Politics or Poppycock A Look From the Left At Politics, Politicians, Policies and Issues of National Concern

By Saul Friedman

Newsday (MCT)

Posted on Tue, Jul. 14, 2009

Here is a sample of the outrage over word that, for the first time, there won’t be a cost-of-living adjustment (COLA), a raise, in Social Security benefits for the next two years – January 2010 and 2011 – because the cost of living isn’t rising.

George Billy of Massapequa, N.Y.: “Are they kidding or what about zero inflation? Where are they getting their data from – Mars?”

James C. Nicholas, Diamond, Ohio: “Everything has gone up in the last year. What about gas increasing, insurance increasing until we are almost forced to cancel? Prescription drugs increasing? This makes me sick.”

Charlie and Peg Firth, of Vero Beach, Fla.: “The cost of everything we need to buy has gone up, food, gas, electric, rent, home insurance. Congress spends billions on bailouts but the senior citizen who worked gets nothing.”

The subject has been debated in Congress and among economists almost since 1972, when President Richard Nixon signed the law providing for an automatic COLA each year, based on the rate of inflation. That made Social Security the only defined benefit pension with inflation protection. Now, beneficiaries are questioning that protection. Let me explain what’s happened.

The official measure of inflation comes from the Consumer Price Index (CPI) of the Bureau of Labor Statistics. And based on the CPI, the COLA has given Social Security beneficiaries yearly raises averaging 2.5 percent for the past 10 years, ranging from a low of 1.4 percent in 2002 to a record 5.8 percent last year, starting this past January, which was greeted with cheers.

Actually there are three different CPIs:

The CPI-U, for urban consumers, the CPI-W (which is the one that is used for all wage earners and clerical workers) and the CPI-E, which stands for “experimental.” Many think it stands for “elder” because it’s limited to people 62 and older and was designed to see if their costs of living differed from other wage earners.

The Consumer Expenditure Survey, from which the CPIs are compiled, monitors a vast array of prices for food, transportation, medical care, education, utilities and virtually every other service. Each category is weighted for each group; medical care is weighted heavily for older people; education costs for younger wage earners who likely have children in school.

According to Social Security, a COLA “is equal to the percentage increase in the CPI-W from the third quarter of one year to the third quarter of the next.” Last year, with the onset of the recession, when some prices went down, the Bureau of Labor Statistics found that inflation, overall, was so minimal there would be no COLA this January or next (see ssa.gov/OACT/COLA).

But the “overall” inflation rates may be flawed, said Shawn McMahon, a researcher on the subject for the nonpartisan Wider Opportunities for Women. During this past quarter, he said, “Food, housing and medical costs have all increased by approximately 4 percent. Elders are correctly seeing continued increases in their most basic expenses. The costs elders face are also dependent on where they live, their housing status and their health.”

Some elder organizations have lobbied for the bureau to use the CPI-E, which they believe is weighted toward the more typical spending among older people for health care and food. But over a 25-year-period, the bureau says, there was little difference between the CPI-E, which rose at 3.3 percent, and the increases of 3.1 percent and 3 percent, for the CPI-U and CPI-W, respectively.

But the tables from 1983 through 2007 show several years in which the CPI-E had the highest cost increases but none where it was the lowest. Moreover, there were more years when the costs of food, medicine and health care were considerably higher than other costs.

McMahon said the bureau “uses the same stores, the same goods, the same prices for all inflation measures. These may not represent elder consumption patterns as well as they should.” But the bureau counters that the CPI-E sample, limited to people over 62, is too small to be accurate and should be used “with caution.”

Senior advocates and lawmakers have suggested changing the bureau’s methods; many federal poverty programs depend on the CPI. McMahon’s group, advocates on women’s economic issues, has created an “elder index,” which, he says, monitors actual costs at local levels, along with the CPI data. Their aim is to get Congress to adopt a true “economic security index” for all families, including the elderly.

See wowonline.org /ourprograms/fess. Meanwhile, with the prices of fuel and medicines rising again, the outrage among older consumers continues.

(Saul Friedman writes Gray Matters, a personal finance column directed at older Americans, for Newsday. He can be reached at saulfriedman@comcast.net.)

(c) 2009, Newsday.