O Happy Times

From Greg Easterbrook @ Espn.com

Sand Trap on Obama's Fairway: Federal borrowing during the final two years of the George W. Bush administration, and now the first year of the Barack Obama administration, has reached the level of shocking. World War II cost about $4 trillion in today's dollars -- the Congressional Budget Office figures show the decade starting with Bush's final two budgets until fiscal 2017 will add $11 trillion in federal borrowing, at current rates. That's more than the entire national debt was in early 2008. This furious, irresponsible borrowing -- gleefully endorsed by both political parties, since the money is being lavished on the special interest groups who ensure the re-elections of members of Congress by donating to their campaigns -- is especially disturbing because there is no national emergency. The United States is tapping out its ability to borrow, leaving nothing in reserve, so that irresponsible members of Congress of both parties can lavish subsidies and tax favors on interest groups. Why aren't the young shocked? Almost all the honey is going to people from middle age on up, with the bill being handed to the young, who will pay and pay and pay all their lives for the favors the Baby Boomers running the country are so cynically awarding to themselves and their financial backers.

Bad as current borrowing is, more demands for special giveaways are looming in Obama's path. As soon as the dust settles on the restructuring of General Motors and Chrysler, the United Auto Workers may demand that its concessions be restored, at taxpayer expense. (More on that in a coming TMQ.) The states, showered with $135 billion in borrowed money during the first Obama stimulus package, already are agitating for another giveaway. (More on that coming too.) The monster problem looming is this: For the first time in the history of the Social Security system, recipients will not receive a cost-of-living increase when the new year begins. The Social Security checks that arrive in January 2010 won't be any bigger than previous checks. (Owing to details of the prescription-drug benefit, some checks may be a little bit smaller -- by two or three dollars per month -- than at the same time last year.) Senior citizen lobbies are likely to go ballistic.

There's a good reason why Social Security checks won't be bigger -- no inflation. The Social Security cost of living adjustment system is designed to compensate for rising costs, and the cost of living is not rising. Indeed, in the past 12 months, the Consumer Price Index has declined 2.1 percent. The enabling statutes of the Social Security program say that if prices don't rise, no COLA, which makes perfectly good sense. It's just that prices have never gone an entire year without rising, so there's never been a no-COLA January. To a retiree on a fixed income, rising costs are awful, while declining costs are a godsend. Because the CPI has gone down, seniors as a group are slightly better off financially in 2009 than they were in 2008. (Obviously, there are some individuals with financial problems.) So there's no need for a Social Security benefits increase, and no common sense justification for one. That will not prevent the senior citizens' lobby, more potent than the oil lobby or farm lobby, from howling.

TMQ fears that whenever it sinks in on seniors that no COLA increase is coming in 2010, they will barrage congressional delegations and the White House with demands for a special giveaway. Illogical appeals will be used and repeated in the media, such as, "We need extra money because of the crisis!" In politics, everything's a crisis -- a bright sunny day is a crisis if the interest group in your district sells flashlights. Or, "Our housing values are down, it's a crisis!" Housing prices are indeed down from their 2006 peak, but the typical American dwelling is still worth nearly 50 percent more than in 2000. That's no crisis. If anything, the recession has slightly aided seniors, who enjoy the deflationary benefits of falling prices but in most cases are not harmed by employment trends because they are retired anyway.

Senior lobbies demanding a special handout will skip over the fact that senior households have the highest median net worth of any age group, much higher than the net worth of the under-35 age group that would be compelled to fund any special Social Security increase; or that seniors have a lower poverty rate than the nation as a whole. They'll skip over the complication that the typical current Social Security recipient will receive about three times as much as he or she paid into the system, plus interest, while people now under the age of 35 will be lucky to get back half what they will pay into Social Security, plus interest. (That Social Security is a "savings" program is total fiction -- it is an income-transfer program, from today's workers to today's pensioners.) They'll skip over the fact that owing to a quirk in Social Security rules, recipients received an unusually high 5.8 percent COLA in January 2009, even though there was essentially zero inflation in the previous year. (The calculation formula for Social Security COLAs drastically overstated the temporary 2008 spike in gasoline prices.) One reason federal borrowing has shot up is that Social Security recipients got a 2009 bonus they shouldn't have received. This may not stop them from demanding an extra giveaway in January 2010 -- a giveaway that could only be financed by still more borrowing. Obama must show resolve and not give in to another multibillion-dollar borrowing-based handout. If he gives in, all semblance of fiscal discipline in Washington may collapse -- and liberal government may be discredited for a generation, which is not in the interest of senior citizens.