The story behind the financial squeeze gripping Dubai is eerily similar to what we have already seen in Las Vegas. The two places are similar to begin with. Both function essentially as isolated city-states. Las Vegas is a four-hour drive across the desert from Los Angeles; it and its suburbs contain most of the population of the state of Nevada. Dubai is a city-state in its formal political structure, with half of the population of the United Arab Emirates, at the end of the Arabian Peninsula.
And both seemed to be trying to build their economies on top of a style of excess, particularly when it came to buildings. It seemed like a brilliant strategy for a while, but began to break down in 2007, with projects canceled, workers leaving town, and businesses not earning enough to pay back the bank loans. In Las Vegas, there have been thousands of foreclosures and a collapse in real estate values. Dubai on Thursday suggested it might stop paying on its debts for six months.
The economic lesson from these two stories, if there is one, is that excess by itself cannot serve as an economic base. If a place wants to use excess as a selling point, there has to be considerable substance behind it to serve as the selling proposition. What Dubai and Las Vegas had to offer turned out not to be enough to pay for all that massive construction.
