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The Circle Bastiat

Why the food stamp program is a fraud

The federal government vastly overstates the benefits the food stamp program provides low income families – which isn't worth the cost to the taxpayer.

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The effects on agriculture are similarly overstated. Food stamp proponents count the billions in food stamp benefits as equal to the increase in demand for agricultural products. But since food stamps are like cash for almost all recipients, they add no more to food purchases than do cash benefits. Since less than 20 percent of an increase in income goes to added food spending, the effects is less than one-fifth what is claimed. Further, it ignores the fact that those taxed to pay for the benefits will consume less food as a result of their reduced after-tax incomes, which further reduces the effect on the agricultural sector. In addition, after retailing, processing and transportation, less than half of food spending makes it to farmers, and most of that goes to cover the cost of producing the crops. Properly understood, the effects on agriculture go from muscular to minuscule.

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This is the institutional blog of the Ludwig von Mises Institute and many of its affiliated writers and scholars commenting on economic affairs of the day.

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In addition, to the extent food stamps increase agricultural production, they do so only at the expense of reducing the demand in other industries. The result is to redistribute output and income from other areas — a transfer rather than a benefit to society. And to the extent food stamps increase food consumption compared to giving recipients money, they do so at the expense of other goods recipients judge to be even more important, or they would use cash to buy added food anyway.

The economic stimulus claims reflect the same problem. What is counted as increased aggregate demand are really just transfers from taxpayers to recipients (and to a smaller extent, from other industries to agriculture). The taxes others must pay reduce their demands for goods and services just as the benefits add to them. But those negative effects are simply ignored, turning an essentially nonexistent benefit into an apparently sizable one.

The misrepresentation of economic stimulus effects is further exaggerated by using multiplier effects. It is true that when one person gets more money, they spend more, increasing demands and income elsewhere. But the same process occurs in the opposite direction as those with reduced after-tax incomes from financing the benefits spend less, decreasing demands and income elsewhere. The same process works in both directions, with little net effect, but the adverse effects are simply ignored. And with such blinders in place, insignificant effects can be presented as major benefits.

Even if the argument is made that the government is borrowing money rather than taxing to raise it, the argument doesn’t change. Deficits represent future taxes, with future negative effects, but looking only at the present disguises an attempt to transfer resources from the future to the present as if it was solely a stimulus.

If the assertion that income is stimulated wasn’t misrepresented enough, more piling on occurs when promoters claim that it also increase jobs. Just as the stimulus and multiplier effects are erroneously counted only on the plus sign, so are the jobs. The net effect is essentially zero. Further, jobs and income are not separate benefits; they are two ways of counting the same thing. It is the income from a steady job that is the benefit, not the job, but counting them as if they were each separate benefits is simply double counting. Worse, jobs, which are actually the burdens people bear in earning their incomes, are counted as if they were actually benefits. (When I ask my students whether they could have the same lifetime income with a job or without, they all choose "without.")

In addition to these massive exaggerations of food stamps’ benefits, there is a substantial negative effect supporters suppress. Food stamp benefits are reduced by 30 cents for each dollar of net income a recipient earns. As a result, the program acts as an added income tax rate facing recipients (paid in reduced benefits rather than increased income taxes). That, in turn reduces their incentives to earn, and their consequently reduced earnings (which make recipients look poorer in official statistics, because the food stamp benefits are not counted but the reduced market earnings are), makes recipients more dependent on government as a result (which Levenstein and Mittelstadt dismiss, in a truly impressive display of ignorance of the subject, as reprising "the false charges once leveled at welfare."

For years, food stamps, along with so many other "I’m from the government and I’m here to help" (which, if memory serves, Ronald Reagan called the "the nine most frightening words in the English language") programs, have been systematically promoted by reiterating multiple false claims — claims that have never been true — over and over. But its defenders’ rhetoric, no matter how often it plays in re-runs, remains very far from the reality. And while those who administer the food stamp program occasionally change policies to combat food stamp fraud (like going to electronic debit cards instead of paper food stamps), its systematic misrepresentation to the public is the greatest food stamp fraud.

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