ASSIGNMENT 2

Economic Analysis



Assignment 2

Introduction

The construction cost index (CCI) (sometimes also referred to as “construction factor price index” or a “construction input price index” is a European Union (EU) business cycle indicator showing the trend in the costs incurred by contractors in the construction of buildings. The CCI combines the indices for material costs and for labour costs which are the most important cost components for construction. In the aggregation of these two cost components their relative weights are taken into account.

Discussion

Between 2000 and mid-2008 construction costs (for residential buildings) increased relatively steadily in the EU-27 with an annual rate of 4.4 % (Figure 1). In October 2008 the index began to fall and reached its lowest level of 110.0 in May 2009 after which it started to increase again. One year later it regained the level it had displayed before the crisis. The development of the construction cost index was mainly influenced by the material cost component, while the labour cost component continued to grow even during the crisis - although at a somewhat lower pace than before.

With few exceptions the EU countries display a development that is broadly similar to the one that can be found for the EU aggregate. Differences can be found in the timing and the size of the decrease of the cost index. The construction cost index for residential buildings started to fall first in Ireland, in the other countries this development occurred only several months later. The reductions of the cost index were strongest in Ireland, the United Kingdom and in the Baltic Member States. In a number of countries the rates of change in 2008 and 2009 remained positive although much lower than in the first half of the period under observation.

All government spending represents a tax. The inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money to pay for federal spending dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real — the individuals who suffer most from cost of living increases certainly pay a “tax.”

Unfortunately no one in Washington, especially those who defend the poor and the middle class, cares about this subject. Instead, all we hear is that tax cuts for the rich are the source of every economic ill in the country. Anyone truly concerned about the middle class suffering from falling real wages, under-employment, a rising cost of living, and a decreasing standard of living should pay a lot more attention to monetary policy. Federal spending, deficits, and Federal Reserve mischief hurt the poor while transferring wealth to the already rich. This is the real problem, and raising taxes on those who produce wealth will only make conditions worse.

Working-Class Inflation

Borrowing money to cut the deficit is only marginally better than raising taxes. It may delay the pain for a while, but the cost of government eventually must be ...