How Poverty Is Linked With Inequality

 

It is said, ‘Where there is poverty, there is inequality’. Poverty and inequality are often closely linked. Poverty often arises in contexts where there is unequal distribution of resources, opportunities, and power. Inequality, whether economic, social, or political, can lead to and exacerbate poverty by limiting people's access to essential resources and opportunities needed to improve their standards. Addressing poverty effectively usually requires to focus on the underlying inequalities that add to it.

When wealth and resources are unevenly distributed, certain groups or individuals may lack access to basic necessities like education, healthcare, and employment opportunities. This lack of access catches people in a cycle of poverty, making it difficult for them to improve their economic situation. As such, equitable access to resources and opportunities needs to be ensured to tame inequality in the society.

Inequality drives wealth and resources to few people. This creates a new segment in the society referred to as oligarchy. Poverty and oligarchy are related concepts. But the relationship is not direct. An oligarchy is a political system where power resides in the hands of a small and privileged group. In such system, wealth and power are concentrated, which can exacerbate inequality and contribute to poverty. In oligarchic societies, the concentration of wealth and power can limit opportunities for the mass population, leading to widespread poverty.

Now let us move to free market economy. Neoliberalism is a factor promoting the concept of free market. It is a political and economic philosophy that emphasizes free market, deregulation, and reduced government intervention. Free market is not free in true sense. It is run on competition in which different strategies work among operators. At the end, significant market powers go to a few. As such, it is often criticized for contributing to inequality, leading to increased economic disparities by creating wealth accumulation among the affluent. It reduces social safety nets and public services. As a result, lower income individuals face difficulties. Advocacy argues that neoliberalism promotes economic growth and efficiency. It means that the growth benefits all segments of society. The relationship between neoliberalism and inequality is complex and depends on various factors, including how policies are implemented and the wider socio economic context.  

Neoliberalism is often linked to rising inequality and the emergence of oligarchic structures in some contexts. By prioritizing market deregulation, privatization, and minimal government intervention, neoliberal policies can exacerbate wealth disparities and consolidate economic power among small elite. This concentration of wealth and power is the result to oligarchies, where a few individuals or groups hold significant influence over economic and political decisions.

Let us focus on poverty. This cannot change price level to high. Poverty itself does not directly contribute to change in price level which is typically driven by factors such as increased demand for goods and services, supply chain disruptions, or changes in monetary policy. However, high levels of poverty can contribute to economic instability that may indirectly influence changes in price level. An example can be cited that poverty leads to decreased consumer spending or reduced economic activity. It may affect overall demand in the economy. In addition, systemic poverty can strain social services and government budgets influencing economic policies. This may give negative impacts on price level.

Poverty and changes in price level can be interconnected through various economic mechanisms. But poverty alone does not influence to move prices. Rather it negatively impacts people living in poverty by reducing their purchasing power. Upward movement of prices leads to increase poverty; it outpaces wage growth or social benefits. As prices for goods and services rise, individuals with fixed or low incomes may struggle to afford essentials, leading to a decrease in their standard of living. This can force them to cut back on spending, reduce their standard of living, or even fall deeper into poverty if their income does not keep pace with rising costs. As a result, the situation can push more people into poverty or deepen the poverty experienced by those already struggling. It can exacerbate the hardships faced by low-income individuals and families. If the change in price is high and sustained, it can erode the real value of savings and social support, exacerbating financial hardship to a further extent for vulnerable populations.

Change in price level is generally driven by factors such as increased demand for goods and services, rising production costs, or expansionary monetary policies. Poor income does not create change in price level. In fact, if a large portion of the population has low income, overall demand should decrease, potentially putting downward pressure on prices. But poor income leads to significant economic disparity or shifts in market dynamics, it can indirectly influence inflation in more complex ways.

Demand-pull is a case of change in price level. Without mass demand, how price level is changed is a question. It typically relies on increased demand, but it can still occur without strong mass demand through several mechanisms. They are cost-push, supply chain disruption, monetary phenomenon, economic expectation, dependency on external sectors, etc. 

Rising production costs, such as higher wages or raw material prices, can lead to higher prices for goods and services even if overall demand is weak. Businesses may pass these higher costs onto consumers, by raising prices. Disruptions in supply chains, such as natural disasters or geopolitical tensions, can reduce the availability of goods and services, driving up prices even without strong demand.  Money supply may create price lever high with decrease in interest rate. This can create huge influx of money in the market compared to goods and services. In case, businesses and consumers expect higher prices in the future, they may adjust their behavior in ways that drive prices up now, such as demanding higher wages or increasing prices defensively. This is a win-win case in which both price level and wage move upward.

Dependency on external sectors is a factor for change in price level. Stability needs to be maintained in value of local currency. A significant depreciation in local currency can make imports of inputs and finished goods expensive. This leads price level to jump. 

Neoliberalism is said to stimulate economic growth. But it may also lead to increased poverty if social safety nets are weakened or if economic benefits are not evenly distributed. By emphasizing market driven growth and social welfare programs, the benefits of economic growth may disproportionately favor the wealthy, leading to greater income and wealth disparities.

Why price level moves adversely is a question. Change in price impacts fixed income people. What will happen if income level is inflated in accordance with movement of price level? This is a win-win situation prevailing in high income country. Countries are classified in different way as per United Nations. They are low income countries, lower middle income countries, upper middle income countries, and high income countries. In short, theses are categorized as low, middle, and high. Inequality persists in low and middle income levels. Change in price level should drive income level to change.

 But it does not happen in reality. As a result, change in price can transfer money from low income people to upper groups. This creates inequality among people and works as the root of oligarchy. Ultimate efficiency is that market concept is turned into non-market economics in the hands of oligarchs. This will continue until the economies come out of middle income status.

 
Mehdi Rahman works in the
development sector and writes
on commercial and monetary issues.