45 economics

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When I was a kid, my neighbor Tom was a bit younger than me. One day he informed me that I was foolish to pay $5.99 for an album. He was acquiring all the same songs on 45s for only 99 cents each and thereby saving $5.10. No amount of people explaining the math to him would dissuade Tom from this belief. I was throwing money away.

In the decades since, every conversation I've had about economics has been some variation of that argument with Tom.

"I'm tired of throwing money away on rent!" says young Darcy of her dire need to buy a starter home with her cheating mooch boyfriend. "I want to build equity."

It is a familiar argument. A familiar, asinine argument. So I broke out Karl's Mortgage Calculator and showed her how, if she lived in the house for the first five years of her 30 year mortgage, she would indeed build $23,000 in equity. At the cost of paying $38,000 in interest.

"So you've lost fifteen grand and you haven't had a single repair, furnished a room, or paid closing costs or property taxes yet," I said.

She was bewildered. Everyone knows that home-owning is the smarter investment. Anything else is just throwing money away, and that would just be stupid.