Wednesday, June 9, 2010

Waterboarding the Laws of Economics

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I'm not certain who it was that said There is no situation so bad that government cannot make it worse, but as proof of that axiom, I offer the following: [Thanks L!]

Last week, three House members introduced a $15 billion stimulus bill to provide homebuilders with construction loans. Yep - the plan is to build more houses in an attempt to save the housing industry from its oversupply of houses. Irony just died.
. . .
There's ample reason to believe this bill will do more bad than good, and arguments used to justify its existence are easy to shoot down.

The National Association of Home Builders, for example, wrote that without this bill and its fostering of new construction, we'd threaten "to end the budding housing recovery before it has time to take root." That's so perfectly wrong, it hurts. You have to put the laws of supply and demand in a medieval torture device to come up with an example of additional supply healing a crash caused by oversupply. When the price of something is falling, increasing supply accelerates the drop. Conversely, removing supply (blowing up houses) lifts prices. No secrets. No magic. No tricks. They call these the laws of supply and demand because there aren't practical exceptions.

Perhaps it's "Hair of the dog that bit him," economic theory. It makes no sense, but which of the stimulus bills did?

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