Economic growth from the Bottom up

A Sideline Benefit: How Payday Loans Create Growth from the Bottom Up

While the situation is still precarious for the economy of the US – and, indeed, the world – we’ve got good reason to be cautiously optimistic for at least the short term. The figures for May indicate that an additional 175,000 jobs were created last month, while unemployment still hovers at just above the 7.5% mark – the lowest it has been in years.

But such metrics are an arguably simplistic way of painting the full picture, and certainly come of no comfort to the twelve million people who are unemployed. Either way, there’s a long and rocky road ahead before we can call this a true recovery.

Achieving True Growth

Another recent figure which gives reason to be slightly optimistic, courtesy of the Commerce Department, is that retail sales grew by 0.6% between April and May this year. What does it signify? To put it simply, it suggests that consumers are still willing to spend and possibly have more in their pocket with which to do so. This corroborates with the notion that more and more Americans are finding employment, but at the same time, we can’t ignore the fact that not all the newly-employed are diving into particularly well-paid jobs.

In fact, one of the biggest areas of new employment in the last Labor Department survey is in the retail and food service industries; the vast majority of people working in grocery store, supermarket and food server roles are usually employed at (or not much higher than) minimum wage, often with zero health benefits.

As a result, it’s hard to expect these large swathes of the population to spend like there’s no tomorrow and help kick start the economy when they’re trying to get by on $7.25 an hour.

Rather than push workers earning low wages into needless credit – the unaffordable mortgages, financed cars and other unsecured nasties that got us into the recession in the first place – we need to ensure they’ve got access to short-term credit so the occasional big purchase is within their reach.

While taking out a loan to buy a brand new kitchen when you’re struggling to put food on the table unmistakably reckless, it’s a fact of life that things can (and do) unexpectedly go wrong from time to time. If a refrigerator packs up, without access to services like payday loans a person in this situation could take one of two alternative decisions, both of which would be more damaging to the economy: go without one, or seek the necessary cash from an illegal source.

No Growth is Bad Growth

Giving Americans access to emergency cash when times get tough between paychecks not only ensures the economy keeps moving upward, even if only in a small way, but it’s also the right thing to do for millions of hard-working people struggling to find peace of mind. The latter, however, is a topic for another blog post.

Ultimately, the Keynesian models of using cuts in an attempt to stimulate consumption are floundering. Looking after middle America and getting them spending again is going to be infinitely more beneficial in the long run, and way more so than pandering to any venture capitalist or hedge fund manager.