Sunday, December 20, 2009

U.S. food stamp chief wants California to boost use

Reuters article "U.S. food stamp chief wants California to boost use" (December 18th, 2009) falsely supposes that a welfare-based program will improve total utility. Discussing the need for California to recruit more of its eligible federal food-stamp programs, the article includes the following quote from a nutrition analyst:
'There are economic benefits for everyone, for the entire state, if we increase participation [in the federal food stamp program]'
Likely, however, the economic benefits do not outweigh the economic costs for both citizens of the state and for the state.  Notably, a federal program providing subsidized food gets its funding from all US citizens (including Californians), and so increased participation anywhere only costs most Californians.  In addition, the state can easily be made worse off.  By subsidizing people who do not work, food stamp programs magnify the benefit to California citizens of remaining unemployed.  If the labor force is very responsive to changes in wages (or changes in non-labor payment, like welfare), then it is possible that enough people will stay out of California's labor force (at least in the short-run) to depress state tax revenues, as graphically depicted below (click to enlarge).  Californians working and paying taxes have a positive externality to all other Californians, and labor is inefficiently undersupplied as it is.  Placing a negative implicit tax on not working moves Californians further from an optimal equilibrium.

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