The Macroeconomics of Food Stamps

November 2, 2013

by Mario Rizzo

The expansion of food stamp eligibility in response to the Great Recession was part of the so-called stimulus package. There were several aspects. First, there was a simple increase in the maximum amount allowed to beneficiaries of about 14%. There was also a tremendous drive to get people who are eligible, but did not get food stamps, to apply and get them. Then there was a loosening of eligibility requirements in some states. Finally, there was the increase in unemployment resulting from the recession and thus an increase in the number of eligible people.

In 2007 the number of people on food stamps was 26 million. Today it is about 48 million! But look more closely at the data (in thousands):

2008

28,223

2009

33,490

2010

40,302

2011

44,709

2012

46,609

2013     

47,637

The reader should note that, even as unemployment has declined, the number of food-stamp recipients has increased. Based on decades long trends we should have observed a significant decrease in the number of recipients.

Prior to this period, and for a very long time, the numbers were stable with a small upward trend for population growth. But the numbers had strong cyclical characteristics with food stamps decreasing when unemployment decreased and vice versa.

1980

21,082

1991

22,625

1981

22,430

1992

25,407

1982

21,717

1993

26,987

1983

21,625

1994

27,474

1984

20,854

1995

26,619

1985

19,899

1996

25,543

1986

19,429

1997

22,858

1987

19,113

1998

19,791

1988

18,645

1999

18,183

1989

18,806

2000

17,194

1990

20,049

2001

17,318

And then the big government conservatives took over:

2002

19,096

2003

21,250

2004

23,811

2005

25,628

2006

26,549

I think what these numbers show is that a new, more widespread entitlement has been created beginning possibly in the G.W. Bush Administration but picking up considerable steam in the Obama Administration under the rubric of stimulus spending.

Where are we now? The grocers associations are complaining that they will lose business. The aggregate demand crowd is computing the losses in GDP growth. The advocates for social welfare spending are saying that the impending end to the “temporary” food stamp stimulus will cause malnutrition and general cruelty to the poor.

I want to emphasize two things. Neither of these points has anything to do with the issue of whether expansion in food stamps has increased the nutrition of those receiving them. Or whether the state, all things considered, should provide this benefit. First is that Keynesian stimulus measures (aka counter-cyclical fiscal policy) do not have the asymmetry that its idealized functioning demands. Political reality does not easily permit structural expansion in programs during recession and then going back to normal. The old food stamp program had the cyclical character before it was determined to make enrollment and standards easier.

The second, perhaps more important point is to observe how Keynesian stimulus actually works. In theory what is supposed to happen with stimulus spending is this. The government increases spending on just about anything. It doesn’t matter much because the object is to increase aggregate demand. Then, and this is the critical point, an increase in demand for the aggregate-schmoo is supposed to build confidence and cause self-sustaining increases in private spending on whatever consumers want. This has been sometimes called the confidence multiplier. But what has actually happened?

According to the aggregate demand crowd, the reduction in food spending that may be generated by cuts in food stamps is now supposed to cause a reduction in growth. But what has happened to the self-generating quality of stimulus spending?  The problem we have today is not want of general business confidence due to vague, psychological macro factors like fear of deflation, but to very real micro structural issues – like the disincentive to work produced by food stamp expansion (this is only one example). Under these circumstances continued stimulus is not self-sustaining.

Thus we are left with stimulus spending that is not self-sustaining and a structural expansion in the food stamp program. In effect, we have an increase in the disincentive to work or to search for better paying employment. Whether this temporary stimulus-driven increase in the entitlement state can be reversed will be seen by the degree to which the House proposed cuts can be put into effect. The Congress, however, has not helped its case by taking what so far has been a do-no-harm attitude toward agricultural subsidies. Most of the benefit of these subsidies goes to large agri-businesses who are as far from the family farm as I am in New York City picking fruit in the supermarket.

11 Responses to “The Macroeconomics of Food Stamps”

  1. Jeff Haymond Says:

    Mario–
    Given your assessment of the Keynesian model to accurately predict how the stimulus would “kick start” private economic activity, do you think it is possible that it is equally wrong in the other direction? Specifically, if we cut the food stamp program, and Say’s Law really is in effect, that perhaps recipients would want the higher level of consumption and go out and get jobs to maintain that consumption and thus boost output?

  2. Mario Rizzo Says:

    I think that would happen to a certain extent. Some, however, may just cut down on consumption of food they deem unnecessary. For their sakes I hope it is junk food.


  3. The most interesting item here is the growth in food stamps under Bush in a time of solid economic growth (aka, the housing boom). Bush also supported housing subsidies. Remember that is part of “compassionate conservatism.”

    Spending generally took off under Bush. TARP was a Bush initiative. Much of what Obama has done is Bush on steroids.

  4. leonardoquerov Says:

    Reblogged this on Leonardo Quero Virla and commented:
    The Macroeconomics of Food Stamps

  5. Bill Stepp Says:

    Just as the AD crowd has argued that unemployment “insurance” is not a disincentive to work, it’s only a matter of time before they do a “study” purporting to show that food stamps don’t have a similar effect.
    Keynesians don’t understand the basic microeconomic principle that entrepreneurs attempt to meet all types of market demand. The sum total of these efforts is aggregate supply, which in a free market tends to balance aggregate demand. PK will no doubt label this hate speech, just as he did in response to a comment I made at his blog about what taxation actually is.


  6. […] Mario Rizzo meditates on Keynesianism and welfare. […]

  7. Vivian King Says:

    Indeed, it is important to find a balance between economic growth and social welfare. If people don’t work because of food stamp expansion, then it really will become a pressure for the society, and will decrease the productivity of the country. However, we must also understand that food stamp expansion can help more people who are really in need. The inequality of wealth distribution in the US (actually every place of the world too) is becoming a more and more serious issue, and the working class is getting less money than they deserve. So it seems reasonable that they can more help. But I agree finding the balance is difficult.

  8. Sarah A. Says:

    Contrary to popular belief, the percentage of the population that directly encounters poverty is exceedingly high. Research indicates that nearly 40% of Americans between the ages of 25 and 60 will experience at least one year below the official poverty line and will require assistance in the form of food stamps. In addition, half of all American children will at some point during their childhood reside in a household that uses food stamps for a period of time.

    The typical pattern is for an individuals or families, to experience poverty for a year or two. Coming out of this current recession, people at the lowest range of wage earners are more likely to rely on government programs and assistant programs.

    Events like losing a job, having work hours cut back, experiencing a family split or developing a serious medical problem all have the potential to throw households into poverty. Put simply, poverty is a mainstream event experienced by a majority of Americans. For most of us, the question is whether we will experience poverty, but when and how will the safety net catch us.

  9. Sebastian H Says:

    “The old food stamp program had the cyclical character before it was determined to make enrollment and standards easier.”

    Isn’t this an assumption rather than a statement of fact? An equally plausible explanation is that the unemployment rate is declining with an increase in VERY low paying jobs–not enough to reduce food stamps. In that explanation the persistence is an effect not a cause.


  10. […] ThinkMarkets - Mario Rizzo: ‘The Macroeconomics of Food Stamps‘ […]

  11. Dylan K Says:

    I think that the increase in the amount of people getting food stamps is ridiculous, but to see that the amount of people is increasing even with employment being better is just weird. You expect that the number would drop because these people are now in a workforce making money. Maybe this is a sign or telling that maybe minimum wage needs to be increased so that these people can be compensated for work and are able to buy food instead of the government providing for them in addition to what they are already making on their own.


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