We Fed Them KOOK a COLA but They Drank the KoolAid

“It’s the economy, stupid!”

We’re back! There is no inflation. The Cost of Living has not risen yet again and seniors get stiffed for the second year in a row. I wrote this column in April but there have been developments:

The Associated Press reports that “the government is expected to announce this week that more than 58 million Social Security recipients will go through another year without an increase in monthly benefits.

“It would mark only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.

“Based on inflation so far this year, the trustees who oversee Social Security project there will be no cost of living adjustment for 2011.”

Cost of living is by definition the cost of maintaining a certain living standard.

Employment contracts, pension benefits, and government payments such as your Social Security check can be tied to a cost-of-living index, typically to the CPI or “Consumer Price Index.” Federal law requires the Social Security Administration to base its Cost of Living Adjustment on the consumer price index changes in the third quarter of each year (July, August and September) with the same quarter in the previous year. Remember that.

The CPI reports the average price of a lot of stuff — what is called a constant “market basket of goods and services” — purchased by average households. According to Bloomberg Business News, the CPI wonks add up and average the prices of 95,000 items from 22,000 stores and 35,000 rental units. Those prices are weighted by assuming that you distribute your spending along strict percentages. Housing: 41.4%, Food and Beverage: 17.4%, Transport: 17.0%, Medical Care: 6.9%, Other: 6.9%, Apparel: 6.0%, and Entertainment: 4.4%. Taxes are exempt from the CPI totals so when your property tax or sales tax or income tax or ObamaCare health tax or gasoline tax or telecommunications tax or blue cheese tax rises, it doesn’t actually cost you any extra.

In calculating the CPI, the U.S. Bureau of Labor Statistics uses a formula that reflects the fact that consumers shift their purchases toward products that have fallen in relative price. Although this substitution game means the BLS reduces what we pay by “living with” store brands instead of name brands, BLS says my analysis is incorrect. Their objective “is to calculate the change in the amount consumers need to spend to maintain a constant level of satisfaction.” As long as the BLS gets to define “satisfaction.”

Where, oh where is Mick when we need him?

The Social Security Administration writes, “Since 1975, Social Security’s general benefit increases have been based on increases in the cost of living, as measured by the Consumer Price Index. We call such increases Cost-Of-Living Adjustments, or COLAs. Because there has been a decline in the Consumer Price Index, there will be no COLA payable in 2010.” Or 2011.

Did your cost of living go down?

  • Campbell’s Cream of Tomato soup costs between 80 cents and $1.29 per can in most markets today. Do you remember when it was 40 cents? I do. But the Cost of Living has declined.
  • A five-pound bag of flour costs about $2.49 in most markets today. Do you remember when it was a buck? I do. But the Cost of Living has declined.
  • Gasoline prices dropped in the third quarter but its cost is flying upwards again; it will be over $3 before I get back to Florida this year. Do you remember when it was $0.999? I do. But the Cost of Living has declined.
  • According to USAToday, health insurance premiums cost about $13,375 per annum in 2009. (And despite the new law, insurers say they do not have to cover kids with pre-existing conditions.) Do you remember when a family policy cost $2,500? I do. But your premiums will still go up. And, of course, the Cost of Living has declined.
  • Milk costs between $3.50 and $4 per gallon in most markets. Do you remember when it was $1.75? Or $1? I do. But the Cost of Living has declined.
  • Property taxes on the Vermont house are $3,869.96 and $3,892.26 on the Florida house this year. Do you remember when they were each $900? I do. But the Cost of Living has declined.

The AP report continued, The stagnant Cost of Living Adjustment is “not seen as good news for Democrats as they defend their congressional majorities in next month’s elections.

“Last fall a dozen Democrats joined Senate Republicans to block an effort to provide a bonus payment to Social Security recipients to make up for the lack of a COLA this year.”

I wish stuff didn’t cost so much but even more I wish our “leaders” didn’t lie to us about stuff costing so much. Oddly, I still cannot vote myself a raise.

Bob reminded us last time this appeared that “taxes don’t go into the CPI” so I updated the list to include property taxes. I didn’t include the little increases in government programs “recovery” on the phone bill or the increasing number of cities and towns implementing local sales tax “options.”

44 million Americans subsist below the poverty line because the cost of things we buy has skyrocketed past our incomes. Guess how many of those Americans depend on Social Security?

It is likely that Medicare Part B premiums will remain frozen at last year’s levels but premiums for Medicare Part D, the prescription drug program, will rise.

Federal law requires that the Cost of Living Adjustment be based on the CPI changes in the third quarter of last year to the third quarter of this year. Well, Ollie, some of the items in the CPI haven’t changed much, so seniors are now behind the same eight ball as they were last year.

Except their taxes, insurance premiums, drugs, heating oil, and cable TV subscriptions are all going to cost more.

Good thing there is a sale on cat food down to Price Chopper, isn’t it? Mmmm. Cat food.

3 thoughts on “We Fed Them KOOK a COLA but They Drank the KoolAid

  1. Who’s Bob?

    No one should rely on Social Security … that has been the biggest boondoggle foist upon us ever. That factoid notwithstanding, comparing prices from the year you graduated from nursery school with today’s prices merely supports the claim that cost of living has increased every year except the past year.

    Otoh, the really notable and angrifying point is that the CoL doesnot come close to reflecting the actual cost of living.

  2. @gekko: You know. Bb. He “believe(s) there is a day of reckoning coming.”

    It’s incorrect to say “the cost of living has increased every year except the past year” because what it costs us to live increased last year, too.

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