In the last few days the price of corn has gone up more than 10%. We can think of that in the same way we’d think of an increase in payroll tax rate without increasing the ceiling on income subject to the tax, and without broadening the base of taxpayers.
This time, though, the “tax” receipts go to a very concentrated group of beneficiaries, most of whom already get preferential treatment.
So how does this increase in the price of corn affect the daily lives of people who get a salary or wages? Everywhere!
It’s in almost every food they eat, and more so in the less expensive, more basic foods. It’s in every gallon of gas they buy to get to work, and in the packaging for the stuff they buy at Walmart.
Let’s go through a day for the working poor.
Before leaving the house, they are already consuming corn. Read the label of any bargain cereal box. High-fructose corn syrup, even in cereal made from wheat. Then drive to work, burning gasoline with corn ethanol added.
At lunch, our very frugal American worker eats the same lunch as their children: the standby PB&J sandwich. Once again, corn syrup appears in every jar of peanut butter, the jelly, and even in the bread. If they have a can of soda with lunch, more high fructose corn syrup. An energy bar or candy bar in the afternoon? You guessed it: More corn syrup.
Drive home, and burn more corn ethanol. For dinner, if hot dogs and beans are on the menu, you can find ubiquitous corn syrup in both. If the dogs are on buns, there’s even more high-fructose corn syrup. In their soda, if that’s what they drink. And if we’re talking about the kids in the budget-minded family, their juice drinks are just loaded with the stuff, assuming they can’t pay the premium for 100% juice. Let’s look at another classic budget-stretcher — corned beef and cabbage. I guess you won’ t need to read the label on the corned beef to figure out that it’s pumped full of corn syrup, too. Finally, if they have house brand ice cream (or any other sweet) for desert, they get another dose of high fructose corn syrup.
By law, 35% of our corn production goes into our gas tanks, no matter how expensive that makes a gallon of gas compared to gasoline refined from oil. Adding insult to injury, last year a special incentive of $4 billion was borrowed to subsidize even more corn alcohol than the mandated 35%. It doesn’t stop there. Cat litter, packaging products, and a number of other consumables also use corn as their basic raw material.
That it hits lower-income people harder is undeniable. Just try comparing the most expensive and least expensive items at the grocery store in almost any category. Only the premium item is likely to have real sugar or honey among its ingredients. And you have to pay the “organic” or “natural” premium if you want peanut butter made from only peanuts and salt. At twice the price, avoiding high fructose corn syrup is a real luxury. Unfortunately, that may also mean avoiding Type 2 diabetes is a luxury, too.
Avoiding paying for corn is almost impossible if you eat in America. Unless you can afford free-range grass fed beef, you’re going to eat hamburgers fed mostly corn in feed lots. Same with your chicken or pork.
Add it all up, and we spend more on corn than all the other agricultural grain commodities combined, so it’s a big deal when speculation pushes the price up. We can be sure that the demand for corn didn’t increase by a huge percentage since last week, so speculation it is.
Where does that incremental increase in price go? Certainly a lot of it goes to leveraged speculators who provided the last “push” to higher prices. How many of those quick trading profits land in untaxed offshore hedge fund accounts? How many of those additional dollars end up in the hands of already-subsidized farmers?
The other part of this wealth transfer that isn’t as readily apparent is embedded in our current inflation/deflation picture. Inflation in the price of inexpensive food and gasoline hits the barely-making-it crowd the hardest. If they are also wage earners in a weakened job market, chances are they aren’t getting a raise, and their employers are steadily pushing up the percentage of their health insurance premium that they pay, along with deductibles and co-pays. So their wages are deflating, and the things they have to buy are inflating. Their solitary source of savings, their house, is deflating. And if they end up defaulting on their mortgage, a very likely buyer is going to be an investor with available credit and investable cash. More wealth transfer and more concentration higher in the pyramid.
As you consider throwing some money at a commodities ETF, at least stop whining about the lowest levels of our working class “not paying any taxes.” They pay sales tax, payroll tax, gas tax, etc., and they pay the hidden tax embedded in speculative inflation of soft commodities, on a relative basis, much more than you and I do.
I haven’t done so, but I may invest in soft commodities myself. I don’t condemn you for doing so, only for thinking that you are righteous and victimized at the same time when you pay taxes that others don’t pay because they are on the bottom couple of rungs of the economic ladder. They pay, too, and part of what they pay comes to you when you make a profit buying and selling commodities. Another part of how they pay is when the payroll taxes were spent to give us a break on our capital gains and income tax, but that probably should wait for another day and another post.