Though the actual negotiators are presumably busy assembling their new Christmas presents—I spent two hours yesterday getting a new wireless printer to work (see note*)—some of us are still arguing about various facets of the fiscal cliff, in particular, the chained-CPI (details as to what this is about and CBPP’s view here).
Here’s a rough typology/continuum of the positions on this policy change:
1)–it’s a more accurate measure of price changes and should thus be widely applied to government programs and the tax code;
2)–true it’s more accurate, but it’s also a benefit cut that compounds over time and thus any changes should shield economically vulnerable people from their impact (CBPPs view);
3)–OK, you want to index Social Security benefits to a more accurate price index? Then have the BLS develop a chained index for the elderly (in fact, they have the makings of one—the CPI-E—but it needs work). Dean Baker makes that case—forcefully—today.
4)–Do not make this switch. It’s a benefit cut to Social Security which is a critical source of income to most elderly. How could we possibly countenance such a change at a time when most of the economy’s growth is accruing to the wealthy as middle and poor families fall further behind? Bob Kuttner hammered this point home on this radio show the other day.
I’m with my CBPP colleagues though I also support point #3—as Dean notes, it would make a lot of sense to invest in a chained-weighted CPI that accounts for the notably different buying patterns of the elderly. Ruth Marcus critiques this point today but for reasons that don’t make sense to me. For example, she criticizes an elderly price index that would more heavily weight health care spending because “the burden of higher health costs falls unevenly among the elderly. Average costs are skewed upward by a minority who face very high out-of-pocket expenses…”
But a) all the commonly used price indexes use average costs and are thus “skewed” up and down when the underlying distribution is uneven, and b) there’s little question that the ‘old’ elderly—the ones most hurt by the switch to the chain-weighted measure—face high out-of-pocket medical costs.
Marcus goes on to endorse, as do we at CBPP, bullet #2, and this is clearly the administration’s view as well—in fact, they’ve built in offsetting benefits to the poor, old elderly into their plan. That’s very important and salutary and one reason why I nervously support the switch.
But I’m more concerned than Ruth appears to be with the possibility that the current politics get us the chained CPI without the necessary protections. I’ve been in lots of debates with bullet #1 advocates who make the logical case that if it’s a more accurate index, then how can I argue that there should be some benefit adjustments or that it shouldn’t apply to SSI, the poverty line, food stamps, etc.?
The answer is that I want to protect low-income families, who very much depend of these benefits, from cuts in the spirit of Kuttner’s arguments cited above (they’ve claimed virtually none of the growth in recent years). I am also convinced that the switch to the chained CPI is coming and we should make sure to make it when we can get something back for it, like the low-income protections we’ve argued for at CBPP.
But this is no slam dunk and it is a development that must be closely monitored. As things stand, the current small-bore compromise on the table doesn’t mentioned the chained CPI, but it will be back next year for sure.
*Note: A few things re this new HP printer. First, as noted, it’s wireless and it prints, copies, and scans and it cost $99. Pretty unbelievable, as long as we’re talking about price changes. The CPI does try to capture such quality improvements by making “hedonic” adjustments—look it up—which is one reason you see the large price declines for “personal computers and peripheral equipment” compared to the overall price index in the figure below.
Second, while it was impossible to figure out how to work it, and it came with virtually no instructions, I went on HP’s online chat site, and with no waiting and the help of a very patient and smart techie, got everything up and running. So there’s one happy holiday story for you.