If investors need another sign of the changed economic landscape, they need look no further than Social Security.

For the first time in more than three decades Social Security recipients will not receive a benefit increase, formally known as a cost of living adjustment (COLA), in 2010, federal forecasts show, The New York Times reports.

COLA is determined by a formula set by federal law, and it roughly parallels the consumer price index, though the two formulas are not identical. Senior citizens can get a ballpark estimate of their likely annual benefit increase from the consumer price index's rise.

Once cost increases reach a certain level, or threshold, the COLA is triggered for Social Security. The fiscal 2009 increase was 5.9 percent, and there's been a Social Security COLA every year since 1975.

No inflation, no COLA

However, both the Obama administration and the Congressional Budget Office (pdf) are forecasting that Social Security beneficiaries will not receive any cost of living adjustments in fiscal 2010 or 2011. The reason? The pronounced recession in the United States, which has created pricing pressure -- not pricing power -- for businesses. Pricing power is so weak for firms that the Federal Reserve believes the nation is more likely to experience a bout of deflation -- not inflation -- at least through mid-2010, and perhaps for a longer period.

Deflation -- a protracted, systematic decline in prices and wages -- occurs in pronounced recessions and in other conditions during which demand is nonexistent, and it robs companies of the ability to increase revenue and hurts the economy's ability to grow. If it takes hold, that's another hurdle policymakers will have to grapple with as they attempt to end the U.S. and global recessions.

The lack of a COLA adjustment would represent a net-gain in revenue for the Social Security operation, although there will be some subtractions to revenue, due to the fact that Medicare Part B premium increases are linked to Social Security's COLA and cannot rise more than the COLA. Hence, if there is no COLA, the Part B premium can not increase.

However, the lack of a benefit would also feed fewer dollars into the U.S. economy at a time when it needs all the demand pressure it can get, due to a smaller workforce stemming from layoffs and belt-tightening across the nation, senior citizens included.

Economic Analysis: The net result of no 2010 COLA is that millions of Social Security recipients will see their monthly benefit check reduced for the first time. Though the amount would be small, it represents another incremental reduction in income -- like a small increase in an electric utility rate or a small property tax increase -- that reduces the amount of money Americans have to spend, save, or invest. When combined, these incremental cuts place a substantial drag on the economy and are one major factor cause of the declines in retail sales and discretionary purchases.

Further, there's virtually no chance that Congress will revisit the COLA formula. The COLA stems from a grand political consensus that took years to negotiate and forge, and that fact, combined with the generation redistribution that already occurs under Social Security (the system redistributes income from younger generations to older generations), all point to lawmakers letting the inflation protection work as designed.

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joseph

i get s.s.d. and welfare for food i just make it and i'm happy an in crease wont hurt the hurting to much go to you state and get help dept of human services and i'm not lazy i worked my butt off when i could

February 20 2011 at 1:42 AM Report abuse rate up rate down Reply
budtucson

HOW MUCH OF A SALARY INCREASE WILL ALL THE SENATORS, HOUSE REPS, & FEDERAL EMPLOYEES RECEIVE ON TOP OF THEIR HUGE SALARIES?????????????? WHAT ABOUT THE HUGE BAIL OUTS TO THE BANKS, GENERAL MOTORS, CHRYSLER ETC ETC ETC. IT SEEMS THAT THE TIME FOR A HUGE REVOLUTION IS ABOUT TO TAKE PLACE SINCE OUR ELECTED OFFICIALS HAVE BECOME SO GREEDY THAT THEY CAN NO LONGER CONTROL THEIR APPETITES TO SPEND SPEND SPEND AT THE EXPENSIVE OF THE WORKING PUBLIC. IT IS TIME TO ELECT LIBERATARIANS TO OFFICE AND KICK OUT THE GREEDY BASTARDS NOW IN OFFICE. I WILL VOTE FOR ALL LIBERATARIANS IN NOV AND ASK EVERY VOTER TO DO THE SAME. WE WILL VOTE YOU GREEDY *(*(y(*() OUT OF OFFICE. BYE BYE GREEDY (*)))(&)*&

October 16 2010 at 12:35 PM Report abuse rate up rate down Reply
puzzleguy1

Lazzaro, the author, is wrong. There was no COLA last year and THAT was fist time. I know because my SS check showed NO increase. The President tried to make an accommodation to recipients by giving them a one-time $250 check. The Congressional Repub's and their media talking heads blasted the idea as just another "voting-buying scheme". The reality is that in our recession, we can't afford to have less money in circulation. That simply curtails consumption and there is too little of that already which is one of several reasons why our recovery has been so slow.

October 10 2010 at 4:53 PM Report abuse +1 rate up rate down Reply
allan

i will never forget about the time that i was in a supermarket and the woman i front of me who had six children in tow was paying for a shopping cart stufed full of groceries with food stamps.i later saw her in the parking lot getting into a new cadilac and drive off. its great to see how our tax dollars are being spent.

September 14 2010 at 9:14 PM Report abuse rate up rate down Reply
2 replies to allan's comment
budtucson

ALLAN: how old was that cadilac; could it be she bougth 10 or 15 years ago when she was receiving a salary?; I keep my cars an average of 14-16 years before I buy a new one.

October 16 2010 at 12:40 PM Report abuse rate up rate down Reply
budtucson

ALLAN: how old was that cadilac; could it be she bougth 10 or 15 years ago when she was receiving a salary?; I keep my cars an average of 14-16 years before I buy a new one.

October 16 2010 at 12:40 PM Report abuse rate up rate down Reply