Saturday, January 11, 2014

The Skyscraper Index

Scholars belonging to the rogue Austrian school of economics have posited that, as the height of skyscrapers increases, so does the threat of imminent economic disaster. A skeptic will – quite appropriately, I may add –retort that correlation does not imply causation. Nonetheless, if there is a compelling theory to explain why the association between skyscraper height and impending economic disaster is meaningful, then it is a whole other story. 

A skyscraper from the city of Metropolis (Lang, not D.C. Comics)
If one looks more closely at the data regarding the skyscraper index, it appears that rapid economic booms do, in fact, precede an increase in the construction of skyscrapers that are of record-breaking height. History indicates that, when a speculative bubble grows quickly and achieves gigantic proportions, one may worry about an equally quick and equally catastrophic bursting. As Isaac Newton said, to every action there is always an equal and opposite reaction.

The Skyscraper Index

The scholars who’ve given attention to the so-called “skyscraper index” often focus on Gross Domestic Product when conducting their analyses. I agree with Alex Marshall that this is probably the wrong approach. Instead, attention ought to be focused on economic inequality, i.e., the gap between rich and poor. The reasoning behind this is such: when a large gap exists between rich and poor, it implies that income is being taken from the many poor and placed in the hands of a few very wealthy individuals. When a few very wealthy individuals are entrusted with the national wealth, a bad decision by one very wealthy person will have repercussions across the entire economy. 

Before pursuing that thought further, let’s look at some concrete examples. Just as the newly completed Empire State Building opened its doors to tenants, the Great Depression began. The construction of New York’s World Trade Center and Chicago’s Sears (now Willis) Tower presaged the early 1970’s economic downturn. Even more graphic examples can be found in Bangkok, Thailand. When I visited that city, I was impressed by the large number of skeletal, half-completed skyscrapers dotting the skyline. On closer examination, I noticed that the apparatus of construction was disused and rusting, and a lot of tarps were left behind to flutter in the wind. Apparently, these are the visible remnants of the economic crisis which had swept Asia in 1997. 

The abandoned skyscrapers of Bangkok

Closer to home, the city of Providence, RI had been promised a skyscraper but all it received was the demolition of a historically significant building and a fenced-in patch of debris. Rhode Island is conspicuous because its frail local economy (or so it has been claimed) has encouraged politicians to shovel massive amounts of taxpayer dollars into the maw of smooth-talking entrepreneurs who take the money and run.

There are, of course, instances in which the Skyscraper Index fails to offer accurate predictions. South Korea has abundant skyscrapers (although no record-breakers) and, according to economists, wealth is distributed fairly equitably in that country.* Brazil suffers from an appalling gap between rich and poor, and has for the most part eschewed the construction of skyscrapers. Clearly, there are additional variables in the equation that have not been identified. All the same, a steady accumulation of clouds does not guarantee a rainstorm, but the prudent individual will note the atmospheric conditions and carry an umbrella.

The theory behind the skyscraper index would be strengthened if it could be shown that extreme inequality in wealth damages the economy. Thus, economic disaster is not a matter of chance alone, but is causally linked to inequality. As it happens, there is good evidence to suggest that inequality – and particularly the concentration of vast wealth into the hands of a very few – is damaging to the economy. This wealth is removed from the economy and sits unused. It is not lent out to support small businesses and low-level entrepreneurs. However, lending does occur. Plutocrats create opportunities for themselves to invest when (a) there is a high certainty of profit and (b) there is little risk of losing money in the event that the investment fails (for further reading). The very wealthy learned how to buy and sell mortgages and hedge against the risk of defaults, and that brought us the cataclysm of 2007-2008. 

When Goldman Sachs decided to erect a 43-story glass and steel skyscraper in Lower Manhattan (abutting the site of the World Trade Center), the company received $49 million in taxpayer subsidies in the form of grants and tax exemptions.  So, in other words, money was taken from the hands of taxpayers and given to a corporation that, in 2007, set a world record in terms of the most profits ever earned in a single year: $11.6 billion (source). 

The only conceivable explanation for a situation in which taxpayers are subsidizing billionaires during a time of massive unemployment and shrinking wages is this: political corruption. Political corruption, in the Whiggish sense of the term, is government acting to benefit private interests when it ought to be acting on behalf of the public interest. It is reasonable to suspect that concentration of wealth in the hands of a very few is a strong indication of endemic political corruption (source). 

And, based on my unscientific survey, the most corrupt places on earth also have some of the most conspicuous architectural examples of hubris. Saudi Arabia is planning a skyscraper that will be one mile high (source). Of the 100 tallest buildings under construction anywhere in the world, 60 are located in China (source). In Dubai, you can visit the top floor of the Burj Khalifa and look down on the cloud cover (source). Malaysia, a world leader in corruption (source), has its Petronas Towers, named after an oil producer (apparently the ExxonMobil of Southeast Asia).

In case there is any validity to the skyscraper index, it bears noting that four of the largest skyscrapers in the United States are set to be built within blocks of each other in Manhattan, overlooking Central Park. This means a lot of people who used to have views of Central Park won’t. A condo in one of these planned towers will set you back $90 million. It is expected that most residents will only spend a few weeks out of the year in their vertically privileged digs. Unsurprisingly, the developers of these spires are the beneficiaries of generous tax-breaks. The economic forecast looks grim. 

* recent "free trade" deals with South Korea will likely spell the end of their fair distribution of wealth

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