The Biden administration has given a 25% boost to food stamp allotments, the largest in the program’s history, underlining the fact that inflation is eroding the purchasing power of ordinary people.
Unfortunately, this means more money chasing a limited supply of goods, which is likely to raise inflation to an even higher level.
Though carried out by presidential executive order, the move results from a 2018 congressional action that called for a review and adjustment to the food stamp program. This was a time when the Republican Party was in control. It’s interesting that the food stamp expansion is occurring when wages are rising and job opportunities are becoming more plentiful, giving us an opportunity to consider welfare-state expansions right alongside market opportunities.
Any regular grocery shopper, with or without food stamps, can vouch for the fact that prices on many key items are marching forward. By key items, I mean everything from frozen pizza, to ready-to-eat cereal, to cat food. Surely, the 42 million food-stamp program participants will feel some relief.
Increasing the dollar value of the food-stamp budget for needy families is seemingly one way to address the purchasing-power problem, and it may look like the natural way to do so. But fortunately, something else is quietly taking the edge off: Not only are wages rising, but they’re rising faster than the pace of inflation. This is lifting the ability of working people to meet the challenge.
The optimistic picture is shown in a recently published chart developed by the American Enterprise Institute’s Mark Perry. As can be readily seen, since 2020, wage growth has well outpaced CPI inflation growth. Indeed, the most recent gains are strikingly large. The appearance of “now hiring” signs and announcements of large hiring plans by major firms suggests that even higher wages are in the offing. (This also suggests we will see more CPI inflation.)
So, it appears we should take one more glimpse at the part of the economy where people work, get paid, and go shopping — which is to say, the nonwelfare state part of the economy. Where do we stand? What about the pandemic?
The Bureau of Labor Statistics’s most recent job openings data tells us that in July, there were 10 million unfilled jobs, far more than the 8 million or so unemployed workers. And the number of openings is growing, reflecting optimism even in the face of a stubborn pandemic.
With that in mind, it’s clear that we have something of a dual economy. There is the part based mostly on employment, wages, and individual choice. Then there is the part driven by welfare and government interpretations of need and how to deal with it — in which food stamps, rent subsidies, and child payments are critically important. It is the part in which membership requires passing income and other tests of need. There can also be work requirements for those who participate in certain welfare state programs.
Interestingly, both parts of the dual economy are flourishing, and there are lots of people who operate in both worlds. But the more you reside in the welfare state, the more an income increase can cost you. It may trigger a loss of food stamps, rent, and child care assistance eligibility.
Whenever policymakers decide that something needs to be done to enhance the well-being of people who are struggling, they should not ignore the world of work. If they’re going to take such an active role, why not do more to match job openings with people who are ready to join that part of the dual economy? Shouldn’t we pay more attention to the loss of subsidies, which can deter individuals from seeking higher incomes? We must also be wary of inflation remedies that themselves are inflationary.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
