Der Apriorist - Abstracts 06. Oct. 2010

Skyscrapers and Business Cycles

by Mark Thornton

Tags: business cycle theory
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Thornton, Mark. 2005. Skyscrapers and Business Cycles. Quarterly Journal of Austrian Economics 8.1 (Spring 2005).

Quotes: The skyscraper index, created by economist Andrew Lawrence shows acorrelation between the construction of the world’s tallest building and the business cycle. Is this just a coincidence, or perhaps do skyscrapers cause business cycles? A theoretical foundation of “Cantillon effects” for the skyscraper index is provided here showing how the basic components of skyscraper construction such as technology are related to key theoretical concepts in economics such as the structure of production. The findings, empirical and theoretical, suggest that the business cycle theory of the Austrian School of economics has much to contribute to our understanding of business cycles, particularly severe ones.

... The skyscraper index is primarily an index that predicts severe changes in the economy, although it might be possible to improve and refine the data to predict business cycles of various magnitudes.

... A reexamination of the evidence suggests that the skyscraper index is a better predictor than first formulated by Lawrence (1999). Obviously this does not suggest that building heights should be used as a guide to fiscal and monetary policy or that skyscraper heights should be limited to prevent economic crisis. It does however lend additional standing to the Austrian theory of the business cycle.23 Furthermore, it does suggest that both the cause of skyscrapers reaching new heights and severe business cycles are related to instability in debt financing and that the institutions that regulate debt financing should be reevaluated, if not replaced with more efficient and stabilizing institutions.

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