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Can Expanding Food Stamps Jolt The Economy?

Jul 7, 2009 (Morning Edition)

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The federal food stamp program is being beefed up in hopes that it will help jolt the sagging economy back to life. However, economists are conflicted over how big an impact this increase will ultimately have.

Food In The Fridge

The government is spending $20 billion to expand the Supplemental Nutrition Assistance Program, formerly known as the Food Stamp Program, by about 13 percent. For Charmaine McCauley, a single mother of two in suburban Atlanta, this increase translates into an extra $45 a month.

"You know, just the staple stuff you need like bread, milk, cheese, eggs — those little things. That little extra can help with that," McCauley said.

McCauley had been doing well as a mortgage broker, but after the recession hit, she lost her job and her $680,000 home. About six months ago, she started receiving food stamps.

Amid the recession, 4.8 million additional people have sought out food stamp assistance. In February 2008, 27.7 million people nationwide were receiving food stamps, compared to 32.5 million people 12 months later.

McCauley now sells Mary Kay cosmetics full time, but she says the food stamps give her the extra help she needs to keep the refrigerator stocked for her family.

"It's definitely something that has helped our family," said McCauley. "A lot."

A Multiplier Effect

The idea of the stimulus plan is simple. The concept assumes people who get extra money will spend it — and that increased spending will bolster the economy.

"This injection of funds ends up being spent on food, and that has a multiplier effect through the economy," explains Ray Hill, professor of finance and economics at Emory University. "As more people are employed in grocery stores, more people are employed to make the food, more people are employed to grow the food as a result of that stimulus."

Most economists say every dollar spent on food will result in $1.50 to $2 in stimulus. The problem, Hill says, is that $20 billion is not enough.

"Increasing the amount of food stamps itself is not going to have a major effect on the economy. You get a good value for the money in the sense that each dollar is highly stimulative," said Hill. "But it's a drop in the bucket compared to the total size of the economy and the total employment in the United States."

Increasing Stability

The total cost of the federal stimulus plan is $789 billion. It is difficult to measure the effectiveness of the plan, but Mark Zandi, chief economist with Moody's Economy.com, says the food stamp increase is a good, quick way to create spending.

"If the stimulus is working, along with all the other things policymakers have done, we should see a more stable economy by the fall and, hopefully, we start to see a bit of growth in 2010," said Zandi. "I don't think even under the best of circumstances we're going to come roaring back. But I think we are past the worst of it, and hopefully, we have a more stable economy later this year and into next."

Zandi says spending federal dollars on food stamps, benefits for the unemployed, aid to state governments and infrastructure improvements provides the best chance of stimulating the economy out of the recession.

Others fear too much of the stimulus money will not be spent until 2010 or 2011, and by then the economy is expected to begin turning around on its own.

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