Tuesday, August 8, 2017

Food Stamps Don’t Work

I remember, when the debate over BR1M was getting started years ago, some people thought that food stamps or vouchers would be preferred. Two reasons were given for this: first that any assistance should be in a form that directly assists the poor, and second so that they don’t spend it on anything else (such as cigarettes or worse).

I preferred a cash transfer – conditional if possible, but unconditional if that couldn’t be done. My suggestion at the time (in response to the criticisms) was to only give cash to the women of the households. Obviously, that suggestion won’t fly in our society. An alternative would be to make food vouchers (or any other kind of vouchers) freely tradeable or convertible into cash. That didn’t get any kind of reception either.

But having read the following (the first is a working paper, the second is a book on US poverty), I’m now convinced more than ever that food stamps were a bad idea, and possibly worse than no assistance at all (abstract):

When Does it Count? The Timing of Food Stamp Receipt and Educational Performance
Chad D. Cotti, John Gordanier, Orgul D. Ozturk

Abstract:

The impact of poor nutrition has been established as an important determinant of learning and achievement among school aged children. It has also been demonstrated that the single monthly treatment of food stamps leaves meaningful nutritional deficiencies in recipient households during the final weeks of the benefits cycle. This paper exploits detailed administrative data on standardized math tests scores and randomized food stamp receipt dates to allow us to measure the impact of these low nutritional periods on student performance. Our main results are that scores are notably lower when the exam falls near the end of the benefit cycle and when food stamps arrive on the four days immediately preceding the exam. While both boys and girls experienced a similar penalty with receipt near the end of the cycle, the effect from receipt just prior to the exam appears to be partially explained by a large negative effect associated with weekend receipt, which coincides with the four days prior to the exam, that is concentrated among African-American boys. Our results provide evidence that households do not sufficiently smooth consumption and that this has measurable effects on student performance. The fact that weekend receipt differs suggests a behavioral response from households beyond food insecurity that also has meaningful effects.

$2.00 a Day: Living on Almost Nothing in America
Kathryn J Edin,H Luke Shaefer

Back Cover Copy:

Jessica Compton's family of four would have no income if she didn't donate plasma twice a week at her local donation center in Tennessee. Modonna Harris and her teenage daughter, Brianna, in Chicago, often have no food but spoiled milk on weekends. After two decades of brilliant research on American poverty, Kathryn Edin noticed something she hadn't seen before -- households surviving on virtually no cash income. Edin teamed with Luke Shaefer, an expert on calculating incomes of the poor, to discover that the number of American families living on $2.00 per person, per day, has skyrocketed to one and a half million households, including about three million children. Where do these families live? How did they get so desperately poor? Through this book's eye-opening analysis and many compelling profiles, moving and startling answers emerge. $2.00 a Day delivers new evidence and new ideas to our national debate on income inequality.

Assistance to the poor in the form of vouchers or (in the US case) debit cards, effectively constrains the poor from shifting their income to the best use possible. Food vouchers don’t pay the rent, utility bills or transportation costs, all of which would be required to keep kids in school, and parents at work. If the parent(s) can’t get work, then a food voucher system effectively loses them any chance at shelter in our society. So what happens is the American poor end up having to illegally trade in at a steep discount their monthly food allotments for the things they really need, and end up not having enough of anything at all.

BR1M has many faults; this isn’t one of them. Now, about those book vouchers…

Technical Notes:

Cotti, Chad D. and Gordanier, John and Ozturk, Orgul D., “When Does it Count? The Timing of Food Stamp Receipt and Educational Performance”, (June 25, 2017). Available at SSRN

7 comments:

  1. I am pointing my finger to the Banking System that the whole world is using.

    The main culprit is the ability ofCommercial Bank to create money also term aa Money Created by Commercial Bank which is said to be 97% of the money in the economy for all nations in the World.

    The over supply of money have push the prices of all goods that inevitably resulting of destitute poverty.

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    1. @ammarex

      The opposite perspective: without bank-created money, economic growth would be impossible, as a hard money system like gold or silver would not be able to keep up with the expansion of economic activity.

      In other words, economic development and the massive increase in human welfare over the past 300 years is due in part to the use of fiat currencies.

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    2. I disagree. Much of the poverty that we see today is not due to inflation or prices of goods, or in this case oversupply of money. I think the main determinant is institutional development and the type of development ideology. Countries like Haiti in the past had severe check and balance issues with weak institutional development, where the executive arm was free to extract whatever economic rents and resources from the populace without constraints. An even institutional development is crucial to prevent an overconcentration of power in one player ( State, business, etc ), where the check and balance provides a stable economic platform to engage in economic activities without fear of extractions by force.

      On another note, the main problem with the gold and silver standard, economic growth is constrained by how much gold or silver you have in the country, and how smooth is the transmission mechanism between countries. There are periods where sudden discoveries of gold led to periods of overinflation as the country could not produce enough goods and services in the short run to complement the increase in money supply. And the ability of central banks and governments to combat recession is also severely impacted as they would need to constantly devalue its currency to gold to get stimulative programs in place.

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    3. @ho

      I don't think I said anything about how poverty comes about, only that money creation was not a contributor. And while I agree that institutional development is important, it's hardly the only thing or even the most important factor. The UK of the first industrial revolution was a remarkably corrupt society, for example.

      I could argue (though I don't necessarily believe this position), that institutional development happens because of economic growth, rather than the other way around - as more people have a stake in the system and enforcement of its rules, the greater the political pressure to ensure better governance.

      It's actually incredibly hard to work out the direction of causality in this instance.

      On your second note, I fully agree, though I'll add two points:

      1. An unstable money demand plays a significant role too, and can cause inflationary/deflationary episodes regardless of the state of the money supply;

      2. Most people don't realise that under a fiat money system, money destruction is not only possible but in fact happens all the time. Exogenous money creation by central banks won't necessarily lead to an "oversupply" of money, if the rate of money destruction in the private sector has increased.

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    4. Sorry about the confusion. I was mainly disagreeing with the comment by ammarex, its weird how the reply button works.

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  2. Ammarex, I think you meant Central Bank and not commercial bank. The last I look, banks in Malaysia loan / deposit ratio is still below 1, that is, they only loan out money when people (you and me) put our hard earned money as deposit with the commercial banks.

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    1. @Zuo De

      Actually, ammarex is correct. He's referring to this.

      BTW, I know of at least two countries where the banking system LD ratio is above 1 (India and Korea).

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