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Indiscriminate COLA use fans inflation

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POSTED January 6, 2009 12:23 a.m.
COLA — the cost of living adjustment — is just like the real thing. It artificially gets the economy racing but then the effect wears off. The long-term impact of the indiscriminate use of COLA on the economy is the same thing as the long-term indiscriminate use of caffeine. It gives you a false sense of energy.
My first run-in with COLA and how it can artificially inflate the economy and hurt the very people it is supposed to help was when I was on a school board in Lincoln, Placer County.
Western Placer Unified School District Superintendent Orrin Hoffman had just recommended to the board they give every employee from janitor, bus drivers and teachers to administrators — including himself — a 2.1 percent cost of living adjustment on top of negotiated longevity and merit raises that were based on continuing education.
I asked how he could justify that since his cost of living for basic needs — not wants — hadn’t gone up more proportionately than teachers or classified staff.
The superintendent said it was a federal figure so it was correct and that his cost of living went up just as much as anyone else.
I couldn’t resist.
I noted that he made $36,000, our highest paid teacher $20,000, and the highest paid classified employee $12,000. The 2.1 percent cost of living figure translated into $756, $420, and $252 respectively.
It was his choice, I continued, to eat filet mignon instead of hamburger. He wasn’t buying a new home so his housing costs didn’t go up. It was also his decision to purchase one of the fancier homes in Lincoln when he did buy. For good measure I tossed in the fact that he was a landlord as well, so he was beyond basic housing needs. I ended my point saying COLA was put in place to protect basic needs against inflation but was being used by the superintendent to give those on the top of the salary schedule money they simply did not earn.
As he bristled, I made a motion to grant the merit raises and to give all employees making up to $20,0000 a cost of living increase equal to the San Francisco COLA index and to cap everyone above that mark — including the superintendent — at the dollar figure for the highest paid teacher.
The motion did not get a second.
The blanket conferring of COLA across the board in the public sector and much of the private sector through union contracts is a big reason why our economy is out-of-whack. It has helped those on the bottom of the economic ladder fall farther behind while helping inflate prices of basic goods over the years. In many cases it has diluted or displaced merit pay raises that has helped take away incentives to work more efficiently or harder and created an entitlement atmosphere.
It also has helped inflate the tax bite that has helped grow government beyond the basics. As minimum wages plus pay tied to a straight COLA increased, the state and federal governments rarely indexed income tax brackets. The end result is that COLA adjustments ultimately meant taxes took a bigger chunk of paychecks.
COLAs applied just as a simple percentage and not based on a matrix of truly basic needs contributes to the inflation. If the goal is to keep up with basic needs — that was the original concept — it is failing miserably. When applied to wage earners on the upper end it puts more money disproportionately in their pockets in terms of inflation impacting basic needs. At the same time, it increases the cost of the product or the service they are being paid to perform not based on merit or productivity but simply on a COLA increase.
Conversely, someone working for the same company making near the bottom gets the same percentage but a lot less money. Rarely does that keep pace with basic needs going up in price.
COLAs can add to inflation creating an effective self-fulfilling prophecy.
The very folks who argue against just will-nilly upping the minimum wage levels should be objecting to indiscriminate COLA jumps that are based on percentage instead of a dollar amount derived from the actual increase in basics such as housing based on 400 square feet per individual, basic food (not frozen, instant, upgrades, etc.), the cost to heat and cool that 400 square feet of living space, and run-of-the-mill clothes and not designer labels.
If we are going to have a hybrid economy that is neither fish nor fowl then we’ve got to stop playing by rules that are based on concepts that are rooted in either capitalism or socialism.
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