The Guardian's Patrick Butler reports that food stamps are to replace the cash payments currently received by vulnerable people in short-term financial crisis (...).
In classic economics-blogging style, here's another news story. Cyprus is to impose capital controls (...)
The link is that both measures won't have the absolute effect that their promotors might hope; rather, they impose a huge, uncontrollable and grey-market tariff on attempts to do what people are used to being able to do freely.
The Cypriot capital controls are the more obvious example of this. For the next week, a euro in Cyprus is worth less than a euro elsewhere. How much less, we don't know, and there will probably never be a clear market rate – especially if the controls are lifted in early April, which the people of Cyprus will surely be hoping will happen.
Nonetheless, if a Cypriot finds themselves urgently needing to get a large number of euros out of the country – say, to close a purchase on a house in the French Riviera – it's relatively obvious what they have to do. Offer someone in the "real" eurozone a quantity of euros in Cyprus to spend the money for them. The premium offered depends on the risk that the capital controls will not be lifted, as well as the value our outsider places on euros which can only be spent in Cyprus, but it's fairly doable from a technical point of view. (...)
Those effects are basically the same as what we will see if food stamps become widespread. It's best to think of food stamps as a separate currency; one which can only be used buy a certain list of items. Just like the Cypriot euro, it has "capital controls" – you can't just walk up to a bureau d'exchange and hand food stamps in and get pound sterling in return. But just like the Cypriot euro, there are ways – easy ways – of getting around them.
The legal way – analogous to the complicated deal to hand over money in two nations – is as simple here as offering someone a £20 food stamp for a £12 bottle of gin. Given most people buy food, that's a relatively good deal for the person who ends up with £8 profit; they essentially get a portion of their groceries paid for by someone in crippling financial need. (...)
In the end, then, what is the outcome of food stamps? All things considered, they don't force people in financial difficulty to spend their money on "necessities" rather than "luxuries" (with the two categories odiously defined by government, rather than the individuals themselves). Instead, they impose a tariff on purchases of "luxuries" for those people.
The same economic effect could be had more directly by requiring shops to display two prices for booze and fags: a regular price, and a higher price for "poor people".