Optimal Money Flow by Lawrence C. Marsh

Author:Lawrence C. Marsh
Language: eng
Format: epub
ISBN: 9781734225211
Publisher: Greenleaf Book Group Press
Published: 2020-11-15T00:00:00+00:00

WEAK ECONOMIC DEMAND REFLECTS POOR MONEY FLOW

One aspect of the current economy that is not well understood is that the willingness of people to spend money on goods and services has slowed because of the aging of the population. Older people have always had a tendency to spend less on clothing and durables. As the baby boomers age, this tendency is having an impact on the economy. In the meantime, workers generally have seen little or no increase in their real disposable income. College debt now exceeds $1 trillion and is rising rapidly. With the little disposable money that they have left, younger people are choosing to spend a larger proportion of their incomes on experiences (often overseas) than on domestic goods and services.

The resulting chronic weakness in demand is one key factor that has caused the Federal Reserve Board to keep interest rates lower for a longer period of time than would otherwise be the case. With little or no inflation, there have been no significant cost-of-living adjustments for Social Security. These factors have kept the economy from expanding sufficiently without the help of monetary or fiscal stimulus.

When demand is strong, money turns over more quickly, and the bank accounts of both the wealthy and not-so-wealthy increase more rapidly. Again, the win-win economy wins by growing the pie, while the I-win-you-lose economy loses, where everyone is fighting for a bigger piece of the shrinking pie. When demand is weak, the wealthy can benefit themselves and everyone else by letting more money flow to the poor and middle class.

When demand is too strong and inflation threatens, we all collectively benefit by policies that slow demand and encourage businesses to invest in expanding their productive capacity. In other words, the direction of the money flow depends on the state of the economy. More money should go to consumers when demand is weak, while more money should go toward business investment when demand is too strong. The next section discusses the role played by the quantity and velocity of money in increasing or decreasing consumer demand.

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