The Skyscraper Curse and Business Cycles with Mark Thornton

Episode Summary

Executive Summary: Mark Thornton explains the “skyscraper curse” as a recurring correlation between record-setting skyscrapers and economic crises, arguing it reflects Austrian business cycle dynamics rather than causation. Artificially low interest rates spur malinvestment, longer-term projects, and technology-intensive building booms that often end in busts. The conversation connects this to housing bubbles, land prices, and broader misinformation in markets.

Main Topics: What the skyscraper curse is (Priority: 5/5): Thornton defines the skyscraper curse as the observed coincidence between world-record skyscrapers and major economic downturns, traced to a 1999 observation by Andrew Lawrence. Austrian business cycle theory (Priority: 5/5): He argues the real cause of downturns is artificially low interest rates set by central banks, which distort investment decisions and produce malinvestment. Skyscrapers as a signal of broader misallocation (Priority: 4/5): Record-breaking towers are portrayed as the most visible symptom of economy-wide overinvestment, not the cause of recessions. Technology and long-term investment (Priority: 4/5): Thornton explains that ultra-tall buildings require specialized technologies and capital structures, which may be advanced but are often developed too early under distorted credit conditions. Housing bubbles and quantity overproduction (Priority: 4/5): The discussion extends the logic to housing markets, especially where cheap credit led to excessive construction in places like Atlanta and Florida rather than high-demand constrained markets. Correlation, holdout testing, and skepticism (Priority: 3/5): He uses examples like the Super Bowl indicator and sunspots to caution against mistaking correlation for causation, while claiming the skyscraper curse holds up better than those examples.

Key Arguments: The skyscraper curse is not that tall buildings cause recessions, but that both arise from the same underlying distortion: artificially cheap credit. Low interest rates lower borrowing costs and push investment toward longer-horizon, more capital-intensive projects, including ultra-tall skyscrapers. Cheap credit also changes land economics, raising land prices and making taller buildings more likely. Ultra-tall buildings require new technologies and systems, but those innovations can become wasted resources if the boom turns to bust before the projects are fully profitable. The curse is a visible manifestation of broader economy-wide malinvestment, affecting corporations, consumers, mergers, and house-flipping behavior. Housing bubbles show the same pattern: misleading signals encourage people to borrow more, refinance, speculate, and build in the wrong places. Statistics alone can mislead; a theory of business cycles is needed to interpret booms and busts correctly. The pattern appears stronger when new historical cases are added, which Thornton uses as evidence that it is not mere coincidence. World War I is presented as an exception to the 1913 Woolworth Building case because wartime demand offset the domestic contraction. The theory is framed as compatible with many mainstream economic insights, especially on finance, location, time, and investment structure.

Data Points: Year Andrew Lawrence coined the term: 1999 - Thornton says the real estate analyst Andrew Lawrence dubbed the phenomenon the skyscraper curse in 1999. Historical scope discussed by Lawrence: 20th century onward - Lawrence originally examined cases starting with the Panic of 1907 and including the Great Depression and stagflation. Additional history covered in the book: About 25 years back in time and forward to the present - Thornton says his book expands the empirical review beyond Lawrence's original sample. Exception case: 1913 Woolworth Building - A new world-record building was completed without a typical recession immediately following; Thornton attributes the lack of collapse to World War I demand. War-related recovery year: 1914 - Thornton says World War I began in 1914 and boosted U.S. production through foreign demand. Common duration of drug development shelf relevance: 10 to 25 years - Used as an example of a legitimately long-term investment in contrast to distorted ultra-long projects. Elevator cable weight in a 100-story building: 20,000 pounds - Thornton gives this as the estimated weight for a conventional cable running the full height. Reduced elevator cable weight: 2,000 pounds - He cites a Finnish innovation that cuts the cable weight by roughly 90%. Number of elevators in the example: 18 - Thornton mentions a building design with 18 elevators, illustrating the scale of systems required. Triple-stacked elevator system: 3 stories - He describes a system allowing the elevator to serve three stacked levels more efficiently. Housing bubble period mentioned: 2004 to 2007 - Thornton identifies this as the period when he discussed the bubble publicly before the crash. Prime-delivery book price: $16.99 - At the end, he notes Amazon reduced the book's price for Prime delivery.

Pivotal Quotes: "The skyscraper curse is the unlikely connection between the building of a world record-setting skyscraper and a major economic crisis." — Mark Thornton: Opening definition of the book's core concept. "The cause of the economic crisis is artificially low interest rates set by the central bank or by the Federal Reserve when they maintain artificially low interest rates for long periods of time." — Mark Thornton: Thornton explains the Austrian business cycle mechanism behind the observed correlation. "It’s not that the tall buildings cause crises, but that there are some underlying factors causing both economic crises and tall buildings." — Garrett: Host summarizes the central interpretation Thornton is defending.

Implications: Listeners should treat spectacular construction booms as a warning sign of broader credit distortion, not as a cause of downturns. The episode argues for watching interest rates, land prices, and speculative behavior to detect malinvestment early.