How the World Ran on Empty with Peter Goodman

26:53What'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 can say on the spreadsheet that, you know, you're only holding four bits as opposed to eight? Even McKinsey recognized that was bananas. You're coming down the other side of the efficiency curve.

27:32And 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. Look, 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. Well, if that's how you do it, your kid's going to spend five minutes by the sink watching YouTube videos. Common sense is, no, I better get involved in knowing what exactly are they doing? How's this going to play out? Well, we've effectively let McKinsey write those kinds of rules.

28:08And 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. 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? Yeah. So Henry Ford, I was fascinated by the story myself, bonded with Thomas Alva Edison, riding a rail car back from a trade show at a hotel on Coney Island.

28:55This is in the 19-teens. Edison is his hero. And they bond over the supply chain. Edison says, yeah, 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 in 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 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.

29:35He 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 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.

30:24happens 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. And until these computer chips show up, these F-150s are just taking up space in a parking lot. 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 right 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 right those cars they don't have the abs chip we're not allowed to sell those you can't so you can you could drive it but no abs that would be right well you could stop it the way you stopped cars 20 years ago without all the technology and so wait I don't understand.

31:19Why can't you get these chips? And that was an early reading to that. So 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. And I'm curious about the role of Walmart in moving so much manufacturing capacity to China. Tell us a little bit about Walmart. 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.

32:08I mean, here's this country where there's no labor unions. They're effectively 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. 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 spend 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 U.S.

32:54I 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. 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 the American industrial center and China's entry into the World Trade Organization? 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 environment for sure.

33:40You 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 that cost, you know, a million direct manufacturing jobs in the decade or so after China enters the WTO 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 U.S. because they have national health care there. We don't have national health care.

34:11We 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. I mean, 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 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.

34:46Bush calls him out for supposedly coddling the butchers of Beijing, you know, cozying up to 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.

35:29This is the orchestra for the institution responsible for the Tiananmen Massacre. Now, why does he do 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. 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, it will improve human rights and their labor laws.

36:14None of that happens. 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 – As chairman. As chairman, 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 promises that we got. But 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$3 or whatever, like you got the bonanza.

36:57We 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. 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 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.

37:37We had that whole thing with the sheetrock that was mildewed and were 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. So you end up with asbestos in sheetrock 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 going to actually impact them? Well, I mean, it has had some effect, right? I mean, Chinese citizens are unhappy about polluted air.

38:22I mean, there have 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 has 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 the driver of the kind of globalization that I'm writing about in this book, at the center of it is what I describe as a joint venture between the People's Republic of China, this institution forged under a peasant rebellion, revolution under Marxist, Leninist terms, and Walmart, the ultimate retailer from the citadel of Western capitalism.

39:22And this joint venture has really propelled us through the decades, and that's what is now changing.

39:52and companies pushing the tech sector to new frontiers and the politics that shape global tech markets. We do this all every weekday, then bring you the most important conversations and analysis in our podcast. Search for Bloomberg Tech on YouTube, Apple, Spotify, or anywhere else you listen. Join us every afternoon on your commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech Podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today, wherever you get your podcasts. So there's some really interesting tidbits in the book I have to bring up.

40:29Between 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. 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 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.

41:16If you didn't know that before the pandemic, you sure found out about when we ran out of, you know, 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.

41:56But 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, 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 some beach in a hammock with a cocktail in their hand. 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.

42:33Pre-pandemic, China made 80 percent of the face masks sold in the U.S. and 90 % of many basic antibiotics, that just seems insane to me. Yeah. In retrospect, it's certainly insane. Like how can we not make our own antibiotics in the United States? I mean what makes it insane is we're discussing a period where we're deciding to have a trade war with China. Right. Right now. I mean if you have a great – I mean 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.

43:09But 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. So 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. About a trillion dollars worth of product is just stuck offshore. Tell us about that. Yeah. Involuntary warehouses. Suddenly container ships are involuntary warehouses.

43:50You 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 Hagen 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 to north of$25 ,000 in the space of a few months.

44:29And 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 U.S. by container ship. And there's just not enough space on the docks for them to unload, so they're stuck floating sometimes for weeks. 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? It's a little of each of these things all at once.

45:09But 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 alliances, they control like 90-plus percent of the traffic across the Pacific. So in the same way that 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.

45:47So 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. 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? 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 14 % in April of 2020 in the U.S. And people running businesses react to this as if, you know, oh, this is familiar.

46:33Okay, 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. Suspending power is 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 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.

47:04We 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 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 backyard barbecues and trampolines to entertain our cooped up children. So the shipping price skyrockets.

47:44And 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 sick, 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. The whole system just buckles. 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 anyone have made that miscalculation?

48:27It'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 was a pretty big miscalculation. 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 that 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.

49:02But 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 markets. And even those companies can't get chips.

49:33So whatever chips they can make, they're going into the iPhone because that's the big customer. Sorry, Ford, you're last in line. Well, not quite last because it was the small med devices and some real important life-saving devices could not get manufactured according to your book. Correct. 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 we've grossly miscalculated in terms of running the economy, we then have to wait to ramp back up.

50:17And that does go, that is an indictment of how we've done just in time. We haven't thought about suppliers as partners. Suppliers are just costs to be contained. And the same goes for human beings. You 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, we're just going to make you flexible. You're an independent contractor now. Congratulations. That effectively means we own your time if you're a warehouse worker or you're a worker in a plant that makes something like you're engaged in biomanufacturing.

51:00If 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 a doctor's appointment for your kid. How do you drop off your kids? How do you do any of that stuff? 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 Henry Ford is not a figure to be lionized, right?

51:30He 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've got to 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. We broke that connection. So ultimately, we lost – we have these labor shortages, we love to say. But we ran out of people willing to continue to sign up for the deal of downgraded jobs. 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.

52:15So the decade leading up to or maybe the two decades leading up to the pandemic post 9-11, the Bush administration changes the rules for who can stay in the United States if they're here on an education visa. Right. We reduce the number of legal immigrants who take a lot of jobs that Americans don't want. Right. 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 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.

53:00All these different factors come together and it creates this massive shortage of workers in the United States. Of course, unemployment is four point something percent. 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? A lot of it. You know, I mean, I think we heard a lot about how your stuff's not showing 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 City.

53:38It's a tough gig, isn't it? I mean, look, it's always been a tough gig. But before deregulation and under Carter, people love to talk 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. They have an unsavory history. But they demonstrate the power of having a union because you're away from your family. You're on the road. You're worried about where to park. That was always true. But these guys got paid really well. I mean, this was a truly middle class to upper middle class job. Now it's basically a working poor job.

54:15And you're away from your family more than ever. You are really at the mercy of 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 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.

54:53And a lot of drivers sign off on this pitch that 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 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 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.

55:27I'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 down once unemployment drops below 5%. Yeah, one of the fascinating things about the combination of the pandemic and the CARES Act that were 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, 2021, 22, it seemed like a lot of people figured out, hey, I got to find something.

56:12And if they're not going to pay me, I'm going to figure it out myself. 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 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? 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.

56:58We'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 have health care, 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 their families. I mean, we know that lots of people who are working in, And 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.

57:42Do you remember the McHelpline 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 private company, why are you asking me, the taxpayer, to subsidize your employees? I don't care if the burger is there to sense 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$15 an hour and scooping up all the best people.

58:23and they left places 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. 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.

58:57Well, 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 dropped so much that suddenly people 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. You talk about the meat packing industry in the book that also ran into not just shipping problems, but worker problems.

59:38What made the meat packing industry so unusually at risk to supply chain problems? 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 percent of the meatpacking capacity in the United States. I mean, that's a number that's higher than during the Robert Barron era.

1:00:21So guess what? They're setting themselves up so that the cattle ranchers, in selling their animals, have few alternatives, which keeps prices low on the front end. 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 any time 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.

1:01:05And 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, have to continue showing up even when local public health authorities say, actually, these slaughterhouses, they're super spreaders. What I discovered in researching the book is at the time that – so I tell the story of this one woman, Tin Ai, who's an immigrant from Myanmar, who actually dies in a JBS – well, she contracts COVID and dies the first wave. She worked in a JBS slaughterhouse outside of Denver. At the time that the Trump administration is parroting industry talking points, these people are essential workers.

1:01:44If they don't keep showing up for 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 of these slaughterhouse workers not to feed Americans to continue to funnel monopoly profits to a handful of companies. So let's talk about those profits, and I want to talk about a data point in the book. When the phrase greedflation first started circulating in mid-2021, I had a list of 15 things that were contributing to inflation. And I think I had greedflation was 13.

1:02:26I was pretty skeptical of it. And then as time 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 2022, more than half of the price increases in U.S. goods were going to increase profits. A mere 8 % found its way to workers. So it seems like the greedflation narrative turned out to be pretty right. 100%. And the thing is, this was not a surprise to anybody listening to the earnings calls, because the executives of companies like Kroger, the giant supermarket chain, publicly, well, we're having to shell out more.

1:03:18There 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. This is the greatest opportunity we've ever had to jack up our margins, because everyone's rising, lifting their prices collectively, so nobody's going to point the finger at us. 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?

1:03:58It's a great hedge against inflation. It's not gold. It's stocks that are the good inflation hedge. 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. 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 it.

1:04:34Like everything is just going to get lost in this giant surge of prices. And who's going to really know? 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 L.A., the other ones go ahead. But how interesting that this just happens to be how it works out every single time. Why is that? We don't have enough competition, and there's no transparency in the marketplace. And 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.

1:05:17And that's the world that we're living in. This is not competition most of the time. 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. Yeah, that's right. 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.

1:05:59Yeah. No, that's absolutely right. And my favorite example of this recently is we just had this dock worker 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. 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.

1:06:44So the 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 we've got 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. I've had analysts tell me that probably increased costs for shipping companies by maybe 40%. I mean, there's increased diesel costs and more labor costs. Well, shipping rates are up 300 % and 400%. 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.

1:07:27So 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 manufacturing? Reshoring is the phrase I was looking for. What is the state 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? Well, we're going to get more resilience over the next decade or two. Globalization is not over, by the way. My book is not a call for making everything in America. That would be extremely expensive.

1:08:13It would be wrenching and disruptive. It is a call for greater actual resilience alongside this kind 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 boom. And actually, it's been interesting to see that a lot of the investment is going into places that were hit hardest during the so-called China shock.

1:08:49North Carolina, Michigan, 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 U.S. So we're not making furniture. We're not making clothes here really in any great numbers. The New Yorker Sox and the Carolinas again. 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.

1:09:26I mean, China is going to continue to be a very significant center of manufacturing. It's that there's a sort of portfolio rebalancing. 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. Right. And you get your appointment and they would ask you, 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.

1:10:02You 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 is only China, you have a problem. They want to hear, well, what's your backup plan? We don't want to get stuck waiting for container ships to come in to L.A. to serve our customers in Oklahoma City. So are you making it in Mexico? Are you looking to India? Are you moving some stuff to Vietnam? There's got to be a greater mix. And that is happening to an extent, but I am dubious that it will 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.

1:10:45The 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. So globalization not dead, resiliency not as important or fundamental as we might have been led to believe over the past few months. I mean, there's certainly a change to the talking points.

1:11:23McKenzie now talks about just in case instead of just in time. But we got to watch to see if these lessons will really get learned because the shareholder's interest is still with us. What are you watching these days or listening to? What's keeping you entertained? I've been re-watching The Sopranos. Oh, really? I haven't watched it since it came out. How's it hold up? It's great. Yeah. Yeah, it's hilarious. I forgot how funny it is. Oh, it was always very funny. It was always very funny. uh it's so well acted obviously just really well so well written and i also re-watched succession from beginning to end i 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 right everything i've read the writing is great this is and i just couldn't um i just couldn't find myself you know interested in anybody it's like weird you don't like it's like no character you like as a guy who lived through one of the most grotesque mergers of all time which is aol purchasing time warner yeah yeah well i wasn't a time warner no i was this is the the what's left of aol buying huff post when i when i had a senior leadership position in the newsroom yeah it was so interesting to see there's a merger uh in the fourth season in the last season right session where you've got like the public facing like synergies, magic.

1:12:48And 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 sympathetic people. But everybody seems to love it. It's a great show. You know what I watched during the pandemic that I hadn't seen in real time and it was just one of those things. You never saw this was Mad Men. Oh, it was great. It was sort of you re-watching Sopranos was me watching Mad Men for the first time.

1:13:27And even though there are some complex characters that have good sides and bad sides, there's still people you root for and are empathetic. That's true. And I just found it to be - Mad Men is incredible. How did I miss this the first time around? Yeah, it's an amazing show. Yeah, really. All right, let's go on. let's talk about your mentors who helped shape your fascinating career. Well, thanks for that. I had a couple of 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.

1:14:03They 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 call 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 new understanding of the 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 at let's talk about uh books what are some of your favorites what are you reading right now um i'm reading isabel wilkerson's uh the warmth of other sons which is this fantastic narrative history of uh 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 in terms of— Post-Civil War, pre-World War I, that sort of year?

1:15:12Yeah, 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. But, 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. So when you say Tom Wolfe, the right stuff or Bonfire of the Vanity?

1:15:55The right stuff is fantastic. Yeah, I like his fiction. I think Bonfire of the Vanities is a really entertaining, a very insightful book in lots of ways. I'm a sucker for Michael Lewis. I mean, there's names. Anything he writes. Yeah, absolutely. The big short certainly is amazing. I loved Moneyball. I'm a big baseball fan. 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. I haven't gotten to that yet. Oh, really? Yeah, I've got to do that. 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.

1:16:44All of the alternative ways of looking at data dates to them, first in Israel and then in the U.S. you should talk to them. Oh, and P.S., Amos Tversky is no longer with us. His wife lives right up the street from you at Berkeley. In Berkeley, yeah. And that's what led to that. Really, if you're interested in it, strong recommendation, fascinating book. Okay. Our last two questions. What sort of advice would you give to a college grad interested in a career in journalism, in freelancing, in economics? What advice would you give to them? It's real simple. just write. Find something that allows you to just write and write and write because there's just no substitute.

1:17:30You 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 writing will make you better at it. 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? 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.

1:18:15We don't have the judgment developed yet to say like, I'm going to stay right here and I'm going to dig deep into this where we're constantly worried well what question will my editor ask that i won't have an answer to therefore i have to have to cover the landscape i have to talk to 12 companies when 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 will really remember is like well I got enough that I could write I now know the story I've got my data I've got some quotes but no now I'm going to go find a character now I'm going to go find a place where the sense of place is going to draw a reader through and it's going to 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 come 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.

1:19:17That's going to come to life now through this great example that I've come up with. 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.

1:20:05at The Money in the Masters in Business feed or wherever you find your favorite podcasts. I would be remiss if I'd 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 Bauman is the head of podcasts here at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

1:20:47This is Scarlett Fu. And I'm Paul Sweeney, inviting you to join us for the Bloomberg Intelligence Podcast. Every day, we harness the power of Bloomberg Intelligence to bring you deep dives into the companies that are moving markets from publicly traded companies like Apple to those that are privately owned but known by everyone on earth like OpenAI. Now, I helped to build Bloomberg Intelligence to what it is today, Scarlett. And now our analysts are the best in the world, covering more than 2 ,000 global companies. That is your legacy, Paul. And we speak to those in-house experts every day. They are Bloomberg's go-to authorities on sectors, companies, and legal processes.

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