How Biden’s Social Security Demagoguery Is Stoking Inflation
President Joe Biden has a history of attacking Social Security, and this posturing may have harmful consequences. The uncertainty over Social Security’s future is leading to fear among those approaching retirement age, and claiming Social Security benefits early could contribute to labor market shortages, leading to rising prices.
A recent Wall Street Journal story showed workers claiming Social Security out of fear that their benefits will be cut, prompting them to retire earlier. These anecdotal stories are supported by research results from Boston College’s Center for Retirement Research, suggesting that negative press on Social Security’s finances causes workers to adjust their retirement plans.
Claiming Social Security benefits early can have negative financial consequences for individuals, particularly for those in good health and/or with other financial resources in their early 60s. However, on a macro level, more early retirements exacerbate existing trends, leading to labor market shortages, particularly in service industries. This is driving up wages and subsequently, prices.
Two ways to break the “wage-price spiral” are to encourage people to defer Social Security and continue working or raise the interest rates. Encouraging individuals to defer retirement will increase labor supply, leading to less pressure for wage increases. Raising interest rates may create a recessionary impact.
A larger workforce would be beneficial for many reasons, including restraining inflation, expanding the economy’s potential growth rate and increasing the Social Security revenue base. For those approaching retirement age, continuing to work for an extra year provides a guaranteed return in the form of a 6-8 percent increase in monthly benefits.
However, President Biden’s incentive to win re-election by appealing to seniors may result in him continuing to scare seniors about their benefits, rather than explaining that deferring retirement is a better financial decision.
Conclusion
Social Security posturing by President Biden could exacerbate labor market shortages, resulting in inflation. By encouraging people to remain in the workforce, the supply of labor will increase, reducing wage pressure, and potentially reducing prices. More people joining the workforce and delaying Social Security benefits offers many benefits, including restoring the Social Security revenue base and expanding potential economic growth.
Author Bio: Chris Jacobs is the CEO of Juniper Research Group and author of “The Case Against Single Payer.”
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