Sunday, February 08, 2009

Fools vs Food Stamps

You may have seen this chart; I found it referenced at Econbrowser,
where you will find it discussed at a level I cannot begin to approach.

Chart from Excerpts of comments by Mark Zandi, chief economist of Moody's, testimony before the U.S. House Committee on Small Business on July 24, 2008.

The problem with this chart is not it's questions of fact; it's the social implications; that the best way to create immediate economic stimulus is to increase food stamps. Cranial detonations occur wherever this data is presented, all echoing the odious reganite "welfare queen" meme.

Here's one such comment:

I am amused and amazed that anyone actually still believes this stuff. If the government gives a dollar (food stamps) to a homeless person holding a sign saying, "Will work for food" it will save our economy because he will go buy wine (with his now disposable income) and everyone will be better off.
But where did that dollar come from? The homeless person is supported in his homelessness and will go sleep under a tree rather than getting a job taking out someone's trash, so have we increased productivity? That dollar and all of the other dollars given the same way are taken from those who actually produce. So what this does is reduce production on both sides of the transaction. The multiplier actually multiplies waste and malinvestment.
The whole idea of a multiplier is fraught with inefficiency. A portion of consumption goes to inflation, a portion goes to waste, and in the end the whole economy is pushed into disequilibrium and must expend capital to overcome the distortions.
When I was in grad school none of this made sense but I could not articulate why. The interesting thing is that neither could my teacher. His assumptions were so great as to be foolish. I passed the class by regurgitating what I was fed but only later did I understand that this kind of foolishness is what contributed to the unemployment of the Great Depression.
As is so often the problem the assumption is that government spending is magic so any deeper analysis is unnecessary.
Welcome back to the past.
Posted by: DickF at October 28, 2008 05:06 AM
Now, I could obviously and easily attack the fundamental assumptions about the roots of poverty and the reasons for homelessness. One of the virtues of living in a welfare state - which Canada is, to a degree - is seeing to what degree such assumptions have in terms of predictive value. The answer is - "more than a socialist would expect" and "far less than a Reganite would insist."

But in point of fact, while it's wise to consider the net social impact of spending dollars for stimulus and target them as effectively as possible to leverage improvements and an expansion of the tax base that will make it possible to pay off the inevitable debt, the immediate response to DickF is this: "Who cares?"

I happen to believe that DickF is wrong in general about the poor and homeless. The poor and homeless I have known have been disadvantaged, unlucky, addicted in many cases, but in general, not absolutely stupid and useless. But even if they are and do immediately blow their food stamps on brie and boxed wine - we don't care. Whether they spend it wisely or foolishly has absolutely no effect whatsoever in the area of our concern. And frankly, it would probably be better to simply give money. The food stamp program has tremendous overheads designed to "prevent fraud and waste." If they are in keeping with most other US welfare programs, the overhead waste is actually far higher than the level of fraud and the potential recovery would justify. And remember - to a certain extent, we don't actually CARE if there is a degree of fraud, so long as that fraud accomplishes what the honest program would have.

So I'd reform "welfare reform." I would look at the poor as means to inject capital directly into the areas that need it most, using the velocity of money to kickstart the economies that cannot currently support higher levels of employment.

I suggest that the experiences and records of countries that do have robust social safety nets would tend to underscore how well this approach works - and that the results are all the more important to consider because they do not actually support socialist or progressive presumptions all that well, either.

The reason this approach does work and actually works rather well is that it advantages human nature and starts the money out at maximum velocity - each dollar makes several transactions possible before it gets stuck into a bank or an investment vehicle.

This leads me to think about ways in which the effect could be broadened and intelligence as well as necessity applied. For instance - what about giving everyone a small sum every month (replacing welfare entirely) and then clawing it back at the end of the year - with some form of competition/prize involved for maximizing return on investment, social impact, or whatever you wish? The vast majority of people would see this as mad-money. Some would donate it to charity - and that would zero it from their taxes. Some would invest it - in which case, taxes vary, depending. Some would use it to invest in small green firms that the Fed is unlikely to know about. That could be the most important effect - and it's worth thinking about it.

You see, the most important resource of a nation is it's people. Getting them to work towards a common goal is the sine qua non of leadership. Then there's the dimension of morale.

Unfortunately, the vicious feelings about the poor are well represented in congress and government, so I doubt anything sensible will occur.

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