Today's guest is Tarek Mansour, the 30-year-old billionaire co-founder and CEO of Kalshi, the prediction market platform where users can trade on the outcomes of everything from elections and economic forecasts to sporting events and the weather. As prediction markets surge in popularity, Kalshi is facing legal challenges from states that argue it's operating an illegal gambling business. But Mansour insists that prediction markets are fundamentally different from casinos and sportsbooks and that efforts to restrict them threaten a powerful new source of information about the future.

Nick Gillespie talks with Mansour about Kalshi's battles with state regulators, why he believes the gambling industry is trying to stifle competition, and how prediction markets can help businesses manage risk. Mansour explains why ordinary people can sometimes forecast economic trends more accurately than Wall Street professionals. They also discuss Mansour's journey from growing up in Lebanon to building a multibillion-dollar American company and his concerns about rising inequality and the declining enthusiasm for entrepreneurship. Mansour argues that capitalism needs to give more Americans a stake in its success without sacrificing the innovation that makes it possible.

 

0:00—How prediction markets differ from casinos

4:55—Do prediction markets serve a public good?

8:18—Markets, price discovery, and the economy

11:36—Why does Kalshi ban insider trading?

14:06—CFTC and federal regulation

17:26—How Kalshi differs from Polymarket

22:30—Do prediction markets have a corrosive effect?

25:03—Kalshi's ban on athlete harassment

26:49—Arizona and New York lawsuits

31:30—State versus federal regulation

33:45—Why is Kalshi exploding in popularity?

35:57—Mansour's background and the American Dream

39:55—Wealth gap narratives and an inclusive economy

42:39—Will a Democratic Congress hurt Kalshi?

45:17—Mansour's prediction for Kalshi

47:48—Will state lawsuits require a Supreme Court decision?

 

Producer: Paul Alexander

Director of Photography: Kevin Alexander

Camera Operator: Meagan O'Rourke

Audio Engineer: Ian Keyser

 

Transcript

This is an AI-generated transcript. Check all quotes against the audio for accuracy.

Nick Gillespie: This is The Reason Interview With Nick Gillespie. I'm talking today with Tarek Mansour. He's the co-founder of Kalshi, the prediction market platform that allows people to win or lose money, or invest or not money, on everything from election results to weather outcomes to who will win Dancing With the Stars and, of course, all sorts of sports. Thank you so much, Tarek. 

Tarek Mansour: I'm excited. 

You're 30 years old, you're a billionaire, and you are a big believer in prediction markets as truth machines. I want to talk about that in a minute. But first, Kalshi gives money to a lot of nonprofits, including Reason Foundation, the nonprofit that publishes this podcast. There are no conditions on this interview.

Tell me first, what is a prediction market, in the simplest terms possible, and why is it different than a sportsbook?

I think a prediction market, in the simplest terms possible, it really is like the stock market. We're matching buyers and sellers in an open marketplace that is competitive. The thing that they're trading is not a small, specific subset that Johnny Wall Street cares about, whether it's a stock or a bond or a credit default swap or all these kinds of sophisticated things. It's simple questions about the future.

Right. So everything is yes or no?

And some things are actually more like, is it going to go up or down? And there are more structures now. But I think a prediction market is just a generalization of the stock market. One way to think about the stock market is actually a prediction market on the prices of stocks on companies.

And you make money not on whether or not you bet right or wrong. You're not the house. You run the platform, so it's like you own the casino. And you're not staking anything…

No, it's exactly the opposite. We're exactly like owning the stock market. We're like the New York Stock Exchange, right? The New York Stock Exchange is not in the business of pricing a stock or setting the prices. They're in the business of matching buyers and sellers.

And so you may have an opinion that something's going to happen, and somebody else may think that something is not going to happen. And we match the two of you to settle that disagreement of opinion via trade.

Historically, that's about stocks. Someone thinks Apple stock is going to be worth more than the current price, more than $100 per share, and someone thinks it's not actually going to be, that it's overpriced. They make a trade as a way to settle that difference of opinion.

The difference in a prediction market is you're doing it on whether Brexit is going to happen or not. And you may think that it's very likely that Brexit happens, and someone else, your counterparty, may think that it's not very likely it's going to happen.

And let's say the market right now is trading at a 40 percent chance, 40 cents on the dollar. You may want to buy, and the other person wants to sell, and we match the two of you. And I take 0.7 percent. So if you put in $100, the other person puts in $100, I take 70 cents.

And now, very quickly, explain why that's different from a sportsbook, like why you're not Fanduel….

Here's how I'll explain it, and I'll get back to exactly the sportsbook analogy.

So when the first version of financial markets came around, and very few people know this, people think that the first financial market was the stock market, but actually it wasn't. It was the commodities market.

The first real example of a financial market was the rice futures exchange in Japan. And then in the U.S., it's really become very popular at the end of the 19th century. It was farmers, they were trading on the price of grain using grain futures, and then over time, it evolved to oil futures, etc.

And at the time, it was really interesting because when I tell you about grain futures right now, you don't think gambling. You think boring, mainstream financial markets.

But at the time, the states were suing the Chicago Board of Trade, saying this is gambling. And what was the claim? It was saying, "Well, farmers are betting on the price of grain. They're speculating, and so it looks and feels like gambling. What's the difference?"

And at the time, they didn't have sportsbooks or casinos. They had the bucket shops, which were different from the Chicago Board of Trade.

So what were the bucket shops? A bucket shop was a place where the shop, which was functioning like a casino, set the prices. They would say, here's the price of grain, and here's what I'll let you buy, and here's what I'll let you sell.

And then the purpose was basically, it was a casino. Farmers would come in, bet against the bucket shop, and then they would lose money. And if you made a little bit, if you were a smart, sophisticated trader, they would ban you. You know, the card counters get banned from the casinos.

It continues to happen on sports betting.

In sportsbetting or casinos, right? Like, if you're a smart, sharp trader, you get limited. And if you maybe have some addiction issues or you lose consistently, you get promos, and you keep coming back. That is the gambling business model. That is the end.

And when people were claiming that the exchange was gambling, at the time, the Supreme Court ruled in favor of the Chicago Board of Trade.

And the basis was very simple. It's like, yes, some people are speculating, which looks and feels like betting, sure. But the mechanism is different, and there's a public good that comes out of it.

The mechanism is a free, neutral platform that lets people trade against each other. And what it needs and incentivizes, it incentivizes the card counters, the smart traders, because the public good that it brings is the informational knowledge that it gives to people.

Talk a bit about this, because this is key to your argument, and we'll get into the regulatory structures and the cases against you, but that prediction markets serve a public good because they give more information about what is likely to happen or how actors are going about their business. How does that happen?

In particular, at a place like Kalshi, you can bet on whether it's going to rain tomorrow or how much. How does that in any way create information that is useful?

Yep. So our weather forecast, so when people are trading on whether it's going to rain tomorrow or not, what happens is you get price discovery.

Some people think the odds of rain are a little bit higher than the market, so they buy it, which moves it a little up. And then some people think it's lower, and it moves it a little down. And that continuous thing is how a stock moves. That's why we call it price discovery.

Price discovery is essentially, there's a quote from a Supreme Court decision in 1905. It's really neat. It's like this idea that speculation is the self-adjustment of society to the probable.

Which is like it's the self-adjustment of the market, the wisdom of the crowds, to what we think is going to happen.

There were papers actually a week or two ago that compared our weather forecast, like the forecast from the prediction markets on the weather, to the most accurate national blended average of weather station forecasts, and we were 10 percent more accurate.

I mean, just very quickly, how does that happen? Because Joe Schmo betting on the weather, he doesn't have satellite information.

So let me give you a little bit of history.

Prediction markets, I think the founder of prediction markets is Friedrich Hayek, the economist. He used to call them information markets, not prediction markets.

And what was the sort of central thesis? At the time, he was saying we have a knowledge problem. The knowledge problem is that our decisions in society, whether it's D.C., whether it's executives, are centralized.

It's you and I sitting in a room and making a very critical decision about the future of the country. But the information that's relevant to that decision is actually very decentralized. It's sitting with a bunch of different people, hundreds of thousands, millions of people distributed across the board.

So we need a magnet. We need the mechanism to bring that information from everyone so we can make better decisions over time. 

That's what markets do. 

That's exactly what markets do. Market prices are a very good aggregator of information.

Ok, so then the idea is that somehow the people who are betting on the weather have some kind of meaningful knowledge that otherwise would not be—

And by the way, people are not even usually, for example, for the Senate race right now, they don't buy Democrat or Republican and then hold it till maturity. They buy if they think the price is underpriced, and they sell if it's overpriced. They're constantly trading these things.

But the key thing here, when I started the company in 2018, a few years before that, Philip Tetlock did…

At the University of Pennsylvania.

He's actually at MIT.

Oh, I'm sorry. Ok.

And it's about superforecasters. And the whole thing, he was trying to figure out the science of forecasting. What are these people who are good at forecasting?

And he pitted a bunch of elites on geopolitics, the big pundits, and he pit them against a bunch of random dudes, basically, and had them predict geopolitical events. And guess which group did better? The random dudes.

And it was amazing because it tells you a little bit that actually there is a lot of wisdom in this idea of the wisdom of the crowds. The average people, if you add them all up, and all their bits and pieces of information, you end up getting a way better solution and result than the small group of elites.

And this gets reflected, I mean, the way Hayek talks about it in "The Use of Knowledge in Society" and throughout all Austrian school of economics, is markets and prices are discovery systems that transmit information.

That's exactly what it is.

And prediction markets are like transmitting information about a much broader… We used to care about— farmers used to care about what the price of grain is going to be. Why?

And I go back to the farmer. Imagine we had banned grain futures as gambling at the time. There's a very clear net impact on society today, which would be what? Why would it be important?

That price discovery that was happening was giving the farmer predictability on what the price is going to be of grain in September. So now I'm in March, I know how much I can invest, how much I can plant.

If you take that away from them, what would they do? They would plant less. They would just, because with less predictability, you can invest less. And so actually, our food supply would go down. That's how critical grain futures are.

So that makes total sense. And then just to press on this a little bit, as a libertarian, I like markets and everything. I like prediction markets, etc. But what is the positive social externality, other than people being able to express themselves or entertain themselves, with like betting on Dancing With the Stars?

Well, I think to me, some people may disagree on the lines, but a lot of people care about that. And I'll give you a lot of examples.

At a high level, it seems like we agree with the premise that getting smarter, even if it's a little smarter, about what's going to happen will enable us to make better decisions and allocate resources more effectively and manage risk more effectively, right?

Now, what's interesting is actually I always think of this as like, you want more markets on more things because like—

It's more information.

It's more information. It's just that simple.

And I'll give you an example. This was the same argument that was made. So there were two types of commodity derivatives that were banned. Onion futures, which I can tell you the story, there was a wild story.

The second one is box office futures. Box office futures, in 2010, there was an exchange that was trying to bring them to light, which is an idea to do price discovery on how successful a movie is going to be beforehand.

Guess who killed it? 

I'm assuming the movie companies. 

 

The big ones. Why? Because they wanted less information. And the argument was at the time, well, it's frivolous. What is the purpose of knowing if a movie is going to be successful? It's a frivolous thing…

And this is called a Keynesian beauty contest or something, where you're betting on what you think other people will say is going to happen or something.

Yeah, I mean, but in this specific one, it's more like they were saying, "Look, knowing if this movie is going to be successful or not, that seems frivolous. It's not like grain futures. We should ban it."

But they actually had an ulterior motive, and there's a reason they did not want price discovery, for two reasons.

Because one, if the market can predict ahead of time how successful a movie is going to be, it'll be harder for them to juice the three or four weeks of box office they get in a bad movie before the word gets out. And there was a second reason. If you have a market that will tell you upfront, actually, "This team is doing a good job, even though it's a small team with a smaller brand," you may attract more investment to the smaller studios, which was going to bring more competition to the space. You will get more efficient….

I mean, markets are democratizing, ultimately, or they push against centralization.

More information is always better, and oftentimes monopolies and incumbents want less information because, you know, the markets usually reduce…

Well now let me… I want to get to the regulatory structure you're currently under, plus what various states are trying to fit you into, a different kind of regulatory structure. But just on this moment, let's stop for a second.

If more information is always better, why do you ban insider trading? Because there is an argument that insider trading is absolutely the best information, and it changes prices very quickly and makes markets clear more—

And libertarians, that's the argument, and the free market side of me always tells you that you want more. You want as much as possible.

And you want, like, when Practical Magic 2 is coming out, you want people in the studio who have seen it, who know it sucks, to change, you know, to…

I would argue yes, in theory. I'll say where in practice.

But maybe right before, I want to just make, because you asked me about the gambling distinction, which we'll get to with insider trading.

The gambling business model is one where the thing they incentivize for their customers is fun and entertainment and to keep losing. That's why they give you the suites and the drinks, and they keep you losing.

Prediction markets, what they incentivize is going out there, like markets, seek knowledge, seek truth, and then come to get rewarded for it in the open market. That is why there is a fundamental difference.

And it doesn't matter what the topic is. It could be grain futures. It could be weather. It could be economics. It could be sports. It doesn't really matter. The structure, the former structure, is what really matters.

Now, on the other argument, I agree with you. It's like, well, the insiders, should they be allowed to trade? And the way I always answer the question is, why is insider trading banned in the stock market? Because in theory, we would get more accurate prices in the stock market.

And there's a very practical reason, and this is how markets should be regulated. And I strongly believe that. That's why we took a pro-regulatory-first approach to this.

Because markets can only exist if there are fair rules of the road and the competition is fair and equitable across all the participants. So I think actually…

And people need to believe that the market are not…

Otherwise, they stop trading.

Free markets, in my view, if you take the opposite of free markets, it's this idea that there's a privileged, closed circle that has access to specialized information. Right? And the key thing in the line I was drawing is, if the information is something you can access by doing research and work and putting in the effort, no matter who you are, then it's fair game.

But if it's information that you only will have privileged access to because, I don't know, you work in government or you're an executive at a team, then it's unfair. Then it creates an unfair dynamic that over time dries up liquidity and makes actually the market less efficient because nobody will trade. People won't trade.

So this helps explain, you noted you co-founded Kalshi in 2018. You went to the Commodity Futures Trading Commission to get licensed and regulated at the federal level. So when people say, "Oh, you guys are completely unregulated," that isn't accurate. But you're…

It's completely inaccurate.

Yeah. How does the CFTC regulate what you do? And then we'll get into how and why states might be trying to change that.

Yeah, I mean, I think they're two entirely different… There's a reason why the states are trying to change that, and we'll talk about that. It's fundamental protectionism.

So the beauty of the Commodity Exchange Act, why did it come? It actually got created after this whole fight that the Chicago Board of Trade was having with the states. And Congress, in '74, enacted the Commodity Exchange Act to actually preempt two types of laws: state insurance laws and state gaming laws.

And there's a reason why. Because on an open exchange, in grain futures or on Kalshi, there are two types of activity: speculation, which looks and feels like gambling, or hedging, which looks and feels like insurance.

The difference between those two is they're being done on an open market.

And why do you need the federal statute? Why didn't they let the Chicago Board of Trade be done state by state? It's because it didn't work. And here's the easiest way to explain it. Imagine we siloed the New York Stock Exchange, the stock market, state by state, where in New York, you can only buy Apple stock from New Yorkers.

Imagine we had 50 different New York stock exchanges, different prices, different rules, fragmented liquidity.

What would happen? Worse prices, a bunch of deadweight loss, lower liquidity. You probably won't be able to, if you're in Kansas, you won't be able to buy as much stock as you want.

It is a completely anti-market kind of structure.

What you want is a federal, uniform set of rules that apply across all 50 states that promote and foster this sort of multilateral, peer-to-peer idea. Someone in California is trading with someone in Texas, and you want as much information as possible. You don't want to silo information. That's the anti-market view.

And what does regulation mean, and why is it important for us, first, for us to really get regulated as commodities? It's because the rules that apply to trading on oil futures or interest rate swaps or politics on Kalshi are largely the same.

So what do you want to prevent against? You want to prevent against insider trading, prevent against market manipulation, so doing things that move the market price unnaturally for profit. You want to add sensible guardrails around knowing who your customers are and money laundering and that sort of thing.

And I believe in this, and I think this is where the regulation is very important. It's like all these products, whether it's grain futures or sports betting or prediction markets or trading options on Robinhood, most of the use is fine.

And it's not about people winning or losing. I think the competition, some people are going to win, some people lose.

But there's some degree of irresponsible use. I do believe in that. And I believe in individual freedom. People should be able to choose, but I think there should be some regulations on irresponsible use so that companies are not targeting those types of behavior.

The sportsbooks constantly target those types of…

Yeah, so let's just, real quickly, how do you guard against insider trading? I mean, you ban it, but how do you know whether insider trading is happening? How do you know whether or not somebody who has a problem is continuing to use Kalshi? How do you find out?

Yeah, so insider trading, I mean, it's the ever question for a stock market. How do you know? And it's largely a very similar mechanism.

So one, you have to verify all customers. It's like onboarding onto Schwab, opening a brokerage account. You have to…

Are you covered by know-your-customer rules?

Yeah, yeah, yeah. As a regulator. 

And that is distinct from something like Polymarket, which is based offshore, and they're struggling with the idea that there may have been a member of the U.S. military who bet on Maduro being removed because he was part of the operation, which is kind of a classic case of insider trading.

It certainly is insider trading, for sure.

Because insider trading is like, are you trading on material nonpublic information? So do you have a piece of information that you're not supposed to disclose legally? And trading is a form of disclosure. You can't go say it, so you…

Ok, so you follow KYC, but then, yeah, and then how? So how do you…?

And then you have the same systems as the New York Stock Exchange, which basically flag suspicious patterns.

I mean, insider trading or market manipulation, the patterns are always weird. You always have an account that is trading hundreds of dollars, and now they're trading thousands of dollars all of a sudden on an asymmetric shot. What's happening, right?

And the last piece is you enforce. So when you find someone, we have, as a self-regulatory organization, we can impose fines all the way to referrals for criminal prosecution.

And the last piece that's so interesting about the prediction market, so I think it's even unique compared to some of the financial markets, all of our trades are public. It's all fully transparent.

So our customers, because why is insider trading bad? There's someone who gets harmed when someone commits insider trading. It's the person on the other side. That person is extremely incentivized to whistleblow, usually.

And so, George Santos basically tried to commit insider trading on Kalshi a few months ago. We had 100 whistleblower complaints within a few minutes because traders immediately tell us, "Oh, this is weird," and they can all see it publicly.

And that's actually kind of a curse because the press talks about insider trading cases on prediction markets all day because they're so easy to flag.

That's actually a blessing, if you really think about it, because it's so obvious. It's so clear.

So let's talk about…

You're committing a crime in broad daylight, right?

Yeah. So the state of Arizona, I mean, there's about 20 jurisdictions, I guess states, also some Indian tribes and things like that, that are bringing suits against Kalshi.

Arizona, earlier this year, launched a criminal indictment that you're running an illegal gambling operation. New York state, we're talking in New York, and you guys are headquartered in New York, right? It's saying that you are basically, I guess it's not a criminal indictment, but they think you owe them billions of dollars because you're essentially a gambling operation.

What do they get wrong? And what do they get wrong about your structure?

I mean, let me read to you something that I've sort of been looking at recently that I've been sort of really into.

I'll read you one of the court opinions, and here's how it sort of goes:

"We are clearly of opinion that dealing in these markets is void by the common law, for, among other reasons, that it is contrary to public policy. It is not only contrary to public policy, but it is a crime. A crime against the state, a crime against the general welfare and happiness of the people, a crime of religion and morality, and a crime against all legitimate trade and business. This species of gambling has become emphatically and pre-eminently the national sin. In its proportion and extent, it is immeasurable."

And they go on and on about how horrible this activity is.

This is the Illinois Supreme Court. It is from actually 1888. And it's about grain futures, not prediction markets.

And I think the same thing is playing out.

And is this simply, I mean…

It really is as simple because we have the same structure.

And the topic never mattered under the federal law. But states misunderstood it, and they just looked at grain futures at the time as like… Because people don't understand markets. Markets have always been something that people… 

They're counterintuitive.

And I always think, imagine we had banned grain futures back in the day. We would have ruinous consequences. It's today one of the bedrocks of the U.S. economy. We would not be able to function without grain futures.

And everybody benefits. I mean, there are individual winners and losers, but you get a more stable supply of food, better planting, better forecasting.

I think about 100 years from now, when there's going to be the next generation of entrepreneurs coming around and expanding the universe, they're going to be looking at this and thinking, "Imagine we didn't have a good gauge on where elections are going to land, on where geopolitics are going, the weather, the climate, the hurricanes."

And you're starting to see today, our fastest-growing segment is actually businesses hedging on Kalshi.

How do they do that? 

You can take a position because you want to make money, speculate, but a lot of people take positions because they want to reduce their risk toward an event.

So the same way that grain farmers would short the price of grain so that if the price of grain goes down in six months, they would offset their revenue loss, we see a lot of businesses do the same.

So one example, we have now hundreds of businesses that do the same, it's like sports bars hedge against their home team losing every game.

Why? Because if the team wins tonight, I will make $2,000 in revenue. If it loses, I'll make $800 in sales. And my cost is the same because I have to stock up on inventory. So it's $1,200, $1,200 no matter what.

So when the Knicks win tonight, I make $800. The Knicks lose tonight, I lose $400.

Unpredictability like that is very bad for small businesses. So they buy no on the Knicks. So they short the Knicks winning in a way that essentially compensates their P&L so they're up $300 no matter what.

And why is that important? Because predictability, it's a bit like how the airlines hedge their price fluctuations, predictability helps with investment, helps them make their decisions.

Quick question before we get to why the states are bringing these suits the way they are. Does the financialization, or does the prediction marketizing of everything, does that have a corrosive effect, say, on sports?

In leagues, and this goes back to the 1919 World Series in Chicago, the Chicago White Sox famously had some players who threw it. But when everything is being bet on, everything is being speculated, does that end up undermining something fundamental? 

So one, it shouldn't be everything. Two, I just want to be clear, we are not adding anything to sports. Sportsbooks have existed, like DraftKings and FanDuel, and if you see all the cases of players doing bad things, they're actually on the sportsbooks.

Can I ask what percentage of your revenue, or…?

I mean, it's like 65, 70 percent now, but it's going down. So it was 96 percent nine months ago. So it's going down very quickly because sports is a great way to educate people about probability. They get it. It's Moneyball. Our customer is the Moneyball type.

And then over time, they do politics and economics, and everything else is growing.

But I want to make a key point about this, which is very important. The notion that prediction markets all of a sudden now allow people to bet or trade on sports, it exists already. The question is, do you prefer it in an open and fair marketplace where everything is transparent, or do you prefer it in a closed marketplace where everything is opaque? That is the question.

And then I'm a pro-regulation guy, so I think there's war, terrorism, assassination, violence, wildfires, things that create moral hazards, that should not be traded on. We should not have markets on those things because the incentive is, it's too easy to go and create a fire.

But we also, as a market, we don't go… Most of the issues that you see is things…So we have standards that are more strict than the states' gambling rules around things not being very easily manipulated in the Commodity Exchange Act.

So we don't, for example, do markets on whether the next play is going to be a ball or a strike. The sportsbooks do these, and that's actually the vast majority of cheating cases, etc.

And that's also why we believe that regulation is very important, because when you set the right guardrails on what markets should be in, what markets should not be in, and how do you police those types of activities, and when you find someone that does it, how do you punish them very heavily? The last thing I'll say is we actually ban athletes from trading on anything that relates to their leagues.

I'm sorry, anything at all, or just on…?

Anything in their leagues. Yeah, the same way we ban politicians or members of Congress from trading on things that relate to Congress.

Yeah.

All of that goes into our…

That's like the only place where Congressmen can't bet on what they're about to legislate. 

They can do it on the stock market, but not on Kalshi.

Kalshi was a sponsor of the U.S. Open, which is kind of interesting, and there's a growing acceptability. 

And the NHL and MLB, and you're going to see a lot of other leagues.

But you've also recently you said that you are going to limit people who are abusive toward sports figures.

Yes.

Explain that, because now are you saying, as a condition of entering contracts on Kalshi, you're going to limit the speech of people? Or how does that work?

That's a great question. I mean, look, I think there are certain bad cases where, and by the way, it's not just about sports. It exists in really anything.

But I think the idea that someone… We always want to be careful about regulating the bad behaviors out of the system. And I believe that. I'm a very free markets guy, but I do believe in sensible guardrails. I do. And we may disagree on that point.

My view is the highway should be wide enough for people to compete and thrive and do all the great things you're going to do. You have to have a fence at the end of the highway to make sure people are not driving themselves off the cliff.

And I think it needs to be very delicate and needs to be very careful. You don't want to make the highway one car at a time because that's terrible. And so in this specific case, you have issues sometimes where people get over their skis and they go and harass…

Yeah, I mean, if you lose $2,000 or $10,000 or $200 because somebody dumps the fifth set at the U.S. Open, you're probably going to yell at the person who lost.

Yeah, yelling is one thing. Harassing and following them online and doing all the weird stuff that sometimes… And by the way, we haven't seen any evidence of that happening on Kalshi. That has historically happened on the online sportsbooks and some of the other mechanisms. I just want to be ahead of it. I don't like that idea.

Ok, so then here, is there any… When the state of Arizona says, "Ok, you're like a gambling operation, you're like the Mafia coming in and you're running this billions of dollars," New York is doing something similar.

In New York state, I think on a typical sportsbook, they take 51 percent of gross revenue. They make a lot of money by taxing and regulating this, and obviously they want money from you. Is there any other reason that they're doing this?

The casino lobby. I mean, the casino lobby is… The foundational thing is a few things.

So when an incumbent gets threatened competitively from a challenger, what does the incumbent usually do?

Go to the government.

It's litigate, then legislate, and then finally, when you realize that this is here to stay, you innovate, right? That's the basic 101. It's always been par for the course.

And why? Because incumbents, inevitably, when you get big enough, you want less competition. That's what you really want. And that's what's been playing out here.

And by the way, it's not just about sports. We launched perpetual futures recently, and CME, the Chicago Mercantile Exchange, the Board of Trade, sued us over it.

And usually the policy argument is never, "I'm losing some revenue due to competition." It's like you come up with a bunch of reasons, like, "Oh, it's too risky. It's too whatever," so they can get policymakers riled up.

And they usually have very orchestrated lobbies and comms functions that do these sorts of things.

But if we look at it foundationally, first, it's interesting. We have zero evidence of cannibalization between what we are doing and the gaming companies, but also the sportsbooks. Why? Because my core customer is a trader. It's the guy who has 17 monitors and like is doing math and stats, and that's 70, 80 percent of my volume. That person is banned in the sports world.

Ok, yeah.

Right? Because they're making money.

I mean, so do you think people are using Kalshi to make money, or is it a form of entertainment? Because casinos and sports betting is really entertainment…

Do you think some people use options in the stock market as a form of entertainment, like on Robinhood?

Yeah, I suspect that.

I mean, on Robinhood, for sure.

But there's a great, actually from Illinois, that was more recent actually, like a week or two ago, which is saying that just because something— financial, these prediction markets are swaps, they're financial instruments, they just happen to be fun.

And that's not… Fun is not a problem because when you look at the grain futures market, I always go back because the parallels are so clear, 95 percent of the transactions are speculative.

Sometimes I get farmers having fun. They're gambling, speculating on something.

But the key thing here is that you can win on Kalshi. The bulk is people who are doing sophisticated things, and it's a more sophisticated market.

What is the percentage overall of winners versus losers?

It's a zero-sum game. It's like the stock market or active trading in the stock market.

I'll ask you this question this way: How many hedge funds outperform the S&P every year?

Yeah, I mean, in a given year, I don't know how many. 

What do you think is a number, roughly?

Uh, 50 percent?

50? It's like 20.

Ok.

It's amazing. Like 20 percent of hedge funds win. Yeah, like 20 to 30 percent—

And then over time, none of them do.

No, there are, I mean, there are big winners like Citadel and Renaissance. That are like really big winners.

Why? Because competition. Competitions are hard, right? Imagine that number was 50. What should that tell us? If it was 50-50, 50 percent win, 50 percent lose, it would just be a game of chance. There's no skill in this thing.

Anything that has skill, like how many people win the NBA Finals in their careers? It's a very small subset because competitive environments require skill, and when that happens, you're going to have…

So how are you…?

So the answer is actually, if 80 percent of hedge funds lose on the stock market, our numbers are closer to 60, 65 percent of people losing, which is actually more of an equalizer.

Because the one thing we see on Kalshi is actually a much larger diversity of people end up being winners. If you look at our top performers, 79 percent of them went to public school. Our top traders, they're 2x more likely to have worked in retail than worked on Wall Street.

It's kind of amazing if you think about it.

Our best inflation forecaster is a random guy in Kansas who's never traded in the financial markets, just likes…

How does he do it, then? Do you know?

He's read about the economy for 20 years, loves reading about it, very, very calibrated. He's been thinking about it a lot.

And this goes back to Hayek and Tetlock. It's the idea that information and knowledge sits anywhere. They're not sitting with the elites.

And by the way, the Federal Reserve put out a paper in February. It's called "Kalshi and the Rise of Macro Markets."

They compared the Wall Street forecasts, the Bloomberg, on inflation, economy, GDP growth, unemployment, against the Kalshi forecasts for those things, which is Main Street—- Wall Street vs. Main Street.

And the result was actually Main Street was more accurate than Wall Street, and it's also real time. We move in real time.

So is your strategy, obviously you're fighting lawsuits, but is it ultimately like you're going to come up with a number that you say to New York state and Arizona, and you say, "We're not going to give you 51 percent of gross revenue," but do you keep working until you get to a point where they're like, "Ok, we'll live with it"?

I mean, I like to take the optimistic view of things, which is I think there are some people who just don't understand it. So part of it is we're just sitting down and explaining what I just explained.

Right, right.

Because the superficial view on prediction markets, like any markets, it's always the same. Society has always had an affect reaction to prediction markets. It comes around, and they're like, "That feels like gambling. It feels wrong. 

It's either random or it's rigged," right?

Exactly. It's either random or it's rigged, and it's financialization of stuff.

Not because they're bad or good, just because they are hard to understand. And when you explain it more and it gets a little bit more normalized, people, "Oh, that's actually pretty cool."

And you always see it. When I start with a meeting and I end with a meeting, the opinions on this go, "Oh, actually, it can make us think about the future a little bit better. It could depolarize us because now people are thinking more instead of saying stupid things on Twitter."

Clearly, you're not describing any meetings that you've had with the New York State Department.

Well, I mean, look, I can't speak about specific meetings, but my point is, over time, it requires education. There are parts that don't understand, parts that, yeah, there are lobby groups and casinos that are pushing really hard to protect their turf. Or I don't even think they're protecting it. They're not getting cannibalized. I think their view is like, "Oh, it's a big industry. We should have it, too." It's a little bit that sort of thing.

The thing that they're misunderstanding is that this cannot exist state by state.

Why not? 

Because, you know… 

Ok, because gambling does. And I know you make a big distinction. 

With gambling, you go against the house, and you bet against the house. It's localized. That's fine.

But I'm a peer-to-peer market. You don't want the Californians to trade only against Californians, and Texas…

Again, why is New York… Do you prefer a national New York Stock Exchange or 50 different…?

I'm a citizen of the world. So, yeah.

But the point is, exchanges are peer-to-peer, and they require liquidity. They require a large diversity.

It's like Marketplace, Airbnb. Imagine eBay. You can only buy the bag that you want from people in the same state. That doesn't make any sense. You want diversity. The more diverse the participation, the more information, the more it works.

Why do you think prediction markets, and obviously there have been prediction markets probably for as long as humans have had language…

You know what the first one was, right?

I don't.

Pope elections.

Oh, ok.

In the 1400s.

Ok. Yeah, and well, Intrade, which was a predecessor, which was another business, or got run out of business in 2013, was very good at predicting who was going to be pope.

But why does it seem to be exploding now in popularity? Is it that the tech got better? Is it that people have more money?

I think it's two things. One, we approached it from a regulatory-first approach. I always wanted to create a financial market and broaden it into more things.

Prediction markets are just the financial markets. They're just on a different topic. That's it. People are complexifying this.

But the second thing is, when I started in 2018, I think the demand is because, I think it's the polarization that's happening in the country.

And we feel like there's more information than ever, but less truth than ever. Because the filters, the things that are filtering our information, are biased. They're partisan, they're extreme, they're polarized.

The social media algorithms, and you see, you look at two different Twitter feeds and they look entirely different. People have different conceptions of the truth, of what's happening on the ground.

Because if you write seven paragraphs of thoughtful analysis on Twitter, you get two likes. If you write something crazy, like something racist or something ludicrous, just straight-up stupid, you get 10,000 likes.

Because it's clickbaity. It's like the 10-second Reel on Instagram.

I was like, there will need to be, there was going to be a lot of demand for a source of information where the filtering mechanism is very transparent and it's very aligned with truth.

And that's markets.

We used to always joke, when I did my master's at MIT, and I was doing a Ph.D. or working on Wall Street are mostly the same thing, except that you have to be right on Wall Street. You have to do analysis in both.

But my point here is about the incentive structure of the prediction market. It's very, very simple. The seven-paragraph thoughtful analysis probably makes money, and the stupid, extreme takes probably lose money. And all you have to trust is that people like making money and they dislike losing money. That's it.

It's interesting to me that, Kalshi, you were born in California, but you grew up in Lebanon. Your co-founder was born and raised in Brazil.

Can we read anything into that, that these are the two founders, people from countries that are peripheral to, in a way, certainly to America, but kind of to the global economy?

I just think it's naive. It's like the American dream.

I mean, my mom, when we… So I was born in California, moved back to Lebanon. My mom, I grew up with a single mom, and she's kind of a tiger mom. Not kind of. She was very much a tiger.

It would be a lion, right, in Lebanon?

In Lebanon, it would be a lion.

But the whole thing was, like, "You have to go back to the U.S. because that's a country that will, if you have good ideas and you're smart and you work hard," and she knew I was always, like, a math nerd…"You're going to make it, it will reward you for doing that."

And she was right.

She was a ballerina, but also a lot of similar sort of thinking in our household.

And we showed up here, and we're so excited. There are so many different things you can build, and you can challenge the status quo. It's a country that lets you challenge the status quo in a way that no other country lets you.

And that's amazing. That's something we should really cherish, and like keep….

Do you worry about that? I mean, again, we're in New York, which elected a democratic socialist as mayor. You have Donald Trump Jr. as a special adviser. Who you hired, or you announced, a week before the inauguration of Donald Trump Sr. in a second term…

That's not right. That's actually what happened.

Ok. Well, I mean, the press release went out, I think

I don't know, but we actually had done it before the elections. It was not a political decision.

Well, what I'm getting at, though, is that MAGA, Donald Trump has nationalized the economy or socialized it in ways that were unthinkable since FDR.

So on both sides of the aisle, we seem to be pulling away from free market ideology or belief in free markets or belief that America is a place where you can define yourself.

But the people on the left say, "No, you're defined by who your parents were, what race you belong to, what gender or sexual minority." People on the right want to kick out people like you, right? I mean, they don't want Middle Easterners coming to America, even if you're an American citizen.

So, I mean, look, I…

So are you worried about the America that you've moved back to?

Yes, I am worried. I don't think it's necessarily a political thing. I just think it is a structural thing that's happening in the economy that we have to kind of contend with.

I'm 30, so I was going through school like 10 years ago, and when I was going through school, there was still this energy. People were excited. They were pumped. They wanted to build, they wanted to do things, they wanted to start companies.

And my cousin now is going to Columbia, and you don't feel that energy anymore. That, to me, is the most concerning part. 

Where did it go?

I think part of it is there is structural changes happening that society is battling, where there's AI, there is wealth disparity that's being created that is extreme.

And then that is also not… When I think about free markets, I always say the foundation of free markets is everybody needs to have a shot in the competition, right? Everybody needs the same rules, the same rights, and the same obligations.

And if people stop believing that, the competition is tilted. The competition is not a level playing field. I think that's kind of an opposite view to fair markets.

And I'm not here to say, look, the solution is simple. But I think we would argue that capitalism is a good thing, but what we need to contend with and be aware of is that a lot of people are not part of it. They don't feel like they're part of it.

And that's a reality. That's a truth on the ground that we cannot just…

Is it that they're not part of it, or is it that they don't feel they're part of it?

It's equivalent, though.

Yeah. I mean, because one of the arguments about social media, which clearly has a lot to do with this type of stuff, is that the median household income, the median individual income in America, is at all-time highs. It keeps going up, despite the financial crisis, despite COVID, despite geopolitical Sturm und Drang.

But people feel like, "I'm not getting as much as Donald Trump Jr. has, so I feel ripped off," even if they're doing better. I mean, is it important to know what the narrative is and what the facts on the ground are?

And frankly, I do think, because I don't want this to sound partisan, I do think it's bipartisan. I think people on both sides…

Yeah, no, I agree with you completely.

And we engage. Kalshi has engaged. People have talked about Don. We have advisers on the other side of the aisle, Democrats, across the board. And I frankly talk equally to Republicans and Democrats. And there is a lot of thought on both sides about how do we deal with this?

And my view is we may be being a little bit too ideological about capitalism versus socialism.

And to me, it's more like, I think most people would agree that we want a free, competitive economy. We want people to have a shot. We want people to feel part of the system.

And my view is a little bit more practical. It's like, "Look, if the wealth inequality is too out of whack, we need a little bit of a dampening mechanism. Just bring it back."

Is that mechanism, is it heavy taxation? Is it regulation that prevents the formation of new businesses? Is it…?

I don't think we should ever prevent or slow down innovation or prevent the formation of new businesses. My view is more that we need to think about ways to bring the people who feel they're out of the system into the system.

There are simple, kind of naive ways to think of it. I always think, could you have the most successful companies in America, or the rising top 200 tech companies, take a small 1 or 2 percent of their stock, voluntarily?

And I do believe, actually, you sit down with a big enough group of founders and give it to, let's call it whatever, you can define a set of households in America and put it in their children's accounts.

And the thing I love about that idea is all of a sudden people feel, they understand, actually, ok, AI, space, tech, fintech, all these different things that feel completely distant and far removed from you right now, they're tangible.

And it's actually, oh, it moves up over time. And as we're creating value as a society, we're doing the thing that America does: innovate, push the boundaries, take risks. There's tangible value that basically accrues over time.

And to me, it's like we don't need to… Capitalism, it's too much ideology versus, how about the middle ground? Let's make sure we bring people along. And it's not going to hurt the very top that much to do a little bit on the margin.

So you're facing a huge amount of regulatory uncertainty. There's also a huge amount of political uncertainty that's kind of bigger than that.

My view is all companies, tech companies, are facing a lot of that. AI as well…

Well, and technological uncertainty, all of this kind of stuff. But for the midterms, is there an outcome that is better for Kalshi or worse?

I'm frankly, not sure. The idiom is like, "Well, what are you going to do when the Democrats take over?"

And I don't know. Frankly, the internal view is, to me, we've built relationships on both sides. I found actually there's a big group of people on both sides that actually are largely are where we are, which raises my second point.

Who are some of the Democrats? I mean, I think I know some of the Republicans, but many of them are anti-prediction market. But who are some of the…?

I know, it's many. I mean, I think there are some on both sides of the aisle, but I think there's a big group on both sides that is actually pro.

But without naming names, to me, the thing that we're really focused on is what we've been focused on from day one.

We're a company that spent the first four years of our company getting regulated upfront, which is very unusual for Silicon Valley. It's very, very unusual.

And I always say I'm pro-sensible regulation. Banning something is not a form of regulation. It's actually the ultimate deregulation because you're moving it offshore, and you're just closing your eyes and letting it go crazy. And that's what happened with crypto. We banned a bunch of stuff onshore, it went offshore, and people lost their money.

To me, it's always be sound on policy, truly. Try to actually, let's put the ideology aside. Let's actually get it right and communicate that over and over and educate what is right.

And I always say there are certain types of markets that shouldn't exist because those are moral hazards that could create issues. Like the military strike market should not have existed. And we never did it because we're regulated in the U.S., but no one should be able to do it.

Number two is ban insider trading. We have to, because if there's a privileged set that has access that the rest of America does not have, that ruins the markets over time. It destroys trust in the system. We don't want that.

And three, sensible guardrails. There's going to be irresponsible use for any of these products, whether you're trading options on Robinhood or crypto on Coinbase.

Or you're going to the neighborhood bar. You want somebody to send you home when you've had too much.

That's right. Most people who drink alcohol, it's fine. It's great, actually. It is a social lubricant. I mean, there's a small percentage, sub-1 percent, that end up destroying their lives. You want to regulate that out of the system. I believe in that.

And it's like any technology. You have upsides, the steam engine, and then you have your carbon dioxide emissions. Regulation reduces the emissions and optimizes the upside.

And it's always delicate. It has to be delicate and balanced. But it's usually not the best thing for getting a bunch of clicks on social media, right? That's the…Policymaking is boring.

So about 15 years ago, or I think it was 2013, Intrade, an Irish-based prediction market, was regulated out of existence in the U.S.

They were unregulated.

Ok. Well, they were, but they had a CFTC license.

No, they didn't.

Oh, ok.

So we're the first to have gotten the CFTC…That's the difference. 

That's the difference. Thank you.

But what would you put the odds on of you, in five years, Kalshi being bigger than ever and in a clear regulatory market, or…?

I think they're very high. They're very, very high. I mean, we have 30 million customers in the market, right? I mean, it's very big.

And again, the choice is, if you were to ask me whether prediction markets exist in five years, that's 100 percent.

Yeah, of course.

Because it's not a question of whether they're going to exist or not. It's just whether we're going to regulate them the right way. 

You think they will be legal and public and transparent.

Certainly, yes. I mean, I think it's because they're here. I think the question is now, do we regulate it? Do we add the sensible guardrails? Do we just drive it offshore and close our eyes?

But I think usually, again, time is with us because even if you compare it today versus six months ago, way more people understand it. There's much less energy than before.

And the one thing I'll say, the media, you know this, the media just loves the scandals. When the insider trade happened on Maduro, that was like a three-month cycle. It was never-ending, right?

That's what all people would hear about it. And they wouldn't say Polymarket, they'd say prediction markets. They would lump us in.

But it's going to take some time for people to understand that actually, that was a one-off. There are like 30 million customers who are using these things. And yes, there's some bad in any system, and we're going to have to regulate it, but the positives are exciting.

Because to me, you're seeing now, we have thousands of businesses that rely on this.

I mean, people in the Keys around hurricane season start calling in and buying yes on hurricanes in their town because insurance companies don't insure their homes anymore. We have so many insurance use cases that are proliferating right now on sports, on weather, on esoteric things.

Like, there's this bill. I don't know if you saw the story about the goat herder in California. There's a bill in the legislature that was being passed that was going to move. He has 3,000 goats, move goat-herding wages from $70,000 to $40,000, which is going to drive him out of business.

He started calling insurance companies to underwrite this risk. They're like, "We're not going to. I mean, this is crazy."

And so he came to us, and we set up a market. Within two or three hours, the market said there's a 10 percent chance of it happening. Then he bought a $50,000 hedge that would pay out $500,000 if the bad thing happens, and it happened.

So now he has the war chest to go and diversify his business and stay afloat and all that. More of that is basically going to happen.

I guess a final question is, are the lawsuits against you at the state level or at the nonfederal level, is that going to require a Supreme Court decision, do you think?

You know, I just think, for us…

Because the Supreme Court has, I mean, some of these suits are proceeding, so you have a legal argument, which strikes me as pretty solid, but I'm not a lawyer. But is it going to take a Supreme Court decision? I don't know what this is all…

I think maybe. I mean, I think that we'll see. I think there are a lot of things that are in flux because some of the courts where we lost, it was based on a rule that has been changed now.

There are a number of new rules that are regulated that the federal agency, the CFTC, has put forth now. So that's kind of changed. It invalidates a lot of these opinions for good reason.

So it's a bit of a reset that's going to happen.

How important is the actual head of the CFTC to your future?

It's very important, but these things, it's like a push and pull, and some people may disagree with this regulator, right?

My point is that Congress explicitly gave the authority to the CFTC to regulate market structure this way, no matter what the topic is. That's really the law.

And they even say if something is gaming, which you can say the sports game is a game, the CFTC can decide what to do with it. That's the law, and they can decide to allow it and regulate it in a certain way.

You may disagree with the regulations. Some people tell me, well, maybe they're not stiff enough on this or not stiff enough on that.

But that's why you have the separation of powers. Congress delegated their authority to the agency. If you're unhappy with the agency, there may be a shift in two years. There'll be another agency that might be more strict or more loose.

And that's the natural, it's par for the course, natural course of history.

But to me, it's like, as we learn and as data surfaces, as we understand these things better, the better for us. Because the truth and the data is on our side. The best way to tell a good story is to have a good one, and I think we have a good one.

All right. We're going to leave it there. Tarek Mansour of Kalshi, thanks so much.

 

The post Are Prediction Markets Just Gambling? Kalshi CEO Responds appeared first on Reason Magazine.

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© Illustration: Fatima Ruiz

This week, editors Peter Suderman, Katherine Mangu-Ward, Nick Gillespie, and Matt Welch discuss the riots engulfing France and whether the country's increasingly unsustainable welfare state has made it ungovernable. They examine competing claims that immigration and austerity are fueling the unrest, the political gains being made by the French right, and why even modest pension reforms provoke fierce resistance.

The conversation turns to the United States, where President Donald Trump's tariffs are losing support among blue-collar voters and Republicans are struggling in traditionally conservative areas like Ohio. The panelists then discuss the abrupt departure of White House press secretary Katie Zacharia after just five days on the job. Later, they examine Sen. Elizabeth Warren's (D–Mass.) opposition to a proposed $45 billion merger involving McCormick and Unilever. Finally, a listener asks why libertarians don't follow the Democratic Socialists of America's example by trying to reshape the Republican Party from within.

0:00—France's riots and the imploding welfare state
21:29—Trump's tariffs lose support among blue-collar voters.
29:41—Zacharia's tenure as White House press secretary
35:45—Listener question on libertarian influence strategy
45:52—Warren's corporate merger opposition
57:07—Weekly cultural recommendations

 

Upcoming Reason Events

Reason Versus - Authoritarianism Is a Right-Wing Problem, November 10

 

Mentioned in the Podcast:

"France Burns," by Liz Wolfe
"Protesters in France and Spain Are Angry at Government Failure—and Demanding More Government," by Reem Ibrahim
"French Tantrum," by Liz Wolfe
"Yes, Heavy Regulation Hurts the Economy. Just Look at France." by Veronique de Rugy
"Even Blue-Collar Workers Have Turned Against Trump's Unpopular Tariffs," by Eric Boehm
"Ohio's Democrat Momentum," by Liz Wolfe
"Trump Fired Kimberly Guilfoyle for Influence Peddling That Pales Next to His Presidential Profiteering," by Jacob Sullum
"Why populism leads to decline," by Nick Gillespie
"How Third Parties Die," by Jesse Walker
"How GOP Fiscal Sanity Died, in 7 Easy Steps," by Matt Welch
"Be Prepared for Elizabeth Warren's Reign of Economic Error," by Nick Gillespie
"Elizabeth Warren Wants the Government To Investigate America's 'Sandwich Shop Monopoly,'" by Christian Britschgi
"The Elizabeth Holmes Documentary You Can See Everything Is an Act of Radical Empathy," by Peter Suderman
"Thank Dutch Merchants, Not a Strong State, for Capitalism," by Edward Stringham

 

Today's sponsor:

Cato Innovation Project: Design your own full-time, paid role at Cato. If we fund your idea, you spend two years executing it. Apply here: cato.org/reason

The post France's Welfare State Is Finally Imploding appeared first on Reason Magazine.

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© Illustration: Fatima Ruiz

With little more than two weeks to go until the midterm elections, it seems increasingly possible that the Democrats, already a big favorite to win control of the House of Representatives, will also take charge of the planet's most elite nursing home, the United States Senate, where the median age is 64 years old. RealClearPolitics' poll aggregator has moved control of "the world's greatest deliberative body" (as its members are grandiosely wont to call it) to "toss up," status and prediction markets are now breaking big toward a blue wave. As of this writing, Kalshi has its Senate odds at 63 percent for the Dems vs. 37 percent for the GOP; Polymarket is at 62 percent vs. 39 percent.

As gratifying as it might be to see unprincipled Trump enablers reduced to minority status after signing off on economy-wrecking tariffs, inhumane immigration detentions, and wars of choice, there's at least one good reason to dread a Democratic majority too: Sen. Elizabeth Warren, the Massachusetts progressive who is spending the run-up to the midterms freaking out over possible consolidation in the condiments business and accusing private equity firms of gutting such shopping-mall favorites as Claire's and Toys R Us. There's every reason to believe that a Senate run by Warren and other economic interventionists will waste time, money, and resources trying to prevent a world in which, per the X wag Iowahawkblog, "a panopticon conglomerate owns two brands of hot sauce."

On October 13, Warren posted this dire warning to X:

Hellmann's mayo
McCormick spices
Cholula hot sauce
Frank's RedHot

What do these products have in common? One company could soon control them all.

I have concerns that McCormick and Unilever's $45 billion merger could increase YOUR grocery prices.

— Elizabeth Warren (@SenWarren) October 13, 2026

It's hard to think of a more competitive and varied market than the one for hot sauces, which is expected to more than double over the next decade. The barriers to entry are generally low, as are the key ingredients, and new entrants can easily market and sell online, avoiding the costs of buying shelf space in conventional supermarkets. Yet Warren is urging regulators at the Department of Justice and the Federal Trade Commission to halt mergers of both product makers like McCormick and Unilever and grocery stores like Kroger and Giant Eagle.

The latter complaint is particularly picayune. Kroger is one of the country's largest supermarket chains, operating around 2,800 stores under its own name as well as Harris Teeter, Ralph's, and others. Giant Eagle operates about 170 stores. This merger is no more the stuff of nightmares than a single company producing both Cholula and Frank's RedHot. If Warren gains more clout from being in the majority, expect her to butt in more and more on such mergers.

Making it harder for businesses to adapt is not a recipe for making goods and services more affordable. But Warren is keen to blame economic creative destruction not on "new forms of industrial organization that capitalist enterprise creates" (as Joseph Schumpeter would have it), but on pure greed. In a TikTok released earlier this month, she shows a poster board with corporate logos from once-thriving companies that she says have been "gutted" by "private equity" firms.

"Here's your local mall," she piously intones. "Now, private equity wants you to believe that Red Lobster went bankrupt because of their endless shrimp….They want you to believe that Claire's went bankrupt because teens stopped shopping at the mall." In Warren's telling, private equity firms magically take over thriving businesses and then strip them bare. The typical pattern is that private equity enters the picture after a business is failing.

Virtually all accounts of the decline of, for example, Red Lobster, note that the chain had been spiraling for several reasons before the private equity firm Golden Gate Capital got involved in 2014. As this CNN article notes, the chain, which started in 1968, had seen drops in sales as customer desires changed. Management compounded the difficulties with a series of bad decisions, including continuing various all-you-can-eat menu specials, before coming out of Chapter 11 bankruptcy last year.

Similarly, it's true that some teens still go to malls and get their ears pierced at Claire's. But anyone who has spent time in retail America over the past few decades knows that malls are no longer the destination that they once were. As CapitalOne Shopping Research documents, "in 1986, there were 25,000 malls, large and small, nationwide." By 2023, that number had shrunk to just 1,200. While some malls are coming back, most are not, and for reasons that have nothing to do with private equity. Online retails plays a role (though a smaller one than usually imagined, with e-commerce accounting for less than 20 percent of all retail sales). But mostly, it's that people today tend to want a different sort of retail environment. Anchor stores—think Macy's and J.C. Penney—are shadows of themselves, and younger people have less unstructured time in which to prowl food courts and arcades.

For politicians like Elizabeth Warren, though, there can be no financial gains or losses that aren't the result of shadowy, conspiratorial forces. If her party takes control of the Senate, her words will carry more weight. But it will be American consumers that ultimately shoulder the burden of an even-more-regulated economy. The market for hot sauces will almost certainly stay spicy, but many other parts will surely suffer.

The post Be Prepared for Elizabeth Warren's Reign of Economic Error appeared first on Reason Magazine.

Today's guest is Brazilian economist Fernando Ulrich, one of Latin America's leading experts on Bitcoin and a longtime advocate of free market economics. His 2014 book, Bitcoin: The New International Currency, helped popularize the cryptocurrency in Latin America, where decades of inflation and government mismanagement have made alternatives to state-controlled money especially appealing. But Ulrich doesn't believe Bitcoin needs to replace the dollar to succeed, and he argues that its greatest contribution may be challenging the government's monopoly on money.

Nick Gillespie spoke with Ulrich at the Winds of Change conference in Buenos Aires, where they discussed why the AI investment boom may be drawing capital away from Bitcoin, whether Javier Milei has delivered on his promise to transform Argentina's economy, and how stablecoins are threatening national currencies. They also explore the Austrian school of economics, the risks of protectionism, and why Ulrich believes Bitcoin can expand individual freedom even if it never becomes the world's dominant currency.

0:00—Is Milei delivering on his economic promises?

4:29—Argentina's central bank

7:35—Bitcoin as a payment system

10:10—Bitcoin's adoption rate and volatility

16:38—Is AI a bubble?

19:03—What does Paul Krugman get wrong about Bitcoin?

23:13—China's relationship with Bitcoin

24:24—Differences between Bitcoin and stablecoins

28:25—Subjective value theory

32:40—The Cypherpunks and the concept of exit over voice

37:49—Will an economic crash accelerate Bitcoin adoption?

40:04—Tariffs and free trade

44:18—Why Bitcoin won't replace all currencies

45:26—Nationalism

48:39—2046 Bitcoin prediction

The post Bitcoin Is a Threat to Government-Controlled Money appeared first on Reason Magazine.

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© Illustration: Fatima Ruiz

Today's guest is Mark Cuban, the billionaire entrepreneur and former Shark Tank star who is now on a mission to reform the American healthcare system. Through his companies, Cost Plus Drugs and Cost Plus Wellness, Cuban is trying to make healthcare more affordable by cutting out middlemen and making pricing more transparent. But he argues that fixing America's healthcare system will require breaking up massive conglomerates that wield enormous power over pricing and competition, often at the expense of patients.

Nick Gillespie talks with Cuban about why he supports bipartisan legislation from Elizabeth Warren and Josh Hawley to break up Big Medicine. Cuban explains how artificial intelligence can expose hidden costs in health insurance contracts and transform the way doctors diagnose and treat patients. They also discuss Cuban's support for Texas Democrat James Talarico and his belief that political parties have outlived their usefulness. The billionaire entrepreneur makes the case for restricting social media algorithms for children under 16 and discusses why he isn't particularly worried about socialism's growing popularity among young people. Finally, Cuban reflects on how Ayn Rand's The Fountainhead shaped his understanding of capitalism and why he believes helping others is part of being a successful entrepreneur.

 

0:00—James Talarico and the Break Up Big Medicine Act

4:13—Healthcare conglomerates and "contractual terrorism"

15:39—Drug pricing and pharmacy benefit managers

26:58—How AI will transform healthcare

33:04—The Trump administration's policy reforms

34:22—How does Cost Plus Drugs work?

43:08—The backlash against billionaires

47:52—Political parties and Texas governance

51:50—The rise of support for socialism among Gen Z

55:11—Would Cuban back a social media ban for minors?

55:50—The influence of Ayn Rand

Producer: Paul Alexander

Audio Engineer: Ian Keyser

 

Transcript

This is an AI-generated transcript. Check all quotes against the audio for accuracy.

Nick Gillespie: This is The Reason Interview With Nick Gillespie. Thanks for listening, watching, however you're consuming this. My guest today is Mark Cuban, the former majority owner of the Mavericks, now a minority owner, if memory serves. And that's partly because you're going all in on Cost Plus Drugs, a company and a business model about prescription drugs and, more broadly, wellness and health care. We're going to talk about that in a little bit, but right now, you have recently in a very tight Texas Senate race, you've endorsed James Talarico, or you're speaking with him, partly because he has talked about coming up with a health care plan that you think will reduce health care costs. Can you talk a little about the Talarico plan and why that was so important for you in terms of signing on to appear with him?

Mark Cuban: I mean, really, what we agreed on is that we need to pass Elizabeth Warren's and Josh Hawley's Break Up Big Medicine Bill. And that was the fundamental reason why I supported him. I mean, there are other reasons as well, but I think that as long as we have these huge conglomerates that dominate the economics and provision of health care, the system's not ever gonna work, and we're gonna get what we have right now.

So, identify what is the main problem with health care right now? Is it just that everything costs too much, and that's because of the big conglomerates? Or is it that the quality of care is no good, the rate of innovation is dying? 

What's the main problem with health care?

It's the economic side. I mean, the U.S. has the best health care in the world. It's not even close. The problem is, it's not accessible to everybody, but it's not affordable to most. And that is underpinned by how the biggest conglomerates in the country, that do hundreds of billions of dollars each in revenue each year, dominate the economics of health care.

So how is the Break Up Big Medicine Act or bill how is that gonna actually reduce costs? Because I know in the past you've talked about being a small-l libertarian. You're obviously very much in favor of capitalism. You don't hate billionaires. You don't like wealth taxes. You like free markets. How is the Break Up Big Medicine Act gonna work? Because one of the reasons we're where we are now is because of all of the past government intrusions into the market or structuring of the market. I mean—

No, that's wrong…OK, let's just…

I mean, the government already spends about 50 cents of every dollar in the healthcare ecosystem. So it's not like this is a market, right?

Well, it's not a market. You're correct though. Right? But in order to have an efficient market, you have to have price discovery. In order to have price discovery, you can't have gag clauses in every single contract that every single health care—you can't have gag clauses in every single health care benefits contract that's signed. Period. End of story.

And who commands those gag clauses? The big companies that need to be broken up. And it's not an issue of what the government is doing. It's specifically an issue of the choices that are being made by the CEOs and C-suites of those companies.

You look at the largest vertically integrated health care companies: 3,000-plus subsidiaries, $150 billion in intercompany transfers. That's more than the GDP of 13 states. And so they literally dominate the economics. And that's just one company.

If you go to the top three, the point of this is, the leverage is not with the federal government in this particular case. The definitions, the relationships, the pricing, the rules are being set by these big conglomerates. And if you were to break them up, it would change.

Ok, so we can work through a more specific example. What's the worst conglomerate, then, or the biggest healthcare—vertically integrated provider? And how are they bilking everybody—customers, doctors, hospitals, unless they own the hospital system? Who's the worst, and how is that working?

UnitedHealthcare. They're the ones that have thousands of subsidiaries, $150 billion, $160 billion in intercompany transfers. They either contract or employ more than 10 percent of the doctors in this country.

Out of those 3,000 subsidiaries, they own pharmacy benefit managers, they own health care providers, they own what they call ASOs, third-party administrators that administrate care. They own Medicare, Medicaid, MCOs that manage Medicaid for states. There's just—I can't even begin to start to list all the different things that they control.

So one of the ideas behind a vertically integrated company is that they— if you are sourcing your own cost inputs, you can do things more efficiently, and you pass that on to the customers. So McDonald's grows its own potatoes because—

Sure, I know I get it. I know the potential benefit. Yeah.

Oh, no, no. I know that. So explain—

It's also a choice. So, here's the choice. You can pass it on and say, "Look, we're going to be more efficient and pass on the benefit of our efficiency." And the easy way to understand whether that's occurring—there are two easy ways.

One, to ask anybody who uses their services or any of their peers, and just ask them: Have you felt like you've been the beneficiary of their scale?

Based on the polls going around for these midterms, right, the number one issue is affordability, and the number one underpinning of that affordability is the cost of health care.

Number two, being a healthcare geek, I will read the transcripts of their quarterly earnings conference calls. The one thing I have yet to ever hear them say over the past four or five years is that, "Based on this investment, based on this new technology, based on this acquisition, we are going to be able to reduce the cost of care or services to patients that receive that care." Not one.

So patients just don't show up in the way you're talking about it? It's like… 

Not at all.

We've streamlined like our costs—

Right. Well, not even necessarily streamline our costs, but what does show up is: "We are going to be able to increase our earnings along with our previous trend. We are going to be able to increase our margins and our revenue for specialty medications," right? There's just a long list of things that they are pushing.

And the bottom line of this—and every capitalist, every CEO has to decide who they're responsible to. Typically, in a public company, which all of these are, they're responsible to shareholders. And that's not necessarily a bad thing if they're aligned also with their customers, their ultimate customers. It may not be the direct customer, but the ultimate customer, which is a patient.

They are not aligned. Not only are they not aligned with the patients, they're not aligned with any other stakeholders.

When you talk to corporations, big or small, a solo entrepreneur, 100 employees, 100,000 employees, and you say, "How are your health care costs doing these days? Are they going down? Are they going up?" And obviously, the response is they're going up.

And you talk to their members, their employees, their families: Are your deductibles and premiums going up or down?

And so the proof is in the pudding that they're aligned with their shareholders, but they are not aligned with their ultimate customers. And that creates a disconnect. And those are the decisions that they've made. In one case, with a tragic outcome, unfortunately.

And so going back to the Break Up Big Medicine Bill and the outcome, when you have somebody who is that big and has that much control and that much regulatory capture, it's AT&T time. It's Standard Oil time, again.

Yeah, I mean, but then it gets complicated. And I don't want to spend too much time on this, but in the sense that when Standard Oil got broken up, they were actually charging the least for their products in their history.

This should be easier then, right? Because now these guys are charging the most.

No, no. Well, I'm saying it gets complicated because you mentioned regulatory capture, and this is part of the problem. Like, if UHC, if UnitedHealthcare is so bad, why do companies keep using them as a benefit?

I'm so glad you asked that. Why do they keep on buying from them, right? Why do they keep on doing business with them? Right?

Right. 

So I spend most of my days going to CEOs and explaining to them how they're getting ripped off and how they are getting worse outcomes by dealing with these big conglomerates. Almost all my days. And what I can tell you—

I'm sorry to interrupt, just real quick, because just to get you on the record on this. You're not against bigness per se…

No!

Right? Big conglomerates—because people like Elizabeth Warren often are like, if it's a big company, break it up, right?

Not the issue to me at all.

If I were running that company, I'd be like, "We are so efficient. We are so good at what we do. We use AI and technology better than anybody, so good that we're pushing prices down." And because of that, we'll make more money.

And you know what? Even if we don't make more money, we'll make enough to keep our shareholders happy. But you know what? I'd rather be a great citizen of this amazing country of ours, and if that means better health care at less cost, and our P/E ratio needs to be a little higher to get that stock price where we want it, I'm good with that.

That's how I would—so I have no problem with scale.

The problem I have, like when you talk to people who work for these companies, when they say, "Yeah, I work for whoever," the first thing they say to me is, "I'm sorry. I need the job."

It's not like they're proud. It's not like, "Hey, we're doing such amazing things." And so that's the underpinning of all of this.

So go back to your point on why do companies hire them, right?

I spend so much of my time—literally before this call, I dealt with a group of people who were HR representatives and buyers of these services. And I said, "Do you like these companies that you're dealing with?"

They refer to the big insurance companies as the BUCAs, right? Blue Cross Blue Shield, United, Cigna, etc.

And they're like, "No, we don't like dealing with them."

I'm like, "Why do you?"

"Well, because our CEO just doesn't understand health care costs and health care benefits. And they may know somebody or do business with them."

Like, I've literally talked to humongous banks who have said that we're not going to switch because we'll lose their deposits and banking relationships.

Ok, that happens. So let's put them out.

So now I was talking to this group today, and I started giving examples of places where those big companies were taking advantage of them. And I went directly to contracts because most of the contracts are comparable.

So I call them contractual terrorism.

The city of Dallas, we'll use them as an example. Their pharmacy benefit manager contract: 1,300 pages. There's no human or humans or enough coffee on the planet.

I don't even know if the AIs are capable of scanning that.

Well, the AIs are capable of doing it, right? You kind of got ahead of me there, because before they were able to push things through.

So, like, for pharmacy benefits, there are these things called rebates, where the manufacturers give money back to the pharmacy benefit managers, and they have the choice of how to distribute it from there depending on the contracts, right?

And one of the biggest sources of rebates is something called specialty drugs. They're supposed to be more complicated drugs. Just as often, they're not, but they call them specialty.

But in these contracts, and I literally asked the question of this group who has a good understanding of their contract, I said, "How many of you have a clause in your contract that says specialty rebates, specialty medications either get a flat rebate or no rebate?"

They all raised their hands.

And then I said, "In that contract, doesn't it also say that that PBM owned by that big BUCA—"

That's the pharmacy benefit—

Benefit manager, right, gets to determine what is a specialty drug or not. So in some cases, it could be generic, it could be a little pill, and they call it a specialty drug so that they get to arbitrage the rebate or to retain the rebates instead of sharing them.

So going back to the question of why would a company do this, and it's even worse on the medical side. That's the pharmacy side.

There's no company that, if you work for a company that's self-insured, and God forbid you need to get some major surgery, and so they send you a bill, not even specifically to you, but for the whole company every week or every month, right? And the company just writes the check for the bill, and they may or may not even get examples of the claims so they can reconcile them to what was actually charged or paid to the hospital.

So you have these huge companies that have no way of reconciling whether or not what they were charged is what was paid to the hospital or doctor or provider.

So I was like, why do you do this? Why are you letting yourselves be taken advantage of? And it's because, "Well, it's just happened, it's changed so rapidly, and the prices have gone up so rapidly. We're still in the contract. We're still doing it."

And I'm like, so let me give you the way to resolve this. And this goes back to AI.

So what I've done, and I've done it for my companies, I've helped other companies do the same, I've helped states do the same. Now, with AI where it is, and it's only recently capable of doing this, you can take a 1,300-page contract. You can take a 600-page contract, and I tell them, take the PDF file of all of your health benefits contracts and put them into your favorite large language model and just use this prompt: "Where are they ripping us off?"

And within five minutes, you'll see, boom, boom, boom, boom, boom. Because it's contractual terrorism. They only have to squeeze through a couple of things that the lawyers don't see, and that changes the whole contract, and everything economically references the contract.

So part of, I mean, in any kind of market that's not working well, price signals are arbitrary or buried. There's a lack of transparency. People don't know what they're paying for, what all of the benefits are, how much they cost, and things like that.

There's also, and I know you've talked and written about this, where it's exacerbated by the fact that the company, I mean, a health benefit, it's not what your main company is doing. They're offering it for a variety of reasons. And this goes back to World War II or wage and price controls and things like that.

You know, whatever my company…I don't even know what my—Reason Foundation, the nonprofit that publishes this podcast, I don't know what they pay monthly for my premium. And I barely know what my premium is.

And do you know what your deductible is? Do you know?

Yes, I do indeed. And I had a kid last year, so I'm always hap—

Let me ask you a question, over $1,500 a year?

Yes, for the overall, it's like $6,000.

OK, so $6,000. Have you ever been prescribed, or has anybody in your family been prescribed, a brand medication?

No, I gave up on brand medications a while ago. I always go for the—but what's your point?

No, my point is that brand medications without generics, right?

Right. Yeah, yeah.

So let's just take a drug like Xarelto. The list price of Xarelto, sold by J&J, is $600. The way the system is structured by these big BUCAs and their pharmacy benefit managers is such that during your deductible phase, you and pretty much everybody else, unless your company negotiated something different, have to pay the full retail list price for that medication.

That's insane. Now the question becomes, why does that happen?

And I'm going to explain to you, and this is way inside baseball, how pricing for brand medications is done in the United States of America.

We'll, excuse me, we'll take a drug like Xarelto because it's easy to understand and use. $600 list price. When J&J sells that to one of the three big wholesalers—there's three of them that control 95 percent of the pharmaceutical transactions—when they sell to that wholesaler, you know what they sell it to them for? List price, $600.

Sounds crazy. If they came on Shark Tank, Kevin would probably say, "Take them out behind the barn and shoot them," because it makes no sense that multihundred-billion-dollar companies don't negotiate a discount.

But they're lucky in that the brands will give them 5 percent back if they prompt pay and give them some data.

So now let's just say 5 percent from a $600 drug means the net cost to the wholesaler is $570. That sets the floor for what they can charge pharmacies because they're not going to sell it for less than they pay.

Now what happens next, then, is now a pharmacy has paid $570 for that drug. When you walk in, or any of your family members walk in, or anybody who works for the foundation walks in who has a comparable deductible, the pharmacy can't sell it to you for less than $570 because that's the charge.

Now that's ridiculous in and of itself because you know how much J&J actually nets, give or take, for that medication? It's not $570. It's about $300.

Their yield, their net revenue is about half of the list price. And so where does that delta, the $570 minus $300, where does that go? That goes to the pharmacy benefit manager.

Now, if this was a real market where they didn't have control because of their control of formularies and lives covered, then J&J and all the other brands in the same situation would then sell to the wholesaler at $310. Remember, their net yield was $300, so they'd make $10 more.

And remember, the wholesaler was selling to the pharmacy for no markup. They make their money on generics, right? So they could sell it for $320 to the pharmacy, and they'd make more. And then the pharmacy could sell it for $325 to you and your family or any underinsured or uninsured patient, and they'd make more.

So everybody would make more, but more importantly, more people would be able to afford their medications, and more people would be able to adhere.

So the question becomes, why does it not happen that way? Because in a capitalist society, people are going to act in their own self-interest. That's the beauty of capitalism.

People are always going to find shortcuts and disrupt so that I can get you something…

Right, wherever they can. So I'm going to tell you why it doesn't happen, right? Because those big PBMs owned by the big BUCAs, they control these things called formularies, and they control the formularies for 85 percent of people who receive pharmacy benefits.

And the formularies are the drugs that are covered by a particular plan?

Correct, correct.

And if your medication is not on that formulary or it's on a low tier, because you know in your tiers for your own health care, right, you might pay zero, $10, $50, coinsurance, whatever it may be.

Well, so these PBMs are saying to the brand manufacturer, they've told me this, that if they don't play the game this way, sell at list price and only give a 5 percent, don't do it at net, if they don't play the game that way, they will diminish their positioning on that formulary, not just for that drug, but for their entire portfolio.

It's the same reason Cost Plus Drugs doesn't have a lot of brands, because they've said the same thing: If you work with Cost Plus, then we will diminish your position on the formulary.

So two quick questions that I think will clarify what you're talking about. One is, where did the pharmacy benefit managers come from? They weren't always part of vertically integrated institutions, well let's start with that. PBMs have been around at least since the '60s, and the whole idea, and it makes sense, is like, we're going to arbitrage a lot of possibilities, and we'll sell more drugs for the people who are making them, and we'll sell them cheaper to the people who are buying them.

But really just processing claims. Right? Somebody, there's a prescription, and you have insurance—

Yeah, how do we go from there to, I mean, PBMs in a lot of ways, those are your white whale, right? That's what Cost Plus Drugs is going after. That's where you tend to—

The whole thing. They're not a unique company. They're part of these vertically integrated companies, right? So culturally, they are the same, right? Optum Rx has the same organizational culture as United, CVS, etc.

So how did they get there? Vertical integration.

And once an insurance company who already had X number of plans that they control now buys a PBM, what they say to the employer and Medicare Advantage plans, they'll say, well, let's just start with employers, right?

Self-insured employers. Sixty-seven percent of people who get insurance through their company get it through a self-insured employer. That's about 150 million, 160 million people, right? And so those all go through a PBM at some level.

And by being able to control that, plus Medicare Advantage plans, plus Part D plans for Medicare, they have such market dominance. It's like they have more customers than Amazon does.

And just imagine Amazon saying, "If you don't do business the A, B, or C way that I demand, we're not going to allow you to sell on Amazon. Or we're going to make it so that somebody has to make 15 searches to find you."

That's the equivalent of what these vertically integrated companies are using their PBMs to do.

Yeah, how does the Break Up Big Medicine Act specifically address this issue of vertical integration?

Well, it's breaking them up by definition, right?

I mean…

So then what's the benefit. Right, how do we get the lower prices and all that, right?

And so without having the market dominance to define and threaten, to say, "Look, we're not going to work with you unless you do it our way. And if you don't do it our way, you're going to lose access to 180 million customers," it ends that.

Yeah. And it says things like, if you are a medical provider, you cannot own this type of company. So, I mean—

So then we can talk about medical loss ratio and all that. 

It tries to end vertical integration or limit vertical integration.

Limit vertical integration, right. Because once you get market—and there's another part that we haven't talked about that goes hand in hand with doing capitalism the right way.

So in order to have an efficient market, and you mentioned this, you have to have price discovery.  In order to have price discovery, you have to have price transparency and some level of contractual transparency. Because if the prices are in the contract, then you have to have some transparency there.

You know the old Fight Club thing? The number one rule of Fight Club is you can't talk about Fight Club. The number one rule of pharmacy benefit manager and ASO and other contracts from these vertically integrated companies, their number one rule is you can't talk about them. They have complete gag clauses.

So they literally say that—well, I'll give you a better example.

TRICARE, that offers all the pharmacy benefits for all the people serving in the military, retirees as well, right? They have their plans and everything. And for certain of their plans, particularly if you're a retiree who lives off base, you don't live on a military base, then you have to order certain generics from Express Scripts slash TRICARE, and the copay is like $16.

Well, it's cheaper in many of those cases to buy from Cost Plus Drugs. Just proving the point that it's not necessarily getting the best price dealing with a bigger company.

But that's not the bad part. That's not the bad.

We still have no idea, none, zero, how much taxpayers pay for those same drugs because they prevent everybody from seeing it.

Elizabeth Warren said she was willing to go and sit in a SCIF in order to be able to look at those prices, and they refused to allow it.

And a SCIF is a secret room where you can read super top-secret documents.

Yes, right. And they still wouldn't show them to her.

And so here we are taking taxpayer money. And if they're doing such a great job, you would think they'd be proud of their pricing.

"Mark Cuban, you can't touch our pricing with Cost Plus. We want everybody to see that. We'll put you out of business"

Yeah. So, I mean, part of the idea is, like, if you introduce transparency into more markets and people understand what other people are paying, you get a more informed market, and innovation is going to happen, prices will probably come down.

What you're talking about, like if you're going to the city of Dallas and you're saying, "Hey, here's a way for you to push back on your benefits provider and maybe to shop for better things." Part of it is information, part of it is regulation, and something—when I think of two people I hate for different reasons, but with almost equal ferocity, it's Josh Hawley and Elizabeth Warren. Most of the time when they're talking, I'm like, "Hey, all I know is my freedom is going to end up on the cutting room floor," right?

But there's regulation, and then there is the ability of individuals to make choices, meaningful choices.

I guess you talk a lot about AI in very positive terms, and you've laid out one way in which AI might help by just making people capable of understanding documents, contracts that they're about to sign.

In this particular case, absolutely.

Yeah, what are the other ways that you think AI is going to transform and improve the quality and quantity of medicine and health care?

One is drug discovery.

We'll get to the point, I don't know when, where we'll be able to take genetic information about ourselves, if we choose to, and make that available to far more advanced artificial intelligence than we see today, and say, "Analyze this. Tell me what I should be concerned about." Or, "Here's everybody in my family. Let's compare it and look for deltas and see how we can use AI to improve our health or wellness."

Make, like, personalized medicine.

Yeah, I'll give you a perfect example, right?

I have to take Synthroid for a thyroid scenario. And I was taking iron supplements because I work out and I sweat a lot, and my iron levels were low. I had no idea you couldn't take them at the same time. None. My doctor didn't know because you can't remember everything. And so I put it into Claude, and boom, I found out you've got to take them at least four or five hours apart.

Simple, simple, simple example.

We're all using Dr. ChatGPT and Dr. Claude to a certain extent. Doesn't make them perfect, doesn't make them accurate in all cases, but it gives us access to this information we otherwise didn't have.

But to go back to your question, as AI gets more advanced, not only will we be able to use it for personalized medicine, but it's capable of memorizing everything.

Now, AIs don't know the consequences of their actions. AIs don't have ethics, right? AIs are not smart. They're just able to combine things in ways that they've seen before or ways that you tell them to do. But within that constraint, doctors will be able to use them to more efficiently and effectively make determinations about somebody's health. So I see it as a big positive as long as we all understand that there are certain things that they can't do.

I'll give you one more example.

The minute an AI is released, we're done training and it's made available to the world, it's out of date.

This brilliant conversation you and I are having right now, no AI knows about. And even if it's published, unless you publish a transcript along with it, it has no way to consume the video itself.

So there's always built-in latency. And so because of that, it's always going to be behind.

And you talk about a capitalistic system and how people adapt. Well, researchers and doctors who publish are recognizing that, "Hey, maybe it's smarter that I don't publish, I don't try to patent this particular device or approach to solving a health care problem. Instead, I'll just keep it to myself and either sell it to a company that can benefit from it or put it in my own model."

And so that means you're going to have disparate information in different models.

AI is probabilistic. It's not deterministic. You're not going to ever get a scenario where you put something in four different models and you get the exact same answer.

So within health care, we have to understand those constraints. And by understanding those constraints, we can use the tools to our benefit. And I think that improves health care in a thousand different ways.

Let's talk a little bit about the regulatory framework. Donald Trump and Robert Kennedy, secretary of Health and Human Services, talked, particularly for round two, or the second term for Trump, talked a really big game about changing the regulatory apparatus at places like the FDA.

It costs anywhere from a billion to several billion dollars, might take more than 10 years, to bring a drug to market. By the time it comes to market, part of its patent life is already over, et cetera, and things like that.

Are there regulations, are there policy changes that the Trump administration has made that you're bullish on, that you think were in a right direction?

I think with things like biosimilars, which are effectively injectable generics, they removed one of the steps, which I thought was smart. Because having that, I forget the exact terminology, my partner knows this stuff better than I do, but having that third-tier trial to confirm what you already know is going to happen, and there haven't been any exceptions to prove that you need it, I thought that was really smart.

But I don't get involved in the FDA side in depth as much as I do on the commercial side.

Right. Well, let's talk about Cost Plus Drugs and explain the mechanics. Before this, I went to—and of course, because he has to put his name on everything, Trump started a prescription program online, TrumpRx. It's a government program where you can get coupons, basically, for things.

One of the drugs that I take is an off-patent statin, and it used to be known as Crestor, right, when it was on patent. And I looked up on the TrumpRx plan, it would cost me $8.60. And then I went to Cost Plus, and it said it would be $5.66. This is for a 30-day supply, 10 milligrams. And then I'm on Cigna, and it costs me zero when I fill that prescription.

But it doesn't cost you zero, right? You're paying it.

Yeah, absolutely right. And unfortunately, it costs my colleagues something. They chip in a little bit as well. But how does Cost Plus— how does it work? If you go there and you already have insurance, how do you use it in a way that you know what you're going to pay for a drug, and it's probably going to be cheaper?

So two different paths, right?

So if you have insurance, then if you work with one of the big PBMs, the big three PBMs, you're not going to be able to use your insurance with Cost Plus Drugs.

There are about 35, give or take, pass-through PBMs that we partner with. So if you have insurance cards from them, you just go in there and click on insurance, and you put in the card ID, and you get the benefit. It's probably going to be a zero copay, but we'll ship it to you, right? Because that's the benefit of sorts.

If you happen to be somebody who is on a Medicare Advantage plan and are prescribed a drug that's not covered, it's not on your formulary, or there's a high copay or high coinsurance, that's a perfect customer for us because you can come to us. We're far less expensive, including shipping and handling and everything, and you use us to save money.

And if you're in one of eight states, Tennessee, Texas, and a few others, then you can also count that against your deductible.

If you're completely uninsured, then we're a godsend for you, particularly if it's an expensive medication, and particularly now with biosimilars. So now there's a biosimilar for Humira. There's a biosimilar for Stelara. Last year, Stelara would have cost you or your employer or somebody $127,000. Now our cost is $365 plus shipping.

Yeah. What limits the types of drugs that you offer? Because I noticed, I think when I looked today, there were no GLP-1s, right? You don't do things like Adderall or the generic versions of Adderall. Explain why those are—

On controlled substances, we just don't want to fight the battle, right? Because there are just too many risks, and we wanted to make sure that we weren't in a position of contributing in ways we didn't want to contribute.

In terms of GLP-1s and brand medications and specialty medications, as I referred to earlier, the big PBMs have gone to the brand manufacturers, specialty manufacturers, and told them, "If you deal with Cost Plus Drugs, we will diminish your positioning on our formulary."

Now the question becomes, why? Why do these huge conglomerates care about us?

Well, there's a study that's getting ready to come out that says every area of health care costs has gone up over the past 30 years, except starting in 2022, the cost of generics started to level off and then started going down.

That's when we launched, January of 2022.

And the reason that happened, and the reason these big PBMs and conglomerates are afraid of us, is because when you go to Cost Plus, you put in your statin, right? And we showed you our actual cost, and then we showed you our markup was only 15 percent.

And so if we were to do the same thing with brand drugs, all of a sudden, all that premium, remember we talked about the pricing of brand medications, all that premium margin that is going to PBMs to keep or distribute would be gone.

Because everybody would finally know the actual cost, just like they know the actual cost of biosimilars and specialty generics and general generics, like you saw.

Do you think, in a market sense, is the function of Cost Plus, obviously, is to sell drugs or deliver them to people who need them at prices they're willing to pay or want or can afford, but is part of it also that it disciplines the big guys? Because if what you're saying is true, they're going to have to start taking into account that if we keep squeezing this stone—

So then where are the limits of that effectiveness? When I mentioned Standard Oil, at its peak market share, was selling its products for the least amount. It was because they had a monopoly. They had over 90 percent of market share in home heating oil and lighting and things like that. But they acted as if they were constantly about to be…

Go out of business.Yeah, yeah…

Right. So, I mean, where are the other places in the medical industry? In recent essays, and preparing for this, you said, well, it's not the pharmaceutical companies, because they're often—

They're not innocent, but they're not the worst—

Yeah, ok. It's not the doctors. It's not the government. But when I look at it, it's like the American Medical Association and other groups that govern the number of medical licenses that get issued every year or the number of resident beds that are available. They're not doing anything to increase supply.

No, I agree. I'm not saying I agree with that, right? But the AMA is not a government entity either.

Well, it's quasi, right? Because you have to show—but I'm saying, how do you bring that same kind of market force, that kind of comp….This is like real competition to say, "You know what? My competitor, who's got 90 percent market share, is selling something for $10 a unit. I'm going to sell it for $8 a unit, and I'm still doing well, and you're making out better, and they're going to have to change." How do you bring that to bear on the larger healthcare system?

Because what it's missing is not only price, but trust. Nobody trusts the economic side of health care. You don't. I don't care who you are, right? Every poll, everything says…right.

I look at trust as a formula: Trust equals transparency divided by self-interest.

We're completely transparent. We show our costs. We're still the only pharmacy that publishes a price list. We have a programming interface where anybody can pull down our pricing anytime they want.

So we're completely transparent there, and we only mark up 15 percent. So that's fair, right?

And so that's what differentiates us to start, right? So people can work with us, and they trust our pricing. They know what it is.

We charge the same price to everybody, no matter who you are, where you are, what time of day it is. It doesn't matter.

When our volumes go up, like with TrumpRx, it's a portal. As you saw, you can come find your way to us. Our volumes went up. Our costs went down.

At Cost Plus, we pass those cost cuts on to our patients. We were able to lower the price of 190 more drugs. And so we're able to start with these drugs, right? We're also getting involved with manufacturing. We manufacture drugs that are sterile injectables that are on the FDA short supply list.

We also have used AI and used robotics to shrink the size of our initial manufacturing plant from football-field size, so about 5,000 square feet. And over the last five years, we've been able to shrink that into the size of a tractor-trailer.

We call them pods. And these pods are going to be our biggest business. They're our most disruptive business because we've been able to combine AI and technology so that we can take these little things, tractor-trailer size, and ship them anywhere.

Ecological disaster, weather disaster, God forbid, war disaster, we can put them there and, depending on what kind of pod it is, make any kind of drugs.

And because we can daisy-chain these things together, we're able to manufacture in volume so that we can manufacture generic tablets cheaper than we can buy them from India.

So then let me, and this might seem like a leap, but in what you just described, and particularly the trust divided by self-interest, all of what you're talking about, all this innovation, why do people—or let me say this: If there's anything that's less popular than data centers and AI, it's billionaires like yourself.

What you just gave is a riff that is, if you believe in free minds and free markets, that's been Reason's catchphrase for decades, this is beautiful. And you're describing exactly how the system should work.

But we have, in contemporary America, people, including people like Elizabeth Warren, the governor of California, who want billionaire taxes. There are members of Congress who have staff members who say every billionaire is a policy failure.

Where is the anger? And when I say people like you, there aren't that many billionaires, but in terms of economic innovation and people doing well, it seems like it's worse now.

If you can't pay your rent, if you can't pay for your medications, if you can't pay for daycare, if you can't pay for food, you're just mad.

And when you're mad, you're not looking to say, "Ok, let me find a logical construct to define why I should be mad or why I'm in these circumstances." You're just mad.

And when you're mad like that, and I've been broke, right? Six guys living in a three-bedroom apartment, et cetera, no money in the bank. You're just mad at whoever is a convenient target.

And so I don't begrudge them. Hopefully, they'll eat me last.

I understand why politicians say billionaires are a policy failure because we're an easy target. I don't blame them for doing it that way. But as an entrepreneur, I'm still going to do what entrepreneurs do. It's why I did Shark Tank for 15 years, because I wanted people to be excited about being an entrepreneur. I wanted them to see, when they watched the show and somebody walked in on that carpet from Idaho or Iowa or wherever with nothing, they had a chance for their American dream to come true. 

And if they can do it, I wanted them to think, "I can do it."

And so do you feel like that dream is still alive? Or is it, because when people talk about, ok, it's hard to make rent, it's hard to do this, it's hard to do that. All of this struggle is always real. But is it just that that's the struggle? I mean, are things worse now than they used to be?

No, they're not necessarily worse, right? But we communicate differently now than we did before. Each of us is on social media at some level, whether we know it or like it or not. And each of us gets our own unique feed on social media.

There's no more Walter Cronkite. There's no more Dan Rather, where we all have communal shows that we all watched and basically understood and agreed on some level.

And there's a reason why, right? I mean, those disappeared partly because they weren't really giving people what they wanted, right?

Regardless of what it was, technology is technology. It's going to find its place, right?

I mean, I started the very first streaming company because people didn't have access to, in my case, Indiana basketball or music or whatever it may be, shows.

So people want more, but what's changed dramatically is how algorithms distribute content to each of us individually.

We all get our own individual feed on each of our social media platforms. Mine's not like yours, and they're like snowflakes. No two are alike.

And because of that, engagement increases with anger. And so every one of those algorithms has an incentive to make us mad.

Because the madder we get, the more we consume. The more we consume, the more ads that are sold. The more ads that are sold, the more subscriptions that are bought, et cetera, et cetera.

And because of that, if I'm mad about not being able to afford my rent, I'm mad about the cockroaches in the kitchen, I'm mad about the cost of beef, whatever it may be, you better damn well believe I'm getting a lot of that in my social media feed.

And if someone comes along and in that feed says it's this billionaire's or that billionaire's fault, what do you think I'm going to believe if that's 30 percent of the content I consume in any given day?

That's what's changed dramatically. And I say this all the time: Whoever controls the algorithm controls a lot of people.

Yeah. You have, in the 2024 election, I believe you're a political independent, but you came out and talked about how you wanted Kamala Harris to win. You were backing her. You're backing Talarico against Ken Paxton, the Republican Senate candidate. There's, of course, Ted Brown, the Libertarian candidate, who looks like he's going to cover the spread in Texas.

But I guess in terms of politics, at the state level, there's a real experiment going on. I'm talking to you from New York. New York City, New York state, and California are pursuing one model of governance, it seems, which is high tax, high regulation, high social services, or this is what they claim.

And then you have places like Texas and Florida that are saying we're going to do less tax, less regulation, we're going to give less services.

How do you feel about being in Texas? You've been there for decades now. It's your home place. Is Texas a better model compared to, say, California and New York state? Or how do you gauge that?

It's the ultimate capitalist decision, right? I mean.

Where you live.

Yeah, where do you live. And politicians, they sell what people will buy, what voters will buy.

And in terms of how I feel about Texas, when I got here, it was pretty much blue, and then it was purple, and then it was red, and it'll change again, just like multiple states, right?

What a conservative is today is far different than it was 11 years ago, you know? And the parties are completely different. If it were up to me, I'd get rid of all political parties. I think they've outlived their usefulness. They're just a way to raise money and to try to aggregate power as opposed to the power of ideas.

I don't give to politicians. I don't give a penny to politicians. Either you agree with what I have to say and you think it's of value to you, or you don't. And I have no intent of changing that.

Either my ideas stand up on their own, or they don't.

And in terms of my own philosophy here in Dallas, I'm an entrepreneur. And Dallas has been, Texas has been, great for me as an entrepreneur, been great for my family. I owe a lot to the city and the state, but it's changed radically, to use that term, over the years that I've been here.

Do you feel like it's getting better, getting worse, or it's just—

No, it's going to change no matter what.

The only constant is change.

My dad used to say, "You don't live in the world you were born into," you know? And it's the same thing here, where especially now with AI, I mean, there's always, like my kids, one was born before the iPhone, two weren't. Shit's going to change.

And so I don't look at it and say, "Well, pick this point in time, is it good? Is it bad?"

I look at it and say, "What can I do to make the world better?"

Look, I'm one lucky guy, right? My life is so much different than I ever possibly imagined.

And as an empathetic capitalist, right, as a compassionate capitalist, I want to give something back. My next dollar won't change my life, but it can change somebody else's life.

And when I talk to people about capitalism, that's the message I want to convey.

Now, if I was 25 again or 35 again and in healthcare, I'm sure I'd be trying to build as huge a company as I possibly could and sell it for as much money as I could because the one thing that I would want, the one thing I valued most, is time.

And the best way to gain control of your time is through your personal economics.

And so everybody's going to have their different perspective on where they live, how it's doing for them, what comes next. All I can do is try to help where I can help.

You mentioned being 25 again. Does the popularity or the kind of embrace of the idea of socialism, or the term socialism, concern you, particularly among Gen Z?

No.

Explain that, because a lot of people are like, when you hear capitalism is at a kind of historic low in terms of positive feelings, socialism in America is at a historic high, why doesn't that concern you?

So I'll go back to the algorithms and social media again, right?

When I talk to—I have three kids who are now 17, 20, and 23. And I talk to them and their friends, and a couple of them are entrepreneurial.

And their friends will come on and give me all these ideas that they think are great businesses. And I've heard them all, right? You know, shoe drops, dropships. And I'm like, these are old, tired.

Where did you get these? Social media.

How do you understand how to run this business? Social media.

Where did you watch anything? YouTube, right? Or I saw it on Instagram.

So if you take that same concept toward business, the same thing is going to work when it comes to understanding political systems and politics in general.

Kids are getting short sound bites. And if somebody who's popular and goes viral says, "Hey, I just started this business. We're going to be selling widgets at 100 percent markup. That's socialism. I hate capitalism, but I do socialism business the right way," that's the way they're going to convey how they understand something.

We don't live in a world—if I have a problem with Gen Z, it's that they don't read books.

And it's not that they can't learn because AI can be a great democratizer of information. You can ask AI to teach you anything, and like a teacher, it's not always going to be right, but you have that opportunity to learn.

It's just we don't read and consume information the way we used to. And I think that makes it harder for kids to discern between fact and fiction, information and misinformation.

And I think that's the problem again when I—

That also changes with age, right? I mean, like—

Yeah, of course.

You start to figure things out.

Yeah, hopefully, right?

But we don't know, really, because Friendster was 2006 or whatever it was, and then Instagram became popular in 2011 with Snapchat, right?

So that's only 15 years of history, really. YouTube's been around longer, but the algorithms themselves really only started to hit in 2012.

And so we only have about 13, 14 years of history. So we don't know how kids are going to evolve through this period in their lives as they become older. We have no idea.

And so when I see Australia say, "Ok, 16 and under, ehh, no social media." Some people might say, "Well, that's wrong. We don't want government involved. Let the chips fall where they may."

I'm like, no. I really believe that people don't understand how algorithms work, and they don't understand how detrimental they are not only to a kid's mental health, but their ability to learn and how they perceive the world.

I think that's a real problem. Like when you see—

Would you back a law in America, in the U.S.? Say you would be in favor of a—

16 and under. 16 and under.

I wouldn't say ban them from social media, but I would say ban them from algorithmic access.

Now there's a problem because Section 230, on Instagram an algorithm is just as protected as any other website, right? So it's a challenge.

But if I could overturn that, or at least modify it, in a heartbeat.

Ok, so then final question. You mentioned reading books, being younger. You mention Ayn Rand a fair amount, or—

Howard Roark, baby. Howard Roark's my guy.

All right, yes. So then I'm wondering how Ayn Rand would think about the idea of the government saying, "Ok, here's an arbitrary age level that you can access information or not." But beyond that, talk a little bit about how you came to know Ayn Rand's work and why it was so important to you.

Oh, my mom. My mom was a housewife who had every odd job you can imagine, went through every pop psychology you can imagine.

And what did they call the people who followed Ayn Rand? I forget the name they gave.

Objectivists.

The Objectivists, right? So we used to get the Objectivism newsletter. There was a guy named Nathaniel Branden who was big in Objectivism, and he would have records, and my mom would play the records.

And so I would have all that just around me all the time. And she was a Democrat, a hard-core Democrat, by the way.

But at the same time, I remember reading The Fountainhead and just connecting to Howard Roark.

And then I remember reading The Virtue of Selfishness and thinking to myself, you know what? To me, being selfish means helping people because that's what makes me feel best. And that's what being selfish is all about, doing what makes you feel best.

And I didn't take it as, "Ok, laissez faire ideology is strategy in life." I took it as being an individual and finding your way and work your ass off. There's going to be issues, but respect other people who may not have the same opportunities that you do.

And it's not like I grew up with a silver spoon. My dad did upholstery on cars, never made more than $40,000, etc.

But I always looked at it as I can find the motivation in Howard Roark. I can't tell you how many times I read that book. I had to stop reading the book because I would get so fired up that people didn't like it.

You're going to blow up a building somewhere.

No, not like that, right? But for business, right? Because I get so intense when it comes to learning things for a new business, like with health care, whatever it may be, that people have to slow me down.

And so I literally had to stop reading The Fountainhead over and over again.

Wow, that's a great story. We're going to leave it there. Mark Cuban, thank you so much for talking to Reason. And I know I, for one, will keep looking at Cost Plus Drugs.

Please do. costplusdrugs.com.

Yeah, when it's cheaper, I'm going to be there.

Thanks for having me on. I really enjoyed it.

Thank you so much, Mark.

The post Mark Cuban: 'I'd Get Rid of All Political Parties' appeared first on Reason Magazine.

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