Cooking the COLA

My previous blog discussed the fact that monetary inflation seems the only way that our federal, state and local governments can dig their way out of their huge unfunded liability overhangs (see: Good News Bad News).  Now, this discussion left out one key (un)mitigating factor.  That is -- inflation cannot be used by the feds to solve these overhangs ... if cost-of-living-adjustments (COLAs) to these unfunded mandates (mainly Social Security payments) erase the discounted current-value erosion of these benefits.  But this is not happening currently for one key reason -- COLAs for the last two years have been zero, nada, zilch, the cipher (see: Social Security COLAs) and I predict they will continue being zero into the foreseeable future.  How can this be?  Certainly, large U.S. cost-of-living inflation is obvious to anyone who who goes to the grocery store or fills their gasoline tanks. 

Ah, the trick that AARP and the main-stream media have conveniently pushed to the side is that the way COLAs are calculated has been changed.  Instead of cost inflation, COLAs are now computed using wage inflation which, obviously during a severe recession, is essentially zero (or negative ... except, of course, in the public sector).  Although, this might be one way to reduce the extreme severity of this country's unfunded liability overhand, zero COLAs are not good for our senior citizens or anyone living on a fixed income.  Why no one is raising a Wisconsin-no-collective-bargaining-like hew and cry about this federal financial trickery is a little befuddling.  But then I'm generally always surprised by what raises populus passions and what doesn't in a country that gets its news from The Daily Show.

It might even be a good political move for Republicans to raise this issue a year from this September ... right before the next Presidential elections (even though it would be a bad fiscal move).