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national politics & policies

The High Rise Before the Fall

Many Americans who have never driven in ol’ London town have driven over the London Bridge — in Arizona. I’m an outlier, here, in that I’ve been over many a London bridge, but not to Lake Havasu’s.

But that doesn’t make me an expert on the Shard London Bridge, a London skyscraper (yes, skyscraper) nearing completion. Popularly called “The Shard,” it will be the tallest building in Europe. 

So prepare yourself: Expect a major economic collapse in the old country. 

Yes, for the last century, the building of record-​height skyscrapers could have served as a leading economic indicator … of disaster. As Mark Thornton explains, record-​setting skyscraper construction is

a sign of a looming economic crisis. The model has successfully identified the Panic of 1907, the Great Depression, the Stagflation of the 1970s, the Tech Bubble, and the Housing Bubble. 

In a scholarly paper on the subject, Thornton cautions not to use this strange correlation “as a guide to fiscal and monetary policy” or, superstitiously, an excuse to regulate “skyscraper heights … to prevent economic crisis.”

But the connection between building heights and boom-​and-​bust remains suggestive. Extra-​big skyscrapers rise during extra-​big booms, themselves fueled by central bank credit inflation. That is, inflation — and its usual consequences (which include unexpected deflation and financial collapse).

If only our central banks could maintain a stable money supply, rather than constantly tinkering with money to fine-​tune the economy, our biggest buildings might not serve as such good predictors of our biggest economic downturns.

This is Common Sense. I’m Paul Jacob.