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Social Security Strangeness

Blog_CBPP_Social_Security_COLA.jpgThis will be the first time since 1975 that there's no cost-of-living adjustment for Social Security. The reason? The cost of living hasn't gone up. In fact, it's probably gone down. As the Center for Budget and Policy Priorities explains, "overall consumer prices have fallen significantly in the past year and are not expected to return to their earlier peak until mid-2011." The Obama administration, however, will not let that stand, and so they're encouraging Congress to give seniors a check for $250 this year.

So far as policy ideas go, this isn't particularly objectionable. The economy needs more stimulus and this is good stimulus. So far as politics go, it's a necessity: Seniors have come to expect the increase in their checks, and they dominate midterm elections. Obama lost that group in 2008, and he can't afford to be the first president in history who didn't deliver their yearly increase in Social Security benefits, even if it's not his decision. But as Kevin Drum says, this exposes some serious deficiencies in the way seniors understand that yearly hike:

[T]his does go to show the power that sustained inflation holds on our imaginations. 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. So now, despite the fact that the huge benefit increase of last January combined with the deflation of the past 12 months means seniors really are getting higher benefits for the first time in recent memory, it doesn't seem like it. So adjustments must be made and appearances kept up.

By Ezra Klein  |  October 15, 2009; 4:11 PM ET
Categories:  Social Security  
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Comments

A $250 raise is equivalent to a 2% raise (what I think we recipeints have been getting since I started getting benefits in late 2004) for someone with a $1041 a month benefit. But doesn't get added to the benefit and generate compound returns if/when COLAs reappear. So it is better for the gov't. Since there is a lid on tyhe maximum stasrting benefit, this hurts the most those beneficiaries who have a high benefit because they have been drawing benefits for a very long time with compounding of COLAs--people in their '80s and '90s.

Most seniors aren't prey to fast-rising costs like health care (except for drugs), college tuition and housing (most are downsizing or going into continuing care) or energy. The ones who really need the money will spend it, so it will get cycled back into the economy.

But hey--it's better than more bailouts.

Posted by: Mimikatz | October 15, 2009 5:00 PM | Report abuse

Sorry Ezra, but you and Drum are just wrong here.

NPR did a good breakdown on this in the morning. CPI is a measure of inflation for the general population. It's not a measure of the expenses seniors go through. And they're hit harder on medical care (yes, Medicare has a huge coverage gap, and the cost of Medigap and providers keep increasing, as do Part D premiums). Generally, inflation in these categories outpaces the CPI, and that's clearly the case this past year. So the administration is doing the right thing.

Posted by: GrandArch | October 15, 2009 5:22 PM | Report abuse

CPI is the traditional (legal) measure, but it is not a good measure (as GrandArch points out) of the inflation faced by those in retirement. For instance, owner's equivalent rent (for housing costs) is an 'estimate' of what home owners "would" charge to rent their property - which is BS to start with, but doublegood BS when applied to seniors.

There is absolutely no reason a separate statistic could not be substituted for CPI for determining Social Security payment increases for inflation. Everything is different: food, transportation, housing, medical expense - you name it.

No one is getting wealthy by the application of the current CPI-related COLA, and most, overall, of the seniors are not keeping up presently. According to SSA, the average benefit is $1,160.20 a month, with spouces receiving half that amount.

Does anyone want to claim that is too much, or that it covers the cost of living a decent existence?

Posted by: JimPortlandOR | October 15, 2009 5:46 PM | Report abuse

This is why no one believes Democrats when it comes to controlling Health Care Costs. (http://www.21stcenturypolitics.com/)

Our President could not afford to be the 'first President' to not give increase in Social Security Payment. Our Congress will not afford to be the first Congressional batch to reduce payments for Medicare as the health care reform demands.

Ezra sees this as the necessary Politics. I see this as phenomenal opportunity for GOPer to pounce on Obama. You do not have to start by 'opposing' this increase, that will not be good for GOP. But you start by asking what things are going down to fund this '$13 Billion cost' of this $250/- increase for each person. Or is it the Bernanke Printing Press extra shift only?

Anybody listening? I need to visit Megan's blog and try to ignite flurry about this... So much to do and so little time... These Dems and Liberals refuse to be prudent. Catastrophe is awaiting us unless we do not heed to warnings of Sen. Bayh and many fiscally responsible minded politicians.

Posted by: umesh409 | October 15, 2009 6:25 PM | Report abuse

I really wish politicians would stomp pandering to the elderly. The elderly get a 6 per cent raise last year, have experienced falling prices, and it's not enough? Okay, Social Security benefits aren't sky high - they shouldn't be! People are supposed to save money for their retirement. Not everyone does, or even necessarily can, and that is why we have the program. This sense of entitlement amongst the elderly drives me nuts. Maybe Social Security should have been compulsory saving, with the government topping up nest eggs which fall short of a minimum value.

Oh well. What's another $13 billion? Another $50 out of my pocket and into someone else's - a someone else which also happens to be in the wealthiest demographic, and based on their remaining life cycle probably should have been mostly in bonds during the meltdown.

It's not even good stimulus... we should know after doing it time after time that one time payments are mostly saved. Good to know that we saved the money on the F-22s so that we could throw an even greater sum away to buy votes. Definitely a cost effective trade there.

The CPI doesn't keep up with inflation for seniors? Fine, use the CPI-E. But if the index goes down, I want to see nominal benefit cuts.

At any rate, the seniors didn't vote for Obama, and they oppose healthcare reform because government medical assistance is only okay for them. Fat lot of good they've been so far - there are a lot of good people who are seniors I'll admit, who don't have that sense of entitlement, who support health care for younger people - but as a group they don't deserve a penny of extra money from Obama and the Democrats. Go ahead, let them vote for Republicans in 2010 and 2012, and take the risk that the budget gets balanced via entitlement cuts.

Posted by: justin84 | October 15, 2009 10:33 PM | Report abuse

Surely all those good conservative senior citizens will stick to their principles and reject this handout.

Posted by: Neal3 | October 16, 2009 3:28 AM | Report abuse

@umesh409: "These Dems and Liberals refuse to be prudent."

Your tired old talking point has been rendered moot by the existence of the years 2002-2006, during which the GOP fully controlled government and spent profligately. The fact is fiscal prudence no longer exists at the federal level. Partisan attempts to pin blame on one party despite all evidence to the contrary are needlessly divisive and counterproductive.

Posted by: BigTunaTim | October 16, 2009 11:32 AM | Report abuse

50% of seniors on Medicare have 20K or less per year income, 70% have 30K or less...

This column just more Journ-O-List coordination of the White House anti senior meme that seniors are grasping selfish citizens who refuse to share their affluence.

See Mattew Yglesias with same words today as Ezra: http://yglesias.thinkprogress.org/archives/2009/10/the-money-illusion.php

This is the Ezra, Mattew Yglesias, and Kevin Drum continuance of their specious (Journ-O-List) argument that these "undeserving" seniors should have less benefits and seniors should stop carping about their loss of future benefits that will happen under Obamacare-----seniors need to just look for cheaper dogfood

--------so the disastrous deficit busting Obamacare trophy health care bill can be passed.

These guys have become blindly partisan, have become ciphers for the White House------they are not progressives or journalists.

Posted by: johnowl | October 16, 2009 11:36 AM | Report abuse

Ezra, how can you say that this is "good stimulus"? It's giving out a one-time blob of money, which is exactly what one-time tax cuts do. And there is substantial research (see Paul Krugman and many other liberal economists writings) showing that such tax cuts, no matter who you give them to (i.e., rich, middle class, poor, etc.), do very little to stimulate the economy.

If this is good stimulus, then the entire 800 billion + of the package should have gone to one-time tax cuts.

Posted by: blsdaniel | October 16, 2009 1:15 PM | Report abuse

White House anti-senior meme? The same White House that wants to throw away $13 billion to buy approval from senior citizens?

So a lot of seniors don't have much income in retirement. That's what happens when you don't save and decide to stop working - you don't get to live like a king. Sometimes you have to make difficult decisions about money allocation.

A person who put away $3,000/yr in 2009 dollars and was able to generate a 3.5% real return from age 21-65 would have over $300,000 in their account. There weren't any tax advantaged accounts in the 1960s and 1970s, to be sure, but FICA rates were lower and they could have taken advantage of the 1982-2000 bull market and, if they had sensibly shifted into bonds as they got older, declining Treasury rates.

The price level is down, and seniors just got a 6% raise in January. I'm all for keeping the elderly out of poverty, but not a penny more. If you want to live better than just above poverty, then save for it. If someone didn't, then they made a bad choice. If the average Chinese, on much smaller real salaries, could sock away 25% of their after tax income, then the vast majority of Americans could have saved several thousand a year.

Posted by: justin84 | October 16, 2009 1:18 PM | Report abuse

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