Obama’s chained inaccuracy

[Draggingtree]

financialpost.com:

Obama’s chained inaccuracy

 

Philip Green, George Gabor, Special to Financial Post | Aug 16, 2012 10:56 AM ET

Obama administration’s new method for measuring inflation would not yield the desired results

 

The Obama administration is considering adopting the “chained consumer price index,” as the principal measure of inflation upon which increases in payments to such things as Social Security would be tied. The Chained-CPI is lower than the CPI. Adjustments to payouts will fall behind price inflation, reducing the deficit. The administration and some members of Congress tout improved accuracy as a reason for the change. That claim is misleading. The prime reason is a self-serving desire to save money by stealth.

In 2003 the U.S. Bureau of Labor Statistics devised the Chained-CPI because it wanted an additional index that was closer to a cost-of-living index than a price index. In a pure price index, the basket of goods remains fixed and the index tracks the increase of prices in the basket. Consumers, though, have limited budgets, so they substitute products whose prices go up with products whose prices are stable or go down. By doing so, they incur a decrease-or at least a change-in their quality of life. Their consumption behaviour means that a pure price index does not track what they spend as they adapt to prices. The Chained-CPI attempts to track their spending on the items in the basket, rather than the prices of specific things in the basket.

Politicians and the financial press are understandably and justifiably celebrating the prospects of lower spending based on an “improved” CPI. The apparently lower inflation figure, however, will increase tax bracket creep, and thus taxes. It will also overstate GPD growth.

The proponents of the Chained-CPI justify the change by saying it is more “accurate.” Bloomberg says the “more accurate gauge of U.S. inflation – would yield immediate savings,” to the U.S. government: up to $300-billion read more http://opinion.financialpost.com/2012/08/16/obamas-chained-inaccuracy/

[Argyle58]

Improving results on paper is much easier than producing actual change.