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by | 29, Sep 2022

Basic Economics| Book Deep-Dive

Basic Economics is written for those who want to understand how the economy works but have no interest in the formulas and “big words”. Bestselling economist Thomas Sowell explains the general principles underlying different economic systems: capitalist, socialist, and feudal. He shows how to critique economic policies in terms of the incentives they create, rather than the goals they proclaim. With clear explanations of the entire field, this is the first book for anyone who wishes to understand how the economy functions.

Remember, with each episode, we will provide a helpful Deep-Dive infographic where we break down the entire book on to 1 page! And we have a convenient link for you to find all of them! Visit invictusmultifamily.com/notes to find all of the sophisticated investor notes!

Here are our top 5 takeaways:

  1. What Is Economics (03:00)
  2. Richer Getting Richer (08:30)
  3. Money Creates Incentive (12:00)
  4. Speculation (16:00)
  5. Long Term Consequences (20:40)
  6. How To Use Brands (28:00)
  7. Price Fixing (31:30)
  8. Rent Control (35:00)
  9. Alternative Resources (41:00)

“In price fixing, you are now exacerbating the issue because now the people who were willing to take the risk before are no longer willing to take the risk.”  – Anthony Vicino

“You can’t just like take mosquitoes eye the equation, even though everyone hates ’em. But you take them out, there’s all these kind of reverberations.”  – Dan Krueger

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The Five Rules of Investing

** Transcripts

Basic econ

[00:00:00] Anthony: I am super excited about today’s episode. Do you know why? Why?

[00:00:18] Dan: Because you’re a nerd and you like econ? No. Try

[00:00:21] Anthony: again. That’s all I got. That was it. Okay. Well, here’s why I’m excited. Usually when we do these episodes where we do the book deep dives, It’s not entirely clear. Our goal is to save the listeners time so that they don’t have to read the book themselves.

Oh. Cause the book can take like eight hours, right? Yeah, usually we ramble a lot and I’m not entirely clear. Maybe we don’t actually save listeners that much time, but today, the day’s book, I am very confident we can save our listeners a whole lot of time. I mean, it’s.

[00:00:52] Dan: It’s dense. I mean, if you’re not watching on YouTube, you don’t know what’s happening right now, but it’s like a nine inch thick. Let me describe the

[00:00:58] Anthony: scene for you. Dan is [00:01:00] lifting this and his muscles are bulging. He is breathing heavily. Yeah. Um, he’s using, he’s having to use proper form to lift this thing.

This book could kill a man. You could kill a man with this. Yeah. So

[00:01:14] Dan: that’s hefty book. It’s like six 70 fiveish pages,

[00:01:17] Anthony: something like that. And you’re gonna feel. Yeah, they’re heavy pages. This is thick paper, Cardboard. Um, this book, I, I don’t, I don’t remember how long it took me to read it, but, uh, I’m going to, I’m gonna take a guess that it took at least a month and a half.

It’s not a

[00:01:33] Dan: weekend. You’re not gonna breeze through this. You’re

[00:01:35] Anthony: not gonna long weekend. But I remember also being disappointed that I couldn’t read it faster because Yeah, because it’s really good. Yeah. , I was like, Man, I wish I could read more than 10 pages at a time. Yeah, it’s very consumable. But it is

[00:01:48] Dan: also like heavy.

Well, what book is it? The book

[00:01:51] Anthony: People are so confused today. That’s a good, that’s a good question. So the book today is called Basic Economics by Thomas Saoul, Soul, Soul, [00:02:00] Soul, Thomas Soul. And, um, I found this book really, really interesting. I, granted, I’m not like super nerding out on economics typically.

Another really good book on economics I’ve liked is, uh, what is it, Five lessons or. Five brief lessons. Do you remember that book? No. No, I don’t think I’ve read this one. It’s really short. It’s really good. Um, but this is the antithesis of those very big, deep dive. And so when I picked this up first, I remember I picked it up and then a couple weeks later I was like, You should pick this up.

You should read this. It’s really good. And I was like, dreading it because it’s, it was, it’s kind of a

[00:02:35] Dan: textbook feel. I mean, looks, it’s

[00:02:38] Anthony: imposing, it’s intimidating. Super. I. But then I got into it and I was like, Holy moly, this is amazing. Yeah. And, and the thing with economics, it always, like, I remember it as, I’m like diving into economics and freak economics is a great example of this, where it’s like economics is just so far reaching it, it, it ties into everything.

Mm-hmm. , and I’m not a big fan of like macroeconomic [00:03:00] assist econo. Economic occurs, economic grafters. Economists. Economists. Yeah, that’s the word. Macro economists. Um, and their projections. Yeah. But I do, I do like, I do like when people like make up a narrative and they’re like, Oh, look at this thing influenced that.

I think that’s what economics really is. It’s like created a narrative. Yeah.

[00:03:21] Dan: I connect dots sometimes and make it sound cool. But I like this one because it, uh, It’s consumable by like a non econ math kind of person. Like you’re not gonna see charts and graphs and equations. It’s explained in words for the most part.

And there’s still some numbers. It’s econ, there’s gonna be a few numbers in there, but as far as econ books go, you can come in with like zero math skills and consume it and understand it. So that’s why I like it. Mm-hmm. , it’s kind of a, it could appeal to the masses if it wasn’t so damn thick. Uh, but it should appeal to the masses, I think.

I think everybody should read. Um, particularly those in political positions who are making decisions that impact us [00:04:00] economically. I feel like they could get a lot out of this, but not gonna get on that soapbox. I think

[00:04:04] Anthony: we’re about to, we’re gonna get on that soapbox at some point in this episode. Just know that’s gonna be a big soapbox and we might get hurt falling off of it.

So, yeah. But this book is one of the things I found really cool about it is I was reading on these topics that I just never really stopped to think about, and then he presents them and like breaks ’em down simply and. Oh, that’s really interesting. That’s an interesting way to think about things like price or scarcity and like the allocation of resources, which, you know what, I’m just gonna jump right into it.

Number one, my first takeaway, which is like when he defines what economics is. Damn it. That’s my first one. Oh, it has to be because I mean, it’s the first chapter, it’s it’s core to the whole thing, right? Yeah. And so we’ve gotta start here is like, what is economics? And if I’m remembering this off the top of my head, it’s the allocation of scarce resource.

Does that sound about right? Uh, I mean,

there’s

[00:04:53] Dan: a few really quotable portions. Mine was economics is the study of consequences and decisions that are made about land, labor, [00:05:00] capital, and resources that go into producing the output of a nation. ,

[00:05:04] Anthony: which then he, I think he simplifi, but thes resources later are scarce.

He simplifies it in

[00:05:09] Dan: like three. He can use it through multiple

[00:05:10] Anthony: things. Yeah. His, his through line throughout the book is economics is the allocation of scarce resources. Yeah. Which is just like, economics is very big, obviously, cuz it’s like all of those things. And he’s like at his core, Allocation of scarce resources.

[00:05:24] Dan: And I think one other key there is that those resources could be used for other things. Yeah. So it’s not just that they’re scarce, but we could use ’em for this thing or this other thing. And what’s the more appropriate use. I think that’s kind of one of the big questions that keeps

[00:05:37] Anthony: popping up and, and that’s one of the interesting bits that when you tinker with the systems, typically what ends up happening is ec, like economic systems move in such complex ways.

That you, you can’t just draw a one to one correlation and say, Oh, by taking this resource from here and allocating it over here, it’s just gonna tip the scales like this. [00:06:00] Because in, in reality, as you move this from over here, now all the transportation that was involved in getting it from here to there has to shift.

And the infrastructure around that has to shift. And then the people who, as a consequence we’re handling the thing have to shift. And it becomes like this very hard thing to, uh, calculate what’s actually gonna be the downstream effect of this. . And so when you get humans coming in, and this is like one of the narratives he uses a lot is around price fixing and like rent control and that type of stuff, which I’m sure we’ll dive into more specifically, is that when humans are involved, because humans can’t have a holistic view of everything that’s gonna happen in an, in an environment, they’re gonna make mistakes.

Mm-hmm. . And so when you try to control for something, rather than just letting the market. Run its course and the market. That theory being that it was gonna kind of dovetail towards the most efficient solution by introducing humans into it. You also introduced human error. .

[00:06:57] Dan: Yeah. It means like, uh, you know, like a, [00:07:00] like an ecosystem pretty much.

Like you can’t just like take mosquitoes eye the equation, even though everyone hates ’em, the super annoying, you take them out. There’s all these kind of reverberations where they were someone’s food supply or they did some, some other useful thing and that impacted like nine other things. So it’s not as simple as just like, Oh, I’m gonna take this one variable and control it.

Mm-hmm. , you can’t just do that and not. A million other outcomes, which will obviously be diving into quite a bit

[00:07:21] Anthony: here. So like a really interesting one on that one. Just thinking off the top of my head with mosquitoes, cuz it’s, this goes to Charlie Munger and thinking of like what’s second order consequences.

Yeah, right. Like one thing that like just jumps to mind is, and this is horrible, is okay if we have no mosquitoes and we have no, we have less malaria. And then all those people who are dying of malaria are now not dead from malaria. And in the countries where they’re typically dying from malaria, there’s usually like a shortage of other resources and foods and now there’s more people competing for that.

So if you just solve the one issue but you don’t solve the other issues, then it just

[00:07:53] Dan: shifts the the, you got the consequence, people starving. Now you have people starving.

[00:07:57] Anthony: Yeah, no problem. So keep the mosquitoes around. That’s really [00:08:00] horrible.

[00:08:01] Dan: Well, it’s, I mean, it’s true. You gotta mosquitoes. Yeah. Everyone does the thing.

Even annoying mosquitoes. So I’m not even really go into my number one, honestly, my number one was basically what is economics or like how should people think of it? Because I think it is kind of an intimidating topic and. The book opens with, uh, Thomas just kind of telling us here’s what it is really, and which we discussed.

But once you kind of know that, uh, then you realize, okay, this is actually really important. This is gonna be applicable sort of outside of all sorts of things. It’s not just about money and capitalism. So my number one takeaway was, what the heck is economics? So we’re gonna just kind of move on, so we don’t need to dwell on that.

I’m just gonna jump to my number two. Yeah. Which, productivity and pay. And uh, in this section, Thomas o was talking about the concept of like the Richard getting richer. And I thought this was, uh, again, really interesting insight. He’ll take concept to kind of explain some things, but he’ll always take it like five stages deeper.

Mm-hmm. than most any other textbook [00:09:00] or any other professor would. And the concept of kind of the richer, getting richer, which is this. Popular narrative in the media. It gets a lot of clicks. Everyone’s really engaged by it, and it gets a lot of people triggered, right? Uh, but what the, the take he took on this concept in particular when he was looking at, uh, pay and, and pay and equality across nations, across, uh, across times, is not just looking at the US here.

What you’ll traditionally, what you’ll actually see is if you actually look at the individual data instead of like the, the aggregate data. If you don’t just look at income brackets and, and measure those things and say, Okay, the top 1% made 50% more this year, and the, and the lower 20% only made 5% more this year.

Right? So most people look at that kind of sta and say, Oh my good, the, the rich are getting even richer and the poor, nothing’s good’s happening there. That might sound, um, Uh, that might sound bad at first, but what you find if you look at the actual individual level data is that [00:10:00] the rich that are getting richer are not the ones that were rich before.

And so a lot of those people that were actually in the lower end of the income spectrum make their way up to the higher end of the income spectrum. And those rich who are getting richer are the old, poor people for the most part. And so 75% of American workers who were in the bottom 20% of income in 1970.

We’re in the top 40% at some point over the next 16 years. Mm-hmm. . And so there’s a lot you can extrapolate if by go in a little bit deeper on the data and not just saying, Okay, this income bracket is doing really well. Well, like, who’s in that income bracket? Is it all the people that used to be struggling that work their way up there?

In which case, I don’t think people would be really that upset that they’re 10 times richer than the old rich. And

[00:10:42] Anthony: taking this again, like another layer deeper, because if there’s one takeaway from this book, it’s that. You should always peel back one more layer. One more layer. Go one more layer in terms of answering, Okay, what really caused this?

What was really the effect of, and, and as you do that, you. It’s like the five wise game where [00:11:00] you’re like trying to get to the root source of the issue. You’re always asking like, Well, why did that happen? Okay, what caused that? Why did that happen? Yeah. Three year olds great at this, right? They’re fantastic.

They’re naturals, and this, this book is really an exercise in that activity. And one thing that like on that. Particular topic, and it makes tons of sense, is that if you think about who are probably at the lowest end of the income bracket right now, like a lot of it’s age dependent, right? So like mm-hmm , 20 to 25 year olds, they don’t make much money.

I know much you, they’re always poor. They’re always poor. And then over the next 15, 20 years, they’re gonna be entering their prime earning years, right? And so then now they’re starting to grow through it. And so you can take all of these numbers and you can just look at them through different lenses and realize like, okay, we can’t just take a snap.

And say, Oh, the poor are only increasing 5% in the richer 50% without really dissecting what all that entails, because there’s so many caveats and so many different angles. And if anything, His book, Basic Economics just kind of displays that [00:12:00] economics can get real crazy real quick.

[00:12:01] Dan: Yeah. He can’t keep it too basic.

I mean, he does a really good job of, of dumbing some concepts, I don’t wanna say dumbing them down, but just like cutting the fat and making it a really understandable concept, but, I think a lot of times, a lot of the, the, uh, incorrect narratives that are in the media are a result of trying to make things too simple.

Yes. Too basic. So,

[00:12:21] Anthony: all right. Another one of mine, and it ties into this, is that money creates incentives. And when you remove an incentive from a system for people to perform, to show up, to be productive, to, to innovate, to create solutions, then people stop. If there’s no incentive for an individual to do a thing, then they stop and we see.

Over and over and over. Uh, I think communist countries, Russia, North Korea, are, are really good poster childs for what happens when you take away the incentive of upward mobility through wealth. Um, if it’s all just socially allocated, you know, Then [00:13:00] this is, this is from the book, uh, Atlas Shrugged, where it’s like from the, from those who can to those who need, or something like, where the people who have the ability to create from them, it goes to the people who need it.

And when you do that, then the people who are capable of creating the thing, they just stop creating it cuz like, why would they do it if it’s just gonna be taken from them? And this is the, the hallmark, the linchpin of capitalism and why we’ve seen it so effective is that humans are both community animals, but we’re also very, uh, independent individuals and we’re really at the core of it.

Like, What’s in it for me? What’s in it for my family? I want, I want them to be safe and secure, not just the, The community. Mm-hmm. . And of course there’s exceptions to that. However, if you can’t understand individual incentives, if you take those out of a system, then the whole system falls apart. And the things that incentivize humans are pretty basic, right?

Like social status and security and wealth, Like the ability to go and like see the fruits of their labor.

[00:13:59] Dan: Yeah, [00:14:00] I mean there’s a lot of, um, uh, motives for things that end up being pretty selfish at the end of the day, which I don’t think is a bad thing as long as that’s kind of channeled towards something that is actually good.

But, um, yeah, you cannot ignore the fact that at the end of the day, a lot of people are going to have, uh, somewhat of a selfish nature to them. It’s just kind of human nature. You wanna survive, you’re gonna think about yourself and your family, as much as you wanna say, it’s all about the greater good.

Like you’re also going to end up behaving in a. Suits your needs, even if you’re giving away to charity, like it still feels good for you, right? That’s still part of it.

[00:14:34] Anthony: Well, one of the, the interesting things about this incentives conversation is that if you’re really only in it for yourself, like purely selfish, purely greedy, and willing to cut whatever corner and like screw people over, you’re going to be.

Outta the system pretty quickly. Like those people don’t typically last very long. The people who do are the ones that pursue like their greed and their selfishness, but in doing so, it provides a value to the [00:15:00] community at large. Right? You think about Elon Musk, Bill Gates, Steve Jobs, these people like, I’m not saying the greedy, but like they were definitely pursuing something in their own.

That also brought value to the world, and, and so we’re okay with that. Mm-hmm. , right? It’s when the, when they’re just taking from the system without giving back, and that’s where the society says, Well, we’re not going to reward that behavior. And that’s why capitalism again works pretty well cuz like in that system it theoretically dovetails towards an efficient system where the bad actors are worked their way out, whereas, In a system where there are no incentives, everybody’s equal under the eyes of God and and the law, and everybody’s gonna be allocated resources based off of their last name, then.

[00:15:45] Dan: Yeah, it’s like economic, um, natural selection, right? Yeah. If this guy is over here selling me this thing for a hundred bucks and it just sucks, and there’s this other guy who’s selling the same thing for about a hundred bucks and it doesn’t suck, I’m gonna go to this other guy and this guy who’s, uh, [00:16:00] providing little value for X amount of dollars is gonna go outta business.

That’s just how

[00:16:04] Anthony: it works. Yeah. And he might get rich in the short term, burn you once or twice, but then you stop. Right? It’s nav. Long term games with long-term people.

[00:16:11] Dan: Exactly. Exactly. So cool. Um, we on me? Yep. Speculation. I

[00:16:18] Anthony: could speculate what you’re, what you’re about to say.

[00:16:22] Dan: Yeah. I’m gonna try to justify my whole, um, slot machine addiction.

Right. Oh God. Oh, cool. Really deep on that. No, but I think

[00:16:30] Anthony: you’ve been, you’ve been trying to get everybody on board. You, you’re trying to do like a reverse, uh, inter. Where we’re all like, Daniel, you have a problem? No, don’t. A problem. And you’re like trying to send this all down and be like, Listen, I’m

[00:16:40] Dan: a big winner,

Uh, well here’s the deal. Um, I kinda like this section because it, um, you know, for those who like to actively engage in the markets in some way, shape or form, um, there’s this kind of like, Um, misconception by a lot of people that aren’t really involved in financial markets that, that, that kind of stuff [00:17:00] is, is gambling.

And I liked his, his breakdown of what, uh, professional speculators are actually doing, how they’re creating value and how it actually differentiates from gambling. Because a lot of people look at people who play the stock market and say, Oh, that’s just gambling. It’s the same thing as playing blackjack.

But the way he explained it in this, I, I liked quite a bit. And, um, basically gambling creates a risk that didn’t exist. That’s kind of the big one. I was like, Oh, that’s a really interesting way to look at it. And what professional speculators do, whether they’re, you know, shorter, medium term investors in the stock market, or they’re short term traders, they are allowing some, some risk that already exists in the market to be spread out a little bit more.

Um, because they believe they have some sort of asymmetric, uh, understanding of, of the, the situation in front of ’em. So the example that, that, uh, we use quite a bit in the, in the book is, um, one that I think it makes a lot of sense because this is really where the kind of the futures of marking came from, which is the, the.

Farming and commodities markets. There’s a lot of [00:18:00] farmers out there who don’t necessarily wanna spend their time or energy trying to figure out where their crop is gonna be priced. Six, nine months in the future, whenever they’re actually harvesting it. Um, they might wanna actually lock in a price today.

And there is a market out there, whether it’s corn futures, coal, um, whatever. So soybeans, cattle, there’s futures for everything, lettuce, even weather, lettuce. Why I. Probably somewhere I, I haven’t seen a lettuce contract, but anyways. Um, show me that lettuce

[00:18:30] Anthony: point is, where do you think that term came from?

Like where people talk about money as lettuces? I don’t, anyone says that The lettuce industry? Yeah. It’s like, show me that

[00:18:36] Dan: lettuce oof. Doesn’t sound good. I think people say, Right. Wouldn’t you rather have like, KA is not

[00:18:41] Anthony: worth money? No, no, no lettuce because it’s those lettuce contracts, the lucrative,

[00:18:45] Dan: Oh, that’s not a thing people say.

Um, Moving on, sorry. Um, but yeah, basically his, his point here was that, uh, professional speculators, whether they be traders in a a future’s market or just farmers, uh, deciding whether or not to take on a future’s [00:19:00] contractor or not, they’re all, uh, effectively speculating, but they’re taking risks that was already there and they’re spreading it across the parties who actually wanna have it or don’t have.

It versus going to the casino and creating a risk that that never actually, um, existed in the first place. So there’s some sort of economic benefit to that type of activity as opposed to just going to the casino and, and putting it all on black. So I thought that was, uh, interesting to hear that kind of rationale because.

I’ve obviously been very involved in financial activities for some time and I can appreciate, um, you know, playing the stock market. Um, but you know, for that, that uncle who doesn’t have any experience for that kind of thing, they’re gonna look at you like, Oh, roll dice.

[00:19:40] Anthony: Well, this is based off of what you described there.

This makes me think of insurance. Right, exactly.

[00:19:46] Dan: Like that’s just insurance is like, there’s laying off risk and someone else’s charge,

[00:19:49] Anthony: somebody else will take it in exchange for. Premiums. That’s exactly it. Yeah. Yeah. And, and so you’re already doing this in your life, whether or not you realize it. Yeah. Um, and like you said,

[00:19:58] Dan: the, the farmer who decided [00:20:00] not to enter into a contract was speculating that the price is actually gonna go up in the future.

Yep. Yeah. So everyone is speculating. Interesting.

[00:20:07] Anthony: So, yeah. So you might as well do it speculate consciously. Yeah.

[00:20:10] Dan: I mean, just, I guess don’t think of it as a bad thing. It’s, it’s providing value. I mean, you know, going and playing roulette that doesn’t really provide any value. It’s just taking on risks that.

exist before and didn’t need to be there.

[00:20:22] Anthony: But, uh, what if I come in and I you’re, you’re pulling the, the, the slot machine, and yet I, we have a contract that I get your winnings, and in exchange I’m like fronting. So now am I speculating on your gambling

[00:20:35] Dan: activities? Yeah, but I’d wanna cut. I wouldn’t wanna give you all the gains.

Oh, you get

[00:20:39] Anthony: the pla you, all you get is the dopamine rush of pulling the. And getting like the ching and like the win. But

[00:20:44] Dan: I, I’m not a gambler. I don’t, I don’t gamble even winning casino, so I only expect it. I wouldn’t do this, but maybe read, read. Do you wanna go to Mr. Reed? He’s like, I’ll go gamble. Just,

[00:20:52] Anthony: Yeah, that sounds fun.

All right, here’s my, here’s my number. Third, Um, number third, number third. Policies [00:21:00] have unintended term consequences. That’s the. The little note I used to, to remind myself of this one, but really what it comes down to is what we talked about earlier, is one, understanding incentives under, like to understand how an actor is going to behave, you have to understand what’s in it for them.

And if you do, if you can understand the incentives that are motivating a person’s actions. In a lot of ways, you can then extrapolate what the, those actions are gonna be like in the future. And we see this most prevalent, I believe, in the, the distinction between government officials and then free market operators.

And when you look at like what is the incentive for a government official and elected official who’s going and making the laws, that then will govern the free market and the operators within. What are, is there an incentive alignment or myth alignment between all those actors and what you discover is fundamentally the incentives that are [00:22:00] motivating a political actor, whether that’s power, notoriety, fame, or just goodwill and like wanting to do good in the world, whatever, like their incentives and how they’re going to get into office.

Ver like making short term, um, promises. And doing things that in the short term are gonna look very good because they’re working on a two to four year election cycle, and then they have to like, you know, stay back in the public eye to get voted in again. The decisions that they’re likely to make, because they’re operating on such a short timeframe and what they’re looking to get out of the system, is fundamentally different than what the system really wants.

What you get then are laws and ordinances and things that fundamentally do not serve the people that. Elected the people into office in the first place because the ramifications won’t be realized until a much longer timeframe, 15, 20, 30 years later. And by then, that actor is out of office. And so they’re not there to pay the consequences of that thing.

[00:23:00] And we see this, you know, in our space, I think the most obvious one is rent control. Right. It’s a big political button you can push to get voted in. Cause

[00:23:11] Dan: Yeah, I mean the is great. Yeah. Um, but yeah, I think, I think you’re right. We’ve said this a million times on a bunch of different episodes, whether we’re talking about vetting operators or what have you.

You followed the money, Right. Figure out where the money’s coming from, where it’s going to, you’re gonna. Pretty much know how things are gonna play out. But I mean, the same is true in in corporations as well. You can see a, you know, private company operating a certain way. Mm-hmm. , um, they’re thinking in terms of decades when they go public, all of a sudden they’re thinking in terms of quarters.

Right. And so it’s, it’s, it’s the same kind of thing, whether it’s politics or it’s a corporation. Um, you know, if somebody has incentives that are tied to short term results, they’re gonna probably make decisions that don’t. work out well in the long term and people need to keep that in mind, whether they’re voting or buying shares or whatever, or, or, uh, you know, entering into a syndication, you’ve gotta figure out, okay, what’s this guy’s incentive?

How, when and how is he getting paid? And how closely [00:24:00] is that aligned to me? And if it’s vastly different, then, you know, slow down. Think one of the,

[00:24:05] Anthony: the things I think about there too is like, and it’s not even their fault. Like the politician or the, the CEO who steps in and it’s just the, They’re being judged of things.

That’s, Yeah. Like it’s not their fault. That’s the structure that they’re working within. Cause maybe they do have the best intentions and they wanna make a positive impact over the next 20, 30 years. I do believe that, like, generally, humans are good and they, even politicians like probably don’t set out just to, you know, empower themselves.

Mm-hmm. , but they can’t stay in office and do things. If they’re not also maintaining a certain level of popularity and you, a lot of the things, and this goes to everything in life, we talk about like if you wanna have good health, you know, the decisions that you have to make in the short term versus the long, like the long term consequences of the short term decisions, it’s a different game, right?

Like prioritizing the long term in favor of the short term is very, very hard.

[00:24:57] Dan: Yeah. I think generally speaking, in order to have long [00:25:00] term, um, uh, what’s the word I’m looking for? Um, Benefits, payoffs, happiness. I’m not sure what the right word is, but to get some sort of long term benefit, there’s probably gonna need to be some short, short term discomfort.

Mm-hmm. . And so anytime you’ve got somebody making decisions that is thinking in terms of the next couple of years versus the long term, they’re. They’re gonna be doing what goes, what feels good today, right? They’re gonna vote for Doritos instead of a salad because hey, that’s, that’s gonna make, that’s gonna make people happy right now.

But in 10 years, uh, I’m not even gonna be around. It’s not even a big deal. So I wanna get voted back in. I want to, you know, be reelected on the board or, or what have you. So it’s, it’s, it’s, it’s a fundamental issue. Like you said. I don’t think it’s the individual players, they’re just operating in. Um, in the game that they find themselves in

[00:25:51] Anthony: taking a hard pivot to a, uh, a Ray Dalio book, The, um, the New World Order where he talks about Chinese culture and like their, their policies.

And [00:26:00] one of the things that was really in interesting I found about their cultural approach to politics rules, laws governing the economic system is that they take like a hundred year. And so there, it’s a very different orientation. Their leaders are oriented towards, okay, what’s happening in the next hundred years?

And they’re laying the foundation. And um, you could see that over the last 50 years in particular, like the, the rise that they’ve gone through is in a lot of cases as a result of like that long-term vision, which is pretty interesting.

[00:26:31] Dan: Yeah, I think it makes a lot of sense. Whatever, you know, say what you will about, about China and, and communism, but I think there’s, there’s a lot of things that they’re doing.

There’s definitely a lot of things are doing that don’t make sense, but there’s a lot of things that are, that do make sense. Do you know they just actually outlawed, uh, video games for kids outside of like three hours a week on the weekends.

[00:26:49] Anthony: Interesting. Did you hear that? No, I didn’t hear that. China’s so interesting because they’re not like pure communists, like, what’s the term?

It’s like, um, pseudo government ran capitalism [00:27:00] or something like that, like government sponsored, I dunno what term is,

[00:27:02] Dan: but it’s definitely not full on communism. It’s, it’s this weird

[00:27:04] Anthony: pseudo thing and it doesn’t make me super comfortable, but it’s also. The most successful for some, some things,

[00:27:12] Dan: things, but not for the government.

They get Yeah, it’s, it’s really weird.

[00:27:16] Anthony: So it’s not like a pure, like Russia or like the Soviet Union or North Korea on dictatorship. They’re doing something different. And it’s interesting because you

[00:27:24] Dan: got private companies kind of,

[00:27:26] Anthony: I don’t think I want, just before very clear, I do not think I want to be.

living in that world. Yeah. Because at the end of the day,

[00:27:32] Dan: it’s still, I’d like to visit. I wouldn’t wanna like, operate a business there. Yeah. Um, cuz I feel like Cause they could pull the rug on you.

[00:27:37] Anthony: Yeah. I mean, Jack Mal disappeared, right? Was he back yet? I think he’s back. Okay. I don’t know what he’s doing.

Jack, where were you? Collin? Let us know. Let you’re safe. Your mother worried. He was at a retreat, Don a retreat? Um, it was, uh, it was a social media detox. It was a, it was a life detox. Yeah. Um, very Spartan retreat that he went on. Yeah. I

[00:27:57] Dan: actually, I actually don’t know. I never really, um, [00:28:00] Kept a story. I mean, no, there was no explanation.

[00:28:02] Anthony: Nothing ever. He just disappeared, came back, and then it’s all good. One of the richest men in the world just disappears, is like, that’s, that’s crazy. Anyways,

[00:28:10] Dan: what’s the next one? Uh, completely unrelated. Uh, it’s on brands. Um, I thought this part was interesting. It’s completely unrelated to what we were chatting about here, but, um, Thomas makes the point that Browns are often thought to be just ways to charge a higher price for the same product by persuading people through advertising that there is a quality difference, when in fact there is no such difference.

And I thought, you know, this one I thought was, um, pretty cool because I just am head to toe Gucci and people are always hating on me for it. So I thought I’d use this as an opportunity to justify my decision. Um, No, I, um, I don’t wear

[00:28:50] Anthony: Gucci that we can see. Hey,

[00:28:53] Dan: this is, I think this is express my drip’s on point.

Your drip. Okay. I just, I just learned that word, What, two weeks ago? [00:29:00] Drip. I

[00:29:00] Anthony: think it’s out now. It’s out. Yeah. Now that you’ve used it, I think it’s officially, Yeah. Uh, re go ahead and send it up the flare. Let all the, the young folk know, uh, Drip is out. drips.

[00:29:10] Dan: Done. All right, . Um, but, uh, but I thought his, his take on it was, uh, was, was, was interesting because, um, effectively brands.

Create accountability for providers of a thing. So if you are just, uh, producing a product, let’s say making tomato paste, you put it out in a can, it’s just can that says tomato paste on it. You can make absolute garbage. No one’s ever gonna trace it back to you. You can, you can go and start a new shop or a new operation the next day and you know, it is what it is.

But you know, if somebody is gonna be traveling and they’re in a different country and they see, you know, some ringy dinkle operation over here serving burgers and they see McDonald’s right next door, people are gonna typically opt for what they know. They know what they’re gonna get when they go over here, and there’s some accountability there.

Um, if you know that, um, [00:30:00] you know, this large conglomerate is providing you with this thing and you get a weird burger or, or some sort of, you know, poor product, you can go back and, and, and. Get made whole by that because it’s a large corporation. I think this is probably why you wear your Walmart t-shirts.

Right? Because you know, the Wal, they got my back. They got big socks. Sam Walton’s got my back. You catch something weird from that, like

[00:30:19] Anthony: Naval, Naval talks about this too, through the lens of personal branding. Yeah. Right. When he talks about, like Trump or Oprah, like, or Elon, these people, they, they take on the additional risk of using their name, but in exchange they also get.

Um, potential upside of that. Yeah. And there is a

[00:30:37] Dan: lot, you could charge a premium because people are gonna pay more. Knowing that, Okay, I know what I’m gonna get at this place. Right? You go to any four seasons around the world, with the exception Minneapolis. Yes. I’m calling you out. Minneapolis. Four seasons.

Get it together. Hot damn. Any other four seasons around hashtag Yeah. Could we tag them in this? Operations, they’re gonna be,

[00:30:55] Anthony: Yeah, maybe they reshare this. Not even like picking up at it. They just like, Oh, we got

[00:30:59] Dan: tagged [00:31:00] Because all, I mean all the bartenders, all the waiters, everyone that works, it was fantastic.

But whoever’s doing the operations anyways, um, you can go with the exception of one to pretty much any Four Seasons know. Okay, I’m gonna get this, that, and the other. I, I know Zach, I ette, so I’m gonna opt for this. So the little, uh, local, uh, boutique hotel that, that could be. But I don’t know. It’s, it’s that kind of consistency.

You know what you’re gonna get. So people pay a premium for that. It’s convenience. Yeah, absolutely. Absolutely.

[00:31:27] Anthony: Um, I’ve never been to a four season, so I can’t even say, I always go to the rinky dink. That’s the name of the hotel. The rinky dink . All right. So let’s talk about risk in price fixing. I got two things here that are really interwoven, but both very, very interesting.

Number one is risk in understanding. To take on risk, we need to see a commensurate increase in potential return, right? Like why do a thing if it’s gonna, if it’s just riskier than doing this other thing, and all other things being equal, I have the same payout, I’m gonna do the last risky one. [00:32:00] That just makes sense.

Now, what ends up happening then is if you start introducing price fixing into environments. Where you’re saying, Okay, you’re charging too much for this thing. Well, what ends up happening a lot of times is there was a risk associated with doing the thing that wasn’t being accounted for. And in price fixing, you are now exacerbating the issue because now the people who were willing to take the risk before are no longer willing to take the risk.

So two examples. Number one is the example of poor grocery stores. Do you remember this? Poor, not poor grocery. I’m sorry. Grocery stores in poor neighborhoods versus in affluent neighborhoods. Oh, yes. No, Yeah. The price points. Yeah, price points. So one of the, one of the really big, um, uh, talking points here is that groceries typically cost more in poor neighborhoods than they do even just a couple blocks away in the more affluent neighborhoods.

And the question you look, you have to answer is, why is. Is it because we’re [00:33:00] taking advantage of the, of poor people? Like why would it be the same product in this location is more expensive than over in this location? And when you start looking at second and third order consequences of things like crime and break in and uh, shrinkage, which is like the amount of product that we just write off because it’s stolen.

This happens at a disproportionate level in poor neighborhoods and it does in affluent neighborhoods. So what happens if we price fix and we say, Hey, that’s. You can’t charge more in this neighborhood than over in this neighborhood if, And you say now you can only charge $3 for a gallon of milk everywhere.

That’s it. Well, what happens is the people who are incentivized to go and open those grocery stores in the at. In the, in the poor neighborhoods, they don’t do it. So now the poor have to travel even further to get to the other grocery store and it creates all these downstream effects. This happened in, I have another example here, the Spanish blockade.

I don’t remember when this was, but effectively what was happening was the Spanish had, uh, block aid Antwerp. [00:34:00] And so food was getting really hard to get in there. Right. And there was higher risk because you had to run the block aid and. So cost of food was skyrocketing in Antwerp. So then the anions were like, Well, we’re gonna fix that price.

We, we can’t let these prices just get outta control. We nobody could afford it. So they fixed the price. Then what happened, The people who were running the food in were like, it’s no longer worth the the risk. So they stopped running food. So what ended up happening, everybody starved an Antwerp and they had to concede the war.

So it’s like the second, third order consequences of risk and price fixing and how these things. Go together I think is super critical to understand because the price fixing does not fundamentally solve the underlying issue. Again, with rent control, it doesn’t solve the underlying issue. It just makes it worse.

[00:34:47] Dan: Yeah, no, I think there’s a whole slew of examples I think throughout the book. Um, this kind of. General narrative is, is kind of reiterated a few different ways. And, uh, you know, that that example about [00:35:00] the products be more expensive in a, um, a lower income area due to the extra costs of crime and shrinkage.

Um, that kind of goes both ways as well because yes, it might be a little bit more expensive to run an operation. In a lower income area because you need more security, you’re gonna, um, have more shrinkage or, you know, there’s crime and, and things like that, that you need to, you know, that’s an extra cost to the, the provider of whatever’s being sold.

You know, it works out the other way. If you go to, you know, Aspen, right? You’re gonna, you’re gonna spend way more than you would in a poor neighborhood for, for a bottle of water. You know, cuz the real estate’s damn expensive. So it’s not like everything in poor neighborhoods is gonna be more expensive than rich neighborhoods.

I think there’s certain examples where a somewhat affluent area, a few blocks away from a lower income area might see that. But generally speaking, Aspen, Colorado, much different price point than, you know, some, uh, you know, higher crime area in, in middle America, where the, where the dirt’s cheaper. Uh, and then there’s another example about, uh, I.

Uh, this one was interesting, the payday loan versus [00:36:00] like a conventional loan conversation where he was explaining that, you know, a lot of the payday loan areas that tend to be located in lower income areas for their lending people, you know, a couple hundred bucks or something appear to have. Extremely high, uh, interest rates on an annual basis.

But, uh, the people who are talking about this and who are upset by this fail to realize that the majority of the costs in issuing a loan are gonna be fixed. And so the cost of issuing a $300 loan as far as processing fees are concerned, is gonna be pretty much the same as issuing a hundred thousand dollars.

And so when you go on down to these very short, these very, uh, low loan amounts and for short durations of time, it’s, it’s very administratively expensive. And so it’s not all interest that these, uh, uh, lenders are charging. It’s not all straight profit. They have legitimate. Cost that needs to be recouped.

If they can’t do that, then they’re not gonna do anything. And a lot of people would opt to pay 15 bucks to borrow a hundred bucks so that they can pay their electric bill and, and, and the other side

[00:36:59] Anthony: of that, for them to [00:37:00] decide. The other side of that then again, is risk, right? Like the safety and it’s higher cost, prevalent, higher likelihood than they’re not going to be able to recoup.

I mean, it’s like the bank, when they, when we take out a loan from them, they have the senior loan position. They’re collateral collateralized against the asset, and so we get the best interest rates from them. If we go to a private money lender, they’re not collateralized against the building. So if we go to the bank, we can get 4%, uh, debt.

Then to a private lender, they want 12%. It’s not, it’s not that they’re gouging, it’s just a riskier position to be in. Mm-hmm. , so, Yeah. Yeah. Was that one of your

[00:37:33] Dan: takeaways too, or is that Uh, well mine was specifically on the rent control piece obviously, cuz I don’t know if we need,

[00:37:37] Anthony: Do we, do we wanna go into the rent control?

I keep hurts my heart. Makes me wanna

[00:37:43] Dan: cry. Yeah, I mean, we can touch it a quick. Um, I think, I think again, some of the downstream effects that, uh, that Thomas goes into are, are interesting because it’s not just like rent control is bad. It’s like, here’s why it doesn’t work and hasn’t worked. Um, under run control, [00:38:00] people tend to occupy, uh, larger spaces than they normally.

um, if it’s two bedroom apartment is going for, you know, 900 bucks, when realistically it should be 1500, maybe that single guy is gonna, you know, sprawl out and get a big two bedroom and just kind of kick it. Whereas that could be housing two people or even a family of three. Mm-hmm. , Right? Things get much less efficient.

You see turnover decreasing. There’s gonna be, you know, celebrities that have, uh, rent control departments in New York that are, are, are never used, never moving. Effectively used,

[00:38:29] Anthony: but they’re there because always in Florida, cuz they don’t wanna pay that New York tax, but they do wanna keep that apartment.

[00:38:34] Dan: Yeah. And then, you know, no new development goes away because again, the incentive goes away. If there’s no profit to be made, uh, to build housing in stock, then no developers are gonna go and build new stuff. And you don’t solve the problem. You still have a supply and demand and balance. You just have a much less efficient use of the existing resources.

So, um, I think he opens up pretty early in.

[00:38:53] Anthony: It’s chapter one. I think he’s like right rent control right away. He’s number two. He’s in

[00:38:57] Dan: there. Yeah, he, he’s pretty much right off the bat, but [00:39:00] he touches on it quite a bit. Um, I was looking in the index section and uh, if you look at rent control there, Multiple spots wrote the book where he touches on it because it’s really, I think, uh, uh, I mean for us it’s top of mind right

[00:39:13] Anthony: now, but it’s, well, it’s one of the most obvious cases of, of price fixing.

Yeah. And pretty much in a lot of other industries, it’s very rare to see any kind of price. Fixate fixing is usually just left to the free market to decide. Rent control is a classic example where the government steps in and like in a very, Visible way influences the, the impact. But what you said there, I think this is worth repeating and, and really understanding when it comes to rent control.

Rent control fundamentally is a supply demand disequilibrium. You have too much demand for too little supply. And what ends up happening in this scenario, and Thomas like, explains this very, very well, is that when you, when you fix the price, You still have the, the same amount of supply. [00:40:00] Well, actually now you have less because what ends up happening is people who can afford, like for myself, maybe if I’m a single 25 year old male and I’m like, Oh, I can only afford a one bedroom usually, but in this market, because it’s rent controlled, I can afford a two bedroom.

Now I take that, that unit that could go to a. And now there’s less supply available. And the same way that owners take their apartments off the market and they turn ’em into condos and sell ’em. What ends up happening? You tried to solve for too much demand and not enough supply, and all you did was you exacerbated it cuz now you reduced the supply, but the demand is the same.

And so what happens in that situation? Well, you just, you, you look around at the markets where we’ve seen this, it’s like, it’s not. Not

[00:40:45] Dan: great, not great inefficiency, disrepair, lack of incentive to tier, solve the actual problem. But again, it’s short term incentives on the political side versus the actual long term benefit.

There’s big disconnect there. Mm-hmm. [00:41:00] so.

[00:41:01] Anthony: My last takeaway from this big ass book is we’re talking about that, you know, economics is the allocation of scarce resources with alternative uses. And that’s that last part I left off my, and you rightly put it back in there. That’s a key phrase. There is like the, um, with alternative uses to understand that the scariest resource of.

there’s knowledge. That’s what he said. In that, in that way, did Thai Lopez just speak its head in? Yeah. Like there’s a picture of Thai Lopez in this book. There’s no grass or anything. There’s Thai Lopez, and he says the scarce resource of all his knowledge. And, uh, I find that to be true. I find, uh, the people with the, the ability of the, the, the experience, the knowledge of what to do in a scenario is, is always in a short, short.

So if you want to thrive in an economic system or in any kind of industry, like it’s always about collecting the knowledge. [00:42:00]

[00:42:01] Dan: Yeah, I like it. I mean this book’s a good way to, to get there. As far as economics is concerned, I feel like this is dense, dense with knowledge. Don’t let this scare you though. But uh, it’s kind of ironic though, right?

I mean that we’re at a point where I’m not gonna do the tie up. His voice knowledge is so accessible yet at the same time, scar. Well, yeah.

[00:42:22] Anthony: Well what’s interesting is information Yeah. Is prevalent. That’s true, Right. But knowing what to do with the information, that’s an experience thing. Right? Too much information.

It’s like wisdom, the difference between knowledge and wisdom and I don’t know if he specifies and cla like distinguishes those two, but it’s very easy to like go find the information. But knowing what to do with it is, is different. . Um, somebody I was listening to recently was talking about how a lot of people, they think that they’re learning by reading books and watching videos and and whatnot.

Um, and they said something very interesting, which was that expose, uh, [00:43:00] exposure to information is not learning. Yeah. And so in the same way, there’s, it’s, there’s no excuse to not learn. There’s no excuse to not have the knowledge or, but then. To develop the wisdom, to know when to use what pieces of information.

That’s a, That’s why we like Buffet.

[00:43:18] Dan: Yeah. And I think, you know, We already brought tie up, so might as well do it again. That whole, like, um, and I think we’re setting a bad example, doing a book Deep Dive every week in a different book, but like, there’s kind of like this, um, uh, perception that if you read a ton, like a large volume of, of different things, like a book a week for however long that that somehow like really impressive, like mm-hmm.

tie, likes, deflect on that a lot, but really like, I’ve always felt like kind of bad, but now after hearing like that kind of message reiterate at a few different times, like, I felt kind of bad about really kind of having a good core set of, of things that I really like and read them over and over again, um, as opposed to just trying to read different stuff all the time.

[00:44:00] But, um, you also don’t wanna like get stale, right? Because at a certain point how are you gonna have new ideas if you just don’t expand your knowledge base and start to learn new things? At some point you’re gonna. Stop getting creative. If you’ve got the same bank of knowledge for your entire life, you’re just gonna eventually get everything outta your head that you could and not really innovate or get creative.

So you’ve gotta have some new kind of stimuli coming in continuously, at least, I think, to, to be productive for long term. Yeah.

[00:44:26] Anthony: Think of it like fuel. Yeah. Like you’re, you’re putting the fuel in there. And the, the, the problem I see with a lot of people in the, in the world that are like in the self-help personal development, Even investing business world is that they’re, they’re, they’re, they got plenty of fuel.

You look, you look in the back and they’re shed and it is just stacked with firewood. But I’ve never seen a single bonfire and at a certain point you have enough wood, you just gotta go make the fire. Mm-hmm. . And so that’s the key. It is not to get into, I think this [00:45:00] mental, What did somebody used the word masturbation?

Mental masturbation. Where you. Stacking the, the logs for the sake. How you said that, how was it?

[00:45:10] Dan: I always said self-improvement was masturbation, but

[00:45:12] Anthony: close. Yeah, same thing. . Yeah. At the end of the day, I think you gotta, you gotta, you gotta chop the wood and then you gotta burn the wood. You can’t just, you can’t just be chopping the wood all the time.

And in this example, chopping as reading, but you don’t actually

[00:45:25] Dan: go out and like do anything. You don’t

[00:45:27] Anthony: ever implement it if you don’t use the information that you consumed in some way. Whether that’s to like say, You know what, I don’t agree with this and here’s. Hey, that’s using the information cuz now you’ve thought about it and you’ve come to a deeper understanding and it’s gonna influence your actions moving forward.

But just reading something and then immediately putting it on the shelf and picking up the next book and not doing anything with it, like Yeah, you just wasted time. Yeah. I mean,

[00:45:47] Dan: unless it was just not that great of a book and there was nothing to be done. I’ve read many of those where I’ve read it and I’m like, Okay.

Onto the next one. Not much there. So yeah, just find those good ones. Read ’em again and again. This is, I [00:46:00] think one of ’em, if you care about each, it’s pretty good. Like if you’re gonna get into the econ topic, like this is the book to do it. I would do it with, I think so throw that on your shelf, bust it out every so often.

Um, I think it’s one you can pop around into, like if there’s a concept in here, like you don’t need to read this front to back, like I’ve jumped around a lot in it. Um, there’s some key concepts in there.

[00:46:20] Anthony: So that is basic economics, Thomas Soul. Mm, it was really good. It’s a good book. I enjoyed it a lot actually.

Um, it’s heavy though. So yeah, if you listen to this podcast, if you download the sophisticated investor notes, which as always you can get by going to invictus multifamily.com back slash notes, you can download all the sophisticated investor notes from all the books that we’ve done a deep dive into. I think you will get enough of an understanding of these concept.

that if you are not a hardcore economic nerd, you would be well served with, uh, what you’ve consumed here.

[00:46:54] Dan: Yeah, a lot lighter too. I mean, one page of paper, one page versus

[00:46:57] Anthony: seven. Geez. Do you know how many trees [00:47:00] died for that thing? It’s crazy. This is three trees. Three trees. However, if you’re looking for a book to put on your shelf to look like a smart person, got the book.

Um, oh, you’re looking at passive investing. I mean, simple doubt’s also a good one. People when they see like, Oh, you’re into investing. You must be smart, . Um, so any, any parting words of wisdom or

[00:47:21] Dan: stupidity? Um, no. I mean, check out last week. Um, vegetations. All right. That’s a good one too.

[00:47:31] Anthony: All right, so, uh, keep on keeping on.

We’ll see you guys,

[00:47:35] Dan: I guess.

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