The Lafayette Journal & Courier makes the point that social security recipients shouldn’t grump about a second year with no cost of living adjustment (COLA). The COLA is designed to help social security recipients maintain their standard of living in the face of inflation. In years with essentially zero inflation, no COLA should be forthcoming. That’s true, but it ignores the fact that a good number of Americans are basically innumerate. It’s the whole Nigel Tufnel, “but ours go to eleven” thing:
Nigel Tufnel: The numbers all go to eleven. Look, right across the board, eleven, eleven, eleven and…
Marty DiBergi: Oh, I see. And most amps go up to ten?
Nigel Tufnel: Exactly.
Marty DiBergi: Does that mean it’s louder? Is it any louder?
Nigel Tufnel: Well, it’s one louder, isn’t it? It’s not ten. You see, most blokes, you know, will be playing at ten. You’re on ten here, all the way up, all the way up, all the way up, you’re on ten on your guitar. Where can you go from there? Where?
Marty DiBergi: I don’t know.
Nigel Tufnel: Nowhere. Exactly. What we do is, if we need that extra push over the cliff, you know what we do?
Marty DiBergi: Put it up to eleven.
Nigel Tufnel: Eleven. Exactly. One louder.
Marty DiBergi: Why don’t you just make ten louder and make ten be the top number and make that a little louder?
Nigel Tufnel: [pause] These go to eleven.
These social security recipients just want their check to go to eleven, not thinking much about whether that higher number actually buys them any more stuff.
Having suggested that people are dumb with numbers, I’ll have to confess that I’m no genius about this stuff. I can’t figure out who, exactly, wins and who loses when inflation is minimal. For example, I know that my home loan is locked in with nominal dollars and a fixed interest rate. If, down the road, I got paid more dollars because of inflation for the same work; that would make my home loan a smaller percentage of my income and, in that sense, I would benefit. (Though the other consequences to me from inflation might offset that benefit.) Speaking very generally, it seems to me that inflation benefits long term debtors and hurts long term creditors.
And, if I were really smart, I’d digress into a discussion about quantitative easing which I’ve recently heard a lot about but which, to me, sounds an awful lot like just printing money dressed up with a fancy name.
I used whiteout to paint in a 12 on my Crate Amp in homage to Nigel.
And by way of analogy, I was talking with Tom Anderson, a retirees, about the Fed and Libor overnight rates and why their would be no COLA in his social security check.
Mr. Anderson says, “well, that’s the dangdest thing I ever heard. That makes about as much damn sense as them two boys that I always catch whacking off in my RV. Why can’t they just make them rates go to minus-one?”
Actually, it’s worse than that. The law that established the COLA allows for it to be frozen, but it doesn’t allow for it to be cut. Thus, in a deflationary environment like we have been in for the last two years, Social Security recipients are actually AHEAD of where they “should” be. Their checks were frozen when prices were going down.
COLAs were a product of the inflationary ’70s. They really need to be updated for the deflationary ’00s.
Buzzcut,
Conceptually, COLA shoud be negative in deflationary years. But the destructive threat of deflation should never be encouraged by fiscal policy. Cutting checks in a deflationary environment would accelerate the deflationary cycle.