Wednesday, August 3, 2011

Cheap Credit: Gordon Ramsay Kitchen Nightmares or Tyler Cowen Dinning Dreams

"The Austrian theory of the trade cycle explains why loans are systematically granted to people who will almost certainly not be successful restaurant owners." From a recent Forbes post by Art Carden

The article explains how poor restaurants featured on Gordon Ramsay's show Kitchen Nightmares are an example of misallocated capital due to cheap credit and with cheap credit people with little restaurant knowledge are more likely to open places wasting valuable resources. On the other hand, I wonder if cheap capital leads to what I would call Cowen dinning dreams, after Tyler Cowen the economist who touts the virtues of small ethnic restaurants. My guess is with out cheaper credit, I wouldn't have excellent Burmese, Vietnamese, and Thai places within a couple of blocks. There would likely be more chain restaurants, backed by companies who are wealthy enough to take on loans with higher interest rates and have the collateral to get lower interest rates.

I'm not the right economist to debate the Austrian business cycle, but with increasing information on where to find the best food, cheap credit would seem to lead to a tasty end (or two if you find a good place for Austrian sausage).

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1 comment:

Britt said...

Very interesting article. We were just talking about the same thing re: gaming stores. Many people open gaming stores because they like gaming, without having an ounce of business sense or experience.

BTW, I'd kill to have good ethnic food within a 1/2 hour drive! :)