Obama is releasing a budget proposal Wednesday that alters the inflation formula used to calculate COLAs as part of a compromise that would reduce the deficit. The left is calling him a traitor to the New Deal.
Poutrage or legit?
That depends upon whether or not you think the Republicans will compromise in turn. Since they won’t budge on revenue increases it seems silly for President Obama to offer up anything like this. In truth, it’s probably not necessary to begin with, but he’s trying (God bless him, he’s still trying) to get the Republicans to compromise. This was something they wanted, and he’s laying it right on the table.
I am sick to death of this Republican obstruction. And that’s what it is, obstruction. They won’t give a thing, and everybody is being hurt by it.
So yes, the outrage is warranted, but not at Obama. It’s warranted because he’s doing his level best and he’s getting the shaft.
According to the Freakonomics blog - Chained CPI is a better calculator for inflation and therefore a better tool.
From my reading, the outrage is legitimate. There could be valid grounds for adjusting the formula used to calculate inflation, but chained CPI is not such an adjustment. It is dishonest to treat chained CPI as a true measure of the increase in the cost of living, because the behaviour used to justify chained CPI is not sustainable.
The logic is that in times of hardship, people will tighten their belts, but they can only tighten their belts so far. Even if every year the government assumes you will switch to a cheaper alternative, eventually you’ll run out of cheaper alternatives to switch to.
Of course it is. Either way, the CCPI woul still reflect the lack of reasonable alternatives. It’s doesn’t just assume that if steak gets too expensive, people will eat dog food.
In all likelihood, the things that were previously expensive would go down in price due to a lack in demand. That’s not ALWAYS the case, but generally the laws of supply and demand will work to ensure that prices for comparable goods do not vary too much unless there are production costs that preclude that from happening. For example, if steak gets too expensive for many people, then they will buy more chicken or fish. Since supermarkets are selling less steak, they order less steak, and steak producers will have to lower their prices to sell their product. Soon those discounts are reflected in retail prices and then those temporary chicken/fish lovers go back to steak. Wash. Rinse. Repeat.
In most
To a first order, people on the dole will get smaller increases every year.
Not really. It represents a fairly good political calculation on the part of President Obama, considering the Republicans would never agree for an infrastructure bill and tax increases in exchange for the concession on chained CPI. That way Obama can appear reasonable and bolster support among centrists-while he has the liberals sewn up anyways.
Hit reply too soon.
I think the outrage is a bit overblown. First, the spread between the CCPI and the CPI-U and the CPI-W is narrowing. Between 2000-2003, it was 47 basis points. For the last two years it was just 11. I think this is a fairly reasonable concession assuming the GOP plays ball.
The one thing that does bother me is that the elderly are less able to adapt to changing prices, and that their costs are skewed toward healthcare and housing (which are both rising faster than core inflation). The CCPI might be less reflective of how they actually behave, but I think it’s reasonable to try it out to see what the real world effects are if it’s coupled with other structural changes like raising the income cap, means testing, or raising the retirement age for some workers.
He doesn’t need anyone to be sewn up. He’s not running for reelection again.
Compound 11 over twenty years and it starts to get significant.
I mean for other parts of his agenda and for the Democratic Party as a whole for the 2014 midterm elections.
It’s around 2% over 20 years. I doubt most consider that significant.
But that’s not the logic. The logic is that over time people change their consumption. Which is undeniably true. And people change towards what changes less in price. Chicken is cheaper than beef, but if chicken prices go up more than beef, people will buy less chicken and more beef. IF the weights in the index do not change, and it’s assumed that people buy exactly the same amounts regardless of relative price changes, then inflation will be overstated.
Currently weights are updated every 2 years (it used to be 10) based on what people are actually buying. The Chained CPI links between the quantity of each month. If you only use past weights, you’ll overstate inflation. If you only use current weights, you’ll understate inflation. So the logic of a superior index is to get in between and get an average of the weights of the two periods.
If this is Obama’s intent, which I kind of suspect it is, liberal outrage at cutting Social Security benefits would be a necessary part of the plan. I mean, nothing makes Obama look more like a reasonable centrist than howls of rage from his left.
Benefits will continue to rise. Perhaps at a slightly slower rate. I’m as lefty as anyone, but I can’t see the outrage in slowing the rate of increase of benefits of a program that has some shortages coming up. You could raise the retirement age some more, you could raise the tax rate, or you could raise the cap on earnings. As someone who pays both halves of the tax (self employed) I’d rather not see the rate or the cap go up. None of the “solutions” is without drawbacks. I can see disagreeing with the President’s offer of compromise, but I don’t think we need to go crazy about this.
On the other hand, it is probably the exact reaction Obama wanted in order to make himself look moderate to the “independents.”
It’s a perfectly reasonable policy proposal to extend the life of the SS program. It’s probably a necessary piece of any grand bargain on budgetary matters.
In the end it won’t matter because the GOP will not give another inch on taxes until and unless they continue to lose elections.
As politics its unclear - does pitching a policy that your base hates but that centrists like hurt you or help you, particularly when you can count on it never passing? It would probably hurt Obama himself, but he never has to run again. I’m not sure that it has much effect on other Democrats, because the ones in more liberal districts can just say they oppose it and likely never will have to actually vote on it.
I guess my verdict is: policy - good, politics - unclear.
“Dole”? I’ve paid into that system for 45+ years. If I had taken the same money and instead invested it in a 401(k)-like tax-free program, I would have no need for any retirement money from the government. I do not view whatever I end up getting from Social Security as a dole. Thank you.
Roddy
Hmmm… Could someone explain to clueless foreigners what a chained CPI is 
?
Here is the Wiki on it fwiw: