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The Great Reopening Will Generate a Million Identical Stories

There are certain topics that generate an almost infinite number of news articles that are essentially identical except for the single detail of who the main character is. The pandemic is an example: you can write a piece about how it affected the theater business; and the restaurant business; and the trucking industry; and Joe's Dry Cleaning—and they will all be basically the same: their customers went away and this caused them big problems. Racism works the same way: you can write a thousand stories about a thousand different industries and they're essentially all identical. The details will differ, but it will turn out that racism is responsible for the underrepresentation of Black/Hispanic/Female/etc. people in that industry.

We are now entering the same phase of the end-of-lockdown pandemic story. Guess what? It turns out that practically every industry cut back on production because their customers stopped buying stuff. And only now, for reasons that remain puzzling, are they realizing that the pandemic wasn't a permanent condition and they need to ramp up production. Why didn't they figure this out a few months ago when vaccines became widely available? Beats me. My unconsidered view is that it's because they're idiots, but I suppose there's more to it.

Anyway, we're now being deluged with stories along this line. Last night, for example, 60 Minutes ran a segment about the shortage of chips for cars and videogames and whatnot. And why is there a shortage of chips? Is it because we've outsourced everything to the wily Chinese folks on Taiwan? You'd think so after inhaling Lesley Stahl's inane reporting, except for the fact that she inadvertently allowed the chairman of Taiwanese chipmaker TSMC a brief moment to give the game away: "In March, 2020, as COVID paralyzed the U.S., car sales tumbled, leading automakers to cancel their chip orders. So TSMC stopped making them."

TSMC chairman Mark Liu

Oh. So it has nothing to do with Taiwanese fabs vs. American fabs or global supply constraints or any of that. Nor is it related to a possible invasion of Taiwan or the fact that Intel may or may not have made good decisions about its future business. It's because American car companies canceled their chip orders and never bothered to reinstate them. Then in December, when car sales "unexpectedly" began to rebound, they panicked and realized what they had done. You'd think these guys had never done an economic forecast or used an MRP system before in their lives.

Anyway, be prepared for hundreds of stories like this. For each one, be careful to ignore the details and instead focus on the big picture. In about 90% of them, it will be the same: They didn't plan for the pandemic to ever end, and now they're paying the price.

59 thoughts on “The Great Reopening Will Generate a Million Identical Stories

  1. Brett

    You'd think these guys had never done an economic forecast or used an MRP system before in their lives.

    These guys are all deathly afraid that they might have to run a loss and cut into their cash reserves, or (heaven forbid!) cancel a share buyback or dividend payment. So they over-reacted once it became clear this wasn't going to be over by May 2020.

    1. tigersharktoo

      " cut into their cash reserves, or (heaven forbid!) cancel a share buyback or dividend payment. "

      or tinker with the stock option plan for top management. Taking a cut from $20 to 19 million? The shame of it.

        1. MontyTheClipArtMongoose

          They wouldn't be able to show their faces at Walker Bragman's parents's place ever again.

    2. FMias

      Or deathly afraid going bankrupt.

      The Lefty economic illiterates love commenting like every company is Stock Exchange listed Fortune 500 company, but guess what....

      Almost all companies are private, don't report Quarterly to Wall Street and lots and lots of companies throughout the supply chains have been hand-to-mouth on liquid cash.

      It's really not hard to understand if you actually manage a real company - yeah of course we all have known the economy is coming back, but when, and how long do we need to hoard cash because also our own buyers are paying us 90, 120 180 plus days late, or partial pay....

      Basing your understanding of the challenges of the businesses facing the pandemic on Wall Street is basing your understanding on 1% of the business ecosystem.

      1. chester

        I don't think a lot of the mom and pop carmakers account for the cancelled chip orders, but I think I see what you want to convey.

      2. Midgard

        All debt from Wall Street runs down hill. With debt liquidation, these small firms wouldn't even exist anymore. The entire business sector failed.

  2. J. Frank Parnell

    Computerized MRP systems can create their own instability on occasion. As all the customers cancel their orders, the suppliers see the loss in orders and respond by cutting their estimated delivery times. The customers MRP systems see the shorter delivery times and in response reduce orders further. What the MRP systems (and inattentive management) at individual companies miss is that when demand picks up, everyone will increase their orders and estimated delivery times will go back up.

  3. cmayo

    Is this why GPUs (that's video cards) have been more than 4x previously-regular price for the last 6 months?

    1. fourstick

      No -- that's because of Ethereum mining almost entirely.

      NVIDIA and AMD never cut their GPU orders from fabs because they update their GPU designs on an annual or bi-annual basis and have done so for 20+ years.

  4. Salamander

    The same old, same old increasingly tired story I've grown tired of hearing is The Interview with Still Pro-Trumpers in Hinterlands Diner.

    1. cld

      As if there's something about these idiots we still don't get and it's really all our fault, the same story the news media have been running about wingnuts since at least 1969.

      1. Midgard

        They don't even like themselves. They fantasize themselves the rich white guys on "Billions" but don't have the drive or ability to join that club. Thus you see the self-hatred and lack of a real left wing group to rally them, so they hero worship the debt loving rich and blame excessive liberalism. Lets face it, woke is driven by Millsian Liberalism than Socialism, but I would guess each blubbering fool in the diner would have bigger beer face at the suggestions.

        1. J. Frank Parnell

          Ever notice how most white supremicists are less than great examples of the race? They brag about the accomplishments of "white culture" but how many of them have ever written a great book, painted a great painting, or made a great invention?

          1. Mitchell Young

            The guy that wrote the Declaration of Independence was a white supremacist, as were the guys that wrote the Federalist Papers (bonus: Hamilton wasn't Puerto Rican). Abraham Lincoln was a white supremacist. Darwin probably and Galton definitely were 'white supremacists'.

    2. Mitchell Young

      I'm sick of reading how 'the crops are rotting in the fields' because of some very minor attempts at enforcing immigration laws. Not only do the crops somehow magically get harvested every year, but only 4% of illegal immigrants work in ag.

      Now, if the story was suburban OC residents lawns are going uncut...that would be more accurate.

  5. bharshaw

    Oh come on Kevin. You're getting grumpy. You know it's hard for people to turn their gaze and attention away from their belly button.

  6. D_Ohrk_E1

    "And only now, for reasons that remain puzzling, are they realizing that the pandemic wasn't a permanent condition and they need to ramp up production."

    You forget, there's a cost associated with holding inventory. Also, a lot of producers responded to this recession as they would any other recession. The 2008-2009 recession's trauma, particularly the slow recovery, hit producers hard.

  7. bbleh

    Yeah you'd think they'd order ahead because Inflation Monster coming to EET US IN OUR BEDZ!!

    Unless of course it's possible that they ... um ... don't believe that either.

    1. MontyTheClipArtMongoose

      If the 1970s stagflation was caused by the Arab oil embargo, e.g. a lack of oil for vehicles, imagine what will happen as more cars go electric.

  8. golack

    There was a fire in a plant in Japan and the TX freeze knocked out, what, four FABs:
    https://www.bbc.com/news/technology-56114503

    I ran across another article on this which pointed out a shutdown doesn't just mean you lose production for those days--but you may have lost much of what was in line, meaning months until fully recovered.

    Shutdowns mean excess demand for electronics, so more chip demand. Little if any excess capacity. Now plants being knocked out.

    Or, "How Texas screwed our recovery"

  9. fourstick

    I think that's making this way too simple. It's not that they didn't think the pandemic would ever end -- these are the same companies that are continuing to invest in electric vehicles at the same time.

    What the really didn't understand was the level at which their supply chain was unified rather than diversified with respect to the chips that go into the sensors that make up lots of components of a modern vehicle.

    I think many here would be amazed at how little actual visibility many executives manufacturers of vehicles and heavy machinery have into the diversity of their supply chain. They're not completely unaware, of course, but they usually fail to understand how relatively minor disruptions have massive bullship effects on just-in-time production methods used virtually everywhere these days and how much power chip fabricators actually have to put you at the back of the line when necessary.

    Apple hasn't really had any issues, thus far, with chips. They design nearly all of the chips that go into their devices (with the exception of cellular modems made by Qualcomm), they're made mostly by TSMC, and therefore they provide forward guidance on chip needs to TSMC as well as ensure they place orders timely and they never, ever cancel.

    Car company executives don't think like this. Most of their supply chain evolved towards serving them directly and distinctly, and those suppliers are generally the ones that have to supply the units with the chips. So car companies didn't cancel chips from TSMC, they cancelled orders from their suppliers, and their suppliers have incredibly thin margins and THEY cancelled chip orders.

    What the car companies ought to learn from this is: "Geez, Fred, we really ought to think about diversifying our supply chain around chips." Which is easier said than done, but is a driving factor behind Intel announcing that it will become a contract manufacturer for the first time in history and TSMC receiving federal funding to open a chip fab here in the U.S.

    1. fourstick

      If Congress was smart, they would provide some direct investment and loan guarantees to backstop the building of additional chip fabs here in the U.S. from Global Foundries, TSMC, and Intel and require those fabs to be contract fabs for chip designers who don't fabricate their own chips (basically everyone these days). This truly is a national security issue and should be addressed that way.

  10. skeptonomist

    Kevin seems to be under the strange delusion that economists can foresee the future. Even under ordinary conditions they can't do it - projections are rarely right. Just because somebody cranks out a projection doesn't mean that confidence can be placed in it. Out of all the companies that make projections, some will get it right if only by chance. Demand for chips, for example, can go either up or down, so flip a coin. Others will get it wrong, but sometimes those who get it wrong will be in a large majority. But the pandemic is unique in the memory of living executives and economists, so in this case especially the data did not exist to make any kind of secure projection.

    Of course economic projections are influenced by politics (among other things) and the parties are constantly putting out biased predictions.

  11. Marlowe

    I'm not sure if it was addressed in this piece, but there is also a DAC shortage. DACs (digital to analog converters) convert digital audio signals into analog that can then go through an amp and be output through speakers or headphones. Every electronic device that accepts a digital input and outputs sound--computers, phones, TVs, tablets, and more--has a DAC. DACs range from tiny ten cent chips in phones to external audiophile DACs that can weigh 30 pounds and cost many thousands of dollars. (As a relatively poor audiophile headphone hobbyist, I have several external standalone DACs that cost "only" in the low to high three figures.)

    There are two companies (AKM and ESS) that make the high end chips that are the basis of most (but not all) audiophile DACs, as well as many cheaper DACs for other devices. Late last year, AKM's factory in Japan was completely destroyed by fire. This has caused price increases and supply shortages of AKM equipped audiophile DACs and those with knowledge of the TV industry have cited this as one of several factors that may cause a TV shortage this year.

    1. fourstick

      DAC's are just the tipping point of it: There are severe shortages right now of analog chips (what are sometimes called linear integrated circuits), which are critical for many high power applications.

      Let's say, for instance, you had a politician announcing a giant investment in electrical grid infrastructure. CMOS and BiCMOS chip supply would be integral to such an investment.

  12. Goosedat

    There are a million stories of the big shots in finance and marketing perverting JIT and TQM with Lean Management to push down responsibilities to those with the least authority for short term gain. Anyone in the workplace could easily explain how the emphasis on reducing redundancy has strictly limited capacity and the quality of work, but Lean Management is used to prevent their expertise from being used to increase workplace productivity.

  13. Clyde Schechter

    Mr. Drum is in a strange mood today, throwing around the word idiot more than usual. I think I mostly agree with its use in the other post on social media. But for this one, not so much.

    I don't think failure to predict that the pandemic and its related economic effects would turn around just about now makes you an idiot. In fact, it remains to be seen whether this really is the start of recovery, or just another blip before we go on to a fourth wave here. Yes, things look fairly good on all fronts now, but the vaccination effort is starting to hit a wall of resistance that it may or may not succeed in overcoming. Meanwhile, people are starting to abandon social distancing and masking and the like. And nobody knows how long the immunity provided by the vaccines lasts.

    So, nobody can really say with certainty that we won't be back to lockdowns again perhaps a few months from now. I sure hope not--but I can't blame a cash-strapped business for waiting until the signs are clearer that the end, not just a temporary reprieve, is really at hand.

    1. Midgard

      What Wall of resistance??? Nope. Many states are 60+% with one shot 18+ now. Lockdowns and restrictions are over. The Darwin awards are for the unvaccinated.

  14. Rich Beckman

    "Lesley Stahl's inane reporting""

    What drove me nuts was after the Intel guy stated that 12% of chips were made in the US, no effort was made to determine what percentage of chips are consumed by the US.

    Seems like the obvious question.

  15. Mitchell Young

    They were caught off guard by the quick end to the pandemic brought about by the highly successful vaccines developed under the Aegis of President Trump's Operation Warpspeed or with dollars from advance purchases initiated by the Trump admin.

    1. Loxley

      'Pfizer CEO Albert Bourla said that the company decided against taking Warp Speed funding for the development of the vaccine out of a desire "to liberate our scientists [from] any bureaucracy that comes with having to give reports and agree how we are going to spend the money in parallel or together".[53]'

      https://en.wikipedia.org/wiki/Operation_Warp_Speed

      1. Mitchell Young

        "Pfizer initially said it was not a participant in Operation Warp Speed because it did not accept taxpayer funds for research and development, but the White House said the government's advance-order purchase for a hundred million doses of vaccine made Pfizer a participant.[59] Company representatives said in November that "the company is part of Operation Warp Speed as a supplier of a potential coronavirus vaccine,"[60] and that "Pfizer is proud to be one of various vaccine manufacturers participating in Operation Warp Speed as a supplier of a potential COVID-19 vaccine."[61] A spokesperson for Pfizer, however, clarified that they had "not taken federal money for R&D",[62] but rather its partner, BioNTech, had received substantial funding for accelerated vaccine development and manufacturing from the German government.[52]"

        Money is money...it is fungible, whether earmarked for R and D or purchases. And several other firms did take Warpspeed R and D money, Johnson and Johnson, Moderna and AstraZeneca.

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  17. Loxley

    Meanwhile, incompetent business owners are blaming bad service on the fact that humans hate working because Unemployment exists....

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  24. geordie

    I did not watch the piece but it sounds like they did not talk about one of the other major issues. The chips used in cars tend to be several generations old using what is now very much trailing edge technologies with low retail prices. Any smart chip fab moved where the demand was at the time which was for the expensive cutting edge chips that were going into laptops and cell phones. Creating new trailing edge manufacturing lines is not something most fabs are going to want to do.

  25. memyselfandi

    Kevin Drum's analysis is completely off the mark because it ignores the fact there is a shortage of all chip types across all industries. Demand is up and it takes years and 10s of billions of dollars to increase capacity.

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