Carpe Diem

What can we learn from free Internet access at McDonald’s?

Who does a better job of serving poor and low-income Americans and students by providing free, high-speed Internet access to those who can’t afford it at home – the government or the market?

Well, there are 15,000 Wi-Fi-enabled public libraries in the country that provide free Internet access. But many public libraries are closed when people and students actually want to access the Internet, like in the evenings, on weekends and on holidays.

The WSJ points out today that McDonald’s has 12,000 Wi-Fi-equipped locations in the U.S., and Starbucks has another 7,000, and they both offer free access, even for those who don’t buy anything. Unlike public libraries, McDonald’s and Starbucks are open in the evenings, on weekends and most holidays.

In terms of addressing the “digital divide” or “Internet gap in education,” you could make a case that the profit-maximizing, private sector is doing a better job than the public sector – McDonald’s and Starbucks have more locations and longer hours than the limited-access public library system.

There’s another issue here, and it’s related to my WSJ article last week with Don Boudreaux about the non-stagnation of America’s middle class (and lower income Americans).  One of our main points was that personal consumption expenditures on life’s “basics” (food, clothing, footwear, cars, housing, furniture, appliances, electronic goods, etc.), as a share of disposable personal income, has been declining consistently over time, thanks to the decline in the real cost of goods produced competitively by the market. In a post on Cafe Hayek following our article, Don wrote:

“Care must be taken when measuring consumption quantities according to the amounts or the proportion of real income spent on various consumption goods.  Suppose a statistician who died in, say, 1973 is resurrected today and immediately hurried to the task of measuring Americans’ ability to communicate today as compared to the mid-1970s.  Being unaware of the huge change in telecommunications products over the past 40 years, that statistician might conclude that Americans today are far worse off on at least one dimension of communications: talking in real time to people who are more than 20 or 30 miles away. The reason for his dreary conclusion is that the amounts that Americans spend today buying long-distance telephone calls within the United States has plummeted, both absolutely (in dollar terms) and, of course, also as a portion of household expenditures.  But obviously such a conclusion by this statistician would be a great mistake.

Consumption expenditures change with changes in the prices of the goods and services consumed or with changes in the quantities consumed (or both).  A once-scarce and high-priced service (long-distance telephone communications) that is now super-abundant at the margin (and, hence, priced at $0) shows up as being unconsumed if the statistician looks only at the amounts of money spent on the service.”

MP: It’s worth noting that Internet access at McDonald’s and Starbucks is another example (like long-distance phone calls) of how consumption of a previously expensive service – high speed Wi-fi – that can now be consumed for free at retailers, won’t show up as a “consumption” expenditure if we only count money spent on Internet access, and that will distort a comparison of consumption today to a previous period. Millions of hours of Internet access are now being consumed for free, which obviously improves the lives of millions of people every day, especially low-income Americans, and it’s not captured at all using traditional measures of consumption spending.

Also, free wireless Internet at McDonald’s and Starbucks is another example of how consumption inequality has decreased over time – the high-speed Internet access that many of the wealthiest Americans have at home probably isnt’ that much better than the Wi-fi a teenager can access at the local McDonald’s.

HT: Eamonn

24 thoughts on “What can we learn from free Internet access at McDonald’s?

  1. “the high-speed Internet access that Bill Gates has at home probably isn’t any faster or more reliable than the Wi-fi a teenager can access at the local McDonald’s.”

    Well, no. Bill would almost certainly have diverse services (more than one carrier providing service on separate physical facilities), and fiber running at gigabit speeds rather than DSL (6 Mbs) or cable (10-30 Mbs) access.

    So for reliability (don;t forget Bill will have generators, also) Bill wins.

    As for functionality, the McDonalds Wi-Fi probably works fine for the majority of consumer tasks, email, bill paying, etc. On the other hand, Bill can download a 12 Gig BluRay movie in the bat of an eye.

    My point is that while I understand and agree with your point to some degree, well, money spent per consumer does make a difference.

    Unless the Gov’t does it, of course. Then it is 1/2 as efficient and costs twice as much.

    • I buy internet access in Maryland and have been without power for a total of 11 days out of the last ten years; in other words I had internet access 3639 out of the last 3650 days. The cost of generators is expensive. Also, since I have had a smart phone the last four years, meaning that even during a power outage I still have internet access, I have been without internet for only 3 days in the last 10 years. I doubt Gates has a more reliable connection than I.

      The law of diminishing returns and all that. Even if Gates did have a more reliable service, it isn’t that much more reliable, no matter how much more he’s spending than my $69/month.

      • and here in Raleigh, NC, Time/Warner has the exclusive franchise (ie, monopoly) for cable-based home communications that aren’t DSL.

        Some months ago, questioned about that monopoly, their reply was, “prices to the consumer would increase if competition were allowed.”

        Yeah, really.

        • so the moral to the story for the 12 year old is:

          1. nothing is really “free” no matter whether it comes
          from McD or the “govt” – both take money from people to provide the WiFi.

          2. Cable does the same thing and if not given an exclusive franchise, they will screw customers over even more?

          so… is it better to let cable screw people over or let govt do it for cheaper but less efficiently OR

          behind DOOR #3 – the govt only lets the cable company make a certain profit percentage – like we do with electricity in many places?

          OR behind BONUS DOOR #4 – Govt should not regulate Cable OR Electricity and let them charge whatever they can get for either from people?

          • Ah! That’s an easy one. Any 12 year old with any tiny amount of economic sense knows that bonus door # 4 is the correct answer.

            That 12 year old also knows that utilities love door # 3 as they are guaranteed a percentage of profit no matter what happens or doesn’t happen.

            Answer #1 is correct in that consumers ultimately pay all costs, but incorrect as to government providing WiFi. Government provides nothing, as it has nothing it hasn’t previously taken from someone else.

            Selecting answer # 2 requires a a profound ignorance of basic economics and human nature.

  2. don’t know about libraries elsewhere but in my area, the WiFI is accessible from the public lots and after hours.

    and the schools are starting to do the same thing including getting into wider area WiFi in rural areas so those kids can have equal access to what their suburban counterparts have.

    The internet is fundamental to public education these days.

    • What make the internet fundamental to education? From everything I’ve seen teaching stats at the local community college, students relying on technology, rather than good old fashion brain cells, understand the material far less.

      Technology is over emphasized in education and the internet is definitively NOT fundamental, merely supplemental.

  3. i do like Mickey Ds cheap coffee and refills. And I do like the wifi access. But unlike the public libraries the author mentions. they do not offer people the computers themselves to access the internet, nor the printers to print out documents they may need. nothing would make me happier than to see the private sector step up and provide such basic services to the growing millions of poor people with and without employment and/or money to afford access to the worldwide web and the computers which make it accessible. but realistically, we should know better than to think the private for profit sector is going to offer these services for free to the working and unemployed poor. i think we should know better because every day millions struggle to make ends meet, be it pay their rent, purchase food, put fuel in their car or dollars in the public transport fee box to get to and from work or the grocery store. i am living this live right now, and i see people all around me who are as well. and there is no private sector to help them or me out. and all around me i hear people talk about trying to find some work. Mickey Ds is a nice refuge for many poor people to go out and eat and feel better about themselves, even if the food is not really good for you. and charity is not enough. there is not enough charity to meet the needs of people. were it not for the government and its food stamps and unemployment insurance payments and welfare payments and heating subsidies etc. i am sure people who are really struggling to get by would be in a whole lot more pain emotionally and psychologically. the new normal says if we can get to 7 percent unemployment we would have done great in america, more so 6.5 percent according to many economists. well, seriously, that means leaving tens of millions of people behind. and in the present context, many more millions are being left behind. not having access to decent wages and a sense of dignity which comes from full employment is a total drag. so before we get excited about Mickey Ds and the almighty private sector for profit economy, let us remember the truth of the new normal: millions who are ready and willing and skilled, educated and motivated, cannot find decent employment and are lucky to be even able to afford to go to Mickey Ds for a Big Mac.

    • They already have its called an internet cafe. But of course you do have to pay for it. They have been around a long time, the first instance was in 1991. But compared to the cost of a wi-fi access point as well as the internet access to the location there is a significant cost of running an internet cafe. You have to periodically re-image the machines since they tend to aquire all sorts of viruses, and get junked up in terms of disk contents.

    • kevin

      I’m driven to tears by your incredibly sad story, which I assume you were able to post here by using one of the taxpayer provided computers and the internet access you so richly deserve, at your local library.

      But kevin, don’t you and other unfortunates like you realize you that you can access wifi networks from your iPhone?

    • Kevin, the McD’s “free wi-fi” isn’t free… it’s paid for out of their profits. Period.

      Neither is the library’s “free internet access” free… it’s paid for out of their budget, which is “paid for” by tax revenues and direct user fees.

      Nothing is free, and everything “the government pays for” is actually paid for by taxes it’s collected from people who’ve either earned it or had it taxed back by the government from money given to them BY the government.

      My 12-year-old grandson understands this, since I explained it to him a few months ago. He’d never thought about “where the government gets the money to pay for things,” either, before I led him to the realization.

      Find some wealthy person to give or loan you a copy of Atlas Shrugged.

      Oh, and if you get a raise, please buy an “enter” key and learn to make paragraphs, ok?

      Thanks!

      • Alan

        Have you also explained to your grandson that government borrows money in order to spend more than it currently collects in taxes, and that repayment of that borrowed money will require taking money from him that he hasn’t even earned yet?

    • Computers in libraries in poor areas are often paid for by the Bill and Melinda Gates Foundation. That is certainly the case where I live. It is a mistake to think that anything on government property was put there by government.

      In any case, a huge shift has occurred among young people who are not really interested in computers anymore. They use their cell phones, and consequently they don’t have to worry about wifi hot spots. I don’t think I have ever seen anyone in McD’s using the wifi with a laptop (in Barnes and Noble, yes; McD’s, no). The “digital divide” doesn’t exist anymore, partly because its fundamental premise (that poor people cannot afford computers) is now out of date.

  4. in the private sector, everything becomes cheaper, easier to use and more reliable continuously. Getting free wi-fi even at MacDonalds is a sign of that.

    In the public sector, including the military, everything becomes more expensive, clogged, and less reliable continuously.

    You gotts sunset fedeal agencies every 20 years, and start with a fresh slate.

    BTW–I see the private sector is now providing escort for ships around Somalia. Cheap solution,no taxpayer expense.

    Good bye US Navy? Worth thinking about…..let shippers provide their own escorts.

  5. As a wealthy 1%er, I have good Internet access in all of my homes and offices. But when I’m driving down the road and a matter comes up that needs immediate attention, I invariably turn into the nearest McDonald’s and open my laptop. While I could use it for free, I usually buy the large $1 soft drink they have been featuring for over a year now, which is less than that same soft drink cost years ago.

    McDonald’s is doing a great service to 1%ers like me, and to the other 99% as well.

  6. Good points, Professor, but it’s worth noting that wi-fi at McDonald’s and Starbucks is not “free,” at least in the sense that nothing under the sun (except for sunlight) is “free.” Assuredly McDonald’s factors in its WiFi costs in some way—either via higher prices at the cash register, or lower wages for its employees, or a combination of both; so either consumers or employees, respectively, or both, are paying for the WiFi in some way. I guess “free” is just a shorthand way of saying “not paid for at point of purchase/use,” in the same way that socialist countries offer “free” health care. Unless I’m wrong about this, in which case I invite all corrections.

    In any case you’re right that WiFi much more available and abundant than it used to be, and at a much lower cost, thanks to the market.

    • dp-

      not necessarily.

      i doubt that mcdonalds is altering wages or prices to pay for wifi.

      it’s marketing. they hope to drive more business by offering it.

      if you can get 1 more customer a day to come in and buy a $6 lunch and $2-3 in profit, this pays for itself in no time and is a helluva lot cheaper than a store remodel.

      keep in mind that the restaurant likely already had internet service to communicate with corporate etc.

      they are really just buying a wifi router which costs next to nothing.

      this is just cheap and effective marketing to make mcd or sbux incrementally more attractive as a place to eat/kill time when traveling or between meetings.

      if you generate incremental revenue from an investment, you do not need to raise prices nor cut wages to pay for it.

    • That seems like an unfair assumption. You assume that they must be factoring in the costs in other ways; by increasing the price of their products, or by lowering wages for employees.

      Both seem incredibly unlikely. If this were the case, why offer free Wi-fi at all? Surely they can attract more customers with lower prices, and attract better employees with higher wages.

      The answer of course is that McDonalds and Starbucks both offer Wi-fi under the assumption that they will bring in *more* customers, meaning bringing in more profits, which covers the cost of Wi-fi and then some.

        • Well, I’m not an economist either, DP. I participate in the discussions at Carpe Diem because I wish to learn from Mark Perry and from his customers. The positive tone of your reply to morganovich and to M G leads me to believe that you, also, are here to learn from others. If so, I hope that you continue commenting so that I can learn from your questions and their responses.

  7. mark: “another example (like long-distance phone calls) of how consumption of a previously expensive service – high speed Wi-fi – that can now be consumed for free at retailers, won’t show up as a “consumption” expenditure if we only count money spent on Internet access”

    I just realized that my consumption of knowledge from Mark Perry, Don Boudreaux, Russ Roberts, and others will likewise not show up as a consumption expenditure. Twenty years ago, I would only have gained knowledge from them after some form of expenditure: tuition; or perhaps magazine or book purchase. Today, I can learn from such intelligent men at a marginal cost of near-zero.

  8. In the 80′s, the corporation I worked for set up a series of teleconference rooms in every major regional office. Each cost about a half million dollars, and had a part time technician assigned to manage it. The technology was so cutting edge that it was “down” a significant portion of the time, and of course, we could only conference with the other two dozen offices.

    Now each of us has a free teleconferencing Skype app on our computers and phones. Somehow the CPI fails to meaure any of this. I have four working teleconferencing “rooms” now in my house, and three of them are mobile.

    If we did a reverse CPI, where we take every product or service available now and traced back the historic price, the actual deflation rate would be outrageous. It would be absurd. The real cost of living is a mix of the conventional CPI and this absurd CPI. The standard of living improvements are vastly understated.

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