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On Pandering to Seniors Over Pandering to Other Groups

October 18th, 2009 . by economistmom

I’ve got a contribution to the “Topic A” opinion feature in today’s Washington Post; the question: Should Congress fulfill President Obama’s request for a one-time $250 payment to Social Security recipients to offset the absence of a cost-of-living adjustment this year? I wrote about this here a couple days ago along with my observation about another odd display of not-quite fiscal responsibility.  I basically repeated the same for today’s Post, but my response isn’t anything that hadn’t been pointed out earlier in the Post–for example in Neil Irwin’s article and in the Post’s own editorial a couple days ago.  (This online version is slightly longer than the one that appears in print today.)

DIANE LIM ROGERS

Chief economist at the Concord Coalition and blogger at EconomistMom.com

Congress and the administration are calling for a $250 payment to seniors to make up for the lack of a cost-of-living adjustment (COLA) to Social Security benefits in the coming year. But the purpose of a COLA is to help incomes keep pace with inflation, which means when there’s no inflation, there’s no adjustment in benefits needed. President Obama claims that this “emergency” aid is justified because seniors’ wealth has declined in this recession. But, of course, all kinds of Americans have suffered.

This is not about making seniors “whole.” Because seniors are guaranteed to receive Social Security benefits regardless of the strength or weakness of the economy, they more than others have had a significant part of their income protected in this recession, and they received special aid in the last stimulus package, too. This is about taking from one generation and giving to another. By choosing to finance the provision by borrowing, our politicians hope the beneficiaries (seniors) will notice — while those most heavily penalized (our kids and grandkids) are thankfully not old enough to vote. This seems to be a purely political strategy to pander to seniors (once again) over other groups.

I do recognize the extra stimulus argument that’s being made, but that’s a totally different policy question that shouldn’t have to refer to the absence of a Social Security COLA as justification for any answer to it.  But on this issue one of my economist friends pointed out to me that if we’re going to hand out more checks as stimulus, handing them to seniors is probably pretty effective because seniors have a higher “marginal propensity to consume” (”MPC”) than the average household–that is, they tend to spend larger fractions of their income because they are retired and thus have low income relative to their spending needs.  (They also have shorter time horizons and so don’t have to plan and save for as long of a future–sorry to rub it in…)  I quipped back to my friend that (Hah!) this proposal isn’t about maximizing the “MPC” out of stimulus dollars, because if it were, they should be giving checks to families with teenage daughters.  And those that have THREE teenage daughters, as I do, should get three times the amount.  It would all be spent, because teenage daughters are very helpful advisers when it comes to the family budget and ways to spend new-found money.  He said that was a very “EconomistMom” thing to say, so I’m saying it here.  ;)

6 Responses to “On Pandering to Seniors Over Pandering to Other Groups”

  1. comment number 1 by: Arne

    I find myself believing that a payment is a good idea because higher than expected unemployment does show a need more stimulus, and other ways of getting congresss to vote for stimulus will fail. I would quibble that seniors should not be entirely dependent on SS and don’t have time to recover retirement savings, so there is a unique need. But it is not caused by the lack of COLA. It still bugs me because it comes down to tricking us into doing what we need to do instead of treating us like adults.

  2. comment number 2 by: Michael Dohrn

    I think one often-overlooked factor in finance with senior citizens is that they have far less opportunity than younger people to generate NEW income, so while they suffered no less or more on average than most people, they have lesser ability to work more or ask for a raise due to the more fixed nature of their incomes.

    I am not saying that this effect is certainly great enough to warrant handouts, or what exactly $250 will do, though as a group I think they might handle it the most responsibly (or am I perhaps channeling a depression-era stereotype?). Regardless of outcome, I think that is a point worth considering in pandering to seniors over pandering to other groups.

  3. comment number 3 by: SteveinCH

    You guys are kidding right? Seniors, as a group, are the wealthiest cohort of society. Please don’t confuse income with wealth. By providing income to people with wealth, you simply are subsidizing the transfer of wealth to heirs. What is good about that from a policy perspective?

    What evidence do we have that more stimulus is needed or that stimulus is even working? I’m not saying it isn’t but if the tax credit to everyone didn’t work, why is a smaller credit to seniors only going to help? Why is $14 billion or so (compared to the $200 billion in credits already handed out) going to make a difference?

    Sorry, this is pandering pure and simple and has everything to do with the COLA argument. When pols in Washington (on both sides) figured out that was a ridiculous argument that wouldn’t fly, we started floating additional stimulus.

    Seriously, $787 billion was enough but this $14 is really going to make the difference? Is that a real argument? Or is it really, seniors are going to be mad about not getting a COLA in an election year so let’s give them one. You be the judge of the more likely explanation.

  4. comment number 4 by: B Davis

    This is about taking from one generation and giving to another. By choosing to finance the provision by borrowing, our politicians hope the beneficiaries (seniors) will notice — while those most heavily penalized (our kids and grandkids) are thankfully not old enough to vote. This seems to be a purely political strategy to pander to seniors (once again) over other groups.

    I agree that this appears to be a purely political ploy to curry favor among seniors. I was surprised to hear Douglas E. Schoen, Democratic pollster and author, actually defend this in the article that you linked. He states that it “could well make a difference in both the next round of polling on attitudes toward health-care reform and, ultimately, in the midterm elections — especially if Congress approves it”. I think that SteveinCH is also right that the thought may be that “seniors are going to be mad about not getting a COLA in an election year so let’s give them one”. In a sense, this is an insult to seniors, suggesting that they do not understand the concept of inflation well enough to understand that they are not losing anything by not receiving a COLA when there is no inflation.

    Regarding inflation, I notice from the bottom of the Treasury’s page of Ibond Rates & Terms that the annualized composite rate for the past six months was -5.46 percent. If that rate is accurate, rational ibond holders should be more than happy that they received zero percent since, in real dollars terms, that represents a 5.46 annualized gain. Likewise, rational seniors should be happy in that their real benefits increased by the same amount. Of course, as Douglas Holtz-Eakin points out in the linked article, the inflation rate does not precisely measure the increase in costs for all people. But, if there is a problem with the CPI, we should improve the methods for measuring it, not simply increase it on a politically-convenient whim.

    The stimulus argument sounds similarly flawed. Giving a group money simply because they will tend to spend it and create stimulus sounds like a perverse form of communism (…to each according to his ability to create stimulus…). There is no sense of fairness or justice to the rationale. Likewise, the argument that the checks are to help seniors who have been hit especially hard by the recession makes little sense. If this were a true rationale, why are the checks blindly given to ALL seniors, even millionaires? No, this plan appears to be pure pandering. It is a much cheaper case of pandering that Medicare Part D was but it is pandering nevertheless.

  5. comment number 5 by: dave.s.

    You are on the cusp of having a teen-age son. You are about to discover that ‘daughter’ is not the predictive part, ‘teenager’ is. Trust me on this.

  6. comment number 6 by: economistmom

    Hah! Yes, dave.s. — good point. (I’ve spent $200 on a baseball bat for my son already, and he is still early in his major league, little league career.) In fact, maybe just “kid” or even just “young at heart” is the high correlate with “MPC.” Isn’t it just middle-aged, childless and non-childlike people who can’t be counted on to (happily) spend new-found money?