More on Austerity: Fiscal Threats to the Food Safety Net

As the Center on Budget and Policy Priorities (CBPP) has reported in several recent postings, cuts to SNAP—formerly known as the food stamp program—now being considered in Washington would impose severe hardship on millions of people who use SNAP benefits to buy groceries in retail stores. For example, the Center released a report a few days ago on cuts to the program contained in the farm bill recently proposed by House Agriculture Committee leaders. These three points, quoted from the report, summarize the impact of the proposed cuts:

• The bill would terminate SNAP eligibility to several million people.  By eliminating categorical eligibility, which over 40 states have adopted, the bill would cut 2 to 3 million low-income people off food assistance.
• Several hundred thousand low-income children would lose access to free school meals.  According to the Congressional Budget Office (CBO), 280,000 children in low-income families whose eligibility for free school meals is tied to their receipt of SNAP would lose free meals when their families lost SNAP benefits.
• Some working families would lose access to SNAP because they own a modest car, which they often need to commute to their jobs.  Eliminating categorical eligibility would cause some low-income working households to lose benefits simply because of the value of a modest car they own.  These families would be forced to choose between owning a reliable car and receiving food assistance to help feed their families.

(The Ryan budget would lead to even larger cuts, as this report shows.) As a macroeconomist, I tend to be in favor of government programs that automatically increase in size as the economy falls into a recession. Of course, such programs help to maintain spending when households and/or businesses suffer a setback due to a financial crisis or some other macroeconomic problem. Many of these programs have the added advantage that they focus on the most adversely affected individuals. They are aimed at providing people with the most basic essentials. They reduce the need for ad hoc “stimulus bills” during recessions. Finally, they are known for achieving an especially high level of “bang for the buck,” as a form of fiscal stimulus, because they go mostly to individuals who spend almost all of their small-to-modest incomes. (An employer-of-last-resort program would represent perhaps the “alpha and omega” of such automatic-stabilizer programs.)

The proposed cuts would fall on a program that has grown rapidly in recent years. The CBPP report notes that recent increases in program expenditures are mostly due to three factors: (1) successful efforts to increase use of the program by people who are already eligible; (2) the economy’s weakness; and (3) temporary increases paid for by the ARRA (stimulus bill) of 2009, which are scheduled to end in the fall of 2013. There is no point in trying to reverse this rather understandable and natural growth in SNAP expenditures.

Along with other Institute macroeconomists, I am working on a macro phenomenon known as a fiscal trap or an austerity trap, in which untimely tax increases and/or cuts in automatic stabilizers and other programs prove self-defeating. This appears to be happening in numerous European countries and, in light of possible legislative developments such as the proposals noted by the CBPP, seems all too likely to be happening here.