Charles Edison

"Economics, politics, and personalities are often inseparable." - Charles Edison

Wednesday, January 26, 2011

Social Security Failing to Help Seniors

An article in Daily Finance discusses how senior citizens are struggling because the prices of commodities (particularly corn, cotton, wheat, and gas) are rising, but they aren't seeing any increase in Social Security payments. This is because when the Social Security Administration determines how much the seniors will get, rises in prices in unpredictable products like food and energy often aren't taken into consideration.
As the Law of Demand predicts, since the prices of the commodities are rising, the demand for these products is decreasing. The seniors need these products, but some of them simply can't afford to buy them. Fortunately for them, President Obama expressed a desire to make Medicare and Social Security a priority in government spending in the State of the Union address last night. Hopefully if more money can be given to the seniors, that change in income will allow them to demand more of the products that they need most. If not, some seniors may have to go back to work in order to pay their bills. If they aren't able to, the economy will only suffer more. It's not only the elderly that can't pay their bills. Another article states that adults between 30 and 49 are the largest burden on the economy because they have more obligations than people older and younger than them. To have even more elderly and disabled people added to that burden could do a lot of damage. The bottom line is, something needs to change in order to keep the economy from falling farther into disarray.


Smith said...

“Hopefully if more money can be given to the seniors…”

Where would the money come from to give the seniors?

“Another article states that adults between 30 and 49 are the largest burden on the economy because they have more obligations than people older and younger than them.”

Why is this demographic such a large burden?

Alison said...

Well in the State of the Union Obama also mentioned that the country needs to "spend within its means" instead of continuing to spend so much. Maybe there will be extra money from the spending cuts than can be used for Social Security.
People between ages 30 and 49 are normally the people with children/large families. So they have more bills to pay and less disposable income. They can get into more debt than other people and have a harder time paying it back.

kern said...

Can you tell me a little about Cost of Living Adjustments and how they are used to address some of these concerns?

Alison said...

Cost of Living Adjustments (COLA) are increases in Social Security's benefit. The decision of whether adjustments are made or not is based off of increases in the cost of living, which is measured by Consumer Price Index (CPI). Generally, if higher prices are making it harder for seniors to live, there will be a COLA to compensate for those prices. However, right now the prices of the commodities mentioned in the article are increasing, but according to the SSA there's been a decline in CPI. As a result - no COLA for 2011.
So if the prices are rising, why no COLA? The first article in my post discusses this:

"Why is the CPI flat when the prices that people really pay are spiking? According to Reuters, that could be because the Fed generally excludes what it considers volatile items -- like energy and food -- from what it dubs core CPI."

kern said...

You rock, great summary. Now as you stated law of demand says that as prices increase, demand decreases. Do you think demand for products like food and energy drop at the same rate as demand for designer clothes or Blu-Ray players? Although we haven't covered it can you tell me what price elasticity is and how that affects the change in demand?

Alison said...

(Smith actually kind of went over this in the demand podcast)
No, products like food and energy do not drop at the same rate as demand for designer clothes. Designer clothes and Blu-Ray players are elastic goods, meaning price changes cause a relatively large change in quantity demanded. But food and energy are necessities and we HAVE to demand them in order to survive, making them inelastic goods. This means that a price change will cause a relatively small change in quantity demanded. Plus, if the consumer buys only as much as he or she needs to survive, even if the price goes up the necessities aren't going to take up a big proportion of income. That makes the goods even more inelastic.

Smith said...
This comment has been removed by the author.
Brandeezy said...

More money for seniors sounds great, so does more money for education, and for healthcare. The reality is we don't have the money for these things, that is why they are being cut. Allison suggested to use money from other budget cuts to fuel the sputtering social security. The whole purpose of cutting the budget is to stop spending not to find somewhere else to do it at. As the baby boomers get toward retiring age and politicians keep doing what they're doing, a collapse of social security is imminent. And as far as demand cotton and gasoline unless there is a dramatic increase (meaning price more than doubles) demand will not change much.