Investment vs. consumption 2

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.