Macroeconomic Policy and Poverty Reduction - Term Paper Example

Macroeconomic Policy and Poverty Reduction 1. Briefly describe the economic problem you have selected (Worldwide Poverty). Poverty has been a big economic problem in the world that has for many years affected the living standards of a majority. It has also had great impacts on the size of the population, the relations between people as well as being a major crisis in countries that have poor economic policies. Poverty has been viewed as multidimensional in its definition. It has various descriptions ranging from material lack to non material lack. Taking for instance, lack of income is brought out as poverty, but it is unreliable to measure. It may also be related to consumption. Poverty is mostly what is seen to be and what has been measured. The comparisons of these provide a scope that has an endless debate. Another angle can be taken as material lack or want. In this, it tries to refer to little wealth or lack of some of assets like shelter, clothing, TV’s and radios. The other definition refers to the deprivation in capability, so much focusing in what one can and what one cannot do or cannot be. This goes beyond the lack of want to further include the physical capabilities or even the self respect from the society. [Squire, L, 1993] In this era, where there is a global meltdown, the evil, which is breeding in most of nations, has increased poverty levels among people. The world is now faced with a condition where the rich are getting richer while the poor are continuously getting poorer. The global cause of poverty is less talked about and, therefore, very little has been done as a direct strategy in alleviating this poverty directly. There are interconnections, which are assured by the globalizations as well as the rules. Also, practices and the judgments that apply internationally count in these interconnections. These are mostly from the leaders of the affluent countries or the major global actors like the international organizations, corporations and the powerful people. With such manipulation from the global leaders, the governments of those who are underprivileged and the people who are in them are so much helpless in alleviating the poverty that affects them. It is in this that one sees many of the people struggling for survival while the few continue enjoying the riches at the expense of many. The statistics on poverty show that even in nations like the US, which are developed, 15 to 25 percent constitutes of poor people. They are not able to provide for basic needs like food, shelter and these have high populations. Where there are many adults and children as well. Most of the population lives below a dollar a day. 2. Discuss the major impact to society of the problem The society has been affected by poverty in a very great way. Poverty as seen has deeper roots that if not uprooted properly, will lead to a cycle of poverty better known as the vicious poverty cycle. It is a process of activities that are in a cause and effect state. The sociological readings have revealed that poverty is transferred from one generation to another, from family values, from these routines and standards of living, which leave little room for development and which are beyond anyone’s day to day operations. The situation of a family inclined towards a moment to moment viewpoint. The main concern, which is to provide for food and shelter, has been the major concern. Being able to provide a better habitat for the children to live in, being self sufficient and having futuristic plans are very vital. The effect as of poverty has been seen to have the same effects as the consequences of not gratifying the needs of the individuals. It has been noted that the poor are mostly emaciated and unwell. They mostly live in under standard conditions. Poverty leads to drug abuse and addictions that affect the health of the people involved. The poor are not able to afford the drugs that are needed to cure the diseases that are affecting them. [IMF, 2001] They end up using those that have been left out. Due to stress, the poor take into drugs that will make them feel a bit happy and to forget the problems that are there in their lives. In the process of doing this, they are not able to get themselves off these habits even at times when they get money and, thus, end up in cycles of poverty. There lives are not able to move on as normal, but continue living in poverty for a longer time unless they get counseling. Instead of using the money for projects or savings or even investing in business, they use the money to do their own stuff and end up squandering the money. There are increased crimes in the societies with the poverty. Research has shown that increase in poverty is directly proportional to that of number of crimes. Lack of balance in possession, and lack of satisfaction in what an individual’s possessions give, results in some of individuals trying to balance their life by stealing possessions from other people. This has been viewed as a social evil to the society that people live in, as there is fear that what has been began as an investment. [World Bank, 2001] Fear has made most of these people not to invest and the delay, plus the failure has led to the misuse of the finances. Crimes come about when the people have no funds for survival or to live on yet they have no means to do that. This has made some of the people to get their living through crooked methods like breaking in properties, killing others and so on. Poverty results to women and child abuse. Child abuse results from the need to get finances at all levels. The children are married at a very tender age even to old men, especially the girl child. The exchange of this is to get finances as dowry, which will help the poor live one more day. The now wives are misused in the families where they are married through hard labor and bearing of many children. In addition to this, the children are employed at an early age and the funds are collected by the parents on behalf of them. They are used as instruments to get rich and, therefore, the parents make sure they get many children so that they can work for them and work in their fields as well. Women are taken as instruments of sex and satisfaction or reducing the idleness levels, which are in these regions. In some of the cases the men forget their roles and leave the women to perform the roles of raising their children alone due to the pressure that they face as the funds and jobs are lacking. Debt pressures are at great heights due to poverty. This is seen both from the individual perspective and also from the national angle. Poverty in a country makes it vulnerable to other countries and, therefore, takes loans so as to be able to carry out development activities in their home country. The effect this has is that these countries sometimes are not in a position to repay these debts at the right time or even fail to repay at all, especially if the investment was not viable and yet the interest rate for the loan was very high. [Ames B, Brown W, Devarajan S and Izquierdo A, 2001] The debt eventually skyrockets to levels that the lenders can no longer extend the loans to them (borrowing nations) until they repay the previous debts. With this in mind, the borrowera take loans from the different nations so that at the time that they will be required to repay the first loan, then they would use part of the new debt to repay the first one. In this process, there will be failure and a continuous default in the extension of the debt. This is what has led to the debt crisis in these regions. Deprivation of education to the poor has been an issue under discussion of late. The poverty that is in some of homes has led them to lack education as they cannot afford it. The children in these places and homes are left at home without knowledge that is very vital as it leads to creativity and broadening of their minds. The greater effect to this is that the child may qualify to proceed after the basic education but the parent may not be able to afford it just because he/she is poor. At the end of it all, the lives of the kids become hopeless and there is no future for them. There is lack of opportunities for the poor in this world. This has, majorly, come with the broken virtues, where corruption has played a vital role in this effect that it no longer matters what one knows but who one knows. The qualification is not that important as the money that you are ready to part with to get a job or even to be promoted, where without it one is not extended the merit that you deserve. Poverty has, therefore, been seen as a vicious cycle by itself with the cause and effects following each other- from one to the other and, thus, having counter effects on each other. It is in this that one can say that one is trapped in the cycle. 3. Design a proposed economic policy solution to the problem Economic growth has been seen as a way to reduce the poverty that is rampant in most of the places in the country. Poverty reduction has been the central goal to development. The issues that are related to the growth of the poor have been proposed to be the new focus of most of the countries, where the reduction of this will help the world to grow at faster pace than before, as a tool of development policy. It has been argued that growth in itself is not a sufficient condition but is blunt to operate on its own. Policies of redistributing the incomes that have been generated and the assets have become increasingly important. Policies that will address both the poverty reduction and the redistribution concerns need to be emphasized so as to achieve both economic growth and equity. [Kakawani, N, 1980] 4. Discuss how economic theory predicts the policy would work It has been observed that increased per capita income, in general, increases wealth of a nation and, therefore, reduces the poverty in a nation. In recent studies, poverty has tried to be quantified in terms of economic growth through the idea of growth elasticity of poverty. This will measure by how many times poverty changes in terms of growth. The growth is to be measured in terms of poverty reduced, while keeping inequality constant. There is a proposition that the poverty reduction will be large at a high initial level of growth; provided that the rate of growth is not initially unequal. Poverty will be reduced easily in a richer country than in a poorer country, even when both countries have the same rate of per capita income. It has been noted that growth induced benefits from poverty are larger in the ultra poor countries than in the poor countries. This has suggested that if growth is good for the poor, then if focus is given to it, then it will even be good for the ultra poor. The development process has several fundamental ideas. The process of reaching high economic growth is attained by a broad based sustainable growth as an essential and powerful instrument for reducing poverty. Unless there is a tremendous expansion, then prosperity in the people will remain out of reach. This is as well reached when there is a corresponding increase in the resource base for financing the public sector programs. High rates of saving and investment will help the countries to achieve growth through the rise of productivity, which is the base for a rapid and sustainable growth. These, therefore, are the basics for achieving a good foundation for a successful growth strategy. The gains on these investments and the distribution have to be broad for the growth to benefit the poor. 5. Discuss how the economic policy you propose would impact the market or solve the economic problem The human development is very vital at this stage of development because it will help to alleviate poverty through fostering growth of a country. These two are mutually reinforcing in that each promotes the other. This creates a virtuous process of promoting growth and, therefore, effective human development processes are very vital for promoting growth. The rapid broad based growth is attainable even in future and this can only be maintained through a high rate of investment. Also, the steady gains achievable through productivity are a way. In addition to this, the government policies, the programs and institutions are the ones that mostly determine the investments. The productivity is, therefore, the one to be dealt with initially so as to achieve the growth required so as to reduce poverty. The private sector has been seen as the main engine for growth and, therefore, more focus should be on it. This is because it will be able to offer the competition that is required to allow more profits; expansion and employment of the people, which will allow them to live better because they are well off and are no longer poor. It is in this effect that we see the government as the catalyst for growth as it will facilitate the environment so as to allow the development to boom and be sustainable through the policies. These policies are like the reduction on the taxes and the duty paid to them by the investors as well as offering incentives for the same so that the little that has been saved will gain much in terms of the profits that are required. The government, so as to alleviate poverty, will need to run efficient administration programs and institutions in the public sector that will facilitate private initiatives. However, the people will remain to be the central players in the whole poverty alleviation process and should be active in achieving this objective. Poverty alleviation will require that the government addresses the needs of the people, their potentials and their vulnerabilities. The growth of a nation is linked to the poverty reduction, in that the increase in the per capita income of a nation will have reduced the poverty in some of the people in that nation. The structure of growth is very important. The growth should be broad based for poverty to reduce, but when it is narrowly concentrated in the monopolies or the enclaves, and then it will deter the poverty reduction. For instance, if a country depends on agriculture for its growth so as to reduce poverty, then it will need to have policies that will improve the agricultural productivity. This is particularly for the farms of the families, to invest in the labor intensive industries and services. This will accelerate the job creation and the demand for about will also increase and also needs to better the opportunities for the generation of income in the small and micro-enterprises. For poverty to reduce there is need for improvement of infrastructure. Better roads and better network to the different markets will allow the poor to access the markets and its inputs. These networks are meant to improve the access of the interior regions of the undeveloped or the underdeveloped countries so as to make them open up for more development and to allow the people in these regions to get employment opportunities from them. In addition to this, the policies for economic development will require that there be clean water in these regions. Better village water supplies will assist in the improvement of safer drinking water, reduce the time that would have been spent to fetch water and then, labor would be freed up or be deviated to other initiatives. Households will by this be able to have access to credit and other micro enterprise information so as to diversify and increase their revenue. This is facilitated by the reductions of the costs of production and after this, it have an increase in the value of the marketed goods. Having projects as individualized initiatives to improve the lives of people and to help people realize their ability will increase the security of the households by having the trainings, having improved technical as well as market information. There needs to be created vocational training centers, which where necessary will be supported by micro credit loans. In doing this, the people in the community will be involved in the making key decisions on the activities that are related to the project. In doing this, there will be the involvement of women, which will help them to have the technical skills, the technical as well as the managerial skills. In doing this, there will be development in all the sectors of the economy with the involvement of all the people the society. References: Ames B, Brown W, Devarajan S and Izquierdo A. (2001). Macroeconomic Policy and Poverty Reduction. PRSP Sourcebook Chapter 6, IMF, April. IMF (2001). The IMF’s Poverty Reduction and Growth Facility (PRGF): A Factsheet. Retrieved 11 December 2011 http://www.imf.org/external/np/ext/facts/prgf.htm Kakawani, N. (1980). “On a Class of Poverty Measures.” Econometrica 48-2: 437-446. Squire, L. (1993). “Fighting Poverty” American Economic Review. 83-2: 377-382. World Bank (2001). World Development Report 2000/2001: Attacking Poverty. New York, Oxford University Press. Read More