Wednesday, September 5, 2012

The Multiplier Myth and the Example of Food Stamps

More than 75 million Americans today are on food stamps. That's obviously due in large part to the weak economy and its lack of growth prospects as well.

But our government knows best gang of do gooders claims that the expansion of food stamps usage will grow the economy. Just like magic.

They assert there's a beneficial GDP multiplier effect when government spends money, and they proceed to use simple math to calculate the beneficial impact on overall economic growth by having more people on food stamps.

Thus, in government math $1 spent on food stamps will become $1.79 (how in the world do they get such a precise number as $1.79?) when the money eventually works its way through the broader economy. Government spending becomes a way to grow the economy. Its "multiplier magic" at work even though, of course, it doesn't work.

And while the multiplier magic is mostly a myth, it nevertheless underlines the logic behind government stimulus programs of all kinds. They're mostly myths as well.

In other words, the government says that the more people there are on food stamps, the quicker economic conditions conditions will improve. That, of course, is nonsense, but that's their story. Accordingly, there's no hurry to get government out of the way and let the private sector do its thing.

Food stamps and other government spending by borrowing will do the trick for us. But if that's the case, why aren't things getting better instead of staying stuck in the mud?

Oh well, I guess some things are too complicated for simple minded people like me to understand.

Food Stamp Nation has the story:

"The Obama and Romney campaigns spent Tuesday sniping over whether the President deserves an "incomplete" grade, as Mr. Obama put it, for fixing the economy. The more revealing news was the Department of Agriculture report, released on the Friday before Labor Day weekend, that 46,670,373 Americans are now on food stamps.

That's an all-time record, at an annual cost of $71.8 billion, $770 billion over a decade. Mull over that one for a minute. That's nearly one of out every seven people—46 million citizens—who depend on taxpayers to buy one of life's most basic responsibilities. It's a good thing breathing air is free.

This isn't to run down the poor, or those hurt by the recession that Mr. Obama didn't cause or the recovery that he has done so much to enfeeble. Safety-net benefits and enrollment are supposed to expand or contract with the economy. But under this President there's been no contraction, even though the recession ended three years ago.

The food-stamp rolls grew by 173,000 in the last month and use is 3.3% higher than a year ago. As recently as 2009 "only" 33 million people took food aid and the program cost $50.4 billion. The food-stamp boom began with the George W. Bush Republicans, who expanded benefits in the appalling 2002 farm bill.

But the supercharger was a 2008 bill out of the Pelosi Congress that goosed eligibility and rebranded the program as the Supplemental Nutrition Assistance Program, to reduce the stigma of being on the dole. Then there was the 2009 stimulus, which expanded the program again.

Liberals argued then and still do that food stamps are one of the most effective ways the government can juice the economy. Really, they claim to believe this. The USDA's Economic Research Service estimates that food stamps have a "multiplier" of 1.79, meaning that every dollar in transfer payments boosts gross domestic product by $1.79. So why not have the feds put everyone on food stamps for three squares a day and really get the economy cooking?

The Romney camp won't say this because they'll be accused of being cruel, but having one in every seven Americans dependent on food stamps is not a sign of compassion. It is a sign of economic failure. Recall Paul Ryan's great line from the GOP convention about "the best this Administration offers—a dull, adventureless journey from one entitlement to the next, a government-planned life, a country where everything is free but us.""

Summing Up

All this means that an economic boom will develop if everybody will sign up for food stamps.

How simple and easy it will be.

Except, of course, it's not true.

I guess that makes me heartless.

And unable to understand "multiplier magic" as well.

Thanks. Bob.

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