Scyscrapers & Booms
Shortly after the financial crisis in Dubai broke out, the world's tallest building (828 meters or 2,716 foot tall) is being opened in Dubai.
Many other tall buildings, including for example the Empire State building in New York in 1931 and the Petrona Towers in Kuala Lumpur in 1998 were similarly associated with cyclical slumps.
Coincidence? No. Causal Relationship? Not in the direct way that the building of the tower was the underlying cause of the boom, though the extra debt needed to finance it probably made things slightly worse. Instead, the key way in which the two relate is that both were the result of unsustainable monetary expansion.
Mark Thornton in particular is very fond of this theory and wrote an article about in 2005, here re-published in 2008.
But while unsustainable credit booms could cause the construction of extremely tall buildings, the relationship is far from perfect since some booms do not result in it. Thornton mentions the example of Japan in this respect. And furthermore, there are a lot more examples of skyscrapers being built without being associated with an economic crisis.
The best example of this is the building that between 2004 and now was the tallest in the world, Taipei 101 (508 meters or 1,667 foot). There was no significant cyclical slump in Taiwan after the completion of that building, and none in China after the completion of Shanghai World Financial Centre (492 meters or 1,614 foot). While both China and Taiwan suffered from the global economic crisis in 2008, the Chinese slump was very mild, the Taiwanese very far away in time from the construction of the building and both have now recovered fully. And in neither case was the slump caused by domestic credit booms.
This illustrates that skyscrapers need not be the result of unsound credit booms. It could just as well be the result of sound economic booms (Of course, there were unsound elements in the Chinese and Taiwanese booms-but the sound elements dominated. And it is even more true that there were sound elements of for example the U.S. boom in the 1920s).
Many other tall buildings, including for example the Empire State building in New York in 1931 and the Petrona Towers in Kuala Lumpur in 1998 were similarly associated with cyclical slumps.
Coincidence? No. Causal Relationship? Not in the direct way that the building of the tower was the underlying cause of the boom, though the extra debt needed to finance it probably made things slightly worse. Instead, the key way in which the two relate is that both were the result of unsustainable monetary expansion.
Mark Thornton in particular is very fond of this theory and wrote an article about in 2005, here re-published in 2008.
But while unsustainable credit booms could cause the construction of extremely tall buildings, the relationship is far from perfect since some booms do not result in it. Thornton mentions the example of Japan in this respect. And furthermore, there are a lot more examples of skyscrapers being built without being associated with an economic crisis.
The best example of this is the building that between 2004 and now was the tallest in the world, Taipei 101 (508 meters or 1,667 foot). There was no significant cyclical slump in Taiwan after the completion of that building, and none in China after the completion of Shanghai World Financial Centre (492 meters or 1,614 foot). While both China and Taiwan suffered from the global economic crisis in 2008, the Chinese slump was very mild, the Taiwanese very far away in time from the construction of the building and both have now recovered fully. And in neither case was the slump caused by domestic credit booms.
This illustrates that skyscrapers need not be the result of unsound credit booms. It could just as well be the result of sound economic booms (Of course, there were unsound elements in the Chinese and Taiwanese booms-but the sound elements dominated. And it is even more true that there were sound elements of for example the U.S. boom in the 1920s).
posted by stefankarlsson at 9:20 PM
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