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The Humble Libertarian

Saturday, January 16, 2010

The Problem With Food Stamps

Over at CAIVN, there's a fantastic article on the problem with food stamps, which makes this point among others:

"The report indicates that, 'The USDA has shown that every dollar in federal food stamp expenditures generates $1.84 in economic activity. In addition to helping people put food on the table, food stamps exert a multiplier effect that stimulates the economy.' This begs the question: economic activity for whom? The Wal-marts and JP Morgan/Chase Banks of California will see an upshot in all of this, but farmers markets and food stores supplied by small farmers won't see much of the action."

Go figure that a government program might actually be corporately motivated and help benefit entrenched corporate interests more than it does its intended beneficiaries. Additionally, I felt obliged to leave a comment making the following economic point about food stamps:

The argument that food stamps stimulate economic activity is based on what Frederic Bastiat called "The broken window fallacy." If a child breaks a window, then you could argue the house owner's expenditure to fix it stimulates economic activity because he pays the "window guy" to repair it, who uses that money to pay his rent, and the landlord takes that money to buy food, and so on and so forth.

But what we don't and can't see is what the house owner's money would have gone to do if he didn't need to fix the broken window. It would have likely had another, more productive use. So if the CFPA would like, we can go around breaking windows to stimulate economic growth, but I think they'd see the problem with that. Food stamps do the same exact thing because that's money taken from the economy that could have been put to more productive use (not to mention the economic inefficiency of paying a bureaucracy to distribute that money instead of letting the people spend it whose hands it's already in).

The CFPA can point to how it "stimulates growth" but they can't and don't see the opportunity cost- what that money could have gone to do. To use one more analogy: does dipping a bucket in the deep end of a swimming pool and walking over to the shallow end and dumping it there raise the level of the pool? No. That's all food stamps do. And there's "spillage" in the process that actually lowers the level of the pool.