Poverty and start-up costs

Andrew Samwick's experience of a Barbara Ehrenreich talk at Dartmouth highlights what I thought was an important and original observation in Nickel and Dimed, though I am not a big fan of the book as a whole: the fact that poor people without savings are often forced into higher-cost alternatives than middle-class people. If you don't have the deposit and first and last month's rent for an apartment, you end up in a residential hotel that costs more but will let you pay by the week. If you only have a small refrigerator, it's hard to be thrifty by buying in bulk. If you can only afford a battered used car, a lot of your paycheck may get eaten up in expensive car repairs. It seems to me that this is actually a fairly easy poverty intervention, one that I know is sometimes done by churches and other charity groups, but could probably stand a more systematic implementation.

Of course, we already do have one way to give the working poor small chunks of capital: the earned income tax credit. Because most people take it out in a lump sum, rather than getting it refunded to their paycheck every week, it gives them a large chunk of cash to use for things like a decent car or a housing deposit. This is no guarantee that it will get spent that way; in American Dream, one of the best books out there on poverty and welfare reform, Jason DeParle recounts his dismay at watching one of the women he was following decide to use her EITC check for nicer furniture instead of a reliable car that could take her to higher-earning jobs in the suburbs. But they often do go to these sorts of capital investments.

This is one of the reasons that being a middle-class person with a low income is fundamentally different from being born poor. Middle-class people generally have relatives that they can draw on for help with those kinds of upfront expenses. People who are born poor generally have social networks that are rich with mechanisms for surviving poverty, but rarely flush with cash.