Tuesday, March 9, 2010

Munnell and Biggs take on the retiree lobby

In an op-ed on March 7, Alicia Munnell and Andrew Biggs present a pretty compelling case why Social Security beneficiaries do not need an additional $14 billion in compensation for not receiving a COLA. Their two main points are that prices have fallen, so the COLA should indeed be zero rather than positive; and that beneficiaries have not borne the brunt of the financial crisis, while the unemployed have.

A related point is an implicit argument that beneficiaries' marginal propensities to consume out of additional cash is lower than that of the unemployed. I'm not sure what the literature suggests about this relatively fine distinction, but it sounds plausible.