Friday, March 17, 2017

Our poor are better off than US poor. Can we relax now?

"Is Mississippi worse off than Bangladesh?" asks Justin Fox for Bloomberg. Paul Theroux wrote,"I found towns in South Carolina, Alabama, Mississippi and Arkansas that looked like towns in Zimbabwe, just as overlooked and beleaguered." To which Annie Lowrey replied,"The state of Mississippi, the poorest in the country generates about $30,000 of goods and services per person every year. In Zimbabwe, that number is $1,700." If that is so why are 3 million people in the US getting by on incomes of less than $1.90 per day, the international poverty line? The difference is that rural people in poor countries do not pay rent and spend very little on transport and childcare, which are making life a misery for the poor in the US. So poor people in poor countries are better off than the poor in the US. One photographer spent months taking pictures of the poverty in Florida, showing homes in disrepair. The Federal Reserve believes in the wealth effect of rising asset prices, so they keep interest rate as low as possible to encourage consumer spending, wrote Barry Ritholtz. "The rule of thumb has been that for every $1 increase in a household's equity wealth, spending increased 2 cents to 4 cents. For residential real estate, the increase is even greater: consumer spending increases 9 cents to 15 cents (depending on the study you use) for every dollar of gain." Trouble is that equity ownership is highly uneven so low interest rates result in asset price bubbles and increased poverty. Rise in real estate prices result in higher rents which is stopping young people in the US from moving out of their parental homes. In 2014, 32.1% of people between 18 and 34 years of age were living with their parents, compared to 23% in 2000, because of a lack of jobs and high education loans, said a report from Pew Research Center. "The loss of manufacturing jobs over the past generation has taken a particularly heavy toll in the United States," writes Ian Bremmer. Per capita growth in the US has dropped from 2.3% per year from 1948-2000, to less than 1% per year from 2000-2016. "A 2015 study conducted by Ball State University found that automation and related factors, not trade, accounted for 88% of lost manufacturing jobs." If that is the case why did the US import $500 billion worth of goods from China in 2015? Chana R Schoeberger wrote that companies are increasing their profits at the cost of workers, which is why living standards are falling. So, what of India? Politicians are boasting about GDP growth rate of 7.1% but this growth is without creating new jobs. Most jobs come from manufacturing but the new Goods and Services Tax rates are so high people will not be able to afford anything. At least we can say that our wretched poor are better off than those in the US. Great.

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