Comments on: Who’s afraid of chained CPI? http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/ A clear-eyed view from Zachary Karabell Thu, 06 Feb 2014 10:10:54 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Laster http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-104 Tue, 25 Dec 2012 16:45:59 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-104 Quote from the article:

“which would save as much as $125 billion in additional benefits over the next decade.”

I hardly believe we are, once again, redefining the measure of inflation to secure a $12.5 billion per year savings.

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By: bixbysbigsur http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-103 Sat, 22 Dec 2012 17:29:13 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-103 The problem with the current CPI, chained or otherwise. is the absence of fuel costs. It was removed quite a while ago when oil started to skyrocket. Yet, like any other elephant sitting in the room, it’s presence defeats any attempt to get a handle on an equitable or fair CPI. Every social security recipiant that I know right now has already substituted down to poverty behaviors. What’s left; homeless shelters for seniors?

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By: Acetracy http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-102 Sat, 22 Dec 2012 16:00:32 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-102 All these “solutions” to cut “benefits, entitlements” should have one premise: let’s first apply it to benefits, pensions, and healthcare of our Congress and President, both current and past.

It is so easy for Republicans and Blue Dog Democrats to balance the budget on the backs of poor and middle class because their proposals have no direct affect on their lives. Not a single union employee in the USA, let alone private sector worker has the kind of health care and pension enjoyed by our Senators and Representatives. Furthermore, if we applied a means test (less benefits for higher income and wealthy) none of these past and present elected officials would get any benefits since they are typically of the top 0.5%

What is absolutely amazing to voters who chose Obama is how his administration has been just a Bush3 – more unfunded military spending, low tax rates for multinational corporations, while chipping away bit by bit the livelihood of US middleclass.

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By: borisjimbo http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-101 Sat, 22 Dec 2012 05:44:08 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-101 What do you substitute for water to drink when your budget gets tight?

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By: UselessEater http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-97 Fri, 21 Dec 2012 20:15:56 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-97 If we are going to have this conversation let’s start with your basic information

“That is what the BLS adopted in the 1940s and what has been the standard ever since.”

That is incorrect

Why Reported Inflation Seems Different Than Reality

snip

“The original calculation of CPI, which measured the change in the cost of an identical fixed basket of goods priced at prevailing market costs each period, worked reasonably well for the intended purpose into the early-1980’s. However, as the pressure of increasing deficits weighed on political parties, the need to find solutions to reducing spending, without actually cutting spending, led to several substantial changes in the calculation of inflation.

Shortly after Clinton entered the White House the Bureau of Labor Statistics (BLS) altered the calculation of inflation by changing the weighting of goods in the CPI fixed basket. Then, over subsequent years, the method of weighting the underlying components was changed from a straight arithmetic weighting method to geometric. The primary result of the switch to a geometric weighting was a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price which led to lower reported inflation. ”

http://www.streettalklive.com/daily-x-ch ange/1399-why-reported-inflation-seems-d ifferent-than-reality.html

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By: OkieRedux http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-96 Fri, 21 Dec 2012 03:05:55 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-96 Retirees spend much more on medical care than younger people. The cost of medical care has outpaced inflation, as gauged by the CPI. Retirees have not been getting adequate cost-of-living increases to benefits, and switching to the chained CPI would only make matters worse.

The Census Bureau has developed a “supplemental poverty measure” (SPM) that is much reasonable than the official measure in the factors it considers. The poverty rate for the 65+ age group is 15.1 percent according to the SPM, versus 8.7 percent according to the official measure. See

https://www.census.gov/hhes/povmeas/meth odology/supplemental/research.html

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By: tizneh http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-95 Fri, 21 Dec 2012 00:21:08 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-95 This article does everything but explain the issues involved in the various inflation measures, and what their implications are for the current fiscal cliff debate. Merely saying that inflation measures are inevitably “arbitrary” is a cop out.

“Chained CPI” was invented on the idea that regular CPI overstates inflation because it ignores the substitution effect. But the benefit programs that would be cut if cost of living allowances are recalculated using chained CPI mainly affect the elderly, and it is well known that regular CPI does not overstate, but rather understates inflation for them; since their spending is geared more towards housing and medical care.

It is important to note that the average Social Security retirement benefit is only about $1200 per month and a little less than $15,000 per year. 65 % of Social Security beneficiaries rely on it for most of their income, and more than 1/3 rely on it for more than 90% of their income. (figures from Center on Budget and Policy Priorities).

We are thus talking about cutting the incomes of a lot of people who have worked all their lives and who are not particularly well off, just so we make a deal with a very limited tax increase on the rich and still spend $700 billion + per year on the Pentagon. This is called a “balanced approach” to avoiding the “fiscal cliff. But there is nothing particularly wise and circumspect about it.

I also admire Roberta’s illustration of the “substitution effect” (dog food). I appreciate the author’s mention of the great economist Irving Fisher as well.

“Stock prices have reached what looks like a permanently high plateau”–Irving Fisher, October 1929.

There is plenty of food for thought here (substitute or real).

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By: QuietThinker http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-94 Thu, 20 Dec 2012 21:13:37 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-94 Some things need to be done to firm up social security and chained CPI (or other measures to mitigate excessive COLA adjustments) is one of them. The current CPI has historically been too generous by overstating real inflation. The result has been most workers now receiving way more than they put in, creating a trend that is unsustainable in light of changing demographics (workers per retiree). It is a great thing that social security has COLA adjustments, very few things do. Let’s make it sustainable. A chained COLA and continuing adjustments to the age requirements with increases in the life expectancy are necessary to keep social security outlays on a sustainable basis.

However, adjustments need to be made on the input side as well. Social security tax is extremely regressive. Once you make a certain amount you then pay nothing on the rest. Also much earned income escapes the tax right now – hedge fund carried interests, etc. Wonderful for CEOs and hedge fund managers, but not fair to the 99.99% and not a sustainable course for the country. Maybe we could keep the beneficial effects of the temporary 2% payroll tax break by making it permanent and broadening the revenue base.

Let’s take a balanced approach and do all of the things that I have listed.

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By: Sanity-Monger http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-93 Thu, 20 Dec 2012 21:06:40 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-93 It sounds as if Chained CPI fails to consider additional costs due to e.g. technological change. I would suggest that anyone who cannot access broadband internet is at a serious disadvantage in our society (and before you balk, tell me the last time you were on dial-up and how long it took you to load, say, Reuters home page). Smart phones also seem to be becoming more and more of a necessity (although I have resisted getting one so far).

The larger problem in my view is the fairness view. Our tax structure and other incentives have changed over the past few decades to the benefit of a small slice of society and to the detriment of most. Don’t tell me that taxing the rich won’t solve the deficit problem. That’s not the point. These policies drove us over a cliff (the one in 2008) even while the wealthy benefited and have continued to benefit. So let’s just take some steps to reverse these trends and see where that gets us before we put granny on the catfood diet. Let’s restore Clinton-era tax rates (Reagan era would be even better). Let’s tax cap gains like any other income. Let’s raise the income cap for Social Security contributions. And then let’s see where we are.

Right now, negotiations in Washington are pointing to a deal involving 2% tax increase for working poor and most of the middle class (restoring the payroll tax), while we’re quibbling about a 4% MARGINAL increase on a group of folks who have seen their incomes rise steadily over all these decades. Apart from policy considerations, it’s just plain UNSEEMLY. So no, I’m not on board with this Chained CPI thing or anything else that says that the poor and middle classes have to pay even more for this debacle than they already have before we can squeeze some pittance out of the wealthy.

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By: OneOfTheSheep http://blogs.reuters.com/edgy-optimist/2012/12/20/whos-afraid-of-chained-cpi/#comment-92 Thu, 20 Dec 2012 21:05:52 +0000 http://blogs.reuters.com/edgy-optimist/?p=40#comment-92 I agree completely with Robertia and jamkarat. I’m 72, and my wife and I depend almost exclusively on Social Security for our “living income”. We have to save some because when one of us dies, the one check left won’t cover the bills. This is a “crack in the “safety net” few couples can avoid.

I agree completely with Robertia and jamkarat. I’m 72, and my wife and I depend almost exclusively on Social Security for our “living income”. We have to save some because when one of us dies, the one check left won’t cover the bills. This is a “crack in the “safety net” few couples can avoid.

Those who would continue to expand our government without limit obviously covet the dollars they must send to those who have EARNED Social Security benefits. And thus “we, the people” in our “golden years” are under relentless assault by both intentional long term devaluation of our dollar and it’s purchasing power and the endless financial “shell game” in Washington.

Neither the present CPI nor the proposed “chained index” are fair in the dictionary sense. The present “push” for a “chained index” is from those who deny Social Security recipients their right to have “their boat” rise in a rising tide. Such was NOT the adopted policy when the program originated.

The current “debate” presumes that it is government outlays that should reduce when TVs or the price of housing goes down. Precisely who has presumed the right to unilaterally decide that seniors are somehow less “deserving” of the financial benefits of globalization as other citizens? We must also remember that the “adopted index” is applicable also to those on Social Security Disability, whose day-to-day needs can differ considerably from retirees.

Why should senior’s dollar income decrease in a declining real estate market if their rent actually rises or if they have a a long term mortgage payment remains the same? Should the government have the power to effectively mandate that, over the years, seniors “substitute” cat food for canned tuna or take half of the prescribed dose of their medications because they lack the funds necessary for the full dose? How much “reacting” and “shifting” is morally acceptable for our government to mandate by progressively and deliberately reducing the purchasing power of EARNED BENEFITS?

When you speak of “numbers…which have always been limited, provisional and subject to improvement…” why is it that those whose well being such changes most affect never seem to have effective advocate or personal voice? “Improvement” according to WHOSE definition?.

if I get to pick what comprises it, I have no problem at all with a “Chained CPI”. If it’s honest and equitable, the cost will be more, not less, than adjustments the present flawed measure produces.

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