McDonald’s sample budget dispute has blown up on the web and it now, unfortunately, warrants a response. There have been a variety of points made, but most have missed what I think is the most salient critique of the argument being advanced by the likes of Think Progress: why is the cost of living so high in the first place?

Tearing down policy proposals is unappealing to those who want things to get better for low-wage workers in this country. Instead we should ask what policy changes would resolve the apparent mismatch in wages and cost of living. But first, some comments about the budget itself.

There were a lot of misleading descriptions in the original piece. The claim that there was no budgeting for food and clothes is silly. That $800 in spending money is for expenses which aren’t fixed but fluctuate month to month, like food and clothing. Though, I can see though why young middle class people might think it was for “shopping with the BFF.” Or bar-hopping, which is how I’d spend it.

Furthermore, this includes a line for savings, which is pretty impressive. I don’t make enough to save $100 a month and I’m only feeding myself and my cats. And if you’re paying $100 for cable and phone, that’s not a bare bones plan. As for rent,  $600 is well within normal in most cities, especially if you don’t live downtown in a cute little townhouse.

Regardless of the misrepresentation, this is still a pretty tight budget. So, what could policymakers do to make it easier on workers? Well, they’re already doing quite a bit in the form of food stamps, housing projects and more. (Which also was not considered by the original commentary). To get some idea of how much, I plugged in the income numbers for a family of four here. Turns out the “sample worker” would be getting at least food stamps and Medicaid, which is probably why those health care numbers are so low.

It also means workers have no impetus to demand higher wages. This combined with the “ground floor” mentality created by minimum wage laws means McDonalds has no incentive to pay higher if they can.

Because firms face the same information problems as everyone else, they get their standard price points from minimum wage laws when they exist rather than using other methods, like negotiating with workers.

But how else could policymakers help McDonald’s workers? Minimum wage increase can’t do it, because every time we inflate the wage the extra cost that isn’t shed in layoffs, gets passed on to consumers. So, yes the wage will go up (if you still have a job), but so will the cost of all those expenses. What will help are measures to lower the cost of living, thus rendering a “living wage” quite a bit lower.

Reducing taxes would also help. If we taxed corporations less, they wouldn’t pass as much cost on to consumers in the form of higher prices. If we taxed McDonalds less, they may even pay more. Right now U.S. corporate  taxes are some of the highest in the world, and we’re feeling it. We could also stop withholding income taxes until you hit a certain level or opt in. Because many of these people should be exempt from paying some taxes, but end up doing it anyway because it takes information and time to request no withholding.

Or we could get rid of rent controls, which offer cheap housing for some, but higher prices for everyone but those lucky few. Or  price supports could be reduced for wealthy corporate farmers, which make food cost more to the average consumer. Or all the trade barriers which drive up the price of consumer goods. The first one to go should be the sugar quota, which forces food producers to use higher-cost, less healthy high-fructose corn syrup instead.

We don’t need more regulatory baggage to fix the mismatch between living expenses and wages, we need less. Otherwise, we’re spinning our wheels trying to keep up with our own distortions.