Business | The Atlantichttps://www.theatlantic.com/business/2023-10-31T21:24:43-04:00Copyright 2024 by The Atlantic Monthly Group. All Rights Reserved.tag:theatlantic.com,2023:39-672774<p><small><i>This article was featured in One Story to Read Today, a newsletter in which our editors recommend a single must-read from </i>The Atlantic<i>, Monday through Friday. </i><a data-saferedirecturl="https://www.google.com/url?q=https://www.theatlantic.com/newsletters/sign-up/one-story-to-read-today/&source=gmail&ust=1675441220745000&usg=AOvVaw1Sm3HJub6JbpyhsVVOJySs" href="https://www.theatlantic.com/newsletters/sign-up/one-story-to-read-today/?utm_source=feed" target="_blank"><i>Sign up for it here.</i></a></small><i><small> </small> </i></p><p class="dropcap"><span class="smallcaps">When the investor</span> Carson Block arrived for an appointment at the Pierre hotel, in Manhattan, in 2017, he knew he was about to meet with an impostor. In the elegant Rotunda Room, surrounded by marble columns and a sky-blue mural, Block sat across from the dark-haired man who had extended the invitation. A security team that Block had brought with him fanned out around the hotel. After fielding a few pointed questions from the man, Block turned the conversation around. He raised his phone to film the encounter and said, “I’d like to know who you really are.”</p><aside class="callout-placeholder" data-source="magazine-issue"></aside><p>For more than a year, the mystery man, who spoke with a French accent, had presented himself in emails as a Paris-based reporter at <i>The</i> <i>Wall Street Journal</i> named William Horobin. But Block had already made an approach to the real Horobin, who has an English accent, and learned that he hadn’t sent those emails.</p><p>Based on the impostor’s inquiries, Block had a strong suspicion about why he was there. Beginning in 2015, Block’s hedge fund had published a series of highly critical research reports about Groupe Casino, an international retailer based in France. Block believed that Groupe Casino had sent this man on a spying mission to suss out his next moves.</p><p>Confronted on camera, the man denied it. He looked around the room and flashed an awkward smile that quickly fell from his face. Then he ran for the door, managing to evade Block’s security team.</p><p>The man was soon identified as Jean-Charles Brisard, a prominent corporate-security-and-intelligence consultant who had, in fact, regularly performed work for Groupe Casino, <a href="https://www.wsj.com/articles/in-a-meeting-with-short-seller-carson-block-impersonator-caught-on-video-1509901548">according to reporting by the actual <i>Wall Street Journal</i></a>. (The company has disputed Block’s reports and denied any role in the episode at the Pierre. Brisard did not respond to a request for comment.)</p><p>Carson Block lives for showdowns like this. He’s a short seller: a stock-market investor who looks for troubled companies and places bets against their share price. While most investors root for every uptick in the market, a short seller cuts the other way, making his profits when everyone else is failing. And in Block’s case, he can single-handedly tilt the odds in his favor. He is what’s known as an activist short seller, a newer and more aggressive variant. After activist shorts conclude that a company is headed for peril, they don’t quietly wait for the share price to fall. They try to make it happen.</p><p>About five times a year, Block unveils his latest campaign. In tweets and TV appearances, he announces that his hedge fund, <a href="https://www.muddywatersresearch.com/">Muddy Waters Capital</a>, has taken a short position in a particular stock, and he simultaneously publishes a research report about the company online, often alleging deception or outright fraud. He stands to profit if the share price plunges in response—and it frequently does.</p><p>Activist shorts see themselves as fraud busters. Their reports are like oppo-research dossiers, informed by document dives, intelligence from outside sources, and, often, firsthand detective work. A man hired by Muddy Waters once smuggled a watch outfitted with a secret camera into a high-security facility by hiding it in a body cavity. Back when he did his own fieldwork, Block lined up a meeting in Singapore under an assumed name and hired a makeup artist to disguise him as an older man. (The ruse was totally unconvincing, he admitted: With fake wrinkles and a cotton-ball mustache that flapped around when he breathed, he felt like “fucking Colonel Sanders” and found himself speaking with a southern accent.)</p><figure><img alt="black-and-white photo portrait of Carson Block against black background" height="998" src="https://cdn.theatlantic.com/media/img/posts/2023/02/WEL_Hughes_ShortSellersPortrait/daf799571.jpg" width="665">
<figcaption class="caption">Activist short sellers like Carson Block see themselves as fraud busters. (Brandon Thibodeaux for <em>The Atlantic</em>)</figcaption>
</figure><p>Regardless of their methods, short sellers are regularly condemned by everyone from ordinary investors to members of Congress to Elon Musk. The practice is widely seen as a predatory attempt to profit from the stumbles of companies that employ hardworking people and support the economy. The typical response from the activist-short world is, in essence, a raised middle finger. On Twitter, they relish in trolling their enemies. A company deemed to be worthless is a “shitco,” a “zero,” a “bagel.” They’re constantly sniping at Musk, whose company Tesla they’ve long considered outrageously overpriced.</p><p>I recently met with Block at the Muddy Waters offices, in Austin, Texas. At 46, he has the air of a bright fraternity guy who reluctantly behaves himself around grown-ups only when necessary. He has a linebacker’s physique, with massive upper arms. At the office, he looked most at home in a law-school sweatshirt, throwing around profanities and chewing on Life Savers. He drank an afternoon beer, joked about circumcision, and used the jerk-off gesture while recording an episode of his streaming show, <i>Zer0 Fucks Given</i>.</p><p>But despite the outsider posture, Block and a handful of similar activists have gained real influence. After years as an independent operator, Block was able to open his hedge fund in 2015 because representatives of an Ivy League university’s endowment approached him at a conference and soon offered a $100 million initial investment. He appears regularly on CNBC to opine on the markets. The Securities and Exchange Commission and the Department of Justice have cracked down on misconduct that Block and his competitors have exposed. Robert Jackson, a former SEC commissioner, said onstage at a conference last summer, “Carson Block has uncovered more fraud and saved investors more money than me or anyone else who’s had the job I had as an SEC commissioner.” In March 2022, after a Muddy Waters report sparked a successful case, the SEC granted Block a <a href="https://news.bloomberglaw.com/securities-law/carson-block-sued-over-14-million-sec-whistle-blower-award">$14 million whistleblower award</a>.</p><p>This latest accolade came with a dose of incredible irony, however: The SEC is investigating Block himself, and so is the Department of Justice. On a Friday morning in October 2021, Block was putting his young son in the car when three strangers approached wearing blue windbreakers with yellow lettering on the back—FBI. They showed him a search warrant authorizing them to seize two phones and a computer. This was how Block learned that he was a focal point of a sprawling criminal investigation. The DOJ is probing a number of prominent short sellers, with special scrutiny on the activist crowd. The investigation, which is still unfolding, has given an electric charge to a long-running dispute: Are activist short sellers the heroes of Wall Street, or the villains?</p><p class="dropcap"><span class="smallcaps">There was a time</span> when short sellers generally preferred to stay behind the curtain. If they wanted to move the market with a hard-hitting story, they went through the press. Investors would quietly approach reporters with suspicions of corporate deceit or even bring them a stuffed research file, on condition of anonymity: <i>If you call this scientist, he’ll tell you why this drugmaker’s claims about its product don’t make sense. </i>In 2000, the investor James Chanos famously detected an odor at a Wall Street darling called Enron, shorted the stock, and spoke with Bethany McLean at <i>Fortune</i>. She ran with the story and <a href="https://bookshop.org/p/books/the-smartest-guys-in-the-room-the-amazing-rise-and-scandalous-fall-of-enron-bethany-mclean/7678702?ean=9781591846604">eventually co-wrote a best seller about the energy giant’s epic downfall</a>.</p><p>Today’s activist short sellers want to write the exposé themselves. For them, the press is too stingy for deep investigations, too scared of litigation, too slow. Andrew Left, one of the field’s pioneers, told me, “I’m not going to wait for <i>The</i> <i>Wall Street</i> fucking <i>Journal</i>.”</p><p>The activist shorts trace their origins to the wilds of the early consumer internet, amid the first dot-com boom. On the message boards of Silicon Investor, RagingBull.com, and Yahoo, a few contrarians would set out to deflate overhyped start-ups, usually under pseudonyms. The funnier and more brazen voices gained a following, and Left was inspired to join in.</p><p>Left had once been sanctioned for defrauding customers during a youthful stint in a boiler room, where he cold-called easy prey to sell them on scammy investments. Later, he started shorting the types of dubious stocks he used to tout over the phone. On his rudimentary website, StockLemon.com, he wrote takedowns in the emerging lingua franca of the internet, riffing on pop culture and quoting rap lyrics. He initially went after penny stocks that were being heavily promoted online, and a growing list of his targets ended up facing regulatory penalties. After a while, he started hunting bigger game and gave StockLemon the more dignified name <a href="https://citronresearch.com/">Citron Research</a>. In 2015, he <a href="https://www.wsj.com/articles/the-short-who-sank-valeant-stock-1445557157">helped unravel a scandal at Valeant Pharmaceuticals</a> that tanked the share price and led to prison time for two executives connected to the company. Left embraced the role of a guy of modest origins crashing the gates of blue-blood Wall Street. In one report about a company called Medbox, he wrote, “You have to be smoking crack to buy this marijuana stock.” He issued a dare to the founder and CEO: “Your first reaction will be to want to sue me. I hope you do!”</p><p>Carson Block entered the picture almost accidentally. He grew up in New Jersey, the son of an alcoholic parent (he won’t say which one). As a student he talked back to teachers, blew off tests, and set the school record for time served in detention. His father was an analyst on Wall Street who promoted stocks he liked, and Block did enough work for him to grow suspicious of the whole scene: CEOs, bankers who took companies public, PR people—he thought they seemed like a bunch of liars. He went to the University of Southern California and law school; did stints as a banker and a lawyer; and lived for years in China, where he opened a self-storage business that failed.</p><p>In January 2010, he was an angry 33-year-old expat with debt when he visited a remote factory in a snow-covered area of Hebei province. He was there on behalf of his father, to conduct some due diligence on a publicly traded paper manufacturer called Orient Paper.</p><p>Block and a friend who accompanied him found a business that bore no apparent resemblance to the thriving operation that Orient Paper purported to be. The country road leading to the factory couldn’t support the truck traffic the plant ought to have been producing, they thought. According to Block, the building was filled with steam and dripping water, posing obvious hazards for paper products. A stock of raw material allegedly worth millions was a heap of scrap cardboard sitting outside in the snow. After seeing even more red flags in Chinese public records, Block used a credit-card advance to place a $2,000 short bet and sent out a brutal analysis under a new banner, Muddy Waters, in an email to a few dozen Wall Street contacts he barely knew. “We are confident,” <a href="https://www.muddywatersresearch.com/research/orient-paper-inc/initiating-coverage-onp/">the report said</a>, that Orient Paper “is a fraud.” It was forwarded all over Wall Street and got a mention on CNBC. Although the company denied the allegations, the stock fell by as much as 24 percent within two weeks, and it has never recovered. Block completely bungled his trading in the aftermath of the report and ultimately lost money, he told me, but he had found a career.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2015/09/how-wall-streets-bankers-stayed-out-of-jail/399368/?utm_source=feed">From the September 2015 issue: How Wall Street’s bankers stayed out of jail</a>]</i></p><p>People started contacting Block with their suspicions about other companies operating in China, and he and a small group of collaborators dug in. They soon took on a much bigger target: Sino-Forest, a timber producer. The outfit had a prominent backer, John Paulson, who had recently made a fortune by effectively shorting the housing market ahead of the global financial crisis. The <a href="https://www.muddywatersresearch.com/research/tre/initiating-coverage-treto/">Muddy Waters report</a>, packed with photos and on-the-ground analysis, stated that Sino-Forest was a “near total fraud,” claiming to buy and sell vast tracts of timber that simply didn’t exist. The $4 billion company collapsed into bankruptcy within a year, and a Canadian regulator validated many of Block’s findings. Paulson took an enormous loss, and this time Block won big—a “life-changing” trade, he said.</p><p class="dropcap"><span class="smallcaps">The Muddy Waters </span>headquarters is a loftlike space a few blocks from the Texas capitol and governor’s mansion, with exposed beams and brick and a wall decorated with mementos ridiculing Block’s enemies. In an office bathroom, a poster bearing the letterhead of the consulting giant McKinsey & Company gives instructions on masturbation. To Block, McKinsey helps companies get away with things they shouldn’t be doing, just like the elite law firms he’s often pitted against.</p><p>In a conference room, one of Block’s analysts walked me through a draft report that Muddy Waters was preparing, on the condition that I not reveal the target. Block is obsessive, even paranoid, about preventing leaks, which can jeopardize his ability to profit from a big reveal. The document used a code name for the company—a fake ticker symbol—in case of prying eyes. It had been heavily annotated by at least four people.</p><p>Block describes what he does as “investigative journalism married to a different business model” and is trying to rebrand activist shorts as “journalist investors.” During my visit, he joined, via remote video, a Delaware court hearing, in which Muddy Waters’ counsel contended that the fund should be protected from a subpoena by the state’s shield law for journalists.</p><p>The argument is a stretch. Aside from the fact that attempting to profit from an article would make objectivity impossible for a reporter, much of what activist shorts do would have no place in a newsroom. Their reports are more like prosecutorial briefs than news stories, with little to no airing of opposing views. Any reputable reporter will approach a company before publishing damning allegations, to offer a chance to respond or correct errors. Activist shorts don’t generally do this, because the target could mess up the trade. Block and his competitors have also used muckraking tactics that would be forbidden at most news organizations: undercover work, paid sources, covert recordings. They’ll spy on factories and trick security guards into revealing precious information. Block maintains that if you want the ugly truth, you can’t go in through the front door.</p><p>Short activism’s borderline methods became a focus of last fall’s criminal trial of Trevor Milton, the former CEO of the electric-vehicle maker Nikola Corporation, who was convicted of fraud and has since moved for a new trial. In a 2020 report, Nate Anderson, of Hindenburg Research, accused Milton of a series of lies and <a href="https://hindenburgresearch.com/nikola/">revealed a delicious detail</a>: In a promotional video that showed a prototype of Nikola’s hydrogen-fuel-cell truck cruising across a desert landscape, the truck was not in fact traveling on its own, because it didn’t work. It had been towed up a hill, and the only thing powering it was gravity.</p><p>Jurors watched the video over the protestations of defense attorneys, who later emphasized that Anderson had rewarded his source, a former Nikola contractor. A paid source has an incentive to exaggerate, and Anderson had cut his in on the short bet, resulting in a $600,000 payout. Anderson said it was appropriate to compensate the whistleblower for his efforts and risk, and that all allegations had been vetted by Hindenburg.</p><p>In early 2022, Anderson got particularly creative on another project. His team was investigating a suspected Ponzi scheme involving an investing firm called J and J Purchasing. To get a meeting with J and J’s principals, they enlisted a man with experience in improv comedy to pose as a prospective client. A meeting occurred at a private airport in Nevada, aboard a jet that Hindenburg had chartered for the occasion to lend the impression of fabulous wealth. The plane was outfitted with hidden cameras and microphones.</p><p>Anderson told me that when a friend first proposed using a jet as a baited trap, “I thought it was a pretty insane idea. And it took me about five seconds to really love it.” There was no way to short J and J, because it wasn’t publicly traded, but Anderson’s company filed a whistleblower claim with the SEC, putting it in a position to be paid should the agency recover significant funds in a case.</p><p>The FBI had the secret recordings from the jet when its agents paid a visit in March 2022 to a lawyer who helped run the scheme, looking to execute a search warrant at his Las Vegas home. Then the tale of a vigilante caper gave way to something more grave. The attorney, Matthew Beasley, came to the door holding a gun to his head. He swung the weapon toward the agents, a prosecutor later said, and was shot in the chest and shoulder before retreating into the house. During an hours-long armed standoff, Beasley spoke of suicide and confessed to an FBI negotiator that he had scammed investors out of some $300 million. He was finally taken into custody. The SEC has <a href="https://www.sec.gov/litigation/litreleases/2022/lr25434.htm">brought charges against 15 people</a> allegedly connected to the operation, and court filings indicate that Beasley is negotiating a possible plea deal. Anderson has submitted <a href="https://hindenburgresearch.com/jj-purchasing/">Hindenburg’s report</a> for consideration for the Pulitzer Prize in investigative journalism.</p><p class="dropcap"><span class="smallcaps">At a conference </span>called <a href="https://www.law.berkeley.edu/multimedia/fraud-fest-2022/">Fraud Fest</a> this past summer in Manhattan, Andrew Left, 52 and well tanned, took the stage wearing white-leather shoes with tassels and a crisp pink shirt. The annual event attracts academics, lawyers, and journalists with an interest in corporate misconduct, but short sellers are a big draw, because they can be counted on to throw a few grenades. During Left’s appearance, he lobbed one at Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX. This was months before Bankman-Fried’s meltdown, but Left ridiculed him as a shifty guy posturing as the “Federal Reserve of crypto” in the Bahamas. “I think crypto—it’s just a <i>complete</i> fraud,” Left said.</p><p>The usual suspects were in attendance. Nate Anderson was there, along with some of the older generation of big leaguers who don’t publish their research, such as Jim Carruthers and Jim Chanos, of Enron fame. Block was set to join the proceedings remotely for the conference finale.</p><p>The shorts are a small circle who refer to one another by first name. There are a few bitter rivalries, but the group is united by a deep conviction that just about everyone else is corrupt or clueless. Within this crew, Chanos is something like the elder statesman—he has gray hair and teaches a class at Yale—but even he tweets “LOL” and “AYFKM” from <a href="https://twitter.com/WallStCynic">a pseudonymous account</a> that everyone knows is his.</p><p>Soren Aandahl, of Blue Orca Capital, compared the short world to the bizarro cantina in <i>Star Wars</i>—a “motley collection of ridiculous characters” who exist “on the outer rim, at the edge of the empire.” This club has fewer Ivy League types than the rest of Wall Street, and more guys with tattoos. To be a short is to swim against the current of history, especially since the global financial crisis, the era of short activism’s ascendancy. Despite the bear market of the past year, if you zoom out on the timeline of the financial markets, the charts go up and to the right—the bulls win.</p><p>Membership also involves maniacal levels of risk. If you “go long” by buying stock, like most investors, the worst you can do is lose the money you put down in the first place. To short a stock, you borrow shares and then immediately sell them. The hope is that later you can buy the shares for cheaper, return them to the lender, and pocket the difference. But at some point, you need to make your move and “cover”—buy back those shares you owe. And because there is no limit to how high the price can go, there’s no limit to how much you can lose. If you shorted Enron too early, you faced serious paper losses as the share price soared. Unless you had steely conviction and a large balance sheet, you likely gave up before the plunge proved you right. After the mega-investor Bill Ackman made <a href="https://www.theatlantic.com/magazine/archive/2014/06/wall-streets-6-billion-mystery/361624/?utm_source=feed">a big bet against Herbalife</a> and waged a public battle that didn’t pay off, he declared that activist short selling was “not worth the brain damage.”</p><p>At the Fraud Fest conference, there was a lot of talk, as usual, about Elon Musk, who was then in the midst of his doomed attempt to back out of buying Twitter. In private huddles and onstage, the shorts were grinning at the prospect that he’d be forced to close a raw deal. If the shorts have an Enemy No. 1, it’s Musk.</p><p class="dropcap"><span class="smallcaps">About a decade ago,</span> short sellers began zeroing in on Tesla. They saw the company as just another fanciful tech “story,” propped up by credulous investors and fanboys. The idea that a start-up would beat established automakers by selling millions of electric cars was a pipe dream. Plus, Tesla was burning through cash. In 2017, Chanos said he thought the stock was “worthless.” Most prominent short sellers have bet against the company at some point. Musk has responded with characteristic attitude over the years, arguing that short selling should be illegal and calling its practitioners “jerks who want us to die.”</p><p>The feud heated up in 2018, when Musk teased that the “short burn of the century” was coming. Weeks later, he <a href="https://twitter.com/elonmusk/status/1026872652290379776?lang=en">tweeted</a> that there was “funding secured” to take Tesla private. The share price predictably rose; the buyout never happened. Left lost money and sued over the tweet, alleging that Musk had violated securities law by making a false statement. “I think Elon is a criminal,” Block told me. Musk <a href="https://www.theatlantic.com/technology/archive/2018/10/elon-musk-tesla-sec-twitter/572230/?utm_source=feed">reached a settlement</a> with the SEC, or, as he called it, the “Shortseller Enrichment Commission.”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2018/10/elon-musk-tesla-sec-twitter/572230/?utm_source=feed">Read: Elon Musk mocks SEC on Twitter days after settlement</a>]</i></p><p>Despite Block’s antipathy for Musk, over the years he has concluded that the mogul plays “the public-company game” better than anyone. Musk understands the power of rallying your fans and investors against an enemy in a fight that feels righteous. What better enemy than short-selling hedge funds? In recent months, Tesla has finally had the precipitous fall that the shorts had long predicted. Unfortunately for them, most had already closed their positions in despair. In 2020 and 2021, with considerable help from everyday traders who idolize Musk, Tesla’s stock skyrocketed, costing the shorts oceans of money. A delighted Musk announced a new product: Tesla-branded red-satin “short shorts.” A rush of fans crashed the website.</p><p>Those years, during the worst of the coronavirus pandemic, were rough for short sellers. The government pumped trillions into the economy to prop it up, sending markets to the sky. Companies that shorts believed were “bagels” got a ride on the froth. Block thought it was obscene: Bogus crypto schemes were running rampant, COVID was killing people by the tens of thousands, “and the markets were ripping!” A custom sweatshirt hangs on the wall at Muddy Waters. It reads <span class="smallcaps">2020: Does Anything Matter Anymore?</span></p><p>And then came GameStop. On Reddit boards and other social media, day traders argued that Wall Street pros were undervaluing unglamorous stocks such as GameStop, a brick-and-mortar retailer of video games. Other users gleefully pointed out that these stocks were heavily shorted, which presented an opportunity: If enough people banded together to bid up the price, they could induce the #MOASS, the mother of all short squeezes. In a short squeeze, a spiking price causes panicking short sellers to close their position by buying the shares they owe—which only drives the price higher still.</p><p>Forming a stampede, the Reddit crowd sent GameStop and other widely shorted stocks <a href="https://www.theatlantic.com/ideas/archive/2021/01/why-everybody-obsessed-gamestop/617857/?utm_source=feed">to unimaginable heights</a>. They called themselves “degenerates,” casting themselves as the riffraff of the market. Left tried to push back, telling GameStop buyers they were “the suckers at this poker game.” The mob ran him over. Left took an eight-figure loss on his trade. He and his family were inundated with hacking attempts, threatening texts, and prank pizza deliveries in the middle of the night, he said. Musk, already an idol to many degenerates, tweeted a link to the Reddit board and invoked the in-crowd lingo: “Gamestonk!!”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2021/01/why-everybody-obsessed-gamestop/617857/?utm_source=feed">Derek Thompson: The whole messy, ridiculous GameStop saga in one sentence</a>]</i></p><p>The Redditors painted the shorts as enemies of the people, and it worked. “Private funds engaged in predatory short selling to the detriment of other investors must be stopped,” Representative Maxine Waters of California said, <a href="https://twitter.com/FSCDems/status/1354901344704991232?ref_src=twsrc%5Etfw">announcing an investigation</a> following the GameStop episode. For the shorts, it was absurd. They had just been left for dead in a coordinated short squeeze—and they were the bad guys? Left had always thought of himself as David to the Wall Street establishment’s Goliath. Now he was Goliath.</p><p>Days after taking a beating on GameStop, on January 29, 2021, Left announced his indefinite retirement from activist short selling in <a href="https://www.youtube.com/watch?v=TPoVv7oX3mw">a video posted online</a>. An incredible coincidence followed, although it didn’t become public at the time. Minutes after he recorded the video, federal agents executed a search warrant at Left’s house in Beverly Hills, seizing electronic devices. According to Block, Left called him, sounding shaken. Left told him that a whole crowd of agents was at his house and that the government wanted all his communications with dozens of short sellers about certain stocks. The list included Muddy Waters. Nine months later, the FBI showed up in Block’s driveway.</p><p class="dropcap"><span class="smallcaps">Both Block and Left</span> told me that they are guilty of nothing, and expressed frustration that they don’t understand exactly what crime they are suspected of committing. “I don’t even know what I’m innocent about!” Left said. The DOJ probe began several years before the two men learned of its existence. They both said they have turned over tens of thousands of pages of records to the government.</p><p>Not everyone would talk with a journalist while being investigated by the Department of Justice. Although Block and Left may never be charged, they are living under the threat that they could be arrested at any time. Two of Block’s co-workers were also served with warrants, as was at least one other activist short, an associate of Block’s. (Nate Anderson hasn’t received a subpoena or a warrant and is not a current focus of the investigation.)</p><p>Despite Block’s perilous situation, during many hours of interviews he rarely declined to answer a question. With his methods and trading under legal scrutiny, he described them in detail. He called it “unforgivable” that federal agents served him in front of his young son, and said he suspects that his fate is in the hands of “horrific people” in government. Faced with broad subpoenas naming numerous prominent funds, he and Left have interpreted the investigation, correctly or not, as an attack on the entire practice of short activism, and Block has taken the lead in fighting back. (He complained to me that his fellow short sellers weren’t being more vocal in their own defense.)</p><p>For decades, public companies contending with short reports have countered by accusing them of making false or misleading statements, which can constitute securities fraud or defamation. Block and Left have each been sued over their published claims numerous times. But in cases of that kind, First Amendment protections typically prevail. The current DOJ investigation, which carries much higher stakes than a civil suit, has taken a different approach. According to sources familiar with the matter, the investigation is probing possible coordination surrounding the publication of short reports, looking for signs of market manipulation or other trading abuses. The focus is on trading activity, not the content of the reports. In this respect at least, prosecutors have taken a page from an unusual source: the research of a 37-year-old professor at Columbia Law School named Joshua Mitts.</p><p>Mitts looks young enough to be in college. He has a studious air, a nasal voice, and a doctorate in finance and economics. His work expresses a range of views, including in support of short selling. But he is best known as the author of a paper called “<a href="https://scholarship.law.columbia.edu/faculty_scholarship/2782/">Short and Distort</a>.” He posted it as a preprint in June 2018 and soon became a public voice on the issue. Drawing on trading data, he had reached the conclusion that when short reports were followed by a steep plunge, often the cause wasn’t revelations of purported fraud or mismanagement. Instead, he argued, the drop was more typically prompted by some suspiciously well-timed trades that “mechanically crash” the share price. Mitts noted that traders who appeared to know about a report ahead of time made highly leveraged short bets that were, in a sense, spring-loaded—they triggered automated trading by others that could accelerate a downward move. During the short-term plunge, by his interpretation, the price didn’t reflect true supply and demand. Instead, it was the result of a handful of people gaming the system.</p><figure><img alt="Black-and-white illustration of person peering through jagged downward-trending white line on black grid background" height="717" src="https://cdn.theatlantic.com/media/img/posts/2023/02/WEL_Hughes_ShortSellersSpot/e7fb9f864.jpg" width="665">
<figcaption class="credit">Concept by Seb Agresti; Illustration by <em>The Atlantic</em></figcaption>
</figure><p>This theory was exactly what targeted companies wanted to hear. They invariably faced shareholder suits accusing them of covering up misconduct alleged in short reports. Mitts’s research would allow them to argue in court that the shareholders’ losses were somebody else’s fault.</p><p>Mitts started doing some consulting. He made his first approach to Farmland Partners, a small Colorado firm that invests in agricultural land. It was reeling from a short report that had prompted a 39 percent sell-off, and hired Mitts to help with a lawsuit against the pseudonymous author. Within months, Mitts was advising several companies that had met with the SEC about short activism. He wrote in a column, “Public companies are under attack from manipulative short sellers.”</p><p>Block jousted with Mitts on Twitter, proposing a debate. He believed Mitts was swinging wildly with his allegations and hadn’t proved that short sellers were manipulating the market. He visited one of Mitts’s classes at Columbia and sat down with him to discuss his methods. Then Mitts became a consultant to a company that was seeking to discredit Block after he had shorted it. Block saw this as a betrayal. Within a year, Mitts also began advising the Department of Justice. The activist short sued by Farmland, Quinton Mathews, later came under government scrutiny as well and was questioned multiple times by DOJ officials. Investigators broadened their probe into the wider network of short sellers, including Block and Left. The Justice Department engaged Mitts as an expert in that effort.</p><p>To Block and other activist shorts, the picture suggests a suspicious coziness between the government and corporate America. In their interpretation, companies weren’t having much luck getting regulators to go after short sellers who’d made them look bad. Then along came an Ivy League academic to provide the credentials and intellectual underpinning for an escalating series of legal offensives. On Twitter, Block called Mitts “the tip of the spear in the War Against Shorts.” He argues that shady companies used Mitts’s faulty ideas to advance their agenda—and Mitts managed to gain the trust of the Justice Department. (The DOJ declined to comment.)</p><p>At Fraud Fest, in a recorded interview aired from the stage, Mitts rebutted criticisms that <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4041541">Block had laid out in detail</a>. Block appeared on-screen immediately afterward. He likened Mitts’s comments to “a typical management response to being busted,” prompting laughter from the seats where the short sellers had congregated. Mitts’s scholarship, Block said, was “a pile of shit from top to bottom.” (Block has also accused the professor of academic fraud, and wrote a letter of complaint to Columbia’s human-resources department. The university took no action against Mitts; he was granted tenure during Block’s offensive.)</p><p>Mitts told me that his aims and motives have been badly mischaracterized. If he has been helpful to government officials, he said, “I am very proud of that fact.” But he disputed the idea that he’s the tip of any spear: “The notion that a law professor is directing a federal investigation is as ridiculous as it sounds.” He also questioned the notion that an academic paper would lead a judge to find probable cause to authorize a search warrant. Indeed, the prominent former federal prosecutor Eric Rosen describes a search warrant as a message from the government that says, “We have strong evidence to believe that both a crime occurred and that you were a part of it.” What exactly made the Justice Department arrive at that belief about Block and Left is not yet clear.</p><p class="dropcap"><span class="smallcaps">By now, Block </span>has accumulated the kind of power that seems easy to exploit. When he attended the Hong Kong edition of the Sohn Conference in 2017, he was constantly shadowed by a crowd of reporters as the market feverishly tried to guess what new short he would announce onstage. A lot of people guessed wrong; stocks that weren’t even on his radar fell sharply. They bounced back once he revealed his actual target: a furniture maker in Hong Kong, whose stock immediately plunged. In 2020, when Block announced a short position in the company eHealth during a CNBC interview, the network <a href="https://www.cnbc.com/2020/04/08/carson-blocks-muddy-waters-takes-short-position-in-ehealth.html">showed a real-time graph</a> of the share price next to his face on-screen. The stock fell by 15 percent inside of a minute.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/1930/02/selling-short-the-morals-and-economics-of-margins/650864/?utm_source=feed">From the February 1930 issue: Selling short: The morals and economics of margins</a>]</i></p><p>The mere fact that Block has made a short bet can be enough to pummel a stock, allowing him to profit regardless of the merits of his claims. It is widely believed that traders have developed algorithms to scrape his Twitter feed and website for new mentions of stock tickers in order to beat the rush for the exits. Because the market is now largely an arena in which computers trade with other computers, the downward move can be exacerbated by high-frequency and other algorithmic traders. When the price crosses thresholds that trigger shareholders’ “stop-loss orders,” selling begets even more selling. Was Block right? It barely matters.</p><p>Celebrating a short seller’s campaign is easy when it proves to be on the side of justice. The world benefited when Block revealed that Sino-Forest was riddled with fraud. But many short reports produce a messier outcome—an initial dive in the stock price followed by months of arguments over the author’s allegations, in the markets and sometimes in court. By the time the truth is sorted out, the activist short is long gone: He probably cashed out his winning bet on day one, during the collapse he catalyzed. Block himself doesn’t deny that he starts closing his position right after a report is published, as a means of managing his risk.</p><p>In that scenario, short activism can look more like a get-rich-quick scheme. Take the Farmland case. Mathews, the short seller, ultimately <a href="https://seekingalpha.com/instablog/47800059-rota-fortunae/5605955-mathews-settlement-press-release">admitted in a settlement</a> that he had made serious misstatements in his report, yet he and other shorts still profited on the initial drop. If you cover your trade immediately, Farmland CEO Paul Pittman told me, “you’re not selling into the fact that you have discovered something negative about a public company. You’re selling into the panic that you created yourself.”</p><p>The Farmland episode drew attention to another unadvertised practice: Often the author of a short report is only one participant in a coordinated campaign, and the biggest player is usually invisible. Mathews had targeted Farmland only after a hedge fund that was paying him a monthly fee, Sabrepoint Capital Management, alerted him to the stock. To Pittman, Mathews was a “dupe” and Sabrepoint was the true mastermind. (Sabrepoint insists that it didn’t pay Mathews to publish a report, only to do research, and denies any wrongdoing.)</p><p>Partnerships like this are an open secret in the business, and typically they’re even more direct. An activist short who doesn’t have the capital to fully exploit his idea will often link up with a “balance-sheet provider”—a larger hedge fund that puts on a big trade and gives the author a piece of the proceeds. Block had a silent backer early in his career (and once sold a report to several funds ahead of time). Now, in addition to publishing its own reports, Muddy Waters is the undisclosed balance-sheet provider behind other activist shorts.</p><p>It is unclear whether any of this conduct can be construed as illegal, absent a false statement. But the government could possibly bring a case alleging that activist shorts are guilty of, in essence, a reverse pump and dump. If you tout an investment when your own intention is to sell, you can be charged with a crime—you’ve broadcast a fraudulent opinion in an attempt to manipulate the price. Now invert the scenario. Imagine there’s a stock at $10 and an activist short publicly claims that it’s worth $2 at best. If he starts covering by buying back shares at $7, the theory goes, hasn’t he lied to the market? If you truly believe that the stock is worth $2, why aren’t you waiting for it to fall that far?</p><p>Block shakes his head ruefully at that kind of thinking—if only the world made that much sense. Like many shorts, he has long seen himself as a force of reason, someone who grabs the market by the lapels and says, <i>This company is selling you a fairy tale. Snap out of it.</i> His fierce demeanor grows out of an idealistic belief that if he can show that a company is doing something wrong, the market ought to respond.</p><p>But as the markets have become divorced from economic reality, Block’s idealism has curdled into a kind of nihilism. Sure, he thinks, it would be terrific if a shitco worth $2 a share actually went to $2. But what if a bunch of Reddit degenerates decide to shoot it to the moon because <i>LOL, nothing matters </i>? When you’re operating in an anarchic multiplayer video game, his logic goes, you need to protect yourself somehow.</p><p>To the shorts, Mitts and perhaps the DOJ live in a dreamworld where short sellers have somehow figured out how to control the video game. If you think short activism is a get-rich-quick scheme, they say, <i>you</i> try it. You’ll learn it’s a get-poor-quick scheme too. Last summer, Block lost more money than he ever has in a single trade, he said, due to an epic case of bad timing. He had shorted a solar company, Sunrun, and was preparing to publish his report the next day, when Senator Joe Manchin <a href="https://www.cnn.com/2022/07/27/politics/schumer-manchin-deal-build-back-better/index.html">unexpectedly announced a deal</a> on legislation that would boost the whole solar industry. Sunrun’s stock shot up, too late for Block to back out, and Muddy Waters lost eight figures. “We got Manchined,” he said.</p><p>In Block’s worldview, all you can do is accept the chaos and keep looking for an edge, no matter what kind of ridiculous situations you find yourself in. He recounted to me what happened when, in early 2020, Muddy Waters <a href="https://www.wsj.com/articles/coffees-for-closers-how-a-short-sellers-warning-helped-take-down-luckin-coffee-11593423002">published a deep dive into Luckin Coffee</a>, a company with hundreds of locations in China that was making a run at Starbucks. The analysis drew on more than 11,000 hours of video surveillance and more than 25,000 customer receipts to conclude that some of the sales numbers had to be faked. (Luckin later acknowledged this to be true.)</p><p>Block’s team members hadn’t done the research or writing, but after spot-checking the report, they decided it was credible and tweeted it out. The stock began to tumble. Then, hours later, Andrew Left tweeted that despite his “respect for Muddy,” he took the opposite view: On Luckin, he was a buyer. Boom, the shares rebounded. The truth about Luckin Coffee wouldn’t be known for some time, but for now, the stock had become the plaything of two men. Fortunes would be won and lost based on tweets. It was a farce, but what can you do? Block smiled broadly, like a child, and laughed: “Fuckin’ Andrew.”</p><hr><p><small><em>This article appears in the <a href="https://www.theatlantic.com/magazine/toc/2023/03/?utm_source=feed">March 2023</a> print edition with the headline “The Short Kings.” When you buy a book using a link on this page, we receive a commission. Thank you for supporting </em>The Atlantic<em>.</em></small></p>Evan Hugheshttp://www.theatlantic.com/author/evan-hughes/?utm_source=feedConcept by Seb Agresti; Illustration by The AtlanticThe Man Who Moves Markets2023-02-02T06:00:00-05:002023-10-27T13:36:02-04:00Carson Block uses covert techniques to uncover fraud for profit. Now he’s under investigation himself. Is he the hero of Wall Street, or the villain?tag:theatlantic.com,2022:50-671765<p dir="ltr"><em><small>Updated at 3:30 p.m. ET on October 17, 2022</small></em></p><p dir="ltr">In the fall of 1988, <a href="https://parentsguidecordblood.org/en/news/interview-matt-farrow-recipient-worlds-1st-cord-blood-transplant">Matthew Farrow</a>, a 5-year-old boy with a rare blood disorder, received the world’s first transplant of umbilical-cord blood from a newborn sibling. It worked: Farrow was cured. This miraculous outcome broke open a whole new field in medicine—and, not long after, a whole new industry aimed at getting expecting parents to bank their baby’s umbilical-cord blood, just in case.</p><p dir="ltr">These days, in fact, being pregnant means being bombarded at the doctor’s office and on Instagram with ads touting cord blood as too precious to waste. For <a href="https://parentsguidecordblood.org/en/family-banking">several hundred dollars upfront</a>, plus a storage fee of $100 to $200 every year, the banks’ ads proclaim, you could save your child’s life. Cord-blood banking has been likened to a <a href="https://parentsguidecordblood.org/en/news/cord-blood-insurance-peace-mind-families-need">“biological insurance policy.”</a></p><p dir="ltr">In the U.S., the <a href="https://parentsguidecordblood.org/en/news/worlds-top-10-cord-blood-banks-inventory-and-industry-consolidation">two biggest private cord blood banks</a> are Cord Blood Registry and ViaCord. Together, they have collected more than 1 million units. But only a few hundred units of this privately banked cord blood have ever been used in transplants, the great <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3120215/">majority by families</a> who chose to bank because they already had a child with a specific and rare disorder treatable with a transplant. For everyone else, the odds of using privately banked cord blood are minuscule—so minuscule that the <a href="https://publications.aap.org/pediatrics/article/140/5/e20172695/37866/Cord-Blood-Banking-for-Potential-Future?autologincheck=redirected?nfToken=00000000-0000-0000-0000-000000000000">American Academy of Pediatrics (AAP) recommends</a> against private banking. It does make an exception for families with that disease history. “But that’s a rare circumstance,” says Steve Joffe, a pediatric oncologist and ethicist at the University of Pennsylvania, “and not one that anybody is going to build a successful business model around.”</p><p dir="ltr">ViaCord and Cord Blood Registry do offer <a href="https://www.viacord.com/cord-banking/sibling-connection/">free services</a> <a href="https://www.cordblood.com/family-programs">for families</a> in which someone has already been diagnosed with a condition treatable with cord blood. In general, the companies reiterated to me, cord blood does save lives and they are simply providing an option for families who want it.</p><p dir="ltr">But the marketing also gives the impression of much more expansive uses for cord blood. The private banks’ websites list nearly 80 diseases treatable with transplantation—an impressive number, though many are extremely uncommon or closely related to one another. (For example: refractory anemia, refractory anemia with ringed sideroblasts, refractory anemia with excess blasts, refractory anemia with excess blasts in transformation.) They have also recently taken to highlighting the promise of still-unproven treatments: Temporary infusions of cord blood, they say, could eventually treat more common conditions such as cerebral palsy and autism. <a href="https://www.youtube.com/watch?v=5i_fmK6GO0s&t=7s">Video testimonials feature</a> parents talking excitedly about the potential of cord blood for their children. But the evidence isn’t there yet—and may never appear. Nonetheless, says Paul Knoepfler, a stem-cell scientist at UC Davis, “the cord-blood companies seem to be trying to expand their base of potential customers.”</p><hr class="c-section-divider"><p dir="ltr">The initial exuberance around cord blood came from a real place. The blood left over in umbilical cords is replete with cells that have the special ability to turn into any kind of blood, including red blood cells, which carry oxygen, and white blood cells, which make up the immune system. Adults have stem cells in their bone marrow and blood—which can also be used for a transplant—but those in a baby’s umbilical cord are more immunologically naive. That means they are less likely to go awry and attack a recipient’s body. “They don’t cause as much havoc,” says Karen Ballen, an oncologist at the University of Virginia. This allows doctors to use cord blood that matches only four out of six <a href="https://parentsguidecordblood.org/en/faqs/what-is-hla-type-and-how-is-it-used">immunological markers</a>.</p><p dir="ltr">Because cord blood is so valuable, publicly run banks have been collecting donations since the 1990s. Despite amassing fewer units overall, public banks worldwide have provided <a href="https://pubmed.ncbi.nlm.nih.gov/26030051/">30 times as many units of blood for treatment</a>—and saved more lives—than private ones, because they are accessible by any patient in need. Although the AAP recommends against private banking, it does recommend donating to public banks.</p><p dir="ltr">One appeal of private banking, though, as the companies highlight, is that the cells in a baby’s umbilical cord are a perfect match for them in later childhood or adulthood. But this is usually irrelevant: In most of the diseases that can be cured by a cord-blood transplant, <a href="https://parentsguidecordblood.org/en/diseases">doctors would, for medical reasons, not use the patient’s own cells</a>. In cases of inherited disorders such as sickle cell anemia, for example, a child’s own cord-blood stems have the same problematic mutation. For children with one of many types of leukemia, the concern is that cord blood could contain leukemia-precursor cells that cause the cancer to reappear; in addition, donor blood-stem cells are better because they can mop up remaining leukemia cells. Doctors would “never” use banked cord blood from a child with these types of leukemia, says Joanne Kurtzberg, a pediatrician and cord-blood pioneer at Duke University, who <a href="https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/24625/p333%20Kurtzberg.pdf?sequence=2">helped treat Farrow</a> when he was a young boy.</p><p dir="ltr">When privately banked cord blood is used in transplants, it is more likely to go to a sibling. Genetically, siblings have about a <a href="https://bethematch.org/transplant-basics/matching-patients-with-donors/how-donors-and-patients-are-matched/hla-basics/">25 percent chance</a> of being perfect matches for each other. The chances of finding a suitable match among unrelated bone-marrow or cord-blood donors from a public bank, on the other hand, range from <a href="https://bethematch.org/transplant-basics/matching-patients-with-donors/how-does-a-patients-ethnic-background-affect-matching/">29 to 79 percent</a>, depending on one’s ethnic background. (The majority of donors are white, so it’s highest for white patients.) In any case, not banking a matched sibling’s cord blood doesn’t foreclose the possibility of a transplant, because that sibling can still donate bone marrow. “I often encounter families who have some guilt around not storing the cord blood, and I will point out, ‘Well, your donor child that matches our patient is still here,’” says Ann Haight, a pediatric hematologist and oncologist at Emory University.</p><p dir="ltr">Even if a baby’s cord blood is banked, there’s no guarantee that it will contain enough cells for a transplant. In fact, most may not: <a href="https://www.rand.org/pubs/research_briefs/RB9977.html">Public banks only keep 5 to 40 percent of their donations</a>, as the rest don’t meet their standards. Private banks will save much smaller samples, which they argue serve a different purpose. Whereas public banks are looking for large samples that are mostly likely to be used for transplants, says Kate Girard, the director of medical and scientific affairs at ViaCord, “when families are banking with us, this is that child’s only cord, so our threshold is way lower.”</p><p dir="ltr">Another reason to bank these smaller samples, a spokesperson for Cord Blood Registry pointed out, is that they can still be used for experimental infusions treating conditions such as cerebral palsy and autism. (About <a href="https://www.cordblood.com/science-in-action">80 percent of units</a> released by CBR have been used this way, as have about <a href="https://www.viacord.com/Images/Consumer%20CB%20Use%20Summary%20-%20Over%20500-0920_tcm117-230237.pdf">half from ViaCord.</a>) The private banks partner with researchers, such as Kurtzberg at Duke, who are running clinical trials to test these treatments. The theory goes that cells from cord blood can make it to the brain, where they might have <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6566649/">some neuroprotective role—but </a>the mechanism remains unknown, and the effects are not entirely clear. As Kurtzberg told me, “The therapy is not proven.”</p><p dir="ltr">The current state of cord-blood science might be summed up thus: Proven uses are very uncommon, and unproven uses are, well, unproven. Of course, a future discovery could lead to a real breakthrough in the use of stem cells from cord blood—an idea private banks trade on. Who knows what might be in store for cord blood later, when your baby is 30, 50, 70 years old? In a recent Cord Blood Registry survey of new parents, a spokesperson told me by email, 45 percent named “belief in future treatments” as the primary reason for banking their child’s cord blood and tissue. Knoepfler, the stem-cell scientist, notes that scientists have been excited for decades about the promise of stem cells. But translating interesting results in the lab to a doctor’s office, he says, “is really much harder than many of us realized. I include myself in that.”</p><p dir="ltr">Medical discoveries have actually changed the ways cord blood is used over years, but they have so far resulted in less use of cord blood. In the past several years, doctors have refined a protocol to use <a href="https://bethematch.org/patients-and-families/about-transplant/what-is-a-bone-marrow-transplant/haploidentical-transplant/">half-matched donors</a> in transplants. Doctors generally get more cells from these donors than from an infant’s banked cord blood, which means the transplants “take” more quickly and the patient spends less time in the hospital. For this reason, cord blood has been falling out of favor. Public banks have started scaling down their collections; the New York Blood Center, which had launched the world’s first public bank, <a href="https://parentsguidecordblood.org/en/banks/ny-blood-center-national-cord-blood-program#:~:text=For%20many%20years%20they%20could,the%20National%20Cord%20Blood%20Program.">recently stopped collecting</a> new donations. How cord blood gets used in the future is still unknown.</p><hr class="c-section-divider"><p>More than 30 years ago after Kurtzberg first treated Farrow, she is still in touch with him. He’s 39 now, and doing well. Having watched cord banking grow and evolve over the years, she remains a proponent of public banking and the possibilities ahead. When it comes to private banks, however, she says, “I don’t think it's a necessity. I think it’s nice to have if you can do it.” There isn’t much harm in private banking, after all, as long as parents can afford the several thousand dollars over their child’s lifetime.</p><p dir="ltr"><em>Afford</em> might be the key word here. The ads for cord-blood banking feel a lot like those for any number of “nice to have” baby products aimed at anxious parents, be they organic diapers or BPA-free wooden toys tailored to your child’s age and cognitive development. If anything, the stakes of cord-blood banking are higher than anything else you might choose to buy. The opportunity only comes around “<a href="https://www.facebook.com/CordBloodRegistry/videos/10152696402232332/">once in a lifetime,</a>” and it could literally save your child’s life—even if the chances of that are very, very small. “It’s playing to parental guilt and the desire for parents to have healthy children and do whatever they can for their kids,” says Timothy Caulfield, a health-law professor at the University of Alberta who has studied cord-blood banks. “There’s a huge market based on exactly that.”</p><p dir="ltr">It’s telling, perhaps, that Cord Blood Registry ran a giveaway of $20,000 worth of baby products this summer. The curated package of luxury “baby essentials” resembled the registry of parents who want the best for their kid, and can afford it. Included were a Snoo smart bassinet (<a href="https://www.happiestbaby.com/products/snoo-smart-bassinet">$1,695</a>), an Uppababy stroller and car seat (<a href="https://www.amazon.com/UPPAbaby-Vista-V2-Stroller-Chestnut/dp/B084K4C3K1/">$1,400</a>), Coterie diapers (<a href="https://www.coterie.com/products/diapers">$100</a> for a month’s supply, guaranteed to be “free of fragrance, lotion, latex, rubber, dyes, alcohol, heavy metals, parabens, phthalates, chlorine bleaching, VOCs, and optical brighteners”), and, of course, a lifetime of cord-blood and tissue banking ($11,860).</p><hr><p><small><em>This article originally misspelled Kate Girard's last name.</em></small></p>Sarah Zhanghttp://www.theatlantic.com/author/sarah-zhang/?utm_source=feedThe AtlanticDon’t Pay for Cord-Blood Banking2022-10-17T13:12:02-04:002022-10-17T17:44:27-04:00Umbilical blood can be a valuable treatment for rare diseases. But that doesn’t mean you need to pay thousands of dollars to bank your baby’s.tag:theatlantic.com,2022:50-621263<p dir="ltr">Even on a good day, service jobs are pretty hard. Your schedule is constantly changing, you’re on your feet, you’re at the mercy of the general public, and the pace of your shifts swings between crushing boredom and frenetic activity. You’re probably not guaranteed any particular number of hours in a given week, and you can be cut from the schedule or called in to work at the last second. For all that, you’re paid too little to cover the basic needs of an American adult: a median of $12 to $14 an hour, according to data from the Bureau of Labor Statistics.</p><p dir="ltr">So far, Omicron has not provided service workers with any good days. As the highly transmissible, immunity-evading coronavirus variant surges across the country, it has <a href="https://www.theatlantic.com/health/archive/2022/01/omicron-mild-hospital-strain-health-care-workers/621193/?utm_source=feed">filled hospitals</a>, infected record numbers of people, and made everyday life a nightmare for workers in stores, restaurants, gyms, schools, health-care facilities, and so many other workplaces. Many workers are currently sick or have been exposed to the virus, and <a href="https://www.theatlantic.com/health/archive/2022/01/cdc-new-isolation-guidelines-confusing/621192/?utm_source=feed">changing isolation and quarantine guidelines</a> make it unclear how long they should stay home, or whether their employer will even allow that. Tests to confirm infection are expensive and scarce. In workplaces with Omicron outbreaks, there may not be enough available workers to continue operating the business for days or weeks at a time, which means everyone loses their shifts—and their paychecks—in “<a href="https://www.theatlantic.com/health/archive/2021/12/omicron-soft-lockdown/621121/?utm_source=feed">soft lockdowns</a>” that workers must navigate with little institutional or governmental support. For businesses that remain open, understaffing and supply shortages make workers’ interactions with customers even more tense and dangerous.</p><p dir="ltr">Before the new variant reared its head, <a href="https://www.washingtonpost.com/business/2021/12/08/where-workers-quitting-jobs/">people were already leaving</a> the service sector in droves. Now the Omicron surge is laying bare how few protections workers have retained from the scant services given to them earlier in the pandemic, and just how little safety and stability this kind of work provides to the people who do it. Omicron is making many of America’s bad jobs even worse.</p><p>Some elements of this current crisis were put in place and allowed to fester over the past two years, but many of them spring from the fundamentally precarious nature of service jobs. Understaffing and low pay, for example, have been chronic issues across shift-work occupations for years, according to Daniel Schneider, a sociologist at Harvard and a co-founder of the Shift Project, which surveys tens of thousands of hourly workers at large employers, including Dollar General, Starbucks, and Macy’s. Lowering labor costs makes these businesses more profitable, Schneider told me, but it also makes them brittle, even under the best circumstances. There may be a “kind of tipping-point dynamic here,” he said, “where, yeah, these jobs have always been precarious, they’ve always been bad, but the confluence of those conditions—more difficult customer management and even fewer people on the job—is almost a multiplier on the hazard of this work.”</p><p dir="ltr">One of the most obvious issues is service workers’ widespread lack of access to paid sick leave, according to Schneider. Before the pandemic, more than half of the workers surveyed by the Shift Project lacked paid sick leave completely. As of November, that number had barely moved. This is the case even though in March 2020, the federal government passed the Families First Coronavirus Response Act (FFCRA), which mandated two weeks of paid sick leave for workers previously not given it by their employer. Even at its best, this patchwork of policies had enormous deficiencies, Schneider said: The FFCRA excluded anyone who worked for a company employing more than 500 people, which disqualified workers at big-box stores, supermarkets, chain pharmacies, department stores, fast-food restaurants, and large e-commerce companies. It also left out many of the people who do poorly paid and largely invisible work in workplaces that put them at particularly extreme risk, such as hospitals and care homes, including many janitorial, laundry, and cafeteria workers.</p><p data-id="injected-recirculation-link" dir="ltr"><i>[<a href="https://www.theatlantic.com/politics/archive/2022/01/lack-paid-sick-leave-undermines-covid-isolation/621233/?utm_source=feed">Read: The real reason Americans aren’t isolating</a>]</i></p><p>Some of the big companies not affected by the FFCRA chose to implement leave policies and other pandemic-specific benefits of their own, such as hazard pay and testing programs, thanks at least in part to public pressure to protect workers. Walmart, Amazon, and CVS, for instance, made headlines by extending 10 days of paid leave to anyone who tested positive for COVID-19. But Schneider said this was only ever a tiny minority of employers, and for every large company that made these changes, many more <a href="https://www.theatlantic.com/politics/archive/2022/01/lack-paid-sick-leave-undermines-covid-isolation/621233/?utm_source=feed">didn’t provide any additional benefits at all</a>. “What we’re seeing is large companies really try their best to do the least possible,” Schneider said. “There is really an effort by firms to avoid requirements to do things and instead to just be asked to voluntarily do things.”</p><p dir="ltr">That effort clearly has contributed to the tipping-point dynamic: Cases have surged at the exact same time that many protections for workers, including the FFCRA, have expired, and the relatively small number of employers who voluntarily granted extra sick leave and other benefits have largely rolled back those programs. Amazon, for example, requires employees to submit test results in order to qualify for any COVID-19 sick leave, but a number of the company’s workers told NBC News that they’re now <a href="https://www.nbcnews.com/tech/ailing-amazon-workers-struggle-find-covid-tests-rcna11942">on their own to secure testing</a>, after the company closed down employee testing facilities that provided that service free of charge earlier in the pandemic. (In response to NBC, an Amazon spokesperson said that the company is looking into the reported issues and focusing on getting workers vaccinated.) Many companies have similar testing requirements for service workers to access leave. Without results, taking time off for illness is unpaid for many workers. And making $12 to $14 an hour, vanishingly few service workers have the financial stability necessary to take any amount of unpaid leave, if their employer would even allow it.</p><p dir="ltr">The federal public-health apparatus has effectively endorsed these rollbacks. In late December, the CDC <a href="https://www.theatlantic.com/health/archive/2022/01/covid-isolation-muffin-baking-cdc/621209/?utm_source=feed">reduced isolation guidelines</a> for infected Americans who aren’t severely ill from 10 days to five. Anthony Fauci hailed the move for helping Americans “get back to the workplace, doing things that are important to keep society running smoothly,” but many experts have criticized the agency over a lack of <a href="https://www.theatlantic.com/health/archive/2022/01/cdc-new-isolation-guidelines-confusing/621192/?utm_source=feed">strong evidence</a> that it’s safe for workers to return to in-person jobs so quickly. Requiring a negative test after infection would make these guidelines safer, but the revised rules don’t require that. In the weeks since the announcement was made, <a href="https://www.nytimes.com/2022/01/11/business/delta-flight-attendants-union-isolation-covid.html">Delta</a>, <a href="https://www.reuters.com/business/amazon-shortens-covid-isolation-paid-leave-us-workers-2022-01-07/">Amazon</a>, <a href="https://www.reuters.com/business/exclusive-walmart-halves-paid-leave-covid-positive-workers-extends-hybrid-work-2022-01-05/">Walmart</a>, <a href="https://www.reuters.com/business/healthcare-pharmaceuticals/walgreens-cvs-cut-paid-sick-leave-workers-line-with-cdc-guidance-2022-01-11/">CVS, and Walgreens</a> have all cut their paid-leave policies for COVID-19 infections down to the equivalent of five workdays. And they’ve been slow to add any testing requirement to their own guidelines.</p><p data-id="injected-recirculation-link" dir="ltr"><i>[<a href="https://www.theatlantic.com/health/archive/2022/01/cdc-new-isolation-guidelines-confusing/621192/?utm_source=feed">Read: America’s COVID rules are a dumpster fire</a>]</i></p><p dir="ltr">The story has largely been the same for any other benefits or protections extended to service workers during the pandemic, Schneider said. Enhanced federal unemployment benefits expired months ago; companies that provided hazard-pay wage bumps have almost all rolled those back; and even many simple precautions to protect people who work with the general public, such as local mask mandates, have been repealed. Just this week, the Supreme Court <a href="https://www.nytimes.com/2022/01/13/us/politics/supreme-court-biden-vaccine-mandate.html">blocked</a> the Biden administration’s vaccine-or-test mandate, which would have required large employers to verify that all of their employees are either vaccinated or regularly tested in order to ensure the safety of their workplaces.</p><p dir="ltr">As protections and support wash away, many service jobs themselves have become more difficult. Supply and staffing shortages at stores and restaurants mean that service and selection may not be exactly the same for customers as they were before the pandemic—tiny disappointments that <a href="https://www.theatlantic.com/health/archive/2021/08/pandemic-american-shoppers-nightmare/619650/?utm_source=feed">spark episodes of verbal abuse or violent rage toward workers</a>. A swirl of infections, winter storms, and supply-chain disruptions have left America’s grocery stores, for instance, <a href="https://www.usatoday.com/story/money/shopping/2022/01/12/shortage-grocery-store-empty-shelves/9178100002/">scrounging for goods</a> in recent weeks. “We’re essentially asking this least well compensated and most precariously employed workforce to take on the everyday management of a polarized and angry and dangerous public,” Schneider said. This was the case before Omicron, and even if the variant’s wave is as short as many hope it will be, its interruptions will have effects visible in additional shortages (and their attendant frustrations) for months, at least.</p><p data-id="injected-recirculation-link" dir="ltr"><i>[<a href="https://www.theatlantic.com/health/archive/2021/08/pandemic-american-shoppers-nightmare/619650/?utm_source=feed">Read: American shoppers are a nightmare</a>]</i></p><p dir="ltr">Schneider said no one has a totally satisfying answer as to why retail stores and restaurants have had such a hard time staffing up in the past six months. After all, he pointed out, many of the people who would usually fill those jobs had no safety net before the pandemic either. But a few theories add up to explain much of the problem. <a href="https://globalmigration.ucdavis.edu/20-years-declining-immigration-and-disappearance-low-skilled-immigrants">Long-term downward trends</a> in immigration to the United States, and especially low immigration levels in the past two years, might have choked off an important source of low-wage workers. Increased difficulty in finding adequate and affordable child care is another reason, especially for the many families that may have relied on older relatives who have been lost to the pandemic. And some people have simply left the retail and food-service industries altogether, switching to other kinds of work. “A better way to think about the labor-shortage problem is that we have a pay-shortage problem,” Ben Zipperer, an economist at the Economic Policy Institute, a left-leaning think tank, told me. Workers who take less-than-ideal jobs after mass layoffs might be more likely to stick with them instead of looking for a better role if the circumstances of many of those jobs weren’t so bad.</p><p dir="ltr">There is little reason to believe that the Omicron wave won’t make these jobs even harder to fill. “We haven’t solved any of the kind of fundamental problems of the labor market that make things worse during a pandemic,” Zipperer said. Incredibly popular policies, such as increasing the federal minimum wage, have largely stalled out, even though Zipperer thinks that the pandemic is an ideal time to rally the political will to make something like that happen.</p><p dir="ltr">Schneider didn’t feel much more optimistic about what Omicron might do to the lives of service workers, or about the signals those in power have been sending about how they intend to handle the situation. “It doesn’t feel like there is any real appetite by anybody to return to substantial policy that might protect workers,” he told me. Instead, we’ve committed to riding out this wave, no matter how bad it gets. The hope, Schneider said, is that it’s fast.</p>Amanda Mullhttp://www.theatlantic.com/author/amanda-mull/?utm_source=feedAlexi Rosenfeld / GettyOmicron Is Making America’s Bad Jobs Even Worse2022-01-14T12:31:00-05:002022-01-14T13:13:32-05:00The latest wave of the pandemic is pushing service workers to the brink.tag:theatlantic.com,2021:39-620522<figure class="full-width" data-apple-news-hide="1"><img alt="4-panel cartoon with 2 figures in business attire: both standing; the left figure falling in a trust fall; the right figure walks away and left figure hits floor" height="835" src="https://cdn.theatlantic.com/media/img/posts/2021/11/DIS_Useem_Trust/0867b4a9a.jpg" width="928">
<figcaption class="credit">Albert Tercero</figcaption>
</figure><p class="dropcap">M<span class="smallcaps">anufacturer inventories</span>. Durable-goods orders. Nonfarm payrolls. Inflation-adjusted GDP. These are the dreary reportables that tell us how our economy is doing. And many of them <a href="https://www.wsj.com/articles/u-s-durable-goods-orders-rise-sharply-despite-continued-supply-constraints-11632747393">look a whole lot better now</a> than they did at their early-pandemic depths. But what if there’s another factor we’re missing? What if the data points are obscuring a deepening recession in a commodity that underpins them all?</p><p><i>Trust.</i> Without it, Adam Smith’s invisible hand stays in its pocket; Keynes’s “animal spirits” are muted. “Virtually every commercial transaction has within itself an element of trust,” the Nobel Prize–winning economist Kenneth Arrow wrote in 1972.</p><p>But trust is less quantifiable than other forms of capital. Its decline is vaguely felt before it’s plainly seen. As companies have gone virtual during the coronavirus pandemic, supervisors wonder whether their remote workers are in fact working. <a href="https://www.nytimes.com/2021/09/08/business/remote-office-co-workers-working-from-home.html">New colleagues arrive and leave without ever having met</a>. Direct reports ask if they could have that casual understanding put down in writing. No one knows whether the boss’s cryptic closing remark was ironic or hostile.</p><p>Sadly, those suspicions may have some basis in fact. The longer employees were apart from one another during the pandemic, <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8297254/">a recent study of more than 5,400 Finnish workers found</a>, the more their faith in colleagues fell. Ward van Zoonen of Erasmus University, in the Netherlands, began measuring trust among those office workers early in 2020. He asked them: How much did they trust their peers? How much did they trust their supervisors? And how much did they believe that those people trusted them? What he found was unsettling. In March 2020, trust levels were fairly high. By May, they had slipped. By October—about seven months into the pandemic—the employees’ degree of confidence in one another was down substantially.</p><p><a href="https://hbr.org/2020/07/remote-managers-are-having-trust-issues">Another survey</a>, by the Centre for Transformative Work Design in Australia, found bosses having trust issues too. About 60 percent of supervisors doubted or were unsure that remote workers performed as well or were as motivated as those in the office. Meanwhile, demand for employee-surveillance software <a href="https://fortune.com/2021/09/01/companies-spying-on-employees-home-surveillance-remote-work-computer/">has skyrocketed more than 50 percent</a> since before the pandemic. And this spring, American employees were <a href="https://www.wsj.com/articles/heres-why-record-numbers-of-americans-are-quitting-their-jobs-11623963188">leaving their jobs at the highest rate since at least 2000</a>.</p><p>Each of these data points could, of course, have multiple causes. But together they point in a worrisome direction: We may be in the midst of a trust recession.</p><p class="dropcap"><span class="smallcaps">Trust is to </span>capitalism what alcohol is to wedding receptions: a social lubricant. In low-trust societies (Russia, southern Italy), economic growth is constrained. People who don’t trust other people think twice before investing in, collaborating with, or hiring someone who isn’t a family member (or a member of their criminal gang). The concept may sound squishy, but the effect isn’t. The economists Paul Zak and Stephen Knack found, in a study published in 1998, that a 15 percent bump in a nation’s belief that “most people can be trusted” adds a full percentage point to economic growth each year. That means that if, for the past 20 years, Americans had trusted one another like Ukrainians did, our annual GDP per capita would be $11,000 lower; if we had trusted like New Zealanders did, it’d be $16,000 higher. “If trust is sufficiently low,” they wrote, “economic growth is unachievable.”</p><p>If you can rely on people to do what they say they’re going to do—without costly coercive mechanisms to make them dependable—a lot of things become possible, argued Francis Fukuyama in his 1995 book, <i>Trust</i>. In the late 19th century, it was “highly sociable Americans” who developed the first large-scale corporations, effectively pooling the ideas, efforts, and interests of strangers. In the late 20th, some of the earliest iterations of the internet emerged from the same talent for association. Throughout nearly all of America’s history, its economy has benefited from a high degree of trust.</p><p>But leaks in the trust reservoir have been evident since the ’70s. Trust in government dropped sharply from <a href="https://www.pewresearch.org/politics/2021/05/17/public-trust-in-government-1958-2021/">its peak in 1964</a>, according to the Pew Research Center, and, with a few exceptions, has been sputtering ever since. This trend coincides with broader cultural shifts like declining church membership, the rise of social media, and a contentious political atmosphere.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/10/collapsing-levels-trust-are-devastating-america/616581/?utm_source=feed">David Brooks: America is having a moral convulsion</a>]</i></p><p>Data on trust between individual Americans are harder to come by; surveys have asked questions about so-called interpersonal trust less consistently, <a href="https://www.pewresearch.org/politics/2019/07/22/trust-and-distrust-in-america/">according to Pew</a>. But, <a href="https://ourworldindata.org/trust">by one estimate</a>, the percentage of Americans who believed “most people could be trusted” hovered around 45 percent as late as the mid-’80s; it is now 30 percent. According to Pew, half of Americans believe trust is down because Americans are “not as reliable as they used to be.”</p><p>Those studies of suspicious Zoom workers suggest the Trust Recession is getting worse. By October 2021, <a href="https://www.theatlantic.com/politics/archive/2021/09/work-from-home-numbers/620107/?utm_source=feed">just 13 percent of Americans were still working from home</a> because of COVID-19, down from 35 percent in May 2020, the first month the data were collected. But the physical separation of colleagues has clearly taken a toll, and the effects of a long bout of remote work may linger.</p><p class="dropcap"><span class="smallcaps">Why? One reason is:</span> We’re primates. To hear the anthropologists tell it, we once built reciprocity by picking nits from one another’s fur—a function replaced in less hirsute times by the exchange of gossip. And what better gossip mart is there than the office? Separate people, and the gossip—as well as more productive forms of teamwork—dries up. In the 1970s, an MIT professor found that we are four times as likely to communicate regularly with someone sitting six feet away from us as with someone 60 feet away. Maybe all that face time inside skyscrapers wasn’t useless after all.</p><p>Trust is about two things, according to <a href="https://hbr.org/2021/02/wfh-is-corroding-our-trust-in-each-other">a recent story in the <i>Harvard Business Review</i></a>: competence (is this person going to deliver quality work?) and character (is this a person of integrity?). “To trust colleagues in both of these ways, people need clear and easily discernible signals about them,” wrote the organizational experts Heidi Gardner and Mark Mortensen. They argue that the shift to remote work made gathering this information harder. Unconsciously, they conclude, we “interpret a lack of physical contact as a signal of untrustworthiness.”</p><p>This leaves us prone to what social scientists call “fundamental attribution error”—the creeping suspicion that Blake hasn’t called us back because he doesn’t care about the project. Or because he cares about it so much that he’s about to take the whole thing to a competitor. In the absence of fact—that Blake had minor dental surgery—elaborate narratives assemble.</p><p>Add to the disruption and isolation of the pandemic a political climate that <a href="https://www.theatlantic.com/ideas/archive/2020/03/thing-determines-how-well-countries-respond-coronavirus/609025/?utm_source=feed">urges us to meditate on the distance</a>—ethnic, generational, ideological, socioeconomic—separating us from others, and it’s not hard to see why many Americans feel disconnected.</p><p>What has suffered most are “<a href="https://www.theatlantic.com/health/archive/2021/01/pandemic-goodbye-casual-friends/617839/?utm_source=feed">weak ties</a>”—relationships with acquaintances who fall somewhere between stranger and friend, which sociologists find are particularly valuable for the dissemination of knowledge. A closed inner circle tends to recycle knowledge it already has. New information is more likely to come from the serendipitous encounter with Alan, the guy with the fern in his office who reports to Phoebe and who remembers the last time someone suggested splitting the marketing division into three teams, and how that went.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/health/archive/2021/01/pandemic-goodbye-casual-friends/617839/?utm_source=feed">Read: The pandemic has erased entire categories of friendship</a>]</i></p><p>Some evidence suggests that having more weak ties can shorten bouts of unemployment. In a famous 1973 survey, the Stanford sociologist Mark Granovetter discovered that, among 54 people who had recently found a new job through someone they knew, 28 percent had heard about the new position from a weak tie, versus 17 percent from a strong one. When the weak ties fall away, our “radius of trust”—to borrow Fukuyama’s term—shrinks.</p><p>That’s a problem for individual employees, as much as they may appreciate the flexibility of working anywhere, anytime. And it’s a problem for business leaders, who are trying to weigh the preferences of those employees against the enduring existence of the place that employs them. <a href="https://www.theatlantic.com/magazine/archive/2017/11/when-working-from-home-doesnt-work/540660/?utm_source=feed">They don’t want to end up like IBM</a>. It saved $2 billion making much of its workforce remote as early as the 1980s, only to reverse course in 2017, when it recognized that remote work was depressing collaboration. Microsoft CEO Satya Nadella <a href="https://www.nytimes.com/2020/05/14/business/dealbook/satya-nadella-microsoft.html">recently wondered</a> whether companies were “burning” some of the face-to-face “social capital we built up in this phase where we are all working remote. What’s the measure for that?”</p><p class="dropcap"><span class="smallcaps">A trust spiral, </span>once begun, is hard to reverse. <a href="https://academic.oup.com/jeea/article/19/2/741/5823502">One study found</a> that, even 20 years after reunification, fully half of the income disparity between East and West Germany could be traced to the legacy of Stasi informers. Counties that had a higher density of informers who’d ratted out their closest friends, colleagues, and neighbors fared worse. The legacy of broken trust has proved extraordinarily difficult to shake.</p><p>It’s not hard to find advice on how to build a culture of trust: use humor, share your vulnerabilities, promote transparency. But striking the right tone in today’s pitched political climate, often over Zoom, possibly under surveillance, is no easy feat.</p><p>Even so, it may be instructive for companies trying to navigate this moment to remember why they were formed in the first place. By the late 19th century, it was evident that some jobs were too crucial to leave to a loose association of tradespeople. If the mill had to be running full steam at all hours, you needed to know who could handle the assembly line, who could fix a faulty gasket, and above all who would reliably show up day after day. Then you needed those people legally incorporated into one body and bound by the norms, attitudes, and expectations baked into the culture of that body.</p><p>Not so incidentally, those first corporations went by a particular moniker. They were called “trusts.” And without that component underpinning all the industrial might and entrepreneurial ingenuity, you have to wonder if they could ever have been built at all.</p><hr><p><small><i>This article appears in the <a href="https://www.theatlantic.com/magazine/toc/2021/12/?utm_source=feed">December 2021</a> print edition with the headline “The End of Trust.”</i></small></p>Jerry Useemhttp://www.theatlantic.com/author/jerry-useem/?utm_source=feedAlbert TerceroThe End of Trust2021-11-24T06:00:00-05:002021-11-24T11:53:13-05:00Suspicion is undermining the American economy.tag:theatlantic.com,2021:39-620171<p class="dropcap"><span class="smallcaps">The Tribune Tower </span>rises above the streets of downtown Chicago in a majestic snarl of Gothic spires and flying buttresses that were designed to exude power and prestige. When plans for the building were announced in 1922, Colonel Robert R. McCormick, the longtime owner of the <i>Chicago Tribune</i>, said he wanted to erect “the world’s most beautiful office building” for his beloved newspaper. The best architects of the era were invited to submit designs; lofty quotes about the Fourth Estate were selected to adorn the lobby. Prior to the building’s completion, McCormick directed his foreign correspondents to collect “fragments” of various historical sites—a brick from the Great Wall of China, an emblem from St. Peter’s Basilica—and send them back to be embedded in the tower’s facade. The final product, completed in 1925, was an architectural spectacle unlike anything the city had seen before—“romance in stone and steel,” as one writer described it. A century later, the Tribune Tower has retained its grandeur. It has not, however, retained the <i>Chicago Tribune</i>.</p><p>To find the paper’s current headquarters one afternoon in late June, I took a cab across town to an industrial block west of the river. After a long walk down a windowless hallway lined with cinder-block walls, I got in an elevator, which deposited me near a modest bank of desks near the printing press. The scene was somehow even grimmer than I’d imagined. Here was one of America’s most storied newspapers—a publication that had endorsed Abraham Lincoln and scooped the Treaty of Versailles, that had toppled political bosses and tangled with crooked mayors and collected dozens of Pulitzer Prizes—reduced to a newsroom the size of a Chipotle.</p><p>Spend some time around the shell-shocked journalists at the <i>Tribune</i> these days, and you’ll hear the same question over and over: <i>How did it come to this? </i>On the surface, the answer might seem obvious. Craigslist killed the Classified section, Google and Facebook swallowed up the ad market, and a procession of hapless newspaper owners failed to adapt to the digital-media age, making obsolescence inevitable. This is the story we’ve been telling for decades about the dying local-news industry, and it’s not without truth. But what’s happening in Chicago is different.</p><p>In May, the <i>Tribune </i>was acquired by Alden Global Capital, a secretive hedge fund that has quickly, and with remarkable ease, become one of the largest newspaper operators in the country. The new owners did not fly to Chicago to address the staff, nor did they bother with paeans to the vital civic role of journalism. Instead, they gutted the place.</p><p>Two days after the deal was finalized, Alden announced an aggressive round of buyouts. In the ensuing exodus, the paper lost the Metro columnist who had championed the occupants of a troubled public-housing complex, and the editor who maintained a homicide database that the police couldn’t manipulate, and the photographer who had produced beautiful portraits of the state’s undocumented immigrants, and the investigative reporter who’d helped expose the governor’s offshore shell companies. When it was over, a quarter of the newsroom was gone.</p><aside class="callout-placeholder" data-source="curated"></aside><p>The hollowing-out of the <i>Chicago Tribune</i> was noted in the national press, of course. There were sober op-eds and lamentations on Twitter and expressions of disappointment by professors of journalism. But outside the industry, few seemed to notice. Meanwhile, the <i>Tribune</i>’s remaining staff, which had been spread thin even before Alden came along, struggled to perform the newspaper’s most basic functions. After a powerful Illinois state legislator resigned amid bribery allegations, the paper didn’t have a reporter in Springfield to follow the resulting scandal. And when Chicago suffered a brutal summer crime wave, the paper had no one on the night shift to listen to the police scanner.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/politics/archive/2021/10/gannett-local-newspaper-hawk-eye-iowa/619847/?utm_source=feed">Read: What we lost when Gannett came to town</a>]</i></p><p>As the months passed, things kept getting worse. Morale tanked; reporters burned out. The editor in chief mysteriously resigned, and managers scrambled to deal with the cuts. Some in the city started to wonder if the paper was even worth saving. “It makes me profoundly sad to think about what the <i>Trib</i> was, what it is, and what it’s likely to become,” says David Axelrod, who was a reporter at the paper before becoming an adviser to Barack Obama. Through it all, the owners maintained their ruthless silence—spurning interview requests and declining to articulate their plans for the paper. Longtime <i>Tribune</i> staffers had seen their share of bad corporate overlords, but this felt more calculated, more sinister.</p><figure class="full-width"><img alt='A stack of Chicago Tribune newspapers, tied together as a bundle with yellow police tape that has black text "Crime Scene Do Not Cross"' height="928" src="https://cdn.theatlantic.com/media/img/posts/2021/10/WEL_Coppins_AldenStack/7e2ac14d2.jpg" width="928">
<figcaption class="credit">Ricardo Rey</figcaption>
</figure><p>“It’s not as if the <i>Tribune</i> is just withering on the vine despite the best efforts of the gardeners,” Charlie Johnson, a former Metro reporter, told me after the latest round of buyouts this summer. “It’s being snuffed out, quarter after quarter after quarter.” We were sitting in a coffee shop in Logan Square, and he was still struggling to make sense of what had happened. The <i>Tribune</i> had been profitable when Alden took over. The paper had weathered a decade and a half of mismanagement and declining revenues and layoffs, and had finally achieved a kind of stability. Now it might be facing extinction.</p><p>“They call Alden a vulture hedge fund, and I think that’s honestly a misnomer,” Johnson said. “A vulture doesn’t hold a wounded animal’s head underwater. This is predatory.”</p><p class="dropcap"><span class="smallcaps">When Alden first </span>started buying newspapers, at the tail end of the Great Recession, the industry responded with cautious optimism. These were not exactly boom times for newspapers, after all—at least <i>someone </i>wanted to buy them. Maybe this obscure hedge fund had a plan. <a href="https://www.poynter.org/reporting-editing/2011/randall-smith-alden-global-capital-newspaper-companies/">One early article</a>, in the trade publication <i>Poynter</i>, suggested that Alden’s interest in the local-news business could be seen as “flattering” and quoted the owner of <i>The Denver Post </i>as saying he had “enormous respect” for the firm. Reading these stories now has a certain horror-movie quality: You want to somehow warn the unwitting victims of what’s about to happen.</p><p>Of course, it’s easy to romanticize past eras of journalism. The families that used to own the bulk of America’s local newspapers—the Bonfilses of Denver, the Chandlers of Los Angeles—were never perfect stewards. They could be vain, bumbling, even corrupt. At their worst, they used their papers to maintain oppressive social hierarchies. But most of them also had a stake in the communities their papers served, which meant that, if nothing else, their egos were wrapped up in putting out a respectable product.</p><p>The 21st century has seen many of these generational owners flee the industry, to devastating effect. In the past 15 years, more than a quarter of American newspapers <a href="https://www.poynter.org/locally/2020/unc-news-deserts-report-2020/">have gone out of business</a>. Those that have survived are smaller, weaker, and more vulnerable to acquisition. Today, half of all daily newspapers in the U.S. are controlled by financial firms, according to <a href="https://www.ft.com/content/5c22075c-f1af-431d-bf39-becf9c54758b">an analysis</a> by the <i>Financial Times</i>, and the number is almost certain to grow.</p><p>What threatens local newspapers now is not just digital disruption or abstract market forces. They’re being targeted by investors who have figured out how to get rich by strip-mining local-news outfits. The model is simple: Gut the staff, <a href="https://www.washingtonpost.com/business/economy/a-hedge-funds-mercenary-strategy-buy-newspapers-slash-jobs-sell-the-buildings/2019/02/11/f2c0c78a-1f59-11e9-8e21-59a09ff1e2a1_story.html">sell the real estate</a>, <a href="https://www.thedailybeast.com/the-gordon-gekko-of-newspapers-a-vulture-capitalist-kneecapping-journalists">jack up subscription prices</a>, and wring as much cash as possible out of the enterprise until eventually enough readers cancel their subscriptions that the paper folds, or is reduced to a desiccated husk of its former self.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2019/02/who-is-going-to-save-local-news/583696/?utm_source=feed">John Temple: My newspaper died 10 years ago. I’m worried the worst is yet to come.</a>]</i></p><p>The men who devised this model are Randall Smith and Heath Freeman, the co-founders of Alden Global Capital. Since they bought their first newspapers a decade ago, no one has been more mercenary or less interested in pretending to care about their publications’ long-term health. Researchers at the University of North Carolina found that <a href="https://www.cislm.org/wp-content/uploads/2018/10/The-Expanding-News-Desert-10_14-Web.pdf">Alden-owned newspapers have cut their staff at twice the rate of their competitors</a>; not coincidentally, circulation has fallen faster too, according to Ken Doctor, a news-industry analyst who reviewed data from some of the papers. That might sound like a losing formula, but these papers don’t have to become sustainable businesses for Smith and Freeman to make money.</p><p>With aggressive cost-cutting, Alden can operate its newspapers at a profit for years while turning out a steadily worse product, indifferent to the subscribers it’s alienating. “It’s the meanness and the elegance of the capitalist marketplace brought to newspapers,” Doctor told me. So far, Alden has limited its closures primarily to weekly newspapers, but Doctor argues it’s only a matter of time before the firm starts shutting down its dailies as well.</p><p>This investment strategy does not come without social consequences. When a local newspaper vanishes, research shows, it tends to correspond with <a href="https://moody.utexas.edu/sites/default/files/Strauss_Research_Newspaper_Decline_2019-11-Jennings.pdf">lower voter turnout</a>, increased polarization, and a general <a href="https://www.tandfonline.com/doi/full/10.1080/10584609.2012.762817#.VMFGQy711gh">erosion of civic engagement</a>. <a href="https://citap.unc.edu/wp-content/uploads/sites/20665/2020/12/Local-News-Platforms-and-Mis-Disinformation.pdf">Misinformation proliferates</a>. City budgets balloon, along with corruption and dysfunction. The consequences can influence national politics as well; <a href="https://www.politico.com/story/2018/04/08/news-subscriptions-decline-donald-trump-voters-505605">an analysis by <i>Politico</i></a> found that Donald Trump performed best during the 2016 election in places with limited access to local news.</p><p>With its acquisition of Tribune Publishing earlier this year, Alden now controls more than 200 newspapers, including some of the country’s most famous and influential: the <i>Chicago Tribune</i>, <i>The</i> <i>Baltimore Sun</i>, the New York<i> Daily News</i>. It is the nation’s second-largest newspaper owner by circulation. Some in the industry say they wouldn’t be surprised if Smith and Freeman end up becoming the biggest newspaper moguls in U.S. history.</p><p>They are also defined by an obsessive secrecy. Alden’s website contains no information beyond the firm’s name, and its list of investors is kept strictly confidential. When lawmakers pressed for details last year on who funds Alden, the company replied that “there may be certain legal entities and organizational structures formed outside of the United States.”</p><p>Smith, a reclusive Palm Beach septuagenarian, hasn’t granted a press interview since the 1980s. Freeman, his 41-year-old protégé and the president of the firm, would be unrecognizable in most of the newsrooms he owns. For two men who employ thousands of journalists, remarkably little is known about them.</p><p class="dropcap"><span class="smallcaps">If you want </span>to know what it’s like when Alden Capital buys your local newspaper, you could look to Montgomery County, Pennsylvania, where coverage of local elections in more than a dozen communities <a href="https://www.nytimes.com/2020/07/10/us/alden-global-capital-pottstown-mercury.html">falls to a single reporter</a> working out of his attic and emailing questionnaires to candidates. You could look to Oakland, California, where the <i>East Bay Times</i> <a href="https://www.poynter.org/business-work/2017/layoffs-come-to-the-east-bay-times-after-pulitzer-win/">laid off 20 people</a> one week after the paper won a Pulitzer. Or to nearby Monterey, where the former <i>Herald</i> reporter Julie Reynolds says staffers were pushed to stop writing investigative features so they could produce multiple stories a day. Or to Denver, where the <i>Post</i>’s staff was cut by two-thirds, evicted from its newsroom, and relocated to a plant in an area with poor air quality, where some employees <a href="https://www.washingtonpost.com/lifestyle/media/heath-freeman-is-the-hedge-fund-guy-who-says-he-wants-to-save-local-news-somehow-no-ones-buying-it/2020/06/11/9850a15c-884a-11ea-8ac1-bfb250876b7a_story.html">developed breathing problems</a>.</p><p>But maybe the clearest illustration is in Vallejo, California, a city of about 120,000 people 30 miles north of San Francisco. When John Glidden first joined the <i>Vallejo Times-Herald</i>, in 2014, it had a staff of about a dozen reporters, editors, and photographers. Glidden, then a mild-mannered 30-year-old, had come to journalism later in life than most and was eager to prove himself. He started as a general-assignment reporter, covering local crime and community events. The pay was terrible and the work was not glamorous, but Glidden loved his job. A native of Vallejo, he was proud to work for his hometown paper. It felt important.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/07/constitution-doesnt-work-without-local-news/614056/?utm_source=feed">Margaret Sullivan: The Constitution doesn’t work without local news</a>]</i></p><p>A month after he started, one of his fellow reporters left and Glidden was asked to start covering schools in addition to his other responsibilities. When the city-hall reporter left a few months later, he picked up that beat too. Glidden had heard rumblings about the paper’s owners when he first took the job, but he hadn’t paid much attention. Now he was feeling the effects of their management.</p><p>It turned out that those owners—New York hedge funders whom Glidden took to calling “the lizard people”—were laser-focused on increasing the paper’s profit margins. Year after year, the executives from Alden would order new budget cuts, and Glidden would end up with fewer co-workers and more work. Eventually he was the only news reporter left on staff, charged with covering the city’s police, schools, government, courts, hospitals, and businesses. “It played with my mind a little bit,” Glidden told me. “I felt like a terrible reporter because I couldn’t get to everything.”</p><p>He gained 100 pounds and started grinding his teeth at night. He used his own money to pull court records, and went years without going on a vacation. Tips that he would never have time to investigate piled up on a legal pad he kept at his desk. At one point, he told me, the city’s entire civil-service commission was abruptly fired without explanation; his sources told him something fishy was going on, but he knew he’d never be able to run down the story.</p><p>Meanwhile, with few newsroom jobs left to eliminate, Alden continued to find creative ways to cut costs. The paper’s printing was moved to a plant more than 100 miles outside town, Glidden told me, which meant that the news arriving on subscribers’ doorsteps each morning was often more than 24 hours old. The “newsroom” was moved to a single room rented from the local chamber of commerce. Layout design was outsourced to freelancers in the Philippines.</p><p>Frustrated and worn out, Glidden broke down one day last spring when a reporter from <i>The</i> <i>Washington Post </i>called. She was writing about Alden’s growing newspaper empire, and wanted to know what it was like to be the last news reporter in town. “It hurts to see the paper like this,” <a href="https://www.washingtonpost.com/lifestyle/media/heath-freeman-is-the-hedge-fund-guy-who-says-he-wants-to-save-local-news-somehow-no-ones-buying-it/2020/06/11/9850a15c-884a-11ea-8ac1-bfb250876b7a_story.html">he told her</a>. “Vallejo deserves better.” A few weeks after the story came out, he was fired. His editor cited a supposed journalistic infraction (Glidden had reported the resignation of a school superintendent before an agreed-upon embargo). But Glidden felt sure he knew the real reason: Alden wanted him gone.</p><figure><img alt='Clear zip-lock bag with forensic "Evidence" label that contains a crumpled page from a newspaper' height="831" src="https://cdn.theatlantic.com/media/img/posts/2021/10/WEL_Coppins_AldenBag/1cb90fa68.jpg" width="665">
<figcaption class="credit">Ricardo Rey</figcaption>
</figure><p class="dropcap"><span class="smallcaps">The story of </span>Alden Capital begins on the set of a 1960s TV game show called <i>Dream House</i>. A young man named Randall Duncan Smith—Randy for short—stands next to his wife, Kathryn, answering quick-fire trivia questions in front of a live studio audience. The show’s premise pits two couples against each other for the chance to win a home. When the Smiths win, they pass on the house and take the cash prize instead—a $20,000 haul that Randy will eventually use to seed a small trading firm he calls R.D. Smith & Company.</p><p>A Cornell grad with an M.B.A., Randy is on a partner track at Bear Stearns, where he’s poised to make a comfortable fortune simply by climbing the ladder. But he has a big idea: He believes there’s serious money to be made in buying troubled companies, steering them into bankruptcy, and then selling them off in parts. The term <i>vulture capitalism</i> hasn’t been invented yet, but Randy will come to be known as a pioneer in the field. He scores big with a bankrupt aerospace manufacturer, and again with a Dallas-based drilling company.</p><p>By the 1980s, this strategy has made Randy luxuriously wealthy—vacations in the French Riviera, a family compound outside New York City—and he has begun to school his children on the wonders of capitalism. He teaches his 8-year-old son, Caleb, to make trades on a Quotron computer, and imparts the value of delayed gratification by reportedly postponing his family’s Christmas so that he can use all their available cash to buy stocks at lower prices in December. Caleb will later recall, in <a href="https://www.dmagazine.com/publications/d-ceo/2011/march/is-spire-realtys-caleb-smith-the-next-trammell-crow/">an interview</a> with <i>D Magazine</i>, asking his dad why he works so hard.</p><p>“It’s a game,” Randy explains to his son.</p><p>“How do you know who wins?” the boy asks.</p><p>“Whoever dies with the most money.”</p><p>Even in the “greed is good” climate of the era, Randy is a polarizing character on Wall Street. When <i>The</i> <i>New York Times </i><a href="https://www.nytimes.com/1991/03/29/business/company-news-bottom-fishing-with-rd-smith.html">profiles him in 1991</a>, it notes that he excels at “profiting from other people’s misery” and quotes a parade of disgruntled clients and partners. “The one central theme,” the <i>Times </i>reports, “seems to be that Smith and its web of affiliates are out, first and foremost, for themselves.” If this reputation bothers Randy and his colleagues, they don’t let on: For a while, <a href="https://www.villagevoice.com/1999/04/20/vulture-press/">according to <i>The Village Voice</i></a>, his firm proudly hangs a painting of a vulture in its lobby.</p><p>Around this time, Randy becomes preoccupied with privacy. He stops talking to the press, refuses to be photographed, and rarely appears in public. One acquaintance tells <i>The</i> <i>Village Voice</i> that “he’s the kind of guy who divests himself every couple of years” to avoid ending up on lists of the world’s richest people.</p><p>Most of his investments are defined by a cold pragmatism, but he takes a more personal interest in the media sector. With his own money, he helps his brother launch the <i>New York Press</i>, a free alt-weekly in Manhattan. Russ Smith is a puckish libertarian whose self-described “contempt” for the journalistic class animates the pages of the publication. “I’m repulsed by the incestuous world of New York journalism,” <a href="https://nymag.com/nymetro/news/media/columns/medialife/151/">he tells <i>New York</i> magazine</a>. He writes a weekly column called “Mugger” that savages the city’s journalists by name and frequently runs to 10,000 words.</p><p>Randy claims no editorial role in the <i>Press</i>, and his investment in the project—which has little chance of producing the kind of return he’s accustomed to—could be chalked up to brotherly loyalty. But years later, when Randy relocates to Palm Beach and becomes a major donor to Donald Trump’s presidential campaign, it will make a certain amount of sense that his earliest known media investment was conceived as a giant middle finger to the journalistic establishment.</p><p class="dropcap"><span class="smallcaps">How exactly Randall Smith</span> chose Heath Freeman as his protégé is a matter of speculation among those who have worked for the two of them. In conversations with former Alden employees, I heard repeatedly that their partnership seemed to transcend business. “They had a father-figure relationship,” one told me. “They were very tight.” Freeman has resisted elaborating on his relationship with Smith, saying simply that they were family friends before going into business together.</p><p>Freeman’s father, Brian, was a successful investment banker who specialized in making deals on behalf of labor unions. After serving in the Carter administration’s Treasury Department, Brian became widely known—and feared—in the ’80s for his hard-line negotiating style. “I sort of bully people around to get stuff done,” <a href="https://www.washingtonpost.com/archive/business/1985/09/22/the-unions-heavyweight-deal-maker/8a7b1faa-f468-47f6-bdb3-a3b8b2476031/">he boasted</a> to <i>The</i> <i>Washington Post </i>in 1985. The details of how Smith got to know him are opaque, but the resulting loyalty was evident.</p><p>After Brian took his own life, in 2001, Smith became a mentor and confidant to Heath, who was in college at the time of his father’s death. Several years later, when Heath was still in his mid-20s, Smith co-founded Alden Global Capital with him, and eventually put him in charge of the firm.</p><p>People who know him described Freeman—with his shellacked curls, perma-stubble, and omnipresent smirk—as the archetypal Wall Street frat boy. “If you went into a lab to create the perfect bro, Heath would be that creation,” says one former executive at an Alden-owned company, who, like others in this story, requested anonymity to speak candidly. Freeman would show up at business meetings straight from the gym, clad in athleisure, the executive recalled, and would find excuses to invoke his college-football heroics, saying things like “When I played football at Duke, I learned some lessons about leadership.” (Freeman was a walk-on placekicker on a team that won no games the year he played.)</p><p>When Alden first got into the news business, Freeman seemed willing to indulge some innovation. The firm oversaw the promotion of John Paton, a charismatic digital-media evangelist, who improved the papers’ web and mobile offerings and increased online ad revenue. In 2011, Paton launched an ambitious initiative he called “Project Thunderdome,” hiring more than 50 journalists in New York and strategically deploying them to supplement short-staffed local newsrooms. For a fleeting moment, Alden’s newspapers became unexpected darlings of the journalism industry—written about by <i>Poynter</i> and Nieman Lab, endorsed by academics like Jay Rosen and Jeff Jarvis. But by 2014, it was becoming clear to Alden’s executives that Paton’s approach would be difficult to monetize in the short term, according to people familiar with the firm’s thinking. Reinventing their papers could require years of false starts and fine-tuning—and, most important, a delayed payday for Alden’s investors.</p><p>So Freeman pivoted. He <a href="https://www.washingtonpost.com/lifestyle/style/digital-first-medias-project-thunderdome-on-chopping-block/2014/04/02/e2c26ae4-ba20-11e3-96ae-f2c36d2b1245_story.html">shut down Project Thunderdome</a>, parted ways with Paton, and placed all of Alden’s newspapers on the auction block. When the sale failed to attract a sufficiently high offer, Freeman turned his attention to squeezing as much cash out of the newspapers as possible.</p><p>Alden’s calculus was simple. Even in a declining industry, the newspapers still generated hundreds of millions of dollars in annual revenues; <a href="https://www.niemanlab.org/2018/05/newsonomics-alden-global-capital-is-making-so-much-money-wrecking-local-journalism-it-might-not-want-to-stop-anytime-soon/">many of them were turning profits</a>. For Freeman and his investors to come out ahead, they didn’t need to worry about the long-term health of the assets—they just needed to maximize profits as quickly as possible.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2019/03/local-news-is-dying-and-americans-have-no-idea/585772/?utm_source=feed">Read: Local news is dying, and Americans have no idea</a>]</i></p><p>From 2015 to 2017, he presided over staff reductions of 36 percent across Alden’s newspapers, according to <a href="https://dfmworkers.org/from-newspapers-to-big-coal-aldens-questionable-investments-continue/">an analysis</a> by the NewsGuild (a union that also represents employees of <i>The Atlantic</i>). At the same time, he increased subscription prices in many markets; it would take awhile for subscribers—many of them older loyalists who didn’t carefully track their bills—to notice that they were paying more for a worse product. Maybe they’d cancel their subscriptions eventually; maybe the papers would fold altogether. But as long as Alden had made back its money, the investment would be a success. (Freeman denied this characterization through a spokesperson.)</p><p>Crucially, the profits generated by Alden’s newspapers did not go toward rebuilding newsrooms. Instead, the money was used to finance the hedge fund’s other ventures. In <a href="https://dfmworkers.org/in-court-filing-hedge-fund-alden-admits-diverting-hundreds-of-millions-from-newspaper-chain/">legal filings</a>, Alden has acknowledged diverting hundreds of millions of dollars from its newspapers into risky bets on commercial real estate, a bankrupt pharmacy chain, and Greek debt bonds. To industry observers, Alden’s brazen model set it apart even from chains like Gannett, known for its aggressive cost-cutting. Alden “is not a newspaper company,” says Ann Marie Lipinski, a former editor in chief of the <i>Chicago Tribune</i>. “It’s a hedge that went and bought up some titles that it milks for cash.”</p><p>Even as Alden’s portfolio grew, Freeman rarely visited his newspapers. When he did, he exhibited a casual contempt for the journalists who worked there. On more than one occasion, according to people I spoke with, he asked aloud, “What do all these people do?” According to the former executive, Freeman once suggested in a meeting that Alden’s newspapers could get rid of all their full-time reporters and rely entirely on freelancers. (Freeman denied this through a spokesperson.) In my many conversations with people who have worked with Freeman, not one could recall seeing him read a newspaper.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/1914/03/newspaper-morals/306219/?utm_source=feed">From the March 1914 issue: H. L. Mencken on newspaper morals</a>]</i></p><p>A story circulated throughout the company—possibly apocryphal, though no one could say for sure—that when Freeman was informed that <i>The Denver Post </i>had won a Pulitzer in 2013, his first response was: “Does that come with any money?”</p><p>In budget meetings, according to the former executive, Freeman hectored local publishers, demanding that they produce detailed numbers off the top of their head and then humiliating them when they couldn’t. But for all the theatrics, his marching orders were always the same: Cut more.</p><p>“It was clear that they didn’t care about this being a business in the future. It was all about the next quarter’s profit margins,” says Matt DeRienzo, who worked as a publisher for Alden’s Connecticut newspapers before finally resigning.</p><p>Another ex-publisher told me Freeman believed that local newspapers should be treated like any other commodity in an extractive business. “To him, it’s the same as oil,” the publisher said. “Heath hopes the well never runs dry, but he’s going to keep pumping until it does. And everyone knows it’s going to run dry.”</p><p class="dropcap"><span class="smallcaps">On March 9, 2020</span>, a small group of <i>Baltimore Sun</i> reporters convened a secret meeting at the downtown Hyatt Regency. Alden Global Capital had recently purchased a nearly one-third stake in the <i>Sun</i>’s parent company, Tribune Publishing, and the firm was signaling that it would soon come for the rest. By that point, Alden was widely known as the “<a href="https://www.vanityfair.com/news/2020/02/hedge-fund-vampire-alden-global-capital-that-bleeds-newspapers-dry-has-chicago-tribune-by-the-throat">grim reaper of American newspapers</a>,” as <i>Vanity Fair</i> had put it, and news of the acquisition plans had unleashed a wave of panic across the industry.</p><p>But there was still a sliver of hope: Tribune and Alden agreed that the hedge fund would not increase its stake in the company for at least seven months. That gave the journalists at the <i>Sun </i>a brief window to stop the sale from going through. The question was how.</p><p>In the Hyatt meeting, Ted Venetoulis, a former Baltimore politician, advised the reporters to pick a noisy public fight: Set up a war room, circulate petitions, hold events to rally the city against Alden. If they did it right, Venetoulis said, they just might be able to line up a local, civic-minded owner for the paper. The pitch had a certain romantic appeal to the reporters in the room. “Baltimore is an underdog town,” Liz Bowie, a <i>Sun</i> reporter who was at the meeting, told me. “We were like, <i>They’re not going to take our newspaper from us! </i>”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/1905/02/the-confessions-of-a-newspaper-woman/524799/?utm_source=feed">From the February 1905 issue: The confessions of a newspaper woman</a>]</i></p><p>The paper’s union hired a PR firm to launch a public-awareness campaign under the banner “Save Our Sun” and published a letter calling on the Tribune board to sell the paper to local owners. Soon, Tribune-owned newsrooms across the country were kicking off similar campaigns. “We were in collective revolt,” Lillian Reed, a <i>Sun</i> reporter who helped organize the campaign, told me. When the journalists created a Slack channel to coordinate their efforts across multiple newspapers, they dubbed it “Project Mayhem.”</p><p>In Orlando, the<i> Sentinel </i>ran an editorial pleading with the community to “deliver us from Alden” and comparing the hedge fund to “a biblical plague of locusts.” In Allentown, Pennsylvania, reporters held reader forums where they tried to instill a sense of urgency about the threat Alden posed to <i>The</i> <i>Morning Call</i>. The movement gained traction in some markets, with local politicians and celebrities expressing solidarity. But even for a group of journalists, it was <a href="https://www.theatlantic.com/technology/archive/2019/03/local-news-is-dying-and-americans-have-no-idea/585772/?utm_source=feed">tough to keep the public’s attention</a>. After a contentious presidential race and amid a still-raging pandemic, there was a limited supply of outrage and sympathy to spare for local reporters. When the <i>Chicago Tribune</i> held a “Save Local News” rally, most of the people who showed up were members of the media.</p><p>Meanwhile, reporters fanned out across their respective cities in search of benevolent rich people to buy their newspapers. The most promising prospect materialized in Baltimore, where a hotel magnate named Stewart Bainum Jr. expressed interest in the <i>Sun</i>. Earnest and unpolished, with a perpetually mussed mop of hair, Bainum presented himself as a contrast to the cutthroat capitalists at Alden. As a young man, he’d studied at divinity school before taking over his father’s company, and decades later he still carried a healthy sense of noblesse oblige. He took particular pride in finding novel ways to give away his family fortune, funding child-poverty initiatives in Baltimore and prenatal care for women in Liberia.</p><p>Bainum told me he’d come to appreciate local journalism in the 1970s while serving in the Maryland state legislature. At the time, the <i>Sun</i> had a bustling bureau in Annapolis, and he marveled at the reporters’ ability to sort the honest politicians from the “political whores” by exposing abuses of power. “You have no way of knowing that if you don’t have some nosy son of a bitch asking a lot of questions down there,” he told me.</p><p>Bainum envisioned rebuilding the paper—which, by 2020, was down to a single full-time statehouse reporter—as a nonprofit. In February 2021, he announced a handshake deal to buy the <i>Sun</i> from Alden for $65 million once it acquired Tribune Publishing.</p><p>But within weeks, Bainum said, Alden tried to tack on a five-year licensing deal that would have cost him tens of millions more. (Freeman has, in the past, disputed Bainum’s account of the negotiations.) Feeling burned by the hedge fund, Bainum decided to make a last-minute bid <a href="https://www.washingtonpost.com/lifestyle/media/maryland-business-executive-wanted-to-buy-the-baltimore-sun-now-he-may-try-to-buy-the-rest-of-tribune-newspapers/2021/03/15/b1a35730-85a1-11eb-bfdf-4d36dab83a6d_story.html">for all of Tribune Publishing’s newspapers</a>, pledging to line up responsible buyers in each market. For those who cared about the future of local news, it was hard to imagine a better outcome—which made it all the more devastating when the bid fell through.</p><p>What exactly went wrong would become a point of bitter debate among the journalists involved in the campaigns. Some expressed exasperation with the staff of the <i>Chicago Tribune</i>, who were unable to find a single interested local buyer. Others pointed to Bainum’s financing partner, who pulled out of the deal at the 11th hour. The largest share of the blame was assigned to the Tribune board for allowing the sale to Alden to go through. Freeman, meanwhile, would later gloat to colleagues that Bainum was never serious about buying the newspapers and just wanted to bask in the worshipful media coverage his bid generated.</p><p>But beneath all the recriminations and infighting was a cruel reality: When faced with the likely decimation of the country’s largest local newspapers, most Americans didn’t seem to care very much. “It was like watching a slow-motion disaster,” says Gregory Pratt, a reporter at the <i>Chicago Tribune</i>.</p><p>Alden completed its takeover of the Tribune papers in May. It financed the deal with the help of Cerberus—a private-equity firm that owned, among other businesses, the <a href="https://www.nytimes.com/2021/06/22/us/politics/khashoggi-saudi-kill-team-us-training.html">security company that trained Saudi operatives</a> who participated in the murder of the journalist Jamal Khashoggi.</p><p>Three days later, Bainum—still smarting from his experience with Alden, but worried about the <i>Sun</i>’s fate—sent a pride-swallowing email to Freeman. After congratulating him on closing the deal, Bainum said he was still interested in buying the <i>Sun</i> if Alden was willing to negotiate. Freeman never responded.</p><figure class="full-width"><img alt='Red street-corner newspaper dispenser with "The Baltimore Sun" logo lying on its side with glass window smashed and newspaper spilling out, surrounded by numbered yellow evidence markers from a murder scene' height="742" src="https://cdn.theatlantic.com/media/img/posts/2021/10/WEL_Coppins_Dispenser/f16486b02.jpg" width="928">
<figcaption class="caption">Ricardo Rey</figcaption>
</figure><p class="dropcap"><span class="smallcaps">Shortly after</span> the Tribune deal closed earlier this year, I began trying to interview the men behind Alden Capital. I knew they almost never talked to reporters, but Randall Smith and Heath Freeman were now two of the most powerful figures in the news industry, and they’d gotten there by dismantling local journalism. It seemed reasonable to ask that they answer a few questions.</p><p>My request for an interview with Smith was dismissed by his spokesperson before I finished asking. A reporter at one of his newspapers suggested I try “doorstepping” Smith—showing up at his home unannounced to ask questions from the porch. But it turned out that Smith had <i>so many </i>doorsteps—<a href="https://www.thenation.com/article/archive/how-many-palm-beach-mansions-does-a-wall-street-tycoon-need/">16 mansions in Palm Beach alone</a>, as of a few years ago, some of them behind gates—that the plan proved impractical. At one point, I tracked down the photographer who’d taken <a href="https://nypost.com/2012/07/26/vulture-in-distress/">the only existing picture</a> of Smith on the internet. But when I emailed his studio looking for information, I was informed curtly that the photo was “no longer available.” Had Smith bought the rights himself? I asked. No response came back.</p><p>Freeman was only slightly more accessible. He declined to meet me in person or to appear on Zoom. After weeks of back-and-forth, he agreed to a phone call, but only if parts of the conversation could be on background (which is to say, I could use the information generally but not attribute it to him). On the appointed afternoon, I dialed the number provided by his spokesperson and found myself talking to the most feared man in American newspapers.</p><p>When I asked Freeman what he thought was broken about the newspaper industry, he launched into a monologue that was laden with jargon and light on insight—summarizing what has been the conventional wisdom for a decade as though it were Alden’s discovery. “Many of the operators were looking at the newspaper business as a local advertising business,” he said, “and we didn’t believe that was the right way to look at it. This is a subscription-based business.”</p><p>Freeman was more animated when he turned to the prospect of extracting money from Big Tech. “We must finally require the online tech behemoths, such as Google, Apple, and Facebook, to fairly compensate us for our original news content,” he told me. He had spoken on this issue before, and it was easy to see why. Many in the journalism industry, watching <a href="https://www.wsj.com/articles/french-regulator-fines-google-268-million-in-antitrust-settlement-11623054737">lawsuits play out</a> in Australia and Europe, have held out hope in recent years that Google and Facebook will be compelled to share their advertising revenue with the local outlets whose content populates their platforms. Some have even suggested that this represents America’s last chance to save its local-news industry. But for that to happen, the Big Tech money would need to flow to underfunded newsrooms, not into the pockets of Alden’s investors.</p><p>Before our interview, I’d contacted a number of Alden’s reporters to find out what they would ask their boss if they ever had the chance. Most responded with variations on the same question: Which recent stories from your newspapers have you especially appreciated? I put the question to Freeman, but he declined to answer on the record.</p><p>Freeman was clearly aware of his reputation for ruthlessness, but he seemed to regard Alden’s commitment to cost-cutting as a badge of honor—the thing that distinguished him from the saps and cowards who made up America’s previous generation of newspaper owners. “Prior to the acquisition of the Tribune Company, we purchased substantially all of our newspapers out of bankruptcy or close to liquidation,” he told me. “These papers were in many cases left for dead by local families not willing to make the tough but appropriate decisions to get these news organizations to sustainability. These papers would have been liquidated if not for us stepping up.”</p><p>This was the core of Freeman’s argument. But while it’s true that Alden entered the industry by purchasing floundering newspapers, not all of them were necessarily doomed to liquidation. More to the point, Tribune Publishing—which represents a substantial portion of Alden’s titles—was profitable at the time of the acquisition.</p><p>There’s little evidence that Alden cares about the “sustainability” of its newspapers. A more honest argument might have claimed, as some economists have, that vulture funds like Alden play a useful role in “creative destruction,” dismantling outmoded businesses to make room for more innovative insurgents. But in the case of local news, nothing comparable is ready to replace these papers when they die. Some publications, such as the Minneapolis<i> Star Tribune</i>, have developed successful long-term models that Alden’s papers might try to follow. But that would require slow, painstaking work—and there are easier ways to make money.</p><p>In truth, Freeman didn’t seem particularly interested in defending Alden’s reputation. When he’d agreed to the interview, I’d expected him to say the things he was supposed to say—that the layoffs and buyouts were necessary but tragic; that he held local journalism in the highest esteem; that he felt a sacred responsibility to steer these newspapers toward a robust future. I would know he didn’t mean it, and he would know he didn’t mean it, but he would at least go through the motions.</p><p>But I had underestimated how little Alden’s founders care about their standing in the journalism world. For Freeman, newspapers are financial assets and nothing more—numbers to be rearranged on spreadsheets until they produce the maximum returns for investors. For Smith, the Palm Beach conservative and Trump ally, sticking it to the mainstream media might actually be a perk of Alden’s strategy. Neither man will ever be the guest of honor at the annual dinner for the Committee to Protect Journalists—and that’s probably fine by them. It’s hard to imagine they’d show, anyway.</p><p class="dropcap"><span class="smallcaps">About a month </span>after <i>The</i> <i>Baltimore Sun</i> was acquired by Alden, a senior editor at the paper took questions from anxious reporters on Zoom. The new owners had announced a round of buyouts, some beloved staffers were leaving, and those who remained were worried about the future. When a reporter asked if their work was still valued, the editor sounded deflated. He said that <i>he</i> still appreciated their journalism, but that he couldn’t speak for his corporate bosses.</p><p>“This company that owns us now seems to still be pretty—I don’t even know how to put it,” the editor said, according to a recording of the meeting obtained by <i>The Atlantic</i>. “We don’t hear from them ... They’re, like, nameless, faceless people.”</p><p>In the months that followed, the <i>Sun </i>did not immediately experience the same deep staff cuts that other papers did. Reporters kept reporting, and editors kept editing, and the union kept looking for ways to put pressure on Alden. But a sense of fatalism permeated the work. “It feels like we’re going up against capitalism now,” Lillian Reed, the reporter who helped launch the “Save Our Sun” campaign, told me. “Am I going to win against capitalism in America? Probably not.”</p><p>To David Simon, the whimpering end of <i>The</i> <i>Baltimore Sun</i> feels both inevitable and infuriating. A former <i>Sun </i>reporter whose work on the police beat famously led to his creation of <i>The Wire</i> on HBO, Simon told me the paper had suffered for years under a series of blundering corporate owners—and it was only a matter of time before an enterprise as cold-blooded as Alden finally put it out of its misery.</p><p>Like many alumni of the <i>Sun</i>, Simon is steeped in the paper’s history. He can cite decades-old scoops and tell you whom they pissed off. He quotes H. L. Mencken, the paper’s crusading 20th-century columnist, on the joys of journalism: It is really the life of kings. At the <i>Sun</i>’s peak, it employed more than 400 journalists, with reporters in London and Tokyo and Jerusalem. Its World War II correspondent brought firsthand news of Nazi concentration camps to American readers; its editorial page had the power to make or break political careers in Maryland.</p><p>But for Simon, that paper exists entirely in the past. With Alden in control, he believes the <i>Sun </i>is “now a prisoner” that stands little chance of escape. What most concerns him is how his city will manage without a robust paper keeping tabs on the people in charge. “The practical effect of the death of local journalism is that you get what we’ve had,” he told me, “which is a halcyon time for corruption and mismanagement and basically misrule.”</p><p>When Simon called me, he was on the set of his new miniseries, <i>We Own This City</i>, which tells the true story of Baltimore cops who spent years running their own drug ring from inside the police department. By the time the FBI caught them, in 2017, the conspiracy had resulted in one dead civilian and a rash of wrongful arrests and convictions. The show draws from a book written by a <i>Sun </i>reporter, and Simon was quick to point out that the paper still has good journalists covering important stories. But he couldn’t help feeling that the police scandal would have been exposed much sooner if the <i>Sun </i>were operating at full force.</p><p>Baltimore has always had its problems, he told me. “But if you really started fucking up in grandiose and belligerent ways, if you started stealing and grifting and lying, eventually somebody would come up behind you and say, ‘You’re grifting and you’re lying’ … and they’d put it in the paper.”</p><p>“The bad stuff runs for so long now,” he went on, “that by the time you get to it, institutions are irreparable, or damn near close.”</p><p>Take away the newsroom packed with meddling reporters, and a city loses a crucial layer of accountability. What happens next? Unless the <i>Tribune</i>’s trajectory changes, Chicago may soon provide a grim case study. For Baltimore to avoid a similar fate, Simon told me, something new would have to come along—a spiritual heir to the <i>Sun</i>: “A newspaper is its contents and the people who make it. It’s not the name or the flag.”</p><p>He may get his wish. Stewart Bainum, since losing his bid for the <i>Sun</i>, has been quietly working on a new venture. Convinced that the <i>Sun</i> won’t be able to provide the kind of coverage the city needs, he has set out to build a new publication of record from the ground up. In recent months, he’s been meeting with leaders of local-news start-ups across the country—<i>The Texas Tribune</i>, the <i>Daily Memphian</i>, <i>The City</i> in New York—and collecting best practices. He’s impressed by their journalism, he told me, but his clearest takeaway is that they’re not nearly well funded enough. To replace a paper like the <i>Sun</i> would require a large, talented staff that covers not just government, but sports and schools and restaurants and art. “You need real capital to move the needle,” he told me. Otherwise, “you’re just peeing in the ocean.”</p><p>Next year, Bainum will launch <i>The Baltimore Banner</i>, an all-digital, nonprofit news outlet. He told me it will begin with an annual operating budget of $15 million, unprecedented for an outfit of this kind. It will rely initially on philanthropic donations, but he aims to sell enough subscriptions to make it self-sustaining within five years. He’s acutely aware of the risks—“I may end up with egg on my face,” he said—but he believes it’s worth trying to develop a successful model that could be replicated in other markets. “There’s no industry that I can think of more integral to a working democracy than the local-news business,” he said.</p><p>The <i>Banner</i> will launch with about 50 journalists—not far from the size of the <i>Sun</i>—and an ambitious mandate. One tagline he was considering was “Maryland’s Best Newsroom.”</p><p>When I asked, half in jest, if he planned to raid the <i>Sun</i> to staff up, he responded with a muted grin. “Well,” he told me, “they have some very good reporters.”</p><hr><p><small><em>This article appears in the <a href="https://www.theatlantic.com/magazine/toc/2021/11/?utm_source=feed">November 2021</a> print edition with the headline “The Men Who Are Killing America’s Newspapers.”</em></small></p>McKay Coppinshttp://www.theatlantic.com/author/mckay-coppins/?utm_source=feedDan Winters for The AtlanticA Secretive Hedge Fund Is Gutting Newsrooms2021-10-14T06:00:00-04:002023-10-31T17:32:18-04:00Inside Alden Global Capitaltag:theatlantic.com,2021:39-620169<figure data-apple-news-hide="1"><img alt="Photo of 3 rows of waves cut out of cardboard boxes, with large cardboard tsunami wave that has white crest made of white/black shipping label" height="667" src="https://cdn.theatlantic.com/media/img/posts/2021/10/Dis_Mull_Returns/96951a4de.jpg" width="665">
<figcaption class="credit">Jason Fulford and Tamara Shopsin</figcaption>
</figure><p class="dropcap">C<span class="smallcaps">onsider the dressing room</span>. The concept began its mass-market life as an amenity in Gilded Age department stores, a commercial sanctuary of pedestals and upholstered furniture on which to swoon over the splendid future of your wardrobe. Now, unless you’re rich enough to sip gratis champagne in the apartment-size private shopping suites of European luxury brands, the dressing room you know bears little resemblance to its luxe progenitors.</p><p>Over the course of several decades and just as many rounds of corporate budget cuts, dressing rooms have filled with wonky mirrors and fluorescent lights and piles of discarded clothes. At one point in your life or another, as you wriggled your clammy body into a new bathing suit—underpants still on, for sanitary purposes—you have probably experienced the split-second terror of some space cadet trying to yank the door open (if you’re lucky enough to have a door). Maybe you have heard your own panicked voice croak, “Someone’s in here!”</p><p>Through the 1990s and into the 2000s, even as stores became dingy and understaffed, the dressing room try-on remained a crucial step in the act of clothing yourself. But as online shopping became ever more frictionless—and the conditions in the fitting room ever less desirable—Americans realized that it might just be better to order a few sizes on a retailer’s website and sort it out at home. Estimates vary, but in the past year, one-third to one-half of all clothing bought in the United States came from the internet. More shopping of almost every type shifts online each year, a trend only <a href="https://www.theatlantic.com/magazine/archive/2021/03/ultra-fast-fashion-is-eating-the-world/617794/?utm_source=feed">accelerated by months of pandemic restrictions and shortages</a>.</p><p>This explosive growth in online sales has also magnified one of e-commerce’s biggest problems: returns. When people can’t touch things before buying them—and when they don’t have to stand in front of another human and insist that a pair of high heels they clearly wore actually never left their living room—they send a lot of stuff back. The <a href="https://www.cnbc.com/2019/01/10/growing-online-sales-means-more-returns-and-trash-for-landfills.html">average brick-and-mortar store</a> has a return rate in the single digits, but online, the average rate is somewhere between 15 and 30 percent. For clothing, it can be even higher, thanks in part to bracketing—the common practice of ordering a size up and a size down from the size you think you need. Some retailers actively encourage the practice in order to help customers feel confident in their purchases. At the very least, <a href="https://www.theatlantic.com/magazine/archive/2020/01/the-myth-of-free-shipping/603031/?utm_source=feed">many retailers now offer free shipping</a>, free returns, and frequent discount codes, all of which promote more buying—and more returns. Last year, U.S. retailers <a href="https://nrf.com/media-center/press-releases/428-billion-merchandise-returned-2020">took back more than $100 billion in merchandise sold online</a>.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/health/archive/2021/08/pandemic-american-shoppers-nightmare/619650/?utm_source=feed">Read: American shoppers are a nightmare</a>]</i></p><p>All of that unwanted stuff piles up. Some of it will be diverted into a global shadow industry of bulk resellers, some of it will be stripped for valuable parts, and some of it will go directly into an incinerator or a landfill.</p><p>It sounds harmful and inefficient—all the box trucks and tractor trailers and cargo planes and container ships set in motion to deal with changed minds or misleading product descriptions, to say nothing of the physical waste of the products themselves, and the waste created to manufacture things that will never be used. That’s because it <i>is</i> harmful and inefficient. Retailers of all kinds have always had to deal with returns, but processing this much miscellaneous, maybe-used, maybe-useless stuff is an invention of the past 15 years of American consumerism. In a race to acquire new customers and retain them at any cost, retailers have taught shoppers to behave in ways that are bad for virtually all involved.</p><p class="dropcap"><span class="smallcaps">The retail-logistics </span>industry<span class="smallcaps"> </span>is split into two halves. Forward logistics—the process of moving goods from manufacturers to their end users—is the half most consumers regularly interact with. It includes postal workers, your neighborhood UPS guy, and the people who stock shelves at Target or pick items and pack boxes at Amazon warehouses. “Pick packing and shipping individual things to satisfy customer orders is a madness, but it’s a straightforward madness,” Mark Cohen, the director of retail studies at the Columbia University School of Business and the former CEO of Sears Canada, told me. The other half—reverse logistics—isn’t straightforward at all.</p><p>“Reverse logistics is nasty,” Tim Brown, the managing director of the Supply Chain and Logistics Institute at Georgia Tech, told me. The process of <a href="https://www.theatlantic.com/technology/archive/2019/01/where-amazon-returns-go-to-be-resold-by-hustlers/580363/?utm_source=feed">getting unwanted items back from consumers and figuring out what to do with them</a> is time- and labor-intensive, and often kind of gross. Online returns are collected one by one from parcel carriers, brick-and-mortar stores, a growing number of third-party services, and sometimes directly from customers’ homes. Workers at sorting facilities open boxes and try to determine whether the thing in front of them is what’s on the packing list—to discern the difference between the various car parts sold on Amazon, or the zillion black polyester dresses available to order from H&M. They also need to figure out whether it’s been used or worn, if it works, if it’s clean, and if it or any of its components are economically and physically salvageable.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2019/01/where-amazon-returns-go-to-be-resold-by-hustlers/580363/?utm_source=feed">Read: Where Amazon returns go to be resold by hustlers</a>]</i></p><p>Sometimes, the answers to those questions are clear. “Consumers say they’re returning XYZ, but they really return a dead rat and a cinder block,” Brown said. That kind of fraud accounts for 5 to 10 percent of returns. Usually, though, the situation is ambiguous. How used do jeans have to be for them to be considered used? Does a mere try-on count, if they’ve been removed from their packaging?</p><p>We can dispense now with a common myth of modern shopping: The stuff you return probably isn’t restocked and sent back out to another hopeful owner. Many retailers don’t allow any opened product to be resold as new. Brick-and-mortar stores have sometimes skirted that policy; products that are returned directly to the place where they were sold can be deemed close enough to new and sold again. But even if mailed-in products come back in pristine, unused condition—say, because you ordered two sizes of the same bra and the first one you tried on fit fine—the odds that things returned to a sorting facility will simply be transferred to that business’s inventory aren’t great, and in some cases, they’re virtually zero. Getting an item back into a company’s new-product sales stream, which is sometimes in a whole different state, can be logistically prohibitive. Some things, such as beauty products, underwear, and bathing suits, are destroyed for sanitary reasons, even if they appear to be unopened or unused.</p><p>Perfectly good stuff gets thrown away in these facilities all the time, simply because the financial math of doing anything else doesn’t work out; they’re too inexpensive to be worth the effort, or too much time has passed since they were sold. Fast fashion—the extremely low-cost, <a href="https://www.theatlantic.com/entertainment/archive/2015/03/the-neurological-pleasures-of-modern-shopping/388577/?utm_source=feed">quick-churn styles </a>you can buy from brands such as Forever 21 and Fashion Nova—tends to tick both boxes, and the industry <a href="https://www.theatlantic.com/magazine/archive/2021/03/ultra-fast-fashion-is-eating-the-world/617794/?utm_source=feed">generates some of the highest return rates in all of consumer sales</a>. Imagine a dress that sold for $25 and was sent back without its plastic packaging at the end of the typical 30-day return window. Add up the labor to pick, pack, and dispatch the item; the freight both coming and going; the labor to receive and sort the now-returned item; the cardboard and plastic for packaging; and the sorting facility’s overhead, and the seller has already lost money. By one estimate, <a href="https://www.wsj.com/articles/amazon-walmart-tell-consumers-to-skip-returns-of-unwanted-items-11610274600">an online return typically costs a retailer $10 to $20 before the cost of shipping</a>. And in the space of a month, the people who might have paid full price for the dress have moved on to newer items on the seller’s website. At that point, one way or another, the dress has got to go.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2021/03/ultra-fast-fashion-is-eating-the-world/617794/?utm_source=feed">From the March 2021 issue: Ultra-fast fashion is eating the world</a>]</i></p><p>Many products survive their initial return, and even get sold again—just not to the retailer’s customers. Stores like Neiman Marcus and Target, which carry a bunch of different brands, are often able to return excess product to those brands for at least a partial refund. That might mean a pallet of polo shirts goes back to Ralph Lauren, or Hanes eats part of the loss on a new line of socks that didn’t sell. At that point, the brand or wholesaler taking back the product has to decide whether it should be thrown away or sold.</p><p>Or, when someone returns a computer to Best Buy, for example, the company can try to sell it elsewhere, even if it’s just for parts. Perhaps its outer case would be discarded and its processor and video card removed and off-loaded, along with thousands of others, to a middleman who flips them to repair services or retailers that sell refurbished parts. Bulk sales of intact merchandise supply much of the inventory in domestic deep-discount retailers such as Big Lots, according to Brown, and are also why so many people in countries without American stores wear American clothes. Unwanted clothing and other goods are sold off thousands of pounds at a time in shipping containers; the buyers discard what they can’t resell and ship the rest overseas to wholesale it as fresh merchandise.</p><p>This is why it’s difficult to accurately estimate what portion of returned merchandise is discarded, or even how much waste it adds up to, though we do know that billions of pounds of returns are thrown away in the U.S. every year. Joel Rampoldt, a managing director at the consulting firm AlixPartners, told me that most people in the industry believe that about 25 percent of returns are discarded, although the proportion varies widely depending on the product (clothing tends to be easier to resell than electronics that may contain user data, for example). There are so many points in an object’s life where it could go to the trash heap instead of to a person who will use it, and once it’s off the books—especially if it’s out of the country—American retailers are no longer keeping track. These practices are essentially unregulated; companies do whatever they deem most profitable.</p><p>Now is usually when people start wondering why more returns aren’t just donated. Don’t lots of people in the U.S. need winter coats and smartphones and other crucial tools of everyday life that they can’t afford? Wouldn’t providing those things be good PR for retailers? Wouldn’t it be a tax write-off, at the very least? Donation would be the morally sound move. But companies have little incentive to act morally, and many avoid large-scale domestic donations because of what is politely termed “brand dilution”: If paying customers catch you giving things to poor people for free, the logic goes, they’ll feel like the things you sell are no longer valuable.</p><p>Some of the largest retailers, such as Amazon and Target, have begun to quietly acknowledge that it doesn’t even make sense for them to eat the cost of reverse logistics to get back many of the things they sell. They’ll refund you for your itchy leggings or wonky throw pillows and suggest that you give them away, which feels like an act of generosity but, more likely, is really just farming out the task of product disposal.</p><p class="dropcap"><span class="smallcaps">The birth of </span>the returns problem is almost always pinned on Zappos. In the mid-2000s, the company persuaded millions of Americans to buy shoes online—a turn of events that, at the time, seemed extremely unlikely—by marketing its fast, free shipping and free, no-questions-asked return policy as ardently as it did its products. The easy-returns tactic was hardly new in retail (Nordstrom, among others, was long famous for being so lenient that the store would take back things it didn’t sell in the first place in order to keep customers happy). But the free-returns model had never before been applied at such a large scale to online sales, where the logistics of giving buyers so much latitude is much more costly. Zappos’s success helped shape how people understood online shopping to work. “It’s so baked into consumer expectations, and consumers are very irrational about the cost of shipping and returns,” Rampoldt told me. “To some extent retailers have created that, and now they’re stuck with it.”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2020/01/the-myth-of-free-shipping/603031/?utm_source=feed">From the January/February 2020 issue: Stop believing in free shipping</a>]</i></p><p>Businesses often lose money in the pursuit of customers, hoping to make back the initial loss in the long run by creating durable economies of scale, which Zappos has successfully done—Scott Schaefer, the company’s vice president of finance, told me that it’s profitable, and has no need or desire to tighten its shipping and returns policies. But Zappos’s strategy had ramifications far beyond its own sales figures. By changing consumer behavior, it inadvertently pushed lots of other businesses to adopt the buy-it-all, return-it-later policies that have now become the industry standard, especially as e-commerce spending consolidates among a few mega-companies like Amazon, Target, and Walmart. Retailers of that size are better able to absorb the cost of return shipping and junked product than smaller businesses are. But many of those smaller businesses must adopt similar policies anyway to hold on to their customers.</p><p>Alarmingly, the problem almost never comes up in business education. “There’s very, very, very, very little academic work in reverse logistics,” Brown said. Meanwhile, “forward logistics and supply chain is taught in every business school in the country.” People are taught to sell.</p><p>And stores don’t want to talk about returns. Seven of the eight that I contacted for this story, which specialize in everything from cheap dog toys to luxury fashion, declined to comment at all. The issue is a nonstarter in almost every way: No company wants to draw attention to customers who are disappointed in their purchases. If a retailer admits that it wants to cut back on its generous policies, it risks headlines painting it as stingy. And once people start thinking about returns, they might start asking where all that returned product <i>goes</i>, which is a whole other can of public-relations worms.</p><p>This avoidance runs deep—public companies have to disclose a litany of financial details to shareholders every year, but regulatory agencies don’t require them to include return rates or specify their financial impact, so they don’t. When everyone’s mouths are shut, the size of the problem becomes very difficult to discern.</p><p>Schaefer, from Zappos, said that the centrality of returns to the business’s sales model means that the price of service has long been baked in. “I could be significantly more transactionally profitable if I cut off and said no returns,” Schaefer told me. “But I would easily lose all of my customers and all my customer trust.” Because Zappos doesn’t carry fast fashion, it has an advantage over some other apparel retailers; much of its return volume comes back unworn and is reintegrated into its regular inventory.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/entertainment/archive/2015/03/the-neurological-pleasures-of-modern-shopping/388577/?utm_source=feed">Read: The neurological pleasures of modern shopping</a>]</i></p><p>But even some of the biggest retailers in the world now see rampant returns as an existential threat. In recent years, many have started using third-party software to find and ban their highest-volume returners from sending things back, and sometimes from buying anything at all. Amazon, Sephora, Best Buy, Ulta, and Walmart, among many others, close shoppers’ accounts or bar them from stores if their returns seem atypical or potentially fraudulent. Details on what these companies consider aberrant behavior are scant, but Mark Cohen oversaw one of the first such policies, at Sears Canada in the mid-2000s. In its sweep, he said, Sears found 1,400 people who were engaged in what he called “recreational shopping”—buying things nearly every week and returning all or almost all of them. What’s more, many of these people even employed the tactic with big-ticket items such as tractors, lawn mowers, and refrigerators.</p><p>Third-party businesses have also sprouted up to wrestle returns into some kind of submission. If you shop online with any regularity, you’ve probably interacted with a post-purchase retail-logistics company such as Narvar, even if you didn’t realize it. These companies notify buyers when things have shipped or they’re about to arrive, clean up the tracking information into something understandable at a glance, and collect and organize data about why and how often certain products come back. Other companies promise to intervene in the physical logistics of moving $100 billion in online returns back to sellers. Roadie, for example, will pay gig workers to ferry returns back to sorting facilities in their own cars, ostensibly in situations where drivers are already heading that way. Happy Returns lets shoppers drop off their unwanted, unpackaged goods at “return bars” inside local businesses—drugstores, stationery shops, FedEx offices—which in theory minimizes the hassle, and thus speeds things up. Happy Returns then sorts and sends the items back to retailers, creating some measure of greater efficiency.</p><p>But returns don’t seem like a problem that can necessarily get solved completely. As the places where people used to buy clothes or stationery or kids’ toys in person are pushed out of business, online shopping becomes even more of a necessity. And Americans will probably continue to buy more than they intend to keep, even if it means an extra trip to the UPS store. Prices will go up to account for how expensive it is to send all this unwanted stuff back and forth, and companies will make nonbinding sustainability pledges that attract positive headlines while still shoveling things into landfills. They will do so until that is no longer legal, or no longer profitable for the largest and most powerful retailers, at which point they’ll force their customers to get used to something else.</p><p>When surveyed about their preferences, big majorities of Americans under 40 say that they’d happily pay more to patronize businesses that aren’t wasteful or harmful to the environment. That is the right answer when another human asks you whether you care about the future of the planet. But the receipts tell a different story so far: Those same shoppers do a far larger portion of their shopping online than their older counterparts do, and they’re also more likely to place big orders, buying items in multiple sizes and colors, with the intention of sending some back. That’s the slick thing about shopping now. So much of it takes place in the same manner as returns—in the privacy of your own home, no human interaction or judgment required.</p><hr><p><small><i>This article appears in the <a data-saferedirecturl="https://www.google.com/url?q=https://www.theatlantic.com/magazine/toc/2021/11/&source=gmail&ust=1633202161380000&usg=AFQjCNGpCHGPdIYpM8Yv-p-oIGVr97sMGA" href="https://www.theatlantic.com/magazine/toc/2021/11/?utm_source=feed" target="_blank">November 2021</a> print edition with the headline “</i><em>Unhappy Returns</em><i>.”</i></small></p>Amanda Mullhttp://www.theatlantic.com/author/amanda-mull/?utm_source=feedJason Fulford and Tamara ShopsinThe Nasty Logistics of Returning Your Too-Small Pants2021-10-07T07:00:00-04:002021-10-13T10:39:05-04:00What happens to the stuff you order online after you send it back?tag:theatlantic.com,2021:50-620187<p>Grocery prices are rising. Meat prices are rising more than most other grocery prices. Beef prices are rising more than most other meat prices.</p><p>But on the ranch, these are not prosperous times. Even as ground chuck costs <a href="https://www.walmart.com/search?q=ground+beef">more than $5 a pound at Walmart</a>, ranchers complain that they are receiving less for their animals than it costs to feed them.</p><p>Rising food prices are likely depressing President Joe Biden’s softening approval numbers. The U.S. economy has added <a href="https://fred.stlouisfed.org/series/PAYEMS">almost 5 million</a> non-farm jobs since Inauguration Day. Yet Biden’s approval rating has dropped into the mid-40s. In a recent Fox News poll, 82 percent of respondents described themselves as “extremely” or “very” concerned about <a href="https://www.foxnews.com/official-polls/fox-news-poll-majorities-favor-mask-vaccine-mandates-as-pandemic-worries-increase">the cost of living</a>. More than scenes of chaos in Afghanistan, the numbers at the supermarket checkout may be weighing Biden down.</p><p>On September 8, the White House unveiled an analysis of the problem—and an ambitious plan for action: $500 million in loan guarantees to smaller and regional beef processors.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2019/11/income-inequality-getting-worse/601414/?utm_source=feed">Annie Lowrey: The inflation gap</a>]</i></p><p>What’s going on here is bigger than beef. It’s a test of a theory about the U.S. economy—and about a philosophy of government. The theory, expressed most powerfully in a 2019 book by Thomas Philippon, <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674237544"><i>The Great Reversal</i></a>, is that the U.S. economy is in thrall to a few dominant corporations. In industry after industry, Philippon argued, a few companies have gained the power to keep prices high, wages low, and competitors out. The philosophy of government that follows from this theory is that the government should vigorously police competition, not only by means of <a href="https://www.theatlantic.com/business/archive/2017/06/word-monopoly-antitrust/530169/?utm_source=feed">traditional antitrust enforcement</a> but also through a broader program of <a href="https://www.theatlantic.com/ideas/archive/2019/10/europe-not-america-home-free-market/600859/?utm_source=feed">market regulation</a> and intervention. </p><p>Market regulation went out of style in the 1970s, a victim of its internal contradictions. As academic critics such as Robert Bork argued back then: If, say, a supermarket gains market share from its mom-and-pop competitors by offering a wider selection at lower prices, you can understand why Mom and Pop don’t like it. But how is it “pro-competition” if the government intervenes to protect Mom and Pop from competitors who are doing a better job of meeting customer needs?</p><p>That argument prevailed for most of the past half century. The Biden administration is seeking to change course—and beef is where it’s starting.</p><p>To understand the choices facing the Biden administration, here are the two warring explanations of what’s going on with beef.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/politics/archive/2021/05/biden-economy-inflation-yellen/618816/?utm_source=feed">Read: Bidenomics really is something new</a>]</i></p><p>The first explanation is a classic story of supply and demand. The beef industry has been hammered over the past two years by <a href="https://www.theatlantic.com/technology/archive/2021/09/pandemic-supply-chain-nightmare-slow-shipping/620147/?utm_source=feed">a series of supply shocks</a>. COVID closed many processing plants. Then, when the plants reopened, they had to work less efficiently, with workers spaced farther apart from one another. Like many other employers, meatpackers have had difficulty hiring enough labor at pre-pandemic wages, so they have had to pay more, which raises their costs.</p><p>Meanwhile, U.S. cattle herds have been ravaged by drought across the American West. The 2020 drought was bad; the 2021 drought has been worse. More than one-third of American cattle have grazed under drought conditions in 2021, sometimes—as in Montana and Washington State—extreme-drought conditions. The aggregate national herd has shrunk in numbers, and the animals that have come to market have weighed an <a href="https://www.ers.usda.gov/webdocs/outlooks/101889/ldp-m-326.pdf?v=714.6">average of 15 pounds less</a> than animals weighed a year earlier, according to U.S. Department of Agriculture statistics.</p><p>Drought has also pushed the price of cattle feed to dizzying heights, raising beef prices even higher. The feed crisis explains some of the woes of small ranchers. Many cattle spend their early months on a ranch eating grass, then are shipped to a feedlot where they are fattened with corn and other grains. If the feed costs more, the rancher earns less.</p><p>Over the past year and a half, surging demand slammed into this constrained supply. Throughout the coronavirus pandemic, the federal government has pumped enormous purchasing power into consumers’ wallets. This extra money—plus consumer cutbacks on other kinds of spending—has enabled consumers to increase their spending at the grocery store; they spent <a href="https://www.brookings.edu/blog/future-development/2020/12/14/the-decline-and-recovery-of-consumer-spending-in-the-us/">$84 billion</a> more in 2020 relative to 2019.</p><p>If this supply-and-demand explanation is correct, then the right policy for government is: Do nothing. Higher prices will encourage ranchers to raise more cattle. Higher prices will enable meatpackers to pay higher wages. Higher prices will induce consumers to substitute other foods for beef. Supply and demand will equilibrate, as they always do. And this time, the high prices can serve another function, too: warning consumers of the pocketbook impact of drought-causing climate change.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/business/archive/2015/10/meat-industry-lobbying-political-nutrition/412243/?utm_source=feed">Read: How meat producers have influenced nutrition guidelines for decades</a>]</i></p><p>But there’s another story to tell, and it’s the story the Biden administration is telling. Meatpacking is becoming a more concentrated industry. Just four companies process more than 80 percent of America’s beef. Even as prices moved down in the early 2010s and up again in the early 2020s, the Big Four packers have been able first to increase, then to maintain, <a href="https://www.whitehouse.gov/briefing-room/blog/2021/09/08/addressing-concentration-in-the-meat-processing-industry-to-lower-food-prices-for-american-families/">their level of profitability</a>. In less concentrated food industries, notably eggs, prices did not rise nearly as much in 2020–21 as did prices of meat, and especially beef.</p><p>Without denying the supply-and-demand explanation altogether, the Biden administration wants to act to multiply competition in the meatpacking industry. It proposes committing $500 million in loan guarantees and direct subsidies to support smaller players against the Big Four. It hopes that more competition will raise the prices that packers pay to ranchers and cut the prices consumers pay at the store.</p><p>That’s maybe a forlorn hope. A single large-sized <a href="https://www.theatlantic.com/magazine/archive/2021/07/meatpacking-plant-dodge-city/619011/?utm_source=feed">meatpacking plant</a> can cost $200 million, and take many months to approve and build. So $500 million will not buy much additional capacity. Worse, from a Biden administration perspective, meatpackers faced by intensified competition have another option besides paying more to ranchers or charging consumers less: They can squeeze their own costs by, for example, automating workers out of jobs.</p><p>The architects of the Biden plan are uneasily aware that it rests on a lot of hopes, guesses, and optimistic assumptions. When pressed on the unlikelihood that their plan will deliver any near-term relief to either ranchers or consumers, they reply that the more fundamental goal of their plan is to improve the resiliency of the U.S. food system. Because meatpacking in general—and beef packing most of all—is so concentrated in a few huge plants, small shocks can disrupt the nation’s supply of meat.</p><p>In August 2019, a fire badly damaged one of the seven largest meatpacking plants in the United States, near Holcomb, Kansas. At a stroke, the U.S. <a href="https://www.meatpoultry.com/articles/22036-the-smoldering-impact-of-tyson-holcomb-fire">lost the ability</a> to process 30,000 head of cattle per week. In May 2021, a cyberattack temporarily closed all of the U.S. processing operations of JBS, the largest meatpacker in the world. That attack disrupted <a href="https://www.bloomberg.com/news/articles/2021-05-31/meat-is-latest-cyber-victim-as-hackers-hit-top-supplier-jbs">one-fourth</a> of the U.S. beef supply.</p><p>Multiplying the number of smaller if perhaps less efficient suppliers can provide some cushions against such shocks in future. That’s the hope anyway, and President Biden has talked <a href="https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/04/12/remarks-by-president-biden-at-a-virtual-ceo-summit-on-semiconductor-and-supply-chain-resilience/">a lot</a> about it. But how would that hope work in the real world? The Big Four came to dominate beef packing as they do precisely because theirs is an industry where larger size translates into lower costs and greater efficiencies. The Biden administration is not talking about turning the Big Four into the Big Five. It’s talking about supporting a lot of smaller competitors. What’s to stop the Big Four from undercutting them and driving them out of business far in advance of a crisis in which the extra resiliency might prove useful? When I put this question to officials involved in the Biden plan, they admit that the question worried the president too.</p><p>There is one way that the resiliency project can work: if the additional capacity can somehow persuade consumers to pay higher prices. Craft breweries do not compete with Anheuser-Busch on price; they compete on taste. Smaller meatpackers could likewise compete as alternatives that are more humane to animals—or that deliver organic or grass-fed meat. But that means entering the market at the top, not undercutting from below. And because the main obstacles to this kind of niche competition are regulatory, allowing the niche competitors to grow will demand a <i>deregulatory</i> agenda of a kind very different from what the Biden administration seems to have in mind for meatpacking.</p><p>Instead, there’s a real risk that the initial commitment of $500 million in aid and loan guarantees to small packers will expand into continuing intervention in the marketplace to keep smaller competitors in business in the face of the higher efficiency and lower prices of the big packers.</p><p>As the saying goes, there’s no taking the politics out of politics. Rage at the big meatpackers burns especially hot among ranchers in Montana and the Dakotas. These ranchers are located far away from the feedlots of the Corn Belt to the south, and they feel themselves especially disadvantaged by the industry’s present structure. They even have <a href="https://www.r-calfusa.com/">their own industry group</a>, which broadly supports the Biden administration’s plans. Montana has a Democratic senator right now; North Dakota had one from 2013 to 2019. Unsurprisingly, a Democratic presidential administration listens more carefully to the views of ranchers in states that sometimes vote Democratic than to those from states that less often do.</p><p>Yet it would be a mistake to interpret beef policy as merely an expression of regional politics. What’s being proposed for beef is as an experiment in stricter marketplace regulation. If it works—or at least seems to work—for beef, it can be tried elsewhere. But what if it doesn’t work? We’ll be back where we were before the 1970s, when “pro-competition” often turned out to mean “a helping hand to the least capable competitors.” “Resiliency” is an appealing slogan. But what if it translates into plainer English as higher taxes and higher prices?</p>David Frumhttp://www.theatlantic.com/author/david-frum/?utm_source=feedAdam Maida / The AtlanticWhere’s the Cheap Beef?2021-09-24T05:00:00-04:002021-10-19T10:55:36-04:00The rising prices at the supermarket checkout are a problem with no simple explanation. But Democratic hopes may depend on finding the right answer.tag:theatlantic.com,2021:50-619264<p><i>Every week, our lead climate reporter brings you the big ideas, expert analysis, and vital guidance that will help you flourish on a changing planet. </i><a href="https://www.theatlantic.com/newsletters/sign-up/weekly-planet/?utm_source=feed"><i>Sign up to get </i><em>T</em></a><em><a href="https://ers/sign-up/weekly-planet/">he Weekly Planet</a></em><i><a href="https://www.theatlantic.com/newsletters/sign-up/weekly-planet/?utm_source=feed"><em>,</em> our guide to living through climate change, in your inbox</a>.</i></p><hr><p>Last month, a tiny hedge fund called Engine No. 1 <a href="https://www.theatlantic.com/science/archive/2021/06/wall-streets-skirmish-with-big-oil-exxons-climate-fight/619070/?utm_source=feed">staged a coup of sorts at ExxonMobil</a>—a shareholders’ revolt that unseated three members of the oil company’s board of directors and replaced them with more climate-concerned candidates. The putsch was the first centered on climate change at an American oil company.</p><p>Now the financial group is ready to recruit ordinary investors—people with 401(k)s, <a href="https://www.axios.com/robinhooders-arent-who-you-think-they-are-1844deab-5d23-4f36-a389-231c2e8ffb49.html">Robinhooders</a>, the macroprudentially curious—into its army. Tomorrow it is launching an exchange-traded fund, or ETF, that will track the performance of the 500 largest public companies in America, the firm told <i>The Atlantic.</i></p><p>The new Engine No. 1 Transition 500 Fund is, in other words, a low-fee, diversified index fund of the type that now dominates the American stock market. Yet unlike other index-fund providers, which sit out some fights with management, Engine No. 1 has pledged to crusade. When Engine No. 1 campaigns against a company’s leadership, shares held by the Transition 500 ETF will vote for its slate. The ETF will trade on the stock market, appropriately, under the ticker symbol VOTE.</p><p>“For many investors, it feels like there’s still a trade-off between financial performance and investing with values,” Yasmin Dahya Bilger, who directs ETFs at Engine No. 1, told me, implying that, well, there shouldn’t be. “This fund will keep the investment side similar to what many already have in their portfolios.”<br>
<br>
It uses a little-understood mechanism to change the economy. American public companies technically are small republics in their own right, subject to some quasi-democratic controls that, in most cases, exhibit all the sleepiness of North Korean plebiscites. A company publishes a slate of approved picks for its board of directors; investors rubber-stamp them; everyone goes home. Engine No. 1 is not the first fund to break that pattern—proxy fights have been a significant feature of Wall Street since the 1970s—but it did so, notably, by holding only 0.02 percent of Exxon’s stock. It found success because it convinced investors holding another 49.99 percent of Exxon’s outstanding stock to join its campaign.</p><p>One of the benefits of VOTE is that, if it’s successful, it will give Engine No. 1 more arrows in its quiver for future battles. The firm says that at least $100 million is already committed to investing in its ETF. The robo-adviser Betterment, <a href="https://www.theatlantic.com/science/archive/2021/02/new-idea-fighting-climate-change-retirement-plans-betterment/617909/?utm_source=feed">which is working to assemble a climate-friendly investment portfolio</a>, has said it will add VOTE to its large-cap portfolio.</p><p>Of course, every fund promising to take on climate change can rope a laudatory article these days. But here’s why I think VOTE is truly notable:</p><p><b>1. It is inexpensive. </b></p><p>Mutual-fund and ETF managers make money by skimming a few cents off of every dollar invested in their products. Socially responsible funds haven't always been cheap: In 2017, when Betterment offered its first socially responsible portfolio, the one large-cap U.S.-stock ETF that it recommended charged fees of 0.5 percent, a fortune in investment terms, Boris Khentov, Betterment’s senior vice president, told me. Today, a popular ETF called <a href="https://www.ssga.com/library-content/products/factsheets/etfs/us/factsheet-us-en-spyx.pdf">SPYX</a>, which mirrors the S&P 500 but omits fossil-fuel companies, charges 0.2 percent. VOTE, by comparison, charges 0.05 percent.</p><p>“It’s a different scale,” Khentov said. That puts VOTE on par with some of <a href="https://www.investopedia.com/articles/investing/122215/spy-spdr-sp-500-trust-etf.asp">the cheapest index funds on the market</a>.</p><p><b>2. It has a clear theory of change. </b></p><p>The economist Albert O. Hirschman once wrote that members of a firm in distress had a few options: They could <i>exit, </i>leaving the organization to collapse; use <i>voice, </i>expressing dissatisfaction with the hope of fixing the firm; or show <i>loyalty, </i>sticking in their role and hoping for improvement.</p><p>For the past decade, the dominant approach among climate-concerned investors has been to exit: If you’re worried about climate change, activists have exhorted, you should divest from fossil-fuel stocks. But last month, Engine No. 1 voiced<i> </i>its problems with Exxon—and found rapid success. VOTE now lets average investors try voice<i> </i>too.</p><p>Really, the two strategies should work in tandem. Divestment should, over time, make raising money more expensive for carbon-intensive oil companies—as it indeed <a href="https://www.bloomberg.com/news/articles/2021-06-18/esg-concerns-are-finally-showing-up-in-the-bond-market?sref=BGQFqz7X">seems to be doing</a>. Engagement should push companies to act in a way that makes divestment less necessary.</p><p><b>3. It puts pressure on other index-fund providers.</b></p><p>The so-called Big Three index investors—Vanguard, BlackRock, and State Street—are <a href="https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/?utm_source=feed">the largest shareholders in most major U.S. companies</a>. They have not been known as drivers of innovation in the boardroom. “Out of 4,000 shareholder proposals over the last decade or so, not a single one was put forward by any of the largest asset managers out there,” Michael O’Leary, a managing director at Engine No. 1 and a co-author of the book <i>Accountable: The Rise of Citizen Capitalism, </i>told me.</p><p>BlackRock, the largest of the three, has <a href="https://www.wsj.com/articles/blackrock-takes-aggressive-posture-on-esg-proxy-votes-11619775002">lately come to champion</a> ESG—environmental, social, and governance—goals in its voting. (Brian Deese, its former head of ESG, now directs President Joe Biden’s National Economic Council.) BlackRock has voted against Exxon’s board for the past several years, Madison Condon, a law professor at Boston University who studies index providers, told me. But BlackRock’s revolt alone wasn’t enough. Engine No. 1 triumphed only because Vanguard, the most reticent of the three, broke with Exxon and joined its campaign.</p><p>In that light, VOTE seems designed to prod the Big Three as much as America’s corporate leadership. During the Exxon campaign, Engine No. 1 approached institutional investors hat in hand, eager for their support. Now Engine No. 1 is competing with the other indexers—and if investors don’t like their asset manager’s voting record, they can reallocate their portfolio.</p><p>Or maybe not. When I offered this theory to O’Leary, he passed on it. “We owned two basis points of ExxonMobil. Even if we had owned 5 percent, or 6 percent, the way some activist hedge funds do, our success still relies on the support of other investors,” he said. “Our power will always be contingent on our ability to bring other investors along with us.”</p><p>Last year, when I covered Betterment’s <a href="https://www.theatlantic.com/science/archive/2021/02/new-idea-fighting-climate-change-retirement-plans-betterment/617909/?utm_source=feed">attempt to put a climate-friendly portfolio together</a>, I wished for an ETF just like VOTE—a fund that tried to reshape the market not by withdrawing money from some places and investing it in others but by engaging directly with corporate leadership and using the power of shareholder voting to push boards forward. “But right now, no such fund exists,” I concluded.</p><p>Now such a fund does. I think VOTE is a natural complement to a divestment strategy, especially as <a href="https://www.theatlantic.com/science/archive/2021/06/climate-change-green-vortex-america/619228/?utm_source=feed">clean energy gets cheaper</a> and the financial costs of fighting climate change for any one firm decline. Engine No. 1 contends that such a strategy will bring in higher returns too. “We believe that for companies to create shareholder value, they need to focus on investments they make in communities, employees, customers, and the environment,” O’Leary said. “If, over time, companies are focused on those externalities, they are best positioned to succeed. Engine No. 1 will focus on those issues and find the opportunities where our votes will be the most effective.” We’ll find out if that investing hypothesis holds.</p><hr><p>Thanks for reading. <a href="https://www.theatlantic.com/newsletters/sign-up/weekly-planet/?utm_source=feed">Subscribe to get The Weekly Planet in your inbox.</a></p>Robinson Meyerhttp://www.theatlantic.com/author/robinson-meyer/?utm_source=feedAnton Petrus / GettyA Major New Index Fund Should Unnerve Climate-Skeptical CEOs2021-06-22T12:31:46-04:002021-06-22T19:22:00-04:00The hedge fund that staged a revolt at Exxon last month is now recruiting an army of mom-and-pop investors for future battles.tag:theatlantic.com,2021:39-619011<p><small><em>This article was published online on June 14, 2021.</em></small></p><p class="dropcap">O<span class="smallcaps">n the morning of May 25, 2019</span>, a food-safety inspector at a Cargill meatpacking plant in Dodge City, Kansas, came across a disturbing sight. In an area of the plant called the stack, a Hereford steer had, after being shot in the forehead with a bolt gun, regained consciousness. Or maybe he had never lost it. Either way, this wasn’t supposed to happen. The steer was hanging upside down by a steel chain shackled to one of his rear legs. He was showing what is known in the euphemistic language of the American beef industry as “signs of sensibility.” His breathing was “rhythmic.” His eyes were open and moving. And he was trying to right himself, which the animals commonly do by arching their back. The only sign he wasn’t exhibiting was “vocalization.”</p><p>The inspector, who worked for the U.S. Department of Agriculture, told employees in the stack to stop the moving overhead chain to which the cattle were attached and “reknock” the steer. But when one of them pulled the trigger on a handheld bolt gun, it misfired. Someone brought over another gun to finish the job. “The animal was then stunned adequately,” the inspector wrote in a memorandum describing the incident, noting that “the timeframe from observing the apparent egregious action to the final euthanizing stun was approximately 2 to 3 minutes.”</p><p>Three days after the incident occurred, the USDA’s Food Safety and Inspection Service, citing the plant’s history of compliance, put the plant on notice for its “failure to prevent inhumane handling and slaughter of livestock.” FSIS ordered the plant to create an action plan to ensure that such an incident didn’t happen again. On June 4, the agency approved a plan submitted by the plant’s manager and said in a letter to him that it would defer a decision about punishment. The chain could keep moving, and with it the slaughtering of up to 5,800 cows a day.</p><p data-id="injected-recirculation-link"><i>[<a data-action="click author - byline" data-label="https://www.theatlantic.com/author/eric-schlosser/" href="https://www.theatlantic.com/author/eric-schlosser/?utm_source=feed">Eric Schlosser</a>]</i><a href="https://www.theatlantic.com/ideas/archive/2020/05/essentials-meatpeacking-coronavirus/611437/?utm_source=feed">: America’s slaughterhouses aren’t just killing animals</a></p><p>The first time I stepped foot in the stack was late last October, after I had been working at the plant for more than four months. To find it, I arrived early one day and worked my way backwards down the chain. It was surreal to see the slaughter process in reverse, to witness step-by-step what it would take to reassemble a cow: shove its organs back into its body cavities; reattach its head to its neck; pull its hide back over its flesh; draw blood back into its veins.</p><p>During my visits to the kill floor, I saw a severed hoof lying inside a metal sink in the skinning room, and puddles of bright-red blood dotting the red-brick floor. One time, a woman in a yellow synthetic-rubber apron was trimming away flesh from skinless, decapitated heads. A USDA inspector working next to her was doing something similar. I asked him what he was cutting. “Lymph nodes,” he said. I found out later that he was performing a routine check for diseases and contamination.</p><p>On my last trip to the stack, I tried to be inconspicuous. I stood against the back wall and watched as two men standing on a raised platform cut vertical incisions down the throat of each passing cow. As far as I could tell, all of the animals were unconscious, though a few of them involuntarily kicked their legs. I watched until a supervisor came over and asked what I was doing. I told him I wanted to see what this part of the plant was like. “You need to leave,” he said. “You can’t be here without a face shield.” I apologized and told him that I would get going. I couldn’t have stayed for much longer anyway; my shift was about to start.</p><p class="dropcap"><span class="smallcaps">Getting a job </span>at the Cargill plant was surprisingly easy. The online application for “general production” was six pages long. It took less than 15 minutes to fill out. At no point was I required to submit a résumé, let alone references. The most substantial part of the application was a 14-question form that asked things like:</p><p>“Do you have experience working with knives to cut meat (this does not include working in a grocery store or deli)?”</p><p><i>No.</i></p><p>“How many years have you worked in a beef production plant (example: slaughter or fabrication, not a grocery store or deli)?”</p><p><i>No experience.</i></p><p>“How many years have you worked in a production or plant environment (example: assembly line or manufacturing work)?”</p><p><i>Zero.</i></p><p>Four hours and 20 minutes after hitting “Submit,” I received an email confirmation for a phone interview the next day, May 19, 2020. The interview lasted three minutes. When the woman conducting it asked me for the name of my last employer, I told her that it was the First Church of Christ, Scientist, the publisher of <i>The Christian Science Monitor</i>. I had worked at the<i> Monitor </i>from 2014 to 2018. For the last two of those four years, I was its Beijing correspondent. I had quit to study Chinese and freelance.</p><p>“And what did you do there?” the woman asked about my time at the Church.</p><p>“Communications,” I said.</p><p>The woman asked a couple of follow-up questions about when I quit and why. During the interview, the only question that gave me pause was the final one.</p><p>“Do you have any issues or concerns working in our environment?” she asked.</p><p>After hesitating for a moment, I replied, “No, I don’t.”</p><p>With that, the woman said that I was “eligible for a verbal, conditional job offer.” She told me about the six positions for which the plant was hiring. All were for the second shift, which at the time was running from 3:45 in the afternoon to between 12:30 and 1 o’clock in the morning. Three of the jobs were in harvesting, the side of the plant more commonly known as the kill floor, and three were in fabrication, where the meat is prepared for distribution to stores and restaurants.</p><aside class="callout-placeholder" data-source="curated"></aside><p>I quickly decided that I wanted a job in fab. Temperatures on the kill floor can approach 100 degrees in the summer, and, as the woman on the phone explained, “the smell is stronger because of the humidity.” Then there were the jobs themselves, jobs like removing hides and “dropping tongues.” After you remove the tongue, the woman said, “you do have to hang it on a hook.” Her description of fab, on the other hand, made it sound less medieval and more like an industrial-scale butcher shop. A small army of assembly-line workers saw, cut, trim, and package all of the meat from the cows. The temperature on the fab floor ranges from 32 to 36 degrees. But, the woman told me, you work so hard that “you don’t feel the cold once you’re in there.”</p><p>We went over the job openings. Chuck cap puller was immediately out because it involved walking and cutting at the same time. The next to go was brisket bone for the simple reason that having to remove something called brisket fingers from in between joints sounded unappealing. That left chuck final trim. That job, as the woman described it, consisted entirely of trimming pieces of chuck “to whatever spec it is that they’re running.” <i>How hard could that be? </i>I thought to myself. I told the woman that I would take it. “Perfect,” she said, and went on to tell me my starting pay ($16.20 an hour) and the conditions of my job offer.</p><p>A couple of weeks later, after a background check, a drug screening, and a physical exam, I got a call about my start date: June 8, the following Monday. The drive to Dodge City from Topeka, where I had been living with my mom since mid-March because of the coronavirus pandemic, takes about four hours. I decided that I would leave on Sunday.</p><p>On the evening before I left, my mom and I went to my sister and brother-in-law’s house for a steak dinner. “It might be the last one you ever have,” my sister said when she called to invite us over. My brother-in-law grilled two 22-ounce rib eyes for him and me and a 24-ounce sirloin for my mom and sister to split. I helped my sister cook the side dishes: mashed potatoes and green beans sautéed in butter and bacon grease. The quintessential home-cooked meal for a middle-class family in Kansas.</p><p>The steak was as good as any I’ve had. It’s hard to describe it without sounding like an Applebee’s commercial: charred crust, juicy and tender meat. I tried to eat slowly so that I could savor every bite. But soon I was caught up in conversation, and I finished eating without thinking about it. In a state where cows outnumber people two to one, where more than 5 billion pounds of beef are produced annually, and where many families—including mine, when my three sisters and I were younger—fill their deep freezer once a year with a side of beef, it’s easy to take a steak dinner for granted.</p><p class="dropcap"><span class="smallcaps">The Cargill plant </span>is on the southeastern outskirts of Dodge City, just down the road from a slightly larger meatpacking plant owned by National Beef. The two facilities sit at opposite ends of what is surely the most noxious two-mile stretch of road in southwestern Kansas. Situated close by is a wastewater-treatment plant and a feedlot. On many days last summer, I found the stench of lactic acid, hydrogen sulfide, manure, and death to be nauseating. The oppressive heat only made it worse.</p><p>The High Plains of southwestern Kansas are home to four major meatpacking plants: the two in Dodge City, plus one in Liberal (National Beef) and another near Garden City (Tyson Foods). That Dodge City became home to two meatpacking plants is a fitting coda to the town’s early history. Founded in 1872 along the Atchison, Topeka, and Santa Fe Railroad, <a href="https://www.kshs.org/kansapedia/dodge-city-ford-county/12038">Dodge City was originally an outpost for buffalo hunters</a>. After the herds that once roamed the Great Plains <a href="https://www.theatlantic.com/national/archive/2016/05/the-buffalo-killers/482349/?utm_source=feed">were decimated</a>—to say nothing of what happened to the Native Americans who’d once lived there—the city turned to the cattle trade.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/national/archive/2016/07/ernestor-de-la-rosa/489977/?utm_source=feed">Read: The story of Ernestor</a>]</i></p><p>Practically overnight, Dodge City became, in the words of a prominent local businessman, “the greatest cattle market in the world.” This was the era of lawmen like Wyatt Earp and gunfighters like Doc Holliday, of gambling and shoot-outs and barroom brawls. To say that Dodge City is proud of its Wild West heritage would be an understatement, and nowhere is that heritage more celebrated—some might say mythologized—than at the Boot Hill Museum. Located at 500 West Wyatt Earp Boulevard, near Gunsmoke Street and the Gunfighters Wax Museum, the Boot Hill Museum is anchored by a full-scale replica of the once-famous Front Street. Visitors can enjoy a sarsaparilla at the Long Branch Saloon or shop for handmade soap and homemade fudge at the Rath & Co. General Store. Entry to the museum is free for Ford County residents, a deal that I took advantage of many times last summer after I moved into a one-bedroom apartment near the local VFW.</p><p>Yet for all its dime-novel-worthy stories, <a href="https://www.smithsonianmag.com/history/how-dodge-city-became-symbol-frontier-lawlessness-180967912/">Dodge City’s Wild West era</a> was short-lived. In 1885, under growing pressure from local ranchers, the Kansas legislature banned Texas cattle from the state, bringing an abrupt end to the cattle drives that had fueled the town’s boom years. For the next seven decades, Dodge City remained a quiet farming community. Then, in 1961, a company called Hyplains Dressed Beef <a href="https://www.dodgeglobe.com/news/20160614/beef-packing-industry">opened the first meatpacking plant in town</a> (the same one now operated by National Beef). In 1980, a subsidiary of Cargill opened its plant down the road. The beef industry had returned to Dodge City.</p><figure class="full-width"><img alt="Workers handling meat along an illustrated conveyor belt" height="1353" src="https://cdn.theatlantic.com/media/img/posts/2021/06/WEL_Holtz_MeatpackingSpot1_crop/25498909f.jpg" width="960">
<figcaption class="credit">Illustration by Mark Harris; images by USDA Photo / Alamy; ItalianFoodProduction / Getty</figcaption>
</figure><p>With a combined workforce of more than 12,800 people, the four meatpacking plants are among the largest employers in southwestern Kansas, and all of them rely on immigrants to help staff their production lines. “The packers followed the maxim of ‘Build it and they will come,’ ” <a href="https://www.google.com/books/edition/Slaughterhouse_Blues_The_Meat_and_Poultr/oQUKAAAAQBAJ?hl=en">Donald Stull, an anthropologist who has studied the meatpacking industry for more than 30 years</a>, told me. “And that’s basically what happened.”</p><p>According to Stull, the boom started in the early 1980s with the arrival of refugees from Vietnam and migrants from Mexico and Central America. In more recent years, refugees from Myanmar, Sudan, Somalia, and the Democratic Republic of Congo have all come to work in the plants. Today, nearly one in three Dodge City residents is foreign-born, and three in five are Latino or Hispanic. When I arrived at the plant on my first day of work, I was greeted by four banners at the entrance, one each in English, Spanish, French, and Somali, warning employees to stay home if they were exhibiting symptoms of COVID-19.</p><p>I spent much of my first two days at the plant with six other new hires in a windowless classroom near the kill floor. The room had beige cinder-block walls and fluorescent overhead lighting. On the wall near the door hung two posters, one in English and the other in Somali, that read <span class="smallcaps">bringing beef to the people</span>. The HR rep who was with us for most of those two days of orientation made sure we didn’t forget that mission. “Cargill is a worldwide organization,” she said before starting a lengthy PowerPoint presentation. “We pretty much feed the world. That’s why when the coronavirus started, we didn’t shut down. Because you guys want to eat, right?” Everyone nodded.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/business/archive/2017/08/meat-industry-meatingplace/538077/?utm_source=feed">Read: How the meat industry thinks about non-meat-eaters</a>]</i></p><p>By that point, in early June, COVID-19 had forced at least 30 meatpacking plants across the United States to pause operations and, <a href="https://web.archive.org/web/20200605150917/https://investigatemidwest.org/2020/04/16/tracking-covid-19s-impact-on-meatpacking-workers-and-industry/">according to the Midwest Center for Investigative Reporting</a>, had killed at least 74 workers. The Cargill plant reported its first case on April 13. Kansas public-health records reveal that over the course of 2020, more than 600 of the plant’s 2,530 employees contracted COVID-19. At least four died.</p><p>In March, the plant started to implement a series of social-distancing measures, including some that had been recommended by the CDC and the Occupational Safety and Health Administration. It staggered breaks and installed plexiglass barriers on tables in the cafeteria and thick plastic curtains between workstations on the production line. During the third week of August, metal dividers suddenly appeared in the men’s bathrooms, providing workers with a bit of space (and privacy) at the stainless-steel urinal troughs.</p><p>The plant also hired a company called Examinetics to screen employees before each shift. In a white tent at the entrance to the plant, a team of medical personnel—all of whom wore N95 masks, white coveralls, and gloves—checked temperatures and handed out disposable face masks. Thermal cameras were set up inside the plant for additional temperature checks. Face coverings were mandatory. I always wore the disposable masks, but many other employees preferred to wear a blue neck gaiter with a United Food and Commercial Workers International Union logo or a black bandana with the Cargill logo and, for some reason, <span class="smallcaps">#extraordinary</span> printed on it.</p><p>Catching the coronavirus wasn’t the only health risk at the plant. Meatpacking is notoriously dangerous. <a href="https://www.hrw.org/report/2019/09/04/when-were-dead-and-buried-our-bones-will-keep-hurting/workers-rights-under-threat">According to Human Rights Watch</a>, government statistics show that from 2015 to 2018, a meat or poultry worker lost a body part or was sent to the hospital for in-patient treatment about every other day. On the first day of orientation, one of the other new hires, a Black man from Alabama, described a close call he’d had when he worked in packaging at National Beef’s plant up the road. He rolled up his right sleeve to reveal a four-inch scar on the outside of his elbow. “I almost turned into chocolate milk,” he said.</p><p>The HR rep told a similar story about a man whose sleeve got caught in a conveyor belt. “He lost his arm up to here,” she said, pointing halfway up her left biceps. She let this sink in for a few moments, before moving on to the next PowerPoint slide: “That’s a good transition into workplace violence.” She began explaining Cargill’s zero-tolerance policy on guns.</p><p>After a 15-minute break, we returned to the classroom for a presentation by a union rep.</p><p>“Why are we all here?” he asked.</p><p>“To make money,” someone responded.</p><p>“To make money!” the union rep repeated.</p><p>For the next hour and 15 minutes, money—and how the union helped us make more of it—was our focus. The union rep told us that UFCW’s local chapter had recently negotiated a permanent $2 raise for all hourly employees. He explained that all hourly employees would also earn an additional $6 an hour in “purpose pay,” because of the pandemic, through the end of August. This brought the starting wage up to $24.20. The next day at lunch, the man from Alabama told me how eager he was to work overtime. “Right now I’m trying to work on my credit,” he said. “We’ll be working so much, we won’t even have time to spend all that money.”</p><p class="dropcap"><span class="smallcaps">On my third day of work</span> at the Cargill plant, the number of coronavirus cases in the U.S. surpassed 2 million. But the plant was beginning to bounce back from the outbreak that it had experienced earlier in the spring. (In early May, the plant’s production output had fallen by about 50 percent, according to a text message sent by Cargill’s director of state-government affairs to Kansas’s secretary of agriculture, which I later obtained through a public-records request.) The superintendent in charge of second shift, a giant man with a bushy white beard and a missing right thumb, sounded pleased. “It’s balls to the wall,” I overheard him say to contractors fixing a broken air conditioner. “Last week we were hitting 4,000 a day. This week we’ll probably be around 4,500.”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2012/11/slaughterhouse-rules/309113/?utm_source=feed">From the November 2012 issue: Slaughterhouse rules</a>]</i></p><p>In fab, processing all of those cows takes place in a cavernous room filled with steel chains, hard-plastic conveyor belts, industrial-size vacuum sealers, and stacks of cardboard shipping boxes. But first is the cooler, where sides of beef are left to hang for an average of 36 hours after they leave the kill floor. When they are brought out for butchering, the sides are broken down into forequarters and hindquarters and then into smaller, marketable cuts of meat. These are what get vacuum-sealed and loaded into boxes for distribution. In non-pandemic times, an average of 40,000 boxes, each weighing between 10 and 90 pounds, are shipped out from the plant every day. McDonald’s and Taco Bell, Walmart and Kroger—they all buy beef from Cargill. The company has six beef-processing plants across the U.S.; the one in Dodge City is the largest.</p><p>The most important tenet of the meatpacking industry is “The chain never stops.” Companies do everything they can to ensure that their production lines keep moving as fast as possible. Yet delays do occur. Mechanical problems are the most common reason; less common are shutdowns initiated by USDA inspectors because of suspected contamination or “inhumane handling” incidents like the one that occurred two years ago at the Cargill plant. Individual workers help keep the line moving by “pulling count”—industry parlance for doing your share of the work. The surest way to lose the respect of your co-workers is to continually fall behind on count, because doing so invariably means more work for them. The most heated confrontations I witnessed on the line happened when someone was perceived to be slacking off. These fights never escalated into anything more than yelling or the occasional elbow jab. If things got out of hand, a foreman would be called over to mediate.</p><p>New hires have a probation period of 45 days in which to prove that they can pull count—to “qualify,” as it’s known at the Cargill plant. Each one is supervised by a trainer for the duration of that time. My trainer was 30, just a few months younger than me, and had smiling eyes and broad shoulders. He was a member of a persecuted ethnic minority from Myanmar, the Karen. His Karen name was Par Taw, but after becoming an American citizen in 2019, he changed his name to Billion. “Maybe I’ll be a billionaire one day,” he told me when I asked him how he had chosen his new name. He laughed, as if embarrassed by sharing this part of his American dream.</p><p>Billion was born in 1990 in a small village in eastern Myanmar. <a href="https://www.bbc.com/news/world-south-asia-16528737">Karen rebels were in the middle of a long insurgency against the country’s central government</a>. The conflict raged on into the new millennium—it is one of the longest-running civil wars in the world—and forced tens of thousands of Karen to flee over the border into Thailand. Billion was one of them. When he was 12 years old, he began living in a refugee camp there. He moved to the U.S. when he was 18 years old, first to Houston and then to Garden City, where he went to work at the nearby Tyson plant. In 2011, he landed a job at Cargill, where he has worked ever since. Like many Karen people who arrived before him in Garden City, Billion attends Grace Bible Church. It was there that he met Toe Kwee, whose English name is Dahlia. The two started dating in 2009. In 2016, they had their first son, Shine. They bought a house and got married two years later.</p><p>Billion was a patient teacher. He showed me how to put on a chain-mail tunic that looked made for a knight, layers of gloves, and a white-cotton frock. Later, he gave me an orange-handled steel hook and a plastic scabbard filled with three identical knives, each with a black handle and a slightly curved six-inch blade, and led me to an empty spot near the middle of a 60-foot-long conveyor belt. Billion slid a knife from the scabbard and demonstrated how to sharpen it using a counterweight sharpener. Then he got to work, trimming away cartilage and bone fragments and ripping off long, thin ligaments from boulder-size pieces of chuck moving past us on the belt.</p><p>Billion worked methodically as I stood behind him and watched. He told me that the key was to cut off as little meat as possible. (As a supervisor succinctly put it: “More meat, more money.”) Billion made the job look effortless. In one swift motion, he flipped over 30-pound slabs of chuck with the flick of his hook and pulled out ligaments from folds in the meat. “Take it slow,” he told me after we switched spots.</p><p>I cut into the next piece of chuck that came down the line, surprised by how easily my knife sliced through the chilled meat. Billion told me to sharpen my knife after every other piece. On my tenth or so piece, I accidentally hit the blade against the side of my hook. Billion motioned for me to stop working. “Be careful not to do that,” he said, the expression on his face telling me that I had made a cardinal mistake. Nothing is worse than trying to cut meat with a dull knife. I grabbed a new one from my scabbard and got back to work.</p><p class="dropcap"><span class="smallcaps">Looking back on </span>my time at the plant, I consider myself lucky to have ended up in the nurse’s office only once. The precipitating incident occurred on my 11th day on the line. I was trying to flip over a piece of chuck when I lost my grip and drove the tip of my hook into the palm of my right hand. “It should heal in a few days,” the nurse said after she wrapped a bandage around the resulting half-inch-long gash. She told me that she often treated injuries like mine.</p><p>“I see at least one or two a day,” she said. “It’s why I have a job.”</p><p>“What’s the worst you’ve seen?” I asked.</p><p>“Guys losing a finger,” she said.</p><p>Over the next several weeks, Billion checked on me sporadically during my shifts, tapping me on the shoulder and asking, “Doing good, Mike?” before walking away. Other times he would linger to talk. If he saw that I was tired, he might grab a knife and work alongside me for a while. During one of these moments, I asked him if many people had been infected during the spring COVID‑19 outbreak. “Yeah, a ton,” he said. “I had it just a few weeks ago.”</p><p>Billion said that he’d likely caught the virus from someone in his carpool. Forced to quarantine at home for two weeks, Billion did his best to isolate himself from Shine and Dahlia, who was eight months pregnant at the time. He slept in the basement and rarely came upstairs. But during his second week of quarantine, Dahlia developed a fever and a cough. She started having difficulty breathing a few days later. Billion drove her to the hospital, where she was admitted and put on oxygen. Three days after that, a doctor induced labor. On May 23, she gave birth to a healthy baby boy. They named him Clever.</p><p>Billion told me all of this shortly before our 30-minute dinner break, which, along with our earlier 15-minute break, I had come to cherish. I had been working at the plant for three weeks by then, and my hands constantly throbbed with pain. When I woke in the mornings, my fingers were so stiff and swollen that I could hardly bend them. I took two ibuprofen tablets before work most days. If the pain persisted, I would take two more during one of my breaks. This was a relatively tame solution, I discovered. For many of my co-workers, oxycodone and hydrocodone were the painkillers of choice. (A Cargill spokesperson said that the company “is not aware of any trend in the plant” of illegal use of either drug.)</p><p class="dropcap"><span class="smallcaps">A typical shift last summer:</span> I pull into the plant’s parking lot at 3:20 p.m. According to a digital bank sign that I passed on the way here, it’s 98 degrees outside. The windows of my car—a 2008 Kia Spectra with extensive hail damage and 180,000 miles on it—are rolled down on account of the air conditioner being broken. This means that when the wind blows from the southeast, I sometimes smell the plant before I see it.</p><p>I’m wearing an old cotton T-shirt, Levi’s jeans, wool socks, and Timberland steel-toed boots that I got for 15 percent off with my Cargill ID at a local shoe store. After I park, I put on my hairnet and hard hat and grab my lunch box and fleece jacket from the back seat. I walk past a holding pen on my way to the plant’s main entrance. Inside the pen are hundreds of cows waiting to be slaughtered. Seeing them alive like this makes my job harder, but I look at them anyway. Some jostle with their neighbors. Others crane their neck, as if they’re trying to see what’s ahead.</p><p>The cows fall out of view as I step into the medical tent for my health screening. When it’s my turn, a woman in full protective gear calls me over. She holds a thermometer to my forehead and hands me a face mask, while asking me a series of routine questions. When she tells me I’m good to go, I put on my mask, exit the tent, and pass through a turnstile and a security shack. The kill floor is to the left; fab is straight ahead, on the opposite side of the plant. On my way there, I walk past dozens of first-shift workers who are on their way out. They look tired and sore and grateful to be done for the day.</p><p>I make a brief stop in the cafeteria and take two ibuprofen. I put on my jacket and leave my lunch box on a wooden shelf. I then walk down a long hallway that leads to the production floor. I put in a pair of foam earplugs and pass through a swinging double door. The floor is a cacophony of industrial machinery. To help mute the noise and stave off boredom, employees can pay $45 for a pair of company-approved 3M noise-reduction earbuds, though the consensus is that they don’t drown out enough of the din to make listening to music possible. (Few seem to worry about the added distraction of listening to music while doing what is already an incredibly dangerous job.) One alternative is to buy a pair of non-approved Bluetooth earbuds that I could hide underneath a neck gaiter. I know a few guys who do this and have never been caught, but I decide not to risk it. I stick with the standard-issue earplugs, new pairs of which are handed out every Monday.</p><p>To get to my workstation, I climb up to a catwalk, then down a stairway that leads to a conveyor belt. The belt is one of a dozen that stretch across the middle of the production floor in long, parallel rows. Each row is called a “table,” and each table has a number. I work at table two: the chuck table. There are tables for shank, brisket, sirloin, round, and so on. The tables are one of the most crowded areas in the plant. At my spot on table two, I stand less than two feet away from the men who work on either side of me. The plastic curtains are supposed to help make up for the lack of social distancing, but most of my co-workers flip the curtains up and around the metal bars from which they hang. It’s easier to see what’s coming down the line this way, and before long I start doing the same thing. (Cargill denies that most workers flip up the curtains.)</p><p>At 3:42, I swipe my ID card at a time clock near my workstation. Employees have a five-minute window in which to clock in: 3:40 to 3:45. Any later and you lose half an attendance point (losing 12 points in a 12-month period can lead to termination). I walk to the front of the belt to get my equipment. I suit up at my workstation. I sharpen my knives and stretch my hands. A few of my co-workers fist-bump me as they walk by. I look across the table and watch two Mexican men standing next to each other make the sign of the cross. They do this at the start of every shift.</p><p>Pieces of chuck soon start coming down the belt, which on my side of the table moves from right to left. Ahead of me are seven chuck boners whose job it is to remove the bones from the meat. This is one of the hardest positions in fab (a grade eight, the highest grade of difficulty there is and five grades higher than chuck final trim, with a wage increase of $6 an hour). The job requires both careful precision and brute strength: careful precision for cutting as close to the bones as possible, and brute strength for prying them out. My job is to trim off whatever pieces of bone and ligament the chuck boners miss. This is what I do for the next nine hours, stopping only for my 15-minute break at 6:20 and 30-minute dinner break at 9:20. “Not too much!” my supervisor yells when he catches me cutting off too much meat. “Money! Money! Money!”</p><p>Toward the end of the shift, a palpable restlessness sets in across the floor. The line slows down and everyone keeps glancing over at the cooler, waiting for the last side of beef to come down the chain. I make eye contact with the shorter of the two Mexican men who made the sign of the cross. He gives me a thumbs-up, tilts his head to the side, and shrugs his shoulders. Translation: <i>You doing all right? </i>I nod my head and return the thumbs-up. He points to an invisible watch on his wrist and holds his index finger and thumb half an inch apart. <i>Hang in there. The shift is almost over. </i>He then mimes opening a can of beer. He tilts his head back and takes a swig. He nods a satisfied nod, makes a pillow with his hands, and rests the side of his head against it with his eyes closed. When he opens them and lifts his head, I nod approvingly and give him another thumbs-up.</p><p>A few minutes later, one of the chuck boners bangs the edge of the belt with the handle of his hook. He does this every night to announce that the last side of beef has left the cooler. I hurriedly trim the last piece of chuck as soon as it reaches me. I put away my equipment and clock out at 12:43. I’m tired and sore and grateful to be done for the day. When I get back to my apartment, I grab a beer and drink it on the balcony. Across the street is a small pasture. I usually see a dozen or more cattle there during the day, but in the dark they are impossible to spot. Not that I mind. The last thing I want to see right now is a cow.</p><p class="dropcap"><span class="smallcaps">My job on the chuck table</span> turned out to be much more difficult than I had anticipated. The sheer volume of meat that came down the line could be overwhelming at times; more than once, I threw my hands up in defeat.</p><p>A month or so in, things started to improve. My hands were still sore most days, as were my shoulders. (In mid-August, my left ring finger would develop an annoying habit of spontaneously locking up so I couldn’t extend it—a condition known as “trigger finger.”) But at least the constant, throbbing pain had begun to relent. And now that my hands were stronger, I was getting better at the job. By the Fourth of July, I was close enough to pulling count that Billion told me I qualified. On my 20th day on the line, he drew me aside to sign some paperwork that made it official. He later gave me a white hard hat to replace the brown one that I had received during orientation. I was surprised by how excited I was to put it on.</p><p>A part of me had hoped that qualifying was all I needed to do to fit in with my co-workers. Yet some of them had suspicions about me that my new hard hat did nothing to allay. My skin color alone was enough to raise eyebrows. Of the 30 or so men who worked on the chuck table, I was one of only two white Americans. Most of the other men were from Mexico; others were from El Salvador, Cuba, Somalia, Sudan, and Myanmar. When anyone asked how I’d ended up working at the plant, my usual approach was to explain, truthfully, that I had been traveling in Asia when the pandemic hit and, after flying home, wanted a quick way to make money. I didn’t tell anyone that I was a journalist, though a Mexican American chuck boner who worked next to me came close to figuring it out.</p><p>“You aren’t an undercover boss, are you?” he asked me late one shift.</p><p>“Why would you think that?” I asked.</p><p>“In the four years that I’ve worked here,” he said, “I’ve never seen another white guy do your job.”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2019/08/trumps-invasion-was-a-corporate-recruitment-drive/596230/?utm_source=feed">Read: Why it’s immigrants who pack your meat</a>]</i></p><p>Most of the men eventually got used to my presence on the line. Even the skeptical chuck boner warmed up to me. As time went on, he would turn to me to talk about his latest marital drama or to ask questions about traveling abroad. “Have you had McDonald’s over there?” he once asked me about Singapore. I told him that I had. He told me that he dreamed of traveling abroad someday but that for now he needed to work to support his wife and two young children. He was 24 years old, and he told me that he planned to work at the plant until he could retire. “I got my 401(k) here and everything,” he said, in a tone that suggested a kind of forced acceptance.</p><p>“If you could do any job in the world, what would you want to do?” I once asked.</p><p>“Lots of shit,” he said, his eyes wide.</p><p>“What’s your No. 1?”</p><p>He thought for a few seconds and looked up at the ceiling. “Own something like this,” he said.</p><p>My conversations with the chuck boner were a welcome distraction from the monotony of my job. Another thing that helped was an unspoken agreement I had with the friendly Mexican man who worked to my left. If one of us walked away from the line to check the nearby time clock—something we both did at least once a shift—we would report back to the other one by using the butt of our knives to carve the time into the thin layer of pink juices that coated the conveyor belt. It was a simple act of solidarity, one that meant more to me as the weeks passed. Though I often felt a profound sense of alienation on the line, I never once felt alone.</p><p class="dropcap"><span class="smallcaps">Working second shift, </span>especially amid a pandemic, made it virtually impossible to spend time with my co-workers outside the plant. Every bar in Dodge City closes by 2 a.m. This meant that if I ever wanted to brave the risk of infection to go out for drinks after work, I would have no more than an hour before last call. But one evening in September, Billion asked me if I had any plans for the weekend. I told him that I didn’t. “Tomorrow after work I’m going frog hunting with my brother-in-law,” he said. “You wanna come?”</p><p>The next night after clocking out, I met Billion in the cafeteria and walked with him to the parking lot, where his brother-in-law sat waiting for us in a black Toyota Camry. I got in my car and followed the two men to a small lake 20 miles north of the plant. We passed endless fields of corn and hundreds of wind turbines, their red warning lights flashing in hypnotic unison across a moonless sky. As Billion later explained to me, the new moon was key to helping us avoid casting shadows over the easily spooked bullfrogs. The problem was the wind, which rustled the prairie grass that encircled the lake and made it difficult to hear their calls.</p><figure class="full-width"><img alt="A collage featuring photos of a pen full of cows and a worker handling a slab of meat" height="1227" src="https://cdn.theatlantic.com/media/img/posts/2021/06/WEL_Holtz_MeatpackingSpot2_crop/38278e6f2.jpg" width="960">
<figcaption class="credit">Illustration by Mark Harris; images by Razoomgames / Getty; Steve Smith / Getty</figcaption>
</figure><p>When we arrived at the lake, Billion introduced me to his brother-in-law, Leo, who was 20 years old. “Do you recognize him?” Billion asked. “He used to work on table three.” I didn’t, and Leo explained that he had worked there for only two and a half weeks before switching to the Tyson plant near Garden City, where he lives. “I got tired of the drive,” he said. Billion opened the trunk of his car and reached inside for three flashlights and an empty burlap sack. These were our hunting supplies. I asked what I needed to do. “Just follow me,” Billion said, before heading down a trampled path through the prairie grass and onto the lake’s muddy bank.</p><p>Before long, Billion spotted a frog at the edge of the water. To catch it, he first stunned it by shining his flashlight directly into its eyes. He then crept up next to it in a crouch, slowly positioned his hand over its torso like the crane of an arcade claw machine, and snatched it off the ground. The frog was about the size of a pint glass, and Billion held it so tightly that its eyes bulged out of their sockets. Rather than kill it, he left it alive and broke its hind legs. “So it can’t get away,” he said. I watched him drop the maimed frog into the burlap sack, which Leo held with outstretched arms.</p><p>For the next two hours, we slowly made our way around the lake. Billion walked in front and caught most of the frogs, about 20 in total. I caught only four. I thought that together we had a good haul, but Billion and Leo were disappointed. “Someone else must have been out here already,” Billion said, pointing down at a pair of fresh shoe prints. Perhaps it was someone from the small community of Karen people in Garden City. Leo said that everyone in the community knew about the lake and had been hunting frogs there for years.</p><p>We didn’t call it a night until sometime after 3 o’clock. On the way back to our cars, Billion talked excitedly about the spicy frog curry he planned to cook for dinner the next day. It was one of his specialties, something he had learned to make in the refugee camp. “Frog is the only meat that we can eat fresh here,” he said. “It’s better than chicken.”</p><p class="dropcap"><span class="smallcaps">At some point </span>in early July, the TVs in the cafeteria at the plant switched from showing the Wichita Fox affiliate to showing Fox News. Seeing the chyrons on Laura Ingraham’s show in place of the local 9 o’clock news was a stark change—“Trump: I will bring law and order, Biden won’t”; “Trump’s America first vs Biden’s America last”; “Biden beholden to billionaires and Bolsheviks”; “Biden’s COVID plan: blindly following the ‘experts.’ ”</p><p>The night before the election, Fox News was broadcasting live from Kenosha, Wisconsin, at one of Donald Trump’s final campaign rallies. During my dinner break, I watched a Haitian-born man in his mid-30s stop underneath one of the TVs on his way back to the floor. When the camera zoomed in on Trump, the man held up both his middle fingers toward the screen. He did this for about half a minute without saying a word. Then he yelled, “I’m voting for Biden!” as he walked away. It was the most overt act of political expression I witnessed at the plant. The only other thing that came close was some pro-Trump graffiti scrawled anonymously on the inside of a bathroom stall: <span class="smallcaps">america love it or leave it</span> and <span class="smallcaps">trump 2020.</span> The latter got a couple of responses: <span class="smallcaps">fok you </span>and <span class="smallcaps">chinga tu madre</span>.</p><p>Mostly what I found at the plant was a pervasive sense of political apathy. Many people I talked with in the weeks leading up to November 3 told me the results hardly mattered to them. “As long as they leave me alone, I don’t care who wins,” a Mexican American man told me over dinner in late October. “The government hasn’t done anything for me.” It seemed clear that he didn’t plan to vote.</p><p>On Election Day, I drove to a polling station south of downtown. At a stone-and-concrete band shell by the voting pavilion, I met an older white man who was happy to share his opinion on almost anything. The man said that he had voted for Trump, that China needed to pay for starting the pandemic, and that he didn’t have a problem with immigrants as long as they came here legally. “If they ever leave,” he said, referring to those who worked in the local meatpacking plants, “we’d be in a world of hurt.” The man knew how important immigrants were to Dodge City’s economy, but he showed little interest in getting to know them personally. “It’s like oil and water,” he said. “We don’t really get together … I guess they’re scared of us.”</p><p>After leaving the band shell, I drove to a liquor store up the street from my apartment. I knew that it was going to be a long week. While I was browsing the whiskey shelves, the store owner came over to offer a few recommendations. “They say if you take a shot of whiskey that is 80-proof or higher a day it will help protect you against the coronavirus,” she said as she reached for a bottle of 90-proof Woodford Reserve. “The virus likes to lodge in your throat, and the whiskey will help keep your throat clear. I don’t know if it’s true, but I did it religiously over the summer. Then I went to Florida and I was fine.” I looked at her incredulously—then went for something even stronger, splurging on a bottle of 114-proof Willett.</p><p>I arrived at work an hour before the start of my shift to see if there was finally any buzz about the election. I sat outside and talked with a middle-aged Somali man. “I voted for Trump,” he said. He was both Muslim and a former refugee—not typical of Trump supporters as I imagined them. “He’s good at business,” he said when I asked him what he liked about Trump.</p><p>As <a href="https://www.theatlantic.com/magazine/archive/2020/11/what-if-trump-refuses-concede/616424/?utm_source=feed">Election Day turned into Election Week</a>, I heard dozens of stories from nonwhite workers who wanted Trump to win. A Congolese man told me that he liked Trump because he “makes everything good.” “Trump takes care of the world,” a Salvadoran man said. “If Biden wins, I think ISIS will be happy.” Then there was the man from Sudan who said that he, too, admired Trump’s business credentials before leaning in to tell me why else he liked him. “Trump doesn’t want people from Arab countries to come to America,” he whispered. “I think that’s good.”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/business/archive/2015/10/meat-industry-lobbying-political-nutrition/412243/?utm_source=feed">Read: How meat producers have influenced nutrition guidelines for decades</a>]</i></p><p>I did also meet people at the plant who supported Joe Biden, many of them because they couldn’t stand Trump. “He’s crazy” was the most common sentiment expressed by those who wanted Trump to lose. No worker I spoke with was more invested in the election outcome than the Haitian man who had flipped off the TV. “You know why I don’t like Trump?” he asked me during our 15-minute break one night. “Because he knew about the coronavirus and didn’t do anything about it. We need a president who will protect us. So many people have died because of him.” The man paced back and forth while he talked. He paused for a moment to check an Electoral College map that he had pulled up on his phone. “Trump doesn’t give a shit about us,” he concluded.</p><p>On the Saturday the election was called for Biden, I went into work. During the shift change that afternoon, I noticed few signs of celebration or disappointment.</p><p>The Mexican American man I’d eaten dinner with a couple of weeks earlier came over to my table. He was carrying a large styrofoam cup of coffee and a bag of Bimbo puff pastries. He smelled of marijuana. As he sat down at an adjacent table, a white pill fell out of his pants pocket and onto the floor. He reached down to pick it up. “I’m telling you, Michael,” he said. “This is my life.” He said that for the past week he had felt an excruciating pain in his left arm and shoulder. He couldn’t see a doctor until January because his health-insurance coverage didn’t start until then, so for now he was self-medicating with hydrocodone. I didn’t ask where he’d gotten it. “I’m going to ask for oxycodone when I go to the doctor,” he said. “I need something more powerful.” I decided not to ask him about the election. He had more important things to worry about.</p><p class="dropcap"><span class="smallcaps">On the Monday </span>after the election, <a href="https://www.washingtonpost.com/nation/2020/11/09/coronavirus-covid-live-updates-us/">the news reported</a> that the U.S. had surpassed 10 million coronavirus cases, and Pfizer-BioNTech announced that early data showed their vaccine was more than 90 percent effective. In Kansas, the virus was raging out of control. New cases were hitting record numbers, hospitals were strained for resources, and deaths were on the rise. At the plant, additional plexiglass barriers were installed on the tables in the cafeteria, splitting them into quarters instead of halves. Department holiday parties were canceled. And everyone who didn’t already have a plastic face shield was given one to attach to their hard hat. Wearing them was mandatory. But many people, including me, didn’t pull them down all the way, because of how easily they fogged up from the masks that we still had to wear. The supervisors didn’t seem to care; many of them did the same thing.</p><p>My last shift at the plant was the night before Thanksgiving, some six months after I’d started. The work itself had become muscle memory, and I spent much of the night lost in thought. At 12:45, I clocked out for the last time. “Nothing we can do to convince you to stay, help us out a bit longer?” one of the foremen asked me when I approached him to turn in my ID badge. I told him that I really couldn’t, that I had to get back to Topeka. “Let us know if you want to come back,” he said. “The door is always open.” I didn’t doubt that, but I knew that I would likely never step foot inside the plant again.</p><p>Outside, the night air was frigid. Across the way, hundreds of 53-foot refrigerated trailers sat in neat rows, waiting to be loaded with beef before being hauled away. I wish I could say that, in the early hours of Thanksgiving morning, the trailers put me in mind of American gluttony and abundance—our insatiable and unsustainable craving for meat. But as I walked to my car, all that came to mind were photos I had seen of identical trailers, mobile morgues, parked outside hospitals across the country.</p><p class="dropcap"><span class="smallcaps">A couple of weeks</span> after I left the plant, I drove to Garden City to visit Billion and his family. I met them at a small Vietnamese restaurant and then followed them to the local zoo. It was an unseasonably warm day, and the mid-afternoon sun was melting what little snow remained from a recent winter storm. The lemurs seemed especially happy about this. Billion lifted Shine onto his shoulders to give him a better view, while Dahlia kept an eye on Clever in his stroller. Dahlia was four months pregnant. Billion was hoping for a girl; Dahlia didn’t have a preference. She just wanted the pregnancy to go better than her last one.</p><p>I usually don’t care much for zoos. I find them depressing, largely because my childhood zoo, in Topeka, has a long and troubling animal-safety record. (In 2006, a hippopotamus died there, hours after being found in 108-degree water.) But after working in a meatpacking plant, I found it comforting to see so many animals that were still alive, even if they were in cages. Seeing them with a 5-year-old made the experience all the more enjoyable. When Shine wasn’t perched on Billion’s shoulders, he was sprinting ahead to the next exhibit and shouting out each animal he saw. “Rhino!” “Giraffe!” “Fox!” “Lions!” He was in awe of the animals, which made me wonder what he knew about where his dad worked.</p><p>As we made our way past the antelope exhibit, I asked Billion and Dahlia how they had chosen their sons’ names. Shine had been Dahlia’s idea. “I want him to shine brightly,” she said. Billion had picked Clever with more concrete aspirations in mind. “I want him to be smart and do well in school,” he said. “Maybe he’ll become a doctor or a lawyer someday.” Whatever they grew up to be, Billion would never allow them to work in a meatpacking plant. That was something only he did. “I do it for them,” he told me. They were what made his work essential.</p><hr><p><em><small>This article appears in the July/August 2021 print edition with the headline “Pulling Count.” </small></em></p>Michael Holtzhttp://www.theatlantic.com/author/michael-holtz/?utm_source=feedIllustration by Mark Harris; images by FMajor / Getty; RGTimeline / Getty6 Months Inside One of America’s Most Dangerous Industries2021-06-14T06:00:00-04:002023-10-31T21:24:43-04:00What I learned on the line at a Dodge City slaughterhouse.tag:theatlantic.com,2021:50-618741<p class="dropcap">T<span class="smallcaps">o be a working</span> mother during a global pandemic is to be constantly torn between your kids and your clients. At times in the past year, Amy Conway-Hatcher, a lawyer at a big firm in Washington, D.C., would overhear her two children having dinner with her husband and not be able to join them, because she was working 80-to-100-hour weeks on a big case.</p><p>For Allison Fastow, “having it all” meant listening to her 6-year-old sob and bang on her door in search of comfort and not being able to give it to him, because she was in the middle of an important call. “The distance that you have as a parent working outside of the home keeps you from seeing these things,” she told me, and then started to cry. Parents might tell themselves, <em>My kids love their nanny; they love their teacher</em>. But sometimes, in moments of anxiety and uncertainty and stress, Fastow said, “there really is no replacement for Mom and Dad.”</p><p>Last spring, Molly Quigley was working seven days a week as the communications director for Clyde’s, a restaurant group in D.C. Many days, she, too, was in tears, because part of her job was laying off the restaurants’ workers. Meanwhile, her three kids were posted up all around her, doing Zoom school. “I was just, like, yelling at everybody all day long,” she told me. “And my 6-year-old wasn’t staying on his Zoom class. And I finally realized, <em>I just can’t do it all</em>.”</p><p>All three women—Quigley, Fastow, and Conway-Hatcher—have since left their ultra-demanding jobs or are about to. For working parents, “what was barely doable has become impossible,” says Katie Porter, a single mother who represents Orange County, California, in Congress. At one point during a recent Zoom hearing, Porter’s teenage son wandered into the background and began rooting around in the fridge.</p><p>In part because of pressures like these, nearly 2.5 million <a href="https://www.nytimes.com/2021/02/18/us/politics/women-pandemic-harris.html">women have</a> left the workforce since the pandemic began. About <a href="https://www.mckinsey.com/featured-insights/diversity-and-inclusion/women-in-the-workplace">a third of mothers</a> are considering “downshifting” their careers or pulling out of the workforce, according to research from the consulting firm McKinsey. This is the first time in six years that the consultancy has found women expressing such a strong interest in working less. “They were feeling a lot more burned out; they were feeling like they have extra responsibilities outside of the workplace, and not having flexibility at work,” Jess Huang, an author of the McKinsey report, told me.</p><p>This downshifting is barely perceptible in national data: The Bureau of Labor Statistics reports <a href="https://www.bls.gov/news.release/empsit.t08.htm">a slight increase</a> in part-time work since the pandemic started, but that is among workers doing so for economic reasons, because they couldn’t find full-time work. Lower-income people have fewer choices than rich people—they might be working a part-time job because that’s all that’s available, or because they can’t afford child care for longer, or because more hours would have meant more exposure to COVID-19.</p><p><a href="https://www.theatlantic.com/magazine/archive/2017/09/the-queen-bee-in-the-corner-office/534213/?utm_source=feed"><em>[ Read: Why women bully each other at work ]</em></a></p><p>But some women have been so worn down by the competing stressors of the pandemic that they welcome the shift to fewer paid working hours. Over the past several weeks, I’ve talked with half a dozen professional women who have left their full-time jobs, are now working less than full time, and are happier as a result. The women I interviewed are immensely lucky. Most of them have a partner who also brings in income. Most of them made enough at their previous jobs to allow for a brief, low-speed detour. Most of them work in fields in which freelancing or part-time contract work is an option. High-paid office workers, the types of people I interviewed, are “making choices around work based on their level of sanity, or level of insanity, that they’re willing to put up with,” says Misty Heggeness, a research economist at the U.S. Census Bureau who focuses on families. The level of insanity, never particularly low, has now become more than many can withstand.</p><p class="dropcap">S<span class="smallcaps">ome of the women</span> I spoke with hesitated to admit they were working less; that is not the way of the boss lady. Through Sheryl Sandberg, Gloria Steinem, Barbie, Ann Taylor, the real-estate market, <em>Sex and the City</em>, and practically every other implement of capitalism, white-collar moms have absorbed the message that you should work as hard as you can and make as much money as humanly possible. Working fewer hours in order to spend more time with your kids isn’t leaning in. It is anachronistic.</p><p>But the pandemic has reset expectations for how life is supposed to be. When schools and day cares closed, and <a href="https://www.theatlantic.com/politics/archive/2020/09/limited-child-care-options-essential-workers/615931/?utm_source=feed">no free child-care options</a> were available in many states, some parents said, <em>Well, if the government won’t help me take care of my family, I guess I will do it myself. </em>“The pandemic kind of forced people to reconsider the enormous sacrifices that they have made over the years for career, job earnings, and market income,” says Nancy Folbre, an economics professor at the University of Massachusetts at Amherst. (She notes that we are less likely to hear from the women who are desperate to get away from their families and back to a full workweek. <em>Not </em>wanting to do care work is even more socially unacceptable than a desire to spend more time with one’s children.)</p><p>Some left their jobs voluntarily, others were laid off, and still others were fed up with crappy work environments. At her small newspaper in Missouri, Karen Craigo was tired of working for a boss who would ask for her suggestions, only to immediately reject all of them. “It really doesn’t matter what I said; it was always ‘No,’” she told me. She quit to do freelance writing, and she now feels as if she gets more positive reinforcement from clients.</p><p>A lot of things were pushing Leslie Gray Streeter out of Florida when she left her job at <em>The</em> <em>Palm Beach Post</em> to move to Baltimore last year. Streeter, the author of the book <a href="https://www.amazon.com/dp/B07V31SVNX/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1"><em>Black Widow</em></a>, told me she wanted to be near her extended family and raise her son in a more diverse area. She was terrified by Florida’s lackadaisical approach to COVID-19. And her beloved paper, where she had worked for 18 years, had gone through a series of layoffs and furloughs.</p><p><a href="https://www.theatlantic.com/technology/archive/2018/11/facebooks-sheryl-sandberg-leaned-we-just-didnt-like-outcome/576046/?utm_source=feed"><em>[ Read: How Sheryl Sandberg lost her feminist street cred ]</em></a></p><p>Streeter got a new, corporate job in communications, but the fact that her 7-year-old was learning math in the living room made it hard to focus. “The hours that I was working were very demanding, and I didn’t really get to spend as much time with him,” said Streeter, who co-parents her son with her mother. In February, she switched to freelancing. She’s gotten the chance to do things that don’t require typing furiously on deadline, such as teaching a class for fellow widows or attending a funeral with a friend. “It sounds like a rom-com,” she said. “The woman moves from New York and goes to Apple Valley, and then she realizes it’s okay not to be in the rat race.”</p><p>Even though it might result in making less money, Streeter feels that her decision is the best one for her son. “I wanted to be able to spend time <em>with him</em>,” she told me. “I wanted to be a less stressed-out person<em> for him</em>.”</p><p>Others felt elated that they could now do mom-like activities that their jobs hadn’t allowed time for. Quigley, who is now working about 30 hours a week as a freelancer, has been watching movies with her kids and recently met a friend for coffee, which she rarely did before. She’s coaching her sons’ Little League teams. “I never would have been able to volunteer with such a commitment before, because I felt like I was always on call,” she told me.</p><p>Elsewhere in the world, working part-time is common among women. Only <a href="https://www.bls.gov/opub/ted/2017/percentage-of-employed-women-working-full-time-little-changed-over-past-5-decades.htm">about a quarter</a> of American women work part-time, compared with about 12 percent of men. But the <a href="https://data.oecd.org/emp/part-time-employment-rate.htm">majority</a> of Dutch women work part-time, and nearly 45 percent of Swiss women do. By American standards, these women lead lives of enviable slowness. In a 2010 article for <a href="https://slate.com/human-interest/2010/11/women-in-the-netherlands-work-less-have-lesser-titles-and-a-big-gender-pay-gap-and-they-love-it.html"><em>Slate</em></a>, Jessica Olien, a writer living in the Netherlands, described neighbors who spent the workweek “playing sports, planting gardens, doing art projects, hanging out with their children, volunteering, and meeting their family friends.” As <a href="https://www.iza.org/publications/dp/4686/part-time-jobs-what-women-want">one study</a> on this topic cheerily concluded, “Our results suggest that part-time jobs are what most Dutch women want.”</p><p>But Dutch women pay a price for this freedom: They are <a href="https://www.economist.com/the-economist-explains/2015/05/11/why-so-many-dutch-people-work-part-time">less likely</a> than <a href="https://www.catalyst.org/research/women-in-management/">American women</a> to be managers. And all <a href="https://www.economist.com/finance-and-economics/2019/09/05/part-time-jobs-help-women-stay-in-paid-work">over the world</a>, part-time work tends to convey less prestige and lower pay. If more American women shift to part-time employment, it could worsen the gender pay gap, or result in fewer women leading organizations. “If highly paid professional women” want to work less, Folbre told me, “I think that’s great.” Then again, she said, “I'm not totally sure [these women] really understand just how badly their career trajectories will be affected.”</p><p>In the U.S., high-paying, part-time jobs are not very common, because American bosses tend to frown on workers asking to work less, and existing part-time jobs are less likely to come with high salaries or good benefits. For more American women to work part-time, more companies would have to be willing to hire people part-time. Child care would have to get cheaper and more accessible, because some women currently can’t afford even part-time child care. Paid parental leave would have to become a standard beyond the whitest of white-collar work, so that having a baby didn’t mean risking your job and livelihood. Higher wages would help make the math work, too. And women would need more time on their hands to push for these things. “By making women so stressed out, so time-scarce, we’ve also limited their ability to be active politically and to advocate for what they need,” Representative Porter told me.</p><p>Making part-time work possible for everyone would also require erasing some of its stigma. Instead of saying they work part-time, it’s often more acceptable for professional American women to say they’re consulting or freelancing, says Heggeness, from the U.S. Census Bureau. Entrepreneurship is a proud American tradition; taking it easy is not.</p><p>Working less is something professional women struggle with, even when they’re in hour 14 of the workday and their kids have forgotten what they look like. The women I talked with describe themselves, if not as feminists, then at least as hard workers who never saw quitting as an option, and who—briefly—wondered if going part-time set a bad example for their kids. Fastow, who is a founding partner of her public-affairs firm, Seven Letter, is moving into an internally facing, part-time position with the company. The decision to go part-time was a hard one; she describes herself as an “all in” person, someone who never does anything halfway. “My identity for myself had become wrapped up in this idea of being a big, bad boss bitch,” she said. She came to see the new job as still being all-in, but all-in for her family—and maybe even all-in for her own mental and physical health.</p><p>Feminism, these women decided, doesn’t have to be all about work. Sometimes, in fact, it can mean relaxing a bit, especially in the middle of a global emergency. Conway-Hatcher quit her law-firm job in March, and since then she’s been working on a book. She also joined a smaller law firm run by her friends, which will require fewer hours and offer her more control over her career. “I think you’re a feminist if you’re making choices for yourself,” Conway-Hatcher said. “There are other ways to be successful than billing time.”</p>Olga Khazanhttp://www.theatlantic.com/author/olga-khazan/?utm_source=feedJonas Bendiksen / Magnum PhotosThe Professional Women Who Are Leaning Out2021-05-02T07:00:00-04:002021-05-02T09:39:22-04:00The competing demands of work and motherhood have some white-collar women choosing part-time work—and loving it.tag:theatlantic.com,2021:50-618611<p class="dropcap">I<span class="smallcaps">f there’s a</span> villain of the pandemic, other than COVID-19, it’s probably Zoom. The videochatting platform is making <a href="https://news.stanford.edu/2021/02/23/four-causes-zoom-fatigue-solutions/">people tired</a>, it’s making people <a href="https://www.huffpost.com/entry/zoom-awkward-tweets_l_5f4d1d7ac5b6cf66b2bb3ee5">awkward</a>, and it’s making people <a href="https://slate.com/technology/2020/04/how-to-hide-face-zoom.html">sick of their</a> own faces. Zoom is such a shoddy substitute for real life that, according to <a href="https://www.prnewswire.com/news-releases/report-collaboration-creativity-suffer-in-todays-dispersed-workforces-301146549.html">o</a><a href="https://www.prnewswire.com/news-releases/report-collaboration-creativity-suffer-in-todays-dispersed-workforces-301146549.html">ne survey</a>, nearly one in five workers has illicitly met up in person with colleagues to discuss work. And in <a href="https://www.economist.com/international/2021/04/10/love-them-or-hate-them-virtual-meetings-are-here-to-stay">another poll</a>, a third of women said they were “talked over, interrupted or ignored more frequently” in virtual meetings than in person.</p><p>Zoom haters: I hear you, and I validate your experiences. But Zoom is actually great! Don’t get me wrong. I love reporting in person—in fact, I’ve missed it dearly. But I find working in an office, public speaking, going to big parties, and attending important meetings in person enormously stressful. I prefer Zoom for all of these things, and I’m going to miss it when it’s gone. So will many other socially anxious people.</p><p>Though I enjoy elements of in-person socializing, I don’t really miss some of its trappings, like doing my makeup, parking, or sitting in an overly air-conditioned Starbucks, buying coffee I don’t want, just to talk with someone for 45 minutes. My favorite quote that captures this sentiment is by a man named William, who told <a href="https://nymag.com/intelligencer/2021/04/covid-19-and-the-people-who-dont-want-to-return-to-normalcy.html"><em>New York</em></a><a href="https://nymag.com/intelligencer/2021/04/covid-19-and-the-people-who-dont-want-to-return-to-normalcy.html"> magazine</a>, “I’m just dreading traffic, ‘meet me at the coffee shop at three,’ ‘I’m ten minutes late,’ baby showers, [gender] reveals. Like, I don’t want to do any of that fucking shit.” Some of us cannot wait for the bustling energy of normal society; others of us are standing athwart all the fucking shit yelling, “No thanks!”</p><p>I have a type of social anxiety that most often surfaces when I’m interacting with authority figures, like bosses or police officers. It was exacerbated by a few managers I had early in my career, who would milk my nervousness for extra output. Now when I leave an in-person interaction with an authority figure, I tend to spend the rest of the day wondering whether I phrased something wrong and therefore my career is over. In big work meetings, I basically try to evaporate. And don’t even get me started on “networking receptions.”</p><p>But with Zoom, I’ve found myself feeling more relaxed, more emotionally regulated, and better able to advocate for myself. I feel as though I can more easily speak up in big meetings, and I can express myself to my bosses without worrying about my self-presentation. To me, Zoom turns everyone else into fake people—not people with power over me, just little faces in boxes on my screen. If the trick to beating stage fright is to imagine the audience members in their underwear, it helps that on Zoom, even the most important people are athleisure-clad and holding babies.</p><p>Social anxiety is driven by a fear of being perceived negatively by others because you’ve misunderstood the subtle norms of a situation. But on Zoom, the rules are simpler. There’s no handshake, no decision about where in the room to sit, no need to even pick out an outfit from the waist down. “Real social interaction is so much more terrifying for people because there’s uncertainty, so many unknowns. This is greatly reduced in the online format,” says Stefan G. Hofmann, a psychology professor at Boston University and an <a href="https://www.theatlantic.com/health/archive/2015/10/what-is-social-anxiety/411556/?utm_source=feed">expert on social anxiety</a>. “A lot of things that happen in real life can’t happen in an online format.” On Zoom, awkward moments can be attributed to technical issues. In a face-to-face meeting, telling your boss that you didn’t hear them or didn’t understand them might be uncomfortable. Over Zoom, it’s perfectly normal.</p><p><a href="https://www.theatlantic.com/health/archive/2020/05/work-from-home-pandemic/611098/?utm_source=feed"><em>[ Read: Work From Home Is Here to Stay ]</em></a></p><p>Socially anxious people tend to play a little movie in our mind of what we assume we look like to others. But instead of the dashing protagonist, we picture ourselves as the bumbling stooge. The Zoom self-view helps correct that image. “It counteracts the view in our head of us looking like a babbling idiot,” says Ellen Hendriksen, a clinical psychologist and the author of <a href="https://www.indiebound.org/book/9781250122223"><em>How to Be Yourself</em></a><em>.</em> Zoom provides a mirror, and a reality check: <em>Oh, I look and sound fine.</em></p><p>Many people say the pandemic has <a href="https://www.pewresearch.org/fact-tank/2021/03/16/many-americans-continue-to-experience-mental-health-difficulties-as-pandemic-enters-second-year/">damaged</a> their mental health. But some have told Hofmann that they prefer interacting over Zoom. Some of the legions of office workers who began working from home last year found that they love it. A few of Hofmann’s psychologist colleagues gave up their expensive leases in New York City and have started offering therapy exclusively online. And some people, he says, “find it easier to maneuver the social world in a more simplistic way—an online way.”</p><p class="dropcap">U<span class="smallcaps">nlike almost every</span> other person on Earth, I also prefer Zoom parties to regular parties. At many in-person parties, I drink too much because I’m uncomfortable and then have to leave early because I’m too uncomfortable and too drunk. By contrast, I find that Zoom parties offer just the right amount of stimulation. I will often put on a big group Zoom and do other things, such as fold laundry or cook. I don’t feel the urge to drink, or even participate much, because it’s really just me and a computer. This blending of regular chores and socializing makes me think of what the pioneer days must have been like, with people catching up while quilting or whatever. Except Laura Ingalls Wilder didn’t have Zoom. Lucky us!</p><p>Like Zoom work, Zoom socializing can be easier for socially anxious people, Hendriksen told me. Real parties are a labyrinth of confusing decisions and expectations. You have to navigate “Who am I going to go talk to now? Have I been talking to them for too long? Should I go to the bathroom now?” Hendriksen said. “Whereas with Zoom, there’s a lot more structure. Really only one person can talk at a time. Everybody’s laid out in this nice <em>Brady Bunch</em> grid. You can turn your camera off and just put ‘BRB’ in the chat. If we increase the structure, we can lower the uncertainty, and therefore lower our anxiety.”</p><p>In addition to being a fine alternative to real life, Zoom has, for me, conferred benefits over and above in-person gatherings. <a href="https://www.indiebound.org/book/9780316418485">My book</a> came out last April, amid the throes of the initial pandemic freak-out. Although I was at first frustrated that I wouldn’t get the full “book-tour experience,” my virtual book tour was more fun and more accessible. More people were willing to sign in to Zoom on a pandemic Tuesday than were willing to trudge to a random D.C. bookstore in the April rain. And because the book talks were so easy, I was able to do more of them—on bookstore websites, on Instagram, on YouTube, and, yes, on Zoom.</p><p>Book clubs and other get-togethers are also more geographically inclusive when they’re online. Through Zoom, I’ve caught up with friends who live in other cities, whom I have not been able to visit. The only <a href="https://www.theatlantic.com/family/archive/2020/04/end-zoom-facetime-video-call-excuses/610369/?utm_source=feed">awkward part</a> of a Zoom chat is figuring out how to end it. But you have to do that when you’re talking on the phone, anyway. Some people have tried “I have to go make dinner/go for my little walk/finish up some work,” but I recommend the genteelly passive-aggressive “I should let you go.” I learned this while living in the South and have yet to find a better alternative.</p><p class="dropcap">A<span class="smallcaps">ll the experts</span> I spoke with said that Zoom will continue to play a role in our lives, but probably a smaller one than it has this past year. “Far from getting tired of [working from home], the average American actually seems to be getting used to it and increasing their desire to continue to work from home post-pandemic,” the Stanford University economist Nick Bloom told me via email. About 46 percent of workers would like to continue working from home forever, according to research from ZipRecruiter.</p><p>But remote jobs aren’t available for all of those workers. The share of jobs explicitly offering remote work has gone up from about 3 percent before the pandemic to about 10 percent now, says Julia Pollak, a labor economist at ZipRecruiter, and that number is now coming down slightly. Bloom told me that although employers are planning to increase work-from-home days after the pandemic, they’re not as enthusiastic about the change as employees are—and they don’t envision workers spending quite as many days at home as workers might hope. Some percentage of Zoom lovers will likely be dragged back into the office, whether we like it or not.</p><p>The pandemic probably hasn’t ended in-person conferences, either, though Pollak says more conferences will likely offer a cheaper, remote ticket option. Steve Moster, the president of GES, which helps companies put on live events, says many clients have told him that virtual events don’t yield the same sales leads or opportunities as in-person conventions do. “So there’s a lot of compelling reasons for in-person, live events,” he told me. He believes that by 2022, Americans will return to live events at their previous levels.</p><p><a href="https://www.theatlantic.com/politics/archive/2021/03/how-tell-if-you-have-burnout/618250/?utm_source=feed"><em>[ Read: Only Your Boss Can Cure Your Burnout ]</em></a></p><p>By using Zoom so much this past year, I’ve grown soft. My social anxiety, which is usually provoked in a million tiny ways each week, has been lulled into a peaceful slumber while I interact with people only virtually. It might be hard for people like me to jump back into meatspace.</p><p>For future in-person interactions that can’t be conducted over Zoom, Hofmann recommended that I try to make the rules of the interaction as explicit as possible, at least in my mind. Having an agenda to discuss, a specific start and end time, and clear talking points can make daunting in-person meetings feel more Zoomlike.</p><p>Hendriksen reminded me that there will be lots of reentry points. First, I’ll have an in-person meeting with my boss. Then I’ll go to a big, loud party. And finally, I’ll have to do an onstage presentation. I’m not going to have to do them all at once. My brain will be recalibrating all along, preparing me for the next stressful thing. “It doesn’t have to be a cannonball into the deep end,” she said. Our brains are flexible, and real life isn’t anything they haven’t seen before.</p>Olga Khazanhttp://www.theatlantic.com/author/olga-khazan/?utm_source=feedAdam Maida / The AtlanticYou’re Gonna Miss Zoom When It’s Gone2021-04-16T09:00:00-04:002021-04-16T10:09:04-04:00For people like me, who have social anxiety, videoconferencing can be easier than in-person interactions.tag:theatlantic.com,2021:50-618250<p class="dropcap" dir="ltr">I<span class="smallcaps">n the early 1970s, a psychoanalyst</span> named Herbert J. Freudenberger opened a free clinic to treat poor patients in New York City. It was a bit of a passion project: Freudenberger <a href="https://www.researchgate.net/publication/346586006_Herbert_J_Freudenberger_and_the_making_of_burnout_as_a_psychopathological_syndrome">would work</a> 10 to 12 hours during the day in his private practice, then head over to the free clinic to work until midnight or later. He seemed to realize that he was overcommitting. “You start your second job when most people go home,” Freudenberger <a href="https://psycnet.apa.org/record/1975-26014-001">wrote</a> at one point. “And you put a great deal of yourself in the work.”</p><p dir="ltr">Eventually, he <a href="https://www.scientificamerican.com/article/burned-out/">noticed</a> that this free clinic, which had once brought him so much meaning and joy, was starting to wear on him. Many of his fellow physicians <a href="https://psycnet.apa.org/record/1976-10574-001">were becoming</a> tired, snippy, and cynical. Freudenberger diagnosed himself and his colleagues with what he called “burnout syndrome,” a state of perpetual exhaustion caused primarily by a person’s job. The burned out, <a href="https://spssi.onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-4560.1974.tb00706.x">he wrote</a>, not only have bad attitudes; they have headaches, stomach problems, trouble sleeping, and shortness of breath.</p><p dir="ltr">These days, almost everyone feels like Freudenberger in his 14th hour of work. Those who still have the energy to read the news might encounter dozens of articles about hitting the “<a href="https://www.google.com/search?q=pandemic+wall&oq=pandemic+wall&aqs=chrome..69i57j0l2j0i20i263j69i60l2j69i61.1290j0j1&sourceid=chrome&ie=UTF-8">pandemic wall</a>” or suffering from “<a href="https://www.google.com/search?q=pandemic+burnout&oq=pandemic+burnout&aqs=chrome.0.0i433j0l3j69i60l2j69i61.1815j0j1&sourceid=chrome&ie=UTF-8">pandemic burnout</a>.” Many people have now spent a year staying inside, avoiding friends and family, abstaining from travel and indoor dining, mourning the loss of hundreds of thousands of people, and maintaining the same pace of work while caring for children round-the-clock and often single-handedly. Even people who have been calmly emailing their way through the apocalypse feel that their limit has been reached and they can go no further.</p><p dir="ltr">Research <a href="http://www.mnestudies.com/human-resource/role-stress-role-conflict-role-ambiguity">suggests</a> that people tend to be more stressed out when they face conflicts about their various roles—mother, worker, friend to a frazzled co-worker, daughter to an anti-vaccine parent. And this right here is the role-conflict plague. Nearly 3 million American women have <a href="https://www.cbsnews.com/news/covid-crisis-3-million-women-labor-force/">dropped out</a> of the labor force since the pandemic began, in part because they’re disproportionately shouldering the burden of all those different roles.</p><p dir="ltr"><em>[<a href="https://www.theatlantic.com/health/archive/2020/05/work-from-home-pandemic/611098/?utm_source=feed">Read: Work from home is here to stay</a>]</em></p><p dir="ltr">Anyone can feel burned out, even people who might have spent the pandemic relaxing on a COVID-free island with a magically replenishing money supply. The mental pressure of living through a mass-casualty event would be enough to fry the most Zen of brains. There’s also been burnout creep recently—people might talk about “midlife-crisis burnout” or being “burned out on Pilates.” But at its core, burnout is a work problem. Though wellness influencers might suggest various life hacks to help push through pandemic torpor, actual burnout experts say that tips and tricks are not the best way to treat the condition. Instead, they say, burnout is a problem created by the workplace, and changes to the workplace are the best way to fix it.</p><p class="dropcap" dir="ltr">S<span class="smallcaps">cientifically, to be burned</span> out is to be exhausted, cynical and hostile toward one’s work, and down on one’s job performance. “You know, <em>Maybe I’m not cut out for this kind of work; I shouldn’t be here</em>,” says Christina Maslach, a psychology professor at UC Berkeley and the foremost burnout researcher in the United States. The World Health Organization similarly <a href="https://www.who.int/news/item/28-05-2019-burn-out-an-occupational-phenomenon-international-classification-of-diseases">defines</a> burnout as a syndrome “resulting from chronic workplace stress that has not been successfully managed.” Like Maslach, the WHO says that burnout generates exhaustion, cynicism toward one’s job, and reduced “professional efficacy.”</p><p dir="ltr">Six elements of work cause burnout, Maslach says. The first is pure workload—having way too much to do. One reason people feel burned out right now is that they have been working <a href="https://www.economist.com/graphic-detail/2020/11/24/people-are-working-longer-hours-during-the-pandemic">longer hours</a> during the pandemic. In addition to an overstretching of staff and resources, burnout “could also include a cutthroat, bottom-line, results-oriented culture,” Mandy O’Neill, a management professor at George Mason University, said on Harvard Business Review’s <em><a href="https://hbr.org/podcast/2019/04/managing-burnout">Women at Work</a></em> podcast.</p><p dir="ltr">The second factor is how much control or autonomy someone has over their work. As the Stanford organizational-behavior professor Jeffrey Pfeffer writes in his book <em><a href="https://bookshop.org/a/12476/9780062800923">Dying for a Paycheck</a></em>, “If through their actions people cannot predictably and significantly affect what happens to them, they are going to stop trying. Why expend effort when the results of that effort are uncontrollable, rendering the effort fruitless?”</p><p dir="ltr">The third factor is a lack of recognition or reward for your work. One Philadelphia high-school teacher told <a href="https://www.ted.com/talks/worklife_with_adam_grant_burnout_is_everyone_s_problem/transcript?language=en">the organizational psychologist</a> Adam Grant that her burnout was like being on “a hamster wheel. You’re kind of, like, doing a lot and trying really hard, but is it really changing anything?”</p><p>The fourth factor has to do with whether your workplace is more like a community or a viper pit. You can probably guess which one leads to burnout. The fifth relates to whether policies and practices are administered fairly. Does the boss play favorites? Finally, work that doesn’t create meaning or value for workers can lead to burnout. It’s one thing to spend 60 hours a week working to free an innocent person from prison; it’s quite another to spend them trying to collect someone’s medical debt.</p><p dir="ltr">One line of research suggests that burnout is actually depression. In <a href="https://academicworks.cuny.edu/cgi/viewcontent.cgi?article=1316&context=cc_pubs">several</a> <a href="https://academicworks.cuny.edu/cgi/viewcontent.cgi?article=1276&context=gc_pubs">studies</a> on schoolteachers by Renzo Bianchi, a psychologist at the University of Neuchâtel, in Switzerland, the majority of teachers who had burnout symptoms also had symptoms of moderate or severe depression. Other <a href="https://www.sciencedirect.com/science/article/pii/S2213058614000060?via%3Dihub">studies</a> have found that “burnout and depressive symptoms seem to cluster together and develop in parallel.” This, according to Bianchi and other researchers, suggests that burnout can be understood as a <a href="https://academicworks.cuny.edu/cgi/viewcontent.cgi?article=1322&context=cc_pubs">collection of</a> “work-related depressive symptoms.”</p><p dir="ltr"><em>[<a href="https://www.theatlantic.com/health/archive/2019/05/work-life-balance/590662/?utm_source=feed">Read: Give up on work-life balance</a>]</em></p><p dir="ltr">Bianchi told me via email that understanding the similarities between burnout and depression is important because if people identify as merely burned out, rather than clinically depressed, they might delay seeking help. He laid out a way to determine whether work stress will lead to burnout-like depression. “The key question is: When something bad happens to you, is there something you can do to resolve the problem, surmount the difficulty, neutralize the stressor at stake? If yes, depressive symptoms are not to be expected,” he said. “But if there is nothing you can do, no effective action you can take, no way out, you will feel sentenced to passively endure the negative effects that these problems/difficulties/stressors have on you. This is when stress starts threatening your psychological and physical health.” These days, many people feel like they must “passively endure” one of the most stressful situations they’ve ever encountered.</p><figure><img alt="A woman rubs her eye" height="758" src="https://cdn.theatlantic.com/media/img/posts/2021/03/traff_01_2A_1/12153a8e3.jpg" width="640">
<figcaption class="credit">Thea Traff</figcaption>
</figure><p class="dropcap">I<span class="smallcaps">t’s sometimes tempting</span> to try to fix burnout by looking at the burnee. High-achieving workers on the verge of burnout might beat themselves up for not making time to meditate or exercise or pre-slice all their vegetables over the weekend. Many <a href="https://www.everydayhealth.com/coronavirus/how-to-not-let-pandemic-fatigue-turn-into-pandemic-burnout/">online guides</a> to curing burnout emphasize “self-care” strategies, such as creating a daily routine or seeing a therapist.</p><p dir="ltr">In fact, most American organizational researchers, including Maslach, would say that the problem is not with the burned out, but with what burned them. That is, their job. “I get calls from different people: ‘How can we diagnose who’s got burnout in our organization?’” Maslach told me. “And it’s kind of like, If we could just either fix those people or get rid of those people, then we’d have no problems.”</p><p dir="ltr">If burnout pervades an organization, “it’s telling you there’s a toxic environment here, that it’s not a really healthy place to be,” Maslach said. Right now, for example, bosses might be urging workers to “do more with less,” or causing workers to worry that they’ll be laid off, or asking them not to let their children appear in their <a href="https://www.yahoo.com/lifestyle/having-kids-zoom-fine-mom-190333481.html">Zoom calls</a>. Maslach resists combining burnout and depression into one category precisely because doing so implies that the problem lies with workers—that all they need is a little Lexapro to become okay with whatever their employer throws at them. “The phrase ‘If you can’t take the heat, get out of the kitchen’—it’s sort of saying: The kitchen is what it is, and you’re going to have to figure out how to deal with it,” she told me. “Without ever saying, really, <em>Does the kitchen have to be that hot?</em>”</p><p dir="ltr">Some employers have introduced <a href="https://hrdailyadvisor.blr.com/2020/03/02/mindfulness-training-in-the-workplace/">virtual mindfulness trainings</a> and Zoom <a href="https://www.purewow.com/money/cool-pandemic-work-perks">yoga classes</a> during the pandemic, even as their expectations for employee productivity remain basically unchanged. A McKinsey study published in <a href="https://www.mckinsey.com/featured-insights/diversity-and-inclusion/women-in-the-workplace">September noted</a> that many companies had “expanded services related to mental health, such as counseling and enrichment programs,” but that fewer had “taken steps to adjust the norms and expectations that are most likely responsible for employee stress and burnout.”</p><p dir="ltr">Although practices such as yoga and meditation can be beneficial, workers have to feel like it’s okay to take an hour out of their day to do them. “If you, as an individual employee, want to take a mental-health day, but the culture of the organization is not supportive of that, and there’s fear of retribution or backlash, then it’s hard for an individual employee to exercise that benefit,” Nicole Mason, the president of the Institute for Women’s Policy Research, says. Yoga hour is great, she adds, but child-care credits and flexible or reduced working hours would be even better.</p><p dir="ltr">These new virtual seminars are similar to the <a href="https://www.theatlantic.com/health/archive/2020/01/uhauls-nicotine-workplace-wellness/604420/?utm_source=feed">workplace wellness</a> programs that companies promoted before the pandemic. “The assumption of this and similar programs is that if you improve people’s knowledge about nutrition and exercise,” Pfeffer, the Stanford professor, writes in his book, “these interventions will be sufficient to get behavioral change. The problem is that employers seldom consider the workplace itself and what occurs there as important causal factors affecting individual behavior.”</p><p dir="ltr">Instead of providing stress-reduction workshops, Pfeffer told me via email, “employers should reorganize the work environment to, as much as possible, prevent stress. We have come to see stress and burnout as some inevitable condition of work—but they are not. We can design jobs and work environments to reduce them, and then we would not need to try and remedy the problems work causes in the first place.”</p><p dir="ltr">After all, burnout did not start with the pandemic. Research <a href="https://onlinelibrary.wiley.com/doi/pdf/10.1111/joim.12752">shows</a> that the majority of physicians have been burned out for years. In one 2014 study, more than a quarter of Americans <a href="https://www.nber.org/system/files/working_papers/w20449/w20449.pdf">reported working</a> between 10 p.m. and 6 a.m., a greater proportion than in any other country in the analysis. For his book, which was published in 2018, Pfeffer interviewed an executive coach who said that almost all of her clients work a 10-to-12-hour day, then work more between 8 p.m. and midnight, and also work at least one weekend day. A quarter of U.S. adults have been threatened with firing for taking time off to recover from an illness or to care for a sick relative, a <a href="https://www.bbc.com/news/world-us-canada-37353742">2014 survey found</a>. Mobile medical clinics roam around Silicon Valley because, as one medical-group executive <a href="https://fortune.com/2015/10/23/is-silicon-valley-bad-for-your-health/">put it</a> to a <em>Fortune</em> reporter in 2015, “People are so freaking busy they can’t even imagine going out to the doctor.”</p><p dir="ltr">The pandemic has only exacerbated burnout: Job expectations haven’t changed, even as workers try to avoid infection, look after their families, and stave off existential dread. O’Neill, the George Mason professor, <a href="https://hbr.org/podcast/2019/04/managing-burnout">has found</a> that having “companionate love” at work—<a href="https://www.theatlantic.com/health/archive/2021/01/pandemic-goodbye-casual-friends/617839/?utm_source=feed">close friends</a> you can commiserate and celebrate with—helps guard against burnout. But most American office workers have been separated from these support systems for nearly a year.</p><p dir="ltr">On the <a href="https://hbr.org/podcast/2019/04/managing-burnout">Women at Work</a> podcast, O’Neill <a href="https://hbr.org/podcast/2019/04/managing-burnout">offered</a> tips to avoid burnout, such as getting more sleep, and reducing the time you spend on tasks you don’t like and increasing the time you spend on tasks you enjoy. If you find your colleagues annoying instead of refreshing, ask for an office “a little far away,” or ask if you can work from home more (once working conditions return to normal). But again, all of these changes are up to the employer. Your employer has to reduce your hours so that you can get more sleep or give you permission to work from home. Your employer has to approve your decision to do less of the things you hate.</p><p dir="ltr">Managers could be part of the solution too. Companies could try hiring more of them. In his book, Pfeffer points out that positive reinforcement tends to be important to workers, but that “companies run very lean in terms of the number of managers, which makes providing any sort of positive feedback and social support difficult because people are too busy to take care of others.”</p><p dir="ltr">Not everyone’s job can instantly become more easygoing right now. Many doctors and nurses feel burned out because of the sheer volume of COVID-19 patients they are treating. However, much of doctors’ burnout comes from the hours they have to spend creating and updating electronic medical records—yet another thing their employers determine.</p><p dir="ltr">Where employers are unable or unwilling to give people a break, the government could step in. Unfortunately, it has failed to do that. As meatpacking workers began dying at the beginning of the pandemic, the Trump administration allowed plants to <a href="https://www.washingtonpost.com/politics/trump-chicken-covid-coronavirus-biden/2021/01/03/ea8902b0-3a39-11eb-98c4-25dc9f4987e8_story.html">increase their line speeds</a>, making it harder for workers to socially distance. Many states <a href="https://www.aarp.org/health/healthy-living/info-2020/states-mask-mandates-coronavirus.html">still don’t have</a> a mask mandate, putting frontline workers at risk. The federal government does not require that private-sector employers provide paid sick leave or family leave. The COVID-19 stimulus package President Joe Biden signed into law yesterday <a href="https://news.bloomberglaw.com/daily-labor-report/paid-leave-inches-ahead-in-states-as-congress-avoids-a-mandate">includes tax credits</a> for certain employers who choose to offer paid sick leave, but no requirement that they do so. If you get sick, need to quarantine, or need to take care of your family members, “right now you are at the whim of your employer,” says Vicki Shabo, a senior fellow on paid-leave policy at the think tank New America.</p><p dir="ltr">Some of these stressors will end with the pandemic, but even then, the cratered economy will create a difficult environment for workers. Even after they’re vaccinated, Americans are still likely to face burnout. <a href="https://www.ted.com/talks/worklife_with_adam_grant_burnout_is_everyone_s_problem/transcript?language=en">On his podcast</a>, Grant, the psychologist, summarized the keys to preventing burnout as “demand, control, and support”: Place fewer demands on people, give them more control over how to handle those demands, and provide support to handle them. All three are within your boss’s power.</p>Olga Khazanhttp://www.theatlantic.com/author/olga-khazan/?utm_source=feedThea TraffOnly Your Boss Can Cure Your Burnout2021-03-12T08:00:00-05:002022-02-15T17:32:56-05:00People refer to various forms of malaise as “burnout,” but it’s technically a work problem. And only your employer can solve it.tag:theatlantic.com,2021:39-617796<p><small><em>This article was published online on February 12, 2021.</em></small></p><p class="dropcap">I<span class="smallcaps">n the mid-1990s</span>, when I was in middle school, my family moved to the suburbs of Seattle, where my father had gotten a job at Boeing. My parents would drive my sister and me down I-90 to the Bellevue Square mall on weekends, and I’d sit on the carpet of the B. Dalton bookstore, reading magazines. A mile and a half up Bellevue Way, in the garage of a rented house, Jeff Bezos was starting Amazon. For some time, Amazon’s influence was little noticed. In high school, the drive to my part-time job took me through what was then the nondescript South Lake Union neighborhood—dotted with auto shops, warehouses, and, along the waterfront, a few marinas. The main landmark was Denny Triangle’s Elephant Car Wash, with its <a href="https://www.seattletimes.com/pacific-nw-magazine/seattles-queen-of-neon/">pair of pink, elephant-shaped</a> neon signs. It was a perfect specimen of the kitsch for which Seattle was known at the time, and I loved it.</p><p>Only recently has the South Lake Union area that I remember been transformed by the sprawling landscape of Amazon’s campus, which includes a <i>Harry Potter</i>–themed library, a dog deck featuring a fake fire hydrant, and three enormous, spherical plant conservatories. This past October, the Denny Triangle Elephant Car Wash closed down, under pressure from the pandemic and rising taxes and rent. Its owner donated one of the elephant signs to Amazon. “They asked for it, they wanted to have it,” <a href="https://www.seattletimes.com/business/small-pink-elephant-car-wash-sign-donated-to-amazon/">Bob Haney told <i>The Seattle Times</i></a>. “So I gifted it to them.”</p><p>Haney isn’t a character in <i>Fulfillment: Winning and Losing in One-Click America</i>, Alec MacGillis’s wide-ranging, impressionistic tour of a nation whose citizens’ existence has become intertwined with a single corporation, but he easily could have been. Plenty of books have been written about Amazon, so MacGillis wasn’t interested in probing the inner workings of the corporation itself. Instead, he set out to explore “the America that fell in the company’s lengthening shadow”—that is, the places where Amazon’s influence has undermined social cohesion in pervasive ways. Finding such places turns out to be easy.</p><p class="dropcap"><span class="smallcaps">There are </span>countless ways to measure Amazon’s hold on American life. More people in the U.S. subscribe to its Prime service than voted for either Donald Trump or Joe Biden in the past election: more than 100 million, by <a href="https://fortune.com/2020/01/16/amazon-prime-subscriptions/">recent</a> <a href="https://www.digitalcommerce360.com/article/amazon-prime-membership/">estimates</a>. Amazon reaps fully half of what people in this country spend online. It is the second-biggest private workplace in the United States, after Walmart, employing more than 800,000 people, most of whom will never set foot in the Seattle headquarters’ plant spheres. Among Amazon’s large Arizona-based workforce, most of it inside warehouses, <a href="https://thecounter.org/amazon-snap-employees-five-states/">one in three people was on the federal Supplemental Nutrition Assistance Program in 2017</a>. Incidentally, Amazon, along with Walmart, has been one of the biggest beneficiaries of an arrangement that allows food stamps to be used for online groceries, bringing in large amounts of government money. Bezos, Amazon’s CEO, is the richest person alive.</p><aside class="callout-placeholder" data-source="curated"></aside><p>As MacGillis notes, understanding how a single corporation became so widely and deeply entrenched requires historical perspective. Starting in the late 1970s, federal regulations governing business consolidation were loosened, and antitrust enforcement waned. Predictably, a growing share of corporate wealth began flowing to a small number of firms and, in turn, people. The rise of the internet in the 2000s accelerated the process in ways we’re by now familiar with, and a handful of companies—Google, Facebook, Apple, and Amazon, in particular—<a href="https://www.theatlantic.com/ideas/archive/2020/07/pandemic-making-monopolies-worse/614644/?utm_source=feed">came to dominate large swaths of economic life</a>. What MacGillis feels is underappreciated is the geographical remapping of wealth—and, with it, power—that the transformation has brought about.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2020/07/big-tech-pandemic-power-grab/612238/?utm_source=feed">Read: What Big Tech wants out of the pandemic</a>]</i></p><p>MacGillis, a reporter at ProPublica and the author of a Mitch McConnell biography titled <i>The Cynic</i>, was one of the first journalists to begin documenting the socioeconomic upheaval that helped shift the rural Rust Belt from blue to red and put Donald Trump in the White House. In <i>Fulfillment</i>, he is less concerned with the much-discussed electoral implications than with the tech-era upheaval itself. The superficially equalizing promise that customers everywhere can enjoy unprecedented convenience with a mere click has intensified the differences in the choices available to the rich and the poor. MacGillis describes how, while rich corporations and their top employees have settled in a small number of wealthy coastal cities, the rest of the American landscape has been leached of opportunities.</p><p>Portraying the phenomenon as a widening urban-rural divide is the simplistic version of a more nuanced and bigger story, MacGillis emphasizes. In 1969, the 30 metropolitan areas with the highest per capita personal income included Detroit, Cleveland, and three other midwestern cities. In 2019, only two midwestern names—Chicago and Minneapolis—appeared on that list, and nearly all the rest were on the coasts. Meanwhile, within the coastal cities that have grown wealthier, the gains have been disturbingly uneven. Rising rents and a lack of affordable housing have left the Seattle area, for example, with <a href="https://www.huduser.gov/portal/sites/default/files/pdf/2019-AHAR-Part-1.pdf">the third-biggest population of homeless people in the U.S.</a>, after New York City and Los Angeles, according to 2019 data.</p><p>These numbers document a stark divergence, but they don’t capture its human dimensions. That is MacGillis’s goal, as he explores what the erosion of power and possibility means for regular people. Internally, Amazon uses the word <i>fulfillment</i> in reference to processing customers’ orders. MacGillis, of course, has another usage in mind: the very American emphasis on the chance to seek satisfaction—a sense of meaning, purpose, and value; a feeling of personal empowerment and communal solidarity—in our labor. No corporation provides a clearer vantage, or more angles, than Amazon does on the strategic choices that have expressly contributed to foiling that quest.</p><p class="dropcap">F<em><span class="italic caps smallcaps smallcaps-italic"> ulfillment</span></em> begins in a basement. Hector Torrez (a pseudonym) is an Amazon warehouse employee in Thornton, Colorado, who earns $15.60 an hour moving packages and boxes all night long. When the book opens, he has learned—from co-workers, not the company—that he has been exposed to the coronavirus on the job, and his wife has exiled him downstairs. From Torrez’s basement, MacGillis travels to Seattle and Washington, D.C., where so much of Amazon’s wealth is concentrated, as well as to cities in Maryland, Ohio, and Pennsylvania that have Amazon to blame, at least indirectly, for their historic decline in fortunes since the ’90s.</p><p>In some of MacGillis’s stories, the connection to Amazon is so tenuous as to be almost indiscernible; the characters’ problems seem to arise more from larger forces, such as globalization, gentrification, and the opioid crisis, than from any one corporation’s influence. A young man from small-town Ohio—alienated by his experience in D.C., where he starts college—returns home and enters Democratic politics. After scoring a local success, he runs for Congress, determined that the party not write off his opioid-ravaged, Trump-supporting region, but he fails to drum up more than a couple of union endorsements. A gospel singer who became a cultural force in Seattle during the ’80s watches as her neighbors are pushed out of the city’s historically Black Central District one by one.</p><p>Local energies may have been sapped for many reasons, yet in the coastal cities that MacGillis visits, Amazon’s disproportionate ability to further enrich and empower already thriving places and workers is glaring. Familiar though they are, evocations of the six-figure salaries and amenities available to young Amazon programmers—a café catering to their dogs, meeting space in a giant replica of a bird’s nest—acquire new salience set against Torrez’s experience. And the sense of entitlement on display in the company’s search for a second headquarters site is breathtaking. Local officials across hard-knock America prostrate themselves for a chance to host it. In the end, Amazon chooses the suburbs of the nation’s capital—already one of the wealthiest areas in the country—and walks away having amassed a great deal of useful regional data provided by eager bidders who probably never stood a chance.</p><p>In the less glamorous pockets of the country—the rural areas and small cities where MacGillis has spent so much time as a reporter—Amazon’s role in making economic hardship more entrenched is no less stark. In El Paso, Texas, Amazon has aggressively marketed itself to the city government as a go-to source for office supplies—which has pushed local purveyors to open up online storefronts on Amazon; a large cut of their sales goes to the corporation. In York, Pennsylvania, the headquarters of the once-fashionable Bon-Ton department store has been made extinct by Amazon and the broader retail consolidation it represents. The crisis of unemployment that has ensued is one that Amazon exploits, finding able bodies for its warehouses in nearby towns.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2018/06/amazon-flex-workers/563444/?utm_source=feed">Read: I delivered packages for Amazon and it was a nightmare</a>]</i></p><p>On his home turf of Baltimore, MacGillis explores most intimately the ebbing of human fulfillment that has accompanied Amazon’s promise of high-speed customer service. He profiles Bill Bodani Jr., who spent most of his working life at Bethlehem Steel’s Sparrows Point complex, outside the city. In the early 2000s, a serious injury forced him to retire in his mid-50s, around the time that foreign competition and other factors pushed the company into bankruptcy. Eventually, the Sparrows Point plant shut down and Bodani’s monthly pension payment was cut from $3,000 to $1,600. Now 69 years old and back at work as a forklift driver in a 22-acre Amazon warehouse, he returns every day to the exact same piece of land. The peninsula has been rebranded—it’s called Tradepoint Atlantic now—and has become what MacGillis calls an “all-purpose logistics hub” that houses, among other facilities, an Amazon fulfillment center.</p><p>Bodani’s young co-workers call him “Pops” and “Old Man”—he’s by far the oldest one around. He starts out making about $12 an hour, compared with the $35 an hour he earned at his steel job. Other indignities are more insidious. The company uses an algorithm to track how productive its workers are and how much time they spend off task, flagging people for termination if the data show them underperforming. In other words, <a href="https://www.theverge.com/2019/4/25/18516004/amazon-warehouse-fulfillment-centers-productivity-firing-terminations">a worker can be fired with minimal involvement by a supervisor</a>. Time-limited bathroom breaks mean that Bodani sometimes pees in a quiet corner of the warehouse, parking the forklift to shield him. Yet he draws comfort from working on the same physical terrain where he began his career: He sought out the job at the old Sparrows Point because it gave him a sense of belonging. “It’s a feeling of being home,” he tells MacGillis.</p><p>A man who clearly sets store by solidarity and continuity, Bodani still hangs out regularly with the Retirees United Local 9477, gathering for lunch with former Sparrows Point steelworkers and other union members—the kind of custom no Amazon worker will enjoy, if the anti-union corporation has its way. One day, he drops by a United Steelworkers office and collects some material on the right to organize. At work, he shows it to a young man he’s been training to operate the forklifts, who plainly chafes at Amazon’s culture—“the constant pressure to ratchet goals upward, the sense of total surveillance, the workers’ lack of a voice,” as MacGillis puts it. The next day, Bodani’s supervisor, three decades his junior, chastises him for passing out literature. The young man to whom he gave the flyers hasn’t been circumspect in distributing them; later, that worker is furloughed. (Amazon has denied that he was suspended.) When the supervisor threatens to dock Bodani’s pay over a bathroom break, Bodani has had enough. “You got to be kidding me,” he tells the supervisor. After a 50-year career at Sparrows Point, he quits, amid the holiday crush.</p><p class="dropcap"><span class="smallcaps">When he </span>began this project, MacGillis could not have anticipated just how timely a book about Amazon’s power—and the powerlessness of those in its path—would be. Recent press accounts have exposed that blue-collar labor at Amazon is not just exhausting but extremely dangerous, <a href="https://revealnews.org/article/how-amazon-hid-its-safety-crisis/">with injury rates about double the industry average</a>. The company has <a href="https://www.geekwire.com/2020/amazon-avoided-unions-25-years-heres-labor-leaders-think-soon-change/">actively sought</a> to head off <a href="https://www.vox.com/recode/2020/10/6/21502639/amazon-union-busting-tracking-memo-spoc">unionization efforts</a>. The revelations came as the pandemic gave Amazon its most profitable year in history by far, thanks to people resorting to shopping online rather than at brick-and-mortar stores.</p><p>Last year, Bezos’s net worth rose by more than $67 billion (or 60 percent) to $182 billion. During roughly the same period, according to Amazon, almost 20,000 of Amazon’s frontline workers, such as warehouse employees and Whole Foods clerks, tested positive for the coronavirus. Step back, and the pattern holds. The world’s billionaires increased their wealth by about a fifth over the course of last year—to more than $11 trillion, according to <i>Forbes</i>. Meanwhile, a quarter of U.S. adults said someone in their household was laid off or lost a job because of the pandemic.</p><p>Addressing the regional imbalances in America would be an enormous undertaking, and MacGillis doesn’t presume to offer prescriptions. But his book suggests one very big place to start: Serious workplace reforms would affect hundreds of thousands of workers, as well as help reshape the broader labor landscape. Hector Torrez, whom MacGillis revisits toward the end of <i>Fulfillment</i>, remains wary. He is still employed at the Thornton warehouse, and Amazon has taken some action to keep workers safe—offering up to two weeks of paid leave to anyone with a COVID-19 diagnosis and a temporary raise for those who kept working at the height of the spring outbreak. The company has implemented basic precautionary measures, such as issuing masks and disinfecting work sites. For Torrez, those steps don’t offer much consolation. “What I see around me is a lot of people who don’t have much choice,” he tells MacGillis. Torrez’s quarantine period ended a long time ago. But not wanting to risk infecting his wife or children, he’s still in the basement.</p><hr><p><small><em>This article appears in the March 2021 print edition with the headline “The United States of Amazon.” </em></small></p>Vauhini Varahttp://www.theatlantic.com/author/vauhini-vara/?utm_source=feedIllustration by Ryan Haskins; images from GraphicaArtis / Getty; ShutterstockAmazon Has Transformed the Geography of Wealth and Power2021-02-12T06:00:00-05:002021-02-12T08:22:41-05:00Understanding America in the giant company’s shadowtag:theatlantic.com,2020:39-617257<p><small><i>This article was published online on December 15, 2020.</i></small></p><p class="dropcap">E<span class="smallcaps">veryone is born</span> a mark, and you have to hope you wise up from there. Getting purposefully and repeatedly fooled is one of the fundamental experiences of childhood—by peekaboo, by Santa Claus, by the idea that you’ll grow a watermelon in your tummy if you swallow the seeds. The more kids realize they’ve been fooled, first by caregivers doing some good-natured baby trickery and then by peers at school, the wiser they theoretically get to situations in which they should be wary.</p><p>When high school spits kids out into adulthood, they’d better have learned those lessons well—the stakes of being a mark ratchet up considerably along with the legal rights of being a grown-up. Suddenly banks, lenders, student-loan underwriters, and any store hyping a 20 percent discount for opening a new credit card would like to show you your options. The pitches are pretty good, too: No one trying to shake you down at recess was dangling the carrot of shopping sprees or class mobility. If you need to pay for college, rent an apartment, or just buy some jeans, the entire field of credit and lending unfurls before you.</p><p>Yet few Americans hit the age of majority with more than a rudimentary understanding of their finances, and the country’s banks are poorly regulated. From 2004 to 2020, <a href="https://www.brookings.edu/policy2020/votervital/who-owes-all-that-student-debt-and-whod-benefit-if-it-were-forgiven/">student-loan debt metastasized from $250 billion to $1.5 trillion</a>, as the costs of higher education increased but wages in many fields didn’t rise to meet them. Also putting young people into arrears during the aughts: carnival barkers in the quad hawking Visa, Mastercard, and the like alongside free T‑shirts and pizza, until the federal government kicked credit-card companies off campus in 2009 and barred them from sending sign-up pitches offering prizes to those living in college housing.</p><p>The new protections, combined with an ambient fear of debt in a country still reeling from a loan-induced economic catastrophe, worked. Young Americans <a href="https://www.cnbc.com/2019/05/21/millennials-are-no-longer-good-at-staying-out-of-bad-credit-card-debt.html">began opening credit cards less frequently</a>; when they did, they missed fewer payments and maintained lower balances than previous generations had. In 2012, only <a href="https://www.cnbc.com/2019/05/21/millennials-are-no-longer-good-at-staying-out-of-bad-credit-card-debt.html">41 percent of people in their 20s</a> had a credit card, as opposed to <a href="https://www.creditcards.com/credit-card-news/credit-cards-in-different-cultures-1267/">more than 73 percent</a> of American households overall. The use of debit cards soared. The marks weren’t so easy anymore.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/?utm_source=feed">From the July/August 2020 issue: The looming bank collapse</a>]</i></p><p>By 2019, that progress had eroded. The number of 20‑somethings with credit cards ticked above 50 percent, and more of them began falling behind on payments. The cost of living was rising, the Great Recession wasn’t so close in the rearview mirror, and people needed and wanted to buy things, even if they didn’t necessarily want credit cards. It was the perfect time for a shiny new gambit from the finance world, and one emerged to meet the moment: point-of-sale lending start-ups like Klarna, Afterpay, and Affirm, or, as many of them prefer to be known, “buy now, pay later” services.</p><aside class="callout-placeholder" data-source="curated"></aside><p>You’ve probably seen these businesses infiltrate many of the places you shop online. They’re embedded in the checkout processes at Walmart, H&M, Sephora, Dyson. Their promises are enticing: Split a $200 pair of Adidas into four automatic, interest-free payments of $50, with only a cursory credit check required. Try a pricey new moisturizer and return it if you don’t like it before the money has even left your bank account. Pelotons don’t cost two grand; they cost 60 interest-free bucks a month for a few years. The checkout lenders market themselves on simplicity, transparency, and low cost—credit for people who are too smart to get tangled up with credit cards. But when you find yourself being flattered and asked for your debit-card number in the same breath, it’s time once again to ponder one of life’s most important questions: What’s the catch?</p><p class="dropcap"><span class="smallcaps">When Erin Lowry </span>first encountered the chance to take out a loan for a couple hundred dollars from Affirm, she was buying Cole Haan shoes. This was a few years ago, before Affirm and similar services had been adopted by tens of thousands of American internet retailers. “My gut reaction was like, <i>Oh, this is a terrible idea</i>,” Lowry, the author of the <i>Broke Millennial</i> financial-advice books, told me. Her standard counsel for these situations probably won’t shock you: Deals that sound too good to be true probably are. But could point-of-sale lenders be the exception to the rule?</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2020/09/pandemic-broke-online-shopping/616353/?utm_source=feed">Read: Why everything is sold out</a>]</i></p><p>These companies put forth a range of financing alternatives, but their most ubiquitous breaks down purchases into two to four installments, paid automatically over a few weeks or months, usually with your debit card. The fine print varies, but the plans typically charge no interest, and the penalty for missing a payment ranges from nothing to nominal—seven or eight bucks. (Credit cards are also accepted, but that, of course, introduces the possibility of paying interest.) Upon checkout, you give the store’s lending partner your name, address, phone number, and birth date, and are approved or rejected based on an algorithm in lieu of a full credit check. None of the major lenders discloses the criteria included in their algorithms, but the time of day and the size of your purchase are often cited as examples of what might be considered—bad news if you want to spend a lot of money at three in the morning.</p><p>For Lowry, the claim of transparency and low cost felt like a red flag in and of itself. Most credit-card companies make money through interest and fees paid by the people who use their cards and continually add to their balances—so what was going on here? If you’re not sure who’s funding the bottom line, Lowry told me, it’s probably you, in one way or another.</p><p>According to the lenders, their revenue comes primarily from stores, which pay much more than they would to process the same transactions with credit cards. Why are retailers willing to fork over the extra money? “They say consumers are more likely to shop; they see consumers spending a bit more money and shopping more regularly,” says David Sykes, the head of Klarna’s U.S. division. He compares his firm’s business model to the one with which the Home Shopping Network struck gold decades ago: When people hear “four payments of $25,” they just don’t feel like they’re spending $100.</p><p>These new lenders also give retailers greater access to a demographic whose purchasing power is relatively untapped: the nearly half of Americans in their 20s who don’t have a credit card. While many of the services offer loans for four- or five-figure purchases, with interest rates similar to those of credit cards, their bread and butter is the mundane commerce of everyday life for the young—people buying a last-minute suit for a job interview or stocking up during a sale at Sephora before their next paycheck clears.</p><p>As is the case with credit cards, Lowry thinks the trick is using these services infrequently. Something that’s simple for one purchase can be difficult to track across many, especially for inexperienced budgeters. “It can become really easy to forget that two months ago, you purchased an item that’s taking $25 out of your account for the next four months,” she said. “That’s a quick way to end up in a debt cycle.” And like with other forms of credit, if you just don’t pay, a bill collector will come after you.</p><p>Amanda Clayman, a Prudential financial therapist and wellness advocate (a thing that many people could use right now), told me that the very novelty of these services presents peril. “Any new technology has a certain seductiveness,” she said. “When we have these new exposures to things that make it easier for us to buy, we don’t yet have the experience or template of danger. We only see the promise.”</p><p class="dropcap"><span class="smallcaps">All of the </span>financial experts I spoke with voiced apprehension about the sudden pervasiveness of point-of-sale lenders and the challenges consumers face in using them wisely. Their penchant for targeting young audiences, with sponsored content from Instagram influencers and <i>RuPaul’s Drag Race </i>contestants, was also a point of concern. But the experts were clear about something else: There is no reason to vilify these services more than any of the other products that encourage (or merely help) people to buy things they can’t afford.</p><p>“The U.S. market for financial services is regulated under the philosophy of caveat emptor,” observes Sarah Newcomb, the director of behavioral science at the financial-research firm Morningstar. “Our laws basically say, ‘Look, you need to know what you’re buying—it’s on you.’ ” That includes services that are objectively much riskier than what Klarna and its kin are peddling—such as payday lenders, which make small loans at sky-high interest rates to people who, because of their low income or poor credit history, can’t use regular banks. These businesses take advantage of the working poor, yes, but so does the larger financial system, which leaves many people who need to pay the electric bill or buy groceries dependent on such high-risk loans.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2016/05/payday-lending/476403/?utm_source=feed">From the May 2016 issue: Will anything better replace payday lending?</a>]</i></p><p>“That line between helpful and predatory can be really blurry,” Newcomb told me. “What may be predatory to one type of customer is actually a very good solution for another type of customer.” Over the summer, I took out a zero-interest Affirm loan to buy a Peloton after considering the terms for a few months. I feel like I got a great deal—I was going to buy the bike regardless, and I’m paying no more than I would have had I taken the money out of my savings account. The benefit for me is that I get to hold on to my cash a bit longer, a cushion in case I have some kind of expensive emergency.</p><p>But I’m in my mid-30s, which makes me a little long in the tooth for any service looking to reach The Youths. I know things now that I didn’t know when I was in college and accruing five figures of consumer debt, which it took me years to pay down. I would have salivated at the idea of paying $72.50 up front for a new Coach bag and worrying about the rest in a few weeks. (There would not have been much more money in a few weeks.)</p><p>That come-what-may desire for instant gratification is what point-of-sale loans hope to inspire in us, after all. By decoupling the act of buying from the act of spending, they remove the psychological friction that can force people to stop, consider their choices, and decide whether they can really afford to buy that one fabulous thing. They obliterate the moment in which you might ask yourself if you are a mark.</p><hr><p><em><small>This article appears in the January/February 2021 print edition with the headline “Jeans Now, Pay Later.” </small></em></p>Amanda Mullhttp://www.theatlantic.com/author/amanda-mull/?utm_source=feedGiacomo BagnaraWhy Is There Financing for Everything Now?2020-12-15T06:00:00-05:002020-12-21T12:17:21-05:00Are the new online services that allow you to buy jeans or shampoo in installments—interest-free—too good to be true?tag:theatlantic.com,2020:39-616925<p class="dropcap">W<span class="smallcaps">e knew </span>the doors were about to open when “Ride of the Valkyries” began to boom over the public-address system. By 4 a.m. on Black Friday in Athens, Georgia, several hundred people had lined up outside Best Buy in the predawn chill, supervised by police straddling motorcycles and ambassadors from a local Chick-fil-A handing out free breakfast biscuits wrapped in foil. Our most dedicated patrons had been sitting outside in folding chairs since the day before.</p><p>At the front of the line, some people clutched sheets of paper handed out by managers guaranteeing a deeply discounted laptop or camera. (Best Buy devised this ticketing system during my tenure as a salesperson in the mid-2000s to avoid the sort of stampede that makes the news every year.) But many more people had come out in the middle of the night, not to buy a particular product, but to bear witness to the bacchanal of extreme shopping itself and maybe pick up a $5 DVD. I’m still not sure whether, <a href="https://www.youtube.com/watch?v=30QzJKCUekQ">in the <i>Apocalypse Now</i> scene</a> that “Ride of the Valkyries” was intended to evoke, the store’s employees were supposed to be the soldiers in helicopters or the Vietnamese villagers below.</p><p>There were no near-death experiences during the three years that I helped open Best Buy on Black Friday, even if the occasional shopper was overcome with holiday spirit and tackled a palletful of discounted Blu-ray players. The mornings were busy, but they crackled with a mildly perverse consumerist conviviality. For most of the people who thronged the store, the wee-hours shopping trip was as much a part of their Thanksgiving tradition as turkey. Store employees feasted, too—it was the one day of the year when my Best Buy location acknowledged how backbreaking retail work is, stocking our break room with a free lunch of fried chicken and macaroni and cheese. My co-workers and I jockeyed for those opening shifts because the eight hours always flew by—a wild reprieve from the everyday monotony for employees and even shoppers. It was a frankenholiday, pieced together from leftover parts of Thanksgiving and Christmas, but with a life of its own.</p><p>Despite ages of hand-wringing from both ends of the political spectrum—either the annual carnival of consumerism is obscene and wasteful, or gifts shouldn’t supplant Jesus as the reason for the season—holiday shopping has metastasized. <i>Black Friday</i> is now more of <a href="https://www.nytimes.com/2019/11/27/style/black-friday-has-no-meaning.html">a euphemism for weeks of pre-Thanksgiving sales</a> than a reference to a fixed moment in time. Every year, it seems to get bigger, as do the gestures of those pushing against it. Nordstrom, for one, has used its store windows in the weeks before Thanksgiving to <a href="https://abcnews.go.com/Lifestyle/nordstrom-praised-social-media-shunning-christmas-creep/story?id=35099108#:~:text=The%20company%20decorates%20for%20the%20holidays%20on%20Nov.&text=The%20company%20has%20announced%20that,for%20Christmas%20until%20after%20Thanksgiving.&text=%E2%80%94%20%2D%2D%20Nordstrom%20is%20bucking%20retail,(the%20Friday%20after%20Thanksgiving).">promise shoppers it won’t jump the gun on Christmas decorations</a>, while the big-box stores have begun opening on Thanksgiving itself, cannibalizing the holiday that once formed Black Friday’s pretext. (Amid this year’s pandemic, Best Buy has joined other major retailers in announcing that it will be closed on Thanksgiving.)</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2020/11/fluffing-your-own-nest/616469/?utm_source=feed">From the November 2020 issue: Why Americans have turned to nesting</a>]</i></p><p>This is where, in this year of all years, I should solemnly intone that things will be—will <i>have</i> <i>to</i> be—different. So much about holiday shopping seems impossible, or at least ill-advised: the crowds, the exorbitant expenditures, the elderly mall Santas greeting an endless stream of stuffy-nosed children. Retail and delivery workers have already been pushed past the breaking point in their “essential” jobs, and shipping delays and inventory shortages have dogged stores since March. If any of the hand-wringers really wanted to sever Christmas from consumerism, now would be the time. But the Ghost of Christmas Past has much to tell us about what we should expect this year, and shopping isn’t going anywhere.</p><p class="dropcap"><span class="smallcaps">People often identify </span>holiday profligacy as a modern problem, hastened by malls and chain stores and online shopping. But the history of indulgent celebrations and the scolds trying to end them is the history of civilization itself. Russell Belk, a researcher who studies consumer culture at York University, in Ontario, dates the fight over Christmas waste all the way back to the ancient Roman holiday of Saturnalia, a days-long December feast and the predecessor of Christmas. “There were complaints at the time that it was too materialistic, that people were hosting banquets for their friends and spending lavish amounts of money and they shouldn’t be doing that,” he told me.</p><aside class="callout-placeholder" data-source="curated"></aside><p>For American and British Christmas in particular, another set of scolds helped get us into this shopping mess in the first place. Before the Victorian era, the Christmas season was considered a time not so much to exchange gifts but to eat, drink, and be merry, “a little like Mardi Gras,” says Leigh Eric Schmidt, a historian of American religion and the author of <i>Consumer Rites: The Buying and Selling of American Holidays</i>. Those celebrations were beloved by working people, who got a break between Christmas and New Year’s from the informal subsistence labor that characterized their agrarian lifestyle.</p><p>But in the newly industrialized cities of the late 19th century, the drunken, leisurely December holidays began to change. “Once some of those traditions are in more urban settings, where there’s a more discernible working class, they’re increasingly seen by the middle class and elites as more dangerous and destructive,” Schmidt told me. The interests of business and religious leaders aligned, and they endeavored to recast the winter holiday as pious and family-centric, revolving around the home instead of the tavern. They also pushed to shorten the holiday break—more Americans now had bosses, and those bosses wanted them back at work.</p><p>The rebranding of Christmas was an unmitigated success. And in turn, the holiday that the capitalist and merchant classes once deemed a threat to productivity had become “an incredible opportunity to promote consumption” of newly available mass-market goods, Schmidt said. Department stores also stoked demand, decorating their windows to make them destinations unto themselves. Macy’s and Marshall Field’s and Saks became temples for a new kind of religious observance: buying, buying, buying to fulfill the promise of Christmas.</p><p class="dropcap"><span class="smallcaps">In America, </span>the<span class="smallcaps"> </span>economic, the religious, and the patriotic can’t be easily separated. Dell deChant, a religion professor at the University of South Florida and the author of <i>The Sacred Santa: Religious Dimensions of Consumer Culture</i>, calls Christmas “a huge ritual celebration honoring the economy and feeding the economy.” God, country, and cash are particularly tightly entwined during a year when America’s leaders can’t stop telling us that keeping the economy humming is our sacred duty.</p><p>Even in normal times, Christmas is essential to that effort—the moniker “Black Friday” has murky origins, but it stuck around to mark the day when consumer spending is said to finally push American retailers to annual profitability, or “into the black.” (Whether this actually happens is highly debatable.) During the Great Depression, arguably a time similar to our own, President Franklin D. Roosevelt went so far as to move the date of Thanksgiving by a full week to lengthen the shopping season.</p><p>Granted, certain aspects of Christmas won’t be the same in 2020. Many of us won’t be able to travel great distances to visit our families, and older relatives might not be able to see much of anyone at all. Two hundred thousand people and counting are gone, and millions of others have lost the income that funds bounteous celebrations. Still, deChant believes that the drive to create as much of the old Christmas feeling as possible will likely be strong.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/health/archive/2020/09/how-america-can-survive-the-winter/616401/?utm_source=feed">Read: How we survive the winter</a>]</i></p><p>“Christmas is a great normalizing experience—it’s powerful in terms of our personal and cultural identity,” he says. “If we’re not able to consume, then, to a certain extent, we’re marginalized—within the culture, as well as in our own minds.” For many Americans who don’t celebrate Christmas, sitting out the foofaraw while the whole country conducts Christmas consumption is an annual dose of alienation. For people who normally participate but suddenly find themselves unable to do so, the sense of detachment might even be more piercing for its novelty. Buying not just gifts, but decorations, sweets, and the trappings of a Christmas feast are deeply entrenched customs, and many Americans will want to hang on to those rituals in a world where so much else has been disrupted. For some, keeping Christmas, as a transformed Scrooge put it, will feel profoundly comforting. For others, the wish to do Christmas right will be tinged with defiance. Think we can’t buy gifts galore and decorate like busy little elves straight through a disaster? Think again.</p><hr><p><small><em>This article appears in the December 2020 print edition with the headline “There’s No Stopping Santa.”</em></small></p>Amanda Mullhttp://www.theatlantic.com/author/amanda-mull/?utm_source=feedAsia PietrzykChristmas Dies Hard2020-11-23T07:00:00-05:002020-11-23T10:18:44-05:00The middle of a global pandemic might seem like a good time to cut back on holiday excess. But we live in America.tag:theatlantic.com,2020:39-616926<figure data-apple-news-hide="1"><img alt="" height="538" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/11/DIS_Mari_SmallBizOpener/93aa618c5.jpg" width="672"><figcaption class="caption">Frank Mari and his store (Carlos Chavarría)</figcaption></figure><p class="dropcap">T<span class="smallcaps">he first time</span> I looked at my father’s Yelp reviews, I choked up. They were not all positive, and of course I read the worst ones first. My dad, Frank, runs a high-fidelity audio-video store in San Francisco and also repairs the brands he sells. One reviewer gave him one star, noting that his turntables had sat in the shop for five weeks, untouched. It brought me back to all the school nights when we stayed at the store until 9 p.m. so he could finish a job that was overdue. Another guy complained that when he called, my dad picked up blurting, “What do you want? I’m vvvvvveeeerrrryyyy busy.” I remember hearing him do that once when I was a kid. He was on hold with the bank or a supplier, and the second line kept ringing. I was aghast. “Well, I hope you are sooooooooo busy that people do not EVER go to your store,” this reviewer wrote.</p><p>But the haters were in the minority. His clients included George Moscone (“very down-to-earth,” my dad said) and Walt’s daughter Diane Disney Miller (“short like Minnie Mouse and kind to everyone”). “Frank is the man!!” one customer wrote. “He is the only one I believed I could trust with a delicate and expensive job—and boy was I right.” “Will try to find good value for someone who isn’t a cognoscenti about audio,” another said. “Been going to him for 30 years. Never would go anywhere else.” A “neighborhood gem.”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/04/how-pandemic-will-change-face-retail/610738/?utm_source=feed">Derek Thompson: The pandemic will change American retail forever</a>]</i></p><p>And then there was a review from someone who hadn’t bought a thing from my dad. He’d locked himself out of his car and wrote to thank my dad for letting him use the store’s phone. Would an employee at Walmart do that? Could they? Big-box stores are designed such that the workers rarely see the outside. They aren’t part of “the ballet of the good city sidewalk” that Jane Jacobs wrote about in <i>The Death and Life of Great American Cities</i>. In the mid-century Greenwich Village that she immortalized, grocers held keys and packages for neighbors, and candy-store clerks kept an eye on kids. Even the drinkers who gathered under the gooey orange lights outside the White Horse Tavern kept the street safe by keeping it occupied. When I first read the book 15 years ago, I told my dad to pick up a copy, which he diligently did, from the bookshop up the street. It was the first book he’d read since he started at the store, in 1975.</p><p class="dropcap"><span class="smallcaps">In the late </span><span class="smallcaps">’60s,</span> my dad would gather his high-school friends in his bedroom in San Francisco to play with different turntables. After they left, he’d Windex their fingerprints off the cabinets and glass, a habit that his mother proudly reported to her friends. In his spare time, he took things apart and put them back together—clocks, radios, amplifiers—and to support himself during college, he got a repair job at an audio-video store. He wanted to be a radio DJ, and he hosted a weekly show for the College of San Mateo’s NPR affiliate. But when I ask him what he played, he can’t remember. The station allowed only “middle-of-the-road music.” And for him, the sound quality was just as important as the artists.</p><p>He moved from the repair room at the audio-video store to the sales floor—a somewhat pompous description of a 15-by-25-foot room with sea-foam-colored carpet and soundproof sliding-glass doors. One day, a nurse walked in and he sold her a VCR. He called her a couple of times to ask if it worked okay and then finally asked her out, to the Dickens Fair (where everything—and everyone—is out of a Charles Dickens novel). His sister worked there and had comped him a couple of tickets. Seven years later, that nurse, who was seven years older than my dad, gave birth to me. In the late ’80s, Frank became a co-owner of the store, and in the ’90s, he bought out the founder.</p><figure><img alt="Frank Mari’s repair room" height="840" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/11/DIS_Mari_SmallBizRepairRoom/556ab452e.jpg" width="672"><figcaption class="caption">Frank Mari’s repair room (Carlos Chavarría)</figcaption></figure><p>For 45 years, that store, Harmony Audio Video, has been my dad’s life: the reason he left home early every day, the reason he was chronically late to pick me up from school, the reason he didn’t take a single vacation for 25 years. Growing up, the store was my life too: From the time my mom’s breast cancer metastasized when I was in second grade (she died when I was 10), I hung out in the back after school until 7 or 8, before we drove 40 minutes home on coastal Highway 1 to slightly more affordable El Granada. Keeping me with him at work meant he didn’t have to pay for child care. In exchange, he basically ceded the store’s second phone line to me for conversations with classmates and friends. If he was with a client and I had a question, I had to write it on a note card—one of the hundreds of blank neon mailers on which he listed monthly specials.</p><p>The store put me through private school in San Francisco (with an assist from financial aid). And it got me a summer job pipetting chemicals into test tubes in high school (a scientist at a blood lab was one of his customers). I’m not going to say the store was a community linchpin—nobody <i>needs</i> really nice speakers or crystal-clear flatscreen TVs—but it was a node through which different strata interacted: doctors, tech VPs, working-class Italians from North Beach like my dad, who were into fast cars and fancy speakers, as well as the musicians and video guys he employed and for whom he set up profit-sharing plans.</p><p>That nobody <i>needs</i> speakers and TVs was something I was righteous about as a kid. The deluxe education that my mom sought out, and my dad proudly supported, produced an insufferable 12-year-old. Television, I’d determined, was a waste, and I took every opportunity to tell my father that what he was doing was, well, <i>nonessential</i>, as we might now say. At one point, my dad told me that I shouldn’t feel any pressure to one day take a job at the store, which was touching because it was so abundantly clear that I never would. My mom always wished that she’d done something other than nursing, and I knew he wanted me to find a career I loved.</p><p>What my dad also didn’t need to say was that he liked his work. He loved sitting a customer down in the Eames-knockoff recliner in the sound room and blasting music or a movie—<i>Terminator 2</i>,<i> Independence Day</i>, <i>The Rock</i>—in surround sound, subwoofer rumbling. This was the soundtrack of my childhood. He relished equipment that faithfully generated the geometries of noise, prickly sounds and round ones, sharp sounds and sonorous ones. He read <i>Stereophile</i> and other trade publications cover to cover, invested in new products, learned how they worked. He was quick to adopt technologies that would later become ubiquitous: CDs, DVDs, Bluetooth, streaming, Sonos. (Not every bet paid off. Remember laser discs? He has cabinets full of them.) The advantage and disadvantage of a business like his is that the technology is always advancing, giving customers something to chase but leaving the owner always running to catch up.</p><p>I suspect the other reason for my reflexive resistance to the store is that it made me a witness to my dad’s vulnerability. In the early 2000s, when I was in high school, he aimed to sell an average of $2,000 worth of equipment a day—and he did. But “average” meant good days and bad ones. Occasionally, a doctor bought an entire custom home-theater system after perusing for an hour. Other days, a lawyer would ask dozens of questions before declaring that he was heading to Best Buy. Or Lou Reed might walk in, insult the Tchaikovsky playing over the speakers, buy $700 Grado headphones for a recording session at Skywalker Ranch, and then have an assistant return them once it was done. Sundays and Mondays, his days off, were the slowest. Too often, he’d call in and learn that not a single sale had been made.</p><p>It hadn’t always been this way. My dad started at the store during the heyday of performance audio. Certain high-end lines were sold only through authorized dealers, whom the companies paid to educate. Yamaha sent my dad to the Bahamas and B&W sent him to its factory in England, a trip that remains one of his fondest memories. He took my mother—there was a tourist program for significant others, almost entirely women. Before the internet, high-fidelity audio-video companies coordinated with countless independent dealers. After the internet, which multiplied the possible paths to consumers, not so much. The last conference my dad attended was in Phoenix, in the mid-’90s. He brought back a bonsai cactus, which, 20 years later, is thriving—unlike anything else in the industry.</p><p class="dropcap"><span class="smallcaps">If you listened </span>to American politicians, you might think the government lavishes support on small businesses. But that has long been more rhetoric than reality. The last time robust federal legislation boosted independent retailers was in the mid-1930s (and whether it was actually good policy is another question). The <a href="https://www.investopedia.com/terms/r/robinson-patman-act.asp">Robinson-Patman Act</a> prohibited growers, manufacturers, and wholesalers from giving discounts to chains for large-quantity purchases, even though those savings were often passed on to consumers in the form of lower prices. “There are a great many people who feel that if we are to preserve democracy in government, in America,” Representative Wright Patman declared, “we have got to preserve a democracy in business operation.” Shortly thereafter, Congress passed another pro-small-business law, forbidding predatory pricing—selling goods at gross discounts to quash the competition.</p><p class="dropcap"></p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/05/bridge-post-pandemic-world-already-collapsing/611089/?utm_source=feed">Annie Lowrey: The small-business die-off is here</a>]</i></p><p>Yet the price-setting legislation mostly failed, because large merchants simply stocked slightly different products. It also led to the rise of sophisticated corporate lobbying. In 1938, Patman proposed a graduated federal tax on retailers operating in multiple states. In response, the grocery chain A&P—later accused of predatory pricing—ran ads in 1,300 newspapers denouncing the tax and emphasizing its low prices. The bill died.</p><p>The same year, President Franklin D. Roosevelt hosted a conference in Washington, D.C., for 1,000 small-business owners, hoping to gain their backing for the New Deal. But the beauty of the small-business owner—a stubborn, sometimes radical independence—was also a political weakness. It was impossible to get the group to reach consensus on anything.</p><p>The number of small businesses would ebb and flow in the decades that followed. But since the 1960s, courts hearing antitrust cases have tilted in favor of ensuring low prices for consumers rather than preserving competing companies’ access to the market. From 1997 to 2007, the revenue share of the 50 largest corporations increased in three-quarters of industries. Low prices might sound great, but the result, compounded over half a century, is economic inequality so stark that many workers are too poor to afford them.</p><p class="dropcap"><span class="smallcaps">Best Buy </span>was once my dad’s No. 1 nemesis. Every Monday, the only day we drove straight home after school (it being one of my dad’s days off), we passed the huge blue box via the Central Freeway. My dad almost always made a snide comment about “built to break” electronics and harried employees. Nonetheless, working 12 hours a day, he could still take home close to $100,000 a year in the early 2000s.</p><aside class="callout-placeholder" data-source="curated"></aside><p>Then came the iPhone and <a href="https://www.theatlantic.com/technology/archive/2018/08/online-shopping-and-accumulation-of-junk/567985/?utm_source=feed">the ubiquity of online shopping</a>. The internet wasn’t all bad for my dad. It enabled him to get outdated parts on eBay and to search audiophile forums for tips on tricky repairs. With a few clicks, he could also see the big-box stores’ prices and endeavor to beat them. But many consumers were content to stream music on their laptop, as tinny as the sound might be. And generally, the industry began to tilt more heavily against small retailers. Amazon amassed power, sowing an expectation of overnight shipping and ultralow prices—though the bargains often didn’t last. (“I looked up web prices as a point of comparison and found Harmony’s pegging most prices at a dollar less than what Amazon’s asking,” one customer wrote on my dad’s Yelp page.) Amazon’s real triumph is a monopoly not on pricing but on our imagination.</p><p>For 35 years, Harmony was open seven days a week, but in the years after the Great Recession, Frank decided to close on Mondays, and eventually Sundays too. His full-time employees slowly peeled off. One retired and another moved into film editing; my dad didn’t replace them. When I was growing up, it was rare for anyone to run the store alone. Over the past decade, it’s become the norm. A retired friend of my dad’s comes in to help and hang out, billing just for the hours he’s needed. The only thing that’s made my dad a bit of money is custom installation—emphasis on <i>a bit</i>. Postindustrial America is a service economy; there are the rich and those who serve them. Last year, in San Francisco, a city flush with tech wealth, my dad paid himself only $12,000, preferring to reinvest in the store and dip into his retirement funds to pay his bills.</p><figure><img alt="" height="538" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/11/DIS_Mari_SmallBizExtra/1fda80430.jpg" width="672"><figcaption class="credit">Carlos Chavarría</figcaption></figure><p>So things were already tight when the pandemic hit. On March 17, the Bay Area became the first region in the U.S. to institute a shelter-in-place order, breaking my dad’s 45-year routine—for his safety. But he couldn’t stop himself from driving to the store almost every day, which was allowed because repair work was considered an essential service. He kept the lights off and the front door locked and went to the back, where he tinkered with soundboards and soldering equipment.</p><p>After applying for the first round of Paycheck Protection Program funding, my dad learned that <a href="https://www.vox.com/2020/4/16/21223637/paycheck-protection-program-funding">the government had run out of funds</a>. Administered by major banks, the program tended to favor the large corporations they’d already worked with. Harvard University, Ruth’s Chris Steak House, Shake Shack, and <a href="https://www.businessinsider.com/monty-bennett-trump-donor-will-return-ppp-money-2020-5">various hospitality companies controlled by the Trump megadonor Monty Bennett</a> got tens of millions from the first distribution; countless small businesses were told there was no money left. (These big organizations returned the funds, tail between legs, only after public outcry and refinements to federal regulations to prevent this kind of exploitation.)</p><p>Adding insult to injury, Congress used the CARES Act, which instituted the PPP loans, to pass $174 billion worth of tax breaks that had long been on real-estate-developer, private-equity, and corporate wish lists. “There is no real public-interest lobby on these kind of obscure corporate tax provisions,” <a href="https://www.npr.org/2020/04/30/848321204/how-the-cares-act-became-a-tax-break-bonanza-for-the-rich-explained">the <i>New York Times</i> reporter Jesse Drucker told NPR’s Terry Gross</a> at the time. Only a small number of tax lobbyists even understand them. This was just one more example of a system that’s come to favor the big over the small.</p><p>Throughout the pandemic, my dad has continued to pay the few people left on his payroll, including a former salesman who writes a lively biweekly newsletter (complete with a movie review!). Otherwise, his overhead was low. Still, 60 days into the pandemic, he realized that the store would run out of money by the end of the month.</p><p>He considered applying for the second PPP distribution—but he was overwhelmed by the information requested and the changing rules. (So were others. Four hours before the program would have closed on June 30, with small businesses still suffering but with $130 billion unspent, the Senate extended the application deadline by five weeks.) In mid-May, my dad, who has never been a reasonable man, reasonably said, “I’m one of the last performance-audio guys. Why am I going to bang my head against the wall like an idiot? It’s time to go bye-bye.” At the age of 68, he filed for Social Security and told me he was preparing to close for good.</p><p>I’d pleaded with him to consider retiring for the past couple of years, but now, as he told me his decision over the phone, I struggled to keep my composure. Looked at a certain way, my dad was one of the lucky ones. He’d contributed to retirement accounts and was of retirement age. Yet it felt like an ignoble end to four and a half decades of work. “I’m more than just my store,” he told me. And yet, for nearly his entire adult life, all of his decisions had argued the opposite.</p><p>Then, on Monday, June 15, San Francisco permitted indoor retail to reopen, following safety protocols. My dad was closed Mondays, but he couldn’t miss the grand opening, so he worked six days straight, no pay. (He hadn’t cut himself a check from the store since January.) His instincts were good. Wireless speakers had been selling out during the pandemic, but he had plenty in stock, and people a little older than me, my dad said, were keen to support a local store. His loyal customers—people he has known for decades, people whose kids, careers, and concerns he takes an interest in—delighted my dad by dropping in, mask on, hair long, some almost unrecognizable, telling him they wouldn’t buy anywhere else.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2020/09/pandemic-broke-online-shopping/616353/?utm_source=feed">Read: Why everything is sold out</a>]</i></p><p>More than 400,000 small businesses have closed since the start of the pandemic and many thousands more are at risk, according to the Brookings Institution–affiliated Hamilton Project. Mom-and-pop stores across the country are liquidating, breaking their leases, putting up handwritten goodbyes. “We are sad and sorry that it is time to say <i>zai jian</i> (until we meet again),” <a href="https://sf.eater.com/2020/8/17/21372259/ton-kiang-dim-sum-richmond-district-closing">read a sign at San Francisco’s dim sum institution Ton Kiang</a>. “Over the years, you shared your weddings and anniversaries with us, celebrated and had us host your life passages and family gatherings … We will always treasure these moments and value your friendship.”</p><p><a href="https://www.theatlantic.com/ideas/archive/2020/05/bridge-post-pandemic-world-already-collapsing/611089/?utm_source=feed">How many of these businesses will eventually be replaced</a>, and what will be lost if they aren’t? It’s easy to compare prices. It’s harder to put a value on the cranky independence of small-business owners, or their collective importance to community spirit and even the American idea. “What astonishes me in the United States is not so much the marvelous grandeur of some undertakings as the innumerable multitude of small ones,” Alexis de Tocqueville wrote in 1835.</p><p>My dad, so happy to be back, acted like he’d never told me that he was folding up shop. He was in retail (bad), but the products he was selling were for the home (good). For now, for at least a little while longer, he’d be cranking up the volume in the sound room, where he belonged.</p><hr><p><small><em>This article appears in the December 2020 print edition with the headline “Death of a Small Business.” </em></small></p>Francesca Marihttp://www.theatlantic.com/author/francesca-mari/?utm_source=feedCarlos ChavarríaWhat My Dad Gave His Shop2020-11-20T07:00:00-05:002020-11-20T09:29:52-05:00“I’m more than just my store,” my father told me. And yet, for nearly his entire adult life, all of his decisions had argued the opposite.tag:theatlantic.com,2020:39-616477<p class="dropcap">HBO’s <i>Silicon Valley </i>aired its final episode last year, the tech world’s realities having gotten too dystopian to be fictionalized, in good conscience, for laughs. When a reporter asked what material the show had left on the table, the showrunners, Mike Judge and Alec Berg, admitted, “We missed the WeWork guy.” That guy—WeWork’s telegenic co-founder and former CEO, Adam Neumann—had once been known for turning an upscale co-working business into America’s most valuable private start-up, peddling vague kumbayas like <i>This decade is the decade of “We.”</i> But then WeWork <a href="https://www.sec.gov/Archives/edgar/data/1533523/000119312519220499/d781982ds1.htm">filed paperwork to go public</a>, revealing that the company had lost billions of dollars while enriching Neumann.</p><p>Among other extraordinary disclosures, it turned out that he had bought <i>we</i>-related trademarks, then charged WeWork $5.9 million to buy them. The press soon uncovered other details to fill out the portrait of a terrible little richling: Neumann’s practice of <a href="https://www.wsj.com/articles/this-is-not-the-way-everybody-behaves-how-adam-neumanns-over-the-top-style-built-wework-11568823827">hotboxing chartered jets</a>, whether his co-passengers liked it or not; his musings about becoming president of the world; his company-wide ban on meat that left executives puzzling over how to implement it.</p><p>When life transcends art, tell it straight. That’s what Reeves Wiedeman, a <i>New York </i>contributing editor since 2016, has done with <i>Billion Dollar Loser</i>, the <a href="https://nymag.com/intelligencer/2019/06/wework-adam-neumann.html">propulsive tale of WeWork’s, and Neumann’s, rise and fall</a>. Neumann is clearly not the first founder to enrich and empower himself while claiming to do the same for the masses. At a congressional hearing this summer about tech companies’ enormous wealth and influence, Facebook’s Mark Zuckerberg explained that his company is “giving every person a voice.” And while Neumann’s eccentricities are undeniable, Elon Musk, of Tesla and SpaceX, has a mind-reading start-up and a son named X Æ A-Xii. What sets Neumann apart is the flagrancy with which he exploited investors, employees, and customers for his own benefit. His innovation was, in the terms of the trade, one of scale.</p><p class="dropcap"><span class="smallcaps">Neumann spun </span>an origin myth about growing up on a kibbutz in Israel, where he appreciated the community but bristled at how everyone was rewarded the same regardless of how much work they put in. He envisioned WeWork, he said, as a “capitalist kibbutz”—a “community,” but the kind where “you eat what you kill.”</p><p>Wiedeman (with whom I overlapped while working at <i>The New Yorker</i>) presents a more nuanced portrait of the founder as a young man. Neumann was born in 1979 in Beersheba, Israel, to physician parents who shuttled Neumann and his sister around desert towns before moving to the suburbs of Tel Aviv. When he was in the second grade, his grandmother realized that he couldn’t read the menu at a restaurant; he was dyslexic. “He had become skilled at fooling his teachers and coaxing others to do what he needed,” Wiedeman writes. After his parents divorced when he was 9, his mother moved, with him and his sister, to Indianapolis, where he struggled emotionally at first. Only later did the family live on a kibbutz, after they’d returned to Israel. Neumann went on to serve in the Israeli navy, and then moved to New York, where he enrolled at Baruch College, before launching a series of businesses—making collapsible high heels, then baby clothes with kneepads—and dropping out. In 2010, he and a friend, Miguel McKelvey, unveiled WeWork.</p><aside class="callout-placeholder" data-source="curated"></aside><p>At the time, co-working spaces were already common. The business model was straightforward: Entrepreneurs “leased space, cut it up, and rented out each slice with an upcharge for hip design, flexibility, and regular happy hours,” Wiedeman writes. But those in charge typically ran no more than a few locations apiece, in part because operating multiple spaces required spending a lot of money, up front, on leases. What distinguished Neumann, along with his ambition, was “his connection to capital,” Wiedeman writes. Neumann had married <a href="https://www.bustle.com/p/rebekah-neumanns-search-for-enlightenment-fueled-weworks-collapse-22581874">Rebekah Paltrow</a>, a wealthy cousin of Gwyneth Paltrow and a kabbalah devotee. She invested part of a $1 million nest egg in WeWork and introduced her husband to Manhattan’s Kabbalah Centre, where he met other well-off backers. By January 2012, he had raised almost $7 million.</p><p>Neumann’s approach to fundraising seems rooted in a simple tenet: Find out what investors want—then say whatever is needed to convince them that their desires are yours. Heavily reliant on support from the kabbalists, Neumann told a real-estate publication that WeWork had in fact been inspired by kabbalah: “I noticed that in the Kabbalah community, people were really helping each other. I wanted to translate that to business.” His chameleonic tendencies as a child and young man, it turned out, had been good training.</p><p>Later, as he began courting Silicon Valley’s venture-capital firms—which tend to invest in fast-growing tech companies—Neumann described WeWork as a “physical social network,” and promptly raised $16.5 million from Benchmark. Investors surely also liked his message about his company’s position in the Silicon Valley ecosystem: Work had come to feel alienating; <a href="https://www.theatlantic.com/magazine/archive/2018/03/wework-the-perfect-manifestation-of-the-millennial-id/550922/?utm_source=feed">WeWork would make it social again</a>, while at the same time empowering independent-minded entrepreneurs to fulfill their individual dreams. As venture-capital funding poured in—seven more rounds followed—Neumann hired engineers to work on techie-sounding projects, such as building an exclusive social-networking platform for WeWork members. More significant, with investors encouraging fast growth, he leased hundreds of new spaces around the world, splurging on perks such as free beer and <a href="https://www.vanityfair.com/news/2018/08/wework-summer-camp-party">a bacchanalian retreat called Summer Camp</a>, so as to fill them. At the same time, in the name of efficiency—which Silicon Valley investors appreciate almost as much as growth—he kept certain costs down. Neumann used nonunion laborers for construction, and many of WeWork’s employees put in long, poorly compensated hours. “I can hire a bunch of young people and pay them nothing,” he once said. Attendance at a “Thank God It’s Monday” pep rally, held after hours, was required.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2019/09/curse-cult-of-the-founder/598753/?utm_source=feed">Annie Lowrey: The curse of the cult of the founder</a>]</i></p><p>Then, in August 2017, came the apotheosis. Neumann convinced Masayoshi Son, the proudly offbeat CEO of the Japanese technology conglomerate SoftBank, that his company and its Vision Fund should invest $4.4 billion in WeWork—bringing its valuation to $20 billion and making it the fourth-most-valuable start-up in the U.S. Subsequent funding from SoftBank raised the company’s valuation to $47 billion in 2019, moving it into first place. Even some employees questioned the math. Neumann’s bespoke social-networking platform and other tech projects hadn’t panned out; an employee of a data-analytics start-up with a WeWork office discovered, through a security loophole, that only a fifth of WeWork members had posted at all. WeWork remained an upscale office-leasing business. But Son found Neumann charming. He asked him who would win in a fight, “the smart guy or the crazy guy?” The crazy one, Neumann replied—the right answer, according to Son.</p><p>Neumann acquired five companies in quick succession and, inexplicably, bought a significant stake in a company that makes wave pools. He leased enough additional real estate that WeWork became New York’s biggest office tenant, and he launched WeGrow, a private school run by Rebekah, whom WeWork had begun listing as a third co-founder. Dedicated to “unleashing every person’s superpower,” it charged up to $42,000 per student. At Summer Camp, Rebekah shared with attendees her dream of building “communities around the world where children who are not in the right situation could come and live forever, basically.” Neumann chimed in: “There are 150 million orphans in this world today. If we do the work right, we could wake up one day and say, ‘We want to solve the problem of children without parents in this world.’ ” Meanwhile, ahead of that event, the Neumanns had compiled a three-and-a-half-page list of items to be stocked at their campsite, including two bottles of $1,000 Highland Park scotch and a “Signature Range Rover for Rebekah/Adam use.”</p><p>No one could accuse Neumann of pursuing a plan that was too smart, or not crazy enough. As it had done almost every year since its start, WeWork was spending far more than it brought in. In April 2019, four months before everything fell apart, Wiedeman asked Neumann what his superpower was. “Change,” Neumann answered. “It’s the best superpower to have.”</p><p class="dropcap"><span class="smallcaps">After WeWork’s </span>mismanagement became apparent, public investors swiftly lost interest in the IPO. Thinking a little shake-up might help, the board persuaded Neumann to step down as CEO, in return for an exit package worth nearly $1.7 billion, including the option of selling $970 million in shares to SoftBank. (Neumann had leverage because he had negotiated outsize voting power in the company.) But a year later, the recovery plan clearly has not been successful. WeWork, now run by a veteran real-estate executive, has indefinitely postponed its IPO. The beer no longer flows freely. Much of Neumann’s exit package is at risk of evaporating, after SoftBank reneged on the buyout it had promised. (Neumann has sued SoftBank, and the case is in the courts.) Even so, Neumann will have squeezed hundreds of millions of dollars out of the situation. While there are plenty of losers here, he can’t really be said to be one of them.</p><p>Wiedeman writes that it is “hard to figure out what lesson Adam, or the entrepreneurs of the future, should learn from his rise and fall.” Is it, though? In fact, any future entrepreneur who hopes to get rich fast can draw a straightforward directive from Neumann’s experience: Emulate it. More relevant is what the rest of us should learn. We have a habit of demonizing corporate figureheads much more than the investors who technically own the companies. For all of the books devoted to the Zuckerbergs, Musks, and Neumanns of the world, who can name their companies’ biggest shareholders? Yet the most important lesson in the rise and fall of WeWork has less to do with Neumann than with the ecosystem that nurtured him. “They’re trying to make this about Adam being a lunatic,” a real-estate executive told Wiedeman shortly after Neumann’s resignation. “These people invested, they knew the terms, they knew about the governance issues, and they told this guy, ‘Be you, but be ten times you.’ What did they expect?”</p><p>To be fair, the fact that no one saw Neumann coming might have something to do with the relative newness of the landscape in which WeWork’s odyssey took place. For decades, venture capitalists have tossed money at lots of unprofitable, fast-growing tech companies on the assumption that at least one of them would make it big. But in recent years, a staggering amount of funding has become available through the private market. To make a return, early investors don’t need an IPO—they just need some other private fund to come along later and buy their shares for more than they spent, a process through which founders can also cash out. (When SoftBank first invested in WeWork, Benchmark quietly sold more than $129 million in shares; Neumann sold $361 million worth.) Unsurprisingly, that has encouraged start-ups to stay private as long as they can, given that being public comes with more regulation and scrutiny. The number of U.S. “unicorns”—private companies worth at least $1 billion—has risen more than tenfold since WeWork’s founding, to more than 200.</p><p>The result is a perverse set of incentives for founders. There’s the push to keep their companies growing at any cost. But there’s also another quirk, one that Neumann exploited particularly well: Everyday investors in public companies aren’t likely to meet CEOs one-on-one, whereas private deals are still negotiated in person—between CEOs and venture capitalists—leaving the investors vulnerable to individual charisma. “The nature of the private markets is that if nine smart investors pass, it only takes one relatively dumber investor, and suddenly we’re valued at $16 billion,” one member of WeWork’s finance team told Wiedeman.</p><p>And how, exactly, did a college dropout from the Israeli desert charm all those investors in the first place? While Wiedeman emphasizes Neumann’s persuasiveness, he doesn’t spend a lot of time deconstructing what makes him so persuasive. But what if the answer is directly tied to the WeWork message—the one about capitalist community-spiritedness—that, in retrospect, sounds so lame?</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2019/09/why-wework-was-destined-fail/598891/?utm_source=feed">Read: The wildly appealing, totally doomed future of work</a>]</i></p><p>“Every human society must justify its inequalities,” Thomas Piketty writes in <i>Capital and Ideology</i>. “Unless reasons for them are found, the whole political and social edifice stands in danger of collapse.” <i>Billion Dollar Loser </i>doesn’t dwell on the experiences of WeWork’s tenants, but many of them belong to an expanding class of workers—those making their own way as freelancers. More and more U.S. taxpayers have been reporting independent-contractor income; an IRS study published last year found evidence suggesting that an increasing share of companies have been hiring new workers under this status—which keeps them from being entitled to a minimum wage or unemployment insurance—instead of as employees. This sort of freelancing grew more slowly during the recovery from the Great Recession, which seems to suggest that, given the option, people would rather be employed.</p><p>But over the past decade, Silicon Valley has been at the center of an energetic campaign to convince people that this insecure status is, in fact, desirable—that an independent contractor is a member of the “sharing economy” or even, like Zuckerberg or Musk, an entrepreneur. The riches of investors, such as the ones who funded WeWork, depend on this myth; another major Benchmark and SoftBank investment is Uber, which classifies its drivers as independent contractors rather than employees.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2019/10/say-goodbye-millennial-urban-lifestyle/599839/?utm_source=feed">Derek Thompson: The Millennial urban lifestyle is about to get more expensive</a>]</i></p><p>All that marketing about making people feel happier about working—in the end, maybe it was directed less at the public than at the venture capitalists Neumann was really wooing all along. If workers are insecure, the message suggested, the solution doesn’t have to be fairer wages, better job protections, or a transfer of wealth from the rich to the poor. WeWork could address the problem—and do so for hundreds of thousands of workers—with parties and beer.</p><p>Now Neumann is out. Yet SoftBank is doing just fine. It reported a historic loss of $13 billion in its last fiscal year, partly because of the WeWork debacle, but has since turned around, posting a $12 billion profit in its first quarter alone. One of its prized investments is DoorDash, the food-delivery service, whose website describes ambitions of “connecting people with possibility—easier evenings, happier days, bigger savings accounts, wider nets and stronger communities.” DoorDash is reportedly losing money, regulators have targeted it for its pricing and employment practices, and delivery workers have sued it for skimming their tips. “We created a monster,” Son admits to investors, toward the end of <i>Billion Dollar Loser</i>—evidently not a market niche to abandon.</p><hr><p><small><em>This article appears in the November 2020 print edition with the headline “The WeWork Guy’s Guide to Striking It Rich.” </em></small></p>Vauhini Varahttp://www.theatlantic.com/author/vauhini-vara/?utm_source=feedErik CarterHow to Get Rich By Losing Lots of Money2020-10-14T09:00:00-04:002020-10-14T17:42:38-04:00Adam Neumann is out of his WeWork job, but entrepreneurs will surely imitate him.tag:theatlantic.com,2020:50-613333<p class="dropcap" dir="ltr">The unrelenting protests, the supportive statements from white leaders nationwide, and the early momentum behind policing policy changes are all indications that this might be a turning point in our nation’s battle against racism. Will we seize this opportunity or will we lose momentum, showing once again that America can be “a 10-day nation” that moves on too easily to the next crisis, as Martin Luther King Jr. warned a fellow civil-rights activist in 1963?</p><p dir="ltr">My father, Emmett Rice, and I had hundreds of conversations about race and racism from the time I was a boy until a few weeks before he died, in 2011, at 91 years old. He was the most intellectually curious person I have ever known. He grew up in South Carolina in the Jim Crow era of the 1920s and ’30s. Despite losing his father when he was only 7, he graduated from college, served in World War II with the Tuskegee Airmen, earned a doctorate in economics, and became one of the seven governors of the Federal Reserve Board in the 1980s. Racism still chased him and burdened him every day of his life. So he armed me with the knowledge he’d amassed, in hopes I could do even more.</p><p dir="ltr">Thirty years ago, my dad gave me his playbook to put racism to rest, and it inspired me to dedicate my career to executing his vision. Dad’s playbook included one insight that all Americans should hear, at least those who hope that when it comes to addressing racism, we can do better. As an economist, he told me that we have to “increase the cost of racist behavior.” Doing so, he said, would create the conditions for black people to harness the economic power essential to changing the narrative in white America’s mind about race.</p><p data-id="injected-recirculation-link" dir="ltr"><i>[<a href="https://www.theatlantic.com/magazine/archive/2020/07/trumps-collaborators/612250/?utm_source=feed">Read: History will judge the complicit</a>]</i></p><p dir="ltr">We can ratchet up that cost in several ways, starting today. The first step is to clarify what constitutes racist behavior. Defining it makes denying it or calling it something else that much harder. There are few things that white Americans fear more than being exposed as racist, especially when their white peers can’t afford to come to their defense. To be outed as a racist is to be convicted of America’s highest moral crime. Once we align on what racist behavior looks like, we can make those behaviors costly.</p><p dir="ltr">The most well-understood dimension involves taking actions that people of color view as overtly prejudiced—policing black citizens much differently than whites, calling the police on a black bird-watcher in Central Park who is asking you to obey the law, calling somebody the N-word to show them who is boss. This is racism in the first degree. If officers anticipated that they would be held fully accountable for bad policing, they would do more good policing and we could begin healing the wounds they’ve inflicted on black people for centuries.</p><p dir="ltr">Then there is opposing or turning one’s back on anti-racism efforts, often justified by the demonization of the people courageously tackling racist behavior. I call this racism in the second degree, akin to aiding and abetting. George Floyd’s death under yet another police officer’s knee exposed the NFL’s four-year effort to avoid confronting racist policing by way of demonizing Colin Kaepernick. When the NFL’s sponsors could no longer stay silent and its star players (both black and white) spoke out, the costs were so high that the commissioner felt compelled to apologize—though notably not to Kaepernick himself.</p><p data-id="injected-recirculation-link" dir="ltr"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/06/nfls-amnesia-just-like-americas/612505/?utm_source=feed">Jemele Hill: Suddenly the NFL cares about black lives</a>]</i></p><p dir="ltr">The final, most pernicious category undergirds the everyday black experience. When employers, educational institutions, and governmental entities do not unwind practices that disadvantage people of color in the competition with whites for economic and career mobility, that is fundamentally racist—not to mention cancerous to our economy and inconsistent with the American dream. For example, the majority of white executives operate as if there is a tension between increasing racial diversity and maintaining the excellence-based “meritocracies” that have made their organizations successful. After all, who in their right mind would argue against the concept of meritocracy?</p><p dir="ltr">When these executives are challenged on hiring practices, their first excuse is always “The pipeline of qualified candidates is too small, so we can only do so much right now.” Over the past 20 years, I have not once heard an executive follow up the “pipeline is too small” defense with a quantitative analysis of that pipeline. This argument is lazy and inaccurate, and it attempts to shift the responsibility to fix an institution’s problem onto black people and the organizations working to advance people of color. When asked why they have so few minorities in senior leadership roles, executives’ most common response is “There are challenges with performance and retention.” To reinforce their meritocracy narrative, white leaders point to the few black people they know who have made it to the top, concluding inaccurately that they were smarter and worked harder than the rest.</p><p dir="ltr">Organizations cannot be meritocracies if their small number of black employees spend a third of their mental bandwidth in every meeting of every day distracted by questions of race and outcomes. Why are there not more people like me? Am I being treated differently? Do my white colleagues view me as less capable? Am I actually less capable? Will my mistakes reflect negatively on other black people in my firm? These questions detract from our energy to compete for promotions with white peers who have never spent a moment distracted in this way. I wager that 90 percent of the white executives who read these last sentences are now asking, particularly after recent events, “How did we miss that?” This dimension of racism is particularly hard to root out, because many of our most enlightened white leaders do not even realize what they are doing. This is racism in the third degree, akin to involuntary manslaughter: We are not trying to hurt anyone, but we create the conditions that shatter somebody else’s future aspirations. Eliminating third-degree racism is the catalyst to expanding economic power for people of color, so it merits focus at the most senior levels of education, government, and business.</p><p>Employers whose efforts to increase diversity lack the same analytical and executional rigor that is taken for granted in every other part of their business engage in practices that disadvantage black people in the competition for economic opportunity. By default, this behavior protects white people’s positions of power. The nonprofit organization that I have built over the past 20 years, Management Leadership for Tomorrow, has advanced more than 8,000 students and professionals of color toward leadership positions, and we partner with more than 120 of the most aspirational employers to support their diversity strategy, as well as their recruiting and advancement efforts. Yet I have not seen 10 diversity plans that have the foundational elements that organizations require everywhere else: a fact-based diagnosis of the underlying problems, quantifiable goals, prioritized areas for investment, interim progress metrics, and clear accountability for execution. Expanding diversity is not what compromises excellence; instead, it is our current approach to diversity that compromises excellence and becomes a self-fulfilling prophecy.</p><p>We can increase the cost of this behavior by calling on major employers to sign on to basic practices that demonstrate that black lives matter to them. These include: (1) acknowledging what constitutes third-degree racism so there is no hiding behind a lack of understanding or fuzzy math, (2) committing to developing and executing diversity plans that meet a carefully considered and externally defined standard of rigor, and (3) delivering outcomes in which the people of color have the same opportunities to advance.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/06/american-nightmare/612457/?utm_source=feed">Read: To be black in America is to stare into the mirror of your own extinction</a>]</i></p><p>Companies that sign on will be recognized and celebrated. Senior management teams that decline to take these basic steps will no longer be able to hide, and they will struggle to recruit and retain top talent of all colors who will prefer firms that have signed on. The economic and reputational costs will increase enough for behavior and rhetoric to change. Then more people of color will become economically mobile, organizations will become more diverse and competitive, and there will be a critical mass of black leaders whose institutional influence leads to more racially equitable behavior. These leaders will also have the economic power to further elevate the cost of all other types of racist behavior, in policing, criminal justice, housing, K–12 education, and health care—systems that for decades have been putting knees on the necks of our most vulnerable citizens and communities.</p><p>Third-degree racism can be deadly. For at least the first few months of the COVID-19 pandemic, the Centers for Disease Control and Prevention mandated that in order to get tested, you had to go to a primary-care doctor to get a prescription and then, in some areas, also get a referral to a specialist who could approve a test, because they were in limited supply. That process made it much harder for minorities to access tests, because they are much less likely to have primary-care physicians. This is one of several reasons the hospitalization and death rates for minorities are disproportionately higher than those for whites. If the people who designed that process knew up front that they would be exposed as racist, fired, and ostracized if their approach put minorities at a greater health risk than white people, they would have designed it differently and saved black lives. Just having a critical mass of minorities in decision-making roles regarding that test-qualification process would have also saved many lives.</p><p>Rooting out third-degree racism is what will ultimately change the narrative about race. When white people see more black people on the same path as they are, when white people are working in diverse organizations, and when they are proximate to black leaders beyond athletes and entertainers, only then will they stop fearing and feeling superior to the black people they don’t know.</p><p>This is the path that will finally lift racism’s enormous burden off the backs of black people—the burden that my dad spent his nine decades working to shed, and that he hoped to avoid passing down to me, and that I am trying not to pass down to my 18-year old son as he graduates from high school and moves away. But if I am fortunate enough to someday have a grandson, and if he can grow up in a world where he can dedicate his full energy to becoming the best American he can be—as white people have been doing for 400 years—then my dad, so many other black fathers, and maybe even George Floyd will be able to rest in peace.</p>John Ricehttp://www.theatlantic.com/author/john-rice/?utm_source=feedGetty / The AtlanticThe Difference Between First-Degree Racism and Third-Degree Racism2020-06-21T09:00:00-04:002020-06-21T12:30:09-04:00Only when people align on what racist behavior looks like will we be able to take practical steps to make those behaviors costly.tag:theatlantic.com,2020:39-612244<p class="dropcap">F<span class="smallcaps">airway Market</span>, which credits itself with introducing New Yorkers to clementines, radicchio, fleur de sel, and vine-ripened fruit, started off as a small grocery store at 74th Street and Broadway, on the Upper West Side of Manhattan, where it still stands. According to family lore, Nathan Glickberg arrived at Ellis Island from Russia sometime in the 1910s, and by 1933 had saved up enough money to open his own fruit-and-vegetable store. Signs of a family fixation with produce are obvious in a black-and-white photo taken sometime in the vicinity of World War II: Nathan’s wife, Mary Glickberg, is dressed up in heels, pearls, and an omelet-fold updo and, for her formal portrait, positioned in front of the store’s rickety wood fruit crates, which are sagging under the weight of apples, lemons, and oranges stacked shoulder high. Pears back then came wrapped in squares of paper, which Nathan saved and placed beside the toilet. What was good enough for pears’ skin was, evidently, good enough for his.</p><p style="background-color: #333; color: #fff; padding: 12px 24px;"><iframe frameborder="no" height="20" scrolling="no" src="https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/841230652%3Fsecret_token%3Ds-h56xdEUeyc9&inverse=true&auto_play=false&show_user=true" style="background-color: #333" width="100%"></iframe><i class="audm--download-cta">To hear more feature stories, <a href="https://www.audm.com/?utm_source=soundcloud&utm_medium=embed&utm_campaign=atl&utm_content=supermarkets_are_miracle" style="color: #fff; text-decoration: underline;">get the Audm iPhone app.</a> </i></p><p>In 1954, Nathan brought in his son, Leo. In 1974, Leo brought in his son, Howie, and together they brought in Harold Seybert and David Sneddon, brothers-in-law who’d sold tomatoes wholesale. On Howie, Harold, and David’s watch, the Fairway store grew, expanding into Tibbs luncheonette next door, then into the adjoining drugstore, and then into the D’Agostino supermarket to the north. “We were beating them up,” Howie told me cheerfully. “They couldn’t make a living.” In 1995, <a href="https://www.nytimes.com/1995/12/19/nyregion/fancy-food-at-warehouse-prices-upscale-supermarket-carves-a-new-niche-in-harlem.html">the partners opened a second Fairway, in a former meatpacking plant in Harlem</a>. That brought in my grandmother, ecstatic at being able to shop at a supermarket just around the corner from her apartment. And my grandmother brought in me.</p><p>I don’t remember my first visit to Central Park or the Metropolitan Museum of Art, but I do remember my first trip to Fairway. Coming from Oregon, where I grew up, I felt like Fairway had taken New York City’s big, brash, elbowy spirit and crammed it into a single store: There was the smash of bodies on the subway at rush hour; the dull roar and occasional skronk of Midtown; the hyperactive buy-now pushiness of Times Square, with signs hollering from all directions (<span class="smallcaps">handmade stuffed peppers: wow! hooo! strange but true!</span>) and festive murals featuring steaks the size of taxis and promising <span class="smallcaps">wholesale prices for the retail customer</span>. My grandmother, who had been forced to flee her home in what was then Yugoslavia during World War II, had spent nearly two decades as a stateless person and, before coming to the United States, pieced together family meals from cabbage, offal, and the produce with which farmers paid my grandfather for teaching in a rural Italian school. Fairway, to her, was a place of surreal abundance. She could roll her black-metal grocery cart down the hill and roll it back up stuffed with old- and new-country fare: an Entenmann’s Danish ring, Kraš Napolitanke, Thomas’ English Muffins, Hungarian salami, panettone, hot dogs, ajvar, cornflakes. And the deals! She’d sit me down at the kitchen table and, beaming, haul out new brands of wafer cookies to marvel at how little she’d paid. Fairway acquired a mythic status in our family. We did not make a trip to the supermarket so much as a pilgrimage.</p><figure class="full-width"><img alt="left: photo from 1958 supermarket; right: Mary Glickburg" height="429" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_03/f61d9c435.jpg" width="960"><figcaption class="caption"><em>Left</em>: A scene from a supermarket in 1958. <em>Right</em>: Mary Glickberg outside the original Fairway location. (Dmitri Kessel / Life Picture Collection / Getty; Courtesy of the Glickberg Family)</figcaption></figure><p>In 2007, Harold and David wanted to retire. Together with Howie, they brought in Sterling Investment Partners, a private-equity firm that acquired an 80 percent stake in the company in a deal that valued Fairway at $132 million. Since then, Fairway has expanded to 14 stores in the tristate area, gone public, <a href="https://www.nytimes.com/2016/05/08/nyregion/no-longer-a-market-like-no-other-fairway-fades.html?action=click&module=RelatedLinks&pgtype=Article">declared bankruptcy</a>, cycled through owners, and <a href="https://www.nytimes.com/2020/01/23/nyregion/fairway-closing-bankruptcy.html">declared bankruptcy again</a>. On March 25, nine days after New York restaurants were banned from seating customers and five days after grocery stores were declared one of the few businesses allowed to keep their doors open, Fairway announced that it had sold six stores, the leases of two others, and its name in a bankruptcy auction. The news came even as customers were lining up outside their neighborhood Fairway, spending nearly three times as much as usual on groceries, and finding store managers unable to keep much in stock. The fate of the other six stores remains, as of this writing, uncertain.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2020/04/how-youll-shop-for-groceries-after-the-pandemic/610135/?utm_source=feed">Read: How you’ll grocery shop after the coronavirus pandemic</a>]</i></p><p>Such is the whiplash supermarkets are now experiencing. Long-suffering as one of the thinnest-margined businesses in existence and one of the least-looked-forward-to places to visit, the supermarket has, for more than a decade, been under assault from e‑commerce giants, blamed for making Americans fat, accused of contributing to climate change, abandoned in favor of restaurants, and, in parts of the country, disappearing at a concerning pace. Esteem for the supermarket runs so low that, although Fairway technically is one, Howie bristled when I called it that. “I never liked us to be considered a supermarket,” he told me. “We used to be, you know, a food store.”</p><p>Yet in recent months, the supermarket has assumed a new centrality in Americans’ lives. Cashiers, stockers, distributors, wholesalers, packers, pickers, and truck drivers have, even in the absence of adequate health safeguards, continued working to ensure that shelves stay stocked. Foodtowns, Nugget Markets, and Piggly Wigglys have emerged as crucial lifelines, spawning a broad reappreciation for one of the most distinctly American institutions. Grocery shopping is no longer one in a long list of mundane errands. For many people, it’s <i>the</i> errand—the only one—and it now seems not inevitable, but somewhat amazing to be able to do at all.</p><figure><img alt="" height="137" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_05-1/9193bfee3.jpg" width="672"></figure><p><span class="smallcaps">Supermarkets, technically defined </span>as behemoths <a href="https://www.novar.com/Refrigeration/1024x768/grocery-definitions.htm">housing 15,000 to 60,000 different products</a>, from tampons to sliced turkey, evolved in the only place they could have: the U.S. of A. Fourteen years after the creator of <a href="https://www.pigglywiggly.com/about-us">Tennessee’s Piggly Wiggly</a> came up with the revolutionary idea of a self-service grocery where people could hunt and gather food from aisles rather than asking a clerk to fetch items from behind a counter, Michael Cullen (christening himself the “World’s Greatest Price Wrecker”) opened <a href="https://timesmachine.nytimes.com/timesmachine/1980/05/04/111237234.pdf?pdf_redirect=true&ip=0">America’s first supermarket, King Kullen</a>, in 1930 in a converted garage in Jamaica, Queens. (There is some debate about who was first, but over the years, <a href="https://www.kingkullen.com/about-us/">King Kullen</a> has pushed itself to the front of the line.)</p><p>For some 300 years, Americans had fed themselves from small stores like Nathan Glickberg’s and from public markets, where shopping for food involved mud, squawking chickens, clouds of flies, cadaverous smells, haggling, bartering, and getting shortchanged. The supermarket took the Fordist factory, with its emphasis on efficiency and standardization, and reimagined it as a place to buy food. Supermarkets may not feel cutting-edge now, but they were—a “revolution in distribution,” one supermarket researcher declared in 1955. They were such exotic marvels that, on her first official state visit to the United States, in 1957, <a href="https://www.washingtonpost.com/news/dc-sports-bog/wp/2017/10/19/wonderful-wonderful-the-time-queen-elizabeth-ii-watched-maryland-upset-unc/">Queen Elizabeth II insisted on an impromptu tour of a suburban-Maryland Giant Food</a>. During his own visit to the United States in 1989, Boris Yeltsin made an unscheduled, <a href="https://www.nytimes.com/2007/04/24/world/europe/24yeltsin.html?hp=&pagewanted=all">20-minute detour to a Texas supermarket</a> that is credited with souring him on communism. “When I saw those shelves crammed with hundreds, thousands of cans, cartons and goods of every possible sort,” wrote Yeltsin in his autobiography, “for the first time I felt quite frankly sick with despair for the Soviet people.”</p><figure class="full-width"><img alt="black and white 1957 photo of Queen Elizabeth at supermarket" height="764" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_WEB_12/6566bcda3.jpg" width="960"><figcaption class="caption">Queen Elizabeth II visits a Giant Food in Maryland. (Paul Popper / Popperfoto / Getty)</figcaption></figure><p>Over the past 90 years, the average American supermarket has swelled from 12,000 square feet to nearly 42,000—big enough to swallow the Lincoln Memorial, two basketball courts, and a couple of Starbucks and still be hungry for more. The typical supermarket layout has barely changed during that time and could be thought of as a reverse mullet: party in the front, business in the back. Most stores open with a colorful bounty of flowers and produce (a breath of freshness to whet our appetites), followed by the flyover expanse of the center store (cans, jars, boxes, bags), followed, in the way back, by milk, eggs, and other staples (pushed to Siberia so you’ll travel through as much of the store as possible, and be tempted along the way). Store designers can choose from a variety of floor plans—forced-path, free-flow, island, wagon-wheel—but by far the most popular is the combination grid/racetrack, with nonperishable items in rectilinear aisles, and the deli, cheese, meat, seafood, and produce departments circling them on the exhilaratingly named racetrack, so called because we scoot faster on the store’s perimeter.</p><p>As the supermarket proliferated, so did our suspicion of it. We have long feared that this “revolution in distribution” uses corporate black magic on our appetites. The book <i>The Hidden Persuaders</i>, published in 1957, warned that supermarkets were putting women in a “hypnoidal trance,” causing them to wander aisles bumping into boxes and “plucking things off shelves at random.” A few years ago, <i>National Geographic</i> published <a href="https://www.nationalgeographic.com/culture/food/the-plate/2015/06/15/surviving-the-sneaky-psychology-of-supermarkets/">a guide (one of many like it) to “surviving the sneaky psychology of supermarkets,”</a> as though buying milk were fraught with existential risk. Supermarkets have drawn comparisons to casinos—both are believed to cunningly manipulate us into staying longer and spending more—though, according to one architect who specializes in constructing stores, this gives regional grocers far too much credit.</p><aside class="callout-placeholder" data-source="magazine-issue"></aside><p>Still, a staggering number of studies have marshaled everything from video surveillance to eye tracking to decode how we behave while food shopping. The results suggest that we haven’t been applying ourselves. An analysis of more than 400 million shopping trips by the company VideoMining found that the average supermarket visit lasts just 13 minutes. During our time there, according to a study published in <i>The Journal of Consumer Research</i>, we typically demonstrate “only a minimal degree of cognitive effort.” My review of more than three dozen papers, ranging from “Observation of Parent-Child Interaction in Supermarket Decision-Making” (less exciting than it sounds) to “Shelf Management and Space Elasticity” (highly recommended), reveals that we ignore a full third of packages on the shelves; never make it to three-quarters of the store; take an average of just 13 seconds to pick out a product (including the time it takes to walk down the aisle and locate the item); spend 40 percent of our money on whatever chips or sports drinks the store’s manager is promoting on the aisles’ endcaps; dedicate, at most, 30 percent of our time in a store to actually selecting things to buy; and, per a 2012 article in <i>Obesity Reviews</i>, devote the rest of our shopping trip to “ineffective wandering.”</p><p>The experts have concluded that we buy more of the products stocked at or just below eye level, think more highly of items placed on high shelves, are 40 percent more likely to give a product a second look if it has eight facings on a shelf instead of four, and will buy 6 percent less canned soup if it’s organized alphabetically by flavor instead of clumped by brand. (Inefficiency can be profitable, and the soup study observed that making products easier to locate corresponded with a drop in sales.) Findings such as these are used to create planograms—aisle-by-aisle, shelf-by-shelf, inch-by-inch maps that indicate whether Jell‑O gets two facings or three, and whether Coke Zero is to the left of Diet Coke or to its right. (Often, the manufacturers whose products sell the most in a category—like Kellogg’s or Coca-Cola—get to advise grocers on where to put their products as well as their competitors’.) Howie Glickberg used to sketch out Fairway’s planograms by hand; more typically, they’re determined using “category management” software that, per one vendor, relies on “space-aware assortment optimization,” “robust supply chain and shelf analytics,” and other things likely to make your eyes glaze over. “We’re constantly changing planograms in the stores, 52 weeks a year,” one supermarket executive told me.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/health/archive/2020/03/can-you-get-coronavirus-grocery-store/608659/?utm_source=feed">Read: Can you get the coronavirus from the grocery store?</a>]</i></p><p>Analyzing data is one way to determine where things go. Cash is another. Among grocers’ least-favorite topics of conversation is slotting fees, which many of them charge manufacturers in exchange for real estate in their stores. Say you want to introduce a new product. In early 2018, getting it placed in the most visible areas of Whole Foods stores would have cost you, on average, $25,000, <a href="https://www.wsj.com/articles/getting-your-product-on-shelves-at-whole-foods-just-got-harder-1518085801">according to <i>The Wall Street Journal</i></a>. Distributing it in supermarkets nationwide would cost nearly $2 million, but that’s per <a href="https://www.ftc.gov/sites/default/files/documents/reports/use-slotting-allowances-retail-grocery-industry/slottingallowancerpt031114.pdf">a 2003 Federal Trade Commission report</a>, and the price now is almost certainly higher. Although a Nielsen survey found that 85 percent of retailers take slotting fees, the practice is covered by a strict omertà. One woman, fearing retribution for testifying on the subject to a Senate committee in 1999, <a href="https://apnews.com/b180119a0baaacd9d133edd3e4f1df06">only did so while wearing a hood, hiding behind a screen, and having her voice scrambled</a>.</p><figure><img alt="" height="152" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_08/e0deadc8c.jpg" width="672"></figure><p><span class="smallcaps">Before something is </span>in your supermarket, it is in a truck. “Everything you have comes in by truck,” one long-haul driver told me proudly. “We always say you’d be hungry, homeless, and naked if it wasn’t for our trucks.”</p><p>Over the past 40 years, Ingrid Brown has pulled bull racks and garbage trailers, but right now she feels blessed to be hauling a reefer. She runs 48 states with her refrigerated trailer, carrying eggs, milk, beef, toilet paper, computers, raw plastic on three-foot-tall rolls that will melt in the summertime, energy drinks that will freeze in the wintertime, and what she considers her specialty, “dead-on, fresh-hot freight”—blueberries out of California, bananas off the port in New Jersey, Vidalia onions out of Georgia, lettuce, squash, corn. “We’re seasonal,” she told me. “We move just like cabbage moves, from the bottom of Florida up.”</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/health/archive/2020/04/coronavirus-class-war-just-beginning/609919/?utm_source=feed">Read: How the coronavirus could create a new working class</a>]</i></p><p>Haulers consider produce one of the most difficult and temperamental loads to run. The <a href="https://www.ams.usda.gov/sites/default/files/media/TransportPerishableFoodsbyTruck%5B1%5D.pdf">Department of Agriculture’s guide to “Protecting Perishable Foods During Transport by Truck”</a> is high on drama and full of inspiration for the aspiring horror writer: chilling injury, highway shock, mold attacks, sunken skin, “pitting and physiological breakdown.” Each fruit and vegetable has its own rider specifying its preferred travel conditions. Apples, for instance, are most comfortable between 30 and 32 degrees Fahrenheit, unless they’re Cortland, McIntosh, or Yellow Newtown Pippins, which desire an ambience 8 degrees warmer. Truck drivers must also know which foods do not get along. Apples are gassy; they release ethylene, which causes bananas, Brussels sprouts, kiwis, carrots, and a long list of other produce to brown or ripen prematurely. Other fruit is deliberately gassed: Strawberries are sealed in packaging into which carbon dioxide is injected, and grapes are often fumigated with sulfur dioxide. Garlic affects apples and pears the same way it affects us, which is to say, it makes them smell like garlic. Summer squash, poor thing, is “easily wounded,” while the humble potato turns out to be a mini miracle that, even after it has left the ground, can self-heal a nick by essentially growing new skin.</p><p>Brown has a house in the Blue Ridge Mountains in North Carolina, but her home is a Kenworth 18‑wheeler named Peach O Mind. She spends about 11 months a year on the road. She sleeps on a narrow bunk with pale-blue sheets behind the driver’s seat, and curls her hair most mornings in truck-stop bathrooms. While driving, she looks out on 40 gauges and switches, two orange teddy bears, and the open road. Brown drives for a carrier that pays either a set rate per run, or by the mile—44 to 47 cents, depending on tenure. When she and I spoke in the first week of April, the curve had not yet flattened, and Brown had just pulled into Love’s Travel Stop in Lake City, Florida, with a load of apples from Wenatchee, Washington.</p><p>It took Brown a week to get from Wenatchee to Lake City. She drove southeast until she reached the Ranch Hand Trail Stop near the Idaho-Wyoming border; continued east to Nebraska, where she searched unsuccessfully for a Subway sandwich and settled for crackers and a can of Beanee Weenee; moved onward to Carthage, Missouri, where she did seven loads of laundry and sanitized her truck; then drove down through Alabama to Lake City. She was scheduled to deliver her load at 4:30 a.m. the next day at a Target distribution center, but Target wanted to delay. The panic-buying had apparently subsided. “Now they’re actually getting overfilled, and they don’t have as many workers in the warehouses to unload it,” Brown said. “It’s taken a flip-flop.”</p><p>Brown has been bringing food, but having trouble getting it. “I’m living off peanut butter on a spoon,” she told me. Roadside restaurants are closing early, if they open at all, and the convenience stores at truck stops have become heinously expensive: $4.95 for a little cup of fruit, $7.89 for the very smallest jar of peanut butter, $8.39 for a bowl of instant mac and cheese. (Peach O Mind can’t fit in a drive-through lane or a regular gas station, or stop at a Walmart, which is notorious for booting rigs parked in its lots.) At Love’s, Brown couldn’t even find sliced bread.</p><figure class="full-width"><img alt="collage of photos including Fairway and Steven Jenkins" height="826" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_04/d881c7f48.jpg" width="960"><figcaption class="caption">Steven Jenkins (<em>bottom right</em>), a longtime Fairway employee and eventual partner, started making irreverent signs as an excuse to avoid talking to customers. But anything with his signs sold like crazy. (<em>Top right</em>: Zach Korb; <em>bottom right</em>: Michelle Sims; <em>remaining photos</em>: Fairway)</figcaption></figure><p>What Brown wishes she could spend her money on, but can’t, is hand sanitizer, Clorox wipes, anything to disinfect her hands and truck. “There’s none. None, zero. I ran out of everything last week, the last of everything. I have not had Lysol, a mask, gloves,” she told me. “I’ve been searching and searching.” There is nowhere to wash your hands in a truck, and finding bathrooms has become a challenge, as many rest stops have closed. Brown felt she was putting herself and others at risk. “Do you realize how many people I could infect?” she said. “If I got this across New York to New Jersey to California to Florida to Portland to Washington? Fourteen days before I had any sort of symptom, I would be in twice that many locations. And nobody is listening.”</p><p>There had been stories in the news about <a href="https://www.bloomberg.com/news/articles/2020-03-26/truckers-wary-of-new-york-deliveries-create-headache-for-grocers?sref=BGQFqz7X">truck drivers not wanting to run loads into New York City</a>, which is a logistical headache even in the best of times. But during the last three weeks of March, Brown had delivered three loads of vegetables to the city. Most recently, she brought 40,000 pounds of cabbage, which had been transferred, on a predawn morning, from a packinghouse in North Carolina into Peach O Mind’s dark, frigid trailer; had rumbled north for a day; and then had been thrust into the fluorescent, honking insanity of the Bronx’s Hunts Point, the site of the largest produce market in the world.</p><figure><img alt="" height="121" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_WEB_07/80ae74fff.jpg" width="672"></figure><p><span class="smallcaps">The New York City</span> Terminal Produce Market, as the Hunts Point Produce Market is officially known, has a face only a mother could love. Bordered by barbed wire and concrete walls, the 113‑acre complex is home to snowbanks of flattened cardboard boxes and four long, squat buildings with mottled cinder-block exteriors. At each building, there are 18‑wheelers unloading, six-wheelers picking up, and boxes everywhere—<span class="smallcaps">top red washington state apples, top quality limes, premium california citrus</span>—piled two stories high in refrigerated rooms, whizzing by on pallet jacks, getting hustled onto hand trucks, teetering beside a sales booth where someone nearby is on the phone telling Curtis, “I do not have a box of one-twenty-fives” (size-125 apples, so called because 125 of them will fit in a 40-pound box).</p><p>Everything is either on its way in or on its way out, or had better be. “You do not want to get caught with the product,” says Joel Fierman, who represents the third generation of Fiermans to run Fierman Produce Exchange. “This is a perishable. This is not a sweater. This goes bad. Forty-eight hours—it’s going bad, nobody’s buying it.” Fierman Produce Exchange is one of Hunts Point’s 30 houses—distributors that buy from growers, then sell to restaurants, nursing homes, schools, jails, bodegas, street carts, and supermarkets, or the suppliers that stock them. Together, the houses handle 70 percent of the produce in the tristate area, feeding an estimated 25 million people each year.</p><p>From 6 a.m. on Sunday, when the week’s first loads of inbound fresh arrive, until 5 p.m. on Friday, when most houses pause sales, the market hums. The phone rings all day—where are trucks, deliveries, orders? At 10 p.m., buyers flood in. Through 3 a.m., it’s a madhouse, filled with the call-and-response of wholesalers pushing to sell for more while their customers needle for less. Workers assemble orders, stage produce, move so fast to load six-wheelers that they’ll hop off their motorized pallet jacks and start running for the boxes before the jack rolls to a stop. Every distributor I spoke with constantly interrupted himself to have another conversation. When he answered the phone, the first thing Andrew Brantley, who oversees apples, grapes, stone fruit, citrus, and pears for S. Katzman Produce, said to me was “Hold on one second, all right?”</p><p>Nathan Glickberg, Fairway’s patriarch, bought from Hunts Point <a href="https://www.pps.org/article/how-markets-grow-learning-from-manhattans-lost-food-hub">when it was still Washington Market</a>, in Tribeca. He’d venture downtown to pick out produce each morning, get it delivered, and have it in his stands by 7 a.m. (The market moved to the Bronx in 1967.) But Fairway was selling in larger and larger quantities as it grew, and began to self-supply, ordering trailers of produce directly from growers. Other large supermarket chains and cooperatives do the same, though, like Fairway, they still fill in at Hunts Point. “They need us for when a truck is late, a truck is frozen, a truck came in heated, or maybe the product just wasn’t that good,” Brantley said. “We negotiate a price. Of course, they’re going to try to pay as close—Excuse me one second. Hello? Greg?”</p><p>By early April, the market’s sales had cratered by about half. “We lost the restaurants. We lost the theater. We lost the arts. The museums. We lost the tourism trade. We lost the hotels,” Fierman told me. People are still eating, but our tastes change when we dine at home, and supermarkets buy differently than restaurants. Romaine, not frisée. A modest potato, not the overstuffed Idaho spud that the Morton’s steakhouse in Midtown serves for $8.80. Supermarkets demand fruit with curb appeal, while chefs don’t mind irregular produce, since it’ll be chopped before anyone sees it. “You go to a store and you want everything to look—we call it ‘plastic,’ ” Brantley said. “Like you can buy at IKEA or Pier 1.” Lately, his sales of bagged fruit and clamshell grapes had gone through the roof.</p><figure class="full-width"><img alt="Left: Ingrid Brown; right: Elizabeth Miller" height="648" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_WEB_09/e70e1e3c0.jpg" width="960"><figcaption class="caption"><em>Left</em>: Ingrid Brown spends about 11 months a year in an 18-wheeler named Peach O Mind, hauling produce and other goods across the country. <em>Right</em>: Elizabeth Miller takes a bus to a train to another bus to get to her job as a cashier at the Fairway in Harlem. (September Dawn Bottoms; Laurel Golio)</figcaption></figure><p>At the entrance to the market, an electronic sign blinked instructions to <span class="smallcaps">stay in your truck</span>, but that did not apply to Hunts Point employees. They were being exposed to 40 or more people a day, Fierman said, despite new protocols. At least 20 people at the market had gotten sick. Some deliveries were taking longer to arrive. Before, loading a truck at a farm in California might have required four hours. “Now it’s taking eight, 12, or maybe even 18 hours to do that same process,” because of staffing shortages, Brantley said. And that’s if the fields are picked. Produce-industry publications had developed a careening tone: One day, they’d report on <a href="https://www.hortidaily.com/article/9209322/florida-growers-leave-behind-unharvested-crops/">a Florida farmer who let 250 acres of cucumber, zucchini, yellow squash, and bell pepper rot on the vine</a> because there were no restaurants or cafeterias to sell to; supermarkets, the farmer noted, weren’t compromising on their demand for “plastic” produce. Another day, growers would cheer spikes in demand for ginger, mushrooms, apples, oranges, grapefruit, or “hardware”—potatoes, onions, carrots. Shoppers were seeking groceries with a long shelf life.</p><p>Some produce had been ready and waiting for months. Apples are picked in the late summer and fall and stored in a cold room, with the oxygen removed, until someone like Ingrid Brown comes for them. “There might be a time in October when you’re biting into an apple that was literally harvested that month, or sometimes you may be biting into an apple that was harvested back in November of the previous year,” Brantley said. “You’re still eating last year’s crop. And it’s no problem at all.”</p><figure><img alt="" height="148" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_06/162374ea0.jpg" width="672"></figure><p><span class="smallcaps">Produce is one thing</span> Fairway has actually managed to keep in stock. “Every day I wake up and it’s <i>What disaster is going to happen today? </i>” Rob Reinisch, a Fairway district manager, told me in mid-April. Reinisch’s suppliers are rationing him, and he is rationing customers. Approximately half of what he orders from his suppliers is out of stock, and the eight stores he manages have been constantly running out of things: orange juice (“Everybody thinks Vitamin C is the immediate cure for the coronavirus”), yeast (“I’m basically not in stock ever”), even the free plastic produce bags (“They’re flying off the shelves because people are using them to cover their hands as gloves”). A week after Reinisch and I spoke, <a href="https://thefeed.blog/2020/04/26/feeding-the-nation-and-keeping-our-employees-healthy/">the chairman of Tyson Foods wrote in an ad, “The food supply chain is breaking,”</a> sparking fears of more shortages to come. During the month of April, <a href="https://www.washingtonpost.com/business/2020/05/12/april-saw-sharpest-increase-grocery-store-prices-nearly-50-years/">grocery prices increased more than they had in almost 50 years</a>, even as more than 20 million American jobs disappeared. The lines outside grocery stores paled in comparison to those outside many food banks.</p><p>In Fairway’s New York City stores, the panic-shopping had not subsided. “People continue every day to buy massive amounts of food,” Reinisch said. In wealthy neighborhoods like the Upper East Side, where, he assumes, people have disappeared to second homes, grocery purchases have leveled off. Alcohol purchases, on the other hand, have “<i>exploded</i>,” he said. “Wayyyyy, way up.”</p><p>To get to her job as a cashier at the Fairway in Harlem, Elizabeth Miller takes the No. 27 or No. 39 bus from the apartment she shares with a roommate in the Bronx, transfers to the 6 train, and then transfers again to the No. 15 bus. The trip used to take an hour and a half each way. Now, because there is so little traffic, it takes about 45 minutes. Miller works five or six days a week, in six-to-eight-hour shifts. She wears jeggings, a black T-shirt that says <span class="smallcaps">fairway</span> in orange, a beanie over a baseball cap, and orange-and-green sneakers with reinforced soles. Miller joined Fairway’s Pelham Manor store last June, then transferred to Harlem because it paid $15 an hour rather than $12. When she first started working as a cashier, she had nightmares about memorizing produce codes. “Every cashier will tell you about the time they dream of being at work and they have a long line, and they’re by themselves, and there’s no manager to help them, and they’re trying to remember all the numbers of all the produce,” Miller told me.</p><aside class="callout-placeholder" data-source="curated"></aside><p>Stooping over the cash register all day and lifting heavy things from the belt make her back and shoulders sore, but to Miller, the hardest part of the job is not the long hours. It’s the people. Less the chance that they’ll get her sick—“I’m not as worried as most people,” she said—than having to stay placid and polite in the face of their impatience, testiness, and sheer, incessant swarm. Recently, Miller was working her register when a new hire couldn’t remember the produce codes and was mocked by customers. The cashier burst into tears and quit on the spot. “Honestly, being a cashier is not for the fainthearted,” Miller told me. “You can’t let someone get to you, because they’ll be gone in a few minutes. You can’t let them ruin your day.” She’s been cursed out, yelled at, called names. Just the other day, Miller asked a man to stay six feet away from her and another customer, and he started ranting and threw his money at her.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/04/i-work-grocery-store-dont-call-me-hero/610147/?utm_source=feed">Karleigh Frisbie Brogan: I work in a grocery store—don’t call me a hero</a>]</i></p><p>Still, she has lately felt more appreciated, and is thankful to have a job. “It’s kind of weird—a lot of people are showing their gratitude, even though they’re the same people that just stand there when you’re bagging their items. It’s like, ‘What, you’re grateful now?’ Oh, how the tables have turned!” she said. “We actually matter more than celebrities and politicians and lawyers. We’re keeping everybody fed. We’re important.” She’d heard that two co-workers had gotten sick and were in quarantine. Around the time we spoke, <i>The Washington Post</i> reported that <a href="https://www.washingtonpost.com/business/2020/04/12/grocery-worker-fear-death-coronavirus/">at least 41 grocery and food-processing workers nationwide had died from the virus</a>.</p><p>Miller tries to lighten the mood—by competing with other cashiers to see whose customers spend the most ($1,139 is the current record), and teasing people who have waited an hour in line and just finished unloading their carts that she’s closing the register to go on break. “They end up laughing, having a good time, getting a smile on their face,” Miller said. “It won’t help anybody if you show that you’re scared or freaked out. It won’t help the next person. So just smile a little bit.”</p><p>Miller does her food shopping at the Family Dollar near her apartment, which lately has also had long lines just to get in. She tries to avoid buying groceries at Fairway, because even with a 20 percent employee discount, it’s hard to leave without spending most of what she earned during the day’s shift. “Sometimes I do shop at Fairway, but only for, like, meat or bread,” she said. “Actually, no, not bread. It’s a little expensive.”</p><figure><img alt="" height="152" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_11/53dd536ce.jpg" width="672"></figure><p><span class="smallcaps">In 2009, I </span><span class="smallcaps">moved to New York</span> and made a weekend ritual of seeing my grandmother for visits that inevitably revolved around Fairway. In 2013, the year of the company’s public offering, a Fairway opened in my neighborhood. I looked forward to tasting my way through its hundreds of cheeses and developing the signature Fairway limp, cultivated through years of distracted shoppers ramming their carts into your ankles. But the store gradually stopped feeling like a Fairway. Prices ticked higher. The apples and lettuce no longer sat at attention, but slouched on displays, looking bored. The store, which I’d always associated with its totally arrogant, utterly New York motto “Like no other market,” began to promote itself with a slogan I’d have bet good money was engineered in whichever lab invented pink meat goo: “The place to go fooding.” Still, it stung to learn that the Fairway in Harlem, where my grandmother had spent so much time, had failed to sell in the bankruptcy auction in March, along with five other stores. Though Fairway said it planned to keep them open “for the foreseeable future,” I found this less than reassuring.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/02/how-private-equity-ruined-fairway/606625/?utm_source=feed">Eileen Appelbaum and Andrew W. Park: How private equity ruined Fairway</a>]</i></p><p>What went wrong? According to industry experts, after Fairway’s longtime owners sold the lion’s share of their company, Fairway took on too much debt, expanded too fast, and went into a vicious cycle of trying to boost revenue by raising prices, which alienated shoppers. What went wrong, according to Howie Glickberg? “The Ivy League geniuses decided they knew more about the business than I did,” he told me. “They couldn’t understand that when you raise prices and get away from what the store was based on—best prices, best quality—you lose customers.” In 2016, Glickberg left the company. By then, his meetings with the Sterling executives were regularly devolving into heated fights because he disagreed with changes to the stores. (Sterling said that competition from Whole Foods, Trader Joe’s, and online grocers was responsible for the price pressures.) What went wrong, according to current Fairway Vice President Pat Sheils? “I’m not sure that I’m able to speak on that,” Sheils told me. “Yeah,” interrupted a publicist who’d been listening in on our call. “Yeah, agreed with you on that one, Pat.”</p><figure class="full-width"><img alt="1988 photo of Steven Jenkins in cheese department" height="643" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/Supermarkets_10/cdfe4363f.jpg" width="960"><figcaption class="caption">Steven Jenkins in the cheese department of the original Upper West Side store, in 1988 (Michelle Sims)</figcaption></figure><p>For decades, Fairway felt like a store run by human beings, not calculators. Steven Jenkins, a longtime Fairway employee and eventual partner, started making irreverent signs as a way to look busy and avoid talking to customers (<span class="smallcaps">fresh black figs, raw sex—same thing, 79 cents each</span>), but anything in the store with his signs sold like crazy, so he kept at them. He and Fairway’s other managers stocked things for the simple reason that they were good to eat. While Jenkins and I were speaking, he got out an old notebook in which he’d kept a ledger of every item he’d shipped to the stores from Europe in December 2013. “Here’s anchovies that I bought from the coast of Catalonia, the greatest anchovy in the <i>world</i>,” he said, reading from his list. “There’s some little mints from the village in France called Flavigny … Oh my God, I brought in walnuts from the Périgord region … Here’s my vintage sardines from Brittany. These vintage sardines taste like a sardine that God made and gave to you, personally … Olive oil, olive oil, olive oil. Mustards, vinegars, more French dried fruits … There’s my beets! I would bring in pallets and pallets of beets from just west of Paris, in Chatou … You didn’t have to peel the goddamn beet; they were ready to go and they tasted perfect and they were organic as well and they were cheap as dirt. I sold mountains of beets. Can you imagine such a thing? I was <i>so</i> proud of those beets.” He continued like this for 15 minutes.</p><p>Not every supermarket stocks French beets, but Fairway was less exceptional than it might seem. Private-equity firms have lately devoured supermarkets; since 2015, at least seven other grocery chains have been bought by private-equity investors, then bankrupted. And Fairway was no luxury-food shop: Besides the beets, which my grandmother adored, it stocked Kraft Singles, which I adore, and it evoked that same feeling of possibility that exists in even the most ordinary supermarket. Stuffed to the rafters, supermarkets overwhelm with the cacophony of choice. Floor-to-ceiling, wall-to-wall Light ’n Fluffy, Ding Dongs, Donettes, CRAVE, Fabuloso, Juicy Juice, Crunch ’n Munch, Pup-Peroni, Enviro-Log—all yelling, cajoling, promising, winking. At the very least, you have to marvel: How did we take something built to satisfy the simplest human need and make it so utterly baroque? The supermarket does not “curate.” It is a defiantly encyclopedic catalog of our needs and desires, each and every one of which it attempts to satisfy. With nothing but a can opener, you can get a “turkey dinner in gravy,” “chicken shrimp and crab stew,” “saucy seafood bake,” “chicken and turkey casserole,” “prime filets with salmon and beef,” “bisque with tuna and chicken,” “ocean whitefish dinner with garden greens in sauce,” or a “natural flaked skipjack tuna entrée in a delicate broth.” And that’s just in the cat-food aisle.</p><p>While researching this story, I became obsessed with supermarket names, which are the antithesis of the sanitized, one-word titles favored by cool venture-capital-backed retailers—Roman, Winc, Away. Traditional supermarkets have names as unpretentious and moth-eaten as an old wool sweater: Save A Lot, BI-LO, Great Valu. They don’t promise something as ambitious as Whole Foods. Just something edible, for an okay price: Food 4 Less, Price Rite, Stop & Shop. The supermarket is not an aspirational brand catering to who we want to be. It’s just there for who we are: people who need Light ’n Fluffy, and Ding Dongs, and Donettes.</p><p>The names I came across were also largely unfamiliar to me, because, even now, supermarkets have stayed stubbornly regional. That may not be the case much longer, as national chains are poised to continue squeezing local players. The supermarket has always operated according to the principle of pile it high and sell it cheap, and the bigger you are—Kroger, Walmart, Albertsons—the higher, and cheaper, your pile. You can trim costs by <a href="https://www.wsj.com/articles/as-shipping-costs-soar-supply-chains-get-a-makeover-1529244003">running your own trucking fleets</a>, creating <a href="https://www.emarketer.com/content/retailers-are-revamping-private-label-grocery">your own products</a>, even designing your own produce. Walmart <a href="https://www.bloomberg.com/news/articles/2017-06-13/don-t-freak-out-but-wal-mart-just-created-a-designer-cantaloupe?sref=BGQFqz7X">pioneered a cantaloupe</a> that supposedly tastes equally sweet in summer and winter. Americans now buy about a quarter of their groceries from Walmart, which has stores so gigantic, they are technically <i>hyper</i>markets.</p><p>Once upon a time, supermarkets were themselves the colossi putting small grocers out of business, and nostalgia for regional supermarkets in a sense seems risible. These Goliaths now look frail, as we’ve shifted to stocking up on groceries at places far beyond the super- and even hypermarket—gas stations, a onetime online bookseller. But until recently, you couldn’t go too long without joining the people who live near you to ineffectively wander a supermarket’s aisles, picking up toilet paper and milk and gossip. Supermarkets gather us together, and they reflect the particular appetites of our place. In speaking with the people who built Fairway, I perceived, despite the vastness of their stores, a neighborly sense of pride in focusing on the minute details of their shoppers’ lives. Jenkins had been outraged that New Yorkers were eating cheeses and olive oils that, in his mind, were beneath them. “There wasn’t a single bottle of olive oil worthy of anybody throughout the ’80s!” he ranted. So he imported some that was.</p><p>Compared with inventing new cantaloupes, this was, arguably, a small act. But the result was not small. Once a week, my grandmother would put on her hat, scarf, gloves, and polished leather shoes, and pull her black-metal cart down the hill to Fairway, then back up to her apartment. When she could no longer pull the cart back up the hill, she’d make the pilgrimage to Fairway, do her shopping, and have her groceries delivered. When she could no longer negotiate the steep hill on her own, my aunt, or a neighbor, steadied her on the walk down. When my grandmother stopped going anywhere else in the city, she still went to Fairway, where the world came to her.</p><hr><p><small><em>This article appears in the July/August 2020 print edition with the headline “Supermarkets Are a Miracle.”</em></small></p>Bianca Boskerhttp://www.theatlantic.com/author/bianca-bosker/?utm_source=feedH. Armstrong Roberts / Classicstock / Getty / The AtlanticThe Pandemic Shows Us the Genius of Supermarkets2020-06-17T07:00:00-04:002020-07-21T14:33:13-04:00A short history of the stores that—even now—keep us supplied with an abundance of choicestag:theatlantic.com,2020:39-612247<p class="dropcap">A<span class="smallcaps">fter months</span> of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there’s another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed.</p><p style="background-color: #333; color: #fff; padding: 12px 24px;"><iframe frameborder="no" height="20" scrolling="no" src="https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/837062335%3Fsecret_token%3Ds-4cktFKijus9&inverse=true&auto_play=false&show_user=true" style="background-color: #333" width="100%"></iframe><i class="audm--download-cta">To hear more feature stories, <a href="https://www.audm.com/?utm_source=soundcloud&utm_medium=embed&utm_campaign=atlantic&utm_content=worst_worst_case" style="color: #fff; text-decoration: underline;">get the Audm iPhone app.</a> </i></p><p>You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2019/01/john-lawrence-inside-2008-financial-crash/576574/?utm_source=feed">John Lawrence: Inside the 2008 financial crash</a>]</i></p><p>The financial crisis of 2008 was about home mortgages. Hundreds of billions of dollars in loans to home buyers were repackaged into securities called collateralized debt obligations, known as CDOs. In theory, CDOs were intended to shift risk away from banks, which lend money to home buyers. In practice, the same banks that issued home loans also bet heavily on CDOs, often using complex techniques hidden from investors and regulators. When the housing market took a hit, these banks were doubly affected. In late 2007, banks began disclosing tens of billions of dollars of subprime-CDO losses. The next year, Lehman Brothers went under, taking the economy with it.</p><p>The federal government stepped in to rescue the other big banks and forestall a panic. The intervention worked—though its success did not seem assured at the time—and the system righted itself. Of course, many Americans suffered as a result of the crash, losing homes, jobs, and wealth. An already troubling gap between America’s haves and have-nots grew wider still. Yet by March 2009, the economy was on the upswing, and the longest bull market in history had begun.</p><p>To prevent the next crisis, Congress in 2010 passed the Dodd-Frank Act. Under the new rules, banks were supposed to borrow less, make fewer long-shot bets, and be more transparent about their holdings. The Federal Reserve began conducting “stress tests” to keep the banks in line. Congress also tried to reform the credit-rating agencies, which were widely blamed for enabling the meltdown by giving high marks to dubious CDOs, many of which were larded with subprime loans given to unqualified borrowers. Over the course of the crisis, more than 13,000 CDO investments that were rated AAA—the highest possible rating—defaulted.</p><p>The reforms were well intentioned, but, as we’ll see, they haven’t kept the banks from falling back into old, bad habits. After the housing crisis, subprime CDOs naturally fell out of favor. Demand shifted to a similar—and similarly risky—instrument, one that even has a similar name: the CLO, or collateralized loan obligation. A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan. There are more than $1 trillion worth of leveraged loans currently outstanding. The majority are held in CLOs.</p><p>I was part of the group that structured and sold CDOs and CLOs at Morgan Stanley in the 1990s. The two securities are remarkably alike. Like a CDO, a CLO has multiple layers, which are sold separately. The bottom layer is the riskiest, the top the safest. If just a few of the loans in a CLO default, the bottom layer will suffer a loss and the other layers will remain safe. If the defaults increase, the bottom layer will lose even more, and the pain will start to work its way up the layers. The top layer, however, remains protected: It loses money only after the lower layers have been wiped out.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/05/bridge-post-pandemic-world-already-collapsing/611089/?utm_source=feed">Annie Lowrey: The small-business die-off is here</a>]</i></p><p>Unless you work in finance, you probably haven’t heard of CLOs, but according to many estimates, the CLO market is bigger than the subprime-mortgage CDO market was in its heyday. The Bank for International Settlements, which helps central banks pursue financial stability, has <a href="https://www.bis.org/publ/qtrpdf/r_qt1909.pdf">estimated the overall size of the CDO market in 2007</a> at $640 billion; it estimated the overall size of the CLO market in 2018 at $750 billion. More than $130 billion worth of CLOs have been created since then, some even in recent months. Just as easy mortgages fueled economic growth in the 2000s, cheap corporate debt has done so in the past decade, and many companies have binged on it.</p><aside class="callout-placeholder" data-source="magazine-issue"></aside><p>Despite their obvious resemblance to the villain of the last crash, CLOs have been praised by Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin for moving the risk of leveraged loans outside the banking system. Like former Fed Chair Alan Greenspan, who downplayed the risks posed by subprime mortgages, Powell and Mnuchin have downplayed any trouble CLOs could pose for banks, arguing that the risk is contained within the CLOs themselves.</p><p>These sanguine views are hard to square with reality. The Bank for International Settlements estimates that, across the globe, banks held at least $250 billion worth of CLOs at the end of 2018. Last July, one month after <a href="https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190619.pdf">Powell declared in a press conference</a> that “the risk isn’t in the banks,” <a href="https://www.federalreserve.gov/econres/notes/feds-notes/who-owns-us-clo-securities-20190719.htm">two economists from the Federal Reserve reported</a> that U.S. depository institutions and their holding companies owned more than $110 billion worth of CLOs issued out of the Cayman Islands alone. A more complete picture is hard to come by, in part because banks have been inconsistent about reporting their CLO holdings. The Financial Stability Board, which monitors the global financial system, <a href="https://www.fsb.org/2019/12/vulnerabilities-associated-with-leveraged-loans-and-collateralised-loan-obligations/">warned in December</a> that 14 percent of CLOs—more than $100 billion worth—are unaccounted for.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2017/09/are-index-funds-evil/534183/?utm_source=feed">From the September 2017 issue: Frank Partnoy on how index funds might be bad for the economy</a>]</i></p><p>I have a checking account and a home mortgage with Wells Fargo; I decided to see how heavily invested my bank is in CLOs. I had to dig deep into the footnotes of <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/72971/000007297120000217/wfc-12312019xex13.htm">the bank’s most recent annual report, all the way to page 144</a>. Listed there are its “available for sale” accounts. These are investments a bank plans to sell at some point, though not necessarily right away. The list contains the categories of safe assets you might expect: U.S. Treasury bonds, municipal bonds, and so on. Nestled among them is an item called “collateralized loan and other obligations”—CLOs. I ran my finger across the page to see the total for these investments, investments that Powell and Mnuchin have asserted are “outside the banking system.”</p><p>The total is $29.7 billion. It is a massive number. And it is inside the bank.</p><figure><img alt="illustration of spreadsheet" height="595" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/WEL_Partnoy_Banks_spot1/99bdd9dd8.jpg" width="672"><figcaption class="credit">George Wylesol</figcaption></figure><p class="dropcap">S<span class="smallcaps">ince 2008, </span>banks<span class="smallcaps"> </span>have kept more capital on hand to protect against a downturn, and their balance sheets are less leveraged now than they were in 2007. And not every bank has loaded up on CLOs. But in December, <a href="https://www.fsb.org/2019/12/vulnerabilities-associated-with-leveraged-loans-and-collateralised-loan-obligations/">the Financial Stability Board estimated</a> that, for the 30 “global systemically important banks,” the average exposure to leveraged loans and CLOs was roughly 60 percent of capital on hand. <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/831001/000083100120000044/c-3312020x10q.htm">Citigroup reported</a> $20 billion worth of CLOs as of March 31; <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/19617/000001961720000299/corpq12020.htm">JPMorgan Chase reported</a> $35 billion (along with an unrealized loss on CLOs of $2 billion). A couple of midsize banks—Banc of California, Stifel Financial—have CLOs totaling more than 100 percent of their capital. If the leveraged-loan market imploded, their liabilities could quickly become greater than their assets.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/international/archive/2020/04/lessons-wartime-economics-coronavirus-covid19/609439/?utm_source=feed">Read: The pandemic’s economic lessons</a>]</i></p><p>How can these banks justify gambling so much money on what looks like such a risky bet? Defenders of CLOs say they aren’t, in fact, a gamble—on the contrary, they are as sure a thing as you can hope for. That’s because the banks mostly own the least risky, top layer of CLOs. Since the mid-1990s, the highest annual default rate on leveraged loans was about 10 percent, during the previous financial crisis. If 10 percent of a CLO’s loans default, the bottom layers will suffer, but if you own the top layer, you might not even notice. Three times as many loans could default and you’d still be protected, because the lower layers would bear the loss. The securities are structured such that investors with a high tolerance for risk, like hedge funds and private-equity firms, buy the bottom layers hoping to win the lottery. The big banks settle for smaller returns and the security of the top layer. As of this writing, no AAA‑rated layer of a CLO has ever lost principal.</p><p>But that AAA rating is deceiving. The credit-rating agencies grade CLOs and their underlying debt separately. You might assume that a CLO must contain AAA debt if its top layer is rated AAA. Far from it. Remember: CLOs are made up of loans to businesses that are already in trouble.</p><p>So what sort of debt do you find in a CLO? Fitch Ratings has estimated that as of April, more than 67 percent of the 1,745 borrowers in its leveraged-loan database had a B rating. That might not sound bad, but B-rated debt is lousy debt. According to the rating agencies’ definitions, a B-rated borrower’s ability to repay a loan is <i>likely</i> to be impaired in adverse business or economic conditions. In other words, two-thirds of those leveraged loans are likely to lose money in economic conditions like the ones we’re presently experiencing. According to Fitch, 15 percent of companies with leveraged loans are rated lower still, at CCC or below. These borrowers are on the cusp of default.</p><p>So while the banks restrict their CLO investments mostly to AAA‑rated layers, what they really own is exposure to tens of billions of dollars of high-risk debt. In those highly rated CLOs, you won’t find a single loan rated AAA, AA, or even A.</p><p>How can the credit-rating agencies get away with this? The answer is “default correlation,” a measure of the likelihood of loans defaulting <i>at the same time</i>. The main reason CLOs have been so safe is the same reason CDOs seemed safe before 2008. Back then, the underlying loans were risky too, and everyone knew that some of them would default. But it seemed unlikely that many of them would default at the same time. The loans were spread across the entire country and among many lenders. Real-estate markets were thought to be local, not national, and the factors that typically lead people to default on their home loans—job loss, divorce, poor health—don’t all move in the same direction at the same time. Then housing prices fell 30 percent across the board and defaults skyrocketed.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2013/01/whats-inside-americas-banks/309196/?utm_source=feed">From the January/February 2013 issue: Frank Partnoy and Jesse Eisinger on not knowing what’s inside America’s banks</a>]</i></p><p>For CLOs, the rating agencies determine the grades of the various layers by assessing both the risks of the leveraged loans and their default correlation. Even during a recession, different sectors of the economy, such as entertainment, health care, and retail, don’t necessarily move in lockstep. In theory, CLOs are constructed in such a way as to minimize the chances that all of the loans will be affected by a single event or chain of events. The rating agencies award high ratings to those layers that seem sufficiently diversified across industry and geography.</p><p>Banks do not publicly report which CLOs they hold, so we can’t know precisely which leveraged loans a given institution might be exposed to. But all you have to do is look at a list of leveraged borrowers to see the potential for trouble. Among the dozens of companies Fitch added to its list of “loans of concern” in April were AMC Entertainment, Bob’s Discount Furniture, California Pizza Kitchen, the Container Store, Lands’ End, Men’s Wearhouse, and Party City. These are all companies hard hit by the sort of belt-tightening that accompanies a conventional downturn.</p><p>We are not in the midst of a conventional downturn. The two companies with the largest amount of outstanding debt on Fitch’s April list were Envision Healthcare, a medical-staffing company that, among other things, helps hospitals administer emergency-room care, and Intelsat, which provides satellite broadband access. Also added to the list was Hoffmaster, which makes products used by restaurants to package food for takeout. Companies you might have expected to weather the present economic storm are among those suffering most acutely as consumers not only tighten their belts, but also redefine what they consider necessary.</p><p>Even before the pandemic struck, the credit-rating agencies may have been underestimating how vulnerable unrelated industries could be to the same economic forces. <a href="http://www.jgriffin.info/wp-content/uploads/2017/11/corr_pub.pdf">A 2017 article</a> by John Griffin, of the University of Texas, and Jordan Nickerson, of Boston College, demonstrated that the default-correlation assumptions used to create a group of 136 CLOs should have been three to four times higher than they were, and the miscalculations resulted in much higher ratings than were warranted. “I’ve been concerned about AAA CLOs failing in the next crisis for several years,” Griffin told me in May. “This crisis is more horrifying than I anticipated.”</p><p>Under current conditions, the outlook for leveraged loans in a range of industries is truly grim. Companies such as AMC (nearly $2 billion of debt spread across 224 CLOs) and Party City ($719 million of debt in 183 CLOs) were in dire straits before social distancing. Now moviegoing and party-throwing are paused indefinitely—and may never come back to their pre-pandemic levels.</p><p>The prices of AAA-rated CLO layers tumbled in March, before the Federal Reserve announced that its additional $2.3 trillion of lending would include loans to CLOs. (The program is controversial: Is the Fed really willing to prop up CLOs when so many previously healthy small businesses are struggling to pay their debts? As of mid-May, no such loans had been made.) Far from scaring off the big banks, the tumble inspired several of them to buy low: Citigroup acquired $2 billion of AAA CLOs during the dip, which it flipped for a $100 million profit when prices bounced back. Other banks, including Bank of America, reportedly bought lower layers of CLOs in May for about 20 cents on the dollar.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/business/archive/2014/02/how-the-fed-let-the-world-blow-up-in-2008/284054/?utm_source=feed">Read: How the Fed let the world blow up in 2008</a>]</i></p><p>Meanwhile, loan defaults are already happening. There were more in April than ever before. Several experts told me they expect more record-breaking months this summer. It will only get worse from there.</p><figure><img alt='illustration of file cabinet with label "out of order"' height="668" src="https://cdn.theatlantic.com/assets/media/img/posts/2020/06/WEL_Partnoy_Banks_spot2/246ace5a0.jpg" width="672"><figcaption class="credit">George Wylesol</figcaption></figure><p class="dropcap"><span class="smallcaps">If leveraged-loan </span>defaults continue, how badly could they damage the larger economy? What, precisely, is the worst-case scenario?</p><p>For the moment, the financial system seems relatively stable. Banks can still pay their debts and pass their regulatory capital tests. But recall that the previous crash took more than a year to unfold. The present is analogous not to the fall of 2008, when the U.S. was in full-blown crisis, but to the summer of 2007, when some securities were going underwater but no one yet knew what the upshot would be.</p><p>What I’m about to describe is necessarily speculative, but it is rooted in the experience of the previous crash and in what we know about current bank holdings. The purpose of laying out this worst-case scenario isn’t to say that it will necessarily come to pass. The purpose is to show that it <i>could</i>. That alone should scare us all—and inform the way we think about the next year and beyond.</p><p>Later this summer, leveraged-loan defaults will increase significantly as the economic effects of the pandemic fully register. Bankruptcy courts will very likely buckle under the weight of new filings. (During a two-week period in May, J.Crew, Neiman Marcus, and J. C. Penney all filed for bankruptcy.) We already know that a significant majority of the loans in CLOs have weak covenants that offer investors only minimal legal protection; in industry parlance, they are “cov lite.” The holders of leveraged loans will thus be fortunate to get pennies on the dollar as companies default—nothing close to the 70 cents that has been standard in the past.</p><p>As the banks begin to feel the pain of these defaults, the public will learn that they were hardly the only institutions to bet big on CLOs. The insurance giant AIG—which had massive investments in CDOs in 2008—is now <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/5272/000110465920023889/aig-20191231.htm#Insurance_Reserves">exposed to more than $9 billion in CLOs</a>. U.S. life-insurance companies as a group in 2018 had an estimated one-fifth of their capital tied up in these same instruments. Pension funds, mutual funds, and exchange-traded funds (popular among retail investors) are also heavily invested in leveraged loans and CLOs.</p><p>The banks themselves may reveal that their CLO investments are larger than was previously understood. In fact, we’re already seeing this happen. On May 5, <a href="https://www.sec.gov/Archives/edgar/data/72971/000007297120000236/0000072971-20-000236-index.htm">Wells Fargo disclosed $7.7 billion worth of CLOs</a> in a different corner of its balance sheet than the $29.7 billion I’d found in its annual report. As defaults pile up, the Mnuchin-Powell view that leveraged loans can’t harm the financial system will be exposed as wishful thinking.</p><p>Thus far, I’ve focused on CLOs because they are the most troubling assets held by the banks. But they are also emblematic of other complex and artificial products that banks have stashed on—and off—their balance sheets. Later this year, banks may very well report quarterly losses that are much worse than anticipated. The details will include a dizzying array of transactions that will recall not only the housing crisis, but the Enron scandal of the early 2000s. Remember all those subsidiaries Enron created (many of them infamously named after<i> Star Wars</i> characters) to keep risky bets off the energy firm’s financial statements? The big banks use similar structures, called “variable interest entities”—companies established largely to hold off-the-books positions. <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/72971/000007297120000217/wfc-12312019xex13.htm">Wells Fargo has more than $1 trillion of VIE assets</a>, about which we currently know very little, because reporting requirements are opaque. But one popular investment held in VIEs is securities backed by commercial mortgages, such as loans to shopping malls and office parks—two categories of borrowers experiencing severe strain as a result of the pandemic.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/ideas/archive/2020/04/were-replicating-mistakes-2008/609586/?utm_source=feed">Jesse Eisinger: We’re replicating the mistakes of 2008</a>]</i></p><p>The early losses from CLOs will not on their own erase the capital reserves required by Dodd-Frank. And some of the most irresponsible gambles from the last crisis—the speculative derivatives and credit-default swaps you may remember reading about in 2008—are less common today, experts told me. But the losses from CLOs, combined with losses from other troubled assets like those commercial-mortgage-backed securities, will lead to serious deficiencies in capital. Meanwhile, the same economic forces buffeting CLOs will hit other parts of the banks’ balance sheets hard; as the recession drags on, their traditional sources of revenue will also dry up. For some, the erosion of capital could approach the levels Lehman Brothers and Citigroup suffered in 2008. Banks with insufficient cash reserves will be forced to sell assets into a dour market, and the proceeds will be dismal. The prices of leveraged loans, and by extension CLOs, will spiral downward.</p><figure><iframe frameborder="0" height="3641" resizable="resizable" scrolling="no" src="https://www.theatlantic.com/media/interactives/2020/06/clo-an-illustrated-guide/index.html?v=3" width="630"></iframe>
<figcaption class="caption"><i>Image source: Based on data from Fitch Ratings. The fourth CLO depicts an aggregate leveraged-loan default rate of 78 percent.</i></figcaption></figure><p>You can perhaps guess much of the rest: At some point, rumors will circulate that one major bank is near collapse. Overnight lending, which keeps the American economy running, will seize up. The Federal Reserve will try to arrange a bank bailout. All of that happened last time, too.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2015/09/how-wall-streets-bankers-stayed-out-of-jail/399368/?utm_source=feed">From the September 2015 issue: How Wall Street’s bankers stayed out of jail</a>]</i></p><p>But this time, the bailout proposal will likely face stiffer opposition, from both parties. Since 2008, populists on the left and the right in American politics have grown suspicious of handouts to the big banks. Already irate that banks were inadequately punished for their malfeasance leading up to the last crash, critics will be outraged to learn that they so egregiously flouted the spirit of the post-2008 reforms. Some members of Congress will question whether the Federal Reserve has the authority to buy risky investments to prop up the financial sector, as it did in 2008. (Dodd-Frank limited the Fed’s ability to target specific companies, and precluded loans to failing or insolvent institutions.) Government officials will hold frantic meetings, but to no avail. The faltering bank will fail, with others lined up behind it.</p><p>And then, sometime in the next year, we will all stare into the financial abyss. At that point, we will be well beyond the scope of the previous recession, and we will have either exhausted the remedies that spared the system last time or found that they won’t work this time around. What <i>then</i>?</p><p class="dropcap"><span class="smallcaps">Until recently</span>, at<span class="smallcaps"> </span>least, the U.S. was rightly focused on finding ways to emerge from the coronavirus pandemic that prioritize the health of American citizens. And economic health cannot be restored until people feel safe going about their daily business. But health risks and economic risks must be considered together. In calculating the risks of reopening the economy, we must understand the true costs of remaining closed. At some point, they will become more than the country can bear.</p><p>The financial sector isn’t like other sectors. If it fails, fundamental aspects of modern life could fail with it. We could lose the ability to get loans to buy a house or a car, or to pay for college. Without reliable credit, many Americans might struggle to pay for their daily needs. This is why, in 2008, then–Treasury Secretary Henry Paulson went so far as to get down on one knee to beg Nancy Pelosi for her help sparing the system. He understood the alternative.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/magazine/archive/2012/06/how-we-got-the-crash-wrong/308984/?utm_source=feed">From the June 2012 issue: How we got the crash wrong</a>]</i></p><p>It is a distasteful fact that the present situation is so dire in part because the banks fell right back into bad behavior after the last crash—taking too many risks, hiding debt in complex instruments and off-balance-sheet entities, and generally exploiting loopholes in laws intended to rein in their greed. Sparing them for a second time this century will be that much harder.</p><p>If we muster the political will to do so—or if we avert the worst possible outcomes in this precarious time—it will be imperative for the U.S. government to impose reforms stringent enough to head off the next crisis. We’ve seen how banks respond to stern reprimands and modest reform. This time, regulators might need to dismantle the system as we know it. Banks should play a much simpler role in the new economy, making lending decisions themselves instead of farming them out to credit-rating agencies. They should steer clear of whatever newfangled security might replace the CLO. To prevent another crisis, we also need far more transparency, so we can see when banks give in to temptation. A bank shouldn’t be able to keep $1 trillion worth of assets off its books.</p><p>If we do manage to make it through the next year without waking up to a collapse, we must find ways to prevent the big banks from going all in on bets they can’t afford to lose. Their luck—and ours—will at some point run out.</p><hr><p><small><em>This article appears in the July/August 2020 print edition with the headline “The Worst Worst Case.”</em></small></p>Frank Partnoyhttp://www.theatlantic.com/author/frank-partnoy/?utm_source=feedGeorge WylesolThe Looming Bank Collapse2020-06-10T05:00:00-04:002020-07-21T14:38:01-04:00The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.tag:theatlantic.com,2020:50-611509<p class="dropcap">The private Slack message arrived at 12:15 p.m., as I was toasting a year-old bagel, exhumed from my freezer: “Are you around?” It was the CEO, my direct manager. Normally she texts my phone when she wants to chat. Weird. “Yup!” I typed back. Where else would I be?</p><p>I spread the last of the cream cheese onto the bagel and took a bite. Passable. How quickly one adapts to new realities in a pandemic. During the past month, I’d cut my kid’s hair, sewed four masks by hand, paid my respects at a Zoom shiva, and handed over my ailing dog to a stranger to be <a href="https://www.theatlantic.com/family/archive/2020/04/when-your-dog-dies-during-pandemic/610339/?utm_source=feed">euthanized alone</a>. What other jerry-rigged mutations of the normal rituals of daily life awaited?</p><p>“Did you get the notice for the all hands?” my boss wrote.</p><p>No, I had not seen the email she’d sent less than an hour earlier. I’d been working on an op-ed for her, on the nature of communal grief and its effects on the brain.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/family/archive/2020/04/when-your-dog-dies-during-pandemic/610339/?utm_source=feed">Read: On top of everything else, my dog died</a>]</i></p><p>For the past two years, I’ve been the full-time head writer at a Silicon Valley health-tech start-up, working remotely from Brooklyn, with frequent cross-country trips—pre-pandemic, that is—to the mothership. Writing blog posts, op-eds, and complicated science-based content for our app takes uninterrupted focus, so I try to be disciplined about distractions, checking my inbox infrequently. Normally, anything urgent—the arrival of a cake in the office, a request for trivia topics for the weekly staff meetings—gets blasted out over Slack. The only previous fire I’d had to put out was when the CEO needed me to edit an indecipherable proposal, due the next day, during my nephew’s bar mitzvah. She’d texted it to my cellphone on a Sunday morning, and I’d quickly slipped out of the family brunch to wrangle word salad into cogent prose.</p><p>I dialed into the Zoom meeting at 12:16 p.m.—meaning 9:16 a.m. in California, the start of my colleagues’ workday—and saw only a blank white screen. The meeting had begun at 9 a.m. and ended just before 9:07, so I’d missed it entirely. Double weird. Normally our all-hands Zoom meetings last between 45 minutes and an hour. At night. Suddenly, a new Slack channel appeared: #goodbye.</p><p>Until this moment, I had not worried about the economic fallout from COVID-19 affecting my own ability to pay rent or buy groceries. I’m not in the restaurant industry, I don’t cut hair (well, not professionally, that is), I’m neither a concert promoter nor a Broadway star, I don’t own a nail salon, I can’t draw tattoos. I’m a <a href="https://www.deborahcopaken.com/">writer/photographer</a> with a steady day job in health tech: Those two words alone, health and tech, should have been able to protect me these days, right?</p><p>“Wait, is the company folding?” I typed to my boss.</p><p>It took an unusually long time for the word layoffs to appear, followed by the news that I would be converted from a full-time employee into a contract worker with reduced hours. She’d hoped to explain all of this during the public Zoom, then over a private discussion later. She sent me a link to the meeting’s recording, so I could watch it before our talk. We made an appointment to speak later.</p><p>“I’ll call your cell at 3,” I wrote.</p><p>No. A private phone call, I was informed, would not be possible. A representative from HR would have to join us on a Zoom link. Meaning, I was about to get fired … over Zoom? And here I thought cutting my kid’s hair had been hard.</p><p>I took another bite of the freezer-burned bagel and immediately clicked over to the recording of the all-hands. Instead of 25 tiny Zoom boxes, it was one large rectangle of our CEO, wearing a black shirt and sitting under the familiar white eaves of her beige home office. Or maybe that was her bedroom, who knew? Though we’ve all become intimate with the color, shape, and decoration of one another’s homes, they hardly paint a full picture of who we are, how we grieve, or what keeps us up at night when those walls reflect neither light nor color.</p><p>In the video, the CEO laid out the ravages of COVID-19 on our business and the rationale behind the significant reduction in force of our ranks: RIF for short, I would later learn, after the acronym was batted around so many times in a subsequent meeting, I had to secretly Google it mid-Zoom. The last half of her announcement was taken up by a heartfelt, moving apology, replete with an acknowledgment of the pain she knew this would inflict on our lives and on those of our families, particularly now. She broke down and cried several times as she spoke, to the point where she had to pause and wipe away tears with a tissue before continuing. She is that rare species: a CEO with empathy.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/family/archive/2020/03/my-whole-household-has-covid-19/608902/?utm_source=feed">Read: My whole household has COVID-19</a>]</i></p><p>This is why I joined her company. I hadn’t been looking for a new job when she contacted me out of the blue at my previous job, after having read one of my <a href="https://www.amazon.com/Between-April-Deborah-Copaken-Kogan/dp/1565129326">darker novels</a>. “I need your voice,” she’d said, and since then our relationship has only grown in mutual respect and amity. Would I call her my friend? Yes, I would. Have I loved working for a female CEO? Let me count the ways. Watching her cry, my own tears fell. Not wanting to alarm my kids, the youngest of whom was still busy Zoom schooling, I shut my computer, threw on a mask, and went for a walk in Brooklyn’s deserted streets.</p><p>How smug I’d been, I thought, as I walked in the middle of the street to avoid others, believing a position with stock options at a Silicon Valley start-up would act as a health-insurance-infused bulwark against the ravages of insecurity that my media career has entailed. But of course COVID-19 has completely changed our definition of bulwarks and safety. I’m now just one of tens of millions of Americans in the same sinking boat, 20.5 million of whom lost their jobs in April alone, according to last Friday’s devastating <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">Labor Department report</a>. I’m not even one of the counted yet, because I have yet to file for unemployment: a logistical and weekly frustration, as I recall, in which one is considered guilty of fraud until proving innocence.</p><p>The last time I had to apply for unemployment, back in early 2017, I’d been laid off from a job as a vice president and deputy editorial director of a multinational PR firm. Donald Trump’s election and the uncertainty that had ensued in those first months of the year had pummeled PR budgets, particularly in my sector, health. Would Obamacare be dismantled? If so, what would replace it? Our company not only had zero percent growth in the first half of 2017; revenues were down by $1.2 million. Because of this, heads had to roll. It’s not personal, I was told, it’s business. LIFO: another new acronym I had to learn the hard way. Last in, first out. Oh. Like most workers these days, I’d been forced to sign an “at will” employment contract, so the company did not owe me any severance.</p><p>“At will” means one can be fired at any time, without cause. This is both a uniquely American quirk of labor law as well as a highly controversial one. It allows corporations to expand and grow unheeded by financial responsibility to their employees, which creates more value for shareholders. Law scholars and economists sympathetic to human rights and to the dignity of workers see at-will contracts exactly for the power imbalance they are: a codified, modern-day monarchy. “It is employment at will and its fundamental assumption which is the major barrier to establishing a system of collective bargaining,” <a href="https://www.law.upenn.edu/journals/jbl/articles/volume3/issue1/Summers3U.Pa.J.Lab.&Emp.L.65(2000).pdf">wrote</a> the labor lawyer Clyde W. Summers. “In American labor law, the monarchy still survives.”</p><p>I was born in 1966. I shouldn’t admit this, because <a href="https://www.nber.org/papers/w21669.pdf">age discrimination for older women searching for work, as I now am, is real</a>. This makes me, at 54, one of the oldest of the Gen Xers. Like many in my generation, I have spent the past 32 years hopping over the Frogger logs of an unforgiving gig economy. The sociologist Allison Pugh has dubbed this the “<a href="https://allisonpugh.weebly.com/the-tumbleweed-society.html">tumbleweed society</a>,” in which “job insecurity is rampant and widely seen as inevitable.” If COVID-19 can be said to have any upsides, it is that its devastating economic ravages have finally unmasked the truth of late-stage American capitalism: It is a system in which every worker is as expendable as every shareholder is sacrosanct.</p><p>At 3 p.m., having regained my composure, I clicked on the Zoom link. <em>A Doom link</em>, I thought, as my image appeared vertically between the CEO’s and our head of HR’s. In Brady Bunch terms, I’d be Alice, my boss would be Carol, and our head of HR would be Mike.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/family/archive/2020/04/how-can-we-mourn-properly-over-zoom/610414/?utm_source=feed">Read: Notes from a videochat memorial</a>]</i></p><p>“I’m so sorry,” my boss said. Her eyes watered anew. She had made this same call several times over the course of that day: seven times out of a staff of 44, so a 16 percent reduction in headcount. Many of us let go that day were among the higher earners, meaning our loss would allow more runway for the company than if they’d dismissed those earning less. In the end, with venture-capital belts tightening and deals falling through left and right because of the virus, the company’s survival was all about runway. I understood this, even if it pained me to accept it.</p><p>“I’m so sorry, too,” I said, choking back my own tears. “But this is an unprecedented time, and I get it. Are you okay? I’m worried about you.”</p><p>Hyper-empathy, my last shrink once labeled this propensity of mine to avoid my own pain by over-identifying with the pain of others: a trait that is simultaneously both self-protective and self-destructive. Were we not in a pandemic, I might have fought harder. Been angrier. Demanded more severance. Then again, were the economy not evaporating, I would not have been laid off. I had to keep reminding myself of this fact. Plus I was being offered the chance to keep working on a contract basis, with reduced hours, so I am in better shape than most. “When this pandemic is over, do you imagine me coming back as a full-time employee?” I asked.</p><p>Absolutely, my boss said. Her pained expression was hurting me. In fact, being fired over Zoom, without the normal visual cues and eye contact of in-person communication, only magnified the surreality of the moment. I found the whole experience of managing the disembodied pain of others emotionally draining. “<a href="https://www.nationalgeographic.com/science/2020/04/coronavirus-zoom-fatigue-is-taxing-the-brain-here-is-why-that-happens/#close">Zoom fatigue</a>,” it’s been dubbed, this simulacrum of human interaction in which we’re all now living. Had the three of us been sitting in a room in person while I was getting fired, instead of floating along as lifeless pixels on a screen, the pain I knew each of us was feeling in that moment—yes, even our head of HR, who spoke touching words about my work and value—might have seemed equally shared. Instead it felt as if I was taking it all on myself.</p><p dir="ltr">Luckily, I’m okay on the health-insurance front until September 1, and so won’t have to shell out more than $2,000 in extra COBRA fees every month until then, because I protected myself this time. (It’s one of the greatest cosmic ironies of the American health-care system, this sudden necessity to pay out an extra month’s rent in insurance premiums just at the moment you’ve lost your source of income.) I’ve lived through enough upheavals at this point in my career that I’m like a Depression-era hoarder, not of sugar packets and buffet muffins, but of jobs. Last year, during a nearly sleepless three-month period, I simultaneously held down three other gigs on top of my full-time job, one of which was as a staff writer on a <a href="https://www.vulture.com/2020/05/emily-in-paris-darren-star-netflix.html">new TV show</a>. Meaning I was suddenly eligible for Writers Guild health insurance, that holy grail of health protection that’s both affordable and good. In fact, the WGA insurance was so much better and more affordable than the one offered by my Silicon Valley job, I’d already switched over to it when I could last September.</p><p dir="ltr">Thank God, because it got me through a month of <a href="https://www.theatlantic.com/family/archive/2020/03/my-whole-household-has-covid-19/608902/?utm_source=feed">fighting off</a> my own COVID-19 infection without paying a dime. But of course, had I needed an ambulance ride during that month of gasping for air like a fish on shore––which one night, I almost did—I might have called UberPool again, just as I did back in 2017, <a href="https://medium.com/@dcopaken/ladyparts-a-story-of-near-death-36264f1c675c">when I nearly died</a> after a botched surgery. I’d read too many horror stories of four-figure surprise ambulance bills. Is it any wonder why more poor, brown, and black people are dying of COVID-19 than rich and white? It’s the economic inequality, stupid. And endemic racism. And our absurd health-care system.</p><p dir="ltr">But maybe this virus will be the kick in the pants our tumbleweed society needs to stop tying health-care access to full-time employment. To finally admit that being able to call an ambulance in an emergency, without worrying about how much that ambulance will cost, is just as crucial to our social fabric as being able to summon a firefighter when your house is aflame.</p><p dir="ltr">An hour after I was fired, my partner caught me staring off into space. I’d just found out that a classmate from college, a mother of five, had taken her own life. It seemed wrong for me to worry about how I will pay for food and my half of the rent when her widower’s and children’s burdens were so much greater. But no, I thought to myself. <em>No more hyper-empathy for others as a Band-Aid to cover my own pain. </em>I was just fired over Zoom during an economic-extinction event. It hurt. I’m scared. I’m worried about my future, my children’s future, Earth’s future. I am allowed to sink into the bathtub of my own feelings.</p><p dir="ltr">“I have an idea, but it’s really more of an order,” my partner said. “We’re going on a bike ride.”</p><p dir="ltr">“Okay,” I said, grateful.</p><p dir="ltr">We put on our masks and rode our bikes out to the end of Red Hook, searching for a place to watch the sunset behind the Statue of Liberty. Each road we turned down led to one toxic-waste dump or another. Finally, one street led to a pier overlooking New York Harbor. Better yet, it had a pie shop. I love pie. So does my partner. While he stood in a socially distant line to buy one, I stared out at Lady Liberty. Thick gray clouds floated above her head, dwarfing her. But for now, she was still standing.</p><p dir="ltr">My partner returned with a pie box. But how to keep it steady during the long and bumpy ride home? “Aha!” I said, pulling out one of my extra hand-sewn masks from my bag. If I could get fired over Zoom, surely we could use a homemade face mask as a bungee cord to steady a pie. It was one small victory, on an otherwise painful day. With dark clouds overhead and our jerry-rigged pie secure, we rode back home, hoping it wouldn’t rain.</p>Deborah Copakenhttp://www.theatlantic.com/author/deborah-copaken/?utm_source=feedAdam MaidaI Got Fired Over Zoom2020-05-12T10:00:00-04:002020-05-12T11:42:41-04:00It’s as unpleasant and awkward as you’d imagine.tag:theatlantic.com,2020:50-610183<p>“Not quite a cliché, not quite a term of art, a buzzword is a profound-seeming phrase devised by someone important to make something sound better than it is,” my colleague <a href="https://www.theatlantic.com/health/archive/2020/02/most-annoying-corporate-buzzwords/606748/?utm_source=feed">Olga Khazan wrote in February</a>.</p><p>Jargon such as <i>pain points</i> and <i>pushback</i> can be a much-derided feature of many workplaces. Even when so much of the country is working from home, this corporate lingo still grates.</p><p>It’s like ASMR, “but instead of giving you those relaxing tingles, it just makes your skin crawl and puts a chill down your spine,” Heath Barker noted. He’s one of many readers who wrote to us to share their revulsion with corporate-speak—and to catalog the flaws of the words that irked them most. “I can’t stand the word ‘team’ anymore. And screw ‘please advise,’” Adrian Xavier Tristan wrote. “I have nightmares because of low-hanging fruit,” Neha Bawa confessed. “If there is not a suitcase involved, I don’t want to hear UNPACK,” Patrice English declared.</p><p>To pin down the most-universally hated corporate buzzwords, I combed through reader replies on <a href="https://www.instagram.com/p/B8zSTlhAJhX/">Instagram</a>, <a href="https://www.facebook.com/TheAtlantic/posts/10158392393598487">Facebook</a>, and <a href="https://twitter.com/TheAtlantic/status/1230314159440527360">Twitter</a> to compile a comprehensive list of terms and organized them into a <a href="https://twitter.com/TheAtlantic/status/1235269322999828487">March Madness–style Twitter bracket</a>. Every day for the past several weeks, readers have voted in polls pitting the most annoying examples of office-speak against one another. <i>Close the loop</i> faced <i>loop in</i>. <i>Win-win</i> battled <i>buy in</i>. In one of the closest matches, <i>silo</i> claimed a narrow victory over <i>optics</i>.</p><p>But elsewhere, several readers raised a compelling point: What if these words aren’t so bad after all? Some defended their simplicity. “What else are people supposed to say? ‘Let me dial your phone number so we can converse about a relevant work related topic’?” Ryan Freeman asked. That justification made sense to Karlee as well. “It’s an understandable ‘script’ when you need to communicate a meaning quickly and smoothly,” she explained—benefits that are even more important with so many meetings occurring remotely now.</p><p>Others disagreed, and piled buzzword on top of buzzword to call their efficient communication into question. “This is the kind of client-focused, solution-driven content that stakeholders want,” John Boudet wrote. Nathan Freehling took perhaps the deepest dive into corporate lingo: “Gotta tactically evaluate this strategic initiative from 40,000 feet before proving out whether it’s going to upcycle productivity or negatively impact the cross-functional team members that are coordinating the multi-pronged approach to synergizing the year-over-year growth strategy,” he wrote.</p><p>Readers revealed how ridiculous the jargon of office life could be—“‘Interrogate’ the data, like we’re going to torture it into making false confessions,” Lia Maland mused—but also, crucially, how pervasive. “Today I said, ‘outside the box,’” Nancy Farmer admitted. “I don’t know how that happened.” Buzzwords are “probably half of my lexicon,” Angelica Verba wrote. This very pervasiveness may help explain why these terms are so hated. “Like everyone’s loud tipsy uncle,” Khazan noted in her article, “the buzzwords people know best tend to be the ones that irritate them most.”</p><p>After weeks of voting, a winner for our bracket emerged. The phrase coasted through the first two rounds, easily winning over <i>double click</i> and <i>ping</i>. <i>Value proposition</i> offered a strong performance in the finals, but the winner was too formidable an opponent to shake. Ultimately, <i>lean in</i>, a term for grabbing opportunities without hesitation <a href="https://www.theatlantic.com/technology/archive/2018/11/facebooks-sheryl-sandberg-leaned-we-just-didnt-like-outcome/576046/?utm_source=feed">popularized by Sheryl Sandberg</a>, claimed victory as the worst buzzword.</p><p>Despite the fact that few of us are in a physical office these days, videoconferencing apps such as Zoom and Google Hangouts replicate work conversations we would otherwise have in person. Even in these virtual environments, buzzwords persist. So as you listen to your co-workers—and now roommates and partners—communicating with other employees, do be understanding of those not yet indoctrinated. “Don’t mind me,” one <i>Atlantic</i> Twitter follower wrote to us, “just reading through these phrases that I thought were totally innocuous (minus synergy and disrupt) and learning that apparently my coworkers hate me.”</p>Kate Crayhttp://www.theatlantic.com/author/kate-cray/?utm_source=feedKatie Martin / The AtlanticSomething We Can All Agree On? Corporate Buzzwords Are the Worst.2020-05-05T12:00:00-04:002020-05-05T12:00:32-04:00After publishing an article on office jargon, we asked you for your most loathed examples.tag:theatlantic.com,2020:50-607216<p>Over the past week, stock markets around the world plunged as distressing news about the spread of the novel coronavirus continued to accumulate. In the United States, the three major stock indexes—the Dow Jones Industrial Average, the Nasdaq Composite, and the S&P 500—fell more than 10 percent below their recent peaks, a sharp decline that qualifies in Wall Street terminology as a market “correction.” One investor quoted in <em>The Wall Street Journal</em> called it a <a href="https://www.wsj.com/articles/global-stocks-extend-declines-as-coronavirus-concerns-mount-11582784087">“bloodbath.”</a></p><p>The global stock market is, theoretically, the distillation of how investors think everything that happens in the world will play out in the economy. Right now, judging by these drops, investors are much less optimistic than they were a week ago. But what they’re predicting is not only how bad the outbreak could be in terms of workers staying home sick, drops in consumer spending, or <a href="https://www.theatlantic.com/technology/archive/2020/02/coronaviruss-effects-on-global-markets-will-be-delayed/606508/?utm_source=feed">supply-chain disruptions</a>; it’s also how bad people <em>think</em> it could be. Those might turn out to be two very different things.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/health/archive/2020/02/covid-vaccine/607000/?utm_source=feed">Read: You’re likely to get the coronavirus</a>]</i></p><p>Public perception of a crisis can be extremely consequential in financial markets. “The notion of a pandemic is pretty scary to people, and they’re going to hunker down and be careful about how they live their lives” if bleak news continues to roll in, says Richard Sylla, a former professor at NYU’s Stern School of Business. They may, for instance, start to <a href="https://www.nytimes.com/2020/02/27/business/stock-market-coronavirus.html">skip vacations or dine out less</a>. Airlines and restaurants, in turn, might lose revenue or even limit service because of what they think their customers will do. All of this combined would carry negative consequences for the economy, regardless of how catastrophic the direct impact of the disease actually turns out to be. “What people are thinking, even if it’s wrong, maybe matters more on a day-to-day basis [in the stock market] than what the truth is,” Sylla said.</p><p>What investors think the public is thinking is therefore crucial. Whether the costs of the outbreak turn out to be historically large or not, there is a risk that investors’ worries will snowball during this period of uncertainty, leading them to panic-sell and exacerbate any financial damage. “If in the next 20 years [the economy is] only going to be disrupted for three months, that suggests a very small impact on the market,” says Robert J. Shiller, a Nobel Prize–winning economist and the author of <a href="https://press.princeton.edu/books/hardcover/9780691182292/narrative-economics"><em>Narrative Economics: How Stories Go Viral and Drive Major Economic Events</em></a>. But the situation could be much worse, and when investors think in “grandiose terms,” Shiller told me, that could “trigger other worrying.”</p><p>Predicting the emotional reactions of the entire world population to coronavirus would be a bit easier if investors could turn to the market effects of previous pandemics for guidance. But history provides few indications of what might happen to the economy if the coronavirus and COVID-19, the disease it causes, continue to spread. “This is kind of a new thing,” Shiller said. “It’s too much to ask for the market to get it right.”</p><p>The closest analogue is the global influenza outbreak of 1918 and ’19, which <a href="https://www.britannica.com/event/influenza-pandemic-of-1918-1919">killed tens of millions</a> of people. In 1918, the stock market actually did fine—the Dow rose a little. In the years after that, Sylla noted, “the stock market didn’t do much, and while its trend was flat, there were fluctuations within that—some ups and downs, just like we see now.”</p><p>But drawing any conclusions from 100 years ago is difficult because, among other reasons, a lot of other stuff was happening then—namely, World War I. Because of that, says John Wald, a professor at the University of Texas at San Antonio’s College of Business, “it’s really hard to say whether [the 1918 pandemic] was priced correctly or not correctly” by the market.</p><p>Perhaps a better parallel is the flu pandemic of 1957 and ’58, which originated in East Asia and <a href="https://www.cdc.gov/flu/pandemic-resources/1957-1958-pandemic.html">killed at least 1 million people, including an estimated 116,000 in the U.S.</a> In the second half of 1957, the Dow fell about 15 percent. “Other things happened over that time period” too, Wald notes, but “at least there was no world war.” More recent outbreaks, such as SARS and MERS, were more contained and didn’t wreak as much global economic havoc.</p><p>Although the annual flu season is quite different from a pandemic, it does provide a good amount of data for economists to analyze. When Wald, along with the researchers Brian McTier and Yiuman Tse, examined trading records from 1998 to 2006, they found that in weeks when the flu was more widespread, <a href="https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/do-stock-markets-catch-the-flu/7246AB91E898AEE0A7B351EC6E080308">stock-market returns were lower</a>. They also found that when there was a higher incidence of the flu in the greater New York City area in particular, trading volume decreased, which is usually bad for the market. Here, the idea is that more professional investors might have gotten sick and executed fewer trades—which would not bode well if COVID-19 were to make its way to New York City.</p><p>Sylla’s view of all this as a financial historian is pretty zen. “I wouldn’t pay much attention to the day-to-day reports of the newspapers—‘Here’s a good sign,’ ‘Here’s a bad sign,’” he said. In the short run, the stock market isn’t necessarily a good predictor of how bad the pandemic will get, in part because investors are working off the same scant information as everyone else. “What I would say history shows you is that a problem like this takes many months and maybe even a couple of years to play itself out,” he said. But, he went on, “Wall Street’s idea of history is the last 10 minutes.”</p>Joe Pinskerhttp://www.theatlantic.com/author/joe-pinsker/?utm_source=feedMartin Lisner / Shutterstock / The AtlanticHow to Think About the Plummeting Stock Market2020-02-28T11:00:09-05:002020-04-01T17:36:21-04:00No one knows exactly how much damage the coronavirus will do to the global economy, but investors have to guess.tag:theatlantic.com,2020:39-605524<p class="dropcap">When you enter the RH (formerly Restoration Hardware) <a href="https://www.architecturaldigest.com/story/-restoration-hardware-rh-opens-new-york-meatpacking-store-pastis">megastore</a> in New York City’s Meatpacking District, you might think it’s a place to buy furniture. Technically it is, with tens of thousands of square feet filled with dining-room sets and king-size beds and couches, upholstered in shades of gray and beige and beiger, and accessorized with plush rugs and metal-armed lamps. Or maybe you’ll mistake it for a hotel lobby, with its high ceilings, ample seating, and smiling concierge.</p><p>But on either side of the store’s broad central path, you’ll see its true spiritual, if not practical, purpose: as a temple to the high-end furniture chain’s infamous “source books.” On twin circular tables large enough for an extended family’s Thanksgiving dinner (yours for $7,995 each), eight different editions sit in neat stacks and offer inspiration tailored to ski chalets, beach getaways, or nurseries for rich babies, depending on the tome. Bathed in golden light from enormous $12,000 chandeliers, the gods of direct-mail marketing beckon enticingly from their “carbonized split bamboo” altars.</p><p>The biggest of RH’s 2019 catalogs was 730 glossy pages—from a few feet away, you might think it’s the September issue of <i>Vogue</i>. The company would not reveal how much it spends on the lavish compendiums, but in 2012, <a href="https://www.sfgate.com/business/article/Restoration-Hardware-catalog-a-huge-feat-3866807.php">an industry expert estimated</a> that they would require a multimillion-dollar budget, with each individual book costing as much as $3 to print and ship—a figure that doesn’t include the tab for photography or page design. RH’s catalogs, and its price points, were similar to Pottery Barn’s and Crate & Barrel’s until the late aughts, when the source books and opulently appointed stores began to be introduced. Both are part of what longtime Chairman and CEO Gary Friedman has described as a strategy to project abundance and turn the heads of wealthy customers; apparently, it’s worked. In 2001, the company was <a href="https://www.wsj.com/articles/SB10001424052748704436004576300181946707482">teetering on the edge of bankruptcy</a>. While there have been bumps along the way, RH’s sales since then have increased dramatically, and in December its stock price hit an all-time high.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/health/archive/2020/01/kitchenaid-le-creuset-peak-domesticity/605716/?utm_source=feed">Read: The new trophies of domesticity</a>]</i></p><p>All the pageantry for catalogs might seem puzzling, given that print media and retail stores are struggling to compete with the infotainment hub of the smartphone. But although the number of catalogs mailed in America has fallen since its high of 19 billion in 2007, an estimated 11.5 billion were still sent in 2018. As retailers become ever more desperate to find ways to sell their stuff without tithing to the tech behemoths, America might be entering a golden age of the catalog.</p><p class="dropcap"><span class="smallcaps">“The rumors of </span>my demise are greatly exaggerated,” says Hamilton Davison, the executive director of the American Catalog Mailers Association, which advocates for things like favorable postage rates and tax rules. “Isn’t that what Mark Twain said?” In the late 2000s, a change in federal regulation raised mailing prices for catalogs, and as online shopping accelerated in the years afterward, a lot of companies abandoned catalogs in favor of email and social-media strategies targeting younger consumers. Those retailers included companies known for their direct-mail products, such as JCPenney, whose catalog had figured prominently in its branding since 1963 but was discontinued in 2010.</p><aside class="callout-placeholder" data-source="curated"></aside><p>Five years later, though, <a href="https://www.nytimes.com/2015/01/26/business/media/catalogs-after-years-of-decline-are-revamped-for-changing-times.html">the JCPenney catalog was back</a>, in defeated recognition that the physical world still matters. “You can’t make me open your email, you can’t make me open your website, you can’t make me go to your retail store, but you can send a large-format mail piece I have to pick up,” Davison says. “It’s invasive, but it’s welcome.” Davison has a vested interest in the future of the format, of course, but his claims are borne out by research suggesting that even though catalogs typically arrive unbidden, consumers find them less presumptuous and irritating than marketing emails. “The internet is too much like work,” Davison says, while catalogs feel more like play. “The internet is great if you know what you’re looking for,” he adds, “but it’s a lousy browsing vehicle.” Instead of being followed around online for days by ads for a product you already ordered (or considered and ruled out), you can peruse catalogs at your leisure and disengage fully when you’re done. It’s so analog, it almost feels wholesome.</p><p class="c-recirculation-link" data-id="injected-recirculation-link"><em><a href="https://www.theatlantic.com/magazine/archive/2018/09/download-your-facebook-data/565736/?utm_source=feed">From September 2018: What it’s like to wallow in your own Facebook data</a></em></p><p>Around the same time that JCPenney was returning to mailboxes, catalogs began gaining favor among newer companies. “You can think about a catalog as a push versus a pull,” says Matt Krepsik, the global head of analytics for Nielsen’s marketing-effectiveness arm. “On the internet, I just have to hope that Matt discovers my website. When I send Matt a catalog, I’m reaching out to him one-to-one.”</p><p>Another benefit: Catalog-mailers can “prospect” by sending their books to whomever they choose, but most email-marketing services require retailers to gain consent from recipients. That’s partly because sending marketing emails without permission is illegal in some countries and partly because it’s against the rules of some internet- and email-service providers—businesses risk having everything they send algorithmically disregarded as spam.</p><p>Although the average catalog costs about a dollar per copy to produce and ship, compared with pennies per email, Krepsik says that they’re particularly effective at prompting large purchases (up to twice as expensive as those made by noncatalog shoppers) and luring back customers after first purchases. Higher receipts and consumer loyalty are exactly what a plucky upstart needs to become a standard-bearer—or for a long-standing business to fight back against Amazon.</p><p class="dropcap"><span class="smallcaps">The story of </span>the Vermont Country Store is the opposite of the now-familiar cautionary tales of businesses too slow to cater to the desires of youth. “We were still printing a black-and-white catalog in 2000,” says Eliot Orton, one of three brothers who now own the business started by their grandfather in 1946. “We slowly migrated to color, even doing a watercolor treatment to the sketches we were doing at the time.” The store’s catalog, sent seasonally, with special editions for the holidays, is now full of color photography, but no one would mistake it for a concession to American marketers’ obsession with youth. Its comfy nightgowns, flannel bed linens, and old-school candies and baked goods are straight out of a Norman Rockwell fantasia.</p><p>Not only does the company curate its products for an older demographic, but the structure of its business, which still allows people to order by phone or send in a form with a check, could have easily become a thing of the past. A substantial number of Americans, however, still lack reliable high-speed internet or credit services, and many older people just don’t trust the internet, a suspicion that’s arguably justified. “We spent the last 30 years agonizing over whether there was a cliff, and whether the audience we were serving would evaporate and not be replaced,” Cabot Orton says. But new customers keep aging into the store’s market. You don’t have to be very old, after all, to grow tired of trying to keep up with technology—just ask any 30-something American still trying to decide whether to download TikTok. No one has to be taught how to flip through a catalog.</p><p>Even if the majority of a company’s orders are made online, as the Vermont Country Store’s now are, catalogs provide an important opportunity for businesses whose appeal goes beyond super-fast service at super-low prices. The store is a family business whose employees, from photographers to warehouse workers, all live nearby. The brothers often turn up in the catalog, modeling plaid shirts, and everyone picks up shifts answering phones during the busy holiday season. This is a company that constantly reminds you that it’s still possible to buy some of what you need from people who aren’t trying to eliminate competitors or extract every last bit of value from employees or colonize the moon. That kind of context is lost entirely when a nightgown appears in Google’s shopping tab, alongside less expensive alternatives from Walmart.</p><p class="dropcap"><span class="smallcaps">A host of </span>internet-first start-ups, such as the makeup brand Glossier and the menswear company Bonobos, have boarded the catalog bandwagon in the past decade. These companies had thrived on direct-to-consumer websites and social-media advertising but needed new strategies to make a more complete case for their business.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/technology/archive/2019/03/shop-until-you-drop-instagram/585268/?utm_source=feed">Read: I gave up and let Instagram shop for me</a>]</i></p><p>That’s especially true for a very modern subgenre of company that seeks to attract socially conscious young people with a mix of activism, philanthropy, and sales. The brand Cotopaxi, which uses recycled materials to make things like backpacks and jackets, is among them. The outdoor-gear purveyor shoots its catalogs in adventure-travel spots in conjunction with local nonprofits, including, most recently, Escuela Nueva, which provides education to indigenous people and refugees in South America. The organizations receive modest grants from Cotopaxi, as well as coverage in the company’s catalog and the rights to use the material for their own fundraising. “It’s hard to tell that story over [social media] sometimes,” says Annie Agle, Cotopaxi’s director of brand and impact. “It can feel callous; there’s not a lot of time, and you’re fighting for attention.” Catalogs, in their own way, are antiviral—they’re not easily shared, and they offer depth and explanation. If the catalogs in your mailbox have started to look more like magazines, that’s why.</p><p>Still, consumers worried about waste and climate change might bristle at receiving paper mail when they could be reached digitally. Agle says she understands that concern, but notes that upwards of 90 percent of an apparel company’s carbon footprint happens before a garment is sewn, because the manufacture and transportation of textiles is extremely expensive and wasteful. So that, she says, is where most of Cotopaxi’s efforts at waste reduction have gone.</p><p>Even if paper sent through the mail is an imperfect medium, it still might be the best way for independent businesses to avoid getting sucked into the Amazon-Google-Facebook vortex—and for internet-weary consumers to avoid seeing the whole world through the filters of the Big Three’s algorithms. “Something we talk about a lot is data-privacy issues,” Agle says. “Obviously electronic advertising is more sustainable, but it’s not necessarily better for society.”</p><hr><p><small><em>This article appears in the March 2020 print edition with the headline “Why Restoration Hardware Sends Catalogs the Size of a Toddler.”</em></small></p>Amanda Mullhttp://www.theatlantic.com/author/amanda-mull/?utm_source=feedGiacomo BagnaraWhy the Restoration Hardware Catalog Won’t Die2020-02-18T06:00:00-05:002020-11-19T14:57:57-05:00The surprising persistence of the mail-order businesstag:theatlantic.com,2019:50-603622<p>In exchange for a salary, office workers do a great many dreadful things: sit through meetings, make the trek to and from work each day, feign enthusiasm for their employer’s particular vision.</p><p>Come holiday season, they also—compelled by a strange mix of perceived obligation and genuine holiday spirit—sometimes exchange gifts with one another. One common, and frequently awkward, form of this yearly tradition is the Secret Santa, in which participants randomly select a co-worker’s name and then anonymously give a small gift to that person. Plenty of office workers happily channel their holiday cheer into Secret Santa, but a lot of people, even those who don’t exhibit the least bit of grinchiness otherwise, aren’t into it.</p><p>“I feel like [my co-workers] can’t really know me well enough to give me a gift that’s meaningful in any sense,” Beatrice Loayza, a 26-year-old writer who has an administrative office job during the day, told me. She said the gifts people in her office get one another tend to be unimaginative, “like a generic piece of clothing or some generic masculine or feminine gift. Everything that’s being exchanged feels a little forced.” A year or two ago, she received a foldable tote bag “in these horrible bright womanly colors” that currently sits, still unused, underneath her desk. Her Secret Santa contributions have been just as half-hearted, she said: “I go and get a bottle of wine 15 minutes before the party or something like that.”</p><p>Recently, Loayza’s Secret Santa experience almost went from mediocre to actively unpleasant. “This year, I chose [from a hat] the one person that I legitimately do not like,” she said. “In the past, there’s been times when he’s eaten my lunch.” To get out of this predicament, she pretended to have drawn her own name, which under the rules of Secret Santa necessitates the selection of another name.</p><p data-id="injected-recirculation-link"><i>[<a href="https://www.theatlantic.com/business/archive/2016/12/remote-workers-holiday-parties/510434/?utm_source=feed">Read: The rise of the remote-work holiday party</a>]</i></p><p>Loayza has participated in her workplace’s Secret Santa exchange, somewhat grudgingly, for five years running. “Because there’s this pseudo-family small-office intimacy to it, it’s very glaring if someone were not to participate,” she told me.</p><p>She is not alone in her disenchantment. According to <a href="https://www.jobsite.co.uk/worklife/the-gifts-that-keep-on-taking-millennials-feel-fleeced-by-office-whip-rounds-24681/">a survey published last month</a> by the British job-listings platform Jobsite, 20 percent of workers in the U.K. would prefer not to have office celebrations, including Secret Santas and gatherings honoring an employee’s promotion or birthday, if they involve financial contributions from employees. Millennials in particular seemed to dislike these festivities, with 73 percent of them reporting that they had at some point spent more than they could afford to on such events, compared with 58 percent of workers overall.</p><p>And many people feel they can’t opt out of office-sponsored “fun,” whether it’s organized by the company or by a few jolly employees. “How can you say no to what your company is asking you to do?” wrote Sam Warren, a professor of organization studies and human-resource management at the University of Portsmouth, in an email. “Would it affect your [job] prospects? What does it say about your attitude to being a team player, or your relationship with your co-workers? How can you say no to FUN?”</p><p>Warren has studied the dynamics of fun at workplaces, and when employees enjoy themselves with co-workers, she noted, it can make them less stressed and more loyal to their employer. But what management considers to be enjoyable can sometimes make labor uneasy. “Often employees have a ‘work self’ and a ‘personal self’ and it’s uncomfortable to mix the two,” she wrote. “Modern-day work cultures encourage a blurring of boundaries that asks a lot of some employees who would prefer to keep things separate—particularly introverts.”</p><p>Last year, <em>The Cut</em> <a href="https://www.thecut.com/2018/12/nobody-likes-doing-secret-santa-at-work.html">documented</a> several Secret Santa horror stories—one woman said her boss gave her a book of sex tips—and they are indeed awful, but what I heard from those I interviewed were anecdotes of viciously mundane gifting. Kishan Purohit, a 29-year-old consultant in Mumbai, has participated in seven or eight office Secret Santas, and the least inspiring gift he got was a coffee mug with a trite motivational quote on it. “It said ‘Seize the day’ or something,” which he had no use for, not least because “I usually seize my day always.” He gave it away.</p><p>In his first years in an office setting, he didn’t mind gift exchanges, but they started to grate on him as he got trapped in a cycle of receiving meaningless paraphernalia (like the mug) and giving boxes of chocolates to near-strangers (“a safe bet”). Several of the Secret Santas Purohit has been involved in were enormous, with 100 people or more giving one another gifts. (Multiple times, the person he was assigned to buy a gift for was someone he’d never interacted with.) He’d rather the company organize a dinner or a community-service event, but Secret Santa persists and, out of fear of being seen as a party pooper, so does Purohit’s participation in it.</p><p>Some of the distaste that Rob, a 37-year-old working at a tech company in Amsterdam, has for Secret Santa is also tied to a disappointing gift. One year, “everyone got quite nice, thoughtful gifts, and what I got was a metal sign that said, if I remember correctly, <span class="smallcaps">Yeah sure, I’ll solve your problem—just as soon as I’ve solved everyone else’s</span>,” he told me. “I remember thinking, <em>God damn, is this is the impression that people have of me, that I would find this funny?</em>” To make matters worse, there was a policy against pinning things up in Rob’s office. (Perhaps it was intended as home decor?) “It went in the trash,” he said. (Rob requested to be identified only by his first name, because he doesn’t want to hurt his relationships with his co-workers.)</p><p>Another grievance of his is that some people adhere to the stated rules and others don’t, completely ignoring spending limits or trying to swap names so that they can get a gift for one of their friends. “Despite the 15-euro limit, at least one person received a Lego set that cost around 100 euros. My desk mate received a paperback book on Christianity—so, a mixed bag,” he told me.</p><p>Rob has had it with Secret Santas, and after years of participating in these “theoretically optional” activities, he’s finally opting out now that he feels like he’s established himself socially at work. “I’m just going to let the deadline pass, and if anybody says anything, I’m just going to say I forgot,” he told me.</p><p>The times Rob actually enjoyed exchanging gifts with co-workers were when he and some work friends set up their own small Secret Santa. “It was the work equivalent of the WhatsApp group that springs off from the WhatsApp group that excludes the two really annoying people,” he said.</p><p>Indeed, “The <a href="https://www.emerald.com/insight/content/doi/10.1108/ER-10-2013-0152/full/html">research on fun at work</a> shows that self-authored fun (fun things people do by themselves) are the only activities that people genuinely find enjoyable,” said Warren, the business-school professor.</p><p>One twist, though, is that workers sometimes make their own fun from within the confines of their employer’s prescribed framework. “Often the ‘laughable’ fun program, which people see as a superficial management gimmick, becomes an object of ridicule and self-authored fun itself—so the end result is the same,” Warren said. But if the best part of office Secret Santa is making fun of it, well, that says it all.</p>Joe Pinskerhttp://www.theatlantic.com/author/joe-pinsker/?utm_source=feedThe AtlanticThere’s No Fun Like Mandatory Office Holiday Fun2019-12-16T10:36:49-05:002019-12-16T12:29:40-05:00Secret Santa gift exchanges at work make many people grinchy—for good reason.