Poverty is Expensive?

A recent New York Times Opinion piece claimed that inequality is not as bad as it appears because “spending power” is a more accurate measure than income or wealth. I reached out to author Peter Coy and to Berkeley economist Alan Auerbach who wrote the original paper.

I asked Coy if he was familiar with the concept of Boots Economics: A poor person is forced to buy cheap boots that don’t last long, costing more in the long run. Making it more expensive to be poor.

To his credit, Coy was familiar with this and sent me this James Baldwin quote: “Anybody who has ever struggled with poverty knows how extremely expensive it is to be poor.” He admitted this changes his inequality claim. Auerbach never replied to me.

Just a week later The New York Times had an Opinion piece “Alabama Takes From the Poor and Gives to the Rich.” Not sure why this is Opinion rather than News? Alabama makes it almost impossible to raise taxes. So, they make up for it with fees. A person might have a small problem with the law that may not even be their fault. Immediately they are charged fees. If they fail to pay the fees quickly, penalty fees are added. If they fail to pay the penalty fees they go to jail. Where more fees accumulate.

Being in a U.S. jail also means paying outrageous fees to contact people on the outside. Huge private profits are made by forcing people in jail to make collect calls to people outside at grossly inflated prices.

Being in jail also often means losing one’s job and/or housing. Making it very difficult and expensive ever to recover.

As a student I had an older friend who commuted to work in Oakland on his moped. One day it was stolen. He had to take the bus. While waiting to change buses it started to rain. A crazy person beat him to steal his raincoat, putting my friend in the hospital. Poor people often have such cascades of one loss leading to a series of growing losses.

Riding the bus, I often hear stories of people who have descended in such downward spirals.

Here in Isla Vista the rents are among the highest in the region for some of the shabbiest housing in the region. Renters are forced to triple up in rooms to afford the outrageous prices. The more they crowd themselves in, the more the landlords raise the prices.

Poor neighborhoods also tend to have the highest crime rates and insurance rates. Very expensive.

“The rich get richer and the poor get – children.” Expensive. Painfully true now with the Supreme Court letting states outlaw all abortion. Money begets money through investments, dividends, and interest earned. And education and connections. Poverty begets poverty through interest paid, penalty fees, and lack of connections.

Reagan ended tax deductions for most interest, but kept them for those wealthy enough to own property.

Civilized countries offset these “poverty taxes” with an infrastructure of social programs: free healthcare, free college, generous paid leave, and pensions. The U.S. does not. Healthcare is the leading cause of bankruptcy in the U.S.

“Poverty is Expensive” is not just true for the poor. It is expensive for everyone. People who are poor can become despondent and turn to drugs for relief. They can find themselves addicted and in trouble with the law merely for “self-medicating.”

This can lead to a downward spiral of committing crimes to survive. Crime is very expensive to the victim relative to the meager reward for the criminal. And when the criminal is caught, they are living at public expense and not being productive.

The U.S. is the world leader in incarceration, both in sheer numbers and per capita. Very expensive.

Because wealth begets wealth, inequality grows ever worse in the U.S. My June article “Policy Makers Don’t Care About You?” takes this to another level. Money also buys public policy that favors the wealthy over the poor.

When working people fight back it is called “class warfare.” But the wealthy and powerful have always waged one-sided class warfare.

Most wealthy people vote Republican to cut their taxes and public investment. But few vote for the long range public interest which helps them, too. It is up to all of us to organize and demand policies that offset this reality that poverty is expensive for everyone.