Or, at least, is Joy Reid someone who understands that there’s no such thing as a free lunch?
One of the frustrating things economists of all stripes and especially libertarian economists deal with is the view that there’s a tooth fairy. Not literally a tooth fairy, of course, but some deus ex machina who can manufacture resources out of thin air and deliver them to us. The deus ex machina is virtually always government, typically the federal government.
So it’s refreshing to see Joy Reid of MSNBC tweet the following:
BTW you all realize that check Treasury is sending you with Trump’s name scribbled on it is your money, right? It’s your tax dollars that congress appropriated. Trump is basically the guy who “lends” you back your own lawnmower he borrowed and has had at his house for months…
The “it’s your tax dollars” suggests that Ms. Reid might have some libertarian leanings. But maybe not, because she might think the subsidy program is justified. What is clear, though, is that she understands that the money doesn’t come out of thin air: it’s paid for by someone.
So the tweet does show that she understands the TANSTAAFL principle.
I know, I know, she’s using the principle as a club to figuratively hit Donald Trump over the head. But you can’t use it as a club without understanding that it IS a club. So even if Ms. Reid turns off her understanding later when a Democratic president pushes a similar subsidy scheme, she right now has the understanding. That’s progress.
READER COMMENTS
Thaomas
Apr 15 2020 at 7:49pm
Actually, out of equilibrium, There Is Such a Thing As a Free Lunch. Any improvement in policy is a free lunch, unless one means that it is very unlikely that literally everyone will benefit from a better policy. A revenue neutral move to lower corporate taxes would have been a free lunch. Free trade would be a free lunch. Higher immigration would be a free lunch.
I think that economists’ main job should be to look for ways of creating free lunches and preventing the destruction of free lunches.
Jon Murphy
Apr 15 2020 at 9:24pm
No. The cost would have been whatever spending was cut to make it revenue neutral.
No. The cost would be the change in industrial and consumption patterns that occur due to the trade.
No. The cost would be the change in the employment patterns that occur.
Just because the benefits exceed the costs does not imply costs equal zero.
Mark Z
Apr 15 2020 at 10:32pm
“Just because the benefits exceed the costs does not imply costs equal zero.”
This may be what Thaomas means. Maybe “cheaper lunch” would be the appropriate metaphor.
robc
Apr 15 2020 at 10:56pm
That is called”lunch”.
If the benefits didn’t exceed the costs, I wouldnt eat.
Don Boudreaux
Apr 15 2020 at 11:08pm
I agree with Jon Murphy. Thaomas here seems to use “free lunch” in a way that is common but is mistaken – namely, to indicate unambiguous net gain in ‘social’ welfare. But as Jon points out, the fact that there’s a gain doesn’t mean that the action that was undertaken to bring that gain about is costless. Something was sacrificed, and the (subjective) value of that which was sacrificed is the cost. The fact that the cost is less than the benefit does not mean that this benefit is free.
By the way, this same conclusion holds even for changes that economists call “Pareto-improving changes” – at least insofar as such changes result from conscious human choices. (“Pareto-improving changes” are changes that leave at least one person better off while leaving no one worse off.)
Change brought about by human choice requires foregoing something; this truth holds even for Pareto-improving change. The value of that which is foregone is a cost. This cost might be minuscule relative to the gain; but it is nevertheless a cost. Because it is impossible – literally impossible – to choose without incurring a cost, it is impossible to choose in ways that bring about change without that change having a cost.
Here’s a simple demonstration of the cost that attends a Pareto-improving change:
Sam values Sara’s apple more than Sam values his (Sam’s) peach, while Sara values Sam’s peach more than Sara values her (Sara’s) apple. Sara and Sam thus agree to exchange. Sam gives Sara his peach in exchange for Sara giving Sam her apple. Both parties are made better off while no one is made worse off. Still, costs are involved. The cost to Sam of securing his gain is the subjective value that he anticipated he would have gotten from eating his peach had he not transferred it to Sara. The cost to Sara of securing her gain is the subjective value that she anticipated that she would have gotten from eating her apple had she not transferred it to Sam.
artifex
Apr 16 2020 at 2:27am
Unlike your example of exchanging an apple for a peach, the standard examples of comparative advantage leave all parties involved with at least as much of all goods as before.
TMC
Apr 16 2020 at 10:18am
“No. The cost would have been whatever spending was cut to make it revenue neutral.” Revenue is the flip side of spending, which isn’t affected here. A tax cut could encourage more activity which generates the same revenue as before, but at a lower rate of tax. The greater profit to the company at no expense to the government is the Free lunch.
Jon Murphy
Apr 17 2020 at 9:02am
Again, simply because the benefits exceed the costs does not mean that there is a free lunch. There are still costs (the foregone alternative).
TMC
Apr 17 2020 at 2:39pm
Again, there were no costs. Revenue stayed the same.
Jon Murphy
Apr 19 2020 at 3:13pm
There are costs: the foregone alternatives from the spending
Thaomas
Apr 17 2020 at 11:38pm
I mean net.
I specifically ruled out the concept of “free” meaning that there would be no cost to anyone.
Jon Murphy
Apr 18 2020 at 6:49am
That’s what “free” means, though.
Maniel
Apr 15 2020 at 11:52pm
I have always thought of the Dept of Education as a classic case of my (federal) government at work. I send them money and they send some of it back. Then, naturally, my state department of education and local school district complain that we don’t have enough. It is true that government workers often do eat lunch (whose lunch is the question).
Don Boudreaux
Apr 16 2020 at 8:21am
artifex:
My example of the exchange of a peach for an apple is not intended as an example of the operation of comparative advantage. An example of the latter, such as this one, involves production; my example involved no production and wasn’t meant to do so.
My peach-apple example was meant to show the simple point that economic change brought about by human choice involves cost even if that change leaves at least one person better off without leaving anyone worse off. Each party in my example experienced gain, but each nevertheless incurred a cost to achieve his and her gain.
Nothing in my example is anything beyond second-chapter ECON 101. Yet it is common practice for economists to draw from it a conclusion that I think is mistaken. (I say “I,” but I really mean “I who have learned much from Jim Buchanan and scholars in the LSE subject-cost tradition.”) The mistaken conclusion is that the gain that arises from an exchange of the sort that I put as an example involves no cost to society.
The problem with such a claim about “no cost to society” is that society is not a sentient creature that incurs or experiences costs (or benefits, or anything else). The claim “no cost to society” would be correct only if some third creature, not Sara or Sam but “Society,” had its capacity to experience gains and losses being somehow connected to Sam’s and Sara’s actions (or to each of their utility functions) and who experiences “gain” when the actions of Sara and Sam result in net gains to Sara and Sam, and experiences “loss” when the actions of Sara and Sam result in net losses to those two persons. The creature’s gains and losses arise for it independently of any choices it makes, for it – “Society” – makes no choices.
In reality, of course, no such creature, “Society,” exists (although people, including most economists, regularly talk and write as if there is such a creature). In reality, costs and benefits are experienced only by individuals.
In my simple example, each party obviously experienced a cost – namely, the sacrifice of the anticipated subjective value of continuing to possess that which he or she gave up as a means of gaining the opportunity to experience the subjective value of possessing that which he or she received in return. That this sacrifice is a cost can be seen by recognizing that each party would prefer to get what the other has without having to give up that which he or she has. Sam would prefer to have both the peach and apple rather than only the apple. Similarly, of course, for Sara.
The fact that each party, at the moment of choice, experiences a gain in subjective utility without any other person suffering a loss in such utility means neither that these gains were free lunches nor that no costs are incurred in society in order to make these gains a reality.
In summary, it is misleading to talk of “costs to” and “benefits for” society. Yet I don’t go so far as some people and reject the concept of society as meaningless. Society is real. But society is made up of exclusively of individuals; it is not a creature independent of the individuals who comprise it. Society, as such, experiences nothing. But obviously the people who are in society have such experiences.
In my example of Sam and Sara exchanging an apple and peach, costs are incurred in society but not by society. The gains, although net, are not free lunches.
artifex
Apr 16 2020 at 3:10pm
I agree with everything you said—but I wasn’t thinking about society. Your example is a Pareto-improving change (if we consider Sam and Sara only) that is not a free lunch, which shows that Pareto-improving changes that are not free lunches exist. But I think there are also Pareto-improving changes, different from your example, that are free lunches: some changes that are Pareto improvements for parties involved will leave all parties involved with at least as much of all goods as before; so where are the costs (to any of the parties)? We could talk about energy expended in making the trades as a cost, but costs are relative to each party’s next best option, and we can conceive trades that do not require the parties to expend any additional energy over the next best trade they would otherwise have made.
Jon Murphy
Apr 16 2020 at 4:00pm
The cost in that case is the next best trade.
Mister Bitcoin
Apr 16 2020 at 3:11pm
Don Boudreaux :
thank you for clarifying about costs , Pareto improvements and society.
Costs are borne by individuals.
When airlines receive a bailout, it is not airline customers. The shareholders, employees and / or bond holders receive bailout money
Comments are closed.