By: Les Proctor
This Administration and the Fed have tried to improve the economy, but they still haven’t figured it out. It’s clear, the bureaucrats don’t “get it.”
While the employment numbers have improved modestly (unchanged at 7.6% in June 2013), the stimulus and the easing have not worked like anyone hoped.
What’s perplexing is that nowhere in the national conversation about the budget, or our country’s finances, is there talk about the velocity of money or the “multiplier” effect.
The importance of velocity of money (the “multiplier” effect)
The velocity of money is the number of times money is spent on new goods and services in a local economy, and is in direct proportion to its population of small businesses and entrepreneurs.
The velocity of money is best understood by thinking about the concept of the economic “multiplier” effect. Essentially, if I earn $1,000 and I save $100.00 then I will spend the other $900.00. The person who receives the $900.00 will spend some and save some. The next, so on and so on. In the same way, $1,000 injected into a local economy grows to become a multiple of the original $1,000; the original thousand might end up being 3,000 or $5,000 depending on how quickly and the number of times that money circulates.
Clearly, the more small businesses and entrepreneurs, the better.
The big problem no-one is talking about: The ”multiplier” effect is at an all-time low
The problem now is that the velocity of money has never been lower! The velocity of money and the multiplier effect can and should be one of the greatest drivers of economic growth. Yet, many analysts, and even some Fed Hawks are saying that the Fed is “pushing on a string” with the latest round of quantitative easing, because as Philip Davis asserts in Seeking Alpha:
The bottom line is that quantitative easing is stealing value from us all, and not doing anything to help, because all the government bureaucrats are THINKING BIG.
When is the last time that centralized planning worked? Anybody, anybody?
Instead WE, and I mean a collective WE THE PEOPLE, need to start thinking like AMERICANS, and THINK SMALL like ENTREPRENEURS. There has never been a more urgent need for Americans to go into business for themselves.
Quick, find a new way to make some money, and spend it!
The History of Entrepreneurship in America
Entrepreneurship is deeply woven into the fabric of American history, its economy, and its cultural beliefs. As Alexis de Tocqueville observed in his 1836 classic ‘Democracy in America’, “The Americans always display a free, original and inventive power of mind.”
Entrepreneurship has never been more vital to our economy than it is today. It is our best offense for economic progress and our best defense against the status quo. Promoting entrepreneurship is in everyone’s economic interest. Entrepreneurs embody the American dream. Driven by their own desire to put new ideas into action, entrepreneurs have been, and will be, the engine for economic growth that set our economy apart from all other nations. Entrepreneurs have made the US the economic driver of the world.
“Is there any mystery why Silicon Valley is Silicon Valley? Or why Austin is Austin? They celebrate the kooks, the misfits, and the others the others that everyone else looks down upon. The reason the “Keep Austin Weird” campaign is so successful is you never know where a good idea might come from.”
Entrepreneurship is, and always has been, the vehicle our country has used to create new jobs, make money, innovate, and do things faster, better, and cheaper.
Celebrating your ‘Independents’ gets more money faster into local economies
Our primary aim should be to get more money in the into the hands of more people, not just by doling it out, but by doing a better job of teaching the values of self-reliance, creativity, and service to others. No one does this better than your small, local, independent business. The primary virtue of small, local independent businesses is they put people to work and put money in their hands for working hard and being creative. Those people then take that money and spend it on things they need in their local area. This stimulates the local economy which then has an effect on the larger economy.
Increase the multiplier effect, speed the recovery
The key, and the only hope, for a speedier recovery is to get more money in local economies by celebrating local entrepreneurs, thereby driving up the number of transactions between people in local economies faster. The more we celebrate entrepreneurs and small businesses, the more money multiplies in local economies, and the more vibrant the national economy; it’s that simple. Increase the multiplier effect, and it will speed the recovery.
So, what we all need to do is celebrate the 4th of July every day of the year by spending more of our money locally. You’ll know that you’re doing your patriotic duty to help your local economy, which can and will have a huge impact on our national economy, speed our economic recovery, and ultimately impact your own pocketbook.
What’s best about this plan is that it does not need any help from the Bureaucrats in Washington D.C., or any of the State Legislatures. The key to a speedier recovery is through local spending, and we all have the ability to do that.
It’s in your hands — it’s in our hands!
What’s my favorite indie business?
Quintana’s Barber & Dream Spa, Cleveland Heights, Ohio
Quintana’s Barber & Dream Spa is my favorite local business in Cleveland Heights, Ohio. It’s the only place in the Heights where I can get my haircut , a straight shave, and/or a pedicure (if I really want to treat myself). I usually get my hair cut with Theo, who has tons of positive energy and makes getting a haircut an enjoyable experience every time. Alex & Dawn Quintana are community leaders who have worked to raise awareness of the importance of buying local in our community. We’re all very excited, and proud of them, for being chosen to take part in the Goldman Sachs 10,000 Small Businesses Program.