'Poverty Effect' Plaguing Post-Bailout Countries
ISI sees signs that the poverty effect is already in motion. Based on the firm's proprietary survey of companies, not only are auto, chemical, manufacturing and retail companies seeing a slowdown, but so are technology companies. ISI's survey of nine large and diversified 500 technology companies was completed last week. According to ISI, the tech sector "declined this week and fell to its weakest level since March. The decline was primarily due to slower revenue growth from PC manufacturers in our survey. While our contacts in this space have highlighted slower consumer demand for the past several weeks, there was some sense this week that enterprise spending was slowing as well."
Long term effects of poverty on children can also be in terms of health. A physiologic health concern is only one of the long term effects of poverty on children. Other poverty effects on children include mental health problems. Living in a stressful environment is not healthy for anyone, more so for children. Parents who experience poverty might always fight and quarrel about finances. Mental health problems are not the only effect that a child can gain from stressful family homes; emotional state can also be a problem. A child must grow up in a loving environment with lots of nurturing care, when constantly exposed to anger, probably violence, and other negative emotions it may affect how they interact with other people. They may experience problems with their grown up relationships and others might even be afraid to make commitments.
While the effects of marriage in reducing child poverty appear enormous, it is true that, on average, mothers who give birth inside marriage have considerably higher education levels than do mothers who bear children out of wedlock. Therefore, some of the anti-poverty effects in Chart 1 may be due to the higher education level of married mothers rather than to marriage per se.We also find that this increase in deep poverty was driven largely by the weakening anti-poverty effectiveness of cash assistance. In 1995, cash assistance through Aid to Families with Dependent Children lifted 2.4 million children above half the poverty line. By 2007, cash assistance through TANF lifted only 500,000 children out of deep poverty. If the safety net had been as effective at keeping children out of deep poverty in 2007 as it was in 1995, there would have been 1.2 million deeply poor children in 2007; instead, there were 2.0 million.The data in Table 1 give no support to the contention that maternal education alone is important to reducing child poverty while marriage is unimportant. Not only does marriage, regardless of a mother's education, have a potent effect in reducing poverty, but the anti-poverty effects of marriage appear to be stronger than those of maternal education.Keep an eye on warning signs of the poverty effect. So far we have yet to see any drop in consumer confidence. If we do, pay attention. That would be a sign that the weak stock market is bothering people. Rises in initial unemployment claims, which are reported weekly, are also worth watching. If you see sudden moves in these measures, you can reasonably expect trouble ahead for stocks. A reverse wealth effect -- let's call it the "poverty effect" -- might play out this way. Say stocks continue to trend lower on earnings disappointments, a larger than expected oil price shock, whatever. The market's slide leads frustrated investors to trim back their spending. Earnings growth slows as well. Companies whose fates are tied to the consumer -- and that includes a fair number of tech companies -- cut capital spending. Job creation slows.Ross, who founded WL Ross, a 'vulture fund' that specialises in buying distressed assets at low prices, warns this exuberance has now been supplanted by a pernicious 'poverty effect'. 'Consumer spending is 70 per cent of our economy and the combined losses by individuals from home price deterioration and the stock market are close to $6 trillion,' he said. 'Just as rising markets had created a "wealth effect" , declines have a "poverty effect", making people reluctant to spend. This may affect the economy negatively by $250bn to $300bn over a one- to two-year period.' That would be more than 2 per cent of America's $13 trillion GDP.