This article argues that the failure to address and ameliorate systemic poverty is a major cause of recessions. Recessions occur (and sub-optimal employment and growth persist) when a critical mass of market participants come to believe that the distribution of future earning capacity is not sufficient to purchase what can be produced despite the physical and technological capacity to employ available labor and capital to produce more over the same period even at lower unit cost. The essence of systemic poverty is widespread inadequate earning capacity. In recessionary periods, with rising unemployment, the problem of inadequate earning capacity (which perennially plagues poor people even in good economic times) rises up through the middle class like rising flood waters. The mainstream approach to end recessions and to ameliorate poverty is to promote (1) capital acquisition mostly with the earnings of capital and primarily for well-capitalized people largely in proportion to their existing wealth and (2) primarily jobs and welfare for the rest of the population. This article argues that, poverty can be systemically reduced and recessions avoided if the same government-aided system of corporate finance that facilitates capital acquisition with the earnings of capital primarily in proportion to existing wealth is opened competitively to all people.
Ashford, Robert, ""Systemic Poverty as a Cause of Recessions"" (2012). College of Law Faculty Scholarship. Paper 63.