Crazed Skyscrapers

With more financing in place, the world’s tallest skyscraper is moving forward.

Recent media reports indicate that the final segment of financing has been obtained for the $1.2 billion Jeddah Tower project in Saudi Arabia. This is the financing that would be necessary to bring the project to record heights. Media reports also show that the structure has risen to more than seventy-five meters (246 feet) and construction is proceeding at an uninterrupted pace.

Above ground construction on the long delayed Jeddah Tower started in September 2014, but there was considerable doubt that the financing of the one kilometer (3,280.84 feet) tower could be obtained, given the shaky financial conditions in Saudi Arabia.

Construction of the World Trade Center towers began in August 1968 and January 1969 and opened in December 1970 and January 1972, respectively. The economy was then in a bad recession and the Bretton Woods Crisis at hand. The Sears Tower (now the Willis Tower) began construction in April of 1971 and opened in May of 1973 during the 1973–1974 stock market crash and the 1973 oil crisis.

Such alerts indicate looming danger in the economy of significance. However, the danger is not necessarily imminent. The next pivotal date is when the construction project reaches a point where it has broken the record. That date is difficult to estimate given the whims of construction. Media reports indicate that the Jeddah project will possibly be completed in 2020 without indicating whether that date is the record setting date, the completion date, or the opening ceremonies.

It is significant that the record being broken by the Jeddah Tower is the record set by the Burj Khalifa in Dubai. In some ways, the Burj Khalifa has become something of a symbol of the excesses of the last bubble.

Set to become the tallest building in the world, the Burj Khalifa in 2009 began to experience financial trouble and had to delay payment on its debt to finance construction. When the Burj Khalifa officially opened in January of 2010, the sovereign fund of the United Arab Emirates, which built the skyscraper, was broke and had to be bailed out by the sheikh of Abu Dhabi for $10 billion.

So, will this latest frenzy of new construction tip us off to the next bust? The skyscraper index is silent on the issue of timing so the dating of when the skyscraper curse is apparent is just guess work. It seems that the boom-bust cycle reaches its peak around the time the new record is set and is called a Skyscraper Signal, if imminent economic danger is looming. In most episodes, record breaking skyscrapers have their opening ceremonies when the economic crisis is readily apparent.

The important thing to remember is that skyscrapers do not cause economic crises. Rather they are just a very noticeable example of the distortions taking place throughout the economy when interest rates are kept artificially low by the central bank.

In addition to record breaking skyscrapers, there are many less perceptible changes taking place. Entrepreneurs are building bigger, longer term projects and production processes. Relative prices, i.e., interest, land, capital, and labor prices, are being distorted. Technology, nearly everywhere, is on the fast track. The economy is booming.

If the Skyscraper Curse is at work, then these distorted economic activities will soon be revealed to be malinvestments.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

The post Crazed Skyscrapers appeared first on LewRockwell.