S1: Quick update, after we recorded this show, Ken Griffin, the hedge fund billionaire, came out and announced that he was the person who had bought and guaranteed the Constitution. Of course, he knew how to outbid some unruly group of 17000 crypto people. Hello and welcome to the arriving to day episode of Sleep Money, your guide to the business and finance news of the week, I’m Felix Salmon of Axios. I’m here with Stacy-Marie Ishmael of Bloomberg. Hello, and Emily Peck of fundraise. Hi, and wonderfully Christopher Mims of The Wall Street Journal. Chris, welcome to the show. Who are you and why are you on this show?
S2: I met you at a party. That’s why I’m here. No, that’s true. I mean, technology columnist and history and technology columnist, The Wall Street Journal and I wrote a book about how everything gets from the factory to your front door called Arriving Today. And it turned out to be oddly timely because supply chains I wrote about all broke down just as it was coming out.
S1: And if you ordered that book on Amazon, it will arrive today. Maybe, perhaps if you have same day delivery. It’s kind of an amazing phenomenon. We will unpack that. We will unpack the Amazon logistics machine. We will talk about the supply chain crisis more broadly. We will talk about the Constitution Dow. We have a packed episode coming up on Slate Money. And let’s jump into the book. Chris, what is this book you have written?
S2: I set out to write an explainer of how everything gets from the factory to our front door. And I manifested a global pandemic and supply chain crisis during the reporting of the book to the point that the starting point of the book is actually a port in Vietnam. And when I was actually standing at the port in Vietnam, that was like the day or the day before the World Health Organization announced that there was a pandemic brewing in Wuhan, and then I ended up following everything.
S1: And the pandemic, as we, as we all know, has broken supply chains globally and has caused shortages and inflation and chaos. And I’m sure that somehow it’s responsible for that boat that got stuck in the Suez Canal. The first question I really want to ask you about this is does it turn out that supply chains were much more fragile than we thought they were? Or were they actually pretty robust and they have performed surprisingly well given the strains that were put on them?
S2: I would say they’re pretty robust and they’ve performed remarkably well given the extraordinary strains that we’ve put on them. The important thing to remember with the so-called supply chain crisis is that there are two totally separate phenomena happening, and one is that there have been factories and ports shut down again and again in Asia, where stuff is made and shipped from. And that is because of, among other things, you know, China Vietnam’s zero COVID policies. And then on the other side, on the demand side, here in the United States, so much spending shifted from services and vacations to goods that we have just had record demand for everything. And so that is just as much, if not more, the cause of what’s going on at the Port of Los Angeles. And you know, your packages being late and all the rest, it’s just record demand for stuff.
S1: Record demand for stuff. Although in some things, like the chips that need to go into automobiles, there has been a genuine like plunge in supply as well.
S2: Well, I mean, there has been automakers not ordering their chips far enough in advance, but you know, that’s a place where people are making record amounts of chips like, yes, there have been shutdowns occasionally because of the pandemic, but that’s really about demand as much as anything.
S3: This just feeds into my new theory, which is that supply chain is just the latest excuse companies can now rely on to explain away any failure in their in their strategy or business. They’re just like our supply chain like Zillow messed up its housing algorithm because but they blame the supply chain and now we have inflation and it’s because of the supply chain and every company is going to report earnings and whatever problems they have, they’re going to just blame it on the supply chain. But here is Christopher Mims to tell us actually, now if this is a demand situation and the supply chains are fine.
S1: Wait, wait. The crypto people didn’t lose out on buying the Constitution because of supply chain supply chain.
S4: It’s all suppliers and suppliers of concepts. Would you
S3: excuse? Yeah, just blame it on the supply chain.
S2: Yeah, OK. Yes. The factories in Asia, where institutions are made, were shut down.
S1: I honestly believe that the little pocket copy of the Constitution I got when they naturalized was probably printed in Cheyna, like, that’s it. It should have been, you know? Well, Iceland or somewhere like that, like Iceland has this huge printing business.
S4: But just going back to Emily’s question, the thing I get confused by, there’s this, you know, for years and years, there’s been this fetishization of just in time manufacturing and the idea that because massive corporations were so advanced and were so good at predictive modeling that they could tell down to the D what needed to be on shelves. And it seems to me that that is a system that is poorly set up when there are spikes in demand that are less predictable because you have like a massive external shock in the form of a pandemic and then all of the things that reverberating out of that. So how does how does that fragility kind of play into the dynamic that that Emily is asking about and that you write about in your book?
S2: Yeah, I’m nodding emphatically because, you know, like a like a laser guided cruise missile. I think you have hit what is the core issue here? And yeah, so everybody forever, you know, like operations is kind of like the black sheep of business schools. And now those professors are having their moment. But everyone just try to make their supply chains more and more lean so that they can sell more things more cheaply as businesses are wont to do. But that leaves no extra capacity if there are tons of single points of failure, like if you only have one manufacturer in Cheyna and it all comes through this one port, which everyone has, you know, consolidated to, then yeah, there’s going to be lots of problems. And we’ve seen that with the, you know, the supply chain problems for chips. So, you know, part of this is that there has been so much consolidation in most of the links of this supply chain. And yeah, there’s not, you know, people were starting to try to multi source or dual source before the pandemic even happened because they were worried about trade wars, right? So Nike and Adidas were setting up copies of their factories in China in places like Vietnam because they were worried about, you know, tariffs and stuff or a shooting war in the South China Sea. So people are definitely realizing now like, Oops, we need to have more places to get goods and more ways to get them into our stores, et cetera. Because, like you said, the just in time ethos which came from manufacturing has been incredibly avidly adopted in supply chains. And it means you have these really long supply chains with all of these single points of failure that are ultimately vulnerable to, you know, any kind of natural or political disaster. It doesn’t just have to be a pandemic.
S1: And this was known. This doesn’t come as a surprise to anyone.
S4: Those professors were like risks.
S1: But like everyone was like, you do realize that basically all of the computer chips in the world are made in Taiwan, right, and that Taiwan is not the most geopolitically stable place in the world. And this is probably a risk that isn’t a good thing. And then what happened was everyone kind of like nodded sagely and and stroked their beards and said, Yes, this is a big risk and did basically nothing about it. And it turns out that there wasn’t yet a shooting war in Taiwan, and that wasn’t the problem. But we did have some one of those, like very foreseeable things again, like the number of people warning about the risk of a global pandemic, probably within the millions, you know, before I have lots of people warning about it. No one really did anything about it. So the question I have is now that it has actually happened. Are you seeing signs of on shoring and slightly more redundancy and slightly more resiliency in companies kind of saying this is a thing that has happened once and will happen again and we need to be better prepared next time? Or is the competitive dynamic still so strong that they just can’t afford to do that?
S2: I do think it can be a big get bigger situation because if you’re Walmart or your Target, you’ve already reserved, for example, the capacity of the ocean free capacity. You need to get stuff from Asia to here. So, you know, a lot of the, you know, in Amazon, it’s the same thing. These folks have the resources and the money to, you know, either guarantee their supply chains or, you know, the flexibility to reassure, I don’t know how much reshoring is actually going to happen. People certainly talk about it a lot. And also for specific products like microchips, you know, Intel is seeking tens of billions of dollars of subsidies to create more manufacturing capacity here. Obviously, TSMC, the world’s largest maker of the most advanced chips, is building a huge fab in Arizona. That’s potentially a big deal. Samsung is talking about doing it as well. You know, I get pitches about, Hey, Mexico is a great place to manufacture things. Let’s bring it back there. I don’t know how much of that is going to happen, it really depends on the product. Also, it’s always helpful to remember that America by dollar value manufacturers almost as many or the same amount of goods as Cheyna. It’s just different kinds of stuff. So we are making a lot here. We do have a lot of manufacturing capacity here. Some of that can be ramped up. There are limits because of the current unavailability of labor. So there are constraints. We can’t just. There are many reasons we can’t just bring all that manufacturing back. Some of it is that we lack the expertise. Some of it is we just don’t have enough people. I mean, Matthew Iglesias is not wrong when he says we can get half a billion Americans.
S1: It’s not just about America, though, right? Like, it is conceivable that the US being like a continent sized country could, you know, by sheer brute force, just start manufacturing itself. But like most countries aren’t big enough to do that. If you’re Canada or Portugal or South Africa or something like that, you’re not going to be able to run some kind of an import substitution program where you like. We’re importing all of our stuff, so we have to start making it domestically. You have to be reliant on global supply chains. And I guess my question is, is that reliance always going to come with a bunch of fragility? Or is there a way of putting a little bit more resilience into that reliance?
S2: I mean, yeah, I think the fragility is unavoidable. The flip side of it is that it also means that the interdependence is unavoidable and that affects everyone because to return to the supply chains for microchips. One of the reasons that you know, hopefully Cheyna won’t just invade Taiwan one day is that even owning the world’s largest manufacturer of advanced microchips wouldn’t let them own the semiconductor supply chain, because so much of that also happens elsewhere. Evans in Southeast Asia, it depends on equipment manufactured by the Dutch, by Americans. So with that interdependence comes fragility. The they’re just two sides of the same coin.
S1: We used to hear this word trade a lot. And how much does America trade with Mexico? How much does Spain trade with Morocco? And it was like you would think about trade as something which happened between two countries. And then at some point people stopped talking about trade between countries and started talking about supply chains, which presumptively touched like a dozen different countries. And when did that change happen? And like, how profound is it?
S2: I think that the biggest two changes that happened to supply chains were the debut of the shipping container, which really came on the global scene starting in the sixties around the Vietnam War and just made it so easy to ship finished goods everywhere. So it just reduced the friction and the cost of making a supply chain as long as possible. And a supply chain is just all of the steps that happened between when stuff gets, you know, like dug out of the ground or grown or whatever and when it gets to your door. And so, you know, that’s why they’re longer than ever, because ocean shipping is so cheap, containerization makes moving goods so efficient. And then we can’t underestimate the importance of it’s really a boring topic, but it’s it. So just the ability to send emails around the world and attach PDFs for invoices and just coordinate action between a designer in California and a manufacturer in China. That plus the ability to ship those goods so quickly and so cheaply. I mean, that’s why supply chains are longer than ever in supply chain is just all of those steps, right? And we could talk about how important
S1: were like free trade agreements, the WTO, the EU, NAFTA would they like it? Presumably, if you have a supply chain with a whole bunch of different countries and they all have massive tariffs with each other, then that’s not going to work.
S2: Right. And don’t forget, we recently did an empirical experiment in how important are those free trade agreements because we slapped the Trump administration slap tariffs on China and also just like random tariffs. Do you remember the one in European? I think it was aluminum or steel
S1: or the one European wine, one 14 percent alcohol
S2: that would help me.
S4: Yes, typically Felix like right out of feelings,
S1: French and German wine under 14 percent alcohol is like what?
S3: No, that was like the Felix Felix.
S1: Why? What?
S2: Yeah. If you talk to shippers or like Jean Soroka is the head of the Port of L.A. He loves to sort of very diplomatically talk about how a lot of current issues are because trade got really screwed up by the tariffs with China. And, you know, it sort of gum things up and made people frontload a bunch of shipping because they’re like. We need to get this to America before these tariffs hit. And then as some were relaxed, they’re like, OK, now we have all these goods waiting in, that’s going to. So obviously that makes a huge difference, right? When, when, when, when you’re dealing with lower margin goods, which is why you’re manufacturing stuff in Asia anyway. Yeah. Tariffs make a huge difference.
S1: So I want to move on and talk about Amazon, because I feel like Amazon is understood as a retailer and is understood as a tech company and is understood even perhaps by nerds, it’s like a web services company. But somehow behind and alongside this, it has become. Is it fair to say like the biggest and most sophisticated logistics company in the world?
S2: I think it is fair to say that, yes,
S1: like it’s overtaken. FedEx has overtaken Maersk. You know, like, it’s crazy.
S2: Well, I mean, to be clear, Amazon is not running its own ocean going vessels yet,
S1: but it will, right? It’s inevitable.
S2: Yeah, I I honestly can’t say whether they will or not. But if you’re right, then like, I owe you a steak dinner, that would be incredible. But I also thought they would never get into airfreight. And now you see those prime air planes at airports all over the place. So yes, I think by by most measures, they are now bigger than FedEx. They’re they’re more planes than FedEx. But the engines and packages move. They’re bigger than FedEx. It’s underappreciated that their last mile logistics network got so big, like nearly bigger than FedEx and nearly UPS size in the span of like three years or whatever it was since they launched that. And that’s all those trucks you see,
S1: which means they used to be when when you order the package from Amazon, they would historically either put it in the mail or they would give it to FedEx or they would give it to UPS. They would need to give it to a service who would then deliver it. And then at some point they did the math and they reckoned it would be cheaper and more efficient for them to just deliver it itself, delivered of that package themselves and literally hire a human being to bring that package to your front door. And that is new, and that has been growing at an absolutely insane pace. And that is why they can turn around and do things like say, Oh yeah, we’re going to order 100000 delivery vans because like, we’re going to need just this insane scale to be able to do that.
S3: That’s what they mean when they say last mile distribution center. It’s not literally a mile to my house or anything, but it’s like that
S2: lasts like the last 10 miles. Yeah, yeah. The last 10 or 20 months. The part that traditionally, you know, when you see a couple a brown up’s iconic van pull up in front of your house, that’s last mile, right? And so Amazon, it’s not just that they thought they could do it cheaper. I think they also recognize that they were growing so quickly that even ups did not have the scale to handle all of their deliveries. I think they had some real close calls where, like Christmas from Amazon was almost canceled and they were just like, no one has the capacity to deliver the number of packages we need to deliver. So we need to get into this business.
S4: One of the reasons that folks are going back to brick and mortar is because no one has the capacity to deliver all those packages. But what they can do is have a bunch of people go to one place.
S1: So what I mean, this is true. It’s a really it’s a really interesting form of last mile, which is basically outsourcing the last mile to the consumer, right? Which is basically saying,
S2: we did you just call going to the store outsourcing the last mile has a bright future
S4: in operation.
S2: So if I go, I go to the corner store and buy a pack of Band-Aids. That’s yeah, OK. Amazon outsource that to me.
S1: But I mean, that was always the business model of big box stores, right? That was the business model of Costco and even to a certain extent at Wal-Mart.
S2: I mean, this was also the business model of the ancient Babylonians. Like, let’s just be clear,
S1: no, the store. I’m being slightly more like subtle. Basically, what I’m saying is that there was always an inventory issue at the store. Right? Which was the the ancient Babylonians had relatively small huts and they couldn’t store, you know, massive piles of toilet paper in their hut. So what they did was they created a system of stores where they would like, you know, go to the store and they needed some toilet paper and then they would come back with a roll of toilet paper and they needed another roll of toilet paper. They would go to the store and there would be a roll of toilet paper there. And the store, literally the word store means they are storing that stuff. It is there in the name and the innovation of the big box stores like like Costco was to in large part outsource that storage function to the consumer. So the idea was you would start buying chest freezers and massive like 3000 square foot houses and you would have space to buy in bulk and it would and the store would be your garage, basically. Right?
S2: Well, don’t forget, I believe it was either Amazon or Walmart patented the idea of putting a teeny tiny last 10 foot store in your house or something house makes the logical end of it all.
S3: Well, I mean, that’s just like that thing in the hotel. You guys are in hotels, so it’s
S1: like a vending machine.
S3: But the little, yeah, that little fridge filled with the snacks in your hotel that you I mean,
S2: look, as you’re already in charge, you can already have somebody come into your house and fill your fridge for you.
S4: So, you know, Amazon was also I don’t know if this ever launched, but they were also talking about the ability to have people put something in your trunk of your car if you weren’t home, right? And I have always no, that’s not true. I have long believed that shipping is underpriced and that I would. I have been waiting for a long time for people to be like, Wow, free shipping is environmentally a nuisance. And also just wildly expensive, right? And yet, you know, we have trained generations of consumers to be like, Oh my God, for 99 shipping for this $400 order I just placed, that seems like too much. So all of all of this seems to me to be kind of of a piece of putting costs back on consumers that probably should fairly have been there before.
S1: I mean, that’s I mean, is a good point, Stacey. If you want to point to areas of like massive deflation. Yeah, getting shipping costs is definitely one of them, and Amazon is a large part of that. The Amazon has really. In a force for bringing shipping costs down to a point which is actually extremely environmentally harmful
S2: and also Jimmy Carter, he deserves a lot of credit here because he signed the Motor Carrier Act. Jimmy Carter said the motor carrier? Oh yeah,
S3: let’s talk about this, truckers.
S2: And it was, yes, you tweeted about it, Emily. And it had a great transformative work last week. It was absolutely transformative because it deregulated the trucking industry and it made trucking. The goal was at the time, you know, we were just coming out of the oil crisis and the goal was, let’s make trucking shipping goods way cheaper. And it worked. But it also turned trucking into this like insane cage match where, you know, it’s very fragmented and drivers are constantly, you know, trying to buy trucks and start their own trucking companies and then going bust the next time that there’s a drop in demand. But it did accomplish the goal of making shipping by truck much cheaper, which inevitably led to big-box stores, which then led to Amazon.
S3: What’s so interesting in your book? You compare like the Wal-Marts and the big-box stores to what Amazon does and like Wal-Mart, used to be the innovator when it came to selling people lots of stuff.
S2: And and technologically, they were innovative. They were the first to use RFID to track all of their goods through their warehouses, that kind of thing.
S3: But then Amazon kind of like left them in the dust, basically. Could you talk a little about that, about the difference between like the distribution center and the fulfillment center? Is that the nerdiest question I’ve ever?
S2: Yes. Oh my god, I love you so much. Distribution center, you know, picture a wooden pallet and it’s just stacked with tons of stuff, you know, Amazon Echos or toilet paper or whatever. And that pallet goes through a distribution center and then is shipped to a Wal-Mart where it may not even be broken down. If you walk into a Walmart, you know what to look for. Sometimes you’ll see these huge cardboard boxes full of like, you know, Hot Wheels cars, and there’s a wooden pallets still under the bottom. They didn’t even bother to unpack it. But a fulfillment center was this fundamentally new beast that Amazon and others during kind of the last internet bust had to invent and a fulfillment center. It is a factory, really. And what it manufactures is your order. So the fact that you ordered, like, you know, toothpaste and shampoo and ShamWow and whatever that has to all be put together in one cardboard box, that’s actually a manufacturing process. And that’s why Amazon is able to use all these robots to do it. And so that process that you used to have to go to the store and walk to all the shelves, as Felix put it, like, you know, getting the fulfillment outsourced to you as the consumer now is sucked inside of the robot fulfillment center and and the and the result that it shoots out at the end is this cardboard box that has all of your goods in it and gets,
S1: which is totally bespoke and totally customized. And the cost of customizing that cardboard box just for me with exactly what I want and not with anything that I don’t want is. Zero. I mean, Amazon has been providing that service at zero from the beginning, basically, it has somehow managed to hide those costs in the cost of the goods, but you know, it’s been undercutting the store for the cost of the goods. And that idea of of being able to do that fulfillment at a price of zero and almost making people not value, it is amazing, right?
S4: Exactly that. It’s sort of an invisible expectation to them.
S3: To us, it makes sense because it’s replacing something that you never like that you did for free. I used to be my fulfillment center. I go to the store and fulfill my order myself and like, I didn’t have to do it.
S2: The term of art is picker. So right?
S3: I was a picture
S1: at the time. The term about, I believe, Christopher Mims. There was I’m old enough to remember when there was this thing. Then there’s a shopping list.
S3: Right, right. And I prefer don’t perform all that labor for free. I write down my list. I bring it with me. I look at it and I get the stuff like Amazon will now do that for you, for basically now, by the way,
S2: if we’re talking about huge economic windfalls. Keep in mind all of the hours that have been saved, all of us by the fact that we don’t have to go to the store and do that anymore.
S4: Well, all of the hours that we have underpaid the people who still have to do those things, I would say.
S1: So that’s my question. You, Chris, is is like in terms of the fulfillment in terms of like combining the shampoo and the sham. Wow, how much of that is robots and how much of that is $15 an hour humans?
S2: Oh, I don’t know how you would would quantify their relative contributions. I don’t know. Maybe it’s like 50 50, because the the way that people describe this is it’s like islands of automation and they have to be sort of connected together by humans. And that’s the part where you have a person who has to pick like 400 objects an hour as quickly as they can off of these robot driven shelves and put them in a tote. And then the tote goes down all these conveyors and goes to a packer and they’re packing them into a box as fast as they can and taping it up and getting it out the door. So, you know, robots aren’t dexterous enough to do those in-between connective bits. But there’s other things that they can do very quickly. But that means that the humans have to keep up with the pace of the robots. And that’s why Amazon has this terrible problem with associates getting like repetitive stress injuries and stuff like that because it’s a 10 hour shift, you know, with only three breaks. So it’s nine hours of like working all out
S3: for all the talk about robots and technology at the end of the day, supply chains, logistics. These are, I think you say it like labor intensive processes. You cannot remove people from the process. And that’s where a lot of the fragility comes from and a lot of the the problems that I guess we’ve talked about on this podcast and everywhere else. Right?
S2: Yes, because all of those potential bottlenecks along the supply chain, like my favorite one is Biden ordered the ports to go to 24 hour operations. And then the CEO of Flexport sent a taco truck at night to the Port of L.A. to see how that was working out. And there were a bunch of unionized longshoremen standing around waiting for trucks to show up. And they’re like, we went to 24 hour operations and now there’s no trucks here. And that’s because of the trucking. The inland trucking. Part of that bottleneck of that supply chain is also has its own problems. And that’s in a way, a labor issue, right?
S3: So the ports went to 24 hours, but the truckers did not.
S2: Yeah, so it didn’t work.
S1: I want to go into labor supply chains in Slate Plus, because this is really fascinating, like the number of different humans who kind of touch your, you know, USB charger that you follow in the book, but between the factory and the delivery. But I also, because I am a complete auction nerd, want to talk about the constitution down and I need I need to squeeze that in this episode somehow. OK, Stacy, what is the Dow and why are we talking about one?
S4: OK, here’s here’s what a Dow is. A Dow is what’s known as a decentralized autonomous organization, and the idea is that it’s a corporation without managers, without owners, without a structure that there is an organic up swelling of people rallying around a common idea and that governance will happen on the blockchain. So there’s at least three things that are like and unlike traditional structures. One is lots of different kinds of structures exist to coalesce people around a common cause, right? If anybody listening is a member of the Park Slope Co-op, you know exactly how hardcore that organization is for something that you know, technically doesn’t have a governance structure, but really, in fact, it does. We have a long history of limited libation, little libation, limited liability companies we have,
S1: which also limit the libations. I mean, I was very
S4: down in the Libations if their governance is in order. We have churches, we have cults, right? Like organizations vary across and around the world. The supposed innovation of these doors is that they are fundamentally leaderless and take direct democracy as the baseline. The reality of DAOs and or if you are a person who is either violently pro or violently against joining things is what tends to happen is people who are loud and first end up, you know, really setting the tone for the overall thing. You have a sort of a fundamental community management challenge where if you are super keen and really care about something, you are likely to spend the time and in this case, the crypto to put yourself in a position where you have the ability to influence things more than other people who may be less motivated or less megalomaniacal than you are about whatever that thing is.
S1: So, yeah, there is there is voting that you you vote on the blockchain and correct me, Stacey, is this like a one you vote in proportion to your tokens shareholding, right? So there’s not one they don’t say it’s like one vote.
S4: Yeah, it’s not. It’s not shares
S1: or token, but it does look a little bit like a company with shareholders, which is why a bunch of people were saying like, why couldn’t you just set up a company to do this? But in order to answer that question, first of all, you need to explain what this is. What are we talking about here?
S4: So this is something known as Constitution Dao, and it started off as many of these things do, like for the lulls where some folks were like, Wouldn’t it be cool if we bought this print of the Code of the Constitution? That’s going up for auction at Sotheby’s? I’m not going to talk about the auction part. That’s all you Felix. And they started raising money and it was like, Hey, donate some money, like we’ll try to buy the Constitution. And then people were like, Oh yeah,
S1: I’ll do it with Nicolas Cage.
S4: Meaning, Yeah, it was. It was. It was a total, you know, museum situation. So, you know, it was like, OK, five million, 17 million, 31 million. The velocity of this thing was happening very quickly. And when I say donate money, they weren’t actually donating fiat. They were donating crypto in the form of EIF to, you know, to this DAO. And one of the big, interesting things that has happened in the past couple of days is it really helped people understand how expensive actually doing certain kinds of crypto transactions can be because the the the people, not the owners, the people in Constitution DAO put out a statement that said, Hey, the median donation was about two hundred and forty one dollars and people very quickly realized, well, hang on, if the median donation was about two hundred and forty one dollars or the crypto equivalent. But the fees involved in even making that donation ranged from 50 to $100. You had a bunch of folks who were like making much smaller contributions than they otherwise could have because of just the idiosyncratic nature of how that crypto. I guess Kickstarter worked.
S1: Spoiler alert they didn’t buy the Constitution. So now the expectation is they will give the money back and giving the money back involves incurring all of those fees all over again. To send them back the other way, so if you spent if you if you donated 200 bags and then you spent $75 donating it to the Dow and then it cost another $75 to get it back from the Dow. Your round trip cost is three quarters of your donation.
S4: Unlike credit card transaction fees, so say you’re donating to a nonprofit or charitable organization of some kind. You know your transaction fee is if you’re using a credit card could range from two and a half to say three percent. But that is proportional to the the amount of your donation, right? Whereas if you were making a donation to this to this Dow, even if you were donating $1, you were potentially having to pay a $50 what’s known as a gas fee. So the economics are wild. You know, the Constitution folks were like, Well, the way you get around this is give us more money. So. So the ego goes down.
S1: If you give us a million, it’s like, Hmm, exactly. So what happened was that they raised this sum of money in the Dow, and they went to Sotheby’s and said, We want to give you all of this money to buy the Constitution. And Sotheby’s saw this large pot of money and said, Yum, we love large pots of money. We would love you our money. Yes, please. But we also live in the real world with, you know, courts and rules and regulations and stuff. And we have this thing called KYC. Like, if someone bids on an object at Sotheby’s, we need to make sure they’re not money laundering, so we need to know who they are. And so KYC stands to know your customer. So anyone who bids on an object said service needs to go through this process and normally the KYC. Not normally this is very easy, right? Which is basically I go up to my friend at Sotheby’s and I say I want to bid on the object and they say, Can you give me the name if you’re a private banker? And then I find out the private banker and we go through the, you know, and the bidder doesn’t ever need to do anything. But like all of the documentation that needs to get sent back and forth is done between Sotheby’s and Credit Suisse or whatever. Right. And it’s it’s it’s just like something that happens in the world that most people never see or think about, including it has to be said, most of the people who set up the Dow and then the Dow goes along to Sotheby’s and they’re like, What? You need to go through this KYC process and they’re like, What’s the KYC process? And they’re like, Can you just give us the name of your private bank or Credit Suisse? And they’re like, Yeah, we don’t have one of those. And so it became a bit of a problem. And so they created this workaround, which was that they started an LLC, a good old fashioned real world company without any of this cryptographic governance with real world actual shareholders. I think there are two real world actual shareholders, and the Real World LLC was going to bid on and did bid on the Constitution. There was this kind of generalized understanding that whatever the LLC did would be governed by the Dow and the Dow participants had governance tokens and the governance tokens would like take votes and make decisions and that that would, in some kind of weird moral way, at least be binding on the LLC if this
S4: is the problem. This is the problem. It is. Well, I think of it as a as a problem because I think of things in terms of executing right. And it is it’s one thing to say that. We’re all in this together. We’re good people, trust us ethically, this is what’s going to happen and sure, right? I mean, crypto is full of examples of folks doing the right thing. I mean, there was a memorable fat finger a couple of months ago where somebody inadvertently transferred like $100 million more than they were supposed to to another wallet. And the other person on the other end was like, Oh, sorry about that. Here it is. And they just give it back. Right? It’s a market that has, I think, an an unusual amount of altruism baked into it, but that makes it vulnerable to people who are less scrupulous. And it also makes it vulnerable to courts and to people who lawyer up and say, Well, you know, funnily enough, this clause right here. And I think that that to me is I really want to see how these deals like develop and if they actually just end up looking like Elsie’s on blockchains.
S1: So one of the interesting questions that has now arisen is that after the Dow got outbid at Sotheby’s, it has all of this money, as I say presumptively, is going to try and give it back and, you know, pay all of those gas fees to give everyone their money back. But one of the things that happened between the Dow being formed and the auction was this other bids found another copy of the Constitution that turns out they initially said there was only one.
S4: Supply chains and constitution
S1: like this is not something that could ever happen with an NFT. If you’re selling an NFT, which is one of one or one of the one of 11, then you know where the other 10 are, then that is what you know to be true in the world of real world auctions. Sotheby’s initially says it’s one of 11, and the other 10 are all in institutions, and a couple of weeks later, they’ve basically changed their mind and said, Oh, it turns out it’s one of 13, and there is actually another one in private hands after which you would think would decrease the value of this one, but it doesn’t seem to have done that. But it raises this interesting question, which is that the owner of the other one in private hands, whoever that is, probably thought, according to Sotheby’s estimates, that it was worth 15, maybe $20 million. And now they know that there is a potential buyer out there willing to spend $47 million on it, right? Because this is what the this is, what the purpose of the Dow is. This is by the Constitution, and most people offered $47 million for a piece of paper would at least be mildly tempted to sell it. So the interesting question is, can the Dow buy the other one? Or is that all because it was set up to bid on this one at Sotheby’s? Can it not?
S4: Well, that would be a vote, right? Like the folks with governance tokens would have to in the in. The notion of this structure would have to agree or disagree one way or another.
S1: So do they need to agree to have the money returned to them? Is that going to be like a thing where where there’s going to be a vote? Like saying, should we get our money back or should we keep it pooled for the time being just to see whether we can buy this other one? Is there going to be a vote on that?
S4: That’s that’s actually one of the questions that I was trying to chase last night because the statement from the Constitution Dow folks, was, you know, we’re going to we’re going to look at refunds, et cetera, et cetera. And there were immediately a bunch of people who were like, No, no, we want the Dow to keep the money. And I was like, Oh, well, that’s a disagreement among token holders. What’s the mechanism for resolving disputes in in the context of a DAO? And right now it is. It is voting with your tokens. So I think that all of those things have to be resolved if there isn’t clear, clear, explicit consensus about what the next steps are.
S3: It’s so interesting to think about this in contrast with what we’ve been talking about with Chris, because like supply chain logistics is all extremely complicated and requires high levels of coordination and centralized thinking planning strategy. Meanwhile, there’s this whole other thing happening with this deal with crypto, decentralized everything and like, I’m not convinced that’s going to work out. Things require coordination. They’re too complicated for a DAO to actually work right.
S4: The arguments for blockchain is that it’s not that decentralization is not coordination, it’s that it distributes that coordination across a far greater number of actors. The reality of the things that have been held up as the best examples of of how crypto can replace traditional finance look very much like traditional finance, right? We have exchanges which literally exist together in one place, groups of buyers and sellers in order to create markets and provide liquidity that wouldn’t otherwise exist. Governance councils within the context of a DAO, the need for single places, whether that be Twitter or Reddit or Discord, to have these conversations and organize people around those conversations and disseminate information, you know, total decentralization as I would. Not just hard, but I have not seen it really exists in practice. It’s not like the, you know, sparrows suddenly appearing to coordinate magically and then everything is like working out in ways that science still doesn’t fully understand. Like, there’s still a lot of just brass tacks figuring out and talking to each other and having some sort of structure to make these things happen.
S1: Chris, I mean, to to the point of the last segment, the way that Amazon became this incredible force in logistics was by force of centralization, right? And the idea that Jeff Bezos could just be like, I am willing to spend however much money it takes to organize and control this massive, globe spanning octopus.
S2: Well, it’s decentralization and decentralization, because we can’t forget that a big, important ingredient in Amazon’s success has been its marketplace, which is he totally. I mean, it’s centralized in that Amazon controls it, but it’s totally decentralized and anyone can sell on it. So you have tons and tons of manufacturers in China, for example, who used to have to go through American or European or whatever retailers. And now they go direct to the customer through the Amazon marketplace. So it is kind of a little bit of a of a DAO because there is this element of just sort of purely democratic, purely market based chaos at the heart of Amazon’s marketplace. And, you know, we don’t notice this because we don’t people don’t track this, but they’re actually tools that let you chain track the change in price of various objects on Amazon’s marketplace. And depending on how thick the number the market is for a particular item like batteries, let’s say or specialize in, there’s only a few sellers. We don’t notice this, but the price of those items can fluctuate quite a bit because it is almost its own kind of stock market within Amazon’s marketplace for like, how much supply is there, how many buyers are there, etc..
S1: It’s one hundred percent something I’ve noticed. And one of the reasons why people stop thinking about inflation for so long was precisely because Amazon prices aren’t sticky in the way the supermarket prices are. If you go to the supermarket every week and the gallon of milk costs the same price every week, and then one day you go to the supermarket and the gallon of milk costs more like Jake’s gallon of milk is going up. That’s inflation, whereas with Amazon, and if you buy, you know, a bunch of batteries every few months on Amazon, and they cost something completely different every time trying to find the signal in that noise, it’s much harder.
S3: If I’m getting ready to go to an auction tomorrow and I know the person
S1: bidding between Glenn Beck’s
S3: totally take off my soft pants, put on the hard pants, and I know I know the person I’m bidding against is going to bid $20 or $40 million. Aren’t I just going to show up and bid 20 40 million point one? Like, how is this an interesting auction if we all knew how much? Oh my
S1: god. So this is the most interesting. This is the most interesting auction that Sotheby’s has had in years for precisely this reason. The auction tactics are always based on asymmetrical information. Each bidder knows how much they’re willing to bid, but they don’t know how much the other bidder is willing to bid. And the way that an English style auction works, which is what you have in Sotheby’s, is they slowly reveal an ever great, ever higher steps, how much they’re willing to bid, and that kind of sussing each other out. And then occasionally, what you’ll find, you know, if there’s like a painting up for auction, you know, it goes like one million, two million, three million. And then one of the bidders will go like 10 million in an attempt to try and just like punch the other guy out. And like in the blow that is unanswerable, there’s a bunch of different tactics that happen. Intimidation tactics and that kind of stuff that happened in auctions. But the one thing that basically never happens is the one person like puts a big sign up outside the auction house, saying I am 100 percent committed to spending up to 47 million and no more on this object. And then you guys know exactly what I’m willing to spend and able to spend. And and that is my bidding strategy right there, and you’re all aware of it. No one does that for very good reason, but that is exactly what happened in this case, right? This method of bidding at auction is tactically insane.
S3: Yeah, it seems really dumb. Like I couldn’t understand. The whole point of the auction is like, you don’t know what anyone else is going to how much it’s going to cost. You’re.
S2: Is it dumb or is it just for the locals? If the whole thing’s a practical joke, anyway? Who even thought it would get this far?
S1: OK, let’s have a numbers round, Stacy. What’s your number?
S4: My number is nine hundred and ninety, and that is the number as of mid-November 2021, when we were recording sub sold. Of investigations that the Federal Aviation Administration has opened into unruly passenger behavior at a time when people keep trying to punch flight attendants in the face and force. For comparison, a similar number for, you know, a comparable period in 2020 was 183 zero.
S1: So while public service announcement to all state money listeners, please don’t punch flight attendants in the face. Come on, people. What are we do better? Chris, I got a number for you. A special supply chain number, which is two thousand four hundred fifty four. Do you know what that is?
S2: Two thousand four hundred and fifty four. Is that the number of shipping containers that fell into the ocean last year?
S1: Good guess. No, that is the level of the Baltic Dry Index.
S2: Oh, everybody loves the Baltic Dry Index EV,
S1: which is everybody’s favorite index. If you don’t love the Baltic Dry Index Emily do not know what the Baltic Index is.
S3: I don’t. All I know now is that something in Monopoly? I know there’s a Baltic in Monopoly, Chris.
S1: What is what is the Baltic Dry Index?
S2: It’s isn’t it a measure of trade in European wines below 14 percent alcohol? Nice. And you’re the you’re the bull. And what is it? Yeah.
S1: Yeah, it’s the price. It’s the price of what dry wine from Estonia, really?
S2: No Baltic Dry Index is a measure of the cost of shipping.
S1: Yeah, shipping costs are very opaque and complicated. But if there’s one generally accepted measure of shipping costs, it’s the Baltic Dry Index. And what has happened to the Baltic Dry Index is really fascinating. It was always in like the fifteen hundred range, two thousand range before the pandemic. You know, it reached up to basically where it is right now, about twenty four hundred. And then over the course of this year, it just went up and up and up. Shipping costs went crazy, reached as much as five and a half thousand levels that had never before seen. And people got really freaked out about shipping costs and demand for shipping massively exceeding supply. And what has happened just in the past few weeks is that it has come back down again and we are now. It is not low, but it is now back at a vaguely normal level and it is no longer massively elevated, which you don’t know much about. Shipping Chris is the expert here, but I’m going to say is a positive sign and saying that maybe some of the worst bottlenecks in the shipping world unwinding themselves.
S2: Yes, I think the shipping world is is slowly and now maybe more quickly digesting this huge bolus of trade of material that was shoved through it as a result of the pandemic.
S1: Emily what’s your number?
S3: I had two options and I was going to do the cost of Thanksgiving dinner, but I’ve decided that that’s boring and unrealistic. So my number is. $154 million. That is the 2020 pay package of a guy named Bobby, who is the CEO of Activision Blizzard and in Christopher, My God lawyers paper this week, the Wall Street Journal ran this story that is just jaw dropping about this company and how it treats women from from Bobby and on down. I mean, the allegations are just wild. I mean, rapes, suicide, harassment, all of it that the CEO probably knew about. And they’re being sued by California right now. And since they’ve been sued, 500 more complaints have come in from current and former employees. I mean, this is only a company of 3000 employees. This is the company that makes World of Warcraft and Call of Duty, which I guess if anyone’s ever seen Call of Duty get played, you like, Oh, the company that makes that choice women badly, you’re like, OK, that makes sense. Anyway, everyone should go read the story. It’s crazy to me that I mean, it got I saw it getting attention when it came out, but I felt like, how is this not getting more attention? I mean, there’s an anecdote in the piece about an employee. Other people showed like a like a naked picture of her at an office party, and she, like, died by suicide a few days later. I mean, it’s just like awful. I can’t believe it. So everyone should read that.
S1: Yeah, this this story started off terrible a few months ago, and it’s just been getting worse and worse. And this is like, yeah, it’s amazing how bad it’s getting. Chris, you have a number.
S2: Yeah, my number is twenty eight. And that is the percentage of Manhattan office workers in the office on an average day now and pre-pandemic, it was 80 percent. And the reason I chose this number is that it epitomizes this just unbelievably huge shift in not just the way that we work, but the way that we live. And it’s when you
S1: say we you mean people who live in Manhattan or New Yorkers because like New York is such such an outlier on this, like any other city in America or even pretty much the world and that number, that delta will be much smaller.
S2: That’s true. But if you look across America at the percentage of people who can work from home, which is a surprisingly large airport like it’s as much as 40 percent of America’s workforce can work from home. And according to the Gallup numbers, which I think are better than the Bureau of Labor Statistics numbers, we’re still like, I think like 30 percent of all workers are working from home some of the time. And so that created such a huge change in how we work and live that it’s an underappreciated driver of the supply chain crisis because people have bought so much stuff to enable this new way of life. And that’s in a lot of the shipping containers that are sitting around at the Port of L.A. right now.
S1: Yeah, the the way that sleep money awkwardly and then eventually wholeheartedly seems to have embraced remote work is a prime example of this, which is all thanks to Shannon Roth, who’s the amazing producer on this show. Thank you, Janet, for putting this together. It’s amazing to watch you coordinate people across continents and time zones. And of course, we couldn’t do without you guys, you listeners. We love you. Thank you for listening. Keep the emails coming. Sleep money at Slate.com. And we’re going to be back on Monday with Taffy, which is very exciting. Yeah, Taffy brought us Acuna is back on Slate Money Succession talking about episode six. Well, I mean, it’s tacky. Of course, it’s going to be amazing. So that’s it’s
S1: Something to look forward to. And then we’ll be back the following Saturday with another slate money. So, Chris, the slate plus we want to talk about the humans here, the supply chain is, you know, we think of it in very sort of abstract and dry terms. But. You found a USB charger in Vietnam and it wound up getting delivered to a front door in America. How many humans were involved in like ferrying this from one hand to another along the way?
S2: Yeah, I mean, let’s say somewhere between directly and indirectly, it’s hundreds. And if you are just looking at the number who actually touched it, it’s dozens. It’s close to 100. And that’s because it starts in a truck in Vietnam and it goes on to a ship in a port and across the ocean and onto many other trucks and through many other warehouses before it gets to you.
S3: My favorite human in the supply chain that you wrote about Chris, I think, was the guy who a big ship comes with the USB charger to the Port of Los Angeles. But then it stops short of actually getting to it to unload because it’s so perilous to park the ship. So there’s a guy, and his whole job is to hop on these ships and like, navigate them into the port and park them. And he makes like a gazillion dollars, maybe maybe $400000
S2: a year, something more than $400000 a year. They’re the highest paid, if not the if not one of the highest paid people on the payroll of the City of Los Angeles because they actually are employed by the city.
S3: And it’s so crazy and they like, jump on the ship, they have to climb a ladder. They could die and get crushed between the ships. It’s just like, I couldn’t believe that this is that they haven’t figured out a better way to do this.
S1: This this is a bit like when I get, you know, valet parking right? And then the person backs into an impossible space only like times a million.
S2: Yeah, it’s stunt driving, but with a ship that’s the size of the Empire State Building. And just to give you a little taste of how sort of impossible this task is and how skilled these harbor pilots are in wages of any normal pilot can do it. You know, when they pass under a bridge and they’re going up the ship channel into the Port of Los Angeles, if it’s a big ship, there might be a meter or two of clearance between the bottom of the ship and the bottom of the ship channel. Below them, there might be a meter or two of clearance between the top of the ship and the bridge above them, and they have to know like temperature because maybe the bridge is sagging that day and they don’t want to clip it. They have to be going exactly the right speed so they don’t tear any of the ships that are more to either side of them off of the dock. And then there’s this point where they get into this thing called a turning basin. And literally, this guy cuts the engine of the ship and like a stunt driver, just kind of like drifting or skidding sideways into a parallel parking spot. Kind of. Just like English, is the ship right over between two other giant ships without crashing into either one of them without crashing into the pier and sort of sticks the landing to within a metre of exactly where he’s going to be? And by the way, you know, this ship has three football fields long in order to park it, and he’s coordinating the engine and the helm, and two or three tugboats that are all pulling on the ship in different directions and giving instructions to every single one of them to make this happen.
S3: That is just incredible. I I can’t even believe that this exists, and there’s so many of these skilled workers throughout the supply chain, not all as well-paid as the harbor pilot like you were in in, you went on some truckers route and truckers are underpaid, but also seem very skilled at what they do. I mean, you can’t just drive like I am, just hop in an 18 wheeler and start driving like you need some level of skill to maneuver those as well.
S2: I mean, I think the real skill there. Yes. I mean, you have to have an incredible amount of stamina. I mean, they’re working 14 hour days. That’s just by federal law. They would work longer if the feds let them. But you know, a lot of their skill is just navigating traffic and, you know, a pattern of routes so that they can just make a living because they, you know, they have to get that load to the next stop in time to turn around and get this other load that they’re supposed to be scheduled for. And they’re kind of just like they are literally just like freelancers just kind of stringing together one load after another in general.
S1: It’s a great story. It’s a great book. Go out by Chris. Thanks for being on Slate Plus.
S2: Yes, everybody. Thank you so much for having me.