South By North Strategies, Ltd.

Not Too Technical

Writing in The Guardian, Dean Baker of the Center for Economic and Policy Research explains how there is nothing “technical” about changing Social Security’s annual cost of living adjustment. Instead, it is a backdoor way to cut benefits.

A reduction of 0.3 percentage points in benefits may seem small, but this will accumulate through time. After being retired ten years, benefits will be almost 3% lower with the CCPI. After 20 years, the loss will be near 6%, and after 30 years, the reduction in benefits will be close to 9%. This is a serious loss of income for seniors, the vast majority of whom rely on social security for most of their income.
…
The justification for the change in the benefit formula is that the CCPI [chained consumer price index] takes account of the substitutions that consumers make in response to changing prices. The classic story is that if the price of beef rises and the price of chicken doesn’t, people will buy more chicken and less beef. The CCPI takes this switching from beef to chicken into account in calculating inflation. The current CPI [consumer price index] does not.

Baker goes on to recommend the following:

At this point, we don’t know what a full elderly index that included substitution would show about the cost of living for the elderly. However, if the point of changing the indexation formula for social security is to make the indexation more accurate, then it would seem that we would want to find out. In other words, if the people who claim to want a more accurate cost of living adjustment are being honest, then they should be calling for the BLS to construct a full elderly index. This index would then be used for adjusting social security benefits. At this point, we don’t know if this index will show a higher or lower rate of inflation. We just know that it will be more accurate.

Around The Dial – August 10, 2011

Economic policy reports, blog postings, and media stories of interest:

• Naked Capitalism has started “a Bank of America death watch.”
• TaxVox explains S&P’s $2 trillion math error.
• Policy Shop notes the 150th birthday of the federal income tax.
• Robert Reich wonders why the administration doesn’t have a bold jobs plan.
• Drew Westen asks about “what happened to Obama?”

Not So Mysterious

Rortybomb notes that the causes of the growth in long-term unemployment aren’t particularly mysterious.

There also shouldn’t be any mystery of long-term unemployment either.  Every month the average and median duration of unemployment goes up, reflecting a large share of the unemployed being unemployed longer.  Commentators are surprised.  Right-wing economists come up with all kinds of convoluted theories about how the long-term unemployed are taking a year off to coach junior’s baseball team (instead of suffering high rates of mental illness and suicide from the shock that comes with being out of the workforce for an extended period of time).  But the simple answer is that there was a period in 2009 when the economy shoved 7 million people out of the workforce and then stopped creating jobs.

A Shrinking Pool Of Small Businesses

Random Samplings, the blog of the U.S. Census Bureau, notes that, due largely to the recession, the U.S. lost 260,000 non-employer businesses between 2008 and 2009. Businesses without employees (e.g., independent consultancies and “mom and pop” retail stores) account for the overwhelming majority of the nation’s small business establishments.

The U.S. contained 21.1 million non-employer firms in 2009. Of those firms, 18.7 million were organized as sole proprietorships, 1.4 million as corporations, and 1.0 million as partnerships.

Around The Dial – August 9, 2011

Economic policy reports, blog postings, and media stories of interest:

• Randall Wray describes a “Rube Goldberg Doomsday Machine.”
• Rortybomb is amazed by most states’ approach to prison labor.
• Crooked Timber runs down “the deficiencies of left neo-liberalism.”
• Economix looks at tie between deunionization and wage inequality.
• The Huffington Post explains “how Congress corrupted patent reform.”
• Joseph Stiglitz warns against “a contagion of bad ideas.”