ESSAY QUESTION:
The following appeared in the personal finance section of a popular magazine:
"The average price of an acre of land in the United States is now 50 times what it was in 1970, and nearly 200 times what it was in 1920. The nation's population is projected to keep increasing, even as the amount of land remains constant. Therefore, people who are approaching retirement should invest heavily in real estate in order to ensure their financial security."
RESPONSE:
In an economic condition where supply of a certain commodity is fixed and demand keeps rising, the price should continue to increase. This is a general economic theory based on which the author provides us an argument that with increasing population and limited land availability the prices of the land would continue to increase, hence this could be a profitable investment for people approaching retirement. The argument may not be acceptable to many as it is poorly reasoned based on inadequate premises, and unproven assumptions.
The primary issue with the argument is the logic used to arrive at the conclusion based on the information available. The statement only states one dimensional data about increase of land price between 1920 and today. It fails to consider the impact of inflation, which is the true indicator of what the money is worth in a given state of time. For example if the inflation has gone proportionate to the increment in price of the land then investing in real estate may not be as profitable. Additionally the author also fails to consider any other fields of investment, hence no comparison could be drawn between the profitability in other investments versus that in real estate. The author also fails to consider the fact that from the data it is only found that the price of land has increased on a larger period of time, hence it may not be a good investment for people who are approaching retirement age very soon, as they would like to get the benefit out of the investment right after they retire. The investment might not yield as much profit in a short span.
Besides the issue with inadequacy of the information available to arrive at the conclusion, the author also relies on several unproven premises. The author makes an assumption from three data points that the land price is always increasing. This may be true on a longer period of time, but there have been instances that when there is economical recession, the land prices also decrease in proportion to the market decline. Thus assuming land price to be unaffected by economical recession makes the claim illogical. The author also assumes that people approaching retirement have a significant amount of time left before they would like to receive the return on investment, as investment in real estate may yield profit after investing for a longer duration. What if people do not have that much of time left at their job before they retire? Without clarifying these assumptions the claim would not be acceptable.
Though the author's claim has several flaws, it still has merit. If the author can provide two critical information regarding investment it would make the claim more logical and acceptable. First, the author should find out what are the different types of investments available which should be compared with investment in real estate keeping in mind the profitability and stability. With this information a person can make a conscious choice based on how long does it take for a particular type of investment to yield profit in comparison to real estate. Second, the author should also provide data about patterns or signs of recession. This information would help people determine a good time to invest in real estate when the prices are low and then sell it when the prices are high. With these information in hand along with the claims the author has made, the author would be able to better convince people on why investing on real estate could be a better financial advise.
To summarize author's statement to claim that people who are approaching retirement should invest heavily in real estate in order to ensure their financial security has flawed logic and irrelevant assumptions which does not link between the data points he found with the conclusion he has made. With careful validation of those assumptions, more research to find relevant data points and better analysis this claim will be acceptable to readers.
The following appeared in the personal finance section of a popular magazine:
"The average price of an acre of land in the United States is now 50 times what it was in 1970, and nearly 200 times what it was in 1920. The nation's population is projected to keep increasing, even as the amount of land remains constant. Therefore, people who are approaching retirement should invest heavily in real estate in order to ensure their financial security."
RESPONSE:
In an economic condition where supply of a certain commodity is fixed and demand keeps rising, the price should continue to increase. This is a general economic theory based on which the author provides us an argument that with increasing population and limited land availability the prices of the land would continue to increase, hence this could be a profitable investment for people approaching retirement. The argument may not be acceptable to many as it is poorly reasoned based on inadequate premises, and unproven assumptions.
The primary issue with the argument is the logic used to arrive at the conclusion based on the information available. The statement only states one dimensional data about increase of land price between 1920 and today. It fails to consider the impact of inflation, which is the true indicator of what the money is worth in a given state of time. For example if the inflation has gone proportionate to the increment in price of the land then investing in real estate may not be as profitable. Additionally the author also fails to consider any other fields of investment, hence no comparison could be drawn between the profitability in other investments versus that in real estate. The author also fails to consider the fact that from the data it is only found that the price of land has increased on a larger period of time, hence it may not be a good investment for people who are approaching retirement age very soon, as they would like to get the benefit out of the investment right after they retire. The investment might not yield as much profit in a short span.
Besides the issue with inadequacy of the information available to arrive at the conclusion, the author also relies on several unproven premises. The author makes an assumption from three data points that the land price is always increasing. This may be true on a longer period of time, but there have been instances that when there is economical recession, the land prices also decrease in proportion to the market decline. Thus assuming land price to be unaffected by economical recession makes the claim illogical. The author also assumes that people approaching retirement have a significant amount of time left before they would like to receive the return on investment, as investment in real estate may yield profit after investing for a longer duration. What if people do not have that much of time left at their job before they retire? Without clarifying these assumptions the claim would not be acceptable.
Though the author's claim has several flaws, it still has merit. If the author can provide two critical information regarding investment it would make the claim more logical and acceptable. First, the author should find out what are the different types of investments available which should be compared with investment in real estate keeping in mind the profitability and stability. With this information a person can make a conscious choice based on how long does it take for a particular type of investment to yield profit in comparison to real estate. Second, the author should also provide data about patterns or signs of recession. This information would help people determine a good time to invest in real estate when the prices are low and then sell it when the prices are high. With these information in hand along with the claims the author has made, the author would be able to better convince people on why investing on real estate could be a better financial advise.
To summarize author's statement to claim that people who are approaching retirement should invest heavily in real estate in order to ensure their financial security has flawed logic and irrelevant assumptions which does not link between the data points he found with the conclusion he has made. With careful validation of those assumptions, more research to find relevant data points and better analysis this claim will be acceptable to readers.
Thanks,
Utkal
Utkal
