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Playing Inflation Games with Grandma: The Washington Consensus and the Chained CPIAll the inside Washington types seem to agree, we should change the indexation of Social Security benefits to the chained consumer price index (CPI). This would supposedly make the annual cost-of-living adjustment (COLA) more accurate and save the government big bucks. Sounds great, right?
First of all, when all the inside Washington types agree on something, it is a good idea to hang on to your pocket books. Remember, these are the folks who thought it was great that everyone was becoming a homeowner in the middle of a housing bubble and that Alan Greenspan was the greatest central banker of all-time. In other words, inside Washington types are a group of people that mindlessly repeat the conventional wisdom and are largely incapable of original thought.
At the most simple level, the switch to a chained CPI is a way to reduce the annual COLA in Social Security by roughly 0.3 percentage points. That may sound trivial, but it is important to remember that this sum adds up over time. After ten years, this lower annual cost-of-living adjustment would imply a reduction in benefits of roughly 3 percent, after 20 years the reduction would be 6 percent, and after 30 years close to 9 percent. So this is real money.
This plan to lower the COLA raises two obvious questions. First would the new measure actually be more accurate, and second is a cut in Social Security benefits good policy?
CEPR / April 04, 2012
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Germany Doesn't Have to Sacrifice, the ECB Could Just Print MoneyDean Baker / April 04, 2012
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It's Not Just Democrats Who Say That Eliminating Small Tax Breaks Will Not Make Up for Rate ReductionsDean Baker / April 04, 2012
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Adventures in Bank Regulation: How Slow Are the Employees at Monadnock Community Bank?Dean Baker / April 03, 2012
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The Supreme Scream: Obamacare After the Court RulingDean Baker / April 02, 2012
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Low-wage Workers Are Older and Better Educated than EverJanelle Jones and John Schmitt / April 02, 2012
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Issue Brief Finds Low-wage Workers Are Older and Better Educated than EverJohn Schmitt and Janelle Jones / April 02, 2012
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Good NYT Piece on Public Sector Pension Funds Being Ripped OffDean Baker / April 02, 2012
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E.J. Dionne Inadvertently Gives Evidence on the "Right's Stealthy Coup"Dean Baker / April 02, 2012
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The Cost of Health Care in Europe: The Debut of Professional Wrestling on NPRDean Baker / April 01, 2012
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College ComparisonsJohn Schmitt / April 01, 2012
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Latin America and the Caribbean
Soldiers Without a Cause: Why Are Thousands of UN Troops Still in Haiti?Dan Beeton
NACLA Report on the Americas, Spring 2012
Dan Beeton / April 01, 2012
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Esquire Magazine: Writer wanted to help convert class war into generational war. No skills required; pays top dollar.This could well have been the want ad Esquire used to attract a writer for its story titled, “War Against Youth.” This lengthy piece is the best compendium of warped logic and misplaced facts on this topic since the Peter Peterson financed film, IOUSA.
The whole story is given away in the first paragraph:
“In 1984, American breadwinners who were sixty-five and over made ten times as much as those under thirty-five. The year Obama took office, older Americans made almost forty-seven times as much as the younger generation.”
That sounds really awful. Thankfully it is not true, as readers could find by looking at the chart that accompanies the article. This is a ratio of wealth, not income.
This is a huge difference. Wealth adds up a household’s total assets. This means the value of their home, their 401(k) and other savings, their checking account and car. The calculation then subtracts liabilities: mortgage debt, car loans, credit card debt, and student loans. This is very different from income, which for most people means their wages and for older people their Social Security.
If the writer, the editor, the fact checker or anyone at Esquire had a clue, they would have caught this mistaken first paragraph and killed the piece. As their chart shows, the median net worth for households over age 65 was $170,494. That merits repeating a couple more times. The median net worth for households over age 65 was $170,494. The median net worth for households over age 65 was $170,494.
Again, net worth refers to total assets minus liabilities. This means that if we add up the home equity of the typical household over age 65, their 401(k) and all other savings, the value of their car and any other possessions they might have, it comes to just over $170,000. This is a bit more than the price of the median home.
In other words, if the typical household over age 65 took all of their wealth, they would have enough money to pay off their mortgage. After that they would be entirely dependent for their living expenses on their Social Security benefit, which averages a bit more than $1,200 a month.
To take another comparison, the lifetime accumulation of wealth of the typical household over age 65 would be approximately equal to what the CEO of Goldman Sachs earns in two days. A top hedge fund manager, who makes $3-4 billion a year, can pocket this much money in ten minutes. Yet, Esquire tells us that it is the high living retirees getting by on their $1,200 a month Social Security checks who are responsible for the questionable future facing the young.
Dean Baker / March 31, 2012
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USAID's Disclosure of Local Partner Info Raises Troubling QuestionsFollowing a request from HRRW, USAID yesterday released information on the amount of relief and reconstruction funds that have gone to local partners in Haiti. The info, available here, is a positive step towards transparency and provides the only official information on the level of local contracting by USAID in Haiti. As can be seen in figure 1, about $9.5 million has gone to local organizations and firms since the earthquake. An additional $18.3 million has been awarded to Haitian-American firms, according to USAID data.
Figure I
Firm Name | Sector | Amount | ||
| Health |
| ||
| Health |
| ||
| Health |
| ||
| Non-Profit |
| ||
| Auditing |
| ||
| Health |
| ||
| Health |
| ||
| Auditing |
| ||
| Non-Profit |
| ||
| Non-Profit |
| ||
| Non-Profit |
| ||
| Auditing |
| ||
| Construction |
| ||
| Transportation |
| ||
| TOTAL |
|
Source: USAID
Although ascertaining the total spending by USAID in Haiti since the earthquake is not an easy feat, the $9.5 million that has gone to local firms represents a small fraction of total spending by USAID. In fiscal years 2010 and 2011, USAID reported spending over $700 million on humanitarian programs (not counting funding through USAID/OTI, which is included in Figure II). Additionally, the most recent data compiled by HRRW reveals nearly $400 million in contracts that have been awarded since the earthquake. As can be seen in figure II, only 0.02 percent of these contracts have gone directly to local firms, while over 75 percent have gone to firms located in the Beltway (DC, Maryland, Virginia). The largest of these beltway contractors is Chemonics International, which has received $173.7 million from USAID since the earthquake. The company came under criticism in recent weeks regarding the temporary parliament building that was constructed under a Chemonics contract. Haitian lawmakers told GlobalPost that the building was nothing more than a “shell”, and that it would cost the government as much to finish it as USAID had spent on building it. The building remains vacant four months after it was inaugurated by USAID and Haitian officials.
Jake Johnston / March 30, 2012