Free Lunch

FREE LUNCH….Math professors are frequent recipients of proofs that circles can be squared and angles trisected. Physics professors receive packages purporting to show how to build perpetual motion machines.

These proofs and demonstrations are often ingenious and it’s not always obvious exactly what mistake the author has made. However, since all of these things are known to be impossible, the recipients of these packages just discard them anyway. Why bother reading through a hundred pages of turgid demonstration when you know beforehand that somewhere, somehow, there’s a mistake?

This is about how I felt reading through Brad DeLong’s recent critiques of a “free lunch” method of funding Social Security privatization. It started here, where Brad provided a lengthy examination of the plan, and ended up here, where we got the short version. Here it is:

The government should issue treasury bonds paying, say, 3% interest. It should then use the money to invest in the stock market, earning, say, a 5% return. Eventually the government will be rich!

But what’s the point of bothering to examine this? Like “proofs” from folks who don’t understand the Second Law of Thermodynamics or the nature of transcendental numbers, there’s obviously a flaw here. If there weren’t, we could simply fund the entire government for free by doing this.

The free lunch is the economic equivalent of squared circles and perpetual motion, a favorite of cranks through the ages. The only real question here is how a supposedly serious economist in government service can propose something like this, and why people like Brad have to fritter away their time tracking down the flaws in it. What a waste.