Tower Cranes Above Porto

Porto Cathedral overlooks the river to the south and the city of Porto to the north. Standing there the other day, I was struck by the number of tower cranes that dotted the skyline of the city. I have never seen so much building activity before. There were cranes everywhere. However, far from everyone is in operation. There is one such crane at the center of a lot down the street from where I live that has been standing idle for several months.

There is a shortage of skilled labor. There are more projects than available resources. The consequence of this is that projects take longer to complete than was originally estimated. They cost more to complete due to scarcities of labor and other resources. Unless the demand for the final projects end up greater than what was estimated, the projects will end up less profitable than was calculated by the entrepreneurs.

All of this can in turn be traced back to our current monetary system which treats currency as something separate from real world resources. The fact that currency can be cheaply provided in times of scarcity illustrates this perfectly, and the result is mallinvestments of various kinds. The monetary system fails to function correctly by signalling abundance when in reality there is scarcity. The entrepreneur cannot judge the real level of scarcity by looking at the price of currency. Scarcity has to be put into calculations as a fudge factor, when it should properly have been reflected in interest rates provided by the banking sector.

The various entrepreneurs behind the current building projects in Porto will be very disappointed with the profitability of their ventures, unless they factored in a great deal of scarcity as part of their costs, or some good fortune sends the price of their finished projects higher than they expected.

By Axilera at English Wikipedia, CC BY-SA 3.0, Link