Twinkie economics

The recent news that Hostess is back in bankruptcy court for the second time in a decade does not come as a surprise to me; I haven’t purchased a Hostess product in twenty years. This isn’t because I no longer have the same affinity for Twinkies, Ding Dongs and Suzy Qs as I did when I was kid, or because I am more health conscious as been blamed for decreasing sales. The real problem is that because as an adult I had to take greater care in my spending habits; there just isn’t the bang-for-the-buck. A pair of Twinkies might cost 15 cents when I was kid, but today it might be $1.09 to $1.69, depending on where you find them. It doesn’t help that they also seem to be rather smaller than when I remember. Hostess is blaming labor and pension costs, and by filing for this bankruptcy it hopes to “address” these issues.

Hostess isn’t the only junk food supplier that has had issues with remaining competitive with its pricing. In 1968, a Hershey Bar cost 5 cents. In 1970, it cost 10 cents; in 1974 it rose to 15 cents, and in 1977 it was 20 cents. The price went up every few years by 5 cents. Between 1986 and 1991 the average price stayed steady at 40 cents. In 1995 it was still “just” 50 cents. Those days seem a lifetime ago; Depending on where you buy it, a candy bar at 1.55 ounces can cost anywhere from 99 cents to $1.19. Over in the fast food business, in 1974, a McDonald’s hamburger cost 30 cents. In 1991, a “value priced” hamburger cost 59 cents, an attempt for the chain to win back customers from competitors; I recall that a Burger King Whopper was selling for $1 in the early in the early 1990s. Today a “value” hamburger only costs $1.09—still a “bargain” when the standard entrée burger costs $4 or more.

But surely these are only details; after all wages have increased proportionately with inflation over the years. Take for example that in 1978, a job in a small sheet metal fabricating factory in small town Wisconsin paid $6.25 an hour to start, about $13,000 a year. In 2010 that same job—provided it wasn’t exported to China—would have, according to a calculator devised by the creators of an Internet site called “Measuringworth.com,” the purchasing power of $43,550 in 2010. However, if you could find a similar operation in some industrial park, the starting wage would likely be no more than $10 an hour, or $20,800 a year—constituting less than half the purchasing power of 1978 levels had wages kept pace with the Consumer Price Index. Just to bring the point home in an even more blunt terms, the 1978 wage as a percentage of GDP would be worth $82,333 today. What that tells us is that workers’ wages have been depressed as a percentage of GDP to one-quarter of what they were in 1978. It also tells us that someone else has been profiting rather handsomely in the past 30 years, and it hasn’t been the middle and working class.

Thus the price of a candy bar rose at least 500 percent from its 1978 price. Those Twinkies rose 700 percent, while the McDonald’s “value” hamburger rose a “modest” 350 percent; people may have also noticed that the price of snack chips have also increased dramatically in recent months. Of course it goes without saying that the price of real food, like fresh meat, fruits and vegetables, have increased in three digit increments. But actual wages for that sheet metal job increased only 60 percent. But millionaires and billionaires have made out like bandits. According to one source I found on the subject, there were 10 billionaires in the U.S. when Ronald Reagan took office; when he left office, there were 52--and this in spite of the loss numerous manufacturing industries. Most of these billionaires made their money from "unearned" wealth. Today there are nearly 8 million people in the U.S. classified as millionaires. That is 1-in-30 adults. Yet the median income in the U.S. is $33,000; this means that half of all working Americans--who are the real creators of wealth--make less than that amount.