|Posted on February 4, 2015 at 7:30 PM|
Question: What Is a Chained CPI and Why Should I Care? By Keith Tierney*
It has been some time since I was asked to write something in “Eco-mese”. Let’s start with what is a Consumer price index. It is simply an average price of all the goodies a certain group of consumers buys in a certain time period usually a month. The official definition from the Bureau of Labor Statistics (BLS) is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” The BLS has classified all these goodies into 200 categories which are then arranged into eight major groups:
Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
Housing (rent of primary residence, owner’s equivalent rent, fuel oil, bedroom furniture)
Apparel (men’s shirts and sweaters, women’s dresses, jewelry)
Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
Medical Care (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services)
Recreation (televisions, toys, pets and pet products, sports equipment, admissions);
Education and Communication (college tuition, postage, telephone services, computer software and accessories);
Other Goods and Services (tobacco, haircuts and other personal services, funeral expenses).
By the way, how many of you spend your social security on leisure, college and tobacco? Shall we tell Congress to get this iteml out of the calculation? Also included within these groups are various government-charged user fees – water and sewer charges, auto registration.
The CPI is used to adjust consumers’ income-hopefully up but it can adjust down (deflation). The CPI affects 48.4 million Social Security beneficiaries, and about 4.2 million military and federal Civil Service retirees and survivors.
An alternative measurement for the CPI-U being discussed in “Star Chambers” in Washington is the creation of a price index that more closely measures the average price of what you really buy. That alternative is called the “Chained CPI”. Don’t ask how they came up with that label it really should be the “deranged CPI”. The premise starts with the assumption they know when you walk into the grocery store how you will decide to spend your income. For example, they think you will stop by the meat counter and ponder price of beef and then run over the chicken counter (they are never next to one another) and compare the price of chicken. If the relative price of beef (relative to chicken) is higher you will substitute the chicken for beef. Really!? Proponents, who carefully study all of this, have concluded that you will spend the entire day in the grocery store making these decisions. Meaning your time has no value (opportunity costs) another story. The net result is they will lower the CPI by about 0.3 % that is 3/10s of one percent. The bottom line is the Social Security income you receive will be lowered by this amount. But since it is such a small adjustment you will not notice or care. Yes the same person who will spend the entire day in the grocery store will not notice or care.
In reality, we all know what the typical Social Security recipient spends their income on– heating their home in the winter and cooling in the summer, prescriptions, gas for the car or public transportation (at least until we privatize that too)
The real discussion should be that people on social security do not buy the same bundle of goods those who have an average income of $50,000/yr buy. Why don’t we start this conversation with what do you need to live, to keep a roof over your head, to eat and to dareI say it go see a movie? Since I started this with a questionhere is the answer.
Answer: The chained CPI is a stealth decrease in Social Security Benefits, and Veterans Benefits. It will lower your dismal standard of living. It will also increase in your Income Taxes.
If you are not in favor or the Chained CPI – let your Senators know:
Patty Murray 202-224-2621
Maria Cantwell 202-224-3441
Barbara Boxer 202-224-3553
Diane Feinstein 202-224-3841
Harry Reid 202-224-3542
Dean Heller 202-224-6244
* Keith Tierney has lectured for the University of Nevada system and Oregon State University in economics and law. He also is a public speaker and humorist like Mark Twain (or so he thinks)