Insurance? I cant afford insurance because my credit rating sucks.
"Insurance? I can't afford insurance because my credit rating sucks." RichLegg/gettyimages.com

The economist Ebenezer Mudede, my father, was fond of saying: "Being poor is expensive." I find this saying to be one of the key and most under-investigated laws of the market. This law manifests itself in so many palpable ways.

One way is that cheap products usually wear and tear very easily, and so in the long run they tend to be more expensive than initially expensive products. (My son, Eben Mudede, who is also an economist, even has an equation for this law. You'll find it at the end of this post.)

Another manifestation of the law is the object of a bill (SB 5010) that was introduced today in Washington State's Senate Business, Financial Services & Trade Committee. That object is "the use of credit scores to determine rates for personal lines of insurance."

For the poor and particularly for poor people of color, the negative impact of using credit scores to determine insurance rates is not as obvious as, say, racist policing or the mass incarnation of the working and the unemployed poor, but it is as (if not more) powerful. Indeed, the use of a credit rating to determine the price of a car insurance policy has a multiplier effect with a frequency (the rate of disruptions in normal social functioning) that increases the poorer a person is. Let's have a look into this.

For example, a poor credit rating can result in an insurance policy that's way out of reach for a working-class person who must use a car to reach a distant source of income. If the long distance to work, to childcare providers, or to shops is factored in with the absence of an insurance policy (and also the unfavorable color of the driver), then you have a hard-working person facing at every turn during a trip the kind of major disruption/shock (e.g. a bad police encounter, a car accident) that could easily lead to incarceration or life on the street. (In Keynesian economics, multiplier effects are usually positive—a large investment leads to incomes that generate other incomes; the association of poor credit with a policy price multiplier effect can only be negative—the consequence of deep income subtractions are spending cuts that increase risks.)

What is important to understand in all of this is a point that Washington Insurance Commissioner Mike Kreidler has made since he took office in 2000: There is no correlation between credit ratings and insurance pricing metrics. These metrics are determined by age and driving history—the number and frequency of car accidents, the number of DUIs on record, and so on. What any of this has to do with a "consumer's creditworthiness, credit standing, or credit capacity," to use Senate Bill 5010's wording, is absolutely nothing.

In a July 15 press release, Commissioner Kreidler told insurance CEOs it was "time to put [their] racial justice pledge to work" and "join effort to ban credit scoring":

Insurers believe there is a correlation between someone’s credit score and the likelihood they’ll file a claim in the future. They believe that if you are reckless with your credit, you’ll be reckless in managing your finances and maintaining your home. But many people see their credit scores drop when they lose their jobs or suffer from a serious illness. It’s more likely the correlation has less to do with risk and more to do with your income and what wealth you’ve accumulated.

During the introduction of Senate Bill 5010 today, Anthony Cotto, a Republican, a "married and Hispanic male," and member of the National Association of Mutual Insurance Companies as Director of Auto and Underwriting Policy, claimed, predictably, that the insurance policy rules had nothing to do with race. He claimed the current policy actually removes race by focusing on someone's character as represented by race-neutral personal finance data collected by credit rating corporations (begin watching at 00:18:06). The essence of his point: This information was important because your character as a consumer is basically your character in a consumer society. The way you recklessly drive is the way you recklessly spend.

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But this argument, of course, is just so much nonsense. As is the claim that race-neutrality is achieved when one is blind to race.

What is for certain in all of this is that poverty in a capitalist context is made very (and artificially) expensive, and that the insurance policy/scam presently authorized by Washington State not only benefits from this general market law but also reinforces it.

That said, here is my son's equation for the law of expensive poverty, as relating to consumable goods: U(x)=C/T, where U(x) is the lifespan of a product; and C is cost, and T is time. Put it together and we have "utility of a product equals the cost divided by time," and "as time goes on (or gets larger) its utility goes down." And so, you can calculate if something you buy at Walmart is more expensive, in time, than something you buy at Nordstrom.