Early in my January 2009 post I wrote on why the I thought the Stimulus plan contained some good aspects that would do more for improving the economy than equivalent spending through tax cutting. One of the large portions of the Obama Stimulus was aid through food stamps. Food stamp benefits, as shown by the Moody’s table of dollar growth in GDP / dollar government spending – had the highest benefit/cost ratio of 1.73. This was higher than the benefit from infrastructure spending per dollar, and way higher than tax cuts. Permanent tax cuts had a lower than 1 benefit to cost ratio, showing that these would have been wasted spending.

Now, as tax revenues for state and federal government are shrinking – it is becoming quite apparent that if the government would have focused only in the direction of tax cutting, it would have had terrible effects on the fiscal health of the US government and state budgets. I think Obama should be praised for this, for if we would have had a Ron Paul or a McCain in the government – tax cutting most likely would have been their major plan – without the spending in the form of unemployment benefits, food stamps, and backing up ailing state budgets. Today the Wall Street Journal has a nice article on the benefits being seen in the food stamp program expansion. In Iowa, small farmers at local farmer’s markets are seeing increased support as more people bring in their food stamps and buy locally grown food. The increase in food stamps has increased some struggling family food budgets by about $80 more a month. The result has been families eating better food (vegetables, fruit) that they wouldn’t be able to afford before, and the local economies seeing increases in spending through farmer’s markets, and grocery stores. That’s the nice thing about increasing food stamp benefits – it can quickly go into the economy as stimulus, the spending from individuals has to be local, resulting in indirect economic benefits for the towns and surrounding communities. Its a much better stimulus than a tax rebate – which more often then not goes to pay down debt, or buy a new TV. Another aspect of the stimulus that had immediate and positive benefits was the temporary expansion of research funding. Here at the university I work at, I’ve seen techs hired because of this spending, and increased purchasing of equipment (from US companies). Those are nice positive effects. Much of the remaining parts of the stimulus have yet to kick in, but if the economy is starting to level out / begin to improve (See car sales, see the recent manufacturing ISM report, etc) – this government spending cut help on the rise back up. From what little I’ve heard about how stimulus spending is supposed to work – this is the best case scenario. You spend during the time period of economic recovery, and speed the growth. Spending during the recession just goes into a black hole. The economy just needs an extra kick in the butt to get it up the hill.

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