“A Test of Humanity”: Panera Closes Pay-What-You-Can Restaurants

Ron Shaich, founder of the Panera line of restaurants, attracted considerable media attention with his announcement that the company would open various pay-what-you-can restaurants in Dearborn, Michigan; Portland, Oregon; Boston, and Chicago. He called it his “test of humanity.” It may actually be a test of economics and the experiment failed. After nine years and huge debt, the restaurants will now close, according to Eater Boston

Shaich heralded the concept of offering the same food but at a “suggested donation price” He added in a Ted Talk “Would people pay for it? Would people come in and value it?” The answer is that rational actors seemed to overwhelm altruistic actors when it came down to forking over money that could be eaten for free. The restaurants fell roughly forty percent short of even covering the cost of the meals.

Shaich and his staff quickly saw the breakdown of the plan as homeless swarmed the restaurants. Some locations had to limit homeless to “a few meals a week” though it is not clear how they determined people were homeless. Nevertheless, in a 2011 interview Shaich simply said that “We had to help them understand that this is a café of shared responsibility and not a handout.”

That still did not make the business plan viable. Moreover, Panera was attacked by people who said that it was hostile and that it used security officers to intimidate people. Others objected to shaming conduct by employees to make them feel like they were abusing the system. That was not part of the Ted Talk.

Shaich later stepped down as CEO and the stores began to close. He later admitted that “the nature of the economics did not make sense.”

When I was at the University of Chicago, Professor Milton Friedman used to tell students “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” He also said “there is no such things as a free lunch.” Well, I suppose Shaich has shown that you can have a free lunch . . . just not for long.

71 thoughts on ““A Test of Humanity”: Panera Closes Pay-What-You-Can Restaurants”

  1. “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”

    No, the most important single central fact about a free market is that if you can’t afford to purchase food, you die.

    1. That’s not a ‘fact about the free market’. ‘If you don’t eat, you die’ is a fact about human physiology (and, really, the physiology of any other species). And almost no one dies of malnutrition in any occidental country (a few people with metabolic problems and a few drug addicts aside). Your point is contextually trivial.

      1. You changed my quote. I said if you can’t purchase food you die. It’s a statement about the market to the extent that food is only available on the “free market.” In most occidental countries, the government provides assistance to those who can’t afford to purchase food (and other basic necessities) on the “free market.” The “free market” only works for those who have something to exchange. I personally (according to my values) consider that fact to be far more contextually significant that Friedman’s.

        “The answer is that rational actors seemed to overwhelm altruistic actors”

        What the hell is irrational or altruistic about estimating the value of a good or service and volunteering to pay that amount? Answer: nothing.

        1. You changed my quote. I said if you can’t purchase food you die.

          Which is a foolish way of putting it, which is why I changed it.

          It’s a statement about the market to the extent that food is only available on the “free market.”

          Strange as it may seem to you, people can and do produce their own food. Michael Dukakis once said he never had to purchase salad fixings in season because it was all growing in his yard in the high-density suburb in which he lived.

          In most occidental countries, the government provides assistance to those who can’t afford to purchase food (and other basic necessities) on the “free market.”

          Actually, I think sectoral-specific subsidies are atypical outside of housing, medical care, and education. (They’re quite unnecessary in something frequently replenished for which the consumption is contingent upon considerations of amenity and taste; cash transfers would suffice and be more pareto efficient).

          The “free market” only works for those who have something to exchange.

          Nearly everybody does. By the way, food consumed at home now accounts for about 6% of personal income.

          I personally (according to my values) consider that fact to be far more contextually significant that Friedman’s.

          Your values aren’t worth much. That aside, Friedman’s intellectual project was to understand how economies work, not to strike silly poses.

          What the hell is irrational or altruistic about estimating the value of a good or service and volunteering to pay that amount? Answer: nothing.

          He’s referring to ‘self-interested actors’. This isn’t that difficult.

          1. When did “self-interested” become a synonym for “rational”? It’s not. And what do you mean by my values aren’t worth much? The (relative) values I place on things depends of my values. How I spend my time and money is a reflection of my values. But you probably can’t imagine what I mean. All values are determined by a free market! It’s nonsense.

            “Nearly everybody does [have something to exchange]”

            In the US, there are currently 2.3 million people in jail. Probably a majority of them are there because they have nothing to exchange. No assets, and no skills to offer on the market. When the number is that high, where do you think the responsibility lies?

            1. Probably a majority of them are there because they have nothing to exchange.

              No, they’re there because they committed crimes. People commit crimes because they are predatory, not because they are poor.

              When the number is that high, where do you think the responsibility lies?

              The 0,7% of the population who are in jail or prison, are, with few exceptions, guilty of having violated the law. N.B. about 60% of those convicted receive no time or receive only time served in county jails. You have to work at it to be remanded to state prison. (And most therein committed violent offenses). People have agency and are responsible for their own crimes. This is not that difficult.

              And what do you mean by my values aren’t worth much?

              I mean precisely that. You’ve already denied personal agency and elected to peddle the social fiction that the world’s troublesome people are just victims of the rest of us.

              1. I think there is a way to settle this no food/ you die game.
                If you don’t have water or a suitable substitute to drink, you die.
                I wanted to both expand upon and clarify the intial profound observation made about food.
                Also, if you don’t have oxygen to breathe, you die.
                I hope this helps to not only lear up the initial brilliant commemt about lack of food/ starvation, and add to that body of knowledge contributed by yyy/ anonymous, or whatever sock puppets are postingthese intellectual gems.

  2. Not only could the customers pay what they felt the meal was worth, but the employees paid themselves what they thought they were worth. Genius.

  3. Mr. Schaich says he performed “a test of humanity”, but what he discovered was “human nature”. All other things being equal, some people will pay less than what a thing is worth if they don’t have to pay full price.

    I do sympathize with his disappointment, but I think he was expecting honesty on the part of his customers, but invited them to be dishonest by allowing them to fix the price they would pay instead of fixing the price himself and allowing his customers to buy or not. He learned an expensive lesson.

  4. Another indication that commerce and philanthropy are two distinct sorts of human endeavour which should seldom if ever be conjoined in one enterprise. Let the gentlemen run his business as a business and then devote some part of his down time and extra cash to philanthropic pursuits.

    Some of the vagrant population are threats to public order in any venue and belong in asylums of one sort or another. Some are having problems in living that will resolve themselves in a matter of weeks. However, a great many are just examples of people who have failed comprehensively at adult life. You can send in social workers from the Salvation Army and try to connect some of them with stipended, term-limited internships and with vocational training programs, but that’ll skim off just a rasher of this population of hard cases. Mostly what you can do is provide austere, in-kind benefits so they can keep body and soul together. The scale of the problem is such that private charity can finance it. Local governments can assist by providing sheriff’s deputies to maintain order in shelters, food cupboards, and soup kitchens. No need for any superordinate authority to get involved. It’s also proper that local police and security guards have a low-tolerance for loitering and petty harassment of passers-by. There’s a time and a place for charity, and on-the-fly while you’re going about your daily business is seldom it.

    Common provision by public authorities has to assume and require a certain baseline of motivation and social competence, or, alternatively, a manifest incompetence that is insensitive to people’s efforts to over come it. Generating perverse incentives is a bad idea.

    1. These comments were exactly correct in all respects.

      Reminds me of when this one bum used to come in and take a shower in the sink at the cafe across from law school decades ago. It was a swell cafe and they were serving “thai iced coffee” with condensed milk long before the rest of the world discovered it.

      So this bum stanked the place up for a few days running. My wimpy classmates were too weak to complain for fear of getting branded as lacking compassion among the other law students who were all in line to kiss butt to one leftist clinic outfit or another. So they just ignored this big stinking vagrant. But I had no care for appearing to be a pinko, and so I went up to the counter and said why you guys let that bum take a shower in the sink everyday? it’s totally disgusting. If he’s here next week I & my study group stop coming. By monday he suddenly stopped showing up. bums smell like a combination of urine and booze and sweat. Once you get the odor in mind it’s hard to forget.

      I could have told Panera it would be a failure but they never asked me.

    2. Could it be a corollary ( follow from) this Panera mistake that “ending homelessness” in any location is a fool’s errand since like in Panera’s case the word gets out about free rent and homeless invade and overwhelm the city’s resources just like illegal aliens invading the US for the state/feds welfare resources?

      1. Illegal aliens cross the border to take advantage of all kinds of opportunities, not just the welfare benefits arrogant judges have insisted be provided them.

        A while back, Wm. Tucker wrote an article on this subject collating some studies. His conclusion was that the most powerful vector in influencing the quantum of vagrancy in a community was rent control.

  5. I actually respect what Mr. Shaich attempted to do and more importantly, how he went about doing it. This is something our federal government should take notice of…but they won’t.

    Just like our states are supposed to be the incubators of innovation, Mr. Shaich took his idealism and tested it in a few markets, instead of making this corporate policy in all markets. When idealism eventually meets realism, and it always will, rational people make adjustments.

    Irrational people, and/or those with a different economic worldview, don’t bother with small scale experiments. No, they force or coerce their vision on a grand scale; defying every reasonable and rational argument against its success. And when it fails, well that’s someone else’s fault. Obviously it was in the implementation and not the vision itself.

    Next up; the Green New Deal.

  6. I respect Ron Shaich. He tried to do something decent and it didn’t work nor would one have expected it to work. The difference between Shaich and a lot of the leftists we see on this blog is that he used his own money. The leftists on this list want to use other people’s money and most of them have never been adept at creating money by themselves.

    1. “The leftists on this list want to use other people’s money …..”

      You mean like Righty tighties? They tend to force systemic underwrituing of private business by Gov contract all the while screaming out about those dammmmmmm leftists! …In my experience, such broad brush strokes create nothing but discord.

            1. lol!

              “The authority of a grumpy middle aged man who knows an obnoxious shrew when he encounters one.”

              OK, I’ll give you that. As I come here to rant rave and vent I don’t doubt that I come off as shrewish….and to that end, thank G*d for places like this!

  7. The homeless prefer their state in life to being responsible with finances, jobs, landlords, utility companies, etc. For them it is about having the freedom to live as they choose without any accountability to anyone, no constraints knowing they can get by with gullible Americans who will give them a handout to buy what many Americans likes: alcohol, drugs and fast food.

    Some are truly mentally illl with bona fide Axis I psychotic symptoms.

    Most are addicts and Axis II personality disorders much like the prolific writers on this forum

    1. No, they don’t. There may be some small number who “prefer their state in life to being responsible …, but the majority of the homeless are there for reasons beyond their control. So shut up already before someone drops a house on you!

      1. but the majority of the homeless are there for reasons beyond their control.

        Only in the sense that they’re not very skilled at daily life.

  8. The mentally ill are better off on the streets than they are in a mental hospital. Drive by and throw em a burger from Burger King in a bag.

  9. I used to frequently visit Portland, living just a c.4 hour drive away in Washington State.
    Nice drive down the Columbia Gorge on I-84. Haven’t been to Portland much in recent years, but I wish I’d known that there was such a thing as a free lunch while the Panera program was still up and running.
    After a lifetime of hearing that there’s no such thing as a free lunch, I could have challenged that conventional wisdom before the Panera experiment folded.
    As things stand now, the experiment just seems to bolster that hackneyed “free lunch” saying, so the previous opportunity to test its validity is now out the window.

  10. Mr. Turley,

    The experiment revealed the dark side of human nature. What is free or scarce will be consumed regardless of the consumer’s means. The Boston Panera was nearby the downtown Boston Filene’s Basement store where fistfights were a staple on major sale days …none more spectacular than the annual wedding dress sale. After several decades trying to keep mass transit fares on an honor system Portland OR replaced honor with fare enforcement patrols. Humanity is frequently a casualty when greed or something like it is a motivator.

    1. Charles M.,
      You’re observation about revealing “the dark side of human nature” is spot on.
      As you can see from my earlier comment, an experiment like the Panera program appealed to my “dark side,” as well as revealing it.😉

  11. “He called it his “test of humanity.” It may actually be a test of economics and the experiment failed.”
    **************
    Actually, it succeeded. Shaich proved that hoary principle of economics that, if permitted, bums will always eat for free. It’s in the elastic nature of the bums and free food. The more free food provided, the more bums you have and vice versa. Not exactly Wealth of Nations-style revelations but at least our naive Mr. Shaich got a lesson in humanity that he was so sorely in need of.

    1. “Shaich proved that hoary principle of economics that, if permitted, bums will always eat for free.”

      Yes!!!!! Like remember when the auto industry ceo’s all flew to Washington in rtheir private jets to whine about their ‘losses’ and beg(force) a government handout????!!!

      Those dirty bums…..

    2. The more free food provided, the more bums you have and vice versa.

      No, there’s an upper bound to the quantum of vagrancy in society. It’s a very unattractive state of life for the overwhelming majority. It takes exceptional incompetence to fall into it.

  12. I work with the homeless. Many are mentally ill. Most are addicted. Many want to change their lives but are incapable of change. Some who find housing and care chose to return to the street because that’s the life they know and understand; and narcotics are plentiful. The system also works against them in subtle ways that is rarely mentioned in the press.

    So, no big surprise the homeless go where there is free food and warmth in the winter. No big surprise the economics didn’t work because a handout does not disrupt their life cycles: there is no attention to mental health, there is no attention to addiction, and there is no change to the system. In my opinion, Ron Shaich understood none of that, rather he wanted the self gratification from the feel good moment of a handout.

    $0.02

    1. It’s heartbreaking that instead of reforming facilities for the mentally ill in the 60s and 70s, we turned them out onto the streets to fend for themselves where they are often victimized. I don’t get the humanity — or the economics — in that.

      1. That’s a big myth. You had a state asylum census of 850,000 in 1955. A comparable figure today would be about 1.6 million. As of now, you might have 100,000 in state asylums, but you don’t have 1.5 million vagrants. You have < 600,000 vagrants, of whom maybe 20% are demonstrably schizophrenic or otherwise demented.

        1. Some of the clientele of the old asylum population have disappeared due to public heath improvements – e.g people with tertiary syphilis or Oliver Sacks' post-encephalytic patients.

        2. Others have been transferred to institutions more precisely adapted to their specific problems. People with senile dementias are in nursing homes. The preternaturally unintelligent are in group homes.

        3. The effects of schizophrenia can usually be sufficiently contained that outpatient psychiatrists and family members can supervise this addled population.

        4. You also have private asylums financed with state insurance programs.

        Twenty-four-hour care is hideously expensive and it's doubtful that more than an odd minority of the vagrant population would want it if it meant a loss of discretion over where they could move about.

    2. Actually Ron Shaich may have provided the substance for an interesting study. How did those free meals impact all the people involved? Did it make the servers turn mean? What did it do to their regular customers? Did it validate the feelings of some that justice is beyond their reach? I think a smart sociologist could do a lot with this story just like another sociologist did a lot by becomming a part in a gang as an observer. over a long period of time. [Book: Gang leader for a Day}

    3. Thomas……I agree about Mr. Shaich.. Most libs who want a warm fuzzy ” high” from “doing good”, have no idea what they’re doing.
      When hubby and I were deeply involved in homeless work, we had to be tested every 6 months for TB. That was just one of the many realities, and why now, in our seventies and with young grandchildren, It’s too risky, healthwise, for us to work closely with homeless.
      We found that a third of them were true, dangerous felons, and at least a third were veterans. Don’t know the stats now.

    4. I guess there are no silver bullets, but given your experiences do you have a list of suggestions? Sometimes I think that in order to have the highly productive top 20% to 10% of society…the Elon Musks of the world… we must have the long tail of not so dynamic people. Evolution diversifies our brains and bodies so that at least enough will prosper to keep life going. Not to say I’m even a 20% person.

    1. I wondering if Howard Schultz might try this kind of experiment on a grander scale with Starbucks, Mespo.
      It’d be a good way to get extra publicity for a potential 2020 presidential campaign, and he could revive the “Race Together” program and combine it with a “pay what you can” policy at Starbucks.

        1. Mespo, I admire Schultz but he too hasn’t learned about empirical thinking. He did, however, create a business model that on the surface appears to have been beneficent to his employees.

          1. Allan,..
            – In spite of the razzing Schultz got because of the boneheaded “Race Together” idea, I don’t have anything against him or Starbucks.
            I don’t tend to go there if I go out for coffee, but that’s just because I generally prefer an independent, locally owned coffee shop.
            I rarely purchase anything from Amazon for the same reason; in most cases, I’d rather spend $19.99 for a book at a local independent book store, instead of paying maybe $14.99 after logging in and going through the Amazon hoops.
            I haven’t heard much, policy-wise, from Schultz.
            But if he decides to run, I’ll listen to what he has to say…..he may already have well-defined beliefs and policy positions, but I just haven’t heard enough of him to know what those are.

      1. Los Angeles Regional Food Bank Teams Up With Starbucks And Feeding America® To Launch Starbucks FoodShare Program

        Starbucks FoodShare expected to donate 5,894,775 pounds of ready-to-eat food each year

        https://www.prnewswire.com/news-releases/los-angeles-regional-food-bank-teams-up-with-starbucks-and-feeding-america-to-launch-starbucks-foodshare-program-300712579.html

        This is a great program, and excellent idea.

        In the 2 years that I spent working at Starbucks (in my formative years), we literally dumped hoards of “arguably” fresh “still good” food into the dumpsters (for the raccoons).

        Some quirks are not-a-bad thing.

        1. Yes. And here, in LA, everyone drinks it — from the guy with the custom-paint job Ferrari (who sit next to me on the right) to the homeless person (who sit next to me on the left). Depending on the night, of course.

          I understand why the homeless person(s) hangs out at the ‘Bux,’ not exactly sure why the Ferrari driver hangs out there too.

          But hey, to each their own.

    2. Mespo, I think you are somewhat of an enthusiast for ancient history. I can’t remember the name of the Greek who said there was no proof that anyone would die if they jumped into a gigantic gorge. He did so and was never heard from again. Sometimes one must be empirical.

    3. No. Im call your BS.
      The test was really not valid because it couldn’t possibly have worked when the people involved had nothing to give.

      When I facilitated some groups I did not charge a set fee but instead did exactly what Mr. Shaich did, I requested what we called a ‘Love donation’ (it was throught he Church so that sounded apropos). i was very pleasantly surprised to see that most gave even more than I expected with a small minority giving very little. The classes were given in a relatively stable economic area and people had expendable income. It worked. Homeless people are at the mercy of everything. They don’t have reserves, they don’t have expendable anything but without food they will die. Without shelter they will die (more slowly but faster than you…). They have no recourse in the curtrent system because lawyers work fr cash and they are very picky about who they ‘work’ for. So a person who suffers PTSD, violence, subtle or extreme economic violence , will likely have little recourse and may turn to drugs etc…. There but for the GRACE of God…..

      This experiment was set up to fail. There are places set up like restaurants but meant for tyhe homeless….who are treated with respect and given what they need sans the riducule and debasement the thick headed and cocooned are apt to deal out to them. THey work. But you have to have aheart to actually recognize that….
      https://www.mnn.com/lifestyle/responsible-living/stories/at-bon-jovis-soul-kitchen-you-can-pay-it-forward-or-pay-with

          1. “I’m not a Social Worker. But you are most definitely a judgemental turd.”
            But just to clarify, I would be extremely proud to have the wherewithal to practice as a Social Worker….they that go willingly into the front lines of child abuse, drug addiction, homelessness, etc to do GOOD WORKS and help people recover from those ‘places’. Unlike, I dunno, Lawyers? who get some kind of sick glee when they actually PUT PEOPLE into those horrible situations… you AH’s all live in a really toxic bubble visitting your BS on the world like you are speaking truth when all you speak is hurtful twisted rhetoric. Blech.

            1. Actually, they’re half-educated pests enrolled in a state licensed pseudo-profession. Just looking at the curriculum of a social work program (especially the highly rated ones) persuades the laymen that it’s a pseudo-discipline.

              https://www.amazon.com/Social-Work-Survive-Colin-Brewer/dp/0851171885

              1. Open up schools of administration in state colleges and universities which train people to work in non-commercial apparats. You can have specialized courses of study for general public administration, general philanthropy, education, hosipitals and clinics, security services, welfare bureaux, and court systems.

              2. Open up schools of psychology distinct from academic psychology departments.. These would usually be post-baccalaureate programs. The bog standard school would have a clinical-counseling course and a school course. More elaborate institutions would offer an industrial-vocational course and a rehabilitation course.

              3. Train hospital and nursing home liaison officers on the job. The serious assessments of the hospital population are done by nurses and physical therapists anyway.

              4. Recruit sheriff’s deputies, public health nurses, and junior grade psychologists to work in the child-protective and foster care service. You can have them cross-trained in special certificate programs.

              5. Shut the schools of social work, shut the state licensing boards, and fire the extant population of social workers.

              Serious professionals who have to cross paths with social workers commonly find them to be pests who don’t seem to be subject to operational measures of competence.

              1. “Actually, they’re half-educated pests enrolled in a state licensed pseudo-profession. ”

                My my my…. and what, may I ask, is your ‘pro’-fession?
                Clearly you think you are a pro at something…..

            2. when all you speak is hurtful twisted rhetoric. Blech.

              Take it on the chin, bit*h. It’ll build character.

            3. Becka Gag……
              You’re very typically narrow minded.
              My husband, a much -revered trial lawyer in Texas for 45 years, was in charge of garbage and clean up at Austin’s largest homeless soup kitchen for 10 years. He also went with me in winter months to homeless camps where he helped feed freezing, hungry souls.
              One of his lawyer friends who is a seriously uber liberal, has belonged to many liberal organizations which work to eliminate world hunger……but the guy has yet to actually feed an actual human being one-on-one! So typical of liberals!

                1. Becka G:

                  “;P DON’T TELL ANYONE, i COME FROM A FAMILY OF jUDGES, lAWYERS AND mINISTERS…..”
                  ***********************

                  Now that’s a guest list from Hell at Thanksgiving: Always Right, Always Loud and Always Always!

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