This blog entry continues the discussion commenced in LDS Inc. (Part One):
Noisy children are a real headache. Two aspirin will make a headache go away. Therefore, two aspirin will make noisy children go away.
Surely you can see the error in the passage above: The term headache shifts its meaning between the first two sentences. This is an example of what is called a fallacy of equivocation.
My favorite example of equivocation runs as follows:
I love you.
Therefore, I am a lover.
All the world loves a lover.
You are all the world to me.
Therefore, you love me.
(Keep your eye on the phrase all the world.)
A subset of critics of the Church of Jesus Christ of Latter-day Saints like to complain that it spends far more money on malls and stocks than on humanitarian assistance to the needy.
Viewed superficially, this seems undeniably true.
However, it seems obvious to me that the complaint rests upon on a plain fallacy of equivocation as well as on a basic misunderstanding of finance and economics. I’ll treat the equivocation first.
Imagine two extraordinarily wealthy men. The first — let’s call him “Trevor” — buys a Lamborghini Veneno for $4.5 million. He loves fast cars, lavish parties, the yacht that he keeps in Monte Carlo, and skiing in Gstaad. The second of our two very rich men — we’ll call him “Russell” — buys a $4.5 million stake in the Acme Consolidated Megahuge Corporation. Russell has chosen ACM Corp. with an eye to steady income from dividends but also to likely growth in principal.
Both Trevor and Russell have spent $4.5 million dollars. But, although we use the verb to spend in both cases, surely there’s a distinction to be made between the two.
In buying the Lamborghini Veneno, Trevor hasn’t given a moment’s thought to “investment” or prudence. He simply likes the car, and he’s got money to burn. And burn it he will. A Lamborghini Veneno, of course, isn’t a typical car. Still, according to current depreciation rates, the value of a new vehicle can drop by more than twenty percent after just the first twelve months of ownership. Then, for the next four years, it will typically lose roughly ten percent of its value each year. This means that a new car can be worth as little as forty percent of its original purchase price after only five years. And we’ll say nothing about the risk of accidents, and so forth.
By contrast, if Russell’s reasoning with regard to Acme Consolidated Megahuge Corporation is sound, at the end of five years he will have had steady income from his shares and, upon their sale, will have achieved signfiicant capital gains. Unlike Trevor’s purchase, his purchase will leave him financially better off, with more money to use for whatever purposes he chooses.
To spend money on consumer goods — whether daily excursions to Starbucks or the latest electronic gadgets — is very different than spending money on investments.
This is a key point to keep in mind when considering the investments made by “LDS Inc.”
To be continued.