I love Alan Grayson, but couldn't follow his explanation of chained CPI

[MrMickeysMom]

Okay, this part, I understand... "Social Security benefits are automatically adjusted each year to reflect increases in the cost of living, as determined by the consumer price index (CPI). The U.S. Bureau of Labor Statistics calculates the CPI each month."

But, splain how he got this percentage, Lucy -

[div class=""Here is how the "chained CPI" would change things: Let's say that the cost of gasoline tripled, from $3.33 per gallon to $10 per gallon. Most people would call that a 200% increase in the price of gas. That's how it would be calculated under the CPI today. Under the chained CPI, however, it would be calculated at less than 200%, because some people couldn't afford to pay $10 a gallon. They would drive less. They might have to take the bus to work. They might take a "staycation" instead of a vacation.

Because a tripling in the price of gas basically makes everyone poorer, and thus less able to buy gas, the chained CPI doesn't count that as a 200% increase. It reduces the percentage increase in proportion to the amount of gas that people can no longer afford to buy.

In fact, the bigger the price increase (and the poorer people get), the bigger the gap between the actual price increase and the chained CPI adjustment. This effect starts off small, and barely noticeable, but then as time goes by, it swells like a blister. In fact, it swells from $1.4 billion in the first year to $22 billion in the tenth year, according to the Congressional Budget Office. So the chained CPI is inflation protection that, by design, inflation itself erodes. Ain't that just grand?"

"],

[patrice]

1. Just about everything I've read on this expresses some uncertainty, so I guess that's going around.

[MrMickeysMom]

2. And, I don't want to get away from the fact...

... that Social Security should have no role in balancing the general fund.

[patrice]

3. I have never thought it should. & No help to the rich on their taxes either, indirectly or otherwise

And in order to be sure that these criteria are met, it is useful to be straight with ourselves and others about what is actually going on. I for one, cannot imagine a professional negotiator offering real stuff of any type to bad-faith lying negotiators on the other side; it would seriously damage one's negotiating options going forward to do that. Notice also, on the off chance that the Republicans surprised our lead negotiator, that what was offered was the littlest thing possible on an issue that speaks to the opposition's OWN BASE.

[Lasher]

4. Chained CPI assumes you will change your buying patterns as prices go up.

If the price of gasoline goes up, you will drive less. If the price of steak goes up, you will eat cheaper food.

So you don't need much money for gas after you have to sell your car. And catfood costs less than steak. You just get the money the government decides you need after your buying patterns change.

[MrMickeysMom]

5. God, that is so awful...

But, that is exactly true, isn't it? This is what people do as they must continue to survive on a "fixed income".

So, the proletariat is chained to the circumstance created for a meager existence, rather than a safety net.

[muriel_volestrangler]

6. Inflation is measured over a period; the 'classic' calculation measures the goods and services,

both their prices and quantities bought, at the start of the period, and then the prices at the end of the period, and works out how much it would cost to buy the same quantity of all the same goods and services as before.

The chained method also measures the quantities bought at the end of the period, and then uses a complicated formula to work out 'average' quantities for the period. How this affect the figures depends on what people buy less of; if it's something that is going up fast in price, then the chained CPI figure will be lower than the simple CPI figure (and people will always have a tendency to buy less of things getting very expensive). But if what people buy less of is a luxury that is going up in price slower than most goods (eg a smartphone), then that would increase the chained CPI. In practice, it has ended up as being about 0.3% lower per year than the simple figure.