Poverty in the United States

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Poverty in the United States

Introduction:

The article Changed Life of the Poor: Better off, but Far Behind by ANNIE LOWREY featured in the New York Times on APRIL 30, 2014. The article provides theta American citizens live comfortably beyond the internationally recognized levels of poverty. Comfort amounts to access to luxuries such as cars, quality education and consumer goods that would easily go for luxuries in other countries. A majority of Americans enjoy abundance of material possessions that would have unimaginable two decades ago. This is an indication of the decline in poverty levels as citizens become empowered to purchase new products (Lowrey 11).

The article provides that despite the war on poverty and inequality being declared by President Lyndon B. Johnson more than 50 years ago, the stark differences between social classes and communities still exist in the country. This was evident as Democrats and Republicans were engaged in bitter exchange over the proposal by Republicans to increase the national minimum wage charge to $10.10 for an hour. The article is keen to note that factors abetting the increase in poverty include increase in costs of childcare, healthcare and education costs (Mink, and O’Connor 33).

This in turn lead to an increased burden on the average American relying on hourly wages despite the increase inn costs of living. The article provides that Republicans brought forth this proposal given that the government was making contributions worth billions of dollars towards easing poverty, with little effort being put towards total eradication of poverty. Despite improvements towards living standards among the poor, this social class ha widened its gap with the middle-income class.

Theory Review and Analysis:

In the Urban Institute Report Of 2012 provides that poverty in the United States stood at 15% in the year 2011. This represents an estimated 46.2million people living under poor conditions in the country. The level of poverty experienced in 2010 and 2011 is similar to the poverty levels that were experienced in the country in the year 1965. Extreme poverty is defined by the World Bank as “$2 or less, per person, per day”.  Because of the 2008 economic recession, extreme poverty in the United States increased significantly between 2008 and 2011. The 1996 Welfare Reform in the United States has been termed as a factor towards contribution to increased levels of poverty in the United States (Mink, and O’Connor 41).

Economic growth is considered as one of the most important factors towards poverty. There is a strong correlation between per capita incomes and the poverty level indicators in a country. A study conducted by Dollar and Kraay, (2000) illustrated that a fifth of an economy experienced increase in incomes in relation to similar increases in the overall economy. The same study provided that the growth in national incomes had similar effects in both poor and rich countries around the world. Another result from the study included the fact that the relationship between growth and poverty had not been altered over the years. Factors such as capital accumulation by the private sector have significant effects towards driving growth in the country. Thus, governments should institute policies that encourage and induce investments in the private sector.

Establishing a good set of macroeconomic policies, other policy agendas that may contribute to poverty reduction include government assets privatization, financial and banking sector reforms, trade liberalization, the regulatory environment, labor markets, and the judicial system. Other activities that would contribute to poverty reduction include efficient in public sectors such as healthcare, social services sectors and education sectors. In essence, macroeconomic stability is the pivot towards the success of enhancing and increasing the development of the private sector and increasing economic growth. In addition, the various cross-country regressions present indicate a high correlation between, investments, growth and productivity towards macroeconomic stability. This means, “macroeconomic instability is associable with poor growth performance” the lack of stable macroeconomic policies means that both domestic and foreign investors are inclined to stay away from a market and opt to divert their resources to other markets (Mangum et al. 14).

Uncertainty and instability negatively influence conventional market factors such as previous period growth of economic activity, private sector credit and real interest rates. This is relative to the considerations provided in the article whereby there are increase in costs of basic services and amenities such as childcare, healthcare and education. Such have significant contributions towards poverty eradication in a country. Democrats as provided in the article argue that addressing such issues would demand additional support for the poor, increasing the minimum wage of the workers, enhancing access to health insurance and increasing affordability of healthcare.

Government programs and falling prices have contributed largely to the consumption of poor families in the country. Government programs such as earned-income tax credit and food stamps have been expended over the past two decades by the Republican and Democrat governments in an aim of reducing poverty in the country. However, this has resulted in overdependence by the public and more so by the poor in the lower income brackets on such government programs. In the year 2012, such government programs accounted for the reduction of poverty by more than 13%. From such, the overall differences that exist between the middle-income families’ consumption rates and the poor families consumption rates declined as compared to two decades ago.

Macroeconomic stability is influenced by a variety of factors. Such factors include domestic demand and output, national fiscal revenues and expenditure, balance of national payments and the relationship between investments and savings. Other combined factors that affect macroeconomic policies include fiscal deficit, current account deficit, inflation and international reserves. Signs of macroeconomic instability include high current account deficits that are financed through short-term borrowings, increased levels of public debt, high inflation rates in double digits, and declining or stagnant gross domestic product (Mangum et al. 16).

From the graph provided, it is evident that unemployment is highly correlated to poverty within the last 50years. The expansion of the various unemployment benefits in the country have enabled an estimated 23million individuals to come out of poverty. In addition, the provision of unemployment benefits does not guarantee that all unemployed individuals will evade poverty given that a high number of low-income workers are not eligible for unemployment benefits. It is estimated that 2.7% of all workers in the year 2011 were poor while another 2.5% were poor in the year 2010. Data provided by Current Population Survey (CPS) indicates that the figures of poverty levels have remained relatively stagnant between the years 2010 and 2011. Furthermore, data provided by the Survey of Income and Program Participation (SIPP) indicates that the poverty levels in the United States increased by an estimated tenth of a percentage point each month in the year 2009 (Mangum et al. 23)..

Personal Opinion:

I think that poverty is highly correlated to the income levels of a given country as illustrated by the data provided. National income on the other hand is relative to the exiting macroeconomic principles that are in place in the economy. The increase in poverty levels in the United States and other parts of the world have been largely attributed to the financial recession that was experienced between the year 2007 and 2008. In addition, data provided indicated that government interventions in the recession were essential towards aiding people to meet their daily needs through the various government programs. Prolonged period of unemployment contribute significantly to the overall levels of reliance on government programs which in turn diverts funds that would be used for development activities (Mangum et al. 39).

For higher results in terms of reduction of poverty levels, the government should ensure that its macroeconomic policies are in line with its objectives of poverty reduction. This amounts to ensuring that borrowing done by the government is done in line with investor expectations. Variables such as management of fiscal deficits, inflation and rates of interest determine the overall borrowing power among the poor and potential domestic and international investors. Form such it is evident that the government plays the largest role in providing avenues for poverty reduction through lower interest rates for people to access and aiding capital acquisition in the private sector (Mangum et al. 23).

Increased government interventions through higher levels of involvement in providing the private sector with improved environments for businesses operations. Such would induce higher investments in the private and public sector as a means of providing the poor with sources of employment and incomes. In addition, reduction of reliance on government programs among the poor could be eliminated given that new employment would ensure self-sustenance among the poor

Conclusion:

Poverty is highly correlated to the macroeconomic policies and regulations that are established by the government. Factors such as costs of education, childcare and healthcare are evidently some of the mainstream factors affecting the overall levels of poverty in the country. They influence the ability of the poor in the country to get out poverty. Education determines the access to well paying employment and thus it plays a significant role in classification of families in the United States as either poor or rich (Mangum et al. 33).

In conclusion, incomes are a reflection of the approach taken up by the government towards eradication of poverty. This is reflected by national and individual incomes of the citizens of a given country. The levels of poverty in the United States can be termed as relatively “comfortable” as compared to the levels of poverty more than two decades ago. This is largely attributed to the expansion of government initiated poverty reduction programs. However, the differences between the poor and the middle-income class have increased given that differences incomes have grown steadily in both classes.

Work Cited

Mangum, Garth L, Stephen L. Mangum, Andrew Sum, and Sar A. Levitan. The Persistence of Poverty in the United States. Baltimore: Johns Hopkins University Press, 2010. Print.

Mink, Gwendolyn, and Alice O’Connor. Poverty in the United States: An Encyclopedia of History, Politics, and Policy. Santa Barbara, Calif: ABC-CLIO, 2011.

Lowrey, Annie. Changed Life of the Poor: Better Off, but Far Behind. New York Times, April 30, 2014. Web. 1^st May 2014. < http://www.nytimes.com/2014/05/01/business/economy/changed-life-of-the-poor-squeak-by-and-buy-a-lot.html?ref=business&_r=0 >