, they start cutting back. You can see it in the data where places like an Applebee's or an Olive Garden, you know, people are not ordering appetizers and desserts anymore. You know, they're really pulling back or they're simply not going at all. And these earnings calls for these types of chain restaurants are talking about people who earn $75,000 or less just aren't coming anymore.

[Henry Foy]

Our teams responded by introducing limited time.

[Heather Long]

Offers and value driven promotions to attract cost sensitive consumers. And so I think people are a little bit tapped out. The savings is run down. You know, now they're fearful and now they were already starting to turn a little bit and belt tighten and now it's like extreme.

[Jaclyn Hill]

Why does it matter that people are afraid? Does that have an impact on the economy?

[Heather Long]

It does if the fear turns into action. And we're at the early edges of that. And so we just saw in March this wave of all the airline companies come out and say bookings are really weak so far this year. They can see that people are not eager to book vacations like they were in the past few years. And so I think you know, is that that probably there's an easy potential for that to continue to build. And the question is just, are we going to slow down enough to be in a recession?

[Jaclyn Hill]

So the way you're describing the US Economy makes it sound like we really depend on buying stuff. Does it have to be that way?

[Heather Long]

I mean, the answer is no. Obviously, a number of other countries around the world are much more economies dependent on produc things and exporting them. That was certainly China's model and to a certain extent, the German model. So much less reliant on consumption. So Right now, the US is 70% of our economy. Is consumption led, is people going out and eating out and purchasing those soccer balls and purchasing trips to Disney World. And I think the Trump administration has been making this argument. The Treasury Secretary, Scott Bessen, has been saying, look, access to cheap goods is not the asset, is not the essence.

[Jaclyn Hill]

Of the American dream.

[Heather Long]

And that's why the Trump team, if you want to try to give them some sort of credit for having a strategy here, I think the best I can tease out is they honestly believe that the US should follow the model of Argentina and President Xavier Milei, reducing.

[Henry Foy]

The Argentine state to its minimum and at all costs. This is the motto of Javier Milei. In six months, he has already cut 30,000 civil service jobs. The situation in Argentina is critical. The changes our country needs are drastic.

[Heather Long]

Argentina is a mess. But what I mean by that is have a quick recession or a quick downturn and then use that to come out on the other side and then really invest and grow the private sector, specifically the manufacturing sector. You know, there's a million questions, can we do that? Is it achievable? How much could we really bring back? How many jobs could really be brought back? But that's the best case version of the plan.

[Jaclyn Hill]

Coming up, how Trumponomics is making Europe great again.

[Henry Foy]

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[Jaclyn Hill]

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[Henry Foy]

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[Heather Long]

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[Heather Long]

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[Jaclyn Hill]

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[Heather Long]

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[Jaclyn Hill]

It's Today explained, and it turns out things are going kind of okay on the other side of the Atlantic. So he brought on Financial Times Brussels bureau chief Henry Foy to get into the Europe of it all.

[Henry Foy]

They're going better than perhaps people feared they really would under Trump. The euro's up in the last six months. You've got a lot of money flowing into the stock market, specifically in defense stocks, EWG, the German ETF finally, after 20 years, making a new high this week. One of the things that might be an unintended consequence of all of Trump's rhetoric is, you know, he's he's making people think about how much can they rely on the United States for for their weapons, for their defense. While this is probably not good for the U.S. european defense stocks soar. There's a certain amount of positivity coming back to Europe as the feeling that by becoming more independent of the US and finding more sovereignty, that there could be actually a really good growth story here contrasts massively with this fear from six months ago, which was that when Donald Trump became president, there would be this huge backlash against Europe and the European economy would get even more squeezed than it is already.

[Jaclyn Hill]

Yeah. We've been talking about the American economy since Trump's election back in November. But I kind of want to rash them on this. I want to get all the different perspectives. How has this played out from the European perspective?

[Henry Foy]

I mean, it was all really about expectations. There was this fear, of course, of the trade war and that these enormous American tariffs would really smother European exports. And regardless of the politics, Europe relies a huge amount on American trade. The coronavirus pandemic hit Europe really badly. It found itself cut off from global supply chains, as did many countries of the world. But for Europe, it was quite a big crunch. You also then, of course, the Russian invasion of Ukraine. Russia was the biggest supplier of energy to the eu. So that conflict, the stance that the EU took, which was to stop buying Russian pipeline gas, pushed up energy prices to a level that was around 4% times US average gas prices. So the European economy took a massive hit from that. Europe has really struggled to come out of that funk. And then, yeah, in the last few months, there's been this kind of more optimistic rhetoric coming out of European capitals to say, okay, if the Americans are going to leave us by ourselves, we're going to have to do this and actually put some money behind our economy and get things moving.

[Jaclyn Hill]

You just described some pretty huge structural problems. What exactly changed in this short amount of time?

[Heather Long]

We are very happy that he has come back to Munich, and we are very much looking forward to his speech. Please welcome Vice President J.D. vance.

[Henry Foy]

It was a pretty amazing moment. The Munich Security Conference, traditionally kind of the most transatlanticist kind of festival of defense and security. Traditionally, the US Vice President comes, gives the keynote speech, and for every single year that people can remember, they've come and they've talked about the importance of the bond with Europe, the undying love for Europe from America, the need to protect European democracies, et cetera, et cetera. Of course, this year, J.D. vance turns up and gives a pretty brutal speech.

[Heather Long]

The threat that I worry the most.

[Henry Foy]

About vis a vis Europe is not Russia, it's not China, it's not any other external actor filled with criticism of Europe, essentially tying American support to Europe, to Europe's social values.

[Heather Long]

And what I worry about is the threat from within, the retreat of Europe.

[Henry Foy]

From some of its most fundamental values.

[Heather Long]

Values shared with the United States of America.

[Henry Foy]

People were shocked. It wasn't a sort of case of, this is he's not being nice to us. It was, this is completely out of order. And the fact that it was done by A US Vice president at the Munich Security conference really struck home that this is a very different administration and that. But if Europe thought there was a way that maybe reality and rhetoric wouldn't match, that's now out the window. This is now action stations. We need a plan and we cannot rely on America anymore.

[Jaclyn Hill]

So, you know, Europe gets that Vance shaped wake up call in Munich. And, you know, I also imagine that Trump's take on the war between Russia and Ukraine has also shaken up the continent. What, what do you do when that happens? What's the solution that they've come up with?

[Henry Foy]

You do what you should have done for the last 70 years, which is start to spend on your own defense so that you don't rely on America anymore. So there's one statistic, really, and that is what Germany has done in the last month. The newly elected Chancellor of Germany, Frederick Mertz. He's not yet installed as chancellor, but he is the leader of the largest party and they're in coalition negotiations now. And barring some enormous crisis, he will be Chancellor. The night of his election, he said, we can no longer rely on America. My absolute priority will be to strengthen Europe as quickly as possible so that step by step, we can really achieve independence from the United States. And a few days later rolled out this extraordinary spending plan of a trillion euros, which comprises of two big parts. The first is half a trillion euros spent on defence. And the second was a move to essentially delink defence spending from debt spending, saying it doesn't matter how much we borrow for defence. So just to put this into perspective, the sort of scale of the German pivot on this, the Germans have a word, Schuld. It means debt and it also means guilt. They have linked these two ideas to the extent that having a balanced budget is sort of part of their national psyche. So for Mertz to come in and say, this doesn't matter anymore, what matters is defending Europe is a huge moment, not just for Germany, but for all the other countries who look at them and say, wow, if they're getting serious, then we should too. And there's real world benefits here, right? The German car industry that used to be sort of the symbol of European industrial greatness, exporting all around the world. It's gone through some really hard times recently with high energy prices, with competition from China, with this looming trade war, you're now seeing kind of mothballed car factories being converted, or discussions about converting them into tank factories. Volkswagen is exploring a significant pivot, potentially transforming its Osnabruck plant into a Military production hub with car sales slowing, CEO Oliver Blum is open to defense manufacturing aligning with Germany's increased military spending. There are real life things happening and at given time, if this all plays out the way the Europeans hope, you could have a much better European economy as a result of this huge defense boom.

[Jaclyn Hill]

Are we going to see a real change to the way European lives look? I mean, it's often pointed to Europe as look at the social services they have, look at, you know, health care, all these different things. Are we getting to the end of that? Is that going to no longer be the standard in Europe?

[Henry Foy]

That's an excellent question. And it's really kind of step two of this whole process. You can spend the money, you can build the arms factories, you can kind of plan for a European defence strategy that doesn't involve the United States Army. But are your societies going to keep up with you? Are they going to keep voting for you while you do that? And for me, I see three big pressure points. The first is just higher taxes. In a very simple sense, if they're going to be spending more money, they're going to be borrowing more money, they're going to have to take more money in, in tax. And that's a conversation that hasn't really happened yet in a lot of European countries. Whenever France talks about increasing the pension age, there are mass riots all across France. I mean, this is a really big problem for a lot of countries. The second is conscription, national service. You're gonna need a lot more troops. You're gonna have to start talking to societies about how many more people are they willing to put in harm's way. And the third thing is just societal preparedness. I mean, this is a whole societal shift to think, think we could have war back on the European continent again, you know, for the first time since 1945. And societies that have got used to being at peace, got used to really living and prospering in this peace that to a certain extent was provided by America, might not be here much longer. We might need to get back into a war footing, thinking about conflict, thinking about crisis as an everyday part of our lives.

[Jaclyn Hill]

So with all of these changes coming about, are we sure the Europeans are gonna stick together? I mean, when it comes down to actually writing these checks, are countries gonna follow through?

[Henry Foy]

It's a great question. It's a question that really can only be answered by the leaders of these countries. What we are seeing in the last few weeks is this sort of coalition of the willing. It's been dubbed coming Together it's being led by Sakir Starmer, the Prime Minister of the United Kingdom, and Emmanuel Macron, the President of France. They've been meeting regularly as leaders, sort of 12 to 15. And these are the big countries, Italy, Denmar, Spain, Poland, meeting and discussing how to do this. So far, the unity has held. The big question is going to be about money, but ultimately there is no choice. The Europeans stick together and sort of defend themselves against Russia and any other threat that they might have, or they divide and they're picked off one by one. And so if you have this situation where the European defense industry, the defence industrial complex, which in many ways has, has suffered as a result of America being so dominant in Europe in the defense space and therefore providing all the best weapons at high prices built in America. If you can build a European one that's joined up, that isn't 27 different countries competing, the economies of scale from that are enormous. And then all of the beneficiaries that the American economy, for example, gets from its defense industry, I'm thinking of research and development, innovation, education, skills that benefit other parts of the economy. Dual use, use products. This will spill into Europe. This is the thinking behind, okay, if we can use defense as a big push here to increase our competitiveness, our economic clout, that can spill over into other areas. If you can get the reinvestment right, get the orders in, make it work, it could be a huge driver for the entire economy at large.

[Jaclyn Hill]

Henry Foy, Brussels Bureau Chief for the Financial Times. Our show today was produced by Myles Bryan and Carla Javier, edited by Jolie Myers, engineered by Andrea Christensdotter and Patrick Boyd, and fact checked by Laura Bullard. I'm Jonquin Hill. This was Today Explained. And hey, if you find me kind of endearing, you're in luck. I host a podcast called Explain it to Me. New episodes drop Sundays right here in the very place you're listening right now.