Saturday, October 16, 2010

Economic ignorance in action: Cost of living edition

I listened in mild confusion this week as news stories about Social Security payments remaining stagnant were presented as some sort of folly for the elderly.

Here's the Washington Post in a typical story:

The Social Security Administration is expected to announce Friday that more than 58 million retirees and disabled Americans will go a second consecutive year without an increase in benefits...

Cost-of-living adjustments, or COLAs, are set automatically each year by an inflation measure that was adopted by Congress in the 1970s. Because consumer prices are still lower than they were two years ago, the last time a COLA was awarded, the trustees who oversee Social Security project that there will be no benefit increase for 2011.
So let me see if I understand this. The cost of living has not gone up, so there will be no cost of living adjustments. That seems pretty logical to me. In fact, if consumer prices are lower like the report said, then the adjustment should be to lower Social Security payments.

So what do the politicians do? The Democrats have introduced a bill to give a lump sum of $250 to everyone on Social Security.

Seniors who rely on their modest Social Security payments need these cost-of-living adjustments for their day-to-day survival," said [Rep. Earl] Pomeroy (D-North Dakota), who chairs the House Ways and Means subcommittee on Social Security. "Passing this bill will ensure that the lack of cost-of-living adjustment will not jeopardize seniors' ability to survive on their benefits.

I try not to get snobby because I know it's common to be ignorant on economic matters, but this issue should be obvious to anyone with zero prior knowledge. If these annual increases are really about the cost of living, then they should be able to rise, fall and stay static along with the value of the dollar.

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