Thursday, January 13, 2011

Unintended Consequences

Some stimulus!
Prices spike, but jobs keep sliding.

"Mr. Goolsbee’s statistical analysis found that 'much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices. A 10 percent investment tax credit increases equipment prices 3.5-7.0 percent'....

The blue line [in the chart above] shows a curious spike in the prices of home building materials, peaking at the end of April 2010, almost exactly when the [First-Time Home Buyer] credit expired.

Perhaps Mr. Goolsbee’s dissertation applies here, and the rush to finish home transactions before the credit expired made home building 3 to 5 percent more expensive during that period than it would have been without the credit. In contrast, the red employment series shows no visible spike in people employed as home builders."

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