Would lowering the cost of living in the United States help it out of poverty?

Asked by: InsaneDiligent
  • I mean maybe it could be beneficial

    Obviously people on minimum wage can barely support living or providing for their family
    and raising the minimum wage will not help because that will cause the price of living
    to go up. Even in states with low rent such as 600$ per month are hard to live in because the
    money is lower and the jobs are harder to find. So maybe lowering the price of living
    will help us out of poverty. Then again everything good comes with a bad side affect.

  • It does not work that way.

    How would we actually "lower the cost of living," in the first place? Price controls simply do not work - they make for shortages and increased inefficiencies in the economic system, a net loss for most people concerned. Nixon tried in it in the 1970s; didn't work.

    The same for "giving everybody a raise," which has the temporary and transient effect of "making things cheaper." The inflated money supply results in a devalued currency, and soon real prices rise. There is no "magic bullet," here.

    Not a real-world response, but one way that it *would* work is to take another country's stuff, and hand it out to all Americans. Poof - living suddenly got cheaper. ; )

    If there really is a way to do it, I'd say it has to do with reducing government and the costs of it. Gov't doesn't produce wealth, and it's really the production of wealth and the attainment of it by the people that makes for a country's standard of living.

  • A better solution is to lower interest rates.

    In the short term, lowering costs will simply lower wages.

    Lowering interest rates, on the other hand, will incentivise borrowing more and lending less. Increased borrowing will increase market competition by making capital more available. As inflation rises, prices rise and wages rise too because the market is competitive. Profits get closer to normal profit/zero economic profit. Note that none of this affects long-term GDP; that is independent of price levels. It will, however, lift people out of poverty by incentivising work more than investment.

    Ideally interest rates are set to inflation so that the only people who earn money after inflation are workers rather than investors. Note that people will still want to invest so that they don't lose their money. On the other hand, real interest rates shouldn't be negative because then savings will be wiped out.

  • That would cause wages to decline so it won't have much of an effect

    Deflating prices will make it easier to afford the basic necessities but eventually labor will be to expensive at the current wage levels since businesses won't be generating the same profits. So eventually wages will decrease and so will the minimum wage. Products will cost less in that scenario but people will also end up making less money.

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