The Real Cause of Poverty: Big Governments, Policies & Corruption

US President Donald Trump has released a $1.7 trillion discretionary budget blueprint. It calls for a whopping $163 billion cut in government spending in fiscal 2026 by dramatically curtailing the role and reach of the federal government. While this has caused an uproar, it is a welcome move.

According to the Bureau of Labor Statistics, the US federal government spent approximately $336 billion on payroll alone for federal workers in 2024, representing about 1.5% of the GDP. In addition, the US government spent approximately $2 billion on maintaining and operating federal buildings and another $5 billion on leased spaces in FY2024. Spending on energy is an additional $7.7 billion per year.

President Trump’s budget proposal shrinks nondefense funding to its lowest level since the 1960s.

Every human being should have the opportunity to better their life. Such opportunities would abound if the government just got out of the way and allowed economies to function freely. The problem is that governments don’t add to the economy, they don’t produce anything. So, the bigger the government, the larger the unproductive machinery. This becomes painfully apparent when we look at the amount spent on employee salaries, perks and pensions, as well as on the upkeep of government offices and residences.

Big Governments Hurt the Vulnerable

Social motives also suffer with an increase in the size of the government. Also, the government is not driven by profit motive. So, there is no accountability for whether the funds are being used efficiently. This has disastrous consequences. Government spending leads to rising fiscal deficit, which ultimately hurts the country and its people.

A fiscal deficit, where government spending exceeds revenue, leads to increasing national debt, resulting in higher interest rates and reduced investment by corporates. Persistent deficits reduce the government’s ability to respond to future crises. The segment that suffers the most in such circumstances are the low-income households.

The bottom line is that large governments often lead to potentially unsustainable financial situations. Resources are allocated inefficiently, leading to wastages.

Even social motives suffer with big governments, as there are too many people to appease, resulting in delayed and poorly designed programs that fail to reach the intended target. They end up hindering rather than helping poverty reduction efforts.

Overregulation and Corruption

Overregulation leads to significant bureaucratic red tape, which leaves doors wide open for corruption. Regulations and tax systems that favor a select group exacerbate income inequality and reduce resources available to the poor.

Overly complex regulations and high taxes discourage investment and entrepreneurship, hindering economic growth and job creation. Subsidies are abused and public procurement channels funds into the pockets of a few, contributing to greater poverty.

The Only Way to Alleviate Poverty: A Free Market Economy

Mean reversion is a concept that investors put a lot of faith in. It essentially means that while the markets might swing significantly in either direction, they always seek a balance and return to their average performance. This is also true of economies. When left to their own devices, unfettered by complex policies, protectionism, taxes and tariffs, entrepreneurship will flourish, creating jobs, driving economic growth and improving access to essential goods and services through competition and innovation.

When barriers to trade and investment are reduced, prices will decline, incomes will increase, and individuals will gain access to opportunities to improve their living standards. Businesses that are free to compete and make decisions based on market forces are motivated to find new and better ways to produce goods and services, leading to increased productivity and lower costs.

In fact, a welfare state that doles out money for unemployment offers no incentive for people to work and gain self-sufficiency. Free markets encourage individuals to work harder, as the rewards are theirs to keep. Higher productivity drives the economy. As the economy grows, there will be greater demand for labor, meaning more opportunities for people to pull themselves out of poverty.

Also, in a free market, businesses compete to attract customers, leading to lower prices and greater affordability of goods and services. Open trade allows countries to import goods and services at lower prices, increasing the purchasing power of consumers. Technologies can also be imported at lower costs, such as improved agricultural techniques or affordable medical treatments, helping the poor.

In simpler words, free markets empower individuals to take control of their own lives by providing them with the opportunity to work, save, and invest. Compare this to the combination of large governments, poorly designed policies and rampant corruption, which create a complex web of challenges that contribute to poverty.