COLA Zero

This year Social Security recipients will not be receiving an cost of living increase in their benefits because inflation has been negative for the year due to the drop in energy prices.  It is the first year since 1975 — when Social Security benefits were pegged to inflation through COLAs — that Social Security benefits will not increase.

Senior citizens and their lobbying arm, the AARP, are a potent political force, and therefore it is not surprising that politicians, including President Obama, have immediately weighed in and argued that the federal government should make a $250 payment to more than 50 million senior citizens, as well as veterans, railroad workers, and people with disabilities.  You can do the math — such a proposal, if enacted, would add more than $12 billion, perhaps as much as $14 billion, to the federal deficit.

I have nothing against senior citizens, but I do object to what seems like blatant pandering.  The current weak economy has thrown millions out of work and affected the standard of living of countless millions more.  Why should senior citizens, who already receive significant sums in federal benefits, receive an additional cash payment from the government?  Social Security benefits have been pegged to inflation for more than 30 years, and seniors have done pretty well as a result.  Take a look at this chart published by the Social Security Administration.  The COLAs have worked to the significant advantage of seniors; in 2008, for example, seniors received a 5.8 percent increase in their Social Security benefits.  I know a lot of people who would have been happy to receive a 5.8 percent compensation increase at the end of last year.

If this is the year when prices don’t increase, and therefore no COLA increase is forthcoming, why should we change our approach?  Why should our already already overwhelming federal deficit be increased by billions more?  If we can’t resist shoveling out more money when a time-honored formula says we shouldn’t, is there really any hope that our politicians will be able to show the resolve necessary to bring our ridiculous deficit spending under control?

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The Power of Demographics

Here’s an analysis of the federal budget and unfunded liabilities that should give everyone pause — particularly those who will be working over the next few decades to fund these currently unfunded liabilities. Last night UJ noted that President Obama has shown a refreshing willingness to tackle big problems. Maybe Social Security and Medicare will be next on his agenda.