Ruth Marcus: Let The Elderly Just Eat (Cheaper) Cake!

Ruth Marcus won't have to worry about eating catfood. “The debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.” --Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers

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“The debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”

--Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003.

Washington Post columnist Ruth Marcus is a dyed-in-the-wool Villager. (Her husband, Jon Leibowitz, is chairman of the Federal Trade Commission.) She's a kinda-sorta liberal, but liberal only in that DLC-Third Way way. Oh, and she thinks bloggers are icky! Now she's championing the chained CPI after being approached by the White House, and she's just tickled to help. She starts by clutching her pearls and claiming the current Consumer Price Index overstates inflation:

It 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.

The CPI doesn’t and, as a result, taxpayers are undercharged and beneficiaries are overpaid — a lot. The overestimate is small — less than 0.3 percentage points annually — but, much like compound interest, it adds up over time.

Changing the inflation measure to what is called chained CPI would save $225 billion over the next decade.

Of that, $95 billion would come from increased tax revenue, $80 billion from Social Security (assuming built-in protections for the very old and very poor, about which more later) and the rest from other programs. Because of the compounding effect, the savings in later years would be even larger.

If chained CPI is a more accurate inflation measure, benefit checks will be smaller than they otherwise would have been. But the purchasing power of those benefits will remain the same.

So, you might say, that’s a mighty big if. Indeed, the elderly may face higher costs, especially for health care, than other Americans, and health-care costs are growing more quickly than overall inflation. Some opponents of chained CPI argue instead for switching to what’s called CPI-E, a measure that gives more weight to health and housing costs.

The problem with that is twofold. That measure is imperfect — the “E” stands for experimental. And, as the liberal Center on Budget and Policy Priorities notes, the burden of higher health costs falls unevenly among the elderly. Average costs are skewed upward by a minority who face very high out-of-pocket expenses, a problem better addressed by fixing Medicare to deal with catastrophic costs.

Yes, we're seeing a lot of "even the liberal Center on Budget and Policy Priorities" references these days. The Obama administration managed to convince ONE liberal economist that they would make sure the poor and elderly would be protected. (See "public option." "The White House wouldn't lie to ME, would they?")

And no, the E stands for elderly. But don't let facts stop you, Ruth. Sis! Boom! Bah!

There remain two reasons to worry about a switch to chained CPI — the old-old and the poor-poor.

For the very old, who are more likely to have exhausted other sources of income, the compounding effect of the switch will be significant.

For the very poor elderly and disabled who receive Supplemental Security Income (SSI), the impact could be doubly problematic because CPI is used to compute both initial benefits and cost-of-living increases.

As a result, every commission that has examined the issue and endorsed the change has coupled it with additional benefits for the poorest recipients.

Opponents of the switch — including AARP and, more convincingly, the National Women’s Law Center — insist these protections are inadequate. The administration assures me that, under its approach toward the oldest seniors, the poorest would be shielded and perhaps even better off.

What better status symbol for a Village insider? "The administration assures me." (See "public option.")

Such concerns are an important reason for care in crafting the details of any change. They are not a reason for refusing to fix an inaccurate inflation measure that overpays beneficiaries and undercharges taxpayers. That is a particularly clumsy, infuriatingly wasteful way of protecting the most vulnerable.

Oh dear. Where to begin? I'll let Dean Baker sum things up:

The story here is pretty simple. If we want a more accurate index for adjusting Social Security benefits then we would have BLS construct a full elderly index. If the point is to cut benefits then we would do what Marcus advocates and switch to a chained CPI. That will teach those high living seniors.

The part that infuriates me is the argument that most of the elderly are healthy and energetic enough to hop around comparison shopping. Really? When was the last time any Villager was responsible for taking their 86-year-old parent shopping? I'm pretty sure they hire people for that.

And let's talk about class, too. The college-educated elderly do tend to be healthier and more active. But how many of that cohort depend on Social Security for 90 percent of their retirement income? Also: It doesn't hurt when your daughter went to Yale, and then to Harvard Law. After all, she can afford to help.

We won't even get into the fact that the chained CPI also means a significant tax hike for those earning under $40,000. (Hey, it doesn't affect anyone Ruth knows!)

I remember taking my mother shopping. Since she had vertebrae fractures, she was in constant pain and couldn't stand very long. Hell, she had trouble getting out of the car! Mom did try to pinch pennies by cutting coupons, but mostly it was all too much for her and she went for whatever was most convenient. You know how she made up for it? By refusing to turn the air conditioning on during record heat waves. (From what I hear from my friends, this is a common form of "thriftiness" among the elderly.) Yeah, having old people drop dead from the heat is a great solution.

And these are the people Stenographer Ruth Marcus wants to cut? What a dupe. But then, I shouldn't be surprised. The Post opinion pages are full of them.

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