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Vicious Circle of Poverty


Vicious Circle of Poverty

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now, let's discuss what's called the vicious circle of poverty. So the vicious circle of poverty, it's basically the cycle that being poor causes you to stay poor. Okay, so it's a vicious cycle because since you're poor, well, you tend to stay poor, and economists tend to think that the way to break out of the vicious cycle of poverty in these developing countries is to increase capital goods, basically, the availability of capital goods will get us out of this cycle, it'll increase uh everything that's wrong with the cycle. So, let's go ahead and look at this vicious cycle of poverty real quick. We'll start here with low per capita income. So, you're in a situation where you're not making much money, basically, the country is poor and people are generally generally poor. Well, if you don't have much money, well then you're not gonna be saving much money because you need your money to survive, and you're not gonna be demanding many products, you're not gonna be getting a lot of things. So there's low savings and low demand when you're not making much money, which leads to low investment in physical and human capital. Because if there's low demand, well, there's not a big need for new investment for new products to be created for new factories, right? Low investment will happen in these countries. And if there's low investment in phys and human capital, well, it leads to low productivity, right? Because the more physical capital that's available, these capital goods when there's factories available tools and equipment, it leads to higher productivity, but when it's not around, well, we have low productivity as well as human capital, when the, when the population is uneducated, well, they're not as productive as well. And when you're not very productive, well, it leads to not making much money. And we get back in this cycle here, right? And to make things worse in a lot of these developing countries, there's also rapid population growth, making the per capita income even lower because there's even more population, um, making less income, Right? So there's even more poor people, uh, following into this vicious circle of poverty. Okay, so that's basically how it works here. And these capital goods, they're basically saying, by pumping up the the physical capital here, um, it will basically help break out of the cycle by investments into the physical capital, the capital goods of the country. Okay, so, let's see the role that the government can play and that industrially advanced countries can play in breaking developing countries out of these vicious circles of poverty. So, first, let's start with the government, the government can can play a role by establishing the rule of law. We've mentioned before, that governments in developing countries can tend to be corrupt, right? But by enforcing clearly defined property rights, it reduces investment risk investment risk, Right? So a lot sometimes entrepreneurs and investors don't want to invest in developing countries, because there's a risk that their property may be seized by the government, it may be stolen because there's not, there's this rule of law that's clearly enforced. So by establishing a clear rule of law, it could help break out of the cycle. Next is building infrastructure. So this is basically an investment in in capital goods by building better roads, better schools, better education and and transportation systems. It can help boost the productivity of the nation. Being a global nation, participating in participating in international trade. An open economy tends to grow faster than a closed economy because they're trading with other nations. They're getting investments from other nations and finally they can control population growth. Just like we saw in our in our chart above population growth tends to add to the vicious cycle of poverty, right? So by offering birth control options or teaching their citizens about birth control, it can tend to help mitigate the cycle the circle of poverty from getting worse there. Advanced nations can also play a role here. So uh an industrial advanced nation can help the developing nations grow by expanding trade, they can expand trade with these nations by basically lowering trade barriers. They can take away tariffs or quotas that they have with these countries to help these countries have places to sell their products overseas, basically, they can admit temporary workers. Now this one is can be good or bad by admitting temporary workers. Well the migrant workers that work, let's say people come to the U. S. To find jobs. Well, they're going to take money that they earn here and they're going to send money back home to their families so that their families have more income basically. So it helps their families have more income. However, this also causes problems because the migrants may choose to stay, right? So they might find a job in the U. S. And they might just decide, hey I'm gonna try and stay in the US rather than go back to their their their country. And finally we have foreign aid, right? We can just basically send money to those countries, send not only money but goods food uh and and capital that we can send to those countries to help them develop, right? We can use programs to assist the growth of developing countries uh Just basically through donations of all sorts. Alright, so that's the vicious circle of poverty. Let's go ahead and pause and move on to the next video.