The Positive Externalities of Food Stamps

The Biden Administration recently approved an unprecedented, over 25% increase in Food Stamps.

Thrifty Food Plan (NY Times)

The next may be a bit unintuitive at first, and runs contrary to the whole stereotype of welfare queens from the Reagan Era which is still alive today (but as false as ever), is the link between entrepreneurs and Food Stamps. Published both in the Harvard Business School and in the Harvard Magazine by Gareth Olds, are his findings titled “Food Stamp Entrepreneurs”. In these papers, Gareth finds that an expansion of Food Stamps, and welfare in general, can lead to an increase in investment and firm formation. Looking at families affected by this expansion, he finds increases in firm formation, firm survivability, and a substantial increase in self employment income. Looking at Food Stamps alone, when restrictions were loosened in the mid 2000s, “Newly qualified households were 20% more likely to start a business”. This, as mentioned by magazine, is likely a result of welfare allowing recipients to take more risks and having more money to spend on investments. When someone knows that even if an investment fails, they’ll still be able to eat, they’re more likely to make that investment. In other words, the barrier to entry on entrepreneurship and investment is lowered for recipients.

An increase in Food Stamps may increase educational attainment and performance. As mentioned in first paragraph of this paper, most families on Food Stamps run out of benefits halfway into the month. A paper from the National Bureau of Economic Research acknowledges this consumption cycle, then uses it as an opportunity to conduct an experiment. In this paper, researchers find that when an exam is taken in the last two weeks of the benefits cycle (one month) test scores are reduced and lowers the probability that low income students attend a 4 year university. This further illustrates the importance of fighting malnutrition, many of the problems that expanding access to food fixes can just as easily become a poverty trap if left unaddressed. If low income students don’t attend college, they will have less economic mobility, thus leading them to be in a similar situation as their parents. Since education is one of the biggest predictors of future income, it is tantamount that disparities in education are addressed in a multifaceted way.

Finally, and this may come as no surprise, but Food Stamps increase economic growth. This, of course, is obvious since government spending is a part of GDP, but it goes further than that. Being in poverty, which Food Stamps aims to address in its own way make workers less productive, but thanks to SNAP, over 4.6 million Americans have been lifted out of poverty just in 2015 thanks to this program alone, leading to more productive workers. However, Food Stamps also provide a net economic gain in terms of activity. According to FRAC, (Food Research & Action Center) for every $1 put into Food Stamps, $1.79 economic activity is generated. Looking at this, not only does Food Stamps address economic growth directly through Keynesian government spending, but also by attacking the negative externalities of malnutrition, which indirectly leads to more economic activity and productivity.

As we can see, Food Stamps, while simple on paper, is a far reaching policy. Having been aware about these positive externalities, I was enthralled to see the substantial and permanent increase of SNAP. However, this is just another in the long list of welfare reforms that the Biden Administration is focused on, having just passed the infrastructure bill in the senate, it looks like budget reconciliation is next on the list. This news was just a bit of optimism in what feels like a sea of despair that is the Afghanistan situation.

Published by Griffin Shufeldt

I'm an economics and political science student, writing about what I've learned and what's interesting to me.

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