photo credit to Xavier Encinas on Flickr

Milton Friedman used it as the title of a book. Wikipedia reports a varied and uncertain past for the phrase. As economists we look at the statement as rather obvious – converting negatives to positives – everything has a cost. Classical economics begins with the idea that there are scarce resources that help improve our lives or our country or the globe and that those resources are insufficient to meet all of our needs – hence the adjective scarce. There are fresh, new discussions on the possible inadequacies of this foundation principle in classical economics, but I believe it serves us well.

My challenger listed several examples of “free lunch”, including open source software and Google services. So do these examples provide a robust exception to the No Free Lunch proposal? I say “no.”

Every choice we make involves opportunity cost. When I choose an object or an activity that has no monetary price I am still choosing it over something else. If I choose to download OpenOffice, supported now by the Oracle Corporation, I devote some additional room on my hard drive to the application, which could have been used for something else. I start using this to compose or read documents, instead of using a commercial product like Microsoft Office. Choosing OpenOffice means giving up some features or other characteristics of Microsoft Office that I might value.

Signing up for a Gmail account is also free – price wise. Still I devote precious time to setting it up – time I could have used for other pursuits. And I adapt to the idiosyncrasies of Gmail, giving up features I might have enjoyed with my Mac Mail application or features that Yahoo provides.

So, yes, daggummit, everything has a cost and there is no free lunch. The moral of the story is to remember that costs involve more than money or prices, and that opportunity costs are often the most important costs to consider.

In any case Brooks is worth a read. Here are a couple of excerpts:

Some brilliant scholar has to write a comprehensive history of modern economics because the evolution of this field is clearly one of the most consequential things happening in the world today.

Act I in this history would be set in the era of economic scientism: the period when economists based their work on a crude vision of human nature (the perfectly rational, utility-maximizing autonomous individual) and then built elaborate models based on that creature.

Act II would occur over the past few decades, as a few brave economists tried to move beyond this stick-figure view of humanity. Herbert Simon pointed out that people aren’t perfectly rational. Gary Becker analyzed behaviors that don’t seem to be the product of narrow self-interest, like having children and behaving altruistically. Amos Tversky and Daniel Kahneman pointed out that people seem to have common biases when they try to make objective decisions.

read more…

Three men went off on a sailboat together, a physicist, a chemist, and an economist. Unfortunately they ran into a storm and the boat was wrecked on an uninhabited island. The only food they were able to rescue from the wreckage was a case of baked beans. As they got hungry, they began to wrestle with the problem of how to open the bean cans. The physicist said “I’ll climb a tree and throw a can onto a rock and it’ll split open.” The others didn’t much like this idea because they thought the beans would just splatter everywhere. The chemist said “We can soak the cans in salt water and they’ll rust through.” The others didn’t much like this idea because it would take too long. Then the economist said “Hay–no problem, we’ll just assume a can opener.”