Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! We only ask one time of year, but when we do, we mean it. Without your support we can’t continue to bring you the very best material, day-in and day-out. CounterPunch is one of the last common spaces on the Internet. Help make sure it stays that way.
FacebookTwitterGoogle+RedditEmail

The Drive to Cut Social Security Benefits

by DEAN BAKER

There is a full-fledged drive to cut Social Security benefits by lowering the annual cost-of-living adjustment for people already receiving benefits. The plan involves changing the index for calculating the cost of living. The new index, which is known as the “chained consumer price index” (CCPI) typically shows a rate of inflation 0.3 percentage points less than the CPI currently used to adjust benefits.

A reduction of 0.3 percent in benefits may seem small, but this will accumulate through time. After being retired 10 years, benefits will be almost 3.0 percent lower with the CCPI. After 20 years the loss will be near 6 percent, and after 30 years the reduction in benefits will be close to 9 percent. This is a serious loss of income for seniors, the vast majority of whom rely on Social Security for most of their income.

The justification for the change in the benefit formula is that the CCPI takes account of the substitutions that consumers make in response to changing prices. The classic story is that if the price of beef rises and the price of chicken doesn’t, people will buy more chicken and less beef. The CCPI takes this switching from beef to chicken into account in calculating inflation. The current CPI does not.

While there is an argument for taking account of this sort of substitution in the index, there are two important issues that arise when evaluating the cost of living of seniors. First, their consumption patterns differ substantially from the rest of the population. They consume more health care and fewer computers.

The Bureau of Labor Statistics (BLS) has constructed an experimental index that tracks the consumption patterns of the elderly. This index actually has shown a somewhat higher rate of inflation than the CPI currently used to adjust benefits. In other words, it implies that the current cost-of-living adjustment is too low, not too high.

The other problem is that it is not clear that the elderly would be as likely to substitute in response to price changes as the rest of the population. There are three reasons for this. First, many of the items consumed by the elderly don’t lend themselves well to substitution. If the price of heart surgery goes up, people are unlikely to substitute other medical care. Health care and shelter together account for almost half of the consumption basket in the elderly index.

Second, they tend to be a less-mobile population. This means that if responding to a change in prices means traveling further to shop, the elderly might be less capable of doing this than the rest of the population.

Finally, older people may just be more set in their ways. If they have been eating beef twice a week for 40 years, they may continue to eat beef, even if the price does rise.

At this point we don’t know what a full elderly index that included substitution would show about the cost of living for the elderly. However, if the point of changing the indexation formula for Social Security is to make the indexation more accurate, then it would seem that we would want to find out.

In other words, if the people who claim to want a more accurate cost-of-living adjustment are being honest, then they should be calling for the BLS to construct a full elderly index. This index would then be used for adjusting Social Security benefits. At this point, we don’t know if this index will show a higher or lower rate of inflation. We just know that it will be more accurate.

In the push to cut benefits, many have claims that “all economists agree” that we should switch to the Social Security adjustment to the CCPI and thereby lower benefits. While the claim is not true, it is also worth pointing out that “all economists” have a very bad track record.

“All economists” missed the $8 trillion housing bubble that wrecked the U.S. economy as well as the bubbles whose collapse did similar damage to the European economies. “All economists” thought that the stock bubble of the 90s would just keep inflating indefinitely. In fact those wanting to invest Social Security money in the stock market effectively assumed that price-to-earnings ratios would rise into the hundreds in the decades ahead.

“All economists” even have a very bad track record on this exact issue. Back in the 90s there was an effort to reduce the annual cost-of-living adjustment for Social Security by 1.1 percentage points based on the report of a commission chaired by Michael Boskin, the chief economist for the first president Bush. At that time “all economists” lined up behind the report, agreeing with the Boskin commission that the CPI overstated inflation by 1.1 percentage point.

This effort was defeated in Congress. Remarkably, all the economists who accepted the Boskin commission’s claim that the CPI overstated inflation by 1.1 percentage point then continued to use it as though it was an accurate measure of inflation. (According to estimates from the Boskin commission, changes in the CPI reduced the overstatement by about 0.3 percentage points.) In other words, when there was a political reason to claim the CPI was overstated, “all economists” were willing to rise to the occasion. But when that reason disappeared, they ignored what they previously asserted.

Based on this track record, the public should view “all economists” as people who are either not very good at their work or not very honest, or perhaps both. They should not be looking to them for guidance in policy debates.

 

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

September 27, 2016
Louisa Willcox
The Tribal Fight for Nature: From the Grizzly to the Black Snake of the Dakota Pipeline
Jeffrey St. Clair
Idiot Winds at Hofstra: Notes on the Not-So-Great Debate
Mark Harris
Clinton, Trump, and the Death of Idealism
Mike Whitney
Putin Ups the Ante: Ceasefire Sabotage Triggers Major Offensive in Aleppo
Anthony DiMaggio
The Debates as Democratic Façade: Voter “Rationality” in American Elections
Binoy Kampmark
Punishing the Punished: the Torments of Chelsea Manning
Paul Buhle
Why “Snowden” is Important (or How Kafka Foresaw the Juggernaut State)
Jack Rasmus
Hillary’s Ghosts
Brian Cloughley
Billions Down the Afghan Drain
Lawrence Davidson
True Believers and the U.S. Election
Matt Peppe
Taking a Knee: Resisting Enforced Patriotism
James McEnteer
Eugene, Oregon and the Rising Cost of Cool
Norman Pollack
The Great Debate: Proto-Fascism vs. the Real Thing
Michael Winship
The Tracks of John Boehner’s Tears
John Steppling
Fear Level Trump
Lawrence Wittner
Where Is That Wasteful Government Spending?
James Russell
Beyond Debate: Interview Styles of the Rich and Famous
September 26, 2016
Diana Johnstone
The Hillary Clinton Presidency has Already Begun as Lame Ducks Promote Her War
Gary Leupp
Hillary Clinton’s Campaign Against Russia
Dave Lindorff
Parking While Black: When Police Shoot as First Resort
Robert Crawford
The Political Rhetoric of Perpetual War
Howard Lisnoff
The Case of One Homeless Person
Michael Howard
The New York Times Endorses Hillary, Scorns the World
Russell Mokhiber
Wells Fargo and the Library of Congress’ National Book Festival
Chad Nelson
The Crime of Going Vegan: the Latest Attack on Angela Davis
Colin Todhunter
A System of Food Production for Human Need, Not Corporate Greed
Brian Cloughley
The United States Wants to Put Russia in a Corner
Guillermo R. Gil
The Clevenger Effect: Exposing Racism in Pro Sports
David Swanson
Turn the Pentagon into a Hospital
Ralph Nader
Are You Ready for Democracy?
Chris Martenson
Hell to Pay
Doug Johnson Hatlem
Debate Night: Undecided is Everything, Advantage Trump
Frank X Murphy
Power & Struggle: the Detroit Literacy Case
Chris Knight
The Tom and Noam Show: a Review of Tom Wolfe’s “The Kingdom of Speech”
Weekend Edition
September 23, 2016
Friday - Sunday
Andrew Levine
The Meaning of the Trump Surge
Jeffrey St. Clair
Roaming Charges: More Pricks Than Kicks
Mike Whitney
Oh, Say Can You See the Carnage? Why Stand for a Country That Can Gun You Down in Cold Blood?
Chris Welzenbach
The Diminution of Chris Hayes
Vincent Emanuele
The Riots Will Continue
Rob Urie
A Scam Too Far
Pepe Escobar
Les Deplorables
Patrick Cockburn
Airstrikes, Obfuscation and Propaganda in Syria
Timothy Braatz
The Quarterback and the Propaganda
Sheldon Richman
Obama Rewards Israel’s Bad Behavior
Libby Lunstrum - Patrick Bond
Militarizing Game Parks and Marketing Wildlife are Unsustainable Strategies
FacebookTwitterGoogle+RedditEmail