The Dollar and the Tower Get in Bed

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Economist Mark
Lawrence created the Skyscraper Index in 1999. That index showed
the correlation between economic crashes and tall buildings. The
correlation can be unnerving, especially for those in the architecture
profession, such as myself. But the past 100 years show strong evidence
for Lawrence – almost every time the tallest building in the
world is built, there is an economic crash to follow. 1907 brought
the Singer Building and the Panic of 1907, 1931 brought the Empire
State Building and the Great Depression, the early 1970s brought
the Sears Tower and seventies stagflation, and the late nineties
brought the Petronas Towers in Kuala Lumpur and the meltdown in
the Asian markets. Today is no different. We have the tallest building
in the world going up, the Burj Dubai, at the same time that the
economy is coming down. The suggestion is that while city skylines
are often seen as a symbol of a city's prosperity, they are also
an implication of depression, each of the highest peaks likely representing
a crash.

Skylines are
like line graphs.

Mark Thornton
describes why this is so in an article which appeared in the Quarterly
Journal of Austrian Economics, "Skyscrapers
and Business Cycles."
When the government-regulated central
bank sets artificially low interest rates and creates money at will,
the cheap dollars lead to more borrowing. Thornton describes three
factors which turn these cheap dollars into tall buildings. 1. Cheap
money leads to more investment in land, therefore driving up land
prices and requiring taller buildings to recoup the cost. 2. Cheap
money drives new investment in advanced technologies which aid in
making the world's next tallest building possible: advanced structural
systems, more efficient mechanical equipment, etc. 3. Cheap money
leads to larger investment in companies, and consequently, companies
grow and require larger buildings.

The boom caused
by these factors has local indicators as well. It is not only the
tallest building in the world, the Burj Dubai, which is indicative.
Each locale has its own, smaller-scaled version of the boom. Chicago
is currently putting up its tallest tower, which will be the tallest
in the U.S. Being based in Portland, Oregon, I have witnessed Portland's
own version of the boom. It is building its tallest tower in the
last 25 years, among many others.

At first sight,
this does not look bad: tall buildings, growing companies, and advanced
technologies are all signs of a prospering economy. But it is not
a healthy economy — the supposed prosperity came from false signals
of regulated rates and money creation by the Fed. Malinvestment
always follows closely behind such false signals, which trips the
boom.

But architecture
firms, like all businesses, have no option but to participate in
the boom, lest they be left by the wayside as their competitors
take all the jobs. They are making decisions to stay competitive,
which is exactly what they should be doing. They are being smart.
Businesses are not to be blamed for that. But rather the false signals
of the Federal Reserve are to be blamed, for they foster a euphoria
which encourages the building.

Despite the
euphoria, people are intelligent. I recently spoke to a woman who
runs an arts group for at-risk youth in Portland, and, knowing my
line of work, she said, "Why so many towers? Can't they see
the empty office space all over the city?"  She was right.
Oregon's flagship newspaper, The Oregonian, recently
reported
that the Portland-area vacancy rate in the second quarter
of 2008 was 11.3%, more than double what a healthy rate is considered
to be. Similar things
are happening
across the country.

Condominiums
are empty too. Portland State University released their quarterly
real estate report
recently, showing condo vacancies almost
twice as high, and condo sale times twice as long, as they were
last year. Such can be expected when an excess of condos have come
on the market the past several years, including the tallest all-residential
building in Portland's history, the John Ross Tower. It lost 45
committed buyers after it opened, and it has closed only five sales
in 2008. Many other towers, unable to sell units, have switched
to apartments as they are being built.

For the sake
of the architecture profession, and for the sake of the economy
as a whole, I hope these trends do not continue in Portland, or
anywhere else.  But history does not have kind things to say
about what the Bush/Obama administration is doing right now. The
current inflationary bailouts and mortgage protection policies mimic
the inflationary practices and price-fixing of the 1930s. 
As we know from Murray Rothbard's America's Great Depression,
it was government intervention which prolonged that horrible
decade, because artificially-set prices restrained the economy by
skewing the entire economic picture, which disallowed investments
and purchases from operating at real prices. The economy continued
to struggle. This has been known to Austrians such as Rothbard for
a long time, and recently similar research made its way into UCLA.
Harold L. Cole and Lee E. Ohanian, economists at that school, did
a study in 2004
which concluded that Franklin Roosevelt’s New
Deal prolonged the Great Depression by seven years. Ohanian puts
it well: "High wages and high prices in an economic slump run
contrary to everything we know about market forces in economic downturns.
As we’ve seen in the past several years, salaries and prices fall
when unemployment is high. By artificially inflating both, the New
Deal policies short-circuited the market’s self-correcting forces.”
In other words, the economy was not helped by the New Deal, so it
would be encouraging if we had something different coming from the
White House in January. But unfortunately, Barack Obama is already
being compared to FDR — rightfully so, as his plans sound
like
FDR, and it looks like the same power structure will be
in place in Washington when he takes office. After all, Obama had
a Goldman Sachs-backed campaign, the U.S. Treasury is Goldman Sachs-headed
(and Obama has
chosen
another insider as secretary), he is taking
advice
from yet another ex-Goldman Sachs CEO, and he never addresses
the critical issue of the gold-less Federal Reserve.

Rem Koolhaas,
though not an economist, unknowingly helps us in understanding the
prevailing economic theory. He is arguably the most important architect
today, and for certain is the most influential thinker on the architectural
scene. His manifesto, Delirious
New York
, still tops the pile of architecture theory books,
30 years after it was published.

Even if architects
have not read it, it is no matter. It depicts where we are today,
what Koolhaas calls the "Culture of Congestion." Manhattan
is the poster-child, a dense metropolis pressed into an island,
repeatedly stacking multiple copies of itself, towers shooting up,
floor upon floor upon floor. Our goals as a society are crammed
onto the streets and into these towers, fighting for space and rubbing
against one another. There are multiple and opposed ideals inside
the tower – a non-profit and an oil company on opposite sides
of a six-inch wall. There is no thesis. Unlike a building such as
the Notre Dame Cathedral in Paris, whose spires and soaring arches
define it as a church, and therefore create a relationship between
the form of the church and what is inside, the skyscraper loses
that relationship. There is no tie between the face of the tower
and what is behind it, as there is just a mass of shifting tenants.
So instead of the tower becoming a symbol of what is inside, Koolhaas
notes that the tower becomes, through its sheer size, a self-referential
symbol, a symbol of itself.

The dollar
today has a similar fate. It has no thesis, no backing, no symbol
other than itself, and it too falls victim to the culture of congestion.
We should make a distinction between Koolhaas' congestion and the
dollar's. Koolhaas rejoices in his congestion, a congestion with
which I sympathize, because it offers continual and stunning juxtapositions.
But the reason why it works in the world of architecture is because
architecture must bow to the laws of physics. Even in an intensely
congested city, the worst you can do is put things close to each
other – a thousand tenants in a skyscraper, a thousand buildings on
an island. Commuters bump into each other on the street, and physics
resolves the issue: two people cannot occupy the same space at once.
But in banking, these laws no longer apply. Dollars can occupy two
spaces at once due to fractional-reserve practices — banking's culture
of congestion. Dollars bump into each other on asset sheets, problematic
because logically one dollar bill cannot occupy two bank accounts
at the same time. Yet this is what is allowed today, and it exacerbates
the already dangerous false signals sent by the Fed. It also cuts
away further the relationship the dollar has with what is supposed
to be behind it. Perhaps it is not a coincidence that Koolhaas published
his book in 1978, just seven short years after the U.S. severed
any tie to gold, and turned the dollar into a symbol of itself.

There are few
signs, if any, that this thinking will stop. Both major-party presidential
candidates in the recent election enthusiastically supported the
bailout, and Obama continues to talk of more, and prolonged, intervention.
On a November 7th press
conference
, he claimed that he would push through more economic
stimulus legislation as his first act in the White House, if it
is not done before he gets there. To quote him, "More action
is undoubtedly going to be needed…The one thing I can say with certainty
is that we are going to need to see a stimulus package either before
or after inauguration." He is calling for more regulation and
more fiat money. This will only make the problems worse, as we learned
from Rothbard's analysis of Hoover, and from Austrian theory in
general.

Obama's promise
of more fiat money will continue to devalue the dollar. So if his
message is "Change," that word likely refers to some amount
of coins which a dollar will be worth tomorrow.  People criticized
him for being vague about the slogan. To be more precise, perhaps
it should have been "Eighty-Two Cents." But a better change
would be back the dollar with gold again. It does not look like
this is going to happen.

Instead, the
crises will fell both the dollar and the towers it built.

The cover of
Koolhaas' Delirious New York is iconic — an image of the
Empire State Building and the Chrysler Building, lying in bed together.
Yet I think it more appropriate if the dollar was the Empire's bed
mate. For I assume they would get along, as they both continue to
share a common idea, and might whisper it in the other's ear as
they fall asleep:

"I am
symbol of myself."

December
5, 2008

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