Monday, July 25, 2011
"Official CPI Is Running 3.6%, But If It Were Still Calculated The Way It Was Before The Greenspan Commission Went To Work, It Would Be 11.1%"
Addison Wiggin notes:
Whatever agreement emerges from the backroom dealing [on the debt], it is now almost sure to include what we’ve labeled a “stealth default” on Social Security.See this and this, and this for background.
The White House quietly put out the word two weeks ago that it’s on board. Congressional Republicans think it’s a super idea, too. “There hasn’t been any economist anywhere that says we shouldn’t do that,” says Sen. Tom Coburn (R-Okla.).
Of course, they don’t call it a stealth default. They call it “chained CPI.”
This stealth default has occurred before. When Social Security was in trouble in 1983, one of the Greenspan Commission’s fixes included an adjustment to the consumer price index known as “substitution.”http://www.blogger.com/img/blank.gifIt works like this: If steak gets too expensive and you start buying hamburger instead… well, your price of beef hasn’t really gone up and your cost of living is unchanged. This is one of the reasons official CPI is running 3.6%, but if it were still calculated the way it was before the Greenspan Commission went to work, it would be 11.1%.
Because Social Security benefits are keyed to CPI, this has resulted in a substantial savings for Uncle Sam. But fast-forward 28 years and Uncle Sam has burned through all the trust fund money just to pay his bills, and “substitution” alone isn’t good enough. Hence, “chained CPI.”
Under “chained CPI,” if your hamburger gets too expensive and you start buying beans instead… well, your price of protein hasn’t really gone up and your cost of living is unchanged.