We've known for a long time that we all pay for poverty. We just didn't know how much.
This is the question I investigate in my latest CCPA report The Cost of Poverty in B.C. If you're not in the mood for reading the report, you can watch a short video that summarizes the findings here.
Study after study has linked poverty to poorer health, lower literacy, more crime, poor school performance for children, and greater stress. In this report, I use the statistical association between poverty and these negative outcomes documented in the research literature, and combine this information with estimates of the costs these outcomes impose on government finances and on society at large.
My findings confirm what we've already suspected: poverty comes with a very high price tag. The cost of poverty to government alone is estimated to be between $2.2 to $2.3 billion per year. The costs to society as whole is $8.1 to $9.2 billion annually. That's a lot of money -- close to 5 per cent of the total value of our economy.
The study focuses on two types of costs in particular. First, I quantify the societal resources devoted to tackling poverty's negative consequences. These include the health and crime-related costs of poverty. Second, I capture the economic value of foregone economic activity and lower productivity that are associated with poverty. B.C. isn't using all the talents and productive potential of its citizens who live in poverty and this acts as a drag on our economy. These costs are what economists call "opportunity costs": they do not represent resources we're actually spending now but rather resources that would become available to society if poverty was significantly reduced or eliminated.
The methodology is based on a landmark Ontario study, The Cost of Poverty in Ontario: An Analysis of the Economic Cost of Poverty in Ontario. The Ontario project was a collaboration of a number of prominent business economists and researchers, who developed a systematic way to account for the monetary cost of poverty both in Ontario and in Canada as a whole. The advisory team included then TD Bank Senior Vice President and Chief Economist Don Drummond, Canadian Policy Research Networks Senior Fellow Judith Maxwell, among others.
The break-down of the cost of poverty in B.C. is shown in the table above.
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Note that these estimates do not capture all of the costs of poverty. Notably excluded are the costs that child poverty imposes on future generations by perpetuating the cycle of poverty. I also do not measure many of the less tangible costs, such as the impact of high poverty levels on social cohesion and our feelings of safety in our communities. The direct cost of providing frontline social services to those in poverty are also not counted.
Poverty takes an enormous toll on the people who experience it. On this basis alone, we must do better than having one in nine British Columbians in poverty (the highest poverty rate in Canada).
This article was first posted on The Progressive Economics Forum.
Here's a working link to the report itself, which strangely you won't find in the article above.
These "cost of poverty" studies feed into a conservative narrative where poor people are viewed as a burden on society. This narrative helps to obscure the reality that the real burdens on society are the rich, not the poor.
The poor are poor because the rich are rich; the social cost of poverty is a cost necessitated by the appropriation and accumulation of wealth by the relative handful of plutocrats who own the economy.
Not only that, but the government's cost of sustaining the rich, through tax expenditures and direct subsidies, far exceeds the cost of keeping the poor alive. For example, the oil and gas industry alone cost Canadian governments $3 billion in subsidies in 2008.
The methodology of this study is highly questionable. For example, on health care it starts with the proposition that poor people cost the medicare system more than rich people. Then it takes the leap of logic that if you gave enough money to the poor so that they weren't poor anymore, they would no longer be a disproportionate drain on the public health care system. Apparently money has miraculous curative powers!
But the fact is that many people are poor because they are crippled, have chronic medical conditions, and mental health issues. These conditions make it difficult or impossible for them to hold down a job that will provide an income above a poverty level. If you raise them out of poverty, they are still going to need the same medical services - they'll just get to wear slightly nicer clothes when they go to the doctor. The report acknowledges this weakness, but relies on the research of others to the effect that poverty causes poor health more often than poor health causes poverty. Even if that's true, it doesn't make the health problems of a significant section of the poor disappear by giving them more money.
The biggest component of the alleged social cost of poverty is said to be the lost opportunity costs due to unemployment and underemployment. "The income that the poor might have earned from working, or that the working poor could have earned if their jobs paid better wages, can be thought of as a loss to the aggregate value of the economy or the collective wealth of our society," says the report.
Really? Where would that income come from, if all the poor were suddenly gainfully employed for decent wages? Out of thin air? Of course not: the money is already there in the economy, mostly in the hands of the owners of capital who are, not coincidentally, the employers of labour. It's just not being spent on wages, at least not Canadian wages. The wages lost by the unemployed and underemployed represent wealth that's been previously accumulated by the employers who aren't hiring them, and aren't sharing the wealth. Much of it has become financial capital, deployed around the globe at lightning speeds to take advantage of investments in the cheapest labour costs, the most profitable enterprises, and the biggest interest rates available at any given moment. And that's because the owners of capital have determined that there's a bigger buck to be made that way than by employing Canadians for decent wages. In fact, you can be sure that if the reverse were true, we'd have full employment in Canada, because capital always flows to the most profitable investments.
And so it's quite arguable that the "collective wealth of our society" (which the report never acknowledges is mostly in the hands of a tiny minority of plutocrats) is actually greater because of the existence of the poor underclass.