Budget & Tax, Agriculture, Good Government

Do Food Stamps Boost the Economy?

January 13, 2014

Jayson Lusk

By Jayson Lusk

Farm bill negotiations have resumed in Washington, D.C., and one of the first items of business is to determine the fate of the Supplemental Nutritional Assistance Program (SNAP), more commonly known as food stamps.

In an attempt to cut government spending and reduce the deficit, budgets for all programs are being scrutinized, and the farm bill is no different. If farm bill spending is to be cut, a likely candidate is SNAP. After all, spending on SNAP and related programs accounts for nearly 80 percent of the farm bill.

At issue is the size of the cuts to SNAP benefits. The House has proposed to cut about $39 billion from SNAP over the next 10 years (a roughly 5 percent reduction) but the Senate’s bill only cuts about $4 billion (a roughly 0.5 percent reduction). To provide some perspective, the Senate’s bill cuts farm commodity programs by about 40 percent.

The relatively small percentage cuts proposed to SNAP have raised the ire of many on the left. Adding to their consternation is the fact that SNAP benefits recently fell about $36 per family of four due to the expiration of the American Reinvestment and Recovery Act (ARRA).

While there is good evidence that SNAP reduces hunger and food insecurity among poor households, there are also legitimate concerns about the program fostering government dependency, reducing the incentive to work, and increasing the government deficit. These concerns have even more force when one realizes the spending on SNAP doubled from 2008 to 2012 while enrollment soared to near record levels (nearly 1 in 6 Americans today are on SNAP).

The White House has recently entered into the fray with a new report arguing that, among other things, “SNAP provides a fiscal boost to the economy during economic downturns,” and “every new SNAP dollar generates up to $1.80 in economic activity for the more than 230,000 retail food outlets that take part in the program.”

Whatever benefits might be ascribed to SNAP, the claims of economic benefit for the overall economy are misplaced.

If SNAP spending can boost a poor economy, shouldn’t the 100 percent increase in SNAP spending over the past five years have boosted us out of the economic malaise?

If every new SNAP dollar generates $1.80 in benefits, then let’s spend a billion—heck, why not a trillion?—new dollars on SNAP.

Such is the problem with crude Keynesian models: they don’t tell us when to stop. Moreover, if the Keynesian approach is the right one, then shouldn’t we pare back when the economy begins to recover, as it now has?

There is a deeper problem with this line of thinking from Obama’s White House: a failure to imagine what happens in absence of their action. They claim that spending an extra dollar on SNAP generates $1.80.

Here is my question: where did the original dollar come from? And what would that dollar have been spent on had it not been spent on SNAP?

Is the dollar borrowed driving up the deficit? Is it a new dollar printed from the Fed, increasing the chance of inflation? Is it a tax dollar taken from citizens who would have spent it otherwise? Is it a dollar re-allocated from other government spending priorities? Dollars have alternative uses, and a thorough economic impact study would have to factor out all the other ways in which money would be spent had it not been spent on SNAP.

The White House report is clear to point out that the $1.80 activity accrues to “participating” food outlets. What about non-participating food outlets that lose customers? What about taxpayers who must fund the program? To point out the benefits of SNAP spending without also counting the costs is misleading.

I don’t think SNAP spending should be zero. As far as government welfare programs go, it is probably one of the more effective (though it also is likely to crowd out some private charity). There is a reasonable debate to be had about the appropriate size of SNAP spending, but throwing in irrelevant and misleading claims about economic impact only makes the conversation more difficult.

Jayson Lusk (Ph.D., Kansas State University) is the Samuel Roberts Noble Distinguished Fellow at OCPA and Regents Professor and Willard Sparks Endowed Chair at Oklahoma State University. His new book is The Food Police: A Well-Fed Manifesto about the Politics of Your Plate (Crown Forum, 2013).