Canary Wharf and Cantillon

Only a few blogs have comment sections worth bothering with. On Frances’s Alex makes an important point about stupid Austrian stories about recessions. It’s difficult to excerpt, but it’s a lovely meandering argument and it reminded me of something I wanted to write up about Canary Wharf.

Containerisation killed London’s docks. Canary Wharf, a financial centre back office, was what we decided to replace it with. All very allegorical. In the early 1980s plans were laid to redevelop the area, improve transport links with a DLR upgrade and the Jubilee Line and generally spruce the place up according to the fashions of the day.

For over half a decade the east end hosted the largest development in the world. By the time the development opened in 1992 we were plodding along through recession as interest rates were hiked to protect the pound. Canary Wharf’s developers’ Olympia and York promptly folded as their enormous investment proved totally unprofitable.

Today Canary Wharf is a financial centre to rival the square mile. You might not like it, but it was a damn good investment. But tight money pushed a wise investor into bankruptcy. What you make of this depends on which end of the telescope you look through.

If you’re of an Austrian persuasion you see easy money in the 1980s and government boondoggles like the Jubilee Line tricking multi billion dollar investment funds into building a new financial centre. And you’d be an idiot.

If you’re a normal person you see a sensible investment which would increase London’s real estate, regenerate an deprived area and upgrade public transport temporarily ruined by a recession. It’s during those times that bad investment decisions are made. Austrians have it all backwards.

I can only commend Alex’s conclusion that the Austrian glee at recessions and the failures they bring spring from deflation being a fundamentally conservative force in society. It echoes Karl Smith‘s point that inflation is ultimately about optimism.

Recessions are aberrations. They are the times when we decide that we want people to be unproductive, that we want to be poorer. It’s not the failure that’s confusing, it’s the coordinated failure. In the early 1990s lots of investments that were good turned bad at the same time. That’s the problem. But I suppose a little indiscriminate failure is useful pour encourager les autres.