{"id":597,"date":"2012-10-04T03:07:23","date_gmt":"2012-10-04T03:07:23","guid":{"rendered":"http:\/\/www.rationalargumentator.com\/index\/?p=597"},"modified":"2014-02-09T05:03:04","modified_gmt":"2014-02-09T05:03:04","slug":"tanstaafl-and-saving","status":"publish","type":"post","link":"https:\/\/www.rationalargumentator.com\/index\/blog\/2012\/10\/tanstaafl-and-saving\/","title":{"rendered":"TANSTAAFL and Saving: Not the Whole Story – Article by Sanford Ikeda"},"content":{"rendered":"
\n
\"The<\/div>\n<\/div>\n
Sanford Ikeda
\n<\/big><\/big><\/strong><\/span><\/div>\n
October 3, 2012<\/big><\/span><\/div>\n
Recommend this page<\/a>.<\/strong><\/div>\n
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How often have you heard someone say, \u201cThere ain\u2019t no such thing as a free lunch,\u201d or, \u201cSaving is the path to economic development\u201d?\u00a0 Many treat these statements as the alpha and omega of economic common sense.<\/p>\n

The problem is they are myths.<\/p>\n

Or, at least, popular half-truths. \u00a0And they aren\u2019t your garden-variety myths because people who favor the free market tend to say them all the time.\u00a0 I\u2019ve said them myself, because they do contain more than a grain of truth.<\/p>\n

\u201cThere ain\u2019t no such thing as a free lunch\u201d (or TANSTAAFL) means that, with a limited budget, choosing one thing means sacrificing something else. \u00a0Scarcity entails tradeoffs.\u00a0 It also implies that efficiency means using any resource so that no other use will give a higher reward for the risk involved.<\/p>\n

That saving is necessary for rising labor productivity and prosperity also contains an economic truth.\u00a0 No less an authority than the great Austrian economist Ludwig von Mises has stated this many times.\u00a0 In an article<\/a> published in The Freeman<\/em> in 1981, for example, he said:<\/p>\n

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The fact that the standard of living of the average American worker is incomparably more satisfactory than that of the average [Indian] worker, that in the United States hours of work are shorter and children sent to school and not to the factories, is not an achievement of the government and the laws of the country. It is the outcome of the fact that the capital invested per head of the employees is much greater than in India and that consequently the marginal productivity of labor is much higher.<\/p>\n<\/blockquote>\n

The Catalyst<\/strong><\/p>\n

But the statement is true in much the same way that saying breathable air is necessary for economic development is true.\u00a0 Saving and rising capital accumulation per head do accompany significant economic development, and if we expect it to continue, people need to keep doing those activities.\u00a0 But they are not the source\u2013the catalyst, if you will\u2013of the prosperity most of the world has seen in the past 200 years.<\/p>\n

What am I talking about?\u00a0 Deirdre McCloskey tells us in her 2010 book, Bourgeois Dignity: Why Economics Can\u2019t Explain the World<\/em><\/a>:<\/p>\n

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Two centuries ago the world\u2019s economy stood at the present level of Bangladesh. . . .\u00a0 In 1800 the average human consumed and expected her children and grandchildren and great-grandchildren to go on consuming a mere $3 a day, give or take a dollar or two [in today\u2019s dollars]. . . .<\/p>\n

By contrast, if you live nowadays in a thoroughly bourgeois country such as Japan or France you probably spend about $100 a day.\u00a0 One hundred dollars as against three: such is the magnitude of modern economic growth.<\/p>\n<\/blockquote>\n

(Hans Rosling illustrates this brilliantly in this viral video<\/a>.)<\/p>\n

That is unprecedented, historic, even miraculous growth, especially when you consider that $3 (or less) a day per person has been the norm for most of human history. \u00a0What is the sine qua non<\/em> of explosive economic development and accelerating material prosperity?\u00a0 What was missing for millennia that prevented the unbelievable takeoff that began about 200 years ago?<\/p>\n

A More Complete Story<\/strong><\/p>\n

Economics teaches us the importance of TANSTAAFL and capital investment.\u00a0 Again, the trouble is they are not the whole truth.<\/p>\n

As I\u2019ve written before<\/a>, however, there is<\/em> such a thing as a free lunch, and I don\u2019t want to repeat that argument in its entirety.\u00a0 The basic idea is that what Israel M. Kirzner calls \u201cthe driving force of the market<\/a>\u201d is entrepreneurship.\u00a0 Entrepreneurship goes beyond working within a budget\u2013it\u2019s the discovery of novel opportunities that increase the wealth and raises the budgets of everyone in society, much as the late Steve Jobs or Thomas Edison or Madam C.J. Walker<\/a> (probably the first African-American millionaire) did.\u00a0 Yes, those innovators needed saving and capital investment by someone\u2013most innovators were debtors at first\u2013but note: Those savings could have been and were invested in less productive investments before these guys came along.<\/p>\n

As McCloskey, as well as Rosenberg and Birdzell<\/a>, have argued, it isn\u2019t saving, capital investment per se, and certainly not colonialism, income inequality, capitalist exploitation, or even hard work that is responsible for the tremendous rise in economic development, especially since 1800.<\/p>\n

It is innovation.<\/p>\n

And, McCloskey adds, it is crucially the ideas and words that we use to think and talk about the people who innovate\u2013the chance takers, the rebels, the individualists, the game changers\u2013and that reflect a respect for and acceptance of the very concept of progress.\u00a0 Innovation blasts the doors off budget constraints and swamps current rates of savings.<\/p>\n

Doom to the Old Ways<\/strong><\/p>\n

Innovation can also spell doom to the old ways of doing things and, in the short run at least, create hardship for the people wedded to them.\u00a0 Not everyone unambiguously gains from innovation at first, but in time we all do, though not at the same rate.<\/p>\n

So for McCloskey, \u201cThe leading ideas were two: that the liberty to hope was a good idea and that a faithful economic life should give dignity and even honor to ordinary people. . . .\u201d<\/p>\n

There\u2019s a lot in this assertion that I\u2019ll need to think through.\u00a0 But I do accept the idea that innovation, however it arises, trumps efficiency and it trumps mere savings.\u00a0 Innovation discovers free lunches; it dramatically reduces scarcity.<\/p>\n

Indeed, innovation is perhaps what enables the market economy to stay ahead of, for the time being at least, the interventionist shackles that increasingly hamper it.\u00a0 You want to regulate landline telephones?\u00a0 I\u2019ll invent the mobile phone!\u00a0 You make mail delivery a legal monopoly?\u00a0 I\u2019ll invent email!\u00a0 You want to impose fixed-rail transport on our cities?\u00a0 I\u2019ll invent the driverless car!<\/p>\n

These aren\u2019t myths. They\u2019re reality.<\/p>\n

Sanford Ikeda<\/a> is an associate professor of economics at Purchase College, SUNY, and the author of <\/em>The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.<\/strong><\/p>\n

This article was published by The Foundation for Economic Education<\/a> and may be freely distributed, subject to a Creative Commons Attribution United States License<\/a>, which requires that credit be given to the author.<\/strong><\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Sanford Ikeda October 3, 2012 Recommend this page. ****************************** How often have you heard someone say, \u201cThere ain\u2019t no such thing as a free lunch,\u201d or, \u201cSaving is the path to economic development\u201d?\u00a0 Many treat these statements as the alpha and omega of economic common sense. The problem is they are myths. Or, at least, popular half-truths. \u00a0And they aren\u2019t your garden-variety myths because people who favor the free market tend to say them all the time.\u00a0 I\u2019ve said them…<\/p>\n

Read More Read More<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,356],"tags":[1377,655,1376,752,1379,1087,1378,227,1374,1375,31,116,573,1380,648,1364,422,95,322,853,900,899,1373,529,1315,1372],"class_list":["post-597","post","type-post","status-publish","format-standard","hentry","category-economics","category-technology-2","tag-bourgeois","tag-capital","tag-deirdre-mccloskey","tag-development","tag-efficiency","tag-entrepreneurship","tag-free-lunch","tag-free-market","tag-growth","tag-hans-rosling","tag-ideas","tag-innovation","tag-invention","tag-inventions","tag-ludwig-von-mises","tag-market-economy","tag-productivity","tag-progress","tag-prosperity","tag-resources","tag-sandy-ikeda","tag-sanford-ikeda","tag-saving","tag-scarcity","tag-standard-of-living","tag-tanstaafl"],"_links":{"self":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/597","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/comments?post=597"}],"version-history":[{"count":2,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/597\/revisions"}],"predecessor-version":[{"id":2079,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/597\/revisions\/2079"}],"wp:attachment":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/media?parent=597"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/categories?post=597"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/tags?post=597"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}