The costs of being poor

The social costs of being poor get a lot of coverage, especially a popular topical issue generally labelled as ‘child poverty’. But there are tangible financial costs of being poor, and these contribute to keeping many people stuck in a poor rut.

David Cormack raises this in Poorness charges interest:

A few jobs ago I had Koru Club membership as part of my remuneration package. I used to sit in Koru Clubs at various airports eating my free scrambled eggs, and drinking my free booze. As I enjoyed the trappings of my corporate bourgeois life, I’d think to myself that those who had more money got free food and drink, while those with much less would have to pay exorbitant airport costs for a soggy sandwich.

Another example I’ve already mentioned is how much cheaper a monthly pass is for public transport. If you can’t afford that then you get stuck on the more expensive daily fare – all because you’re already short of money.

Being poor is compounding. We built a system where so much opportunity is around money. And the opportunity to get more money is dependent on having a lot of money to start with. By design, this system entrenches elitism while if you have the misfortune of being born into a poorer household then you’re odds on to stay poor throughout your life.

Many people do manage to do better financially than their parents during their childhood. I grew up in an at times very poor household but both my parents ended up doing ok financially.

I struggled financially for years when raising a family – we were certainly a ‘poor’ family for periods. But while I’m not ‘rich’ I don’t think I’m what would be regarded as poor either. And all my children and step-children are doing at least reasonably well financially.

But there are many people who seem to get stuck in a generational cycle of poorness poverty.

There are many examples of how you can get stuck in a poorness rut.

You might be short of money and then get a slight toothache. But dentists are expensive so you hold off doing anything about it, hoping it’ll just get better of its own accord. Except it doesn’t. So next year you’re in the can for what could be a thousand dollar root-canal.

Or your power bill is paid by automatic payment, except this month there wasn’t quite enough so your bank charges you a fee for being overdrawn. Who do you think is most likely to fall into overdraft? People who can easily afford overdraft fees, or those struggling?

Got a 20 year old car? It’s probably cheaper to keep doing those $600 repairs than it is to buy a new one that’s less likely to break down.

The same can apply to house maintenance – deferring small repairs that end up growing into big repairs.

And poorer people are more likely to rent accommodation – and that is often older lower quality that costs more to heat than a new house. Unhealthy houses can also lead to higher health costs and lower productivity and earning power.

The way society is structured around money and assets means that your margin for error when you’re poor is tiny, but that same margin for error when you’re wealthy is much bigger. You might be earning enough to just scrape by, but if a surprise medical issue occurs, or a car breaks down, or your washing machine dies, then that can throw your entire budget out.

Even the smell of an oily rag can run out of odour.

We should definitely reward excellence. But let’s also do it at the same time as ensuring that nobody is struggling. Because the person struggling needs our help far more than the person who’s already thriving.

But what can be done about it?

 It’s time to remind them that we are a community of many, and they are a Koru Lounge of few.

A good quote but not likely to tug on the heartstrings and purse strings of many of the better off.

Let’s stop being ruled by a system that constantly rewards the very top while routinely stamps on the bottom. It’s not fair that a booming stock market means the rich get richer but a plummeting one means the poor lose their jobs. It’s time for everyone to get a decent lifestyle. It’s time to not accept a rigged system.

At least it’s not as badly rigged here. My brother recently died in Texas – it appears that he couldn’t afford decent health care there. That can be a vicious circle in the US – illness reduces earnings, which reduces the ability to pay for health care. My youngest brother didn’t survive a difficult predicament.

Perhaps in his next column Cormack will suggest what a non-rigged system in New Zealand might look like to him. And importantly, how that revolutionised system might be achieved. So far there is little sign of major changes from the current Government. Greens talk of wanting major societal and financial restructuring, but Labour and NZ First have shown scant signs of delivering on campaign claims and rhetoric.

I remember a time when the budget was very tight (a large mortgage and high interest rates were tough). We had a mature student boarding with us. I told her once I didn’t think I would ever be rich because making money wasn’t my priority in life.

She said ‘Look around you, look at your children, your family. I see a richness there’. I still have that sort of richness.

Money isn’t everything, but a decent amount sure as hell helps. Financial stress can be hard on relationships, and that’s something that cost me a marriage. Things have worked out since then but it was very tough at the time.

“You cannot legislate the poor into freedom”


Oxfam: rich versus poor

Yesterday in New Zealand media ran a story from Oxfam that tried to compare a few rich people with a lot of poor people.

RNZ: Top 1% of NZers own 20% of wealth

The country’s two wealthiest people own the same amount as the poorest 30 percent in New Zealand.

And the richest 1 percent of New Zealanders own 20 percent of wealth, while 90 percent of the population owns less than half of the nation’s wealth.

Oxfam New Zealand executive director Rachael Le Mesurier said it was shocked to discover the wealth inequity in this country, saying it was trapping huge numbers of people in poverty and fracturing societies, citing the drop in home ownership rates as one example.

“New Zealanders love fairness, not inequality. The government should be tackling inequality here and globally, by cracking down on tax avoidance wherever it is, and using that money to make our country, and the global economy, a fairer place. This wouldn’t just be the right thing to do, a more fair economy would also be simple common sense and enormously popular with New Zealanders,” she said.

The Oxfam research highlighted the gap between the wealth of individuals, rather than disposable incomes.

There is an issue of concern about growing income and wealth disparities, and Oxfam succeeded in getting headlines, but they are making comparisons that are vague, and the solutions are more vague.

It is dog whistle type politics, trying to denegrate people with higher levels of wealth and higher earnings – ‘ rich peoeple bad’ sort of thing.

What do they propose? Taking all the wealth off the wealthy – and with the two they named here much of that wealth is probably not in New Zealand – and distribute it to all the poor babies who deserve it?

I have no idea whether Oxfam are comparing the wealth of fifty years olds to fifteen year olds or five year olds. Who are the poorest 30% here?

New Zealand should strive to improve life and opportunities for poorer people for sure, but I don’t know that Oxfam’s approach is going to help.

Oxfam said New Zealand’s findings were consistent with other countries where the gap between rich and poor was greater than previously thought.

It blamed big business and the extremely wealthy for the growing discrepancy, saying they fuelled the inequality crisis by avoiding taxes, driving down wages for their workers and the prices paid to producers and investing less in their businesses.

This sounds very much like big business bad – yes, there are issues that need addressing, but demonising all wealthy people and businesses makes no sense apart from populist appealing and squealing.

If businesses didn’t make profits they wouldn’t employ and pay people. Is that what Oxfam want?

As a charity Oxfam doesn’t pay tax, in New Zealand at least. Do they pay equal wages to all their employees?

This is a world wide campaign by Oxfam time to coincide with the annual meeting of the World Economic Forum in Davos, Switzerland.

The Times: Eight men are richer than half the globe

Only eight billionaires have as much combined wealth as the poorest half of the world, according to Oxfam.

Six Americans, a Mexican telecoms entrepreneur and the Spanish founder of the Zara clothing chain are between them worth more than the 3.6 billion people who form the poorest half of the world’s population.

Oxfam released its latest report into the scale of global inequality to coincide with the start tomorrow of the World Economic Forum in Davos, Switzerland, where about 3,000 of the global business and political elite, including Theresa May and Philip Hammond, will gather for the annual meeting.

The forum has put inclusive growth and inequality on the agenda, but Oxfam has latched on to the backlash against the status quo.

I presume that a significant proportion of donations to Oxfam comes from people with higher wealth and incomes.

I used to donate regularly (automatic payments) to Oxfam, but stopped when they became more political.

I think there are real issues with income and wealth disparities, and with international tax avoidance.

I don’t think that trying to shame the rich with apples and oranges wealth comparisons will achieve much.

Left wing loopy, right wing rabid

Andrew Dickens writes about how reality is often far more complex than some commentators, journalists and politicians make out – Simple Answers, Complex Questions.

If there’s anything I’ve learnt in the years covering politics and economics it’s that not all left wing ideas are loopy and not all right wing neo-liberal thoughts are rabid.

The problem is both sides exaggerate both the benefits of their own ideology and the deficiencies in the opposite. In fact they exaggerate only their side of the argument and dismiss the rest out of hand meaning that both sides propose unbalanced and hence fundamentally flawed proposals. And then we call each other names. This is why talkback and parliament exists. Let’s face it. We’re tribal.

Forums like this often get tribal too. I don’t think tribalism should be suppressed, but it should be kept to a reasonable degree of jousting.

Politicians and the media give sound bite solutions to major problems while the people who actually have to fix them sit there in a world of grey. When it comes to health, education, law and order, the environment and the taxes to pay for it there are no simple answers no matter what some MP or media commentator tells you.

I agree that many political and social issues are complex and often with no simple solutions, but both media and politicians do their best to make it sound simple. However this often comes across as stupid.

Nowhere is this more evident than in the debate about poverty in New Zealand. One side screams there are 300 thousand kids in poverty. The other argues there are 100,00 people in hardship.

One side argues that the rich are deliberately creating the poor and uneducated and unemployed so they can become richer. The other argues there’s plenty of work and opportunity and free education out there and the poor are poor because they’re lazy and beneficiaries.

To me, there’s a little bit of truth in both those statements but it’s not one or other.

A common criticism of this sort of consideration is that it is fence sitting, beige, wishy washy. Considering the complexities of issues is none of those things.

Professor Gary Hawke, the author of the Hawke Report into tertiary education in the 80s, and I were talking about free universal tertiary education on the radio the other day and I said it was a simple political decision by the voters.

He’d love free universal tertiary education but it’s an inefficient use of taxpayers money. 50 per cent drop out so half the money is thrown away.

He favours spending more but targeting it to those people with ability and need. This is not the policy of either the left or right. But I think he’s probably right.

But targeted funding isn’t so easy for politicians to market as a policy. It’s sensible but more complex.

Nowhere is this more evident than in the debate about poverty in New Zealand.

One side screams there are 300 thousand kids in poverty. The other argues there are 100,00 people in hardship.

One side argues that the rich are deliberately creating the poor and uneducated and unemployed so they can become richer. The other argues there’s plenty of work and opportunity and free education out there and the poor are poor because they’re lazy and beneficiaries.

To me, there’s a little bit of truth in both those statements but it’s not one or other.

I disagree that “the rich are deliberately creating the poor and uneducated and unemployed so they can become richer”,  I think that’s nonsense. Most rich or well off people are decent people. And from a purely financial angle the less poor that people are the more money can be made off them.

O’Sullivan acknowledges this later:

I don’t mind the rich getting richer if along the way the poor get richer too. That’s the simple answer as long as you realise the questions are complex.

The loopy left and rabid right probably won’t agree but they are a small minority simple but unrealistic answers to complex questions.

Give cash to the poor?

If giving cash to poor people, with no questions asked, no strings attached, could be shown to successfully improve the health and education of children, should we do it?

“Unconditional Cash Transfers work better than almost anyone would have expected. They dent the stereotype of poor people as inherently feckless and ignorant”.

This is the conclusion reached by The Economist in a feature on giving cash to the poor. It neatly summarises the evidence regarding what works best to improve the lives of the poor and strikes at the heart of the prejudices we hold about those in poverty.

There’s a claim that the cost of child poverty to New Zealand is something like $8 billion per year. Handing out a few billion dollars to improve the lives and long term outcomes of hundreds of thousands of children shouldn’t our Government seriously consider it?

An American example:

In a “natural experiment” called the “Great Smoky Mountains Study of Youth” in western North Carolina, profits from a casino built on an Eastern Cherokee reservation were distributed to some but not all families in the local community (tribe members received about US$4000 per adult per year). Almost overnight, the receipt of the casino profits moved some of these children (who coincidentally had been researched since birth) out of income poverty.

These children and their families underwent a remarkable change. The children became less anxious and depressed, stayed in school longer and committed less crime; parents had better mental health, and had improved parenting behaviours. These improvements were greatest for the poorest families. No such changes were found in those families who did not receive the casino payments.

But that is a small proportion of people in one part of one state.

In Norway in the 1970s an offshore oil field was discovered, bringing a short-lived boost in incomes to certain areas of the country. For those children born into poor households the sharp increase in incomes had a significant impact on their educational achievement.

Again only some people in parts of Norway. Did this merely give some people an advantage over others to improve their situation? Or would it work on a country wide scale?

This is from Stuff of – Giving cash to the poor is the best way to fix poverty.

OPINION: They might not be popular, but cash transfers with no strings attached are the best bet for reducing family poverty, writes Jess Berentson-Shaw.

Dr Jess Berentson-Shaw is a science researcher at the Morgan Foundation.

It’s frustrating that our politicians prefer to blame parents and champion policies that push poor parents into low-paid work, despite there being clear evidence that does not help children. Their approach sees the kids get dumped into childcare, and unless that childcare is very high quality (in our poorest communities it often isn’t) they may end up worse off.

Like many before us, we asked “what is the single most effective action we can take to improve the lives of families and children in poverty in New Zealand right now?” The answer from the evidence is clear and conclusive: we should give them money, no strings attached, especially when the children are young.

The only time in recent years New Zealand reduced child poverty was when we gave cash to some poor via Working for Families.

The fact is that everyone would be better off if we just gave poor parents the money.

Boost the incomes of the poor with no conditions attached?


Answering weka’s questions

Amongst a lot of discussion at The Standard there have been requests that I answer weka’s questions. There’s been many questions and comments on various threads but I’ll respond to what seems to be the most requested questions here. My comments are in parentheses.

“Not sure how it can be avoided setting benefit levels statistically lower then people who are employed.”

Benefits were cut by $20/wk in 1990. In the mid 80s the unemployment benefit was around the same rate as what school leavers were earning going into office jobs. We used to have relatively higher benefit rates then, why can’t we now?

Cost. I presume there’s many more people on benefits now. At the end of March 2014: 295,320 working-age* people were receiving a main benefit. (MSD).

And wanting to encourage people into paid employment.

“I’m not sure than any of the larger parties are suggesting that should be substantially changed.”

The GP want a UBI.

Their Income Support Policy states “The Green Party supports a full and wide-ranging public debate on the nature of UBI and the details of a UBI system, and government funding for detailed studies of the impacts of UBI. The Green Party will: Investigate the implementation of a Universal Basic Income for every New Zealander”. They are interested in the concept (as I am) but don’t say they want one.

“The aim is to raise people’s income by getting them into employment.”

That disqualifies you from having any opinion on beneficiaries until you answer the question: how many beneficiaries are not required to seek/gain employment?

It doesn’t disqualify me from anything. I have already said that some people on benefits cannot seek employment. Both Labour and National governments want to encourage those who can seek employment to do so.

I’ve also already said that if the number of people on benefits is substantially reduced then those who have to remain on benefits should be able to be provided for better.

Then you will have to answer how many people are now required to see work, despite previously being exempt.

I don’t have to do anything. I don’t know what point you are trying to make with this.

Some current details are here at MSD.

I think it’s reasonable to expect that those who are capable of working should be seeking paid employment and taking responsibility for their own welfare.

I acknowledge that it can be very difficult finding work that people want with the pay they want. Some are more motivated than others. Some people have unrealistic expectations but for many there simply aren’t enough jobs.

Then come back and explain how those people are supposed to live. 

They live how they live. It’s very tough for many. Others find a way manage.

And why those people aren’t entitled to a livable income.

You tell me why you think they should be entitled to a ‘livable income’.

Ideally everyone should have an income that makes living not too much of a struggle. But expecting everyone should have comfortable style of living without having any money problems is fanciful and idealistic.

Life can be hard work and bills can be difficult to manage, especially if you have children. We should strive for better and easier but it can never always be guaranteed or provided,

Then explain why you think that beneficiaries are all unemployed.

They’re not, some are partly employed. There’s a range of reasons why beneficiaries could be unemployed, including circumstance, health, choice, lack of alternatives and a shortage of jobs.

And then explain how unemployed beneficiaries are supposed to raise their income via employment when there aren’t enough jobs.

Some can supplement their benefit. Some could be more flexible in what work they seek and where they seek it (that’s difficult for many). And there are not enough jobs for many. That’s one thing benefits are designed to assist with.

Then, when youve done all that, retract your statement that NACT don’t keep people poor.

You’ll have to be more specific, I’ve made a number of comments related to that.

I don’t believe that in general National (or Act) want to “keep people poor”. The effect of Government policies (Labour and National) may be that some people stay poor, but I question whether any MP wants to ‘keep people poor’.

All parties propose economic growth with the intention of improving incomes and increasing the number of jobs.

“I presume you know that if the minimum wage was raised by 50% and work was provided for anyone who wants it then we’d still have the same number of people under the statistical poverty line.”

What everyone else just said. Plus, you’re a dick. If the people at the bottom end of the scale have enough to live on, then poverty stops being an issue irrespective of the statistics.

But waving a money wand and waving a job wand aren’t realistic options.

Can you show any country in the world where giving everyone “enough to live on” has succeeded over a period of years or decades.

Poverty is a problem that needs to be addressed as well as possible, but Government giving substantially more money to people with productive work being an unpressured option is unlikely to succeed if history and current world conditions are anything to go on.

But perhaps weka can outline how he thinks an entitlement to a livable income could work, with examples of how similar policies have worked elsewhere.

National “deliberately keep them” poor

I asked Metiria Turei for a clarification from a question put to her on Campbell Live:

@metiria Not clear from @CampbellLiveNZ – do you think National willfully neglect children and deliberately keep people poor?

Her response:

@PeteDGeorge @CampbellLiveNZ I think they deliberately keep them (min wage, benefits) The burden is borne by the kids.

This is similar to the implication from a recent question to John Key in Parliament:

Metiria Turei: When will the Prime Minister drop his inequality denial and admit that his policies are creating a growing class of people who sit at the bottom of the most unequal education system in the developed world?

I hear similar to this this often, to the extent that National and John Key hate the poor and hate kids.

How National’s rich mates are going to get richer by keeping everyone else poor has never been explained to me.

There will always be a political battle between encouraging business growth which will (hopefully) result in more jobs and better paying  jobs versus transferring wealth from the middle class and the rich to the poor.

We already do both, the argument is on what balance will work best.

National, like Labour, have an orthodox approach. Greens have a much more socialist ambition – Turei has talked about “equality recently in Turei on kids and inequality:

To have every citizen be deeply free – our institutions, economic, political, social need to be purposefully built to deliver equality.

Just making little tweaks in a band aid response to inequality is not good enough for our kids.

And if you suggest that this approach may be flawed and tweaks to the current approach might be less risky or less flawed you can get accused of hating the kids and hating the poor.

It’s going to be an interesting election year.

And if Labour, Greens and Mana (who are socialist as the Greens) get to form the next Government New Zealand could be in for an interesting experiment.

I hope we don’t end up like Greece. We may have to learn to say “oh σκατά!”

Government spoon fed

Greens play rich versus poor

Russell Norman is promoting a Capital Gains Tax in part by playing the rich versus poor card.

Capital gains tax would hit rich, not poor  (ODT)
Rich people benefit from not having to pay a capital gains tax, Green co-leader Russel Norman says.

Class politics like rich versus poor is dirty politics, and it often ignores complexities.

I think we should have a good look at the merits and drawbacks of a Capital Gains Tax, but rationally and not emotionally.

Dr Norman said the research highlighted those on lower incomes earned money from wages which were fully taxed while the largest proportion of capital gains was earned by those at the upper end of the income spectrum and this income was untaxed.

This ignores a number of things, including:

  • People on relatively low incomes also benefit from untaxed capital gains
  • Most people on high incomes pay much more tax than those on lower incomes already
  • Capital gains are often used to finance retirement, including health care and care of the elderly, which reduces costs to the state
  • “Rich” people benefiting from capital gains often use that money for a wider circle of people who aren’t “rich”, for example for children’s education, parent’s care

It’s far from being a simple rich versus poor argument. Argue for CGT on it’s merits, not by promoting rich envy.

Ironically Green voters tend to be reasonably well off people rather than poor people.