Dubai in the United Arab Emirates is where the last signal was given by the Skyscraper Index. In August of 2007 it gave a “sell signal” for a global economic crisis when the Dubai Tower surpassed the previous record height for a skyscraper. It seems not only the signal but the impact of the crisis is now being felt there. Bloomberg reports that the Dubai Fund which is the city-state’s sovereign wealth fund is in serious financial trouble.
This story relates to Dubai Sovereign Wealth Fund.
My original article on Skyscrapers and Business Cycles is here.
Mark
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Weren’t you guys talking about how Dubai was a “hoppean paradise” just two years ago? On closer inspection, Dubai is hardly has a free market. The free trade zones simply were not taxed, it wasn’t that there were no regulations. The social controls and regulation of networking were especially stringent.
Weren’t you guys talking about how Dubai was a “hoppean paradise” just two years ago? On closer inspection, Dubai hardly has a free market. The free trade zones simply were not taxed, it wasn’t that there were no regulations. The social controls and regulation of networking were especially stringent.
Weren’t you guys talking about how Dubai was a “hoppean paradise” just two years ago?
No.
Not me. Two years ago I wrote it signaled a global economic crisis.
Dubai, like all small countries with free markets, was particularly affected by the bust. However, you have to be impressed by how much they managed to get built with their bubble. All that New York got was a hole in the ground growing weeds.
The real estate mania is probably over but the Dubai story is just beginning.
Was in Shanghai two months back and visited the World Financial Center, currently the tallest building in the world by some classifications.
The one thing that struck me while exiting the building after a great time at the observation decks was the sheer number of empty stalls at the shopping mall below. This indicated to me the presence of a bubble – when is it going to pop?
If Dubai really is a market environment, it will recover and move on. The market is not immune from bankruptcies and screw-ups.
But I’m equally impressed by how much they got done in 5 years. You certainly can’t say the development was the fruit of socialism. Let the envious enjoy a laugh at Dubai’s current misfortunes. But let the rest of us take a lesson in the unavoidable — if delayed — effects of printed money.
Cheers
Just curious, what sort of production structure is there to economically sustain this gleaming, ultra-tech, space-age city in the desert when the oil runs out?
The investment funds are supposed to make them money after oil. Same type of arrangement as Norway.
Yes, Caley, and in addition there will not be a “running out of oil” shakeup per say as KY alludes; the last barrel will be prohibitively expensive in comparison to the alternatives. Of course, this peaceful transition between resources cannot occur if the men and women calling themselves government continue to socialize and obfuscate market signals through price fixing, fiat currency or stimuli.
stranger “The real estate mania is probably over but the Dubai story is just beginning.”
How is this the beginning of the dubai story???????? this is the end to a city built on an economic bubble, you cannot sustain dubai if it has absolutely NO real production…you cannot save any city or any country for that matter if they have nothing to offer- and plz the free market talk about dubai is bogus- what was smart though was that they attracted jobs by having tax-free zones unfortunately those jobs were based on a bubble economy…
Dubai was not built on a free market, it was built on cheap debt and imported cheap labor. And while debt looks like wealth for a while, in the end it is just debt if it was not used to produce more wealth then was borrowed. While the cheap labor might not want to go home and now you are stuck with large numbers of foreigners who have no money and not much connection to the rulers of Dubai
Are all of Dubai’s 7 star hotels and multimillion condos and houses really worth more now then what was put into building them?
Telpeurion’s question also got me a little curious. A 2006 article by Tim Swanson may be the source of the confusion:
“An Anarchistic Oasis In The Middle Of The Desert”
http://blog.mises.org/archives/004634.asp
I’m going to guess he was speaking in relative terms because he added ‘ic’ to ‘anarchist’.
Other Mises.org articles pointed out the positive aspects of Dubai, but the authors were aware it was not a pure anarcho-capitalist society. Which is why they were going to have problems.
2004: “Is Dubai a Hoppean monarchical paradise? Not exactly…”
http://blog.mises.org/archives/001723.asp
Here are more: http://www.google.com/search?q=site%3Amises.org+dubai
Thanks da01. I think that answers Telpeurion’s question fully.
KY
The oil will not run out. One of the most persistent myths is that the oil reserves are fixed and once pumped, it’s gone. On the contrary, oil is generated by our goddess Earth, and is in no danger of running out. For that matter, carbon is good and we need more of it in the atmosphere.
What Dubai really needs is a 1,200,000-kW Nuclear powerplant to speed up water desalination and help create a DubaiJungle to compliment DubaiLand. To upset the anti-human treehuggers, be sure to smuggle a bunch of “rare” animals into the park, raise them plump, and then offer their well-seasoned carcasses to tourists at reasonable rates. To keep Israel happy, the plant can be manned by an Israeli staff and all the nuclear waste can be shipped to Israel for its non-existent nuclear weapons program.
HL, what are you talking about? Did you read that in the Star Trek comic books? Apparently all the oil in USA regenerated itself right? You are living in fantasy land. Oil is non-renewable.
Why do I hear John McLaughlin’s voice when I read the title of this blog post?
In a former life I worked at an Oil and Gas consulting firm in Austin. “Dry” wells would become productive again and again. How else to explain this much underreported phenomena?
The linked story in my post is not a rare event. I am no expert, but oil regeneration makes sense in light of what I saw. Oil is renewable.
Just curious if any of the posters here have ever been to Dubai? I’ve been going back and forth there since 2002.
Let’s start with the cheap labor argument. You’re an idiot and please go back to the DailyKos. The people that come to work in Dubai or the other Gulf States don’t have a gun put to their head. They have no skills, no education, and would have no work and a starving family if they stayed in Pakistan or Bangladesh or Sri Lanka, wherever they may be from. I’ve seen that first hand as well, having lived in Pakistan for nearly two years. Capitalism doesn’t make everyone rich overnight. The money sent home, if it’s not stolen by their governments – which it is, is used to build a better life for their families. If it didn’t, the workers would leave. Plain and simple. The working conditions suck. That’s the breaks. Do you want them to work my job instead? Maybe we should have all the cheap labor in the Middle East running satellite navigation or handling air traffic control too. Perhaps you’re right.
Dubai benefited the most from the bubble because it is not a Marxist worker’s paradise like America. If you don’t show up to work, you get fired. The employers are very strict. On the flip side, there isn NO INDIVIDUAL INCOME TAX. I will take that trade off, thank you very much. The corporate tax is also a paltry 10%.
The Sovereign Wealth Fund may be in trouble, but remember that it is privately owned in the ultimate sense. It is the emir’s private property. He may have bequeathed (sp?) it to the State, but he may also take it back whenever he wants. He is the freaking emir and he can do whatever he wants with his money. It sucks if the guy is an idiot, but we study history and we know all about the good and bad of monarchies.
In respect to welfare, monarchies blow the Marxist USA and Europe out of the water. Since the citizens are not taxed (although one can make the argument that the SWF is an indirect tax as its origin is from the confiscation of private resources), they are not forced to live “to each according to their needs, from each according to their abilities” like in the USSA.
So mock Dubai all you wish .It’s a corrupt, crony system for sure. So is America. But there is no doubt that Dubai is more economically free.
It’s also far more wealthy. The hotels, restaraunts, malls, clubs, and bars make Las Vegas look like a ghetto. Americas are paupers compared to the wealthy Middle Eastern states and they don’t even know it. It’s actually quite amusing. Perharps if the Socialists let the wild wheel run again, America could be this wealthy. In fact, I know it can. Mises teaches us so.
We know that capital in Dubai is fairly well treated, but I am rather more curious about labor in Dubai.
According to David above, laborers immigrate to Dubai in search of better wages and are welcome to emigrate at any time if they decide they no longer like the conditions.
This is in contrast with other stories I’ve read about Dubai, where laborers are portrayed essentialy as slaves whose passports are confiscated on arrival, who are forced to shop in company stores on credit and to work forced shifts without sufficient water etc., and who subsequently live or die at the whim of their employers, largely to satisfy the whims of a debauched upper class of expatriates.
That latter view is from Johann Hari, writer for the Guardian. That paper and writer obviously have an anti-free-market bent, and I am not generally a fan, but I found this particular report rather persuasive in its detail.
http://www.independent.co.uk/opinion/commentators/johann-hari/the-dark-side-of-dubai-1664368.html
In Hari’s portrayal, Dubai sounds more like a fascist dictatorship than a minarchist monarchy.
Does anybody have any evidence to share concerning which portrayal is more correct?
The article linked by Timothy is interesting and is potentially disturbing. It runs the whole lefty agenda from workers rights to the environment to gay rights, etc. The villains, as always, are the evil developers. I think I read the same article about California grape pickers a while back.
Anyway, what is said in the article may be true. I don’t know. This piece from the article made me laugh though:
HL: Thanks for the links, interesting reads.
If you are right – that oil is indeed renewable – then Dubai, unlike other clueless Emirates/Monarchies in that part of the world, is betting the royal house on the theoretical speculations of a couple of geologists? Nevermind any other production activities, just keep the pumps running, and the cranes moving…goddess Earth shall provide.
And like David says: “…He is the freaking emir and he can do whatever he wants with his money.” Or his country. “Even if the guy’s an idiot…”
As an American working as an advisor in Afghanistan, I travel to Dubai often, about once per quarter in a year (and will be there next on 5 Oct 09). I submit that many who comment on that Emirate have probably never been there.
Dubai embraced globalization and began a transformation process as far back as 1990. They dredged Dubai Creek allowing far larger trade ships to port and sell their wars. They vastly improved their infrastructure. Terrific roads and an excellent driving culture make supply chain distribution efforts in Dubai welcome (of course, they suffer from traffic snarls, as any city does). Their tax free zones and low costs welcomed investment, trade, tourism, and capital.
There is indeed a misconception about Dubai’s GDP, only 35% is a result of oil production, the rest, 65%, mostly derived from trade and tourism.
While it is true Dubai suffered like many others the world over with easy credit and lines of production geared toward real estate and building projects, that isn’t what Dubai is entirely all about.
It is a modern, clean, low crime, very welcoming place to work, live, and visit. It is diverse, and very captialist. I myself hope Dubai can overcome the financial problems caused by easy credit and made up money. The business climate of Dubai is exactly what we all want to experience in a free market.
@HL:
Ugh, a particularly virulent new round of abiogenic oil silliness seems to be making its way across the Internet in the last few weeks.
Wells re-fill because not all the oil was removed from them. Even the best modern extraction techniques can only extract maybe half the oil from an oil field. Remember that oil isn’t liquid in the ground — it saturates porous rocks, like molasses in a sponge, and (despite being under high pressure) it doesn’t come oozing out of the rocks right away.
Worse, the techniques that extract oil at the fastest rates tend to “damage” the well by reducing the well pressure asymmetrically, thus forcing the producer to leave more of the oil untapped (since all extraction techniques, high tech or not, require the oil near the wellhead to be under consistently extreme high pressure). Leave these same “dry” fields untapped for a century or two, and “miraculously” all of them will re-fill — except this time, to only 50% of their previous capacity, and you won’t be able to extract the final 25%. Repeat ad nauseam.
The reality is, even if the conditions naturally existed to create oil deposits from carbonate rock subduction (as abiogenic oil theory supposes), (a) it would’ve taken billions of years for those oil fields to fill up, so we’re still extracting the oil faster than it can be replaced, and (b) we would expect Washington state to be awash with oil (near vulcanism and subduction) while Texas would have none (middle of a continental plate, far from subduction and any geothermal hotspots). Explaining the locations of real world oil fields in an abiogenic context requires invoking magic fairies (or, indeed, goddesses) to explain why the oil is in the wrong spot.
I’ve always wondered why people actually wish for oil to run out… sorry but we have enough coal and natural gas to synthesize liquid organic fuel for many decades to come. In fact when NYMEX hit 150 US $ a barrel I wondered why nobody brought it up and everybody seemed fixated with solar panels and biofuels. I mean… first year chemistry students learn the procedures during the Organic Chemistry I course since it’s pretty basic stuff.
People seem very keen at going back using Shire horses to drag their wagons around these days.
Anyway back to the topic at hand.
I’ve always been fascinated by the Skyscraper Index and I believe it works an a smaller scale also. the largest city in my area experienced (on a much smaller scale) the same phenomenon before financial crisis.
Coal has the problem that liquefaction requires a massive input of hydrogen — and the most ready source is to create coal gas and react it with water, consuming some of your coal and thus reducing the energy efficiency of your process by a considerable margin. After that, you have to deal with the problem that coal is filthy stuff — full of sulfur deposits and other impurities that would destroy any gasoline- or diesel-burning engine, as well as produce nasty sulfur-oxygen compounds resulting in health-destroying smog and property-destroying acid rain (i.e. an externality, a shirking of consequences).
The costs of removing the impurities from the resulting liquid fuel easily exceed the costs of liquefaction itself, by as much as an order of magnitude, making the final cost quite high. Unlike coal liquefaction, oil extraction from shale a.k.a. tar sands is actually happening right now, as we speak, because shale extraction (itself an expensive oil source) is cheaper than coal liquefaction by a large margin.
Natural gas could probably be coerced into a liquid fuel on a large scale, but at the cost of significant energy inputs (i.e. reduced efficiency) and producing a large amount of waste hydrogen that no one really knows what to do with. The supply of natural gas itself is also quite limited — its low price comes from the fact that it is almost impossible to ship long distances, and thus subject only to demand local to the supply.
Unlike coal liquefaction, natural gas synthesis is actually commercially viable at today’s prices. However, if existing natural gas stocks were fed to the Fischer–Tropsch process on a scale broad enough to replace petroleum, the cost of natural gas would rise rapidly, likely eclipsing the costs of more mundane “non-traditional” sources like shale oil extraction.
While I don’t doubt that there are some schadenfreude-filled eco-extremists that delight in the fact that peak oil is coming and/or here, I think the vast majority of the concern in the real world (i.e. not on Internet fora) is more of a low grade panic about the consequences, i.e. “whaddya mean, oil prices are going to shoot through the roof compared to what we’re used to?” and “whaddya mean, CO2 levels are causing rising sea levels, shifting growing seasons, and general economic disarray?”.
Hello friends,
All that glitter is not gold. This part of the world is a complete torture. They had made this because they took advantage of poor people from Asia, Can you imagine a person working the entire day for USD.1.00 under the sun with a temperature of 48 deg. c and sometimes the person collapse and no benifits paid to him. This part of the world have their own law. No human rights respected or no international law influence respected.
Very recently i was taken to the wall by a new a royal family member torturing a man http://abcnews.go.com/Blotter/story?id=7402099&page=1
Good news for all is that we dont get to know the real news. What comes out is filtered.
God bless the countries where they respect human being and not like these ones who became famous by torturing human beings and million labourers who shed their blood and lives. http://www.escapeartist.com/efam/94/art_20_Reasons_Not_Move_to_Dubai.html
No one gets moved when you see a shaikh dance on a pile of dollars or sleeps on a golden bed.
Hello friend,
Here is a link that is shocking, which was reported by Human rights investigators about the dark side of Dubai. http://abcnews.go.com/video/playerIndex?id=2688465
Simply killing some in between class time on Digg and I found your article . Not usually what I favor to examine, but it was completely price my time. Thanks
We are back in the news with Saudi Arabia planning to set a new record with a one mile high skyscraper!
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