How the World Ran on Empty with Peter Goodman

What would YOU like to hear about on Bloomberg? Help make shows like ours even better by taking our Bloomberg audience survey https://url.avanan.click/v2/r01/___https://bit.ly/4eIFhe5___. YXAzOnJ3czphOmc6MjNiM2JiNmFlZTc1Y2UzZDhjZGNiMGY4OTRlMDc3ZjE6Nzo3YTY2OjgwNjEwYzM4MGYyMDAxNDZhNjY1NDViYzM1NmYxMGQ0MTQxYmYwYWM5NmUyOTlmNWE4Zjg1NGJmN2E1ZmVmNjc6aDpUOk4. Barry Ritholtz speaks with New York Times Global Economic Correspondent Peter Goodman. Prior to the New York Times, Peter began his career as a freelance writer in Southeast Asia before serving as The Washington Post's Asia Economic Correspondent and later Shanghai Bureau Chief. He has since reported from over 36 countries, holds two Gerald Loeb awards and eight prizes from the Society of American Business Editors and Writers. He was also a Pulitzer finalist for his work covering the 2008 financial crisis. On today's episode, Peter breaks down his path as a journalist and the work behind his book How the World Ran Out of Everything: Inside the Global Supply Chain. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 0:58Speaker 01

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• 1:00Speaker 02

  Podcasts, radio, news.

• 1:05Speaker 02

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 1:12Barry Ritholtz?

  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 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 masks and gowns? What led us to outsourcing everything and not having a backup, not having an emergency system? How did we break our resilience?

• 1:54Barry Ritholtz?

  Leading up to the pandemic, I thought the book 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 that took place during the pandemic is detailed in the book and with great specificity. I think you'll find this conversation fascinating. With no further ado, my discussion with the New York Times, Peter Goodman.

• 2:32Speaker 04

  Thanks so much. Very great to be here.

• 2:34Barry Ritholtz?

  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.

• 2:47Speaker 04

  Oh, thanks.

• 2:48Barry Ritholtz?

  You start as a feature writer freelancing in Japan from Southeast Manila and Jakarta. How on earth did that happen?

• 2:56Speaker 04

  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 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.

• 3:25Barry Ritholtz?

  Wow.

• 3:26Speaker 04

  Covered a massacre of pro-democracy demonstrators in East Timor, got kicked out of Indonesia, came back to the States and ended up in Alaska at the Anchorage Daily News.

• 3:36Barry Ritholtz?

  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?

• 3:43Speaker 04

  Yeah, I mean, I basically figured out that if I wanted to do this seriously, I was gonna have to go somewhere to learn journals. I didn't go to J 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 freelancing would take me a certain distance, but if I wanted to be serious about it, I had to go work, you know, do In local journalism somewhere and I was lucky enough to be hired by the Anchorage Daily News, which was just a heavyweight shop of talent, only about, you know, 16, maybe 20 reporters. They had won the gold medal for public service Pulitzer a few years before I got there. They were finalists the year before I got there for the Exxon Valdez crash.

• 4:25Speaker 04

  And it was just a very talented, creative group of people. And yes, I ended up in, I was living in Palmer, which is next to Wasilla. It was the local government reporter where I covered, as you can probably guess, a then unknown member of the Wasilla City Council named Sarah Palin.

• 4:40Barry Ritholtz?

  And how, and how did that turn out?

• 4:43Speaker 04

  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 a story. How do I go to a, 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, and, you know, there's nothing like being in 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 going to call you. You mess up a fact like I once messed up a fact, you know, I, I misheard somebody say assessment when they meant Cessna. And boy, I, I thought I was gonna have to flee the state in embarrassment.

• 5:27Speaker 04

  And you learn how to, how to get it right.

• 5:29Barry Ritholtz?

  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.

• 5:44Speaker 04

  Yeah, that was just, 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.

• 5:57Speaker 04

  Media and imagination and politics, but it was still before, you know, everybody had these giant bureaus, before we 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 our stories were more or less the same because everything was an economic and political story combined. And 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 the cut of the action? You know, anything you dug into was a story

• 6:41Speaker 04

  that would tell you something about power and the trajectory of the Chinese economy.

• 6:45Barry Ritholtz?

  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.

• 7:01Speaker 04

  Right.

• 7:02Barry Ritholtz?

  I have a vivid recollection of my experience during the financial crisis. Tell us a little bit about your experience in 08, 09.

• 7:10Speaker 04

  Well, you know, it's interesting. I was sort of an accidental national economic correspondent 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, I'm living in New York at the time. I'm working in the New York bureau of the Washington Post. Wasn't all that keen to leave. I love the Washington Post, but I thought, well, I better do this. Sleepy story, the national economy. It's the fall of 2007. 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

• 7:51Speaker 04

  spending is drying up because housing prices are falling. That could be significant. I keep reading that, you know, consumer spending is more than two-thirds of the American economy. So I got Mark Zandi 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, every metropolitan area in the United States. And almost at random, I said, I'm going to go out to Reno.

• 8:21Barry Ritholtz?

  I was gonna say, four areas stick out in my mind. Southern Florida.

• 8:26Speaker 04

  Yeah.

• 8:27Barry Ritholtz?

  Vegas and Reno.

• 8:29Speaker 04

  Right.

• 8:30Barry Ritholtz?

  As two and three.

• 8:31Speaker 04

  Yeah.

• 8:31Barry Ritholtz?

  Uh, Southern California.

• 8:33Speaker 04

  Right.

• 8:33Barry Ritholtz?

  And I'm trying to remember, maybe DC was the other area that was?

• 8:37Speaker 04

  Well, there 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, I sort of randomly, so while 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.

• 8:50Barry Ritholtz?

  Right.

• 8:50Speaker 04

  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 headed to where I was staying, and there was a tile shop. And I went in, introduced myself and talked to this guy, Marshall Witty, 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 home equity line of credit. He used to get a new truck every year for the variety of color. And suddenly he's answering his phone, "No dude, I can't go to the club tonight. I'm staying home to watch 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

• 9:33Speaker 04

  are," and I used an impolite word that I will not use on your radio program, "we are, you know, really up a creek here." And they'll say, you know, "Calm down, you know, let's take it easy." But that story, um, I, I sort of just accidentally fell my way into. I, I, I saw that this was gonna 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 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, as ATM machines anymore? That seems like it'll have implications." And yes, it did.

• 10:16Barry Ritholtz?

  That reminds me a little bit of the scene from The Big Short, either the book or the movie. But i- in the movie, it's Steve Carell speaking to a stripper about the home she bought to fix up.

• 10:27Speaker 04

  Right, right.

• 10:27Barry Ritholtz?

  And he said, uh, he goes, "Wait, y- you're buying?" This home as an investment property and she's like, I have six homes as an investment property. And suddenly he realizes, oh, we're in for a world of trouble. This is much worse than anyone imagines.

• 10:42Speaker 04

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

• 10:59Barry Ritholtz?

  Because it was so expensive at the

• 11:01Speaker 04

  It wasn't that it was so expensive. It was what it said on the ticket. Yeah, right. But that's where they wanted to go.

• 11:07Barry Ritholtz?

  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. I'm done with this.

• 11:16Speaker 04

  Marshall Woody explained that to me. I didn't even understand what he meant. He said, yeah, I'm sending the keys back. I'm like,

• 11:20Barry Ritholtz?

  What are you talking about?

• 11:21Speaker 04

  He's like, well, you know, this home, I never expected to deliver. I guess I'm going to be spending some time here. I figured I'd be moving uptown, you know, next year. That's not happening.

• 11:30Barry Ritholtz?

  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?

• 11:48Speaker 04

  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 of, right?

• 11:56Barry Ritholtz?

  Right.

• 11:56Speaker 04

  And suddenly we're living in the fine print. Oh, there actually are terms that are going to apply here. That people that we deluded ourselves into believing would never, you know, this would never matter because housing prices are going up forever. Even Alan 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 refi, I'll sell. Well, suddenly, you know, we're dealing with all of this ink that was never intended to have effect.

• 12:23Barry Ritholtz?

  That's right. I'm still to this day amazed that the models never allowed for home prices to fall. In New York, I have a vivid recollection of finishing grad school in 89. And anybody I know who bought a co-op condo in New York, they were underwater for five, six, seven. Until till the next leg late late 90s and the booming stock market started to send real estate prices higher, but you don't have to go that far back in time. Look at the 1970s to see when inflation made at least in real term, home prices not go up. And then, you know, pre-war, there were some pretty bad recessions and depressions in the

• 13:03Barry Ritholtz?

  turn of the century or the 20s and 30s. 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 done multiple trips to some pretty heavy conflict zones, Iraq, Cambodia, Sudan, 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 at you?

• 13:30Speaker 04

  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 Basra with a couple Washington Post colleagues. And then we drove, you know, all the way up to Baghdad and Kiercooke. And actually, I'll never forget, the car broke down when we put a black market gasoline in it at some point. I had to call National Car Rental in Kuwait and then get that thing on the back of a flatbed truck through all these laid off truck drivers who had no business and we hired somebody for a couple hundred bucks to drive it through the desert. You know, it's, it's always, I'm not a thrill seeker by nature. I mean, there are,

• 14:14Speaker 04

  there are people who cover conflict, who've spent a lot more time in conflict zones than 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, I mean, Iraq, after Saddam, was just a goldmine for journalists because there are all these people, many of whom are English speaking, who are dying to tell their stories, whether it's like, how do these trading companies work despite American sanctions? I did a story on smuggling out of the Port of Basra, where like in a day, I found the guy who like ran a smuggling ring,

• 14:58Speaker 04

  who took me to the port, showed me the fake bills of landing. Like that was absolutely incredible. Cambodia was was endlessly fascinating.

• 15:07Barry Ritholtz?

  Of all these of all these wild overseas stories you've done, what's been your favorite to cover? What's been the most challenging?

• 15:14Speaker 04

  That's a that's a tough question. I mean, I would say that Iraq coverage just felt so vivid and 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 write themselves. I'm going to go to, you know, an oil refinery that's shut down because the looters came and the Halliburton people haven't figured out how to turn it back on. And there are a bunch of Iraqi employees saying, who's going to pay us? And how come we can't go in there? You know, these sorts of stories are just so vivid and

• 15:55Speaker 04

  and compelling. So I found that, you know, particularly amazing. I mean, my my time in China was kind of unbeatable as well. It's just such a fascinating place.

• 16:04Barry Ritholtz?

  Yeah, really fascinating.

• 16:05Speaker 00

  At K K R, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, K K R has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. K K R, understanding what matters. Visit K K R dot com slash what matters.

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• 17:12Barry Ritholtz?

  Let's talk a little bit about some of the background philosophy. Tell us about the lean Taliban and the cult of efficiency.

• 17:22Speaker 04

  Love it. Yeah. So the lean Taliban refers to the way the people at McKinsey and Company, the business consultancy, viewed themselves in proselytizing for lean manufacturing or just in time as we know it. Now, just in time is a very sensible idea pioneered by Toyota that says, you know, 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, capital is limited, let's have the suppliers bring the stuff we need on the supply chain as we need it. They they sort of emulated the way a supermarket deals with milk. You want enough on the shelf that everybody gets milk. They don't leave

• 18:06Speaker 04

  unhappy. They can't buy it, but not so much that you're spilling it. Well, this is a great idea until 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 McKinsey. And I end 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 plant where McKinsey's lean Taliban show up, a bunch of slick suited young people straight out of Ivy League universities, one older guy from the Chicago branch. And

• 18:48Speaker 04

  they say, you're doing it all wrong, you know, why do you have all these $5 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 to says, well, well, hold on, these are giant industrial generators that need to be installed by crane. Talk about just in time. If we listen to your advice, we're going to be slow with orders, which is exactly what happened. 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 who are waiting for their All so they can say, look at us being so lean that we don't have $5 sheet metal brackets.

• 19:28Barry Ritholtz?

  And, and, and without those brackets, you can't complete that generator.

• 19:32Speaker 04

  Correct.

• 19:32Barry Ritholtz?

  But even worse, when you give people incentives and metrics, no matter how ridiculous they may be, they follow those incentives and they will do those metrics to the point where the people running the factory will not take delivery of key components.

• 19:50Speaker 04

  Right.

• 19:50Barry Ritholtz?

  Because it'll be sitting on their books on the 29th of the month and it'll screw up their metrics.

• 19:56Speaker 04

  Exactly.

• 19:57Barry Ritholtz?

  They leave them, they won't accept it until first, until the first.

• 20:00Speaker 04

  Out in the parking lot.

• 20:00Barry Ritholtz?

  And that just seems like, no, aren't we supposed to be making products and selling them? This secondary level of metrics seems kind of absurd.

• 20:08Speaker 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 who's working for Union Pacific. Now, the railroads have their own version of the lean Taliban. It's called precision scheduled railroading. It's a fancy way of saying, let's lay off lots of workers, let's stick the remaining workers with more jobs, let's make scheduling really complicated, let's, 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 Pacific has told Wall Street,

• 20:54Speaker 04

  we hear you on the need for efficiency and going lean, we're going to limit dwell time, which is the amount of time that cargo sits in any individual place. And so the guy running Union Pacific's rail yard in Nebraska absorbs this mantra and says, well, I don't care where the next train's going. I am attaching 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's somebody sitting in Southern California waiting for auto parts 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 efficient than ever.

• 21:37Speaker 04

  If you're the paint manufacturer in California needing a drum of chemicals that's stuck in Washington State and now you gotta 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.

• 21:53Barry Ritholtz?

  So I wanna, 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 McKinsey in the book, who perhaps have not distinguished themselves over the years with many of the things they've contributed to. It's sort of funny to see a bunch 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

• 22:31Barry Ritholtz?

  of the subsequent impact to either your sales, your profits, your other stakeholders, including employees and customers. Just a relentless pursuit of how can we get the stock price up regardless. Is that, is that a fair assessment?

• 22:47Speaker 04

  Yeah, I think that is a fair assessment and the problem is that that trick works time and again.

• 22:52Barry Ritholtz?

  For a while, anyway.

• 22:53Speaker 04

  You know, I, I 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 smaller number. That's a higher measurement. Well, as a, as this London Business School professor I talked to 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.

• 23:36Barry Ritholtz?

  So I remember having a conversation with Duff McDonald, who wrote a book called The Firm about McKinsey and Company. And, and some of the things that McKinsey is responsible for is, is kind of like shocking. Like it seems whenever there's some financial engineering-based disaster and you look into the details, 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?

• 24:14Speaker 04

  Right.

• 24:15Barry Ritholtz?

  And let's see if that helps get the stock price up." It sounds like lean inventory 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.

• 24:34Speaker 04

  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 commonsensical? Or in a way that's purely driven by trying to hit some metric that some 22-year-old at a Harvard told you, you know, is a good way to do it?

• 24:51Barry Ritholtz?

  So, so let's stay with that, because you talk about Toyota's role in all of this.

• 24:56Speaker 04

  Right.

• 24:57Barry Ritholtz?

  Toyota, they're on an island, the, everything is destroyed post-World War II. It would, and they don't have a lot of capital. So, given those constraints, their version of commonsense, rational, lean inventory, you know, given their constraints, seems to be pretty intelligent.

• 25:15Speaker 04

  Oh, it was highly effective.

• 25:16Barry Ritholtz?

  And it worked. Is the implication that when everybody else started implementing this via consultants, they just took it way too far? Is that the thinking?

• 25:27Speaker 04

  It, 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 commonsensical or not, in terms of the long run, I mean, look, this we learned. Up close during the financial crisis, right?

• 25:47Barry Ritholtz?

  Right.

• 25:47Speaker 04

  Like you can have-

• 25:48Barry Ritholtz?

  Radical deregulation turned out to have a cost to it.

• 25:50Speaker 04

  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 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 supplies-

• 26:21Barry Ritholtz?

  That's right.

• 26:21Speaker 04

  -if something goes wrong. They would never have signed up for supply chains across oceans, which is what we get from McKinsey, combined with the rise of container shipping and the internet and all of 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 McKinsey actually, even McKinsey realized that we had gone too far in the 90s when they discovered that Toyota factories were telling their suppliers not to replenish enough to fill even the existing space on the assembly line. They said, "Well, this doesn't make any sense." Even McKinsey said, "Look, why have two trips to replenish the same workspace just so you

• 27:04Speaker 04

  can say on the spreadsheet that, you know, you're only holding four bits as opposed to eight?" Even McKinsey recognized that was bananas, but that's what we feel.

• 27:13Barry Ritholtz?

  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?

• 27:26Speaker 04

  Yeah, I think that's right. 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 gonna play out? Well, we've effectively let McKinsey write those kinds of rules, and it's not just McKinsey, it'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 to the exclusion of anything resembling common sense.

• 28:06Barry Ritholtz?

  Really, 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?

• 28:26Speaker 04

  Yeah, so Henry Ford, I was fascinated by this story myself, you know, bonded with Thomas Alva Edison, riding a rail car back from a trade show at a hotel on Coney Island. This is, you know, in the 19 teens. Edison is his hero, and they bond over the supply chain. Edison says, yeah, you know, you have all these great creations, 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. He had 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

• 29:08Speaker 04

  outside of Detroit, was all about 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 have been horrified to see what I saw at his River Rouge plant a century later, where I'm actually watching the F-150 come off the line. This is Ford's most popular vehicle, pickup truck, beautiful vehicle, amazing, you know, orchestrated

• 29:50Speaker 04

  assembly with some automation. But at the time that I'm watching this, in January 2022, they're taking 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 as part of its own territory. I'm talking about Taiwan. Until these computer chips show up, these F-150s are just taking up space in a parking lot.

• 30:20Barry Ritholtz?

  I had.

• 30:21Speaker 04

  Horrified.

• 30:22Barry Ritholtz?

  I had a car come off lease, I want to say late 21 or early 22, 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 we're allowed to sell.

• 30:39Speaker 04

  Right.

• 30:39Barry Ritholtz?

  So the sunroof is closed, and whenever the chip comes out back, comes in, bring the car back and we'll get your sunroof working. Those cars, they don't have the ABS chip. We're not allowed to sell those.

• 30:50Speaker 04

  You can't drive them.

• 30:51Barry Ritholtz?

  So you can't, you could drive it, but no ABS.

• 30:53Speaker 04

  That would be a slight problem.

• 30:54Barry Ritholtz?

  Well, you could stop it the way you stopped cars 20 years ago, without all the technology, and so, wait. I don't understand, why, why can't you get these chips? And that, that was an early read into that. So we, we talked about Toyota and Ford and McKinsey. If we're talking about supply chain and globalization, we have to also talk about the outsourcing to China, where you spent a lot of time.

• 31:19Speaker 04

  Right.

• 31:20Barry Ritholtz?

  And I'm curious about the role of Walmart in moving so much manufacturing capacity to China. Tell us a little bit about Walmart.

• 31:30Speaker 04

  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, you know, ultimate solution to their bottom line concerns. I mean, here's this country where there's no labor unions, they're, they're effectively, they're banned by the Communist Party. You can cut a deal with the Communist 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.

• 32:09Speaker 04

  And China, even before China enters the World Trade Organization in 2001, but especially afterwards, 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 killing American living standards has undercut all these manufacturing jobs in the US. I mean, it is, I'm glad you're, you're, 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 concerns for low prices to make their share prices go up.

• 32:54Barry Ritholtz?

  So what about the politicians? Who, who do we blame? Is this Bill Clinton? Is this Ronald Reagan? Who helped set the stage for the hollowing out of the American industrial center and China's entry into the World Trade Organization?

• 33:09Speaker 04

  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, for labor and human rights and-

• 33:21Barry Ritholtz?

  And environmental.

• 33:22Speaker 04

  And environment, for, for sure. You know, I, I, 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 that cost, you know, a million direct manufacturing jobs in the decade or so after China enters the WTO, and 2 million if you count, you know, the truck drivers who-

• 33:39Barry Ritholtz?

  Right.

• 33:40Speaker 04

  -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 healthcare there.

• 33:52Barry Ritholtz?

  Right.

• 33:53Speaker 04

  We don't have national healthcare, 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 of trade deals transition to something else. I mean, it's our own political decisions that have left workers effectively abandoned when, when, when they lose their jobs. And in terms of the net, trade with China has actually been a positive 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've got to look at Clinton, who, I mean, I tell the story in the book of how Clinton runs in 92 as the answer to George H.W. Bush, calls him, calls him out for supposedly coddling the butchers of Beijing, you know, cozying up to-

• 34:36Speaker 04

  The Chinese Communist Party after the Tiananmen Square massacre in 1989, 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 Tiananmen Square itself, saluting his host. This is Jiang Zemin with Hillary by his side 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 Tiananmen massacre. Now, why does he do this? Because he comes from Arkansas.

• 35:20Speaker 04

  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.

• 35:38Barry Ritholtz?

  During that debate about China entering to the WTO, we heard the phrase "democracy" tossed around a lot. That this will open up China to democracy, that this will improve their environmental regulations, it'll improve human rights and their labor laws. None of that happens.

• 35:59Speaker 04

  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 Rubin gets to go to China with Citigroup and make, you know...

• 36:09Barry Ritholtz?

  As chairman.

• 36:10Speaker 04

  As chairman, you know, and crack that market. And that's good for their share price. Of course, what happens? China 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.

• 36:27Barry Ritholtz?

  That's right.

• 36:28Speaker 04

  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. We got a lot of lost 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 as working people understand that their ability to support their families doesn't seem to matter very much to the people running the economy.

• 36:59Barry Ritholtz?

  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 kinda caused problems. I don't know about you, I won't buy dog treats or food made in China, because you never know what's in them. We had that whole thing with the sheet rock that was mildewed or problematic, and on and on, 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.

• 37:44Barry Ritholtz?

  So you end up with asbestos in sheet rock, or you end up with some bad chemical in the dog bones. At what point is the backlash from the lack of regulatory oversight in China gonna actually impact them?

• 37:59Speaker 04

  Well, I mean, it has had some effect, right? I mean, Chinese citizens are unhappy about polluted air. I mean, there've 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 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.

• 38:40Speaker 04

  I mean, the great irony is that the driver of the kind of globalization that I'm writing about in this book, at the center of it, is this, what I describe as a joint venture between the People's Republic of China, this institution forged under a peasant rebellion, revolution, and under Marxist-Leninist terms, and Walmart, the ultimate retailer from the citadel of Western capitalism. And this joint venture has really propelled us through the decades, and that's what is now changing.

• 39:12Speaker 01

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• 39:49Barry Ritholtz?

  So there's some really interesting tidbits in the book I have to bring up. Between 1981 and 2000, American companies reduced their inventories by about 2% a year. By 2014, they were holding $1.2 trillion less in inventory than they had been in the 80s. That seems like a giant number.

• 40:16Speaker 04

  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 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 when we ran out of, you know,

• 40:48Barry Ritholtz?

  Everything.

• 40:48Speaker 04

  Medicine, right? I mean, that's the title of my book. But the first supply chain disruption story I ever wrote was back in 1999, when there was an earthquake in Taiwan and we had shortages of chips and other electronics. Then, of course, the Fukushima disaster in Japan in 2011 and into 2012. 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 just in time, but this equation has been 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.

• 41:34Speaker 04

  That's an invitation to go out looking for your next job. The CEO says, let's keep going lean. They know that eventually there will be a comeuppance, but with any luck that'll happen after they've moved on. They've sold their, they've cashed in their options and then they're on, you know, some beach in a hammock with a cocktail in their.

• 41:51Barry Ritholtz?

  So, 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 80% of the face masks sold in the US and 90% of many basic antibiotics.

• 42:09Speaker 04

  Yeah.

• 42:09Barry Ritholtz?

  That just seems insane to me.

• 42:12Speaker 04

  Yeah, in retrospect, it's, I mean, it's certainly insane.

• 42:15Barry Ritholtz?

  Like, like, how can we not make our own antibiotics in, in the United States?

• 42:19Speaker 04

  I mean, what makes it insane is we're discussing a period where we're deciding to have a trade war with China.

• 42:24Barry Ritholtz?

  Right.

• 42:25Speaker 04

  I mean.

• 42:25Barry Ritholtz?

  Right now.

• 42:26Speaker 04

  You know, I, I mean, if you have a great, I mean, I, I think if we were saying 80% of our face masks are 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 simultaneously, having 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. That's a problem.

• 42:52Barry Ritholtz?

  So let's, let's talk a little bit about what this looked like once the world shuts down. By the middle of 2021, 13% of the world's container shipping fleet. They're just stuck in traffic jams at ports. They can't get in or out.

• 43:08Speaker 04

  Yeah.

• 43:08Barry Ritholtz?

  About a trillion dollars worth of product is just stuck offshore. Tell, tell us about that.

• 43:13Speaker 04

  Yeah, involuntary warehouses, suddenly container ships are involuntary warehouses. You know, I'm tracing in the book, the passage of the single shipping 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 Hagan. Walker and Hagen Walker's got this deal with Sesame Street to make these light up bath toys. And this is his first order that's big enough to fill a 40 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 2,500 bucks to north of $25,000 in the space of a few months.

• 43:57Speaker 04

  And then by the time he manages to get his stuff on board a ship, there's 50, 60, 70 ships just floating off the twin ports of Los Angeles and Long Beach. These are the two ports that collectively are the gateway for 40% of all imports reaching the US by container ship. And there's just not enough space on the docks for them to unload. So they're stuck floating for sometimes for weeks.

• 44:19Barry Ritholtz?

  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?

• 44:33Speaker 04

  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.

• 44:42Barry Ritholtz?

  Right.

• 44:42Speaker 04

  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 alliances, they control like 90 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 inventory so carefully. They want you to be anxious about getting space on that flight. So if you really got to make that trip, you'll pay whatever it costs. They have a similar, the shipping carriers have that relationship with the people who are dependent upon space on their ships.

• 45:27Speaker 04

  So you've got limited capacity and, and sorry to back up on you, but there was a, a massive miscalculation by much of international business as the pandemic begins, right? We, we get the first shutdowns in China. Then get disruptions in Europe as the pandemic spreads. And we get quarantines, people thrown out of work, unemployment shoots up to 14% in April of 2020 in the US. And people running businesses react to this. As if, you know, 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 power is drying up.

• 46:12Speaker 04

  Well, 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 are shut. But guess what? We're now stuck at home, cooking, you know, 27 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 have been sent out to places that are bearing face masks and, and gowns and, and other PPE. And they're headed to places that don't have that much stuff to send back to China.

• 46:53Speaker 04

  So there's stacks of containers in, you know, 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 to entertain our cooped up children. So the shipping price skyrockets. And it turns out we actually need more stuff, including ships than, than we needed. And at the same time, to your earlier point, we got truck drivers sick, so we don't have as much truck drivers. So we don't have as much trucking capacity, dock workers are sick, so we don't 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.

• 47:38Speaker 04

  The whole system just buckles.

• 47:39Barry Ritholtz?

  It's amazing and it's, it's so hard to imagine what it was like. Before, because we know how it turned out and, and today it feels like, how could any of one have made that miscalculation? It's so obvious the demand for goods over services was going to spike. But at that time, not a lot of people saw that coming, did they? It, it was a pretty big miscalculation.

• 48:07Speaker 04

  It was a big miscalculation, but it also goes back to what we were discussing earlier in terms of shareholder primacy. You know, one of the things the Toyota really valued in its own version of just in 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, they'll be out of business.

• 48:29Barry Ritholtz?

  Right.

• 48:30Speaker 04

  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 companies made a series of terrible miscalculations. 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, we're GM, we're, 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 market. So, and even they, 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.

• 49:07Barry Ritholtz?

  Well, not quite last, because it was, right, the small med devices and, and some real important lifesaving devices.

• 49:14Speaker 04

  That's right.

• 49:15Barry Ritholtz?

  Could not get manufactured, according to your book.

• 49:17Speaker 04

  Correct. But when you tell a chip manufacturer, "Hey, uh, sorry, we don't need any of what you're making. We'll, 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 we've grossly miscalculated 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. You know, you, you

• 50:00Speaker 04

  go back to what you were saying about McKinsey earlier. One of the things McKinsey did in terms of proselytizing for lean is they turned human beings and human workers into inventory. "Oh, we don't need you. Well, uh, we're just gonna make you flexible. You're, you're an independent contractor now. Congratulations." Effectively means we own your time. Uh, if you're a warehouse worker or you're a, a worker in a, in a plant that makes something like, you know, you're engaged in biom manufacturing. 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.

• 50:37Barry Ritholtz?

  How do you drop off your kids? How do you do any of that stuff?

• 50:40Speaker 04

  But you don't get 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 going to 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 Semite. He crushed organized labor. But he understood that if you want workers showing up, giving their all, you gotta pay them. He doubled wages in 1914. Some people called him 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.

• 51:18Speaker 04

  We broke that connection. So, so ultimately we lost, we, we have these labor shortages. We love to say, but we're really, we ran out of people willing to continue to sign up for the deal of downgraded jobs.

• 51:33Barry Ritholtz?

  So, so let's talk a little bit about that because I, I, I constantly harp on this point. And I feel like so many people don't understand this. So the decade leading up to, um, or maybe the two decades leading up to the pandemic. Post nine 11, the Bush administration changes the rules for who can stay in the United States if they're here on an education visa.

• 51:58Speaker 04

  Right.

• 51:58Barry Ritholtz?

  Um, we reduced the number of legal immigrants who take a lot of jobs that Americans don't want.

• 52:04Speaker 04

  Right.

• 52:04Barry Ritholtz?

  Then we have the pandemic and so there's no traffic in or out. I don't know. Arguably it was close to 2 million people in the U S die of, of COVID. I, I know the official numbers are a little less than that, but it feels like, um, 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

• 52:33Speaker 04

  Right.

• 52:33Barry Ritholtz?

  of workers in the United States. Of course, unemployment is 4 point something percent.

• 52:38Speaker 04

  Right.

• 52:39Barry Ritholtz?

  We don't have enough bodies. How much of this, what you're describing is just-in-time inventory for people, how much of this traces back to that approach?

• 52:49Speaker 04

  A lot of it. You know, I mean, I think we heard a lot about how your stuff's not showing up because there 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 City.

• 53:05Barry Ritholtz?

  It's a tough gig, isn't it?

• 53:06Speaker 04

  It's a, I mean, look, it's always been a tough gig, but you know, before deregulation under Carter, people have talked about Reagan, but a lot of this stuff actually starts with Carter in the late 70s. The Teamsters were in charge. Okay, here's another institution, not to be lionized, you know, they have an unsavory history, but they demonstrate the power of 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 job. 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 too much competition in that particular industry

• 53:51Speaker 04

  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 going back to our earlier discussion of the mortgage industry before the great financial crisis, there are these predatory schemes reminiscent of subprime

• 54:19Barry Ritholtz?

  Right.

• 54:19Speaker 04

  in the recruitment of drivers and a lot of drivers sign off on this pitch that the, you know, the allure of 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 months or sometimes two years. And by the time you figure out, this is actually a really bad deal, I'm not getting paid. Paid by the hour, I'm getting paid by load delivered. I'm spending hours and hours just waiting at some port. For my container to be available. I'm stuck outside some warehouse that's also short of employees. Waiting for them to unload my freight so I can pick up the next load. I do the math. I'm actually working barely minimum wage, in some cases even below.

• 54:58Speaker 04

  Lot of people quit. And so we have this churn where even a successful trucking company has to replace their entire fleet. In the 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 down once unemployment drops below 5%.

• 55:16Barry Ritholtz?

  Yeah, one of the fascinating things about the combination of the pandemic. And the CARES Act that was sending people pretty decent sized checks enough that they could live on for for a couple of months. The highest level of new business formation in American history, 2021, 22. It seemed like a lot of people figured out, hey, I gotta find something and if they're not going to pay me, I'm going to figure it out myself.

• 55:42Speaker 04

  Right.

• 55:42Barry Ritholtz?

  And whether it was creating new apps or just their own little businesses that they were running. It looked like a big swath of um middle America said, I don't need one of these high efficient corporate jobs. For that sort of headache, I I could figure something out myself. How much of the labor shortage has been driven? By people just kind of upskilling and and saying to corporate America. Hey, I think I have a shot at at at generating as much as you're paying me.

• 56:13Speaker 04

  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 some 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 a job if it happens to pay have healthcare. That they're not looking around for 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, you know,

• 56:53Speaker 04

  places like Walmart warehouses, who are moving packages in giant Amazon fulfillment centers, qualify for food stamps. I mean, they need a federal subsidy courtesy of us, the taxpayer, just to keep themselves fed so they can do those jobs.

• 57:09Barry Ritholtz?

  Do you remember the McHelp line back in, I want to say 2012, 2013? 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, if you're a private company, why are you asking me, the taxpayer, to subsidize your employees? I don't care if the burger's thirty cents more. Pay your clients a little. And the fascinating thing about that, I have a vivid recollection, I want to say it's 2015, of Amazon announcing, we're going to pay fifteen dollars an hour, and scooping up all the best people. And they left places

• 57:51Barry Ritholtz?

  like Walmart scrambling. There was a period where 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.

• 58:06Speaker 04

  Right. 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 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 emergency unemployment benefits that are taking the edge off, and allowing people to continue to spend on their basic needs. And we have unemployment drop so much that suddenly people

• 58:50Speaker 04

  who are not accustomed to thinking about alternatives, you know, what else is out there? Let's check it out. Maybe I will start a small business.

• 58:56Barry Ritholtz?

  You talk about the meatpacking industry in the book, that also ran into not just shipping problems, but worker problems. What made the meatpacking industry so unusually at risk to supply chain problems?

• 59:13Speaker 04

  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 of the aisle until this break under Biden, we've got four companies that are in control of 85% of the meatpacking capacity in the United States. I mean, that's a number that's higher than during the robber baron era. So guess what? They're setting themselves up so that the cattle ranchers

• 59:56Speaker 04

  in selling their animals have few alternatives, which 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 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

• 1:00:38Speaker 04

  of the pandemic to drop an executive order that says slaughterhouse workers are essential workers, have to continue showing up, even when local public health authorities say, actually, these slaughterhouses, they're super spreaders. Right. What I discovered in researching the book is that the time that, so I tell the story of this one woman, Tien Ai, who's an immigrant from Myanmar, who actually dies in a JB, well, she contracts COVID and dies, the first wave, she worked at a JBS slaughterhouse outside of Denver. At the time that the Trump administration is parroting industry talking points that these people are essential workers, if they don't keep showing up for work, we are not going to be able to get fed, the meatpackers are actually sitting on record volumes of frozen meat and they're boosting their exports, including to places like China.

• 1:01:23Speaker 04

  So we essentially sacrificed the lives of these slaughterhouse workers not to feed Americans to to continue to funnel monopoly profits to to a handful of companies.

• 1:01:35Barry Ritholtz?

  So 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 2021, I had a list of 15 things that that were contributing to inflation. And I think I had greedflation was 13. I was pretty skeptical of it.

• 1:01:55Speaker 04

  Yeah.

• 1:01:55Barry Ritholtz?

  And then as time went on, there was more and more data coming out.

• 1:01:58Speaker 04

  Sure.

• 1:01:58Barry Ritholtz?

  That said, hey, we're seeing record profits, and it looks like a lot of this is is a little opportunistic. The data point that you have in the book, by the time inflation is peaking in June of 2022, more than half of the price increases in US goods were going to increase profits. A mere 8% found its way to to workers. So it seems like the greedflation narrative turned out to be pretty right.

• 1:02:31Speaker 04

  100%. And the thing is, this was not a surprise to anybody listening to the earnings calls, because the executives of companies like 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 costs have to go up. Meanwhile, they're telling Wall Street analysts, this is fantastic, you know, 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 going to point the finger at us.

• 1:03:06Barry Ritholtz?

  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.

• 1:03:16Speaker 04

  Sure.

• 1:03:17Barry Ritholtz?

  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 the good inflation hedge.

• 1:03:31Speaker 04

  I mean, the question is, and this is something I get into in detail in the book. The question is, are we talking about an industry where there'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, I'll accept a slightly lower margin for greater market share." That's actually free market capitalism.

• 1:03:50Barry Ritholtz?

  But it didn't feel like that happened in 21 or 22. It kind of felt like, "Hey, no one's going to notice if I make this package a little smaller," or if we raise... Like, everything is just going to get lost in this giant surge of prices, and who's going to really know?

• 1:04:08Speaker 04

  But beneath a lot of this, it turns out, is market concentration and various forms of collusion. I mean, "Oh, 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. 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 guy, 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 not competition most of the time.

• 1:04:49Barry Ritholtz?

  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.

• 1:05:01Speaker 04

  Yeah, that's right.

• 1:05:02Barry Ritholtz?

  That, "Hey, these guys have kind of figured out that this algorithm is colluding to drive rents higher, because we have access to all this data, and, oh, we know what those guys are charging, and we know what those guys are charging, so we could bump up to that level." And 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.

• 1:05:27Speaker 04

  Yeah, no, that's absolutely right. And, you know, my favorite example of this recently is, we just had this dockworker strike on the East and Gulf Coast of the United States, and there were all of these breathless stories about, "This is such a terrible 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 of the companies that are publicly traded plummeted. Why did they plummet? 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.

• 1:06:11Speaker 04

  So the market said, oh no, the strike's over, we're back to normal. That's my chance to to sell off. At the in the in the same way that, you know, we've got the the Houthis 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. Fed analysts tell me that probably increased costs for shipping companies by maybe forty percent.

• 1:06:36Barry Ritholtz?

  Oh, really?

• 1:06:37Speaker 04

  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.

• 1:06:54Barry Ritholtz?

  So so since the pandemic, the new administration has focused on reindustrializing the United States, nearshoring or in-house shoring, or whatever you want to call it.

• 1:07:07Barry Ritholtz?

  What is the state of manufacture reshoring is the phrase I was looking for? What is the state of of bringing manufacturing back to the United States? How long will it take before we can have a little more resilience built into our own system?

• 1:07:24Speaker 04

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

• 1:07:51Speaker 04

  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 boom, and it actually has been interesting to 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 a lot of

• 1:08:20Barry Ritholtz?

  Arizona.

• 1:08:21Speaker 04

  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 back to the US.

• 1:08:35Barry Ritholtz?

  So we're not making furniture, we're not making clothes here, really, in any great numbers?

• 1:08:39Speaker 04

  We're not making tube socks in the Carolinas again, you know, but, 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. It's that there's a sort of portfolio rebalancing. And I, 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 a 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, where are you making this product?

• 1:09:23Speaker 04

  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 are you making it? And if your answer was only China, you have a problem. They want to hear, well, what's your backup plan? You know, we, we don't want 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 continue to happen the longer away we get

• 1:10:08Speaker 04

  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 second factory in Mexico. If you're diluting next quarter's earnings or the quarter after that, there's 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.

• 1:10:39Barry Ritholtz?

  So globalization not dead, resiliency not as important or fundamental as we might have been led to believe over the past few.

• 1:10:48Speaker 04

  I mean, there's certainly a change to the talking points. McKinsey now talks about just in case instead of just in time. But we gotta watch to see if these lessons will really get learned because the shareholders' interest is still with us.

• 1:11:03Barry Ritholtz?

  What are you watching these days or listening to? What's keeping you entertained?

• 1:11:06Speaker 04

  I've been rewatching The Sopranos.

• 1:11:08Barry Ritholtz?

  Oh, really?

• 1:11:09Speaker 04

  Yeah, I haven't watched it since it came out.

• 1:11:11Barry Ritholtz?

  How's it hold up?

• 1:11:11Speaker 04

  It's great.

• 1:11:12Barry Ritholtz?

  Yeah.

• 1:11:13Speaker 04

  Yeah, it's hilarious. I forgot how funny it is.

• 1:11:15Barry Ritholtz?

  Oh, it was always very funny.

• 1:11:16Speaker 04

  It was always very funny. It's so well acted, obviously, just really well written.

• 1:11:21Barry Ritholtz?

  It's so well written.

• 1:11:22Speaker 04

  And I also rewatched Succession from beginning to end.

• 1:11:25Barry Ritholtz?

  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 the.

• 1:11:34Speaker 04

  You're right.

• 1:11:34Barry Ritholtz?

  Everything I've read, the writing is great, the this is, and I just couldn't, I just couldn't find myself, you know, interested in anybody. It's like weird. You don't like, there's like no character you like.

• 1:11:49Speaker 04

  As a guy who lived through one of the most grotesque mergers of all time, which is AOL purchasing HuffPost.

• 1:11:54Barry Ritholtz?

  Time Warner, yeah, yeah.

• 1:11:55Speaker 04

  Well, I wasn't at Time Warner. No, I was, this is the, what's left of AOL, buying HuffPost when I, when I had a senior leadership position in the newsroom.

• 1:12:04Barry Ritholtz?

  Yeah.

• 1:12:04Speaker 04

  It was so interesting to, there's a merger in the fourth, in the last season of Succession. Where you've got like the public facing like synergies, magic. And meanwhile, you've 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.

• 1:12:31Barry Ritholtz?

  Yeah.

• 1:12:31Speaker 04

  I I'm willing to, you're right, these are not sympathetic people.

• 1:12:35Barry Ritholtz?

  But but everybody seems to love it.

• 1:12:37Speaker 04

  It's a great show.

• 1:12:38Barry Ritholtz?

  You 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.

• 1:12:47Speaker 04

  Oh, it's great.

• 1:12:48Barry Ritholtz?

  Was sort of your you rewatching Sopranos.

• 1:12:51Speaker 04

  Yeah.

• 1:12:51Barry Ritholtz?

  Was me watching Mad Men for the first time. And even though there are some complex characters that have good, good sides and bad sides. There's still people you root for and are empathetic.

• 1:13:03Speaker 04

  That's true.

• 1:13:04Barry Ritholtz?

  And I I just found it to be.

• 1:13:06Speaker 04

  Mad Men is incredible.

• 1:13:07Barry Ritholtz?

  How did I miss this the first time around?

• 1:13:08Speaker 04

  Yeah, it's it's an amazing show.

• 1:13:10Barry Ritholtz?

  Yeah, really. All right, let's um, let's go on. Let's talk about your mentors who helped shape your fascinating career.

• 1:13:17Speaker 04

  Uh, well, thanks for that. I I had a couple of um, uh, old school newspaper people I sat next to in the first newsroom I ever worked in, which was at the Anchorage Daily News in Alaska. It was a columnist named Mike Dugan and a reporter named Sheila Toomey. 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 it was so thrilling. Uh, that it 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 Coll, who's one of the all time greats. Um, and every time I would talk to him about a story, I would come away with like a a new understanding of the historic significance

• 1:14:02Speaker 04

  of whatever it was that I was covering. And I've always tried to think about every story as 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 at.

• 1:14:16Barry Ritholtz?

  Let's talk about uh, books. What are some of your favorites? What are you reading right now?

• 1:14:21Speaker 04

  I'm reading Isabel 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 realize I just don't know enough about, but it's just so important.

• 1:14:37Barry Ritholtz?

  Post-Civil War, pre-World War I?

• 1:14:39Speaker 04

  Yeah, this is like from World War I into the 1970s. 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 early in my career by Norman Mailer's nonfiction. I like this idea of like, the best work is the reported stuff that unfolds like a novel. The Executioner's Song had a great effect on me. Tom Wolfe stuff, I feel like I'm just dating myself now, but.

• 1:15:17Barry Ritholtz?

  So when you say Tom Wolfe, the Right Stuff or Bonfire of the Vanities?

• 1:15:22Speaker 04

  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.

• 1:15:33Barry Ritholtz?

  Anything he writes, absolutely.

• 1:15:35Speaker 04

  The Big Short certainly is amazing. I loved Moneyball, I'm a big baseball fan.

• 1:15:39Barry Ritholtz?

  Yeah, no, Moneyball was one. In fact, just look at his past half dozen works. Each one more fascinating than the next. The Undoing Project was absolutely fascinating.

• 1:15:50Speaker 04

  Haven't gotten to that yet.

• 1:15:50Barry Ritholtz?

  Oh, really? About Kahneman and Tversky. And essentially the invention of behavioral finance, which can't... By the way, if you read the introduction of the book, you find out that after he writes Moneyball, he gets an email from Dick Thaler and Cass Sunstein, who said, "Hey, everything you're talking about was Tversky and Kahneman. All of the alternative ways of looking at data..."

• 1:16:17Barry Ritholtz?

  Dates to them in, first in Israel and then in the US.

• 1:16:21Speaker 04

  Yeah.

• 1:16:22Barry Ritholtz?

  You should talk to, you should talk to them.

• 1:16:24Speaker 04

  Yeah.

• 1:16:24Barry Ritholtz?

  Oh, and PS, Amos Tversky is no longer with us. His wife lives right up the street from you at Berkeley.

• 1:16:30Speaker 04

  At Berkeley, yeah.

• 1:16:31Barry Ritholtz?

  Such, and that's what led to that.

• 1:16:33Speaker 04

  Amazing.

• 1:16:34Barry Ritholtz?

  Really, if you're interested in.

• 1:16:35Speaker 04

  Yeah, I would say.

• 1:16:35Barry Ritholtz?

  Strong recommendation, fascinating book.

• 1:16:37Speaker 04

  It's on my list, okay.

• 1:16:38Barry Ritholtz?

  Our last two questions. What sort of advice would you give to a college grad interested in a career in, in journalism, in freelancing, in economics? What, what advice would you give to them?

• 1:16:50Speaker 04

  It's real simple. Just write. Do, 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. Uh, it's as simple as that. And writing on 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 writing will make you better at it.

• 1:17:14Barry Ritholtz?

  Huh. And our final question. What do you know about the world of investigative reporting, economics, journalism in general that would have been helpful 30 or 40 years ago when you were first getting started?

• 1:17:26Speaker 04

  Um, 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. We're, we're constantly worried, well, what question will my editor ask that I won't have an answer to? Therefore, I have to, I have to cover the landscape. I have to talk to 12 companies. Wouldn't it actually be better if you spent more time with two carefully selected, uh, companies? And, and that oftentimes the thing that can elevate a story, uh, to one that people

• 1:18:10Speaker 04

  will really remember is like, well, I got enough that I could write. I, I now know the story. I've got my data, I've got some quotes, but no, now I'm gonna go find a character. Now I'm gonna go find a, a place where the sense of place is gonna draw a reader through and it's gonna unf-. 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 backstory 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 up with.

• 1:18:49Barry Ritholtz?

  Peter, really fascinating stuff. We have been speaking with Peter S. Goodman. He is 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 540 we've done over the past 10 and a half years. You can find those at iTunes, Spotify, YouTube, 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.

• 1:19:33Barry Ritholtz?

  At the Money in the Masters in Business feed or wherever you find your favorite podcasts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Nick Falco is my audio engineer. Anna Luke is my producer. Sean Russo is my researcher. Sage Baumann is the head of podcasts here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

• 1:20:14Speaker 05

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