Seniors arenât living on âfixed incomesâ
Talk about senior citizens living on âfixed incomesâ is such a clichĂ© at this point that when Mark Kellyâs team put this tweet together, Iâm sure they didnât think twice. But while this association between being elderly and being on a âfixed incomeâ describes an extremely real aspect of American life between 1946 and 1975, it has little applicability to the present day. Todayâs senior citizens have, on average, some of the least âfixedâ incomes of anyone out there. I donât particularly need Senator Kelly to pass a special bailout for Substack writers, but my business genuinely struggles with overall price inflation. Slow Boringâs annual price hasnât risen since I launched in 2020. But that initial $80/year subscription would be $102 in todayâs prices. Yet because we all know that people care about nominal prices and not just real ones, if I suddenly hiked prices, that would almost certainly hurt me with subscription renewals. The good news is that our subscriber base has steadily grown over time, so real revenue has always gone up, even during the really bad inflation years. But especially because people selling digital subscriptions â whether thatâs me, the New York Times, Netflix, or anyone else â canât exactly say that we were forced by rising costs to raise prices, itâs just objectively the case that itâs easier to run our businesses when the inflation rate is low and harder when itâs high. My personal economic situation is unusual, but this is a general fact about the world. Itâs probably easier to talk your boss into giving you a raise if inflation is at 8 percent than if itâs at 1 percent. But the fact is, you still have to exert effort to bargain for that raise. Thereâs good research on this from Joao Guerreiro, Jonathon Hazell, Chen Lian, and Christina Patterson. Naive economists say that 0 percent inflation and 0 percent nominal wage growth is the same as 5 percent inflation and 5 percent nominal wage growth. But that wage growth doesnât happen automatically â you need to fight for it, and the fighting is itself costly. A lot of the wage growth in 2022 and 2023 came from people switching jobs to get a raise, which is better than not getting a raise. But again, having to switch jobs requires effort and makes people inflation-averse. You know who doesnât have these problems? Senior citizens! Go back in time to the post-war generation, though, and three things were different: Social Security benefits were adjusted for inflation on an ad hoc basis by Congress on a very unpredictable schedule. A much larger share of private-sector workers were in labor unions that had negotiated automatic cost-of-living adjustments into their contracts. It was unusual for middle-class people to own stock. Under these conditions, worrying specifically about senior citizens on fixed incomes made a lot of sense. Their Social Security benefits were specified in nominal terms. A very large fraction of their private savings would have been old war bonds specified in nominal terms. And in contrast to those senior citizens on their fixed incomes, not only did lots of union workers have cost-of-living-adjustment clauses in their contracts, but plenty of large non-union employers copied this to help keep their workers happy and their workplaces union-free. In this specific context, senior citizens were, in fact, particularly vulnerable to inflation due to a high likelihood of living on a fixed income. You could imagine George Meany meeting with some government officials in the late 1960s or early 1970s and pushing them to keep a laser focus on full employment despite rising inflation. And you could imagine someone from the government pushing back and asking, âThatâs fine for your members, but what about retirees living on fixed incomes?â Iâve been working my way through Agatha Christieâs Hercule Poirot mysteries and now that Iâve gotten to the postwar years this seems like a big issue in English society, too. There are retirees and war widows living off nominally fixed pensions or bonds, and dismantling the whole apparatus of rationing and price controls would be bad for them even if it would ultimately be economically beneficial to the country. Crucially, though, todayâs private-sector workers are dramatically less likely to have automatic inflation adjustments and only an idiosyncratic senior citizen would have their income entirely tied up in bonds. Right now, about a quarter of seniors say they rely on Social Security for basically all their income. These are relatively low-income seniors and it makes sense to worry about their financial well-being. But since 1975, Social Security benefits have an annual automatic inflation adjustment. So while itâs reasonable to worry about retirees at the bottom of the income distribution, they are not living on âfixed incomesâ at all and are not specifically burdened by inflation. In fact, itâs just the opposite: Unlike working-age people, who even in a climate of rising wages need to exert effort to get their pay boosted to compensate for inflation, low-income retirees are automatically protected from inflation. What about rich retirees? Well, rich retirees own shares of stock. The stock market has done extremely well in recent years, easily compensating anyone with significant investments for rising prices. Whatâs more, while stock prices are not automatically inflation-adjusted, they are in practice pretty protected. Thatâs because the overall trajectory of the stock market is dominated by the actions of professional investors and algorithmic traders, and these investors are not particularly prone to money illusion. Inflation gets priced in rapidly, and a person with a healthy 401(k) account doesnât need to do anything to secure inflation compensation. Of course, people also invest in bonds, and itâs true that if you buy a long-term bond for the interest income and then inflation rises, you take it on the chin. This is a thing that happens. But to be living on a fixed income, you need to imagine a senior who is affluent enough that Social Security does not dominate their income, but whose affluence consists overwhelmingly of bonds rather than stocks. Are there people like this? Iâm sure that there are. But itâs not a large share of senior citizens, and itâs not a particularly economically vulnerable set of senior citizens. This is much, much, much less common and socially significant than the banal case of a young worker with a nominally determined salary for whom inflation means either declining real income or a series of annoying conflicts with his boss to get a raise. Iâm not just trying to nitpick here. Itâs important to understand that the elderly are quite a bit wealthier than younger people as measured by median net worth. Elderly Americans are less likely to say that theyâre having trouble paying utility bills, skipping meals or missing health appointments to save money, or dealing with pest infestations in their home or crime in their neighborhood. Thatâs not bad; it reflects a lifetime of savings plus a generally rising stock market. And itâs a reminder that we donât need to go out of our way to worry about the economic problems of the old rather than the young. And to that end, I think itâs helpful to stop repeating outdated clichĂ©s about who is and is not on a fixed income. Low-income seniors are protected from inflation by Social Security, which is much better than the pre-1975 design of the program. Affluent seniors are affluent. Right now, 28 percent of Americaâs large homes with 3+ bedrooms are owned by empty-nesters. Iâm not a communist who thinks we should seize those homes and redistribute them to young zoomer couples who want to get married and have kids. But if affluent boomers were to sell their homes, realize large capital gains on the transaction, and move into smaller dwellings and live off their financial windfall, that would be a fine outcome for the country. When Senator Kelly says that Washington dâŠ
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