Towering Prosperity

To its proponents, towering skyscrapers bustling with economic activities encapsulate the progressive nature of the community.They are grandiose architectural successes etching closer and closer to the sky as communities engage in an arms race to boast that only the sky is the limit. To its staunch opponents, they are but hollow phallic symbols showcasing garish extravagence. Fervent supporters of skyscrapers are quick to point out that major global city centers have one – the Empire State Building in New York; Taipei 101 in Taipei etc. Some would even go as far as arguing that the construction of skyscrapers causes economic growth.I am skeptical of such arguments on the basis that correlation is not causation.

Just because skyscrapers are found in major city centers in the way doesn’t prove that their construction brings economic growth. In an ironic(and iconic) twist, Burj Dubai, the skyscraper that was to be inaugurated as the tallest skyscraper in the world was renamed Burj Khalifa in gratitude to the U.A.E for bailing Dubai out of a property bust. Using skyscrapers to predict economic boom or gloom would yield a prediction no more accurate then say, flipping a coin.

There is always a “construction lag” between the time investment decisions are made and the time a skyscraper is completed. The fact that skyscrapers tend be completed in times of boom doesn’t mean that investment in skyscrapers per se contribute to growth. Rather the macroeconomic conditions were such that investors expected inflation to pose enough justification to invest now in a skyscraper (because their money will be worth much less in the future); or are expecting interest rates to increase as the Reserve Banks try to cool down an overheated market. Either way, the decision to build skyscrapers is an effect of a booming economy rather than the other way around.

Of course, a keen reader might observe that the flip side can also be true. The completion of a skyscraper might also predict a bust. (Hence the Skyscraper Index). If investment decisions are made in a market fuming with irrational exuberance, where nobody entertains the idea that the bubble will burst, then the completion of a skyscraper under such condition is inevitably accompanied with a period of gloom. When the dust settles in the aftermath of the bubble’s burst, what we are left with are a glut of towering buildings appraised with low values that would have seemed preposterous months ago.

By now, how confident can we be with the causal relationship between skyscrapers and economic growth?Skyscrapers can’t even be used reliably to establish a correlational relationship with a boom/bust outcome. And in what sense is a skyscraper beneficial for growth? In thinking of building one we also have to take into account the high cost in maintenance such buildings incur. If the presence of a skyscraper signals to investors on how serious a party is in the development of an area, as an economics student I have to ask, would the same be achieved by building a vast network of infrastructure connecting to the site?

So hopefully you can all see that not only is it dubious to claim that building skyscrapers drives growth, correlating skyscrapers with specific outcomes is equally questionable.

I am not opposed to growth and I am willing to entertain the idea that skyscrapers can contribute to growth if I am presented with strong evidence. What I am unwilling to accept is the junk-economics people try to sell me by cherry-picking data and packaging dubious correlational arguments into undisputed causal ones.

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