INSIGHTS: PENNYWISE AND POUND FOOLISH: PROPOSED SNAP CUTS WILL REDUCE OUTCOMES
By Guest Columnist Lauren Bauer:
post-doctural fellow in economic studies for The Hamilton Project, Brookings Institute.
Reprinted with permission.
In President Trump’s 2019 budget, he proposes changes to the Supplemental Nutrition Assistance Program (SNAP) that would significantly reduce the efficiency and efficacy of the program. This is unfortunate given the overwhelming evidence highlighting the long-term payoffs of SNAP investments, as illustrated in a recent Hamilton Project analysis which showed that SNAP benefits helped reduce health problems later in life, improved educational outcomes, lifted women’s economic self-sufficiency, and improved families immediate financial situation.
Specifically, the President’s Budget Request calls for changes that would raise administrative burdens and costs, while cutting benefits to recipients, including:
Making a nearly 30 percent cut to the Supplemental Nutrition Assistance Program;
Introducing new SNAP eligibility restrictions, benefit caps, and reductions; and
Launching a “Blue Apron-type program” – except that it would deliver shelf-stable groceries (i.e., canned goods and boxed foods) to beneficiaries in partial replacement of SNAP benefits that can be spent at local retailers.
Many observers have noted that these misguided attempts at cost savings contradict not only the mission and goals of the SNAP program, but also the Trump Administration’s policy, as recently stated when it rejected Maine’s application to restrict SNAP purchases on junk food:
“When considering waiver requests, USDA focuses on moving people into self-sufficient lives, protecting the integrity of the program, and improving customer service. We don’t want to be in the business of picking winners and losers among food products in the marketplace, or in passing judgment about the relative benefits of individual food products.”
SNAP is an efficient program; as the Administration noted, its integrity should be protected.
SNAP relies on the private sector to provide access to food and beneficiaries to shop according to their needs and preferences. There is little administrative glut; more than 93 percent of SNAP is spent on food benefits. The President’s Budget Request would change the fundamental structure of the program, add costly administrative burden, and restrict the choices of beneficiaries.
Rather than cutting SNAP benefits or policing the food choices of recipients, it is worth asking: what type of policy reforms to SNAP would in fact reduce food insecurity and increase the likelihood that beneficiaries purchase healthy foods?
1. Increasing SNAP benefits
Professors Patricia Anderson (Dartmouth) and Kristin Butcher (Wellesley) found that a $30 increase in monthly SNAP benefits would increase participants’ consumption of nutritious foods such as vegetables and healthy proteins, while reducing food insecurity and consumption of fast food. Increased food expenditures are associated with more consumption of fruits and vegetables, suggesting that an increase in benefit levels could also lead to healthier eating.
In separate Hamilton Project proposals offering reforms to SNAP, Diane Whitmore Schanzenbach and James Ziliak both propose changes to the SNAP benefit formula that would increase its generosity to recipients. These reforms are motivated not only by the higher price of more nutritious food, but also by better evidence about the time available for food preparation.
2. Providing rebates for healthy food
The Healthy Incentives Pilot program was an experiment in which SNAP recipients were given an immediate $0.30 rebate on their EBT card for every $1.00 that they spent on fruits and vegetables. In response, purchases of the targeted fruits and vegetables increased by 25 percent.
Schanzenbach proposes to expand the Healthy Incentives Pilot, making the rebate for eligible fruits and vegetables part of the federal SNAP program. SNAP recipients would receive an incentive payment of $0.30 for each $1.00 spent eligible fruits and vegetables, capped at $60 per month. Eligible foods would include most fresh, frozen, canned, or dried fruits and vegetables that are packaged without added sugar, salt, fat, or oil. Leveraging existing infrastructure, the refund would be automatically credited to the EBT card at point of sale and would be available at the next transaction.
Increasing the generosity and purchasing power of SNAP benefits will improve the diets of SNAP beneficiaries. As Congress considers the President’s Budget Request in the weeks ahead and looks to reauthorize the Farm Bill, they should consider policy changes that strengthen the purchasing power of SNAP benefits without policing the food choices of American consumers.
ON THE ECONOMY: HEY HEY WE’RE THE MONKEYS
By John Dunham, Managing Partner:
John Dunham & Associates
We go wherever we want to. Do what we like to do. We don’t have time to get restless, there’s always something new. Hey, hey, we’re the Monkees, and people say we monkey around. But we’re too busy singing, to put anybody down. This is the second verse from the Theme from The Monkees, a 1966 song, written by Tommy Boyce and Bobby Hart as the theme song for the TV series The Monkees. My wife’s favorite band when she was little was the Monkees, and your’s truly actually was a good enough husband to go (as an adult) with his wife and her sister to see the Monkees on their comeback tour. Needless to say it was not my favorite concert.
But the Monkees’ theme song has a great lyric We don’t have time to get restless, there’s always something new. This – and, well monkeys – brings to mind an economic concept that is talked about a lot but little understood. That is: Animal spirits.
The term “animal spirits” was probably most famously used by the British economist, John Maynard Keynes, in his seminal work The General Theory of Employment, Interest and Money. In this treatise (which I am trudging through for the second time in my life right now), Keynes wrote:
Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
In the book Keynes was using the term to describe how emotion often drives the confidence to make financial decisions during times of great uncertainty. For example, why would one enter the stock market at a time when volatility is high? Over the course of the last century, economists have broadened the term to take in the psychological factors that drive people to take action when faced with great obstacles and uncertainty. In effect, animal spirits are what drive entrepreneurship.
It should be noted that Karl Marx also used the term back in Capital, where he describes the animal spirits of the workers, which a capitalist can induce through encouraging social interaction and competition within his factory.
The animal spirits inherent in an economy are almost as important as the overall means of production (land, labor and capital) because without them, little would be accomplished. Why would individuals decide to take any risk, to save, to invest, to invent, without the animal spirits that drive them forward?
Economist Rhys Bidder discussed how animal spirits might lead to business cycles in a paper for the Federal Reserve Bank of San Francisco. In this paper he discussed how fluctuations in sentiment following unexpected shifts in volatility can lead to business cycles. This very thing happened following the 2007-2008 recession and financial crisis. Prior to the financial crisis markets were on a roll, with all sorts of new financial instruments (think mortgage backed securities) and a feeling that rising housing markets were the norm. This all came to a dramatic halt when it was discovered that the financial instruments undergirding much of the banking system were fraudulent. Confidence in markets and the economy plummeted and markets collapsed.
The crisis led to a dampening of animal spirits (or confidence) across the board. Capitalists ran to their castles and pulled up the drawbridge leading to reductions in production, inventories, investment and ultimately workers. Consumers either lost access to credit or stopped borrowing for major purchases, ultimately sending industries like automobiles and housing into a tailspin. Governments began an unprecedented process of regulation and initiatives designed to dampen the downturn but eventually strangled the economy even more, dampening entrepreneurism and animal spirits further. The statistics tell the story:
The labor force participation rate fell from 66.4 percent to 65.5 percent;
The velocity of money (in effect the overall economic multiplier) fell from 1.98 to 1.75 over the course of the recession and ultimately to an all-time low of 1.43;
Net private investment – essentially net investment by businesses – fell from a rate of $456 billion to -$112 billion;
Government spending went from $3.1 trillion to $3.8 trillion; and
Net new business creation went from over 715,000 a year to a low of just under 561,000.
Clearly, the animal spirits had gone into hibernation.
This has seemed to change recently. Over the course of the last year, equity prices have soared, suggesting that Keynes’ investor have regained their animal spirits. The Small Business Optimism index soared to levels not seen since 2004, consumer confidence is at levels not seen since before 9/11 and even the stubborn fall in both labor force participation and the velocity of money are starting to turn.
Only time will tell if the animal spirits will be strong enough to shift the economy into a new growth cycle. A short term expansion is virtually guaranteed to come about because of the recent changes to the way corporations and businesses will be taxed, but as the Monkees sang, we don’t have time to get restless, there’s always something new. If the new opportunities, continued deregulation and growth in confidence continue, the American economy may have actually avoided a recession. Hey, hey.
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