Investment vs. Consumption 2 More investment vs. consumption examples.
Investment vs. Consumption 2
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- 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
- 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.
- 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
- 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
- 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.
- 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.
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