So even though Social Security recipients are not worse off than they were the last time they received a COLA, the Democrats want to spend more taxpayer money to buy votes. That's $14,500,000,000, by the way. That may be the biggest campaign expenditure of all time - with our money.
Saturday, October 16, 2010
Social Security COLAs
Today's first article is about the prospect that the Democrats may attempt to buy some votes by providing $250 paychecks to Social Security recipients. A cheap election year tactic, no less. This is a classic case of the money illusion, where people look at the number of zeros on the bill as opposed to how many loaves of bread that bill can actually buy. So the last time that the economy had an oil supply shock, the CPI surged ahead, but then the price of oil subsided as the world entered into a recessionary period. So inflation has been flat since then and the price of milk, bread, and many other common items has stayed the same. Social Security recipients are used to receiving yearly COLAS, or cost of living adjustments. So, for the past two years, since the CPI has not increased, they have not received raises. Many are very angry about this, even though they are not worse off. People like to see their incomes going up each year, but they do not factor in how much that income can actually buy them. If inflation is 5%, but a worker gets a 3% raise, he is happy, even though he is worse off. If inflation is zero and his raise is zero, he is not happy, even though his state has stayed the same. Similarly if deflation occurs, he still wants to get a raise. This is one of the reasons why many economists think that the economy should have a slight amount of inflation, because it "greases the wheels." That is an actual quote, either from Bernanke's or Mankiw's text (I don't remember which).