Government Policy and Poverty Reduction


I recently read the IMF article, “Macroeconomic Activity and Poverty Reduction,” and found it quite revealing regarding the sources of poverty. I frequently thought of the countries of North Korea, Somalia, and Ethiopia while reading the article especially relative to the comment, “In most cases, sustained high rates of growth also depend upon key structural measures, such as regulatory reform, privatization, civil service reform, improved governance, trade liberalization, and banking sector reform. . .” (Ames, Brown, Devarajan, & Iquierdo, 2001, p. 1). Despite our complaints regarding the United States’ economy, we are fortunate to have good “key structural measures” that provide macroeconomic stability that enable the U.S. to avoid some the economic problems that afflict the aforementioned countries. Even though the U.S. has a poverty level of 14.3 percent (Smith, 2010) , the majority of the population appears to be in a nominal economic condition but that is not to say that 14 percent poverty is acceptable. There are, however, ways to lower this percentage.

There appear to be two major factors that contribute to poverty in the U.S.: lack of enough work hours available to poverty-level families, and lack of marriage in families. Heritage Foundation research revealed, “In good economic times or bad, the typical poor family with children is supported by only 800 hours of work each year: That amounts to 16 hours of work per week. If work in each family were raised to 2,000 hours per year–the equivalent of one adult working 40 hours per week throughout the year–nearly 75 percent of poor children would be lifted out of official poverty” (Rector, Understanding Poverty and Economic Inequality in the United States, 2004) , (Rector & Hederman, Jr., The Role of Parental Work on Child Poverty, 2003) . Therefore, macroeconomic policies that create jobs and encourage marriage in families with children will be effective in reducing poverty. 

Examples of policies that may contribute to poverty include legislation enabling the EPA to impose draconian regulation of CO2. The regulations could add as much as $3, 000 per year to household costs of energy, clothing, food, and increased transportation costs all of which amounts to a tax on the poor. Conceivably, costs could increase to a point where companies move their production facilities, including jobs, from the U.S. to countries that provide lower manufacturing cost (Cuccinelli, 2011) . 

Since the economic crisis of 2008, the U.S. government has instituted a macroeconomic policy of using government funds, the “stimulus,” to extricate the country from the crisis but there has been frustration over the facts that the economy is still sluggish, the poverty level is high, there are not enough jobs that provide a sustainable living, and American businesses are not making significant investments toward growth. Yarbrough (2007) provided what I regard as a good explanation of why the 2008 stimulus package has proved unsuccessful: “. . . increased government spending crowds out private investment; that is, private investment spending falls by the full amount of any rise in government purchases” (p. 522). 

It appears that the macroeconomic policies in place prior to the 2008 economic crisis were adequate in keeping poverty at a low level in the U.S. but the crisis has intensified the problems contributing to poverty, subsequent macroeconomic policies have not improved the situation, and proposed policies may very well exacerbate the causes. 

References

Ames, B., Brown, W., Devarajan, S., & Izquierdo, A. (2001, August). Macroeconomic Policy and Poverty Reduction. Retrieved April 26, 2011, from International Monetary Fund: http://www.imf.org/external/pubs/ft/exrp/macropol/eng/index.htm 

Cuccinelli, K. (2011, April). Reasserting Federalism in Defense of Liberty. Imprimis, 40(4), pp. 1-5. 

Rector, R. E. (2004, September 15). Understanding Poverty and Economic Inequality in the United States. Retrieved April 30, 2011, from Heritage Foundation: http://www.heritage.org/Research/Reports/2004/09/Understanding-Poverty-and-Economic-Inequality-in-the-United-States

Rector, R. E., & Hederman, Jr., R. S. (2003, January 27). The Role of Parental Work on Child Poverty. Retrieved April 30, 2011, from Heritage Foundation: www.heritage.org/Research/Family/cda-03-01.cfm

Smith, D. (2010, September 17). Poverty Rate Hits 15-year High. Retrieved April 30, 2011, from Reuters U.S. Edition: http://www.reuters.com/article/2010/09/17/us-usa-economy-poverty-idUSTRE68F4K520100917

Yarbrough, B. V., & Yarbrough, R. M. (2007). The World Economy: Trade and finance (7th ed.). United States: Thompson South-Western.

 

 

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