Micro Demo "Some" of the Essay

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The consumer's indifference curve would be on a lower budget line against their preference but this would have effects of its own beyond individual consumers (below). On the other hand if we shifted the good on the X axis to "rent" and called that at its possible minimum to begin with (i.e. without substitute outside the model), then a cut in SNAP that decreased purchasing power for both goods would equal an absolute reduction of all consumption as demonstrated in figure 4, and both "corner solutions" of all one and zero of the other would change instead of remaining the same at X=0 for vegetables in Figure 2. Were these goods perfect complements, the indifference curves would in fact be fully squared instead of rough isoquants displayed here.

These effects would ripple out to producers and all along the retail value chain. What actually happens when food stamp benefits transfer? (Disregard cash payments.) the recipient gets an electronic credit in their account which they can only spend at the grocery store. The grocery store gets the real cash, which they spend paying bills, employees and the like, but their primary motivation is to buy food, as much of it as possible, in order to achieve economies of scale, and thus either higher profit or faster capital formation (real growth). Likewise the food producers have the exact same motivation, and all three groups have budget constraints and price / quantity tradeoffs that can be modeled in ways very similar to the figures in Appendix C. Lower demand for alcohol from a cut in food stamps would reduce short-term income for grain farmers, perhaps leaving unexpected surplus forcing them to lower prices to clear inventory; in exactly the same way, demand for trucking and brewery labor would fall, reducing first prices as firms attempt to defend market share, then employment if wages are sticky on the down side. In the long run, the lowest-profit firms who could not afford larger or more efficient firms' economies of scale, achieved by a higher number of units sold (inventory turnover) per the same fixed costs in for example shipping / storage; insurance; accounting; advertising; regulatory compliance or the like, where these costs do not increase with higher input consumption and production per fixed cost (lower cost per unit), then the firms who can achieve those economies earn more profit or grow faster than the marginal producers, who go out of business.

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This all implies competition (perfect in theory but not reality); given monopoly through enough economies of scale, "the" producer would reduce output rather than profit in order to bid up prices effectively at auction, but with similar effects on demand and employment. Therefore reducing SNAP benefits could actually reduce aggregate capital formation in perfect, monopolistic or oligopolistic competition if the result is higher unemployment / reduced demand (absent increased tax savings investment; offsetting exports; fiscal policy; etc.). This is not a foregone conclusion if productivity increases by closing the less-competitive shops, after a period of frictional unemployment for those workers / prior operators. The same applies to retailers as well, if lower throughput (goods in the back and out.....

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