Polices to Reduce Poverty

Alright. So now that we've discussed poverty a little bit, let's consider some of the policies that the government can put in place to help reduce poverty. So there's some programs that already exist but we're also gonna talk about some programs that are possible, helps to reduce poverty. Okay. The first one we talked about it was the minimum wage laws, right, minimum wage laws. We talked about this with price, price floors and price ceilings. Remember that that minimum wage law was going to be a price floor, right? It's gonna be a minimum wage they can earn and that you could see is going to help the poor earn more money right with a minimum wage so that they at least are making some amount of money. The next is welfare. This is another policy that the government puts in place and this is a government program that supplements the income of people in need. So it supplements the income, this is generally cash payments. So if you're poor right, you can receive some cash from the government through this welfare program and it's not like you can receive it forever. There's usually restrictions in place but you can get cash for being for being poor basically like that. The next one is a negative income tax. So generally when we pay taxes right, we have to pay taxes, but a negative income tax would be where a poor family might get a subsidy from their tax payment. So when it comes to be tax time instead of writing a check, they're gonna receive a check. Okay so we have something similar in the U. S. Called this earned income tax credit and it sort of works like a negative income tax in in essence. Alright, so here I've got a simple example of how a negative income tax might work. So let's check this out real quick. So let's say this simple economy, the taxes are calculated by this calculation of just a 1/4 of your income minus $10,000. Okay. So we're just gonna keep it simple. Here we take your income divided by four and then subtract 10,000. So first let's see this poor family that's earning $12,000 a year. Well we would take a quarter of their income 1/4 times the 12,000, right? 1/4 of their income minus 10,000. This is how the taxes are calculated in this economy, whatever it is. And we get 3000 right? 1/4 of 12 is 3000 minus 10,000. Well that that is gonna give us a negative 7000. Right? So this poor family in this economy would receive 7000 in this negative income tax. Where let's say we have a rich family earning 60,000. So they would pay 1/4 of their 60,000 minus the 10,000, Right? And 1/4 of 60,000 is 15,000 minus 10,000. Well, they end up paying 5000 in taxes. Right? So there's gonna be some threshold you reach where you start paying taxes instead of receiving subsidies, in that case of a negative income tax. Cool. Alright, let's talk about one more here. This is the in kind transfers right? In kind transfer. So we talked about this a little bit already. This is non cash stuff, right? This is where poor people get things that are not cash per se, right? This could be sort of like during christmas season where charities provide food, clothing and toys, right? Or we see the food stamp system where the government provides vouchers, the government provides vouchers for you to buy food at the store, Right? This isn't cash they're giving you they're giving you money that you can only spend on food, right? Or free healthcare, Right? Free healthcare. This would be a service that you would have to pay for. But the government is providing it to poor people, right? And that's through Medicaid here in the US. So, now, let's talk about one of the problems here with um with introducing these anti poverty programs and that is that it has issues with the incentive to work. Alright, It causes issues with incentive to work. Alright, let's think of an example here. So, what we see is that there's benefits, right? When you're poor, you're getting some benefits, right? You're getting this Medicaid from the government, the food stamps. So, you're getting these other sources of income for being poor. So, you can imagine as you start making more money, you're gonna lose those benefits. So you could end up being more costly for a poor family to work rather than receive these benefits, right? So excuse me, Yeah, more costly to work and then lose these benefits that they were getting before. So let's, let's think of a simple example here, suppose that there's a program that guarantees that every family is going to get $20,000, no matter what. If you work, if you don't work, you're gonna get 20,000. Now, let's pretend that you're someone that's earning 15,000 a year or 20,000 regardless of what you were making. So, in your best interest, you could just take your time off and earn the $20,000, right? And that's not good for the economy, right? That's inefficient. We're gonna lose all that work effort that you're putting into the economy. That's gonna be lost because you're gonna see that you're better off just getting the government payment, right? So that could be a problem there with these, with these welfare programs. And we saw this recently, there was an issue with Obamacare where poor families were getting big subsidies from the government to pay for their healthcare. But as they earned more money, those benefits decreased and they were no longer receiving money from the government to pay for their health care and this extra money that they're that they're earning right, they got better wages at work. Well, they're gonna have to take that money and spend it on health care. So they're almost no better off. They're working harder, they're getting more money, but they're no better off right. Their standard of living has no increase, even though their income increased. Okay, so that was kind of a problem that we saw when Obamacare was introduced, We saw that poor families furthermore struggled with the rising health care costs as they earn more money. Alright, cool. Let's go ahead and move on to the next video.