Once again June 15, 1930 was a Sunday, with no Journal to summarize, so I'm going to take the opportunity for a little editorial commentary and impressions of the past week.
[Edit: Eldon located an interesting article on the skyscraper-as-predictor theme here; it turns out one Andrew Lawrence had already come up with the Skyscraper Index back in 1999! You'll have to take my word that this was a case of independent invention, not plagiarism. The article is a much more complete presentation; my first-read impression is I think it's quite good, with a couple of quibbles:
- It seems overly restrictive to only count the world's tallest buildings; I think any cluster of very tall skyscrapers (such as that started in New York around 2007, including the Bank of America and New York Times buildings) can act as a warning flag.
- To me, the article reaches a bit in trying to explain the construction as behavior by rational actors (shades of the efficient market theory). I don't think these buildings really make much economic sense even in the best of times and are therefore probably driven largely by ego and irrational exuberance, although some of the effects described in the article probably do make it possible for the money to be available for construction, as it's available for practically any harebrained scheme at those times.]
The Skyscraper Index - One interesting item from this week concerned the feverish pace of real estate development in New York City and Wall Street at the time, particularly of skyscrapers. Along with many smaller skyscrapers, New York City at this around time put up four of the tallest buildings in the world, three of which held the record for some time. In chronological order, these were:
- 40 Wall Street, completed April 1930, 927 feet/ 283m.
- Chrysler Building, completed May 1930, 1,046 feet/ 319 m.
- Empire State Building, completed May 1931, 1,250 feet/ 381 m.
- American International Building (70 Pine Street), completed 1932, 952 feet/ 290m.
One fairly clear fact about these buildings is that they don't usually make a lot of economic sense; in fact they are often disasters from a business point of view. I am therefore developing a Crackpot Economic Theory saying that the construction of lots of them during a time period may be a useful indicator of the hubris and ego-driven recklessness that typically cause economic crashes. Contributions are welcome; for starters, consider the World Trade Center and Sears Tower in the early 1970's; the Petronas Towers in 1998; the New York Times Building and Bank of America Tower in 2007-2008; and the Burj Dubai and Almas Tower in 2009.
Smoot-Hawley Tariff - This seems to be the subject of a religious war among economists as to how serious a factor it was in making the Depression worse. I don't want to step too far into that battle, and I'm not advocating protectionism, but my admittedly limited reading is so far making me more skeptical about how important the tariff was as a factor:
- Tariffs were a common feature of trade at the time; newly enacted tariffs had always caused complaints and bad predictions but trade had still always increased in the past.
- Trade was already severely down before the tariff passed - that decline was probably due to the economic slowdown.
- As far as stock market moves can be attributed to particular factors (which is not very far), the market seems to be responding to other economic news such as business slowdown and continuing plunge in commodities more than the tariff. For example, on the two days when it became clear the tariff was to pass (Friday and Saturday), the market barely moved.
Company Review - Once again, a review of individual company reports:
Doing well: Movies (Fox, Technicolor), shoes (Florsheim), food (Canada Dry, A&P, American Ice, Wrigley), cigarettes (R.J. Reynolds), Scott Paper.
Doing fair to mixed: Westinghouse, W.T. Grant (chain stores), Western Union, IT&T, autos (Ford doing OK, others mostly suffering particularly higher-priced).
Doing poorly: Railroads, steel, Curtiss-Wright (aircraft).