Minimum wage earners win the Dollar Marathon

The Speed of Money

     Ding! Each time you open your wallet and spend a dollar a race begins. Spending dollars sets off a chain reaction of possibilities. You pay the coffee shop for a latte. The coffee shop owner takes your dollar, along with several others, and goes to the hair stylist. The stylist, now flush with her own dollars, brings her pet to the pet groomers; and on and on it goes.

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     Dollars are the lifeblood or our economic system. The quicker a dollar moves from one person to the next, the greater the economic activity that is generated. This is known as the velocity of money.

     The velocity of money was at an all time high before the Great Recession of 2008.  People felt secure. They were willing to take risks. Taking risks happens when people are willing to invest, buy more, and save less.

Boom or Bust
     During classic economic boom times, the velocity of money streaks through the dollar marathon breaking all sorts of records.

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     When the Great Recession hit though, many people became fearful and insecure. They closed their collective purses tightly and hung on to every dollar. Spending was exhausted.

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Time Out!  
      The velocity of money hit a dramatic speed bump, in part, because people were unwilling to spend. When push came to shove, people only spent when they had to. They saved the rest. Savings is like a non-productive time out in the dollar marathon.

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The Winners

     However, the spending habits of the minimum wage earners stayed exactly the same. These folks are the winners of the dollar marathon every time. They have the highest money velocity rates of all consumer groups.  

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The Gracious Winners

     For the minimum wage earners, every dollar that comes in goes out. Incremental increases to a living wages get spent too because marginal utility rates for every dollar for this group are also high. This group would stimulate the most economic growth if they had more money to spend.

     Minimum wage earners are actually heroes. They saves our economy by spending money regardless of a boom or bust times giving the rest of us a breather until we are ready to join the next dollar marathon.

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