#slatepitch

Does Obama's Positition on Chained CPI Make Any Sense? by Yglesias

That said it's perfectly coherent to think that the Chained CPI gives a more accurate read of the actual trends in consumer prices without being enthusiastic about using it to reduce Social Security benefits. I can speak from experience since I think the CPI-W overstates inflation, but I'm not excited about switching to the C-CPI-U. That's because to say that the CPI-W slightly overstates inflation is simply to say that the real value of Social Security benefits increases slightly from year to year. But is that such a bad thing? On the contrary, I'd say it's an excellent thing.

Correction for NYT Budget Piece: Economists Do Not Believe that a Chained CPI is a More Accurate Measure of the Cost of Living for the Elderly by Dean Baker

This comment is misleading since the issue with Social Security benefits is whether the chained CPI better reflects the cost of living of the population drawing Social Security checks. That is actually distinct from the rate of growth of out of pocket health care expenses, which would show that the cost of living for seniors as they age rises much more rapidly than the CPI.

There is good reason to believe that it does not. The Bureau of Labor Statistics (BLS) has an experimental elderly index that has consistently shown that the elderly experience a rate of inflation that is somewhat higher than the CPI that currently provides the basis for the annual cost of living adjustment. The main reason is that seniors spend a larger share of their income on health care and housing than the population as whole. Since these items tend to rise more rapidly in price, their cost of living rises somewhat more rapidly than what is shown by the current CPI.

It is also not clear that seniors substitute to the same extent as is assumed by the chained CPI.

This would mean that a switch to a chained CPI would overstate the extent to which seniors benefit by substituting to goods that are rising less rapidly in price.

For this reason, many economists have advocated having the BLS construct a full elderly index which would track the rate of inflation in the specific items purchased by seniors at the stores at which they shop. This would provide a more accurate measure of the rate inflation seen by seniors. 

It would have been useful if the NYT had made this point in its budget article. The comment about the views of economists on the accuracy of the chained CPI for the general population is at best misleading. It is not an issue that is relevant for the current debate.