The USDA’s Food and Nutrition Service released a new report on Supplemental Nutrition Assistance Program (SNAP, commonly known as Food Stamps) earlier this week with some fresh data on the program. Given our earlier note on Mr.EBT, we thought the following brief clip from Bloomberg TV on the $82bn-per-year program would provide some rather shockingly sad insights and then Nic Colas' recent focus on the SNAP report provides some much more in depth color. First and foremost, there are 46.5 million Americans in the program as of the most recent information available (January 2012), comprising 22.2 million households. That’s 15% of the entire population, and just over 20% of all households. Moreover, despite the end of the official “Great Recession” in June 2009, over 10 million more Americans have been accepted into the program since that month, and the year-over-year growth rate for the program is still +5%. The USDA’s report is, not surprisingly, very upbeat on the utility of the program. Fair enough. But what does it mean when 20% of all households cannot afford to buy the food they need for their families? To our thinking, it highlights an underappreciated new facet of American economic life – one that will be felt everywhere from the ballot box to the upcoming Federal Deficit debates.
Food Stamps – The Long Shadow Of The Great Recession
Nic Colas, ConvergEx.
Like most people in finance, I have been trained to think about information that occurs “At the margin.” Yesterday’s price for a stock plus today’s information yields the closing price at 4pm. The same holds true for macroeconomic data as it relates to bond prices, levels for commodities, and so forth. There isn’t time to revisit everything that happened in prior days and weeks and months – we take it for granted that asset prices have that all figured out. How many times have you heard “Oh, that’s old news; it’s in the stock.”
It’s all fun and games until someone loses an eye, as the old saying goes, and assuming that the past is the past is fine until it’s not. There wasn’t much about the Financial Crisis of 2007 that wasn’t knowable in 2006; you just had to have a reasonable imagination and a respect for the irrationality of markets once the system began to break down. But one lesson of the last five years – and there are many – is that you shouldn’t just assume that “It’s all in the stock.” Reality checks on anything and everything are worth the time and energy.
One topic I personally find worth re-examination is the question, “How has America changed in the past five years that will cast a shadow over the country’s history over the next 50 years?” Think back to the Great Depression and you’ll find the seeds of programs such as Social Security and even Medicare/Medicaid. The deprivation of that decade convinced America that it wanted a society that actively tried to make life better for those at the bottom rungs of the economic ladder. Take care of the old with a stipend from Social Security. As the generation that lived through the Depression reached older age, they realized that they needed health care as well. Enter Johnson’s concept of a Great Society and health care for senior citizens and the poor – Medicare and Medicaid.
The modern Supplemental Nutrition Assistance Program (SNAP), which most of us know as Food Stamps, also got its start in the Great Depression. It was an effort to link the surplus food of the agricultural system with the poor in the nation’s cities. Those in tough economic circumstances could buy “Stamps” that would entitle them to buy both regular foodstuffs as well as discounted surplus produce. The program went dormant during World War II but President Kennedy resurrected it in 1960, altering it from a pay-for-stamps system to a straight entitlement. With some tweaks and alterations, this is the program we have today – a nationwide system of evaluating those who at risk of food insecurity (typically making less than 130% of the poverty line) and giving them money to purchase food.
The trouble, as I see it, is that the SNAP program has become wildly successful. That is not a slam against the people that use it – I personally agree that no one, especially a child, should go to bed hungry in America. But it’s not hard to see where this program is creeping its way from counter-cyclical stimulus and support to a lasting entitlement program that will be very hard to change.
The USDA division that provides the infrastructure for the SNAP program, which is technically a joint Federal/State effort, put out an interesting report earlier in the week that gave me a chance to think through the program’s goals and consider its role in American society. A few points from the report as well as the basics on the program here:
- As of January 2012, the most recent month available, there are 46.5 million Americans in the program. That equates to 22.2 million households. To put these numbers in perspective, that is 20% of all households in the country. If the “Food Stamp Nation” were it state, it would be the largest one in the Union. If the adults enrolled in the SNAP program (about half the total) all voted for one Presidential candidate in the Fall, they would represent over 2x the margin of victory in the last election.
- SNAP is not supposed to be the only source of food purchasing power for a household in the program. The calculations used by the USDA to determine the amount of the benefit assume that SNAP participants will spend 30% of their income on food. Keep in mind that the food component of the Consumer Price Index is 8%. The average household in SNAP receives $277/month; the average participant receives $132/month.
- The typical SNAP participant is a child under the age of 18. This demographic accounts for 47% of the program. Households with children account for 71% of all demand for SNAP. Surprisingly, the elderly are only 8% of the program.
- Households in the SNAP program are overwhelming reliant on other government transfer payments to make ends meet. Earnings only represent 30% of their income. The remainder comes from Social Security (21%), Social Security Insurance/Disability (21%), child support payments (10%), and other mostly government payments.
- It’s hard to know how long the current cohort of participants – those who started receiving benefits in the last 3-4 years – will be in the program. Those in the program in the early-to-mid 2000s seem to stay enrolled for long periods of time – 7 years on average. Over half of those who left the program returned within 2 years.
- Less than half of the SNAP benefit paid monthly goes to buy food. This is an unexpected finding, but the math behind it shows that when a household starts to receive SNAP, they shift spending patterns. If the SNAP benefit for a given household is, for example, $100/person then the typical increase in food purchases is $14-47/person/month.
I could go on and on – the link to the full report is included below. There’s some surprising stuff in there, like the fact that typical Democratic states are much worse at ensuring that their poorer citizens are enrolled in the program than all those supposedly heartless Republican enclaves. Or that, contrary to what you’ve read in the press, EBT cards (the credit card-like method of payment used by SNAP) can’t be used at ATMs in strip clubs and casinos. That is another program entirely.
But my key takeaways are that a large percentage of the population – 20% of households is a big number – is locked into this program. There are endless studies in the world of behavioral finance that show that people are very quick to budget increases in disposable income as permanent. And don’t forget that by the USDA’s own numbers, most of the benefit is effectively NOT being spent on food. In the narrowest sense, the money spent on the SNAP program is tiny relative to the Federal budget - $6 billion a month, or a drop in the $270 billion/month government spend.
But this is where I wonder about the long shadow of the last recession. Have we reached a point where Americans want a clear and potentially permanent social safety net? And how far should it go? Again, the current SNAP program is a cheap way to provide this, so from a budgetary or societal standpoint it is hard to argue that it breaks the bank. But what if it is an emblem of something greater? In many ways I think this is a big chunk of what the November election will be about, and at least the Food Stamp program seems to show that Americans have made up their minds.