(L45) Loans & Depreciation

Why shouldn’t I borrow to buy something that depreciates?

I will never borrow money to pay for an item that depreciates in value because in the long-run, the item will end up costing me even more than it should have in the first place. Say, for example, that I borrowed money to buy a brand new car. Well, not only will I be paying interest on the loan that I used to buy the car with, but the car will also immediately drop in value the second that I drive it off of the lot.

In short, this means that I am going to pay more than the car is actually worth from the minute it’s mine. On top of the extra money I am paying to own the new car which will only decrease in value over time, I am paying money to the person I borrowed from. Added together, I am paying a great amount more for the car than it is physically worth. Five years down the line, the car will sell for even less money than it would have the year before. Basically it is just a great loss to me in terms of the future.

Another reason not to borrow money for something that depreciates in value is the issue of repayment to the lender. Borrowing money to invest in a business for example would be a great future oriented decision. A business would bring in more income (hopefully) than it cost me, and I would be able to repay the lender with the least amount of interest costs possible. However, borrowing money to pay for an item that loses value over time will only make it more difficult for me to repay the lender because I am losing money (value) each day. This will also result in me paying more money in interest than I would had I invested in something that has increasing value over time.

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(L35) The United States: Healthcare and Antitrust

1.) What are some of the factors that have contributed to rising health-care costs in the United States?

The birth of the rise in health care costs can be pinpointed in WWII. It was during this time that businesses were desperate to attract labor, but they couldn’t raise wages because the government had frozen the price. So, to compensate for this, businesses began to offer employer-supplied medical insurance; it was not considered a wage increase and thus, could not be taxed. After the war, labor unions demanded employer financed medical insurance be a continuous part of their contracts. This forced the hand of nonunion businesses to also provide health insurance in hopes of avoiding unionization. The result of all of this was that medical care was barely paid for out of pocket by Americans, which in turn caused people to care much less about price comparing. Since the client was not the one paying, (their employer was), health care suppliers then developed an incentive to offer high cost treatments. Ultimately, this created an ongoing price increase in the healthcare business.

2.) How is the actual history of antitrust different from what the average person probably thinks it is?

Antitrust is generally presented to the public as program that would help people pay ‘fair’ prices, and favor consumers. In reality however, the antitrust acts (Sherman Antitrust Act, 1980 and Federal Trade Commission Act, 1914) did the opposite of favoring consumers, and created a history of attacking successful and efficient businesses. One example of this would be the US vs. American Tobacco, in which this ness had merged with other smaller companies, (but not created a monopoly); American Tobacco was able to raise product output all the while lowering prices. There was still easy entry into the tobacco industry for competitors, and no consumers were being harmed whatsoever. However the US government decided to step in to punish and limit them by law, for favoring consumers.