Thursday, March 12, 2009

Ed Rendell: Increase in Food Stamps = Stimulated Economy

Rendell "food stamps as economic stimulus..."

Put pride aside, Rendell urges
By Mike Wereschagin TRIBUNE-REVIEW Thursday, March 12, 2009

To those hurt by the recession but too proud to seek government help, Gov. Ed Rendell says: If not for yourself, do it for your country.

He urged people to view food stamps not as welfare, but as economic stimulus.

"Think of it this way: If you avail yourself of these sources of government relief, you'll have money to spend in the economy, and that's exactly what we need to reboot the economy," Rendell said Wednesday at Brashear High School in Beechview. His 45-minute address was televised live to gatherings in six other cities...

How far out is this idea food stamps usage contributes to stimulating the economy?

Mika B. co-host on Scarborough Country is blasted by Media Matters for rejecting the idea.

First, any tax, any tax, raises the cost of business, period. Any tax. Doesn't matter is it a hotel occupancy tax? It raises the cost of doing business for the hotel, the cost is passed on of course to the price of the hotel room, and there is an effect on everything else as costs rise and rise.

More people qualifying for food stamps - receiving and using them - cannot be an economic stimulus. It's not that complicated a concept. But obviously Rendell has a plan to sell - growth of government services and government.

So recipients are spending government money on food, but the money is taken from taxation, period. It's not money obtained by profitmaking private business which can pump more money into both their own portfolios, but into the economy in the way of new job-creation and spending on the part of all.

The welfare money comes from taxpayers who are forced to pay income taxes to the federal government, (and other fees) thus these taxpayers have less to spend on things they believe are necessary - so somebody else gets to decide how to spend the taxpayers' money and that somebody is a bureaucracy which intends to self-perpetuate itself into some sort of 'usefulness' handing out more government money to spend.

It also appears they've got the idea of 'saving' for a rainy day, or the future, all wrong. Savings are like the icing on the cupcake. That means you're already spending enough on the things you need, or if you have extra, on things you desire, but don't need, and you have extra as well to save for a future time. That's a good thing. That means the 'economy' is basically working with you and for you.

If you have nothing extra to save, but you have to spend on the necessities, by way of government handouts, you are not really stimulating the economy, you're propping up a shadow economy until the time comes when one of the blocks of the economy evaporates never to return.

The crash will come later, but it will come.

Plus another concept that's apparently missed - the federal government HAS NO MONEY, no extra money coming in from the taxpayers to pay for anything. Nada. None. Zilch. Zero. The federal government is engaged in deficit spending, it has to borrow the money it does not have to pay for its own operations, SOS Clinton begged China to keep on loaning - we're good for it and the interest, too - yep sometime down the road - or it has to print, print, print.

Now something could be said for some infrastructure spending by the federal government - bridges, some roads. But not public school buildings. Those are traditionally in the domain of the state and local governments. Spending on new school construction when areas are not 'growing' instead areas are declining in population is like throwing money in a wishing pond hoping your wish of winning the lottery comes true.

all of this talk that any government spending - anything - will stimulate the economy - and government increasing its welfare spending on food stamp recipients is a magician's act of illusion.

Once more people are out of jobs, out of work, can't move to another state where things might be better there because things won't be better there - there will be fewer taxpayers to tax to pay for all the new welfare recipients.

then what? who will the federal government tap to pay for all the welfare programs?

Net the Truth Online

Free Republic discussion clip

Other economists say Rendell is right. Every $1 spent in the food stamp program creates a $1.73 increase in gross domestic product, according to a study by Mark Zandi, chief economist with Moody's

I wonder how every dollar of debt effects the GDP in lost income.

18 posted on Thursday, March 12, 2009 10:23:38 AM by Neverforget01

Mark Zandi

ex-advisor John McCain

Media's Zandi Zeitgeist: Government Spending Trumps Tax Cuts
Journalists' leanings toward Keynesian stimulus tactics have centered on economist that advised McCain presidential campaign, but is a registered Democrat.
By Jeff Poor
Business & Media Institute
2/4/2009 1:48:40 PM

The media did it back in 2001 when President George W. Bush was fighting a recession. They’re doing it again today. Whenever the press discusses what government can do to jumpstart a failing economy, reporters often downplay tax cuts and praise government spending.

Now the media have found a favorite source to lend credibility to its pro-spending proclivities. Mark Zandi of Moody’s is frequently consulted by the press and cited by Democratic politicians for his “Bang for the Buck” chart in which Zandi advocates government spending over tax cuts.

Although a spending-heavy stimulus proposal has cleared the U.S. House of Representatives by a 244-188 margin and is expected to eventually pass in the U.S. Senate, the debate still rages over what should be done except in the news media. In those reports, government spending, or investment, has been given the edge.

Mark Zandi 2008 Congressional testimony

Discussion group

Oh well... what a mess, eh...

Tax Cut Mirage
By Peter Ferrara

Obama Puts the Economic Cart Before the Horse
by Peter Schiff

There's No Pain-Free Cure for Recession
Belt-tightening is required by all, including government

Don't miss this site

If there’s one fact that should be made clear in every news report about the stimulus package working its way through Congress, it is this: Government spending is stimulative.

That’s a basic principle of economics, and understanding it is essential to assessing any stimulus package. So it should be an underlying premise of the media’s coverage of the stimulus debate. Unfortunately, that hasn’t been the case. Indeed, reporters routinely suggest that spending is not stimulative.

Economist Dean Baker, co-director of the Center for Economic and Policy Research, explains: “Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple... Any reporter who does not understand this fact has no business reporting on the economy.”

Unfortunately, many of the reporters who have shaped the stimulus debate don’t seem to understand that.

ABC’s Charles Gibson portrayed spending and stimulus as opposing concepts in a question to President Obama: “And as you know, there’s a lot of people in the public, a lot of members of Congress who think this is pork-stuffed and that it really doesn’t stimulate. A lot of people have said it’s a spending bill and not a stimulus.”

That formulation — “it’s a spending bill and not a stimulus” — is complete nonsense; it’s like saying, “This is a hot fudge sundae, not a dessert.” But nonsensical as it is, it has also been quite common in recent news reports.

There’s another problem with Gibson’s formulation, though — in describing the stimulus as a “spending bill,” he ignores the fact that the bill contains tax cuts, too. Lots and lots of tax cuts. And those tax cuts, by the way, provide less stimulus than government spending on things like food stamps and extending unemployment benefits. It probably goes without saying that Gibson didn’t ask if the bill would be more effective if the tax cuts were replaced by additional spending.

MSNBC’s Mika Brzezinski, among others, has repeatedly suggested “welfare” provisions in the bill wouldn’t stimulate the economy. This is the exact opposite of true; those provisions are among the most stimulative things the government can possibly do. There are some fairly obvious reasons why that is true, beginning with the fact that if you give a poor person $100 in food stamps, you can be pretty sure they’re going to spend all $100 of it; but if you give a rich person $100 in tax cuts, they probably won’t spend much of it at all.

But we needn’t rely on logic and common sense to know that welfare spending is stimulative; economists study these things. One such economist is Mark Zandi of Moody’s, who served as an adviser to John McCain’s presidential campaign. Zandi has produced a handy chart showing how much a variety of spending increases and tax cuts would stimulate the economy. According to Zandi, a dollar spent on increasing unemployment benefits yields $1.64 in increased gross domestic product, and a dollar spent on food stamps yields $1.73 in GDP.

As for tax cuts, Zandi says the most effective form is a payroll tax holiday. A one dollar reduction in federal revenues as a result of such a tax holiday would produce a $1.29 increase in GDP — far less than the benefit realized from extending unemployment benefits, increasing food stamps, providing general aid to state governments, or spending on infrastructure...

Or this

December 11, 2008
"Measuring the Effect of Infrastructure Spending on GDP"
Susan Woodward and Bob Hall say the multiplier for infrastructure spending is likely to be around 1.0:

Update: Greg Mankiw:

Spending and Tax Multipliers: ...In their new blog, Bob Hall and Susan Woodward look at spending increases from World War II and the Korean War and conclude that the government spending multiplier is about one: ... Similarly, the results in Valerie Ramey's research suggest a government spending multiplier of about 1.4. ...

By contrast, recent research by Christina Romer and David Romer looks at tax changes and concludes that the tax multiplier is about three: A dollar of tax cuts raises GDP by about three dollars. The puzzle is that, taken together, these findings are inconsistent with the conventional Keynesian model. According to that model, taught even in my favorite textbook, spending multipliers necessarily exceed tax multipliers.

How can these empirical results be reconciled? One hypothesis is that that compared with spending increases, tax cuts produce a bigger boost in investment demand. This might work through changing relative prices in a direction favorable to capital investment--a mechanism absent in the textbook Keynesian model.

Same site critical viewpoint

J Thomas says...
So, this is paper is completely a hack. They're looking at WWII when there was essentially no civilian economy, and trying to compare it to today. Why would any reasonable person give it a second look? Well, because they might by accident have collected some interesting data that they have utterly and completely misinterpreted.

But why would Mark Thoma present it as if there might be something legitimate about their conclusions? He seems like a smart, reasonable guy otherwise. It isn't April 1.

Maybe he wanted to check whether anybody was paying attention?

Extremely informative

Stimulus spelled out

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