Making Poverty More Expensive: Your Government At Work

If I didn’t know better I’d think the government were intentionally trying to create an underclass of people entirely dependent on the government.

For all the talk about how they’re all “fighting for the poor,” our elected and unelected officials have been doing quite a bit lately to make poverty far less affordable.

A bum with a bottle of malt liqour

Which was it that pushed you out onto the streets? The gas bill? The electricity bill? The new crib?

To give some economic context to this let’s take the case of Bill and Steve. Bill is a millionaire and runs his own company. Steve is barely scraping by, hoping to hold onto his low-paying job. Both have a family and a house and they each really would like to maintain their respective standard of living. This requires both of them to buy certain things–e.g., electricity, perhaps some sort of heating oil or natural gas, a car, gasoline, a baby crib, food.

When Bill and Steve buy things that cost a flat rate like gasoline and electricity they generally pay the same rate per unit purchased. In this case, since Bill has so much more money, he is devoting a much smaller percentage of his income to these commodities, and thus it affects very little his ability to spend money on luxury items or nicer versions of other necessities. A rise in electricity prices would hit both men equally per unit purchased, but the percentage of one’s monthly budget demanded by a rise would take a larger chunk, percentage wise, out of Steve’s monthly budget.

In the case of food, both have to buy food, but obviously Bill is more easily able to afford more food, and nicer food. If the cost of food goes up, both Bill and Steve take a hit, but again, since Bill has more disposable income it merely means buying a marginally lower quality of nicer foods, or less money available for other luxury items. With Steve, since his food budget was already stretched thin, rising food prices make a difficult situation even worse.

In the case of cars, baby cribs, and other items one can buy used, Bill usually buys brand new because he can easily afford to. Steve, on the other hand, relies on Craig’s List for his cribs and the used car lot for his car. Anything which causes the supply of used cars and cribs to drop will cause the cost of purchasing those items to rise, which takes a further chunk out of Steve’s budget.

Suddenly, both Bill and Steve are paying more for electricity, heating oil or natural gas (especially as the weather turns cold), gasoline, food, cars, and other items like baby cribs. The hit to Bill’s discretionary budget is unwelcome, but marginal. For Steve it’s well-nigh untenable. Steve’s kids may not have a merry Christmas at all, since the money Steve and his wife wanted to use for gifts had to go to the electricity bill, heating bill, the food bill, the auto mechanic, and buying a brand new crib for the new addition since no used ones were available.

What might have caused these spikes in prices? Let’s take a look…

  1. “Under my plan…electricity prices will necessarily skyrocket.”

    When the cost of coal goes up and those costs are passed on to the consumer, that causes a greater demand for less-expensive alternatives. That direction is obviously not toward wind or solar, since one of the great geniuses of capitalism is that the much-maligned captains of industry are constantly seeking ways to cut costs without hurting sales. If they knew they could sell just as much electricity and produce it more inexpensively, well then you can bet your Adam Smith Tie they would do so. That they haven’t, while not entirely dispositive, logically speaking, is still indicative, practically speaking. So electricity from coal is more expensive, which makes everything powered by that electricity more expensive. Everything.

  2. The ethanol subsidy. As I discussed previously, the ethanol industry does nothing to curb net pollution, but it does a whole lot to drive up the cost of everything that relies on corn. Like food. And gasoline, since ethanol is more expensive to produce than gasoline, which makes the gasoline-ethanol blends we have to buy at the pump more expensive. Plus, since it drives down gas mileage, Steve is forced to buy gas more frequently.
  3. Cash for Clunkers. Along with the ethanol subsidy, this is among the most egregious examples of government-engineered transfers of wealth from the poor to the wealthy. The government subsidized the purchase of new cars (in the vast majority of the cases by those who were going to buy a new car anyhow) by taking used cars out of the market–used cars that often times had no problems, but were simply “on the list.” These were cars that still ran just fine, and would for years. But the government needed to be seen as doing something bold to reduce carbon emissions, so they bought and destroyed all these used cars, thus reducing emissions in no appreciable way, but very signficantly reducing the number of used cars available for purchase by those who could not afford a new car, government hand-out or not. Fewer used cars in the market meant higher prices for the ones that were available. Steve suffers, and is forced to fork over more money to a dealership or a bank.
  4. Killing “killer” cribs. Yahoo News reports that the Consumer Product Safety Commission has banned the sale or re-sale of drop-down side cribs. They report that over the past 10 years, “at least 32 infants and toddlers” have died due to malfunctions or poor usage of the drop-down side feature. (Odd to see this administration suddenly concerned about baby safety, what with nary a peep of concern over the millions of babies who have died since 2000 due to abortion). While no infant mortality is to be taken lightly, 32 out of how many millions who were not aborted, were born, and survived such cribs makes those 3.2 per year an accident, and certainly not a reason to blanket-ban such cribs. (An aside: With higher fixed sides, mothers are forced to bend at the back and reach further down, either to lower a sleeping child gently into the crib or lift the child out. Shorter mothers, or those with bad backs or other disabilities may find that impossible, while mothers who don’t have bad backs may hurt their backs as the children get bigger.) But beyond that, the rule enacted by unelected bureaucrats also outlaws the re-sale of these cribs. So if you have one that you’re not going to use any more you can no longer sell it lawfully, so those who need a crib but who cannot afford a new one just had an entire chunk of the pool of possible cribs taken off the market. As with the above items, this drives up the cost of the remaining used cribs and forces many people to buy new ones they really cannot afford.
  5. Drilling moratoria and the war on domestic oil production and refining. The continuing, unwarranted moratorium on off-shore drilling in the Gulf of Mexico, in conjunction with the ridiculous statutes that prevent drilling in so many other places, have and will continue to drive up the cost of gasoline, heating oil, and all petroleum-based products; not to mention driving up the cost of anything transported by an internal combustion engine–i.e., everything.

So, with all of these things going up in price (and I’m sure there are other examples), whom do you suppose will feel the pinch more: Millionaire Bill? Or Barely Scraping-by Steve?

Toss on top of that increased taxes on “the wealthy,” and Bill also has less money to re-invest in the company he runs, thus reducing the number of employees he needs or is able to hire. Steve suffers again due to a shrinking pool of job openings.

Is the government trying to create a permanent underclass of those dependent on the government?



  • Randy Klocke

    Greg, you are my hero! I teach classes on how to create and maintain wealth primarily to the poor. We’ve seen incredible success. Many who were dependent on government housing, food stamps, ADC, etc. are now living in their own homes and running their own businesses.

    When I read your blog, I wanted to scream “YES!!!” I’ve been telling people that while one group of politicians want to talk about “Trickly Down Prosperity” (which doesn’t work) other politicans are talking about “Trickle up Poverty” (which seems to be the climate in Washington today.

    Thank you for your common sense approach to this problem. You have articulated my position PERFECTLY! Thank you!

  • LactLady

    Unintended but predictable consequences of banning drop-side cribs:
    As mothers find it difficult to put a sleeping baby in a crib without waking him or her (1) more mothers and babies will co-sleep and (2) more babies will be sleeping on places not designed for babies. The first alternative could enhance baby well being but the second is likely to be risky as adults rely on makeshift barriers to keep baby on the bed.



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