Nobel Economist: Trump's War Driving Up Prices

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0:58Paul Krugman:Only on the History Channel. Welcome to The Beat, everyone. I'm Ari Melber. We begin with Trump signaling a possible end to this war, but it would leave the U.S. and our allies in a much worse position. That aspect of this is not in debate. Indeed, U.S. policy planning from inside the Trump administration has warned about exactly the outcome Trump might leave us with. Trump mulling, abandoning what has been everyone's agreed upon reason for this region to matter, the oil, but he would abandon U.S. strength. He would leave without reopening the key straight-over moves. 20 % of the world's oil moves through the strait.

1:41Paul Krugman:Iran is blocking it, and that is a huge reason why prices are spiking. Gas now$4 a gallon. That is already having other impacts. The stock market doesn't think with just one mind, but we can show you. Amid this war and the uncertainty Trump has caused, stocks are now on pace for the worst quarter in four years. You can see the drop right there. You'd have to go back many years in a different administration to find anything like this. Some traders call it a gut punch that will become a Trump recession. Not all recessions can be cleanly blamed on the incumbent, but if this recession is a cause of this, is caused by this war, well, that's Trump.

2:23Paul Krugman:Wall Street Journal reporting about the strait that in recent days, Trump and aides assessed a mission to pry open the choke point could push the conflict beyond his timeline. And Trump now, having started the war, says maybe that's just other people's problems, telling countries to get their own oil. The president was clear this morning in his truth that there are countries around the world who ought be prepared to step up on this critical waterway as well. It's not just the United States Navy. Last time I checked, there was supposed to be a big, bad Royal Navy that could be prepared to do things like that as.

3:02Paul Krugman:So amid this obvious policy confusion, what in energy terms might be called a surrender on the very key issue in the region, there's also talk in the White House about mulling boots on the ground, having the preparedness to do that, whether that is a strategic threat or something serious. you should know there are over 50 ,000 U.S. troops in the region. I want to bring in Richard Stengel, an MSNOW analyst and a former diplomat under President Obama, and Barbara Starr, the veteran Pentagon reporter, the author of a sub-stack newsletter, Barbara Starr reports, two well-known voices on these issues.

3:37Paul Krugman:Richard, you may know the old phrase, talk softly and carry a big stick. I'm only talking softly because I'm getting over a cold. It's not a geostrategic signal, but I say that so viewers know I'm speaking softly. Only for that reason, I'll let both of your voices carry your thoughts, Richard. Well, Ari, I hope you get better. You know, Trump does the opposite. He talks loudly and carries a small stick. I mean, the stick that he's been using in Iran hasn't quite worked. I mean, one thing we know that Trump is good at is quitting. So he's looking at the problems that this has all caused him. I mean, part of what Iran's strategy here was they can't defeat the U.S.

4:25in a military sense, but they can cause so many problems for America that Trump would basically pry out and leave. I mean, the other thing that has happened, and you alluded to this, too, they've constantly lowered the bar about what qualifies as success or victory. No longer really regime change, although Trump says that has happened. No longer, you know, getting rid of the nuclear threat. You know, Mario, Marco Rubio published, you know, like half a dozen ideas about what would qualify as victory. I think number five was the Iranians need to buy much more American hummus than they are now. That was a joke, by the way.

5:05So they've actually so lowered the bar that they can declare victory and people will go, OK. But when you mentioned the Strait of Hormuz, they didn't even seem to calculate with this invasion that the Strait of Hormuz would be closed. That didn't seem to be part of their strategic planning. So he caused its closing and now he's going to leave, you know, with it only half open. That's, you know, half a victory.

5:34Paul Krugman:Barbara, your view on this and help us understand, is the U.S. worse off if we leave this region or this war and abandon the strait? Well, the Strait of Hormuz, you know, the president is suddenly making the claim, you know, that's all about other countries. They use it more than the U.S. does. It's their responsibility. Of course, the strait was open before this Trump war started, and now it is not. So he leaves it now, if he does, with Iran for the first time in economic control of the strait, possibly by seeking tolls from ships going by, even just by their decisions who to allow through, who to not.

6:17Even though the U.S. is bombing constantly at Iranian military targets, this is an asymmetric situation. A mine, a sniper, a small boat, a small attack can cripple one tanker and basically keep the strait shut. It's an international situation. International oil markets react to this. That involves the U.S., and that means U.S. gas prices are not going to come down anytime soon.

6:51Paul Krugman:Richard, there has been more pushback. I want to play some conservative voices disagreeing with the policy, maybe trying to blame the aides who allegedly talked the president into it. Take a look. I counseled as loud as possible against doing this in the first place. Just please do this. Don't nation build. As this thing goes south, we need to know exactly who talked him into it and what representations were made to convince the president that this was a good idea. Get the hell out of there. That's all we have tolerance for. That's all that will work. Richard. Well, and of course, Ari, I mean, Trump campaigned on ending the so-called endless wars in the Middle East, and now he has perhaps gotten us into one.

7:41I mean, I too would like to know who talked him into this. But at the end of the day, he's the commander of chief. He's responsible. He needs to take responsibility for the decision. He doesn't even want to take responsibility for the decision. You know, you remember, of course, the Colin Powell's Pottery Barn rule. You break it, you own it. The Trump rule is we broke it, you own it, you take care of it. That's what he's talking to with the allies now. And the other irony, and Barbara alluded to this, that Strait of Hormuz is a choke point, but Europeans buy most of their oil now from the United States of America.

8:19They used to buy most of their oil from Russia, and then we persuaded them to boycott Russian oil and buy American oil. So, you know, they're OK.

8:29Paul Krugman:Yeah, Barbara, I also want to play another piece of Fox questioning this because the president didn't explain it. He didn't go to Congress. He's looking at an off ramp. And so even though we didn't have a real war powers debate like we're supposed to under law, It would seem that the White House has a problem on the right, the left, the center, among the military veterans family community, among civilians who don't serve. It's a pretty broad opposition. Here's what Laura asked. Was the president fully briefed about the risks of all of this from the beginning? And was he then able to take it all in and understand the complexity of this, how complex it could actually get, and further possibilities of casualties or other damage, the difficulty of dealing with these people?

9:23Or was he told this would be relatively quick in and out?

9:29Paul Krugman:A lot of questions, Barbara. This is about as dovish as Fox gets towards a MAGA war. Well, I think she makes some very interesting points because what we all know is that the chairman of the Joint Chiefs briefs any president of the United States on military options before a president commits troops to action. A chairman would insist upon that. General Cain would have briefed the president on the military options on the table. The interesting question that she asks is, was the president able to take it all in? Or did he potentially just listen to his own cheerleaders, which are more, frankly, in the Hexeth camp?

10:15I think there's been a really interesting development tonight. tonight, there is a piece of video out there of Pope Leo talking to a group of journalists and clergy very much off the cuff about his concerns about the war. And Pope Leo himself uses that same phrase that he hopes Trump is looking for an off-ramp. That's a fascinating piece of information in the very careful world of Vatican diplomacy for a pope to use that very shall we say, universal common political term, if you will, which is its most reference in political circles these days, I think is fascinating. The Pope is very much coming out in recent days, very publicly, calling for peace and urging President Trump now tonight to take that road and urging President Trump by name.

11:13So that puts another mark on the wall. for the entire international community about just how serious this is all being taken.

11:25Paul Krugman:Really striking. My thanks to Barbara and Richard. We have a lot coming up. Populist Democrat Sherrod Brown is here on the midterms. How the January 6th crimes are staining. A case headed to Supreme Court by Trump tomorrow. And some great guests, Andrew Weissman and Nobel economist Paul Krugman when we're back in 90 seconds.

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13:15How long can the market live with oil at that level and gas at that level? It's a gigantic headwind. Florida was at 412 this morning. I believe it was 290 before the war. Stocks getting hit. The transports, rails and truckers getting hit. Imagine Lyft and Uber drivers right now.

13:36Paul Krugman:That's how it looks out there. It's not getting better yet. Paul Krugman is the Nobel Prize winning economist. He writes a newsletter on Substack, Paul Krugman, where he just wrote about the oil crisis getting physical. Of course, we hope people read you. I've been reading you my whole adult life, Professor. But let's start with a preview of what you've written there for our viewers tonight who might not have read it yet. Okay. My, you know, up till now, you see oil prices fluctuating. But those are all prices of futures. They're claims on a barrel of oil, you know, next month. It's not the actual price of a barrel of oil, literally.

14:14And so far, it takes four to six weeks for oil from passing through the Strait of Hormuz to reach its major markets. So we've been living all this time. The world has been living on oil that was already in transit, has not been affected by the war. But that runs out now. Basically, the first physical shortages of oil in Asia will be starting in a day or two. The physical shortages in Europe will be starting next week. So all of a sudden, this is getting real. This is no longer financial speculation. This is an actual, you know, where is the oil? And if you try to think about what happens then, normally, you know, shortages, there's already some rationing going on in Asia, but also the price, the actual price, the actual price, you know, we're already seeing a lot of rising prices at the pump, And even more, by the way, diesel is a much bigger deal than gasoline, and people should be talking about that.

15:13But at a certain point, the price of oil has to rise enough so that people stop driving, stop doing stuff enough so that the demand for oil is reduced to the available supply, which is down a lot. And so this gets really, really ugly if we don't, even if we reopen the street in a day or two, which is not going to happen, it's still going to be ugly for a while. But it's going to get really, really ugly if this goes on for an extended period.

15:42Paul Krugman:You know, in college, the first day of a lot of courses, they try to convince everyone why it matters. Why great books matters now. Why sociology matters. You don't have to do that in econ. People have student loans. People might be trying to make a little more money than they grew up with. And with econ and gas, I want to show you just people outside dealing with this right now. Take a look. We need help with it. I mean, because we're citizens and we have to pay these prices and it's not easy. It's not easy at all. I feel like anytime something dealing with war is going on, we as the people are getting affected by it.

16:22And I don't feel like that's fair. We already have to deal with grocery store prices. Then we got to deal with the gas prices going up. It's a lot. I mean, if you're in the rat race all day and you're in your car from eight o 'clock in the morning till five in the afternoon, it's a rough life. Everything he stood for is nothing that he's doing anymore.

16:39Paul Krugman:Is this a direct consequence of Trump policy? And was it, in your view, mostly or entirely avoidable? Well, this is all Trump policy. I mean, as one of your, I think, as you may have said, I mean, this war, you know, didn't have to happen. And it's all of what's happening to the price of gasoline, to the price of diesel. Everything else is because of the war. We, you know, the straightforward moves was open. Stuff was flowing through it fine on February 27th, right? Everything was okay. You know, that we had problems with, you know, as we long have with Iran, with other countries, but we did not have a global oil shortage.

17:20So this is all one man's decisions that have brought us to this pass. And he still seems to be completely clueless about what's going on. I mean, in that Truth Social post in which he said, you know, why don't the British clear the straits? You know, the world's greatest military can't, but a second-ranked power, let's be clear, can. But also he said, and if you're not willing to be courageous and get the jet fuel, why don't you buy it from us? We have plenty. Well, do you know what's happened to the price of jet fuel? It makes what's happened to the price of gasoline look like nothing. Basically, jet fuel prices have doubled.

17:55The CEO of United Airlines has said we're canceling flights because we can't afford to fly the planes. So this is all. I mean, I've been, tomorrow in the Substack, I'll be saying that, you know, in a way,$4 a gallon gas is, that's less than half the problem. The effects on diesel fuel, which everything runs on there. Every truck runs on diesel. All of the business activity runs on diesel. And gas is up$1 a gallon. Diesel is up$1.70 a gallon. Jet fuel has doubled. The price of fertilizer for America's farms has surged because a lot of fertilizer, it turns out, was flowing through the Strait of Hormuz.

18:38So this is all really—this is the greatest shock to global energy supplies ever. It's worse than the 1970s. And it's all because of one man's decision that he wanted a war, which he doesn't want anymore.

18:54Paul Krugman:Wow. Right, which he's backing off of. We hear a lot about how the stock market's not the entire real economy. Yeah. But when you see the crash in the fourth quarter, correction or slide, you'll give us more precise wording. And a lot of traders saying part of it is this, both the real world contagion of this and the uncertainty part that markets don't like. Give us your view of that. And then what do you say to viewers who are only maybe in the markets in their retirement, if at all, and say, well, that's that's not my life. Trump seems to be worried about it for the midterms. Give us your your explanation on all that.

19:31Well, this is nasty. We're seeing, although stocks were way up today because basically they were way up because it sounds as if Trump may be preparing to surrender, which tells you something about how the war is going, right? The markets are cheering the fact that the United States team seems to be running away. But it's not clear that we can succeed in running away. I mean, I've never been a track the markets minute by minute guy. But these days I keep a window open all day, not for stocks, but for the price of crude oil. I'm looking at the price of Brent crude, which is, again, it's a futures price.

20:05It's a financial price, not the actual, not physical stuff on hand. And that price came way down today because, again, everybody's cheering that Trump appears to be surrendering, but maybe not. You know, there's a lot of U.S. boots headed for the region. No one is sure what will happen tomorrow. I would say that the current price of crude oil, and I think in stock prices, also are priced as if this is not going to last very long. It's not going to be really as bad as it should be. And when I run the numbers on what a sustained closure of the Strait of Hormuz means, it's way worse than where we are right now.

20:46And, you know, there's enormous uncertainty there. But, you know, 200-barrel oil is not unreasonable. It's not my most likely thing, but it's definitely, it does not take very much in the way of things going a bit wrong for us to get to that. And that is really quite catastrophic for the market for everything else.

21:09Paul Krugman:Really striking, Paul Krugman. Thank you, sir. Thank you. Coming up, we will hear from a populist Democrat who has won in the middle of the country, former Ohio Senator Sherrod Brown. And a Fox host warning Trump is giving up. I called Pete. I called General Cain. I called a lot of our great people. We have great people. And I said, let's talk. We got a problem in the Middle East or we can take a stop and make a little journey into the Middle East.

21:41Paul Krugman:That's Trump talking about some of this. That's the January 6 issues that are catching up with a case heading to the Supreme Court tomorrow. We have the ultimate guest for our legal preview. So you know exactly what the court's going to be doing. Andrew Weissman next.

22:03Paul Krugman:We've been covering the war in Iran, gas prices coming up. We will get to the midterms. But we're also turning right now to a legal briefing that we think you should really know about. Tomorrow the Supreme Court hears Donald Trump's completely fringe effort to tell you that what the Constitution says it doesn't really say. And there is some sort of crime and race baiting sprinkled in. The brains behind this push is a discredited lawyer, John Eastman. You might recall him from January 6th, Politico reporting. He's been pushing this theory for many years, arguing that while the current law and the Constitution are clear, he says maybe children of foreigners living permanently in the U.S.