Switching to Chained-CPI and How Politicians Spin it
I’m getting a bit annoyed at the liberal blogosphere about how they’re spinning the proposal to use chained-CPI for Social Security. Here’s Ezra Klein:
The way we measure inflation right now really does mismeasure inflation. Chained-CPI really is a bit more accurate. But that’s not why we’re considering moving to chained-CPI. If all we wanted to do was correct the technical problem, we could make the correction and then compensate the losers.
But no one ever considers that. The only reason we’re considering moving to chained-CPI because it saves money, and it saves money by cutting Social Security benefits and raising taxes, and it’s a much more regressive approach to cutting Social Security benefits and raising taxes than some of the other options on the table.
The question worth asking, then, is if we want to cut Social Security benefits, why are we talking about chained-CPI, rather than some other approach to cutting benefits that’s perhaps more equitable? The answer is that chained-CPI’s role in correcting inflation measurement error is helpful in distracting people from its role in cutting Social Security benefits. Politicians who are unwilling or unable to offer a persuasive political or policy rationale for cutting Social Security benefits are instead hiding behind a technocratic rationale. We’re not “cutting benefits,” we’re “correcting our inflation measure.”
Emphasis mine. I sympathize with Ezra’s annoyance here. Switching to chained-CPI is being billed as a “technical fix.” If we wanted to implement such a technical fix, we don’t need it to be part of a grand bargain. Social Security benefits should increase with inflation. If we’re using the wrong measure of inflation, then we need to fix that. The reason Republicans are so set on fixing it now is because their ultimate goal is to cut benefits, not to correct the inflation measure. Thus, Ezra’s right when he says:
We’re not “cutting benefits,” we’re “correcting our inflation measure.”
However, Ezra makes the exact same error in the bolded section above.
If we just wanted a technical fix, why do we need to “compensate the losers?” If chained-CPI is the correct measure of inflation, than senior have been receiving excessive benefits for years. Ezra’s proposal is thus actually a benefit increase, not a correction of our inflation measure. If he thinks benefits should be higher, that’s a separate conversation (as he points out in his post). But a technical fix should not compensate the losers. It may increase or decrease benefits. That doesn’t actually matter. What matters is getting the measure of inflation correct.
If Ezra believes that such a technical fix is correct and that it will have such a significant negative effect on older, poorer seniors that we need to compensate them, then he should spin that as a real benefit increase for them. That’s what it is.
This isn’t just Ezra’s fault. Kevin Drum is hoping the President compensates the poorest seniors as well:
I suppose it was never likely that Obama was going to get a deal that liberals would be wholly enthusiastic about, and I’m not excited about the Social Security cut either. However, one thing to watch out for is whether there’s more to it. It’s possible that Obama will agree to chained CPI but insist on compensating changes for the lowest earners, so that the most vulnerable seniors are held harmless. We’ll have to wait and see.
Once again, correcting the measure of inflation to its proper level and compensating seniors is an increase in benefits. Of course, that doesn’t make it bad policy.
Now, the fact is that our current measure of inflation actually causes benefits to increase too slowly. We owe seniors more in benefits than we’ve given them and moving to chained-CPI exacerbates the problem. Whether or not this proposed benefit cut is worth accepting as part of a broader deal is a different story and depends on the specifics of such a deal. In the mean time, let’s stick with Ezra’s plan of calling a switch to chained-CPI a benefit cut – just make sure we aren’t making the same mistake.