The Obama Administration Is Scared of an Accurate Consumer Price Index

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Tuesday, 16 April 2013 03:42

It would have been helpful to note this fact in an article discussing the Obama administration's proposal to cut Social Security benefits by adopting a chained consumer price index as the basis for Social Security cost of living adjustments (COLA). The piece notes claims that the chained CPI provides a more accurate measure of the rate of inflation, then tells readers:

"Some argue that the chained CPI would cheat seniors by understating inflation for the elderly, who spend more on health care. The nonpartisan Congressional Budget Office (CBO) has found conflicting evidence on that point."

Actually the Congressional Budget Office did not find conflicting evidence on this point, it just noted that the evidence is not conclusive. If the White House was interested in an accurate measure of the rate of inflation seen by seniors then it could instruct the Bureau of Labor Statistics to construct a full elderly CPI that would track the actual consumption patterns of the elderly. It has steadfastly refused to consider this proposal, which could lead to a higher annual COLA.

The Post should have made this point so that readers would recognize that the goal of the Obama administration is to cut Social Security, not make the COLA more accurate. Some people may be confused on this point.

The article also misled readers when it asserted:

"Medicare, Medicaid and Social Security account for nearly 40 percent of federal spending and are growing rapidly, as they must provide benefits to all who qualify, regardless of cost."

Actually the cost of Social Security is growing relatively slowly, having risen by roughly 1.0 percentage point of GDP over the last two decades. It is projected to rise another 1.0 percentage point over the next two decades, then stay roughly constant as a share of GDP over the rest of the century.

Medicare costs have been projected to rise more rapidly because of rapidly growing private sector health care costs. In fact, Medicare costs have risen quite slowly over the last 5 years, although CBO does not project this slower rate of growth to persist.