The velocity of money (with Ann Pettifor)

Pitchfork Economics with Nick Hanauer

Civic Ventures

Business, Government, News, Politics

4.8 • 1.5K Ratings

🗓️ 23 February 2021

⏱️ 42 minutes

🔗️ Recording | iTunes | RSS

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Summary

Over the last century, the velocity of money—the rate at which money changes hands through the economy—has declined. Today, money moves at one of the slowest rates on record, meaning every dollar today generates 70% less economic activity than a dollar did just ten years ago. That has big implications for our economy. Political economist Ann Pettifor joins Nick and Goldy to explain how the velocity of money is related to money creation, and why taxing the rich is ultimately pro-growth (it’s all related, we promise!). Ann Pettifor is a political economist, author, and public speaker, and the Director of PRIME (Policy Research in Macroeconomics). Her work focuses on the global financial system, sovereign debt restructuring, international finance, and sustainable development. She is the author of many books, including The Production of Money and The Case for the Green New Deal. Twitter: @AnnPettifor Show us some love by leaving a rating or a review! RateThisPodcast.com/pitchforkeconomics Further reading: Want to expand the economy? Tax the rich! https://prospect.org/power/want-expand-economy-tax-rich/ A world awash in money: https://media.bain.com/Images/BAIN_REPORT_A_world_awash_in_money.pdf What does money velocity tell us about low inflation in the U.S.? https://www.stlouisfed.org/on-the-economy/2014/september/what-does-money-velocity-tell-us-about-low-inflation-in-the-us Vultures are circling our fragile economy… https://www.annpettifor.com/2020/06/vultures-are-circling-our-fragile-economy/ Decades of empirical research finds no inverse correlation between top tax rates and growth: https://archive.org/stream/R42111TaxRatesandEconomicGrowth-crs/R42111%20Tax%20Rates%20and%20Economic%20Growth_djvu.txt https://www.brookings.edu/wp-content/uploads/2016/06/09_Effects_Income_Tax_Changes_Economic_Growth_Gale_Samwick.pdf http://eprints.lse.ac.uk/107919/1/Hope_economic_consequences_of_major_tax_cuts_published.pdf https://www.washingtonpost.com/posteverything/wp/2016/04/20/a-graphical-assault-on-supply-side-tax-cuts/ Website: http://pitchforkeconomics.com/ Twitter: @PitchforkEcon Instagram: @pitchforkeconomics Nick’s twitter: @NickHanauer

Transcript

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0:00.0	How do you explain the velocity of money and why it matters?
0:04.0	Well, the velocity of money is really about the rate of transactions taking place in the economy.
0:11.0	Dollars used to change hands on average about 17 times a year.
0:16.0	The same dollar would be spent 17 times.
0:19.0	In today's economy, that same dollar is spent only about four times a year.
0:24.0	Our dollars just aren't doing as much as they once did.
0:31.0	From the home offices of civic ventures in downtown Seattle, this is pitchfork economics.
0:37.0	With Nick Hanauer, the best place to get the truth about who gets what and why.
0:48.0	I'm Nick Hanauer, founder of Civic Ventures.
0:51.0	I'm David Goldstein, senior fellow at Civic Ventures.
1:00.0	So Nick, an interesting thing happened recently former Treasury Secretary Larry Summers published an op-ed in the Wall Street Journal warning that the proposed $1.9 trillion
1:14.0	COVID stimulus package is too big. It's too much money. If we spend all that money, it's just going to overheat the economy and we're going to end up with inflation.
1:27.0	And what's interesting about that is one, he felt like he had to do an op-ed at the Wall Street Journal.
1:36.0	The Biden administration, they just seemed to shrug their shoulders and go, oh, Larry will be Larry.
1:42.0	Yes.
1:43.0	I think that was actually a direct quote of somebody, Larry.
1:45.0	Oh, really Larry.
1:47.0	So, so that's Larry Summers, one of the most influential economists of the past couple decades.
1:53.0	And I think the lesson that we learned from all this is that nobody seems to understand the economy and nobody seems to understand the role of money in the economy.
2:07.0	And so Nick, this has got got us thinking in the office about how money actually works and inspired by friend of the podcast Bruce Bartlett.
2:20.0	We started to focus on something esoteric sounding called the velocity of money, which basically is the rate at which money changes hands in the economy.
2:31.0	For example, every two weeks, you pay me. So that's if you pay me a dollar, the dollars change hands once.
	...

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