Optimal Money Flow

An “optimal money flow” is a better economic metric than GDP.

The concept of GDP marking whether an economy is experiencing growth or recession is long established. But that tells only part of the story. In times of widening inequality and inflating asset bubbles, a growth headline might not be a good reflection of how ordinary Americans are faring. Gross domestic product represents the numerous exchanges of money and wages for goods and services in the marketplace, and it highlights the circular nature of an economy, in which one person’s spending provides another’s income.

Those economists who support an optimal-money-flow approach believe that the degree to which an economy is healthy and prosperous is seen in how well money is moving within it. This way of looking at economies emphasizes the reach and dispersal of dynamic flows of money, rather than aggregate GDP totals at any point in time. To understand this thinking, imagine the economy is a living body, with cash as the blood circulating within it. A healthy body needs blood to flow effectively to all areas; a body with massive ...