The Velocity of Money

Debating the welfare and government system often escalates into a messy argument, winding back and forth until the original point is lost. In the vein of simplicity, simple concepts or in this case proven phenomenon can be helpful. First we will start with everything that we can think of that the Government is “giving away” or “redistributing”. At the bottom we have traditional welfare- food stamps, government housing, and recently the Trump COVID relief check. At the top we have subsidies for large corporations, oil and gas, Elon musk receiving billions from the American government, bailouts, and large tax cuts. Tax cuts aren’t redistribution but it is a financial burden lifted. 

While you are expecting or hoping for a comparison of the two totals, that is not the point. What do you think would boost the economy more- The redistribution at the top or the redistribution at the bottom? The short answer has to do with the velocity of money. If you gave $1200 to an impoverished worker who makes $25,000/year and gave a wealthy person who makes $2,000,000/year, hard data tells us that the worker will spend 100-110% of the benefit they are given. The wealthy person on the other hand will spend far less 0-30%. If we think about it, it makes sense, if you have urgent bills to pay and need groceries to survive, you will spend that money. If you have a solid retirement fund, large salary, and stock portfolio, that amount of money is insubstantial and you don’t literally(as in won’t starve) need it in the same sense. This isn’t a shame-on-you-rich-guy issue, it’s just reality. The worker will put the money right back into the economy while a wealthy person will save it, effectively taking it out of normal circulation. 

The implications of this are massive. This “law” of the system was one of FDR’s greatest tools. None of the New Deal programs were perfect, many were mismanaged or just overly optimistic leading to programs that went nowhere like Eleanors housing experiment in West Virginia, Arthurdale. However, even when these programs missed the mark, they weren’t putting money into the hand of the ultra wealthy, meaning even failed programs paid real workers. Let’s be clear, this is not some call for wasteful redistribution. This simply highlights the fact that America economically is at its best when the Government is by the People for The People and working in the majorities interest. 

This fact makes something like Medicare for all a simple question from a monetary point. We know that every dollar saved on healthcare by the masses will immediately enter the economy. This fact shows that welfare and food stamps literally cannot be ruining our economy. While we have data that tells us recipients aren’t committing fraud(have you ever applied for government assistance, it’s an insanely tough process), however even if every impoverished person was double-dipping it would have a positive effect on the economy and GDP. 

When will the Left wake up to seize control as the party of American economic values? I wouldn’t hold my breath, so long as they are taking the same money as the Republicans. 

3 thoughts on “The Velocity of Money

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