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Are food stamps actually beneficial?

By Isaac Che
web posted December 5, 2016

Writers like Mark Zandi have claimed that the Supplemental Nutrition Assistance Program’s (SNAP) food stamps generate immediate growth in the economy. Specifically, every 1 dollar spent on food stamps creates a 1.73 dollar increase in real GDP. Politicians across the nation are using the results of this study to justify the colossal food stamp budget, claiming that welfare programs jumpstart the economy and cause steady economic growth. Could people like Zandi have exaggerated to prove a point? Is the spending multiplier that high in reality? If we dig a little deeper, we find a four major problems with Zandi’s claim.

First, we need to examine the costs of transferring large sums of money from the rich and middle-class to the poor. Tax revenue is often wasted through government spending as a result of fraud and loopholes, and recipients may not even spend the stamps on healthy and nourishing options. According to a recent study by the USDA, milk was the most popular product bought by consumers not on food stamps while soft drinks were the most popular commodity among food stamp recipients. Food stamp participants spent approximately 358 million dollars on soft drinks and about 96 million on candy-packaged products. Shockingly, unhealthy snacks and drinks make up over 14 percent of their total expenditures.

Second, when SNAP provides aid to the poor year after year, many will have no incentive to work or to save money. As 44 states have waivers that allow recipients to ignore the program’s work requirements, the USDA found in 2011 that less than 56 percent of participants were employed or looking for work. Instead of becoming a crutch for able-bodied workers, the government should provide funding for temporary assistance programs like SNAP in moderation and focus on creating job opportunities for low-skilled workers. In addition, to avoid assisting a complacent able-bodied worker, the program should target families with elderly people and young children. Franklin Roosevelt once stated, “Continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.”

Third, if we go back to economic theory, we find that evidence of a link between economic growth and government spending is deficient. Transfer payments of welfare programs like SNAP are not even a part of the real GDP measure, and the so-called “ripple effect” of these programs—increased aggregate demand for food—leads only to short-run results.  A shift of the aggregate demand curve to the left can increase real GDP in the short term, as Zandi claims in his findings. Nevertheless, can a shift in real GDP lead to long-term real GDP and productivity growth? Zandi’s second prediction about fiscal stimulus causing a 1.54-2.13 increase in real GDP annual percent change never materialized in the real world. Economic growth, growth in productivity and potential output, requires setting long-term goals rather than pursuing short-term satisfaction. Taxpayer money that the government takes away (and spends inefficiently) is not spent on factors of sustainable economic growth such as saving and entrepreneurship.

Moreover, inevitable tax hikes on corporations hurts incentives to invest in new capital. If workers kept more of their earnings, they could also spend to stimulate the economy, and the same spending multiplier effect would apply. Furthermore, the impact of government spending may be dampened due to a phenomenon known as “crowding out.” When government increases spending by borrowing, interest rates rise. In the long-run, high interest rates tend to reduce business investment and real GDP growth. Politicians and economists that support the use of food stamps as a source of economic stimulus overlook the opportunity costs of the program. Unfortunately, “sound good, get elected” proposals such as free college and food stamps for all American citizens are totally unrealistic. As Milton Friedman argued, “There is no such thing as free lunch.”

Fourth, it is important to realize that the spending multiplier is a measure of maximum possible change in total spending. Most economists agree that the actual spending multiplier is much less than expected due to the reasons cited previously in this essay. If the spending multiplier were actually 1.73, where is the growth? From 2009 to 2013, SNAP spending increased under the American Recovery and Reinvestment Act (ARRA) to lead the economy out of a recession. However, despite efforts to cut spending in 2013, the budget of the program is still overwhelming (SNAP cost 74.1 billion in 2014). So where are the results? Does a 1.73 dollar short-term increase in real GDP for every dollar spent on food stamps lead to visible long-run growth in the economy? Unfortunately…not as much as advertised. After all, if food stamps boosted our annual real GDP rate, shouldn’t we all quit our jobs and start using food stamps? In 2015, the annual rate of real GDP growth came in at under 3 percent for the tenth year in a row.  During the eight years of Obama’s presidency, deficit spending almost doubled the size of the massive national debt.  Furthermore, not only did the Government Accountability Office and the US Department of Agriculture find that the program’s effects were inconclusive, but the number of Americans below the poverty line also rose 3.5 percent during Obama’s term in office.

The 56 percent of SNAP households that have been on the program for more than five years have become dependent of government aid. Increased spending on a program with a questionable impact on poverty at the expense of hard-earned taxpayer money is impractical and unreasonable. SNAP is a “relief and recover quickly” program, not a major source of economic stimulus or a long-term crutch. At one point, someone has to take off the training wheels. ESR

This is Isaac Che’s first contribution to Enter Stage Right. © 2016 Isaac Che

 

 

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