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Food stamps as stimulus

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A couple of weeks ago I had a long chat with an AFR journalist who kept on asking me about food stamps. When I talked about cutting government spending, did I mean cutting food stamp programs? Well it’s a standard microeconomic result that food stamp programs are economically inefficient – if you’re going to hand out welfare it’s best to simply hand out cash. But I don’t think that’s what he meant.

This Robert Barro op-ed explains the Keynesian obsession with food stamps.

For example, in true Keynesian spirit, Agriculture Secretary Tom Vilsack said recently that food stamps were an “economic stimulus” and that “every dollar of benefits generates $1.84 in the economy in terms of economic activity.”

Well, no. As Barro explains, giving away stuff has costs associated with it and reduces incentive to work. In other words, government crowds out private entreprise and undermines private initiative. But the important bit from the Barro op-ed that I want to emphasise is this (emphasis original):

Theorizing aside, Keynesian policy conclusions, such as the wisdom of additional stimulus geared to money transfers, should come down to empirical evidence. And there is zero evidence that deficit-financed transfers raise GDP and employment—not to mention evidence for a multiplier of two.

So where did Agriculture Secretary Tom Vilsack get his figure of $1.84? (emphasis added)

The administration found the evidence it wanted—multipliers around two—by consulting some large-scale macro-econometric models, which substitute assumptions for identification. These models were undoubtedly the source of Mr. Vilsack’s claim that a dollar more of food stamps led to an extra $1.84 of GDP. This multiplier is nonsense, but one has to admire the precision in the number.

Written by Sinclair Davidson

August 24th, 2011 at 3:41 pm

Posted in Uncategorized

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19 Responses to 'Food stamps as stimulus'

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  1. Reminds me a little of climate science….the warming is nonsese but it’s very precise.

    Louis Hissink

    24 Aug 11 at 3:53 pm

  2. In recent times an excellent example of food stamps as a stimulus was the pink batts debacle. Although not food, the same in every other way.

    The laws of supply and demand meant we had an insulation industry that was in balance with our market. Along comes the Govt who creates false demand by giving the “food Stamps” away for nothing leading to the market 1. being swamped and 2. distorted into the future. Future normal demand was brought forward.

    So a well regulated balanced industry thrown into total turmoil with some businesses going under. Less demand going forward. Shoddy work destroying homes and lives. Highly questionable short term stimulus for no long term gain. Rorters and fly-by-nighters profit. Predictable “unforseen” consequences everywhere.

    Randy

    24 Aug 11 at 3:55 pm

  3. ….Mr. Vilsack’s claim that a dollar more of food stamps led to an extra $1.84 of GDP.

    hahahahahhahahaha Freaking unbelievable. Where do these morons get this crap from.

    JC

    24 Aug 11 at 4:14 pm

  4. The lefts latest economical stimulation method is buying prostitutes with others money. Now a valid tax deductible expense and very stimulating, with a significant multiplier effect I’m told.

    Chris M

    24 Aug 11 at 4:43 pm

  5. reminds me of something that did the rounds during the GFC to explain how Keynsian multipliers work. It seems just as pertinent now with the Craig Thomspon affair:

    It’s a slow day in a dusty little Australian town. The sun is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

    On this particular day a rich tourist from down south is driving through town , stops at the local motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.

    He gives him keys to a few rooms and as soon as the man walks upstairs, the owner grabs the $100 bill and runs next door to pay his debt to the butcher.

    The butcher takes the $100 and runs down the street to repay his debt to the pig farmer.

    The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel.

    The guy at the Farmer’s Co-op takes the $100 and runs to pay his drinks bill at the local pub.

    The publican slips the money along to the local prostitute drinking at the bar , who has also been facing hard times and has had to offer him “services” on credit.

    The hooker rushes to the motel and pays off her room bill to the motel owner with the $100 .

    The motel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.

    At that moment the traveller comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town.

    No one produced anything. No one earned anything.

    However, the whole town is now out of debt and looking to the future with a lot more optimism.

    And that, ladies and gentlemen, is how the Australian Government’s stimulus package works.

    papachango

    24 Aug 11 at 4:57 pm

  6. I heard a Labor MP, I think it was Daryl Melham, saying the Aus stimulus (or it could have just been BER) had a multiplier of 4! Unbelievable!!!

    Skuter

    24 Aug 11 at 5:22 pm

  7. Intuitively this multiplier stuff seems wrong. If the government gives someone a dollar in welfare, it can be spent on a dollar’s worth of food. If it gives a food stamp worth a dollar, it can be exchanged for a dollar’s worth of food.

    As I see it, the only difference is the cash could be spent on cigarettes or grog.

    So where’s the multiplier come in? The same dollar could be spent on building a new port, paying the salary of a politician or remaining with a taxpayer (ignoring the cost of collection etc).

    DavidLeyonhjelm

    24 Aug 11 at 6:27 pm

  8. The Australian national accounts provide ample evidence that deficit spending has increased GDP and employment.

    sdfc

    24 Aug 11 at 8:44 pm

  9. The Australian national accounts provide ample evidence that deficit spending has occurred prior to and/or coincided with increased GDP and employment.

    Fixed.

    Greego

    24 Aug 11 at 8:58 pm

  10. Greego

    If you were at all familiar with the national accounts you would know what I said is correct.

    It’s publicly available information. Go for it.

    sdfc

    24 Aug 11 at 9:23 pm

  11. Sdfc, the national accounts only show an effect due to government spending entering the expenditure version of GDP at cost. That distorted the ‘headline’ average figure that gets reported in the media. Did you check out the production and income numbers? The statistical discrepancies blew out at the time, indicating that stimulus spending didn’t translate into extra production or income…if YOU were familiar with national accounts, you would know what I have just said is correct…

    Skuter

    24 Aug 11 at 10:02 pm

  12. The Australian national accounts provide ample evidence that deficit spending has increased GDP and employment.

    No it doesn’t. The evidence it show is that there were mal-investments.

    JC

    24 Aug 11 at 10:08 pm

  13. No it doesn’t. The evidence it show is that there were mal-investments.

    Spot on JC…just look at how they blew up the home insulation industry sector…they took a well functioning market, sodomised it with a stick of dynamite and then BOOM…blew the arse out of it…Not to mention the deaths and the house fires. Fucking creeps…

    Skuter

    24 Aug 11 at 10:26 pm

  14. You need to familiarise yourself with the national accounts Skuter. Expenditure=production=income. Any discrepancies are due to measurement error.

    The production estimates were higher than the expenditure estimates in some quarters and lower in others across the period of greatest stimulus spending.

    Activity creates employment. The premise you are defending, that the stimulus spending did not raise GDP and employment is incorrect.

    sdfc

    24 Aug 11 at 11:38 pm

  15. You need to familiarise yourself with the national accounts Skuter. Expenditure=production=income.

    Expenditure expenditure on Insulation = production burning 200 homes down on a useless project= income income from malinvestments.

    JC

    24 Aug 11 at 11:46 pm

  16. Sdfc, check out the statistical discrepancies. They were UNUSUALLY LARGE at the height of the stimulus spending. Familiarise yourself with the numbers. We were in technical recession on 2 out of the 3 measures (even though I hate that definition of recession). Perhaps the source of the measurement error was in the expenditure numbers?

    Skuter

    25 Aug 11 at 6:10 am

  17. Expenditure=production=income. Any discrepancies are due to measurement error.

    Wrong.

    .

    25 Aug 11 at 7:29 am

  18. I heard a Labor MP, I think it was Daryl Melham, saying the Aus stimulus (or it could have just been BER) had a multiplier of 4! Unbelievable!!!

    Christ what a lying, incompetent turd.

    We spent 4% of GDP to get a net gain of 3% of GDP. Three divided by four, equals four. Three equals sixteen! Each “job saved” cost $358 000 before interest amortisation. The median wage is something around $65k.

    Fucking moonbats.

    .

    25 Aug 11 at 7:32 am

  19. [...] Sinclair Davidson on food stamps: It’s "a standard microeconomic result that food stamp programs are economically inefficient – if you’re going to hand out welfare it’s best to simply hand out cash" says Sinclair Davidson. [...]

    Club Troppo » Missing Link Friday – It’s Craig Thomson free!

    25 Aug 11 at 10:02 pm

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