Why All Spending Is NOT Created Equal

“a dollar spent is a dollar earned in income”

...we hear it all the time.

But is it true?

Does each dollar spent equal income for someone else?

Yes, that may be true, but it doesn't mean it's a good thing…

You see, spending in itself, can be a very bad thing, even if it means income to someone else.

Here's why:

Spending in a way that doesn't create wealth, only results in money changing pockets.

It won't add to the wealth...and it won't GROW an economy.

To Illustrate this point, I will give you a verybasic thought experiment.

Consider two identical economies:

economy 1, and economy 2

In economy 1, 100 windows break, and money isspent to fix those windows.

In economy 2, no windows break, and instead, the money (that would have been used to repair the windows) is used to build 100 more windows.

Let's Compare

economy 1, after fixing 100 windows, is now backto how it was before. But... fixing those 100 windows incurred an opportunity cost.

economy 2 didn't have to fix any windows. Instead, they built 100 MORE windows.

All else being equal Economy 2 is wealthier than economy 1... because more NEEDS are met.

In this simple example, needs are symbolized by windows.

The more needs are met (or fixed), the more wealth is created.

If windows break, and more needs arise, then wealth is destroyed.

Fixing those windows fixes those needs, but like in economy 1, we didn't get any wealthier than when we started. We are just back in square zero.

However, if those windows didn't break, the money we used to fix them would have been used to actually build more windows... and actually increase wealth.

Therefore, spending for the sake of spending doesn't automatically increase wealth… it depends what you're spending it for.

Now what if windows didn't break, but instead we spent money to build a type of window people didn't really want?

That's what's called a malinvestment. An investment in something that people don't need.

Malinvestments don't increase wealth. Because if something doesn't meet people's needs, building it doesn't increase wealth.

Therefore… money is only being moved from one hand to another… but no wealth is created in the exchange!

You see, each dollar moved from one person to another can create different results...and we shouldn't treat them all the same with the mantra of "each dollar spent is someone else's income"

This is because spending for the sake of spending won't automatically increase wealth.

It depends on WHAT you're spending on… and whether it will give you a return.

A healthy, thriving economy will be full of life with lots of spending… and that often gives people the illusion that spending is what made the economy “healthy” to begin with.

But that's not how it got there...

To see this, it's useful to think of the followinghuman body analogy…

When you are well-rested physically,you are more likely to go out and enjoy yourself.

You might go to the park, you might go swimming, you might go partying. Right?

Therefore, when you are well-rested, you are morelikely to go out and "spend" more energy.

What happens when you party too hard... drink too much...or physically exert yourself too much?

When you exert yourself too much, you soon feel the consequences.

These consequences can be... going through a hangover (withdrawal)... feeling tired… having sore muscles… etc.

How likely are you to go out when you are in this tired… lethargic state?

You are less likely to go out, because you will be resting.

You will be undergoing a much needed RECESSION.

Now, what if a doctor where to come in and tell you

“Hey man, you look REALLY tired right now… and when you feel good, you usually go out and party and exercise and SPEND energy.

So here's the fix: Go out, and run a mile. That should get you spending, and that should make you better! Because when you're better, you are spending!”

We would probably think that doctor was crazy...

Why? Because only until you are rested... only until your fundamental body savings go back up... will you be ready to spend again.

Similarly, for an economy to get rich, it has to build up savings, and invest on the RIGHT things.

Things that actually create wealth, and meet other people's needs.

You don't get rich by indiscriminate spending, but by wise investment.

Similarly, the government cannot create wealth just by spending in itself.

It will create malinvestments that are no different than building windows that nobody needs!

Take a look at every government “service.”

If let free into the market, each government service would be “in the red” – unable to profit and survive.

Therefore, these are also malinvestments, and it's easy to see that government spending creates much more malinvestment than voluntary sector spending.

So, did ya like this presentation?

If you're interested in learning more economics and liberty (and you probably are if you got this

far)… then find more of my liberty-related articles, slideshows, and videos on

http://libertylust.com