John M. Berry comments for Reuters on the politics of the Social Security COLA: The White House's knee-jerk reaction to the news that inflation was so low that Social Security beneficiaries won't get a cost-of-living increase next year was a seriously bad omen for long-term control of federal spending. The problem wasn't the $13 billion cost of another one-time $250 payment to each retiree proposed by President Barack Obama. No, it was the utter disregard of the discipline inherent in indexing payments to changes in consumer prices. Click here to read the whole article – it's a good history of the policy and politics of COLAs.
Monday, October 19, 2009
John Berry on Social Security Politics
How different is inflation for seniors versus working age Americans?
Over at AEI's The American online magazine.
Sunday, October 18, 2009
Now I know why I don’t watch CBS News…
For what little it's worth, here's how CBS News reported on the COLA controversy. What's striking is that in a two-and-a-half minute segment – which is in-depth journalism by today's standards – CBS interviewed precisely no one who opposed paying an ad hoc COLA this year, despite ample reason to believe it's unjustified (when both the Wall Street Journal and the Washington Post editorialize against it, you can be pretty sure something's gone wrong). Come on, people – at least pretend to get both sides of the story.
Do seniors deserve higher Social Security benefits?
Peter Grier of the Christian Science Monitor weighs in. US seniors will be able to buy more with their Social Security checks this year, even though they won't be getting extra cash via a cost of living adjustment (COLA), according to some analysts. That is because the price of goods and services in America has fallen significantly since the period on which the last Social Security benefit increase was based. In addition, for most Social Security recipients, Medicare Part B premiums – which are deducted from their government checks – will be frozen. The bottom line? The purchasing power of a typical retiree will jump by about $725 next year, according to Andrew Biggs, a former deputy commissioner of Social Security. That calls into question the necessity of Congress voting seniors a one-time $250 payment, as President Obama has proposed, writes Mr. Biggs, now a scholar at the American Enterprise Institute, in a new analysis. "An ad hoc COLA payment is unnecessary and could lead to larger costs down the road," writes Biggs. Check out the whole article.
Saturday, October 17, 2009
Social Security benefits haven’t risen in generations. Really?
A friend brings to my attention an otherwise-interesting post by Kevin Drum discussing the recent Social Security COLA imbroglio. Drum makes the interesting point that annual COLAs give the impression of rising benefits even when the real buying power of benefits stays the same. (Economists call this "money illusion" and it's the source of a number of problems.) But Drum takes things a bit far. He says that Technical arguments about CPI calculations aside, the fact is that seniors haven't gotten a benefit increase for decades. It's just not the way the program works. But the fact that their checks keep going up makes it seem like they have. Now, it's true that for current beneficiaries benefits haven't gone up, unless one pays attention to technical arguments regarding whether the current CPI overstates the rate of inflation. (Of course, if you do pay attention to those technical arguments, then – at least according to Northwester economist professor Robert Gordon – it's possible the that real value of benefits has been rising by 1 percent or more above the rate of inflation.) But that ignores another point: the real value of benefits for new retirees has been rising consistently. That is, a new retiree this year doesn't get the same benefits as a new retiree last year; rather, he or she receives higher benefits. (Or at least they should; if I'm right about the new Social Security "notch" then they actually get lower benefits, but that's another story…). The chart below shows the real benefit level for new, medium wage retirees in years from 1998 through 2018. As you can see, benefits increase pretty significantly: a new retiree in 2018 receive benefits around 29 percent higher in real terms than a new retiree in 1998. A prominent reform proposal "price indexing" would arrest this increase: rather than having benefits rise with wages from cohort to cohort, they would rise only with inflation. In effect, price indexing would be an inflation-adjusted freeze on future benefit growth. While this has been proposed, however, it's definitely not what we've seen over the past several decades.
Friday, October 16, 2009
In Semi-Semi-Defense of Obama’s Social Security Pandering
I discuss Matt Yglesias's semi-defense of President Obama's COLA plan over at AEI's Enterprise Blog.
Republican proposes alternative $250 COLA payment
A friend informs me that Rep. Ginny Brown-Waite (R-FL) has proposed legislation to make a $250 lump sum payment to all Social Security beneficiaries and veterans, with the payments funded out of unused funds from this year's stimulus legislation. The bill is cosponsored by Reps. Patrick Tiberi (R-OH) and Dave Reichert (R-WA). My usual objections apply: seniors haven't been disadvantaged by not receiving a COLA; seniors haven't been the hardest hit by the recession; and lump sum payments to retirees probably aren't the best way to stimulate the economy. That said, assuming the legislation is funded out of existing stimulus funds, the lump sum payments are probably better than more cash for clunkers, bike paths and museums of organized crime. For what that's worth.
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