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The Surprising Economic Value of Food Stamps

Raz Godelnik
| Tuesday August 2nd, 2011 | 0 Comments

While the fight in Washington over the debt ceiling seems to be over, it is not clear yet what cuts will be made in the food stamps program. Although food stamps would be exempt from the automatic cuts, they still might be subject to cuts coming from the special bipartisan committee that would be established to find up to $1.5 trillion in deficit cuts.

The debate we witnessed in the last couple of weeks over the future of food stamps has been mostly an ideological one, focusing on whether food stamps provide important assistance to the poor or have been overused and rife with fraud. Although the debate is over budget, the economic value of the food stamps was somewhat ignored. Those who did take a look at it actually found some surprising results.

The economic value of food stamps is an indicator of how much economic activity is actually generated by food stamps. In other words, it shows us how many dollars are injected into the economy for every dollar spent by the federal government on food stamps. When Moody’s Analytics assessed different forms of stimulus, it found that food stamps were the most effective, increasing economic activity by $1.73 for every dollar spent. Unemployment insurance came in second, at $1.62 and most tax cuts yielded a dollar or less. The reason for this high effectiveness is, as Jim Weill of Food Research and Action Centre explained the Economist the fact that food stamps recipients are so poor that they tend to spend them immediately.

When money gets spent on food it goes on to pay for grocery clerk salaries and grocery story rent- the landlord and the grocery clerk then have money to spend for their own needs. The most effective forms of economic stimulus are those that encourage spending and food stamps are near the top of the heap for encouraging spending.

One of the reasons food stamps has become part of the debt ceiling debate is its growing number of participants and accordingly the growing budget allocated to providing them. According to the USDA, 44.5 million people received food stamps benefits last April, with 27 states providing benefits to at least 1 in 7 people. At the top of this list you will find Mississippi, New Mexico and Oregon with at least one in five residents in each state were receiving benefits. The state on the last place is Wyoming with only 6.5% of the state’s residents using food stamps.

USDA data shows fast growth in the number of food stamp program participants. In 2005, the number of participants was just around 25 million people. That’s a 78% increase in the number of participants in just six years, most of it in the last three years.  “There’s growth in the program like there is in unemployment, because of the recession and continued economic weakness,” Jim Weill explained to Bloomberg. Another reason is the fact that almost all the needy are automatically and indefinitely eligible for them.

The cost, naturally, went up as well, from $35 billion in 2008 to $65 billion last year and is expected to rise to $85 billion this year. This is definitely a hefty cost. One way to look the increase in cost is to see inefficiencies that need trimming and eligibility reassessed. Another way to look at it is like Stacy Dean of the Centre for Budget and Policy Priorities (CBPP), does. He told the Economist that the rapid growth of food stamps in recent years is a sign that they are working as intended, responding promptly to hard economic times.

The members of the future special bipartisan committee will have to take all of this information into account when discussing food stamps, maybe even the use of food stamps in farmers markets, where they provide even further added value to all parties involved. They might even want to take the food stamps experiment, witnessing first-hand what is like to have a monthly food budget of up to $200. Eventually they will have to decide if cutting food stamps budget is actually contributing to the economy’s health or damaging it. Let’s hope it will be a decision that will be based more on facts and less on rhetoric.

Image credit: shantipoet, Flickr Creative Commons

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.

 


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