When economists and politicians talk about income inequality, they rarely consider the effects of their policies on the poor, as my co-author Ryan Young has shown. This goes doubly for policies that are not targeted directly at income itself. A particularly good example of this is energy policy.
Energy is fundamental to virtually everything we do, but is particularly important for the poor. They need energy for the most basic things in their lives: heating and lighting their homes, cooking their food, and getting to and from work. Because these basic needs take up a greater percentage of their incomes than for those of better off households, the poor are particularly vulnerable to policies that increase the price of energy.
A 2014 study by the American Coalition for Clean Coal Energy demonstrates this. Using official US government data, the study shows that expenditure on energy for American households earning less than $30,000 a year rose from 16% of after-tax income in 2001 to 26% in 2014. Because of rising energy prices, the poor were deprived of ten cents for every dollar that made their paycheck compared with 2001.
This situation affects other household decisions. As Ryan and I note in The Rising Tide,
The National Energy Assistance Directors’ Association found that an increase in energy costs led 30 percent of poor households to reduce purchases of food, 40 percent to go without medical care, and 33 percent to not fill a prescription.
Rising energy prices for the poor create greater distortions and lead to the sort of unequal outcomes for health that are at the heart of social concern over inequality.
Moreover, when the poor do not have affordable access to energy, the environment can suffer. Our paper describes what happened when the Greek economy collapsed but energy prices did not after the Eurocrisis: significant air quality degradation as the poor turned to biomass sources of fuel.
If politicians were concerned about outcomes for the poor and middle class, they would immediately stop any policies aimed at increasing the price of energy. The last thing they would do would be to make the price of electricity “skyrocket.”