It may seem obvious, but not everybody gets that increasing government safety nets during a downturn pumps money directly into the economy.
So it’s good to see a smallish story in The Wall Street Journal spelling it out for readers (on A11, alas) just how this works. Poor person gets food stamps, buys food, which has to be produced here (or at least traded for), distributed here, and sold here. Economy benefits.
The lush red strawberries caught the attention of Rachel Patrick, a mother of five shopping at a farmers market along the Mississippi River here. She selected two cartons and ignited a little-noticed chain reaction that is an important part of President Barack Obama’s economic stimulus plan.
Ms. Patrick handed a plastic card loaded with her monthly food-stamp allocation to farmer Ed Kraklio Jr., who swiped it through his electronic reader. Mr. Kraklio now regularly takes in several hundred dollars a month from food-stamp sales, a vital new revenue stream that has allowed him to hire another assistant to help tend a cornucopia of fruits and vegetables. The new worker, in turn, spends her income in nearby stores, restaurants and gas stations…
Money from the program — officially known as the Supplemental Nutrition Assistance Program — percolates quickly through the economy.
It does indeed. More quickly than tax cuts, which are often socked away instead of spent, and infrastructure projects, which as we’ve seen take months or years to get going. The paper’s Roger Thurow and Timothy W. Martin report that 97 percent of the food stamp stimulus is spent the same month.
I’ve learned to be skeptical of “economic activity” estimates from writing about real estate—those proposing a new stadium or big-box store always say it will generate whopping (and almost always bogus) amounts of economic activity—but for what it’s worth the Journal says:
The U.S. Department of Agriculture calculates that for every $5 of food-stamp spending, there is $9.20 of total economic activity, as grocers and farmers pay their employees and suppliers, who in turn shop and pay their bills.
It’s really important that this type of story finds its way into the Journal every now and again—when they do, they’re often from Thurow’s keyboard (emphasis mine).
The quick influx of cash into the economy reflects the often desperate situation faced by millions of households struggling to put enough food on the table. For many families, monthly food-stamp allotments rarely last more than a few weeks, leaving them with dwindling grocery supplies — and sometimes bare cupboards — by the end of the month.
The paper has the obligatory welfare-criticism graph:
For years, the food-stamp program was plagued by criticism that it was an inefficient way to help the poor. Many who qualified wouldn’t apply because of a lack of information, daunting paperwork or the embarrassment of handing over stamps in a grocery checkout line. And it did little to increase access to more nutritional food, since fresh produce remained scarce in poor areas.
Following it with:
In recent years, though, registration has been streamlined; many food pantries offer information and direct sign-up services. The switch from stamps to plastic cards offers a cloak of anonymity. Meanwhile, more farmers markets offering fresh produce in urban areas have adopted the technology to accept the cards.
The farmers market bit strikes me as something of a smokescreen. It’s unlikely that many people on food stamps are using them at farmers markets. These kinds of things are usually not located in the poorest neighborhoods (especially in cities), which still suffer from a dire lack of access to fresh fruits and vegetables, as well as decent meats.