No COLA for you!

You'd think that if the Consumer Price Index were really doing what it was supposed to do (i.e., accurately reflecting changes to the cost of living in the U.S.), there wouldn't be a need for the government to provide aid to senior citizens when the inflation index says none is required. Yet, that's exactly what's happening as indicated in this report on the big lump of coal being placed in millions of stockings this winter by the Social Security Administration.

There will be no cost of living increase for more than 50 million Social Security recipients next year, the first year without a raise since automatic adjustments were adopted in 1975, the government announced Thursday.

Blame falling consumer prices. By law, cost of living adjustments are pegged to inflation, which is negative this year because of lower energy costs. Social Security payments do not go down, even when prices drop.

The Obama administration, meanwhile, is pursuing a different way to boost recipients' income. On Wednesday, President Barack Obama called for a second round of $250 stimulus payments for seniors, veterans, retired railroad workers and people with disabilities.

This $250 payment would effectively be a one-time cost of living adjustment of two percent following an increase of almost 6 percent earlier this year, a boost that was driven by soaring energy prices in 2008.

If the government were to be more honest about this, they'd construct an inflation index for senior citizens as one British newspaper has done in recent years. There, the age 65+ inflation rate comes in at 2x or 3x the "overall" inflation rate since seniors spend a disproportionate amount of their money on medical costs, energy, and food, making far fewer purchases of items that have been going down in price such as electronics and apparel.

Claims such as this one somehow fail to ring true:

"Social Security is doing its job helping Americans maintain their standard of living," said Social Security Commissioner Michael J. Astrue.

But, he added, "In light of the human need, we need to support President Obama's call for us to make another $250 recovery payment for 57 million Americans."

Again, there's something clearly wrong with the logic there.

Of course that doesn't mean that it won't get repeated enough times that people actually start to think that their personal experience in the world is somehow the exception to the rule.

Social Security recipients shouldn't get a raise next year because their purchasing power has already increased with falling consumer prices, said the Center on Budget and Policy Priorities, a liberal-leaning think tank.

"Since the purpose of COLAs is to preserve beneficiaries' purchasing power, the decline in overall prices means that beneficiaries do not need a COLA in January 2010," Kathy Ruffing, a senior policy analyst at the center, wrote in a report this week.

Over the past 12 months, gasoline prices have fallen 29.7 percent and overall energy costs have decreased 21.6 percent, the Labor Department said Thursday.

Things could get very interesting this winter if energy prices remain elevated, something that appears increasingly likely with each passing week.

In mid-December of 2008, gasoline cost only $1.61 a gallon and current prices of about $2.50 a gallon represent an increase of more than 50 percent. That's going to be a tough argument to counter if seniors begin complaining loudly about getting stiffed later this year.