When it is funded, the Supplemental Nutrition Assistance Program or SNAP (colloquially known as food stamps) helps feed over 40 million people every month by dispensing $187 per average recipient. The program is especially critical for families—children represent about 40 percent of all SNAP recipients. Despite 78 percent of Americans (and 69 percent of Republicans) holding a positive view of SNAP, one of the many detrimental consequences of the longest government shutdown in U.S. history is that the program’s funding is about to dry up.
In anticipation of extraordinary conditions, such as a long-lasting shutdown, Congress had set aside a small “contingency reserve” of funds to be used “at such times as may become necessary to carry out [SNAP] operations[.]” Breaking from the USDA’s September 30 interpretation of this language, on October 24, the Trump Administration claimed it could not legally tap these funds during a shutdown—threatening to disburse no benefits in November. This novel understanding of the law (a continuation of the Administration’s hostility to a program from which it has already cut $187 billion over the next decade) was quickly rejected by the courts in a pair of Halloween rulings mandating that the Administration use these funds. In the midst of this court battle, the president waffled between the position that “If we are given the appropriate legal direction by the Court, it will BE MY HONOR to provide the funding” (October 31 post), and that SNAP “will be given only when those Radical Left Democrats open up the government, which they can easily do, and not before!” (November 4 post).
After the president’s hemming and hawing, the Administration set forth a plan to offer partial payments to SNAP recipients for November. Originally, payments were anticipated to be half of full benefits, but because math is hard for merit-based hires, this number has since inexplicably increased to 65 percent of full benefits. U.S. District Judge John McConnell has deemed these partial payment plans insufficient. SNAP advocates argue that the partial payments would only create bureaucratic bottlenecks that would slow access to these critical funds. Of course, the Administration appealed this “absurd” ruling, which would ensure the wealthiest country in the world allows its poorest denizens to afford food. For now, the Supreme Court has paused Judge McConnell’s full payment order as it awaits a decision from the First Circuit Court of Appeals. This pause occurred only after at least some states disbursed full SNAP payments to recipients, and, amid a deluge of conflicting orders, the USDA seems to want states to magically claw back these full benefit down to its previous 65 percent partial payment plan.
Treating SNAP and Non-SNAP Recipients “Equally”
Amid plans to provide only partial SNAP benefits, many grocers were intending to offer discounts to SNAP recipients to ensure their quantity of food consumed was minimally interrupted (and to avoid missing out on loss sales). For example, the McMinnville Grocery Outlets of Oregon tried to offer a 10 percent discount to all SNAP recipients whose food-assistance money had been frozen. Despite its court loss over halting payments completely, the Administration continues to selectively enforce policies to ensure some discomfort for those in need, including its own supporters. Hence, the USDA has warned grocers that these discounts, absent a waiver, run afoul of a rule requiring SNAP recipients to be treated “equally” compared to non-SNAP recipients. In response to that warning, many grocers ended their proposed discounts, though others retailers, like Instacart, continued to offer their planned discounts to SNAP recipients thanks to already having the needed USDA waiver.
Unfortunately, SNAP’s Equal Protection Rule (7 CFR 278.2(b)) does forbid “special treatment in any way” for SNAP recipients. The Biden Administration-era USDA also interpreted this to “prohibit[] both negative treatment (such as discriminatory practices) as well as preferential treatment (such as incentive programs).” The waivers that allow a small number of retailers (mostly farmers market) to offer discounts was codified in the 2018 Farm Bill (7 USC 2018(j)) to promote the consumption of healthier food. Ignoring the fact that such non-discrimination rules were premised on full-funding and delivery of SNAP benefits, the Administration can plausibly argue that its hands are tied.
As we have seen so frequently with this Administration, however, the Executive Branch has significant latitude in whether and how it will actually enforce statues and regulations. For instance, this decision stands in direct contrast to this same Administration’s abandonment of the antitrust case against PepsiCo under the Robinson-Patman Act; apparently, a supplier’s selective use of discounts to large stores does not warrant similar condemnation to grocers offering discounts to those in need. We would be remiss not to mention that PepsiCo donated half a million dollars to Trump’s inauguration ceremony, after a brief interlude of pausing political donations in the wake of the January 6, 2021 storming of the Capitol.
If anything is justifiably worth similarly lax enforcement, it would be the allowance of private discounts after SNAP recipients have faced an unexpected decline in governmental assistance. Hence, in our estimation, forbidding price discrimination in the name of equality—when such discrimination would assist impoverished people in a time of need—suggests that serving the poor does not rank too high in the Administration’s policy preferences. That the Administration has ignored price discrimination in other contexts, such as by airlines (when your trip is for business) or Uber (when your battery is low), reveals that Trump’s cruelty to the poor is likely the point.
Democrats have responded to the Administration’s enforcement of SNAP’s Equal Protection Rule with a bill—which does not appear to have Republican support—that would allow private discounts by grocers for SNAP recipients during government shutdowns. We think that Congress should push the boundary further, by amending the Equal Protection Rule to always allow discounts for SNAP recipients. Equality, while often laudable, is overrated here, as disparate conditions necessitate differential treatment.
To Limit Hunger, Allow Price Discrimination
So, what is price discrimination? And why should it be used to support SNAP recipients? In its simplest form, price discrimination is the ability for sellers to charge different prices to different buyers. Think of a discounted museum ticket to students or movie theaters offering cheaper matinees. Such common and innocuous pricing strategies might conflict with the layperson’s negative associations with the term discrimination; for instance, Merriam-Webster includes the word “unfairly” in its definition. Yet economists often use a definition that strips away this negative baggage. Under this conception of the word, SNAP discriminates on the basis of income—those below a certain income thresholds receive benefits and those above are deprived benefits.
Economists tend to support price discrimination because it can increase consumption and social welfare under certain conditions. Price discrimination necessarily benefits companies (otherwise they would never adopt it as a pricing strategy!) but also may benefit certain consumers, like SNAP recipients, with lower willingness to pay for (or lower ability to afford) goods. Under certain forms of price discrimination, these consumers can increased their quantity consumed thereby improving their welfare. Whether these benefits outweigh the potential increase in price to consumers with higher willingness to pay depends on the exact nature of the market and the form of price discrimination. For instance, one of us has a prior piece in The Sling explaining how perfect price discrimination (by airlines) in the face of quantity restrictions is undesirable.
Price discrimination is in theory infeasible in competitive markets because sellers in such markets are price takers (facing a flat demand curve) with no impact on market prices. In the real world, however, markets are rarely perfectly competitive, and firms often have a degree of market power (facing a downward-sloping demand curve) and can influence market price. For instance, the USDA has found that the market concentration (a measure related to the potential for market power) of grocers has increased over the last 30 years and is particularly problematic in rural communities. Indeed, the mere proposition of these discounts by certain grocers is suggestive that these sellers are already operating above marginal cost and possess some degree of market power. Regardless, if price discrimination is infeasible in the long term due to competitive forces, then a policy that allows for price discrimination would have no long term effect—SNAP and non-SNAP prices would inevitably converge.
If price discrimination is possible, allowing grocers to concurrently drop prices to SNAP recipients and raise prices to non-SNAP recipients, then there are difficult tradeoffs to consider: the welfare harm of higher prices for non-SNAP recipients may be greater than the welfare gained by SNAP recipients and grocers. (In the real world, however, there is a distinct possibility that grocers simply drop the price to SNAP recipients and leave the price to non-SNAP recipients the same, which greatly simplifies the welfare calculus. There is no lump-of-profit law in economics deeming that losses incurred on one group must be recouped on some other.)
The overall societal welfare effect of price discrimination by groups (or what economists call “third-degree” price discrimination) is not straightforward, but social welfare tends to increase when output increases. This can happen when price discrimination creates new markets that were otherwise unprofitable (e.g., in the long run, price discrimination may mean that certain food deserts will disappear because a grocer can enter the market). Output can also increase if the price cuts to SNAP recipients allow some SNAP recipients to obtain needed food when they otherwise could not.
Beyond the potential welfare effects from greater output noted above, there are several other reasons to believe that allowing discounts for SNAP recipients will be beneficial. First, because the cost of SNAP is likely borne mostly by non-SNAP recipients (through taxes on higher income individuals), the decrease prices paid by SNAP recipients may allow for SNAP itself to need less money to cover the dietary needs of beneficiaries; in effect, allowing non-SNAP recipients to have a slightly lower tax bill. Second, and more significantly, there are several externalities at play; to name one, hungry people are less productive workers, and hungry children perform worse in school and jeopardize their long-term productivity. One study found that for every $1 spent on food stamps for a child, $62 of value were generated over that child’s lifetime. Third, there are also non-economic (equity) reasons to support such discounts: Non-SNAP recipients may be willing to face higher costs so their neighbors can afford to eat. In other words, society cares more about lifting up the downtrodden than the relatively minor costs borne by the better off.
Turn the Spigot and Let the Discounts Flow?
Because the Trump Administration has already indicated its opposition to the American welfare system, its open hostility to SNAP does not come as a shock. Nevertheless, while its true motives are hard to decipher, the Administration’s stance against allowing private discounts for SNAP could be defended by certain economists (not us) by appealing to concerns about the risk of inflation for non-SNAP recipients. Such concern would be unwarranted, however, if grocers are offering private discounts merely to mitigate short run losses in the face of a government-induced demand shock. In such situation, there is a low risk of the concomitant increase in the price paid by non-SNAP recipients ever materializing.
Regardless of these arguments, it is our contention that the economics suggests that allowing private discounts for SNAP recipients is simply good policy. The enormous lift to each SNAP recipient (getting to eat) swamps the likely trivial costs to each non-SNAP recipient, who are in a better position to absorb such costs. As such, we would urge Congress to explore allowing grocers to offer SNAP recipients private discounts not just during shutdowns but also in times of continuing resolutions and the oh-so-rare actual fiscal year budgets.