I had initially heard this claim of how raising the price for a Big Mac, one of the fine sandwiches offered on the menu by McDonald’s Restaurants, would enable them to offer each employee a minimum wage that would be considered sufficient to allow them to support families, while watching Juan Williams on one of those economic debate panels hosted by Fox News. My initial reaction of course was a mixture of disbelief, surprise, and complete indignation. The disbelief stemmed from the fact that I could not believe that any adult human would be foolish enough to state such an obviously moronic theory. My surprise stemmed from the fact that one such human being actually took this completely unvetted statement to his appearance on a nationally televised news show, and repeated it. The indignation was born from the fact that anyone who would have made such a statement initially, can have no possible knowledge of how business margins work, for those of us who participate in the private sector, most especially those of us who have signed the front of a pay check, as opposed to the back of one.
Williams makes his 17 cent claim initially at the 1:57 mark of the video.
I did not realize at the time of hearing this that Williams’ claim was based on nothing. I had thought that one of those vaunted lefty thoughtless tanks like Demos for example had conducted some form of an analysis, and that Williams was parroting that idiocy. As it turns out, it was initially printed by the Huffington Post, and was based on nothing more than a drinking buddy of the author. It was only some leftist’s pipe dream involving the ubiquitous fairness fairy.
But, let’s pretend for just one moment, that there is evidence to support that the net cost of offering the elusive, “livable wage,” were limited to 17 cents per sandwich sold. It’s a stretch I know, but bear with me here.
First of all, McDonald’s did not just randomly assign the price to charge for their sandwiches, nor did they just randomly arrive at some sort of wage to remunerate their employees who make them. Both numbers were dictated by one thing, and that was the profitability of McDonald’s. McDonald’s you see went into business for the purpose of earning money. The owners of McDonald’s felt that there would be a market for their affordable, convenient, and plentiful products, and they were ever so correct in that thinking. The duty management has begins and ends with the shareholders of McDonald’s, the people who make up ownership of that company. They have no duty to the employees, except to pay the agreed upon price for work performed. The implied message here by the fair wage crowd is that businesses are started solely for the purpose of providing employment to those who feel entitled to such. As it turns out, this is not the case. businesses are started solely for the purpose of reaping a financial reward for those who have undertaken the risk of starting their business. Hiring employees is merely a beneficial byproduct of that function.
Secondly, let’s take a look at the crux of the plea to America’s heart strings here. We have moved past asking only that the wealthiest 1% pay the wage of our nation’s entitlement class. Certainly, McDonald’s can’t be asked to foot this bill, all on their own. Now, all of America can pitch in a little, merely by agreeing to pay a few pennies more for every McDonald’s item consumed. Never mind that McDonald’s has already gone to the trouble of determining the exact price that each item would be best sold for, as determined by their bottom line. This was achieved by careful attention being paid by distinct market signals that exist within the free enterprise system. Maximizing revenue and profitability while minimizing costs does not happen by accident, and changing those prices is not taken lightly. McDonald’s has doubtless figured out that a 17 cent increase in the price of a Big Mac sandwich will cause the number of those sandwiches sold to decline. They also have competition to worry about, as well as the sales of ancillary products, that people may wish to purchase along with the Big Mac.
It is beyond doubt that about half of our society would claim that they care enough about McDonald’s employees, that they would be willing to pay the additional money for a sandwich, but that is not the same as that price actually being paid. I have friends who claimed that they would be willing to pay $4 per gallon for gasoline in order to combat global warming, and guess who I heard wailing the loudest when gasoline hit that price level. What about the rest of the nation, how did the private business between McDonald’s and her employees become the concern of the other 50% of Americans who do not wish to subsidize the, “living wage,” being sought for fast food workers. When I look in my mirror every morning, there is plenty there to keep me busy. I have enough on my plate personally, that the thought of subsidizing entire swaths of our population is not something that I wish to have foisted upon me.
The fact is that an entry level position at McDonald’s will not support a family of four, and it never will. It will however give a low skilled, poorly educated kid just starting out, or a teenager wishing for some experience in the working world feeling the joy of those first actual pay checks, on the job training. They are able to produce enough wealth at their level of experience and training to be worth the wages that McDonald’s is currently paying to entry level employees. The true value to entry level employees is that they are learning how to be of a greater value either to their current employer or to another employer in the future. Entry level positions are called that for a reason. They are a stepping stone to something more, that would pay a wage capable of supporting a family. By forcing employers such as McDonald’s to pay a greater amount for those workers than what they would be capable of producing, will result in the loss of those jobs from the private sector entirely. McDonald’s will deal with their loss of revenue due to the forced increased prices and their increased employment costs with the act of cutting its workforce. There is a reason why the first minimum wage laws on American books were born in the Jim Crow South, why minimum wage laws were a part of Apartheid, and why minimum wage laws in fact exist most prominently in those very places that are the best examples of the problems that the leftists most vehemently claim to be against.
Lastly, and this in not the first time that I’ve gone over this point, let’s look at the concept of margin itself. A 17 cent increase in the cost of a Big Mac does not translate to a 17 cent increase in the price charged at the register. I do not know what the operational margins for a successful McDonald’s restaurant look like, so we’ll use the margins for the retail food industry as a whole. A 17 cent increase in the cost of making a Big Mac would translate to an increase of $1.70 in the price charged. If the margins at McDonald’s were lower then the average, that increase in price would be higher, and the reverse would be true should McDonald’s enjoy better than average margins.
In order to increase revenue, a company must sell more of its wares. Selling more of their wares includes increasing the amount of electricity used, time spent, materials used, things refrigerated, etc. Adding 17 cents to the expense side of the ledger is not made up so easily by simply increasing the price of each sandwich sold by 17 cents, most especially since that maneuver is likely to cause a decrease in the number of units sold. I had heard this exact same moronic argument made when Papa John’s announced the pricing increase that would be caused by the implementation of Obamacare, and guess what, their 20 cent per pie cost increase has already been accompanied by a $2.00 price increase.
Part of the problem with turning the entire U.S. economy into a giant cargo cult is that the laws of economics have no feelings or care as to what people think fairness dictates. Reality is what reality is, and the reality is that every society is in fact based on people acting to serve their own interests, which is not greedy, but our instinct for self preservation doing what it is supposed to do. The lens of history has been crystal clear on this point. The lot of the ordinary man has never been harmed so much as when the exact policies being touted by the Obama people as new, have been implemented. We have examples ranging from the former Soviet Union to the current mess in Detroit which stand as glaring examples of what happens when economic policy is based on class envy, rather than on rewarding individual effort. No where has the lot of the ordinary man been so greatly improved as in those societies where the full potential to create wealth has been so completely unleashed by allowing the free market to determine reward for risk taking, innovation, hard work, and creating a value for one’s fellow human beings.
Ignoring market signals carries with it unintended consequences, and those have never been good.
