The multiplier effect- how one check can help many people.
"Money, pardon the expression, is like manure. It's not worth a thing unless it's spread around, encouraging young things to grow." Dolly Levi from Hello Dolly.
This month millions of Americans will be surprised to find extra money in their bank accounts thanks to the American Rescue Plan. What's the purpose of the $1,400 checks going out, and how can each of us get the biggest bang for our newly found bucks during this still dark, pandemic-ridden time?
Giving out this much money seems like an inefficient way to stimulate economic activity. Some recipients are dead, many will just put it in the bank or pay bills that would eventually have gotten paid anyway, and a year from now will any of it even matter? Could we just be in the same mess or worse after all the money's all gone?
The past year has been hard on a lot of people. As a tax preparer, I'm hearing heartbreaking stories from clients about the past year, and many folks are still hurting. The unemployment rate is nearly double what it was a year ago, and there are many more who have given up on finding work, or are stuck with gig work or part-time employment that doesn't pay the bills. Industries like entertainment and restaurants have been hammered, and a return to normalcy seems like it's still a year away.
All of this negativity has a ripple effect that has magnified the misery. If a business closes, then dozens of employees and suppliers have to scramble to find something else. Their families soon experience food insecurity and a flood of stress hormones, and mental health and general well-being can start to degrade. The world has many feedback loops, and the cycle of poverty is one of the hardest to break. Bad news attracts more bad news, and as confidence and optimism disappear, people can get stuck in a world of drugs, hopelessness, and despair. Breaking that negative cycle can sometimes take generations.
Luckily, there's also a positive ripple effect. Good news and improvements in people's lives can create large waves that lift people up in all directions. Happier people spread cheerful energy and it can become contagious. Economists rely on what they call the multiplier effect, which is essentially what this stimulus money is meant to be. Money injected widely into American lives is supposed to multiply as it moves from one recipient to another, counteracting the negative multipliers of unemployment, Covid-19, and financial stress. With this new money, the hope is that it will multiply as one person pays another person, who buys more equipment and pays more wages, which causes more purchases and more investment down the road. People from Henry Ford to John Maynard Keynes have touted the power of multipliers, but they only work if people want them to.
Multipliers have a tendency to drop off with each transaction, but the cumulative effects can be transformative. To maximize this stimulus and its multiplier, it's best to spend local and support small businesses, because they are the quickest to turn the money around and put it back into the economy. Pay the bills that you must, but do it smartly- pay those with the highest interest rate and the biggest consequences. Donate it if you can, but again donate smartly- research non-profits, especially local ones, and see how quickly they can put your money to work. But whatever you do, don't put this stimulus money in the bank or (ugh) the stock market. The purpose of this money is to resurrect the economy and that can only happen by spreading it around like Dolly's manure. If this works, it could pay dividends for years to come.
And if you're looking for ways to supercharge your multiplier effect, here are some more suggestions for getting the biggest personal multipliers you can get for your own life.
- Spend at least a portion on your body. Make that appointment you've been putting off to fix any nagging, neglected physical ailments that you know deep down inside are probably going to get worse eventually. That includes dental work, hearing aids, weight loss programs- anything you've always put off with "Oh, I can't afford that right now."
- Spend a portion on your mind and brain. The cortisol bath we've all been taking the last year has increased stress, depression, and anxiety levels to dangerous levels. Make an appointment with a professional who can help you deal with some of it, if even for one session. And any money spent on online classes, books, hobbies, and other mind-expanding pursuits are a fantastic investment that will multiply in ways you can never predict.
- Get out and explore- (once it's safe, of course.) The tourism, entertainment, and restaurant industries have been the hardest hit during this pandemic, and they miss us as much as we miss them. Go on a trip, go to a concert, or go out to dinner (using stimulus money to stretch your comfort zones), so that you can discover new places and people, (or re-connect with old places and people that you've missed this year).
These $1,400 checks are not free money. They are an investment in the future, borrowed from the future. We owe it to that future- ours, and that of our children- to make the most of it. A year ago the future was very much in doubt, but now there at least is some hope. Let's not waste it.