Milton Friedman was dead wrong

[NCR85]

The more I learn about economics the more I begin to think Friedman was just way off the mark about his little snark comment that "there is no such thing as a free lunch".

OF COURSE there are free lunches. It is an UTTER TRIVIALITY that there are free lunches.

Let me explain.

Every time a policy or business action is taken that avoids a complete mess up, there is a real benefit commensurate with the harm that is avoided.

To say that TANSTAAFL is to imply that there is no such thing as borking up policy.

It just so happens that out of all the possible things you can do at any point, a tiny, tiny subset produces positive outcomes.

So, wtf, I'm not misinterpreting the guy. Good policy is DEFINED by the fact that it provides free lunches. Let's stop reiterating this silly platitude. It is wrong.

I mean, theres tons of things that for all intents and purposes defy Friedman's droning matra:
- solar energy is a free lunch
- human creativity is a free lunch
- efficient division of labor is a free lunch
- trade under coincidence of wants is a free lunch

Sure you can be really nit picky and say these don't hold up under thermodynamic theory. I refer you to the "for all intents and purposes" clause.

[c1ue]

Re: Milton Friedman was dead wrong

If you'll note the thread posted concerning the "Nobel Prize" in Economics, it will be quite clear that Milton Friedman isn't an economist. He's a lobbyist - right up there with Greenspan.

[don]

Re: Milton Friedman was dead wrong

Free Lunch?

Would any of the following fall under the rubric of Free Lunch:

- the most salient: public bailout of the TBTFs

- ZIRP, with all its party favors for FIRE

- the insane giveaways by localities documented in the Times article, the United States of Subsidies

- Charitable Deductions

- 'Non'-Profits

- Offshore tax avoidance

- endemic, systemic fraud including, but not restricted to, insider trading, money laundering, the derivatives game, etc.

- etc. etc. . . .

[lektrode]

Re: Milton Friedman was dead wrong

Free Lunch?

Would any of the following fall under the rubric of Free Lunch:

- the most salient: public bailout of the TBTFs

- ZIRP, with all its party favors for FIRE

- the insane giveaways by localities documented in the Times article, the United States of Subsidies

- Charitable Deductions

- 'Non'-Profits

- Offshore tax avoidance

- endemic, systemic fraud including, but not restricted to, insider trading, money laundering, the derivatives game, etc.

- etc. etc. . . .

+1
well... theyre 'free' for some
but The Rest of US are and will be paying thru the nose.

[aaron]

Re: Milton Friedman was dead wrong

+1
well... theyre 'free' for some
but The Rest of US are and will be paying thru the nose.

When you print money to buy Chinese stuff, and they take the cash and leave it in their vaults, was that not a "free" lunch? It is at least free to the U.S. printer of bonars.

What about idle capacity (across the world)? If a factory is making 500 widgets per day, but could make 1000 with a small increment in cost, is that a "free lunch" as well?

"for all intents and purposes" --> Yes, there are probably free lunches out there.

NY was hit by a hurricane. They want $40 billion in electronic digits to fix it. The digits do not exist. They are not even a "real". The money is created from thin air and, in the end, you get a new city. How is that not a free lunch? It is at least a free lunch to New Yorkers.

[vinoveri]

Re: Milton Friedman was dead wrong

Of course he was wrong on this.
One of Friedman's concepts of "free lunch" I believe was to deny the extistence/ability of extracting rents in a free market economy. Michael Hudson goes into this in great detail.

Rentier free lunch is everywhere, from the conventional "borrow fiat $ to buy income producing assets and use the income to pay the interest", to the seignorage gained by the issuers of a fiat currency. Free lunch is enabled dramatically under fiat curency systems.

[NCR85]

Re: Milton Friedman was dead wrong

Of course he was wrong on this.
One of Friedman's concepts of "free lunch" I believe was to deny the extistence/ability of extracting rents in a free market economy. Michael Hudson goes into this in great detail.

Rentier free lunch is everywhere, from the conventional "borrow fiat $ to buy income producing assets and use the income to pay the interest", to the seignorage gained by the issuers of a fiat currency. Free lunch is enabled dramatically under fiat curency systems.

Good point.

Charles Baudelaire: the devil wins at the point he convinces man that he does not exist.

Same goes for the rentier class.

[Ghent12]

Re: Milton Friedman was dead wrong

Of course he was wrong on this.
One of Friedman's concepts of "free lunch" I believe was to deny the extistence/ability of extracting rents in a free market economy. Michael Hudson goes into this in great detail.

Rentier free lunch is everywhere, from the conventional "borrow fiat $ to buy income producing assets and use the income to pay the interest", to the seignorage gained by the issuers of a fiat currency. Free lunch is enabled dramatically under fiat curency systems.

Are you being intentionally ironic? The Federal Reserve System is a part of a "free market economy," really? If you or Michael Hudson don't understand the point, then you cannot really refute it successfully. If we had a free market economy, people would decide what currency to use--not some quasi-government agency.

[Ghent12]

Re: Milton Friedman was dead wrong

Good policy is not a free lunch. At the very least it requires an enforcement mechanism. Most likely, this "good policy" is "good" for FIRE and sold as "good" for everyone by the media, yet the results are anything but "good" for the average citizen.

So, wtf, I'm not misinterpreting the guy. Good policy is DEFINED by the fact that it provides free lunches. Let's stop reiterating this silly platitude. It is wrong.

I mean, theres tons of things that for all intents and purposes defy Friedman's droning matra:
- solar energy is a free lunch
- human creativity is a free lunch
- efficient division of labor is a free lunch
- trade under coincidence of wants is a free lunch

Sure you can be really nit picky and say these don't hold up under thermodynamic theory. I refer you to the "for all intents and purposes" clause.

You're completely wrong in your contention, and your examples are also completely incorrect.

1) Solar energy. Regardless of whether you mean the flux of energy received from the sun or solar power through PV cells or whatnot, solar energy is no free lunch "for all intents and purposes." A cursory glance at the Earth from different latitudes will show you just how not free of a lunch solar energy is. Solar energy, if you mean it to be the energy flux from the sun, also comes with the price of all weather on the planet. If you mean solar power through various devices, then that's obviously not a free lunch. As I said, regardless of your meaning, solar energy is not a free lunch.

2) Human creativity. This is absolutely not a free lunch in any sense. Even if you operate under the premise that human creativity is spontaneous and always present, well first off you are wrong, and secondly the inspiration for it is dependent entirely upon circumstance and the nourishing of creativity is dependent entirely upon upbringing. In order to enact creativity, sufficient conditions must exist to enable the creative person. In other words, you can't be innovative in business if you are from 1950's Moscow. Humans empirically will often seek an outlet for their creativity--i.e. prison tattoos--but that doesn't mean that such creativity is without a price. If nothing else, the mental faculty and time devoted to any creative process is the price for such creativity--you can't unthink something, and you can't recoup time spent.

3) Efficient Division of Labor. Regardless of your meaning, this is certainly not a free lunch. The entire history of economics proves this empirically, since a modern "efficient division of labor" is relatively new in human enterprise. In fact, the premise of an efficient division of labor at the very least runs significant risks to efficiency of production--see unionized contractors such as electricians and plumbers, or the case study of the NUMMI plant. Last but not least, you should consider the term "efficient" in all its contexts and realize that what is efficient in one regard, such as output per unit time, is not necessarily as efficient in another regard, such as output per unit money. That, in fact, is the very heart of the "no free lunch" premise--there are always tradeoffs.

4) Trade under coincidence of wants. This is by definition not a free lunch--it costs you what you are trading away! Please devote more time and mental faculty to this before jumping to conclusions that you are smarter than Milton Friedman.

[NCR85]

Re: Milton Friedman was dead wrong

I'll admit I wrote this thread with some provocation in mind. There are obviously contexts in which TANSTAAFL applies but I think people are too quick to resort to this mantra at times and this makes them reject solutions to various problems before properly having looked at them. I just think the notion that there is never a difference in net benefits is not something that should be taken for granted, because sometimes one course of action IS simply and plainly better than another. And the difference in outcome might as well be called a "free lunch".

[Ghent12]

Re: Milton Friedman was dead wrong

I'll admit I wrote this thread with some provocation in mind. There are obviously contexts in which TANSTAAFL applies but I think people are too quick to resort to this mantra at times and this makes them reject solutions to various problems before properly having looked at them. I just think the notion that there is never a difference in net benefits is not something that should be taken for granted, because sometimes one course of action IS simply and plainly better than another. And the difference in outcome might as well be called a "free lunch".

You bring up some interesting points, and I will agree that sometimes a course of action can be a vast improvement over the status quo for a huge majority of parties involved. However, it's not really a "free lunch" because one should never ignore all of the myriad minor costs, including the "minor" but most important cost of time--the time to think up the new course of action, the time to plan it, the time to implement it, the time to transition out of the old ways, and so forth. Time is, after all, our most precious resource.

Further, I think your viewpoint stems from your "unconstrained vision" of the world, to use Thomas Sowell's way of classifying ideology. I'll put the definitions at the end of this post for constrained and unconstrained visions. I am guessing you have an unconstrained vision because you use the words "problems" and "solutions" when, in point of fact, there are no such things in matters of social discourse. There are no pure solutions and no pure problems, but rather there are problems specific to some people and solutions specific to some people, but implementing those solutions is at the cost of creating problems for others. It is all a matter of trade-offs, and that is actually the heart of TANSTAAFL. You can't get something for nothing.

The Unconstrained Vision

Sowell argues that the unconstrained vision relies heavily on the belief that human nature is essentially good. Those with an unconstrained vision distrust decentralized processes and are impatient with large institutions and systemic processes that constrain human action. They believe there is an ideal solution to every problem, and that compromise is never acceptable. Collateral damage is merely the price of moving forward on the road to perfection. Sowell often refers to them as "the self anointed." Ultimately they believe that man is morally perfectible. Because of this, they believe that there exist some people who are further along the path of moral development, have overcome self-interest and are immune to the influence of power and therefore can act as surrogate decision-makers for the rest of society.

The Constrained Vision

Sowell argues that the constrained vision relies heavily on belief that human nature is essentially unchanging and that man is naturally inherently self-interested, regardless of the best intentions. Those with a constrained vision prefer the systematic processes of the rule of law and experience of tradition. Compromise is essential because there are no ideal solutions, only trade-offs. Those with a constrained vision favor solid empirical evidence and time-tested structures and processes over intervention and personal experience. Ultimately, the constrained vision demands checks and balances and refuses to accept that all people could put aside their innate self-interest.

[NCR85]

Re: Milton Friedman was dead wrong

I'm sorry but I think you're very confused I don't appreciate being labeled based on the contingencies of my use of words in a single post. I don't subscribe to any sort of "vision" let alone one that presents human nature as something unambiguously "good". Also when I say that policies (which I could just as well have called "trade-offs") can confer real economic benefits I am not strictly speaking of activist, interventionist and authoritarian policies. When someone like Friedman points out that some state apparatus causes more harm than it removes so it is better gotten rid of, that qualifies as a positive policy as far as I'm concerned, to the extent his analysis is correct of course.

[Ghent12]

Re: Milton Friedman was dead wrong

I'm sorry but I think you're very confused I don't appreciate being labeled based on the contingencies of my use of words in a single post. I don't subscribe to any sort of "vision" let alone one that presents human nature as something unambiguously "good". Also when I say that policies (which I could just as well have called "trade-offs") can confer real economic benefits I am not strictly speaking of activist, interventionist and authoritarian policies. When someone like Friedman points out that some state apparatus causes more harm than it removes so it is better gotten rid of, that qualifies as a positive policy as far as I'm concerned, to the extent his analysis is correct of course.

I am not in a position to label your views so much as I call them as I see them. My apologies are offered if you were offended.

However, to say that there are "real economic benefits" for some particular policy changes is to in no way whatsoever contradict the principle of there being no such thing as a free lunch. For example, the process of getting rid of a harmful state apparatus, such as the EPA, has the extreme cost of enormous political capital at the very least.