An Economic Look at McDonald's "Pink" Meat Filler

Posted by Wealth Wire - Thursday, February 2nd, 2012

A few days ago, reality star Jamie Oliver celebrated a victory over one of the world’s most popular food franchises- McDonald’s. From The Telegraph:

After years of trying to break America, Jamie Oliver has finally made his mark by persuading one of the biggest U.S fast food chains in the world to change their burger recipe.
McDonald’s have altered the ingredients after the Naked Chef forced them to remove a processed food type that he labelled ‘pink slime’.
The food activist was shocked when he learned that ammonium hydroxide was being used by McDonald’s to convert fatty beef offcuts into a beef filler for its burgers in the USA.
The filler product made headlines after he denounced it on his show, Jamie Oliver’s Food Revolution.
Now after months of campaigning on his hit US television show McDonald’s have admitted defeat and the fast food giant has abandoned the beef filler from its burger patties.

From a libertarian, free market perspective, Mr. Oliver’s endeavor is not something at all to despise. He simply used his television show as an outlet to educate the public on an ingredient McDonald’s adds to its food. He didn’t force the fast food giant to stop using ammonium hydroxide; McDonald’s simply bowed to public pressure and wanted to save face. This is how free enterprise keeps itself in check. There is no need for government oversight or intervention as long as private and specialized watchdogs are around to police certain industries.  Unfortunately, Mr. Oliver is looking to take his campaign one coercive step further:

US Department of Agriculture microbiologist Geral Zirnstein agreed with Jamie that ammonium hydroxide agent should be banned.
He said: ‘I do not consider the stuff to be ground beef and I consider allowing it in ground beef to be a form of fraudulent labelling.

Ironically, Zirnstein might not agree agree that the pink goo is meat but the U.S. government views it as safe.

Ammonium hydroxide may look unpleasant but one should consider why McDonald’s would use such an ingredient in their products. Take a look at beef prices in the U.S. over the past 20 years. Though the chart is unable to be replicated here, the price of a pound of beef has increased from about $1.10 in 1992 to almost $1.90 today. That’s almost a 75% increase! Meanwhile, according to the inflation calculator at the U.S. Bureau of Labor Statistics, what cost $1.10 in 1992 now costs….$1.76! Now of course economics is not a game of closed, static experimentation and correlation doesn’t always equal causation but certainly inflation has something to do with increased beef costs. Other factors can be attributed to the increase in the cost of beef as well such as cattle shortages and less than desirable weather.

But this again begs the question on why McDonald’s would use beef filler. This answer is quite simple as inflation not only robs savers and acts as a stealth tax but also gives producers an incentive to develop means to offset the increased price of their product by altering the size or makeup to offer a similar product under the guise of it being identical to the original. This is often called “stealth inflation.” How better to offset an increase in beef costs than mixing in a cheap substitute? Government aggregate data on inflation doesn’t ever account for such discrepancies. As John Williams, purveyor of the alternative government data measurement site, points out, such neglect on the part of calculating the true effect of inflation is purposeful:

In the early 1990s, press reports began surfacing as to how the CPI really was significantly overstating inflation. If only the CPI inflation rate could be reduced, it was argued, then entitlements, such as social security, would not increase as much each year, and that would help to bring the budget deficit under control. Behind this movement were financial luminaries Michael Boskin, then chief economist to the first Bush Administration, and Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System.
The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that. (my emphasis added)

Now it isn’t clear how long McDonald’s has been using beef filler in its hamburgers but one can float an educated guess and assume that doing such was done to offset an increase in the cost of beef. With the abandonment of the filler, there is no telling how long the famous dollar menu will last.

While Jamie Oliver used his professional credentials as a means to influence McDonald’s into changing its business practices (the fast food giant denies this but the PR campaign launched against them suggests otherwise), such is the market process. Both Oliver and McDonald’s forced no one into changing, listening to them, or purchasing their products. Unlike the government, neither utilized the threat of violence to garner certain results. And for that we should rejoice as the situation serves as evidence that peaceful engagement still trumps government intervention in efficiency and empowering consumers.

*Post courtesy of James E. Miller at Miller's Genuine Draft. He is an editor and contributor to the Ludwig von Mises Institute.


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