EU Labor Laws crush innovation.

Economist:

...the sheer difficulty of shedding staff en masse—a reality of corporate life—steers Europe’s biggest companies away from making risky bets in innovative fields.

BOTTOM LINE: Look ahead and reason back: if you cannot fire workers, no company wants to hire.

Are CA and NY acupuncturists evil or stupid?

CHATGPT:

Dry needling by PTs is designed to “reset” knotted or overactive muscle tissue by causing it to spasm, bleed a little, and then relax. This usually decreases pain and improves mobility — at least temporarily — and can help jumpstart rehab when combined with other therapies.

EVIL: By preventing PT's from dry needling, acupuncturists in CA, NY, HI, OR, WA prevent residents from accessing a proven therapy: 

STUPID: From a patient's perspective, they don’t compete, so how can acupuncturists profit from eliminating a non-competitor?

• Dry needling is invasive, uncomfortable, and deliberately traumatic to the muscle — the goal is to provoke a twitch, bleeding, and ultimately a release of the knot. 
• Acupuncture is usually gentle, often painless, and oriented toward restoring balance, calming the nervous system, or addressing systemic issues. 
• So functionally, they look different to consumers — one is painful but targeted to fix a muscle problem, the other is soothing and holistic.

Getting rid of subidies creates wealth

REASON:

Starting Today, Electric Vehicle Buyers No Longer Get a Federal Tax Credit. It's bad news for upper-income motorists wanting a deal, but good news for taxpayers.

In 2022, then-President Joe Biden signed the Inflation Reduction Act (IRA) into law...,[awarding] up to $7,500 for purchasing an electric vehicle. ...Donald Trump [terminated the subsidy] on September 30, 2025.

...each credit cost U.S. taxpayers around $32,000 [for each extra vehicle purchased], because around 75 percent of them went to people who would have bought an E.V. anyway.

...Tax credits can also artificially inflate prices, since sellers can charge more if the government will shoulder a portion of the bill. Under the previous version of the program, when Tesla and General Motors hit the sales cap and their E.V.s were no longer eligible for the credits, each company lowered prices.

Govt. Shutdown Showdown

In bargaining, it’s not the arguments that matter most. It’s the alternatives. Whoever can live more comfortably without a deal usually wins. 

That’s the lesson from Chapter 16—and from Washington’s latest budget standoff. The President has a blunt alternative: let the government shut down. Painful for some, sure. But it also means he gets to lay off more federal employees—something he’s willing to tolerate, maybe even welcome. That makes his threat credible. 

On the other side of the table, Democrats face a dilemma: If they hold firm, they risk being blamed for dysfunction. If they cave, they risk losing the progressive wing of their party. Either way, their “no deal” alternative looks costly. 

And that’s the bargaining imbalance: the President’s fallback is uncomfortable but tolerable; the Democrats’ fallback is politically toxic. Guess who that favors at the negotiating table? 

Lesson: Don’t just listen to what’s said across the table. Always ask: what happens if there’s no deal? That’s where real bargaining power comes from. 

DISCLOSURE: This post written with help of ChatGPT. 

DISCLAIMER:  "Guess whom that favors at the negotiating table?" is gramatically correct, albeit awkward.  ChatGPT made the correct choice to go with the more colloquial and natural, "Guess who..."

Link to Economist Article

McDonald's is Repricing Combo Meals

The WSJ recently reported that McDonald's is working with franchisees to keep combo meals, e.g., Big Mac, fries, and a drink, 15% lower than the sum of the individual item prices. They have been losing low-end customers who may be more receptive to a cheaper value menu. Bundling the different items entices me to buy fries when my waistline, and wife, say I really shouldn't. I just came for the sandwich and drink, but the price of the fries could be maybe 40% cheaper now.

 

Trust and Scale

I am enjoying the History of the Germans Podcast by Dirk Hoffnan-Becking. Along with endless "Game of Thrones" style dynastic struggles among countless counts, dukes, princes, and emperors, there is a fair amount of business economics. A recent episode described the emergence of an early joint stock corporation to solve a thorny asymmetric information problem. The episode compared trade within the Baltic based Hanseatic League, which came to prominence in the 13th-14th century, with Great Ravensburg Trading Society dominant in Southern Germany in the 15th century. Long distance trade requires trust since your trading partner has many ways of cheating you. As Dirk notes:

In the Hanse system, this problem was solved through an elaborate surveillance operation. Each merchant would have several correspondent agents in each city that he or she would trade with. These correspondent agents would not only keep an eye on the market, but also on the behaviour of the other correspondents. That way a merchant would know fairly quickly if say the creditworthiness or honesty of one of his agents was placed in doubt. And the higher a merchant rose within their city, the more access he would gain to information. As a member of the city council, he would hear about the state of negotiations with kings and princes, where pirate activity was most intense and what would be done about it etc. And finally, long standing relationships, intermarriage and the fact that Hanse traders all spoke Low German created trust between the participants in that network.

The Hanse system limited the size of each trader's operations since its hallmark was engaging multiple traders in each location keeping an eye on each other. In contrast, the Great Ravensburg Trading Society, employed agents throughout its network, each with a stake in the company's fortunes.

The main constraints to this model were the number of family members and trustworthy business partners one could recruit. That is likely one of the reasons the three firms of Humpis, Mötteli and Muntprat joined forces in Ravensburg in the early 15^th century. They all had been extremely successful merchants, but growth has hit a wall as they had run out of individuals they could send out as their representatives. By pooling their resources, they could establish a much larger network of agents than they could set up individually. Another key benefit was that the combination reduced competition, increased pricing power with suppliers and customers and reduced risk.

Every three years a full account of the books was made to determine the dividend payments and bonuses. The company expanded to as many as 90 smaller partners and grew into a truly pan-European network. The founders' wealth eventually became many multiples even of nearby Kings. 

Imperfect Entry Barriers

Occupational licensing is often used to exclude potential competition. However, it is only as effective as it is enforceable. 

Unfair and Inefficient: Britain's Property and Stamp taxes

 Economist:

Britain levies the highest property taxes of any OECD country, relative to GDP...Unfortunately, British property taxes are not well-designed. Rather, they distort the housing market and undertax the most valuable homes. ...The owner of a two-bed flat in Hartlepool today pays more council tax per year (£2,218) than someone with a ten-bed mansion in Westminster (£2,034).

... stamp duty—paid whenever a house changes hands—is growth-sapping. Although it raised £15bn in 2024-25, at over £40,000 on a £1m home it makes moving house very expensive, resulting in fewer transactions. Because people often move to take higher-paying jobs, inhibiting such moves means less-productive workers, undermining growth.

Why is Europe Falling Behind?

 WSJ: Europe is Losing

Europeans live longer, have more leisure time and less income inequality, and often live in stunning cities and towns built over the centuries. But increasingly, Americans enjoy a higher standard of living. They have over 50% more living space on average per person. More than four in five Americans have air conditioners and clothes dryers at home, compared with between one-fifth and one-third of Europeans. Executive assistants in New York City earn around the same as specialist doctors in London.

The reason: no innovation 

But Europe’s lack of economic dynamism has deeper roots, too. Taxes and regulations have risen inexorably; the volume of EU regulations has doubled since 2010. Sprawling rules protect old buildings, incumbent firms and aging consumers, limiting the creation of new infrastructure and industries. As Italy’s prime minister Giorgia Meloni puts it, “America innovates, China imitates, Europe regulates.”

Sweden is the exception: 

Sweden has quietly spurred economic growth by cutting back its welfare state—tightening government spending, revamping the pension system and slashing corporate and personal tax rates. Per capita incomes are now climbing, and the country has seen a burst of entrepreneurship. Sweden even moved ahead of the U.S. in the number of billionaires per capita, thanks to a thriving tech startup scene and a video-game industry that has produced hits such as Minecraft and Candy Crush.

Europeans dont want change: 

One reason change is difficult is that most Europeans will continue to enjoy a comfortable lifestyle for decades to come. “In global terms, relative decline is inevitable, but it may still be a very nice place, right?” says Sander Tordoir, an economist at the Center for European Reform.

Many European voters might consider the relative decline in economic power to be a price worth paying for spending less time at work than Americans and living with less inequality, a more generous social safety net and higher environmental standards.

Best Teaching Video ever! (comparative advantage)

 From MRU via  Alex Tabarrok 

The excellent Don Boudreaux on comparative advantage, one of the deepest and most important ideas in economics.

As a new semester begins this is a good reminder that MRU has great videos for learning and teaching economics, all entirely free and open. (Of course, these videos pair delightfully with Modern Principles of Economics).

Timely topic.