Social Security and Inflation

We “Greedy Geezers” will not be getting an increase in our monthly Social Security benefit payments in January, because the CPI is still below what it was in 2008. Stories on the Web are talking about how unhappy recipients will be to not get an increase, especially because the CPI rose about 1 percent over the past 12 months. Of course, I didn’t hear any complaints from recipients in 2009, when their benefits remained unchanged while the CPI dropped; nor was there any complaint when benefits were “over-indexed” between 2007 and 2008. This is a classic illustration of asymmetry in perception-”what’s mine is mine, what’s yours is negotiable.” Proposals to give a special $250 increase this year to recipients are politicians’ sop to this perception bias.

Wouldn’t the country be better off if politicians explained why the current system makes sense rather than catering to people’s mis-perceptions? Or if they were honest and modified the system to allow for benefit cuts when the CPI drops? (Fat chance of that!)

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 26

View All Comments »
  1. jimbino says:

    Given that abolishing SS is politically impossible, the best way to eliminate the misery that is SS is to freeze its benefits and let inflation kill it off eventually.

    Thumb up 0 Thumb down 0
  2. Drill-Baby-Drill Drill Team says:

    We complain about low subsidy checks. But the BIG benefit everyone is overlooking is the absolute low PRICE INFLATION which borders on DEFLATION. COLA doesn’t increase your buying power; it just simply compensates for inflation.

    Prices are not going up but plummeting especially for some products. In this recession I saw an 80% Off Sale! You can buy an iPhone for $99! Ten years ago, a billionaire like Bill Gates, could not afford such a device.

    Try living in a hyperinflation enviorment…your blood pressure would go through the roof! We have it pretty good despite all our gripes. ;)

    Thumb up 0 Thumb down 0
  3. DQKennard says:

    Try to convince people the cost of living hasn’t gone up. Yeah, sure. It’s clear and obvious to almost everyone (whether correct or not in any given case) that the cost of living has gone up — dramatically so for some things.

    The various CPI numbers don’t give a good picture of the economy, let alone present a good basis on which to hang a COLA.

    It’s even worse of an indicator for seniors, likely have a “basket” of goods and services that differs considerably from that on which the CPI is based.

    You haven’t bought a car in years? Oh, well that’s an important part of the CPI, and that’s listed as going down, in part because of genuine decrease, but in part because of the way the numbers are adjusted for “improvement” and substitution. That car didn’t *really* go up in price; you got *more* vehicle capability for the money!

    You spend most of your money on healthcare? That’s not included to anything like the percentage seen in seniors’ typical spending. Energy costs are up. Is the COLA indexed to a CPI that excludes energy?

    Thumb up 0 Thumb down 0
  4. George says:

    Social Security is 6.4% of a person’s income matched by the employer with another 6.4% (certain limits apply). I find it upsetting that the government taxes the employee on their Social Security wages. You have to pay tax on the money you are paying them. When you’re on social security and you earn income they tax it when they give it back to you! If you have saved in a 401K plan 9or IRA) and receive social security, your money is taxed at the highest other income rate (be financial planners haven’t told you about that).

    So far, social security has been a milk cow for the US government. It has paid for itself and funded 2.5 trillion to the federal government. Now that the Federal government has to pay some of that back, there’s a bunch of crying that social security is insolvent. No, the Federal Government is insolvent. They have been bilking us all along.

    I’m 50 years old and have paid in enough money to buy a house. I can’t collect on the social security until I 67 and they are talking about raising the age of eligibility.

    You bet I go to Tea Party Rallies and support Tea Party candidates.

    Thumb up 0 Thumb down 0
  5. CJ Rosenberger says:

    I’m happy that the Congress, Senate and federal workers will get raises in 2011. However, I would like them to know that my mother and father live on a total of $1,600 per month in social security payments.

    Yes, isn’t it wonderful that the USA takes care of it’s senior citizens so well. Of course I am being facetious. We all now how hard the Congress and the Senate work, especially when it comes to working with the lobbyists so that great laws benefiting US citizens can be put into action Oh, sorry I’m being facetious again. Well I just don’t know what is wrong with me. My apologies to anyone I may have offended. I think I may just be tired, considering I have to work two jobs so that I can help my rich parents put food on their table.

    Thumb up 0 Thumb down 0
  6. Gary says:

    Your last paragraph is way too wordy. I think you can cut it to:

    “Wouldn’t the country be better off if politicians … were honest…?”

    Thumb up 0 Thumb down 0
  7. Joshua Gamen says:

    inflation will cripple us too. They don’t have an answer, just a scheme.

    http://joshuagamen.wordpress.com/2010/10/13/competition-towards-disaster/

    Thumb up 0 Thumb down 0
  8. John says:

    Others have said it, but the point needs to be repeated — it’s not at all clear that the overall CPI represents the prices paid by people on Social Security.

    Of course even if it did, the point of this post would probably still be valid — people would still object to a cut in benefits even if the prices they actually pay on the stuff they buy were falling. Just another reason to avoid deflation.

    On the larger topic of whether social security should even exist at all — I think that it should, and that we should view it as payback to a previous generation for the public investments that were made with their tax dollars (not just their social security tax dollars — all their tax dollars). But we need to make sure that those public investments are made wisely. Government programs should be evaluated to make sure they actually work, and “work” should mean that they ultimately contribute to economic growth. Unbeknownst to most people, government programs actually are evaluated more frequently now than they were a generation ago. But we still have a long way to go in making sure that *all* government spending is evaluated for effectiveness and in making sure that the evaluations themselves are rigorous, objective, and focused on the right outcomes. This can be done, and progress is being made. We just need to keep moving in the right direction.

    Thumb up 0 Thumb down 0