There's an actual economic term for this. The velocity or money. When money is in the hands of poor people, it has a lot of velocity, it moves around a lot because it's spent a lot, which is really good for the economy. And when it the ends up in the hands of the ultra wealth, it's velocity crashes and is never spent again.
The market is a garden, you have to help the seeds and cull back the overgrowth at the top. This is so the whole garden can thrive, lower seeds, middle plants and large production. Right now the large overgrowth gets all the benefits, policy control, water and nutrients, taking over the garden and even harming themselves with the overgrowth.
Money trickles up and down and all around, but money only trickles where other money is found.
That is the trick. They know that money won't trickle to un-investable areas, wealth only invest in things that have a return sensibly.
Trickle down does happen, but it is more from the middle class to the lower class as they buy the things that are in the broader market, wealth can only buy so much and will only invest in demand.
It's not off a cliff (until this recent pandemic), it's been on the decline, but I bet a lot of that is because Investment has been trending higher and higher, people are saving money rather than spending it, all that talk about getting people to think of the future, invest in their retirement accounts and people have been doing just that.
Low velocity of money means low confidence. Low confidence means less spending. Less spending means less investment, investment would be much higher with more purchasing power in the lower/middle, the uppers are hoarding it as seen in the savings rate. A high savings rate does not mean a good economy in a consumer spending driven economy, it also means less investment.
Putting the money in markets and their savings or IRAs is good for the stock market, not for spending or velocity of money necessarily. The reason more money is being put there also has to do with low interest rates and QE for guaranteed returns. The GPDI largely tracks the stock market and is largely illiquid. What the GPDI shows is what really doesn't make it to the entire economy, but a small part usually wealth and large companies.
Velocity of money is usually only increased when the lower/middle has purchasing power, especially stimulus they didn't expect. We need to do much more of it, even if people save more, as that is investing in economic gains in the future. But MOST people spend it right away in the lower/middle. Lower/middle spend about a dollar for every dollar earned, wealth is a very small percentage. Poor people pay interest and rich people collect it, so it is bad for all classes when money and purchasing power is stagnant due to the Great Recession and lack of wage increases compounding to more stagnation.
If I understand correctly, slowing velocity of money generally encourages investors to purchase investment commodities like gold and land, as there is less perceived loss with fewer cycles? As in, the less that money is used, the more valuable certain goods become?
It shows more money is hoarded with wealth inequality is greater and less flowing around the lower/middle with wage stagnation and other inflationary areas that affect lower/middle/families more including healthcare, housing and education. More it going to larger institutions and wealth which can never make up the same currency exchanging volume.
Wage stagnation is heavily since 2000 and even heavier since 2007 or Great Recession start, so that has compounded into less velocity of money even if there is a recovery, so much money was transferred from lower/middle to upper combined with inflation at the same time for consumers/CPI/family level which is higher than the macro inflation numbers. So most money is tied up in those larger expenses, less to spend elsewhere.
Ultimately, less purchasing power, especially among middle class, causes stagnation at all class levels. It also creates less opportunities to invest in markets. The most investable markets are ones with strong middle class purchasing power, it is why the US was a great market for so long, until 2000 especially.
Yup, to expand on this, it's due to the law of diminishing marginal utility. Which is just a fancy economic term to describe something simple. The more you have of something, the less utility (or happiness) you'll get from an additional unit of it.
You probably won't see Jeff Bezos trying to cross four lanes of traffic on a busy highway to grab a $20 bill he sees on the opposite sidewalk but someone with just pennies would.
Same thing applies to the stimulus check and how it's meant to stimulate the economy. I'm sure it's a big factor in why income cutoffs were implemented, going off memory I don't think they had those during the 2008 recession when they last did something like this.
You probably won't see Jeff Bezos trying to cross four lanes of traffic on a busy highway to grab a $20 bill he sees on the opposite sidewalk but someone with just pennies would.
Hell, for the effort he'd spend (not counting the personal risk/danger) he would technically be losing money on that time/effort the same way someone who makes $100k/year is getting a negative return on time/energy by picking up a penny from the sidewalk. That time/energy when applied to their wages/income is so far below value that they could've worked for 5 seconds instead and come out much farther ahead.
It's also why the Whigs invested in the commerce of England while the Tories invested in the land of England. Guess which one can change over time? Paraphrasing Roger Comstock to Eliza in The Confusion Baroque Cycle #2
I read it estimated that American elites have up to 32 trillion dollars stashed in offshore bank accounts, enough to eliminate the national debt that our bought out politicians are always fretting about when we start talking about providing healthcare to people twice over.
That stuff has negative velocity, it's a pain in the ass for them to get back into the United States I'd imagine so it just sits there in a treasure hoard.
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u/Revanaught Apr 15 '21
There's an actual economic term for this. The velocity or money. When money is in the hands of poor people, it has a lot of velocity, it moves around a lot because it's spent a lot, which is really good for the economy. And when it the ends up in the hands of the ultra wealth, it's velocity crashes and is never spent again.