Monday, March 4, 2019

The Skyscraper Curse

I mentioned in passing back in December that I've been reading the book "The Skyscraper Curse", an obscure economic observation that became a theory.  The full title of that book is "The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century" which tells you a bit more about it.  It's largely a look at economic crisis prediction of Austrian economics vs. the dominant Keynesian economics that has come to rule the world. 

Here we are more than two months later and I haven't finished the book.  In fact, it's only in my sitting around the ER with my wife and then a doctor's office that I've increased my reading and gotten past the midpoint of the book. It's not so much that it's a bad book, it's not, it's just that the first half really seemed like 10 pages of ideas jammed, crammed and packed into about 110 pages. 

Here's the observation: whenever a world record-height skyscraper is built, the world goes into a crisis and recession.  The explanation is pretty simple.  Go back a couple/three years to the days the skyscraper is being conceived of, planned, financed and construction started and you're very close to the peak of an economic bull market.  Interest rates are artificially low (because that's what Keynesians do) and the demand for office space is so high it's for far more than can be provided in the cities.  Skyscrapers get the most office space out of a parcel of land by going vertical. 

To butcher Horace Greeley's quote, "go up young man!"

By the time the skyscraper is completed, the market peak is reaching its end.  The business cycle is petering out.  Then comes the recession. 

This is a correlation, not causation, and it's actually a pretty good correlation.  For nearly 150 years that skyscrapers have existed, only a couple of times when a new record skyscraper was opened did the opening not coincide with an economic crisis, and (author) Mark Thornton comes up with believable extenuating circumstances.  It's not impossible to believe that a major skyscraper is being built now that will be the one that coincides with the next "great recession".  

Skyscrapers only began to exist in the late 1800s, when steel frames and concrete construction were developed enough to allow them; before then buildings were limited to how high bricks could be stacked, a handful of stories.  Skyscrapers then turned into high-tech innovation factories.  If more floor space is needed for more offices, the amount of the skyscraper dedicated to things like elevators, fire suppression systems, water and sewage lines has to be reduced.  Higher strength elevator cables and faster elevators had to be developed.  You get the idea. 

Along the way of reading the last few chapters I've completed, I came across this analysis of "income inequality" that I thought was worth quoting. 
"A monetary system that is dominated by a central bank, such as the Federal Reserve, and uses fiat money, as in our current monetary system, can expect to benefit certain people, such as bankers, financiers, and people with debt. Likewise, because such a system is inflationary, it tends to hurt wage workers and savers. Such a system can be expected to hurt the lower-and middle-income classes and enrich those in the financial industry and the upper-income class.

A gold standard has historically had a tendency for prices to be stable or slightly deflationary. This means that wage rates, cash balances, savings, and bonds tend to gain purchasing power over time. This type of monetary system rewards the hard-working and frugal classes, which leads to an expansion of the middle-income class and the economy."
He presents data from the Pew Research Center (in graphical form) to back up this claim:

This shows that the bottom 90% of the income distribution had an estimated 2/3 of the total US income from the end of WWII (reinstatement of the gold standard) and the top 1% had about 10% of the total income until the 1980s as the effects of the abandoning the gold standard continued to grow.  By 2012, the bottom 90% dropped down to 49.6% of the income while the top 1% expanded from 10 to 22.5%. 

As I'm fond of pointing out, the central banks have cross hairs on savers' backs.  This Pew data and Thornton's interpretation reinforces that.  Of all the complaints about millionaires and billionaires, all the talk about punishing the highest income earners with 70 to 90% tax rates, all of these Evil Party talking points are Raging Against the Wrong Machine.  If they really want to make the life of the low and middle incomes better (the bottom 90% of all income earners in the country), they should rage against the Federal Reserve and fractional reserve banking not the rich.   But, see, that would require thinking and understanding, not just feeling.  Don't hold your breath waiting. 

My quick summary of the book is that it's a three to four star book review.  It's good, but the insight density; the number of insights per page, is low compared to others.  My favorite "Monetary Theory for MoFos" book is still "The Death of Money" by Jim Rickards, which introduced me to the Information Theory of Money.  I've mentioned it many times around here (but not in several years) and even posted a lot of interesting things I got from it.


  1. The Fed, and fractional reserve banking is likely to outlive me. Raging against 'the man' may be cathartic, but changing the US banking system, monetary system, etc. would be tantamount to lighting off a volcano on Wall St. While that would be gratifying in the longer term, the political fallout would be really significant.

  2. Indeed. Another "the horse is out of the barn" problem. Having read and subscribed to numerous perveyors of financial reckonining it is my current belief that overpopulation, resource collapse, government fubar, health care, financial systems, etc.. will never ever be fixed. We will lurch along until a real catastrophe occurs and claw our way along again. Sometimes I think humanity is like an ant colony well except internet the ants don't have the web... So in the meantime enjoy the finer things in life and then get back onto the golden treadmill to pay for it all.

    1. ...except internet the ants don't have the web. Right - the spiders have the webs.


      Another thing I've said so often that I'm bored with myself is that there's no reason fiat money couldn't work. All we need is for politicians to be mature leaders. They just need to treat it seriously and not just make up money to buy votes or line their pockets.

      Right. Never gonna happen.

      Like you say, just Enjoy the Decline (Captain Capitalism's book title).

    2. you can quite literally get on the golden treadmill by stocking up on gold eagles. if this reckoning and catastrophe we both foresee comes, the price will sky rocket. The spiders will be devoured from the inside out.

      Enjoy the decline for now.

  3. re: The Skyscraper Curse & Dark Web

    The Dark Web has an existence that I can not quantify but I know it is vast and contains information vitally needed by those of us who carry the economy on our backs: the middle classes. Glimpse of the Dark Web are occasionally seen such as a lecture by Peter Zeihan One has to pay to get his information in a timely manner.

    Robert Prechter is another aspect mainly hidden from view unless one has more than $1,000.00 a year to spend for subscriptions to his newsletters one of which is called The Socionomist. Socionomomics has analyzed factors such as Skyscrapers and boom and bust cycles. Check it out: Check it out: <
    Dan Kurt

  4. Thank you for the review. The low density of insights was intentional because when you are trying to explain the most complex aspect of the economy (one that most Phd economists don't understand) --> the business cycle, you go slow and sure!

    1. Of course, there's no way I can know if you are or aren't Dr. Thornton. If so, thank you for the interesting book and especially for stopping by.