In 1999, economist Andrew Lawrence noted a correlation between the building of skyscrapers and a downturn in the economy.

This is how it works. Plans for one or more skyscrapers are announced and the construction is begun during a period when the economy seems secure.  Money is flowing and employment is high.  All appears well but these plans very often come during a later phase of an economic boom when the economy is about to swing downward.  If  the downturn is spotted soon enough, the construction can be stopped and the builders swallow their losses.  If the downturn is not foreseen and the builders continue to build into the period of recession, the completed skyscrapers stand empty or only partially filled contributing further to economic problems of that particular nation.  This interesting phenomenon has been noted in countries all over the world.

Mark Thornton in his excellent paper SKYSCRAPERS AND BUSINESS CYCLES which can be found at http://mises.org/journals/qjae/pdf/qjae8_1_4.pdf states:

“First, a period of “easy money” leads to a rapid expansion of the economy and a boom in the stock market. In particular, the relatively easy availability of credit fuels a substantial increase in capital expenditures.  Capital expenditures flow in the direction of new technologies which in turn creates new industries and transforms some existing industries in terms of  their structure and technology. This is when the world’s tallest buildings are
begun.”

Then something (or perhaps numerous indicators) causes  the moneylenders to tighten their credit, the boom/bust pendulum swings again and all of us plain ordinary folks are left to wonder “wha’ happened?”.

I write about this here because I just learned about the Skyscraper Index and am temporarily a bit fascinated with the theory.  It seems to me that it is one more piece of the puzzle of our over-all understanding of the world in which we live.

There is so much to know, so much to learn, so much to bring together toward a cohesive understanding of the larger picture.

Let’s talk.

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