The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century

Section 1 of this book has been about the Skyscraper Index, which was created by Andrew Lawrence in 1999. The index chronicles the puzzling connection between the building of record-breaking skyscrapers and the onset of severe economic crises. The resulting crises are dubbed skyscraper curses.

The skyscraper curse refers to the major economic crises that follow in the wake of record-breaking skyscrapers. In retrospect, curse is a poor choice of words. One use of curse indicates an irritation or annoyance, like psoriasis or a trouble-making daughter, distinct to the individual. A second use refers to being afflicted, at a much higher level of negativity, by a mystical being or worldly but religious person, such as a voodoo doctor. The third use refers to the use of swear words by one individual who is complaining about someone or something. The central contribution of section 1 has been to explain that the skyscraper curse is neither self-inflicted nor related to the use of curse words. It is also not about mystical beings or religious figures. The modern curse is about the imposition of severe economic harm imposed by the worldly beings at the Federal Reserve.

The Skyscraper Index has a remarkable record of showing a very close correlation between world-record-breaking skyscrapers and the onset of major economic crises. This section has extended that history back into the nineteenth century and forward in time since the index’s creation in 1999. It has also shown that the original exception to this historical record, the Woolworth Building, was not an exception at all, but simply an accident of history. We also can see that the index can be used to analyze this phenomenon at lower levels of aggregation, such as the state level and the urban level (the problem of urban sprawl).

Of course, if you had not read this section, you might have doubted the reliability of the index. As I have reiterated several times, the use of the Skyscraper Index as a forecasting tool is not highly recommended. Just as canals are no longer a central component of the economy’s transportation network, skyscrapers could easily lose their key position in the economy in the future. Another reason for caution is that major economic crises can be initiated by other causes than central banks, such as wars and pandemics. Plus, there is no precise mechanism to employ for forecasting, so there remain good reasons to be doubtful or at least skeptical in this regard.

Most promising indicators eventually fail, especially those that seem whimsical and have no fundamental basis, while others are of little use to guide long-term capital-investment expenditures. This section has provided the grounding or fundamental basis for the Skyscraper Index in economic theory and Austrian business cycle theory (ABCT). An artificially low-interest rate monetary policy pursued by central banks distorts capital-investment plans of entrepreneurs. This monetary policy follows the path from the interest rate setting policies of the central bank to open-market operations between the New York Fed and big banks. This eventually hits Main Street and results in more debt and misguided investments. We compared the natural process of economic growth and development driven by real savings with the disastrous results when apparent growth and development is driven artificially by central banks.

Most mainstream economists do not have an economic theory of business cycles. They see the economy as a simple machine that works just fine at the macro level as long as there are no technological or psychological shocks. These shocks are random and cannot be known in advance. Therefore they cannot be predicted or prevented. ABCT incorporates both technical and psychological change. Plus, ABCT theorists expect those changes to happen and can form expectations about when and where those changes will take place in the presence of artificially low-interest rate monetary policy.

By embracing the complexity of the economy with the aid of concepts such as the structure of production and the roundabout production process, ABCT can even provide insight into where the crisis will most likely be the most severe. The analysis of Cantillon effects is also helpful here because this is where the distortion causes malinvestment in product-specific capital goods. Austrian economists have disdain for magic wands in their economic analysis, whereas such wands play a crucial role in mainstream economic analysis.

We now turn our attention to the forecasting ability of Austrian economists regarding economic crises and compare that with the forecasting ability of mainstream economists. Hint: it has nothing to do with skyscrapers.