Oren Cass is wrong about economic laws
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“Supply and demand are undefeated.” That sounds like something I would say, but it comes from Wall Street Journal’s Matthew Hennessey’s piece in response to JD Vance calling “the market” a tool. Hennessey argued, “Markets… can’t be bullied into compliance with a political agenda… They are governed by the laws of economics the way the physical world is governed by the laws of gravity. … You can’t ignore or wish them away. No amount of political will or spilled ink can overrule them. Supply and demand are undefeated.”
Oren Cass responded, calling the piece Hennessey’s “fun bout of market fundamentalism,” and claiming that economics is nothing like physics. The gravity analogy is “disastrously inapt.”
Readers will not be surprised that I disagree with Cass. I think there are fundamentally useful laws of economics that we can understand, and in today’s newsletter, I want to explore those laws, how we think about them, and what Cass’s critique get wrong about them.
But first, a little more context on these pieces. Despite Cass’s jabs about “fundamentalism,” Hennessey wasn’t worshipping markets as a deity. He was making a different point, “The market isn’t a proper noun, and it also isn’t a tool. The market simply is. Nobody controls it. Nobody worships it, but only a fool ignores it.” The market is an emergent order of (the technical term is) a shit ton of exchanges. The op-ed’s point was simply that you can’t bend market forces to your will without consequences. The claim wasn’t that policy is irrelevant or that the government could never improve things. “Only a fool ignores it.” That’s the key idea.
The real question isn’t whether markets are perfect (no serious economists would say so and Hennessey never claimed they were). The question is whether economic forces operate in predictably enough ways to guide policy decisions. Cass loves to attack “market fundamentalism,” as if economists think markets are infallible or sacred, and he brings this reaction to Hennesey’s piece. But economists don’t assume markets are perfect. We observe that markets have systematic tendencies. Those aren’t “independent of cultural and institutional context, moral custom, and law.” This goes back to Smith. It’s not that all markets everywhere have a beneficial invisible hand. Sometimes markets have very perverse incentives. But within a class of similar markets, we see similar outcomes. And those patterns are what we call “economic laws.”
Hennessey’s gravity analogy captures this: you might wish for different outcomes, but economic forces will tug against policies that ignore basic incentives. The question is whether those forces are reliable enough to predict policy outcomes. Cass says no. The vast evidence says otherwise.
Is economics really “nothing like physics”?
Cass makes a big deal out of the gravity metaphor. “Economics is nothing like physics,” according to him. Is economics a science? Is it like physics? In one sense, it’s a very stupid game. There are two ways to take it: it is either trivial, or its wrong. Of course, it’s not exactly like physics—studying people is often harder than studying planets and pendulums.
But Cass seems to want to go further with the contrast, suggesting that we lack repeatable experiments and eternally fixed coefficients, economics has no real “laws.” Again, it’s either trivial or wrong. The laws of physics have boundary conditions where they break down. Are those laws? Surely. What about economics? Economics may not have universal constants that are as reliable as gravity’s 9.8 m/s². Still, it does identify consistent patterns and causal relationships that show up time and again. Don’t call them laws. I don’t really care.
And guess what? Lots of those things, we have learn from experiments! Not “quasi-experiments” like when the tax code changes, and we measure the outcome of prices. Like actual experiments, in the lab and in the field, repeated again and again.
Experiments do exist—ask Vernon Smith (and Uber)
Before getting to laws, let’s talk experiments. The claim that economics has no repeatable experiments ignores the better part of a century of laboratory and field work that does isolate cause-and-effect, often with more control than nature grants physicists studying, say, climate.
For those who don’t know, Vernon Smith first ran simple “double-auction” markets in the lab back sometime before 1962 (when the paper was published). Student buyers and sellers were each handed private valuations; then they haggled in real time. Within a few trading rounds, the price converged tightly on the textbook supply-and-demand equilibrium, even though nobody could see the full curves. Smith called that pattern “astonishing” proof that decentralized price signals coordinate knowledge in precisely the way Friedrich Hayek had theorized.
Two decades later, he coined the Hayek Hypothesis to summarize one key takeaway from this literature:
The gains from trade can be realized even when information is diffuse, agents are not price-takers, and there is no central auctioneer.
Surveying dozens of lab markets, Smith found the hypothesis “remarkably robust.” Prices gravitated to equilibrium, allocative efficiency regularly exceeded 90%, and gains from trade were captured despite participants groping in the dark. This work went on to earn him the Nobel Prize.
My own work with Omar Al-Ubaydli and Peter Boettke pushes that test outside the lab. We compiled natural field experiments—farmers’ markets, online ad auctions, water-allocation exchanges—where researchers know the true supply and demand schedules ex-ante. The result? The Hayek hypothesis seems as robust in the field as it is in the laboratory. In many settings, experienced traders closed more than 95 % of the theoretically available surplus, and equilibrium prices tracked the competitive prediction surprisingly well.
They demonstrate that markets can coordinate dispersed information and reach efficient outcomes without central planning. Even when traders don't know the overall supply and demand, prices converge to the competitive equilibrium. Voluntary trade creates value—both sides benefit, which is why trade happens in the first place. This is
These studies are repeatable: run the same induced-value market tomorrow and you’ll watch the same convergence. I’ve done them with thousands of students in my own Econ 101 classes. They show that certain relationships—downward-sloping demand, price-guided coordination, gains-from-trade—behave like empirical regularities strong enough to stake predictions on.
And this isn’t some niche area. John List’s forthcoming book, Experimental Economics, is almost 800 pages. Maybe the 87,000 papers and books that cite List didn’t get the memo that economics doesn’t have experiments…
From experiments to economic laws
We don’t usually talk about achieving the competitive outcome as a “law” of economics. But that’s exactly what it is: a predictable, repeatable pattern that emerges from human behavior under certain conditions. Are they 9.8 m/s² precise? Of course not. You can change the result it in different ways by changing the trading mechanisms. But I put them up against any other prediction about behavior.
This experimental foundation supports broader economic laws. Smith’s markets work because they harness a more fundamental regularity: the law of demand. When Smith’s student traders faced higher prices for a good, they bought less of it. When prices fell, they bought more. That’s how markets clear and the gains from trade are realized. It cannot work without the laws of supply and demand. This isn’t just what happened in his lab—it's what we observe across thousands of experiments, in countless real-world settings, across cultures and time periods.
The law of demand generates concrete predictions. Raise the price of gasoline, and people drive less. The flip side is the law of supply. If you raise the payment for making a product, you get more of it. If you raise the cost of doing something, you will do less of it. Combine these laws, and you have more predictions: Cap apartment rents below market rates, and you get housing shortages. These aren’t philosophical statements or political preferences but empirical regularities that show up reliably enough to base policy decisions on.
Here’s where the rubber meets the road. When thinking about policy, we need to make predictions. Take tariffs, a frequent topic of Cass’s. As I’ve said before, tariffs act like a tax on imported inputs. They raise costs for downstream manufacturers (like automakers or construction) and prices for consumers. Sure enough, studies estimate that metal tariffs caused net job losses.
The policy’s effects were as economists expected, making steel a costlier input and eroding competitiveness for U.S. exporters. The market’s “laws” (in this case, the logic of supply chains and relative prices) asserted themselves. Protectionism didn’t magically make the country richer; it shuffled jobs around and raised costs, much as trade models predicted.
Which law did economists ignore? What other “cultural and institutional context, moral custom, and law” mattered here to alter your prediction? Saying the world is more complicated is the type of thing that makes you feel smart as an undergrad, or at least it did for me, but if the complication doesn’t change your predictions, who cares?
Cass’s think tank American Compass has been pushing a 10% “global tariff” will (a) shift production back home, (b) raise “barely detectable” prices for American families, and (c) be paid “in practice…by foreign producers” who will “cut price to compete in our market.”
Do we have an experiment on this exact policy? Nope. But we have other tariffs to look at. And none of Cass’s claims square with what actually happened the last time the United States tried large-scale tariffs. Careful border-to-checkout studies of the 2018–19 China duties find the levies were almost fully passed through to U.S. import prices, meaning American firms (and ultimately consumers) paid the bill rather than Chinese exporters.
Working with Economic Forces, not against them
Cass tries to rescue his argument with an analogy about flight. He says knowing only gravity but ignoring other laws would make you a “moron,” and that someone who declared flight impossible should be embarrassed. His point seems to be that just as flight requires understanding forces beyond gravity, economic policy requires understanding forces beyond supply and demand.
But this analogy undermines his point. Airplanes fly not by defying gravity, but by leveraging other principles (like lift, aerodynamics, thrust) within the constraints of gravity. Engineers didn’t repeal gravity; they worked with it.
Likewise, good economic policy doesn’t “defy” supply and demand or pretend incentives don’t matter. They work with them, or around them, harnessing other forces. That doesn’t mean policy can plan the economy or bend it to any old will it chooses. I’ve written before about how policy can harness economic forces or work against them.
We do say that certain fundamental principles (scarcity, opportunity cost, supply & demand, comparative advantage, etc.) are relevant everywhere, even though many other factors are at play too. That’s not fundamentalism; it’s being grounded in reality. Gravity is everywhere; so is the fact that people respond to incentives.
Cass argues “To understand and operate in the physical world—and to ensure that its outcomes promote human flourishing—requires familiarity with many other laws too, and an enthusiasm for engineered interventions that channel the various forces productively.” Sure. But what are these other laws? Which laws should tariffs be based on? What are the alternative “laws” that govern trade flows, price formation, and resource allocation? How do they work? When do they apply? Without answers to these questions, we’re left with wishful thinking disguised as policy analysis.
Cass’s rhetorical flourish—that tariffs channel mysterious “other laws” to make imports cheaper while reviving industry—doesn’t actually answer anything. And his specific proposals (derived from understanding some unspecified law maybe?) make empirical claims at odd with the observed effects (forget if they are lwaws).
So we’re back where we started: supply and demand really are undefeated. Not because they’re sacred or because markets are perfect, but because they represent predictable patterns in human behavior that assert themselves regardless of our policy preferences. You can call that “market fundamentalism” if you want, but Vernon Smith called it something else: science. The choice is between making policy based on repeatable evidence about how people actually behave, or making policy based on wishful thinking about how we'd like them to behave. Gravity doesn't care about your politics. Neither do economic forces.