 Okay, let's find out about this thing called the skyscraper curse some of you have already heard of it Everybody else probably thinks I'm crazy But I think you'll find this very interesting and hopefully informative the skyscraper curse was first discovered by a real estate investment analysts named Andrew Lawrence in China in January of 1999 and Basically what this skyscraper curse is is the unlikely correlation of building the world's tallest skyscraper and an ensuing economic crisis or collapse and Based on the research that I've been doing over time. I've expanded Mr. Lawrence's Index Historical index as he calls it His period went from 1907 through 1999 We've been able to extend that backwards in time into the late 19th century and then extending it forward to the present Andrew Lawrence focused only on record setting tall buildings So only when new records were set on Buildings of a height of usable livable space. So we're not talking about giant antennas or Floating balloons or anything else. We're talking about real buildings with real space for example in New York City the once called the Freedom Tower and is now called the The trade tower Has set a record-setting height But the 400 top feet of the building are just a spire just a Ornament that was placed on top of the building not real Usable space and you'll see why that's important Record-setting skyscrapers are started During a an extended period of economic growth or a boom In the economy very often a bubble in the economy and then these record-setting tall skyscrapers are usually finished after The economic crisis is readily apparent So we're not talking about just overall construction spending or overall real estate investment It's very specific and you'll see why it has to be a record tall building of usable space so after Lawrence the skyscraper index successfully told us about the dot-com bubble and it successfully told us about the housing bubble and We also have a new world record-setting skyscraper That's under construction in Saudi Arabia that would set a new world's record Some examples of these curses are the panic of 1907 was Coincided with the building of the singer building and the Metropolitan life building Okay, life insurance and singer sewing machines were very big back then and so we had a cluster of two record-setting skyscrapers in In 1913 The Woolworth building set a new world's record Now what's the problem with that? No crisis So this was always thought to be by Lawrence an exception to this correlation and then we had the Great Depression where 40 Wall Street set the record. That's now the Trump building Then the Chrysler building surpassing that and ultimately the Empire State building Surpassing that so we had a cluster of three records That all began in 1929 and we're subsequently completed in 1930 and 1931 and then it takes a while but in the early 1970s the the bubble economy of the 1960s came to an end There was trouble in the labor market. There was trouble In stock markets and there were several recessions It's referred to as the stagflation of the 1970s that lasted up until 1982 when the United States finally Got rid of the grip of stagflation and really economic depression because in the early 1980s Unemployment rate was 10% or higher Inflation was 10% or higher Interest rates at one point were 18% Then the 1997 Asian financial crisis Coincided with the Petronas towers in Asia and then Taipei 101 Was lined up with a dot-com bubble in effect the technology bubble of the 1990s started really in Asia and Then due to currency changes That bubble transferred itself from countries like Thailand Vietnam and so forth to the United States and elsewhere and Then finally We have the housing bubble in the financial crisis the bourgeois Calafi Tower in Dubai in the Middle East Set the world's record. We'll talk a little bit more about that as we go on But when I saw this skyscraper curse or skyscraper index of curses. I thought to myself This is the embodiment of the Austrian business cycle theory This has all of the ingredients that we typically discuss with Austrian business cycle theory So I wrote a paper. It was finally published in 2005 in the quarterly Journal of Austrian economics. It's called skyscrapers and business cycles and basically what it does is it provide provides links from Austrian business cycle theory to the skyscraper curse and basically as you know in Austrian business cycle theory, it's all started off by Artificially low interest rates, right and these artificially low interest rates I contend Caused three different types of Cantione effects now Cantione effects Simply put is it when there's significant changes in the money supply that's going to cause Changes in prices in the economy It's going to lead to real effects in the economy and it's going to lead to Changes in the distribution of wealth in an economy The first Cantione effect shows that the interest rate increases land prices Now why would a lower interest rate increase the price of land? Just want to make sure you've got your thinking cap still with you Yes That's certainly one of the the factors, but when you have low interest rate You also lower the opportunity cost of Holding on to the land But there's a lot of different channels in which lower lower interest rates raise Land prices and one thing if yes It Yeah, the discounted value of the flow of incomes and If you're observant What you'll notice here in the US and elsewhere is that you see a lot more signs along roads and interstates saying land for sale in The reason there's more signs now is that the price is higher and people have been holding on to land for a long time See this as an opportunity To unload those properties at much higher prices Now what would hire Land prices have to do with record-setting skyscrapers Yes You Perfect Perfect if you have if you buy a piece of land when it's a at a higher price It means you have to somehow be able to get Income or rental income in order to justify that higher purchase price And so instead of building just one story you might build three stories In order to justify that higher Land price and if you look at Auburn nowadays, you'll see a couple of very large projects One down just down the street on Glen And you'll also find one on campus. I noticed that there was a super high construction crane at another spot on campus And so Higher land prices lead to taller buildings. Okay, the second can't you own effect? Is on the size of companies lower interest rates Make it more feasible to pull off Mergers and acquisitions now. This is something that happens naturally in an economy When I was a boy the dairy industry was like, you know one farmer 30 cows Little teeny tanker truck that would pick up the milk and deliver the milk And actually back then It was such direct production rather than indirect roundabout production That I could see the cows Out there Across the street across the street from where I lived was farmland so I could go and sort of visually inspect the cows that I was drinking from and We had three dairies in my hometown 20,000 people three different dairies So the little truck would come out from the dairy and pick up the milk bring it back to the dairy and then they would package it and A guy would come to your house about five o'clock in the morning Dressed in a white suit and he would put bottles of milk in a little insulated box next to your back door By the time I was going off to college The dairies had all gotten much larger There were excuse me the dairy farms got much larger all three dairies in town were out of business And so what happened would be a very large Tanker truck Would go to these much larger dairy farms and pick up much larger amounts of milk in a truck That was similar to like a gasoline truck Cut it off 30 miles to the east of Syracuse where it would be Processed in a huge factory dairy and then it would be transported back To my hometown where that would be delivered to supermarkets and You would have to go and get the milk yourself So everything I completely changed so these types of changes Where you go from like a hundred car companies in? 1910 To six or seven after World War two now to three. I guess it's three American auto companies in the United States There were hundreds of types of things competing against Coca-Cola But eventually the market came down to just Coca-Cola and Pepsi-Cola and a few others So ultra low interest rates Tends to lead to quick increases in the size of companies now. Why would that matter? Why would that matter to skyscrapers? That's right bigger companies build bigger buildings because all of a sudden now This nationwide chain of dairies they have to have Research departments. They have to have human resource departments accounting departments marketing departments Personnel all these different things the headquarters has to get bigger and bigger and bigger the bigger the company The bigger the headquarters And that means it increases the demand For office space in the central business district and the third one is a little more traditional with respect to Cantillon effects artificially low interest rates and Which lead to? taller buildings and record-setting high buildings creates a need for Brand new construction techniques so in this modern era of ultra-high ultra tall skyscraper building They've had to come up with new crane systems new concrete pumping systems Imagine trying to pump concrete a Couple of thousand feet up into the air It's very difficult. We didn't have that technology Until recent years You have all sorts of systems That have to be created brand new. I mentioned a couple of them here the elevator Before elevators the highest of building was Really anywhere in our economy was four stories high if it went up any higher Without elevators think of what a pain in the butt that would be walking down Up and down carrying your groceries and all sorts of things. It would be an immense headache with the advent of Steel beam construction and elevators. We were all of a sudden we were able in the late 19th century to be able to build taller and taller buildings air conditioning systems You know the air conditioning systems in here is done with very large duck work Okay In the old days they used to use hot and cold water pipes through the buildings so you've got stairwells you've got Escalators and elevators you've got air conditioning. You've got water systems sewage systems fire suppressant systems You have electrical systems. You have communication systems And all of that has to go from the bottom of the building to the top of the building That's why we talk about Usable livable space rather than just the ultimate height of a building So if you have all these systems Going through every floor and you want to build taller Then each of those systems has to have a bigger capacity and yet these bigger capacity systems Go through every floor so they take up square footage on every single floor. I Calculated than in a hundred-story building One additional elevator standard-size elevator eats up enough space The equivalent of like a dozen efficiency apartments Again, so that's lost rent So The companies who build these systems Whether it's the construction equipment or whether it's the systems in the building They've got to go back to the drawing board and come up with brand new ways of doing things and so in this sense The skyscraper even though it's just an example of what's going on in the economy You can see how it sort of is going to impact various other industries In the economy and that's really what the skyscraper curse is about is Looking at a tangible example of what's going on throughout the economy for example with with elevators in order to use a traditional steel cable To pull the elevator from the bottom to the top The cable would have to weigh 24,000 pounds So recently within the last 10 or 15 years a European company has come up with a way of Reducing the weight of that cable to less than 2,000 pounds by using Something that's nearly equivalent to the stuff in the bulletproof jackets that they produce for police and military Kevlar, I think it is it's a version of Kevlar a Japanese company came up with a way that instead of running duck work through all the buildings through all the floors and Then throughout the floors, which of course takes up about two feet in between every floor Then they came up with a system that uses a very teeny pipe so instead of Moving around hot and cold water or hot and cold air. They're moving around freon and that freon can takes up very little space and Can more accurately heat and cool Abilities it can actually take heat from the sunny side of a building and move it to the shady side of the building To balance the heat in rooms throughout that floor So there's a technology effect going on here As the skyscraper curse is coming very important here I'll emphasize this point a few times Record-setting skyscrapers are merely in an illustration of what's going on throughout the economy So many of the same things that are happening with it are happening with that record-setting Skyscraper are happening throughout the economy. So you see Not just this one building out in Saudi Arabia, but you see you can see the same thing happening here in Auburn Where a record-setting? Building is happening. You can see the same thing happening in Silicon Valley Where a record-setting? Building is being constructed New York City China Are all setting local? records for skyscrapers in their area and it goes well beyond skyscrapers So with the aid of Austrian business cycle plus the skyscraper index As the housing bubble was developing it actually helped me to understand on an early point in time What was happening to the economy? So with regards to the housing bubble I wrote an article in 2004 on mises.org called housing too good to be true question mark That got me a lot of invitations in the local area to give talks to student groups and business groups I was at one particular Talk where I was talking about Luxury game-day condominiums in 2004 they were building these luxury game-day condominiums Some of which are just right over here and I was surprised to find that bankers and construction Company executives showed up to my talk and they weren't very happy with what I had to say And it was very uncomfortable because it was in the four union and there was no doors on Where I was lecturing the doors were all in the back So I really couldn't make a run for it at that point and I talked about the people I had interviewed who were buying these luxury game-day condominiums and And I would just tell the audience What people would say I said you know You're paying a lot of money for these luxury game-day condominiums sure would be a lot cheaper if you just Got a hotel room and ate at restaurants You'd save a lot of money and you know what everybody just about everybody said to me when I interviewed these condo owners They said well, we could always sell it for more later on Well, they still haven't gotten back to those prices 2005 An article is the housing bubble topping or popping and that's really when the housing stocks did top I wrote an article called the economics of housing bubbles in June of 2006 and it was for a book on housing and I got the distinct Impression that the editors were kind of setting me up because they knew I had been writing about bubbles and they didn't believe in bubbles They thought it all it was all zoning laws and land-use restrictions and things like that and then By 2007 I Wrote an article called we told you so for lu rock will calm later Later on I wrote a blog post called new records skyscraper and depression in the making August 7th 2007 now at that point nobody was thinking That there's a housing crisis or you know people were using the words housing bubble But they didn't think much of it or that much would come of it and then another article on lu rock will calm and You know not that I like to rub things in people's noses or whatever And then after the fact in 2010 I wrote a longer article which was just published on quarterly journal of Austrian economics called deception excuse me transparency or deception what the Fed was saying in 2007 and this is a that was a very Illuminating article, but all I did was I read the speeches of the top Federal Reserve Board members and they were basically saying everything was hunky-dory in 2007 that they didn't see any possibility of A crisis or a bubble or anything So it's a for an academic article. It's pretty funny stuff So with all this in mind I was happy to note that when the bourgeois Calafi Tower Did open in January 8th 2010 that CNN was kind enough to write this The one person who wasn't surprised by the economic woes greeting the dedication of the building Was Auburn University economist Mark Thornton He predicted tough times for the emirate two years ago in a blog entitled new record-setting skyscrapers and depression Now I'm not going to go through this literature But since that time there's been an emerging Academic literature on this subject Greg Casa Gunther Luffler Jason Barr is one of the main persons in this area. He's a real estate economist at Rutgers University and so he's written extensively on this subject and each paper he seems to find out different causes for variously measured Measures of real estate and record-setting skyscrapers and Then in 2015 he teamed up with two of his colleagues in Rutgers and Published a paper called skyscraper height and business cycle separating myth from reality This was not a welcome site basically They said that I was wrong about the skyscraper curse Because They found That skyscraper building did not cause the economic crisis and that some other factor was causing both skyscrapers record-setting skyscrapers and crises Yes, yes, I am serious and so The Economist magazine picked up on this and they agreed The skyscraper curse is just an illusion and you know it It's bad enough to be criticized like that, but then for the Economist to pick up and Pound you down So I wrote a letter to the editor of the Economist Saying that you know this is this article wasn't right You know the theory of the skyscraper curse is that a third factor like artificially low interest rates Causes both record-setting skyscrapers and in economic crises they Their empirical evidence in other words supported what I had been saying and So I figure you know well finally I'll get a letter to the editor in the Economist But it never came out and then three months later This was the article was March 28th 2015 In the first week of July I Think it was July 2nd. I get an email from the Economist saying that My letter had been misplaced and it's too late to run it now so I Teamed up with Lucas Engelhardt in the back and we decided well Let's send a comment to the journal in which Bar and his colleagues published the original article And we're thinking well this is slam dunk that they got to accept this But they came back and rejected the comment which doesn't really happen very often and The rep one of the referees Was one of these three men and I think it was this I think it was Jason Barr who they sent it to and who? Wrote up the referee report condemning the comment Even though it was pretty clear what we were saying But we realized it was one of them at least because it says it's hard to reject a comment That is favorable to your own paper, but he was pulled together enough energy and courage to pull that off and so that's basically when I started thinking about writing a book on this subject which I have Completed the Institute is going to publish it and and It's dedicated in part to the editors of the Economist magazine And the editors of that journal Economic papers. What was it economic? Applied economics applied economics And you know, it's really remarkable With respect to the economists because they had been citing my work in favor of The skyscraper curse prior to this and they even mentioned that in their editorial and they actually although they did not refer to me in their editorial they did Reference my papers skyscrapers in business cycles But I get this That's the art that's the graphic that they put with their article Where you have the various Crises the panic of 1907 the Great Depression that's 1970s the Asian financial crisis and then the Bush calafi Okay, which are all you know pretty much the crisis starts right before the buildings are completed So they start during the boom prior The crisis happens Usually right after it reaches record height and then the buildings open shortly thereafter Now if you draw up a graphic like that and then you say there's there is no such thing as the skyscraper curse That's literally beyond my comprehension Okay, so our takeaways today is That the skyscraper curse is an illustration of what the Fed is doing to the economy the Fed effects are Pervasive throughout the economy doesn't affect every last little teeny thing But it affects the productive side of the economy In a significant way and it actually affects the government as Well because governments are seeing their revenues increase during the boom so they start spending and investing And by the time their projects come online and their revenues are also greatly diminished They find similar problems in the public sector as well The skyscraper curse has a good record of prediction and actually it's you know where you don't see exact Dating of things But the one example of The Woolworth building in 1913 We don't remember any economic crisis at that point, right in the United States Know what was happening in World War one. Yeah, World War one So in 1913 right before the Woolworth building was completed the US economy went into a severe contraction but in early 1913 as the Europeans were gearing up to fight the war demanding our raw materials and our goods it was World War one in Europe that led to a revival of the US economy from the steep slump that it had been experiencing So where there was no economic crisis in the US economy There's a perfectly logical reason Why none appear and that's World War one the largest configuration of War in the history of man 20 million casualties Were actually counted and it was probably a lot worse and then if you add in the pandemic that followed Which is related to the war It was an enormous loss of human life and capital mainstream economists resort to all sorts of things psychological factors Technological factors, but really they fail to come up with it Economic explanation for this phenomenon Well, the only line that's left on my presentation is that the kingdom tower tower in Saudi Arabia is under construction The construction is currently stalled But it's expected to resume shortly and it is expected also to hit a record Height it's supposed to be one kilometer tall But it's but the top part of it is not usable space. So it only sets the record by By about 12 stories over the one in Dubai The Saudis actually wanted to build a tower that was one mile tall But the engineers calculated that if they were able to build one one mile tall that it would simply Break through the crust of the earth. It would be so heavy Okay. Thank you very much. We have a few minutes for questions. Yes, Ted Yes, yes, I have I have not looked at it, but the last cruise I was on Was ironically the world's largest cruise ship. I don't remember The allure yes, that might have been it massive Got lost a couple times didn't think I was ever gonna resurface again, but I think there that would be an interesting project for someone to do. Yes, Zach Yeah, I don't in fact, I didn't know much about skyscraper construction when this whole thing started But fortunately my brother is is in a big-time construction. So I have like a tutor I'm there, but I don't know much at all about The technological requirements of getting bigger and bigger as far as cruise ships are concerned I'm sure there must be some but the fact that it You know, it just seems like It might not be as daunting Technological task as Going up into the sky and trying to elevate well just even elevating your workers Think about you know that I mean getting your workers from point A to point B You know when the original steel frame construction You've probably seen pictures this of guys walking along beams and stuff like that Well, one thing they couldn't do When they were once they were got up there is you couldn't go to the bathroom So, you know, there's all sorts of constraints like that Like for instance cruise ships have bridges to Yeah, and when you Yeah, when you build a much larger cruise ship than there's ever been built before I would imagine you certainly would need Stabilizers of a lot much larger magnitude for just is just one example Perpellers that have to be larger or you have to come up with some way of Constructing the ship so that it's lighter Or more balanced, but then of course if it's more balanced then you can get through fewer Waterways canals and so forth and as a matter of fact the The Queen Mary to Took the Queen Mary to over to Europe and back from Europe and On the way back you pull into New York Harbor and you have to cross under a bridge and Literally it feels like the bridge is like right there. It's so close It's like you don't want to put your hand up there Yes, Ryan Now Yes But bracing yourself as a relative concept, I mean it's it's it's delayed it's been delayed several times It's currently I believe delayed the information on this is not easy to get and and so initially it was supposed to be completed in 2018 but the word completed can mean different things I've also seen that it's supposed to open in 2020 that's pretty clear what that means So It could be you know could be tomorrow it could be two years from now so It's a very relative term and there's nothing precise about the skyscraper index You know hitting it in a certain month, for example, I was just very lucky that I had information about the tower in Dubai and Was able to write that the end was near Really about a month less than a month before things started It's the slow steady decline Before it hit more rapid declines in 2008 Yes No, I didn't really I Contacted him after the paper had been published. He had never contacted me and I wrote and asked him for a copy of the paper and Said I'd like to read it and I did mention something about you know if I come on on You and you come on and me then we both get more citations to our work and I'd not that I need citations, but he he does It's just the the reality of I'm working at the Mises Institute They don't care how many citations someone gets But if you're working at Rutgers, that's all they care, you know, you could be They don't even read your papers At some universities They just count citations It's a very good question the skyscraper index and curse is related only to record-setting skyscrapers and That has to do with the fact that the artificially low interest rates have to be very long and very severe in order to create the type of economy and psychological euphoria that cause people to set new records and Normal in normal business cycles Sure, real estate does good construction does good, but they don't typically set new records As a result you get a more normal bust in the economy rather than an economic crisis Yes Yes, we do and for two reasons one is We've seen clusters of records in the past and we also see clusters of skyscraper building In the present and in historically You know, so there's clusters of tall skyscrapers being built in China in the Middle East In Manhattan they're building some very narrow but yet very tall buildings and the One way to measure the amount of skyscraper construction is to look at The number of super high construction cranes. This tells you a little bit about where our current bubble is because The city of Seattle has more of these cranes currently active than both New York City and Los Angeles combined So it's not the traditional business That's being impacted here Although New York is part of the financial business obviously but Seattle is really a hip Place and the businesses that it has Are leading our leading companies so Amazon's there Boeing is there Nordstrom's is there Starbucks is there and then down in California where they're building the tallest building west of the Mississippi Of course, you've got Google. You've got You know all the tech companies all the social media companies Are there so it's indicative of the type of you know, what's really bubbling Well, it's Facebook. It's Amazon. It's Netflix and it's Google and a Lot of those companies are headquartered right there where that building is going up. Okay. We're past time. Thanks