Feb 16, 2013
Like the global warming deniers, proponents of basing the Social Security cost-of-living adjustment (COLA) on a chained CPI are scared to death of data. They are all anxious to assert that the chained CPI is a more accurate measure of the cost of living and therefore it should provide the basis for the COLA. However, they have no research on which to base this assertion.
There is research showing that the chained CPI is a better gage of the cost of living for the population as a whole. But we know seniors have substantially different consumption patterns than the population as a whole. They tend to consume more housing and health care and spend less on new cars, computers, and smart phones. The Bureau of Labor Statistics (BLS) has constructed an experimental elderly index that shows seniors experience a higher rate of inflation than the population as a whole.
It also has conducted research on the size of the substitution bias that the chained CPI is supposed to eliminate. This research shows that the substitution bias differs by income group and for those receiving benefits like Supplemental Security Income and Temporary Assistance for Needy Families (TANF) it was essentially zero. This may well prove to be the case with the larger Social Security population as well. If the goal is to have a more accurate COLA for seniors then the remedy is simple; have the BLS construct a full elderly CPI and see what it shows.
While no one knows what a full elderly CPI will show, we do know that switching the COLA to a chained CPI will reduce lifetime Social Security benefits by an average of about 3 percent. This doesn't raise a huge amount of money, but it would be a big hit to seniors, 70 percent of whom rely on Social Security for more than half of their income.
For those who find it more politically practical to take money from moderate income seniors than high income taxpayers (for example as a mechanism for funding pre-K education) switching the basis for the COLA to the chained CPI can serve a very useful purpose. But let's be very clear, this is just about cutting Social Security benefits. The chained CPI has nothing to do with accuracy.
Why Your Ongoing Support Is Essential
Donald Trump’s attacks on democracy, justice, and a free press are escalating — putting everything we stand for at risk. We believe a better world is possible, but we can’t get there without your support. Common Dreams stands apart. We answer only to you — our readers, activists, and changemakers — not to billionaires or corporations. Our independence allows us to cover the vital stories that others won’t, spotlighting movements for peace, equality, and human rights. Right now, our work faces unprecedented challenges. Misinformation is spreading, journalists are under attack, and financial pressures are mounting. As a reader-supported, nonprofit newsroom, your support is crucial to keep this journalism alive. Whatever you can give — $10, $25, or $100 — helps us stay strong and responsive when the world needs us most. Together, we’ll continue to build the independent, courageous journalism our movement relies on. Thank you for being part of this community. |
This work is licensed under a Creative Commons Attribution 4.0 International License
Dean Baker
Dean Baker is the co-founder and the senior economist of the Center for Economic and Policy Research (CEPR). He is the author of several books, including "Getting Back to Full Employment: A Better bargain for Working People," "The End of Loser Liberalism: Making Markets Progressive," "The United States Since 1980," "Social Security: The Phony Crisis" (with Mark Weisbrot), and "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer." He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.
Like the global warming deniers, proponents of basing the Social Security cost-of-living adjustment (COLA) on a chained CPI are scared to death of data. They are all anxious to assert that the chained CPI is a more accurate measure of the cost of living and therefore it should provide the basis for the COLA. However, they have no research on which to base this assertion.
There is research showing that the chained CPI is a better gage of the cost of living for the population as a whole. But we know seniors have substantially different consumption patterns than the population as a whole. They tend to consume more housing and health care and spend less on new cars, computers, and smart phones. The Bureau of Labor Statistics (BLS) has constructed an experimental elderly index that shows seniors experience a higher rate of inflation than the population as a whole.
It also has conducted research on the size of the substitution bias that the chained CPI is supposed to eliminate. This research shows that the substitution bias differs by income group and for those receiving benefits like Supplemental Security Income and Temporary Assistance for Needy Families (TANF) it was essentially zero. This may well prove to be the case with the larger Social Security population as well. If the goal is to have a more accurate COLA for seniors then the remedy is simple; have the BLS construct a full elderly CPI and see what it shows.
While no one knows what a full elderly CPI will show, we do know that switching the COLA to a chained CPI will reduce lifetime Social Security benefits by an average of about 3 percent. This doesn't raise a huge amount of money, but it would be a big hit to seniors, 70 percent of whom rely on Social Security for more than half of their income.
For those who find it more politically practical to take money from moderate income seniors than high income taxpayers (for example as a mechanism for funding pre-K education) switching the basis for the COLA to the chained CPI can serve a very useful purpose. But let's be very clear, this is just about cutting Social Security benefits. The chained CPI has nothing to do with accuracy.
Dean Baker
Dean Baker is the co-founder and the senior economist of the Center for Economic and Policy Research (CEPR). He is the author of several books, including "Getting Back to Full Employment: A Better bargain for Working People," "The End of Loser Liberalism: Making Markets Progressive," "The United States Since 1980," "Social Security: The Phony Crisis" (with Mark Weisbrot), and "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer." He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.
Like the global warming deniers, proponents of basing the Social Security cost-of-living adjustment (COLA) on a chained CPI are scared to death of data. They are all anxious to assert that the chained CPI is a more accurate measure of the cost of living and therefore it should provide the basis for the COLA. However, they have no research on which to base this assertion.
There is research showing that the chained CPI is a better gage of the cost of living for the population as a whole. But we know seniors have substantially different consumption patterns than the population as a whole. They tend to consume more housing and health care and spend less on new cars, computers, and smart phones. The Bureau of Labor Statistics (BLS) has constructed an experimental elderly index that shows seniors experience a higher rate of inflation than the population as a whole.
It also has conducted research on the size of the substitution bias that the chained CPI is supposed to eliminate. This research shows that the substitution bias differs by income group and for those receiving benefits like Supplemental Security Income and Temporary Assistance for Needy Families (TANF) it was essentially zero. This may well prove to be the case with the larger Social Security population as well. If the goal is to have a more accurate COLA for seniors then the remedy is simple; have the BLS construct a full elderly CPI and see what it shows.
While no one knows what a full elderly CPI will show, we do know that switching the COLA to a chained CPI will reduce lifetime Social Security benefits by an average of about 3 percent. This doesn't raise a huge amount of money, but it would be a big hit to seniors, 70 percent of whom rely on Social Security for more than half of their income.
For those who find it more politically practical to take money from moderate income seniors than high income taxpayers (for example as a mechanism for funding pre-K education) switching the basis for the COLA to the chained CPI can serve a very useful purpose. But let's be very clear, this is just about cutting Social Security benefits. The chained CPI has nothing to do with accuracy.
We've had enough. The 1% own and operate the corporate media. They are doing everything they can to defend the status quo, squash dissent and protect the wealthy and the powerful. The Common Dreams media model is different. We cover the news that matters to the 99%. Our mission? To inform. To inspire. To ignite change for the common good. How? Nonprofit. Independent. Reader-supported. Free to read. Free to republish. Free to share. With no advertising. No paywalls. No selling of your data. Thousands of small donations fund our newsroom and allow us to continue publishing. Can you chip in? We can't do it without you. Thank you.