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Thursday, July 19, 2012

Steny Hoyer is Right, Food Stamps Stimulate the Economy (and keep children from starving)

The conservative blogosphere is all atwitter (pun intended) responding to House Minority Whip Steny Hoyer's comments that food stamps and unemployment insurance are the two "most stimulative" things you can do for the economy. Almost immediately, Hoyer's Republican opponent in the upcoming election, Maryland House of Delegate Republican Minority Leader Tony O'Donnell, sent out a fundraising e-mail criticizing Hoyer for the comments.

Trouble is, Hoyer's right. Welfare programs like Food Stamps (actually called SNAP - but I use the names interchangeably) and unemployment compensation stimulate the economy.  Who says so? Some left wing think tank? No - Moody's Analytics. Moody’s Analytics estimates that in a weak economy, every dollar increase in SNAP benefits generates $1.72 in economic activity... SNAP is followed closely by - you guessed it - unemployment insurance which generates $1.63 in economic activity for every dollar spent. Comparatively, tax cuts generally break even with every dollar in cuts generating a dollar - of course income tax cuts would be meaningless to the folks who receive Food Stamps given they generally receive no income (because many are children) or their income is so low they'd owe no income taxes.

The federal government spent about $65 billion on Food Stamps in 2010. If Moody's is right, that $65 billion generated about $112.5 billion in economic activity (I wish my 401k gave me a return like that). Now $65 billion is not chump change to a cash starved federal budget and Food Stamp participation has grown rapidly in recent years - growing from 25 million recipient in 2007 to about 46 million today. But during that same time the number of Americans in poverty has increased from 35 million to over 45 million. Unemployment increased from just over 5% to above 9% and now is at just above 8% and 42 percent of all unemployed workers have been out of work for more than half a year.

Of course people would prefer to earn income from work - but that requires available jobs. In the absence of jobs there would be an even worse contraction in economic activity if the unemployed could not buy food, clothes, gas, utilities, and pay rent. This is what programs like SNAP and unemployment allow. The $65 billion in Food Stamp spending is not buying a Cadillac for a welfare queen - it's buying bread, milk, cereal. It's keeping people employed at Wal-Mart, Target, and local grocery stores. The average Food Stamp participant receives $133 per month - which works out to $1.34 per meal. It's hardly an outrageous sum per person, but is cumulatively significant to the economy. The average family on Food Stamps has a net worth of $101 and nearly 60% earn half the poverty level or below (1 in 5 have no earnings at all).

Oh, and one more important thing to note - nearly three-quarters of SNAP dollars go to families with children. So in addition to economic stimulus, the program keeps kids from going hungry and can stave off the malnourishment that could result in a lifetime of health problems and reduced productivity - imagine the economic drag. Not too bad for $65 billion a year.

And to put that $65 billion into some perspective - that 401k that I mentioned -  I, and millions of other working folks, get a tax deduction for putting aside money in a retirement account. The cumulative cost of those tax deductions? $93 billion. I also have a house, something most of those folks with $101 in net worth do not. I get to deduct my mortgage interest. Total cumulative cost? $87 billion.

Welfare programs such as SNAP and unemployment cost the federal government relatively little compared to the money spent on middle and upper middle class welfare support programs like the mortgage interest deduction and the retirement contribution deduction. Now, I happen to agree with many conservatives that tax cuts can stimulate economic growth as well - but such tax cuts cannot help folks without a job.

Food Stamps and unemployment allow tens of million to engage in economic activity and therefor support the jobs of tens of millions more. Take that money away and aside from devastating the lives of recipients there would be a ripple effect felt from retail store employees to manufacturers to farmers to truck drivers to you and to me.

Of course we'd all prefer a growing a economy with fewer welfare recipients and more private sector jobs. That's why programs like SNAP and unemployment matter. Investments in these programs today decrease the likelihood of needing them tomorrow.

*** Full disclosure - Steny Hoyer represents me in Congress and is a member of the Board of Trustees of St. Mary's College - my employer. I like and respect Hoyer and think House Democrats need to dump Nancy Pelosi and elect Hoyer their leader - we'd all be better off. That said, I was an expert witness in the Voting Rights challenge to Maryland's new congressional districts and have argued that Hoyer's 5th Congressional district disenfranchises minority voters by using them to offset conservative voters in southern Maryland.

As to Minority Leader O'Donnell... he represents me in the Maryland House of Delegates. Not only do I know him, I like and respect him. He and I disagree on many issue (but the same is true of Hoyer) but I consider him to be a strong leader within the Maryland Republican party and if Maryland ever adopted a Congressional district map that represented it's people I have no doubt O'Donnell would do well representing Southern Maryland and Anne Arundel county.

My point being - I don't have a dog in the Hoyer/O'Donnell fight. I simply want to make clear that Hoyer is right. Welfare benefits stimulate the economy. And in a high unemployment job market that stimulus is needed. And the stimulus is quite cheap.