Tuesday, July 07, 2009

Food stamps as stimulus

I remember when the various Stimulus packages were discussed a few months ago, there was scoffing in some corners about how providing money for low income people in the form of added food stamps, unemployment insurance and so on would count as “stimulus.”

Well, here is your answer:

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. 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.

When rich people get more money, they tend to spend less of that incremental income because...well... they already have what they need. Having stuff and not really being in need is one of the many benefits of being rich. If you have a ton of cash, and someone gives you a bit more, you’re not going to rush out to spend it. (Or so I’m told, I have no direct experience owning a ton of cash.)

But if you’re poor, and you get access to incremental income (either through direct cash infusion or through something like food stamps that offsets an expense) you’re going to spend more of that income on other stuff you need (or want) but that you regularly couldn't afford. Poor people may have less disposable income, but they spend a greater percentage of it because they have more unfulfilled needs.

Call it trickle-up economics.

So while some of the stimulus package remains mired in bureaucracy, it is nice to see a simple, logical, economics-backed idea take shape and actually provide some real stimulus.

Boost in Food-Stamp Funding Percolates Through Economy - WSJ.com

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