If any of you happened to read the text book you will remember, and if you didn't I'll tell you, that chapter 17 was about the inflation rate or Consumer Price Index (CPI). Mankiw described the inflation rate as a good way to compare past amounts of money to today's money. For instance, did you know that "Gone With the Wind" was actually the top grossing movie in American History, way above "Titanic", when you adjust for inflation. While all of that was interesting, it left me wondering if there was a more important, current use for the CPI.
On that topic I found an opinion piece that was in response to someone slamming the Obama administration for not increasing social security this year by using the "excuse" of inflation. As the author explained, however, the President has no direct control over the increase in social security. He then goes on to tell a brief history of Social Security, starting with it's start in the 1930's. In the 1970's with rising prices becoming a real concern, the government amended social security to account for the effects of inflation. They used the Cost of Living Adjustment (COLA) index to measure inflation. The COLA is like the CPI in that they measure a fixed basket of goods and compare the change in prices over time. When the COLA increases, social security increases by that same amount. When COLA decreases, however, social security payments remain the same because of a law in the social security bill that forbid lowering payments due to decrease in inflation.
This system is run by a nonpartisan committee and has a lot of transparency, so there has never been any reports of abuse of the system. The issue is in how the COLA, or CPI for that matter, is calculated. Some people feel that the calculation system needs to be reformed. They state that health care is not as heavily weighted as it should be. Reforming the calculation system would be very difficult and a no win situation for politicians, according to Joe Hamilton:
If they enact a new inflation calculation that, intentionally or not, raises the level of inflation when placed beside the old calculation, it will appear that they are mismanaging the economy as a whole. If they enact a new calculation that lowers the inflation rate compared to the old calculation, those Americans expecting COLA increases won’t get them and will be even more infuriated
I think that that the current system based on inflation is a fair determinant of social security. Do you agree that it should be based on the CPI? What possible problems could come from just using CPI or COLA data? Also the issue that the letter was a response to was that social security will not increase this year because there was a 2.3% decline in COLA, yet many people feel that there should be an increase this year. What are you opinions on that?
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I definitely agree that the CPI and COLA are both beneficial tools to help accurately determine social security. Instead of using the same items year after year, maybe those effected by the changes in social security dividends would be more pleased with the system if there was an annual re-evaluation of what goods take up the largest portion of costs for social security users. I don't know the details of how social security works but it seems like this idea would be beneficial to both parties.
ReplyDeleteBy using COLA to measure the rising or decreasing of social security costs is beneficial to the citizens of a country. On a whole, no price increases are always good for the citizens. It makes me wonder though that if there is a need to increase the cost of social security and this increase isn't met, will the government pay the extra money needed or will the citizens just have to deal with the consequences that come along?
ReplyDeleteControlling the economy of a country poses many serious questions. The use of the CPI and COLA are presumably the best measure available. I think it is a reasonably good measure of whether or not social security should increase, if people's cost of living is rising they wouldn't be able to deal with the inflation as well. A
I also agree and believe that the use of the CPI and COLA are a good way of looking at social security. I mainly agree with Bridgett's point of how an anual re-evaluation may be good for those with social security. A
ReplyDeleteI agree, I believe that the use of the CPI and COLA are the best ways of measurement to help determine social security. I also believe that there should be an annual reevaluation of what goods take up the largest portion of costs for those with social security. As of now, this is the best measuring stick of whether or not social security should increase. It might not seem like the best way, but until someone develops a better method, this is the right way to measure social security. (A)
ReplyDeleteI think Mysha's question is a good one. What will any of these choices mean for the recipients of social security.
ReplyDeleteI also think it's wrong that potentially appearing as if they may be mismanaging the government stops them from thinking an idea through. Hasn't it already been proved the the economy was mismanaged? It is of dire importance that those in power are cautious and that they do not act with haste. However, open mindedness should be a utilized in political decision making processes and it simply isn't.
I'm not sure that there is any way to get anything right when it comes to subjects such as this. No measure or idea can ever be the right one or the best one. It makes me sad. Maybe I'm just cynical....or tired.A
ReplyDeleteI don't understand why the COLA would go down this year with the prices of so many things increasing. I also don't understand what Hamilton means when he says that increasing the inflation rate will make it appear as if the economy as a whole has been mismanaged. Does any one else think that not acknowledging a higher inflation rate because it will make politicians look bad is a really lame excuse?
ReplyDeleteGosh, this type of stuff makes me really glad I'm not going into politics. I think that at this point in time COLA and CPI are probably the best way of measuring social security.
ReplyDeleteThe fact that people are bashing Obama really ticks me off. I'm not saying that he is the perfect president, but he has only been in office for a year...honestly, what did America think would happen in one year? While the Bush administration succesfully screwed the US over in an incredibly short amount of time, it is going to take a lot of time for the Obama administration to get the country back on its feet. I was listening to NPR a couple days ago and they were comparing the first year of republican presidents and the first year of democratic presidents and they concluded that republicans typically have a higher popularity rating after their first year because they do a lot of small, but immediate changes...like lowering taxes. Demoratic preidents, on the other hand, typically have a lower rating after their first year because the changes that they make in office are not immediate, they work on the big picture.
Whew...that was a tangent.
I think in order to adjust social security that people need to expect to earn more in their lifetimes as well as the government raising the age to receive benefits. At this time I think COLA and CPI are the best thing we have to measure this, however it is necessary to improve this system as well. I also think adjusting the inflation rate to present times is necessary and not to mislead people into feeling good for the sake of feeling good. As Becca said, politicians need to be accountable, and that is especially important in this economic climate.
ReplyDeleteBoth the CPI and COLA are pretty good ways at measuring and determining social security. An annual reevaluation of what goods take up the largest portion of costs for those with social security.
ReplyDelete