By Haddon Libby
As the Coachella Music Festival is doing a re-run of last weekend’s festival, I thought I’d do something similar with an article from four years ago as the topic is important enough to write again.
If you are under 55, there is a strong likelihood that Social Security will barely be there for you when you retire. As touching Social Security benefits is the third rail of politics, the way Washington DC achieved the reduction in payouts was by changing the numbers used to calculate future increases.
Both Democrats and Republicans are responsible for these adjustments, including the Obama Administration. None have complained about nor tried to change these adjustments. It is easy to realize why – current Social Security benefits were unsustainable with bankruptcy forecasted within twenty years. By making these changes quietly, Washington DC gutted the social safety net that future retirees are increasingly relying on during a period of life when they are most vulnerable.
Anyone who buys groceries knows that a dollar could buy more ten years ago than it does today. Given the way the dollar is being systemically devalued, within ten years, social security payouts could be worth one-third less than they are today. Within twenty years, payouts could be worth less than half of today’s levels.
The ‘trick’ to reducing Social Security payments over time is by redefining the Consumer Price Index also called the CPI. What is the CPI? As the Bureau of Labor Statistics defines it, CPI is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
What Washington DC has done is watered down an already watered down CPI with something called a “chained CPI.” Chained CPI means that if your medical costs go up, you will buy less food. Seriously! This is not a joke. The index has been systematically and definitionally changed to exclude inflation. The theory used to justify ‘chained CPI’ this is that consumers have so much money so it is natural that the consumer will reapportion their limited funds as best as they can.
As this change brought on an immediate backlash with seniors, the Powers-That-Be added a kinder, gentler version of the calculation for seniors called CPI-E. The ‘E’ stands for ‘elderly’. Using this ‘experimental’ calculation, what they did was put more emphasis on medical expenses for current seniors than future seniors.
Not only do all of these adjustments mean that Social Security payments are going down relative to real price increases, the adjustments also serve to mute salary increases that business or government pay workers today as inflation adjustments are kept well below real inflation.
By adopting the chained CPI, Washington DC has excluded price increases from the headline inflation rate and the CPI. As the inflation rate already excludes food and fuel prices along with housing price changes, the CPI adjusts away the last big expense that most American face – medical costs. Definitionally, Washington DC has achieved price stability despite double-digit increases in food, fuel and medical costs in recent years.
With Social Security costs increasing at a much lower rate than the already artificially low inflation rate, Washington DC has fixed the impending bankruptcy of Social Security that was projected to occur within twenty years. While Social Security’s future is assured, that financial crisis that faced Social Security is quietly being shifted to the people who can least afford it – future seniors. At the same time, they have figured out how to help employers justify lower wage increases helping to further erode a once robust middle class.
Haddon Libby is Managing Director of Winslow Drake and can be reached at 213.596.8399 or hlibby@winslowdrake.com.
