How to Get Something for Nothing

The taste of a free lunch is always much richer.  The smell is more aromatic.  The taste is more flavorful.  Most of all, the belly leaves the table more contented.

But a free lunch is never really free.  We thought we ate one once.  Back when we were green, and the world was still our oyster, a superior took us out for lunch and generously picked up the tab.  It’s no coincidence we worked the next three weekends.

“It is an immutable economic fact,” said WWI Brigadier General Leonard P. Ayres many years ago, “that there is no such thing as a free lunch.”  Indeed, Ayres was on to something.  In fact, with that brief statement he crystalized one of the world’s essential axioms.  Like gravity or the golden rule, you can’t refute it.

Fred Brooks, the man who changed the IBM 360 series from a 6-bit to an 8-bit byte, thus allowing the use of lowercase letters, elaborated the idea when he said, “You can only get something for nothing if you have previously gotten nothing for something.”

Similarly, if one person or group gets something at no cost, someone else must pick up the tab.  This, in short, is why Obamacare is such a massive sham.  One generation gets a free lunch off the backs of another generation.  The young and healthy get nothing for something while the old and indolent get something for nothing.

Straight from the Horse’s Mouth

Certainly, all entitlement programs are doomed for this reason.  There’s no way around it…there are no free lunches.  But this simple fact doesn’t stop policy makers from promising them anyway.

Just this week, for instance, the monetary policy virtuosos at the Federal Reserve told the world they’d keep giving them something for nothing…but not quite as much as before.  We’re not kidding.  Here it is, straight from the horse’s mouth…

“Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.

“The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

“The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 0.25 percent will be appropriate at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

How to Get Something for Nothing

Are you insulted?  Do you like being fed a line of bull?

The tapering of asset purchases from $85 billion to $75 billion a month is like a cigarette smoker cutting back from 40 to 35 cigarettes a day.  The tapering’s really of no significance.  Like the smoker, the Federal Reserve’s signed its death warrant regardless.

Plus, if you recall, it wasn’t long ago, a federal funds rate at practically zero was considered radical.  Now it’s likely it’ll be standard practice for nearly a decade…or more.  This alone is having its own destructive consequences.

As a result of its asset purchase program, which is akin to controlling diarrhea with adhesive tape, the Fed’s balance sheet has expanded to $4 trillion.  Remember, the Fed created this $4 trillion out of thin air.  In other words, it created something from nothing on a grand scale.

What’s more, even with the tapering, the Fed’s still creating money at a rate of $900 billion per year.  Who pays for that?

By the law of the no free lunch axiom, we must get nothing for something to balance out the Fed’s shenanigans.  That’s how you get something for nothing.  What we mean is, we’ll all pay for it in the end.

We’ll pay with our time.  We’ll pay with our talents.  We’ll pay with our soul.  We’ll all work our tails off in return for a diminishing standard of living.  No matter how much we save it’ll never be enough to live off of.

Moreover, the havoc to be wreaked will express itself in seemingly unrelated places.  Food prices could spike in northern Africa prompting another coup.  Wage inflation could pop up in China, derailing its economic miracle and causing mass civil discontent.  Here in the U.S. the dollar could plummet on the world currency market…sending everything to hell in a hand bucket.

There are dramatic consequences for pursuing something for nothing.  To get it, you must ultimately pay far more.  Striving to this end, only amplifies the carnage.

Sincerely,

MN Gordon
for Economic Prism

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