Author Danny Vinik

Chained CPI Makes Senses (Update: Maybe Not)

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UPDATE: Well, I may partially backtrack on this one quick. I stand by my goal of using an accurate estimator of inflation. I wrote this post assuming that chained CPI is our most accurate estimator for inflation. And it is, except not for seniors. Timothy Noah makes a convincing argument:

For the elderly, spending patterns are unique in one very significant respect: Old people spend a lot more on health care. Yes, they have Medicare. But they also have a lot more trips to the doctor. As a result, the older-65 set spend a much larger portion of their incomes on health-related expenses than the rest of the population. And health inflation, you may have heard, is increasing quite a bit faster than inflation for other goods.

The BLS is aware of that, and has crafted a special CPI just for old people. And guess what? The so-called CPI-E is not only rising faster than the chained CPI; it’s also rising faster than the CPI-W that’s used to calculate benefit increases today. So if a “technical” correction were all that was called for in calculating Social Security, that correction would have to increase benefits, not reduce them.

Well then, maybe benefits have been underestimated for years. I’m going to research more on this, but right now it seems like CPI-E is the way to go for Social Security benefits and chained CPI for taxes, though I don’t think Republicans are going to like the idea of increased benefits and increased taxes very much.

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As journalists across Washington continue to put forth ideas about what could be a part of a fiscal cliff* deal. One possibility that has repeatedly come up is adjusting the way Social Security benefits increase each year to account for inflation. Right now, benefits increase according to CPI-W, but conservatives want to alter the formula by using chained CPI. Dylan Matthews explains the difference between the two better than I can:

Most inflation measures, including CPI-U and CPI-W, track the price of a certain basket of goods. That basket could include, say, a year’s supply of propane. When propane costs go up, CPI-U and CPI-W include that as an increase in the cost of living.

But some people would just stop using propane if its price went up. They’d switch to electric heating, or a geothermal system, or a wood stove. So their actual heating costs wouldn’t go up as much as CPI-U and CPI-W would suggest. Chained CPI attempts to take “substitution effects” like this into account. Thus, its number generally rises more slowly than other metrics.

Thus, chained CPI is an entitlement cut. My take on this has always been that using an accurate estimator of inflation is the ultimate goal. Yes, this would cut benefits and would disproportionately affect seniors who live longer. But, a more accurate way of saying it is that benefits have been growing faster than inflation for decades and seniors that have lived longer have reaped the benefits. This should be something we are looking to correct. Continue reading “Chained CPI Makes Senses (Update: Maybe Not)” →

Programming Alert

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My posting has been much more infrequent recently and will likely continue that way until mid-December. I’m just overloaded with work right now (one paper on US response to the Palestinian Authority gaining non-member status at the UN, a case study on Lehman Brothers and another paper analyzing the media’s lack of coverage of housing policy in the 2012 campaign). All interesting topics but as I come towards the end of the semester, they leave me no time to work on the blog unfortunately. I’ll try to post once a week but if I can’t, I’ll be back in full swing soon.

The Republican Study Committee’s Excellent Idea on Copyright Law

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On Friday, the Republican Study Committee released a study on Copyright law that was very insightful and put forward a number of good ideas to fix the law. Unfortunately, they pulled the study just a few hours later. It’s still available from the RSC website via the Google html cache of it and if you want to see it in PDF form, the Maryland Pirates have it as well.

At the beginning of August, I wrote a blog post for the Washington Monthly titled “Online Piracy Isn’t a Problem” and went through the academic literature on online piracy of music and determined that there may be too much copyright protection. Specifically, I pointed out that copyright law is not meant to protect artists’ profits:

Copyright law is meant to create an economic bargain between artists and the public. Article I, Section 8, Clause 8 of the Constitution (the Copyright Clause) says,

Congress shall have Power … To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

The Constitution gives artists a limited monopoly over their work in return for the eventual dedication of it to the public domain. The law is not meant to protect artists’ profits or revenue. As long as the quality and quantity of music is not dropping, Congress has no reason to further incentivize artists. By definition, the incentives are already there.

Based on its redacted report, the Republican Study Committee agrees:

It’s a common misperception that the Constitution enables our current legal regime of copyright protection – in fact, it does not.

And:

Thus, according to the Constitution, the overriding purpose of the copyright system is to “promote the progress of science and useful arts.” In today’s terminology we may say that the purpose is to lead to maximum productivity and innovation.

This is a major distinction, because most legislative discussions on this topic, particularly during the extension of the copyright term, are not premised upon what is in the public  good or what will promote the most productivity and innovation, but rather what the content creators “deserve” or are “entitled to” by virtue of their creation.

The Committee proposes reforming statutory damages, expanding fair use, creating a punishment for false copyright claims and significantly reducing the term limit for copyright. The proposal is excellent. Go read the full thing. It’s only nine pages and certainly worth the time.