11 ms·

Every $1 spent on food stamps resulted in $1.73 in GDP growth

47 points by lee 15y ago

vrotaru 15y ago
I've got an idea. Spend everything on food stamps. Than rinse & repeat.
gregbair 15y ago
I don't doubt that. The question becomes then, how much does that GDP growth increase federal revenues? If it doesn't increase it by $1 per $1.73 in GDP, it's still a net loss IMHO. Also, the mere fact that food stamp recipients are prevalent and increasing signals a failure in our system. Not saying we should get rid of food stamps, they're a necessary safety net, but that figure is misleading. How much should the government spend to increase GDP? Is it valuable to have a high GDP and a high federal deficit? Or will that just end up in necessarily higher taxes down the road (so we don't end up like Greece) that will wipe out that GDP growth? It's a sticky issue that can't be boiled down to a simple statement. $1.73 in GDP growth != $1.73 in revenue to the government.
- deleted 15y ago
  [deleted]
- nhaehnle 15y ago
  The question becomes then, how much does that GDP growth increase federal revenues? If it doesn't increase it by $1 per $1.73 in GDP, it's still a net loss IMHO. Why? Money is created by federal government and is therefore worthless to the federal government. It can just create more of it. It just makes no sense to look at the federal government (or any monetarily sovereign government for that matter) in terms of how much money they make. On the other hand, if government revenues are increased by less than 1$, this means that someone, somewhere in the economy now has more net financial assets because of that. Is that a bad thing? In some cases perhaps, but certainly not in general. Is it valuable to have a high GDP and a high federal deficit? Or will that just end up in necessarily higher taxes down the road (so we don't end up like Greece) that will wipe out that GDP growth? History tells us that, for monetarily sovereign governments, their debt is not paid back. Therefore, the answer to your second question seems to be a very clear "No, it will not lead to higher taxes, but it will lead to better economic development right now, which likely also improves the growth path in the long run."
- lee 15y ago
  > $1.73 in GDP growth != $1.73 in revenue to the government. That is not what the research is claiming. However, you can't discount that an increase in overall GDP leads to increased government revenues. Even though the US federal deficit is high, it certainly is not a problem like now like it is for Greece. US treasury bond rates are a pretty good indicator of risk, and right now they're very low.
switchhitter 15y ago
Isn't government spending counted as part of GDP? (It's counted as consumption)
- DifE-Q 15y ago
  Yes it is. Herein lies part of the problem; the way GDP is calculated and what is meant by GDP. The whole GDP idea has little merit. Essentially the health of the economy is measured by how much money is spent. We should stop relying on GDP to measure economic health and measure wealth and lack of debt instead.
  - leot 15y ago
    Anyone know why net household wealth isn't more commonly used as metric for, uh, wealth?
    - nerfhammer 15y ago
      Wealth statistics are an actual metric that exists For example, http://www.federalreserve.gov/econresdata/scf/scf_2007.htm http://www.federalreserve.gov/econresdata/scf/scf_2007.htm
      - leot 15y ago
        That's not what I was asking. Net wealth doesn't have nearly the same status as GDP. I sometimes wonder what policy would look like if the dominant economic priority was the increase total wealth, rather than economic activity.
        nerfhammer 15y ago
        For instance, if I have ten billion dollars in gold in my vault but choose to do nothing with it, then it has no impact on what we could call the economy but would still count as 'wealth'. If I have ten billion dollars in my vault that I never do anything with and the rest of the economy has a total of six cents, we would care how the six cents were being used, disproportionately to my trillion cents. Or if everyone has 10 billion dollars in gold in their vaults in aggregate, if the price of gold rises, on paper their wealth would increase. But if everyone actually tried to expend their gold then the price of gold would decrease, but much more production would happen in the economy. If the price of tech stocks octuples then paper wealth increases but GDP does not necessarily change. Or, if everyone just spent their money twice as quickly (e.g. the velocity of money increases). The economy would be able to do twice as much, but total 'wealth' need not necessarily change. 'wealth' is entangled with money and prices. The amount of production is affected by those things probably but not as directly.
shingen 15y ago
If that were true, obviously the government would merely need to 'print' a trillion each year in free food stamps to be distributed to the populace. All food costs could be Fed funded through magic dollars. Magically it would generate a 'profit' of $730 billion per printed trillion per year for the general economy. Except the stimulus programs, from the first that Bush fired off, to the Fed's QE programs, to the trillion dollar fraud Obama made shovel ready (har har) --- all have one thing in common: they've all failed to improve the US economy in any meaningful way. Work force participation rate? hyper implosion. Government dependency? skyrocketing. Real wages? declining. Inflation? pain at the pump and grocery store. Trade deficit? Near all time record highs. Savings rate? miniscule. Household wealth? Less than 15 years ago. Standard of living? Hasn't moved in in 50 years. Debt? On the moon and rising faster by the day. Entitlements? $100 trillion unfunded disaster. Stock market? Hasn't moved in 15 years inflation adjusted. and on and on
- _delirium 15y ago
  The fact that a specific amount of some economic activity caused a specific increase in total economy activity doesn't mean you can extrapolate it to infinity. Google has a (large) positive return on capital, but that doesn't mean that Google could generate infinite amounts of money simply by plowing arbitrary amounts of capital into its business. So, yes, it is probably the case that $1 trillion in food stamps would not generate $1.73 trillion in economic activity. But that's not really a counterargument about whether the current spending has a 1.73x multiplier.
  - shingen 15y ago
    That's understood. In this case, I particularly referenced a trillion dollars, which isn't a gigantic sum in our economy any longer. It's a mere rounding error on our liabilities. You also can't print magic dollars to continue to fake economic results without suffering consequences that completely wipe out the supposed gains that are being claimed. For example, even just 6% real inflation times ten years becomes a disaster for a middle class whose real wages are flat lined. Every dollar the Fed shovels into the system, becomes inflation somewhere. Food stamps = pure inflation in a government system running a $1.3 trillion deficit. The Fed has to monetize it all. Whatever you're supposedly gaining through one program, is completely wiped out by the inflation.
nhaehnle 15y ago
Another interesting observation from that Table 1 of the article: every spending policy has a better impact than every tax cut policy. The theoretical explanation for this is very simple: in the current economic climate, tax reduction tend to be used simply to pay down debts - what Richard Koo calls a balance sheet recession. Still, it's nice to have that so clear from a source that is quite unsuspicious of overly left/liberal leanings.
- onemoreact 15y ago
  Paying down debts promotes long term growth though capital acquisition. Someone invested that money in a loan, they now have that money back plus a little interest, they are now going to look for someone else to loan that money to or do a direct investment.
  - bryanlarsen 15y ago
    That would be true if banks weren't reducing their ratios at the same time. Because their percentage of bad debts is going up, they have to reduce their lending to keep their bad debt to capital ratio at the same level. Even worse, their trying to improve their ratios because they now realize they had let them get out of hand during the boom.
    - onemoreact 15y ago
      The 'classic' great depression view of the monetary system is horribly outdated in large part because most people don't get their money by farming land, but the lending market has also shifted. Secularization, Car Loans and Credit Cards have greatly shifted the banks roles in the overall lending market.
  - nhaehnle 15y ago
    You are either ignoring banks or the fact that banks simply create money when they extend a loan. Disregarding that particular issue: Sure, banks are always looking for people to loan money to, because that's how they make a profit. But what if they simply don't find many people they can give loans to? That is still the problem, and that is an important reason why direct spending has a higher multiplier than tax cuts. People are still repairing their balance sheets, which means there are simply fewer people who are creditworthy and willing to borrow money.
billybob 15y ago
GDP measures the output of workers. So this result states that by giving people money, you either enable them to work, or enable them to employ other people by spending that money. Presumably (I admit, TLDR) this conclusion comes from calculating the multiplied effect of what the food stamps are spent on. But how can we know that the net effect is positive? How can we know that, for instance, giving people money doesn't prevent them from working, thereby decreasing GDP? After all, there is no control group in economics, which is why (frustratingly) there are still totally opposite camps who keep claiming that current events prove them right.
- nhaehnle 15y ago
  How can we know that, for instance, giving people money doesn't prevent them from working, thereby decreasing GDP? I'm not familiar with the methods used, but the article claims exactly that, doesn't it? By spending money on food stamps, GDP is increased. Mind you, there might be types of spending with an even higher multiplier. And there might be types of spending that would be seen to be more beneficial for society even if their impact on GDP were smaller; for example: Why not just spend money to create jobs? Then spending on food stamps reduces automatically, as the number of eligible recipients decreases. After all, there is no control group in economics, which is why (frustratingly) there are still totally opposite camps who keep claiming that current events prove them right. This is indeed very unfortunate. Perhaps somebody clever enough with enough stamina could work on increasingly realistic simulations on the micro level and see which macro patterns emerge? Though of course then there would be an endless debate about how realistic the modeling of micro behavior is. The current story told in mainstream textbooks (utility maximization etc.) certainly isn't very credible, given all the psychological insights from behavioral economics; and just the mere fact that marketing exists and how it operates tells you that the classical micro story is rather fishy.
- brg 15y ago
  Statistical tools can allow for control. The best paper I've seen on this is the Romer and Romer study "The Macro-Economics of Tax Changes." Every dollar in food stamps comes from a dollar of taxation. Their study shows that the multiplier of the original dollar is -2.5. If we have 1.8 multiplier on the food stamp, then additively we have -0.7. Alternatively, every dollar which is 'spent' by the government in the form of tax cuts has a multiplier of nearly 3. http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf* http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf*
skilesare 15y ago
This reinforces a truth that many fiscal conservatives are either ignorant of or choose to ignore. If the government spends a dollar, it does not disappear. It is paid to someone. They pay taxes on it. And then they spend it. And that person pays taxes on it. And so on and so forth. (excluding payments that go out to foreign entities) Government spending isn't a drain. It is another piston in the financial engine. It also happens to be one of the most reliable and most pliable pistons in the engine. You can think of the government as Herouku. Most of the time you're going to want to run as few instances as possible. When you make the front page of hackernews, you either need to jack up the instances or your site crashes. We're drawing our lines in the wrong places. Some government spending is good. In some cases, massive government spending is good. A lot of the time the private markets do a better job. Sometimes they don't. Paying food stamps is a great way to reduce crime and bolster the stability of your country. If you ignore the root causes you get long term issues. We need to fix the underlying problem and keep paying for food stamps. You can do both at the same time.
- barney54 15y ago
  You are forgetting that tax dollars have to come from somewhere. the money has to be taken from one group of people or financed. Those activities are not costless. This is one of the reason why other studies find that reducing government spending stimulates growth (some of those studies are described here: http://mercatus.org/publication/does-government-spending-affect-economic-growth http://mercatus.org/publication/does-government-spending-aff...)
  - fennecfoxen 15y ago
    My objection is that all too often you see the attitude that because some baseline level of government spending is good and profits the economy (and society), that Program XYZ I Just Proposed For Widows And Orphans[tm] is also good. And most fiscal conservatives have better things to conserve than food stamps. Let's talk about where the money really goes. Oh, wait, white elephant in the room.
  - nerfhammer 15y ago
    http://www.sourcewatch.org/index.php?title=Mercatus_Center http://www.sourcewatch.org/index.php?title=Mercatus_Center
josh5555 15y ago
This is BS. We had to borrow that $1 and we will pay interest on it for years to come. Our government is broke and wasting money left and right. The spending spree is not sustainable. Take a good look at Greece. That is the future of America if we keep spending money this way.
- iamdave 15y ago
  Take a good look at Greece. That is the future of America if we keep spending money this way. Care to go a bit further into this conjecture?
  - GiraffeNecktie 15y ago
    I don't know if you can really extrapolate from Greece to the US, but it is relevant to note that by living on credit for so long, Greece wound up in a position where they couldn't raise more money. So their GDP grew for years on borrowed money, and now that they can't borrow any more, their GDP is shrinking dramatically. In other words, you can buy an artificial GDP increase today but you may have to sell it back at a discount tomorrow.
    - freehunter 15y ago
      A problem Greece has that the US doesn't have is the Euro. If the US need more money, it prints more money. It causes inflation and that's sometimes a bad thing, but it patches a hole. Greece can't print more Euros. The US can devalue her currency for a long time to keep things running.
  - josh5555 15y ago
    Conjecture is trying to directly link food stamps to GDP to push a political agenda. How is spending more than your revenue a long term plan? The only legit reason would be in a time of war or major disaster. Our entitlement spending and union retirements are a mirror image of Greece but on a much larger scale. We owe more per capita than Greece (don't forget to include unfunded liabilities). Sure, we can devalue the dollar but too much inflation will be a very bad thing - just ask Zimbabwe. I'm all for helping the poor and believe in reasonable safety nets, but the problem is they are being chronically abused in this country. I live in NYC and see the abuse first hand every day, in the checkout line seeing able bodied people using foodstamps (EBT cards). Come on man, really? My point is food stamps and entitlements are definitely not an economic tool.
jpdoctor 15y ago
This paper isn't worth the bits it's printed on. Economist Mark Zandi (the author) missed predicting the biggest economic event not just of his career, but of three generations before him. Mostly, that was due to conflict of interest: Moody's was busy scooping up money to rate mortgage securities. What fraction of his oversight is due to just being a poor economist is unknown. There are widows and orphans living poorer because of this clown. Don't waste your time.
GFKjunior 15y ago
Broken Window Fallacy http://en.wikipedia.org/wiki/Parable_of_the_broken_window http://en.wikipedia.org/wiki/Parable_of_the_broken_window
giardini 15y ago
Calm down. First of all note that it is a short-term effect from a _temporary_ increase in food stamps. The article doesn't address the long term. Secondly, why be surprised that giving money to those who badly need it would increase spending? And thirdly that each spent dollar would ripple through the economy for a total value greater than a dollar? This is one of the earliest lessons in Economics 101. What this shows is that food stamps are a relatively "frictionless" method of boosting spending. There's less overhead for food stamps than for other programs and, since the spending is unlikely to be misdirected (as in "bridge to nowhere" projects et al), you get lots of bang for your buck.
kstigs 15y ago
Both sides have data that backs up their claims. The economy isn't something where you can pick out two indicators and claim that something is good (http://online.wsj.com/article/SB10001424052748704471504574440723298786310.html http://online.wsj.com/article/SB1000142405274870447150457444...). Zandi may not have left/liberal leanings, but he certainly has government leanings.
simplefish 15y ago
Warning: It's by Mark Zandi. Zandi is a hack and a mouthpiece for the ratings agencies. For one example among many, see this link: http://www.ritholtz.com/blog/2010/09/zandi/ http://www.ritholtz.com/blog/2010/09/zandi/ More seriously, the link is just a summary of what Zandi's model predicted the recent stimulus would do. It's worth noting that: 1) Pretty much every other economist on the left and right disagree with him. On the right they think all his multipliers are too high, and even on the left they think the way he ranked them is bizarre. He reckons one of the best tax cuts is a lump sum refund - despite copious theoretical and empirical backing for the proposition that it's actually one of the worst (because it's most likely to trigger Ricardian Equivalency). 2) The actual results of the stimulus are starting to become clear, and they disagree with him too, both in terms of overall magnitude and, in particular, his completely batshit rankings. He thinks aid to state governments is one of the worst ways of spending cash, but infrastructure spending is quite good. In reality the aid to state governments was one of the most effective line items, while the infrastructure spending was a black hole in terms of job creation. My advice is to go hunt up an actual respected economist (Romer or Barro are both great on this area) and read what they have to say. Zandi is neither respected nor, at the risk of being cruel, an economist.

47 points by lee 15y ago

I've got an idea. Spend everything on food stamps. Than rinse & repeat.

I don't doubt that. The question becomes then, how much does that GDP growth increase federal revenues? If it doesn't increase it by $1 per $1.73 in GDP, it's still a net loss IMHO. Also, the mere fact that food stamp recipients are prevalent and increasing signals a failure in our system. Not saying we should get rid of food stamps, they're a necessary safety net, but that figure is misleading. How much should the government spend to increase GDP? Is it valuable to have a high GDP and a high federal deficit? Or will that just end up in necessarily higher taxes down the road (so we don't end up like Greece) that will wipe out that GDP growth? It's a sticky issue that can't be boiled down to a simple statement. $1.73 in GDP growth != $1.73 in revenue to the government.

deleted 15y ago
[deleted]
nhaehnle 15y ago
The question becomes then, how much does that GDP growth increase federal revenues? If it doesn't increase it by $1 per $1.73 in GDP, it's still a net loss IMHO. Why? Money is created by federal government and is therefore worthless to the federal government. It can just create more of it. It just makes no sense to look at the federal government (or any monetarily sovereign government for that matter) in terms of how much money they make. On the other hand, if government revenues are increased by less than 1$, this means that someone, somewhere in the economy now has more net financial assets because of that. Is that a bad thing? In some cases perhaps, but certainly not in general. Is it valuable to have a high GDP and a high federal deficit? Or will that just end up in necessarily higher taxes down the road (so we don't end up like Greece) that will wipe out that GDP growth? History tells us that, for monetarily sovereign governments, their debt is not paid back. Therefore, the answer to your second question seems to be a very clear "No, it will not lead to higher taxes, but it will lead to better economic development right now, which likely also improves the growth path in the long run."
lee 15y ago
> $1.73 in GDP growth != $1.73 in revenue to the government. That is not what the research is claiming. However, you can't discount that an increase in overall GDP leads to increased government revenues. Even though the US federal deficit is high, it certainly is not a problem like now like it is for Greece. US treasury bond rates are a pretty good indicator of risk, and right now they're very low.

switchhitter 15y ago

Isn't government spending counted as part of GDP? (It's counted as consumption)

DifE-Q 15y ago
Yes it is. Herein lies part of the problem; the way GDP is calculated and what is meant by GDP. The whole GDP idea has little merit. Essentially the health of the economy is measured by how much money is spent. We should stop relying on GDP to measure economic health and measure wealth and lack of debt instead.
- leot 15y ago
  Anyone know why net household wealth isn't more commonly used as metric for, uh, wealth?
  - nerfhammer 15y ago
    Wealth statistics are an actual metric that exists For example, http://www.federalreserve.gov/econresdata/scf/scf_2007.htm http://www.federalreserve.gov/econresdata/scf/scf_2007.htm
    - leot 15y ago
      That's not what I was asking. Net wealth doesn't have nearly the same status as GDP. I sometimes wonder what policy would look like if the dominant economic priority was the increase total wealth, rather than economic activity.
      - nerfhammer 15y ago
        For instance, if I have ten billion dollars in gold in my vault but choose to do nothing with it, then it has no impact on what we could call the economy but would still count as 'wealth'. If I have ten billion dollars in my vault that I never do anything with and the rest of the economy has a total of six cents, we would care how the six cents were being used, disproportionately to my trillion cents. Or if everyone has 10 billion dollars in gold in their vaults in aggregate, if the price of gold rises, on paper their wealth would increase. But if everyone actually tried to expend their gold then the price of gold would decrease, but much more production would happen in the economy. If the price of tech stocks octuples then paper wealth increases but GDP does not necessarily change. Or, if everyone just spent their money twice as quickly (e.g. the velocity of money increases). The economy would be able to do twice as much, but total 'wealth' need not necessarily change. 'wealth' is entangled with money and prices. The amount of production is affected by those things probably but not as directly.

shingen 15y ago

If that were true, obviously the government would merely need to 'print' a trillion each year in free food stamps to be distributed to the populace. All food costs could be Fed funded through magic dollars. Magically it would generate a 'profit' of $730 billion per printed trillion per year for the general economy. Except the stimulus programs, from the first that Bush fired off, to the Fed's QE programs, to the trillion dollar fraud Obama made shovel ready (har har) --- all have one thing in common: they've all failed to improve the US economy in any meaningful way. Work force participation rate? hyper implosion. Government dependency? skyrocketing. Real wages? declining. Inflation? pain at the pump and grocery store. Trade deficit? Near all time record highs. Savings rate? miniscule. Household wealth? Less than 15 years ago. Standard of living? Hasn't moved in in 50 years. Debt? On the moon and rising faster by the day. Entitlements? $100 trillion unfunded disaster. Stock market? Hasn't moved in 15 years inflation adjusted. and on and on

_delirium 15y ago
The fact that a specific amount of some economic activity caused a specific increase in total economy activity doesn't mean you can extrapolate it to infinity. Google has a (large) positive return on capital, but that doesn't mean that Google could generate infinite amounts of money simply by plowing arbitrary amounts of capital into its business. So, yes, it is probably the case that $1 trillion in food stamps would not generate $1.73 trillion in economic activity. But that's not really a counterargument about whether the current spending has a 1.73x multiplier.
- shingen 15y ago
  That's understood. In this case, I particularly referenced a trillion dollars, which isn't a gigantic sum in our economy any longer. It's a mere rounding error on our liabilities. You also can't print magic dollars to continue to fake economic results without suffering consequences that completely wipe out the supposed gains that are being claimed. For example, even just 6% real inflation times ten years becomes a disaster for a middle class whose real wages are flat lined. Every dollar the Fed shovels into the system, becomes inflation somewhere. Food stamps = pure inflation in a government system running a $1.3 trillion deficit. The Fed has to monetize it all. Whatever you're supposedly gaining through one program, is completely wiped out by the inflation.

nhaehnle 15y ago

Another interesting observation from that Table 1 of the article: every spending policy has a better impact than every tax cut policy. The theoretical explanation for this is very simple: in the current economic climate, tax reduction tend to be used simply to pay down debts - what Richard Koo calls a balance sheet recession. Still, it's nice to have that so clear from a source that is quite unsuspicious of overly left/liberal leanings.

onemoreact 15y ago
Paying down debts promotes long term growth though capital acquisition. Someone invested that money in a loan, they now have that money back plus a little interest, they are now going to look for someone else to loan that money to or do a direct investment.
- bryanlarsen 15y ago
  That would be true if banks weren't reducing their ratios at the same time. Because their percentage of bad debts is going up, they have to reduce their lending to keep their bad debt to capital ratio at the same level. Even worse, their trying to improve their ratios because they now realize they had let them get out of hand during the boom.
  - onemoreact 15y ago
    The 'classic' great depression view of the monetary system is horribly outdated in large part because most people don't get their money by farming land, but the lending market has also shifted. Secularization, Car Loans and Credit Cards have greatly shifted the banks roles in the overall lending market.
- nhaehnle 15y ago
  You are either ignoring banks or the fact that banks simply create money when they extend a loan. Disregarding that particular issue: Sure, banks are always looking for people to loan money to, because that's how they make a profit. But what if they simply don't find many people they can give loans to? That is still the problem, and that is an important reason why direct spending has a higher multiplier than tax cuts. People are still repairing their balance sheets, which means there are simply fewer people who are creditworthy and willing to borrow money.

billybob 15y ago

GDP measures the output of workers. So this result states that by giving people money, you either enable them to work, or enable them to employ other people by spending that money. Presumably (I admit, TLDR) this conclusion comes from calculating the multiplied effect of what the food stamps are spent on. But how can we know that the net effect is positive? How can we know that, for instance, giving people money doesn't prevent them from working, thereby decreasing GDP? After all, there is no control group in economics, which is why (frustratingly) there are still totally opposite camps who keep claiming that current events prove them right.

nhaehnle 15y ago
How can we know that, for instance, giving people money doesn't prevent them from working, thereby decreasing GDP? I'm not familiar with the methods used, but the article claims exactly that, doesn't it? By spending money on food stamps, GDP is increased. Mind you, there might be types of spending with an even higher multiplier. And there might be types of spending that would be seen to be more beneficial for society even if their impact on GDP were smaller; for example: Why not just spend money to create jobs? Then spending on food stamps reduces automatically, as the number of eligible recipients decreases. After all, there is no control group in economics, which is why (frustratingly) there are still totally opposite camps who keep claiming that current events prove them right. This is indeed very unfortunate. Perhaps somebody clever enough with enough stamina could work on increasingly realistic simulations on the micro level and see which macro patterns emerge? Though of course then there would be an endless debate about how realistic the modeling of micro behavior is. The current story told in mainstream textbooks (utility maximization etc.) certainly isn't very credible, given all the psychological insights from behavioral economics; and just the mere fact that marketing exists and how it operates tells you that the classical micro story is rather fishy.
brg 15y ago
Statistical tools can allow for control. The best paper I've seen on this is the Romer and Romer study "The Macro-Economics of Tax Changes." Every dollar in food stamps comes from a dollar of taxation. Their study shows that the multiplier of the original dollar is -2.5. If we have 1.8 multiplier on the food stamp, then additively we have -0.7. Alternatively, every dollar which is 'spent' by the government in the form of tax cuts has a multiplier of nearly 3. http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf* http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf*

skilesare 15y ago

This reinforces a truth that many fiscal conservatives are either ignorant of or choose to ignore. If the government spends a dollar, it does not disappear. It is paid to someone. They pay taxes on it. And then they spend it. And that person pays taxes on it. And so on and so forth. (excluding payments that go out to foreign entities) Government spending isn't a drain. It is another piston in the financial engine. It also happens to be one of the most reliable and most pliable pistons in the engine. You can think of the government as Herouku. Most of the time you're going to want to run as few instances as possible. When you make the front page of hackernews, you either need to jack up the instances or your site crashes. We're drawing our lines in the wrong places. Some government spending is good. In some cases, massive government spending is good. A lot of the time the private markets do a better job. Sometimes they don't. Paying food stamps is a great way to reduce crime and bolster the stability of your country. If you ignore the root causes you get long term issues. We need to fix the underlying problem and keep paying for food stamps. You can do both at the same time.

barney54 15y ago
You are forgetting that tax dollars have to come from somewhere. the money has to be taken from one group of people or financed. Those activities are not costless. This is one of the reason why other studies find that reducing government spending stimulates growth (some of those studies are described here: http://mercatus.org/publication/does-government-spending-affect-economic-growth http://mercatus.org/publication/does-government-spending-aff...)
- fennecfoxen 15y ago
  My objection is that all too often you see the attitude that because some baseline level of government spending is good and profits the economy (and society), that Program XYZ I Just Proposed For Widows And Orphans[tm] is also good. And most fiscal conservatives have better things to conserve than food stamps. Let's talk about where the money really goes. Oh, wait, white elephant in the room.
- nerfhammer 15y ago
  http://www.sourcewatch.org/index.php?title=Mercatus_Center http://www.sourcewatch.org/index.php?title=Mercatus_Center

josh5555 15y ago

This is BS. We had to borrow that $1 and we will pay interest on it for years to come. Our government is broke and wasting money left and right. The spending spree is not sustainable. Take a good look at Greece. That is the future of America if we keep spending money this way.

iamdave 15y ago
Take a good look at Greece. That is the future of America if we keep spending money this way. Care to go a bit further into this conjecture?
- GiraffeNecktie 15y ago
  I don't know if you can really extrapolate from Greece to the US, but it is relevant to note that by living on credit for so long, Greece wound up in a position where they couldn't raise more money. So their GDP grew for years on borrowed money, and now that they can't borrow any more, their GDP is shrinking dramatically. In other words, you can buy an artificial GDP increase today but you may have to sell it back at a discount tomorrow.
  - freehunter 15y ago
    A problem Greece has that the US doesn't have is the Euro. If the US need more money, it prints more money. It causes inflation and that's sometimes a bad thing, but it patches a hole. Greece can't print more Euros. The US can devalue her currency for a long time to keep things running.
- josh5555 15y ago
  Conjecture is trying to directly link food stamps to GDP to push a political agenda. How is spending more than your revenue a long term plan? The only legit reason would be in a time of war or major disaster. Our entitlement spending and union retirements are a mirror image of Greece but on a much larger scale. We owe more per capita than Greece (don't forget to include unfunded liabilities). Sure, we can devalue the dollar but too much inflation will be a very bad thing - just ask Zimbabwe. I'm all for helping the poor and believe in reasonable safety nets, but the problem is they are being chronically abused in this country. I live in NYC and see the abuse first hand every day, in the checkout line seeing able bodied people using foodstamps (EBT cards). Come on man, really? My point is food stamps and entitlements are definitely not an economic tool.

jpdoctor 15y ago

This paper isn't worth the bits it's printed on. Economist Mark Zandi (the author) missed predicting the biggest economic event not just of his career, but of three generations before him. Mostly, that was due to conflict of interest: Moody's was busy scooping up money to rate mortgage securities. What fraction of his oversight is due to just being a poor economist is unknown. There are widows and orphans living poorer because of this clown. Don't waste your time.

GFKjunior 15y ago

Broken Window Fallacy http://en.wikipedia.org/wiki/Parable_of_the_broken_window http://en.wikipedia.org/wiki/Parable_of_the_broken_window

giardini 15y ago

Calm down. First of all note that it is a short-term effect from a _temporary_ increase in food stamps. The article doesn't address the long term. Secondly, why be surprised that giving money to those who badly need it would increase spending? And thirdly that each spent dollar would ripple through the economy for a total value greater than a dollar? This is one of the earliest lessons in Economics 101. What this shows is that food stamps are a relatively "frictionless" method of boosting spending. There's less overhead for food stamps than for other programs and, since the spending is unlikely to be misdirected (as in "bridge to nowhere" projects et al), you get lots of bang for your buck.

kstigs 15y ago

Both sides have data that backs up their claims. The economy isn't something where you can pick out two indicators and claim that something is good (http://online.wsj.com/article/SB10001424052748704471504574440723298786310.html http://online.wsj.com/article/SB1000142405274870447150457444...). Zandi may not have left/liberal leanings, but he certainly has government leanings.

simplefish 15y ago

Warning: It's by Mark Zandi. Zandi is a hack and a mouthpiece for the ratings agencies. For one example among many, see this link: http://www.ritholtz.com/blog/2010/09/zandi/ http://www.ritholtz.com/blog/2010/09/zandi/ More seriously, the link is just a summary of what Zandi's model predicted the recent stimulus would do. It's worth noting that: 1) Pretty much every other economist on the left and right disagree with him. On the right they think all his multipliers are too high, and even on the left they think the way he ranked them is bizarre. He reckons one of the best tax cuts is a lump sum refund - despite copious theoretical and empirical backing for the proposition that it's actually one of the worst (because it's most likely to trigger Ricardian Equivalency). 2) The actual results of the stimulus are starting to become clear, and they disagree with him too, both in terms of overall magnitude and, in particular, his completely batshit rankings. He thinks aid to state governments is one of the worst ways of spending cash, but infrastructure spending is quite good. In reality the aid to state governments was one of the most effective line items, while the infrastructure spending was a black hole in terms of job creation. My advice is to go hunt up an actual respected economist (Romer or Barro are both great on this area) and read what they have to say. Zandi is neither respected nor, at the risk of being cruel, an economist.