The CPI and You
Your Dec. 10 editorial, "An Enticing Number," is based on a mathematical illusion.
The consumer price index overstates inflation by 1.1 percentage points annually, the Boskin Commission says. This view, so seemingly irrefutable because of the sense of mathematical exactness and objectivity it communicates, is mathematical nonsense. It presupposes the existence of an ideal standard against which the current CPI was measured and found wanting to the extent of a 1.1 percent annual overstatement. No such ideal standard exists.
The CPI will always be off the mark by either underestimating or overestimating inflation. It should be refined as often as feasible to enhance its accuracy, which is what the Bureau of Labor Statistics does in a nonpartisan way. To accomplish this, the assumptions underlying the CPI must be continually reviewed, but if this review is ideologically driven by a political agenda, as was the one recently conducted by the Boskin commission, watch your wallet.
William J. Adams
Professor of mathematics,
Your editorial is one of many I've read about the effect of reducing the index on the nation's deficit, Social Security recipients, etc. The national debt figures have never had any impact on my economics.
What nobody mentions is that the CPI is used by many employers to determine annual wage increases. Personally speaking, 1.1 percent (suggested by the commission) of my annual salary equals $264 a year. Divide that by 52 and I get a grand total of $5.08 more a week before taxes. That will hardly cover the automobile insurance and property tax increases that I already know of - much less anything unexpected. And I am one of the fortunate ones. I make a "living wage." What about minimum wage workers? This will certainly offset any gains they have made.
You can be sure that a reduced CPI will be enthusiastically supported by employers to justify paying their workers even less. Probably some type of cost-of-living index will be produced to protect those receiving government entitlements - remember, many employers out there benefit directly or indirectly from entitlements - but any bets are that the labor force will again take a beating on this one. Corporate America strikes again!
Regarding the Dec. 2, Page 1 article, "US Inflation Index May Be Overstated," the use of the word "may" denotes possibility, nothing more.
Ergo, the CPI may be understated. This may be closer to fact; just ask anyone who has recently gone out shopping for groceries. This report, like economics, is pure conjecture, and I am surprised that you would give it currency. Professor Boskin and his merry band of economists and experts may have come to some conclusions, but where are the facts to back their conclusions?
Conjecture is not gospel, and reading without comprehension is just as bad.
The author's comments about the attempt to modify the CPI in the Dec. 9 opinion page article "A Scheme to Cut Social Security?" bring to mind the end of the "war" on poverty brought about by declaring that a huge number of poor people were no longer below the poverty line. Has it ever occurred to anyone that continuing this thinking encourages a permanent underclass that has no ownership or commitment to the maintenance of our existing society?
My suggestion would be for the same politicians and economists to find creative ways to get more money to poor people, not less. The poor do not put the money in the sugar bowl or bury it in the backyard; they spend it. When they do, the economy, and all the rest of us, do better.
Karl C. Johnson
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