Why There Is No Free Lunch

Source: Mises Institute.

I commented in another thread that the science of economics is changing beneath our feet. The subject article provides some examples of things that will almost certainly change.

The Broken Window Fallacy, as a warning to think clearly about events that affect the economy, will likely last forever. However, the idea that “Resources in an economy are scarce” probably will not. The reason is that scarcity as envisioned here is a hopelessly esoteric concept.

To illustrate, it may be true that a society sometimes wants more resources than it has, but it is also true that technology and process improvement have the almost unlimited ability to extend the available stock of resources. The concept of abundance is at least as fundamental and significant in this respect as the concept of scarcity.

Similarly, the idea that “both parties benefit” from voluntary exchange is certainly true, but it is also true that some voluntary exchanges harm one or both parties or even society. For example, a drunk who buys alcohol may be said to benefit because that is what he wanted, but if he misses a day of work due to hangover, his quantum of production is lost.

Again, the principle of comparative advantage explains why free trade in international markets can be desirable, but it is not very helpful to know that something can be good when it also can be bad. Free trade does not necessarily lead to an increase of currency in the national account, nor to full employment.

It is certainly true that “There ain’t no such thing as a free lunch.” But the reasons for that arise from the laws of physics, especially the law of entropy.

24 thoughts on “Why There Is No Free Lunch

  1. You can look far and wide and you will not find anyone who actually believes there is such thing as a “free lunch.” Saying that every child is entitled to lunch does not imply that it is a “free lunch”.

    At one point this book review illustrates the problem of living in an a priori world.

    “It’s often claimed, for example, that government spending on weapons during World War II ended the Great Depression, but in the absence of war, the money would have been spent on other things, and the war in fact lowered the standard of living of civilians.”

    That sounds right but it leaves out the REALITY that without war, the money would NOT have been spent. And, as a matter of fact, the standard of living of civilians radically improved because it was spent. In the REAL world government spending on weapons DID finally end the Great Depression.

    Like

    1. RE: “In the REAL world government spending on weapons DID finally end the Great Depression.”

      I doubt that. In the REAL world war destroys goods (and kills people who produce them).

      After WWII American factories changed their output from materiel to consumer goods. Also, the war spending expanded the money supply dramatically, allowing those consumer goods to be purchased. On top of that, the wartime economy introduced major improvements in logistics-related technologies to the private sector.

      You can sumarize all those factors by calling them “spending on weapons,” but it is important to remember that the weapons themselves were either destroyed in use, or rotted away.

      Like

      1. “… but it is important to remember that the weapons themselves were either destroyed in use, or rotted away.”

        Isn’t that true with virtually all tangible consumer products? We have huge stockpiles of cars rusting away as parts sources, then recycling takes what’s left.

        Another view is that war materiel is made, then blown up to advance an agenda: survival and conquest and/or victory. Farmers grow wheat, which is then consumed and changed to poop. The agenda? Survival and nourishment.

        Liked by 1 person

        1. RE: “Isn’t that true with virtually all tangible consumer products?”

          Yes, exactly right. Your insight is precisely why it is important to see production and consumption as a continuum: You can’t work if you don’t eat, and you can’t eat if you don’t work.

          War, however, is a special type of work that in itself doesn’t produce any goods. It is comparable to farming without a harvest.

          Like

      2. RE: “Economic history is very clear on this point.”

        Not really. Read Milton Friedman’s Nobel laureate work, or Amity Shlaes, or Kevin Williamson. The topic is complicated, and it is not generally accepted that WWII ended the Great Depression.

        Like

        1. You should read Paul Krugman, also a Nobel Laureate.

          I will grant you there are a number of right wing revisionists who hate the government who are loathe to give credit where credit is due. They are NOT in the mainstream of history OR ecomomics. Here is a good example of that by a writer you like . . .

          https://www.heritage.org/trade/commentary/what-really-ended-the-great-depression

          He notes that . . .

          “Most history books credit the government spending to mobilize for World War II after the Japanese attacks on Pearl Harbor on Dec. 7, 1941.” (see … it IS generally accepted)

          and he also admits . . . “It is true that, as the war started, economic output surged, and unemployment fell.” (u, that is the end of a Depression)

          But, instead of actually answering the question, “If it wasn’t government spending what was it?”, he tries to change the subject to the post-war economy which, of course, was after the Depression was over.

          Liked by 1 person

          1. Do you even read your own sources?

            Stephen Moore says that the history books of your quote a wrong. You should contemplate two other statements in Moore’s article:

            “But a war is no way to fix an economy.”

            “A war is no more stimulating to an economy than a burglar stealing your money, the Japanese tsunami in 2011, Hurricane Katrina or a tornado that levels an entire town.”

            Your own source confirms my statement that “it is not generally accepted that WWII ended the Great Depression.”

            As for Krugman, you can have him. When you have argued in the past that no such thing as “opportunity cost” exists, I have quoted back to you Krugman’s own textbook explaining the significance of opportunity cost as a basic concept in economics.

            Be that as it may, Krugman’s work otherwise is a good example of the economics orthodoxy I expect to change as the discipline matures.

            Like

          2. You really are slow on the uptake.

            Stephen Moore DIRECTLY refutes your claim that “it is not generally accepted that WWII ended the Great Depression.” He says that it is. Of course, he goes on to say that they are all wrong.

            And you accuse me of not reading with comprehension?

            The Depression was in full swing when WW2 started. It was over when it ended. Of course war is destructive and in alternative universe all that spending for something more useful would be peachy, but that has nothing to do with the economic fact that it was government spending that was the causal agent that ended it.

            Liked by 1 person

          3. RE: “Of course, he goes on to say that they are all wrong.”

            That’s the part you need to focus on. You might also note that history and economics are not the same.

            Like

    2. It may not be free, but no investment is. Not making certain investments, like the nutritional wellbeing of children while they’re brains are developing is batshit crazy. You want the next generation of geriatric practitioners to be 10x smarter than the current one.

      Liked by 2 people

      1. RE: “Not making certain investments, like the nutritional wellbeing of children while they’re brains are developing is batshit crazy.”

        I think accounting for such things is one of the improvements to the dismal science that needs to occur.

        Like

        1. “I think accounting for such things is one of the improvements to the dismal science that needs to occur.”

          It is ACCOUNTING that needs to improve. Costs that are not borne by ANYBODY do not affect, for example, price predictions of the Law of Supply and Demand. This is where the government comes in by forcing the market to factor in various costs that are not currently ACCOUNTED for.

          Like

          1. The so-called Law of Supply and Demand doesn’t predict prices very well, or at all in many cases. For this reason, it is a lousy excuse for bringing government in to do anything.

            Like

          2. The fact that markets are sometimes complicated or that information is not uniformly distributes does not alter the fundamental facts summarized in the Law of Supply and Demand.

            The Theory of Gravity is pretty well established but throw an object out of a plane and it ALONE will not be able to predict the time of impact. There are always other factors. Is it a feather or a dumbbell? Is the wind blowing. What is the altitude of the plane and the ground. What is the current air pressure. What is the shape of the object? Is it spinning? Is it dynamically stable? Are their thermals? All very complicated but the Theory of Gravity still applies and MUST be considered in predicting what will happen.

            Like

          3. RE: “The fact that markets are sometimes complicated or that information is not uniformly distributes does not alter the fundamental facts summarized in the Law of Supply and Demand.”

            There are no fundamental facts summarized in the Law of Supply and Demand. The demand curve has no characteristic shape and the supply curve doesn’t even exist.

            This has been known for more than 100 years. It is why Marginal Utility Theory was created.

            Like

  2. “…but in the absence of war, the money would have been spent on other things, and the war in fact lowered the standard of living of civilians.”

    Does any economist think that the borrowed billions by the government would have been possible without the war effort. Standard of living is dependent upon how you define it. Considering the devastating impact of the Great Depression on employment and wealth, any improvement is better than bread lines. Inconveniences like rationing, lack of rubber, etc. may affect lifestyles, but hardly like 1930.

    The factory expansions by manufacturing giants was paid for by federal spending. Afterwards, those expansions were still in place. Would those factories have been expanded or built without a war effort?

    Liked by 2 people

    1. RE: “Would those factories have been expanded or built without a war effort?”

      Did going to war justify getting the factories? The point is to account for the unseen as well as the seen. The unseen of war are the dead and material loses.

      Like

      1. Without the factories we might very well be speaking German or Japanese. So there is that.

        Let’s just say that among nations, wars are often the cost of doing business. Grabbing market share, gaining resources, increasing worker pools, defining secure borders, etc.

        Liked by 2 people

        1. Here’s a thought experiment I recommend:

          Suppose you go to war and double, by conquest, the population for which you are responsible. What have you gained? Does not the new, larger population consume twice as much as the old one? And before their needs can be met must you not repair the damages of war?

          Like

          1. I don’t advocate war for economic gains. At all.

            But, it is a fact that we humans don’t go long without war. I haven’t looked it up, but there are probably a handful of wars going on right now. Yemen, Sudan and Ethiopia come to mind.

            Like eating, sleeping, procreating, war is a very human endeavor that can’t be ignored or dismissed. If we were attacked, we would go to war to defend our homeland and to defend our economic system. If the economy tanks, not only do we get war casualties from the front, but also domestically as people go hungry, get sick, lose their jobs if dependent upon imports when sea lanes are closed, etc. So we spend public money to cover war costs (except under Bush, when we cut taxes, then invaded another couple of countries).

            Your point that war is useless for economic gain forgets all the advances, like radar, jet engines, nuclear power, rockets, etc. that are either hurried up or invented for battle then getting tremendous market potentials for profit.

            Finally, your thought experiment overlooks the fact that the conquered territories will already have factories, markets, farms, etc. that were taking care of its citizens under their old regime. So the conquerors not only expanded territory, but added more labor and infrastructure, with some repairs and training. It is not just increasing the population without resources. East Germany, though not a direct prize via violence, was, at first, an expense until workers and factories were brought up to western standards after a decade or so.

            Liked by 2 people

          2. Interesting thought experiment. Too bad you take the German/Japanese side of the argument.

            What if you go to war to PREVENT another country to double the population via conquest and just defend those who are being attacked along with your international allies? Wait! That is exactly what happened with our involvement.

            Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s