It's Velocity, Stupid!

A macroeconomic analysis of our sluggish recovery from the Great Recession.

In this scholarly debut, Hartman examines whether a plunge in the velocity of money—the average number of times that a unit of currency changes hands per time period—could explain why expansionary monetary policies since the financial crisis of 2008 have produced a “Not-So-Great Recovery.” Hartman, who has taught college-level macroeconomics at various universities, including Pennsylvania State University, offers a crash course, explaining the three schools of thought (classical, Keynesian, and monetary) and basic terms, such as gross domestic product, aggregate supply and demand, and measures of the money supply. He hypothesizes that at any given time, exceeding a certain money-supply level causes velocity to drop. He proposes the term “non-declining velocity money supply level” for this variable. To observe changes in velocity, he gathers data back to 1959 and performs multiple regression analyses to correlate velocity against individual variables, such as money supply, GDP, inflation, and interest rates. His findings suggest that money supply, particularly the growth rate of money, influences velocity. The results support but do not prove his NDVMSL theory. Hartman invites further study to either disprove the theory or develop models facilitating its calculation. Given the limitations of monetary expansion and low interest rates, he advocates fiscal stimulus—lower taxes and more government spending—to boost job growth and GDP. Hartman writes with extraordinary precision but so often repeats caveats like “all other things equal” and in-line citations of the same sources that clarity comes at the expense of readability. He aims for an audience beyond macroeconomists and achieves introductory and summary chapters that lay readers can grasp, but those unfamiliar with algebraic or statistical regression analysis will be unable to follow much of the discussion. A glossary would help, but there is an index. Statistical graphs are numerous and clear, but long passages about historical economic trends would benefit from illustrations. As a graduate-level economics textbook, this is a good first edition and with improvements could become a very good one.

Hartman has opened an intriguing line of inquiry that other scholars should pursue.