Many public policies are likely to keep poor people in poverty, strangely these are policies that at first sight might seem attractive.
At least seven can be mentioned.
Extend the field of the welfare state
The first recipe is to create incentives that push the poor to make decisions that prevent them from getting out of poverty. A 2012 study by the Pennsylvania Social Welfare Secretary analysed the decisions faced by individuals and families in various state welfare programs. The study showed, for example, that a single mother with two children aged 1 and 4, with an annual salary of $29,000, would be eligible for government assistance of about $28,000 (Medicaid, house checks and subsidized day-care).
Thus, if she finds a better paid job, or works more hours, she risks losing substantial aid. In front of this situation, many people naturally choose to receive benefits rather than trying to increase their wages. Obviously, this “social safety net” creates perverse economic incentives and traps beneficiaries in the trap of social assistance. Engaging in the low-level job segment, they become unfit for work. It is a vicious cycle that keeps people poor and dependent on the state.
The welfare state also has a negative impact on the family unit. Social assistance programs tend to divide families. The money injected by the government into the family budget breaks some dependence within couples to provide for the family. Since the social assistance programs were strengthened in the 1960s, the birth rate outside marriage has tripled. In North Carolina, families are about five times more likely to live in poverty when there is no father at home.
Establish a progressive tax policy
Another poverty recipe: the welfare state through punitive taxes for employment and wealth creation. Indeed, the essential ingredient of economic growth, and hence the decline in poverty, lies in the productivity gains achieved through capital investment. High taxes on profitable businesses and small businesses discourage capital investment. Companies therefore prefer not to develop too much their activities or to move to countries more favourable to investment. As a result, job opportunities are drying up.
Increase the minimum wage
The minimum wage imposed by the government is also a factor in increasing poverty. The law of supply and demand tells us that the higher the price of a good or service, the less it will be asked (all things being equal, of course). Increasing the minimum wage will make it increasingly expensive to hire low-skilled people.
At the same time, higher wages will attract more jobseekers willing to provide their labour at a higher price. Employers may be more selective in their recruitment and, as such, low-skilled job seekers will again be squeezed out by more qualified and less needy candidates.
Support restrictive “green energy” policies
The government’s green energy initiatives are making energy more expensive. State and federal initiatives that impose more expensive “renewable” energy mean that utility bills will skyrocket. The poor are directly affected.
Increase the burden of business regulation
Another poverty recipe: imposing numerous costly regulations on businesses. These strict restrictions discourage the creation and development of businesses. It means: fewer job opportunities. The heavy legal requirements are forcing companies to spend scarce resources to be in compliance rather than investing in their businesses and creating jobs.
Expenditure on highly skilled positions, for compliance purposes, consumes wages that could potentially be spent on opportunities for low-skilled job seekers. The poor are still on the side-lines.
Inflate the money supply
The game of the Central Bank that creates money from scratch is also a potential tool of poverty. The inflated money supply then erodes the value of money and thus of income and savings. The poor are the hardest hit by this inflation because their limited resources prevent them from coping with the rising cost of living. The impact is stronger on the poorest.
Imposing high tariffs
Finally, the policy of maintaining high tariffs on foreign products to limit imports also creates poverty. Of course, domestic industries protected from competition by these tariffs can prosper, but at what price? Take the example of tariffs on foreign steel. They can help the 170,000 US workers employed by the steel industry, but rising steel prices will hurt industries that use steel as an input. This will therefore have a negative impact on the 6.5 million workers employed in the sector. It should also be noted that price increases that will affect consumers are disproportionately affecting low-income households. Thus, fewer opportunities too.
This 7-point analysis should inspire the African continent, which still has a worrying poverty rate. If we really want to reduce poverty, only the market economy, despite its imperfections, can help. As Milton Friedman put it: “History clearly shows that nothing so far has been better able to improve the lot of ordinary people than the system of free enterprise.”