Phishing for Phools - a teachable moment for Economics students
It's interesting to see how Trump uses the language of business to fool people when he says, "If Putin likes Donald Trump, I consider that an asset, not a liability."
The implication here is that assets are better than liabilities, therefore Putin liking Trump is good. Is it so? Not at all!
After hearing Trump's statement we should ask ourselves, Good for what? In other words, the goodness of an asset depends on the use of the asset. For example, an asset can be used to harm parties directly. An asset can also be used to harm third parties, e.g. by creating a negative externality. Etc.
Moreover, a mutual liking between parties is not an asset by itself. Rather, it's something that potentially reduces transaction costs, e.g. by reducing due diligence expenses and increasing the probability of a deal. Nevertheless, until we know the nature of the transaction itself and its implications, we can't say that a reduction in its costs is good for us.
The implicit assumption behind Trump's statement is that what's good for Trump is good for America and we should trust his judgement on that. This is a typical Principal - Agent problem that has to be addressed by a proper management contract and an enforcement mechanism. A lack of such contract backfired on Trump's investors and customers many times and resulted, e.g. in real estate bankruptcies and Trump University lawsuits.
The implication here is that assets are better than liabilities, therefore Putin liking Trump is good. Is it so? Not at all!
After hearing Trump's statement we should ask ourselves, Good for what? In other words, the goodness of an asset depends on the use of the asset. For example, an asset can be used to harm parties directly. An asset can also be used to harm third parties, e.g. by creating a negative externality. Etc.
Moreover, a mutual liking between parties is not an asset by itself. Rather, it's something that potentially reduces transaction costs, e.g. by reducing due diligence expenses and increasing the probability of a deal. Nevertheless, until we know the nature of the transaction itself and its implications, we can't say that a reduction in its costs is good for us.
The implicit assumption behind Trump's statement is that what's good for Trump is good for America and we should trust his judgement on that. This is a typical Principal - Agent problem that has to be addressed by a proper management contract and an enforcement mechanism. A lack of such contract backfired on Trump's investors and customers many times and resulted, e.g. in real estate bankruptcies and Trump University lawsuits.