No Free Lunch

I’ve stayed away from writing about economics in this blog. Business friends knew that wouldn’t last!

“There’s no free lunch” is a saying every economics student learns. The saying cautions there are consequences to windfall gains. It’s always accurate.

I’ll provide an example:

What if someone issued you a credit card with a special provision that you never had to pay back the principal?

You might say you’d pay it back anyway because credit card interest rates are exorbitant.

But your new credit card has a second provision. The interest charged on the unpaid balance remains at the lowest rate in the marketplace.

That changes things quite a bit, right?

The United States has such a credit card. Not surprisingly, the outstanding balance on our credit card (U.S. National Debt) has increased from $5 Trillion in the year 2000 to $31 Trillion today, and why not? The average interest rate on U.S. Debt for 2022 was only a little over 2%.

Where did this credit card come from?

A large share of the world’s business is transacted in U.S. dollars! Because of this, everybody wants dollars. When U.S. spending exceeds tax receipts, we simply issue more dollar-denominated debt to eager world buyers to cover it. Easy peasy!

“Yeah, but that doesn’t affect me, right?”

Let’s examine whether or not that’s true by looking at a simple analogy:

Say you go to a dealership to buy a new car. Before you sign on the dotted line, fifty people show up with their no principle, low-interest credit cards wanting the same car.

Suddenly, the dealer raises the price of the car a lot!

Unlimited low-cost money spurs demand, which raises prices which impacts us all.

Over the past twelve years, the U.S. Federal Reserve System accommodated a record credit expansion. Prices have now started going up a lot! Some economists claim it’s because of supply chain disruptions, but you’re smarter than that!

My only surprise about the inflation we’re experiencing is how long it took to get here! There’s no free lunch!

I’m an elder and tend to think my age. Elders of my ilk believe people must take responsibility for their actions or suffer the consequences.

If we make a habit of spending more than we earn, our financial situation deteriorates. You’re probably familiar with the Hemmingway line about how one goes bankrupt: “Two ways: Gradually, then suddenly.”

If we overeat, we ultimately get fat. Currently, the world is fat with debt. The easiest way to pay it down is with cheaper money. Inflation accomplishes that insidiously. In an inflationary environment, dollars become a little less valuable each year. At 8% inflation, a fixed debt obligation in real inflation-adjusted terms falls by 50% in just 9 years. So does the purchasing power of a fixed level of savings!

So what does all this have to do with “A Life Well-lived?”

“No free lunch” applies to more than economics.

Energy, dedication, and sacrifice are inescapable components of a life well-lived. We must take responsibility for our own lives, including our happiness!

It’s tempting to blame negative attitudes on unlucky circumstances. Unfortunate events certainly play a role, but things are what they are. Happiness is usually more about discipline than good fortune.

Personal responsibility advocates are often labeled “Conservative.”

When did personal responsibility stop being labeled “common sense?”

There’s no free lunch!

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Previous posts may be found here and here.

2 Replies to “No Free Lunch”

  1. AMEN to that !!! Energy, dedication and sacrifice yields HAPPINESS and SELF-DETERMINATION !!! Two of the true outcomes of Towards a Life Well-Lived !!!

    Like

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