Let's continue with this example and I welcome you to
throw examples my way, and we can think about whether
something is consumption or investment.
And my argument, in general, is that investment is
something good for society.
It's good for you.
It is capital, right?
Or money that's being put to work to create more wealth or
more capital or more good for society.
While consumption is capital that is, essentially, being
burned in some way, usually for some type of social status
or ego gratification.
Well, let's think about that.
What about a going out once a month-- Let's say a vacation,
this is an interesting case.
A simple vacation with family.
Maybe it's a family reunion, depending on your family, it
might be simple, or it might be relaxing, it might not.
But let's assume this is a relaxing vacation.
You're going camping, or you're going
to Yosemite or something.
It's a very peaceful, tranquil thing to do.
So your original gut reaction would be, well, if we take a
vacation, me and my family, we're going to take time off,
we're not going to work, my kids aren't
going to be in school.
So you might say, oh, well, that's consumption because
we're going to spend money.
Let's say, the vacation cost $2,000, right?
We're spending $2,000 on this vacation.
So that might be an investment, or that might be
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 nothing left over.
But there could be a counter argument here.
There could be an argument that, by taking this simple
vacation with the family, it recenters you, it bonds with
your family, it makes you a happier 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 burn out.
So in this example, and it depends on what you consider a
simple vacation, I would consider that actually,
probably an investment.
Especially if it makes you more relaxed, it eases your
brain, it allows you to become more creative and more
productive for society.
That could be an investment.
That's why I think it's important that
people don't overwork.
Now, what if I were to take me and my family and we were to
have someone carry us or we rode on someone's back as they
swam across the ocean to go stay in golden thrones while
an army of people danced for us.
Right?
So let's say, an extravagant vacation.
So you could argue a lot of things, this is, I have a
family of four and let's say it costs me $200,000.
Well here, there's a couple things.
There might be some part of this vacation that makes you
more relaxed and might make you more productive.
I'd argue that it is probably the opposite, the extravagant
vacation is probably going to make you more stressed and
probably feed your ego in ways that are in some ways
self-destructive.
But let's say that there is some component, let's stick to
the benefit of the doubt, that does relax you.
And I would say that that component is an investment.
But you know what?
You probably could have gotten that for $2,000.
So we could say that $2,000 of this is something of an
investment and that $198,000 of this probably is
consumption.
Because it's not making you more productive.
Sure enough, 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 whatever country you decide to go to
and you blow, essentially, $198,000 that you didn't need
to just because it feels good to have the locals dote on
you, you're transferring money to them.
And then, maybe, they transfer that money to someone else,
but it in 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
the pie getting bigger.
And you know what?
I don't even think this is, necessarily, a bad idea
because, frankly, this is just the transfer of wealth from
someone who needs ego gratification to a transfer of
wealth from someone who's willing to do 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, let's say, a simple purse.
My wife goes out and buys a purse from Target
and it costs $20.
Is that consumption or is that an investment?
Well, I'd argue that that's an investment.
Maybe her old purse is falling apart and by having a new
purse, maybe it helps her get a job, be more productive;
maybe it helps her get more organized.
So this could be an investment.
And what about a Louis Vuitton-- not to pick on them
in particular-- but what about a Louis Vuitton purse.
I don't know how much they-- I don't even know
how to spell it.
I think these cost upwards of $2,000, or whatever.
Well, this, clearly, is some form of consumption.
You could maybe make some argument that in certain
circles, you could get a job if you carry around one of
these purses.
But there's some basic core value to it that you probably
could have gotten with a simple purse.
So that, maybe, is $20 of investment.
And then the rest of it, I don't know, the other $1,980,
is consumption.
Now, I'll ask you a further question: do you think that
this is bad or good for society?
Well, I'd actually argue that it's probably neutral for
society, because it does look like a quote, unquote, waste
of money, this extra almost $2,000 that you spent that you
really didn't have to, to get something of fairly basic
utility, but that those resources weren't burned.
Those resources went from, frankly, someone who just
wanted some ego gratification.
It went from someone's ego, essentially.
So let's say this is you, or your ego.
And this is Louis Vuitton, the company.
So you gave them $1,980 that you didn't have to.
Their cost of making the purse probably didn't cost a lot
more than that simple purse.
And in exchange, they gave you ego gratification.
So they really didn't have to waste a lot of resources.
They gave you all of this brand imagery that makes you
feel better about yourself.
So I would argue that this capital actually didn't get
lost, it just got transferred from someone who was probably
a little insecure to someone who knows how to sell to
insecure people.
And then Louis Vuitton will then have that $1,980 and then
who knows, maybe they give that to their private equity
friend or their venture capital friend, and then that
gets invested in some new start-up idea, some solar-cell
company that actually can create energy from the sun.
And in which case, that money did not go wasted.
So they might actually invest it 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 Louis Vuitton
has to do to convince you that this will make you, somehow, a
better person if you buy that purse.
Because those ads you see on TV with those people you want
to look like, that will not give you-- that is not
creating any net wealth for the world, or is not making
the pie any bigger.
Anyway, let me think of another example here.
Well, let's say, so this example with the Louis Vuitton
purse, this is just a transfer of wealth.
But let's say, instead of doing that, you had your ego
and instead of buying a Louis Vuitton purse, you just-- so
this is you-- you thought it would be nice-- but let's say,
you thought it was nice, instead of buying a Louis
Vuitton purse, which we established would just be a
transfer of wealth-- it is consumption, but at least that
money doesn't disappear-- let's say that you wanted to
pay $2,000 to have-- I don't know-- $10 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 would argue, is pure consumption.
Because those 200 people, sure this money gets transferred 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 a 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 gratification.
And this is, in my mind, the worst form of consumption
because, not only-- it's not just the transfer of wealth,
it is the destruction of wealth.
Because 200 people's time is wealth, that is capital that
could be used to improve someone's life.
But instead, this $2,000 was, essentially destroyed.
Sure, it goes to those people, right?
But in the end, they didn't create anything in
that amount of time.
And I'll touch more about that anyway.
In essence, the amount of money didn't change in the
system, but the amount of value in the system got
degraded because all these people time got wasted.
And, In the end, that actually leads to inflation.
If you have more money in a system with less productive
goods and services, the price for our productive goods and
services goes up.
But 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?
And 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, go by yourself a nice dress, instead of saying,
hey why don't you go build a factory?
Or why don't you save your money and invest in your
child's education?
Anyway, see you in the next video.