I found this fascinating article on the Ludwig von Mises Institute's Daily Blog section. The interview looks into Andrew Lawrence's Skyscraper Index and the economist argues that the construction of tall skyscrapers will most likely correlate with an asset bubble. It is important to note that Andrew Lawrence argues that there is a correlation (that does not mean causation) between construction of tall skyscrapers and economic busts.
Here is the link to the article: http://mises.org/daily/6764/The-New-Skyscraper-Curse
Here is a key quote from the section:
The confluence of regional skyscraper signals in Europe, North America, and China along with a skyscraper alert for a world economic crisis clearly suggests the possibility of a looming world economic crisis. This pattern would be very much like previous episodes of skyscraper records including the Panic of 1907, the Great Depression, the stagflation of the 1970s, the dot-com bubble, and the housing bubble. In line with these skyscraper-based predictions, a fundamental case can be built around the notion of a looming world economic crisis. Most of the world’s major economies are facing pressing economic difficulties, including the U.S., Europe, Japan, and China. Additionally, central banks have been engaged in a world currency war on a scale that has never been experienced in human history.
Interesting index. I think increased investment and spending during a financial bubble is what contributes to the births of these skyscrapers. In the article, they also talked about how increased employment during an unstable period of growth cause people to build taller buildings to expand the work space. (There's just no empty land left). On the level of a country as a whole, the government will be able to invest in big construction projects when the economy is booming. Striving "high" has been so symbolic that countries aspire to do so by building concrete skyscapers when opportunities, perhaps unstable ones, arise.
ReplyDeleteI, however, there's something about this index that makes me think it is an unreliable indication/symptom of a financial crisis. Perhaps a drastic future change in demographics and population distribution would reduce the need for skyscrapers?
Surprisingly there is very strong correlation between the new tallest structure in the US and the recessions. When I was in New York, I met a journalist who gave me a fake million dollar bill which had a note, "Think beyond stocks, watch out for the skyscrapers."
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