Panera, the ultra-successful maker of overpriced bread, has finally learned after nine years the economic principle: There ain’t no such thing as a free lunch. Since 2010, the company has owned and operated a chain of pay-what-you-can restaurants called Panera Cares, aimed at feeding low-income patrons. Describing it as an experiment in humanity, Panera said its goal was to aid the impecunious by affording them the option to contribute what they wanted. As any student in human nature could prognosticate, plenty of customers enjoyed a free lunch – and dinner – resulting in double-digit losses for the business.

Recently, Panera Cares closed its remaining outlet after multiple locations, from Portland to Chicago and Dearborn, had been shuttered across the country for the last three years. The Boston restaurant was the last straw for Panera, which saw its experiment recouping only about 60% of its total costs. So, what happened? The homeless visited the diner for every meal, students would “mob” the business without paying, and many refused to pony up their supposed fair share.

Capital attempted to rein in the freeloading, but the proletariat denounced the measures, accusing Panera of turning the restaurant into a hostile environment. (It’s a good thing customers didn’t unionize!)

Eater reported:

“Patrons reported security guards roaming the entrance and ‘glaring at customers.’ People working with at-risk residents described incidents during which they were rudely told off by managers for ‘abusing the system.’ Others described situations in which visitors trying to participate in the pay-as-you-can system (felt) shamed for not being able to afford the suggested donation amount.”

What makes this a gripping tale is its abundance of economic lessons: the free-rider problem, the opportunity cost, and the tragedy of the commons. What a time for economists to be alive!

Panera’s Commons Tragedy

In economics, the tragedy of the commons happens when many individuals try to obtain the maximum benefit from a readily available resource for personal gain without any contribution. As it continues, the act eventually harms those who cannot enjoy the benefits, and the resource eventually is wiped out.

The term was coined by economist Garrett Hardin, who wrote about a pasture without property rights and the inevitable consequence of overgrazing cattle. Such an event took place when the Pilgrims landed in America, practicing communal farming at the suggestion of Thomas Weston, a wealthy iron merchant who funded the Mayflower. No farmer had an incentive to care for the land, but there was an incentive to exploit the property as much as possible. The situation became so dire that the Puritans stole neighbors’ food, took additional supplies, and picked crops before they were ready. By the end of it all, everyone was starving.

What we have here is Panera’s commons tragedy. 

The company had a lofty goal of ensuring the needy would no longer go hungry by providing customers with the option of paying what they could. Just like the early settlers who felt it was morally sound to respect the property and their peers, some Panera patrons thought it was right to pay for their consumption. Unfortunately, the something-for-nothing crowd outweighed these fine folks and took full advantage of whatever they could get their hands on.

There are many reasons humans behave in such a reprehensible manner: entitlement, envy, freeloading, or they were not taught proper manners by their parents. The homeless, of course, are tapping into survival instincts, so it is difficult to fault them. But it is the people who should know better who are the real problem.

This should serve as a lesson to all property owners. As legendary thinker Homer – Homer Simpson, that is – famously said, “Thou shalt not take moochers into thy hut.”

Intentions

Like the socialists who claim they want to help the less fortunate, Panera had the right intentions in handing out a meal to those who can’t afford it. However, also like the socialists, the breadmaker discovered that socialism, even if it is voluntary, never works. We can thank the heavens that some policymaker was not influenced by Panera founder Ron Shaich to pass a law mandating restaurants and supermarkets to adopt a pay-what-you-can business model. We would all be starving by now.