Whipping Boys and the Misery Index

In the 15th and 16th centuries, there were at least legends of “whipping boys” who would be whipped when the crown prince did wrong. Today, it might be argued those that are less well-off suffer the consequences for what the rich do wrong. We see this in the actual consequences of going after the rich, where their crime is primarily being rich. 

For example, we read about proposals to raise taxes on wealthy corporations. As professor Antony Davies of Duquesne University says, “Raising taxes on corporations is a bait-and-switch. Corporations don’t pay taxes, they collect from customers, workers and investors.” The same is true of regulations. Davies has identified the people who actually pay corporate taxes or the costs of regulations. In general, it’s three groups: stockholders, labor and consumers. Stockholders include people who own individual stocks in brokerage accounts, but also those who own retirement accounts. Most of the former are owned by wealthy people, but 54 percent of Americans have money in 401(k) or 403(b) retirement plans.

Workers suffer from tax increases or regulations on corporations when corporations leave by taking jobs to other countries or cutting back on production. The result is either loss of jobs, less hiring or reduced pay. The effects on workers are important, but the largest impacts are felt through price increases, where consumers pay more for goods and services. 

Increases in food prices are, of course, horribly regressive. People in the lowest 20 percentof the nation’s income spend 36% of their pay on food, whereas people in the highest 20 percent need only 8 percent of their income for food. As agricultural economist professor Jay Lusk recently discovered, grocery store food prices are 15-16% higher today than they were in 2011 and there has recently been a big spike, particularly for beef, pork and chicken. Price increases come from higher gas prices, weather issues, decreased labor supply infarming due to COVID-19 restrictions, and winter storms.

It’s not just food prices. Today, “anxiety about inflation is at a fever pitch, among economists and in markets…” It’s important to remember why this can be bad. In the 1970s, interest rates were nearly 20 percent and, in 1979, prices increased by 13.3 percent in that year alone. In fact, inflation was so bad that economist Arthur Okun created the “misery index” that hit its peak (21.98) during President Jimmy Carter’s term. 

Most people living today don’t remember the speech Carter gave in 1978. He said, “If inflation gets worse, several things will happen. Your purchasing power will continue to decline, and most of the burden will fall on those who can least afford it.” He proposedto hold down federal spending and income taxes, reduce the budget deficit, slash the federal workforce, eliminate needless regulations and make the economy more competitive. While none of these remedies addressed actions by the Federal Reserve, these were President Carter’s ideas to get us out of the slump. 

A Brookings poll in 2018 found that 66 percent of people felt that corporations pay too little of their fair share in federal taxes and certainly raising taxes feels like a way to “get” those rich people. There’s just one problem: it won’t. Or at least the corporations won’t suffer the most. They have options and they will exercise them to ensure that they are not going to be the ones who are most affected. The people who will feel it the worst, the “whipping boys,” are those who can afford it the least. That’s the way it was in the 1970s and we could end up right back to being high up on the misery index.