Written by C Gardner Wilson   

Even the most outspoken opponents of the Chained CPI (Chained Consumer Price Index) and the CPI-E (Consumer Price Index - Elderly) have not presented the worst case scenarios, yet these worst case scenarios are even more likely than the current "projections" for the reductions for all of the inflation-protected social safety net programs including Social Security as well as other public and private inflation-protected retirement programs.

Currently, the talking points speak of a loss of about one-half of one percent per year for current inflation-protected programs, but this is based on the past differences that would have occurred had the Chained CPI (and the CPI-E) been in place over that period of time, even though we all know that the past is not a guarantor of the future. No one has pointed out that this change in the concept of inflation is so radical that the past cannot be seen as a predictor of this new future.

The old way of calculating the CPI was simply by tracking the increases in the cost of the goods and services that we had purchased in the past year, and then using those exact increases in the prices for those exact goods and services to calculate the increase in our "cost-of-living." This old measure allowed us to maintain our "standard-of-living" by adjusting inflation-protected programs to reflect the rise in the prices for the goods and services that we have purchased in the past year, so we could afford those same goods and services in the next year. Of course, even in that distant past, our government fudged these figures in a variety of ways. The initial costs of things were set at the everyday prices of those things, but, as time went on, our government began to use the best "sale prices" as the measure of price increases, even when these sale prices were not used in the first calculations and often were for limited quantities and at distant locations. But, even with these gimmicks, our government has run out of the string for that little scam.

So, along the way, our government had begun to argue that using the prices of the same goods and services to calculate inflation did not account for changes in everyday technology. For example, as people switched from CRT television to LCD televisions, the prices of CRT televisions no longer reflected true inflation, since the products themselves had changed. Of course, the government did not bring these new items (LCD televisions) into the calculation of the CPI as a jump in prices of televisions, rather the LCD televisions were brought in as a new category, so as the prices of LCD televisions fell, so did our government's calculation of the part of inflation that was based (in part) on LCD televisions. This was true even though CRT television prices did not fall, so our government calculated a fall in the price of televisions even though we paid more for televisions. This was the beginning of the argument for a CPI based on "consumer choices" rather than on actual price increases for goods and services.

The Chained CPI takes this argument to its ultimate extreme. Not only do we choose to buy LCD televisions instead of CRT televisions (because we can afford them and we want them), but we also, sometimes, must choose to substitute a cheaper item for a more expensive item because we no longer can afford the one we want. This is the foundation for the Chained CPI, that is, a CPI based on "consumer choices," and it also is the exact opposite of the original meaning of inflation-protection, that was, a "cost-of-living adjustment (COLA)" that reflected the actual increase in the cost of those goods and services that made up our "standard-of-living." So, when we find ourselves in a crippled economy in which our "standard-of-living" is falling and people must "choose" to be frugal, this frugality can be passed along to everyone on "inflation-protected" programs via the Chained CPI, thus forcing everyone to become more frugal.

Of course, this creates a downward spiral as the ever increasing frugality of both workers and retirees leads to more and more people doing without movies, haircuts, manicures, lawn services, remodeling, and so on and so on. As people cut back on these purchases of goods and services, the providers of these goods and services are forced out of business and must become ever more frugal, and that frugality is passed on to everyone on the Chained CPI "inflation-protected" programs. And, so, it spirals down ever more quickly until it hits absolute bottom.

That is the problem with both the Chained CPI as well as the CPI-E, there is no limit on how far or how fast the "inflation-protected" incomes of retirees can fall, and, as they fall, this feeds back into our economy causing another wave of frugality that just becomes exponentially worse with every cycle.

The Chained CPI is a direct attack on the American "standard-of-living," and, yet, both Republicans and Democrats are lining up to vote for the Chained CPI and the CPI-E. If this does not scare and infuriate every American to their very core, then there is no hope for us. Are we so stupid that we are going to meekly let this happen? I am amazed at the relative silence when there should be a roar of indignation. Where are the people? Can't they do the arithmetic? Oh, what did you say? They went to American schools, so, of course, they cannot do the arithmetic. Is that what they mean by American "exceptionalism?" Exceptionally under-educated? A politician's dream. Our nightmare unfolding.