From railroads to plastic bags to semiconductors to ice cream, Wall Street and monopolists are creating shortages and exploiting them.
Thanks Matt for the best explanations I've read anywhere for what's going on and a framework for how to understand it. Your book is a must read for how we got here and exactly comports with my 67 years of watching this mess unfold.
I'm a retired physician in a medium sized rural red state town and, as happens, live in a neighborhood populated with well-off folks from a variety of careers. Tragically they all (ALL) view the world in terms of how great their wall street retirement funds are doing and can't see past it - and will only vote for more of it. Or it's their offspring benefitting from same. And me bringing this issue up just sets hair on fire.
I have no idea how, short of collapse, the country will find our way out of this when the top 10% refuse to change the system geared toward them and is more than enough to run the system more or less completely. Even more tragically they don't need the money but can't wean themselves from the greed.
And no, we don't participate in Wall Street and live just fine.
Sorry, I can't help myself. Another very interesting example of monopolistic practices disrupting supply chains can be found in the ground handling industry at major airports.
Ground handling consists of two components: ramp handlers and CFS/GHA's. Ramp handlers execute the physical loading and offloading of cargo into and out of the planes. The Ground Handling Agents process the phase immediately prior to this, which is the receipt of cargo from semi trucks into a ramp-side warehouse, then screening and building the Unit Load Devices.
A single ramp handler, Shanghai International Airport Services, provides services for 17 international airlines at PVG. A single employee at SIAS tested positive for COVID-19 last month. The entire workforce, over 200 people, was subsequently forced into quarantine. With no other firms able to handle planeside cargo loading, 50-60% of available airfreight capacity into PVG was taken offline in a single week, as these airlines redirected planes into alternative ports.
Rates tripled in 2 days. The situation has normalized somewhat in recent days, but it was a massively significant disruption that profoundly impacted airfreight flows into and out of Shanghai for several weeks. It very simply went ignored in the mainstream press.
This sort of thing happens all the time, it's a different mini-crisis every quarter.
Why isn't more being made about the connection between the pandemic shortage of hospital beds and consolidation? Hospitals all over are issuing press releases about Covid-19 related ICU crunches...but when I dig in I keep seeing sentences like this: “The average pediatric I.C.U. in the U.S. has 12 beds...In a system that small, even a few patients can quickly overrun the capacity." I don't at all mean to minimize rise of Covid cases, but so much of the story right now is about hospitals running out of beds -- when it seems to me they were already operating at or close to capacity pre-Covid, thanks to consolidation and hedge fund acquisitions.
One that seems like a small thing except it effects millions of people is that canning jar lids are in scarce supply at retailers. You can buy them online lids only, however you can only buy them at retailers if they come with rings or with jars adding to the cost and the wasteful duplication of the lids and jars canners already have.
This is very true. Here in New Zealand, most big organizations are monopolies, duopolies or oligarchies. This is why when there is lockdown, the supply chain disruption is particularly acute and while the profits go to a select group, the pressure to deliver also increases. These structures also reduce the ability of the government (assuming they can think about it or want to do it) to impose "smart" lockdowns. If often think about courier delivery during these times. If this sector was opened up to individual drivers (instead of 1-3 main corporate players) so many non-contact e-commerce activities could've been carried on in lockdown. Of course lockdows are neither the norm nor a particularly agile way to deal with issues but they do magnify counterfeit capitalism (love the term).
This is an awesome article
Your articles are sooo good. They're well written (just like Goliath is...hint hint to other subscribers...) and expose a part of society I was as blind to as the economists you described.
Your substack is also dynamite b/c of the caliber of your readership- the comments here are thoughtful, and disagreements are civil rather than polemic.
Reminds me of news clips of the Soviet Union - shortages and bread lines. But that was communism and this is capitalism. Thanks to Wall Street, most of the supply chains are now in mainland China which is communist, so maybe not that surprising. Capitalism deserves credit for communizing the supply chains but they also deserve credit for the monopolies and the bottlenecks. Communism unintentionally creates bottlenecks (through inefficiency and corruption), capitalism creates bottlenecks intentionally (because they are profitable). Capitalism is more efficient so it creates more and worse bottlenecks. To the average worker or consumer there is no difference between capitalism and communism, capitalism has lost the advantage it once had. The wallstreeters know they are no better than communists but they just don't give a fuck anymore.
I'm a big fan of the free market, but not of capitalism anymore, the two things are complete opposites. The free market allows honest hard working innovators to succeed. Capitalism, on the other hand, allows lazy rich dumb people to drive those honest hard working innovators out of business, just like communism.
Its time to stop waiting for capitalism to fix itself. Greedy people are WORSE than the rest of us at self-regulation, it was a stupid idea.
New bicycles are on back order 7 to 9 mths here in Michigan, suburbs of Detroit. Merchants can’t explain why.
I am a logistics professional. My specialty is international air cargo. I work for a very large ($20 billion+ market cap) freight forwarder with very advanced transportation software, so I have pretty decent visibility on the flow of freight across different trade lanes.
I really love this newsletter. If any readers are curious to learn more about the supply chain bottlenecks Mr. Stoller references, feel free to AMA. I see a lot of them first hand, across multiple commodities on multiple trade lanes. I'm pretty small fry personally, but maybe I can help elucidate even a little bit.
Incidentally, we use a sort of "Keurig shortage" in the freight forwarding game. The specific mechanism is a digital communication protocol called EDI - Electronic Data Interchange. It connects our Transportation Management Software directly to the ERP used by our clients. So the data generated by the shipments we handle is uploaded directly into the software our clients use to structure their supply chains and plan their order flow. Building an EDI connection is expensive and time consuming, so only the larger forwarders can invest in the required tech and personnel. Once the EDI connection has been established, our clients' supply chains planning (both upstream and downstream from the shipping phase) becomes dependent upon the data generated by this linkage, making it very difficult to switch to a different logistics provider.
Great read, Matt. Knowledge is power right?!!……right?
Uber and Lyft are bad examples of the forces at work. While taxis in D.C. might have been fine, that was not the case in many (most?) other cities. This was due to another monopoly - on medallions. This led to a massive shortage of taxis versus what was needed, an increase in prices, and terrible service. And then those monopolized medallions moved into the hands of monopoly owners. It was literally impossible to get a cab at rush hour in NY. When I needed to get to the airport for a flight, I had to pre-book a car service - you had no choice.
To be sure, the monopolists are doing what they do best. But what of 'we the people,' the ones who happily grab those Ubers when the price is right, then bemoan what 'they' (Uber and the evil monopolists) did to those nice middle-class taxi cab jobs we too happily stopped supporting. Truth be told, we didn't notice - or care - until the lines for those Ubers got awfully long, just as we didn't notice or care when gobs of other middle-class jobs got wiped out by the monopolists until we couldn't find toilet paper or cat food.
Great article. Was expecting an image of an almost empty set of shelves save some cheerios.
You know I may just have to read this Goliath book of yours at some point. I'll try not to get Gladwell's book by accident. :)
Matt, outstanding article! For me, this and many of your past articles, are important, not to mention highly informative. Great job!!!!
Fine piece, thank you. But is Larry Summers worthy of attribution? Is he a sage or an alleged predatory lender? https://prospect.org/economy/larry-summers-holds-positions-with-numerous-financial-bottom-feeders/ Oh, he is also an ex-Obama advisor.
Appreciate your fine work.