Edward L. Glaeser is an economics professor at Harvard.

Last Wednesday, the government of Dubai announced the restructuring of Dubai World, one of the emirate’s three state-owned investment giants, which would “ask all providers of financing to Dubai World and Nakheel to ‘standstill’ and extend maturities until at least 30 May 2010.”

Dubai World has more in common with ambitious American real estate developers than with the sovereign wealth fund of neighboring Abu Dhabi, which takes that emirate’s vast oil earnings and invests them worldwide. Dubai has few petrodollars and Dubai World is borrowing billions to build a glittering commercial metropolis on the edge of sand and sea. The glint of hubris has long shone off the glass walls of Dubai’s soaring skyscrapers, but overreaching ambition always lies behind the creation of great cities.

Dubai has condensed three different stages of growth into less than 50 years. In the 19th century, cities like Buenos Aires and Chicago grew by moving the wealth of the American hinterland to the markets of older, more developed areas. Similarly, in the 1960s, Dubai dredged the Dubai Creek and built a modern port, which enabled the city to grow during the 1970s by moving Arabian oil to the global markets. Today, the city’s ports are operated by Dubai World.

In much of the developing world, governments provide too much regulation and too little infrastructure. Singapore and Hong Kong have long thrived as islands of economic freedom and sensible economic policy. Dubai decided to follow their example in the 1980s.

In 1985, the emir decreed the opening of the Jebel Ali Free Zone, which is now also part of Dubai World. The Free Zone offers easy permitting, good infrastructure and little taxation, right next to a port with easy access to the Middle East and to India. Plenty of Mumbai businessmen spend their weeks in Dubai and come home to India on weekends.

But the long-distance Mumbai-Dubai commuters that I have met see Dubai as a place to do business and Mumbai as a place to enjoy life. Dubai’s leader, Mohammed bin Rashid al-Maktoum, has long understood that in an age of mobile talent, Dubai must be an attractive place for consumption as well as production — a consumer city.

Dubai’s long-run success depends on attracting skilled workers who will not stay in a city that offers only sun-baked purgatory. For a decade, the sheik has tried to promote a third type of growth for Dubai, by turning the city into a place of pleasure with soaring skyscrapers, vast malls and spectacular luxury hotels.

Just as Las Vegas has long succeeded by allowing more misbehavior than Nevada’s neighbors, Dubai recognizes the opportunity that comes from the strictness of neighboring Islamic states. Pleasure can be a comparative advantage of Dubai, not just relative to Saudi Arabia but even relative to India, if there are enough snazzy new retail and restaurants.

While Dubai’s good infrastructure, pro-business government and consumer amenities may enable the city to eventually succeed as a connector between the West, the Middle East and India, Dubai has now massively overbuilt relative to the level of current demand. Dubai now has the tallest building in the world, and 11 skyscrapers that are taller than any European building.

Fifty-story buildings are an efficient way to deliver plenty of space, but extreme height is far more expensive and a bellwether of irrational exuberance.

Five of the 10 tallest buildings in New York City today were planned at the tail end of the ebullient 1920s and completed in the early 1930s. In their day, they were the tallest structures in the world, but it took more than a decade for the Empire State to stop being the “Empty State Building.”

The real estate empire of A.E. Lefcourt, perhaps New York’s greatest skyscraper developer in the years before the Great Depression, was dismantled after the collapse. The Essex House, one of his most glamorous creations, is now owned by another Dubai Government Holding Company.

Dubai World’s creditors may end up faring better or worse than those owed by A. E. Lefcourt. Lefcourt had no rich neighbor like Abu Dhabi willing to bail him out, but Lefcourt’s lenders could foreclose. Dubai World’s lenders won’t be taking over Dubai’s ports.

Great cities have long been built by great gamblers, and Dubai’s sheik may well be the second greatest city-builder — after the Chinese government — of our age. Many of those gamblers have ended up bankrupt, but their structural legacies remain, providing the space that connects humanity and facilitates the success of our urban world.

Even if Dubai’s real estate prices continue to drop, which is certainly quite possible, there will remain a strong incentive to fill its buildings. If the structures remain occupied, then Dubai, and its sheik’s dream of a great metropolis, will survive.