Let's continue with example and I welcome you to throw examples my way and we can think about whether something is consumption or investment. In my argument in general that investment is something good for society, its good for you, it is capital or money that’s being put to work to create more wealth or more capital or more good for society. Well, consumption is capital that is essentially being burn in some way usually for some type of social status or ego ratification.
And you know maybe it is for some type of—well let's thing about that. What about a going out once a month—let say a vacation. This is an interesting case. A simple vacation with family, maybe it’s a family reunion depending on your family that might be simple or might be relaxing it might not but let assume this is a relaxing vacation, you know, you're going camping or you're going with somebody or something it’s a very peaceful trunk cool thing to do. So you're original got reaction would well you know, if we take a vacation me and my family we’re going to take time off, we’re not going to works, my kids aren’t going to be in school so you might say, “Oh, that’s consumption because we’re going to spend money” let say, you know, I don’t know with that vacation let say cost $2000.00, right, we’re spending $2000.00 on this vacation.
So that’s might be an investment that’s not or that might consumption. So at first you might say that’s consumption you’re not going to be working once you go on that vacation there's noting leftover. But there could be a counter argument here. There could be an argument that by taking this simple vacation with the family it re-centers you, it bonds with you family and makes you a happy or human being and it makes you more likely to be able to contribute to society once you get back home and if you didn’t take this vacation you would eventually burnout. So in this example it either depends on what you consider a simple vacation I would consider that actually probably an investment especially it makes you more relax, that eases your brain, it allows you to become more creative and more productive for society. That could be an investment and that’s why I think its important that, you know, people don’t overwork.
Now, what if I were to take me and my family and we would have someone carry us, I don’t know or you know we wrote on someone’s back as they swam across the ocean to go stay and golden thrones while a bunch of you know, an army of people dance for us, right. So let say an extravagance vacation.
So you could argue a lot of things about this, you know, I have a family or four and let say it cost me $200,000.00. Well here there's a couple of things there might be some part of this vacation that makes you more relax and might make you more productive I'd argue that is probably the opposite the extravagance vacation is probably going to make you more stress and probably figure ego in ways that are in some ways self destructive. But let say there is some component that is—you know, let's take the benefit of doubt but thus relax you. And I would say that that component is an investment.
But you know what you probably could have gotten that for $2000.00 so let say we could say that $2000.00 of this is something of an investment. And that $98,000.00 or $198,000.00 of this probably is consumption because it's not making you more productive. You know, sure enough it is when you go to this place it is giving those people something to do and it is giving them jobs but I would call that a transfer of wealth. This isn’t investment.
When you go to, you know, whatever country you decide to go too and you blow essentially $198,000.00 that you didn’t need too just because it feels good to have the locals don’t on you. You're transpiring money to them and then you know maybe they transfer that money to someone else but it no way is increasing the wealth of the world. It’s not leading to innovation, it’s not leading to more factories and it’s not leading to any type of the pie getting bigger.
And you know what I don’t even think this is necessarily a bad idea because frankly this is just a transfer of wealth from someone who needs ego ratification to a transfer wealth from someone who’s willing to do you know, fairly simple things to essentially take that wealth from them. But at the end of the day it is consumption and I think you can imagine you know, like let say a simple purse. You know, my wife goes out and buy a purse from target and it cost $20.00. Is that consumption or is that an investment? Well, I'll argue that that’s an investment if she doesn’t—maybe her old purse is falling apart by having a new purse maybe it helps her get a job be more productive, maybe it helps her more organized so this could be an investment.
And what about a Louie Vuitton not to pick on them in particular but what about a Louie Vuitton purse? I don’t know how much—I don’t know how to spell it. A Louie Vuitton purse I think cost you know upwards of $2000.00 or whatever. Well this can clearly is some form of consumption because it’s or you maybe makes some argument that in certain circles you could get a job if you carry around one of this purse is. But there is some basic core value do it that you probably could have gotten with the simple purse so that maybe as $20.00 of investment. $20.00 and then the rest of it, I don’t know the other $1980.00 is consumption.
Now let's give you a further question. Do you think that this is bad or good for society? Well I actually argue this probably neutral for society because it does look like a “Waste of money.” This extra almost $2000.00 that you spend that you really didn’t have too to get something of fairly basic utility but that—those resources weren’t burn those resources went from frankly someone who just wanted some ego ratification it went from someone’s ego essentially.
So let say this is you or your ego and this is Louie Vuitton the Company. So you gave them $1980.00 that you didn’t have too, right. The purse probably didn’t cost a lot more than that simple purse and in exchange they gave you eager ratification so they really didn’t have to waste a lot of resources they gave you all of these brand imagery that makes you feel better about yourself, eager ratification. So I would argue that this capital actually didn’t get lost it just got transfer from someone who is probably a little insecure to someone who knows how to sell to insecure people. And then Louie Vuitton well then have that $1980.00 and then who knows maybe they gave that to their private equity friend with their venture capital friend and then that gets invested in some, you know and you start up by idea that act some store sell company that actually can create energy from the sun and in which case that money did not go wasted so they might actually invested in solar.
So this actually was not a waste of money although this transaction I would agree is consumption. I would say that the waste of money is all of the advertising and all the sponsorship that Louie Vuitton has to do to convince you that this will make you somehow a better person if you buy that purse because that goes ad you see on TV with those people you want to look like that is not creating any net wealth for the world or it is not making the pie any bigger.
Anyway, let me take of another example here. Well, let say so this example with the Louie Vuitton purse this is just a transfer of wealth but let say instead of doing that you had your ego and instead of buying a Louie Vuitton purse you just—so this is you. You thought it would be nice—instead of buying a Louie Vuitton purse which we establish would just be a transfer wealth it is consumption but at least that might doesn’t disappear. Well, let say that you wanted to pay $2000.00 to have, you know, I don’t know, let see $10.00 an hour you can have 200 people dance for you, and recite your name and talk about what an amazing person you are. This I will argue is pure consumption because those 200 people instead of—sure this money gets transfer to them but they didn’t do anything productive with that time, right. Those 200 people they could have been tilling the soil, they could have been working in the factory, they could have been teaching their children how to read, they could have been doing something that was productive for society but instead they spent one hour dancing for you for your ego ratification.
And this is in my mind the worst form of consumption because not only it's not just a transfer wealth it is a destruction of wealth because 200 people’s time is wealth that is capital, that is capital that could be use to improve someone’s lives but instead this $2000.00 was essentially destroyed. Sure it goes to those people but in the end that they didn’t create anything in that amount of time. And I'll touch more about that anyway and it’s the essence the amount of money didn’t change in the system but the amount of value in this system got degraded because all of these people time got wasted and in the end that actually leads to inflation. If you have more money in the system with less productive goods and services, you have more money over left productive good in services so the prices per productive good in surface goes up.
Buy anyway, I'm out of time again but I encourage you to think as much as you can about just this idea when you spend money is it consumption or is it investment. Then I'll continue this more into kind of a lot of what the government tells you to do when the economy goes down, how they say, “Hey, you go buy yourself a nice dress” instead of saying, “Hey, weren’t you go build the factory or weren’t you save your money and invest in your child education.” Anyway, see you in the next video.
Transcription by:
Scribe4you Transcription Services