The Macroeconomics of Food Stamps

The expansion of food stamp eligibility in response to the Great Recession was part of the so-called stimulus package. There were several aspects. First, there was a simple increase in the maximum amount allowed to beneficiaries of about 14%. There was also a tremendous drive to get people who are eligible, but did not get food stamps, to apply and get them. Then there was a loosening of eligibility requirements in some states. Finally, there was the increase in unemployment resulting from the recession and thus an increase in the number of eligible people.

In 2007 the number of people on food stamps was 26 million. Today it is about 48 million! But look more closely at the data (in thousands):

The reader should note that, even as unemployment has declined, the number of food-stamp recipients has increased. Based on decades long trends we should have observed a significant decrease in the number of recipients.

Prior to this period, and for a very long time, the numbers were stable with a small upward trend for population growth. But the numbers had strong cyclical characteristics with food stamps decreasing when unemployment decreased and vice versa.

And then the big government conservatives took over:

I think what these numbers show is that a new, more widespread entitlement has been created beginning possibly in the G.W. Bush Administration but picking up considerable steam in the Obama Administration under the rubric of stimulus spending.

Where are we now? The grocers associations are complaining that they will lose business. The aggregate demand crowd is computing the losses in GDP growth. The advocates for social welfare spending are saying that the impending end to the “temporary” food stamp stimulus will cause malnutrition and general cruelty to the poor.

I want to emphasize two things. Neither of these points has anything to do with the issue of whether expansion in food stamps has increased the nutrition of those receiving them. Or whether the state, all things considered, should provide this benefit. First is that Keynesian stimulus measures (aka counter-cyclical fiscal policy) do not have the asymmetry that its idealized functioning demands. Political reality does not easily permit structural expansion in programs during recession and then going back to normal. The old food stamp program had the cyclical character before it was determined to make enrollment and standards easier.

The second, perhaps more important point is to observe how Keynesian stimulus actually works. In theory what is supposed to happen with stimulus spending is this. The government increases spending on just about anything. It doesn’t matter much because the object is to increase aggregate demand. Then, and this is the critical point, an increase in demand for the aggregate-schmoo is supposed to build confidence and cause self-sustaining increases in private spending on whatever consumers want. This has been sometimes called the confidence multiplier. But what has actually happened?

According to the aggregate demand crowd, the reduction in food spending that may be generated by cuts in food stamps is now supposed to cause a reduction in growth. But what has happened to the self-generating quality of stimulus spending?  The problem we have today is not want of general business confidence due to vague, psychological macro factors like fear of deflation, but to very real micro structural issues – like the disincentive to work produced by food stamp expansion (this is only one example). Under these circumstances continued stimulus is not self-sustaining.

Thus we are left with stimulus spending that is not self-sustaining and a structural expansion in the food stamp program. In effect, we have an increase in the disincentive to work or to search for better paying employment. Whether this temporary stimulus-driven increase in the entitlement state can be reversed will be seen by the degree to which the House proposed cuts can be put into effect. The Congress, however, has not helped its case by taking what so far has been a do-no-harm attitude toward agricultural subsidies. Most of the benefit of these subsidies goes to large agri-businesses who are as far from the family farm as I am in New York City picking fruit in the supermarket.

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About Mario Rizzo 75 Articles

Affiliation: New York University

Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University. He was also a fellow in law and economics at the University of Chicago and at Yale University.

Professor Rizzo's major fields of research has been law-and economics and ethics-and economics, as well as Austrian economics. He has been the director of at least fifteen major research conferences, the proceedings of which have often been published.

Professor Rizzo received his BA from Fordham University, and his MA and PhD from the University of Chicago.

Visit: Mario Rizzo's Page

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