Published on: October 23, 2008Now available on iTunes…
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The economy is on everybody’s minds these days, so I thought I’d draw your attention to a couple of recent stories with unique takes on the nation’s financial crisis.
One was in Slate.com, where columnist Daniel Gross sets forth what he calls the Starbucks Theory Of International Economics, which essentially is a cousin to what New York Times columnist has called the McDonald’s Theory of International Relations.
Friedman’s premise was this: that once two countries evolved into prosperous, mass-consumer societies, with middle classes able to afford Big Macs, they would generally find peaceful means of adjudicating disputes instead of resorting to violence. Of course, Friedman’s theory isn’t ironclad, especially in the Middle East. But that may be more a testament to how crazy all those folks are than how flawed Friedman’s logic is.
Gross lays out his Starbucks Theory of International Economics this way:
“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. It may sound doppio, but work with me. This recent crisis has its roots in the unhappy coupling of a frenzied nationwide real-estate market centered in California, Las Vegas, and Florida, and a nationwide credit mania centered in New York. If you could pick one brand name that personified these twin bubbles, it was Starbucks. 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. (The one around the corner from the former Bear Stearns headquarters has already closed.)
“Like American financial capitalism, Starbucks, fueled by the capital markets, took a great idea too far … and diluted the experience unnecessarily … Like so many sadder-but-wiser Miami condo developers, Starbucks operated on a ‘build it and they will come’ philosophy. Like many of the humiliated Wall Street firms, the coffee company let algorithms and number-crunching get the better of sound judgment: If the waiting time at one Starbucks was over a certain number of minutes, Starbucks reasoned that an opposite corner could sustain a new outlet. Like the housing market, Starbucks peaked in the spring of 2006 and has since fallen precipitously.”
The really interesting thing, Gross notes, is that many of the countries where Starbucks has developed a significant presence are countries where the economies are in trouble.
Now, I think that Gross is onto something here…though clearly we can't blame Starbucks for the world economic crisis. (Though I suspect that if his theory gains any traction, we could see political-style attack ads from Dunkin’ Donuts and McDonald’s accusing Starbucks of exactly that. From there it’ll be just a short jump to ads that accuse Starbucks of palling around with terrorists and being run by socialists.)
Even Starbucks management would concede that the company over-expanded and miscalculated the ability and inclination of people to pay four dollars for a cup of coffee. But the rationale behind the miscalculations – that people are aspirational, and will spend more of their disposable income to buy a product that reflects those aspirations – was sound.
So where are we now?
Well, let me offer for your consideration the Content Guy Theory Of Global Aspirations.
It goes like this. No matter how bad the economy gets, people will neither forget nor give up on the aspirations that they formed when things were more prosperous. They may look for ways to satisfy those aspirations in more cost-effective ways, or they may develop different aspirations in the face of crunching economic realties. But human nature is essentially aspirational, and retailers who remember that will, in the long run, be winners. They will find ways to address those needs and desires in the tough times, and will be well positioned to cater to those same customers when they have more money in their pockets.
Which leads me to the second article that I found intriguing.
It was in the most recent Barron’s, and suggested that while things are tough, they “may not be as bad as you think. The credit crisis, stock-market crash and fall in home prices have raised legitimate fears of a nasty and protracted recession. Yet the economy has often proved more resilient than is commonly thought -- and constructive factors that have gotten scant attention should help the U.S. skirt a deep recession. In fact, it's possible that the downturn could prove to be one of the briefest and mildest on record.”
One of these constructive factors – go figure – is the price of oil. As we all know, gas prices have gone down. A lot. And Barron’s notes that the plummeting cost of gasoline and heating oil will, in fact, put more money in people’s pockets at the end of this year and in the beginning of next year. Which means that the pocketbook crunch won’t be as bad as many people think.
Barron’s says that there are a number of economists who are taking this approach to economic projections…which means, I think, that there must be a cadre of economists walking around singing – either to themselves or in harmony – that famous song originated by Monty Python:
Some things in life are sad
They can really make you mad.
Other things just make you swear and curse.
But when you’re chewing on life’s gristle,
Don't grumble, give a whistle.
And this’ll help things turn out for the best.
Always look on the bright side of life…
For MorningNewsBeat Radio, I’m Kevin Coupe.
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