The 4th of July is a day when Americans remember liberty, reflect on their Independence, and give thanks for all the good things that result from freedom. In recent years it has become a day of sadness as we reflect on the loss of our liberties and the knowledge that America is the world’s only superpower and our government is mad with power and out of control.
This 4th of July will mark the groundbreaking of the Freedom Tower at ground zero of the World Trade Center. The design of the building calls for a height of 1,776 symbolic feet, which will capture the title of world’s tallest building when it is completed in late 2008 or 2009.
Groundbreakings, opening ceremonies, and certainly July 4th are all causes for celebration, but the Freedom Tower may be a signal that something much more sinister is afoot. For more than a century there has been a correlation between the building of the world’s tallest building and severe economic downturns.
The correlation is as follows. The announcement and groundbreaking for the world’s tallest building takes place at the end of a long boom or sustained bubble in the economy. The stocks go into a bear market; the economy goes into recession or worse. The building is completed. The economic turmoil that ensues is either severe, drawn out, or as in the case of the Great Depression, both.
The Panic of 1907 which helped bring about the Federal Reserve Act was signaled by the building of the 612 foot Singer Building completed in 1908 and the 700 foot Metropolitan Life completed in 1909. There was only a short, sharp downturn in 1913 when the 792 foot Woolworth building was completed, as the establishment of the Fed and WWI intervened.
The Great Depression was signaled by a series of three record-breaking skyscrapers. The 927 foot Wall Street building was completed in 1929; the 1046 foot Chrysler Building was completed in 1930; and the 1250 foot Empire State Building was completed in 1931. The Great Depression helped bring on Roosevelt’s New Deal.
The 1960s were boom years while the 1970s were characterized by high rates of unemployment and inflation. This "stagflation" was signaled by the building of the 1368 foot high World Trade Towers which were completed in 1972 and 1973. The Sears Tower set a new record at 1450 feet when it was completed in 1974. The last vestige of the Gold Standard was abandoned in the early 1970s and the national debt has been increasing ever since.
The last record-setting skyscraper was the 1483 foot Petronas Towers which were completed in Kuala Lumpur, Malaysia in 1997. This signaled in the East Asian Crisis which crippled many of the economies of eastern Asia and had ramifications around the world.
Since 1997 there have been several plans to set new records for the world’s tallest building. For example, the New York Stock Exchange released a plan in 1999 to build the world’s tallest building on Manhattan, but they never broke ground. Seoul, Korea is on the list of cities planning to be home to the world’s tallest building. If completed in 2008, the International Business Center will top the Petronas Twin Towers. Work has also resumed last year on the 101-storey Shanghai World Financial Centre which aims to be the world’s tallest building when it is completed in 2007.
At first glance the association of record-setting skyscrapers and economic crisis would seem to be a spurious correlation. Surely, the building of such skyscrapers does not cause economic crisis. However, there is good reason to believe that skyscrapers and crisis are linked via the business cycle. Long periods of easy credit create economic booms, particularly in investment, speculation becomes pronounced, and entrepreneurs lose their compass of economic rationality and make big mistakes. The biggest mistakes — record-setting skyscrapers — comes toward the end of the long boom and signal the bust.
In a forthcoming paper from the Quarterly Journal of Austrian Economics I explain that there are good theoretical reasons why skyscraper records are a good indicator of major swings in the business cycles. To receive the paper when it is published, subscribe here.
Obviously, this indicator is not foolproof, but if it is correct there is an economic crisis coming. Worse yet, in the wake of each crisis during the 20th century, government has grown in both size and power and our liberty has been reduced. On both these accounts, let us hope that the Freedom Tower is an exception to the skyscraper rule.
Mark Thornton [send him mail] is an economist who lives in Auburn, Alabama. He is author of The Economics of Prohibition, is a senior fellow with the Ludwig von Mises Institute, and is the Book Review Editor for the Quarterly Journal of Austrian Economics. He is co-author of Tariffs, Blockades, and Inflation: The Economics of the Civil War.