State of Innovation

Patents and Innovation Economics

Nancy Pelosi: Theft Creates Jobs – A Modest Proposal

Nancy Pelosi says that the fastest way to create jobs is to expand food stamps and unemployment insurance.  She further stated that food stamps have a 1.84 multiplier effect.  Let’s examine how food stamps (now called the SNAP program) work.  The government taxes one person and then gives that money to a food stamp recipient so they can buy food.  This means that the recipient has provided no value to the economy for the dollars they receive.  As a result, when the food stamp recipient trades the dollar(s) (electronic credit – food stamp recipients now get something like a debit card) they got from the government for food at the grocery store they have provided no value for the food.  If we eliminate the middle men, government and the taxpayer, then what the food stamp recipient is doing is taking food from the grocery store without providing any value in return – i.e., stealing.  According to Nancy Pelosi’s logic, we should advocate people stealing from grocery stores because this will have a multiplier effect, which will create jobs.  This would save on the cost of government having to run the food stamp program.  Now you may object that this does not spread the cost of this theft (government forced charity) across society and therefore is unfair to grocery stores.  However, the multiplier effect should more than make up for the grocery stores’ losses.

The reality is that food stamp programs clearly destroy wealth.  The taxpayer receives nothing for the taxes he pays for the food stamp program.  You may object that the taxpayer receives the same benefit as would accrue from an insurance policy, but this is a false analogy.  The taxpayer does not have a choice of whether to be a part of this insurance policy, cannot select the coverage for this policy, and the cost is not related to the risk he will receive a payout on of his policy.  The insurance policy analogy is nonsense.  The taxpayer has to spend a significant amount of money to comply with the tax code.  In order for the government to receive one dollar from the taxpayer, the taxpayer will spend more than one dollar.  Estimates are that it cost at least ten cents in compliance costs for each dollar collected by the federal government.  The government has to pay tax collectors and food stamp administrators out of the dollar they collected from the taxpayer before they can get it to the food stamp recipient.  I think a reasonable estimate is that this cost is at least 20%, so the food stamp recipient gets perhaps eighty cents for each $1.10 the taxpayer expends.  The food stamp recipient then spends the eighty cents at the grocery store.  Clearly, this is a net destruction of wealth.

The hardcore believers in the multiplier effect will argue that the eighty cents spent at the grocery store will cause the owners and employees of the store to have an extra eighty cents that they will spend elsewhere.  When the grocery store owners/employees spend the eighty cents, the recipients will further spend part of the money creating the 1.84 multiplier effect.  Even if this were true (which it is not), it is less than the value that would have been created if the taxpayer had been able to keep the $1.10.  Any value created in the food stamp chain is significantly less than the value that would have been created by the taxpayer holding on to the money.  The cost of complying with the tax system, the cost of administering the food stamp program, and the food stamp recipient provide no value (goods and services) to the economy.  In addition, the food stamp program increases the demand for certain foods driving up the cost for all other buyers.  This increase in cost of food has to be subtracted from the return on the food stamps.  Any economist who argues for the multiplier effect should be fired.  Any politician who advocates a transfer payment program based on the multiplier effect should be treated like a member of the flat earth society.

 

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October 19, 2010 - Posted by | -Economics | , , ,

9 Comments »

  1. DB,

    I see that you are hardcore believer in swim or sink-and-die private sector capitalism.

    I know a number of such people.

    Some of them have worked their whole lives for the “public” school system and cannot for the life of them see that they have been on a government hand-out line.

    Some of them have worked their whole lives for the “defense” industry and also cannot for the life of them see that they have been on a government hand-out line.

    However, when some poor Joe can’t get a job and is in need of some compassion and a little bit of food, these hard core fundamentalists want to see the “other” guy/gal die, because otherwise he/she is not “creating” wealth for the system.

    As if hedge fund managers are creating “wealth” and deserve their annual dole outs (in TARP money). Yeah right.
    ————-
    p.s. Also keep your cold government hands off my Medicare. That one too. There is a trickle down laugh every couple of seconds out of you hardcore believer guys.

    p.p.s. What ever happened to: But for the grace of God there goes I? 🙂

    Comment by step back | October 20, 2010 | Reply

  2. Stepback,

    You
    are correct about the hypocrisisy of people. Note
    When the government takes over the whole economy, you are not a hypocrite just because you don’t reject returns from programs you were forced to pay for.

    The point is that foodstamps do not create jobs/wealth, they decrease both. If foodstamps did create jobs, then so would stealing.

    Grace of god – this relates to private charity. It does not apply to government force (stealing). The clears evidence is government charity is not about charity it is about power. Foodstamps are as much about supporting farm interests – not the small family farm but the ADMs of the world. They are also about cresting dependency so the dependent will vote for the right politicians.

    Comment by dbhalling | October 21, 2010 | Reply

  3. DB,

    You haven’t answered my question.

    Please allow me to pose it more bluntly: Do you want your fellow man (and/or woman, children) to die due to the fact they are impoverished and can’t afford food?

    Private charity is indeed a nice thing to do. But it is also a fickle thing. Sometimes the very rich have more important things to spend their last marginal dollars on, like lobbying Congress for reduced taxes. And then, oh well, the poor are left behind to fend for themselves in that case. But obviously that is God’s will and not the will of those who chose to spend their last marginal dollars on other purposes. Let them, the poor eat cakes.

    I do appreciate that there is corruption, drugs, etc. growing out of the food stamps program. But then again, there is corruption, drugs, etc. growing out of the military spending program, or any other large scale program you care to name including most “private sector” (i.e. Bernie Madoff, Enron, World Com, Goldman Sachs, etc.) programs you might care to honestly name.

    At the end of the day it is not “the” government or “the” corporation” but rather, people that do what gets done. I sense a holier than thou tone in some of your writings, as if the portion of the “private” sector you (and I) work in is somehow above it all. Be honest with yourself. The “courts” are a government run entity. The USPTO, ITC, etc. are government run entities. WE “attorneys” would be nothing if we couldn’t feed off of those “government” run sources of “wealth”.

    And while we are at it, what is your definition of “wealth”?
    But please don’t give a circular nonsense answer like wealth=value=wealth=money=wealth. We’ve all seen that ring around the rosy non-answer. What truly causes a society to be “wealthy”? Are we “wealthy” when our neighbors have no food? Are we “wealthier” when they die, or riot before they die due to lack of an ability to make a living?

    It comes down to the old Biblical question, am I my brother’s keeper? And if not me and now, then whom and when?

    Comment by step back | October 22, 2010 | Reply

  4. Stepback,

    Wealth is the ability to produce good and services.

    People are dying because they are impoverished. I want a scientific approach to economics so this does not happen in the future. No amount of charity or theft on the part of government can raise everyone out of the Malthusian Trap. Charity and theft do not solve the underlying problem, no matter how much you feel, believe or hope that it should. Theft makes the problem worse and increases the chances that people will starve in the future.

    Brothers keeper – as statement of charity, which can only be private, this is fine. But charity starts at home first.

    Our social welfare programs are unsustainable. They are impoverishing this country and the longer we do not deal with this issue the more likely are fellow man will die because they are impoverished. Do not pretend that charitable sentiments are moral when they involve theft and long term impoverishment. The difference between government corruption and private corruption is government had the monopoly on the use of force. Thus, corruption in government has the ability to destroy our country.

    Note that because social welfare programs destroy wealth they already result in the death of people who would have live – technically we all die so they shorten our life span.

    The normal state of all animals is to live in a Malthusian Trap. This means that some members of the species dies of starvation. This was true of humans until about 200 years ago. Only people in the US and western Europe first escaped this situation. They did not escape Malthus because of charity. Charity is social grace, like manners, it is not a moral imperative

    Comment by dbhalling | October 22, 2010 | Reply

  5. Wealth is the ability to produce good and services”

    What about our ability to produce bads and disservices?
    Is that anti-wealth?

    (I assume by “ability” you mean that we actually “produce” stuff as opposed to just extracting stuff from underground and free riding on the oxygen that is placed into the atmosphere by the photosynthesis work of what is left of the biosphere?)

    Why do you pick on poor people and food stamps but not on Wall Street and stock coupons? Wall Street doesn’t produce stuff, they make stuff up (credit default swap options). The military doesn’t produce stuff, it bombs and destroys. (Mind you I’m not saying a country does not need a “defense” system, but imperialistic ventures all around the globe to secure oil fields is not defense anymore, it’s offense.)

    “true of humans until about 200 years ago”

    Ha ha.
    Actually it was more like about 300 years ago when we started using machinery to dig up coal and oil out of the ground. Since then it has been a magic energy cornucopia ride.

    A side effect of burning up all the coal and oil is that we produce more and more bads and disservices with that activity. And yet we consider ourselves “wealthier” than ever before. Hmmm.
    😉

    I would define “wealth” as having something to do with the sustainable and improved “well being” of individuals and society as a whole. (I don’t pretend to have answers.)

    I would suggest that our “well being” has been going steadily down hill for the last, oh say 10-30 years. (I don’t pretend to have answers.)

    Comment by step back | October 22, 2010 | Reply

    • Stepback

      I am against all government handouts. I pick on food-stamps because they are in the news. I have pointed out the absurd subsidies to Wall Streetin other blogs, which are also theft. Arguably, the Wall Street subsidies are morally more reprehensible than other handouts.

      The point of the post was to point out that the economic logic of Pelosi is absurd.

      All goods and services are derived from natural resources – conservation of matter and energy. Sustainability is meaningless. All our resources rely on the energy we receive from the Sun. The Sun is not a renewable resource. As I pointed out in my earlier post on scientific economics, entropy ensures that any given technology will always result in using up an existing resource. Sustainability, is not a logical position it is an emotional position.

      Comment by dbhalling | October 22, 2010 | Reply

  6. The Sun is not a renewable resource.

    Bravo. At least someone sees the light.
    I have forever been against calling these things “renewable”. Nothing is renewable.

    I am against all government handouts.

    The concept of self-made man standing proud atop a rock, leaning firmly into the wind in Ayn Rand pride is a noble one.

    But try to imagine a Kafkaesque story line like this one:

    You had been awake half the night in your secluded castle home atop the mountain, the city lights gleaming magnificently in the valley below, and you had been enjoying play with your newly bought Me-Me-Pod computer. All the latest gadgets are quickly yours because you are a self-made man, rich, wealthy and sure of your deserving of everything you posses.

    As you awaken, you realize this is a Houston, hello we have a problem morning. No you haven’t turned into a giant slug. Only Kafka gets to play that card. Your stomach is aching beyond belief though. You realize your appendix has unexpectedly ruptured while you slept. You will soon die if emergency help is not gotten. No one is home.

    Your cell phone is almost in reach on the night stand. Just as you are passing out from the pain you manage to dial the magic three digits: 9-1-1. You want the government to come up to your castle on the hill and give you a life-saving “handout”. But no one else deserves a “handout” in their time of need. Just you. You, after all, are Ayn Rand man.

    (John Galt would have been prepared you know. He would have built a surgery robot that automatically fixes him up every time he gets sick. He would never succumb to asking for help from government infrastructure. How low can one go? But you’re no John Galt. Why you haven’t even yet invented the perpetual energy motor. And now you act like a sissy by dialing 9-1-1 instead of dying like a man? Shame.)

    Comment by step back | October 22, 2010 | Reply

  7. Stepback,

    You are confusion living in isolation with government handouts – theft. Theft reduces the amount of goods and services. Because of entropy we can be assured that theft is not even a zero sum game. It destroys wealthy and increases the chance of the lack of availability of critical services.

    Voluntary exchange existed long before government started redistributing wealth. Except for the most command and control economies in the world, people do not have goods and services because some government mandated it. (Note that under these command and control governments people regularly starve and die for lack of simple medical treatments) They can purchase these goods and services because of voluntary exchange. This includes critical medical care. Appendectomies were not created by a government, they were invented by a human or group of humans. These humans then traded their practice of their invention for other goods and services, such as electric lights. Both people are rationally better off because of this trade, see David Ricardo. This did not happen because government commanded it. By the way you should note that the first fire brigades were private. The first fired company was created by Benjamin Franklin in 1736.

    You present a false choice of living as a slave or living in isolation. Neither I nor Ayn Rand ever suggested that people should live in isolation that was Thoreau.

    We do not have a natural resource problem we have an invention problem. All natural resources are subject to diminishing returns. However, inventing is not subject to diminishing returns. For more see https://hallingblog.com/2010/10/10/toward-a-hard-science-approach-to-economics-2/

    Comment by dbhalling | October 23, 2010 | Reply

  8. […] also stimulate the economy.  For instances, Keynesians assert that “food stamps” (now the SNAP program) create economic growth.  If this were true so would theft, since the recipient of the food stamps […]

    Pingback by What do Keynesians and the Flat Earth Society Have in Common? | Blog of Dale B. Halling, LLC - Intellectual Property Law Firm - Patent Attorney - Patents, Trademarks, Copyrights | August 26, 2011 | Reply


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