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How do we reduce poverty?

Feb 15, 2019

Welcome to Finance and Fury, the Furious Friday edition.

This week is a flow on from last week’s episode talking about the basics of supply-side economics. But, it’s going to be applied to a question we got from Nick.

What is a solution for society that would eliminate all the poverty that exists?

This will be broken up into 2 episodes in total. The second part being which political party that seems to be on the right track to achieving this.

Poverty:

  • It’s an extremely deep topic to discuss
  • We must look at the statistics and the root causes
  • Humanity was born into poverty, so how did humanity get out of it?
  • How long ago was everyone in extreme poverty?
  • What is the quality of life? What are the standards of living?
  • How is extreme poverty defined?
  • What does history tell us about how many people in extreme poverty changes over time?

 

The poverty line:

  • We don’t really have extreme poverty in Australia
  • What about people who receive a pension or government assistance?
  • What is the Australian relative poverty rate? This sits at about 26% of the Australia population before tax and transfers, or half the median income level.
  • It’s the median, then that cut in half. That is the relative poverty rate for any group of people.
  • It is about $22,500 a year in Australia for a single adult, after taxes and transfers.
  • After redistributions, it reduces to be closer to between 10% and 14% that are in relative poverty.
  • See how easy it is to misrepresent these statistics?
  • If you have a society where some people have more than others, then there will always be people in relative poverty
  • If you make everyone poor, then the relative poverty disappears
  • Let's move on to the more absolute measure of poverty

 

Absolute poverty:

  • Currently, around 4% of people in Australia cannot afford basic goods, in the deep exclusion zone
  • This group gets smaller over time
  • People don’t stay in the deep exclusion zone, its mobile, not a lot of people stay in it
  • There are only some factors that limit people getting out of the deep exclusion zone
  • The trend of absolute poverty over time has started to decline
  • The world population grows, but the world’s absolute poverty population shrinks

 

What helps reduce absolute poverty?

  • Exposing people to free markets, increased purchasing power parity
  • Economic reform, giving people property rights
  • Employment opportunity and economic freedom
  • Stop planning the economy from a government and let people figure it out with free markets
  • Economic freedom helps as it reduces the costs of goods and services
  • The more economic freedom a population has, the more wealth the population has
  • Check out the mini-series on socialism where I address classical liberalism
  • Basics of supply-side economics
  • People on minimum wage in a high GDP per capita environment are better off than people in a low GDP per capita environment
  • It is important to focus on the standard of living and better products and services available to consume
  • This system is better than demand-side economics, which is less economic freedom.

 

The best working system:

  • One that supplies a great standard of living
  • Uses supply-side economics
  • Allows individuals to accumulate wealth
  • The countries with the richest individuals have the lowest levels of poverty
  • Inequality is not the enemy
  • Reflect on your standard of living, income distribution ends poverty but sacrifices everyone’s wealth
  • The Gini coefficient measures income equality
  • The Gini coefficient is increasing, but so is the overall wealth
  • Just because things aren’t equal, doesn’t mean they’re not fair

An important problem to tackle is increasing everyone’s ability to have the opportunity to earn and consume cheaply.

This is an extremely complicated issue. I believe that the solution lies in supply-side economics. We need the government to help though, so in the next episode, I will run through how government systems and cultures need to let people escape poverty.

Thanks for listening today, it was quite a long episode.

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Have a good day.