Which sort of CPI we use determines what is a "cut"

[Recursion]

I think that's part of the disconnect here.

The theory behind having a CPI to begin with is that if you can afford rent, gas, food, and clothing today on your fixed income, you should be able to afford the same thing in ten years on that same fixed income -- it's "fixed" in purchasing power rather than in nominal dollars. Of course, in some ways that's impossible: I can't buy heirloom apples like my grandfather could, because they largely don't exist anymore, but I can buy computers much more cheaply than he ever could.

But, granted that it won't be perfect it makes sense as something to try for. We do this by looking at a specific collection of several dozen goods and services and track how much their costs go up and down. Every so often Congress sets what percentage each of those several dozen things represents of the whole "pie". I don't remember when the last one was, but I know that for example "smartphones and their data plans" aren't on it at all.

Social Security benefits will always go up in nominal terms. The idea of using an annual COLA is to keep them flat in real (inflation-adjusted) terms. And the CPI is how that inflation is calculated. The argument for the CPI is that it isn't a cut; it's a more accurate way of counting inflation (we spend much less of our income on clothing than we did 30 years ago, for instance, and much more on energy). It may or may not be, but it's only a "cut" if you assume the current type of CPI is accurate and something owed to everyone from now on.

Anyways, I'd like higher SS and VA benefits, but I'd rather not do that by fudging inflation numbers if in fact the CCPI is more accurate.

[Oilwellian]

1. If the intent behind imposing the Chained CPI

is to cut the deficit, (and mind you, SS doesn't add to the deficit) then even a moran can figure out what will happen. They intend to fucking cut benefits. You can't paint lipstick on this pig.

[Recursion]

2. Per diem rates, military pay, farm subsidies...

Lots of things that indisputably contribute to the deficit are also tied to the CPI

[Progressive dog]

3. This is a cut and only a cut

The intent of the chained CPI is to deliberately under measure inflation.If they want to use an inflation measure that actually reflects what the elderly actually have to spend their incomes on, it would be CPI-E, but this increases more quickly than the CPI used now.
CCPI is intended to cut benefits.

[Jim__]

4. A link to a 5 minute discussion of ccpi on UP w/Chris Hayes

http://www.nbcnews.com/id/46979738/ns/msnbc-up_with_chris_hayes/#50283204

One thing to be aware of, CCPI allows substitutions - so, for instance, if today's CPI includes hamburger and the price of hamburger goes up, cereal can be substituted in the CCPI estimate of inflation.

[Recursion]

5. That's not how the substitutions work

It's not a switch from steaks to hot dogs, and I don't like how people keep repeating that.

It's transfers among categories. So if people spend less on gas and clothing, and more on electronics and entertainment, it tracks that.

[Jim__]

7. According to the AARP, that's exactly how it works.

From AARP:

The primary argument for chained CPI is that it is a more accurate measure of inflation — but in fact, the evidence suggests it’s even less accurate than the current formula.That’s because the chained CPI is based on a notion of substitution of lower cost goods by consumers when the prices of certain goods rise (e.g., when the price of beef rises, people buy more chicken). However, there is no evidence to suggest that the substitution effect reflects the spending habits of seniors. That’s because most seniors have modest incomes and have less opportunity for substitution because they are already choosing lower priced goods, and many costs for seniors (e.g., health care, utilities) do not have lower price alternatives.

It is also what Chris Hayes says about substituting tea for coffee.

[Recursion]

8. Wow, a lobby *AND* a journalist disagree with me? And all I have is my friends from the BLS?

I don't know what I was thinking.

[Jim__]

12. And Dean Baker was in the discussion with Chris Hayes.

Here's what wikipedia has to say about CCPI:

The bias corrected is known as the substitution bias. The idea behind this is how consumers respond to price increases- for example, if the price of Granny Smith apples goes up, consumers may decide to purchase more Red Delicious Apples; this "lower-level" substitution bias is accounted for in the current CPI measurements. However, if consumers respond to the price increase of Granny Smith apples by purchasing fewer apples and instead purchase more oranges, thereby changing the “basket of goods”, this "upper-level" substitution is not accounted for in the traditional CPI, but is in the Chained CPI. This is because the CPI-W and CPI-U use a fixed basket of goods. Because of this, the Congressional Budget Office notes that current COLA’s, “CPI grows faster than the cost of living does.”

I don't know what you were thinking either.

[MineralMan]

6. All CPIs are flawed.

I don't think there's any way to design one that isn't flawed, at least for some people. And that's the real issue. In order to codify tying changes in payments, the CPI is used so calculations can be made automatically, rather than entrusting them to politicians. In that sense, using a CPI to control payments of things like SS makes excellent sense.

The problem arises when the wrong things are tracked. Any CPI can be improved. How that is done determines whether the index measures consumer prices in a way that is equitable.

Without knowing exactly what is being tracked, it's impossible to say whether any CPI is fair or not. In addition, cost of living depends on individuals and how they consume. It's a very difficult thing to design in a fair way.

[catnhatnh]

9. The Fed says this is fair-CPI-E...

Which shows seniors are already losing purchasing power under the current method.
http://www.newyorkfed.org/research/current_issues/ci9-5/ci9-5.html

[Auntie Bush]

10. They certainly DON'T take the cost of heating OIL, gasoline, electric, MEAT into consideration!

Seems like the necessary things in life are ignored!

[MineralMan]

11. That's where CPIs fail. They don't

include essentials that everyone has to buy, so they don't actually reflect consumer costs. That is, and always has been, a political decision. Whenever politicians are involved in CPIs, they quickly become unfair.