Friday, August 19, 2011

The Weak Form and the Strong Form of "No Such Thing as a Free Lunch"

The expression 'there's no such thing as a free lunch' is one of the best summaries of free market economics. It was popularised by Robert Heinlein in his book 'The Moon is a Harsh Mistress', and was also the title of a book by Milton Friedman.

With such an illustrious pedigree, it may seem churlish to suggest a slight expansion of this principle. Nonetheless, I propose breaking the idea into two parts - the weak form, and the strong form. I think this is because people use the term to describe two separate cases.The Weak Form of No Free Lunches states that there is no lunch that you can eat that is without cost to someone. The Strong Form of No Free Lunches states that there is no lunch that you can eat that is without cost to you.

The weak form is particularly true in the case of governments, who notionally try to balance lots of people's interests. There is no such thing, for instance, as 'free healthcare'. At the margin, it may be free to you as the end user, but it is paid for in taxes. Even if you don't pay any taxes yourself, there's still opportunity cost - less can now be spent on schools, or roads, or national defense. Everything is paid for by someone, even if it's not you. The weak form is especially good for attacking pie-in-the-sky idealists and people fond of misleading labelling of social programs. The weak form, if true, injects sober realism into a lot of debates. Stimulus programs will not pay for themselves. Then again, neither will tax cuts. The biggest violations of the weak form would seem to be comparative advantage and gains from trade - if we both specialise and trade with each other, we really are both better off.

The strong form says that even when something seems free to you, it's actually imposing a cost, most likely in the form of something that the lunch provider is getting out of you - a favour, a chance at selling you something, a chance at guilting you into paying more than the cost of the lunch, a  chance to waste more of your time with a discussion that you wouldn't have otherwise undertaken. This is stronger than the weak form, because it says that you should be wary of accepting anything that seems free until you understand what the other person is getting out of you. Welfare, for instance, is an apparent violation of the strong form but not the weak form. It's paid for by someone, but not by you. Or is it? Being on welfare for long periods tends to be psychologically very damaging in ways that people don't anticipate. Which is why communities where everyone is on welfare tend to be drug-addled, violent hellholes that nobody in their right mind would want to live in. It's also why rich parents worry a great deal about giving too much money to their children in case it turns them into entitled brats. Gifts too - if you're Australian cricketer Shane Warne and an Indian bookmaker wants to give you thousands of dollars for providing freely available information about weather and pitch conditions, you'd better believe that ain't a free lunch.

The strong form is useful for combating fools about to part with their money. 'Money Back Guarantee' != No Risk. Church Soup Kitchen Lunch -> forced attendance at sermon. Backroom deal with politician to get tax break for your company -> being strongarmed for donations and political support later on.

Like most weak and strong form laws, there are more apparent violations of the strong form than the weak. The weak form is true in the vast majority of cases. The strong form is true more often than you might like to think.

No comments:

Post a Comment