Here's Why Uncertainty Is An Economic Killer
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Hi, I'm Stephen Carroll, host of Bloomberg's Here's Why podcast. I'm dropping into your feed because we borrowed Joe Weisenthal for our latest episode while he was in London, so we wanted to share it with you. If you like it, you can subscribe to us wherever you usually listen. There is a link in the show notes. Enjoy. Bloomberg Audio Studios. Podcasts. Radio. News. I'm Stephen Carroll and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg.

That's the CEO of logistics giant DHL, Tobias Meyer. For executives like him, navigating the near daily shifts in US economic policy is like driving through fog with no headlights.

When the rules are changing so quickly, it's not just hard to keep up, it's almost impossible to make decisions. Should a company build a new factory? Order more supplies? Hire more workers? And where to do any of this?

And when you don't know what's coming, you hit the brakes. But we haven't, I don't think, spent enough time talking about just the uncertainty out there. Operating in this highly uncertain environment means go slow. The higher uncertainty and greater risk of recession. The fear that on a daily basis you wake up in the morning and not wondering whether which sectors are going to have 25% tariffs, which countries tariffs are going to be at 100%. That's where the damage is caused.

So here's why uncertainty is an economic killer. Joe Weisenthal, host of Bloomberg's Odd Lots podcast, is with me in London. Joe, great to see you. Thank you for having me. Thrilled to be here. Tell me, with your brain and knowledge of these matters, how can we define uncertainty in this moment in 2025? Yeah, I mean, it's a great question, and I think there are sort of...

Two different elements, which is one is, OK, we know there's going to be a change in the trading environment between the rest of the world and the U.S. Right. Like that's obviously a done deal. And nobody knows like what type of arrangements will be profitable in those environments and so forth. So that's a form of uncertainty there.

But then there's another, you know, the more deeper form of uncertainty is, yes, we know there's going to be a change, but we don't know to what. Right. And part of that is I don't think, you know, the White House has clearly articulated what it wants the new environment to be. There's a message uncertainty because various people speak.

speak for the White House, on behalf of the White House. And there's a lot of ambiguity about the degree to which anything they say actually reflects the thinking of the administration. And when I say the administration, I only mean the president, because, you know, typically one would think there is a coherent message

But I don't think there is. There's, you know, there's rivals within the White House that have different priorities. And I think that even the president himself, while he has some intuitions that, you know, he believes that tariffs are a tool that can be used to revive the U.S. manufacturing sector, the degree to which that policy is cemented seems still very up in the air.

Can we say that it's more uncertain now than it has been in years longer? How do we sort of measure uncertainty? I mean, you can look at the markets for one example. Well, look, I think, you know, in the two big recent crises that we had, there were clear goals.

During COVID, the goal was to stop the spread of the disease and then from an economic side to sort of replace all the lost money, you know, all the lost economic activity for those months during lockdown.

In 2008 and 2009, the goal was to stop a bank run. And there was a lot that they didn't know at the time. And they certainly may have misjudged the speed and scale through which the financial system was deteriorating in 2008 and 2009. But the goal was to stop a bank run. In this case, you know, as I say, the call is coming from...

from inside the house. And so you don't really know what the goal is. Is the goal to improve our ability to manufacture high-tech things that are important for national security? Maybe. Is the goal to fundamentally restructure the economy?

such that everyone or a lot more people are in what we call production work. It is the goal to stop the flow of fentanyl. It is the goal to slow international migration. So whereas in the last two crises, there was certainly a lot of uncertainty and there was a lot of debating about, well, what's it going to take and how long will it take to stop the spread of a pandemic or a bank run, etc.,

I don't think we actually even know what the goal is here. And so in some sense, I would say, again, there are various attempts to measure uncertainty. There are market based measures that are sentiment based measures. But I would say there is a degree of uncertainty now that is in a way incomparable to any recent crisis.

What's the macro picture when we have this level of uncertainty, given that, as you say, it doesn't really have a parallel to something we've looked at before? Well, look, at a minimum, it's very hard to imagine any company in the world committing to serious investment right now. And what I mean by investment, obviously, is opening up new locations, opening up new production facilities, expanding headcount, etc. Why would anyone do that in this environment? And that's at a minimum.

Furthermore, there has been this hit to financial markets, a financial tightening, as they say. And so stock prices have gone down. Yields on government debt have gone up. Credit spreads have gotten wider. So there is just an increased cost of doing business already on the financial side. And then you layer in the actual literal increased cost of doing business because the

The goods that a company imports, whether they're for resale or whether they're inputs to production, have also gone up. So you layer in the inherent policy uncertainty and the fact that until there's some policy stability, no one is going to do anything new.

On top of the fact that the existing costs to run day-to-day operations for both financial and goods have gone up. And this is why many people believe we're either going into a recession in the U.S. or that we're already in one. At what point do businesses, consumers, markets simply get used to things being so uncertain? Is there a point at which that we all just sort of shrug and move on?

It's hard to imagine that you can ever fully shrug and move on. But the answer to that persistent uncertainty is to take fewer risks, to shore up your balance sheet, to cut everything that you can theoretically cut. You know, it's interesting. Like in 2022, when there was significant inflation, there were a lot of concerns then. You know, the Federal Reserve was jacking up interest rates.

And so there was a lot of concern then. I was like, oh, we're going to go into a recession. But one of the overriding dynamics of that period was this visceral fear of companies to be short of labor. Because 2020, 2021, 2022, 2023 was probably the first time in recent corporate history where companies realized that,

There is not an endless supply of workers out there. And so you had restaurants like, oh, we literally can't operate, right, because we can't find the workers in this environment. And so what that means is that there was this real reluctance to fire anyone because you might think, well, you know, things are uncertain, but I can't fire anyone because the last thing I want to do is to be caught short labor again. I just had this very visceral experience.

We're in a very different environment right now. Arguably, even going into middle of February, which is when the turbulence really began, there were signs of economic slowdown a little bit that may have nothing to do with Trump. Maybe it's time for the Federal Reserve to cut rates, signs of the housing market, which is very important, stalling out. So even then, there was probably already this sort of negative growth impulse emerging in the U.S. economy.

And so I think this time around, right now, I suspect that inside many companies, the conversations are about what can we cut? We want to preserve capital. We want to preserve cash. We want to preserve operational flexibility just to survive to the next month or the next half or the next quarter. Where do we look for signs that things are calming down, that things are becoming more certain?

I mean, look, I'm a big fan of the stock market as an indicator. The stock market is not as volatile as it was. The policy environment, I guess, you know, is less fluid than it seemed like a week ago, right? Although that could change at any moment. It could change, you know. But, like, the pace of new news that's coming out has slowed down a little bit. You know, there's only so far you can really go with that. So, like, at the margins...

things are more certain than they were a week ago, but we're just talking marginal changes. And we'll have to watch them to see where things go next. Joe, great to have you with us. Thanks for having me. Joe Wiesenthal, host of the brilliant Odd Lots podcast and author of its newsletter. Thank you. For more explanations like this from our team of 3,000 journalists and analysts around the world, go to bloomberg.com slash explainers. I'm Stephen Carroll. This is Here's Why. I'll be back next week with more. Thanks for listening.

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