The “Free Lunch” Starts Early

06/28/2010 12:01 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

My blog this week is a true story—every word of it.

Last week I was in a car with my brother and his fiancée, driving through their upscale neighborhood on a hot summer day. At the corner we all noticed three little girls sitting at a home-made lemonade stand.

We follow the same rules in our family, and one of them is: Always stop to buy lemonade from kids who are entrepreneurial enough to open a little business.

My brother immediately pulled over to the side of the road, and asked about the choices.
The three young girls—under the watchful eye of a nanny, sitting on the grass with them—explained that they had regular lemonade, raspberry lemonade, and small chocolate candy bars.

Then my brother asked how much each item cost.

“Oh, no,” they replied in unison, “they’re all free!”

I sat in the back seat in shock. Free? My brother questioned them again: “But you have to charge something? What should I pay for a lemonade? I’m really thirsty!”

His fiancée smiled and commented, “Isn’t that cute. They have the spirit of giving.”

That really set me off, as my regular readers can imagine. 

“No!” I exclaimed. “That’s not the spirit of giving. You can only really give when you give something you own. They’re giving away their parents’ things—the lemonade, cups, candy. It’s not theirs to give.”

I pushed the button to roll down the window and stuck my head out to set them straight. 

“You must charge something for the lemonade,” I explained. “That’s the whole point of a lemonade stand. You figure out your costs—how much the lemonade costs, and the cups—and then you charge a little more than what it costs you, so you can make money. Then you can buy more stuff, and make more lemonade, and sell it and make more money.”

I was confident I had explained it clearly. Until my brother, breaking the tension, ordered a raspberry lemonade. As they handed it to him, he once again asked: “So how much is it?”

And the girls once again replied: “It’s free!” And the nanny looked on contentedly.

No wonder America is getting it all wrong when it comes to government, and taxes, and policy.  We all act as if the “lemonade” or benefits we’re “giving away” is free. 

And so, the voters demand more—more subsidies for mortgages, more bailouts, more loan modifications, more subsidies for COBRA insurance, and longer periods of unemployment benefits.

But these things aren’t free. The government gets money only by raising taxes, meaning taxpayers who earned that money pay for the “free lemonade.” Or by printing money—which is essentially a tax on savings, since printing more money devalues the wealth we hold in dollars.

And if we can’t teach our kids the basics of running a lemonade stand, how can we ever teach Congress the basics of economics?

Or maybe it’s the other way around: The kids are learning from the society around them. No one has ever taught them there’s no free lunch—and all they see is “free,” not the result of hard work, and saving, and scrimping.

If that’s what America’s children think—that there’s a free lunch waiting—then our country has larger problems ahead. The Declaration of Independence promised “life, liberty, and the pursuit of happiness.” It didn’t promise free lemonade. That’s something to think on over the July 4th holiday weekend.

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