

Every $1 spent on food stamps resulted in $1.73 in GDP growth - lee
http://www.economy.com/mark-zandi/documents/Stimulus-Impact-2008.pdf

======
nhaehnle
Another interesting observation from that Table 1 of the article: _every_
spending policy has a better impact than _every_ tax cut policy.

The theoretical explanation for this is very simple: in the current economic
climate, tax reduction tend to be used simply to pay down debts - what Richard
Koo calls a balance sheet recession.

Still, it's nice to have that so clear from a source that is quite
unsuspicious of overly left/liberal leanings.

~~~
onemoreact
Paying down debts promotes long term growth though capital acquisition.
Someone invested that money in a loan, they now have that money back plus a
little interest, they are now going to look for someone else to loan that
money to or do a direct investment.

~~~
bryanlarsen
That would be true if banks weren't reducing their ratios at the same time.
Because their percentage of bad debts is going up, they have to reduce their
lending to keep their bad debt to capital ratio at the same level. Even worse,
their trying to improve their ratios because they now realize they had let
them get out of hand during the boom.

~~~
onemoreact
The 'classic' great depression view of the monetary system is horribly
outdated in large part because most people don't get their money by farming
land, but the lending market has also shifted. Secularization, Car Loans and
Credit Cards have greatly shifted the banks roles in the overall lending
market.

------
simplefish
Warning: It's by Mark Zandi. Zandi is a hack and a mouthpiece for the ratings
agencies.

For one example among many, see this link:
<http://www.ritholtz.com/blog/2010/09/zandi/>

More seriously, the link is just a summary of what Zandi's model predicted the
recent stimulus would do. It's worth noting that:

1) Pretty much every other economist on the left and right disagree with him.
On the right they think all his multipliers are too high, and even on the left
they think the way he ranked them is bizarre. He reckons one of the best tax
cuts is a lump sum refund - despite copious theoretical and empirical backing
for the proposition that it's actually one of the worst (because it's most
likely to trigger Ricardian Equivalency).

2) The actual results of the stimulus are starting to become clear, and they
disagree with him too, both in terms of overall magnitude and, in particular,
his completely batshit rankings. He thinks aid to state governments is one of
the worst ways of spending cash, but infrastructure spending is quite good. In
reality the aid to state governments was one of the most effective line items,
while the infrastructure spending was a black hole in terms of job creation.

My advice is to go hunt up an actual respected economist (Romer or Barro are
both great on this area) and read what they have to say. Zandi is neither
respected nor, at the risk of being cruel, an economist.

------
gregbair
I don't doubt that. The question becomes then, how much does that GDP growth
increase federal revenues? If it doesn't increase it by $1 per $1.73 in GDP,
it's still a net loss IMHO.

Also, the mere fact that food stamp recipients are prevalent and increasing
signals a failure in our system.

Not saying we should get rid of food stamps, they're a necessary safety net,
but that figure is misleading. How much should the government spend to
increase GDP?

Is it valuable to have a high GDP and a high federal deficit? Or will that
just end up in necessarily higher taxes down the road (so we don't end up like
Greece) that will wipe out that GDP growth?

It's a sticky issue that can't be boiled down to a simple statement.

$1.73 in GDP growth != $1.73 in revenue to the government.

~~~
nhaehnle
_The question becomes then, how much does that GDP growth increase federal
revenues? If it doesn't increase it by $1 per $1.73 in GDP, it's still a net
loss IMHO._

Why? Money is created by federal government and is therefore worthless to the
federal government. It can just create more of it. It just makes no sense to
look at the federal government (or any monetarily sovereign government for
that matter) in terms of how much money they make.

On the other hand, if government revenues are increased by less than 1$, this
means that someone, somewhere in the economy now has more net financial assets
because of that.

Is that a bad thing? In some cases perhaps, but certainly not in general.

 _Is it valuable to have a high GDP and a high federal deficit? Or will that
just end up in necessarily higher taxes down the road (so we don't end up like
Greece) that will wipe out that GDP growth?_

History tells us that, for monetarily sovereign governments, their debt is not
paid back. Therefore, the answer to your second question seems to be a very
clear "No, it will not lead to higher taxes, but it will lead to better
economic development right now, which likely also improves the growth path in
the long run."

------
billybob
GDP measures the output of workers. So this result states that by giving
people money, you either enable them to work, or enable them to employ other
people by spending that money. Presumably (I admit, TLDR) this conclusion
comes from calculating the multiplied effect of what the food stamps are spent
on.

But how can we know that the net effect is positive? How can we know that, for
instance, giving people money doesn't prevent them from working, thereby
decreasing GDP?

After all, there is no control group in economics, which is why
(frustratingly) there are still totally opposite camps who keep claiming that
current events prove them right.

~~~
nhaehnle
_How can we know that, for instance, giving people money doesn't prevent them
from working, thereby decreasing GDP?_

I'm not familiar with the methods used, but the article claims exactly that,
doesn't it? By spending money on food stamps, GDP is increased.

Mind you, there might be types of spending with an even higher multiplier. And
there might be types of spending that would be seen to be more beneficial for
society even if their impact on GDP were smaller; for example: Why not just
spend money to create jobs? Then spending on food stamps reduces
automatically, as the number of eligible recipients decreases.

 _After all, there is no control group in economics, which is why
(frustratingly) there are still totally opposite camps who keep claiming that
current events prove them right._

This is indeed very unfortunate. Perhaps somebody clever enough with enough
stamina could work on increasingly realistic simulations on the micro level
and see which macro patterns emerge? Though of course then there would be an
endless debate about how realistic the modeling of micro behavior is.

The current story told in mainstream textbooks (utility maximization etc.)
certainly isn't very credible, given all the psychological insights from
behavioral economics; and just the mere fact that marketing exists and how it
operates tells you that the classical micro story is rather fishy.

------
switchhitter
Isn't government spending counted as part of GDP? (It's counted as
consumption)

~~~
DifE-Q
Yes it is. Herein lies part of the problem; the way GDP is calculated and what
is meant by GDP. The whole GDP idea has little merit. Essentially the health
of the economy is measured by how much money is spent. We should stop relying
on GDP to measure economic health and measure wealth and lack of debt instead.

~~~
leot
Anyone know why net household wealth isn't more commonly used as metric for,
uh, wealth?

~~~
nerfhammer
Wealth statistics are an actual metric that exists

For example, <http://www.federalreserve.gov/econresdata/scf/scf_2007.htm>

~~~
leot
That's not what I was asking. Net wealth doesn't have nearly the same status
as GDP.

I sometimes wonder what policy would look like if the dominant economic
priority was the increase total wealth, rather than economic activity.

~~~
nerfhammer
For instance, if I have ten billion dollars in gold in my vault but choose to
do nothing with it, then it has no impact on what we could call the economy
but would still count as 'wealth'. If I have ten billion dollars in my vault
that I never do anything with and the rest of the economy has a total of six
cents, we would care how the six cents were being used, disproportionately to
my trillion cents.

Or if everyone has 10 billion dollars in gold in their vaults in aggregate, if
the price of gold rises, on paper their wealth would increase. But if everyone
actually tried to expend their gold then the price of gold would decrease, but
much more production would happen in the economy. If the price of tech stocks
octuples then paper wealth increases but GDP does not necessarily change.

Or, if everyone just spent their money twice as quickly (e.g. the velocity of
money increases). The economy would be able to do twice as much, but total
'wealth' need not necessarily change.

'wealth' is entangled with money and prices. The amount of production is
affected by those things probably but not as directly.

~~~
leot
Government economic policy is currently directed, in large part, toward making
sure that there are regular increases in GDP. I get that.

I'm trying to figure out what government policy might look like if it was
directed toward _increasing_ net household wealth. Just hoarding gold does
little for the economy. But this is irrelevant. At issue is what it would look
like, economically, to focus on increasing a nation's economic wealth (after
inflation). It seems like it would be awfully difficult to increase after-
inflation wealth without a fair amount of genuine value being created, no?

Could focusing on combined household wealth cause there to be more attention
paid to median household wealth? And how might economic policy behave
differently if increasing this was its focus?

Another reason to pay closer attention to wealth is that it doesn't suffer
from the "broken window fallacy".

------
skilesare
This reinforces a truth that many fiscal conservatives are either ignorant of
or choose to ignore. If the government spends a dollar, it does not disappear.
It is paid to someone. They pay taxes on it. And then they spend it. And that
person pays taxes on it. And so on and so forth. (excluding payments that go
out to foreign entities)

Government spending isn't a drain. It is another piston in the financial
engine. It also happens to be one of the most reliable and most pliable
pistons in the engine.

You can think of the government as Herouku. Most of the time you're going to
want to run as few instances as possible. When you make the front page of
hackernews, you either need to jack up the instances or your site crashes.

We're drawing our lines in the wrong places. Some government spending is good.
In some cases, massive government spending is good. A lot of the time the
private markets do a better job. Sometimes they don't.

Paying food stamps is a great way to reduce crime and bolster the stability of
your country. If you ignore the root causes you get long term issues. We need
to fix the underlying problem and keep paying for food stamps. You can do both
at the same time.

~~~
barney54
You are forgetting that tax dollars have to come from somewhere. the money has
to be taken from one group of people or financed. Those activities are not
costless. This is one of the reason why other studies find that reducing
government spending stimulates growth (some of those studies are described
here: [http://mercatus.org/publication/does-government-spending-
aff...](http://mercatus.org/publication/does-government-spending-affect-
economic-growth))

~~~
nerfhammer
<http://www.sourcewatch.org/index.php?title=Mercatus_Center>

------
GFKjunior
Broken Window Fallacy

<http://en.wikipedia.org/wiki/Parable_of_the_broken_window>

------
kstigs
Both sides have data that backs up their claims. The economy isn't something
where you can pick out two indicators and claim that something is good
([http://online.wsj.com/article/SB1000142405274870447150457444...](http://online.wsj.com/article/SB10001424052748704471504574440723298786310.html)).

Zandi may not have left/liberal leanings, but he certainly has government
leanings.

------
vrotaru
I've got an idea. Spend everything on food stamps. Than rinse & repeat.

------
shingen
If that were true, obviously the government would merely need to 'print' a
trillion each year in free food stamps to be distributed to the populace. All
food costs could be Fed funded through magic dollars.

Magically it would generate a 'profit' of $730 billion per printed trillion
per year for the general economy.

Except the stimulus programs, from the first that Bush fired off, to the Fed's
QE programs, to the trillion dollar fraud Obama made shovel ready (har har)
--- all have one thing in common: they've all failed to improve the US economy
in any meaningful way.

Work force participation rate? hyper implosion. Government dependency?
skyrocketing. Real wages? declining. Inflation? pain at the pump and grocery
store. Trade deficit? Near all time record highs. Savings rate? miniscule.
Household wealth? Less than 15 years ago. Standard of living? Hasn't moved in
in 50 years. Debt? On the moon and rising faster by the day. Entitlements?
$100 trillion unfunded disaster. Stock market? Hasn't moved in 15 years
inflation adjusted.

and on and on

~~~
mudil
What? A fact-based intelligent comment is down voted? Sadly, it says a lot
about effects of politically-correct brainwashing in our society.

On the other hand, a comment on top about the true voodoo economics is up and
running well...

~~~
shingen
People mostly don't want the truth, and they certainly don't want to talk
about consequences or necessary pain from decades of irresponsibility. Allow a
natural recession instead of monetizing a fake recovery? Outrageous! Live
within your means? Who would do such a thing when you can destroy the global
reserve currency and buy some votes.

I think most people want to keep milking the collapsing system for as long as
they can, for they're overly invested into that system's survival. Anything
else literally scares them. It's why the politicians spout the same drivel
year after year, right or left. They're just feuding over how to divide up the
last crumbs.

The crumbs are running out.

~~~
spoiledtechie
@shingen, Your profile says nothing about you, yet I have this urge to know
more. You have an email or something?

mine is username + gmail.

------
josh5555
This is BS. We had to borrow that $1 and we will pay interest on it for years
to come.

Our government is broke and wasting money left and right. The spending spree
is not sustainable.

Take a good look at Greece. That is the future of America if we keep spending
money this way.

~~~
iamdave
_Take a good look at Greece. That is the future of America if we keep spending
money this way._

Care to go a bit further into this conjecture?

~~~
GiraffeNecktie
I don't know if you can really extrapolate from Greece to the US, but it is
relevant to note that by living on credit for so long, Greece wound up in a
position where they couldn't raise more money. So their GDP grew for years on
borrowed money, and now that they can't borrow any more, their GDP is
shrinking dramatically. In other words, you can buy an artificial GDP increase
today but you may have to sell it back at a discount tomorrow.

~~~
freehunter
A problem Greece has that the US doesn't have is the Euro. If the US need more
money, it prints more money. It causes inflation and that's sometimes a bad
thing, but it patches a hole. Greece can't print more Euros. The US can
devalue her currency for a long time to keep things running.

------
jpdoctor
This paper isn't worth the bits it's printed on.

Economist Mark Zandi (the author) missed predicting the biggest economic event
not just of his career, but of three generations before him. Mostly, that was
due to conflict of interest: Moody's was busy scooping up money to rate
mortgage securities. What fraction of his oversight is due to just being a
poor economist is unknown.

There are widows and orphans living poorer because of this clown. Don't waste
your time.

------
giardini
Calm down. First of all note that it is a short-term effect from a _temporary_
increase in food stamps. The article doesn't address the long term.

Secondly, why be surprised that giving money to those who badly need it would
increase spending?

And thirdly that each spent dollar would ripple through the economy for a
total value greater than a dollar? This is one of the earliest lessons in
Economics 101.

What this shows is that food stamps are a relatively "frictionless" method of
boosting spending. There's less overhead for food stamps than for other
programs and, since the spending is unlikely to be misdirected (as in "bridge
to nowhere" projects et al), you get lots of bang for your buck.

