A Repeat of the No-COLA Coddling

Blog Post
Saturday, October 16, 2010

The Social Security Administration announced on Friday that for the second year in a row there would be no cost-of-living increase in Social Security benefits for 2011.  Why not?  As the SSA explains, this is a straightforward, non-political determination based on historical economic data:

The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a cost-of-living adjustment (COLA) was determined to the third quarter of the current year.

Very objectively, there will be no cost-of-living increase in Social Security benefits in 2011 because there was no increase in the cost of living, as measured by the CPI-W, from the 3rd quarter of 2008 (the last time a COLA was triggered, for 2009 benefits) to the 3rd quarter of 2010.  The latest data on consumer prices from the Bureau of Labor Statistics show that the CPI-W, by level (seasonally adjusted) was 215.111 in September 2008, while last month it was 214.345 (lower).

Well, no matter.  Last year, when the CPI in September 2009 came in even lower, the President and members of Congress called for $250 checks for seniors to make up for the lack of a COLA.  Policymakers downplayed the fact that there was no need to compensate seniors for (the lack of) inflation, and played up the fact that there was a very apparent need for continued economic stimulus.  Most policy observers like me who are not politicians commented at the time that the biggest reason for the $250-check-for-lack-of-COLA proposal was that it was good pandering to seniors.  I also remarked that maybe it wasn't such bad stimulus, but I could think of better, and anyway, it had nothing to do with the non-COLA other than the non-COLA being a convenient way to get seniors riled up and especially receptive to the politicians' pandering.

Well, the $250 non-COLA bonus never passed last year, but good-for-politics ideas like that tend to resurface regularly. And this year is even a better year for it, from a purely politican perspective.  Prices are still low but have come up since last year (but are still lower than two years ago which the current levels of Social Security benefits are based on), and to top it all off, this is an election year!  The chairman of the Social Security Subcommittee of Ways and Means, Earl Pomeroy, has announced the House will take up the $250 bonus proposal in November.  The President has announced his support.  House Speaker Pelosi calls this a "fiscally responsible" proposal, and maybe she'd even consider proposals for double the cost to be so.  (A bidding war may be coming in the final days leading up to the election.)

The President's press secretary, Robert Gibbs, opened up the White House statement with the following:

Many seniors are struggling in the face of the economic downturn, having seen their savings fall.

But of course, many people have been struggling in this weak economy, and in fact, those who aren't seniors are more likely to be suffering.  Working-age people are expected to use their jobs to support themselves, but we're in a "jobless recovery" -- and one where unemployment benefits have not kept up with the unusually long periods of unemployment.  Unemployment benefits run out on people after a while--typically six months (or only a few months beyond that if approved on an emergency basis by Congress and the President)--even if those people remain unemployed involuntarily and need continued support just to keep up their basic consumption needs.

In contrast, federal benefits to retirees via the Social Security and Medicare programs have no time limits, and benefit levels are explicitly designed to keep pace with needs, even with inflation and rising health costs.  In fact, that's why these entitlement programs are scheduled to be a growing drain on the rest of the federal budget over time if they are not reformed; aggregate benefits can keep rising (and are promised to rise, given the demographic factors) even if the incomes to the programs do not.

So my opinion about this proposal hasn't really changed qualitatively since last year, when I said (in the Washington Post "Topic A" feature) that (emphasis added):

This is not about making seniors “whole.” Because seniors are guaranteed to receive Social Security benefits regardless of the strength or weakness of the economy, they more than others have had a significant part of their income protected in this recession, and they received special aid in the last stimulus package [in February 2009], too. This is about taking from one generation and giving to another. By choosing to finance the provision by borrowing, our politicians hope the beneficiaries (seniors) will notice — while those most heavily penalized (our kids and grandkids) are not old enough to vote. This seems to be a purely political strategy to pander to seniors (once again) over other groups.

...but maybe quantitatively, I'm a little sicker of hearing it this second time around.