I am enjoying the goings-on in Dubai tremendously. It’s like the field mouse of an economics drug trial: take every extreme symptom, jam it into one place of absolutely no global consequence, and then try to figure out the cure.
Suppose you had a tiny country that decided it wanted to be important. Playing on confusion with its oil-rich neighbors, it goes out and borrows a lot of money to build buildings. Taking the Paris Hilton strategy that if you insist on your caricature long enough others will eventually believe it, the country makes a big show of people piling into the buildings. Real estate developers, the ultimate momentum players, pile in. The country goes the offshore tax haven route – no income taxes – and throws in absolutely no labor standards to ensure that construction can proceed on whatever blistering pace can be achieved by malnourished Thais and Pakistanis welding in 115F heat. Eventually it hits the wall – for reasons completely beyond its control, at some point people look around and realize they have the world’s largest Potemkin village. There is no market. The locals are preposterously corrupt. Islam is not compatible with the hedge fund lifestyle. What then? (more…)
