But for dumb regulation, we would have cheap Nuclear Power and Supersonic planes

From the Grumpy Economist:

In the 1960s, nuclear was supposed to bring the amazing post-scarcity Jetsons future. It could have brought the amazing post-scarcity Jetsons future. But then regulators/environmentalists/the mob destroyed its potential and condemned us to fifty more years of fossil fuels. If society hadn’t kneecapped nuclear, we could have stopped millions of unnecessary coal-pollution-related deaths, avoided the whole global warming crisis, maybe even stayed on the high-progress track that would have made everyone twice as rich today. … ...

For example, consider supersonic flight. Supersonic aircraft create “sonic booms”, minor explosions that rattle windows and disturb people underneath their path. Annoyed with these booms, Congress banned supersonic flight over land in 1973. Now we’ve invented better aircraft whose booms are barely noticeable, or not noticeable at all. But because Congress banned supersonic flight - rather than sonic booms themselves - we’re stuck with normal boring 6-hour coast-to-coast flights. If aircraft progress had continued at the same rate it was going before the supersonic ban, we’d be up to 2,500 mph now (coast-to-coast in ~2 hours). Can Congress change the regulation so it bans booms and not speed? Yes, but Congress is busy, and doing it through the FAA and other agencies would take 10-15 years of environmental impact reports. ...

Supersonic flight and nuclear power are two great economic counterfactuals. Like the Chinese emperors of the 1400s who abandoned ocean sailing, our society abandoned two great technologies. Who knows what the world would look like today with abundant power and widely developed supersonic airplanes — and all the technology that would have followed from those two?

Cost of bad regulation is 30%

 

From the Grumpy Economist:

Even 30% is a lot. That’s a decade of 3% extra growth. That’s the difference between the US and most of Europe. That’s orders of magnitude more than most conventional economists will allow as the cost of regulation. ...

This shows the correlation between the level of GDP per capita and the World Bank’s (then) ease of doing business measure. 100 is the best observed policy in each category, so is achievable. Not even the US is perfect. The regression line shows an eye-popping possibility for even the US to improve just by fixing the remaining impediments to business. I was pilloried, of course, for the suggestion.

Market Reactions to Killing the Kroger - Albertsons Deal

On 10 Dec. 2024, Kroger’s proposed $25 billion merger with Albertsons was blocked in rulings that the largest merger in US supermarket history would limit competition and harm consumers. A day later, Albertsons called off the merger. How does the change in the stock market value of competitors to Albertsons and Kroger around the collapse of this deal inform us about the foregone competitive effects of the deal? 

A merger that allows firms to enjoy greater efficiencies would lower costs, potentially resulting in lower prices to customers. A merger that increases the market power of firms would result in the ability to increase price-cost margins. Large mergers usually include a little of both efficiencies and market power. A merger where the net effect is to reduces prices is usually good for consumers and one that raises prices is usually bad for consumers. Unfortunately, it is difficult to predict the net effect on prices of lower marginal costs and higher margins on those marginal costs. Fortunately, we can use hindsight of a merger event to get an idea of what stock market participants thought the effect would be. But you can't look at the merging parties, it is assumed they will benefit. You must look at the effect on third party competitors.

Competing firms love it when competitors increase prices (if this is the only change). When a competitor raises prices, some of the competitor's customers will become more inclined to purchase from you. This should boost your profits which would be reflected in an increase in your share price. But if competitors reduce price (and this is the only change), you can expect the opposite. Competing supermarkets would love a Kroger/Albertsons merger that increased prices and hate one that decreased prices. 

When the merger that would result in lower prices is called off, competitors rejoice and enjoy higher stock market returns. Likewise, calling off a merger that would increase prices causes them to lament and suffer lower stock market returns. So were they rejoicing or lamenting on the 10 December and 11 December? Below are the closing share prices of three of the biggest supermarket chains in the US. (There is no price information for chains that are not publicly traded like Publix, H-E-B, and Meijer.)

	Price at Close on			Return
	9-Dec	10-Dec	11-Dec	1-day	2-day
Costco	987.86	993.4	994.69	0.6%	0.7%
Target	135.29	135.05	135.98	-0.2%	0.5%
Walmart	93.62	94.34	94.75	0.8%	1.2%
S&P 500	6,052.85	6,034.91	6,084.19	-0.3%	0.5%

For all three firms, the returns over both the one-day and two-day windows when this merger became dead beat or met the S&P500 return. So, no lamenting and some rejoicing in moderation. It might be better to describe these values as shareholders of competitors being relieved that the merger was called off. Still, the market capitalization of Costco, Target, and Walmart tops $1 trillion. Even a 0.1% excess return is worth $1 billion to shareholders. This amount will focus the mind of most Wall Street analysts.

The inference is that the merger was more likely to have lowered prices than raised them. Antitrust is hard.

Acquired Podcast: Nvidia 3

 Listening to the Acquired Podcast about Nvidia (part 3)

• Interesting history linking the development of machine learning, specifically image processing algorithms, to Nvidia's development of parallel processing hardware, cloud computing and AI.  
• Shows why Nvidia is now the most valuable company in the world 
• Seneca, “Luck is when preparation meets opportunity”

HT:  Charles

Acquired Podcast: Costco

Listening to the Aquired podcast about Costco.  Lots of interesting history and economics in it.  

• The start of discount retailing by figuring out how to skirt manufacturer RPM's (resale price minimums) with the "club format," Fed-co (nonprofit) to Fed-mart (
• The first US Hypermarket, idea imported from France
• How Costco evolved from retail to wholesale warehousing, where manufacturers take care of all the logistics: once a pallet is dropped off, it is immediately available for sale.  
• To Price club, which opened up to credit union members as a benefit, which had a huge word-of-mouth advertising.  
• Limiting # SKU's (#products=3800) to increase volume and get lower prices from manufacturers.
• To adding hot dogs from Hebrew National, $1.50 for hotdog and a drink, Costco's only loss leader
• Costco turns inventory 12x/year, where vendors finance Costo's inventory because it sells faster than the payment terms (pay manufacturers within 30 days).
• To two-part pricing (selling at MC and making money on the membership fees).  
• Costco clones:  Wal-mart, Home Depot, Starbucks

HT:  Charles

Advice for the new administration: Reform Social Security

 CATO:  Social Security ... operates like a Ponzi scheme: Paying benefits promised to earlier generations depends on new revenues from current and future workers. With an aging population, the worker-to-beneficiary ratio has been decreasing, making Social Security’s finances increasingly unsustainable ...

...Since 2010, the OASI program has added $1.08 trillion to the federal debt and is projected to add $4.1 trillion more by 2033, when the program runs out of borrowing authority and confronts a 21 percent shortfall.

• Slow the growth in future benefits. Under the current system, initial benefits are adjusted based on wage growth, which typically outpaces inflation. [This would eliminate] 85 percent of the program’s long-term funding shortfall.
• Modernize and reduce cost-of-living adjustments (COLAs). 
• Social Security should return to its intended mission of alleviating old-age poverty. [limit benefits to the poor]

NIMBY zoning is killing us

From The Studies Show:

How much is [restrictive zoning] costing the US economy as a whole? A famous paper (Hsieh and Moretti, 2019) estimates the US economy would be almost 3.7% larger if only San Francisco, San Jose, and New York City had zoning laws that were less restrictive1. Amazingly, 40 percent of Manhattan buildings standing today would now be illegal to build, hinting at the vast extent of our zoning problems.

So why aren’t zoning laws less restrictive? Existing homeowners have no incentive to increase housing stock. In fact, they benefit from exclusionary zoning laws that increase the value of their real estate. But while existing homeowners profit, everyone else loses.

The United States, long a country famed for internal migration, has in recent decades had the lowest rate of migration since record keeping began in 1948. Fewer people are moving—which means they aren’t following jobs to the most productive areas of the country. Staying put in dying towns or unproductive regions has big consequences. While mortality has dropped across the developed world, middle-class American whites, many of them stuck in moribund rural areas, have been dying at accelerated rates.

Russian ruble is falling, but no one is buying its exports

 From MarginalRevolution:

...I also strongly disagree with those who say that cheaper ruble is “good” for exporters and the budget. Exporters have yet to make good use of devaluing ruble – which they can’t do, because Russia is under all sorts of embargoes, and China and other Global South countries are not opening their markets to most Russian goods.

...China is only buying our most basic commodities at heavy discounts, while keeping its market closed for other Russian goods. There’s no investment or technology coming into Russia from China and other Global South countries. Everything is dependent on state subsidies – but the government’s financial reserves are running thin.

Along with their low fertility rate, 1.52 (source), and it appears that Russia's future prospects are dim.

Advice to the New FTC Leadership

Here is the most important part (link): 

 II. Promote Innovation 

Since 2010, the U.S. economy has grown at a real rate of 1.74% per capita. At this rate, per capita income doubles every 40 years.4 When our kids turn 40, they will earn twice as much as we did.

Public policy—especially antitrust policy—should recognize that innovation drives growth, much of which comes from Big Tech and startups. Big Tech has provided consumers with more everyday value than any other small group of firms in history. And most startups “exit” via acquisition, not by going public. If the FTC prevents these exits due to concerns about lost potential competition, funding becomes harder to come by, which deters startups. The FTC should recognize these innovation incentives when setting enforcement priorities.

Here is press on the new Antitrust chief on "Taking on Big Tech and Beyond"

Slater will inherit a docket packed with blockbuster cases that aim to challenge the dominance of some of the world’s largest companies. These cases, many initiated during Trump’s first term, focus on allegations of monopolistic practices that harm consumers and stifle innovation.

Trump emphasized that Slater’s leadership will prioritize fair and vigorous enforcement of competition laws. “She will ensure that our competition laws are enforced, both vigorously and FAIRLY, with clear rules that facilitate, rather than stifle, the ingenuity of our greatest companies,” he stated.

The decision to place Slater in charge signals a continuation of the administration’s efforts to curb corporate concentration and promote competition across key sectors of the economy. With both Trump and Vance championing a tough stance on monopolistic practices, Slater’s tenure is expected to mark a pivotal chapter in the U.S. government’s approach to antitrust enforcement.

More on Business Dynamism

Over at the Geek Way, Andrew McAfee has created a startling visualization related to entrepreneurship in the US and EU. The Draghi Report on EU competitiveness is generating a small buzz among economists. One startling claim is that

there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion have been created in this period.

But the visualization makes the contrast even more stark. US entrepreneurs have has dominated.

 

US institutions have made it the primary source for innovation. Coste and Coatanlem suggest a cause has to do with greater labor market regulation inflating the costs of failure in the EU. Other causes?