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from The Great Debate:

Obama’s budget bid for a ‘grand bargain’

President Barack Obama’s budget, released Wednesday, is getting a lot of criticism from ideologues on the right and left. That is one of the most encouraging things about it.

Though the president’s budget falls short in several important ways, it demonstrates his willingness to compromise — something most Democratic and Republican legislators have resisted. Now comes the critical stage in any real effort to achieve a “grand bargain,” when the president can show true leadership by bridging the divide between the parties and using the bully pulpit to address the American people in a constructive fashion that can lead to a deal.

The most helpful thing about the Obama budget is that, for the first time, the president has publicly proposed reforms to two key social insurance programs. By adopting a GOP-backed change in the inflation calculator — the so-called chained CPI — the president is accepting adjustments in the cost of living payments for those receiving Social Security.

He is also renewing his verbal offer to Republicans from last December’s negotiations for more than $400 billion in healthcare savings – including roughly $370 billion in Medicare spending over the next 10 years. His budget proposes to expand means testing for Medicare premium subsidies.

from The Edgy Optimist:

Who’s afraid of chained CPI?

As the fiscal cliff talks evolve and devolve, the latest spat has been whether the arc of federal spending should be curtailed by changing the way that we assess costs. The proposal from the White House is to switch the way cost-of-living adjustments are made for Social Security benefits. Rather than pegging those to the Consumer Price Index as currently calculated, these would be pegged to a “chain-weighted” Consumer Price Index, which would save as much as $125 billion in additional benefits over the next decade.

Sounds wonky, and it is. But so is much of how the federal government accounts for spending, and these metrics intimately shape what we spend, how we spend, and how we think about the present and the future. The primary measure of inflation, the Consumer Price Index (CPI) uses a fixed basket of goods that resets periodically. Chained CPI uses a basket of goods that adjust more fluidly to account for what statisticians and economists call “the substitution effect.” A fixed basket of goods is easier to calculate: just define the basket and then measure the price changes. But in the real world, people don’t passively accept changing prices. They change their behavior. The price of gas goes up? People drive less; they carpool more; they buy more fuel-efficient cars and consume less gas. The price of a domestic flat screen television goes up? They buy a less expensive import. In short, people don’t necessarily bear rising costs passively; they react and shift to maintain their standard of living. The traditional CPI index doesn’t capture that.

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