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Breaking A "Pay-It-Forward" Chain Isn’t Being A "Cheap Bastard." It’s Good Economics.

Starbucks gets great PR when a chain of customers "pays" for each other’s coffee. But that’s not what’s really going on.

[Image: Flickr user Logan Ingalls]

When you combine coffee with a poor understanding of economics, two things can happen: You feel smug and self-congratulatory, or you demonize the wrong person. Both happened at the same Starbucks this week, when a chain of 378 people "paying it forward" was supposedly broken by "some cheap-ass" in a white Jeep.

"Cheap Bastard Ends 10 Hours of Starbucks Customers ‘Paying it Forward’" was Gawker’s headline summary of the event. The news, which began in a local paper, even made the Today show.

Everyone seems to misunderstand what’s actually happening during these "pay-it-forward" chains, which occasionally develop at this and other coffee joints. So let’s break it down, at the end of which you’ll understand this: The woman in the white Jeep is innocent. And nobody involved in these chains should be overly pleased with themselves.

Here’s how these chains work: Some generous customer, feeling moved by whatever motivational book they just read, pays for a drink and then gives Starbucks some extra money and says they’re paying for the next customer’s drink. In this week’s case, the Tampa Bay Times explains what happened next:

People ordered a drink at the speaker. When they pulled through to the next window, the barista, Vu Nguyen, 29, leaned through and said with a smile that their drinks had already been paid for by the person in front of them. Would they like to return the favor?

Of course, this new customer—let’s call her Customer Two—doesn’t want to be the jerk that doesn’t return the favor. But this is also the easiest favor to return, because no favor is actually required. Customer Two already planned to pay for a drink; but now, given this scenario, when she pays for her drink, she can feel that she is technically paying for the drink of the person behind her. It’s charity for the same cost of treating yourself!

Here’s the thing, though: Technically, Customer Two was always just paying for herself. When Customer Zero started the chain and put down the original money, that person functionally set up the world’s smallest escrow account inside that Starbucks. The money then sat there unclaimed, as each successive customer opted instead to pay for their own drink.

What Vu Nguyen of that St. Petersburg Starbucks said: "Your drink has already been paid for by the person in front of you. Would you like to return the favor?"

What Nguyen actually means: "There’s five dollars sitting here. Do you want it, or do you want to just pay for your drink?"

So how did this chain get "broken"? Again, from the Times:

Then at 6 p.m., customer No. 379—a woman in a white Jeep Commander—pulled into the drive-through and ordered a regular coffee.

Nguyen leaned out the window. He told her about the chain that had begun that morning. Would she like to participate? The woman declined, saying she just wanted to pay for her $2.25 drink and not someone else's.

Nguyen said it appeared the woman didn't understand the concept of paying it forward.

Gawker’s portrayal of that: "The act of human kindness lasted about 10 hours until some cheap-ass decided to only pay for their own drink."

No! Wrong! Even if Customer 379 didn’t understand the situation, that woman didn’t actually opt to accept the $5 (or whatever) that had been sitting there, in a functional escrow account, since the beginning of this whole chain. Instead, the person just said "I’ll pay for my own drink"—which technically is the exact same thing as what all previous 378 customers did! The escrow account wasn’t depleted. The only way to be an actual jerk and break this chain would be to say, "Free drink? Sweet. Thanks." And then drive off.

I ran all this by economist Russ Roberts, host of the great EconTalk podcast and author of the upcoming book How Adam Smith Can Change Your Life. He agreed, and even took issue with the premise of the chain. "The whole idea that the person behind me at a Starbucks needs to be comped is a strange idea," he says. "Nobody’s in duress here. The real idea of 'pay it forward' is, I break down on a snowy night, I lose control of my car and end up in a ditch, four strangers come along and push me out. Then I’m driving along and I see someone else in a ditch, and I pull over and help them. That’s paying it forward. You made a sacrifice. Paying it forward for someone at Starbucks who’s already got $5 in their hand? That strikes me as a bizarre form of 'pay it forward.'"

And all that aside, Roberts says: What's the point of paying it forward if nobody ultimately benefits? A never-ending chain of people at Starbucks who believe they're accepting a gift, and then in turn give a gift of the exact same amount, isn't a benefit to anyone. The whole idea of paying it forward is that someone does break the chain. Someone ultimately has to benefit in a real way—which is what would happen if, say, someone at Starbucks used that spare $5 to buy a coffee, then ran across the street and gave it to a homeless person.

That never happened. At least, not here.

So, what is this chain? It isn’t people "paying it forward." It’s people congratulating themselves on employing a generous-sounding rhetorical device. The chain here was broken when a person said "I’ll pay for myself" instead of "I’ll pay for someone else," even though, economically, that meant the exact same thing. (And where does the leftover money actually go, once the chain is "broken" and $5 is still sitting in Starbucks? Unclear.)

The lady in the white Jeep didn’t understand the concept of paying it forward? Harrumph. This person, customer number 379, was the only one who really understood this thing at all.