The Trillionaire Mindset - 36: The REAL Cause of Inflation ft. David Dayen

Episode Date: June 3, 2022

Become an exclusive member at https://tmgstudios.tv Special guest David Dayen, author of Chain of Title, joins the Trillionaire Mindset this week. The trio discuss rampant inflation, the broken supply chain, and how we all might go about fixing it. If you listen on Apple Podcasts, go to: https://apple.co/trillionaire Go to https://hellofresh.com/trill16 and use code trill16 for up to 16 free meals AND 3 free gifts! Visit our exclusive link https://expressvpn.com/trill and you can get an extra 3 months FREE on a one-year package. https://expressvpn.com/trill to learn more. SUBSCRIBE to Trillionaire Mindset at https://www.youtube.com/trillionairemindset Trillionaire Highlights Channel: https://www.youtube.com/TrillionaireMindsetHighlights Trillionaire IG: https://www.instagram.com/trillionairepod Trillionaire Twitter: https://twitter.com/trillionairepod TMG Studios YouTube: https://www.youtube.com/tinymeatgang TMG Studios IG: https://www.instagram.com/realtmgstudios TMG Studios Twitter: https://twitter.com/realtmgstudios BEN https://www.instagram.com/bencahn/ https://twitter.com/Buncahn EMIL https://www.instagram.com/emilderosa/ https://twitter.com/emilderosa *DISCLOSURE: THE OPINIONS EXPRESSED IN THIS VIDEO ARE SOLELY THOSE OF THE PARTICIPANTS INVOLVED. THESE OPINIONS DO NOT REFLECT THE OPINIONS OF ANYONE ELSE. THIS IS NOT INVESTMENT ADVICE. THE VIEWER OF THE VIDEO IS RESPONSIBLE FOR CONSIDERING ANY INFORMATION CAREFULLY AND MAKING THEIR OWN DECISIONS TO BUY OR SELL OR HOLD ANY INVESTMENT. SOME OF THE CONTENT OF THIS VIDEO IS CONSIDERED TO BE SATIRE AND MAY NOT BE CONSIDERED FACTUAL AND SHOULD BE TAKEN IN SUCH LIGHT. THE COMMENTS MADE IN THIS VIDEO ARE FOR ENTERTAINMENT PURPOSES ONLY AND ARE NOT MEANT TO BE TAKEN LITERALLY.*

Oh man. Woo! Hooo! We just, uh, We're recording a little intro post interview. Yeah. We just had a very fun interview that you guys are about to watch. Yes, you are.

And it's a little different than what we normally do. Yeah, we're upside down. We're hanging upside down. We are hanging from the rafters this entire episode. It was a test in strength and dexterity. No, this was a, we had on David Dayin, who some listeners will know because we, or I talked about one of my favorite books,

it was Chain of Title about the 2008 housing crisis. And a lot of people have actually DMed me to say they read the book and they loved it. He is the executive editor of the American prospect, prospect.org, go check it out. But we are going pretty deep with him on kind of the economic situation. He's extremely knowledgeable.

Extremely cool. He's answering. Oh, such a cool guy. So handsome. Very handsome. You're going to love to look at him. And he's got tons of answers for us. We're talking about inflation, the supply chain crisis will it ever ease? Yeah. And he's just going super deep. We didn't even get to, you know, some of the things we wanted to talk about. We're going to, we're going to have to have him back because it was, uh, it was great. We both after we wrapped it up guys, we're just like, we want to keep talking. And we like, you know, I had to go into the bathroom

and splash water on myself because I'm all, it was very, uh, it was very nice. So stay tuned for that. We got, uh, we got that also not to, we can't forget Glenn. Hey, Glenn. Glenn's gonna be, we're gonna bring Glenn on soon. Oh, it's happening. Yeah. Oh, yeah, it's gonna happen. We're gonna get Glenn on via Zoom probably talk to him a little bit interview him. Yeah, it's gonna be great. So don't you want to tell people to check the, oh, yeah, So what you're gonna want to do is check the disclaimer. It's in the description box. You're going to click more. You're going to see it there.

You're going to read it. Does it even say see more though? Say see more. Button? It says see more button. And otherwise also you got to, what do people have to do? They got to subscribe. This is your daily reminder.

Daily. Or weekly reminder. Daily or weekly reminder. Hit me. Like, hit the like button as many times as you can. Make new accounts to hit it from new accounts. Subscribe. Oh, an important time to mention. We've got big stuff happening at 50K,

which we're inching towards. Yeah, on the YouTube channel, 50,000 subscribers, we're getting to smooch each other. 100,000, it is the partially nude calendar featuring Justin Meals penis. That's the only part that's partially nude. Sure, well, yeah, we'll see about that. So we're getting close.

And so yeah. We're at 30,000, 200 or something like that. 30.2, 30.3, So we're getting there real quickly. Keep doing that. If you are a David Dayin fan watching us for the first time. Hello. Hello. Good to see you.

This is perhaps the best finance-related, loosely related show out there, podcast out there. We get into some cookie stuff. loosely related show out there, podcast out there. We get into some cookie stuff. We get a little crazy. The most popular comment we get is this is hardly a finance show. And that's the way we like it. That's what makes it fun, baby.

Yeah, yeah, yeah, bitch. Yeah. So, oh, hey, I want to give a special shout out to my friend Patrick. Patrick, whoa, whoa, whoa, we don't do shout outs on this. Yes, we do. This is for my one of my oldest friends We met in the second grade when he moved across the street from me and we always fantasized about doing a string and can Situation from bedroom to bedroom. Make it ever did it. Couldn't do it too far too great a distance But he taught me how to cuss. Patrick, you taught me how to swear, so.

That's why, thank you. That's why you're giving him a shout out? No, because he said that he was listening to the show and that he listens to it regularly, and I said, Oh, you're so easy, man. Yeah, when people tell me that, I go, I don't care. I'll never mention you on the show. So many people asking me, hey, can I get a shout out?

One cannot ask for a shout out. Oh, okay, I like that. I never, I'm like, you have to earn it. You can't just ask for that. Constantly be going, okay, it cheapens it. Then I'd be going shout out to the zone, so low the, like. Yeah, but what did Jay-Z say? Close mouth, don't get fed.

That's, yeah, that's what he said. Because your mouth is closed and you can't make room for the food. Yeah, but it was in, unless you're taking an IV. It was in reference to don't, don't beg for it. No, but Kanye West was begging for it. He was advocating for himself. Oh, I thought they were friends.

Oh my God. So we're going to have a mail bag episode in two weeks. We're recording it next week. So go ahead and send your questions to TrillMindHotline at gmail.com. That's, heck, spelled out. We're gonna put a little graphic up so you can see it, but for the audio, Jesus, Ben. What?

You were good when David was here, there wasn't anything there was even a burp. Not a burp. So it goes to show you can hold it. Yeah. Okay. You can be on your best behavior when you're on camera. You just choose not to be.

Which is great. Sorry about that. But, so for the audio listener, if you want to ask us a question, all your burning questions, they can be about anything, really. Uh, financial stuff, political stuff. You got a heartbreak or, um, what else do people ask questions about? I don't know, all sorts of stuff. But also, please don't flood it with just like,

do that thing be hanging, because it makes it a pain in the end. We appreciate it and it's funny, but like, we're trying to dig through and get to, it's not only us, it's also our producers and you're making more work for our producers. Yeah, so if you have a question, they can be funny questions, but don't spam us.

Don't ask for a shout out, okay? And that's not like some backward invitation where it's gonna be cute where we get the email and go, they asked for a shout out. Ben, I have a feeling they're gonna do exactly what we don't want them to do. God damn, just, and that's fine. We'll dig through them for you, but we'd appreciate

if you didn't. Okay, so for the audio listener, you want to send us a question. That is T-R-I-L-L-M-I-N-D-H-O-T-L-I-N-E. Are you gonna spell Gmail too? At GMAAA. Wow. GMI. David Dayin, this is what you... GM.

Thank God we didn't do this in front of him. Yeah, Trill, trillmindhotline.gmail.com, send us your burning questions. Enjoy this episode. This should be the transition into it and for the after hours people, we'll see you in the after hours. So, hope you have a good weekend. Here's David Dayin.

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Bik! Bik! Bik! Bik! Bik! Bik! this morning. Does the prospect have offices? We have offices in DC, but since the pandemic, most of us have been going remote, and I have, you know, for a long time, even before that, I was going to DC like once a month, prior to the pandemic. Oh, so you didn't even live in DC before? No.

Okay. So since the pandemic, I've been back twice. I'm going next week, but yeah, I haven't been back very much. Yeah, we've done 11 issues of the magazine remotely, and that's the first time in the 30-year history that any of it has been done remotely. So we managed to figure this out. Yeah. So we're slowly shrinking our space in DC and therefore our rent. Right. How big is the team?

We have 14 people. Oh wow. I feel like we should give a proper intro to who we're talking to. This is David Dayin, the executive director of the American prospect. Executive editor. Executive editor. Executive editor, sorry, sorry, I already fucked it up. The executive editor of the American prospect, which is, I love, I'm a daily reader. You guys should check it out.

The prospect.org. Also, longtime listeners of the show will recognize his book, Chain of Title, which we've talked about. And people have reached out and said I love the book it's great he also wrote monopolized you can check that one out too well great I almost brought my copies to get signed but I was what have done it I was worried I would look like a like a nerd oh no fact the hairs flowing. Yeah, maybe maybe don't look bald at all. Oh come on Ben What are you doing to me? Thank you for hearing me when I first came in I just said hey nice to meet you Can you just tell him that he doesn't look he got a little close talk and he is just like look? This is all right. I got to do and I'm like I know that that was probably pretty jarring

Yeah, Ben said I'm gonna go cut him off. And I was like, I knew he did something stupid. You know what it is? We've been doing this show for, what is it now? Six, seven months. Yeah. And it wasn't used to seeing myself on camera so much. You see all these different angles

and you're like, it's coming on. Is that me? Yeah. So now you're self-conscious about things that you never were before. I started moisturizing, you know, getting a little older. I'm worried about my room. Well exfoliating.

Yeah, yeah, yeah. So the camera makes you self-conscious. But you're used to this. You've done a lot of show appearances. We saw that you were just on Sam's Sators show. Yeah, I do Sam a lot. Yeah. I mean, I was in TV for like 15 years before going into Journalism.

Wow. Wow. Yeah. How did I miss that? Nailier with the whole deal. In post. Oh, I was an editor. Oh, nice. For quite a long time.

I worked in post production too. Traylers. Yup. And I fucking hated it. You might know him from messing up the hotel transylvania 2 trailer. I do remember that. Imagine it. do remember that. Everyone knows that.

So they were just divided firing me. Oh man. So how did you transition from that to what you're currently doing? Well, there was these things called blogs. Yeah. And I remember the early 2000s. And I got interested in them and started my own. And it started off. I would bring my laptop for work.

And I would do a little work on editing. and then maybe do a little work on the blog. And pretty soon it was, I would mostly do work on the blog and maybe a little bit of editing. So it became clear that that was what I was more interested in. When was this the early on? Yeah, 2004 was when I started my first blog. And at that time, if you were writing about politics online, you're part of a pretty small group and you could move through the ranks pretty swiftly. Young journalists asked me, well, how do you get involved in journalism? I go, take a time machine, go back to 2003 and start a blog.

Yeah. Right. And now getting involved in politics or in journalism, rather, is just start substack. Yeah. Or start a blog. I mean, it's sort of come full circle with that. and politics or in journalism rather is just start sub-stack. Yeah, I mean, it's sort of come full circle with that, but there's so much noise, there's so many people doing it, it's harder to get noticed. Yeah, so it's a little more difficult.

Okay, so should we jump right into some of this stuff we wanted to talk to him about? Yeah, it's time for it. Okay, so I think we've talked about it a bunch on our show. It's top of people's mind because it's affecting everybody in the country. Things are more expensive. We want to talk about inflation.

Joe Biden just released an op-ed in the Wall Street Journal talking about his plan for inflation, which we will talk about. But before we even get to that, I want to talk about kind of what you believe is causing inflation, because a lot of people, there's different narratives, right? Some people are saying, you know, like Larry Summers, likes to say, it's, well, we, you know, we gave too much relief to ordinary people, and now their wages are too high because of a tight labor market. And four people have too much money.

Right. And they're fucking it up. They do. They do. Right. They went on that Christmas shopping spree and fucked up the whole supply chain. Yeah. Some people are saying it's a supply chain. Some are blaming it on corporate greed and price gouging.

But so what's the truth here? I mean, I don't think it's any one thing. But I mean, I think a few things are clear. The pandemic obviously was a major shift in terms of first production in China. They were just at the outset of the pandemic. There were fewer companies making their goods. Then there was this goods mishmatch. When America started hitting.

Obviously, you weren't going to bars, you weren't going to restaurants, but you had all this other income, especially because the government was pretty generous at that time. And so you were buying more goods rather than services. And so that mismatch led to a, a jump in the in the amount of goods that need to be transported from overseas and get to stores. And this hit a very long-standing lack of resilience within the way that our commerce system is structured. Such that any small increase in the imports that we need was going to overwhelm the system. And we knew this, and we knew this going back,

we did a special issue on this about the supply chain back in February. And one of the stories we did was about this memo that was written by the Federal Maritime Commission, this is the commission that oversees ports in the United States. And it was written in 2005. And this said, well, here are all of these factors, XYZ and Q, that are going to lead to an overwhelming situation at our ports, if there is an increase at any level

in the amount of imports that need to come in the country. And all of it came true. So we knew for well over a decade that if you increase because this thing was written actually in response to the expectation of more trade deals with Asia, like the Trans-Pacific Partnership and things like that. It might have been 2015, might not have been 2005, but anyway, it said, yeah, if we have more of this, we have these mega-ships that go around the world, only a few ports in the United States can even handle them

because they've gotten so big because of the consolidation of the industry. you ports in the United States can even handle them because they've gotten so big because of the consolidation of the industry. This is going to lead to bottlenecks, particularly at the port of Los Angeles and Long Beach, which 40% of all imports come in from. And we're going to have big problems. And it's going to be a supply shock to the system because we're simply not going to be able to get these goods out to stores, to online shoppers, where consumers can get a hold of them.

And that's exactly what happened. We have had a severe capacity restraint in the United States. There's more than one factor than simply our shipping and logistics systems. There's also the fact that a lot of managers assumed that there would be very low levels of demand for a going forward period. So they ordered less goods than they needed. And this was particularly true with respect to semiconductors. There was just an expectation

there wouldn't be a lot of cars that would be purchased in 2021 and 2022 and when demand actually rose up because we did a decent job of getting relief out to people, there weren't enough semiconductors to put in these autos and pretty much every car made now has a number of computer chips and things that need to make it run. So that led to a drastic shortage. But the sort of overriding thing behind all this, I think, is that for so many years now, we have had all of these factors, whether it was outsourcing and centralizing production in one part of the world, which magnifies disruptions when they come. Monopolization of key nodes, including in the shipping industry, where the top ocean carriers

is basically three alliances. Oh yeah, we want to cover that. Yeah, it's not three companies, but it's three conglomerations of companies that control pretty much all global shipping. They soared prices for taking a good from Asia to the United States, about tenfold from in the year 2021. You had deregulation of all these things that was intended to make things cheaper, but also created a lot of bottlenecks because there weren't enough people willing to do the

job at the low wages, for example, in trucking. There were demands of capacity, constraints to raise prices in the rail industry. That was sort of the role of financialization. And then there was this thing called just-in-time logistics, which is for several decades, companies said, what we wanna do is get the goods off the ship and get them into the stores

so that we don't have to hold onto them and buy warehouse space and waste money. We want to just get them off the ships, get them into the stores, get them into hands of people, and smooth this through make it as efficient as possible. Again, creating, whenever there's a disruption of getting the goods into the stores, there's no slack, there's no inventory, there's no space to get into the system. So all of these things created and introduced hidden risk into our production systems that was completely unprepared for something like a global pandemic. And so my view is that that is the primary driver of inflation in the US and around the world.

Because I mean, what we saw just this week is that Europe's rate of inflation is at 8.1 percent right here in the United States, we're at 8.3. So now they're starting to converge. Whereas the US historically has had higher inflation in Europe and certainly during this pandemic time has had a slightly higher inflation. A lot of that is due to energy prices spiking because of the war in Ukraine but that is just a capacity constraint of a different color, right? I mean, it's, you know, just as the pandemic created this supply crunch, so is the war, which is just another disruption that you can have, whether it's political unrest, climate

change, which created a lot of problems in the supply chain over the last year. The Yangtze River was shut down at one point in China, which was a real hampering on production at another stage. There was a heat wave there, and because of the way China's electricity system is conducted, they shut down factories because they were using too much electricity. So that was another supply constraint.

Our system is just very brittle, because there isn't any redundancy in it. There isn't any slack in it. Right. Joe Biden said, though, that this is all Putin's fault. Because I'm joking, I mean, there's some truth to that. Yeah, that's true. Obviously the invasion of Ukraine has created real problems in two areas.

One is energy and the other is food because Ukraine produced a lot of wheat. It was kind of the bread basket, particularly of Africa and a lot of other places around the world. And so what prices are we seeing rising more than anything else right now over the last three months? Food and energy. So there is certainly, I mean, you know, I guess Putin's price I kind of as messaging fell over like a lead balloon, but there is truth to. Sure. And then depending on who you ask, the Fed is responsible for all of it. And I fell into that camp, honestly, because I'm like, you inject all this liquidity into the markets and all of this, uh, print all this money. Right. I'm not one of those guys who...

I mean, I'm not... Because there's those Fed guys. I'm not one of them. I'm not saying that the hypothesis, which is pushed by people like Larry Summers and Jason Furman and Catherine Rampell of the Washington Post, I'm not saying that that is completely not a fact. Sure, but it's not the entire... But people who have studied it, a Federal Reserve analyst things like that

They can't find more than one or two points of inflation to be attributable to the overheating economy and overheating economy which by the way still has not reached levels on employment or growth at the pre-pandemic level right so What is this overhe what is this overheating? Is this one question you would ask? But you can't find a whole lot more than that. It's more of the mismatch, like there are more spending going to goods than services,

which is now starting to flatten out as people get back into the world after, not that the pandemic's over, but people think it is. So obviously we're seeing service spending going up. Yeah, and e-commerce sales just took a little dip. That was one thing, one graphic that we showed from Fred is that steady percentage of e-commerce is a percentage of retail sales. And then this big parabolic swipe up, and now it's kind of a tapering off. And that all needs more logistics, right?

If you're instead of sending stuff to a store, making people go to that store and take it home, if you are saying, okay, every single thing that you buy, we're gonna deliver directly to your door. And we're promising to do it in 24 or 48 hours. Yeah. Well, you need to get all the stuff over from, you know, where it's produced, mostly China. You need to get that stuff off of the docks onto rail cars. Sure. You need to get it into warehouses and you need to get that the warehouse goods into people's hands for

the last mile. And all of that is screwed. And that is the same. Like if you look at every single one of these industries, there are significant problems caused by deregulation, financialization, monopolization, and outsourcing and centralization and production. When you say financialization, what does that mean? Well, I mean, in the context, particularly of the rail industry, so Wall Street has dictated

the ways in which a lot of our production system runs. In the case of rail, there's this thing called precision rail, I don't remember the exact name, but it's something like precision rail structuring or something. And what they say is that we want to use less capacity because we want to reduce our labor costs, we want to reduce our maintenance costs, reduce those margins, reduce the margins. And what we saw during this supply crunch is, and they're only, you know, four major rail companies in the United States and two are in the east and two are in the west, so you really have two do-opolis. And during the pandemic, during this time of the supply

crunch, they were reducing capacity because they didn't have the manpower to actually run it. And that was a real factor of, I remember what the name is, precision scheduled rail roading, which was Wall Street explaining that we don't want you spending money on slack capacity, on redundancy, on extra opportunities in case of an increase in production and distribution. And this was a specific strategy mostly by investors placing that discipline. And we see this in other industries too, right? You see it in airlines, like with what they call capacity discipline, which is that everyone in the every seat has to be filled on that airplane.

We can cut routes, but every seat has to be filled, and that reduces slack within the system. Now obviously, airlines aren't transporting cargo, although they were a little bit during the pandemic, but the analogy to railroading is saying that you can't have any slack in the system. Well, goods increased by 20% that we have to get across. Well, tough. I mean, they're going to sit there. And they're in. We have our supply problem. Interesting. And so Larry Summers, with him blaming everything but the supply chain you had a fun article in the new york times about kind of talking about his hand in all this uh... can you explain that a little bit

wait for the uninitiated larry summers is he was a financial advisor with the clinton and obama administrations uh... it was the secretary of the treasury under cl and prior to that, he was under Secretary Freyner and National Finance. He was the head of the National Economic Council under Obama in the first term. And yes, and yeah, I mean, he, all of the things we've been talking about, monopolies, outsourcing, you know, I believe you guys called globalization. I think it was you guys who called it

the neoliberalization of the supply chain. Right. All of that, all of that Larry Summers championed when he was a top policy maker and responsible for making a lot of these decisions. So if he did that due to pressure from big well street interests, like what was his incentive?

Did he think that he was doing good? I mean, at one time it was explained to me by a pretty senior policymaker, progressive policymaker, that, you know, this person said, I get up every day worrying about the middle class. And Larry Summers and Timothy Geithner, who was Treasury Secretary under Obama, they wake up every morning worrying about Goldman Sachs. There was a belief that what's good for Goldman Sachs is good for the rest of the country. And these policies, these policies of neoliberalism, which were in large sense, architected by people

like Larry Summers, are seen as the best way to build growth, economic growth, and be the rising tide that lifts all boats. Also, I mean, that's their theory of the case. Can't they obscure it with saying, well, this keeps prices low. Everyone's happy when the price is low. Well, absolutely. I mean, that was the trade off. The trade off was we are going to hollow out the industrial base of this country.

We are going to deregulate all of these nodes of shipping and logistics. We are going to chase the lowest cost labor we can possibly find. And if it's in one part of the world, we're going to exploit ruthlessly that one part of the world. And yeah, in exchange, you're gonna get $5 toop socks at Walmart. I feel like, I feel dirty.

Like really. Wasn't there, there was a CEO, I'm blanking on who it was. He said that the ideal, Jack Welch, Jack Welch, G.A. said the ideal, the ideal manufacturing facility would, what G.A. said the ideal island, the ideal manufacturing facility would be on a barge. So I can move it to whatever country has the best deal for me with low labor and environmental cost. Hell yeah, beautiful. Yes. And so that

was the dominant philosophy of both parties really, from the Clinton years on up. And so if we're talking about inflation and who's the cause of it, Larry Summers should step up and say, I'm the cause of it. I'm one of the cause. It's much easier to say it's those goddamn working people. Oh, it is the working people who want to fight

on a tube socks, but it's a challenge to Larry Summers. Get your ass on this show. We got a bone to pick pencil neck, you fucker. Anyway, so yeah, I mean, and now he is out there saying an a bit of coded language that wages have to go down and unemployment has to go up. And that's I mean, the the way in which the federal something something like the Federal Reserve deals their monetary policy to fight inflation is they raise interest rates. That's a very kind of anodine way of saying, you know, what is that supposed to do, right?

You raise interest rates. You're supposed to make it more costly to invest and to run a business. Therefore, those businesses will not grow and layoff workers. Those workers will have less discretionary income and also be more costly for those workers to borrow or those ordinary people to borrow, whether it's in mortgage markets or personal loans, and everyone will have less money, and then demand will come down to a level that's commensurate with supply. So this is a deliberate policy of demand destruction. The last time that we had a serious effort from the Federal

Reserve to tame inflation was in the 1980s and it was Paul Volcker. The Volcker shock. And Paul Volcker in a congressional session said and was very honest about it, the living standards of the average American must go down. That was his plan to fight inflation. It's the same plan being used today only they don't say it so directly. They come close. I mean, Larry Summers has said, we need lower wage growth. We need lower, you know, we can't have an unemployment market or an employment market that is this tight.

But if you sort of dig into exactly what he's saying, what he's saying is you can't have unemployment rates under 4% with, it's not acceptable with inflation above 4%. And what he's really saying is more people need to be unemployed. Right? So even, but even the Fed is, they're trying to tell this line of, we're aiming for a soft landing, I think, which is a noble idea, but what nobody has been able

It's a noble idea, but what nobody has been able to tell me is how will raising interest rates and the war in Ukraine, which is responsible for this supply constraint that is shooting up energy prices that frankly is the major component of inflation right now. I wanted to ask you. Do you have an answer for that? No. Because there isn't one. Right. Poison bite. How will raising interest rates and the lockdowns in China that are stopping production? Right. You seem to be fighting a supply problem by totally crushing demand, and that will probably work, but we're all going to be collateral damage.

Yes. A couple of things. I really want to dig into just how much influence Wall Street increasingly has had over the past couple of decades, just lording over everyone's lives. And part of that is due to the increase in people passively investing in index funds and their 401k's and stuff. So it's in everybody's best interest now for stocks to stay high. So Goldman Sachs kind of won in that sense because they kind of got what they wanted. Now we're all, this is us on the teat, you know?

My juicy rack. Hey, it's your fault. you said you would come on here. So, but the other thing was energy prices, gas prices being so high, it feels like there could be so much more done state side that is outside of Putin and the war in Ukraine. Because it... Can you touch on that about how the oil companies are just so fucking greedy and how... Because I'm very...

Well, this is very interesting and it plays into your point about Wall Street because that's actually what's really going on here. So, in the wake of us cutting off Russian oil supplies and obviously oil prices spiking during the Ukraine war one of the Options that has been put out there is that well why don't these domestic oil companies which have been You know, we're supposed to be a net exporter of Of energy at this point Why don't they just raise production and and everything will be fine We're supposed to be a net exporter of energy at this point.

Why don't they just raise production and everything will be fine. It'll compensate for Russian oil losses of which we don't even use that much. We use like 5% of total US resources from Russia. Why don't we do that? Well, what happened was that over the decade when sort of the fracking boom occurred, more and more money was put into fracking, to more exploration, more investment, finding more fields, and there was a very boom and bust cycle. And the money that was used for the revenues that were gained from actually producing oil

did not go to investors. They went to more and more, they went to more and more capital expenditures. And investors weren't happy about this, especially after at the beginning of the pandemic. You might remember when oil prices went negative for a little while. Everybody lost out, there was this huge bust out,

and a lot of consolidation in that industry, but investors made the decision at that point that okay, when this market rebounds, we're not gonna be that stupid anymore. And what they mean by not being that stupid is that you're not going to invest anymore in more production. We are going to keep prices high so that we can get dividends and buybacks out of it. And we do not want to see major capital expenditures in U.S US domestic oil production.

And so when the prices rose, you have all of these like investor calls with major oil companies, major fracking companies, domestic oil producers who say, well, our investors won't let us produce more. We're not going to do it or else our stock would go down. And you know, the ways in which CEO compensation and stock price are inextricably linked. So out of the stock performance, the better your performance package. Exactly. So we are in a situation now where Wall Street essentially is saying that you're not allowed to produce any more oil. You're going to keep your production flat.

We're not going to do more investment and prices are going to stay high, but those are the breaks. Is there anything the government can do to just say, fuck your dividends, fuck all of this, the American people are suffering. This is insane. Right. We all see the stickers of people putting things on that's with Joe Biden saying, I did that. Because I've been in a roundabout way,

it's kind of his fault because like stand up to these companies. Right. Is there anything that can probably be done? Well, I mean, it is a difficult scenario. Sure. When you're in government, it's not like government can force oil companies to produce.

You know, the nature of the market is going to be that then a lot of investors withdraw funds. There are some things that can be done. They're a little technical, a little wonky around the strategic petroleum reserve. You could sort of use that as a market signal and say to oil companies. Well, we just let out all this oil from the Strategic

Petroleum Reserve. We're going to refill it, and we will give you a guaranteed high price for that refilling. But only if you produce enough so that we can get that back. You can create this market out of the SPR. There's a group called Employee America that has done some work on this. And it could work. The release of the money doesn't have as much impact if you don't have an advanced market commitment and say yes, when it, when, you know, make more and we will buy it and we will give you a floor under your prices so that, you know, presumably at that point investors are saying, okay, well, we know we're going to make back

this money. The revenues are going to be high and, okay, go ahead and produce and, and, and we'll allow it. Well, let's get into some of the things I can practically be done because we've been reading Joe Biden's domestic terrorism. Ben, come on, we have a guest. So we're huge Timothy McVeigh in. Or not Timothy McVeigh. What's the other guy? The guy who lived in the...

The Unibomber? Yes, the Unibomber. We're not. Oh my god. The U.S. Ted Gessinski. Ted Gessinski. Thank you. We're gonna put him back there. Uh, so Biden laid out his plan in this op-ed, which is not much of a plan at all. He kind of... I mean, it's not a plan. He said, you know, I think the Fed can do it at once.

Right. His first plan was I'm not gonna... And then everything else are things that Congress would have to pass and you know how could his Congress at passing right so good so he's gonna leave the Fed to do it and he hopes that Congress will do something about it and so just with that you know how much should how frustrated should we be with the Fed I mean I don't you know they're the only ones we're giving any responsibility to it I mean that's don't, you know, they're the only ones we're giving any responsibility to it. I mean, that's the problem. So, and what, what does Fed, the Fed have? It has a big button. Yeah. It says up or down on interest rates, it's a very brute force, right, way to manage inflation.

They don't have a whole lot of other options. And so that's what they're doing. The book says, if there's high inflation, you raise the interest rate, and that'll fix everything. So they're going by the book. I think there are some other things that can be done. Through the Fed? No, by the Biden administration, through administrative policy,

cracking down on these exorbitant shipping fees. And the Biden administration to its credit has said that they they're interested in doing that. There was more money made in 2021 by this conglomerate, the set of three shipping alliances. They made more money in 2021 than they did in the years 2010 to 2020 combined. Good God. In one year, they made in one year more than a decade than the previous decade. And the first quarter of this year, they were on an even higher trajectory, made $60 billion

in the first quarter of this year, the shipping industry. Wow. And so a lot of that money is coming in because the spot rates are very high. Everybody wants to sell their goods. Everyone wants to move their goods. And so supply and demand the rates go up. But some of it is because they lard on these different fees onto cargo owners. So we have these clogged ports, for example, right? They have these

things, I think the specific name is called Demurage and Detention Fees, but I will just explain what the fees actually are. I like ticket master fees. It's kind of. I mean, so what they say is, well, we're going to charge you the cargo owner of fee until you get your stuff off the port. Now your stuff is stacked under 17 containers and you can't physically get it off the port, but you're going to be charged of fee until it goes away. And the shipping companies get that. Same with the containers. They charge a fee for the shipping container to get back to where it needs to be. And their justification is that there's so much demand for these containers. Hey, we can't send it out because you're using it.

So we're going to charge you a fee. Meanwhile, the containers also are stacked. Sure. There's no way to get the container out, but they're charging you a fee to get the container out. So there is an effort to look at those demerition detention fees, to look at contracts, how shipping companies are raising rates, and I think that could have some impact. And the other administration can do that without... Well, it's part of their oversight function, yes. There is actually a bill called the Ocean Shipping Reform Act that would give more teeth

to the regulators. It passed, not many things do this, but it passed the House with well over 350 votes. And it passed the Senate by voice vote. It's now part of a larger bill that they're being negotiated in Congress, but it could pass within the next month or two. And so then the regulators would get additional authorities there. Another thing that can be done, the angle we haven't talked about, which is this sort of corporate greed angle, which I

do think is responsible for at least some of the things that are going on. You see these companies on conference calls say, this is great. We can raise prices as high as we want. And nobody, the consumers keeps coming to us because there's a lack of competition in the industry. And if you have a basic good that everybody needs,

you can raise those prices and people aren't as price sensitive to it. You can do things with the antitrust authorities to crack down on that, particularly in the meat packing industry where meat has been the main driver of food price inflation. Some of that is because meat-packing plants were shut down during the pandemic, because of large incidences of COVID. But a lot of is because we don't have enough meat-packing plants plant and there are like three companies

that control 80% of all beef and 70% of all pork processing. And there's this bottleneck there, this narrowing effect. I'm starting to sense it's trend. Yeah. And they're actually buying very low from ranchers, the raw material, the actual cattle and hogs and things like that, but they're selling very high to groceries and capturing the spread. And when Biden actually started talking about this at the beginning of this year, you

saw that spread drop a little bit. So it was even just the bully pulpit and just calling this out had an effect. And a proper regulatory action. They're doing some things with regulations at the U.S. Department of Agriculture to crack down on, you know, unfair competition in the industry and things like that. That could also have an effect. What about something like an excess profits tax? Well, I don't think it's going to pass. It's certainly something that has been introduced and we called for it actually in March of 2020,

like right after the beginning of the pandemic, we had a piece by a law professor at the University of Michigan who said, it's time for an excess profit tax. We had one after World War I and World War Two. In March of 2020. Yeah, that's when we just kind of saw what was coming. Yeah, exactly. You get a good at that. I mean, I read the supply, not I didn't get the physical issue,

but all of the pieces online, the supply chain stuff, and you guys were talking about how this is going to continue until these supply chains are fixed and made less precarious. And the prospect.org slash supply chain. It's made less precarious. And now, and I'm going to – Prospect.org slash supply chain. If you want to say that. It's great. But we continue to see these things, even as people were saying, oh, the supply chain is going to start to ease.

It was just this pandemic crush. And now we're seeing it with very important things like the baby formula shortage. Yeah, which is a whole other story in and of itself. Can I ask you a question about that the way that market is struck? So that is something that Those baby because I think it was one plant in Michigan. Sturgis, mr. So that is something we are not Reliant on for overseas There's no overseas production, but there's very centralized production

So that plant that you talk about that Abbott Labs put together in Sturgis, Michigan, is responsible for about 20% of the total baby formula supply in the United States. One plant. So when that plant goes down, we have a problem. And the way that the market is structured is the main problem here. So, they're about four, but there really are two main infant formula companies that serve the United States. There's Abbott, which is a big conglomerate

that makes medical devices, COVID tests, and they make a similar, which is a main brand. And then you have Enfamil, which is made by a company called Mead Johnson, but its parent company is Wreckit Ben Kaiser, which is a UK-based conglomerate that is mainly known for making Lysol. So these are not the main kind of functions

of these giant companies. It's like, yeah, and we also make formula that keeps infants alive. Yeah, it's a little side-light for us. It's a nice market. So two thirds of all baby formula in the United States is made by either Abbott or Reckett. There's a little bit by Nestle

and a little bit by a company called Parago, which makes store brands like the generic brand. The cheap stuff. Yeah. So dumb baby. I'm sure it's fine. It meets all FDA guidelines. Well, they're not the sponsor of the show.

Yeah, I mean, really, it was the Abbott one that was the problem, right? Because they had the lab that had bacteria all over the place and apparently four children got very sick and two died and that's why there was a shutdown, a recall in February, a shutdown of that lab. But the bigger problem is this. So about half of all infant formula is sold

through something called the Women Infants in Children Program or WIC. And this is a government program that allows poor families to access nutrition and in particular baby formula. And here's the way they do it. Each state has a WIC program, and they say, okay, because the formula, it's like food stamps, the parents get it for free,

but the WIC programs in the states contract with one company, and they say, if you give us this WIC formula at a severe discount, we will give you market exclusivity. In other words, the parents, the families in that particular state can only buy that company's product if they want to use the WIC program. So it's a competitive bidding process and they go through this bidding

with their only a few bidders, but the winner gets market exclusivity. Because that is half the market for formula entirely, what happens in the WIC market also spills over into the non-WIC market, and you have these mini monopolies in 50 states across the country, and 34 of the 50 states contract with Abbott as their one main supplier for the WIC program. And what we see is that whenever a company has that WIC contract, they pretty much dominate the rest of the market too. And it makes sense, like if you're the other company, WIC, and you want to put your stuff in Tennessee. And you know that half of all people in Tennessee who are going to be buying that product

can't buy your product. Were you going to put a lot of stuff on the shelves in Tennessee? Why would you? It's going to be the contaminated ones to play with it. Ship it off to them. Anyway, it's going to sit there. So we see this. So California recently changed their supplier.

They went from Abbott to Reckott. And prior to that, Abbott had like 95% of the baby food formula market in California. And Reckott had about 5%. And then after they shifted, it totally changed. Reckott has 90% of the market and Abbot has about 5 or 10. So we have these mini monopolies and then Abbot shuts down one of its main facilities.

Well, guess what happens? In the states where Abbot was the dominant player, all of a sudden there are these huge shortages. It's called a nationwide shortage, but the main shortages are in those states where Abbott was the dominant company. Right, got it. So, yeah. So even in domestic production, we have these same things plaguing us of centralization.

Yeah, I mean, it's about the centralization of the market, really. You know, I mean, when you have these things that are Majority made globally you get other factors you have to go through shipping and you have to go through some other other nodes but The the whole point is is it's kind of the same if you have centralized production in one part One one one factory one plant one part of the world. And there's a disruption, a shock, whether it's a recall, whether it's a hurricane, whether it's COVID, whether it's a war, that disruption is going to be

magnified. You're going to have bigger problems if there's a disruption there. But it's like Wall Street has decided that those supply chain shocks are worth the risk because they, through whatever, you know, their actuarial numbers dictate that those shocks are so infrequent and so unlikely that the good margins that they get otherwise during the good times are just worth it.

There's an interesting analogy to the Ford Pinto. So in the 1970s, Ford was making this car the Pinto and they learned that if you hit the bumper, it would blow up. So, right. It sounds bad for a car company, but they did a secret report and they looked at this and the report came back with this recommendation. It would cost more to retool our assembly line

to make it so that if you hit the bumper of this car, it wouldn't blow up. It would be cheaper for us on the handful of times that things blow up, that we just pay off the families and we compensate everybody. That would be cheaper for us. So on a cost-benefit basis, don't fix the car. That's just good business, David. It's great.

It's the bottom line. This is making me. And so we have the Ford Pintoization of the entire US economy, where we're going to put this risk into the system, and we're going to hope that this risk doesn't happen very often, and we'll handle it when it does. But overall, it's cheaper for us and more profitable for us if we do it this way. And so that's what's happened. Oh yeah, I mean, there's so many examples we talked about Boeing a little bit on our show,

which I mean, devastating to me, because I'm a big Boeing fan, not the company, but like airplanes. Right, I'm a little, you know, and I just love them. And I love Boeing, if I'm Boeing, I ain't going. It seems like a common theme in our... Yeah, I mean, we did a great piece last year

about Boeing by a colleague of mine about, it was the same kind of thing. I mean, they hammered down those costs on the 737 Max and they sort of, they didn't want to submit it to further testing. And so they buried the changes in a handbook somewhere where the pilots couldn't find it really. And there was a culture of, the culture had shifted from like being proud

of the engineering and... That's right. QC, every last little detail, to you had these people on the... Two of us in the classroom. Two of us in the classroom. Yeah,, just saying like they were scared if they raised any red flags, their superiors would be like, shut the fuck up, you're going to slow down. Absolutely right. They went

from an engineering mindset to a bean counter mindset. Now, I think I know the bean counter. I think I know the answer to this, but has there been, has, have any corporations learn their lesson from all this yet? Every, no, no, but, look, look, I mean, I mean, you laugh, but, but more than you would think is the answer. Right, because I mean, I think for a time,

there was, if, if there was a, you know, maybe a, some kind of climate event, they were like, oh, well, there's a shortage due to whatever, but now I think there's a lot of pain in ways they didn't come in. I mean, what businesses don't like more than anything is uncertainty. And the fact that they can order a bunch of goods

from China and have no idea when they're ever going to show up, that's a lot of uncertainty. And so you are seeing shifts, I mean, they're not widespread shifts yet, but you are seeing shifts to a little more domestic production, particularly of critical goods, things like semiconductors. We're seeing more semiconductor investments in the United States for domestic production, Intel did a factory in Ohio. It's going to be a couple of years. Isn't there going to be one in being up in Georgia too? One in Georgia is one in Ohio. It's gonna be a couple of years that I'm just gonna be- Isn't there gonna be one in Ben-Up? In Georgia too?

One in Georgia's, one in Arizona. I believe in Texas, Samsung as one. Yeah, that's years out. Yeah, it's gonna take a couple of years to actually get the fabrication. Okay, but that's good. So it's up. You're starting to see more of a mindset

saying instead of just in time, we need just in case. We need to be more redundant. We need more warehouse space. more of an inventory that we can draw from. We love it. But, I mean, you're seeing that in the moment, but the business world tends to have short-term memories, right?

And so we're actually starting to see because there's been this shift both because of rising interest rates and also people moving back into the world. We're starting to see a shift away from goods and back toward services. And there's a thing in logistics called the bull whip effect. And what it means is that there are a lot of people coming at the store looking for stuff.

So you order a bunch of goods and you keep ordering them and you keep ordering them. And maybe you double order them just in case because people are coming into the store. And it takes a while for that bull whip to cock back. It takes a while to get the goods produced, get them over on the ship, get them here. By the time they get here, everybody's gone.

Target just famously had that in their earnings, they've got this build up of inventory. So that's the bull whip effect. So suddenly you go from a supply shortage to a supply glut. And by the way, that's a function of the uncertainty of the supply chain. I mean, it's the same problem. So, you know, in the event of that, now that people are saying, oh, we have all these

goods. Now, we're going to have to do the exact opposite again. We'll have to, you know, get back to Justin Time and get rid of these warehouses. Shut down the warehouse. Yeah. And why are the people still everything out? So I do think there's been a shift in mentality, but the question is whether it will stay I don't know, I don't know. I don't know. I don't know. I don't know. I don't know.

I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know.

I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know.

I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. on that note, is there, I mean, let's be honest, there's no hope for any of us. But no, no, no, look, I don't know. In an existential sense, you are, you know, you're older than you've ever been. Yeah. I want to say, thanks for reminding me. One of the reasons I'm such a fan of your reporting is that, like, yes, in a world

that feels so hopeless, the reporting at the prospect can often be prescriptive. And because sometimes I get caught in those feedback loops of, you know, we watch the news, and, you know, we're joking here about the hopelessness and this awful system we've built for ourselves, but it's important to remember that you can stay engaged in there are things to do. I mean, it's easy to say you're fucked.

I mean, that's the sort of, and also, you know, not to be conspiratorial, but that's what they want you to think. What do they think you're to do? Yes, exactly. I say that as a charter member. There is, you want to be, they want an alienated public, right? To not act on these things, not being gauged with these things. So, yes, I mean, there are possibilities.

Our next issue coming out, we just dropped the cover story this week, which is called Afterhypriclovalization. My colleague Bob Cutner wrote this great piece about, you know, what is the new system going to look like? We've seen this system has broken down. Of the very stretched thin supply chains. Thin supply chains, reliance on unfriendly companies or countries. So what does it look like after that? There's a real debate happening around that, both within the abide administration

and in the business community. And so there are opportunities here, and it does require the public to get involved and speak out. Yeah, we don't care about $5, tube suck, God damn it, we want living wages. I'll wait five days to get my two thumbs. We don't have time to talk about it,

but it does feel like Americans maybe think of themselves more as consumers than workers. And that's the problem. We're more than our Amazon prime accounts. And these things, chasing consumer welfare, which is the standard by which mergers are judged currently, saying that as long as it's cheap and can get to me soon, cheap and convenient, that's all I need.

That has created, in many ways, a lot of the crises that we're facing right now. And so we need to think of ourselves as workers, entrepreneurs as small businesses and as citizens in a democracy. And our economic system needs to work for us. I mean, one thing I say a lot is that there's no such thing as deregulation. There's either regulation of markets that is done through democratic processes by representatives of the people or you're going to have regulation in the corporate boardroom.

They're going to structure the market to their benefit and they're not going to care about you. And so that's the choice that we always have to make. Either we're going to say we're going to have to make either either we're going to say We're gonna have a democratic process and we're gonna regulate these Economic structures in the interest of everybody or they're gonna be Structured in the interest of Jamie Diamond right Joe Biden save us Please you're only hope

He'll do it. He'll save us. Well, we'll see. He'll wake up and do you think you even typed that? I can't. I can't. I can't think about that. Who actually wrote this op-ed? It was some kid. Well, obviously speech writers do those things, but don't sleep on on Biden. I'm sure he's got some burner accounts out there. He's an online troll. I could see him doing that for a chain poster. Well, so is there anything you want to plug? I feel like I've done a pretty good job pushing your... Yes, we follow you on Instagram. I'm not on Instagram. Good for you. The prospect is. So prospect.org, that's the American Prospect website. We have a magazine that goes out in print, did tree additions six times a year, but every day, that's what I call it.

But every day there's a new stuff at the website. I'm on Twitter at D-Day and D-D-A-Y-E-N and follow me, follow the rest of our writers and our staff, and you know, check us out. We're never dulled moment. There's a ton of great stuff on there. Like, it truly had so much stuff I wanted to talk about. If you guys go on there, check out one of my favorite ones was the day one agenda.

It was one of my favorite things you were talking about. We'll have Monika. We'll have Davi back, because that was one of the, yeah, I think one of the coolest pieces. But check that out if you head over to the prospect. Should we have him say that our, no, no, no, no, I'll do that. Okay, we'll do that.

We have a phrase, a catch phrase that was born of multiple episodes, different memes, it's kill your parents, quit your job, shoot your pants. Well, it sounds like you said it. It does sound like I said it. It doesn't sense if you've seen all the episodes, but outside without context, it's it. My dad died. I quit my, I got, my dad died. I got fired and I accidentally shit myself one time a little bit.

There's some, there's three things that you know about me. So David, is that your dating game profile? Oh yeah, I thought I'd on Tinder. But I'm just eating it up. Christ, thank you so much for coming by. You've been a very, very great guest. We really appreciate it. Yeah, thank you for this.

Thanks for having me. Appreciate it. Bye, everyone. This week on After Hours, I am officially a tie-dass. I honestly don't even remember what the fuck was wrong with my ass. We've got your shit. Deb, can we go back to my ass? Computer, funny video, please.

Can you Google Spaghetti? Google Spaghetti! Google Spaghetti! And I'll give you my mom. episode.