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Home | Blog | "In other words, you cannot accurately forecast a recession or financial panic by looking at either the announcement or the completion of the world’s tallest building"

"In other words, you cannot accurately forecast a recession or financial panic by looking at either the announcement or the completion of the world’s tallest building"

  • Skyscraper Curse
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Tags Booms and BustsThe FedU.S. HistoryBusiness CyclesCapital and Interest Theory

03/27/2015

The headline from The Economist reads:

Tower of Babel: Is there such a thing as a Skyscraper Curse:

They explain the curse using my article without mentioning me, but at least they did reference my paper at the end of the article. Based on new empirical evidence apparently I am wrong about the connection between record setting skyscrapers and economic crisis. Drat, done in by the empirical evidence.

THE world is in the middle of a skyscraper boom. Last year nearly 100 buildings over 200 metres tall were built—more than ever before. This year China’s business capital will welcome the Shanghai Tower, which will be the world’s second-tallest building. Saudi Arabia is building Kingdom Tower, which will be the world’s tallest (and twice the height of One World Trade Centre in New York, the tallest building in the Americas). Does this frenzy of building augur badly for the world economy? Various academics and pundits, many of them cited by The Economist, have long argued as much, but new research casts doubt on it.

                                                            *********************************

If, as the skyscraper curse suggests, the decision to build the biggest towers happens near the peak of the business cycle, then you could use record-breaking projects to predict the future path of GDP. However, the range of months between the announcement of the towers and the business-cycle peak is large, varying from zero to 45 months. And only seven of the 14 opened during a downward phase of the business cycle (see chart). In other words, you cannot accurately forecast a recession or financial panic by looking at either the announcement or the completion of the world’s tallest building.

We will see about that!

 

Mark Thornton is a Senior Fellow at the Mises Institute and the book review editor of the Quarterly Journal of Austrian Economics. He has authored seven books and is a frequent guest on national radio shows.

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