Oaktree Capital Management co-chairman Howard Marks revised the government interventions in Wednesday’s memo titled “Shall We Repeal the Laws of Economics?”
The billionaire investor, known for his outstanding investments in distressed debt, argued that economic systems operate on fundamental laws, such as supply and demand and incentives, and while these laws aren’t perfect, trying to bypass them often creates greater harm than good.
Effects of Rent Control
“Governments are choosing winners and losers, rather than letting market forces do so.”
Marks considers rent control as a typical example of a well-intended policy clashing with an economic reality. When demand for apartments exceeds supply, rising rents are inevitable. Politicians often step in to cap these increases to protect existing tenants, ensuring constituents aren’t displaced and neighborhoods remain intact. This action pleases voters, helping the officials solidify their position. But this “solution” only makes a subset of people happy.
“Landlords are unhappy about not being able to charge the full rent they could charge in a free market,” Marks explains, leading them to stop investing in properties or remove them from the market entirely.
Developers turn away from building new housing in these areas, fearing insufficient returns. Meanwhile, those who can afford market rents often struggle to find vacant units due to rent-controlled occupants.
The inability to monetize the benefit of cheap rent means tenants stay put, reducing mobility. Rent control suppresses both the upkeep and creation of new housing, leading to deterioration in the housing stock and limiting economic productivity.
“Governments can limit the rents landlords can charge…but they can’t make developers build new ones,” he concludes. A policy designed to promote fairness ends up entrenching inequality and reducing opportunity.
Insurance and California Regulations
“You can limit the price insurers can charge for coverage, but you can’t make them provide coverage at that price.”
Marks views the development of the fire insurance market in California as a case study of what happens when regulation ignores economic fundamentals. In response to rising wildfire risks, California’s regulators limited the premiums insurers could charge, hoping to protect homeowners. However, Marks believes the move catastrophically backfired.
With the assistance of Perplexity AI, Marks outlined that insurers were not allowed to use forward-looking risk models, relying instead on outdated 20-year historical data, even as fires were becoming more frequent and destructive. They were also restricted from raising rates in line with increasing reinsurance costs.
As a result, companies like Chubb CB, Allstate ALL, and State Farm exited the California market or ceased writing new policies altogether. Those that remained raised premiums significantly, and some homeowners saw annual rates quadruple.
The government issued temporary moratoriums on policy cancellations, but these only applied post-disaster, not before. Consequently, many affected by the 2025 fires were underinsured or uninsured, a painful outcome of misguided regulation. The FAIR Plan, California’s insurer of last resort, became overburdened and offered only limited, expensive coverage. The deeper issue was that while regulators could dictate pricing, they couldn’t compel insurers to provide products that guaranteed losses.
“If a $5 million house has a 1% probability of burning down…and the regulator says you can only charge $25,000, what will you do? You don’t write that policy,” Marks remarks.
Are Tariffs the Answer?
“Progress takes countries up the curve from subsistence to prosperity, and along the way, they transition from agriculture to manufacturing to service-based economies. That happened everywhere. It wasn’t just in the United States.”
Turning to tariffs, Marks provides a nuanced analysis. Tariffs, often promoted as a means of protecting domestic industries and securing supply chains, are essentially taxes on imports. He concedes that tariffs might achieve goals like supporting U.S. manufacturing, reducing the trade deficit, and deterring unfair foreign practices. But the tradeoffs are substantial.
Consumers face higher prices, domestic producers may lose their incentive to innovate, and American exports can suffer as retaliatory measures take effect. Tariffs create artificial advantages that shield local industries from competition but at a cost to consumers and global efficiency.
“They impede foreign competition, enabling domestic manufacturers to sell their products even if they represent an inferior bargain,” Marks notes.
Turning to the past, he references historian Niall Ferguson, who argues that industrial decline in the U.S. was inevitable due to structural economic evolution. As GDP rises, manufacturing employment naturally declines and shifts to services.
“We cannot go back to the 1950s…not socially, and not economically,” Ferguson states. According to Marks, even if manufacturing in America is nostalgic and symbolic, it isn’t economically viable on a broad scale due to significantly higher costs.
However, he acknowledges that targeted tariffs might be justified in cases of national security or against countries engaging in unfair trade practices. But attempting full-scale reshoring of production through blanket tariffs? – That tradeoff would come at the expense of domestic consumers and global welfare.
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