 Okay, the skyscraper curse is something that came to my attention in 1999, when Andrew Lawrence, a financial analyst, wrote about it and it was reported on in all the major financial media. And the financial media was kind of skeptical of this notion that somehow the building of a world record-setting skyscraper would cause a world economic crisis. It sounds really far-fetched and it actually is pretty far-fetched in a very specific regard. But I was fascinated by it because I could see through Mr. Lawrence's report and see Austrian economics at work to see the Austrian business cycle theory at work. So I could in a sense see through the workings of this strange correlation that he was reporting on. He didn't really have any reason for it. He considered it, you know, might be just random luck. It could be something in financial markets. But he didn't come to any conclusion. So I started working on this and developing a theory of connecting the building of the world's tallest building to world economic crises using Austrian business cycle theory, using Kantione effects named after Richard Cantillon, who I was also working on as a history of economic thought project. So it was just these two projects sort of coinciding. And I eventually published, I tried to publish this paper in some mainstream economic journals, but there were no equations, there were no regressions or anything like that. So they didn't really want to have anything to do with it. So I eventually published it in the quarterly journal of Austrian economics in 2005 in the spring issue. And I'd encourage you to take a look at that particular paper because it will have most of what I'm going to be talking about here today in it. So what is this skyscraper curse? First of all, it's focused in on world record-setting high skyscrapers in terms of livable space. And that's important for driving this model. The record-setters are begun during a boom, an extended boom period of artificially low interest rates. And the buildings that represent the curse typically are completed and open to the general public during a period of economic crises. So these are special cases. This doesn't happen very often. So we've had just a small subset of these economic crises related to buildings, although real estate is typically involved in all business cycles. So there's always real estate problems in the economic bust, but these are significant economic crises. So we have around the turn of the century, the Singer building. The Singer company made sewing machines. The MetLife building sold insurance. They were begun in 1905 and 1906. And there was a panic of 1907 just as these buildings were setting new records. And then they opened in 1908 and 1909. And there was the Woolworth building in 1913. And this was a case that Lawrence said was the exception to the rule because there was no economic crisis. And does anybody know, not you, but does anybody else know why there was no economic crises with the Woolworth building setting a new record in 1913? Yes, sir. World War I. I've asked that question in the past and no one's actually come up with the answer. So good job. Prior to the completion of the Woolworth building, the American economy went into one of the worst recessions that it had ever experienced. But very quickly, because Europe was at war with itself, all the major European powers began a war in 1914. So they were buying military equipment, metal, weapons, and so forth. And that dragged the U.S. economy out of that very bad recession. So it really wasn't an exception to the skyscraper curse. And then we had the Great Depression, 40 Wall Street, which is now the Trump building, the Chrysler building, which is now part of Columbia University, and the Empire State Building were all begun prior to the stock market crash in 1929. And they were finished in late 1929, 1930 and early 1931. So there was another grouping or cluster of record setting buildings. In the early 1970s, you have the World Trade Towers and the Sears building in Chicago. Those were begun in the late 1960s. They set the new records in the early 1970s, and they opened in 72 to 73. And of course, that was the beginning of a more than decade-long economic crisis in the United States and elsewhere. It's often referred to the stagflation of the 1970s. But it's something that saw, well, for example, there was a severe recession in early 1970s. It was so bad that we actually went off the gold standard because of it. Asian price controls were imposed in 1971. There was all sorts of economic problems in the 1970s, and that continued on until the early 1980s when unemployment was over 10%. Interest rates were over 15%. And then, again, there's more record buildings here in Asia, the Asian financial crisis and the Patronus Towers, the tech stock bubble in Taipei 101 in Taiwan, the housing bubble and the financial crisis in 2007, 2008. The Bush-Khalifi Tower was opened in Dubai, setting a world record. And the record was set in 2007 right before the onset of the world financial crisis. We have a European record in the shard building in London, and it set the record, started in 2009, when everything was just fine, of course, in the European economy. But when it set the record in 2012, of course, you had the European debt crisis, the pigs crisis, where you have a third of the countries of Western Europe facing a very severe debt crisis. And of course, unemployment rates exceeding 10%. In some cases, as high as 25%. So today, they're building a new world record-setting skyscraper in the deserts of Saudi Arabia and north of Jeddah, Saudi Arabia. The Kingdom Tower is projected to be an entire kilometer tall. However, the top 400 feet is just for show, basically. So it's only going to exceed the Bush-Khalifi Tower by about less than a dozen stories. But it will set a new world's record. So in anticipation of that, it's scheduled to open in 2020. So it should be setting the record maybe in 2017-18 range. So how do we get the linkage from the skyscraper curse to the Austrian theory of the business cycle? Well, the Austrian theory of the business cycle is dependent upon low interest rates, artificially reduced interest rates. That's the driving force that fools entrepreneurs into making the wrong kind of investments in the economy or male investments in the economy. So that's the engine that's driving this whole phenomenon. And in the skyscraper curse, the only difference between the skyscraper curse and the normal business cycle is that interest rates are held low for an extended period of time and well below what would be market-determined interest rates. So the central bank-determined interest rate is lower than what would occur if it was completely market-driven. So these artificial interest rates have three influences on business and entrepreneurs, and ultimately this is going to create the skyscraper curse. The first effect is on interest rates and land prices. When interest rates are artificially low, this has the effect of raising the price of land in the economy, particularly in large metropolitan areas. So why is that the case? Well, say to yourself, if you had a property that you think is worth about $100,000 and interest rates are one half of 1% or in the case of my savings account, 100%. So when interest rates are very low, the idea of selling your property and then putting the money in the bank is not a really great alternative. So you're more reluctant to sell than if interest rates were 10% so that if you put the money in the bank, you would be earning an income of $10,000 a year. So all of a sudden with high interest rates, you're more willing to sell. And so that puts a downward pressure on land prices. When the interest rates are very, very low, people are reluctant to sell their land, and so the price of land goes up. What does that have? What kind of effect does that have? Well, if land prices are very high, then developers, whether you're building skyscrapers or whatever, if you're building houses, it doesn't matter what you're building. If land prices are higher, you're going to want to put, you're going to have to put more square feet of usable space onto that property in order to make it profitable. So if Mama Goldberg's a very valuable piece of land over here, if you were to buy that property and tear it down and to build something on it, well, I'd estimate that they'd probably charge you over a million dollars for that piece of land. So any new developer would have an incentive to build not just one story, but maybe three or four stories on that piece of property. And if you look around Auburn right now, what you'll notice is a lot of construction. And all the new construction is all higher in terms of being taller than the old construction. There's one building in downtown Auburn on College Street. It's, I think, five stories high, and it's a white building, and there's retail on the first floor, and then there's apartments on the remaining floors. That was built in 2007 during the housing bubble, and that's really the tallest building outside of the university in this area. But now they're building multiple four- and five-story buildings throughout the downtown Auburn area. So interest rates are low, developers want to develop, but because the price of land is so high, they're building taller. The second effect is the effect of the interest rate, and in this case a low interest rate, on the size of firms in an economy. When interest rates are very low, what you see on Wall Street is lots of mergers and acquisitions of small companies becoming larger companies, through mergers, acquisitions, or simply just expanding the firm itself through investment. So what does that do? Well, larger companies require more centralized services. So if you look at an old-fashioned dairy farm from a century ago, you'd see a farmer in his family, a small plot of land, and a small number of cows milked, sent to a dairy. There's no need for HR. There's no need for marketing. There's no need for payroll. You don't have those functions in a small firm. But all of a sudden, if you go to a modern dairy, you're going to find a massive operation in multiple locations, and that kind of dairy does need accounting. It does need management. It does need someone to do the payroll. It does need marketing services. So with larger firms, you have more need for headquarters, and headquarters increases the demand for larger buildings in urban areas. The third effect is that lower interest rates in terms of causing these taller buildings, these record-setting buildings, means that you need all kinds of new technology. You can't just use the old existing technology. Some things have to be invented brand new in order to make these record-setting skyscrapers work. So you need new kinds of elevators. So in recent years, with the Bush-Kalafi Tower, they have three-story elevators. So there's like three cabs, one on top of one another. So that if you're going to the 67th floor, you get on a special elevator 4 that's going to go to the 63rd, 64th, and 65th story. So you've got a new technology there. They've just recently invented a new cable to pull the elevator up. If you use the old standard steel cable for the Bush-Kalafi Tower, the cable itself would weigh 40,000 pounds. So that would obviously create an enormous need for a tremendous amount of power to get that cable up and down just itself. So somebody in Finland invented a new cable that only weighs about 2,000 pounds. The Japanese have invented a new form of air conditioner that doesn't require duck work throughout the building. So for example, in this room right here, there's a large space between the ceiling and the next floor. I think it's about 18 inches to two feet so that the duck work can be run throughout the building. With the Japanese system, they don't need that. All they have is a little hose that goes from room to room and it brings the freon itself, not cold air, not cold water, not hot air or hot water, which is the traditional technology. They're just pumping the freon from room to room so that there's no need for that space to run the duck work. And of course, if you're talking about 200-story building and you have to run this much space just for the air conditioning system, obviously it's going to cost a lot more. So firms have to innovate, they have to produce new technologies ahead of their time, so to speak, and those new technologies require new factories, new delivery systems. So the economy, in other words, is getting advanced technology that otherwise wouldn't be needed because of these new, taller buildings. And so we're not looking just at the skyscrapers themselves, we're looking at what's happening throughout the entire economy. This is some of the articles that I wrote regarding the housing bubble. I started with, actually I had one before that, before the 2004 Mises Daily article, but I've been asked a lot of questions this week about the Austrian theory of the business cycle and can you know a bubble is out there? Can you know there's trouble coming? And the scientific answer is that we cannot know for sure something is coming. But if you know Austrian theory of the business cycle, you can observe telltale signs and hints of what's coming forth in the economy. And in early June of 2004, at the beginning of the week on Sunday, I went walking around my neighborhood and a friend of mine, colleague of mine at Auburn University owned a rental house on one of the streets that I walk on and it had a for sale sign and then sold on it. I knew I was there the day before walking and there was no for sale sign so I was kind of curious and I went to my colleague on Monday morning and I said, you know, what's up with your house over there? He said, well, on Sunday, which is the day I went walking, a friend of ours who was a real estate agent convinced us to sell the house and by the end of the day on Sunday they had three offers on the house and it sold for above their asking price. So I knew that that's not that's atypical in real estate markets. You don't decide to put your house up for sale on a Sunday, get three offers and sell it by Sunday evening. And then a couple days later I was talking to my brother who had just become an agent for a mortgage lending company in California and he told me about his first day that he was able to offer his clients new financing on their houses, give them a lower payment and hand them over $50,000 of equity out of their houses. He said, Mark, it's too good to be true. I said, you're darn right it is too good to be true. And that's when I started writing the article. Now in 2010, early 2010 CNN contacted me about the opening of the Bush-Kalafi Tower and so I sent him my work on the subject and they pointed out that I wasn't surprised about the whole thing happening. And since then there's been a pretty good amount of literature that's come out on the skyscraper curse trying to figure it out by mainstream economists as well as Austrian economists. Greg Kaza who is an Austrian economist and regularly publishes in the quarterly journal of Austrian economics, he regularly comes to our research conference. He did the skyscraper curse for the state of Arkansas and the state of Michigan. So Razorbacks is the team name for the University of Arkansas and Wolverines are the team names for University of Michigan. So he was doing Michigan and Arkansas looking at the tallest buildings in those states and comparing them to the business cycle and he found a very good correlation between the two. Gunter Lufler looked at skyscrapers and stock market returns. Jason Barr has written the most on this subject. He's written several papers from a mainstream econometric perspective and he keeps on getting different answers using different data sets. He finds different reasons for the correlation between tower building and the economy. And I'll just highlight the last one that he did with a couple of colleagues, Ms. Rack and Munda from Rutgers University in New Jersey. Their paper, Skyscraper height and the business cycle separating myth from reality. That didn't sound too good. And indeed he basically attacks my 2005 paper and says that if you put the skyscraper curse to an empirical test that it turns out skyscrapers do not cause business cycles. They looked at announcement dates and opening dates and those were not correlated with gross domestic product. So they turned their attention to tall buildings in four countries and compared them with changes in real GDP per capita and noticed that none of these things, I mean he's just looking at an ordinary business cycle, not economic crises type business cycles. And they found that using co-integration tests that show that GDP and height are co-integrated and share a common pattern. Therefore they conclude that height does not predict cycles, they move together with temporary deviations due to builder competition near the peaks in the business cycle. And Lucas's paper here on why skyscrapers a spatial economic approach shows that lower interest rates increase land prices and wages, the higher opportunity cost of commuting leads to taller buildings and this supports my original paper in 2005. Barr and his colleagues seem to draw the most opposing stance against the curse because he first showed that record setting skyscrapers were the result in part of psychological factors such as builder competition, social status and ego. Second he showed that the date of the announcements and openings for record setting skyscrapers does not fit the empirical pattern. In 30 shows empirically that skyscrapers do not curse or cause but that some third factor or factors cause both site skyscrapers and curses. And then the economist magazine after reading Barr's paper decided that the skyscraper curse does not exist based on their evidence. Unfortunately their evidence actually supports the skyscraper curse. We would never think to suggest that building a skyscraper would cause an economic crisis in and of itself. As a matter of fact I spend most of the paper in 2005 detailing that the third factor is interest rates that are causing both the building of world record setting skyscrapers and eventually an economic crisis. So apparently they didn't really read the paper in the first place. But we've had a devil of a time trying to correct this record because I sent a letter to the editor to the economist and they didn't print it. Three months later they wrote me and said that they had misplaced my letter to the editor. So why would you write somebody three months later to say that you had misplaced something? Sounds a little fishy but that didn't work. So Lucas and I sent a comment to the original journal where Barr's paper first came out and we said, you know, they've made a little mistake here and here's why. And we, you know, drew out a very logical story about why they were wrong but the journal didn't want to print that either. I guess it would have made them look bad to publish a fundamentally flawed paper in the first place. And even the economist, it's kind of surprising, they had this graphic produced and published in the Economist magazine and, you know, they sided with Barr at all that there is no skyscraper curse and yet their graphic sort of lays it down for him. And the economist had actually looked on the skyscraper curse favorably until they read this paper by Barr and his two colleagues. So essentially that's where we stand today is I think the evidence is pretty clear that record-setting skyscrapers correlate very well with large boom-bust periods that end up in economic crises and we're also at the point where we're living in an economy where yet another world record skyscraper is being built. Right now I think it's probably up to about 60 or 70 stories high right now. So it's in the works, there's nothing to say that it's going to actually be a world record-setting skyscraper because Saudi Arabia is in terrible shape right now. They have their war, they have terrorist problems, they have domestic problems, their economy is not in good shape. It never was very particularly productive outside of pumping oil and gas out of the ground and even that's kind of troublesome because of the fall and the price of oil and gas. When that project was started in Saudi Arabia, the price of oil was well over $100 a barrel and today it's down close to $40 a barrel. So there's nothing to guarantee that it's going to be built to a record-setting height but that's what is in the works. Okay, well I'll take some questions here if you have any. Yes sir. Yeah, as a matter of fact, when I said I was getting lots of questions about the business cycle, actually he gave them all to me so. I think my question is like, is this just like various correlations and like share thinking of it in the business because obviously you only have so many record-setting skyscrapers and I think the second thing to question is like, how big is the relationship really? Like, so for the Middle East and kind of who's always been building the world on oil which doesn't always correlate to the business cycle, like the sharp power, isn't really connected to the big countries in any meaningful way? I guess it's really because I get that. Well, spurious correlation just means that they just happen randomly and there's nothing connecting them and that's the main reason why nobody really took Mr. Lawrence's skyscraper index very seriously because most of these financial indicators that you might hear about do not really fundamentally determine the economy of the stock market. There's things like the January effect where if stocks are up in January then they'll be up for the year and for a while that held pretty much true in a large majority of the cases but there's nothing real about that and we expect that those kind of indicators peter out over time. The Super Bowl index, another spurious indicator, when they discovered it, when it was discovered by financial journalists in the late 1970s, it was almost perfect that if a NFL team, NFC team won then it'd be a good market, a good year in the stock market. If the AFC team won the Super Bowl it would be a bad year in the economy. So you've got to be skeptical of the skyscraper indicator because so many of these other indicators just never made people money consistently. And so that's a possibility but I think the connections of interest rates to how it transforms the economy, those are very well established connections in the fields of finance and real estate and mergers and acquisitions. So those are all pretty straightforward causal factors that play a role in this model. Now I have gone back into the 19th century and have shown that earlier record-setting skyscrapers also coincided with business panics, economic crises and those kind of things. So we've actually been able to take the skyscraper indicator which started with the panic of 1907, the depression, the stagflation of the 1970s and the Asian financial crisis and we've been able to bring it forward in time to more recent records. We've corrected the record on the Woolworth building and we've gone back into the late 19th century and found other correlations. So the number of skyscraper curse events has actually increased and we haven't been running into the same sort of problem like the Super Bowl has where its reliability continues to go down over time. But the randomness of building a world record-setting skyscraper, I think it makes you uneasy about these sort of things because it's not a mechanical thing and it's more of a unique, these are more like unique independent events. Yes, sir? With New York rebuilding or doing the Freedom Tower, do you think based upon your research that could possibly happen, the crash or business? The Freedom Tower, or I think it's called just simply the World Trade Center now, set a new record in North America. But in order to get the record for North America, they included a 400-foot television transmission tower on top of it. And that's not livable space. It doesn't require any new technology. And so I never expected the Freedom Tower, as it was called back then, to ignite a world economic crisis because it wasn't a genuine world record. Yes, sir? So it looked like there were a couple of aspects to what you said. Obviously, there's specifically world record super skyscrapers, but then we're also talking about sort of more local level, about five levels to our building instead of two or three is difficult. You think it'd be possible to just expand this argument out. I mean, as long as it's just world record skyscrapers, there's always going to be some skepticism of, well, maybe you're kind of just going to walk into it. But if you expand that to a larger format, you say, now, wherever there's low interest rates, buildings increase by 9% or something like that. Do you think there's the future rate of sort of expected argument in general? Yeah, I think so. I think Greg Kaza's work on at the state level is a good example of that. And I think we've seen a number of continental records like the shard coincide with more localized economic crises. So within a nation, within a state, within a continent, you're likely to see record buildings and more localized economic troubles. And also, people have speculated, well, how about corporate headquarters? When some company like the Singer-Sowy machine decided to build their headquarters, it's usually grand and lavish during these periods. So like right now, Apple, Google, and Facebook are all building enormous and elaborate headquarters out in Silicon Valley. And so that would suggest to me, based on this kind of anecdotal evidence that we're in for between now and a couple of years, in for a major problem in that area of the stock market or that area of the economy right now as they're building these elaborate headquarters, Google and Apple and Facebook have been at record high stock prices, record revenue. I just read yesterday that Apple has $181 billion in cash in overseas banks. $181 billion in cash outside the US banking system. And it's not alone, it's just the company with the most cash in that form. So I think it does bleed over into things other than just world record setting skyscrapers. So it's a good question. I will talk about the course, which is obviously a metaphor. How it can combine with our praxeological framework, because we believe there is no historical loss. So how would you replace the word course with some other word to explain it in terms of science, scientific, for example? That's a great question. Andrew Lawrence used the word curse because he couldn't figure out the real connection between one and the other. So he left it in kind of a mystical fashion curse, like a witch doctor can curse you. And I haven't come up with anything specific other than referring to the skyscraper index as a historical data. And the curse is an economic crisis. Do you have any suggestions? I think that we observe some kind of tendency, but it doesn't tell us anything about the future that it's not always. Maybe there are some other, there can be some other. Can you hear what they're called this? Yeah, we, for example, normal economic development, normal economic growth and development in the absence of artificial interest rates would eventually get us to new records. But under normal economic times, without any monetary stimulus, businesses don't find it attractive to build new records because of the requirements. It gets more and more costly as you go higher. And all of a sudden, if your input suppliers are not coming up with innovations, then it's very expensive to build taller. Yes. So what you're saying about your brother with real estate going crazy, and then that's how you find a new one, two out of four and five, that's just going to happen. My brother's girlfriend is a real estate market person and cannot hold on to property right now in the north of New Jersey. So property values are in all time high and they're regularly high because of this. And you're saying the New Tower of Sox is going to be 2017, 2018 position, but 2020 opening, is 2017 the prime time to get rid of your property that has returned or what would like before it dates back to it, or will it be 2018 or 2020? Well, you know, I don't really know, obviously. And that's one of the things that Austrian theory makes us well aware of is that we cannot know such things with certainty. We can't know that we're in a bubble. We can be pretty clear that we're in a bubble. We can't know it. And I remember very vividly in from June of 2004. For the next couple of years, people were asking me, what do I do? I mean, total strangers would call up and say, you know, my wife is desperate to get into a house with, you know, enough room for washer and dryer and he's talking real low on the phone like someone's might might hear him. And I'm like, you know, what can I tell you? I mean, I can't tell you when it's going to go down, how much it's going to go down. If it's going to go down, there are a lot of factors which might mitigate the ultimate effect. And I would say, you know, real estate is continuing to go higher right now in most markets. And there's not a lot of reports at all that real estate is slowing down or going down throughout the economy. So it doesn't look like it's eminent, which is a good thing because I'm working on a book on all this stuff and it's not done yet. But I'm working feverishly on this book. It's going to be called The Skyscraper Curse and why Austrian economists have been getting the business cycle right for one century. Might have to shorten that title a little bit, but that's my working title. Thank you very much for your attention.