Food Stamps are a Stimulus

The Obama administration sees food stamps as an economy booster.

According to the demand side hypothesis, infusions of money from the tax coffers stimulates the economy by creating demand for goods and services where it did not previously exist. In fact, the effect of these infusions is said to create a multiplier effect – each dollar spent has better than a one dollar effect on the economy. ($1.84 according to Obama’s Secretary of Agriculture Tom Vilsack.)

The argument for a demand side economy goes something like this:

Capitalism is driven by demand not by supply; supply just responds to demand. If that demand is not there, investors will be reluctant to fund a project, no matter how innovative it may be, choosing instead to put their money in investments that offer lower return but are safer and more secure. Supply side largesse for the rich might not go into capital formation, but might simply make the rich richer. While investment capital is extremely important in getting an innovative process started, it is consumer demand, not supply, that drives the process and keeps it going.

This Seattle Post Intelligencer article highlights a typical (in that they stimulate the supply side of anything 'green') infusion of money by demand siders.

  • The question that immediately comes to mind is, why are those that insist that government spending should enter the economy on the demand side (such as food stamps) spending $20 million (or any amount) on the supply side? Doesn't this violate the very nature of demand side philosophy?
  • If, as noted in the demand side description above, there is little or no demand (3 homes weatherized seems like low demand), won't the money just wind up in lower return, secure hideaways?
  • Why is this stimulus spending not simply making the rich richer in accordance with demand side philosophy?
  • From a Keynesian perspective, wouldn't this money have been better spent by giving out vouchers earmarked for weatherization upgrades to homeowners and let the supply side respond in accordance with the demand side philosophy?

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