Tom Kruse asked about McDonald's. I had a short section on the subject in my book, Class Warfare in the Information Age:
Adam Smith's Hamburger
Economists base their faith in the rationality of pseudo-information on the simplistic logic of Adam Smith's invisible hand. You may recall Smith's famous assertion:
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. [Smith 1776, I.ii.2, pp. 26-7] In a small, self-contained village based on traditional handicrafts, where ownership of capital is relatively equally distributed, Smith's invisible hand might operate relatively efficiently. In a global economy where complex technology is everywhere, the invisible hand is more likely to do harm than good.
Before we fault Smith too much for a naive understanding of the world, we should recognize that his discussion of the butcher turned out, at least in one sense, to be remarkably prescient. What industry, besides perhaps Hollywood, has does more to expand the scope of markets into far flung regions of the world than the fast food industry, best symbolized by the Big Mac. One recent book is devoted to the theme of "The McDonaldization of Society" (Ritzer 1996).
The London magazine, The Economist, has even chosen the cost of a Big Mac as a measure of international prices (see Pakko and Pollard 1996). Another study used Big Mac prices to predict movements in the foreign currency markets (Cumby 1996).
But then what does a Big Mac really cost? The fast food industry is notorious for paying its workers in the United States at or near the lowest legal standard, and then applying its enormous political muscle to keep that standard as low as possible. Here we have an industry that minimizes the human element in work by specifying the preparation of the food down to the tiniest detail. No room for learning by doing here.
In addition, the industry tries to minimize its labor costs by using an enormous quantity of packaging. The production of this stuff requires the destruction of forests and the depletion of our stocks of fossil fuels. In the end, the packaging either ends up as litter and/or trash. This packaging then fills up our landfills as garbage or in our lungs as pollution, if it is incinerated. We might also ask how much the fast food industry contributes to the excessive dependence on the automobile, with its associated costs in terms of death and pollution.
Many of the hamburgers come from cows that graze in recently cleared rain forests, thereby contributing to serious environmental degradation, including global warming. With the increase of global warming, tropical diseases move into more temperate areas. Then we must not forget to factor in the health cost of the high fat, high salt diet that the fast food industry offers.
Only by ignoring these, and many other associated costs, we can calculate that Adam Smith's hamburger is a cheap and rational menu. But then, Professor Smith already told us that the butcher was not acting out of benevolence.
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Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901