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The following article appeared in Left Business Observer #70, November 1995. It retains its copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.


January 1997 update

In December, Boskin's commission issued its final report, declaring that the CPI was overstated by 1.1 percentage points. They did no original research.

Here's how Boskin's commission was formed. In the summer of 1995, the Senate Finance Committe held hearings on the CPI. Of the 15 or 20 economists who testified, 5 of the 6 with the highest estimates were put on the panel; the 6th was a Canadian.

For Economic Policy Institute's analysis of Boskin's revisioning of the CPI, click here. The BLS's own response is here.


The politics of counting

In normal times, statisticians do their work in peace, free of the scrutiny of politicians and opinioneers. But these aren't normal times. Under its new Republican masters, the once-honest Joint Tax Committe of Congress is now playing games to disguise the class effects of proposed tax and budget cuts. This is fairly straightforward deviousness. More complex manipulations are also underway. It's now almost universally believed that the consumer price index (CPI) overstates inflation, and that our entitlement programs guarantee that newborns will end up paying 84% of their lifetime income in taxes. The first assertion, on which Fed chair Alan Greenspan and the AARP concur, is based on only shreds of evidence; the second is spun from techniques so flawed you'd almost think their concoctors set out to prove what they wanted to. Whatever the spirit in which the numerical exercises were first undertaken, both are being used to screw the weak.

What follows owes a lot to Dean Baker of the Economic Policy Institute, author of two recent dissections of the numbers.

 

Abracadabra

The charm of redefining the consumer price index (CPI) down is that it would save lots of money. Social Security checks would get a little less bigger every year, and tax brackets, indexed for inflation, would creep up more slowly, boosting revenues. Were the index nudged downward by one percentage point a year, it would reduce the cumulative federal deficit by $634 billion through 2005. Dazzled by the political arithmetic - benefit cuts and tax increases without a vote! - the Senate Finance Committee assembled a panel of worthies, led by Bush's chief economist Michael Boskin, to study the index; all were known to be keen on the idea of ratcheting it down. The Committee and its experts concluded, on the basis of not much e