The cost of living

Bruno’s Torso – Death Vessel (from Nothing is Precious Enough For Us)

Two things about the cost-of-living bonuses and social security.

Background: Social Security has an automatic cost-of-living increase that has taken effect every since since the adjustments were instituted in 1975. This year, however, since there was no inflation (and in fact there was deflation) no increase will happen. This creates a problem because people assume those increases will happen and if they don’t, they get angry. So, in lieu of the cost of living increase, the administration is proposing simply cutting them all a $250 check.

The first point to make about this is well stated by Kevin Drum:

this 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.

This is a larger problem of how we talk about money in our society. We all understand in a general sense that inflation means things are always going to cost more over time. And yet when it comes to specific instances it’s hard to keep track of that. And that’s nowhere more apparent than something like this.

Given this, there is a general sense of outrage about this. And at first glance it makes sense. ‘Look how ridiculous our system is!’

But in reality this is an excellent problem to have at this particular moment. We should be spending a lot MORE in stimulus than we are, but the political winds made it impossible to get the extra several hundred billion dollars. Situations like this, where an immensely powerful sub-group expresses a sense of entitlement to extra cash, are perfect in this context.

Even though it’s a stupid reason for the policy, the underlying dynamic is perfectly rational. Build in a cost of living increase and any time when that doesn’t kick in is, by definition, going to be a time when it’s a good idea to get extra money into the hands of folks who will be somewhat inclined to spend it.

It’s a much smaller microcosm of some pretty serious public engineering issues. Medicaid, for example, is a policy that could potentially serve this same effect. It’s a counter-cyclical program. When the economy falls, more people need it, but that’s precisely when state budgets are smaller and less capable of covering the cost. The result: cuts in spending when they are most needed. Which may be a good argument for putting it under exclusive federal control. As a federal entitlement, it would enable more money to go to those who needed thanks to the federal government’s ability to deficit spend.

Of course, it’s easy to take this kind of thing too far. As much as I’d love a well-constructed liberal-socialist state that took on WAY MORE entitlements, we do not have such a state. And as such, trying to graft in too many of these sort of entitlement-fixes into the structurally unbalanced system we’ve got risks political backlash that could eviscerate some major elements of the social safety net.

So you’ve got to calibrate this stuff. But a few billion of extra stimulus in the disguise of a check to compensate the lack of a cost of living increase…that’s easy business that helps everyone.

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