ECONOMICS - 101

Economics 101 – a King summoned all his most trusted economic advisers and asked them to come up with the briefest statement possible that would summarize all a person needs to know about economic theory. After much deliberation, the advisers sent the king the following note:

"There is no such thing as a free lunch."

Any imaginable economic decision, no matter how large or small, follows that premise without exception, and it matters not whether the decision is one with national ramifications or one that concerns only one household. For example, how a nation decides to pay for a war is essentially no different than a couple's decision on how to pay for a more expensive house. A nation can decide to pay for the costs of war in any one of three ways: (1) by raising taxes, (2) by lowering spending in other areas to offset the war costs, or (3) by borrowing money to be repaid at a later date. A couple can pay for their more expensive house by (1) getting a second job, (2) lowering household spending in other areas of their life, or (3) by borrowing money to be repaid at a later date. In both examples, the available options are virtually identical, and all of those options require a corresponding sacrifice, whether it means more taxes paid, more hours worked, sacrificing things we care about in our lives, or paying interest on our debts if we choose the borrowing option. There is no escaping the economic axiom that every benefit requires a corresponding sacrifice.

That notion, that there is no such thing as a free lunch, acts as a kind of economic balance. When sacrifice equals benefit, economic harmony prevails. It is only where a nation or an individual attempts to reap greater benefits than the sacrifice they are willing to bear, that economic chaos occurs, and once that happens, the only way to return economic chaos to a state of equilibrium is to pay the corresponding sacrifice.

Following the events of September 11th, 2001, our nation commenced two wars, one in Iraq and one in Afghanistan. To date, the price tag attached to those war efforts comes to almost two trillion dollars. How much have American taxpayers sacrificed to pay for those wars? Not one red cent! Every single dollar spent on the wars in Iraq and Afghanistan has been appropriated through supplemental appropriation bills, which simply add the costs directly to the national debt, including the interest on those debts. Taxes were never raised to cover that debt. Spending was not decreased to cover that debt. The government simply borrowed the money. Eventually, the economy sank into recession.

During the same time as the wars in Iraq and Afghanistan were occupying the focus of the federal government, moving into a new or more expensive home was occupying the focus of tens of millions of Americans. As folks have sadly come to realize, millions of those home buyers were purchasing more expensive homes than they could actually afford, and with little or no down payment to give them equity in their property, millions of home owners quickly fell under when the economy went south and unemployment skyrocketed. As a result, the housing market collapsed.

America as a Nation, and Americans as individuals are now faced with the painful reality that only national and individual sacrifice can bring our national economy and our household economies back into economic equilibrium. We can choose between sacrifices, but we cannot avoid making them forever.

There is no such thing as a free lunch…never has been; never will be!