The Causes of Poverty Lie in the Social and Economic System as a Whole.

The Causes of Poverty Lie in the Social and Economic System as a Whole.
Posted on December 25th, 2008 by askain

The question of A. Dale Tussing in his book Poverty in a Dual Economy, is as follows: Can we have a unified economy? A summary of this approach is necessary right away because it is a very important issue in the current crisis in America and other countries.

The subject of this article is poverty in a “dual economy”. Yet to understand it, we must study not only poor people, but also the economy as a whole and the poor’s position in it.

Our purpose in this article is to examine: (1) what poverty is and who is poor, (2) the effects and implications of the existence of poverty in a dual economy, (3) the fundamental causes of poverty, and (4) ways of ending poverty.

What is poverty?

It is common to define poverty as an insufficiency of means relative to needs, or as a condition of moneylessness. But poverty is also a condition of powerlessness. Poverty in the sense of moneylessness means not having enough of the basic medium of exchange to satisfy elementary human needs and to function economically and socially. A person who has income security, insurance, and some assets may be less poor than a persona with a higher income but with none of these protections.
Poverty is measured in terms of a lack of power as well as money. This power, moreover, is that of the most essential sort, control over one’s own destiny. But moneylessness is a vital aspect of powerlessness.

The dual economy in the United States and another countries

In this country only a minority of people are poor and they are poor not because of an inadequate total output or Gross National Product, but because of inequalities in the distribution of income and wealth. The fact that the poor and the nonpoor are inhabitants of a dual economy manifests itself in various ways.

The most salient characteristic of the dual economy is that it adjusts and accommodates the state of development of the larger, dominant, nonpoor element, to the absolute as well as the relative disadvantage of the poor.

The techniques used by families to feed, house, transport, and amuse themselves and otherwise satisfy their needs change in response to changes in relative prices, to higher incomes, and to the introduction of new or changed products. But poor families, being in the minority, are forced in many instances to adopt consumption technologies appropriate to the nonpoor. The demonstration effect. As a result, they are made even poorer.

A study of poverty in America leads to various conclusions. One is that, in some ways, it’s better to be poor in a poor rural area than in a large urban area. In poor rural areas, the structure of the economy and major institutions has adjusted to poverty, and the poor can at least function.

Of course, poor need shelter, medical care, nutritious food, and other things that satisfy universal human needs. But because they also need other goods if the poor live in an urban area, they have less money left for these biological necessities.

In a dual economy, society adjusts to the level of educational attainment as well as the consumption patterns of the dominant, nonpoor element, with similar results. Having an education in an uneducated society is almost the same as having a telephone in a society without a telephone system; it creates a potential benefit that does not become active until a significant part of society shares it.

The price structure of an economy (prices, wage rates, interest rates, and other) reflects a society’s priorities and preferences, as well as the scarcity or abundance of products and resources. It is a powerful determinant of what people buy and how things are produced.

How will the price structure in the poor economy differ from that in the nonpoor economy?

Presumable, there will be a severe capital shortage among the poor, reflecting their weak net worth. Consequently, interest rates will be higher than in the nonpoor economy. The nonpoor economy use skills and talents, which do not exist or are dormant in the poor economy, and that are relatively capital-intensive. Wage rates will tend to be high relative to interest rates.

Decentralization and community control are so attractive to the poor precisely because the nonpoor have constructed, and continue to reconstruct, American society for their own convenience. They are not even conscious that in doing so they make it still more difficult for the poor and uneducated to function. The fact that this behavior is not malicious and represents merely ordinary self-interest does not help.

It has been said that there is a vicious circle of poverty, but can it be converted into a virtuous circle?

Antipoverty policy must consist, then, of prevention techniques, to keep vicious circles from coming into existence, and of curative techniques, to interrupt and correct existing vicious circles. The first social line of defense against poverty is the welfare system (all social devices for income protection and maintenance, whatever form they take). But poor people have difficulty getting full-time jobs. Sometimes unemployment is caused by other factors, completely external to the poor, as in the case of a recession or depression.

The elements that make up these virtuous circles: good health and nutrition, greater education and job opportunities, better protection against crime and violence. The welfare system has come to be used by many people to refer to only a portion of the true welfare system, the public assistance program. The true meaning of the term is much broader and derives from the concept of the welfare state.

The Great Depression of the 1930s was so severe in part because, by then, the United States was a predominantly urban and industrial society without either the old or the new welfare systems. It was the administration of Franklin Roosevelt, which began the process we choose to call the institutionalization of the welfare system. The New Deal did not invent the idea of social devices to protect people from the results of calamities; it simply modernized and transformed those devices.

Direct welfare program may be explicit or implicit. To most people, the welfare state consists of explicit transfer devices (public assistance, social security, unemployment compensation, Medicare, food stamps, farm price supports, and subsidies for public housing.).

But they ignore the other types of welfare programs: implicit one. Tax credit and other tax expenditures reduce taxes for some people and raise taxes for others. For example: deductibility of interest on home mortgages for owner-occupied homes, or deductibility of property taxes. Deductibility of medical expenses or child-and dependent-care expenses.
Even though price support and minimum wage involve implicit transfers.