How a reduction in food stamp benefits would affect retailers is the subject of an illuminating dispatch in today's Wall Street Journal.
Highlights:
Wal-Mart estimates it rakes in about 18% of total U.S. outlays on food stamps. That would mean it pulled in $14 billion of the $80 billion the USDA says was appropriated for food stamps in the year ended in September 2012.
People tend to think of food stamps as being money in the pockets of poor hungry people, but it turns out the money ends up in the pockets of the owners of Walmart, i.e., the Walton family, who are some of America's richest. It's somewhat similar to how Pell Grant money, billed as aid to poor college students, winds up in the pockets of relatively well-off professors. There's nothing necessarily wrong with that, but it isn't often mentioned in the political debates over spending on these programs.
More:
The retailer [Walmart] said it remains cautious and has been planning for the cuts, and it even hopes the change will help it gain market share. Having less money to spend could make shoppers more price conscious, which Wal-Mart U.S. Chief Executive Bill Simon said is a potential boon for the giant discounter. Indeed, the Bentonville, Ark., retailer said its market share actually went down when benefits were expanded in 2009.
"Price will become more important," he said at an investor's conference earlier this month. "When price is more important, we're more relevant."
People tend to think of food stamps as allowing poor people to eat. But if the Wall Street Journal's description here is accurate, it turns out that part of the money, at the margin, isn't just enabling basic nutrition but rather is enabling food stamp recipients the benefit of being able to shop for groceries at somewhere more expensive than Walmart. Again, there's nothing necessarily wrong with that, but as a justification for spending on a government program, making sure that poor people can shop at somewhere more expensive than Walmart probably isn't quite as appealing as making sure that poor Americans don't starve and do have their basic nutritional needs met.
More:
Kroger Co. told investors the Cincinnati-based grocer is bracing for an impact from the benefit cuts. If necessary, the chain is prepared to lower the cost of some foods at the expense of margins to boost sales, Chief Operating Officer Rodney McMullen said on a conference call last month.
Hmm, so Kroger is willing to lower prices, at the expense of profits, if food stamps are cut. That suggests to me that prices, and profits, are higher now than they would be with less generous food stamp benefits. Again, the Pell Grant example is instructive — Richard Vedder is always writing about how increased federal student aid and subsidized student loans allow colleges to raise tuition higher than it would be without the aid and subsidized loans. The benefits go to the professors and administrators, not just the poor students. Same here: the increased food stamp benefits that were part of the stimulus allowed Kroger to raise prices and profits to levels beyond what they would be without the food stamp subsidy. Again, there's nothing necessarily wrong with this — it may be an acceptable side cost of a safety net so that poor people don't starve. But again, it's not usually weighed as part of the political debate over food stamps, either. The politicians defending the program do so on the grounds that it helps poor people, not on the grounds that it allows Kroger to raise its prices and thus earn richer profits for its investors (at taxpayer expense).