Corporate Welfare

Big Banks, Food Stamps, and the Trouble With Vouchers

The best voucher is cash.

|

The American Prospect has posted a story headlined "How Big Banks Are Cashing In On Food Stamps." Here's an excerpt:

An old-school food stamp from 1981. I'm not sure the Declaration of Independence is the most appropriate illustration.
Department of Agriculture

Banks reap hefty profits helping governments make payments to individuals, business that only got better when agencies switch from making payments on paper—checks and vouchers—to electronic benefits transfer (EBT) cards. EBT cards look and work like debit cards, and by 2002, had entirely replaced the stamp booklets that gave the food stamp program its name. SNAP is the most well-known program delivered via EBT, but they also carry payments for Temporary Aid to Needy Families (TANF); Women, Infants and Children (WIC); childcare subsidies; state general assistance; and many other programs….

Distributing government benefits is a lucrative industry. According to the Government Accountability Institute, J.P. Morgan Chase, which currently controls EBT contracts in 21 states, Guam, and the Virgin Islands, made more than half a billion dollars between 2004 and 2012 providing government benefits to U.S. citizens. In New York alone, J.P. Morgan Electronic Financial Services (EFS) holds a nine-year, $177 million EBT services contract with the State Office of Temporary and Disability Services (OTDA). New York currently pays $0.95 per month for each its 1.7 million SNAP cases. In addition, J.P. Morgan EFS collects penalties and fees from benefit recipients: $5 to replace a lost EBT card, $0.40 for each balance inquiry, $0.50 each time their cards are declined for insufficient funds, and $1.50 per withdrawal if they use ATMs to get cash more than once a month. While information about profit margins on EBT contracts is neither collected at the national level nor released by banks, EBT is a significant growth area for big banks. Last year, the Federal Reserve Payments Study reported that the number of EBT transactions more than doubled since 2006.

You can read the rest here. J.P. Morgan Chase's role in these programs has been covered before, but the Prospect piece moves the story forward with details about the new farm bill, which may have lowered benefits to the low-income Americans spending those subsidies but could end up actually sending more money to the banks, since the law's provisions for anti-fraud enforcement will mean there's more government contracts to be won.

Government programs.
Fox

Food stamps, of course, are a voucher program, and free-market types have a history of proposing vouchers as an alternative to the direct state or federal provision of services. There are obviously good reasons to expect the market to do a better job of providing food (or education, or housing, or whatever) than the government, and in some contexts vouchers may be a step in the right direction. But voucher markets are tightly regulated, with special administration required and with strings attached for both buyers and sellers, and they thus open up new opportunities for rent-seeking. (The Government Accountability Institute has noted a steady increase in J.P. Morgan Chase's donations to members of the House and Senate agriculture committees.) Those rent-seekers then become new constituents for the program, a fact that should aggravate conservatives; and those constituents' chief interest is not the reduction of poverty, a fact that should aggravate liberals.

If you want to propose a more market-oriented system that stops short of withdrawing the government's fingers altogether, it would be better just to send poor people money: That takes away a lot of these opportunities for companies to game the market, and it makes it easier to start collapsing all these different programs into a lump payment like Milton Friedman's negative income tax. (Indeed, it offers a gradualist route toward the negative income tax: You can cashify and combine transfer payments one by one.) I have seen the best voucher, and it is called cash.

Bonus fun fact: The recent cut in SNAP benefits reduced payments to poor people by nearly $5 billion. The program's combined federal and state administrative costs, meanwhile, are nearly $7 billion.