I was combing through some old posts gathering research for an entirely different topic when I came across an old post that connected so many dots, I figured I had to write this post to try to paint a picture for everyone.

Back in September 2007, Trent over at the Simple Dollar wrote this post about grilling your own burgers at home vs. buying a $0.99 double cheeseburger at McDonalds. It was right around the time I started tracking inflation in my “basket of goods” category too so hopefully this will make sense (connect the dots).

Using Trent’s math

3 pounds hamburger @ $1.99 lb. = $5.97
16 slices cheese, store brand = $1.99
16 hamburger buns, actually 2 packs of 8 = $3.98
1 small bottle ketchup = $1.50
… for a total of $13.44. One doesn’t have to pay sales tax on these products as they’re staple foods. 16 McDonalds double cheeseburgers, on the other hand, cost $17.12.

These numbers were taken from the post back in September 2007 so flash forward to April 2008. Using my numbers for steak (sorry I’m not tracking ground beef), I have written this post outlining how beef prices have increased 7.7 percent from September to today and bread has gone up 13 percent.

So if we do the adjusted math,

3 pounds hamburger @ $2.14 lb. = $6.42
16 slices cheese, store brand = $1.99
16 hamburger buns, actually 2 packs of 8 = $4.49
1 small bottle ketchup = $1.50

So the new cost with just the two items changed is now $14.40. I’m not sure how much cheese or ketchup have gone up and I’m making a ratio assumptions on the buns and beef similar to the regular bread loaf and steak.

So if these ingredients are now $14.40 then the homemade cheeseburger is now $0.90. Getting real close to that $0.99 price and you didn’t have any cooking labor involved huh? If cheese and ketchup went up then it’s now a wash but even if it isn’t a wash, all you have to do is wait until September 2008 rolls around and do the math again and you’ll find that cooking your own burger is more expensive than buying a $0.99 Double Cheeseburge (assuming McDonalds doesn’t raise prices).

But what is the point of revisiting this anyway you ask? The Digerati Life pointed out the whole frugalism vs. capitalism debate and I pointed out that as long as we live in an inflation based economy, it is impractical to focus on frugalism as a way to get ahead economically because it erodes your quality of life. Instead of spending 10 minutes at McDonalds eating, you waste hours grocery shopping, cooking, and cleaning on the premise you’re “saving” money when that time should be focused on earning income or researching investments that will yield returns greater than the time invested. It boils down to a basic ROI/TVM calculation.

The actual post I was researching was on home gardening. I’ll probably post that next week but it is similar along the lines of this post comparing an industrial farmer to a home gardener – there’s no contest!

Most people have an intuition about whether something is of good value or not and the success of McDonalds (billions served) is an indication that this company knows how to provide good value to their consumers and explains why their stock price has increased 14 percent from $50 in September to $57 today but they’ll eventually struggle with inflation too but they have a much wider set of options to mitigate prices increases (leverage purchasing power, reduce labor, put pressure on vendors, etc).

I hope Trent posts a follow up on September 12, 2008 to factor inflation into the equation.