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Hullabaloo


Sunday, December 30, 2012

 
Fiscal cliff notes: The Villagers are stimulated by the prospect of human sacrifice

by digby
The [current CPI] fails to account for what economists call upper-level substitution bias, and what my mother would call plain common sense: If the price rises for a certain commodity in the basket of goods used to measure inflation, consumers will choose a cheaper alternative. In my house, when the price of beef soars, we substitute chicken --- Washington Post columnist Ruth Marcus
Yes, I'm quite sure the price of beef is always a huge concern for an elite columnist at one of the world's most influential newspapers. In that column, the allegedly liberal Ruth Marcus went on to heartily endorse the change, saying that the White House had assured her that the most elderly poor will be taken care of so it's all good. And then I'm sure she rushed into the kitchen to figure out how to stretch her meager weekly ground beef allotment for another few days. Oatmeal added to the meatloaf can be quite nourishing, don't you know?

As I write this we're hearing a bunch of heated chatter that Mitch McConnell is "insisting" on the Chained-CPI and he refuses to give up the debt ceiling fight. And there's just as much pushback coming from Republicans like McCain, Graham and Rubio saying that the Chained-CPI is off the table. So what gives?

If I had to guess, and it's purely a guess, I'd say that the Democrats were trying to position themselves as being "forced" to cut Social Security by the Republicans in order to get the debt ceiling off the table. (How long it stays off the table is probably the greatest bone of contention --- Boehner offered a year already, so it will probably have to be at least that.) The Republicans don't seem to want to take responsibility for cutting of SS for their only growing demographic, which is good news for all of us who will be dependent on Social Security in our old age. Every day they don't agree to a cut is a good day for us. Unfortunately, the president and the congressional leadership already showed their hand on this so it's not going away.

If they do come to an agreement that includes the Chained-CPI  it will not only be a terrible, terrible thing to do on the merits, as I wrote earlier it is going to be laid at the feet of a Democratic president (which will undoubtedly be known among the apologists and the establishment as his "Nixon goes to China" triumph) and his party will pay the price. Any Democrat who foolishly votes for it will be pounded by both the left and the right in the coming elections and it's likely to kick a fair number of them out of office in 2014. Why they would fall on their swords and cut Social Security benefits to close a deficit in which Social Security is not a factor is almost beyond belief. So much so, that I'm still hopeful that the talks will fall apart or the Tea Party will save them from themselves --- or the congressional Dems just say no and let the chips fall where they may. I don't think McConnell and Boehner can get a majority to raise any taxes so it might fall apart of its own accord.

Anyway, it's all still fluid and we don't know what's really happening. But if you are still confused as to why the Chained-CPI is a travesty for the elderly, read this piece by Tim Noah --- and weep:

“Chaining” the Consumer Price Index (CPI) is a benefit cut disguised as a technical fix. And if budget constraints require cuts in Social Security benefits, those cuts should be targeted at the most affluent recipients—as chaining does not.

Here’s how the CPI is calculated today. Every month the Labor Department’s Bureau of Labor Statistics (BLS) phones all sorts of businesses all over the country to collect prices on roughly 80,000 items divided into about 200 categories. The categories are “weighted” in accordance with nationwide consumer surveys that the BLS conducts every two years; the weighting yields a “market basket,” i.e., a set of goods that’s reasonably representative of American consumption patterns. The BLS massages its monthly information into (among other measurements) the Consumer Price Index For Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W covers 32 percent of all Americans, and it's used to calculate Social Security benefit increases. There are other CPIs too, but henceforth when I refer to the “CPI” I’ll mean the CPI-W.

One longstanding criticism of the CPI is that it doesn’t take into account, on a month-to-month basis, consumer substitutions made in response to price increases. Maybe cheddar cheese is getting so pricey that I’ll switch to American cheese. Or maybe beef is getting so pricey that I’ll switch to chicken. If such substitutions become permanent, of course, that will show up in the next biennial consumer survey. But until that next survey, the CPI will be artificially inflated because it will assume I’m buying cheddar when I’m really buying American, or it will assume I’m buying beef when I’m really buying chicken. Subsequent inflation adjustments will compound the error and inflate benefits even more.

(An obvious objection to this entire mode of thinking is that it doesn’t consider that substitutions might constitute a serious decline in the standard of living. What if I can no longer afford to feed my children beef and I have to feed them dog food instead? From an economist's point of view, I have merely altered my consumption habit.)
[...]
Another difficulty with chaining the CPI is that it would have to be accompanied by a benefit increase for the oldest Social Security recipients, because over the long term chaining benefits would dramatically lower benefits relative to what very old beneficiaries receive today, and at a stage of life when one is likeliest to be poor and unable to contemplate working. That might prove a hard sell to the GOP rank and file as well.

But let’s say we manage to chain both Social Security benefits and tax brackets. And let’s assume the necessary bump for the oldest Social Security beneficiaries is agreed to. Would chaining really bring Social Security benefit increases in line with spending patterns? Actually, no. Not for senior citizens, anyway.

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. The CPI-E is, at this stage, a bit rough (the “E” stands for “experimental,” not “elderly”). But as Jared Bernstein of the Center on Budget and Policy Priorities (who differs with Greenstein on this issue) points out, “the BLS could whip it into shape if Congress would provide the resources.” But why would Congress want to? It wants to cut Social Security spending, not increase it.

Regardless of whether or not we go over the cliff or they make a deal, I'm sickened by what I'm hearing on television today. Like this:

GREGORY: If this fight comes back-- and I want to ask you specifically about entitlements: Medicare and Social Security.

PRESIDENT OBAMA: Right.

GREGORY: Are you prepared in the first year of your second term to significantly reform those two programs? To go beyond the cuts you’ve suggested to benefits in Medicare, which your own debt commission suggested you’d have to do if you were really going to shore up Medicare at least. Are you prepared to do that in your first year of the second term?

PRESIDENT OBAMA: What I've said is I am prepared to do everything I can to make sure that Medicare and Social Security are there, not just for this generation but for future generations.

GREGORY: You've got to talk tough to seniors don't you about this? And say, something’s got to give?

PRESIDENT OBAMA: ...but I already have, David, as you know, one of the proposals we made was something called Chain CPI, which sounds real technical but basically makes an adjustment in terms of how inflation is calculated on Social Security. Highly unpopular among Democrats. Not something supported by AARP. But in pursuit of strengthening Social Security for the long-term I'm willing to make those decisions. What I'm not willing to do is to have the entire burden of deficit reduction rest on the shoulders of seniors, making students pay higher student loan rates, ruining our capacity to invest in things like basic research that help our economy grow. Those are the things that I'm not willing to do. And so...

I think the president is forgetting that it's not "unpopular" and it isn't him who's making the sacrifice or being "brave" by forcing these hideous cuts for no good reason. It's millions of old people who will be forced into greater poverty and insecurity because of what he's doing in service of a trumped up crisis of his own making who are being asked to make the sacrifice for no good reason. I'm sure ex-President and Mrs Obama will not be the ones substituting cat food for tuna.

The Villagers are even worse. They are nearly drooling at the possibility that the elderly could be forced to "sacrifice" for the greater good.  If it happens, they will all sigh deeply and declare that it "hurts" Real Americans like themselves to make these sacrifices but they're willing to do it for the greater good.  Then they'll all get in their network supplied town cars and go to their expensive dinners and raise a glass of expensive champagne to celebrate the fact that our government is working exactly as it should.

Also too, this, from Josh Barro:

Adopting it is just another way to cut Social Security benefits. So it's only a good idea if cutting Social Security benefits is a good idea.

Now, you could argue that Social Security benefits have been too generous all along, which is why growing them more slowly is a good idea. Or you could argue that the long-term fiscal gap requires cuts in many worthwhile programs, and Social Security is one of the best options.

As it happens, I don't think either of those claims is true. I think Social Security is one of the best values among federal programs and that the U.S. faces a retirement-savings crisis that will be exacerbated if we cut old-age benefits. I think we should cut elsewhere.

You might disagree. But that's the debate we need to have. The claim that adopting chained CPI is a technical improvement that "everyone" should get behind is incorrect.

So why is the president doing this? He's certainly not a dumb man who can't understand what he's doing. The only explanation is that he believes Social Security benefits should be cut, but knows that it's politically difficult to do so he's hiding behind this "technical improvement." Honestly, there aren't any other believable explanations. Social Security never had to be part of this deficit conversation because it doesn't contribute to the deficit. It is, however, part of the Grandiose "Bargain" he's been pushing since before he was inaugurated the first time in which he seeks to be the Democratic president who bridges all the partisan divides and takes all these difficult problems "off the table" for all time so we can finally "do big things." The Republicans have never signed on to that vision and more and more, I'm wondering if they aren't saving the Democrats from themselves.

Update II:

Lol:

Senate Republicans realized in a caucus meeting Sunday afternoon that the idea was a loser for now, even if they might return to it in reaching a larger deal later on.

"CPI has to be off the table because it's not a winning argument to say benefits for seniors versus tax breaks for rich people," said Sen. John McCain (R-Ariz.). "We need to take CPI off the table -- that's not part of the negotiations -- because we can't win an argument that has Social Security for seniors versus taxes for the rich.”

"There's a realization that in spite of the president's apparent endorsement of a chained CPI that that proposal deserves more study," said Sen. Susan Collins (R-Maine). "My guess, based on what Democrats are saying is that that reform would not happen during this stage of the negotiations."

A Democratic aide, informed of the reversal from a proposal that Senate Minority Leader Mitch McConnell (R-Ky.) had offered late Saturday -- which included the Social Security cut -- took it as a hopeful sign.

I don't know what happened there and I don't care as long as it's out of the deal. For now. You know it's going tor ear it's ugly head again. Lindsay graham was out there talking about how we need to raise the Medicare age and cut Social security and otherwise "reform entitlements." As part of the debt ceiling.

Soooo. If this is off the table for now, I hope the President can call their bluff on the debt ceiling and wrap this baby up. Even if he doesn't we live to fight another day.







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