Wikinvest Wire

No COLA for you!

Thursday, October 15, 2009

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.

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CS said...

You could also argue that recipients should be paid far less than they currently get because most have taken out much more than they put in and, as noted in this story, the plan is in a deficit for the next two years.

chris brown said...

I think its a good thing that Obama is doing that and I hope that he continues to create something that helps the seniors and that is very important.

TraderMark said...

I had the same thought as you

First, the CPI figure in America is a hoax due to construction

i.e. when steak gets to expensive they substitute it with chuck... I am serious. Hence no inflation in your meat purchases.

so CPI is a hoax

and then when CPI does not go up enough to benefit your most important voters, what do you do? Skip the COLA and say we will give you money we dont have anyhow.

Which makes us ask, why bother with the calculation in the first place?

I am all for seniors but this is wrong. They are a big voting block and they are struggling due to Greenspan and Bernanke destroying their savings accounts.

We cannot have our cake and eat it too forever. Create monetary policies that destroy savers and then make it up to savers by giving them handouts.

What a joke.

Anonymous said...

What you don't see is that it can only redistribute wealth and so it necessarily hurts one person to help another. I'm pretty much against the government trying to 'help' anyone. The net effect is almost always a minus and usually a huge one at that.

Anonymous said...

I don't see why seniors deserve a special break.

1) Most of the seniors right now are taking out far more than they ever put in to the social security system. That won't be true in the future, but it is true right now. 2) seniors are quite often wealthier than the general population as it already is.
3) How are they going to pay for this? By borrowing yet more money from future generations. Grumble, grumble, generational theft.

All savers are hurt by inflation, whether they are 30 or 70. But some savers (just not those in generation X, Y or millennials of course!) get some of that money back.

staghounds said...

Well, I'm not "for" "Seniors", or anyone else.

Not putting them on an ice floe or feeding them to the pigs is gift enough for them.

Anonymous said...

The one thing you guys aren't seeing is that there is more then just seniors on SSI, what about the people i.e children receiving survivors benefits, but they don't receive the stimulus payment because they aren't "disabled, elderly, or retired". Some of us depend on the COLA to help with the cost of raising children. We didn't choose for our children or the spouse' to have to bear the burden of losing a parent/spouse and in a single income family it is hard to make ends meet. I think that taking away the COLA and say well we will give out a one time payment is just ABSURD!!

janicegayp said...

This comment is for those who are sincere in their comments.

I for one, am a senior, and over my lifetime of work hours, months and years, made over $1,000,000, and during that time, Social Security deducted money from my salaries. I have worked most of the time since I was age 18, most of that time as a secretary. I now work part time, and I still contribute to Social Security at age 70. This will give you an idea of what seniors, and others still working, have and are contributing to Social Security. There are, of course, millions of us contributing, and millions who did contribute while they worked. Check out what's on your Social Security contributions. It's your right.

Anonymous said...

The same Federal regulators that claim there was no increase in the COLA for those on social security somehow managed to give themselves a nice hefty $10,000 raise and all the Federal employees a 3% raise and the military personal a 3.5% raise to keep up with this "invisible" inflation. I see it every day at the supermarket and the gas pump. A penny here a dime there, every week and every trip to the store. Who is kidding who here? We know what the costs are now compared to last year. They are by no means lower. Unless of course if you are on the market for a nice new Pontiac, Saturn, or Saab.

Anonymous said...

those of us whom are disabled and get ss need whatever help we can get,i agree some seniors are wealthy,i am not one of those.i live month to month barely.o.k.we didn't get our normal increase in 2010 on ss, but medicare premiums went up anyway,so i am receiving less money in 2010 than 2009. yes we do need the $250.00 stimulus plan for ss recipients.

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