HomeLatest ThreadsGreatest ThreadsForums & GroupsMy SubscriptionsMy Posts
DU Home » Latest Threads » Forums & Groups » Main » General Discussion (Forum) » Everything you need to kn...
Introducing Discussionist: A new forum by the creators of DU

Mon Dec 17, 2012, 11:12 PM

 

Everything you need to know about Chained CPI in one post

Last edited Tue Dec 18, 2012, 12:06 AM - Edit history (1)

Here’s how it works: Numerous government programs, most notably Social Security benefits and the income thresholds for tax brackets, are indexed for inflation. But inflation can be measured in a number of ways. The tax code, for instance, uses CPI-U (Consumer Price Index – Urban), which measures prices for consumers in urban areas, to adjust the income cutoffs for different tax brackets. Social Security uses CPI-W, which is like CPI-U but only counts prices paid by urban wage-earners, not all consumers.

Various deficit-reduction frameworks, including Bowles-Simpson, Domenici-Rivlin and the Gang of Six plan, would convert all programs using CPI-U or CPI-W to a third measure — called C-CPI-U, or chained CPI. Most inflation measures, including CPI-U and CPI-W, track the price of a certain basket of goods. That basket could include, say, a year’s supply of propane. When propane costs go up, CPI-U and CPI-W include that as an increase in the cost of living.

But some people would just stop using propane if its price went up. They’d switch to electric heating, or a geothermal system, or a wood stove (Or nothing...). So their actual heating costs wouldn’t go up as much as CPI-U and CPI-W would suggest. Chained CPI attempts to take “substitution effects” like this into account. Thus, its number generally rises more slowly than other metrics.

That adds up to a big cut in Social Security benefits. Imagine, for example, a person born in 1935 who retired to full benefits at age 65 in 2000. According to the Social Security Administration, people in that position had an average initial monthly benefit of $1,435, or $17,220 a year. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit be up to $1,986 a month in 2013, or $23,832 a year. But under chained CPI, the sum would be around $1,880 a month, or $22,560 a year. That’s a cut of over 5 percent, and more as you go further and further into the future...

The results by using chained CPI for taxes are also striking. The Tax Policy Center calculated the income tax increases that would be caused by a switch to chained CPI. They’re not big — a little more than $100 a year for most families — but they’re oddly regressive:



http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/11/everything-you-need-to-know-about-chained-cpi-in-one-post/


FUCK THIS CRAP.


Adding something poster "unblock" wrote on edit:

the substitution effect *isn't a part of inflation*. it's a measure of how people COPE with inflation....it's a measure how how people cope with inflation because their wealth and income isn't keeping up.

taken to an extreme, it's actually a measure of the rate of increase in SPENDING rather than prices. in the extreme, if your income is unchanged, and therefore your spending doesn't go up at all in response to price increases, you have to cope by completely substituting cheaper alternatives or just going without. theoretically a measure of "inflation" could show ZERO inflation in this scenario even though all prices went up.

http://www.democraticunderground.com/10022016967#post5

24 replies, 1752 views

Reply to this thread

Back to top Alert abuse

Always highlight: 10 newest replies | Replies posted after I mark a forum
Replies to this discussion thread
Arrow 24 replies Author Time Post
Reply Everything you need to know about Chained CPI in one post (Original post)
HiPointDem Dec 2012 OP
bkkyosemite Dec 2012 #1
bkkyosemite Dec 2012 #2
RedCappedBandit Dec 2012 #3
RC Dec 2012 #4
unblock Dec 2012 #8
unblock Dec 2012 #5
HiPointDem Dec 2012 #6
Luminous Animal Dec 2012 #7
HiPointDem Dec 2012 #17
ThoughtCriminal Dec 2012 #9
HiPointDem Dec 2012 #12
doc03 Dec 2012 #10
HiPointDem Dec 2012 #11
doc03 Dec 2012 #13
HiPointDem Dec 2012 #14
doc03 Dec 2012 #15
HiPointDem Dec 2012 #18
forestpath Dec 2012 #16
BlueStreak Dec 2012 #19
leftstreet Dec 2012 #20
jtuck004 Dec 2012 #21
sabrina 1 Dec 2012 #22
HiPointDem Dec 2012 #23
nashville_brook Dec 2012 #24

Response to HiPointDem (Original post)

Mon Dec 17, 2012, 11:15 PM

1. Again NO NO NO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Reply to this post

Back to top Alert abuse Link here Permalink


Response to bkkyosemite (Reply #1)

Mon Dec 17, 2012, 11:15 PM

2. Oh and thanks for the explanation.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Mon Dec 17, 2012, 11:21 PM

3. K&R

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Mon Dec 17, 2012, 11:27 PM

4. Why can't they include retail food in the inflation calculations?

 

It was removed during the bu$h administration.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to RC (Reply #4)

Mon Dec 17, 2012, 11:38 PM

8. they track inflation in many sectors, food included.

one of the widely publicized measures is "core" inflation, which excludes food and energy, under the (not unreasonable) argument that the month-to-month movements from those two sectors are highly volatile and removing them can give greater insight into true inflation, given that readings including those two sectors might be misleading and transient.

however, food and energy are included in the full inflation measures, and serious economists pay attention to both statistics. no one thinks food and energy prices are irrelevant, they just don't want to get whipsawed by wild swing short-term price movements in those sectors.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Mon Dec 17, 2012, 11:30 PM

5. just to be clear how chained cpi is even theoretically wrong:

imagine if the cost of ABSOLUTELY EVERYTHING went up by 5%.
you would think that every measure of inflation would show a 5% rise, right?

well, cpi-u would, and cpi-w would, but chained cpi would show LESS of an increase due to the substitution effect!

that's right EVERYTHING goes up 5%, but because some people switch from more propane to wood stove, or from filet to hamburger, etc., chained cpi might show a 4% or 3% rise.

that's because the substitution effect *isn't a part of inflation*. it's a measure of how people COPE with inflation.

more specifically, it's a measure how how people cope with inflation because their wealth and income isn't keeping up.


taken to an extreme, it's actually a measure of the rate of increase in SPENDING rather than prices. in the extreme, if your income is unchanged, and therefore your spending doesn't go up at all in response to price increases, you have to cope by completely substituting cheaper alternatives or just going without. theoretically a measure of "inflation" could show ZERO inflation in this scenario even though all prices went up.

in theory, there would also be the reverse substitution effect. imagine if incomes went up a lot but prices stayed the same. people would substitute filet for hamburger, etc., so chained-cpi would show inflation even where no prices changed. but this scenario, as we all know, if rare.


this is not some subtle academic point. this is a political ploy disguised by a layer of complex econometric mumbo-jumbo, but at the end of the day, it is nothing but a way to fraudulently produce a number lower than actual inflation while calling it inflation, in order to justify trimming benefits.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to unblock (Reply #5)

Mon Dec 17, 2012, 11:31 PM

6. If I *stop* buying heating oil altogether i'd have even *more* money! they should adjust for that,

 

too!

Reply to this post

Back to top Alert abuse Link here Permalink


Response to unblock (Reply #5)

Mon Dec 17, 2012, 11:33 PM

7. Thank you.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to unblock (Reply #5)

Tue Dec 18, 2012, 12:06 AM

17. i added some of your comments to the OP. hope you don't mind, thought people would be more

 

likely to see them there.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Mon Dec 17, 2012, 11:42 PM

9. You don't have to announce a cut in chocolate rations if shit is the new chocolate

Steak = Chicken = Tuna = Catfood = Dumpster Diving = ...


Reply to this post

Back to top Alert abuse Link here Permalink


Response to ThoughtCriminal (Reply #9)

Mon Dec 17, 2012, 11:52 PM

12. = death.

 

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Mon Dec 17, 2012, 11:49 PM

10. Well dah if I heat with electric and it goes up I can't switch to propane unless

I spend $5000 for a new heating sysytem.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to doc03 (Reply #10)

Mon Dec 17, 2012, 11:51 PM

11. good point.

 

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Tue Dec 18, 2012, 12:00 AM

13. So in 12 years I will be making about $100 less a month on SS

and if inflation averages 3% a year I will be receiving about $650 less from my company pension because it is not adjusted for inflation at all. So my income will only decrease by about $9000 a year. That's just wonderful isn't it. Thank you President Obama.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to doc03 (Reply #13)

Tue Dec 18, 2012, 12:02 AM

14. you also might be paying taxes on it.

 

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Reply #14)

Tue Dec 18, 2012, 12:03 AM

15. Taxes on less money? n/t

Reply to this post

Back to top Alert abuse Link here Permalink


Response to doc03 (Reply #15)

Tue Dec 18, 2012, 12:07 AM

18. chained cpi, in theory, can kick brackets up.

 

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Tue Dec 18, 2012, 12:04 AM

16. That is unconscienable. Romneyhood lives.

 

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Tue Dec 18, 2012, 01:00 AM

19. "Chained CPI" = "Let them eat dog food"

"You're still eating, aren't you. Stop complaining."

But I am a little confused why it hits the $30-40K range harder than others. If the rich can't afford a yacht, they should just substitute a rowboat. I's the same thing. You're still floating on water either way.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Tue Dec 18, 2012, 01:48 AM

20. DURec

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Tue Dec 18, 2012, 02:02 AM

21. K&R. Thank you. n/t

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Tue Dec 18, 2012, 02:53 AM

22. It's a totally phony way to measure how people adjust to inflation. It is a sneaky

way of cutting SS.

Eg, you can't apply this to the elderly because for one thing, they have different expenses, one of them being HC which increases as they grow older. So while someone might be able to substitute one product for another when the one they normally use increases in price, they CANNOT substitute getting a heart operation for a cheaper operation.

This is nothing more than a nasty, deceptive way, they had hoped, to increase SS without anyone noticing.

They do really think we are all stupid because we don't belong to their club.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Tue Dec 18, 2012, 04:30 PM

23. kick

 

Reply to this post

Back to top Alert abuse Link here Permalink


Response to HiPointDem (Original post)

Thu Dec 27, 2012, 01:10 PM

24. kicking 'cause it's still "on the table"

Reply to this post

Back to top Alert abuse Link here Permalink

Reply to this thread