More Support for the Chained CPI

We've talked before about the rational behind implementing the chained CPI, that the current index (CPI-W) does not incorporate substitution effects and therefore overstates inflation. And it turns out a good number of economists agree with us.

A new survey from the University of Chicago's Booth School finds that a great number of economists believe the current measure of CPI used to index Social Security benefits leads to greater benefits that under a true cost-of-living index. This survey indicates implies the use of a slower growing index for COLAs, perhaps the chained CPI.

It's not surprising then that policy experts and lawmakers from both sides of aisle have indicated support for chained CPI. Just today Senator Mark Warner (D-VA) spoke on the floor of the Senate today in support of the chained CPI. He noted that many groups along the political spectrum from the Heritage Foundation, to the Center of American Progress, to the Fiscal Commission has supported chained CPI. Said Warner:

Why do economists support the chained CPI? Because it honors a commitment to  maintain the purchasing power of spending and revenue policies. It provides savings across the budget -- not just in entitlement programs but across other areas.It raises revenues and it contributes meaningfully to the long-term fiscal sustainability of the programs that we want to protect.

Because across the government we have indexed things to inflation - the tax code, entitlement programs, all are indexed -- their rise and decrease is based on inflation. So again, this tool while not perfect, all these groups have said it needs to be part of any reform.

Warner is not the only influential lawmaker to declare support for the policy maker. Chained CPI has appeared in the most recent proposals from both the White House and Congressional Republicans. House Minority Leader Nancy Pelosi (D-CA) said today that chained CPI would strengthen Social Security. With support building for the proposal, we hope it will be found in the final deal.

Click here to see a speech from Warner on the chained CPI.

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