2/20/2012

We can judge thing from another angle


We would be better off either when the all the house are twice as expensive as before or twice as cheap as before. Here is my thought:
When the houses are more expensive, my propriety, the house that I own currently, faces appreciation. I may not buy a new house or, I invest in real estate field, having faith that the house will be more precious than today.
When the houses are cheaper, I wanna make an example. Suppose a year ago I had 2 million dollar cash and a house worth 2 million bucks. Today suppose I still have 2 million bucks cash but the house price is down to 1 million. It seems that my propriety is depreciated, but it isn't: the good news is that since all the houses are half as expensive as before, the house I valued 3 million a year ago is now labelled 1.5 million bucks. I can buy it and get a consumer surplus. So the total value is now 4.5 million (1.5 million cash, 3 million worthy house), and now I am better off than before (2 million cash, 2 million worthy house).
Actually I find it can be generalized further. For example, country A wants to build railway but it doesn't have that much money, and thus it borrows money from country B and as return, country A gives B stock with equivalent value of money lent. Now comes a financial crisis in country A, and its credit is rated down, which panics country B. Worried that the situation will be worse and the country A cannot give back the money, country B sells the stock back the the businessmen in country A to get cash. Now, the country A not only has railway, but also gets back the stock, which is now to some extent transferred into the form of bonds, at a relatively low price. So country A is somewhat better off.

IN the business ethics class, my instructor asked a question: Suppose I was the CEO of IBM during WW2, and Nazi wants to buy some high tech equipment. Also I knew that no other buyer will bid a higher price than Nazi men do, which simply means that the company would get maximum profit from this trade. Question: Should I trade with Nazi?

My answer is no because it won't be profitable in the long run, for a big corporation like IBM, the brand and reputation is a huge wealth. It's like the best advertisement, representing high quality and great service, but in the mean time, the brand can be a burden because if the company did anything wrong, the company will bear greater loss than generic companies. By selling equipment to evil Nazi, IBM would be notorious and customers may refuse to buy the IBM's product in the future. SO in terms of long run profit, IBM should sell the product to Nazi.

One student's answer is also no because from my perspective, it's not totally plausible. She says that by selling products to enemy, IBM is indirectly sponsoring Nazi and they will kill more people. But, who says that Nazi will use the products to kill. Not all German people are killing machine, they also need to eat and live a better life.

No comments:

Post a Comment