November 18th, 2013
in Op Ed
by Mark Thornton, Ludwig von Mises Institute
Originally appeared at Mises.org, 16 November 2013
It is now official! New York City has won the title of having the nation's tallest structure. The heated controversy between New York and Chicago was settled recently when the Council of Tall Buildings and Urban Habitat (based in Chicago) decided that the 408-foot spire sitting atop the One World Trade Center could be included in the total height of the building.
The revised height of 1,776 feet makes One World Trade Center the tallest structure in the US. We are told that One WTC is more than a building. It is a monument both to those murdered on 9/11 and it honors our Declaration of Independence. Not to disrespect those who died, but this "record" is a sham because the useable, productive height of the building is only 1,368 feet. The remaining 400-odd foot difference is just window dressing.
This dubious record should nonetheless be a warning to us that the "Skyscraper Curse," the forerunner of economic crisis, is lurking near.
The Curse originated during the Panic of 1907. Two skyscrapers were under construction during this time, the Singer Building opened in 1908 and the Metropolitan Life Building opened in 1909, and each would become the world's tallest. In 1929, America's Great Depression was ushered in with the opening of the 40 Wall Street Building (currently the Trump Building), then came the Chrysler Building in 1930, and the Empire State Building in 1931. The booming 1960s was followed by the stagflation of the 1970s and saw more record-setting skyscrapers being built with inflated money, among them World Trade Towers 1 & 2 and the Sears Building which all opened in the early 1970s.
The Willis Tower, formerly the Sears Tower, is 1,451 feet not counting any spire or other gimmicks that architects and builders use to inflate the heights of their projects. The Sears Tower, begun in 1970 and completed in 1973, was constructed while the US was still on the gold standard, setting a new world's record for the tallest skyscraper, and, all of its 108 stories represented habitable office space.
The Curse is not just an American phenomenon. The Petronas Towers in Kuala Lumpur, Indonesia, opened in 1997 and was a signal of the "Asian Contagion" of the late 1990s. Taiwan began construction on Taipei 101 as the tech bubble of the late 1990s was imploding. The Burj Khalifa Tower in Dubai, begun in 2004, set a new record when it opened in the summer of 2010, just in time to catch the end of the housing bubble. The building opened, bankrupt, in the midst of a world economic crisis.
More recently the Shard Building, in London, broke ground in 2009 and was completed in 2012, becoming the tallest building in Europe. This was a clear signal of the European economic crisis, the PIIIGS fiscal disasters, and grave and ongoing concerns over the viability of the Euro currency. Just recently Japan joined the fraternity with the Tokyo Skytree in 2012, the tallest structure in Japan. Not to be outdone, China set a new national skyscraper record with the Shanghai Tower which will open in 2014. China also broke ground, but suspended construction on Sky City, which would have set a new world record.
Is there a real connection between skyscraper records and economic crisis, or is this just coincidence? The connection begins with interest rates that are artificially and temporally too low; a phenomenon brought about by out-of-control central banks, such as the Federal Reserve. I explain this in detail in my 2005 article "Skyscrapers and Business Cycles" (2005).
Artificially low interest rates drive up profits temporarily as they drive down the costs of production which then increases spending in the economy. Higher profit margins encourage new investments in bigger, longer-term capital projects boosting profit expectations even higher. Naturally, stock market levels are driven ever higher under these times. Normally, record-setting skyscrapers are difficult and costly ventures, but history has shown that they proliferate in this easy-money environment.
As the effects of the artificial stimulus from central banks takes hold in the economy the costs of production rise unexpectedly, markets grow surprisingly more competitive driving down prices, and projects which once seemed highly profitable (such as record setting skyscrapers) open up in bankruptcy at ribbon-cutting time.
World-record-setting skyscrapers are a signal of economic crisis. Like world-record-setting art prices (such as the $142 million selling price of a painting by Francis Bacon of his friend Lucian Freud at Christie's in New York) such records are signs of economic excess. Just remember that that "excess" can only occur in market's manipulated by central banks, like the Federal Reserve.