Breaking Points with Krystal and Saagar - 9/29/23: Trillion Dollar Aircraft Only Flies 55% Of Time, CNN Data Chief "Fox News NEEDS Trump", Amazon's Free Shipping Scheme w/ Matt Stoller

Episode Date: September 29, 2023

This week we look into the F-35 "trillion dollar" plane can only fly 55% of the time, a CNN Data Chief says Fox News needs Trump more than Trump needs Fox amid the drama of Trump not attending the debates, and Matt Stoller looks at the hidden taxes within Amazon's "Free Shipping" scheme at the heart of Amazon Prime.To become a Breaking Points Premium Member and watch/listen to the show uncut and 1 hour early visit: https://breakingpoints.supercast.com/Merch Store: https://shop.breakingpoints.com/ Learn more about your ad choices. Visit megaphone.fm/adchoicesSee omnystudio.com/listener for privacy information.

This is an iHeart Podcast. Taser Incorporated. I get right back there and it's bad. Listen to Absolute Season 1, Taser Incorporated, on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. I'm Clayton English. I'm Greg Glott. And this is Season 2 of the War on Drugs podcast. Last year, a lot of the problems of the drug war. This year, a lot of the biggest names in music and sports. This kind of star-studded a little bit, man.

We met them at their homes. We met them at their recording studios. Stories matter, and it brings a face to them. It makes it real. It really does. It makes it real. Listen to new episodes of the War on Drugs podcast season two on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

Here's the deal. We got to set ourselves up. See, retirement is the long game. We got to make moves and make them early. Set up goals. Don't worry about a setback. Just save up and stack up to reach them. Let's put ourselves in the right position.

Pre-game to greater them. Let's put ourselves in the right position. Pre-game to greater things. Start building your retirement plan at thisispretirement.org, brought to you by AARP and the Ad Council. Hey, guys. Ready or not, 2024 is here, and we here at Breaking Points are already thinking of ways we can up our game for this critical election. We rely on our premium subs to expand coverage, upgrade the studio, add staff, give you guys the best independent coverage that is possible. If you like what we're all about, it just means the absolute world to have your support. But enough with that. Let's get to the show. So in the wake of that crash of the F-35 jet in South Carolina,

with a lot of questions remaining about what the hell actually happened there, we've got a new report that outlines some not great details about this very, very expensive thing. Put this up on the screen. So they say that the F-35 fighter jets can only fly 55% of the time. So about half of the time. This is according to a U.S. watchdog. Let me read you a little bit from this article. They say that maintenance issues keep the aircraft on the ground often, despite the growing reliance on this plane by the U.S. and its allies. The fleet's mission-capable rate, or the percentage of time a plane can perform, one of its assigned missions, was 55 percent. That is far below the Pentagon's goal of 85% to 90%. The F-35 share of the U.S.'s overall tactical

aviation fleet is expected to keep growing. Basically, every branch of the military is increasingly relying on the F-35 and moving in this direction, in spite of the fact that it is incredibly costly and apparently down from maintenance roughly half the time. This is the world's costliest defense procurement project. Let me give you the numbers here. The Pentagon plans to buy roughly 2,000 more of these things by the mid-2040s, costing $1.7 trillion over the program's life cycle, including $1.3 trillion for maintaining the aircraft. Music to the ears of manufacturer Lockheed Martin. Absolutely. And not only that,

it actually costs $42,000 per flight hour for F-35. $42,000 an hour to fly this thing. I've always been obsessed with the flight hour cost for a lot of these things. A lot of Americans don't even understand. It's not just about buying the plane. Cost of running these planes is outrageous. And it reminds me of, I think it was a B-2 bomber. So the B-2 bomber flight costs per hour. Let's go ahead and look it up live. Yeah. Okay. So B-2 costs $163,000 per hour. And at one point we had these guys who flew from like Louisiana all the way to Libya to bomb ISIS with a B-2, drop the bombs, which that's what, another million, million and a half or so are the cost of the bomb, and then fly back. It was like a 36-hour

mission. The collective mission costs like $10 million for a single bombing run. And it's just one of those where we just ride it off. And this was a huge fight in the military. I know aviation geeks are going to get mad at me for screwing up some of the details, but there was this fight around the A-10 Warthog, which was like, it's a very cheap plane. It's much cheaper in order to fly. And it has like the sound that people are familiar with, with machine guns. It was used as a terrorist killer a lot in the global war on terror. And especially because a lot of these guys don't have anti-aircraft stuff, it was much easier in order to fly and to use, but the Air Force was trying to get rid of it

because they're much more in favor of these costly gadgets like fifth generation fighters, F-35s, B-2s, all these other very, very expensive aircraft. I think we're gonna have a reckoning. Whenever we have another war, we're gonna find out that a lot of these costly toy projects, you know, games and all that stuff, that war has not changed that much.

It's all about what flies, what actually works, and can you produce a ton of them in a major war of attrition? Just look at Ukraine. You know, this is very nerdy, but there was entire ideas in the 1990s called, there was a new generation of warfare, as in war had changed for all time. And what everyone would point to was the U.S. campaign against the Iraqi military, because the Iraqi Republican Guard and their military was one of the largest militaries in the world. We steamroll them in 30 days, the highway of death. And they're like, oh my God, war is forever changed. It's all about computers and all that stuff. What are we learning from Ukraine? You would be better off learning the tactics of World War I than you would anything afterwards about the

fighting. Well, and also what's like the most critical thing? It's just ammo. Ammo, artillery, same fights we had in 1912. So look, I'm not going to sit here and claim that all of war is exactly the same, but I think war is a lot more analogous and rhymes with some of the major conflicts we've had as opposed to some video game that a lot of these idiots have been pushing us into for a long time. This is all, like, you can nerd out on this stuff forever. And I know people who do about China and the US and fifth generation aircraft. Here's the deal. We ever get into a war over Taiwan, you know what's going to matter? Anti-ship missiles. You know, a bunch of mines in the middle of the sea. We've been doing that since what? Since time immemorial. And so it's like, we can talk about this forever,

but the F-35 is the symbol, I think, of this new bet that war is just easily outsourced to computers and drones and all of this. And I'm not saying those things don't matter, but the very nitty gritty about what can be produced, what can go on time, what actually works, what's really employable on the battlefield. We'll find it all out very soon. And most of the time, people are totally wrong in terms of the

before a major war broke out. It also just shows there's just literally no cost control. Yeah. You know how much this is the Financial Times. It's not even a U.S. media outlet that's reporting on this. You know, I mean, this GAO report got very little pickup. And think of, you know, on the other hand, like any sort of civilian program that was going to like feed the needy or was abused by, quote unquote, welfare queens or whatever. There would be endless media coverage of that type of waste, waste, fraud and abuse. But this I mean, this, again, most costly defense procurement project in the entire world. And we have so little scrutiny, so little expectations. We're just happy to give literally trillions of dollars

to Lockheed Martin for a product that is not standing up to the standards that the Defense Department themselves have set for these jets. So, you know, and it also does just raise

more questions about what the hell happened in that other incident. Because if you're having a lot of problems with these jets, did that play into this crash and the fact that they were unable

to find the debris for a while? Good point. Pretty extraordinary. The total lack of oversight and how the Pentagon just gets a pass, like trillions to the tune of trillions of dollars, to waste money and have no accountability whatsoever. Very true. All right. We'll see you guys later. their power is waning, how they really need Trump a lot more than Trump needs them. Let's take a listen. 74% say not Fox News. Now, the plurality leader is Fox News at 26%. But the fact is, most Republicans are in fact not tuning to Fox News as its main news source. Other follow-ups, social media, 12%. Broadcast networks at 11%. But I think that this is a key number to keep in mind going forward. 74% of Republican likely voters say the news they turn to most is not Fox News. But I guess the other question to flip that is, does Fox News need Donald Trump?

Yes, this is what I would say is absolutely. Fox News needs Donald Trump more than Donald Trump needs Fox News. Why is that? I actually love that clip because they were using the New York Times data to illustrate a point that we keep hammering home. And of course, look, CNN has an incentive to bash Fox. They're just as bad. Ask them how much they need other politicians and Democrats. Okay, so let's put that aside. But the meta point is correct, as we saw in our focus group. We had eight likely voters in the New Hampshire primary, GOP primary. Only one said Fox is the primary. Amazing. Ten years ago, every single person.

Twenty years ago, O'Reilly, O'Reilly. There would have been like O'Reilly fan club, you know. And that's dead. Gone. Only one person said Fox and Tucker Carlson. Every other person said some version of internet. That's it. But the Tucker Carlson person was like, I watch him on X.

Exactly. So she doesn't even watch. Our great focus group leader there, James, like, oh, you're watching him on X. She's like, yeah, yeah. What used to be Twitter. So, yeah, I mean, it's just it's a very different era for them. And what's interesting is they also went into like of their viewers. They are having an impact on their viewers somewhat because Trump gets 43 percent of the Fox News viewer vote, which is still like pretty high. But of the Newsmax viewer vote, he's getting 76%. So there's clearly an impact here in terms of their coverage and trying to pump up Ron DeSantis and whatever.

So among the people who are still watching them, they have an impact. It's just that they don't have that lock on all of the GOP base. There are other options. And, you know, I'm not going to say that that landscape has like really made things better because I'm not sure Newsmax, One American News Network and some of these other, you know, like Steve Bannon, War Room or what I like, I'm not sure they're providing better information or that it's improving the state of democracy. It just shows the fractured media landscape has made it so that, you know, Rupert Murdoch, who now has stepped down from the top position, but they're no longer the kingmakers that they once were. They no longer

have the control that they once did. And that is an astonishing change in American political media. Yep, absolutely. Now here's the thing. I'm not going to sit here and defend all these alternatives, but those alternatives are what make our show possible. So I'm going to just defend the ecosystem. People have options for the first time in a long time. Lack of centralized challenges in independent media as well that we've talked about here too. And challenges in the incentive structure for independent media, you know, especially with the amount that tech oligarchs drive the algorithms and create who are the winners and who are the losers in that new ecosystem. So there's a little bit of an illusion of independence. It's not as independent as you would want it to be. But the best thing you can say it for is it does create space and optionality and possibility. And that, you know, that is an exciting landscape to be able to look at. You know, in terms of Fox News, ultimately, I think that Harry Anton is right that Trump has

more power and relationship than they do at this point. And so as much as they wanted to turn the page on Trump or whatever, they're not going to be able to. They're going to fall right back into the extent that they ever allowed. They've always had hosts there who are sort of like slavishly committed to Trump. But they're going to all be 100% towing the line. It's not going to be a question because they need his audience. In the words of a great character, chaos isn't a pit. Chaos is a ladder.

We'll see you guys later. Hi, I'm Matt Stoller, author of Monopoly-focused newsletter, Big, and an antitrust policy analyst. I have a really good segment for you today on this big breakdown, because this week, the Federal Trade Commission and 17 states filed an antitrust suit against Amazon, which is, of course, as you know, one of the biggest companies in the world. And the suit was about monopolization and unfair methods of competition. So this segment is about what the case means, the government's claims, and whether the legal arguments that the government is using are strong.

Now, for a lot of you, this explanation is going to sound sort of familiar because I laid out what would become the basis for this lawsuit in a video about a year ago. Okay, let's dive in. For almost 20 years, Amazon's business has existed on a very strange premise that almost no one questions. Ostensibly, the retail firm is the lowest price option in the market, and it offers quote-unquote free shipping to over 100 million Amazon Prime customers, for which it charges $139 a year membership fee. The revenue from Prime does not come close to covering its logistics arm, which cost about $85 billion in 2022. And one analyst says that the value of Amazon Prime, if you unbundle it, is about $1,000 per user. So how can Amazon do all of this? How can it be the lowest cost retailer and give free shipping all while making money

or at least not losing a ton of it? The answer, as it turns out, is that, as we all know, there is no such thing as a free lunch. Consumers pay for the free shipping. You and I pay for free shipping. It's just we do it through a hidden tax baked into the price of what you buy by an extraordinarily clever scheme orchestrated by Amazon. And that's what the Federal Trade Commission and the 17 states are suing over. This hidden tax is well known in the industry. Here's Mike Beckham,

the CEO of Simple Modern, which is a very successful retailer. And he made that point in August, essentially knowing that the suit was going to come out in some form or fashion. So he says that Amazon should not have normalized the idea of free shipping. They would have won the market without it. Now they are forced to lean heavily on a hidden tax that drives up prices, aka advertising, because their unit economics don't work without it. What does that mean? All right. Most people think of Amazon as a retailer who sell to retail customers. That is what people think their business is. But retail end users, you and me, aren't really Amazon's customer. In fact, we are really Amazon's product. Amazon does, you know, yeah, they sell to us, but they are more of their business is that they operate as a middleman who sells access to us.

The actual customers of Amazon, the customers who provide Amazon's retail profit, are third-party businesses who rely on Amazon's infrastructure to get their wares to the public. Now, you can see in this picture that 60% of Amazon's products are not actually sold by Amazon, but are sold through Amazon by what are called third-party sellers. Now, in 2022, Amazon CEO Andy Jassy, who took over from Jeff Bezos, he said this explicitly. Quote, unquote, small and medium-sized sellers use Amazon not because of the e-commerce software Amazon provides, but, quote, because they get access to a few hundred million customers, end quote. There are extremely high switching costs if you are a third-party seller who sells whatever it is, sneakers, widgets, cups, to move from one online superstore to another. So Amazon and being an online retailer with a deep and rich selection is a business with really significant barriers to entry, and there are only a few players.

One result is that Amazon has an overwhelming share of online shoppers. It's a monopoly, which means that third-party sellers must either pay Amazon what it demands, or they lose access to the market. As one seller put it, quote, we have nowhere else to go and Amazon knows it, end quote. Now, as a third-party seller, you pay a lot of fees. You pay a fee for listing on Amazon. You pay a fee for using Amazon's warehouse services, known as fulfillment by Amazon. You also have to pay for advertising. What happens if you don't pay? Well, if you don't pay, you don't get put in a place on the site where consumers click. So this is one of the things the FTC noted. Advertised products on Amazon are, quote, 46 times more likely to be

clicked on when compared with products that are not advertised, end quote. So this actually makes the experience for consumers a lot worse. You've probably noticed in the last few years, Amazon, when you search for something, it's so full of pay-to-play ads that, you know, actually consumers are complaining that they can't really find organic results. They can't find the best product. They find the product that Amazon put in front of them, which is often higher cost and worse quality. It's a steering problem. As the FTC noted, one senior Amazon executive, quote, reportedly compared Amazon's advertising and search divisions to the parable of the scorpion and the frog. It was in the advertising division's nature as the proverbial scorpion to poison organic search results, end quote. And this actually

went all the way up to Jeff Bezos, and he said, yes, we want to distort our organic search results and make the extra many billions that that will bring in. Now, at this point, the price Amazon charges third-party sellers, who again are the real customers, has grown to nearly 50% of their revenue. That's what they call the take rate. It's one out of every $2 if you sell on Amazon. That's what you're giving to Amazon. And it is this money, which one group estimates at $123 billion in total revenue for Amazon last year, that pays for the free shipping, as well as Amazon Prime Video, its music service, Twitch, and everything else that comes bundled with Prime. Now, what do these third-party sellers do? Well, they in turn, and this is where the hidden tax comes in, they

raise their prices to consumers, aka you and me, and then they send that money back to Amazon in the form of fees. It's basically a giant money laundering scheme. Okay, so this leaves one reasonable question that a lot of people can have once you think through this scheme, which is, all right, so it's so expensive to go use Amazon, you have to raise your prices. Why can't you just go off Amazon and offer a lower price? Why can't you go to Walmart's marketplace? Or why can't you go to, you know, Target's or eBay's? Or why can't you set up your own website and do it? Well, this is a good question. And that's where the scheme gets clever. Originally, Amazon imposed contracts, as the FTC noted, barring all sellers from offering their goods for lower prices

anywhere else. So this was an anti-discounting measure. They said, you have to sell through Amazon at your lowest price, and you can't offer it anywhere for lower. Originally, they did this through contract. They just put it in contracts. But this seems really sketchy. And Europeans, as well as Senator Richard Blumenthal, complained about what are called price parity agreements. So Amazon dropped its explicit contractual requirements in 2019. However, the change was a farce. The firm simply did through code what it couldn't do through contract.

Amazon claims the FTC has implemented an algorithm for the express purpose of deterring other online stores from offering lower prices. But just weeks after dropping this requirement, Amazon wrote in an internal memo it would not change its policies. And today, Amazon tells sellers that if it detects a lower price on any other online store for their products, this is according to the FTC, they will be punished, which is to say their ability to get their products onto a place on the Amazon website where customers click will go away. And the net effect in aggregate on Amazon is that, and this is from Amazon's internal documents themselves, quote, prices will go up. Now, they won't just go up on Amazon. They will go up across and have gone up across the internet. Because remember, it's not just that they have to raise prices on Amazon. They're not allowed to discount those prices. And this was in the complaint as well. Indeed,

Amazon actually tells third-party sellers to raise prices. The Amazon VP of pricing once told a seller's account manager who complained, the seller was complaining that, you know, we can't afford to take our prices down on Amazon to match our own website because of all the fees. And the Amazon VP of pricing said to his account manager, he said, you know, go tell the seller, you may want to ask him to check if his sales on other sites directly or through distributors is putting him and us at a relative competitive disadvantage. He might get the hint. Smile emoji. The overall point is that Amazon is degrading the shopping experience, raising prices, and yet somehow still gaining market share. It's able to block third-party sellers from going elsewhere,

and therefore able to stop potential rivals from entering the market or from expanding in the market or investing in the market. It's a pretty strong complaint, and while antitrust cases are always random and they depend on the judge, Bill Baer, the former assistant attorney general for antitrust under the Obama administration, said it's a good argument. Quote, if the FTC and states can prove even some of the factual allegations in this 172-page complaint, he said, Amazon is in a world of hurt. Now, I want to note something else that I think matters. One of the more disturbing trends in antitrust and law in

general is how secretive courts have become about corporations, allowing corporations to hide their dirty laundry under the guise that it's competitively sensitive, whether it is or not. For instance, in the current Google antitrust trial, which is over the $2 trillion search firm's monopoly power, the secrecy ordered by the judge on what should be a public record is, according to the New York Times, quote, unprecedented. Similarly, the Amazon complaint is heavily redacted, largely because at this point, courts are highly deferential to what corporations claim are trade secrets. It was very different than the way it was in the 1990s when Microsoft

was brought to trial and there was a ton of stuff that was released. Now judges are very scared that anything that might embarrass a company might harm the market. This is a problem. So here are two elements in the Amazon complaint that are partly redacted that I think are important and hopefully we'll learn more in a few weeks or in a few months when the case, you know, some of this stuff might come out. The first is that Amazon, like Google, has been destroying documents and internal conversations relating to the case or seems to have. So Amazon executives systematically and intentionally redacted, redacted, redacted of the signal messaging app. Redacted, redacted, redacted, redacted of the Signal messaging app. Redacted, redacted, redacted, despite the plaintiff instructing Amazon not to do so.

The extent of the bad behavior is not clear, since the paragraph alleging wrongdoing is, well, redacted. But that seems pretty bad. The second secretive thing that we don't know, we don't know what it is, is something that the FTC calls, notes, it is an Amazon internal project called Project Nessie. It's an algorithmic pricing system so egregious that the FTC determined that it deserved its own legal charge as an unfair method of competition. So what is Project Nessie? We don't know, since nearly all of the information about it is redacted. But it looks bad. Now, a lot is going to come out in this Amazon trial. And Amazon is going to fight tooth and nail. You know, we're going to, who knows how it will resolve itself. It's going to take a while. But here's the thing. Because of this case,

because of the Google case, because of a whole bunch of cases that are now slamming into the court system, I don't think it's fair to say that our interest and our pressure in politics doesn't matter. I think it actually shows that what we do, what we carry out, what we pay attention to, what we advocate for does matter and that we do get responses from our politics. It's slow, but it's real. So here's an Axios reporter, Ashley Gold, making the point that things actually can change in politics for the positive. So she tweeted, if you would have told me in say 2018, that's just five years ago, that I would barely have time to cover all of the tech antitrust cases actually coming to fruition because the whole beat being so busy, I would

have laughed. What a time. Indeed, what a time. Thanks for watching this big breakdown on the Breaking Points channel. If you'd like to know more about big business and how our economy really works, you can sign up by going to the link in the description below for my market power focus newsletter, Big. Thanks and have a good one. I know a lot of cops. They get asked all the time, have you ever had to shoot your gun? Sometimes the answer is yes. But there's a company dedicated to a future

where the answer will always be no. This is Absolute Season 1, Taser Incorporated. I get right back there and it's bad. Listen to Absolute Season 1, Taser Incorporated, on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. I'm Clayton English. I'm Greg Glott. And this is Season 2 of the War on Drugs podcast. Yes, sir.

Last year, a lot of the problems of the drug war. This year, a lot of the biggest names in music and sports. This kind of starts that a little bit, man. We met them at their homes. We met them at their recording studios. Stories matter, and it brings a face to them. It makes it real. It really does.

It makes it real. Listen to new episodes of the War on Drugs podcast season two on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Here's the deal. We got to set ourselves up. See, retirement is the long game. We got to make moves and make them early. Set up goals. Don't worry about a setback. Just save up and stack up to reach them. Let's put ourselves in the right position. Pre-game to greater things. Start building your retirement plan at thisispreetirement.org

brought to you by AARP and the Ad Council. This is an iHeart Podcast.