COLA Games

Nov 22, 2010

The “Deficit Commission” proposes cuts to Social Security, veterans’ pensions, government workers’ wages and certain benefit payments–not directly, but by messing with the Cost of Living Adjustment (COLA) of these benefits.

COLA is based not on the real rate of inflation but on a fictitious index called the Consumer Price Index (CPI). As every Social Security recipient knows, the COLA has been zero for the past two years. Prices on necessities have gone up and up, but there is no COLA increase because–so says the government–there’s no inflation!

That’s because the government has been messing with the CPI ever since 1980. Officials have played all sorts of tricks to be able to say that the rate of inflation is much lower than it actually is. At this point, the CPI understates the actual inflation by about 7% every year. Without all those tricks, Social Security checks would be twice as big today as they actually are! (Check out Shadow Government Statistics website for full details.)

But, for example, if prices on certain items go up, consumers often are forced to adjust what they buy downward, like buying hamburger instead of steak. That’s a decrease in our standard of living, but it shows up as no rise in price in the CPI–since you pay less for hamburger than for steak.

Likewise, prices on goods like cars and cellphones might be going up, taking up a bigger and bigger share of our incomes–but it doesn’t show up on the CPI. Since our cars and cellphones have more gadgets and doo-dads than they used to, they’re a “better value”–and therefore supposedly don’t cost us more! Except that just to get a cell phone or a car, we pay a higher price than before.

The Deficit Commission is now proposing to tinker with the CPI once again, driving down the benefits and wages of anyone whose COLA depends on it.

And when we’re eating cat food, they’ll still tell us it’s the same as eating steak!