Thursday, December 20, 2012

Lowered Expectations

All sorts of reasons are being given in opposition to Obama’s proposal to switch to the “chained CPI” for cost of living increases to Social Security, but I have not yet seen anyone discuss the one reason that I find most compelling. Paul Krugman seems to be avoiding this discussion, or at least treading very lightly, presumably because he is on record as generally favoring the chained CPI. He favors it, of course, for an utterly inane reason.

The chained CPI (consumer price index) is a process whereby the economist keeps track of the price of a “basket of goods.” Problem number one, of course, is that houses, gasoline and heating oil won’t fit in a basket, but that’s okay because the present method of calculating the CPI doesn’t keep track of those items either, so we’re all good.

The chained CPI “accommodates the theory that consumers switch to cheaper items when prices rise.” That means that when the total price of the basket becomes uncomfortably high, the economist takes the steak out and puts in some hamburger, which lowers the cost of the basket and reduces reported inflation.

That move did not lower prices, you understand. Everyone except the economist understands that it did not lower prices, but it allows the economist to report a lower number for the rise in the CPI. Yes, when the price of the basket drops enough to allow it, they take the hamburger out and put the steak back in. If prices keep going up, however, eventually we have everyone eating catfood.

Paul Krugman likes the chained CPI because it produces “more orderly numbers” which don’t bounce up and down as much. No, I’m not kidding. I can’t find the article now, but he actually said that. Most people would regard that as totally fuckheaded thinking, but economists are not like most people. We have a great deal of proof that economists are not like most people. It is not even adequately proven that economists are people at all.

So, the chained CPI is on the same principle as not reporting people who have given up looking for work as unemployed. There’s no logical reason for doing that, but it produces “more orderly numbers” which don't bounce around as much and, just coincidentally, make the government look better.

If you are living in a cardboard box and panhandling for food, you are not unemployed. If you are eating catfood, it’s not because inflation drove you to it, it’s because the nation’s standard of living diminished to the point that catfood is considered to be standard fare.

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