Federal Judiciary

The Blue and the Gray

It is hard not to feel for seniors in this economy. Federal Reserve chairman Ben Bernanke is doing everything in his power to make life miserable for people who rely on income from their savings, as so many seniors do. By endeavoring night and day to convince justifiably risk-averse businesses to expand, the Fed has made safe savings vehicles essentially worthless. Seniors are left with two options: plunge back into riskier assets at a time when they can't afford to lose their nest eggs, or make do with non-existent returns.

Again, we sympathize, especially to the extent that the Fed's latest adventures in magical money-conjuring are Mickey-in-Fantasia-level misguided. That said, a rising general price level, which makes it harder to live on fixed incomes, is one problem seniors do not presently have. As usual, President Obama, Speaker Pelosi, and Senate majority leader Reid are moving to address the wrong problem: They propose borrowing $15 billion from future generations to send each Social Security recipient a check for $250.

#ad#Inflation has averaged near-zero for the past two years, meaning that it has been two years since the 58 million Americans on Social Security got an official cost-of-living adjustment (COLA). Last time seniors got a COLA, however, it was a big one: Oil prices had hit $150 a barrel, and that led to an unusually large 5.8 percent upward adjustment in Social Security benefits. Oil has since fallen to $80 a barrel, but seniors have retained the 5.8 percent increase in benefits. Think of it as 2 percent a year for the last three years, if you prefer.

Actually, think of it as more than that: Last year, the Democrats granted seniors an unofficial COLA by packaging payments of $250 for every senior into the stimulus bill. (About $18 million went out to the deceased; another $4.3 million went to ineligible incarcerated felons.) And after eliminating the popular Medicare Advantage program to pay for their new health-care entitlement, the Democrats tried to mollify seniors with more one-time payments of $250 (this time to help seniors pay for prescription-drug purchases in excess of those covered by Medicare).

The plain fact that there has been no increase in the general price level (combined with the fact that, in years when seniors do not receive a COLA, Medicare premiums also stay flat) makes it tempting to conclude that the Democrats are engaged in nothing more than rank political opportunism. Yet, as noted above, the government has enacted policies that are making life more difficult for seniors, and the government agency making these policies is more or less beyond the reach of the representative branches. Are Democrats advocating the right policy for the wrong reasons -- pushing for an unwarranted COLA to offset the harmful effects of two straight years of near-zero interest rates?

To believe that (and it's a stretch), one would have to believe that sending out these checks is in fact the right policy to correct the harm that the Fed is doing to savers. It is difficult if not impossible to justify such a large spending commitment to Social Security recipients when A) such recipients are by their nature shielded from the very worst effects of an economic downturn (such as the loss of all income), and B) far from losing their entire incomes, these recipients got a 5.8 percent raise two years ago and a one-time bonus last year. The Democrats are already waging class warfare to win their argument on taxes. Using the lame-duck session to borrow another $15 billion from our grandchildren to provide today's seniors with additional benefits makes it a two-front, generational war.

Full post as published by Bench Memos - National Review Online on October 19, 2010 (boomark / email).