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Friday, August 29, 2014 9:53 PM

Moral Dilemma: Should a Libertarian Who Does Not Need Food Stamps, but Qualifies for Them, Take Them?

Here's the moral dilemma of the day:

Suppose you are a staunch Libertarian, doing reasonably well and you don't need food stamps. Yet, under perverse rules, you qualify for them. Should you take them?

Reader Steven faces that exact question. Steven writes ...

Hi Mish

In response to your article 40% of U.S. on Welfare; Obamacare Expands Welfare by 23 Million; More on Welfare Than Full-Time-Employed I confess my own moral dilemma.

I am the beneficiary of trusts left to me by my parents. They are not huge, but they sustain me and my children. I prefer to spend time with my kids rather than pursue regular employment.

Until the beginning of this year, I was purchasing my own health insurance under a high deductible plan, that cost nearly $300 per month. It had risen steadily from $169 when I first obtained it two years ago. On December 31, my plan was essentially made illegal, with another plan costing nearly $600 put in its place.

I didn't have that much of a medical budget so I cancelled the plan. Three months later and in desperation for coverage, I spoke with an insurance agent who was sure, based on what I was telling her, that I would not qualify for Obamacere subsidies, but I would qualify for Medicaid which was a "better' program as it covers more services. She told me to march down to Medicaid with all my documentation and apply for coverage, which I did.

Because my trusts make all the money, my personal income is well below poverty line. Nevertheless I live quite comfortably. All the same, they eliminated the asset test for both Medicaid and food stamps, and am now receiving both.

I told my social worker the truth. I do not want to deal with a benefits fraud rap.

Because I have two dependent teens in my home, I now receive almost $500 per month for food in addition to the Medicaid coverage, which is pretty convenient. You should see the look on the cashiers' faces when, after paying for my food with the EBT card, I then pay for the non-food items with an American Express card, or even my black Visa card.

On the minus side, there are very few doctors in San Francisco worth visiting who accept Medi-Cal. I have yet to choose a doctor or a plan, and have been on the phone with state assemblymen and the Medi-cal ombudsman seeking better healthcare alternatives.

I wish I could just go back to my old, lousy plan that didn't pay for more than half of anything but which was accepted almost everywhere.

As a Libertarian, I face a moral dilemma. Should I accept benefits I don't really need?

In the case of Medicaid, I have to, or else live without coverage and/or be penalized by the IRS. But in regards to free food money, I am in a quandary.

This is also is a great story, which is why I am relating it to you now. Nothing says "broken" more than a welfare system that gives trust fund kids EBT cards.

Thanks for your awesome blog. I read it regularly.

Do What's Best For Your Family

My advice is simple: In general, you should do what is best for you and your family as long as it is legal.

I offered the same advice in regards to "Walking Away".

Comments from a Staunch Libertarian

I pinged Steven's question off Pater Tenebrarum at the Acting Man blog. Pater is one of the staunchest libertarians one could possibly find.

Pater replies ...
Ayn Rand has once addressed this question in the context of "should you accept research grants from the government". Essentially, her point is this: If the government has taken your taxes, you have every right to receive some restitution. Why should only the supporters of redistribution and statism get something, and you be left nothing but a paying victim?

So if your correct libertarian viewpoint is that you have been robbed, then getting something back is nothing but you claiming back some of what has been looted from you. You weren't in agreement with your wealth being appropriated by force, so it is only fair to get some restitution, however small.
Take the Money and Run

There is no moral dilemma. Take the money and run.

Mike "Mish" Shedlock

11:46 AM

"Economic Pilot in Reverse": US Consumer Spending Unexpectedly Dips; Zero for 79

Mainstream media headlines in the last two days offer an amusing look at GDP forecasts.

GDP Stronger Than Expected

Yesterday, the Financial Times reported US Rebound Stronger than First Thought.

The US economy’s second quarter bounce was stronger than previously thought, with the official annualised growth estimate increased from 4 per cent to 4.2 per cent.

The revision is more evidence of robust underlying growth in the world’s biggest economy as it swung back from a weather affected 2.1 per cent fall in the first quarter.
"Economic Pilot in Reverse"

Today, the Wall Street Journal reported U.S. Consumer Spending Declines 0.1% in July.
Consumer spending fell in July and income growth was weak, signs that cautious consumers could restrain economic growth in the second half of the year.

Personal spending, which measures what Americans pay for everything from sneakers to doctor visits, declined a seasonally adjusted 0.1% in July from a month earlier, the Commerce Department said Friday. It was the first time spending fell in a month since January.

Personal income, reflecting income from wages, investment, and government aid, rose 0.2% in July—the smallest monthly increase of the year.

"Looks like the pilot threw the economy's engines into reverse at the start of the third quarter," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. Forecasts that the economy would grow at a strong 3% clip in the third quarter "look increasingly unrealistic if consumers don't return to the shops and malls."

Economists surveyed by The Wall Street Journal had predicted personal spending would increase 0.1% and incomes would rise 0.3% in July.

Barclays lowered its forecast for third-quarter growth by a half-percentage point to a 2.2% pace. Goldman Sachs economists lowered their estimate to a 3.1% annual rate from a 3.3% pace.
Diving Into the Numbers

Please consider Personal Income and Outlays: July 2014 by the BEA.
Personal income increased $28.6 billion, or 0.2 percent, and disposable personal income (DPI) increased $17.7 billion, or 0.1 percent, in July, according to the Bureau of Economic Analysis.  Personal consumption expenditures (PCE) decreased $13.6 billion, or 0.1 percent. In June, personal income increased $67.1 billion, or 0.5 percent, DPI increased $62.9 billion, or 0.5 percent, and PCE increased $50.5 billion, or 0.4 percent, based on revised estimates.
Real PCE Highlights

  • Real PCE -- PCE adjusted to remove price changes -- decreased 0.2 percent in July, in contrast to an increase of 0.2 percent in June.
  • Purchases of durable goods decreased 0.6 percent, in contrast to an increase of 0.5 percent.  Purchases of motor vehicles and parts accounted for most of the July decrease. 
  • Purchases of nondurable goods decreased 0.2 percent in July, in contrast to an increase of 0.3 percent in June. 
  • Purchases of services decreased 0.1 percent, in contrast to an increase of 0.1 percent.
  • The price index for PCE increased 0.1 percent in July, compared with an increase of 0.2 percent in June. 
  • The PCE price index, excluding food and energy, increased 0.1 percent in July, the same increase as in June.

Zero for 79

Bloomberg reports U.S. Consumer Spending Falls for First Time in Six Months.
Consumer spending in the U.S. unexpectedly dropped in July for the first time in six months, a sign households are lagging behind as wages fail to accelerate.

Household purchases decreased 0.1 percent after increasing 0.4 percent in June, Commerce Department figures showed today in Washington. None of the 79 economists in a Bloomberg survey projected a decrease.

Rounding out the differences between GDP analysis yesterday and today, ZeroHedge reports Here Come the Q3 GDP Downgrades.

Growth Engine

By the way, and in contrast to widespread economic thought, consumer spending is not the "engine of economic growth". Savings, investment, and production are.

Mike "Mish" Shedlock

12:36 AM

Japanese Household Spending Slumps 5.9%; Cries for More Monetary Stimulus

Consumer spending in Japan slumped in June because of a tax hike pushed through by Prime Minister Shinzo Abe. Economists claimed it would be temporary and spending would quickly recover thanks to inflation.

Let's take a look at what actually happened.

Japanese Household Spending Slumps 5.9%

Yahoo!Finance reports Japan Household Spending Slumps, Output Flat as Tax Pain Persists

Japanese household spending fell much more than expected and factory output remained weak in July after plunging in June, government data showed, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected.

Household spending fell 5.9 percent in July from a year earlier, nearly double the drop forecast in a Reuters poll, as the higher levy and bad weather kept consumers at home instead of going out shopping.

Weak exports left companies with a huge pile of inventories, forcing them to continue cutting back on factory output, separate data showed.

Industrial output rose 0.2 percent in July, much less than a 1.0 percent increase projected in a Reuters poll, data by the Ministry of Economy, Industry and Trade showed. That was a tepid rebound from a 3.4 percent fall in June, the fastest drop since the March 2011 earthquake.

Japan's economy shrank at an annualized 6.8 percent in the second quarter from the previous three months, more than erasing the 6.1 percent first-quarter surge in the run-up to the sales tax hike.

Analysts generally expect Abe to approve another tax hike in December, but that decision promises to be politically divisive, coming just as the government hammers out details of a promised corporate tax cut.
Amusing Details

The Financial Times has some amusing details in Japanese Economy Flounders After Sales Tax Rise
Consumer prices rose 3.4 per cent in July compared with a year earlier, including the added tax. Stripping out the tax effect as well as the impact of volatile fresh-food prices – the formula favoured by the Bank of Japan – showed underlying inflation was 1.3 per cent, a level unchanged from June.

The BoJ is facing a dilemma. The dramatic monetary expansion it embarked on in April last year has succeeded in reversing persistent consumer-price deflation, a goal the central bank had pursued fruitlessly for years.

But inflation is now both too high and too low: too high because wages have not kept pace with price rises, making the average worker worse off; but also too low, because the BoJ believes even larger price rises are needed to keep Japan out of deflation for good.

The bank has set a target for core inflation of 2 per cent but most private-sector economists believe that, unless demand in the economy picks up suddenly, more monetary stimulus will be needed to reach it. Yet simply printing more money could further widen the price-wage gap, in the short term if not the longer.

“It is important to recognise that the VAT hike has had a material impact on real income levels, suggesting that spending is now being held back mostly by a decline in real purchasing power,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse.
Inflation "Too High and Too Low"

Got that? Spending was supposed to pick up due to inflation. Instead it went south because of a decline in purchasing power, exactly the opposite of what Keynesian theory suggests.

The standard, Keynesian answer ... "more stimulus is needed" to raise prices to even more unaffordable levels.

Oh yeah! That will get everyone spending money they do not have to buy things they do not need.

And to top it off, Abe wants still more consumer tax hikes to rein in debt.

Keynesian Success

To be fair, I expect that someday Abe will succeed beyond his wildest dreams if he stays in office long enough. 

Want to know what success looks like?

Here's a recent example that depicts the ultimate in Keynesian Inflation Success.

I rather doubt it gets that far, but with politicians hell-bent on "success", one never knows.

Mike "Mish" Shedlock

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