Editor's note
By popular demand, Mike Hannigan returns to explain the functions of the Federal Home Loan Bank of Indianapolis. This mystery has haunted many listeners to Who Gets What? over the years. Now, by checking into mortonjohn.libsyn.com you can know all.
You’ll soon hear about the Cost of Living Adjustment (COLA) to the monthly retirement benefit paid by Social Security. That benefit won’t show up until January in 2025, but there will be enough time to grouse about it.

Pappy Pickel is reading his newspaper aloud to his niece, “According to the information to be had at this writing, the Social Security COLA for 2025 will be close to 2.6%. That’s down from the 3.2% for this year, and way down from the 5.9% and 8.7% of 2022 and 2023, respectively.”

“That just follows the inflationary decline,” Paula responds. “Right!” pronounces Pappy, the paterfamilias of a Portland (IN) patriarchy.

“Egg prices and gas prices are up still from what they used to be,” Paula pouts. Pappy, folds his newspaper and says, “Stock prices are up so much, a decent person can’t afford to buy them.”

“How do they get that 2.6%? Paula asks.

“It’s all here in the newspaper,” Pappy replies and reads: “The Bureau of Labor Statistics [BLS] uses CPI-W for the third quarter of the current year (July, August, and September)compared to the same quarter a year earlier, as the factor by which Social Security benefits are adjusted for inflation in the coming year.”

“Two questions,” Paula says. “What’s this CPI-W and why the third quarter?”

“That’s a bit of history,” Pappy says. In 1913, BLS started the Consumer Price Index (CPI) covering price changes for household expenditures by Urban Wage Earners and Clerical Workers. But that slowly became just 28% of the U.S population.”

“Of course,” Paula pops up. “Jobs changed, life-styles changed, and what worked well before WWI didn’t hold any more.”

“Right,” Pappy says. “By 1961, a report recommended broadening the CPI population, to include ‘professionals, the self-employed, the poor, the unemployed, and retired people.’”

“But, that wasn’t sufficient,” Paula says.

“Right again,” Pappy beamed. “It took another 11 years before Congress passed legislation linking cost-of-living adjustments (COLAs) to increases in the CPI. Up to that point, any COLA required a separate act of Congress. This new approach removed some of the politics from that adjustment.”

“So,” Paula takes charge, “CPI-U now applied to 88% of Americans. That was a real step forward.”

“Ah, you’re forgetting a basic truth,” Pappy says sagely. “If CPI-U replaces CPI-W, it’s an upheaval for unions and others who have built compensation, rental programs, and other contracts around the older, more narrow standard.”

“What happened?, Paula asks innocently.

“Typical government,” Pappy answers. “CPI-U becomes the standard, but CPI-W continues to be produced by changing the weights of different categories of spending by the two difference populations.”

“Is there much of a difference between CPI-U and -W?” Paula asks.

“No,” Pappy says, ‘and the third quarter is not very different from other calendar quarters.”

“That’s what Gen. MacArthur said,” Paula confirms, “Old data don’t die, they just fade away.”
Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed his podcast.

© 2024 Morton J. Marcus

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