Wednesday, August 24, 2011

Do food stamps stimulate the economy?

Agriculture Secretary Tom Vilsack uses Keynesian economics to justify their use: "every dollar of benefits generates $1.84 in the economy in terms of economic activity."

Robert Barro uses what he calls "regular" economics to come up with a very different answer:
In regular economics, the central ideas involve incentives as the drivers of economic activity. Additional transfers to people with earnings below designated levels motivate less work effort by reducing the reward from working.

In addition, the financing of a transfer program requires more taxes—today or in the future in the case of deficit financing. These added levies likely further reduce work effort—in this instance by taxpayers expected to finance the transfer—and also lower investment because the return after taxes is diminished.

This result does not mean that food stamps are bad, only that their benefits have to be weighed against their costs: if food stamps, or the taxes that support them, weaken the link between rewards and work, then we get less work.

No comments:

Post a Comment