Health & Human Services

Reinventing the Food Stamp Program

Free-market economists argue that replacing welfare programs with direct cash grants to the poor would require a smaller bureaucracy and be more beneficial to those in need.
by | May 2011
 

Selling food stamps is illegal. Yet these welfare benefits are frequently turned into cash, sometimes out of greed or criminal intent, and sometimes out of necessity.

At first glance, cashing out food stamps seems like a cut-and-dried case of government waste, fraud and abuse -- a media story that would evoke strong reactions from readers and viewers, and even stronger reactions from elected and appointed officials.

The term "food stamp" is a holdover from a bygone paper era. Electronic Benefit Transfer (EBT) cards took the place of paper in 2004, and share many of the same features as debit cards. They came with the promise of less fraud and abuse, and simpler, streamlined administration.

But like the food stamp coupons they replaced, EBT cards are being sold for cash too, often at a deep discount. From Memphis to Los Angeles to Seattle, cards have been abused in ways that program administrators never intended. These misuses -- often illegal -- lead to calls for reform and, at worst, to program budget cuts that hurt the honest users in need.

In Memphis, a television news crew caught a man in a local grocery store parking lot offering to buy groceries for other customers with his benefits card in exchange for a cash kickback. In Seattle, some grocery stores allegedly had been paying EBT cardholders 50 cents on the dollar for the food-only benefits, only to then redeem the cards for full value from the government. A further investigation into these allegations in late March uncovered a wider scheme in which some 27,000 PIN-protected, but anonymous, EBT cards were reported lost or stolen each month. The cards were replaced, no questions asked.

At one level, the problem is with the system, which is characterized by lax controls, inadequate oversight and inflexible technology. At another level, the problem is about a felony crime, where those responsible for the conspiracies should be prosecuted to the fullest extent of the law.

But is this issue really so black and white? Some individual welfare recipients may be selling their monthly food-only benefits for cash on street corners or Craigslist, but is it possible they are acting out of desperation?

When it comes to feeding and sheltering a family, 50 cents today may be more valuable than a full dollar at the end of the month. A good day is a day you make your bills. One way to preserve programs is to introduce reforms such as caps and cuts in the name of tighter fiscal controls, as has been proposed in Washington state and elsewhere.

But what if cash conversions were not only legalized, but also made unnecessary by replacing welfare programs with direct cash grants to the poor through the tax system? Government would be involved at the front end, but decisions on how to spend it would ultimately rest with the individual. That was free-market economist Milton Friedman’s idea more than three decades ago. His son David Friedman thinks the idea still has currency because, as he recently told the urban-policy magazine City Journal, "many welfare recipients already know how to transform in-kind welfare like food stamps into cash."

The idea would maintain a social safety net, but instead of administering myriad welfare programs, we’d simply be moving money around -- requiring a much smaller bureaucracy. It would be a hard swallow for both the left and right, but may hint at a potential compromise at a time when policymakers are confronting just how much -- and what kind -- of government we can afford.

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