Doing Your Part

I just heard a commercial on the radio on doing your part to stimulate the economy. One man says, "I don't really need the money... I just figure I'm doing my part". "If you have the means, buy something, and we'll all do our part to stimulate the economy", they pled. Here's where my understanding of economics and theirs differs.

Allow me to illustrate with an example and some assumed numbers.

Let's say I have $100 just sitting there, not doing anything. I decide to follow their advice, to go out and buy something I don't really need in order to do my part to stimulate the economy. So I go our and buy a couple of video games at $50 each. Now, I'm not much into video games, but they're fun every once in a while, particularly when I have friends over. Normally I wouldn't pay more than $20-30 for a video game, since I don't play them much. But I want to help the economy after all.

Now, because I bought those games, the software company that wrote the games, and companies that distributed and sold them made a profit. How big of a profit? Well, with all the overhead, employee salaries, taxes, and general costs of production, let's say it's $15 profit per game distributed among all services needed to produce and distribute the game.

Okay, now let's see the overall affect of my spending on the total economy. The value of the games to me is < $60, since that's all I'm really (typically) willing to spend on them. I don't play the games enough for me to really value the games at full price. I wouldn't have bought them except for the call to action by the government. The value of my original $100 to me is, of course, $100. So I've just lost $40 of value in the transaction. The total profit for the companies is $30, so their costs were $70. So overall the economic gain is -$10, because the consumer value of the porduct is $10 less than the cost of production.

Spending monehy on stuff you don't need (or want enough to buy it of your own accord) is not "doing your part". It is destroying wealth. Stuffing that money in a mattress would have better for the economy. And saving that $100 for something I value at or above $100 would do far more for the economy than spending it.