Measuring the cost of poverty: three questions

Last week, the National Council of Welfare posted its list of literature and other reports related to putting a dollar figure on poverty. Entitled “The Cost of Poverty and the Value of Investment: A Comprehensive Bibliography,” this 34-page document lists sources from  Canada, the US and other countries, with active web links where available. The Council frames the issue as follows:

Canadians want an end to poverty, but even those most committed to the solutions can still wonder if we can afford to.  We know there is a correlation between poverty and other areas of spending like health, education and justice, but just how much is poverty costing us?  And what results are we getting if poverty rates remain relatively stable?  If the methods used over the past 40 years haven’t worked, isn’t it time to try something else; to rethink our investments and spend more wisely to get better results?  We think so.

Through my time with the National Anti-Poverty Organization, as a graduate student in public policy, as a consultant and now at the Library of Parliament, I have been attentive to the efforts to quantify the costs of poverty. Mostly, I have become aware of the complexity that prevents us from coming up with one figure that is reliable, and even moderately incontestable.

Even if we had accurate counts for everything, there are complexities that prevent us from determining that magic number. Here are some, framed as questions, that perplex even the best analysts:

1. Should we measure the cost of current programs, or the savings that would result if people were not poor? Which better reflects the REAL cost of poverty? In other words, should we compare current spending with savings to other systems that might result if people were not poor? If the latter, how sure can we be that eliminating poverty would reduce the use of these services, and if so, by how much? In other words, can we determine the extent to which illness causes poverty, rather than the reverse?

2. Should we calculate costs just for the current year? If we wish to consider costs to the public purse over time, do we simply assume current spending levels will remain constant in future years? If so, we fail to consider changes in policies or programs and associated costs, and changes in costs of services for people of different ages and life circumstances.

3. Should we temper our costing measures with both the depth and dynamics of poverty? Can we know the movement of people in and out of poverty, and assess costs accordingly? Can we take into account the probability of poverty recurring for many households? How about those who stay poor, but may have higher or lower incomes over time?

These are just some of the questions that must be answered in order to put  a cost on poverty. Even these basic questions and the complexities they imply may explain why the National Council of Welfare bibliography is so long.

Still, these complexities cannot and should not, in my opinion, prevent us from trying to calculate those costs.  We cannot assess and evaluate current programs nor make an economic case for new ones without some relatively accurate assessment of the cost of poverty.  We cannot argue for the elimination of poverty without knowing what it is costing us now. (The costs of eliminating poverty raise even more questions, to be discussed at some later date.)

It also doesn’t mean that I think all efforts to come up with the cost of poverty are created equal. There are some useful analytical frameworks emerging, and some costing exercises that I would suggest are more reliable than others.  I will describe some of these in my next post.

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    • Michael Mendelson
    • March 1st, 2010

    As well it is quite misleading to calculate savings in the health system on the assumption that it is a demand driven system. If the ‘supply’ of one form of illness dries up there is always things to do which can and do fill the resulting gap – because otherwise this would translate into an income loss for providers. This is the fundamental insight of the ‘Canadian school’ of health economics lead by Bob Evans.
    On the other hand, in addressing poverty, it is useful to distinguish between money costs, or budget costs, and economic costs. The economic cost of redistributive measures within a country are only the consequent reduction in overall GDP (if any) due to changes in labour, business or capital behaviour. In fact, there may be no economic cost at all but an economic gain, which is what Lars Osberg writes about. Otherwise, how can the Nordic countries ‘afford’ their 50%+ tax takes? Why are they not all impoverished?

      • haviechenberg
      • March 1st, 2010

      Useful additional comments, as always. I bet you could come up with a cost, no?

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