Why Newt Gingrich Is Still On TV/Revered By the Owners (Where the Idea of Chained-CPI Came From) Right. We Wuz Robbed and It's Coming Around Again

Have you spent much time lately wondering why "our" liberal/progressive "change" President continues to push the fake deficit scam? After the noted economist Dean Baker addressed the history of this scam (and how even the tepid job growth under the weak Obama stimulus has halved it already), hasn't the stated necessity for adding a Chained-CPI requirement to minimize Social Security growth (and cure the deficits incurred by the wars and tax cuts), sustained mainly by those elderly poor who've already seen their retirement savings eviscerated by the last two financial catastrophes, seemed pretty much a bridge too far? Not really, it seems, for the very serious macho men.

I've been saying since the 90's long-term Clinton sellout of those who voted for him and against the Contract On America thugs that the Democrats have done very little economically for those at the lower levels of the wealth pyramid, who had worked so hard to replace the Reagan/Bush regime with them. And that it almost seemed like the Democrats were both deaf and dumb about economic issues. But not mute as they continued to obfuscate the real policies that they (also) support: the further enrichment (entitlement, really) of the rich. No kidding. Look around you today. See anything new?

And I've seen and heard absolutely nothing from Obama economically to change my opinion. (Granted, he's told many political lies when the occasional called for them.)

(Please forgive the emphasis marks added to the following evidence. Yes, reading about economics can get boring, but stick with it to the bottom of the essay, and you'll probably learn something new that will benefit your future planning (er, life) greatly.)

From our good friend at The Angry Bear:

It's history lesson time again.

An awful lot of talk and writing about the chained CPI has been focused on the results of its implementation on Social Security. Using this formula for figuring the cost of living ends up reducing the money citizens will receive in their SS checks. One of our commenters, Denis Drew labeled it the Cascading CPI.

That's pretty much how I see it because the formula is all about suggesting that accounting for people substituting lower priced items (lower price includes technical improvements) for the higher priced items (higher price includes earlier versions in a products history) they used to purchase means their quality of life has not changed. 

The only way to make such an argument seem reasonable is if the concept of “quality” has no meaning in the market place.

However, if “quality” accounts for something when purchasing a specified level of living, then the accounting is not of inflation but of deflation, and deflation now has to be considered to float on either side of the zero, being positive or negative. There is no concept of inflation in economics anymore.

What I'm suggesting here is that the chained CPI reasoning is a massive amount of conflation. When I start seeing concepts and perceptions being conflated, I get suspicious and start asking questions.

Usually the first question is what's behind the promotion of the conflation. What's the history and in that possibly will I find the intention? And, as I taught my daughter, life is intention.

Using Mr. Peabody's WABAC machine we set the dial for 1995. Ever heard of the Boskin Commission?  Its formal name: "Advisory Commission to Study the Consumer Price Index". It was created on the order of the Senate Finance Committee. The Senate majority leader then was: Bob Dole followed by Trent Lott. William V Roth Jr. was the chair of the committee. 

This was the time of Newt Gingrich and the “Contract with America”.  The contract included social security reform. It also included welfare reform. (Clinton gave them that part of the contract.) Both were under the Fiscal Responsibility Act. You know, balance the budget rhetoric. Specifically:  An amendment to the Constitution that would require a balanced budget unless sanctioned by a three-fifths vote in both houses of Congress...

Gee, 3/5 of congress or 60 votes, what's the difference now?

Boskin is Michael Boskin. He is this man. Rather accomplished. Held and holds some very influential positions.

He is also this man.

In 1993, Bill Clinton enacted an economic program centered around some public investment, coupled with deficit reduction with higher taxes on the rich. Boskin was very, very sure it would fail. In a Journal op-ed entered into the Congressional Record by grateful Republicans, he accused Clinton’s administration of “fundamental distrust of free enterprise.” He made a series of predictions: “The new spending programs will grow more than projected, revenue growth will be disappointing, the economy will slow, and the program will reduce the deficit much less than expected.”

Boskin repeated his prophecies of doom in a summerlong media blitz. Boskin labeled Clinton’s plan “clearly contractionary,” insisted the projected revenue would only raise 30 percent as much as forecast by dampening the incentive of the rich, insisted it would “take an economy that might have grown at 3 or 4 percent and cause it to grow more slowly,” and insisted anybody who believed in it would “Flunk Economics 101.”

With that setting here is some history by way of Fredrick Sheehan by way of The Big Picture blog:

In the early 1990s, Senator Patrick Moynihan from New York warned his fellow legislators about rising social security commitments. Then the worm crawled out of his hole, so to speak. Federal Reserve Chairman Alan Greenspan testified before the Senate and House Budget Committee on January 10, 1995. He told the Committee the inflation rate was probably overestimated by 0.5% to 1.5%.

If Greenspan was correct, this was a godsend. Social security payments are increased each year at an inflation rate calculated by the federal government: the change in the Consumer Price Index (CPI).

If the CPI could be increased at a lower rate in the future, benefits would rise more slowly, without Congressional action.

This would reduce government spending and delight politicians, who knew of the looming crisis in social security but did not want to imperil their careers by reducing benefits, or, in this case, by cutting the rate at which social security benefits were raised each year.

The Boskin Commission was duly formed. Michael Boskin was the right man for the job. He had served as chairman of the President’s Council of Economic Advisers (CEA) from 1989 to 1993, a post previously held by such government functionaries as Arthur Burns and Alan Greenspan. 

I'm starting to get a feeling here. “The fix is in” kind of feeling. Mr. Sheehan offers this quote: Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, said at the time “the debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”

From an article in the Atlantic, 1997 by Thomas L. Palley titled: How to Rewrite Economic History.

The commission is itself a delicious example of such bias:   All its members were on record prior to the establishment of the commission as believing the CPI to be overstated.

At the same time, the commission took no evidence from such well-known economists as Janet Norwood, a former head of the Bureau of Labor Statistics, and Dean Baker, of the Economic Policy Institute, who believe that the CPI provides a reasonable reading of inflation.

In effect, the commission took account of all the evidence of overstatement of inflation by the CPI and downplayed the evidence of potential understatement.

I would say the fix was in. It has just been a matter of time and timing as to when the final promise made in the Contract with America would find its way into policy. 

The Democrats implemented the welfare the Republicans wanted and now they are going to give them the Social Security. All of it can be summed up in the Contract ultimate goal: An amendment to the Constitution that would require a balanced budget unless sanctioned by a three-fifths vote in both houses of Congress...

The article, besides being a good review of the commission's report points out the ramifications of accepting an argument that the CPI has been miscalculated for years (similar to Dean Baker's points).

If cost-of-living inflation has been overstated, then the growth of the economy and real wages has been much higher than previously reported. The commission has thus solved the problem of stagnating wages, which is now revealed to be a mere fiction. Far from experiencing a "silent depression," the commission implicitly claims, American families have never had it so good.