One of the more persistent myths about capitalism is that wealth and resources are "wasted" when spent on luxuries.
At the core of this myth is the idea that when you buy, say, a $5,000 75-inch LED television, the money you spend on that item goes only to improve the life of the person who ends up owning the television. "Look at those rich people and their expensive televisions! Don't they know that some people in the world don't have televisions at all?"
This is an old story. The basic premise of shunning luxuries has long been this: people should not spend their money on luxuries while there are some people in the world who can't get enough to eat, or who lack adequate housing, or who lack an education.
Now, there is no doubt that real value can be obtained from charitable giving to people who live in poverty. Both the giver and recipient benefit. Encouraging people to share the wealth in this way—freely and without state coercion, of course—is a good thing.
However, much of the argument against spending on luxury items completely ignores the many non-wealthy people who benefit from creating and selling luxury items and services to relatively more wealthy people.
Put another way: many people benefit when the rich are separated from their money—and an easy and non-violent way to separate the rich from their money is to convince them to buy luxury goods and services.
After all, in the case of a high-end television (or any television), who benefits? Many people who aren't rich people.
For example, if the television is purchased at an electronics store, the person who sells the item then earns a commission. Or, if it's a non-commission job, then the salary must come out of the proceeds from the sale of the television. The same is true of everyone else who works in the store, from the manager to the cashier to the janitor.
The truck driver who delivered the television to the store, of course, has value as a worker because someone wanted the television he delivered. And then there are the people who actually assembled the television and the people who built the parts used to make it.
The truck driver who delivered the television to the store, of course, has value as a worker because someone wanted the television he delivered. And then there are the people who actually assembled the television and the people who built the parts used to make it. The fact these people may live far away in some other country doesn't make them irrelevant or unimportant.
And we need not stop there. Many other people earn money because people buy luxury goods. The advertisers and marketers who let people know about the existence of these luxury items exist because the goods are sold. The insurance salesmen who sell the casualty and liability policies to the sellers and manufacturers of these luxury items also can earn a living because some people like to buy expensive televisions.
The situation is not fundamentally different if someone buys the television online. Someone must still deliver the television. Someone must build the truck it is delivered in.
Similar situations occur with all products and services.
It's true that some of that money goes to CEOs. And some of it goes to stockholders—many of whom are certainly not millionaires. But the fact that some wealthy people partly benefit from some industry, good, or service is hardly a reason to limit or abolish those things.
The Problems with Forced Redistribution
Some may respond to these observations by claiming, "Well, if we forcibly redistributed all that money spent on luxuries, that television delivery driver wouldn't have to work hard just to feed her children or help her ailing mother.
At the core of the "money-spent-on-luxuries-is-wasted" argument is often an assumption that some government agency could do a better job of allocating the money.
In other words, at the core of the "money-spent-on-luxuries-is-wasted" argument is often an assumption that some government agency could do a better job of allocating the money.
But let's look at what would be required to "re-allocate" this money in an allegedly better way.
First of all, government agents would have to determine which people are spending too much on luxuries and then determine what portion of their income to confiscate for purposes of re-allocation.
Then, it would have to be determined which people would receive the redistributed funds.
All of this would be dictated by rules and regulations, and government bureaucrats would take their cut in the re-allocation process, of course.
In the end, some people would end up with more money than they had before. And some would have less. And government employees would certainly have more.
But can we be sure that the delivery driver who supports her family with the profits from television sales will actually be better off? No, we can't be sure. It's entirely possible that as the wealthy are less able to purchase luxuries, the driver will have her hours reduced. She may then have to find a job working in a field she less prefers and possibly even hates.
Moreover, we can't be sure that she'll even see a net gain in her income since the rules authored by bureaucrats may not favor people in her particular situation.
As luxury spending is forcibly curtailed, everyone who earns a living from the sales of these items will themselves see a reduction in their income.
It spreads outward from there. As luxury spending is forcibly curtailed, everyone who earns a living from the sales of these items will themselves see a reduction in their income.
And finally, the workers overseas in poor countries who made those televisions will see less demand for their work, and thus less income. These people are probably the ones who will suffer the most from our attempt at punishing people who spend too much on luxury items.
The cumulative effect is substantial, and there's no way a government planner could account for every possible outcome.
And then, of course, there is the total arbitrariness of declaring some things to be luxuries and other things to be essentials. Are all televisions luxuries? Or are some televisions "essential"? And if some televisions are essential, at what price level do they become luxuries?
Many things that appeared to be wildly luxurious and largely unattainable to past generations are considered to be essentials today. Telephones, microwave ovens, air conditioners, and refrigerators were all once luxuries for a few privileged consumers.
Needless to say, there is no objective measure by which a government agent might declare some items essential and others unnecessary frills.
So, the next time we witness someone who is spending money on some luxury we deem unnecessary, whether it be a luxury car, a seemingly pointless toy, or a service that "nobody needs," it's helpful to keep in mind that those who sell and market such goods are usually ordinary people.