Argentine Rental Market Natural Experiment

One of Argentine President Milei's radical reforms was to "take a chainsaw" to rent control laws. Argentina had had some of the most restrictive rent control regimes ever. All of that was abandoned almost over night. Many media outlets noted with glee that rents fell dramatically. Even most economists were surprised by how much supply had been withheld from the market.

Now a more systematic analysis by Elfert and Thomsen that compares trends just before and after the repealing laws confirms the initial impressions. Supply of rental units skyrocketed.

 When the supply curve shifts out, we move down the demand curve resulting in prices falling. 

Could this be a lesson for New York's new mayor?

A friend reads the Meta Opinion so I don't have to

Background:  The FTC’s case against Meta rested on a familiar monopolization narrative: Meta supposedly dominates “personal social networking” and preserved that dominance by buying Instagram and WhatsApp before they could blossom into competitive threats. For the theory to hold, users must be trapped on Meta’s platforms despite wanting something different, and Meta must be quietly degrading quality because—secure in its monopoly—it can.

After a full trial, the court found none of this matched the evidence. A friend of mine, who celebrated the opinion’s release with a glass of single malt, sent along a set of remarks that form the basis of this post.  

The European regulators required Meta to offer an ad-free Facebook and Instagram for €5.99 per month. Fewer than 0.01% of users subscribed. If consumers were truly desperate to flee the “oppressive” ad-supported model, one might have expected more than statistical noise. As my friend put it, this was not exactly the behavioral evidence one hopes for when arguing that users are crying out for an alternative.

Europe contributed another natural experiment when regulators mandated a choice screen for search engines on Android. Under the FTC’s theory, Google’s dominance stems largely from being the default—the search engine pre-selected for users who supposedly never bother to change it. So regulators removed the default entirely and required every user to make an active choice. Yet when presented with a perfectly neutral menu, over 98% still selected Google. It was a useful reminder that consumer preferences sometimes favor the incumbent for reasons unrelated to default settings.

The profits evidence fared no better. The FTC treated Meta’s high profits as proof of monopoly power, but did not rule out the more mundane explanations—efficiency, innovation, or providing products people actually like. Since Meta’s returns do not look unusual relative to other successful tech firms, the court concluded that “monopoly” was doing more work in the FTC’s theory than in the real world.

Then there was the “quality degradation” argument. The FTC suggested Meta raised its “quality-adjusted price” by making its apps worse over time. The record instead showed steady feature additions and billions in R&D investment. If Meta is secretly degrading its products, it is doing so in a very expensive and user-pleasing way.

Finally, the court noted that one FTC expert had previously urged the agency to bring this exact case. As my friend observed, this made the testimony feel less like neutral analysis and more like a very committed book report.

In the end, the court’s conclusion rested on the distance between the FTC’s theory and the evidence. The agency described a world in which consumers were effectively captive and Meta behaved like a textbook monopolist; the record pointed to something far less dramatic. Confronted with the gap, the court went with the evidence.

HT:  My friend supplied the irony. 

Tax Avoidance in Norway

The Laffer Curve, made famous by supply-side economic policy in the 1980s, is alive and well. It shows that higher taxes can reduce tax receipts if enough people stop engaging in the activity that is being taxed. In this case, that activity is owning wealth in Norway. Like all tax implementations, it's complicated, but it seems that various increases in tax rates on the wealth of the super rich has led to their exodus.

The recent wealth tax increase in Norway was expected to bring in an additional $146M in yearly tax revenue.

Instead, individuals worth $54B left the country, leading to a lost $594M in yearly wealth tax revenue. 

 Switzerland looks to gain from this wealth flight.

 

Europe at a crossroad

The Constitution of Innovation

The continent faces two options. By the middle of this century, it could follow the path of Argentina: its enormous prosperity a distant memory; its welfare states bankrupt and its pensions unpayable; its politics stuck between extremes that mortgage the future to save themselves in the present; and its brightest gone for opportunities elsewhere. In fact, it would have an even worse hand than Argentina, as it has enemies keen to carve it up by force and a population that would be older than Argentina’s is today.

Or it could return to the dynamics of the trente glorieuses. Rather than aspire to be a museum-cum-retirement home, happy to leave the technological frontier to other countries, Europe could be the engine of a new industrial revolution. Europe was at the cutting edge of innovation in the lifetime of most Europeans alive today. It could again be a continent of builders, traders and inventors who seek opportunity in the world’s second largest market.

HT: Mike

How not to grow: lessons from India's poorest and youngest state

Economist:

Lately Bihar’s leading parties have been talking about expanding the system of “reservations”, which provides preferential access to jobs to members of castes that are deemed to need a leg-up. ...

Only about one-third of 15-to-29-year-olds are in the labour force, among the lowest rates in the country. ... Growth would transform lives in Bihar, more than anywhere else in India. If only politicians would spend more time debating how to make the pie bigger—and less time fighting over how to slice it up.

Irony: quitters are making tobacco companies rich

   ANALYSIS from the Economist:

When lots of people smoked, there were many “price-elastic” consumers. In plain English, they were sensitive to increases in the cost of a cigarette. As more people have quit, however, only the most committed smokers are still puffing. Companies have responded by raising prices at an ever-quicker pace.

MY COMMENT:  In chapter Chapter 6, the simple linear demand curves get more price elastic as price increases. But for cigarettes, higher prices make the more-price-elastic consumers stop smoking. The remaining smokers have less elastic demand, so demand becomes less elastic as price increases. This allows tobacco firms to raise price more--and earn higher profit--than they other otherwise would.

You can also understand this using the language of Chapter 14 (indirect price discrimination), with two groups of consumers with different elasticities of demand. At lower prices, both groups consume, but at higher prices, only the less-price-elastic group consumes. Firms optimally raise price and earn higher profit by serving only the less price-elastic group.

An obvious question raised by this interpretation is why didn't firms simply raise price so that the less elastic consumers quit and then reap higher profit from the higher prices. One possible answer is that the tobacco companies didn't know. It was only when so many snokers quit that they realized the remaining ones had much less elastic demands.

Condos vs. Houses: months of supply

WSJ:   In Chapter 8, we teach that prices are set when the number of buyers (demand) equals the number of sellers (supply).  When there are too many sellers (buyers), prices fall (rise).  However, it may take a while for prices to "clear" the market.  

For condos and single family homes, one measure of whether there are more buyers or sellers is the "months of supply," calculated as the number of units on the market divided by the selling rate.  For example, if there are 1 million units on the market, selling at 20,000/month, it would take 5 months to sell the current inventory.  

in the second graph, you see the annual price change:  prices of condos began falling when supply hit 4 months.  

Polymarket odds of a 2025 US Recession

Are we in a stock market bubble?

NYTimes:

Preview of 7th edition: As of late 2025, the U.S. stock market’s cyclically adjusted price-to-earnings (CAPE) ratio has climbed above 40—its highest level since 2000. The CAPE compares stock prices to a decade of inflation-adjusted earnings. In principle, valuations should mirror the present value of expected future profits. High CAPEs can be justified if productivity and earnings growth from artificial intelligence and other innovations materialize—but if those expectations falter, prices tend to revert toward long-run earnings. As of October 2025, the CAPE stands near 39.5, more than double its historical average of 17.

Gamification of Hiring

A primary role of HR is to screen job applicants to address adverse selection in hiring. Now they can automate much of this with apps like HireVue. This platform performs virtual video interviews that include various tasks to assess skills. Candidates perform 'gamified' tasks that are linked to various applicant traits. Not surprisingly, influencers have developed content helping applicants prepare for these games.