Taste-Testing President Obama's Un-COLA

Seven-Up for a while used an ad campaign in which it marketed itself as the "un-cola" alternative to cola drinks. In personal finance, COLA is a cost-of-living adjustment written into labor contracts to offset inflation. Social security also has an upwards COLA at the end of each year –



– except maybe this year. Why? Well, inflation has been negative. The consumer price index year-over-year has gone down:

As you can see, in the past 20 years, the cpi has usually gone up 2% to 4% per year, but the last data point is below the zero mark.

In a country of rules, that would be that, and social security payments in 2010 would be the same as in 2009. Yet, President Obama is proposing a $250 adjustment such as would have happened in a year withf inflation. This is pure pandering and bad economics.

Both individuals and businesses depend on predictable laws in order to make informed decisions. That's why one-time stimulus payments (such as President Bush distributed in 2008) have minimal effect – knowledgeable people are not going to change their lifestyle on the basis of a one-time windfall. Likewise, Congress each year delays the Medicare "sustainable growth rate" cuts that would reduce doctors' reimbursements. A rational policy would settle on a fixed long-term payment plan.

So, President Obama's COLA that is not a COLA is bad economic policy for reasons unrelated to the federal deficit. This un-COLA does not pass the taste test.