WhoWee said:
Some light Sunday reading...
http://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/
Compare two approaches to increasing economic inclusion for people with low income:
1) provide them with microfinancial services that allow them to spend money within the current economic infrastructure. This gives people immediate access to spending money and provides fiscal stimulus for existing businesses, which prevents them from having to reduce their profit margins by lowering prices to cater to dwindling demand as the budgets of their customer base continues to shrink.
2) Provide low-income individuals with only emergency capital. This maintains pressure on existing businesses to reduce costs and lower prices to increase dwindling sales. Government anti-trust regulation could be used to increase competition among existing businesses to speed up price adjustments. As prices decrease, costs and salaries are reduced putting further pressure on businesses to lower prices to make sales. As overall price levels drop, low-income individuals require less access to credit because their limited income stretches further.
The problem with option #2 is that it is difficult to predict and/or control how consumer behavior would respond to sustained economic deflation and budget cuts. If businesses and consumers react by intesifying class divisions, the brunt of the cuts would be shifted to the poor while the shrinking middle-class would maintain its relatively high standard of living by relying on protected salary-levels, fixed-rate contracts, etc.
The problem with option #1 is that the current economy tends to reward the middle-class during periods of economic growth. Increased purchasing power for the middle-class is likely to cause price increases as businesses attempt to expand their revenues in the lucrative consumer-spending markets. I cannot guarantee that the middle-class can't expand without causing inflation, but it seems likely imo.
My impression is that many middle-class people have a good heart and would like to see class differences decrease or vanish. My impression is that they are only willing to support prosperity-gap reductions when it doesn't involve reducing their own purchasing power. Ideally it would be possible to allow everyone on Earth to consume at the level of the global middle-class but I'm not sure this level of consumption is sustainable as it is, let alone if it were to expand. So, imo, the only real option for reducing poverty is to improve resource-distribution by promoting lower levels of resource-consumption for middle-class consumers.
The risk of promoting conservation at the consumption level is that a cultural backlash emerges where middle-class consumers become annoyed at not being able to consume at levels they previously enjoyed. As a result, they become disgruntled and no longer feel a sense of social responsibility. I.e. they develop a "help myself and ignore class differences" mentality; or they develop ideologies that legitimate class differences in terms of merit.
So the question is whether to cater to middle-class entitlement culture by financing more low-income spending, which will fiscally stimulate revenues and incomes for middle-class professionals; OR whether to attempt to reduce the gap between middle-class and poor by promoting better distribution of existing resources. Or are there other options I'm not seeing?
I'm glad to see that President Obama is willing to consult with experts from around the world - on econimic matters.
