Do You Want Your Free Market Back?

Show Notes

This week started, as a lot of our best conversations do, with me admitting I'd had a duh moment. I'd been reading one of Howard Marks' recent letters — the man coined the phrase sea change a couple of years back, and this one was him plainly laying out something the rest of us were still wrestling with. The duh, for me, was simpler than his: a lot of the policies both sides were floating this election cycle only "work" if you're willing to repeal the fundamental laws of economics. Dan's response — "finally, someone says it" — pretty much set the tone for the hour.

So we went straight at price gouging, which turns out to be a much weaker villain than the rhetoric suggests. Publicly traded grocery chains run on gross margins of a few percentage points — it's a high-volume, low-margin grind, not a money-printing operation, and that checks out (net margins for the big chains sit around one to two percent). From there we got into the part I find genuinely hard: is raising prices wrong? Words like "unfair" and "excessive" are doing a lot of subjective work. I kept circling the Taylor Swift problem — she sets a ticket at $200 trying to be fair, and a scalper flips it for five times that, so who exactly did the fairness serve? Dan made the sharper cut: when it's an auction, it isn't the business raising the price, it's the demand. The umbrella vendor on a rainy day has been doing this since, what, 1400s London. The discomfort people feel isn't about math — it's about change.

That detour into pricing somehow produced my favorite tangent of the episode: the man in the car paradox, which Morgan Housel writes about in The Psychology of Money. The idea is that when you see someone in an expensive car, you don't think that person is cool — you think if I had that car, people would think I'm cool. Dan, the actual car guy of the two of us, put a finer point on it than I did: the moment you buy the thing for other people's eyes, you've already gone off the ramp. Buy it because it brings you joy, tires and all, and welcome to being a car person. (We also spent a deeply unserious five minutes computing that the shaggy van from Dumb and Dumber would gain roughly eleven hundred pounds of water in a downpour — two inches of soaked fur, eight pounds a gallon, a pint's a pound the world round. The math, for the record, holds.)

The through-line Dan kept sandwiching back to was stated versus revealed preferences, and I can't stop thinking about it. People say they'd want price controls or government intervention — and then live in a system that actually has them and quietly start whispering, I want my free market back. The honest version of this is that almost every clean historical example of price controls — Venezuela, Argentina, the USSR — looks bad. The one limited case where it arguably worked was postwar rent control, which kept families from being displaced while men were overseas and women were holding down jobs they hadn't done before. We landed on a rule I actually believe: price controls can make sense on a short horizon, in response to a specific exogenous crisis — but as a permanent feature of a functioning economy today, no. And the same lens turns inward, too: I say I want to work more on a project, then notice I never actually make the time. Aspirational versus achievable. Dan calls it process over goals, and quotes Naval — find the hard thing you enjoy that everyone else hates, and build your career in that gap.

Then Dan got to his topic du jour, tariffs, and this is where the economics gets unforgiving. A tariff doesn't punish the exporter — it makes the consumer pay more, because the importer either passes the cost through or goes bankrupt, and the research bears that out: the overwhelming share of the burden lands on U.S. firms and shoppers. A 10% across-the-board version is the worst of it — the only place that doesn't carry the tariff is domestic manufacturing, where our labor rates are three or four times higher. I told Dan I'd paid $100 for jeans at the mall; his American-made pair ran $350. The better question, the one nobody's asking, is which manufacturing we actually want back — sheet-metal stamping, or high-end aerospace and titanium? We agreed it's not all-or-none, and we agreed, a little grimly, that the real stated-versus-revealed gap might be the candidates themselves: pander to win, then govern sober. We mostly just hope for enough gridlock that nobody breaks anything.

Strong opinions, held lightly — that's Dan's standing offer to anyone who wants to correct us, and I'll co-sign it, with the lone exception of my well-stated, non-negotiable preference for Coke over Pepsi. The laws of economics, it turns out, are a lot harder to repeal than the laws of good taste.

— Sean