By John F. Sase
Gerard J. Senick, contributing writer, and editor
Julie G. Sase, mentor and spouse
William Gross, field researcher
This month, we re-explore the phrase that economists regard as one of the top ten fundamental Principles of Economics. More widely, we may recognize this concept as “There is No Such Thing as a Free Lunch,” and we have applied it to the “paying the piper” for more than the past two centuries of booms and busts that have ripped throughout the economy of the United States and beyond. This month, we reconsider this phenomenon for investors and their attorneys, as well as for investors who have come out of law schools around the world.
However, before casting our nets, we need to read the “between the waves” and bring out our chum buckets. In more common terms, we need to recognize the best points at which to enter the markets before cycles hit their peak and understand why and when to hold even when markets appear to chatter. Some points discussed this month suggest the best times to bail out. However, in the long run, it may remain best to sit and hold even when the markets inform us to “tighten ones’ belt.” Equally important, investors need to better understand the trail markers, in order to foresee the point at which the market “bounces.” We recognize this as the moment at which the market bottoms out at its firm-foundation values and begins flopping around on the floor before rising again.
While writing our article, we re-explored the nature of stair-step dynamics that led from the Crash of 1929 of almost a century ago, to the trough of the Great Depression, or simply, The Depression. Due to depth and length, this historic downturn assumed a mythological quality, as some elder investors might remember the stories of plight told by their great-grandparents who hid their remaining cash and valuables beneath floorboards and buried family treasures within coffee cans in their own back yard. From these oral histories, the No Free Lunch Rule took on the meaning that after countries gorge themselves by living high on the hoof during years of plenty, their citizens must subsequently pay the piper through many lean years of biblical proportion.
Our history of the No Free Lunch slogan dates from ancient folktales in which the leadership of lands convened meetings of all “economists” in their domains to counsel. One by one, the economic wizards presented the bad news. Subsequently, the majestic ones lopped off the heads of the soothsayers. Finally, the one remaining economist rose and said “There ain’t no such thing as a free lunch.” This hard truth pleased those who ruled so much that this sole remaining economist got to keep his or her head and write memorable books that lasted centuries.
Within our modern popular culture, the “free lunch” quote seems to have taken root in the nineteenth century practice of bars offering a “free lunch” with the alcohol drinks that they served. The more you eat, the more you get to drink. As a result, the guests pay for their “free lunch” through the excess profits paid by liquor sales.
Just Don’t Call Me Late for Lunch
On the website www.wordorigins.org, David Wilton traces the earliest recorded incident of such a marketing strategy to a particular 4 July 1848 advertisement in the New York Herald for Eadie’s Coffee House at 196 Fulton Street in NYC. Proprietor George Eadie offered steaks, chops, Scotch mutton, and veal pies along with brandies, wines, and liquors of the first quality—Free Lunch at 11 A.M. Don’t be late!
During the mid-twentieth century, this catch phrase of “There ain’t no such thing as a free lunch” condensed to the acronym TANSTAAFL and began to appear in economic literature as well as in popular fiction. Most notably, both the phrase and acronym played a central role in Robert Heinlein’s libertarian science fiction novel “The Moon is a Harsh Mistress” (G.P. Putnam’s Sons, 1966). Also, Nobel laureate economist Milton Friedman repaired the grammar and used the phrase as the title of one of his more popular books (“There’s No Such Thing as a Free Lunch,” Open Court, 1977).
However, TANSTAAFL began to show up in academic circles during the post WWII era. Infamous for getting a rise from the leftists, Pierre Dos Utt describes an oligarchic political system based upon his conclusions as drawn from the principle of No Free Lunch in his booklet “TANSTAAFL: A Plan for a New Economic World Order” (private printing, 1949). Others attribute the phrase to Leonard Porter Ayres, American educator, soldier, economist, and statistician.
Robert H. Fetridge of the New York Times tracks the professional use of the phrase to a 1946 interview with Ayres, shortly before his death (“Along the Highways and Byways of Finance,” 12 November 1950). During his lifetime, Brigadier General Ayres served as a mortality statistician for the U.S. military during both world wars.
The Big “D”
I (Dr. Sase) reacquainted myself with the work of Leonard Ayres while rummaging through boxes of research material in my basement. I found an old fold-out timeline produced by Ayres for the Cleveland Trust Company in 1933. On his annotated timeline, Ayres tracks all the major and minor booms and busts in the U.S. economy since 1790. In total, he measured thirty-seven downturns from 1790 to 1933. Of these downturns, fifteen of them apparently appeared too mild to warrant a name. By today’s standards, we refer to these as recessions.
Ayres labeled the remaining twenty-two downturns as crises, panics, and depressions. By his reckoning, the Crash of 1929 heralded in the twelfth economic depression in the U.S. Furthermore, Ayres indicates that a first and a second post-war depression followed the War of 1812, the American Civil War, and the First World War. Consequently, the Great Depression of the 1930s originally was referred to as the “Secondary Post-War Depression” in respect to World War I.
“What We Have Here Is ... A Failure to Communicate!”
So, what has happened since 1933, 89 years ago? Apparently, we have taught the average economic students that we have not experienced a depression since the 1930s—only recessions. However, if we were to ask the ordinary Joe on the street, s/he would likely grimace with gritted teeth, and shake his/her head in despair. Effectively, our country has been in denial about depressions since World War II. The “New Speak” from Washington, D.C. became
“Depressions are now called recessions.” The “D” word became politically incorrect to use. Uttering that word would have spelled political suicide even though we have passed through numerous downturns that Ayres and his predecessors would have labeled as mild to moderate depressions.
Reaganomics!
Some of us remember how the unemployment rate dropped suddenly during the Reagan administration. The modus operandi to redefine the unemployment rate was very simple. The U.S. Bureau of Labor Statistics began to include all military personnel in the calculation of the Unemployment Rate. (Previously, only non-institutionalized civilians had been included.) The apparent logic behind this reformulation emerged that all military personnel are employed. Therefore, the adjustment increased the size of the labor force while leaving the number of civilians unemployed the same! The result instantaneously reduced the unemployment rate, (while bringing a pandemic of migraine headaches for economists, sociologists, and statisticians).
Nevertheless, the dance goes on. In their 30 December 2008 edition article “Diagnosing Depression,” The Economist magazine stated that from their “search of the Internet” there appear “two principal criteria for distinguishing a depression from a recession: A decline in real GDP that exceeds 10%, or one that lasts more than three years.” The Gallup Poll report of 28 April 2011 states that, currently, “More than half of Americans (55%) describe the U.S. economy as being in a recession or depression.” It remains unclear whether anyone polled can discern the difference.
I hear students, businesspeople, and attorneys ask “What is going to happen? What should we do?” I (Dr. Sase) suppose that it depends on whether you are a pessimistic-glass-half-empty kind of person or an optimistic-glass-half-full individual. Either way, we may be operating at 50%. For the short run, most of us should reduce or eliminate our personal credit balances, take a more defensive posture in respect to retirement portfolios and other long-term savings, and learn to live within a more frugal balanced budget. However, in the long run we need to draw attention and realize that we are competing in a global market in which we do not have as much advantage as we did sixty years ago. Therefore, we and our family members need to invest more time and money in relevant education and competitive skills and use the political clout of our votes to direct all levels of government to invest likewise.
————————
Dr. John F. Sase has taught Economics for three decades and has practiced Forensic Economics since 1997. He earned an M.A. in Economics and an MBA at the University of Detroit and a Ph.D. in Economics at Wayne State University. He is a graduate of the University of Detroit Jesuit High School. Dr. Sase can be reached at 248.569.5228 and by e-mail at drjohn@saseassociates.com. You can find some of his videos on Economics for Attorneys at www.youtube.com/saseassociates.
Gerard J. Senick, contributing writer, and editor
Julie G. Sase, mentor and spouse
William Gross, field researcher
This month, we re-explore the phrase that economists regard as one of the top ten fundamental Principles of Economics. More widely, we may recognize this concept as “There is No Such Thing as a Free Lunch,” and we have applied it to the “paying the piper” for more than the past two centuries of booms and busts that have ripped throughout the economy of the United States and beyond. This month, we reconsider this phenomenon for investors and their attorneys, as well as for investors who have come out of law schools around the world.
However, before casting our nets, we need to read the “between the waves” and bring out our chum buckets. In more common terms, we need to recognize the best points at which to enter the markets before cycles hit their peak and understand why and when to hold even when markets appear to chatter. Some points discussed this month suggest the best times to bail out. However, in the long run, it may remain best to sit and hold even when the markets inform us to “tighten ones’ belt.” Equally important, investors need to better understand the trail markers, in order to foresee the point at which the market “bounces.” We recognize this as the moment at which the market bottoms out at its firm-foundation values and begins flopping around on the floor before rising again.
While writing our article, we re-explored the nature of stair-step dynamics that led from the Crash of 1929 of almost a century ago, to the trough of the Great Depression, or simply, The Depression. Due to depth and length, this historic downturn assumed a mythological quality, as some elder investors might remember the stories of plight told by their great-grandparents who hid their remaining cash and valuables beneath floorboards and buried family treasures within coffee cans in their own back yard. From these oral histories, the No Free Lunch Rule took on the meaning that after countries gorge themselves by living high on the hoof during years of plenty, their citizens must subsequently pay the piper through many lean years of biblical proportion.
Our history of the No Free Lunch slogan dates from ancient folktales in which the leadership of lands convened meetings of all “economists” in their domains to counsel. One by one, the economic wizards presented the bad news. Subsequently, the majestic ones lopped off the heads of the soothsayers. Finally, the one remaining economist rose and said “There ain’t no such thing as a free lunch.” This hard truth pleased those who ruled so much that this sole remaining economist got to keep his or her head and write memorable books that lasted centuries.
Within our modern popular culture, the “free lunch” quote seems to have taken root in the nineteenth century practice of bars offering a “free lunch” with the alcohol drinks that they served. The more you eat, the more you get to drink. As a result, the guests pay for their “free lunch” through the excess profits paid by liquor sales.
Just Don’t Call Me Late for Lunch
On the website www.wordorigins.org, David Wilton traces the earliest recorded incident of such a marketing strategy to a particular 4 July 1848 advertisement in the New York Herald for Eadie’s Coffee House at 196 Fulton Street in NYC. Proprietor George Eadie offered steaks, chops, Scotch mutton, and veal pies along with brandies, wines, and liquors of the first quality—Free Lunch at 11 A.M. Don’t be late!
During the mid-twentieth century, this catch phrase of “There ain’t no such thing as a free lunch” condensed to the acronym TANSTAAFL and began to appear in economic literature as well as in popular fiction. Most notably, both the phrase and acronym played a central role in Robert Heinlein’s libertarian science fiction novel “The Moon is a Harsh Mistress” (G.P. Putnam’s Sons, 1966). Also, Nobel laureate economist Milton Friedman repaired the grammar and used the phrase as the title of one of his more popular books (“There’s No Such Thing as a Free Lunch,” Open Court, 1977).
However, TANSTAAFL began to show up in academic circles during the post WWII era. Infamous for getting a rise from the leftists, Pierre Dos Utt describes an oligarchic political system based upon his conclusions as drawn from the principle of No Free Lunch in his booklet “TANSTAAFL: A Plan for a New Economic World Order” (private printing, 1949). Others attribute the phrase to Leonard Porter Ayres, American educator, soldier, economist, and statistician.
Robert H. Fetridge of the New York Times tracks the professional use of the phrase to a 1946 interview with Ayres, shortly before his death (“Along the Highways and Byways of Finance,” 12 November 1950). During his lifetime, Brigadier General Ayres served as a mortality statistician for the U.S. military during both world wars.
The Big “D”
I (Dr. Sase) reacquainted myself with the work of Leonard Ayres while rummaging through boxes of research material in my basement. I found an old fold-out timeline produced by Ayres for the Cleveland Trust Company in 1933. On his annotated timeline, Ayres tracks all the major and minor booms and busts in the U.S. economy since 1790. In total, he measured thirty-seven downturns from 1790 to 1933. Of these downturns, fifteen of them apparently appeared too mild to warrant a name. By today’s standards, we refer to these as recessions.
Ayres labeled the remaining twenty-two downturns as crises, panics, and depressions. By his reckoning, the Crash of 1929 heralded in the twelfth economic depression in the U.S. Furthermore, Ayres indicates that a first and a second post-war depression followed the War of 1812, the American Civil War, and the First World War. Consequently, the Great Depression of the 1930s originally was referred to as the “Secondary Post-War Depression” in respect to World War I.
“What We Have Here Is ... A Failure to Communicate!”
So, what has happened since 1933, 89 years ago? Apparently, we have taught the average economic students that we have not experienced a depression since the 1930s—only recessions. However, if we were to ask the ordinary Joe on the street, s/he would likely grimace with gritted teeth, and shake his/her head in despair. Effectively, our country has been in denial about depressions since World War II. The “New Speak” from Washington, D.C. became
“Depressions are now called recessions.” The “D” word became politically incorrect to use. Uttering that word would have spelled political suicide even though we have passed through numerous downturns that Ayres and his predecessors would have labeled as mild to moderate depressions.
Reaganomics!
Some of us remember how the unemployment rate dropped suddenly during the Reagan administration. The modus operandi to redefine the unemployment rate was very simple. The U.S. Bureau of Labor Statistics began to include all military personnel in the calculation of the Unemployment Rate. (Previously, only non-institutionalized civilians had been included.) The apparent logic behind this reformulation emerged that all military personnel are employed. Therefore, the adjustment increased the size of the labor force while leaving the number of civilians unemployed the same! The result instantaneously reduced the unemployment rate, (while bringing a pandemic of migraine headaches for economists, sociologists, and statisticians).
Nevertheless, the dance goes on. In their 30 December 2008 edition article “Diagnosing Depression,” The Economist magazine stated that from their “search of the Internet” there appear “two principal criteria for distinguishing a depression from a recession: A decline in real GDP that exceeds 10%, or one that lasts more than three years.” The Gallup Poll report of 28 April 2011 states that, currently, “More than half of Americans (55%) describe the U.S. economy as being in a recession or depression.” It remains unclear whether anyone polled can discern the difference.
I hear students, businesspeople, and attorneys ask “What is going to happen? What should we do?” I (Dr. Sase) suppose that it depends on whether you are a pessimistic-glass-half-empty kind of person or an optimistic-glass-half-full individual. Either way, we may be operating at 50%. For the short run, most of us should reduce or eliminate our personal credit balances, take a more defensive posture in respect to retirement portfolios and other long-term savings, and learn to live within a more frugal balanced budget. However, in the long run we need to draw attention and realize that we are competing in a global market in which we do not have as much advantage as we did sixty years ago. Therefore, we and our family members need to invest more time and money in relevant education and competitive skills and use the political clout of our votes to direct all levels of government to invest likewise.
————————
Dr. John F. Sase has taught Economics for three decades and has practiced Forensic Economics since 1997. He earned an M.A. in Economics and an MBA at the University of Detroit and a Ph.D. in Economics at Wayne State University. He is a graduate of the University of Detroit Jesuit High School. Dr. Sase can be reached at 248.569.5228 and by e-mail at drjohn@saseassociates.com. You can find some of his videos on Economics for Attorneys at www.youtube.com/saseassociates.
