So Obama doesn't really think the chained CPI is "superlative"? | Bleader

Monday, April 15, 2013

So Obama doesn't really think the chained CPI is "superlative"?

Posted By on 04.15.13 at 10:00 AM

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Three weeks ago, there was a little pop-up PR campaign aimed at convincing us that the so-called "chained CPI," or—as it was recently rebranded by the White House—the "superlative CPI," is a good idea.

It consisted of a series of e-mails explaining that the chained consumer price index:

1. Is a mere "technical" adjustment, and

2. Can save so much on things like social security payments and veterans' benefits (where annual increases are pegged to changes in the CPI), it would go a long way toward fixing the federal deficit.

How would it do that? Simple: instead of tracking the cost of a stable standard of living, it would measure how people squeezed by inflation adapt.

Right now, the CPI measures inflation by looking at changes in the price of a fixed basket of goods. The chained CPI would dump those fixed items and replace them with the cheaper items that we'll be substituting when the stuff we really want gets too expensive.

If, for example, the price of beef goes up, we might give up on steak or roast and settle for hamburger. The chained CPI will quickly forget that we ever wanted the more expensive cuts, and just count the price of the hamburger.

On paper that'll work some magic: it'll make a portion of inflation disappear.

And if the next year we're only buying a little baloney, no problem. With the chained CPI, our diminished standard of living would always be the new normal.

When President Obama introduced his budget proposal on Wednesday, the chained CPI (with a few tweaks) was in it. But by the end of the week, the White House was saying it was only there because the Republicans want it. "Superlative" is a technical term for economists. In this case, for the rest of us, it doesn't apply.

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