Way back when, before 1936, Alvin Hansen carried the torch. These days, don't listen to what they say, watch what they do:
Harvard announced Thursday that it would indefinitely suspend construction on a high-tech science complex in the Allston neighborhood of Boston because of money problems.
This was to have been the showcase of the previous regime. A lot of the work has been done, but it doesn't look like they'll ever complete the project in anything resembling finished form. The scientists will never move there. The associated spaces for retail outlets won't be much populated. Etc. The full story is here.
Maybe they should rename Allston as Summerston?
I’ll chime in with Eric. There must be something more at work in this decision than mere financing. The endowments that borrow and spend over the next few years will do better for their institutions than the endowments that force their institutions to cut to the bone. And Harvard’s endowment at least is smart enough to know that.
Forgive me, but what does this have to do with Alvin Hansen?
I recommend they buy APOL
Was Salma Hayek going to move to Allston?
just google hayek and you’ll see a similar ‘mistake’
I also was wondering how this relates to Austrian business cycle theory. Is this a prediction of that theory?
It relates to ABCT because ABCT says that overspending now and over-ease now leads to over-tightening in the future.
sarcasm
The ABCT emphasizes the heterogeneity of capital, and the fact that some of it takes a long time to complete. When people believe interest rates will be low in the long run, they will undertake projects that take a long time to complete if they would be profitable (say, if interest rates are 2% and the believed to stay there, and the rate of return on the project is 3%, the project will be undertaken). If long-term interest rates jump to 5%, then the project will become unprofitable and construction will stop midway (depending on how much money has been put into it, and if there’s scrap value). Mis-estimations in the future interest rate are often caused by monetary influences which are unobserved by entrepreneurs. And since capital is heterogeneous, the construction cannot be re-allocated to higher-return projects.
For this project to have stopped(since Harvard still has money), one of two things must have happened: 1: the long term interest rate was re-evaluated to be higher than when the project was undertaken (even though current interest rates are low) – this is the ABCT story or 2: the rate of return on the project was re-evaluated to be lower than originally expected.
I, personally, put a lot of stock in ABCT in general, but in this particular instance I would go with story 2, given the state of the commercial real estate market.
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