A look at costs of doing nothing

Several economists have prepared a report through American Progress about costs of poverty (not cost of programs to address the issue).

Most arguments for reducing poverty in the U.S., especially among children, rest on a moral casefor doing so—one that emphasizes the unfairness of child poverty, and how it runs counter to ournational creed of equal opportunity for all.But there is also an economic case for reducing child poverty. When children grow up in poverty,they are somewhat more likely than non-poor children to have low earnings as adults, which in turnreflects lower workforce productivity. They are also somewhat more likely to engage in crime (thoughthat’s not the case for the vast majority) and to have poor health later in life. Their reduced productiveactivity generates a direct loss of goods and services to the U.S. economy.What’s more, any crime in which they engage imposes large monetary and other personal costs ontheir victims, as well as the costs to the taxpayer of administering our huge criminal justice system.And their poor health generates illness and early mortality which not only require large healthcareexpenditures, but also impede productivity and ultimately reduce their quality and quantity of life.In this paper, we review a range of rigorous research studies that estimate the average statistical relationshipsbetween children growing up in poverty and their earnings, propensity to commit crime,and quality of health later in life. We also review estimates of the costs that crime and poor healthper person impose on the economy. Then we aggregate all of these average costs per poor child acrossthe total number of children growing up in poverty in the U.S. to estimate the aggregate costs ofchild poverty to the U.S. economy.We had to make a number of critical assumptions about how to define and measure poverty, whatlevel of income to use as a non-poverty benchmark, and which effects are really caused by growingup in poverty and not simply correlated with it. Wherever possible, we made conservative assumptions,in order to generate lower-bound estimates.The upshot: Our results suggest that the costs to the U.S. associated with childhood poverty total about$500B per year, or the equivalent of nearly 4 percent of GDP.

The NYT adds further comments:

A Republican scholar and former official who testified at the hearing, Ron Haskins, now a senior fellow at the Brookings Institution, called the study superb and said that while economists might quibble over details, the $500 billion cost estimate costs “might be in the ballpark.”
Mr. Haskins noted that the authors had not specified the high cost of eliminating child poverty, which census figures show affected 12.3 million children in 2005, or 17.1 percent of those younger than 18.
“Do not think that if we suddenly gave a bunch of money to poor people, everything would change,” he told lawmakers, adding that behaviors, neighborhoods and parents’ actions need to change if children’s life paths are to change.

This is another way to look at costs to us of doing nothing to address the issue.

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