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Let’s just make clear what chained CPI is all about. The idea here is that you should not measure the cost of living simply based on the consumer price index, and then raise the costs accordingly with the rise in prices. Instead, economists say, you have to account for the substitution effect in response to price shifts. When someone cannot afford steak, maybe they buy more chicken, the theory goes. By “chaining” the CPI to account for the substitution effect, you’re really shrinking the inflation in the index, because you’re assuming that the individual will spend less by changing their lifestyle. As a result, cost of living adjustments based on a chained CPI will rise more slowly that COLAs based on an unchained one.
On top of this, you have to understand that there are different kinds of consumer price indexes based on the prices of different baskets of goods. The current CPI for Social Security is the CPI-W, which measures goods purchased by basically middle-class urban wage earners. There’s also a CPI-U, which measures goods purchased by ALL urban wage earners. Those pushing for chained CPI want to move to C-CPI-U. Both the different index and the chaining will result in a smaller cost of living adjustment. And this compounds over time, so that older people get hit harder by the benefit cut. There’s also no accounting for the lifetime income of the beneficiary in the move to chained CPI – it’s an indiscriminate benefit cut.
What Matt Yglesias leaves out of his discussion of the various inflation-measuring indexes is the CPI-E, measured by the Bureau of Labor Statistics on what they call an “experimental” basis, even though it has been measured since 1987. This measures the consumer price index based on goods most commonly purchased by the elderly. That seems like the most logical way to measure the cost of living for, well, the elderly. And it reflects the fact that the largest cost for Americans as they age comes from health care, the costs of which have risen faster than inflation:
Price change for each major expenditure group varied by population because the distribution of expenditures on the products and services within the major groups varied among the three index populations [...] This is especially true within the medical care group. For example, the CPI-E population devoted a substantially larger share of their expenditures to health insurance (see table 2) than did the CPI-U and CPI-W populations, largely because of the availability of employer-provided health care benefits to the latter groups.
A more detailed examination of the indexes shows that the CPI-E had the highest rate of price increase of the three populations for four of the seven major groups. Medical care prices rose in excess of two times the rate of the average for all items in each population group during this 5-year period. Analysis of the relative importance data for the CPI-E, the CPI-U and CPI-W populations indicate that older Americans devote a substantially larger share of their total budgets to the medical care. Because of this, and because the medical care component of the CPI showed the largest price increase, medical care accounts for most of the difference between the higher rate of increase in the CPI-E experimental index–as compared to the CPI-U and CPI-W indexes–during the 1990-95 period.
Incidentally, the idea of chaining medical treatment, as if you can just substitute a hip replacement with something cheaper, is silly. Overtreatment does exist, but the concept of a senior citizen shopping for cheaper medical care is actually kind of cruel.
Shifting to CPI-E would actually reflect the real costs of seniors, and would have their cost of living adjustment keep up with their actual needs. But of course, that’s not the goal of public policymaking. It’s to “save money,” in this case at the expense of the elderly, particularly those over the age of 80.
Chained CPI only makes sense if you think Social Security benefits and the cost of living adjustment are currently adequate enough for seniors. The fact that 15.1% of seniors are in poverty, according to the newest measure, shows that this is not at all the case. We need higher, not lower, Social Security benefits, as retirement security outside of the program withers. But adequacy is not the goal of those who want to slash benefits. And Democratic enablers call it something they can “live with.” Obviously none of them are 80 or older.
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Catfood becomes too expensive for seniors, and so they switch to cheaper dogfood.
Makes sense. If your name is Alan Simpson. Or maybe even Barack Obama.
In which case, TBogg will undoubtedly have a perfectly sensible explanation.
“Wrong-way Timmy Geithner on 2 December 2012 Social Security Reform Is Off The Table For Now (VIDEO)
You’re right. Romney would never have “chained the CPI.”
“Lesser” of two evils reductio ad absurdum…
TLOTEISE
I owe you a drink :)
Brits are being held to a 1% increase in benefits according to WSWS. That’s an experiment with a forced CPI, no? Labour agreed to go along with this rip-off. This ought to be a warning to the U.S. that austerity won’t work out as expected.
This is definitely class war on the ‘undeserving poors’ (anyone who is not part of the elite) who will be blamed for their own hardships.
This cut plus the managed care for Medicaid and ACOs managed care for Medicare should clarify who and what we are up against. Social insurance programs being looted? Oh my, who could have known?/s
One of the ways by which these heartless bastards (bowles and simpson) tried to sell the chained CPI was by saying that they would create a floor below which a person could not receive less than a basic benefit. Don’t believe them. The CBPP folks reviewed their plan. It was not difficult to not qualify for their ‘basic benefit’ and to fall below that amount in SS benefits. E.G. way below below the poverty line. Their other selling point is that they claim that they will add on to the poor 85 y.o.’s benefits once she/he has become destitute from living so long that the CPI has wiped out the spending power of their SS benefits. Don’t believe them. They’ll fix their beloved CPI mess just like they studied and compensated those they ‘shorted’ in 1983 by raising the SS retire age to 67. They promised they would study that and NEVER ever did so. You can really trust these guys./s
Just fucking disgusting, Yet Another Sellout By Obama (YASBO™)
It isn’t Simpson and Bowles attacking Social Security. It’s Obama.
Since Social Security is not part of the deficit and won’t ever be, there is no reason to attack it. If there is a deficit that needs fixing, it should be fixed entirely by squeezing programs which contribute to it, not something that is still bring in (counting interest payments) more money than it is spending every darn year.
Plus, the assumptions made by the SS trusties when touting the need to fix SS are highly suspect. Their assumptions on US growth rate, labor force participation, and even the composition of the labor force are quite conservative, if that is the right word.
Growth rate assumed – lower than the US has seen since WW II.
Labor force participation – lower than average since WW II.
Labor force composition – what about all those undocumented aliens? Put them into SS and the average age of the workforce goes down – “fixing” about 1/3 of the SS problem.
This needs to be fought, totally. O should not be allowed to destroy our safety net. It is obvious he has no liking at all for seniors, especially those currently above the poverty line.
The proposed “solution” to the “problem” that was in fact created by O and Congress less than a year ago is a mean mess.