Food Stamps Will Stimulate the Economy More than Tax Cuts, Pelosi Says

By Ryan Byrnes | January 27, 2009 | 5:52 PM EST

Rep, Nancy Pelosi (D-Calif.), speaker of the U.S. House (AP photo)

( – Food stamps and unemployment insurance will provide more economic stimulus than tax cuts, House Speaker Nancy Pelosi said Tuesday during a telephone press conference.
“(F)ood stamps and unemployment insurance, which affect the people in the states, are necessary at this time when funds are short and the economy is down, (and) actually have the most stimulative effect on the economy,” Pelosi said. “Food stamps first, unemployment insurance next, infrastructure after that, and it goes on from there.”
“Actually, those investments bring a bigger return than the tax cuts,” she said, adding: “but tax cuts where we have them – to the middle class – we think will give us our biggest return.”
During the press conference, Pelosi laid out the contents of the American Recovery and Reinvestment Act, which is expected to be passed in the House Wednesday.The 20-minute news conference also included Govs. Edward Rendell (D-Pa.) and Jim Douglas (R-Vt.).
The American Recovery and Reinvestment Act will devote $20 billion to “provide nutrition assistance to modest-income families and to lift restrictions that limit the amount of time individuals can receive food stamps,” according to a summary of the plan released last week by the House Appropriations Committee.
“It’s about jobs, tax cuts and accountability,” Pelosi said of the legislation.
Economists said Pelosi’s remark regarding food stamps is accurate if it is assessed in the right context.
“I think the statement is correct, as far as it goes,” said Alan Viard, resident scholar at the American Enterprise Institute for Public Policy Research.
“It’s important to realize that it is a statement about how food stamps vary over the business cycle instead of what the overall level should be,” Viard said. “It’s also important to realize you are never going to get a large amount of stimulus from food stamps, just because it’s not a very large program.”
Traditionally, governments raise interest rates and cut spending to stop inflation -- cutting down on “demand” – but they cut interest rates and raise spending to reduce unemployment – or “boost demand.”
“The only purpose to boosting demand is to stabilize the economy,” he said. “When you boost demand, what you get is an upfront economic gain. But later you will have a payback once output goes down.” Viard said this is why a stimulus needs to be timed as well as possible.
“You can’t really boost food stamps all that much,” he said. “There are only so many dollars you can put into that.”
A vote in the House on the president’s economic stimulus bill is expected Wednesday.