Tuesday, October 28, 2008

Starbucks theory of international economics!

Daniel Gross proposes the "Starbucks theory of international economics", which postulates - the higher the concentration of expensive, nautically themed, faux-Italian-branded Frappuccino joints in a country's financial capital, the more likely the country is to have suffered catastrophic financial losses!

The author draws parallels between the "irrational exuberance" that blew the sub-prime mortgage bubble and the sectacular proliferation of Starbucks coffee outlets in many major global financial centers. He writes,
"The Seattle-based coffee chain followed new housing developments into the suburbs and exurbs, where its outlets became pit stops for real-estate brokers and their clients. It also carpet-bombed the business districts of large cities, especially the financial centers, with nearly 200 in Manhattan alone. Starbucks' frothy treats provided the fuel for the boom, the caffeine that enabled deal jockeys to stay up all hours putting together offering papers for CDOs, and helped mortgage brokers work overtime processing dubious loan documents. Starbucks strategically located many of its outlets on the ground floors of big investment banks."

However, beyond the obvious ancedotal appeal, the "Starbucks theory", like the "Golden Arches" theory of international relations of Thomas Friedman, may have only limited analytical utility. The massive spurt in Starbucks stores were only one of the many economic and commercial developments that piggy backed on the sub-prime boom. In other words, Starbucks formed a part of the inevitable froth that accompanies such bubbles!

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