Chained CPI-But Defense Expenditures OK

How to cut our budget by one trillion dollars:

Cut Senior programs and give it all to the Defense Dept and Corporations who build bombs and bullets and bombers and nuc subs and destroyers….some trade off huh?

2.  Use a more accurate inflation measure in computing cost-of-living increases.  Several mandatory programs such as Social Security and Supplemental Nutrition (“Food Stamps”) give recipients annual cost-of-living increases to protect benefits from the ravages of inflation.  However, the Consumer Price Index used to calculate these increases tends to exaggerate the loss of buying power from inflation.  A different index computed by the Bureau of Labor Statistics called “chained CPI” captures the effects of inflation more accurately.  The spread between the two measures is only about 0.25 percentage points annually, but because the mandatory programs are so big, switching to chained CPI to calculate cost-of-living increases would generate substantial savings.  Total savings over ten years: $162 billion.

The United States Chained Consumer Price Index (C-CPI-U), also known as chain-weighted CPI or chain-linked CPI is a time series measure of price levels of consumer goods and services created by the Bureau of Labor Statistics as an alternative Consumer Price Index. It is based on the idea that in an inflationary environment, consumers will choose less-expensive substitutes. This reduces the rate of cost of living increases through the reduction of the quality of consumed goods. The “fixed weight” CPI also takes such substitutions into account, but does so through a periodic adjustment of the “basket of goods” that it represents, rather than through a continuous estimation of the declining quality of goods consumed. Application of the chained CPI to federal benefits has been controversially proposed to reduce the federal deficit.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s