Aug. 2, 2014 SIGN IN | REGISTER

To Escape Economic Purgatory, Feds Must Spend More Money

When I first heard about the plan to give every senior on Social Security $250 because there will be no cost-of-living adjustment, I laughed until it hurt. It hurt a lot.

Rudy Penner, the intellectually honest and insightful former head of the Congressional Budget Office, hit it right when he trashed the plan as utterly fiscally irresponsible, especially given that seniors as a group are far better off than any other age group when it comes to net worth and ability to navigate through the tough times. But Penner noted how delighted he and his wife would be to have a $500 dinner at Citronelle courtesy of more hard-pressed American taxpayers.

A cost-of-living adjustment is supposed to adjust for inflation — meaning the amount goes up when inflation exists but doesn’t when it is negligible. Establishing a precedent that Social Security payments go up regardless of whether there is inflation is very bad, especially when it occurs at a time of immense fiscal stress and when every dollar spent via the federal Treasury should be carefully weighed against the many competing priorities and against the need to bend the many cost curves that will pose a huge fiscal problem in the coming decade and beyond.

I am not a political naif. I fully understand the reasons for this giveaway that go beyond the reflexive desire to give obeisance to seniors. The White House wants to provide a buffer against strong opposition from many seniors to health care reform, a double whammy of those worried that the cuts in future Medicare growth will reduce their benefits and those who are unwilling to give up the taxpayer-subsidized extra benefits that exist in many Medicare Advantage plans. That is not all. There are many fiscal strategists who believe that we still face a deflation threat, requiring more stimulus; since the partisan and ideological divisions won’t support a second major stimulus package, this one will do — nearly all the money going out here will be spent, providing a nice additional jolt to an economy that needs it.

The $1.4 trillion deficit this year is a frightening number, but I agree with Roll Call contributing writer Stan Collender and many other analysts that it is actually not a sign in and of itself of fiscal disaster or irresponsibility. Using real, not made-up numbers, it is indeed $400 billion less than what we had earlier projected. And it reflects in large measure short-term spending and tax cuts that were absolutely, compellingly necessary to keep us from falling into the abyss of deflation and depression. Many Americans still don’t realize how close we came to Depression-like disaster, and how much the fiscal policy the Bush and Obama administrations pursued in 2008 and 2009 were responsible for keeping us out of economic hell, even if the result was economic purgatory.

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