The COLA Controversy and Retirees

iStockphoto/ hepatus

With many other issues dominating the national agenda, Social Security and retirement finance issues have stayed on the back burner for the administration and Congress for most of this year. But they came into the spotlight yesterday with the official announcement that there would be no cost-of-living adjustment (COLA) for Social Security recipients this year for the first time in three decades. Andrew Biggs has been focusing recently on the COLA issue. In a new AEI Retirement Policy Outlook, he argues that a COLA for retirees this year would actually be detrimental to them, not helpful.

Biggs brings an insider's knowledge of the Social Security system. He was the principal deputy commissioner of the Social Security Administration, where he oversaw the agency's policy research efforts. He led the agency's participation in the Social Security Trustees working group.

In his recent Retirement Policy Outlook, "A Diet COLA For Social Security? Not Really," he said, "Due to falling prices in late 2008, today's Social Security benefits are about 4.7 percent higher in real terms than last year's. Since the average monthly retirement benefit is $1,160, this boosts the typical retiree's annual buying power by around $650." He also notes that the absence of a COLA means seniors are unlikely to see their Medicare premiums increase.

The White House is now scrambling to provide seniors and the disabled who receive Social Security benefits with a $250 one-time payment to make up for the absence of an adjustment, and it is unclear at this point whether Congress will embrace the idea. The Washington Post quoted Biggs saying, "There is essentially no substantive case for this on policy grounds. . . . This is a case of both Democrats and Republicans bending over backward to do the politically popular thing for seniors." On AEI's Enterprise Blog, he says that "the lump sum payment is the 'least bad' option other than doing nothing," the option he clearly believes is best for the country.

The COLA issue is one of many retirement finance issues that Biggs and Alex J. Pollock address in their work at AEI. In his Retirement Policy Outlook series, Biggs explains how Social Security can provide more progressive and predictable benefits and allow people near retirement to gain more benefits by extending their working years. Biggs and Pollock have also been exploring the sustainability of today's retirement finance system. In April, Representatives Jim Cooper (D-Tenn.) and Frank Wolf (R-Va.) presented their bipartisan entitlement funding reform proposal at AEI.

People and Programs

The Real Culture War. The popular Lexington column in The Economist recently featured AEI's president Arthur C. Brooks, commenting on what Brooks has described as "the real culture war over capitalism."  Brooks explained his thinking earlier this year in a column in the Wall Street Journal, "There is a major cultural schism developing in America. But it's not over abortion, same-sex marriage or home schooling, as important as these issues are. The new divide centers on free enterprise--the principle at the core of American culture." The Lexington column reports, "Voters particularly dislike the way the state is using their money to reward deadbeats, says Mr. Brooks. They themselves work hard and live within their means. They see their neighbour, who borrowed more than he could afford to buy a fancy house, getting a bail-out to save him from the consequences of his own poor judgment. They see reckless bankers getting bailed out too, and the ill-managed carmakers of Detroit likewise. And they resent it."

Photo Courtesy of U.S. Army/Martin Greeson

Powers of Persuasion. AEI's Frederick W. Kagan and his wife, Kimberly Kagan, served on the advisory panel that helped General Stanley A. McChrystal form his assessment of troop needs in Afghanistan. In a Boston Globe article Monday, Bryan Bender writes that the Kagans' "portfolio is unofficial, but they are highly influential, briefing members of the Obama administration, Congress, and journalists whose opinions matter about the war against Al Qaeda and the Taliban." Retired Army general Jack Keane, who, along with the Kagans, helped develop the surge strategy credited with stabilizing Iraq, says of the couple, "They are a force to be reckoned with. They have tremendous powers of persuasion."

Danger in Moral Compromises. Vaclav Havel, noted dissident, playwright, and former president of Czechoslovakia, caused a stir this week when he spoke to an interviewer about President Obama's refusal to meet with the Dalai Lama until after the president's first official visit to China.  According to the New York Times account, Havel showed the interviewer a glass dish inscribed with the preamble of the U.S. Constitution, a gift from Obama. "It is only a minor compromise," Havel said. "But exactly with these minor compromises start the big and dangerous ones." This week in Prague, Havel hosted his highly regarded Forum 2000 conference.  Joining him onstage to give opening remarks was AEI's Michael Novak. While in Europe, Novak will receive an honorary degree from the Catholic University of Ruzomberok in Slovakia. It is his twenty-sixth honorary degree. Other AEI scholars including Dan Blumenthal and David Frum have written about Obama's decision not to meet with the Dalai Lama. 

iStockphoto/ PeskyMonkey

Wall Street Is Dancing. On Wednesday, the Dow closed above 10,000 for the first time in a year. In his new Economic Outlook, John H. Makin notes that while Wall Street is dancing again, Main Street may not get to join the party. He writes, "Will the 'adverse feedback loop' that saw a financial collapse last fall that crushed the real economy work in reverse, so that a financial bounce boosts the real economy in coming quarters? The jury is still out on this important question."

Should Israel Attack Iran? Next Friday, an AEI event will explore whether Israel should attack Iran. According to a recent survey by the Pew Research Center, more than 60 percent of Americans believe preventing Iran from developing nuclear weapons warrants military action. On September 21, Chief of Staff Lieutenant General Gabi Ashkenazi, Israel's top general, said, "Israel has the right to defend itself and all options are on the table" regarding Iran's nuclear installations. Two panels at AEI will explore the strategic and legal parameters of a potential Israeli strike against Iran and provide analysis about the implications for the United States of such action.

Bloggingheads Debate. In the New York Times series Bloggingheads, AEI's David Frum and Bruce Bartlett, author of The New American Economy, debate raising taxes, health care, the appropriate size of government, and more. Frum asks Bartlett if he is moving away from the idea, which Frum says he still believes, that "you want the government sector to be as small as possible." Bartlett responds that "we've lost sight of why we want to keep governments small."

Hot Off the Enterprise Blog

"Climate change is one of those issues that has been written about in the popular press so much and for so long--while bearing so little fruit--that reporters and headline writers don't ralize how silly they sound sometimes. Consider this one today from the NYTimes.com: 'Biggest Obstacle to Global Climate Deal May Be How to Pay for It.' This is news? I mentioned this to in-house environment guru Steve Hayward and he offered up some other headlines we might expect in the future: 'Biggest Obstacle to Space Flight May Be Gravity, Vacuum in Orbit,' 'Biggest Obstacle to Redskins' Super Bowl Hopes May Be Other Teams,' [and] 'Biggest Obstacle to Peace May Be War.'" [Read the full post.]

--NICK SCHULZ