Big Banks, Food Stamps, and the Trouble With Vouchers

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

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.

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 schooling, 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 SNAP benefit cut reduced
payments to poor people by nearly $5 billion. The program’s
combined federal and state administrative costs, meanwhile, are
nearly
$7 billion.