Imagine you work up a mighty appetite. You consider to yourself, “Self, I have a mighty appetite. What shall I do?” Upon reflection, you come up with two revelations as if from on high, “McDonalds or In-N-Out.” You certainly like McDonalds’ fries, but the fresh ingredients at In-N-Out are very tasty too (and somewhat healthy, to boot). You weigh your options, but the double-double animal style wins out.
You walk in to the white-and-red themed eating establishment. You wait in the line (it’s 12:34pm, and it seems that everyone else had the same idea). You get to the counter. At the last minute you have a quick change of mind and with exuberance exclaim to the cashier, “I’ll have a three-by-three animal style!”
Then what’s next? Payment for your tasty burger, of course! You pull out your wallet, expecting to hear the price of what will be a much needed relief of your hunger.
“I’m sorry, we don’t take cash,” says the cheerful cashier whose nametag reads ‘Allison’. “We only accept food insurance. Also government Food-i-care.”
“Food insurance? That sounds awfully silly. Why would you need insurance for an everyday transaction between the burger-flipping establishment and yourself? It sounds especially silly since the cause of your being here is not exactly unexpected (you do get hungry about three times a day, every day). Why should you be forced to buy food insurance?” reasons your ever-alert mind. “I should be able to reason through this with a manager.”
“May I speak to the manager?” you ask Allison, with the utmost politeness.
“Certainly,” says now somewhat less cheery Allison, looking somewhat dejected that her services were not good enough for your rational inquiries.
A sharp looking manager wearing the white-and-red (and a nametag that says “Rob,” you wonder if his real name is Robert or if his legal name actually is what his nametag reads) comes out and greets you. “How can I help you, sir?” he asks.
“I’d like to pay for my cheeseburger,” you say in as straightforward a tone as you can muster in the face of all the shenanigans thus far.
“With money?!” asks Rob in disbelief. He begins howling with laugher.
“Yes, with money,” you say, the annoyance in your voice communicating to Rob that this, though apparently very funny, was not intended as a joke.
“You can’t do that! Who pays for goods and services with money?” exclaims the bewildered Rob, throwing his hands into the air.
“I do,” you say, crossing your arms.
Rob, looking very confused at never having encountered such an obstinate customer replies, “Well, you can’t. We’d love your business, but you see, we don’t have prices here.”
“You don’t have prices?” you ask.
“That’s right. We don’t have prices,” said Rob with a neener-neener tone in his voice.
“Well,” you retort, assured that the shenanigans surely could not have reached this far, surely. “Surely you could just tell me the price of my three-by-three and I could pay for it. You know the price of scrumptious burger meat, delectable cheese and sponge-dough buns; you know how much the rent and utilities cost for this spunky building; you know how much it costs to hire cheerful people to staff an In-N-Out; and you know how much profit you can make while staying competitive. Tell me how much one burger’s worth of that cost would be.”
“We actually don’t really know,” says Rob, in a matter-of-fact voice.
“You don’t know,” you say in disbelief.
“That’s right. We don’t know,” Rob explains flatly. “I’m sure somebody knew at some point. Maybe somebody has made some estimation. Maybe. All I know is that we don’t know. And that’s for sure. It’s not that we don’t take cash per say, it’s that we just wouldn’t know how to charge you.”
“But how do you normally get paid?” you ask in bewilderment.
Rob begins to explain the normal process, “We’ve negotiated contracts with food insurance companies. We wring ‘em for every cent that they’re worth. Sometimes we get a good deal. Sometimes we don’t. See that customer right there in the purple cardigan? His health insurance company is paying us $12 for his double double. But see that one over there in the pink t-shirt? She’s on food-i-care and that’s a bad deal for us. We’re only getting $3 for the same thing. We’re able to extort enough money out of the cardigan guy’s company to make up for it, though. So it works out. The problem for you is that we don’t actually know how much it costs.”
“Surely somebody does,” you say, as if trying to get an admission out of Rob.
“Nope,” says Rob with confidence. “Well somebody claims to, but nobody does. Every one of our deals is secret, and nobody wants to know how much we extort for our burgers, and no food insurance company wants the others to know how much they pay us. Otherwise the ones that we’re screwing would be upset. So since all these deals are secret, nobody knows.”
“Who claims to know?” you ask.
Rob’s eyebrows furrow; a black look comes across his face. “Food-i-care. They have interviewed hundreds of burger flippers, rated burger-flipping for how stressful a job it is, and how desirable it is to be employed in that manner. They’ve calculated the number of minutes to flip a burger. Then they calculate the national average cost for beef and cheese. And they figure out it should only cost $3 to make a burger. So that’s what they pay.”
You, being a big fan of the fresh ingredients and cheerful service at In-N-Out, and having seen the differences in price for fresh ingredients at the grocery store, ask, “Do they account for the fact that In-N-Out uses scrumptious burger meat, delectable cheese and sponge-dough buns? Surely this would make In-N-Out burgers more expensive than McDonalds.”
Rob shakes his head, “They do not account for such things. You’re probably right that our burgers actual cost is more than McDonalds’, but they don’t care. They’ve ruled that a burger is worth $3, so that is how much we get.”
“How do people decide where to eat?”
“Some of them are told where they can eat by their food insurance companies. Others just go to the most expensive burger joints they can find, since the food insurance is picking up the tab. Mr. Cardigan over there is usually at Le Burger Espensiv across the street every day; he comes here for a bit of variety.
“It sounds like there is no mechanism left for controlling rising burger costs,” you notice.
“You are right. Burger costs have been rocketing upwards and no matter how we adjust the wings, the rocket doesn’t slow down!” says Rob.
You get upset and say, “Shucks! I certainly wish there were some mechanism for controlling costs, improving quality and inspiring innovation in the fast food industry.” Your mind races. You once took an introduction course in economics. You remember that one of the turning points in the history of the world was the inventions of just such a mechanism. You remember that other ways of distributing goods and services had been tried and had failed throughout the centuries. But what was this miraculous system that, as an enchanted sword, slashed rising prices?
“The free market!” you exclaim, joy rushing in where there had only been despair.
Rob waxes poetic and crushes your optimism, “Alas, the food free market is dead! If only we had the wisdom and courage to bring it back!”