Economics, Entitlements

Very Bad Signs on Entitlements

The New York Times’s David Leonhardt has a very good column on the Social Security Cost of Living Adjustment (COLA) issue and the Obama administration’s proposal to make $250 payments to all retirees. Leonhardt shows clearly that seniors haven’t been the hardest hit by the recession and have actually seen their incomes rise as those for working-age households fell. The whole piece is well worth reading.

But there was one quote I thought worth commenting on. In defense of the $250 payments, Obama National Economic Council Director Larry Summers says, “we’re correcting an anomaly.” But the anomaly is that Congress pays a zero COLA in a year in which prices dropped, effectively increasing the real purchasing power of Social Security benefits by around $700. The correction? Add another $250 to the pot. This is the sort of argument I’m confident Summers would heap scorn on as an academic, yet in government those standards go out the window.

Leonhardt quotes tax economist Joel Slemrod saying, “if the long-term issue is entitlement reform, the fact that the political system cannot say no to $250 checks to elderly people is a bad sign.” A very bad sign indeed.

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