Skyscrapers and Economic Crashes: FT (Almost) Catches Up to Mark Thornton

Mark Thornton, a senior resident fellow at the Ludwig von Mises Institute, has for years been writing about the skyscraper index, created by economist Andrew Lawrence the index shows a
correlation between the construction of the world’s tallest building and the business cycle.

In an important paper , Thornton wrote in 2005, he stated:

Is this just a coincidence, or perhaps do skyscrapers cause business cycles? A theoretical foundation of “Cantillon effects” for the skyscraper index is provided here showing how the basic components of skyscraper construction such as technology are related to key theoretical concepts in economics such as the structure of production. The findings, empirical and theoretical, suggest that the business cycle theory of the Austrian School of economics has much to contribute to our understanding of business cycles, particularly severe ones... 

The ability of the index to predict economic collapse is surprising. For example, the Panic of 1907 was presaged by the building of the Singer Building (completed in 1908) and the Metropolitan Life Building (completed in 1909). The skyscraper index also accurately predicted the Great Depression with the completion of 40 Wall Tower in 1929, the Chrysler Building in 1930, and the Empire State Building in 1931.

Now, FT, years later, is writing the theory up as though they have discovered it for the first time. FT's James Mackintosh reports:

Colleagues on FT.com have put together a pretty graphic showing previous holders of the record for tallest towers. Almost all began construction at or near the peak of a bubble:

Burj Khalifa, Dubai’s current record holder, was conceived as the emirate was in the midst of an extreme property bubble. Its completion coincided with the bursting of the bubble, and Dubai’s rescue by neighbouring Abu Dhabi – the tower was renamed to reflect Abu Dhabi’s help.

Taipei 101 in Taiwan. Planning started in 1997, just as the Asian financial crisis was getting underway. The local government signed the development agreement just days before Indonesia was bailed out by the IMF. Taiwan’s exports plunged the next year, although it rode out the crisis far better than other countries in the region.

Petronas Towers, Malaysia. Completed 1998, as Malaysia was wallowing in a recession caused by the Asian crisis the year before.

Willis Tower, completed as the then-Sears Tower in Chicago in May 1973. Remember 1973? Not good. And I’m not just talking about Mud, Gary Glitter or the Osmonds polluting the pop charts. Stock markets were gripped by the worst post-war bear market, and just months after the building was finished the Arab oil embargo forced the US to adopt a national speed limit of 55mph at the end of 1973.

World Trade Center, New York (destroyed in the September 11, 2001 attacks). The north tower, the tallest, was completed in December 1972, just before soaring oil prices trashed the world economy. Worse still, ground was broken for the building in August 1966 – just as the US stock market was entering a bear market after its mid-60s bubble.

Empire State Building, New York. It was completed in 1931, as US banks were falling and the Great Depression was underway. But it started in 1929, when the heads of General Motors and Du Pont got together with a former governor of New York to plan the tallest-yet skyscraper. Shortly afterwards the bottom fell out of the stock markets, but construction went ahead anyway.

The Chrysler Building, New York, finished construction in 1930, with much the same story as the Empire State Building: it was the product of a bubble.

The Trump Building at 40 Wall Street, originally the Bank of Manhattan building, was part of a race with Chrysler founder Walter Chrysler to have the world’s tallest building. Completed slightly earlier in 1930. Only when a bubble makes financing so easy can tycoons and banks race for the title of tallest building.

The Woolworth Building, New York, was finished in 1913, in the middle of a two-year bear market. Design began in 1910, when the Dow Jones Industrial Average was about to embark on a 25% decline (brought to an end by the boom in output to supply the Europeans fighting in the First World War, before America’s late entry in 1917 trashed equities again).

The Metropolitan Life Tower in New York started construction in 1907 – again, planning had begun as a financial bubble was about to turn into a crisis. The Bankers’ Panic of 1907 was ended by the intervention of John Pierpont Morgan.

The Singer Building, finished in 1908, was another creation of the easy money made available by over-excited investors during the boom.

Of course, FT has spotted the correlation, but does not have Thornton's Austrian business cycle theory explanation to report on why the correlation exists.

Typical FT, years behind and a theory short.