Gavin Newsom, Panera Bread, and a Case Study in Political Graft

Beginning April 1, California restaurants will have to start paying workers at least $20 per hour, up from $16. Well, most restaurants.

There’s a common perception that politics is all about serving the public interest, a noble arena in which, in the words of David Brooks, people “develop the highest virtues.”

This is bollocks.

The truth is that politics is largely the art of doling out favors to friends and special interests. This idea has been explored by public choice theorists (more on that in a minute), but it has also been hilariously mocked in Seinfeld.

In “The Gum” (Season 7, Episode 10), viewers once again meet Lloyd Braun, a childhood acquaintance of George Costanza who comes from the world of politics, having worked on David Dinkins’s mayoral campaign.

Because politics is in his DNA, Lloyd is eager to dole out favors. The thing is, Lloyd no longer has political capital because he left after suffering a nervous breakdown, presumably from politics. So his “favors” now involve things like giving out gum that apparently isn’t very good (Jerry says it tastes like lo mein).

Jerry doesn’t want gum, but several times, he accepts it to be polite. This prompts Lloyd to set Jerry up with his “gum guy”:

LLOYD: The importer’s right in Chinatown. I’ll introduce you to him. You can get it whenever you want.

JERRY: It’s not necessary.

KRAMER: Hey, Jerry, you know, Lloyd wants to do you a favor.

The scene is hilarious and gets at the weird, transactional nature of politics. But political favors in the real world are less funny.

A case in point is California’s new minimum wage law, Assembly Bill 257.

Beginning April 1, California restaurants will have to start paying workers at least $20 per hour, up from $16, because of the law, which was signed by Gov. Gavin Newsom (D-CA) in 2022. Yet keen observers noted the law doesn’t apply to all restaurants. A carve-out was mysteriously included for “chains that bake bread and sell it as a stand-alone item.”

Bloomberg News recently reported that “the specificity of the exemption has puzzled observers for months,” and reporters at a press conference asked Newsom about the exemption, which, they noted, would benefit restaurants such as Panera Bread.

“It’s part of the sausage making,” Newsom tartly replied. “It’s the nature of negotiation.”

Newsom’s non-answer wasn’t helpful, but others began asking questions that led them to Greg Flynn, the owner and CEO of the Flynn Restaurant Group.

Flynn is the second-largest franchise operator in the world of Panera Bread, which, it turns out, bakes bread and sells it as a stand-alone item. It also turns out that Flynn and Newsom are old acquaintances. The two men went to high school together, and Bloomberg reports that Flynn has a habit of name-dropping Newsom, with whom he texts and to whom he writes $100,000 campaign checks.

It further turns out that Flynn was not a fan of Newsom’s law.

“It would effectively kill the franchise business model in the state,” Flynn explained in a 2022 article, “putting at risk the more than 75,000 local businesses and 728,000 jobs in our franchise sector.”

This is, of course, one of the problems with minimum wage laws.

Everyone likes a bigger paycheck, but minimum wage laws come with serious trade-offs that often go overlooked, including higher consumer prices, increased unemployment, reduced future earnings, and decreased benefits.

For example, restaurants such as McDonald’s projected the new wage floor will increase labor overhead by $250,000 at each location annually. These costs will indeed wreak havoc on franchises and workers in California, and no one knows this better than Flynn, who has been opening and operating restaurants for decades. 

Fortunately for Flynn, his restaurants may be exempt from this economic carnage. He built a cozy relationship with the governor, who, according to Bloomberg sources, “pushed for” the carve-out. 

Many Newsom defenders will argue this is not proof of political cronyism, and few will trouble themselves trying to find a logical reason why restaurants that bake and sell bread should be exempt from a law that other restaurants would be shut down for ignoring.

Regardless, it’s difficult to believe this is not old-school graft and political cronyism. (In response to backlash, Newsom is now arguing that Panera is not exempt from the law.)

Indeed, California’s “Panera Bread exemption” could be a case study in public choice theory, a field of economics James Buchanan once dubbed “politics without romance.”

Buchanan, a pioneer of public choice who won a Nobel Prize for his research, understood that politicians and bureaucrats don’t become angels when they enter city hall or Congress. They arrive at decisions just like the rest of us normies: through self-interest.

“Government is not a benevolent social planner but rather a collection of individuals pursuing their self-interests,” Buchanan observed.

Throwing around favors might be fun (just ask Lloyd Braun), but it has nothing to do with the public interest. 

And as California’s new law shows, empowering government officials to make economic choices for people doesn’t just lead to a less prosperous society. It often results in a less fair one.

This article originally appeared in The Washington Examiner.