Transcript Is There Such a Thing as the Skyscraper Curse?

Is There Such a Thing as the
Skyscraper Curse?
Dr. Mark Thornton
AU Economic Club Presentation
Mises Institute, September 8th, 2015
@DrMarkThornton @Mises
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So What is the Skyscraper Curse?
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Andrew Lawrence, 1999
• “An unhealthy 100-year correlation exists
between the world’s next tallest building and
an impending financial crisis.”
• “This could just be coincidence…”
• “The link between the world’s next tallest
building and economic crisis is possibly more
than coincidence.”
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Lawrence’s Correlation
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“Skyscrapers and Business Cycles”
Thornton, QJAE, 2005
• Theory connects skyscrapers & business cycles
• “Cantillon effects: $, demand, production
• $ = interest rates, credit, investment
– Price of land
– Size and scope of business
– Skyscraper technology
• Artificially low interest & easy credit = taller
• But its not just skyscraper construction
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Cause and Effect
• Cause
– Artificially low interest
– Easy credit conditions
• Effects
–
–
–
–
–
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Increased borrowing
Increased investment
Increased consumption
Increased “luxury”
Skyscrapers
Boom/Bust
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Barr, et. al. “Skyscraper Curse: Separating Myth
from Reality,” Applied Economics, 2015
• Cointegration tests show SKY & GDP move
together, common cause(s)
• Granger causality tests show that SKY does
not cause GDP: GDP causes SKY
• Announcement, Opening dates not correlated
with NBER expansions or contractions
• Skyscrapers can’t predict or forecast
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The Economist Magazine
• Is there such a thing as a skyscraper curse?
• Mar 28th 2015 Based on Barr et al. (2015), but
they did reference Thornton (2005)
• “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.”
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Critique of Barr et al.
• “SKY & GDP move together, common cause”
– That is what Thornton (2005) expects. Common
cause is artificially low interest rates
• “SKY doesn’t cause GDP, GDP causes SKY”
– Also expected
• Announcement/Opening dates, bad. Ground
breaking, record setting dates better. No date
• Barr = expansion/contraction, Curse = Crisis
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Economist graphic 3/28/15
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August, 2007 Burj Khalifa
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Kingdom Tower in Saudi Arabia?
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