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We have Janet Yellen to thank for Chained CPI

Here's the Fed Chair presumptive, Janet Yellen, on Chained CPI:

A full transcript of Yellen's Feb. 5, 1997 confirmation hearing is available here. [There,] Yellen endorsed establishing a new statistical metric that would allow the federal government to reduce Social Security payments over time, by revising the consumer price index, or CPI, the government's standard measurement for inflation.

"I agree with the principle that Social Security and the tax system should be appropriately indexed to take account of movements in the cost of living. I believe we need as accurate a measure as we can possibly have of the cost of living," Yellen said. "I believe that we are now obtaining broad agreement among professionals that the CPI does overstate the actual increase, properly measured, in the cost of living."

Once in office, Yellen put that belief into action, writing a letter to the Bureau of Labor Statistics encouraging it to devise a cheaper inflation metric. BLS Commissioner Katharine Abraham responded that the agency had been testing the new measure in an experimental mode, and planned to deploy it in 1998.

At the time, this new metric, known as chained CPI, was being aggressively pursued by House Speaker Newt Gingrich (R-Ga.), following then-Fed Chair Alan Greenspan's criticism of the existing cost-of-living calculations. Greenspan and other economists had argued that the consumer price index overstated cost-of-living changes by failing to calculate the way that households substitute different goods for each other when prices rise.* While BLS developed the statistic, it has not been applied to Social Security. Some economists argue that a more appropriate inflation measure for Social Security would look at price changes for elderly people [no duh!], and the BLS does track an experimental metric addressing inflation for older Americans.

Chained CPI has been a major point of contention in budget negotiations between Obama and congressional Republicans, with both camps alternating between supporting the measure and decrying it. Adopting Chained CPI to cut Social Security is extremely unpopular with both the general public and senior citizens.

So I'm very pleased that a multi-faceted specimen of recto-cranial inversion like Larry "Natural Ability" Summers will be denied his Fed Chair bauble, and be forced, sobbing, to accumulate yet more coin hiring out his legendary brilliance and Rubinite connections in the dreaded private sector; Summers is the very definition of a "public man."

At the same time, while giving Summers the ol' heave ho is a righteous act and good politics that might drag the Overton Window slightly left, good politics doesn't immediately translate into good policy, as Yellen's views on Chained CPI show. "Be careful what you wish for; you might get it" was made for situations like this.

So let's not confuse a solid base hit with a game-winning grand slam, OK?

NOTE * That is, chained CPI is the idea that if you substitute offal for beef, your standard of living has not dropped.

No votes yet


Submitted by mgmonza on

Bitch? Whore? What do you call Obama when you're mad at him, the Nigger in Chief?

Hate speech is used by men in this country to justify the daily murder, rape and torture of women. By men. That it goes unnoticed is one of the main reasons the violence continues.

Alexa's picture
Submitted by Alexa on

with today's (the Obama Administration's) proposed "Chained CPI" cut.

When I click on the link "aggressively pursued," I get the following message;

Not Found

HTTP Error 404. The requested resource is not found.

I think the problem MAY be with the original Carter piece at HuffPo.

So, does anyone have a working link?
(Just in case this missing information, changes the meaning of what I perceive Carter to be saying.)

Of course, Nate Carter's point that Yellen might be "bad news" is reinforced by the fact that she helped steer a previous cut to the CPI through the Clinton Administration.

Here's a short blurb about the CPI cut enacted in 1999:

In January 1999, the BLS adopted a "geometric mean formula" in the calculation of most CPI basic indices.

The purpose was to reflect the demonstrated ability of consumers to shift away from products whose prices had increased relative to other products in the same basic CPI component--for example, away from apples whose prices had increased more than, or decreased less than, other apples in Chicago. (2) . . .

I've got a C-Span Video (that I need to "clip") that has an excellent history of the CPI.

Frankly, this cut "got by me." If I hadn't watched a forum on the Grand Bargain a while back, I wouldn't have known that this cut was enacted

You know that ole stand-by--"seniors" can make a trade-off between (or substitution of) hamburger and steak. ;-)

Apparently, this is exactly what the economists that came up with the 1999 "geometric mean formula" had in mind.

But, what's worse is that the formula proposed by PBO is based upon seniors "making a substitution of the equivalent of a "flat-screen TV for an automobile."

My question is:

"How the h*ll do you drive a flat-screen TV?"

And what do you do when the car gives out, and your ability to trade-off (trade down) has been that greatly diminished?


Alexa's picture
Submitted by Alexa on

I would be interested in reading this piece.

Thanks for the email address!

Alexa's picture
Submitted by Alexa on

of Democratic Party manipulation.

It's done every election cycle, and every nomination, as well.

We're given the choice between two (basically) equally conservative and corporatist Dems.

But, of course, the Democratic Party "Powers That Be" collude to "dress one up" to be a "liberal."

And for the most part, they're stunningly successful in fooling the Democratic Party base. I include myself in this, BTW.

Although I must say that I'm not fooled as much these days. Heck, I'm skeptical if one of them asks "How's the weather?" ;-)

(Seriously, I do think and hope that social media and "the internets" is making it a bit more difficult to fool people, than it's been in the past. And that's good.)

Andre's picture
Submitted by Andre on

Here's Bill McBride on this year's COA and he tells what the
chained COA would be. As you can see it's really a way of reducing a standard of living. But that he should mention it may mean he sees what's coming. I would be covered by this Chained CPI which this year would give me $3.5 less a month, but that's compounded annually, so next year the reduction would be expanded by next years decrease, thereby each year decreasing my income geometrically..

Rainbow Girl's picture
Submitted by Rainbow Girl on

Compound Interest for the .01% -- Compound Depreciation for the 99.9%
But whatever it is, the compounding always seems to suck blood from us and bloat the asset piles of financiers and rentiers.

Fixed it for ya!

Alexa's picture
Submitted by Alexa on

only approximately one-third less than the cut that PBO has proposed, it is, as RG and Andre point out above, the "compounding" effect of these cuts that is the problem.

And that is why although the Clinton and Obama Administration cut, if it is passed, are "increasingly" more severe--in spite of the fact that this Administration's cut is not much deeper than the 1999 cut.

Or, part of the reason that the proposed cuts will make seniors/disabled beneficiaries choose between actual "categories--instead of graduations of quality, like the "steak to hamburger" 1999 formula--is due to the compounding effect of these two cuts, added together.

I am going to search for video of Yellin testifying about her recommendations to implement a new "formula" for indexing the CPI. If C-Span has one, it may be "clippable" and "embeddable."

I'll trying to post it at several blogs, and "Tweet" it.

It DOES NOT bode well that PBO would consider nominating someone "who's already achieved one CPI cut."

And a video to this effect may be the best tool, or ammunition, we have to stop her nomination.

Of course, there is the problem of "is there anyone better out there, to take her place?"

Does anyone know the answer to this?

Rainbow Girl's picture
Submitted by Rainbow Girl on

In an article lobbying for Yellen as next Fed Chief, Parramore rattles off a six-point infomercial about how Yellen will take on unemployment "head on" (*) and therefore she's a great candidate.

There is zero, nada, bupkis, in the article about Janet Yellen's advocacy of the Chained CPI. This is another example of "Progressive" idiocy where the common interest of the 99.9% is once again spliced, diced and fragmented (the "unemployed" versus the elderly) -- "Yellen great because unemployment even if Yellen champion of destroying all safety nets and throwing elderly under the Chained CPI Bus." Great, just great.

I'm (to put it mildly) extremely disappointed in Parramore, whom I read regularly and have admired as having some real skills as an investigative journalist focusing on the main event of our times -- class warfare and economic inequality.

* Never mind that the Fed's supposed brief to do something about employment levels has never been about helping the working class get jobs -- just to keep unemployment at "just the right level" to make sure wages don't get too high. And never mind also that the Fed -- short of helicoptering pallets of cash on our doorsteps -- can't do anything meaningful about unemployment -- by definition. So the article is ignorant as well as propagandistic. Not good. Pitiful, in fact.

Submitted by Hugh on

I have been warning about Yellen for some time. Nobody gets as high up in the Fed as she has without drinking lots of neoliberal banker corporatist koolaid. It irritated me no end that Stiglitz came out in favor of her (because she was a former student of his). We have been conned so many times by the need for heroes. If Yellen isn't Summers or Bernanke, then she must be great and "Yellen for President!" or whatever.

I wrote an explanatory post here last March about the Chained CPI:

The whole notion of the CPI is a kind of economist's con when you think about it. It substitutes a comparable pricing perspective in place of the more basic question of whether those over 65 are receiving the resources to lead a decent life, a question I might add that applies not just to this group but all Americans.