Exposing the Food Stamp Stimulus Fallacy
Here's some Keynesian-style, voodoo economics from the U.S. Department of Agriculture claiming that every additional $1 of food stamp spending magically creates almost $2 in new economic activity:
Why does increasing participation in SNAP (the federal food stamp program, now known at the Supplemental Nutritional Assistance Program) make sense for your community?MP: Wow, it seems like all we have to do to create a huge economic stimulus is to get more Americans using food stamps. If raising the national food stamp participation rate by 5 percentage points generates $2.5 billion in new economic activity, imagine the economic stimulus that could be created if the food stamp participation rate increased to 100 percent!
SNAP Generates Economic Activity SNAP brings Federal dollars into communities in the form of benefits which are redeemed by SNAP participants at local stores. These benefits ripple throughout the economies of the community, State, and Nation. For example: Every $5 in new SNAP benefits generates a total of $9.20 in community spending Every additional dollar's worth of SNAP benefits generates 17 to 47 cents of new spending on food.
On average, $1 billion of retail food demand by SNAP recipients generates 3,300 farm jobs. In fiscal year 2009, the average monthly SNAP benefit per household was approximately $272. These benefits, funded by Federal dollars, create business when they are redeemed at your local food retailers. Eighty-six percent of benefits, totaling $25 billion, were redeemed at the nation's 35,000 supermarkets. The remaining benefits, totaling $3.6 billion, contribute to the viability of 121,000 other firms which include grocery stores, convenience stores, combination stores, farmer's markets, and other retail food stores; plus wholesalers and meal services.
Outreach and education are powerful tools in overcoming barriers to SNAP participation. Even a small increase in SNAP participation can have a substantial impact. If the national participation rate rose 5 percentage points, 1.9 million more low-income people would have an additional $1.3 billion in benefits per year to use to purchase healthy food and $2.5 billion total in new economic activity would be generated nationwide.
To understand the economic fallacy of the "food stamps creates economic prosperity" myth, let me paraphrase Art Laffer, who exposed a similar fallacy a few years ago relating to the claim that unemployment benefits increase demand and stimulate the economy:
In an economy, the economic effects from a transfer program always sum to zero. Simply put, there can be no economic stimulus from increased food stamp usage. To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to people with food stamps, then people who otherwise would have had those 10 apples are now worse off. The stimulus of 10 apples through food stamps is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken. More realistically, we could say that to provide food stamps that will allow some Americans to purchase more apples, taxes have to be raised on other Americans to finance the food stamps to pay for the apples. In that case, raising food stamp participation increases the tax burden on other Americans.
Those Americans forced to pay higher taxes to finance increased food stamp usage have less income to spend on goods and services, which depresses economic activity. In the end, there is simply a coerced transfer of resources from food stamp-providing taxpayers to food stamp users, with a net effect of zero on economic activity and national wealth. Given the massive inefficiencies the government creates in transferring resources from one group to another, along with the disincentive effects for those Americans who are de-stimulated through higher taxes, there might actually be an overall negative net effect on economic activity.
Bottom Line: Raising food stamp usage certainly won't generate positive net benefits; it's more likely that the net economic effect will be negative.
HT: Daniel Halper via Morgan Frank