Food Stamps and Dyseconomics

Through the miracle of modern economics, Michigan stands poised to surge into unprecedented prosperity. The engine that will drive us to economic recovery is food stamps.

The explanation is that food stamps have been discovered within the social services community to be an economic stimulus. Quantification has even been concocted. The Michigan Department of Human Services told the Lansing State Journal that every $5 in food stamps generates $9.20 in economic activity. That's a hefty enough return to kick us out of our doldrums.

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And thus the shining path to a new Golden Age is brightly lit before us: Give everybody food stamps.

The calculations become astonishing. For simplicity, let's ignore those outbound moving vans and round off Michigan's population at 10 million. If everybody is given $50 a week in food stamps (remember, the more generous we are, the richer we become), the formula assures us of about $40 of added economic generation. That amounts to approximately a $400 million bonanza in the statewide economy per week, or roughly $20 billion per year. Would anybody turn down a $20 billion boost?

We can do even more. Each of us could also be given $50 a week in restaurant stamps. The $20 billion circulated through dining out has its own special kicker — the 6 percent sales tax. Another $1.2 billion annually flows into state coffers just from one program.

But where will we get the money? We'll call it stimulus, and then Congress will appropriate it.

Of course, all this comes out of the School of Hokum Economics. It is as misguided as the notion that raising the minimum wage puts "new money" into the economy.

As with any entitlement or stimulus program, from food stamps to film incentives, the money that is given out first has to be taken away from someone else. The formula for "economic activity" attributable to food stamp spending has to account for how that money would have been spent had it remained in private hands. Since there is no way of knowing, the formula becomes meaningless.

The money does not create wealth. It merely moves around in a zero-sum exercise that rewards one while depriving another. At the end of a shell game, you still have the same number of shells. The gains of the winner are counterbalanced by the losses of the loser.

Government-funded social programs like food stamps need to stand on some merit other than hypothetical gross economic benefits.

But governments are good at shell-game economics. The current federal stimulus plan should be re-stated as "so-called stimulus" or referred to as "stimulus" in snicker quotes. It is not about boosting the economy but about playing a timing game — unveiling highly promotable projects of photogenic merit supported by smiling candidates in swing districts before the 2010 elections. Patronage rewards will follow, but at the cost of economic stagnation elsewhere.

Today's national "recovery" model emulates the Roosevelt follies of the 1930s that prolonged the Great Depression to the end of that decade. Right to the last the Depression's great embarrassment was the proliferation of lean-on-your-shovel-ready jobs. Despite all the government-funded make-work, the unemployment rate in 1939 was still 17.2 percent. The figure plunged only with the mass hiring of buck privates in the early 1940s.

Meanwhile, billions of dollars of new public debt in the 1930s dragged on the private economy. That era's scandalous binge in the billions prepared for the way for today's intoxication into the trillions.

If we want a prosperous future, the first step is to abandon the zero-sum mindset and ditch the shell game. Michigan will not advance through fruitless formulas purporting a positive economic effect from food stamps. The state is awash in senseless schemes rooted in gimmick economics.

Instead, the formula for economic recovery is amazingly simple: Unshackle the productive.


Daniel Hager is an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.