Economist Writing Every Day

One of the likely effects of the federal government shutdown is that recipients of SNAP benefits (what used to be officially called “food stamps,” a term still used by the general public, especially those that dislike the program) may lose their benefits next month. This would obviously be a hardship for those that depend on this program, but it has also led to bad claims being made about the program, from both supporters and opponents of the program.

Let’s start from the political right: Matt Walsh makes the claim that by subsidizing food consumption “obviously drives up the cost” of groceries.

The number one thing that artificially inflates the price of groceries is the food stamp program. The federal government is subsidizing groceries for 40 million people which obviously drives up the cost. That's why the increase in the cost of groceries tracks exactly with the…

— Matt Walsh (@MattWalshBlog) October 28, 2025

As with all bad claims, there is a nugget of truth baked into them. If the government subsidizes anything, we would expect demand to increase, and thus unless supply is perfectly elastic, there will be some effect on prices. However, we need to think more carefully about the nature of the subsidy.

The way SNAP works is that beneficiaries receive an electronic voucher to spend at the grocery store, which is about $300 per month on average for a household. That $300 must be spent on groceries. However, if that household had already planned to spend $300 or more on groceries, it is unlikely they will spend all of the additional $300 on food. In the limit, it’s entirely possible they will spend no additional money on groceries, merely reducing their out-of-pocket spending on groceries by $300. They will then effectively have $300 more to spend on other goods. More likely is that they will spend some of the additional $300 on groceries, and some of it on other goods.

Many studies have tried to look at the extent to which SNAP benefits affect household spending, but these were mostly observational studies. There was no treatment and control group. But a 2009 paper titled “Consumption Responses to In-Kind Transfers: Evidence from the Introduction of the Food Stamp Program” has a better approach to studying the question. Since the original Food Stamp program was slowly rolled out across the country over more than a decade, you can compare counties that entered the program first to counties that entered it later. By doing so, Hilary Hoynes and Diane Schanzenbach find out some first interesting things about the causal effects of SNAP benefits.

For the claim by Walsh in his Tweet, the most relevant result from the paper is that food stamps impact household spending similarly to a cash transfer. Yes, the program increases household spending on groceries, but it also increases spending on other goods and services. And it does so almost identically to how cash transfers impact household spending. In other words, while pitching the program as assistance for buying groceries may make it more politically palatable, SNAP benefits are no different from a similarly-sized cash transfer for the average recipient. If they do cause any inflation, they do so in the same way as a cash transfer would, and thus there is no specific impact on food inflation.

A second bad claim about SNAP comes from the political left, in this case Minnesota Governor Tim Walz:

Every $1 invested in SNAP generates $1.80 in economic activity.

It’s not about the money, Trump just wants Americans to go hungry.

— Governor Tim Walz (@GovTimWalz) October 28, 2025

Unlike Walsh, Walz is a supporter of SNAP benefits. But as we will see, not only are they both making bad claims, their claims are wrong in a very similar way.

It’s unclear exactly where Walz got the $1.80 figure (please cite your sources, politicians!), but you can find lots of claims online of similar amounts. A likely source is a 2010 USDA report which shows a multiplier effect from SNAP spending of $1.79 per dollar spent on the program. Though I should have put “shows” in scare quotes, because the report doesn’t actually show this effect… it simply assumes it! The paper is very similar to economic development reports, which claim there is a multiplier from various government programs to stimulate industry. But they rarely show any such multiplier effect. They have a model which assumes there is a multiplier, and then it spits out a number.

Should we believe this multiplier effect?

On Twitter I joked that if it is true, you should just run all of GDP through SNAP and we could be 80% richer. But my joke isn’t quite fair, because it could be true at the margin, but the effects might dissipate at some point. At what point? Well, a key assumption by USDA’s model is that the recipients of SNAP benefits have a higher marginal propensity to consume than the average household, because SNAP recipients are poorer. This is a neat assumption (and it’s probably true), because it preemptively counters the argument that SNAP benefits must be funded with taxes, and those taxes will have an offsetting effect elsewhere in the economy, so the net effect is zero. But if you assume a higher MPC for poorer households, maybe the multiplier trick will work.

Here’s the key problem with this argument: it can only be true in the short run. Shifting money from savers to households that spend 100% of their income will increase consumer spending in a given year, and thus will likely increase GDP. But a lower savings rate must mean less investment. And less investment means in the long-run your economic growth rate will be lower. So in the long run, the country as a whole will be poorer than the alternate world without the transfer program.

This doesn’t mean you shouldn’t have the program: not all public policy is about maximizing GDP growth! But politicians and SNAP supporters should just say this: yes, GDP will be lower, but it’s a worthwhile trade-off because it helps poor people.

While Walsh and Walz seem to be making opposing arguments, they are actually both making a very similar claim: SNAP spending will increase total spending, especially spending on groceries. But as the Hoynes and Schanzenbach paper suggests, this claim is probably wrong, and it’s especially wrong when we think through the macroeconomic effects of a lower saving and investment rate.