Not Much for Social Security Recipients

Social Security recipients, 55 million strong, will get a 3.6% cost of living increase next year. There has not been a cost of living increase from the fund in three years. This one is so small that it may harm consumer spending. It certainly will not help it, another likely drag on GDP.

Real wages across the U.S. workforce have struggled to keep pace with inflation. This can be attributed to joblessness. Or, perhaps to improved productivity. Whatever the cause, the consumer economy cannot grow if people have little discretionary income, particularly compared to what they had a decade ago. Employers benefit form the ability to improve margins as they squeeze pay. But it hurts many businesses over the long haul because the consumers of their goods and services lack purchasing power.

The Social Security cost debate is at the core of arguments about how the deficit might be reduced. Seniors and senior groups like the AARP continue to press Congress to keep current benefits in place. Most economists know that there are no long-term solutions to the U.S. debt crisis if Social Security and Medicare continue to be paid at current levels. Actuaries say the government cannot afford it. That may hurt the ability of baby boomers to keep the consumption patterns they had in pre-retirement. But the stress on the economy for lower standards of living does not have to wait for boomers to retire en mass. The trouble caused by low retirement payouts is already here.

Millions of American count on Social Security as the foundation of their retirement funds. A 3.6% increase in payments is often matched by retirement portfolios with yields damaged by equity market carnage and extremely low interest rates. That thins out the number of retired people who have any discretionary income at all.

An increase in Social Security would be an economic stimulus of sorts. And a large increase would help the economy. Washington cannot afford it. Mark it down to another program that austerity will undermine over time. Consider as well what will happen to consumer spending as today’s Social Security recipients and those of the next few years become prisoners of a lower standard of living. An increase in payout of 3.6% based on a three-year wait is barely enough to cover the cost of housing and essentials.

Douglas A. McIntyre