UpWorthy is a website that packages video clips of people making convincing progressive arguments in impressively catchy ways so that they almost all go viral. Elizabeth Warren, whose propensity for catchy bluster and lack of substance I’ve commented on before, attempted to do some mathsplaining at a congressional hearing this spring, which went viral when UpWorthy featured it this week. Unfortunately, while she did her math right, she forgot (or showed she’s never understood) her economics. (The key bit begins at about 2:30.)
Her claim comes in two parts: According to some analysis (which has no realistic basis either, and I’ll get to that in a moment), if the minimum wage were increased to $10.10 an hour, the price of her favorite campaign-trail sustenance, a McDonald’s No. 11 meal, would increase by 4 cents, to $7.23. The man she’s interrogating, apparently a restaurant owner himself, doesn’t take issue with that statistic but responds that he runs a full-service restaurant, not a fast-food business, so his cost structure would look different. He asks her to “appreciate the distinction.” She doesn’t. Warren says, “I get your point. Maybe it’s only 4 cents on $7.19, but if your entrees are $14.40, let’s see how fast we can do the math, are you telling me you can’t raise your prices by 8 cents?”
This is silly. If the relationship between the price of a meal at McDonald’s and the increase in the minimum wage is what her model says it is, this tells you absolutely nothing about the relationship between wages at a full-service restaurant and its prices. The cost structures of the two restaurants are, of course, completely different, as are their wage points (as the restaurant-owner pointed out), the elasticity of the wages they pay with respect to the minimum wage, and the elasticity of the demand for their products with respect to price. Warren’s multiplication is right. It just lacks any relationship to real economic evidence or theory whatsoever.
Her original analysis about how an increase in the minimum wage would affect the price of meals at McDonald’s looks equally hare-brained, inasmuch as such a model actually can be accurate: I don’t know where she got it, but a simplistic arithmetic calculation of the impact based on ballpark information we do know (how much such restaurants spend on compensation and assuming most McDonald’s wages are either minimum-wage or linked to it) suggests that the price increase on a No. 11 meal would be just under a dollar, nowhere near the 4 cents Warren claims. (Obviously that doesn’t account for the fact that economic relationships in the real world aren’t static and arithmetic, etc., but Warren’s 8-cents comparison ignores that and more.)
That debate isn’t the only time Warren’s engaged in some totally illiterate equations — viz. her proposal to set rates for unsecured years-long loans to students at the same rate the Federal Reserve makes day-long secured loans to national banks, the economic absurdity of which is self-evident (a Brookings Institution higher-ed expert basically laughed it out the door). Jonathan Martin of the New York Times ran a story on Monday about how Warren looks like the left wing of the Democratic party’s pick for the presidency — the enthusiasm for her in that quarter should confirm that the far-left base has about as much attachment to economic reality as you’ve always suspected.