Shrinking Social Security Payments May Herald Economic Turnaround

A recent article in the Sovereign Individual newsletter commented on an Associated Press headline, “Millions face shrinking Social Security payments.” The SI editor went on to say that this news, though misstated, is exactly the news economic prognosticators should want to hear because it heralds the restoration of government fiscal prudence. The contention is that there will be no cost-of-living increases for SSI recipients because the Consumer Price Index is down. The CPI is the indicator to which SSI COLA is tied. This actually means “deflation” not inflation . . . a good sign.

Deflation of the CPI means that the dollar actually has more purchasing power, not less, so the lack of a COLA for SSI does not indicate a loss in purchasing power for retirees. Their SSI income will actually buy more goods and services.

Now, all this doesn’t mean that Social Security is sound, because it isn’t. They have been running a deficit since March, much earlier than actuaries expected. The SI editor, Andrew Packer, further contends that COLA for SSI should be canceled, period. This could possibly improve the health of the whole Social Security system. This would certainly not be a platform that would bring in votes for any politician, but it could help preserve the SSI system for those recipients to whom it is an important part of their income.

The API headline and following article were very misleading. The writer touched the surface of the data and never delved into the real content. This is very common in our “doom and gloom” media, where scare tactics and sensationalism sell newspapers or newscast sponsors’ products. It all brings to mind the old saw, “Don’t believe anything you hear, only a quarter of what you read (in the newspaper) and half of what you see.”

The underlying information gleaned from the whole article is that deflation of the Consumer Price Index isn’t a bad thing, certainly not for Social Security recipients who have greater purchasing power, even without a cost-of-living-adjustment to their benefits. Government entitlements programs with COLA will only increase the burden on the system which is already in fiscal trouble. The media often get it wrong when they don’t research in depth, particularly in financial matters. Packer suggests that they should hire a few economists, as there are probably a number of them available after the Wall Street meltdown.

All of this brings us back to the present state of business in the USA. Despite all the negative headlines and under-researched articles, there is business to be had out there in the marketplace. Companies must go after a bigger share of the business when the market is shrinking. Those that attack business aggressively will be in an even better position to prosper greatly when the market comes back . . . and come back it will.

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