How the World Ran on Empty with Peter Goodman

Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is Master's in
Business with Barry red Holds on Bloomberg Radio.

Speaker 2 (00:16):
This week on the podcast another extra special guest. Peter
Goodman is the award winning investigative reporter and economics correspondent
for The New York Times. His latest book, How the
World Ran Out of Everything Inside the Global Supply Chain.
What a fascinating deep dive into how we got here

(00:37):
in terms of why were we unable to get basic
protective equipment during the pandemic? How could we not get
ventilators or even things like face mis and gowns. What
led us to outsourcing everything and not having a backup,
not having an emergency system? How did we break our
resilience leading up to the pandemic? I thought the book

(01:01):
was a great read and very fascinating. I learned a
lot about it, and I think this conversation is fascinating
also if you're at all interested in things like global
supply chains, the role of consultants, and the role of
shareholder primacy in how society operates. Plus all the craziness

(01:22):
that took place during the pandemic is detailed in the
book with great specificity. I think you'll find this conversation fascinating.
With no further ado my discussion with The New York Times.

Speaker 1 (01:35):
Peter Goodman, thanks so much, very great to be here.

Speaker 2 (01:38):
So I really found the book fascinating. It's such a
fresh in everybody's mind story. But before we get into
the book, let's talk a little bit about your background.
You have really a fascinating career. You start as a
feature writer freelancing in Japan from Southeast Manila and Jakarta.

(01:58):
How on earth did that happen?

Speaker 1 (02:00):
Yeah, so you know, I was one of those kids
who got out of college and just I did what
I wanted to do. I liked to write. I had
been sort of a political activist in college, but life
seemed more complicated than it did to my activist friends.
So journalism drew me, and I wanted to go check
out Southeast Asia. So I first stopped in Japan, got
a job writing features for the Japan Times, teaching English

(02:23):
to pay the bills and save up the money to
then move to Manila and then eventually Jakarta. Spent a
lot of time in Cambodia, covered a massacre of pro
democracy demonstrators in East Timor, got kicked out in Indonesia,
came back to the States and ended up in Alaska
at the Anchorage Daily News.

Speaker 2 (02:39):
Yeah, I was gonna ask, how do you find your
way from Asia to Anchorage? What was it like reporting
from a small town in Alaska?

Speaker 1 (02:47):
Yeah? Yeah, I mean I basically figured out that if
I wanted to do this seriously, I was going to
have to go somewhere to learn journalism. I didn't go
to Jay School, went to a liberal arts college where
we didn't have you know, that sort of paper where
we had beats and structure, And I understood that, you know,
freelancing would take me a certain distance, but if I
wanted to be serious about it, I had to go work,
you know, doing local journalism somewhere and the anchor. I

(03:10):
was lucky enough to be hired by the anchor s
Daily News, which was just a heavyweight shop of talent,
only about you know, sixteen maybe twenty reporters. They had
won the Gold Medal for Public Service Pulitzer a few
years before I got there. They were a finalist the
year before I got there for the excellent Valdese Crush,
And it was just a very talented, creative group of people,

(03:32):
And yes, I ended up in I was living in Palmer,
which is next to Wasilla. Was the local government reporter
where I covered, as you can probably guess, a then
unknown member of the Wascilla City Council named Sarah Palin.

Speaker 2 (03:46):
And how did that turn out?

Speaker 1 (03:47):
You know it was? It was fascinating. I mean, there's
nothing like having a local beat and having to figure
out who matters, what's the story, How do I go
to a meeting of local government, prepare for whatever issue
seems most interesting, develop sources, build people's trust, figure out
you know, when you get it wrong, how to make
it right. And you know, there's nothing like being in

(04:11):
a place where someone will call you if you get
a fact wrong. I mean, when you're freelancing in Cambodia
writing about Cambodian refugees, you spell somebody's name wrong, nobody's
gonna call you. You mess up a fact like I
once messed up a fact. You know, I misheard somebody
say assessment when they meant cessna, and boy, I thought
I was gonna have to flee the state in embarrassment.

(04:31):
And you learn how to.

Speaker 2 (04:32):
Get it right, so you have a knack for being
in the right place at the right time. You were
the Shanghai bureau chief for the Washington Post, really as
China was emerging as a global superpower. Tell tell us
a little bit about your experiences in Shanghai.

Speaker 1 (04:48):
Yeah, that was just an incredible story. It was a
story of a lifetime. I mean, it was a moment
where China had become a very significant story in the
American media and imagination and politics. But it was still
before you know, everybody had these giant bureaus, before we

(05:10):
were covering news in this very granular way, so you
had time to really dig into stuff. And you know,
we had two guys in Beijing who were phenomenal, my
two colleagues who did a lot of political stuff, and
I was ostensibly the economic writer. But the truth was
all of her stories were more or less the same,
because everything was an economic and political story combined. And

(05:30):
it was a moment where you could just sort of
point at anything like how did that ballpoint bearing factory
get there? Who owns it? How did the land and
the energy become available? Where are they selling their product,
who's getting a cut of the action. You know, anything
you dug into was a story that would tell you
something about power and the trajectory of the Chinese accounty.

Speaker 2 (05:49):
And I'm sure that helped set the stage for all
the things you saw when the world ran out of everything.
We'll circle back to that. You also covered the financial
crisis and recession as the Times New York based economic correspondent. Right,
I have a vivid recollection of my experience during the

(06:10):
financial crisis. Tell us a little bit about your experience
in eight or nine.

Speaker 1 (06:14):
Well, you know, it's interesting. I was sort of an
accidental national economic corresponding because I was very happily working
for the Washington Post covering international econ and the Post was,
let us say, not having its best days. And I
had this opportunity to go to the Times and they
offered me the national Economic correspondent. I thought, well, you know,

(06:35):
I'm living in New York at the time. I'm working
in the New York Beer of the Washington Post wasn't
all that keen toly. I loved the Washington Post, but
I thought, well, I better do this sleepy story the
national economy. It's the Fall of two thousand and seven.
Didn't know anything about it. Was surrounded by people who
knew much more about it than I. Ever would The
first story I ever pitched was, you know, it seems
like consumer spending is drying up because housing prices are falling.

(06:59):
That could be signific I keep reading that. You know,
consumer spending is more than two thirds of the American economy.
So I got Mark Zandy to go crunch some data
for me showing where were home equity lines of credit
drying up the fastest and what was their historical relationship
to consumer spending. And I got this crunched for like

(07:20):
every metropolitan area in the United States, and almost it random.
I said, I'm gonna go out to Reno.

Speaker 2 (07:25):
I was gonna say four areas stick out in my mind.
Southern Florida, Yeah, Vegas and Reno as two and three
Southern California, right, And I'm trying to remember maybe DC
was the other area that was well, there.

Speaker 1 (07:41):
Were a lot, Yes, DC was hit, for sure, there
were parts of New England that were hit, but you
just listed that. But so I sort of randomly so, well,
I'm going out to Reno because if you look at
the ratio of home equity lines of credit to consumer spending,
we've seen this big dry up fast. And within five
minutes of getting off the plane. I had no real
reporting plan. I pulled off the road from the airport,

(08:01):
headed to where I was staying, and there was a
tile shop and I went in, introduced myself and talked
to this guy, Marshall Whittie, who was a salesman who
at that time was about to send the keys back
on his third spec house. His commissions were drying up.
He told me how he had, you know, financed a
trip to Tahiti for his honeymoon on a home equity

(08:21):
line and credit. He used to get a new truck
every year for the variety of color. And suddenly he's
answering this, no, dude, I can't go to the club tonight.
I'm staying home to watch a Netflix And I just
sort of glued myself to this guy for three days.
I met all of his friends, and I went back
to New York and I remember saying to my colleagues
in the newsroom, we are and I used an impolite
word that I will not use on your radio program.

(08:42):
We are, you know, really up a creek here. And
I was like, you know, calm down, you know, let's
take it ease. But that story I sort of just
accidentally fell my way into I saw that this was
going to be really bad. It was not merely a
mild recession. And so every story I did afterwards, I mean,
as I then got into the minutia of how the

(09:03):
mortgage markets work and eventually covered the foreclosure crisis, really
began with that just basic you know, naive, you know question, well,
what's gonna happen when we can't just use our homes
as atm machines anymore? That seems like it'll have implications,
And yes it did.

Speaker 2 (09:20):
That reminds me a little bit of the scene from
The Big Short, either the book or the movie, but
in the movie it's Steve Carell speaking to a stripper
about the home she bought to fix up, and he said,
he goes, wait, you're buying this home as an investment property,
and she's like, I have six homes as an investment property.

(09:40):
And suddenly he realizes, oh, we're in for a world
of trouble. This is much worse than anyone imagine.

Speaker 1 (09:46):
It's exactly that. In fact, the guys I was hanging
out with when I said, well, I'll take you out
to dinner and drink so we can have a longer conversation.
We ended up in a place where there were people
of that profession. It was actually my first expense that
I ever recruited as a New York Times writer, and
I was embarrassed to submit.

Speaker 2 (10:03):
Them given because it was so expensive.

Speaker 1 (10:04):
But it wasn't that it was so expensive. It was
what was the name of the place, right, But that's
where they wanted to go.

Speaker 2 (10:11):
So I love the expression, the expression jingle mail. People
used to put their keys in an envelope and send
it back to the bank, and that's jingle mail.

Speaker 1 (10:19):
Actually with this Marsha, would he explain that to me?
I didn't even understand what he might say, Yeah, I'm
sending the keys back, Like what are you talking? What
He's like, Well, you know, this home I never expected
to deliver. I guess I'm gonna be spending some time here.
I figured i'd be moving uptown, you know, next year.
That's it.

Speaker 2 (10:33):
It's amazing And in fact, until the financial crisis, I
don't think anybody ever stopped to find out am I
in a recourse state or a non recourse state? Meaning
am I still on the hook after I lose the house?
Or is the bank limited to just they get the
house and I get to walk away.

Speaker 1 (10:52):
I mean, let's face it, we all click agree, read
all the terms to millions of documents a day that
we don't even read a sentence, right, right, and suddenly
we're living in the fine print. Oh, there actually are
terms that are gonna high here right that people that
we deluded ourselves into believing would never You know, this
will never matter because housing prices are going up forever

(11:13):
even now. In Greenspan says that you're a sucker if
you don't get a variable rate mortgage. And you know
what could happen. Oh, if it doesn't work out, I'll refie,
I'll sell. Well, suddenly, you know, we're dealing with all
of this ink that was never intended to have effect.
That's right.

Speaker 2 (11:28):
I'm still to this day amazed that the models never
allowed for home prices to fall.

Speaker 1 (11:35):
In New York.

Speaker 2 (11:36):
I have a vivid recollection of finishing grad school in
eighty nine, and anybody I know who bought a co
Opera condo in New York, they were under water for five,
six seven years until till the next leg late late
nineties and the booming stock markets started to send real
estate prices higher. But you don't have to go that
far back in time. Look at the nineteen seventies to

(11:58):
see when inflation made it in real term home prices
not go up. And then you know, pre war there
were some pretty bad recessions and depressions in the turn
of the century or the twenties and thirties. Obviously, homes
weren't as widespread owned back then as they are now.
And I don't want to spend too much time talking
about the financial crisis. I have to ask you. You've

(12:19):
done multiple trips to some pretty heavy conflict zones Iraq, Cambodias, Dan,
East Timor what's it like being in these areas? Are
you embedded with the US military? Are you just walking
around hoping no one takes a pot shot up?

Speaker 1 (12:34):
It depends. I have been embedded in places in Iraq. Actually,
I was there at the best possible time to be
a journalist, you know, in this period, like the I
was there as Bush declared mission accomplished. I was just
in my own suv driving from the Kuwait airport up
to Bosra with a couple of Washington Post colleagues and

(12:54):
then we drove, you know, all the way up to
Bagdad and Kircook and actually I'll never forget the car
broke down when we put a black market gasoline and
at some point I had to call National Car Rental
and Kuwait and then get that thing on the back
of a flatbed truck through all these laid off truck drivers.
I had no business, and we hired somebody for a
couple hundred bucks to drive it through the desert. You know,

(13:14):
it's always I'm not a thrill seeker by nature. I mean,
there are there are people who cover conflict who've spent
a lot more time in conflict zones than I ever will,
some of whom you know, I fear for their safety
because there is I'm just somebody who wants to see
what's going on. I'm not like the bravest soul, but
but there's nothing like being in a place. And boy,

(13:37):
I mean, Iraq after Saddam was just a gold mine
for a journalist because there are all these people, many
of whom are English speaking, who are dying to tell
their stories. Whether it's like how did these trading companies
work despite American sanctions. I did a story on smuggling
out of the port of Basra, where like in a

(13:58):
day I found the guy who like ran a smuggling ring,
who took me to the porch, showed me the fake
bills of lady like that was absolutely incredible. Cambodia was
was an endlessly fascinating of.

Speaker 2 (14:12):
All these of all these wild overseas stories you've done,
what's been your favorite to cover, what's been the most challenging?

Speaker 1 (14:18):
That's a that's a tough question. I mean, I would
say that a rat coverage just felt so vivid and important.
And I mean there's nothing like when you get accustomed
to doing you know, sort of enterprise or investigative or
longer form stuff. There's nothing like being in a place
where it's like, no people actually want to know right
now what happened to you today? And and stories almost

(14:42):
write themselves. I'm gonna go to, you know, an oil
refinery that shut down because the looters came and the
Haliburton people haven't figured out how to turn it back on,
and there are a bunch of Iraqi employees saying, who's
gonna pay us? And how come we can't go in there?
You know, these sorts of stories are just so vivid
and compelling. So I found that, you know, particularly amazing.
I mean, my time in China was kind of unbeatable

(15:05):
as well. It's just such a fascinating place.

Speaker 2 (15:08):
Yeah, really fascinating. Let's talk a little bit about some
of the background philosophy. Tell us about the lean Taliban
and the cult of efficiency.

Speaker 1 (15:18):
Love it. Yeah, So the lean Taliban refers to the
way the people at Mackinsey and Company, the business consultancy,
viewed themselves in proselytizing for lean manufacturing or just in
time as we know it now. Justin times is a
very sensible idea pioneered by Toyota that says, you know,

(15:39):
instead of having giant warehouses filled with all kinds of
stuff that we may need at some point in the future,
but who knows when it's Japan the end of the
Second World War, space is limited, capitals limited. Let's have
the suppliers bring this stuff we need on the supply
chain as we need it. They sort of emulated the
way a supermarket deals with milk. You want enough on

(15:59):
the show shelf that everybody gets milk. They don't leave
unhappy they can't buy it, but not so much that
you're spilling it. Well, this is a great idea till
business consultancies like McKinsey get hold of it and turn
it into this crude imperative to just slash inventory, hand
the extra savings to the corporate executives as a reward
for being smart enough to hire McKenzie. And I end

(16:21):
up digging deep into how this actually works in the
decades before the pandemic, and I spent time with this
guy in Minnesota who was working at this industrial generator
plan where McKenzie's Lean Taliban show up a bunch of
slick suited young people straight out of Ivy League universities,

(16:42):
one older guy from the Chicago branch, and they say,
you're doing it all wrong. You know, why do you
have all these five dollars sheet metal brackets sitting around
taking up space in warehouses. Let's go Lean just order
them when you need them. And the guy I'm talking
he says, well, well, hold on, these are giant and
austrial generators that need to be installed by crane. Talk

(17:03):
about just in time. If we listen to your advice,
we're going to be slow with orders, which is exactly
what happens. So now they're spending hundreds of thousands of
dollars to expedite delivery of their products. They're losing sales
because they're upsetting the contractors. We're waiting for their generators. Also,
they can say, look at us being so lean that
we don't have five dollars sheet metal.

Speaker 2 (17:24):
Brackets, and without those brackets you can't complete that generator.

Speaker 1 (17:29):
Correct.

Speaker 2 (17:29):
But even worse, when you give people incentives and metrics,
no matter how ridiculous they may be, they follow those
incentives and they they'll do those metrics to the point
where the people running the factory will not take delivery
of key components because it'll be sitting on their books

(17:50):
on the twenty ninth of the month and it'll screw
up their metrics.

Speaker 1 (17:53):
They leave them.

Speaker 2 (17:54):
They won't accept it until first until the frost out
in the parking list, And that just seems like, No,
aren't we supposed to be make products and selling them.
This secondary level of metrics seems kind of obsurd.

Speaker 1 (18:04):
This is central to understanding the product shortages that we've
experienced for the last few years in overdoing it on lean.
And the ultimate example, the story I tell in the
book is I found a railroad engineer out in Idaho's
working for Union Pacific. Now the railroads have their own
version of the lean Taliban. It's called precision scheduled railroading.

(18:27):
Fancy way of saying, let's lay off lots of workers,
let's stick to the remaining workers with more jobs. Let's
make scheduling really complicated. Let's limit scheduled service, make trains
longer than ever. Well, so this railroad engineer is horrified
to discover that he's actually pulling freight to the wrong destinations.
And this is not by accident. This is because Union

(18:48):
Pacific has told Wall Street, we hear you on the
need for efficiency and going lean. We're gonna limit dwell time,
which is the amount of time that cargo sits in
any individual place. And so the guy running Union Pacific's
railyard in Nebraska absorbs this mantra and says, well, I
don't care where the next train's going. I am attaching

(19:11):
as many cars to it as possible. So I have
done my job. I have lowered dwell time. Well, the
real effect of this is there somebody sitting in southern
California waiting for autoparts that are in Oregon because this
guy's hauling them to the wrong place. We've lowered dwell time.
Wall Street's happy if all you're looking at is some
window on an Excel spreadsheet. Oh, the railroad is more

(19:33):
efficient than ever if you're the paint manufacturer in California
needing a drum of chemicals that's stuck in Washington State,
and how you got to tell your customers you're late
with the order. That doesn't seem particularly efficient. My takeaway
from doing this book is there's a lot of inefficiency
in this ruthless efficiency.

Speaker 2 (19:50):
So I want to I'm glad you brought that up,
because I am not a big fan of consultants in general.
You have a lot of interesting things to say about
McKenzie in the book, who perhaps have not distinguished themselves
over the years with many of the things they've contributed
to it. It's sort of funny to see a bunch

(20:10):
of Ivy League suits who've never run a factory, or
who've never run a railroad, or who've never run a
retail shop come in and say, no, no, you're doing
this all wrong. Here are the metrics that will get
you a higher stock price on Wall Street, regardless of
the subsequent impact to either your sales, your profits, your

(20:34):
other stakeholders, including employees and customers, just a relentless pursuit
of how can we get the stock price up regardless.
Is that a fair assessment?

Speaker 1 (20:44):
Yeah, I think that is a fair assessment. And the
problem is that that trick works time and again for
a while.

Speaker 2 (20:49):
Anyway, you know, I.

Speaker 1 (20:51):
Mean you think about slashing inventory right, which on the books.
If all you're thinking about is you're in a cubicle
and you're analyzing numbers for some publicly traded company, you
slash inventory, you've lowered or i'm sorry, you've increased return
on asset because inventory is asset, right, So asset is
now smaller. Whatever your revenue is is divided by a

(21:12):
smaller number. That's a higher measurement. Well as as this
London business school, a professor I talked to you for
the book put it to me, Yeah, that's really great.
But if you can't make a ventilator in the middle
of a pandemic because you've managed your inventory so that
quarter to quarter you've boosted your return on asset, you
don't get to say, well, at least our share price
is high.

Speaker 2 (21:33):
So I remember having a conversation with Duff McDonald, who
wrote a book called The Firm about McKenzie and Company
and some of the things that McKenzie is responsible for
is kind of like shocking, Like it seems whenever there's

(21:54):
some financial engineering based disaster and you look into the detail,
somewhere in the back of it is some consulting person
from McKinsey who says, what would happen if instead of
doing it the way you always did it, we focused
on these metrics instead, and let's see if that helps
get the stock price up. It sounds like lean inventory

(22:16):
and just in time delivery is a version of focusing
on a secondary characteristic in order to affect the stock
price rather than focusing on increasing revenues and doing it
more efficiently.

Speaker 1 (22:31):
Yeah, I mean, let me be clear, just in time
is a good idea, and trying to eliminate waste from
your supply chain is a good idea. The question is
are you doing it in a way that's common sensical
or in a way that's purely driven by trying to
hit some metric that's some twenty two year old at
a Harvard told you. You know, is a good way
to say.

Speaker 2 (22:48):
So let's stay with that. Because you talk about Toyota's
role in all of this, right, Toyota. They're on an island.
Everything is destroyed post World War two, it would make
and they don't have a lot of cap So given
those constraints, their version of common sense, rational lean inventory,
you know, given their constraints, seems.

Speaker 1 (23:10):
To be pretty It was highly effective and it worked.

Speaker 2 (23:15):
Is the implication that when everybody else started implementing this
via consultants, they just took it way too far? Is
that the thinking?

Speaker 1 (23:24):
It's that the consultants understand who they're working for. They
are working for executives who must get the share price
to go up right now, and if they fail to
do that, they're going to be looking for their next job.
So whether they think it's common sensical or not, in
terms of the long run, I mean, look this we
learned up close during the financial crisis, right like you.

Speaker 2 (23:44):
Can radical deregulation turned out to have a cost to it.

Speaker 1 (23:47):
I mean, you can have spectacular business failures that we
can all see that are wildly successful for all the
people involved, as long as they get out before the
plane crashes. Part of the mixed metaphor. And so if
you talk about the role of consultants, it's a question
of are you distilling it down to this kind of

(24:07):
cultish reverence for just hitting that one metric. I mean
even Toyota. Well, first of all, Toyota understood that they
needed their suppliers close at hand because you have to
be able to replenish the supply so if something goes wrong,
they would never have signed up for supply chains across oceans,
which is what we get from Mackenzie. Combined with the
rise of container shipping and the Internet and all of

(24:29):
these things that have made our version of globalization, you know, doable.
What's happened is we've eliminated all the margin for trouble.
But Mackenzie actually, even Mackenzie realized that we had gone
too far in the nineties when they discovered that Toyota
factories were telling their suppliers not to replenish enough to

(24:50):
fill even the existing space on the assembly line. They said, well,
this doesn't make any sense. Even Mackenzie said, look, why
have two trips to replenish the same workspace just so
you can say on the spreadsheet that you know, you're
only holding four bits as opposed to eight. Even Mackenzie
recognized that was bananas.

Speaker 2 (25:09):
But you're coming down the other side of the efficiency
curve and all along this stuff. You're giving up long
term resiliency in favor of these short term metrics of
supposed efficiency. Fair statement, Yeah, I think that's right.

Speaker 1 (25:23):
Look, you know, take this to real life. Imagine that
you told your kid who you're trying to get to
brush teeth at the end of the day, I insist
that you spend five minutes by the sink. You know, Well,
if that's how you do it, your kid's gonna spend
five minutes by the sink watching YouTube videos. You know.
Common sense is no, I better get involved in knowing
what exactly are they doing and what like how's this
going to play out? Well, we've effectively let McKenzie write

(25:46):
those kinds of rules. And it's not just McKenzie. There's
lots of business consultancies. And it's not even just because
of the business consultancies. It's that we've handed over our
business and societal fate to shareholder interests. So the exclusion
of anything resembling common sense.

Speaker 2 (26:02):
Huh, really interesting. None of this is a new concern.
I was fascinated in the book. Henry Ford was concerned
about supply chains and resource availability a century ago when
he was building the model T How did his concerns
about supply chains be so easily forgotten?

Speaker 1 (26:23):
Yeah, So, Henry Ford, I was fascinated by the story
of myself, you know, bonded with Thomas Alva Edison riding
a railcar back from a trade show at a hotel
on Coney Island. This is you know, in the nineteen teens.
Edison is his hero, and they bond over the supply chain.
Edison says, yeah, you know, you have all these great creations,

(26:44):
but if you can't get the materials you need, these
are just ideas. And Ford was obsessed with self sufficiency,
I mean to the extent to which he had his
own fiascos, you know, trying to become self sufficient rubber. Yeah,
this failed venture in Brazil, but you know the scale
of his factories, like including the River Rouge factory, which remains,
you know, Ford's showcase outside of Detroit. We're all about

(27:08):
having soup to nuts, the ability to make a car without,
as Ford put it, being pinched by some supplier. He
was suspicious of rail in particular, so he bought his
own rail and shipping lines. Vertical integration didn't exactly work out,
but that concept of let's understand what we're dependent on
and how reliable is the supply. I mean, Ford would

(27:31):
have been horrified to see what I saw at his
River Rouge plant a century later, where I'm actually watching
the F one fifty come off the line. This is
Ford's most popular vehicle, pickup truck, beautiful vehicle, amazing, you know,
orchestrated assembly with some automation. But at the time that
I'm watching this in January twenty twenty two, they're taking

(27:52):
the cars and parking them in these giant lots in
the shadow of Ford's corporate headquarters and across the street
from Henry Ford Elementary School because they're dependent upon one
supplier for the computer chips happens to be across the
ocean on this island that not incidentally is claimed by
China that's part of its own territory. I'm talking about Taiwan.

(28:12):
And until these computer chips show up, these fifties are
just taking up space in a parking lot. I had
a harfight.

Speaker 2 (28:18):
I had a car come off lease, I want to
say late twenty one or early twenty two, and I
recall going to the dealer and going through a whole
floor of cars, and they were divided in half. That
half doesn't have the chip for the sunroof, which were
allowed to sell. So the sunroof is closed and whenever
the chip comes back, comes in, bring the car back

(28:41):
and we'll get your sunroof.

Speaker 1 (28:42):
Work.

Speaker 2 (28:43):
Those cars they don't have the ABS chip, we're not
allowed to sell those.

Speaker 1 (28:47):
You can't, so you can't.

Speaker 2 (28:48):
You could drive it, but no ABS.

Speaker 1 (28:50):
That would be right.

Speaker 2 (28:51):
Well, you could stop it the way you stopped cars
twenty years ago without all the technology. And so wait,
I don't understand, why can't you get these chips? And
that was an early read into that. So we talked
about Tyota and Ford and McKenzie. If we're talking about
supply chain and globalization, we have to also talk about

(29:12):
the outsourcing to China where you spent a lot of time.
And I'm curious about the role of Walmart in moving
so much manufacturing capacity to China. Tell us a little
bit about Walmart.

Speaker 1 (29:27):
So Walmart is the ultimate example of how publicly traded
companies have undercut costs in the name of gratifying consumers
with low prices, and they found in China the ultimate
solution to their bottom line. Concerns. I mean, here's this

(29:48):
country where there's no labor unions. They're effectively they're banned
by the commedist party. You can cut a deal with
the commedi'st party official to get hold of space or resources.
You're tapping into the world's potentially largest consumer market for
you know, just about everything, and China, even before China

(30:09):
enters the World Trade Organization in two thousand and one,
but especially afterwards, it is the you know, perfect place
to make products at scale, increasing sophistication, low costs. And
you know, we spent a lot of time now talking
about how this supposed you know, export juggernaut intent on

(30:29):
killing American living standards has undercut all these manufacturing jobs
in the US. I mean it is I'm glad you're
putting the focus on companies like Walmart, because it really
was American and Western companies in general clamoring for a
shot at the Chinese market as a way to satisfy
their own conterns for low prices, to make their share
prices go.

Speaker 2 (30:50):
So what about the politicians who do we blame? Is
this Bill Clinton? Is this Ronald Reagan who helped set
the stage for the hollowing out of American Industrial Center
and China's entry into the World Trade Organization.

Speaker 1 (31:06):
Well, I'm not so sure that it was wrong by
the way to let China enter the World Trade Organization,
though we could have put more focus on terms for
labor and human rights and environmental and environment for sure.
You know, I argue in the book that you know,
most of our problems, and the problems are significant in
terms of the so called China shock. They cost you know,

(31:28):
a million direct manufacturing jobs in the decade or so
after China enters the w two and two million if
you count. You know, the truck drivers who no longer
have a factory to deliver to. You know, that's really
home cooking, right. I mean other countries. I mean Canada
is not you know, seething with anti trade sentiment to
the extent that it is in the US, because they
have national health care there. We don't have national health care.

(31:51):
We don't We have Trade Adjustment Assistance, but it's woefully underfunded.
That's a program that's supposed to help people who lose
their jobs because the trade deals transition to something else.
It's our own political decisions that have left workers effectively
abandoned when they lose their jobs, and in terms of
the net trade with China has actually been a positive

(32:11):
for the American economy. It's a question of how we've
distributed the spoils, but in terms of how that all
came about. Yeah, I think you got to look at Clinton.
Who I mean. I tell the story in the book
of How Clinton Runs in ninety two as the answer
to George H. W. Bush calls him, calls him out
for supposedly coddling the butchers of Beijing, you know, CosIng

(32:32):
up to the Chinese Commedist Party. After the Tianneman Square
massacre in nineteen eighty nine, Clinton vows that things are
going to be different in his own administration. Human rights
are going to matter so much, And not even a
decade later, he's at the Great Hall of the People,
this is across the street from Tenneman Square itself, saluting
his host, this is Johnson Men with Hillary by his side,

(32:54):
and saluting the great strides that China has made as
he's lobbying for this deal that will bring China into
the WTO And he even goes to the back of
the hall, picks up the baton and conducts the People's
Liberation Army orchestra. This is the orchestra for the institution
responsible for the Tanneman massacre. Now why does he do

(33:15):
this because he comes from Arkansas, this is Walmart's home state.
Because the Democratic Party and the Republican Party for that matter,
awash in campaign contributions from retailers manufacturers who want a
crack at China because it's good for business, and that
ultimately drives the equation.

Speaker 2 (33:35):
During that debate about China entering to the WTO, we
heard the phrase democracy tossed around a lot, right, that
this will open up China to democracy, that this will
improve their environmental regulations, will improve human rights and their
label laws. None of that happens.

Speaker 1 (33:55):
None of this happens. We hear this from Larry Summers,
we hear this from Bill Clinton, We hear this from
Bob Rubin. What does happen. Bob Ruben gets to go
to China with City Group and make you know, as chairman,
as chairman, you know, and crack that market and that's
good for their share price. Of course, what happens China

(34:16):
does become the workshop to the world. Retailers get a
crack at this giant market for a time. Although we've
never really gotten the market opening. That's right, promises that
we got. Share prices do go up because costs come
down consumers. You know, if you like the idea of
being able to go to Walmart and buy a badminton
set for three bucks or whatever, like, you got the bonanza.

(34:36):
But we've got a lot of loss manufacturing jobs. We
got a real hit to the kind of psyche of
American industrial areas. Our politics change not for the better
as inequality sinks in and is working people understand that
their ability to support their families doesn't seem to matter
very much to the people running the economy.

Speaker 2 (34:56):
In the beginning, it felt like they were inexpensive products
from China. Later on that lack of environmental regulations or
lack of even basic safety standards kind of cause problems.
I don't know about you. I won't buy dog treats
or food made in China because you never know what's

(35:16):
in them. We had that whole thing with the sheet
rock that was mildewed and were problematic.

Speaker 1 (35:23):
And on and on.

Speaker 2 (35:24):
Every time it seems that there's a problem with a
Chinese product, it's not that the people who are working
in the factories are doing anything wrong. It's that they're
just allowed to do anything with no sort of regulatory oversight.
So you end up with asbestos in sheet RockA you
end up with some bed chemical in the dog bones.

(35:47):
At what point is the backlash from the lack of
a regulatory oversight in China going to actually impact them?

Speaker 1 (35:56):
Well, I mean it has had some effect, right, I mean,
Chinese said since are unhappy about polluted air. I mean
there's been a lot of moves to reduce we don't
see the progress here yet coal fired electrical plants, or
at least move them further away from urban areas in
places where the environmental destruction resulting from massive industrialization it's

(36:16):
really hit. We've seen protests, we have seen some change there.
But ultimately China has been driven by a very successful
effort to lift hundreds of millions of people out of poverty,
and so for the most part, economic considerations have trumped
all other considerations. I mean, the great irony is that

(36:38):
the driver of the kind of globalization that I'm writing
about in this book, at the center of it is
this what I described as a joint venture between the
People's Republic of China, this institution forged under a peasant
rebellion revolution under a Marxist Leninist terms and Walmart the
ultimate retailer from the citadel of Western capitalism. And this

(37:03):
joint venture has really propelled us through the decades. And
that's what is now changing.

Speaker 2 (37:09):
So there's some really interesting tidbits in the book. I
have to bring up. Between nineteen eighty one and two thousand,
American companies reduce their inventories by about two percent a year.
By twenty fourteen, that were holding one point two trillion

(37:30):
dollars less in inventory than they had been in the eighties.
That seems like a giant number.

Speaker 1 (37:36):
Yeah, it is. Now. Some of that is reflective of
more reliable products, right, So some of that is the
part of the Toyota production system that doesn't get talked
about much, which is, you know, quality improvement. So if
your parts don't break as frequently, then you don't need
to hold as many that's fine. But we know that

(37:58):
every time there's a shock to the system, we run
out of stuff. I mean, the pandemic brought that. If
you didn't know that before the pandemic, you sure found
out about it when we ran out of you know,
every single medicine, right, I mean, that's the title of
my book. But the first supply chain disruption story I
ever wrote was back in nineteen ninety nine when there
was an earthquake in Taiwan and we had shortages of
chips and other electronics. Then, of course the Fukushimi Fukushima

(38:22):
disaster in Japan and twenty eleven and into twenty twelve
we had massive shortages of electronics for months after we
had floods in Thailand around the same time that knocked
hard drive production out of whack. And each time people
who pay attention to this stuff, and that's a fairly
geeky set of people, would say, I think maybe we've
overdone it with justin time. But this equation has been

(38:46):
so good for the people running publicly traded companies that
any CEO who says, I don't know, maybe we need
more of a hedge against trouble, that's an invitation to
go out looking for your next job. The CEO says,
let's keep going lean. They know that it eventually there
will be a come up ins but with any luck,
that'll happen after they've moved on, they've sold their they've

(39:06):
casted in their options and then they're on you know,
some beach and a hammock with a cocktail on their hand.

Speaker 2 (39:11):
So let's talk about what took place before and after
the pandemic, and some of the data in the book
is really quite astonishing. Pre pandemic, China made eighty percent
of the face mass sold in the US and nine
of many basic antibiotics. Yeah, that just seems insane to me.

Speaker 1 (39:32):
Yeah, in retrospect, it's I mean, it's certainly insane, Like.

Speaker 2 (39:35):
How can we not make our own antibiotics in the
United States.

Speaker 1 (39:39):
I mean, what makes it insane is we're discussing a
period where we're deciding to have a trade war with China, right,
I mean, right now, you know, I mean if you
have a great relation. I mean, I think if we
were saying eighty percent of our face mass made in Canada,
I don't think we'd give that any thought because the
likelihood that we're going to close the border seems pretty small.
But yes, to be going into the pandemic simultaneaneously having

(40:01):
this trade war while we're heavily dependent for really significant
stuff on this country that you know, happens to be
on the other side of the Pacific ocean. Uh, that's
a problem.

Speaker 2 (40:11):
So let's talk a little bit about what this looked
like once the world shuts down. By the middle of
twenty twenty one, thirteen percent of the world's container shipping
fleet they're just stuck in traffic jams at ports. They
can't get in or out. Yeah, about a trillion dollars
worth of product is just stuck offshore. Tell us about that.

Speaker 1 (40:33):
Yeah, involuntary warehouses suddenly container ships or involuntary warehouses. You know,
I'm tracing in the book the passage of the single
ship and container from a factory in China to a
warehouse in Mississippi. This is the most important shipment in
the history of this startup company based in Mississippi called Glow,
run by a guy named Hagen Walker. And Hagen Walker's

(40:54):
got this deal with Sesame Street to make these light
up bath toys and this is his first order that
big enough to fill a forty foot shipping container. And first,
you know, the price of moving a container of goods
from the west from coastal China to the west coast
of the US goes from like twenty five hundred bucks
to north of twenty five thousand dollars in the space

(41:16):
of a few months, and then by the time he
manages to get his stuff on board a ship, there's
fifty sixty seventy ships just floating off the twin ports
of Los Angeles and Long Beach. These are the two
ports that collectively are the gateway for forty percent of
all imports reaching the US by container ship, and there's
just not enough space on the docks for them to unload,

(41:36):
so they're stuck floating for sometimes for weeks.

Speaker 2 (41:39):
So do we not have enough ports or was it
just a shortage of port workers and truck drivers and
railroad cars and even shipping containers themselves that led to
this problem.

Speaker 1 (41:53):
It's a little of each of these things all at once.
But it's important to understand that the shipping industry is
basically an unregulated cartel made up of international companies. They're
all foreign companies. They're organized, though there are scores of them,
into three alliances, think like airline alliances, like your Star
Alliance or your One World or whatever, and these three

(42:14):
alliances they control like ninety plus percent of the traffic
across the Pacific. So in the same way that you
know it's not an accident that you get on your
United flight and every seat's taken, and they're looking for
volunteers because they're managing inventories so carefully. They want you
to be anxious about getting space on that flight, so

(42:35):
if you really got to make that trip, you'll pay
whatever it costs. They have a similar shipping carriers have
that relationship with the people who are dependent upon space
on their ships. So you've got limited capacity. And sorry
to back up on you, but there was a massive
miscalculation by much of international business. As the pandemic begins, right,

(42:59):
we get the first shutdowns in China. We then get
disruptions in Europe as the pandemic spreads, and we get quarantines,
people thrown out of work. Unemployment shoots up to fourteen
percent in April of twenty twenty in the US, and
people running businesses react to this as if you know, oh,

(43:19):
this is familiar. Okay, this is a this is a
terrible downturn like the Great Financial Crisis and then the
Great Recession. We just need to slash orders for everything
because you know, people are out of work, so spending
powers drying up. Well, if they had part of it, right, yeah,
if we're not going to offices, then there's no need
for the sandwich shop on the corner. We're not going
to the gym, gyms or shut But guess what we're

(43:41):
now stuck at home cooking, you know, twenty seven meals
a day for our cooped up children. We need more
kitchen appliances. Can't go to the gym. But now we're
buying pelotons and sticking them in our basements. We need
more of those. A lot of this stuff's made in China,
so there's now demand for these container ships to carry
them across the ocean, and a lot of the containers

(44:02):
have been sent out to places that are bearing face
masks and gowns and other ppe, and they're headed to
places that don't have that much stuff to send back
to China. So there's stacks of containers in West Africa,
in parts of Latin America that don't do that much
trade with China. Just as China's turning on to make
our pelotons and our you know, backyard barbecues and trampolines

(44:26):
to entertain our cooped up children, so that shipping price skyrockets,
and it turns out we actually need more stuff, including
ships than we needed. And at the same time, to
your earlier point, we got truck drivers six, so we
don't have as much truck drivers, so we don't have
as much trucking capacity. Dock workers are six, we don't

(44:47):
have as many people to load and unload. Warehouses are
now full because we don't have people to move the
stuff out of warehouses, so we don't have places to
put all these boxes that are coming in, so they're
piling up on the docks. The whole system just buckles.

Speaker 2 (45:00):
It's amazing, and it's so hard to imagine what it
was like before because we know how it turned out,
and today it feels like, how could any of one
have made that miscalculation? And so obvious the demand for
goods over services was gonna spike, but at that time,

(45:21):
not a lot of people saw that coming, did they.
It was a pretty big miscalculation.

Speaker 1 (45:27):
It was a big miss calculation. But it also goes
back to what we were discussing earlier in terms of
shareholder primisy. You know, one of the things that Toyota
really valued in its own version of justin Time is
you have to take care of your suppliers. If things
are bad, you don't just say well, you know, we
disown you. We don't need any of what you're making.
Good luck to you, because then when you do need them,

(45:48):
they'll be out of business. Right. But that's effectively what
we did with computer chips. You know, why can't you
find a car that's got a computer chip because the
auto companies, well the auto company made a series of
terrible miscalculators. First of all, they didn't understand that they
didn't actually matter very much to their ultimate customers. The
chip fabricators in Taiwan. They thought, well, you know, we're Ford,

(46:10):
we're GM where you know, Nissan, whatever, like they have
to take care of us. No they don't. They're taking
care of Google and Apple. That's most of their markets.
And even those companies can't get chips. So whatever chips
they can make, they're going into the iPhone because that's
the big customer. Sorry, Ford, you're last in line.

Speaker 2 (46:27):
Well not quite last, because for small med devices and
some real important life saving devices, that's right, could not
get manufactured according to your bum correct.

Speaker 1 (46:37):
But when you tell a chip manufacturer, hey, sorry, we
don't need any of what you're making. We'll call you
when we do, they turn their fabrication plants offline, and
you can't just turn a switch on to get that
going again. It takes billions of dollars, it takes lots
of materials, it takes months. So once we realize that

(46:58):
we've grossly misscal in terms of running the economy, we
then have to wait to ramp back up. And that
does go uh that that is an indictment of how
we've done just in time. We haven't thought about suppliers
as you know, partners, they're just suppliers, are just costs
to be contained. And the same goes for human beings.

(47:19):
You know, you go back to what you were saying
about McKenzie earlier. One of the things Mackenzie did in
terms of proselytizing for Lean is they turned human beings
and human workers into inventory. Oh we don't need you, well,
we're just gonna make you flexible. You're you're an independent contractor, now, congratulations.
That effectively means we own your time. If you're a

(47:40):
warehouse worker or you're a worker in a in a
plant that makes something like you know you're engaged in biomanufacturing.
If we need you, we need to know that we
can tell you a day before that you have to
show up for work. So you don't have control of
your time. You can't go on vacation, you can't schedule,
you know, a doctor's appointment, your tr You don't get

(48:00):
paid unless we call you. Well, guess what. The minute
unemployment drops to historic standards, people say, you know what,
I got other options. I'm gonna pursue them because I
don't like being treated like inventory. And you go back
to Henry Ford, who understood that. You know, Henry Ford
is not a figure to be lionized, right. He was
a racist, He was an anti semi He crushed organized labor,

(48:20):
but he understood that if you want workers showing up
giving there all, you got to pay them. He doubled
wages in nineteen fourteen. Some people called them a communist.
He said, I'm just a guy who wants to make
product reliably, and any business premised on low wage labor
is inherently unstable. We broke that connection, so so ultimately

(48:42):
we lost. We have these labor shortages, we love to say,
but we really we ran out of people willing to
continue to sign up for the deal of downgraded jobs.

Speaker 2 (48:53):
So let's talk a little bit about that because I
constantly harp on this point, and I feel like so
many people don't understand this. So the decade leading up to,
or maybe the two decades leading up to the pandemic
post nine to eleven, the Bush administration changes the rules

(49:14):
for who can stay in the United States if they're
here on an education visa. We reduce the number of
legal immigrants who take a lot of jobs that Americans
don't want. Then we have the pandemic, and so there's
no traffic in or out.

Speaker 1 (49:28):
I don't know.

Speaker 2 (49:29):
Arguably it was close to two million people in the
US die of COVID. I know the official numbers are
a little less than that, but it feels like that's
a conservative guess. You have millions of people on disability,
millions of people who still have long COVID. All these
different factors come together and it creates this massive shortage

(49:53):
of workers in the United States. Of course, unemployment is
four point something percent. We don't have enough body. How
much of this what you're describing as just in time
inventory for people, how much of this trace is back
to that approach?

Speaker 1 (50:09):
A lot of it, you know, I mean, I think
we heard a lot about how are your stuff's not
shown up because aren't enough truck drivers willing to do it,
As if these guys just lost their mojo to do
their jobs. I actually spent three days riding along with
a long haul truck driver from Kansas.

Speaker 2 (50:25):
Tough gig, isn't it.

Speaker 1 (50:26):
It's a I mean, look, it's always been a tough gig.
But you know, before deregulation under Carter. People love talking
about Reagan, but a lot of stuff actually starts with Carter.
In the only seventies, the teamsters weren't charged. Okay, here's
another institution. Not to be lionized. You know, they have
an unsavory history, but they they demonstrate the power of

(50:46):
having a union because you know, you're away from your family,
you're on the road, you're worried about where to park.
You know that was always true, but these guys got
paid really well. I mean it was. This was a
truly middle class to upper middle class up Now it's
basically a working poor job and you're away from your
family more than ever. You're really at the mercy of

(51:09):
too much competition in that particular industry, where trucking companies
are constantly undercutting one of those it's very hard for
any of them to make any money because there's so
many of them, and so they rely on being able
to squeeze labor. And that model works so long as
there are huge numbers of people so desperate to do
anything that they will sign up for. You know, and

(51:30):
going back to our earlier discussion of the mortgage industry
before the Great Financial Crisis, there are these predatory schemes
reminiscent of subprime in the recruitment of drivers, and a
lot of drivers sign off on this pitch that the
you know, the allure, the open road, and we're going
to pay for your training program. But then you're indentured
to the company that paid the training program for six

(51:52):
months or sometimes two years, and by the time you
figure out this is actually a really bad deal. I'm
not getting paid by the hour. I'm getting paid by
I load delivered. I'm spending hours an hours just waiting
at some port for my container to be available. I'm
stuck outside some warehouse that's also sort of employees, waiting
for them to unload my freight so I can pick

(52:12):
up the next load. I do the math. I'm actually
working barely minimum wage, in some cases even below a
lot of people quit, and so we have this churn
where even a successful trucking company has to replace their
entire fleet in the space of a year. In any
other industry, that would be a scandal. In trucking, we
just accept that that's how it goes well. That breaks

(52:33):
down once unemployment drops below five percent. Yeah.

Speaker 2 (52:36):
One of the fascinating things about the combination of the
pandemic and the Cares Act that we're sending people pretty
decent sized checks enough that they could live on for
a couple of months. The highest level of new business
formation in American history twenty twenty one twenty two, it
seemed like a lot of people figured out, Hey, I

(52:58):
got to find something, and if they're not going to
pay me, I'm going to figure it out myself, right,
And whether it was creating new apps or just their
own little businesses that they were running, it looked like
a big swath of Middle America said I don't need
one of these high efficient corporate jobs for that sort
of headache. I could figure something out myself. How much

(53:21):
of the labor shortage has been driven by people just
kind of upskilling and saying to corporate America, hey, I
think I have a shot at generating as much as
you're paying me.

Speaker 1 (53:33):
I think a lot of it. I mean, certainly in
the supply chain. You know, the normalcy that we're accustomed to,
where you click your buy button on Amazon and you wait,
sometimes just a few hours, and somebody shows up at
your door. We're invited not to think about the army
of workers behind that. You know, that's based on large
numbers of people being so desperate for a job, especially

(53:55):
a job if it happens paid to have healthcare, that
they're not looking around or anything else, and they're aware
that whatever else is out there probably represents a downgrade
if they're able to stay in their home and support
support their families. I mean, we know that lots of
people who are working in places like Walmart warehouses, who

(54:17):
are moving packages in giant Amazon fulfillment centers qualify for
food steps. I mean, they need a federal subsidy courtesy
of us, the taxpayers, just to keep themselves fed so
they can do those jobs.

Speaker 2 (54:29):
Do you remember the mchelpline back in I want to say,
twenty twelve, twenty thirteen, I recall a bunch of news
articles that McDonald's would hire people and then help them
like Walmart get all this aid. And it makes you think, wait,
you're spending all this money lobbying to keep the minimum
wage low. So if you're a private company, why you

(54:51):
asking me the taxpayer to subsidize your employees. I don't
care if the burgers there are sense more. Pay your
clients a little. And the fascinating thing about that, I
have a vivid recollection. I want to say it's twenty
fifteen of Amazon announcing we're gonna pay fifteen dollars an
hour and scooping up all the best people, and they
left places like Walmart scrambling. There was a period where

(55:14):
Walmart shelves were empty, the stores were dirty. I think
Amazon had enough money that they said, we don't care
about a couple of bucks. Let's just this is a
resource we're going to capture. We're going to monopolize this resource.

Speaker 1 (55:26):
Well, so a lot of that was reflective of the
fact that you have huge numbers of people who are
just so busy doing two jobs, driving vast distances to
keep the job they've got, that they don't have time
to think about, well, what alternate career could I pursue.
That's like thinking about going to the moon. Well, suddenly
the pandemic shuts everything down and you are now having

(55:51):
to contemplate whether you want to or not some other
way to feed your family. That was such a shakeup.
At the same time that we do have ergency unemployment
benefits that are taking the edge off and allowing people
to continue to just spend on their basic needs. And
we have unemployment drops so much that suddenly people who
are not accustomed to thinking about alternatives, you know what

(56:12):
else is out there? Let's check it out. Maybe I
will start a small business.

Speaker 2 (56:16):
You talk about the meat packing industry in the book
that also ran into not just shipping problems, but worker problems.
What made the meat packing industry so unusually at risk
to supply chain problems?

Speaker 1 (56:33):
Well, it's a perfect example of this. Engineered scarcity is
the term that I use where because you know, one
of the types of deregulation that we've had that's been
so disastrous because we eliminated antitrust enforcement. This goes back
to Reagan, continues through every presidential administration on both sides

(56:55):
of the aisle until this break under Biden. We've got
four companies that are in control of eighty five percent
of the meat packing capacity in the United States. I mean,
that's a number that's higher than during the Robber Barren era.
So guess what they're setting themselves up so that the
cattle ranchers in selling their animals have few alternatives, which

(57:19):
keeps prices low. On the front end. You know, the
people they're paying have no pricing power, so they're getting
the animals cheaper. At the other end, where they're distributing
to restaurants, to consumers, grocery chains and the like, they
are benefiting anytime there's a shock to the system, so
they're getting record high retail prices or wholesale prices that

(57:41):
are translating into retail prices. At the same time, the
cattle ranchers are going out of business because they're getting
a smaller slice of the dollar that we're spending on beef.
And they're working the system. So they get the Trump
administration in the first wave of the pandemic to drop
an executive order that says slaughterhouse workers are essential. Workers

(58:03):
have to continue showing up even when local public health
authorities say, actually, these slaughterhouses they're superspreads. What I discovered
in researching the book is at the time that so
I tell the story this one woman Tin I who's
an immigrant from meandmar who actually dies and the JBA well,
she contracts COVID and dies the first wave that she
worked at a JBS slaughterhouse outside of Denver at the

(58:26):
time that the Trump administration is parroting industry talking points.
These people are essential workers. If they don't keep showing
up from work, we're not going to be able to
get fed. The meat packers are actually sitting on record
volumes of frozen meat, and they're boosting their exports, including
to places like China. So we essentially sacrifice the lives

(58:46):
of these slaughterhouse workers not to feed Americans, to continue
to funnel monopoly profits to a handful of companies.

Speaker 2 (58:55):
So let's talk about those profits. And I want to
talk about a data point in the book when when
the phrase greedflation first started circulating in mid twenty twenty one,
I had a list of fifteen things that were contributing
to inflation, and I think I had greedflation was thirteen.
I was pretty skeptical of it, and then as time

(59:16):
went on, there was more and more data coming out
that said, hey, we're seeing record profits, and it looks
like a lot of this is a little opportunistic. The
data point that you have in the book, by the
time inflation is peaking in June of twenty twenty two,
more than half of the price increases in US goods

(59:39):
were going to increase profits. A mere eight percent found
its way out to workers. So it seems like the
greedflation narrative turned out to be pretty.

Speaker 1 (59:51):
Right one hundred percent. And the thing is this was
not a surprise to anybody listening to the earnings calls
because the executives of companies Kroger, you know, the giant
supermarket chain publicly well, you know, we're having to shell
out more. There are all these supply chain disruptions. Our
prices are going up, so unfortunately our cost off to go. Meanwhile,
they're telling Wall Street analysts this is fantastic. You know,

(01:00:15):
this is the greatest opportunity we've ever had to jack
up our margins because everyone's rising, lifting their prices, you know, collectively,
so nobody's gonna point the finger at us.

Speaker 2 (01:00:26):
Historically, people don't realize this. Historically, stocks have always been
a great inflation hedge because when prices rise, well, it
just gets passed along and then profits rise either the
same or more. And if your stock price is a
function of your profits, well, guess what, it's a great
hedge against inflation. It's not gold, it's stocks that are

(01:00:49):
the good inflation hedge.

Speaker 1 (01:00:51):
I mean, the question is, and this is something I
get into in detail in the book, question is are
we talking about an industry where it's truly competition or not.
If there's competition, then you're limited in how much you
can jack up prices because presumably your competitor will say, well,
accept a slightly lower margin for greater market share. That's
actually free market capitalist.

Speaker 2 (01:01:10):
But it didn't feel like that happened in twenty one
or twenty two. It kind of felt like, hey, no
one's going to notice if I make this package a
little smaller or if we raise it, Like everything is
just going to get lost in this giant surge of
prices and who's going to really know?

Speaker 1 (01:01:28):
But beneath a lot of this, it turns out, is
market concentration and various forms of collusion. I mean, oh,
what what a coincidence? Every time one airline lifts their
fare from New York to LA the other ones go ahead,
You know how interesting that you know, this just happens
to be how it works out, you know every single time.

(01:01:49):
You know why is that we don't have enough competition
and there's no transparency in the marketplace. And you know,
everybody knows that if you walk into the casino thinking
that you're the smartest, well you're the sucker because there's
a lot of data operative behind you. And that's the
world that we're living in. This is this is not
competition most of the time.

Speaker 2 (01:02:09):
And we have since learned that a lot of the
algorithms and software that are being used to set prices
also contribute to that collusion, most recently with landlords and
rents that hey, these guys have kind of figured out
that this algorithm is colluding to drive sure rents higher
because we have access to all this data and oh,

(01:02:32):
we know what those guys are charging, and we know
what those guys are charging, so we could we could
bump up to that level. And it's it seems that
if you're putting software in charge and all the landlords
are using the same piece of software, hey, that very
much looks like collusion.

Speaker 1 (01:02:47):
Yeah, no, that's that's absolutely right. And you know, my
favorite example of this recently is we just had this
dock workers strike on the East and Gulf coast of
the United States, and there were all of these breathless stories,
but this is such a terror time for the shipping industry.
You know, they can't move any of this cargo. Well,
guess what happened after they settled the strike. The stocks

(01:03:08):
of the companies that are publicly traded plummeted. Why did
they plumb it Because anybody who understands the container shipping
industry gets that engineered scarcity is the name of the game.
And when there's a shock to the system, if you
can't move cargo, they're going to jack up freight rates
globally way in excess of their underlying costs. So the

(01:03:31):
market said, oh no, the strike's over, We're back to normal.
That's my chance to sell off in the same way
that you know, we've got the hooties in Yemen opening
fire on vessels headed toward the Suez Canal, effectively shutting
the canal, making ships that are going from Asia to
Europe go the long way around Africa. If that, analysts

(01:03:52):
tell me that probably increased costs for shipping companies by
maybe forty percent. I mean diesel costs and you know
more labor costs. Well, shipping rates are up three and
four hundred percent. That's fatter margins. So when there's a
shock to the system, if there's no competition, that gets
expressed as pricing power, which means we all pay more.

Speaker 2 (01:04:14):
So since the pandemic, the new administration has focused on
reindustrializing the United States near shoring or in house shoring
or whatever you want to call it. What is the
state of manufacture reshoring is the phrase I was looking for.
What is the state of bringing manufacturing back to the

(01:04:37):
United States? How long will it take before we can
have a little more resilience built into our own system.

Speaker 1 (01:04:44):
Well, we're going to get more resilience, you know, over
the next decade or two. You know, we're the globalization
is not over, by the way, Like my book is
not a call for making everything in America. That would
be extremely expensive, it would be wrenching and disruptive. It
is a call for greater actual resilience alongside this kind

(01:05:08):
of ruthless efficiency. And it's not real efficiency, as we've discussed,
it's really about catering to these metrics. So you know,
in strategic industries like semiconductors, medicines and the medicine supply chain,
electric vehicles, where the Biden administration is now handing out
tens of billions of dollars in subsidies. We do see
a real construction movement, and actually it's been interesting to

(01:05:31):
see that a lot of the investment is going into
places that were hit hardest during the so called China Shock.
North Carolina, Michigan, you know, getting Arizona, Arizona, you know,
getting a lot of this investment into these emerging, you know,
future facing industries in other industries, especially where labor costs
still matter. It's unlikely that this stuff's going to come

(01:05:54):
back to the US.

Speaker 2 (01:05:55):
So we're not making furniture, we're not making clothes here
really didn't not making.

Speaker 1 (01:05:59):
Tube socks and the Carolinas again, you know, but instead
of making it all in China, we'll make them in
Central America. We'll make them in Mexico, we'll make them
in India. So there's a hedge against reliance. I mean,
it's not that we're abandoning China, by the way. I mean,
China's going to continue to be a very significant center
of manufacturing. If that there's a sort of portfolio rebounding,

(01:06:19):
and I would put it to you this way. We've
talked a lot about Walmart fifteen years ago. If you
were if you had a product that you were trying
to get on the shelves of Walmart Superstore, and you
flew down to Bentonville, Arkansas to pitch the Walmart buyers
on your product. You have to go see them. They
don't come see you. It's like visiting the pope, you know.
And you get your appointment, and they would ask you

(01:06:41):
where are you making this product? And if your answer
was something other than China, you had a problem because
they would assume that you couldn't be getting the lowest
possible price, you weren't making it at the most efficient scale. Well,
now if you go to Bentonville, you got your product,
Walmart says where you're making it? And if your answer
is only China, you have a problem. I want to hear, Well,
what's your backup plan? You know, we we don't want

(01:07:03):
to get stuck waiting for container ships to come in
to La to serve our customers in you know, Oklahoma City.
So are you making it in Mexico? Are you looking
to India. Are you moving some stuff to Vietnam. There's
gotta be a greater mix, and that that is happening
to an extent, but I am dubious that it will

(01:07:24):
continue to happen the longer away we get from the pandemic,
for the simple reason that you know you're an incentives guy.
I'm an incentives guy. The incentives for a publicly traded
company are still quarter by quarter, lowest possible cost. So
if you're the CEO of a company and you're saying, well,
let's spend a little more for redundancy, let's have a

(01:07:46):
second factory in Mexico. If you're diluting next quarter's earnings
or the quarter after that, this is a good chance
you won't be around to get the praise. Whenever the
inevitable next shock materializes, that will reveal that that's a
good strategy.

Speaker 2 (01:07:59):
So globalization not dead. Resiliency not as important or fundamental
as we might have been led to believe over the
past few I.

Speaker 1 (01:08:08):
Mean, there's certainly a change to the talking points, right
Mackenzie now talks about justin case instead of just in time.
But we got a watch to see if these lessons
will really get learned because the shareholder's interest is still
with us.

Speaker 2 (01:08:23):
What are you watching these days or listening to? What's
keeping you entertained?

Speaker 1 (01:08:26):
I've been rewatching The Sopranos. Oh really, I haven't watched
it since it came out.

Speaker 2 (01:08:30):
How's it hold up?

Speaker 1 (01:08:31):
It's great. Yeah, it's hilarious. I forgot how funny it is. Oh,
it was always fat it was always very funny, so
well acted, obviously, just really well. And I also rewatched
Succession from the beginning to end.

Speaker 2 (01:08:46):
I tried a couple of times to watch Succession. I
liked by the second episode. It's like each one of
these people and I know everything I've read. The writing
is great, this is and I just couldn't. I just
couldn't find myself, you know, interested in anybody. It's like weird,

(01:09:06):
you don't like. It's like no character you like.

Speaker 1 (01:09:09):
As a guy who lived through one of the most
grotesque mergers of all time, which is AOL purchasing Warner,
well I wasn't a Time Warner, No, I was. This
is the the what's left of AOL buying huff Posts
When I when I had a senior leadership position in
the newsroom, it was so interesting to see there there's
a merger in the fourth seaton, in the last season

(01:09:30):
in succession, where you've got like the public facing like
Synergies magic, and meanwhile you got these two characters who
are like screwed and they're just desperate to consummate this
deal as a way to kind of wipe away their
problems and keep the whole Ponzi scheme going. That was
so true to me in terms of what I lived
through that I'm willing to You're right, these are not

(01:09:54):
sympathetic people.

Speaker 2 (01:09:54):
But everybody seems to love it.

Speaker 1 (01:09:57):
It's great show.

Speaker 2 (01:09:58):
You know what I watched during the pandemic that I
hadn't seen in real time, and it was just one
of those things what you never saw this was mad
Men was sort of your you rewatching Sopranos was me
watching mad Men for the first time. And even though
there are some complex characters that have good good sides

(01:10:19):
and bad sides, there's still people you root for and
are empathetic.

Speaker 1 (01:10:23):
That's true, and.

Speaker 2 (01:10:24):
I just found it to be mad Men is incredible.
How did I miss this the first time around?

Speaker 1 (01:10:29):
Amazing show?

Speaker 2 (01:10:29):
Yeah, really, all right, let's let's let's go on. Let's
talk about your mentors who helped shape your fascinating career.

Speaker 1 (01:10:38):
Well, thanks for that. I had a couple of old
school newspapers people I sat next to you in the first
newsroom I ever worked in, which was at the Anchorage
Daily News in the last year, was a columnist named
Mike Dugan and a reporter named Shila. To me, they
were veterans, and I just listened to them working their
sources on the phone and you know, giving them a
hard time holding people to account, and I just thought

(01:10:58):
it was so thrilling that it really affected how I
go about it, how dogged they were. When I got
to the Washington Post, I was lucky enough to spend
time with Steve Kahl, who's one of the all time greats,
and every time I would talk to him about a story,
I would come away with a new understanding of the

(01:11:20):
historic significance of whatever it was that I was covering.
And I've always tried to think about every story is like,
what does this mean as like a letter to somebody
in the future, What does this signify that's broader than
just the thing that I'm writing about that I thought
the Washington Post in that period was very good.

Speaker 2 (01:11:35):
At let's talk about books. What are some of your favorites.

Speaker 1 (01:11:39):
What are you reading right now? I'm reading Isabelle Wilkerson's
The Warmth of other Suns, which is this fantastic narrative
history of the black migration from the South to northern cities,
which is a period that I realized I just don't
know enough about, but it's just so important.

Speaker 2 (01:11:57):
Post Civil War, pre World War One.

Speaker 1 (01:11:58):
That yeah, it's like from World War One into the
nineteen seventies and it's just so significant in terms of
affecting the politics and of course race dimensions and class
and American culture. And it's just a beautifully written book.
You know. I've always loved Steinbeck. I was very influenced

(01:12:20):
early in my career by Norman Mahler's nonfiction. I like
this idea of like the best work is the reported
stuff that unfolds like a novel. The Executioners song had
a great effect on me. Tom Wolfe stuff. I feel
like I'm just dating myself now.

Speaker 2 (01:12:37):
But so when you say Tom wolf the right stuff.

Speaker 1 (01:12:41):
Or is fantastic, Yeah, I like his fiction. I think
Bonfire of the Vanities is really entertaining, a very insightful
book in lots of ways. I'm a sucker for Michael Lewis.
I mean, there's anything he writes, Yeah, the Big short certainly.
I loved Moneyball, a big baseball fan.

Speaker 2 (01:12:58):
Yeah, No, Moneyball was one. In fact, it just look
at his past half dozen works, each one more fascinating,
and the next the Undoing Project was absolutely fascinating.

Speaker 1 (01:13:09):
I haven't gotten yet.

Speaker 2 (01:13:10):
Oh, really about Knoman and Taversky and essentially the invention
of behavioral finance, which can't by the way, the if
you read the introduction of the book, you find out
that after he writes Moneyball, he gets an email from
Dick Thaylor and Cas Sunstein who said, Hey, everything you're
talking about was Taversky and Conoman. All of the the

(01:13:34):
alternative ways of looking at data dates to them, at
first in Israel and then in the US. You should
talk to you should talk to them. Oh and ps
Amos Tverski, who is no longer with us. His wife
lives right up the street from you at Berkeley and such,
and that's what led to that. Really, if you're interested

(01:13:54):
in a strong recommendation, our last two questions, what sort
of advice would you give to a college grad interest
in a career in journalism, in freelancing, in economics, what
advice would.

Speaker 1 (01:14:09):
You give to me? It's real simple. Just write, dude.
Find something that allows you to just write and write
and write, because there's just no substitute. You can't develop
the muscles without doing it. It's as simple as that.
And writing a deadline is super useful. Covering a beat
is incredibly useful in terms of helping you develop judgment.
But whatever you're doing that involves finding stuff out and

(01:14:32):
writing will make you better at it. Huh.

Speaker 2 (01:14:34):
And our final question, what do you know about the
world of investigative reporting, economics, journalism in general that would
have been helpful thirty or forty years ago when you
were first getting started.

Speaker 1 (01:14:48):
The power of one or two deeply reported cases is
much greater than the over reporting spreading too thin that
I think most of us when we're young tend to do.
We don't have the judgment developed yet to say like,
I'm gonna stay right here and I'm gonna dig deep
into this where we're constantly well, what question will my

(01:15:12):
editor ask that I won't have an answer to? Therefore
I have to have to cover the landscape. I have
to talk to twelve companies would actually be better if you
spent more time with two carefully selected companies, and and
that oftentimes the thing that can elevate a story to
one that people will really remember is like, well, I

(01:15:32):
got enough that I could write. I now know the story.
I've got my data, I've got some quotes. But note
now I'm gonna go find a character. Now, I'm gonna
go find a place where the sense of place is
going to draw a reader through, and it's gonna unfold
like a story that we might tell somebody who's not
deciding to think about finance or economics. They just want
to know something interesting, and all that all that backstory

(01:15:56):
that I've developed by doing my reading, by looking at reports,
by talking to experts and asking questions that might be dumb,
that's going to come to life now through this great
example that I've come on Peter.

Speaker 2 (01:16:09):
Really fascinating stuff. We have been speaking with Peter S.

Speaker 1 (01:16:13):
Goodman.

Speaker 2 (01:16:14):
Here's the global economics correspondent for the New York Times
and the author of the book How the World Ran
Out of Everything inside the Global Supply Chain. If you
enjoy this conversation, well, check out any of the other
five hundred and forty we've done over the past ten
and a half years. You can find those at iTunes, Spotify, YouTube,

(01:16:37):
wherever you find your favorite podcasts, and be sure and
check out my new podcast, At the Money, short single
topic conversations with experts about your money, earning it, spending it,
and most importantly, investing it. At the Money, in the
Masters and Business feed, or wherever you find your favorite podcasts.

(01:16:58):
I would be remiss if I now thank the Crack
team that helps put these conversations together each week. Nick
Falco is my audio engineer. Ana Luke is my producer.
Sean Russo is my researcher. Sage Bauman is the head
of podcasts here at Bloomberg. I'm Barry Rittolts. You've been
listening to Masters in Business on Bloomberg Radio.

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