LEILA FADEL, HOST:
For more on how markets are reacting to the war with Iran, I'm joined by economist Tomas Philipson. He's a professor of public policy at the University of Chicago. He was also a top economic adviser to President Trump during his first term. Good morning, and welcome to the program.
TOMAS PHILIPSON: Morning. Good to be with you.
FADEL: So President Trump has laid out several deadlines for Iran then pushed them back, most recently last night. In general, how would you say this kind of uncertainty affects the global economy?
PHILIPSON: Well, it's clearly a cost since it started a month and a half ago, roughly, but it's a cost - an up-front cost. Think of it as an investment with a very long-run benefit if we have neutralized the ability of a country that wants death to America to have weapons to actually achieve that, namely a nuclear weapon or long-run missiles. So I think, I mean, clearly, this is something that was very anticipated. If you start a war in the Middle East, you will have oil prices that are going up and down depending on the forecast of that war, essentially. But a month and a half or two or three months even of that, it seems to be a price worth paying for this much longer benefit, which the U.S. have seeked (ph) to try to accomplish for many, many decades.
FADEL: Right. And - but that's a big if, if we really don't know what the outcome will be. We've seen lots of really strong days in the markets lately and then really bad ones, back and forth. I mean, yesterday, when the ceasefire was announced, that was a good one. What is the connection between Wall Street volatility and the broader economy, if any?
PHILIPSON: Well, I mean, a lot of uncertainty is bad in general, economists believe, for investments because you don't want to take on certain costs today unless you know the benefits are going to be realized in the future. And that, I think, is very, very important. Obviously, both oil but also fertilizers - even more important - how much they've been slowed down by this conflict, essentially, or prices have risen. And that's going to have more than short-term effects, which I think the oil problem is more of a short-term effect. The fertilizer is more long term because farming is seasonal. So if you don't essentially have fertilizer, it's going to have a longer-term effect.
For oils, we've seen a very clear pattern here that this is going to be a short-term event. So basically, oil futures, which is trading oil in the future, that price has been elevated a lot next month - one month out - but not elevated much, let's say, half a year, a year out. And that is telling you that markets think - they believe that this is going to be a short-run temporary supply shock. That was not true for the Russia-Ukraine conflict, which is still ongoing, obviously. The market was right there. And we're hoping that the market is right now, as well, that this is going to be a temporary supply shock that will calm down.
FADEL: If you were in the White House today, what would be your economic advice to President Trump?
PHILIPSON: I mean, the economists in this discussion would be called in to look at what are the economic implications, like the ones you and I are just discussing, essentially. But the overall objective would be, you know, the foreign policy guys and the president weighing those implications against the larger benefit of neutralizing Iran, essentially.
FADEL: Tomas Philipson is a professor of public policy at the University of Chicago. He was a top economic adviser to President Trump during his first term. Thank you so much for your time and your insights.
PHILIPSON: Thank you.
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