"Chained CPI" - How the book-cooker's wet dream re-defines reality: [View all]

[Faryn Balyncd]

A few years after the Boskin Commission slashed SS benefits by rigging CPI to understate inflation, Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, seeing no reason at the time to continue the charade, publicly admitted the truth everyone already knew: “The debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”




Since, by the time of Mankiw's admission, the Boskin Commission's (bi-partisan) dirty deed had already been safely accomplished, resulting in a CPI that critics estimate understates real inflation by at least 1% annually to as much as 7% annually, little did Mankiw know that, in 2012, Republicans would have the audacity to try to manipulate Democrats into a repeat of the same scam .......to attempt to RE-RIG the CPI that Americans already recognized as fraudulent.

But, to the extent that Mankiw did not foresee a repeat of the CPI-rigging scam, he clearly underestimated the charms to politicians of dishonest accounting manipulation of CPI....... what Barry Bosworth of the Brookings Institute eloquently labeled "the ‘immaculate conception‘ version of deficit reduction in which spending is cut without Congress taking the blame.”


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In 2012, however, the book-cooking technique now being peddled has a much greater potential than any prior technique..... And anyone who drinks the kool-aide and actually believes that "chained CPI" will result in cuts of "only" 10% or so simply does not understand how "chained CPI" works.

"Chained CPI", because it DE-COUPLES CPI from comparing apples to apples, and because it will depend on the somewhat arbitrary criteria which will need to be determined to implement the "substitution effect", will be an infinitely powerful and flexible tool for artificially suppressing official CPI statistics.





This is how "Chained CPI" re-defines reality:

Suppose, over a given time period, prices rise 100%.

And suppose that you, and others, have been purchasing rib eye for $5/lb, and rib-eye rises to $10/lb.

Because of this inflation, you switch from rib-eye to hot dogs, which formerly were $2/lb, but rose to $4/lb.

Now, you might be tempted to assume that the CPI has risen by100%, since that is what individual items rose.

But "chained CPI", by allowing for a "substitution effect", says, in effect, that "Hot dogs are the new rib-eye", and that your meat expense actually went down from $5/lb rib-eye to $4/lb hot dogs, and magically transforms this 100% inflation in actual prices into a government defined 20% "deflation" - - - based not on real-world prices, but on the substituted consumption of inferior products.

(The peddlers of "chained CPI", of course, would prefer that you live in a dreamland and make the false assumption that consumer substitutions will be of superior products in an ever-improving standard of living.)

It does not take a rocket scientist to foresee the downward spiral that such a definition will create, with fraudulent COLA's resulting in increased substitution in a losing attempt to cope, which will result in even more harshly discounted CPI calculations based on those substitutions, which will result in lower COLA's, more substitutions, which will result in......





Will a disgraced & defeated Republican Party now succeed in manipulating Democrats to do such a thing?

Will we learn from the past?


In 1997, as the Boskin Commission's fraudulent rigging of CPI was on the verge of implementation, The Atlantic published an eerily prescient "How to Re-Write Economic History" which illustrates the profound attraction that cooking the books has for politicians:

“Given the questionable intellectual foundations of the Boskin Commission's findings, the commission's high standing in Washington requires explanation. Both Democrats and Republicans have been keen to see its recommendations adopted, because they provide a potentially uncontroversial way to achieve deficit reduction. Raising taxes is unpopular, and little discretionary government spending is left to be cut. Restating the CPI as a measure of cost-of-living inflation offers an easy way to lower Social Security payments through reduced COLAs and raise tax revenues through reduced exemptions. The hope is that the CPI can be presented as an apolitical and boring technical issue that voters won't notice.

“Revising the CPI would get the Republicans off the hook of deficit reduction, while simultaneously advancing the interests of business. This, however, would occur at the expense of working Americans and the elderly. Revising the CPI would get the Democrats off the same hook, but at the cost of another shameful desertion of the constituencies they claim to represent.”


- - - - - - - - - - - - http://www.theatlantic.com/past/docs/issues/97apr/econhist.htm